Attached files
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EX-5.1 - ECOTALITY, INC. | v187825_ex5-1.htm |
EX-21.01 - ECOTALITY, INC. | v187825_ex21-1.htm |
EX-23.01 - ECOTALITY, INC. | v187825_ex23-1.htm |
EX-10.45 - ECOTALITY, INC. | v187825_ex10-45.htm |
EX-10.46 - ECOTALITY, INC. | v187825_ex10-46.htm |
EX-10.44 - ECOTALITY, INC. | v187825_ex10-44.htm |
As filed
with the Securities and Exchange Commission on June 10, 2010
An
Exhibit List can be found on page II-5
Registration
No. 333-
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON
D.C. 20549
FORM
S-1
REGISTRATION
STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
ECOTALITY,
INC.
(Name of
registrant in its charter)
Nevada
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3621
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68-0515422
|
||||
(State
or other Jurisdiction
of
Incorporation or
Organization)
|
|
(Primary
Standard Industrial
Classification
Code
Number)
|
(I.R.S.
Employer
Identification
No.)
|
80
Rio Salado Parkway, Suite 710
Tempe,
Arizona 85281
(480)
219-5005
(Address
and telephone number of principal executive offices and principal place of
business)
Jonathan
R. Read, Chief Executive Officer
ECOtality,
Inc.
80
Rio Salado Parkway, Suite 710
Tempe,
Arizona 85281
(480)
219-5005
(Name,
address and telephone number of agent for service)
Copies
to:
Marc
A. Ross, Esq.
James
M. Turner, Esq.
Sichenzia
Ross Friedman Ference LLP
61
Broadway, 32nd Flr.
New
York, New York 10006
(212)
930-9700
(212)
930-9725 (fax)
APPROXIMATE
DATE OF PROPOSED SALE TO THE PUBLIC:
From time
to time after this Registration Statement becomes effective.
If any
securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, other
than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: x
If this
Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. o
If this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
If this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
If
delivery of the prospectus is expected to be made pursuant to Rule 434, please
check the following box. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a small reporting
company. See definitions of “large accelerated filer,” “accelerated
filed,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
(Check one):
Large
accelerated filer ¨
|
Accelerated
filer ¨
|
Non-accelerated
filer ¨
|
Smaller
reporting company x
|
(Do
not check if a smaller reporting company)
|
CALCULATION
OF REGISTRATION FEE
Title of Each Class Of
Securities To Be Registered
|
Amount To
Be
Registered
(1)
|
Proposed
Maximum
Offering Price
Per Security (2)
|
Proposed
Maximum
Aggregate
Offering Price
|
Amount Of
Registration
Fee
|
||||||||||||
Common
Stock, $.001 par value
|
3,701,142 | $ | 6.205 | $ | 22,965,586.11 | $ | 1,637.45 | |||||||||
Common
Stock, $.001 par value issuable upon exercise of warrants
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2,847,219 | $ | 9.00 | $ | 25,624,971.00 | $ | 1,827.06 | |||||||||
Common
Stock, $.001 par value issuable upon conversion of Series A Convertible
Preferred Stock
|
8,416,881 | $ | 6.205 | $ | 52,226,746.61 | $ | 3,723.78 | |||||||||
Total
|
14,965,242 | $ | 100,817,303.72 | $ | 7,188.29 |
(1)
|
Includes shares of our common
stock, par value $0.001 per share, which may be offered pursuant to this
registration statement, which shares are issuable upon conversion of
Series A Convertible Preferred Stock and the exercise of warrants held by
the selling stockholders. In addition to the shares set forth in the
table, the amount to be registered includes an indeterminate number of
shares issuable upon conversion of the Series A Convertible Preferred
Stock and exercise of the warrants, as such number may be adjusted as a
result of stock splits, stock dividends and similar transactions in
accordance with Rule 416. The number of shares of common stock registered
hereunder represents a good faith estimate by us of the number of shares
of common stock issuable upon conversion of the Series A Convertible
Preferred Stock and upon exercise of the warrants. For purposes of
estimating the number of shares of common stock to be included in this
registration statement, we calculated a good faith estimate of the number
of shares of our common stock that we believe will be issuable upon
conversion of the Series A Convertible Preferred Stock and upon exercise
of the warrants to account for market fluctuations, and antidilution and
price protection adjustments, respectively. Should the conversion ratio
result in our having insufficient shares, we will not rely upon Rule 416,
but will file a new registration statement to cover the resale of such
additional shares should that become necessary. In addition,
should a decrease in the exercise price as a result of an issuance or sale
of shares below the then current market price, result in our having
insufficient shares, we will not rely upon Rule 416, but will file a new
registration statement to cover the resale of such additional shares
should that become
necessary.
|
(2)
|
Estimated
solely for purposes of calculating the registration fee in accordance with
Rule 457(c) and Rule 457(g) under the Securities Act of 1933, using the
average of the high and low price as reported on the NASDAQ Capital Market
on June 7, 2010, which was $6.205 per
share.
|
The
registrant hereby amends this registration statement on such date or dates as
may be necessary to delay its effective date until the registrant shall file a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
PRELIMINARY
PROSPECTUS SUBJECT TO COMPLETION, DATED JUNE 10, 2010
ECOTALITY,
INC.
14,965,242
SHARES OF
COMMON
STOCK
This
prospectus relates to the resale by the selling stockholders of up to 14,965,242
shares of our common stock, including 8,416,881 shares of common stock issuable
upon conversion of Series A Convertible Preferred Stock and up to 2,847,219
shares of common stock underlying warrants exercisable at $9.00 per share. The
selling stockholders may sell common stock from time to time in the principal
market on which the stock is traded at the prevailing market price or in
negotiated transactions. The selling stockholders may be deemed underwriters of
the shares of common stock which they are offering. We will pay the
expenses of registering these shares.
Our
common stock is registered under Section 12(b) of the Securities Exchange Act of
1934 and is listed on the NASDAQ Capital Market under the symbol
“ECTY”. The last reported sales price per share of our common stock
as reported by the NASDAQ Capital Market on June 7, 2010, was
$6.11.
Investing
in these securities involves significant risks. See “Risk Factors”
beginning on page 6.
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or determined if this Prospectus is
truthful or complete. Any representation to the contrary is a criminal
offense.
The date
of this prospectus is _____, 2010.
The
information in this prospectus is not complete and may be
changed. This prospectus is included in the Registration Statement
that was filed by ECOtality, Inc. with the Securities and Exchange
Commission. The selling stockholders may not sell these securities
until the registration statement becomes effective. This prospectus
is not an offer to sell these securities and is not soliciting an offer to buy
these securities in any state where the sale is not permitted.
TABLE OF
CONTENTS
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Page
|
|
About
this Prospectus
|
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1
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Cautionary
Note Regarding Forward-Looking Statements and Other Information Contained
in this Prospectus
|
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1
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Prospectus
Summary
|
|
2
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Risk
Factors
|
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6
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Use
of Proceeds
|
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12
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Market
For Common Stock and Related Stockholder Matters
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12
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|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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14
|
|
Business
|
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25
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Description
of Property
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34
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Legal
Proceedings
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34
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Management
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35
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Executive
Compensation
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39
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Certain
Relationships and Related Transactions
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42
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Security
Ownership of Certain Beneficial Owners and Management
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43
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Description
of Securities
|
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46
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Indemnification
for Securities Act Liabilities
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47
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Plan
of Distribution
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47
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Selling
Stockholders
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49
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Legal
Matters
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53
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Experts
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53
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Additional
Information
|
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53
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Index
to Financial Statements
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54
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You
should rely only on the information contained in this prospectus. We have not
authorized anyone to provide you with information that is different. This
prospectus is not an offer to sell, nor is it seeking an offer to buy, these
securities in any jurisdiction where the offer or sale of these securities is
not permitted. You should assume that the information contained in this
prospectus is accurate as of the date on the front of this prospectus only. Our
business, financial condition, results of operations and prospects may have
changed since that date.
All
information contained herein relating to shares and per share data has been
adjusted to reflect a 1:60 stock split effected on November 24,
2009.
ABOUT
THIS PROSPECTUS
You
should rely only on the information contained in this prospectus. We have not
authorized anyone to provide you with information different from that contained
in this prospectus. The selling stockholders are offering to sell and seeking
offers to buy shares of our common stock, including shares they acquire upon
conversion of their convertible debentures, only in jurisdictions where offers
and sales are permitted. The information contained in this prospectus is
accurate only as of the date of this prospectus, regardless of the time of
delivery of this prospectus or of any sale of our common stock. The prospectus
will be updated and updated prospectuses made available for delivery to the
extent required by the federal securities laws.
No person
is authorized in connection with this prospectus to give any information or to
make any representations about us, the selling stockholders, the securities or
any matter discussed in this prospectus, other than the information and
representations contained in this prospectus. If any other information or
representation is given or made, such information or representation may not be
relied upon as having been authorized by us or any selling stockholder. This
prospectus does not constitute an offer to sell, or a solicitation of an offer
to buy the securities in any circumstances under which the offer or solicitation
is unlawful. Neither the delivery of this prospectus nor any distribution of
securities in accordance with this prospectus shall, under any circumstances,
imply that there has been no change in our affairs since the date of this
prospectus. The prospectus will be updated and updated prospectuses made
available for delivery to the extent required by the federal securities
laws.
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
AND
OTHER INFORMATION CONTAINED IN THIS PROSPECTUS
This
prospectus contains some forward-looking statements. Forward-looking statements
give our current expectations or forecasts of future events. You can identify
these statements by the fact that they do not relate strictly to historical or
current facts. Forward-looking statements involve risks and uncertainties.
Forward-looking statements include statements regarding, among other things, (a)
our projected sales, profitability, and cash flows, (b) our growth strategies,
(c) anticipated trends in our industries, (d) our future financing plans and (e)
our anticipated needs for working capital. They are generally identifiable by
use of the words "may," "will," "should," "anticipate," "estimate," "plans,"
“potential," "projects," "continuing," "ongoing," "expects," "management
believes," "we believe," "we intend" or the negative of these words or other
variations on these words or comparable terminology. These statements may be
found under "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business," as well as in this prospectus generally.
In particular, these include statements relating to future actions, prospective
products or product approvals, future performance or results of current and
anticipated products, sales efforts, expenses, the outcome of contingencies such
as legal proceedings, and financial results.
Any or
all of our forward-looking statements in this report may turn out to be
inaccurate. They can be affected by inaccurate assumptions we might make or by
known or unknown risks or uncertainties. Consequently, no forward-looking
statement can be guaranteed. Actual future results may vary materially as a
result of various factors, including, without limitation, the risks outlined
under "Risk Factors" and matters described in this prospectus generally. In
light of these risks and uncertainties, there can be no assurance that the
forward-looking statements contained in this filing will in fact occur. You
should not place undue reliance on these forward-looking
statements.
The
forward-looking statements speak only as of the date on which they are made,
and, except to the extent required by federal securities laws, we undertake no obligation
to publicly update any forward-looking statements, whether as the result of new
information, future events, or otherwise.
1
PROSPECTUS
SUMMARY
The following summary highlights
selected information contained in this prospectus. This summary does not contain
all the information you should consider before investing in the securities.
Before making an investment decision, you should read the entire prospectus
carefully, including the “risk factors” section, the financial statements and
the notes to the financial statements.
ECOTALITY,
INC.
We were
originally incorporated in Nevada in 1999 under the name Alchemy Enterprises,
Ltd. to market biodegradable products. In early 2006 we commenced the
development of our hydrality technology. On November 14, 2006, we
changed our name to “ECOtality, Inc.” Our operations include our division,
Innergy Power Systems, and our wholly-owned subsidiaries, Electric
Transportation Engineering Corporation, (eTec), Portable Energy De Mexico, S.A.
DE C.V., ECOtality Stores, Inc. DBA “Fuel Cell Store”, ETEC North, LLC, G.H.V.
Refrigeration, Inc., The Clarity Group, Inc., 0810009 B.C. Unlimited Liability
Company and ECOtality Australia Pty Ltd.
We hope to become a leader in clean
electric transportation and storage technologies. Through innovation,
acquisitions, and strategic partnerships, we accelerate the market
applicability of advanced electric technologies to replace carbon-based fuels.
We provide electric vehicle infrastructure products and solutions that are used
in on-road grid-connected vehicles (including plug-in hybrid electric vehicles,
or PHEV, and battery electric vehicles, or BEV), material handling and airport
electric ground support applications. Our primary product offering is the
Minit-Charger line of advanced battery fast-charge systems that are designed for
various motive applications. In addition to our electric transportation
focus, we are also involved in the development, manufacture, assembly and sale
of specialty solar products, advanced battery systems, and hydrogen and fuel
cell systems.
On August
5, 2009 eTec, was selected by the U.S. Department of Energy for a grant of
approximately $99.8 million to undertake the largest deployment of electric
vehicles (EVs) and charging infrastructure in U.S. history. On
September 30, 2009 eTec accepted the grant of $99.8 million, of which $13
million was sub-funded to federal research and development centers, which will
net eTec $86 million in revenue. eTec, as the lead applicant
for the proposal, partnered with Nissan North America to deploy EVs and the
charging infrastructure to support them. The project takes advantage of the
early availability of the Nissan LEAF, a zero-emission electric vehicle, to
develop, implement and study techniques for optimizing the effectiveness of
charging infrastructure that will support widespread EV deployment. The
project will install electric vehicle charging infrastructure and deploy up to a
total of 4,700 Nissan battery electric vehicles in strategic markets in five
states: Arizona, California, Oregon, Tennessee, and Washington.
The
project will collect and analyze data to characterize vehicle use in diverse
topographic and climatic conditions, evaluate the effectiveness of charge
infrastructure, and conduct trials of various revenue systems for commercial and
public charge infrastructure. With the goal of developing mature charging
environments, the project proposes to deploy charging infrastructure in major
population areas that include Phoenix (AZ), Tucson (AZ), San Diego (CA),
Portland (OR), Eugene (OR), Salem (OR), Corvallis (OR), Seattle (WA), Nashville
(TN), Knoxville (TN) and Chattanooga (TN). To support the Nissan EV, the project
will install approximately 11,000 Level 2 (220V) charging systems and 250
Level 3 (fast-charge) systems.
We
incurred net losses of $29,507,750 and $8,067,211 for the fiscal years ended
December 31, 2009 and 2008, respectively. We had working capital of
$12,446,961 at December 31, 2009.
Our
principal offices are located at 80 Rio Salado Parkway, Suite 710, Tempe,
Arizona 85281, and our telephone number is (480) 219-5005. We are a Nevada
corporation.
2
The
Offering
Common
stock offered by the selling stockholders
|
Up
to 14,965,242 shares of common stock, including the
following:
-
3,701,142 shares of common
stock,
-
up to 2,847,219 shares of
common stock issuable upon the exercise of common stock purchase warrants
at an exercise price of $9.00 per share (includes a good faith estimate of
the shares underlying warrants to account for antidilution protection
adjustments); and
-
up to 8,416,881 shares of
common stock issuable upon conversion of 8,416,881 shares of Series A
Convertible Preferred Stock.
|
|
Common
stock to be outstanding after the offering
|
Up
to 20,258,050 shares
|
|
Use
of proceeds
|
We
will not receive any proceeds from the sale of the common
stock. However, we will receive the sale price of any common
stock we sell to the selling stockholders upon exercise of the
warrants. We expect to use the proceeds received from the
exercise of the warrants, if any, for general working capital purposes.
However, the holders of the warrants will be entitled to exercise the
warrants on a cashless basis if the shares of common stock underlying the
warrants are not registered pursuant to an effective registration
statement at any time after six months from issuance. In the
event that the holders exercise the warrants on a cashless basis, then we
will not receive any proceeds from the exercise of those
warrants.
|
|
NASDAQ
Stock Exchange
|
ECTY
|
The above
information regarding common stock to be outstanding after the offering is based
on 8,993,950 shares
of common stock outstanding as of June 7, 2010 and assumes the conversion of the
Series A Convertible Preferred Stock and the exercise of the
warrants.
The following is a summary of the
transactions relating to the securities being registered hereunder.
July
2009 Private Placement/October 2009 Securities Exchange Agreement
To obtain
funding for our ongoing operations, we entered into a Securities Purchase
Agreement with three accredited investors, on July 2, 2009 for the sale of
$2,500,000 in secured convertible debentures. The secured convertible debentures
bore interest at 8%, matured October 1, 2010, and were convertible into our
common stock, at the selling stockholders' option, at $3.60 per
share. In addition, we issued a warrant to Shenzhen Goch Investment
Ltd., expiring May 1, 2014, to purchase 1,748,971 shares of restricted common
stock, exercisable at a per share of $0.60.
On October 31, 2009, we entered into a
Securities Exchange Agreement with all holders of the convertible
debentures issued on July 2, 2009 and holders of certain warrants to
convert all outstanding amounts ($9,111,170) under these debentures and all
related warrants into an aggregate of 8,597,299 shares of Series A
Convertible Preferred Stock. The Series A Convertible Preferred Stock has
no redemption, preferential dividend or voting rights, but may be converted, at
the holder’s option, into shares of our common stock at a 1:1
ratio. This prospectus relates to the resale of the common stock
issuable upon exercise of the Series A Convertible Preferred Stock.
The
conversion price of the Series A Convertible Preferred Stock may be adjusted in
certain circumstances such as if we pay a stock dividend, subdivide or combine
outstanding shares of common stock into a greater or lesser number of shares, or
take such other actions as would otherwise result in dilution of the investors’
position.
The
investors have agreed to restrict their ability to convert their Series A
Convertible Preferred Stock and receive shares of our common stock such that the
number of shares of common stock held by them in the aggregate and their
affiliates after such conversion or exercise does not exceed 9.99% of the then
issued and outstanding shares of common stock.
3
In
connection with the Securities Exchange Agreement dated October 31, 2009, we
granted the investors registration rights. We are obligated to use
our best efforts to cause the registration statement to be filed no later than
December 15, 2009 and declared effective no later than January 29, 2010, which
will be extended to February 28, 2010 if the Securities and Exchange Commission
conducts a full-review of the registration statement, and to insure
that the registration statement remains in effect until all of the shares of
common stock issuable upon conversion of the secured convertible debentures have
been sold or may be sold without volume or manner-of-sale restrictions pursuant
to Rule 144 and (x) may be sold without the requirement for us to be in
compliance with the current public information requirement under Rule 144 or (y)
we are in compliance with the current public information requirement under Rule
144. In the event of a default of our obligations under the
Registration Rights Agreement, we are required pay to each investor, as
liquidated damages, for each month that the registration statement has not been
filed or declared effective, as the case may be, an amount in cash equal to 1%
of the aggregate purchase price paid by such investor, not to exceed 3% in the
aggregate to each investor. Due to the amount of time necessary to
close the second tranche of this financing, we have had discussions with the
investors to amend the deadlines for the filing and effectiveness of the
registration statement. We have not received an executed amendment,
nor can we guarantee we will obtain one. We have not paid any
liquidated damages as of the date of this filing although we are obligated to do
so.
October
2009 Private Placement
To obtain
funding for our ongoing operations, we entered into a Securities Purchase
Agreement with seven accredited investors, on October 31, 2009 for the sale of
2,152,777 shares of common stock, at a price of $7.20 per share, for gross
proceeds of $15,500,000. On January 7, 2010, we sold an additional
694,444 shares of common stock, at a price of $7.20 per share, for gross
proceeds of $5,000,000. This prospectus relates to the resale of these shares of
common stock.
In
addition, we issued to each investor warrants to purchase an equal number of
shares of common stock purchased pursuant to the securities purchase agreement.
The warrants expire five years from the date of issuance and are exercisable at
$9.00 per share. In addition, the exercise price of the warrants will be
adjusted in the event we issue common stock at a price below the exercise
price. Upon an issuance of shares of common stock below the exercise
price, the exercise price of the warrants will be reduced to equal the share
price at which the additional securities were issued and the number of warrant
shares issuable will be increased such that the aggregate exercise price payable
for the warrants, after taking into account the decrease in the exercise price,
shall be equal to the aggregate exercise price prior to such
adjustment.
At any
time after a registration statement registering the shares of common stock
underlying the warrants is declared effective, and if certain conditions are
met, we have the right to call for cancellation the warrants upon two business
days prior written notice for cash consideration of $0.001 per unexercised
warrant. We can only exercise this call option if (i) the closing
price for each of 20 consecutive trading days, which 20 consecutive trading day
period shall not have commenced until after the effective date of the
registration statement registering for resale the shares of common stock
issuable upon exercise of the warrants) exceeds $27.00 per share (subject to
adjustment), (ii) the trading volume of our common stock shall exceed 16,667
shares (subject to adjustment) per trading day for each trading day during the
20 consecutive trading day period, and (iii) the warrant holder is not in
possession of any information that constitutes, or might constitute, material
non-public information which we provided.
The
investors have agreed to restrict their ability to exercise their warrants and
receive shares of our common stock such that the number of shares of common
stock held by them in the aggregate and their affiliates after such conversion
or exercise does not exceed 9.99% of the then issued and outstanding shares of
common stock.
In
connection with the Securities Purchase Agreement dated October 31, 2009, we
granted the investors registration rights. We are obligated to use
our best efforts to cause the registration statement to be filed no later than
December 15, 2009 and declared effective no later than January 29, 2010, which
will be extended to February 28, 2010 if the Securities and Exchange Commission
conducts a full-review of the registration statement, and to insure
that the registration statement remains in effect until all of the shares of
common stock issuable upon conversion of the secured convertible debentures have
been sold or may be sold without volume or manner-of-sale restrictions pursuant
to Rule 144 and (x) may be sold without the requirement for us to be in
compliance with the current public information requirement under Rule 144 or (y)
we are in compliance with the current public information requirement under Rule
144. In the event of a default of our obligations under the
Registration Rights Agreement, we are required pay to each investor, as
liquidated damages, for each month that the registration statement has not been
filed or declared effective, as the case may be, an amount in cash equal to 1%
of the aggregate purchase price paid by such investor, not to exceed 3% in the
aggregate to each investor. Due to the amount of time necessary to
close the second tranche of this financing, we have had discussions with the
investors to amend the deadlines for the filing and effectiveness of the
registration statement. We have not received an executed amendment,
nor can we guarantee we will obtain one. We have not paid any
liquidated damages as of the date of this filing although we are obligated to do
so.
4
Management
Incentive Plan
In
connection with amendments made on May 15, 2009 and October 31, 2009 to certain
outstanding Debentures, a management incentive plan was included that provided
for the issuance of securities subject to our achievement of certain performance
targets. Our performance target for 2009 was to secure executed contracts valued
at $20,000,000 or more on or before October 1, 2009. This target was
achieved. As a result, Mr. Read received a bonus of 673,506 shares of
our common stock for achieving the first management incentive
target.
5
RISK
FACTORS
This
investment has a high degree of risk. Before you invest you should carefully
consider the risks and uncertainties described below and the other information
in this prospectus. If any of the following risks actually occur, our business,
operating results and financial condition could be harmed and the value of our
stock could go down. This means you could lose all or a part of your
investment.
Risks Relating to Our
Business:
We
have a history of losses which may continue, which may negatively impact our
ability to achieve our business objectives.
We
incurred net losses of $29,507,750 and $8,067,211 for the years ended December
31, 2009 and 2008, respectively.. We cannot assure you that we can
achieve or sustain profitability on a quarterly or annual basis in the future.
Our operations are subject to the risks and competition inherent in the
establishment of a business enterprise. There can be no assurance that future
operations will be profitable. Revenues and profits, if any, will depend upon
various factors, including whether we will be able to continue expansion of our
revenue. We may not achieve our business objectives and the failure to achieve
such goals would have an adverse impact on us.
A large percentage
of our revenues will depend on our grant from the Department of Energy (DOE),
the loss of which would materially adversely affect our operations and
revenues. To complete this
contract, we may require additional working capital.
On
September 30, 2009, eTec signed a contract with the U.S. Department of Energy
for a cost reimbursable contract worth at least $99.8 million, of which
approximately $13 million was sub-funded to federal research and
development centers. This grant will net $86.4 million in revenue to us, which
we expect to account for a substantial portion of our revenues in the immediate
future. As a condition of this grant, we are required to meet certain
obligations, produce and deliver products on a timely basis to certain required
standards, properly account for and bill our products. If we were unable to
properly perform these tasks, we could lose the grant, which would have a
material adverse effect on our business, financial condition and results of
operations.
While
we believe we have obtained initial required working capital to meet the
requirements of this contract, given that the contract is reimbursable for costs
incurred, we may require additional working capital for its
completion.
We
face competition from large established renewable and alternative energy
development companies which are also seeking to develop alternative energy power
sources. Such competition could reduce our revenue or force us to reduce
our prices, which would reduce our potential profitability.
Literally
hundreds of companies, including many of the largest companies in the world, are
seeking to develop similar or competitive technologies to that of all of our
technologies. There can be no assurance that we can commercially develop
the Hydrality technology or that competitors will not develop substantially
equivalent or superior technology. Such competition could reduce our
revenue or force us to reduce our prices, which would reduce or eliminate our
potential profitability.
We
may not be able to protect our patents and intellectual property and we could
incur substantial costs defending against claims that our products infringe on
the proprietary or other rights of third parties.
Some of
our intellectual property may not be covered by any patent or patent
application. Moreover, we do not know whether any of our pending patent
applications or those CalTech will file or, in the case of patents issued
or to be issued, that the claims allowed are or will be sufficiently broad to
protect our technology and processes. Even if all of our patent
applications are issued and are sufficiently broad, our patents may be
challenged or invalidated. We could incur substantial costs in prosecuting
or defending patent infringement suits or otherwise protecting our intellectual
property rights. While we have attempted to safeguard and maintain our
proprietary rights, we do not know whether we have been or will be completely
successful in doing so. Moreover, patent applications filed in foreign
countries may be subject to laws, rules and procedures that are
substantially different from those of the United States, and any resulting
foreign patents may be difficult and expensive to enforce.
6
Our
competitors may independently develop or patent technologies or processes that
are substantially equivalent or superior to ours. If we are found to be
infringing on third party patents, we could be required to pay substantial
royalties and/or damages, and we do not know whether we will be able to obtain
licenses to use such patents on acceptable terms, if at all. Failure to
obtain needed licenses could delay or prevent the development, manufacture or
sale of our products, and could necessitate the expenditure of significant
resources to develop or acquire non-infringing intellectual
property.
Asserting,
defending and maintaining our intellectual property rights could be difficult
and costly and failure to do so may diminish our ability to compete effectively
and may harm our operating results. We may need to pursue lawsuits or
legal action in the future to enforce our intellectual property rights, to
protect our trade secrets and domain names and to determine the validity and
scope of the proprietary rights of others. If third parties prepare and
file applications for trademarks used or registered by us, we may oppose those
applications and be required to participate in proceedings to determine the
priority of rights to the trademark. Similarly, competitors may have filed
applications for patents, may have received patents and may obtain additional
patents and proprietary rights relating to products or technology that block or
compete with ours. We may have to participate in interference proceedings
to determine the priority of invention and the right to a patent for the
technology. Litigation and interference proceedings, even if they are
successful, are expensive to pursue and time consuming, and we could use a
substantial amount of our financial resources in either case.
Our
failure to protect our intellectual property rights may undermine our
competitive position and litigation to protect our intellectual property rights
or defend against third-party allegations of infringement may be
costly.
Protection
of our proprietary processes, methods and other technology, especially our
proprietary vapor transport deposition process and laser scribing process, is
critical to our business. Failure to protect and monitor the use of our existing
intellectual property rights could result in the loss of valuable technologies.
We rely primarily on patents, trademarks, trade secrets, copyrights and other
contractual restrictions to protect our intellectual property. We have received
patents in the United States and select foreign jurisdictions and we have
pending applications in such jurisdictions as well. Our existing patents and
future patents could be challenged, invalidated, circumvented, or rendered
unenforceable. We have pending patent applications in the United States and in
foreign jurisdictions. Our pending patent applications may not result in issued
patents, or if patents are issued to us, such patents may not be sufficient to
provide meaningful protection against competitors or against competitive
technologies.
We also
rely upon unpatented proprietary manufacturing expertise, continuing
technological innovation and other trade secrets to develop and maintain our
competitive position. While we generally enter into confidentiality agreements
with our employees and third parties to protect our intellectual property, such
confidentiality agreements are limited in duration and could be breached and may
not provide meaningful protection for our trade secrets or proprietary
manufacturing expertise. Adequate remedies may not be available in the event of
unauthorized use or disclosure of our trade secrets and manufacturing expertise.
In addition, others may obtain knowledge of our trade secrets through
independent development or legal means. The failure of our patents or
confidentiality agreements to protect our processes, equipment, technology,
trade secrets and proprietary manufacturing expertise, methods and compounds
could have a material adverse effect on our business. In addition, effective
patent, trademark, copyright and trade secret protection may be unavailable or
limited in some foreign countries. In some countries we have not applied for
patent, trademark, or copyright protection.
Third
parties may infringe or misappropriate our proprietary technologies or other
intellectual property rights, which could have a material adverse effect on our
business, financial condition and operating results. Policing unauthorized use
of proprietary technology can be difficult and expensive. Also, litigation may
be necessary to protect our legitimate interests.
We
cannot assure you that eTec will continue to receive Department of Energy, or
any other government funding, which comprises a large portion of its
revenue.
Government
funding of projects related to renewable energy, energy, and transportation is
subject to cuts or cancellation without notice. A large portion of the
consulting and testing revenue of eTec is DOE related activity, and as such the
future of such revenue streams is uncertain and out of our control.
We
cannot assure that the underlying technology of SuperCharge and MinitCharger
will remain commercially viable, and this could affect the revenue and potential
profit of eTec and MinitCharger.
We face
competition in the battery recharging and fast charging sector from a number of
companies. While we believe that we currently have the best technology in fast
charging, conditioning and monitoring batteries for transportation and
industrial applications, we cannot assure you that competitors will not develop
and bring to market substantially equivalent or superior technology. A loss of
our technology advantage could adversely impact or eliminate our revenue and
profitability
7
We
cannot assure you that the demand for hydrogen testing, educational and
small-scale applications will continue, and this could affect the prospects for
the Fuel Cell Store.
We face
competition in the provision of fuel cell products and educational materials
from a number of companies. Additionally, the hydrogen industry is evolving,
demand is unpredictable and follows outside forces such as school funding
programs and government funding which are out of our control.
An
increase in interest rates or a dramatic tightening of corporate credit markets
could make it difficult for end-users to finance the cost of a conversion to
renewable energy products and systems and could reduce or eliminate the demand
for our products.
Many of
our end-users depend on debt financing to fund the initial capital expenditure
required to purchase and install renewable energy products and systems. As a
result, an increase in interest rates could make it difficult for our end-users
to secure the financing necessary to purchase and install renewable energy
products and systems on favorable terms, or at all and thus lower demand for our
products and reduce our net sales. In addition, we believe that a significant
percentage of our end-users install renewable energy products as an investment,
funding the initial capital expenditure through a combination of equity and
debt. An increase in interest rates could lower an investor’s return on
investment in a renewable energy products and systems and make alternative
investments more attractive relative to renewable energy products and, in each
case, could cause these end-users to seek alternative investments.
Problems
with product quality or performance may cause us to incur warranty expenses,
damage our market reputation and prevent us from maintaining or increasing our
market share.
Our
products are sold with various materials and workmanship warranty for technical
defects and a 10 year and 25 year warranty against declines of more than 10% and
20% of their initial rated power, respectively. As a result, we bear the risk of
extensive warranty claims long after we have sold our products and recognized
net sales. As of December 31, 2009, our accrued warranty expense amounted
to approximately $211,345.
Because
of the limited operating history of our products, we have been required to make
assumptions regarding the durability and reliability of our products. Our
assumptions could prove to be materially different from the actual performance
of our products, causing us to incur substantial expense to repair or replace
defective solar modules in the future. Any widespread product failures may
damage our market reputation and cause our sales to decline and require us to
repair or replace the defective products, which could have a material adverse
effect on our financial results
We
depend on a limited number of third-party suppliers for key raw materials and
their failure to perform could cause manufacturing delays and impair our ability
to deliver our products to customers in the required quality and quantities and
at a price that is profitable to us.
Our
failure to obtain raw materials and components that meet our quality, quantity
and cost requirements in a timely manner could interrupt or impair our ability
to manufacture our products or increase our manufacturing cost. Most of our key
raw materials are either sole-sourced or sourced by a limited number of
third-party suppliers. As a result, the failure of any of our suppliers to
perform could disrupt our supply chain and impair our operations. In addition,
many of our suppliers are small companies that may be unable to supply our
increasing demand for raw materials as we implement our planned rapid expansion.
We may be unable to identify new suppliers or qualify their products for use on
our production lines in a timely manner and on commercially reasonable terms, if
at all.
8
Our
international operations subject us to a number of risks, including unfavorable
political, regulatory, labor and tax conditions in foreign
countries.
We have
operations outside the United States and expect to continue to have operations
outside the United States in the near future. Currently, we have
manufacturing operations in Mexico and established a subsidiary in
Australia. In addition, we have signed agreements to establish joint
ventures in the People’s Republic of China, although they have not yet been
formed. As a result, we will be subject to the legal, political, social and
regulatory requirements and economic conditions of many jurisdictions. Risks
inherent to international operations, include, but are not limited to, the
following:
·
|
difficulty in enforcing
agreements in foreign legal
systems;
|
·
|
foreign countries may impose
additional withholding taxes or otherwise tax our foreign income, impose
tariffs, or adopt other restrictions on foreign trade and investment,
including currency exchange
controls;
|
·
|
fluctuations in exchange rates
may affect product demand and may adversely affect our profitability in
U.S. dollars to the extent the price of our solar modules, cost of
raw materials and labor and equipment is denominated in a foreign
currency;
|
·
|
inability to obtain, maintain, or
enforce intellectual property
rights;
|
·
|
risk of nationalization of
private enterprises;
|
·
|
changes in general economic and
political conditions in the countries in which we
operate;
|
·
|
unexpected adverse changes in
foreign laws or regulatory requirements, including those with respect to
environmental protection, export duties and
quotas;
|
·
|
difficulty with staffing and
managing widespread operations;
and
|
·
|
trade barriers such as export
requirements, tariffs, taxes and other restrictions and expenses, which
could increase the prices of our solar modules and make us less
competitive in some
countries.
|
Our
future success depends on our ability to retain our key employees and to
successfully integrate them into our management team.
We are
dependent on the services of Jonathan Read, our Chief Executive Officer, Barry
Baer, our Chief Financial Officer and Don Karner, President of our eTec
subsidiary. The loss of Messrs. Read, Baer or Karner could have a material
adverse effect on us. There is a risk that we will not be able to retain or
replace these key employees. Several of our current key employees, including
Messrs. Read, Baer and Karner, are subject to employment conditions or
arrangements that contain post-employment non-competition provisions. However,
these arrangements permit the employees to terminate their employment with us
upon little or no notice. Failure to maintain our small management team
could prove disruptive to our daily operations, require a disproportionate
amount of resources and management attention and prove
unsuccessful.
We
have limited insurance coverage and may incur losses resulting from product
liability claims, business interruptions, or natural disasters.
We are
exposed to risks associated with product liability claims in the event that the
use of our solar modules results in personal injury or property damage. Our
recharging systems, batteries, solar modules are electricity-producing devices,
and it is possible that users could be injured or killed by our products due to
product malfunctions, defects, improper installation, or other causes. Our
companies commercial shipment of products began in 1999 and, due to our limited
historical experience, we are unable to predict whether product liability claims
will be brought against us in the future or the effect of any resulting adverse
publicity on our business. Moreover, we may not have adequate resources and
insurance to satisfy a judgment in the event of a successful claim against us.
The successful assertion of product liability claims against us could result in
potentially significant monetary damages and require us to make significant
payments. Any business disruption or natural disaster could result in
substantial costs and diversion of resources.
9
Any
change in government regulation and/or administrative practices may have a
negative impact on our ability to operate and our profitability.
The laws,
regulations, policies or current administrative practices of any government
body, organization or regulatory agency in the United States or any other
jurisdiction, may be changed, applied or interpreted in a manner which will
fundamentally alter our ability to carry on our business.
The
actions, policies or regulations, or changes thereto, of any government body or
regulatory agency, or other special interest groups, may have a detrimental
effect on us. Any or all of these situations may have a negative impact on our
ability to operate and/or our profitably.
Our
directors, executive officers and affiliates will continue to exert significant
control over our future direction, which could reduce the sale value of our
company.
As of
June 7, 2010 members of our Board of Directors and our executive officers,
together with our affiliates, own approximately 76.96% of our outstanding common
stock. Accordingly, these stockholders, if they act together, may be able
to control all matters requiring approval of our stockholders, including the
election of directors and approval of significant corporate transactions.
The concentration of ownership, which could result in a continued
concentration of representation on our Board of Directors, may delay, prevent or
deter a change in control and could deprive our stockholders of an opportunity
to receive a premium for their common stock as part of a sale of our
assets.
Investors
should not anticipate receiving cash dividends on our common stock.
We have
never declared or paid any cash dividends or distributions on our common stock
and intend to retain future earnings, if any, to support our operations and to
finance expansion. Therefore, we do not anticipate paying any cash
dividends on the common stock in the foreseeable future.
There
is a reduced probability of a change of control or acquisition of us due to the
possible issuance of preferred stock. This reduced probability could
deprive our investors of the opportunity to otherwise sell our stock in an
acquisition of us by others.
Our
Articles of Incorporation authorize our Board of Directors to issue up to
200,000,000 shares of preferred stock, of which, 8,993,950 shares are
outstanding as of June 7, 2010 in one or more series and to fix the rights,
preferences, privileges and restrictions thereof, including dividend rights,
dividend rates, conversion rights, voting rights, terms of redemption,
liquidation preferences and the number of shares constituting any series or
designation of such series, without further vote or action by stockholders.
As a result of the existence of “blank check” preferred stock, potential
acquirers of our company may find it more difficult to, or be discouraged from,
attempting to effect an acquisition transaction with, or a change of control of,
our company, thereby possibly depriving holders of our securities of certain
opportunities to sell or otherwise dispose of such securities at above-market
prices pursuant to such transactions.
There
is no assurance that the Hydrality technology is patentable by JPL or, if
patented, that others will not develop functionally similar products outside the
patent. Without patent protection, our competitors could develop
functionally similar products.
We have
entered into a license agreement with the California Institute of Technology, or
CalTech, under which we have the exclusive license to use and sell the Hydrality
technology under any JPL patent and patent application. There can be no
assurance that CalTech will obtain any patents on the Hydrality technology or,
if obtained, that others will not develop functionally similar products that do
not infringe on the patents. All license rights granted by CalTech are
subject to a reservation of rights by CalTech for non-commercial education and
research purposes and U.S. Government rights provided by statute. Without
patent protection, our competitors could develop functionally similar
products.
10
Risks Relating to Our
Outstanding Financing Arrangements:
There
are a large number of shares underlying our preferred shares and warrants
outstanding that may be available for future sale and the sale of these shares
may depress the market price of our common stock.
As of
June 7, 2010, we had 8,993,950 shares of common stock issued and
outstanding, shares of Series A Convertible Preferred Stock outstanding that may
be converted into 8,416,881 shares of common stock and warrants outstanding that
may be exercised into 3,091,856 shares of common stock. All of the shares
issuable upon conversion of the Series A Convertible Preferred Stock and
exercise of the warrants may be sold without restriction upon the effectiveness
of the registration statement that this prospectus is a part of. The
sale of these shares may adversely affect the market price of our common
stock.
The
issuance of shares upon conversion of the Series A Convertible Preferred Stock
or exercise of the warrants may cause immediate and substantial dilution to our
existing stockholders.
The
issuance of shares upon conversion of the Series A Convertible Preferred Stock
or exercise of the outstanding warrants may result in substantial dilution to
the interests of other stockholders. Although holders of the Series A
Convertible Preferred Stock and warrants may not convert their Series A
Convertible Preferred Stock or exercise their warrants if such conversion or
exercise would cause them to own more than 9.99% of our outstanding common
stock, this restriction does not prevent them from converting and/or exercising
some of their holdings and then converting the rest of their holdings. In this
way, the holders could sell more than their limit while never holding more than
this limit. The shares issued upon conversion of the Series A Convertible
Preferred Stock and/or exercise of the outstanding warrants could have the
effect of further diluting the proportionate equity interest and voting power of
holders of our common stock, including investors in this offering.
Risks Relating to Our Common
Stock:
If
we fail to remain current in our reporting requirements, we could be removed
from the NASDAQ Capital Market which would limit the ability of broker-dealers
to sell our securities and the ability of stockholders to sell their securities
in the secondary market.
Companies
trading on the NASDAQ Capital Market, such as us, must be reporting issuers
under Section 12 of the Securities Exchange Act of 1934, as amended, and must be
current in their reports under Section 13, in order to maintain price quotation
privileges on the NASDAQ Stock Exchange. If we fail to remain current on our
reporting requirements, we could be removed from the NASDAQ Stock Exchange. As a
result, the market liquidity for our securities could be severely adversely
affected by limiting the ability of broker-dealers to sell our securities and
the ability of stockholders to sell their securities in the secondary
market.
11
USE
OF PROCEEDS
We will
not receive any proceeds from the sale of the common stock. However,
we will receive the sale price of any common stock we sell to the selling
stockholders upon exercise of the warrants. We expect to use the
proceeds received from the exercise of the warrants, if any, for general working
capital purposes. However, the holders of the warrants will be entitled to
exercise the warrants on a cashless basis if the shares of common stock
underlying the warrants are not registered pursuant to an effective registration
statement at any time after six months from issuance. In the event
that the holders exercise the warrants on a cashless basis, then we will not
receive any proceeds from the exercise of those warrants.
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our
common stock is quoted on the NASDAQ Stock Exchange under the symbol
“ECTY”. From November 24,2009 to May 19, 2010, our common stock was
quoted on the OTC Bulletin Board under the symbol “ETLE”. Prior to
November 24, 2009 our common stock was quoted on the OTC Bulletin Board under
the symbol “ETLY”.
For the
periods indicated, the following table sets forth the high and low bid prices
per share of common stock. These prices represent inter-dealer quotations
without retail markup, markdown, or commission and may not necessarily represent
actual transactions.
Fiscal Year 2008
|
||||||||
High
|
Low
|
|||||||
First
Quarter
|
$ | 18.60 | $ | 7.80 | ||||
Second
Quarter
|
$ | 12.00 | $ | 8.40 | ||||
Third
Quarter
|
$ | 9.60 | $ | 3.60 | ||||
Fourth
Quarter
|
$ | 5.40 | $ | 1.80 |
Fiscal Year 2009
|
||||||||
High
|
Low
|
|||||||
First
Quarter
|
$ | 2.40 | $ | 1.20 | ||||
Second
Quarter
|
$ | 10.20 | $ | 1.80 | ||||
Third
Quarter
|
$ | 27.60 | $ | 5.40 | ||||
Fourth
Quarter
|
$ | 27.60 | $ | 5.00 |
Fiscal Year 2010
|
||||||||
High
|
Low
|
|||||||
First
Quarter
|
$ | 5.95 | $ | 4.05 | ||||
Second
Quarter (1)
|
$ | 6.55 | $ | 4.30 |
(1) As of
June 7, 2010.
HOLDERS
As of June 7, 2010, we had
approximately 408 holders of our common stock. The number of record holders was
determined from the records of our transfer agent and does not include
beneficial owners of common stock whose shares are held in the names of various
security brokers, dealers, and registered clearing agencies. The transfer agent
of our common stock is Corporate Stock Transfer Inc, 3200 Cherry Creek South Dr
Ste 430, Denver, Colorado 80209.
DIVIDENDS
We have
not declared or paid any cash dividends on our common stock and we do not
anticipate paying any cash dividends to stockholders in the foreseeable future.
Any future determination to pay cash dividends will be at the discretion of the
Board of Directors and will be dependent upon our financial condition, results
of operations, capital requirements, and such other factors as the Board of
Directors deem relevant.
12
Equity
Compensation Plan Information
The
following table sets forth certain information about the common stock that may
be issued upon the exercise of options under the equity compensation plans as of
June 7, 2010.
Plan Category
|
Number of Shares
to be Issued
Upon Exercise of
Outstanding
Options,
Warrants and
Rights
|
Weighted-Average
Exercise
Price of
Outstanding
Options,
Warrants and
Rights
|
Number of Shares
Remaining
Available for
Future Issuance
Under Equity
Compensation
Plans (Excluding
Shares Reflected
in the First
Column)
|
|||||||||
Equity
compensation plans approved by shareholders
|
49,167 | $ | 10.08 | 10,151 | ||||||||
Equity
compensation plans not approved by shareholders
|
- | $ | - | - | ||||||||
Total
|
49,167 | $ | 10.08 | 10,151 |
13
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Some of
the information in this Form S-1 contains forward-looking statements that
involve substantial risks and uncertainties. You can identify these statements
by forward-looking words such as “may,” “will,” “expect,” “anticipate,”
“believe,” “estimate” and “continue,” or similar words. You should read
statements that contain these words carefully because they:
|
•
|
discuss our future
expectations;
|
|
•
|
contain projections of our future
results of operations or of our financial condition;
and
|
|
•
|
state other “forward-looking”
information.
|
We
believe it is important to communicate our expectations. However, there may be
events in the future that we are not able to accurately predict or over which we
have no control. Our actual results and the timing of certain events could
differ materially from those anticipated in these forward-looking statements as
a result of certain factors, including those set forth under “Risk Factors,”
“Business” and elsewhere in this prospectus. See “Risk Factors.”
Results
of Operations
For the fiscal year ended
December 31, 2009 compared to the fiscal year ended December 31,
2008
Summarized financial information
concerning our reportable segments for the year ended December 31, 2007 and
2008 are as follows:
TWELVE MONTHS ENDED DECEMBER 31, 2009
|
||||||||||||||||
|
ETEC
|
INNERGY
|
FUEL CELL
STORE
|
TOTAL
|
||||||||||||
Total
net operating revenues
|
$
|
5,702,323
|
$
|
2,111,198
|
$
|
788,153
|
$
|
8,601,674
|
||||||||
Depreciation
and amortization
|
$
|
320,064
|
$
|
7,078
|
$
|
3,561
|
$
|
330,703
|
||||||||
Operating
income (loss)
|
$
|
(2,077,492
|
)
|
$
|
646,001
|
$
|
147,715
|
$
|
(1,283,776
|
)
|
||||||
Interest
Income (expense)
|
$
|
(1,289
|
)
|
$
|
-
|
$
|
-
|
$
|
(1,289
|
)
|
||||||
Gain
/ (Loss) on disposal of assets
|
$
|
48,523
|
$
|
-
|
$
|
-
|
$
|
48,523
|
||||||||
Other
Income (expense)
|
$
|
236
|
$
|
-
|
$
|
-
|
$
|
236
|
||||||||
Segment
Income before Corporate Overhead Allocation
|
$
|
(2,030,022
|
)
|
$
|
646,001
|
$
|
147,715
|
$
|
(1,236,306
|
)
|
||||||
Corporate
Overhead Allocation
|
$
|
18,653,977
|
$
|
6,906,350
|
$
|
2,578,280
|
$
|
28,138,607
|
||||||||
Segment
Income / (Loss)
|
$
|
(20,683,999
|
)
|
$
|
(6,260,349
|
)
|
$
|
(2,430,565
|
)
|
$
|
(29,374,913
|
)
|
||||
Not
Included in segment income:
|
||||||||||||||||
Depreciation
on Corporate Assets
|
$
|
132,840
|
||||||||||||||
Reported
Net income after tax
|
$
|
(29,507,750
|
)
|
|||||||||||||
Capital
Expenditures
|
$
|
771,919
|
$
|
-
|
$
|
5,945
|
$
|
777,864
|
||||||||
Total
segment assets - excluding intercompany receivables
|
$
|
2,876,733
|
$
|
714,433
|
$
|
186,909
|
$
|
3,778,075
|
||||||||
Other
items Not included in Segment Assets:
|
||||||||||||||||
Goodwill
|
$
|
3,495,878
|
||||||||||||||
Other
Corporate Assets
|
$
|
12,352,371
|
||||||||||||||
Total
Reported Assets
|
$
|
19,626,324
|
14
YEAR ENDED DECEMBER 31, 2008
|
||||||||||||||||
|
ETEC
|
INNERGY
|
FUEL CELL
STORE
|
TOTAL
|
||||||||||||
Total
net operating revenues
|
$
|
8,072,664
|
$
|
2,324,170
|
$
|
790,549
|
$
|
11,187,384
|
||||||||
Depreciation
and amortization
|
$
|
470,929
|
$
|
6,229
|
$
|
3,560
|
$
|
480,718
|
||||||||
Operating
income (loss)
|
$
|
(528,193
|
)
|
$
|
(40,368
|
)
|
$
|
49,859
|
$
|
(518,702
|
)
|
|||||
Interest
Income
|
$
|
9,632
|
$
|
519
|
$
|
-
|
$
|
10,151
|
||||||||
Gain
/ (Loss) on disposal of assets
|
$
|
(95
|
)
|
$
|
-
|
$
|
-
|
$
|
(95
|
)
|
||||||
Other
Income - Working Capital True Up
|
$
|
364,645
|
$
|
-
|
$
|
-
|
$
|
364,645
|
||||||||
Segment
Income before Corporate Overhead Allocation
|
$
|
(154,011
|
)
|
$
|
(39,849
|
)
|
$
|
49,859
|
$
|
(144,001
|
)
|
|||||
Corporate
Overhead Allocation
|
$
|
5,721,432
|
$
|
1,534,970
|
$
|
531,566
|
$
|
7,787,968
|
||||||||
Segment
Income / (Loss)
|
$
|
(5,875,443
|
)
|
$
|
(1,574,819
|
)
|
$
|
(481,707
|
)
|
$
|
(7,931,969
|
)
|
||||
Not
Included in segment income:
|
||||||||||||||||
Depreciation
on Corporate Assets
|
$
|
135,241
|
||||||||||||||
Reported
Net income after tax
|
$
|
(8,067,210
|
)
|
|||||||||||||
Capital
Expenditures
|
$
|
251,260
|
$
|
12,025
|
$
|
-
|
$
|
263,284
|
||||||||
Total
segment assets - excluding intercompany receivables
|
$
|
3,637,112
|
$
|
512,532
|
$
|
158,599
|
$
|
4,308,243
|
||||||||
Other
items Not included in Segment Assets:
|
||||||||||||||||
Goodwill
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
3,495,878
|
||||||||
Other
Corporate Assets
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
1,022,336
|
||||||||
Total
Reported Assets
|
$
|
8,826,457
|
Since
January 1, 2008 we have been transitioning ourselves from being a development
stage company to a growth oriented renewable energy company with a focus toward
electric vehicle infrastructure. Beginning January 2009 we initiated additional
efforts to strengthen our financial viability including steps to reduce or
eliminate our debt structure, obtain adequate working capital, establish strong
partnerships and secure federal stimulus contracts. Thus, the variations
reflected in our results of operations described below reflect these steps as
well as this transformation and the impact of the global economic
slowdown.
In the
year ended December 31, 2009, we had revenues of $8,601,674 compared to the year
ended December 31, 2008 of $11,187,384. This reduction in revenue is largely
related to the effect of the slowing economy on our business particularly our
industrial charger sales. Internally we saw a continued reduction in billable
consulting hours due to the redeployment of resources required to prepare for
the US Department of Energy Stimulus grant proposals awarded during the third
quarter ended September 30, 2009. The cost of goods sold percentage for the year
ending December 31, 2009 was 58% leaving us with a gross profit of $3,641.897.
Our gross margin of 42% was an improvement over the 2008 gross margin of
36%.
Total
operating expenses during the year ended December 31, 2009 were $17,289,242
compared to $7,900,473 for the year ended December 31, 2008. General and
administrative expenses were $16,806,908 or 97% of total operating expenses for
the year ended December 31, 2009 compared with $6,991,804 or 88% for the year
ended December 31, 2008. Details around the changes in these expenses are
described below:
Operating
Expense
Professional
fees were $296,231 for the year ended December 31, 2009 compared with
$417,767 for year ended December 31, 2008. This decrease is driven by
increased efficiencies. New media, marketing, advertising and investor and
public relations expenses were $253,301 for the year ended December 31,
2009 compared with $179,206 for the year ended December 31, 2008 with the
increase primarily attributable to public and investor relations activities in
2009 around our bid for stimulus contracts, and our capital raise activities.
Legal fees were $840,764 for the year ended December 31, 2009 compared with
$448,943 for the year ended December 31, 2008 and accounting fees were
$140,322 for the year ended December 31, 2009 compared with $155,981 for
the year ended December 31, 2008. The legal fee increases are a direct
result of the activities around our debt restructure and capital raise
activities in 2009. Executive compensation (not including subsidiary executives)
was $10,352,828 for the year ended December 31, 2009 compared with $659,300
for the year ended December 31, 2008. This significant increase in
executive compensation reflects the bonus payments under the management
incentive program as described in the May 15, 2009 debenture waiver agreement
incorporated by reference herein. These bonuses were awarded to staff members
for their contributions relating to our success in meeting key milestones in
bringing in new business in 2009. These payments involved an award of equity
initially valued at $8.1 million, and cash payments of $1 million dollars. In
January of 2010 the equity portion of the award was finalized at a reduced value
in the form of 673,505 restricted shares valued at $3,704,278 on date of
issuance.
15
Depreciation
expense was $463,543 for the year ended December 31, 2009 compared to
$615,960 for the year ended December 31, 2008. All other general and
administrative spending totaled $4,997,557 for the year ended
December 31, 2009 compared to $5,056,512 for the year ended
December 31, 2009.
Expenses
for research and development totaled $18,793 for the year ended
December 31, 2009 compared to $292,709 for year ended December 31,
2008. This reduction reflects our focused strategy on applications with
short-term commercialization potential supported through joint projects and
grants to help defray costs. Since one of our primary objectives continues to be
the commercial advancement of clean electric technologies that reduce our
dependence upon carbon based fuels, we have retained a strong focus on research
and development activities, and expect to continue to incur additional research
and development costs, although at a significantly reduced rate, for the
foreseeable future
Our
operating loss of $13,647,347 for the year ended December 31, 2009 compared
with a loss of $3,821,634 for the year ended December 31,
2008.
For the
year ended December 31, 2009, we earned interest income in the amount of
$6,277 compared with $17,184 for the year ended December 31,
2008.
Interest
expense was $15,915,438 for the year ended December 31, 2009 compared to
$4,620,364 for the year ended December 31, 2008. The higher amount for 2009
is attributable to additional fees and financing charges related to our waivers
on the convertible debentures we issued in November and December of 2007. Gain
on disposal of assets was $48,523 for the year ended December 31, 2009 compared
to a loss of $7,043 for the year ended December 31, 2008. The gain in 2009 was
primarily related to the sale of vehicles previously utilized for testing and
evaluation as part of consulting activities. Other income was $235 for the year
ended December 31, 2009 compared to $346,646 for the year ended December 31,
2008. The 2008 figure is attributable to the Net Working Capital True up
associated with our Minit-Charger acquisition.
Our net
loss after other income and expenses compared unfavorably for the year ended
December 31, 2009 for a loss of $29,507,750 compared with a $8,067,211 loss for
year ended December 31, 2008. The higher loss in for the year ended December 31,
2009 is primarily attributable to costs incurred for waivers on payments related
to our debenture obligations, as well as the costs of the final debt
restructuring and elimination of our debenture debt. Executive compensation was
also a factor (primarily in the form of equity) that was paid for achieving a
debt restructure, obtaining critical contracts and securing additional capital
to support our existing and future business requirements.
For the three months ended
March 31, 2010 compared to the three months ended March 31,
2009
Summarized
financial information concerning our reportable segments for the quarter ended
March 31, 2010 is as follows:
THREE MONTHS ENDED MARCH 31, 2010
|
||||||||||||||||
|
ETEC
|
INNERGY
|
FUEL CELL
STORE
|
TOTAL
|
||||||||||||
Total
net operating revenues
|
$
|
2,148,750
|
$
|
347,456
|
$
|
203,879
|
$
|
2,700,086
|
||||||||
Depreciation
and amortization
|
$
|
105,101
|
$
|
969
|
$
|
891
|
$
|
106,961
|
||||||||
Operating
income (loss)
|
$
|
(988,796
|
)
|
$
|
50,432
|
$
|
46,934
|
$
|
(891,431
|
)
|
||||||
Interest
Income (expense)
|
$
|
(31
|
)
|
$
|
-
|
$
|
-
|
$
|
(31
|
)
|
||||||
Gain
/ (Loss) on disposal of assets
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||
Other
Income (expense)
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||
Segment
Income before Corporate Overhead Allocation
|
$
|
(988,826
|
)
|
$
|
50,432
|
$
|
46,934
|
$
|
(891,461
|
)
|
||||||
Corporate
Overhead Allocation
|
$
|
(1,172,152
|
)
|
$
|
(189,539
|
)
|
$
|
(111,217
|
)
|
$
|
(1,472,907
|
)
|
||||
Segment
Income / (Loss)
|
$
|
(2,160,978
|
)
|
$
|
(139,107
|
)
|
$
|
(64,283
|
)
|
$
|
(2,364,370
|
)
|
||||
Not
Included in segment income:
|
||||||||||||||||
Depreciation
on Corporate Assets
|
$
|
34,645
|
||||||||||||||
Reported
Net income after tax
|
$
|
(2,399,015
|
)
|
|||||||||||||
Capital
Expenditures
|
$
|
220,696
|
$
|
-
|
$
|
-
|
$
|
220,696
|
||||||||
Total
segment assets - excluding intercompany receivables
|
$
|
3,318,011
|
$
|
566,923
|
$
|
255,321
|
$
|
4,140,255
|
||||||||
Other
item Not included in Segment Assets:
|
||||||||||||||||
Goodwill
|
$
|
3,495,878
|
||||||||||||||
Other
Corporate Assets
|
$
|
15,512,655
|
||||||||||||||
Total
Reported Assets
|
$
|
23,148,788
|
16
3 MONTHS ENDED MARCH 31, 2009
|
||||||||||||||||
|
ETEC
|
INNERGY
|
FUEL CELL
STORE
|
TOTAL
|
||||||||||||
Total
net operating revenues
|
$
|
1,775,086
|
$
|
478,814
|
$
|
216,299
|
$
|
2,470,199
|
||||||||
Depreciation
and amortization
|
$
|
103,510
|
$
|
1,455
|
$
|
891
|
$
|
105,856
|
||||||||
Operating
income (loss)
|
$
|
(50,980
|
)
|
$
|
136,360
|
$
|
47,648
|
$
|
133,028
|
|||||||
Interest
Income (expense)
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||
Gain
/ (Loss) on disposal of assets
|
$
|
9,760
|
$
|
-
|
$
|
-
|
$
|
9,760
|
||||||||
Other
Income (expense)
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||
Segment
Income before Corporate Overhead Allocation
|
$
|
(41,220
|
)
|
$
|
136,360
|
$
|
47,648
|
$
|
142,788
|
|||||||
Corporate
Overhead Allocation
|
$
|
814,340
|
$
|
219,661
|
$
|
99,230
|
$
|
1,133,231
|
||||||||
Segment
Income / (Loss)
|
$
|
(855,560
|
)
|
$
|
(83,301
|
)
|
$
|
(51,582
|
)
|
$
|
(990,443
|
)
|
||||
Not
Included in segment income:
|
||||||||||||||||
Depreciation
on Corporate Assets
|
$
|
33,114
|
||||||||||||||
Reported
Net income after tax
|
$
|
(1,023,555
|
)
|
|||||||||||||
Capital
Expenditures
|
$
|
4,157
|
$
|
-
|
$
|
-
|
$
|
4,157
|
||||||||
Total
segment assets - excluding intercompany receivables
|
$
|
3,194,463
|
$
|
526,609
|
$
|
208,800
|
$
|
3,929,872
|
||||||||
Other
item Not included in Segment Assets:
|
||||||||||||||||
Goodwill
|
$
|
3,495,878
|
||||||||||||||
Other
Corporate Assets
|
$
|
974,102
|
||||||||||||||
Total
Reported Assets
|
$
|
8,399,852
|
Since
January 1, 2008 we have been transitioning ourselves from being a development
stage company to a growth oriented renewable energy company with a focus toward
electric vehicle infrastructure. Beginning January 2009 we initiated additional
efforts to strengthen our financial viability including steps to reduce or
eliminate our debt structure, obtain adequate working capital, establish strong
partnerships and secure federal stimulus contracts. Thus, the variations
reflected in our results of operations when comparing the
quarter ended March 31, 2010 to the quarter ended March
31, 2009 and described below reflect these steps as well as this transformation
and the impact of the global economic slowdown.
In the
quarter ended March 31, 2010, we had revenues of $2,700,086 compared to the
quarter ended March 31, 2009 of $2,470,199. The increase in revenue
is largely related to the effect of our ramp up of work on our recently awarded
contract with the US Department of Energy. The cost of goods sold
percentage for the quarter ending March 31, 2010 was 89% leaving us with a gross
profit of $308,561. Our gross margin was down 11% from the same period prior
year of 44%. This reduction is directly related to the nature of our
cost reimbursement contract with the US Department of Energy
(DOE). This contract provides for a cost match of 50%, which is
expected to continue to reduce our gross margin in the early stages of the
contract pending the launch of electric vehicles in 4th quarter
2010.
Total
operating expenses during the three months ended March 31, 2010 were $2,393,991
compared to $1,492,944 for the three months ended March 31, 2009, a 60% increase
over prior year. This increase reflects staffing and other start up
expenses to service the contract with the DOE including but not limited to
expanding office space, recruiting and hiring new employees, and implementing a
new Enterprise Resource Planning (ERP) System at our eTec
subsidiary. General and administrative expenses were $2,239,554 or
94% of total operating expenses for the three months ended March 31, 2010
compared with $1,342,509 or 77% for the three months ended March 31, 2009. The
increase of 67% is consistent with our ramp up in resource deployment for the
DOE contract as discussed above. Details around the changes in these
expenses are described below:
17
Professional
fees were $131,488 for the three months ended March 31, 2009 compared with
$13,579 for the three months ended March 31, 2009. This increase is
attributable to recruiting and other outsourced human resource activities as we
manage the increase in our employee base as well as the opening of new field
offices to support the DOE contract. New media, marketing,
advertising and investor and public relations expenses were $109,658 for the
three months ended March 31, 2009 compared with $4,087 for the three months
ended March 31, 2009. The spend in 2010 is related to outsourced
branding identification efforts to establish our base brand from which all our
on-road (electric vehicle related) products will extend. Legal fees
were $225,925 for the quarter ended March 31, 2010 compared with $229,778 for
the quarter ended March 31, 2009. While legal spend in both years has
been substantial, each of these figures were driven by different business
issues. In 2009 much of our legal fees were attributable to managing
our debt. In contrast, for the quarter ending March 31, 2010 our
legal fees are related to efforts around establishing and protecting our
Intellectual Property (IP) including the expansion of these IP protections into
targeted international markets. Also included in the first quarter 2010
legal fees are the costs around establishing our new subsidiary in
Australia. Accounting fees were $65,250 for the quarter ended March
31, 2010, compared with $0 for the quarter ended March 31,
2009. Accounting fees in 2010 are attributable to our 2009 financial
statement audit. Executive compensation was $275,042 for the three
months ended March 31, 2010 compared with $193,677 for the three months ended
March 31, 2009. Depreciation expense was $141,605 for the quarter ended March
31, 2010 compared to $138,970 for the quarter ended March 31,
2009. All other general and administrative (G&A) spending totaled
$1,419,273 for the three months ended March 31, 2010 compared to $1,074,329 for
the three months ended March 31, 2009. The increase in all other
G&A is attributable to the costs of larger employee base to service larger
contracts and the systems to support them.
Expenses
for research and development totaled $12,834 for the three months ended March
31, 2010 compared
to $11,467 for the
three months ended March 31, 2009. Expenses for R&D is
anticipated to remain low. Since one of our primary objectives
continues to be the commercial advancement of clean electric technologies that
reduce our dependence upon carbon based fuels, we have retained a focus on
research and development activities, and expect to continue to incur additional
research and development costs, although at a significantly reduced rate, for
the foreseeable future as reflected in the minimal amount expensed during the
first quarter 2010.
Our
operating loss was $2,085,429 for the quarter ended March 31, 2010 compared with
a loss of $417,038 for the quarter ended March 31, 2009. The
overall loss was greater in first quarter
2010 due to the lower margins for the DOE contract and the higher expenses as we
ramp up in the early stages of the contract.
For the
quarter ended March 31, 2010, we earned interest income in the amount of $15,210
compared with $0 for the quarter ended March 31, 2009.
Interest
expense was $328,794 for the three months ended March 31, 2010 compared to
$616,277 for the three months ended March 31, 2009. The amount in
first quarter 2009 was driven by the interest on the convertible debentures
we issued in November and December of 2007. For first
quarter 2010 the amount is attributable to the potential penalty associated
with our obligation to file an S-1 within a short time frame following our
capital raise in October. Due to circumstances largely outside our control we
were unable to meet the filing deadline. We are currently circulating
a waiver agreement due to these extenuating circumstances and
anticipate having all or most of this penalty waived prior to our
next filing. We had a gain on disposal of assets in the three months ended March
31, 2009, there were no assets disposed of in the quarter ended March 31,
2010.
Our net
loss after other income and expenses was $2,399,015 for the quarter ended March
31, 2010 compared to a loss of $1,023,555 for the quarter ended March 31,
2009.
Liquidity
and Capital Resources
As of
March 31, 2010, we had $14,885,806 of cash on hand compared to a March
31, 2009 balance of $456,652 of cash on hand and $28,044 in
certificates of deposit.
We had a
use of cash for operating activities in the first quarter of 2010 in the amount
of $(1,728,832) compared to a generation of cash in first quarter
2009 of $129,036. In addition, cash utilized in investing
activities was $220,696 for the three months ended March 31, 2010 compared to a
generation of cash of 5,603 for 2009.
18
Cash
generated by financing activities was $5,011,999 in the first quarter of 2010
compared cash generated of $0 in 2009. The cash in 2010 represented
the collection of a subscription receivable in January 2010 related to our
October 2009 capital raise. These financing activities have provided
us adequate initial working capital to meet the needs of the DOE contract
described previously, however, we may need to obtain additional working capital
given the contract is cost reimbursable.
November
and December 2007 Private Placement
To obtain
funding for our ongoing operations, we entered into a Securities Purchase
Agreement with accredited investors in November and December 2007 for the sale
of $5,882,356 in secured convertible debentures in exchange for gross proceeds
of $5,000,000. The secured convertible debentures bore interest at 8%, matured
May 6, 2010 (June 6, 2010 for those debentures issued in December 2007), and
were convertible into our common stock, at the selling stockholders' option, at
$18.00 per share. Interest is to be paid in cash on a quarterly
basis. The debentures were subsequently converted into Series A Convertible
Preferred Stock pursuant to a securities exchange agreement in October
2009.
We were
obligated to pay 1/24th of the face amount of the debenture on the first of
every month, starting May 2008 (June 2008 for those debentures issued in
December 2007), which payment can be made in cash or in shares of our common
stock. We may pay this amortization payment in cash or in stock at the lower of
$18.00 per share or 88% of the volume weighted average price of our stock for
the 10 trading days prior to the repayment date.
To the
extent any debentures remained outstanding, at any time, the debentures were
convertible, at the investor’s option, into shares of our common stock at $18.00
per share.
August 2008
Amendment
On August
29, 2008, we entered into an amendment with the holders of the debentures issued
in November and December 2007, pursuant to which:
|
1.
|
interest
payments due on the debentures between May and December 2008 were
waived;
|
|
2.
|
monthly
redemption payments due on the debentures between May and December 2008
were deferred, with the first monthly redemption payment to start on
January 1, 2009;
|
|
3.
|
the
principal face amount of the debentures was increased to 120% of the then
current principal face amount plus the accrued interest through December
31, 2008 that was waived; and
|
|
4.
|
the
conversion price of the debentures was reduced to
$9.00.
|
March 2009
Amendment
On March
5, 2009, we entered into an amendment with the holders of the debentures issued
in November and December 2007, which amendment was effective as of January 1,
2009, pursuant to which:
|
1.
|
interest
payments due on the debentures between January and March 2009 were
deferred until May 1, 2009;
|
|
2.
|
the
conversion price of the debentures was reduced to $3.60;
and
|
|
3.
|
we
agreed to issue such number of warrants to the holders on a pro rata basis
so that the holders collectively shall maintain an equity position in us,
in fully diluted shares, of 50.4%.
|
May 2009
Amendment
On May
15, 2009, we entered into an amendment with the holders of the debentures issued
in November and December 2007, which amendment was effective as of May 1, 2009,
pursuant to which:
|
1.
|
interest
payments due on the debentures between April and September 2009 were
deferred until November 1, 2009 and the accrued interest was added to the
principal face amount of the
debentures;
|
|
2.
|
monthly
redemption payments were deferred, with the first monthly redemption
payment to start on January 1, 2010 and be payable in 10 equal payments;
and
|
|
3.
|
we
agreed to issue such number of warrants to the holders on a pro rata basis
so that the holders collectively shall maintain an equity position in us,
in fully diluted shares, of 80.0%. However, there are
provisions (when additional capital is raised (not to exceed $2,500,000))
to bring the fully diluted position to 70% for the existing holders as
well as those holders of new capital debentures. There are
provisions to further reduce the debenture holders to 65% should
management achieve certain specified performance
targets.
|
19
June 2009
Amendment
On June
30, 2009, we entered into an amendment with the holders of the debentures issued
in November and December 2007, pursuant to which:
|
1.
|
interest
payments due on the debentures between April and September 2009 were
deferred until November 1, 2009 and the accrued interest was added to the
principal face amount of the
debentures;
|
|
2.
|
monthly
redemption payments were deferred, with the first monthly redemption
payment to start on January 1, 2010 and be payable in 10 equal payments;
and
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|
3.
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we
agreed to issue such number of warrants to the holders on a pro rata basis
so that the holders collectively shall maintain an equity position in us,
in fully diluted shares, of 80.0%. However, there are
provisions (when additional capital is raised (not to exceed $2,500,000))
to bring the fully diluted position to 70% for the existing holders as
well as those holders of new capital debentures. There are
provisions to further reduce the debenture holders to 65% should
management achieve certain specified performance
targets.
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October 2009
Amendment
On
October 31, 2009, we entered into an amendment with the holders of the
debentures issued in November and December 2007, pursuant to which:
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1.
|
the
provision for the granting to Mr. Read his bonus for achieving the first
management incentive target was amended so that the latest possible date
to issue such grant was January 15, 2010 and the amount of the bonus was
673,506 shares of common stock, 673,506 shares of Series A Convertible
Preferred Stock or a combination
thereof;
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2.
|
the
provision for the granting to employees, officers and directors a bonus
for achieving the second management incentive target was amended so that
the latest possible date to issue such grant is six months after we
achieve the target and the amount of the bonus is an aggregate of 832,529
shares of common stock, 832,529 shares of Series A Convertible Preferred
Stock or a combination thereof; and
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3.
|
the
provision for the granting to employees, officers and directors a bonus
for achieving the third management incentive target was amended so that
the latest possible date to issue such grant is six months after we
achieve the target and the amount of the bonus is an aggregate of 832,529
shares of common stock, 832,529 shares of Series A Convertible Preferred
Stock or a combination thereof.
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July
2009 Private Placement/October 2009 Securities Exchange Agreement
To obtain
funding for our ongoing operations, we entered into a Securities Purchase
Agreement with three accredited investors, on July 2, 2009 for the sale of
$2,500,000 in secured convertible debentures. The secured convertible debentures
bore interest at 8%, matured October 1, 2010, and were convertible into our
common stock, at the selling stockholders' option, at $3.60 per share. In
addition, we issued a warrant to Shenzhen Goch Investment Ltd., expiring May 1,
2014, to purchase 1,748,971 shares of restricted common stock, exercisable at a
per share of $0.60.
On October 31, 2009, we entered into a
Securities Exchange Agreement with all holders of the convertible
debentures issued on July 2, 2009 and holders of certain warrants to
convert all outstanding amounts ($9,111,170) under these debentures and all
related warrants into an aggregate of 8,597,299 shares of Series A
Convertible Preferred Stock. The Series A Convertible Preferred Stock has
no redemption, preferential dividend or voting rights, but may be converted, at
the holder’s option, into shares of our common stock at a 1:1 ratio. This
prospectus relates to the resale of the common stock issuable upon exercise of
the Series A Convertible Preferred Stock.
The
conversion price of the Series A Convertible Preferred Stock may be adjusted in
certain circumstances such as if we pay a stock dividend, subdivide or combine
outstanding shares of common stock into a greater or lesser number of shares, or
take such other actions as would otherwise result in dilution of the investors’
position.
The
investors have agreed to restrict their ability to convert their Series A
Convertible Preferred Stock and receive shares of our common stock such that the
number of shares of common stock held by them in the aggregate and their
affiliates after such conversion or exercise does not exceed 9.99% of the then
issued and outstanding shares of common stock.
20
October
2009 Private Placement
To obtain
funding for our ongoing operations, we entered into a Securities Purchase
Agreement with seven accredited investors, on October 31, 2009 for the sale of
2,152,777 shares of common stock, at a price of $7.20 per share, for gross
proceeds of $15,500,000. On January 7, 2010, we sold an additional 694,444
shares of common stock, at a price of $7.20 per share, for gross proceeds of
$5,000,000. This prospectus relates to the resale of these shares of common
stock.
In
addition, we issued to each investor warrants to purchase an equal number of
shares of common stock purchased pursuant to the securities purchase agreement.
The warrants expire five years from the date of issuance and are exercisable at
$9.00 per share. In addition, the exercise price of the warrants will be
adjusted in the event we issue common stock at a price below the exercise price.
Upon an issuance of shares of common stock below the exercise price, the
exercise price of the warrants will be reduced to equal the share price at which
the additional securities were issued and the number of warrant shares issuable
will be increased such that the aggregate exercise price payable for the
warrants, after taking into account the decrease in the exercise price, shall be
equal to the aggregate exercise price prior to such adjustment.
At any
time after a registration statement registering the shares of common stock
underlying the warrants is declared effective, and if certain conditions are
met, we have the right to call for cancellation the warrants upon two business
days prior written notice for cash consideration of $0.001 per unexercised
warrant. We can only exercise this call option if (i) the closing price for each
of 20 consecutive trading days, which 20 consecutive trading day period shall
not have commenced until after the effective date of the registration statement
registering for resale the shares of common stock issuable upon exercise of the
warrants) exceeds $27.00 per share (subject to adjustment), (ii) the trading
volume of our common stock shall exceed 16,667 shares (subject to adjustment)
per trading day for each trading day during the 20 consecutive trading day
period, and (iii) the warrant holder is not in possession of any information
that constitutes, or might constitute, material non-public information which we
provided.
The
investors have agreed to restrict their ability to exercise their warrants and
receive shares of our common stock such that the number of shares of common
stock held by them in the aggregate and their affiliates after such conversion
or exercise does not exceed 9.99% of the then issued and outstanding shares of
common stock.
In
connection with the Securities Purchase Agreement dated October 31, 2009, we
granted the investors registration rights. We are obligated to use our best
efforts to cause the registration statement to be filed no later than December
15, 2009 and declared effective no later than January 29, 2010, which will be
extended to February 28, 2010 if the Securities and Exchange Commission conducts
a full-review of the registration statement, and to insure that the registration
statement remains in effect until all of the shares of common stock issuable
upon conversion of the secured convertible debentures have been sold or may be
sold without volume or manner-of-sale restrictions pursuant to Rule 144 and (x)
may be sold without the requirement for us to be in compliance with the current
public information requirement under Rule 144 or (y) we are in compliance with
the current public information requirement under Rule 144. In the event of a
default of our obligations under the Registration Rights Agreement, we are
required pay to each investor, as liquidated damages, for each month that the
registration statement has not been filed or declared effective, as the case may
be, an amount in cash equal to 1% of the aggregate purchase price paid by such
investor, not to exceed 3% in the aggregate to each investor. Due to the amount
of time necessary to close the second tranche of this financing, we have had
discussions with the investors to amend the deadlines for the filing and
effectiveness of the registration statement. We have not received an
executed amendment, nor can we guarantee we will obtain one. We have
not paid any liquidated damages as of the date of this filing although we are
obligated to do so.
Commitments
and Long Term Liabilities
On June
12, 2006, we entered into a license agreement with California Institute of
Technology, whereby we 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 our common stock with a fair market
value of $8,217,391. The license agreement carries an annual maintenance fee of
$50,000, with the first payment due on or about June 12, 2009. The license
agreement carries a perpetual term, subject to default, infringement,
expiration, revocation or unenforceability of the license agreement and the
licenses granted thereby.
On
January 19, 2007, we purchased a small (1,750 square feet) stand alone office
building at a cost of $575,615. A total of $287,959 has been paid and a tax
credit has been recorded in the amount of $156. The remaining balance of
$287,500 is structured as an interest-only loan from a non affiliated
third-party, bears an interest rate of 6.75% calculated annually, with monthly
payments in the amount of $1,617 due beginning on February 16, 2007. The
entire principal balance is due on or before January 16,
2012.
21
As of
March 31, 2010, we had 11 leases in effect for operating space. Future
obligations under these commitments are $306,398 for 2010, $396,238 for 2011,
$404,240 for 2012, $19,589 for 2013, $129,159 for 2014, $109,175 for
2015.
Critical
Accounting Policies
Our
Management’s Discussion and Analysis of Financial Condition and Results of
Operations section discusses our financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United States
of America. The preparation of the financial statements requires us to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. On an on-going basis, we
evaluate our estimates and judgments, including those related to revenue
recognition, recoverability of intangible assets, and contingencies and
litigation. We base our estimates and judgments on historical experience and on
various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying value of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions. The most significant accounting estimates inherent in
the preparation of our consolidated financial statements include estimates as to
the appropriate carrying value of certain assets and liabilities which are not
readily apparent from other sources, primarily the valuation of intangible
assets. The methods, estimates and judgments we use in applying these most
critical accounting policies have a significant impact on the results we report
in our consolidated financial statements.
Loss
per share
Net loss
per share is provided in accordance with ASC Subtopic 260-10. We present basic
loss per share (“EPS”) and diluted EPS on the face of statements of operations.
Basic EPS is computed by dividing reported losses by the weighted average shares
outstanding. Except where the result would be anti-dilutive to income from
continuing operations, diluted earnings per share has been computed assuming the
conversion of the convertible long-term debt and the elimination of the related
interest expense, and the exercise of stock warrants. For the year ended
December 31, 2008, the assumed conversion of convertible long-term debt and
the exercise of stock warrants are anti-dilutive due to our net loss and were
excluded in determining diluted loss per share.
Fair
value of financial instruments
Fair
value estimates discussed herein are based upon certain market assumptions and
pertinent information available to us as of December 31, 2009 and 2008. The
respective carrying value of certain on-balance-sheet financial instruments
approximated their fair values. Fair value was assumed to approximate carrying
value for cash because it is short term in nature and its carrying amount
approximates fair value.
Income
Taxes
We follow
the provisions of ASC Subtopic 740-10 for recording the provision for income
taxes. Deferred tax assets and liabilities are computed based upon the
difference between the financial statement and income tax basis of assets and
liabilities using the enacted marginal tax rate applicable when the related
asset or liability is expected to be realized or settled. Deferred income tax
expenses or benefits are based on the changes in the asset or liability each
period. If available evidence suggests that it is more likely than not that some
portion or all of the deferred tax assets will not be realized, a valuation
allowance is required to reduce the deferred tax assets to the amount that is
more likely than not to be realized. Future changes in such valuation allowance
are included in the provision for deferred income taxes in the period of
change.
Deferred
income taxes may arise from temporary differences resulting from income and
expense items reported for financial accounting and tax purposes in different
periods. Deferred taxes are classified as current or non-current, depending on
the classification of assets and liabilities to which they relate. Deferred
taxes arising from temporary differences that are not related to an asset or
liability are classified as current or non-current depending on the periods in
which the temporary differences are expected to reverse.
22
Segment
reporting
Generally
accepted accounting principles require disclosures related to components of a
company for which separate financial information is available that is evaluated
regularly by a company’s chief operating decision maker in deciding the
allocation of resources and assessing performance. We are the parent company of
Innergy Power Corporation, Fuel Cell Store and Electric Transportation
Engineering Corporation. Innergy Power is a leader in the design and manufacture
of thin sealed rechargeable lead batteries and high quality flat-panel
multi-crystalline solar modules. Fuel Cell Store is the leading online
marketplace for fuel cell-related products and technologies with online
distribution sites in the U.S., Japan, Russia, Italy and Portugal. eTec is a
leader in the research, development and testing of advanced transportation and
energy systems with a focus on alternative-fuel, hybrid and electric vehicles
and infrastructures. eTec also holds exclusive patent rights to the eTec SuperCharge™ and Minit-Charger systems -
battery fast charge systems that allow for faster charging with less heat
generation and longer battery life than conventional chargers. We have
aggregated these subsidiaries into three reportable segments: Fuel Cell Store,
eTec and Innergy.
Dividends
We have
not yet adopted any policy regarding payment of dividends. No dividends have
been paid or declared since inception.
Recent
Accounting Pronouncements
The FASB
issued ASC subtopic 855-10 (formerly SFAS 165 “Subsequent
Events”), incorporating guidance on subsequent events into
authoritative accounting literature and clarifying the time following the
balance sheet date which management reviewed for events and transactions that
may require disclosure in the financial statements. We have adopted this
standard. The standard increased our disclosure by requiring disclosure
reviewing subsequent events. ASC 855-10 is included in the “Subsequent Events”
accounting guidance.
In April
2009, the FASB issued ASC subtopic 820-10 (formerly Staff Position
No. FAS 157-4, Determining Fair Value When Volume
and Level of Activity for the Asset or Liability Have Significantly Decreased
and Identifying Transactions That Are Not Orderly”). ASC 820-10 provides
guidance on how to determine the fair value of assets and liabilities when the
volume and level of activity for the asset/liability has significantly
decreased. FSP 157-4 also provides guidance on identifying circumstances
that indicate a transaction is not orderly. In addition, FSP 157-4 requires
disclosure in interim and annual periods of the inputs and valuation techniques
used to measure fair value and a discussion of changes in valuation techniques.
We determined that adoption of FSP 157-4 did not have a material impact on
our results of operations and financial position.
In
July 2006, the FASB issued ASC subtopic 740-10 (formerly Interpretation No.
(“FIN”) 48, “Accounting
for Uncertainty in Income Taxes”). ASC 740-10 sets forth a recognition
threshold and valuation method to recognize and measure an income tax position
taken, or expected to be taken, in a tax return. The evaluation is based on a
two-step approach. The first step requires an entity to evaluate whether the tax
position would “more likely than not,” based upon its technical merits, be
sustained upon examination by the appropriate taxing authority. The second step
requires the tax position to be measured at the largest amount of tax benefit
that is greater than 50 percent likely of being realized upon ultimate
settlement. In addition, previously recognized benefits from tax positions that
no longer meet the new criteria would no longer be recognized. The application
of this Interpretation will be considered a change in accounting principle with
the cumulative effect of the change recorded to the opening balance of retained
earnings in the period of adoption. Adoption of this new standard did not have a
material impact on our financial position, results of operations or cash
flows.
In April
2008, the FASB issued ASC 815-40 (formerly Emerging Issues Task Force (“EITF”)
07-05, "Determining whether an
Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock").
ASC815-40 applies to any freestanding financial instruments or embedded features
that have the characteristics of a derivative, and to any freestanding financial
instruments that are potentially settled in an entity’s own common stock. ASC
815-40 is effective for financial statements issued for fiscal years beginning
after December 15, 2008. The adoption of this pronouncement did not have a
material impact on its financial position, results of operations or cash
flows.
23
In
June 2009, the FASB issued ASC 105 Accounting Standards
Codification TM and the
Hierarchy of Generally Accepted Accounting Principles. The FASB
Accounting Standards Codification TM (the “Codification”) has become the source
of authoritative accounting principles recognized by the FASB to be applied by
nongovernmental entities in the preparation of financial statements in
accordance with Generally Accepted Accounting Principles (“GAAP”). All existing
accounting standard documents are superseded by the Codification and any
accounting literature not included in the Codification will not be
authoritative. Rules and interpretive releases of the SEC issued under the
authority of federal securities laws, however, will continue to be the source of
authoritative generally accepted accounting principles for SEC registrants.
Effective September 30, 2009, all references made to GAAP in our
consolidated financial statements will include references to the new
Codification. The Codification does not change or alter existing GAAP and,
therefore, will not have an impact on our financial position, results of
operations or cash flows.
In June
2009, the FASB issued changes to the consolidation guidance applicable to a
variable interest entity (VIE). FASB ASC Topic 810, "Consolidation," amends the
guidance governing the determination of whether an enterprise is the primary
beneficiary of a VIE, and is, therefore, required to consolidate an entity, by
requiring a qualitative analysis rather than a quantitative analysis. The
qualitative analysis will include, among other things, consideration of who has
the power to direct the activities of the entity that most significantly impact
the entity's economic performance and who has the obligation to absorb losses or
the right to receive benefits of the VIE that could potentially be significant
to the VIE. This standard also requires continuous reassessments of whether an
enterprise is the primary beneficiary of a VIE. FASB ASC 810 also requires
enhanced disclosures about an enterprise's involvement with a VIE. Topic 810 is
effective as of the beginning of interim and annual reporting periods that begin
after November 15, 2009. This will not have an impact on our financial position,
results of operations or cash flows.
In June
2009, the FASB issued Financial Accounting Standards Codification No. 860 -
Transfers and Servicing. FASB ASC No. 860 improves the relevance,
representational faithfulness, and comparability of the information that a
reporting entity provides in its financial statements about a transfer of
financial assets; the effects of a transfer on its financial position, financial
performance, and cash flows; and a transferor's continuing involvement, if any,
in transferred financial assets. FASB ASC No. 860 is effective as of the
beginning of each reporting entity's first annual reporting period that begins
after November 15, 2009, for interim periods within that first annual reporting
period and for interim and annual reporting periods thereafter. The adoption of
FASB ASC No. 860 will not have an impact on our financial
statements.
International
Financial Reporting Standards
In
November 2008, the Securities and Exchange Commission issued for comment a
proposed roadmap regarding potential use of financial statements prepared in
accordance with International Financial Reporting Standards (“IFRS”) as issued
by the International Accounting Standards Board. Under the proposed roadmap, we
would be required to prepare financial statements in accordance with IFRS in
fiscal year 2014, including comparative information also prepared under IFRS for
fiscal 2013 and 2012. We are currently assessing the potential impact of IFRS on
our financial statements and will continue to follow the proposed roadmap for
future developments.
24
BUSINESS
Business
Development and Summary
We were
incorporated in Nevada in 1999. We are a leader in clean electric
transportation and storage technologies. Through innovation, acquisitions, and
strategic partnerships, we accelerate the market applicability of advanced
electric technologies to replace carbon-based fuels. We are a leader in
providing electric vehicle infrastructure products and solutions that are
used in on-road grid-connected vehicles (including plug-in hybrid electric
vehicles (PHEV) and battery electric vehicles (BEV)), material handling and
airport electric ground support applications. Through our main operating
subsidiary, Electric Transportation Engineering Corporation (eTec),
our primary product offering is the Minit-Charger line of advanced
battery fast-charge systems that are designed for various motive applications.
In addition to our electric transportation focus, we are also
involved in the development, manufacture, assembly and sale of specialty solar
products, advanced battery systems, and hydrogen and fuel cell systems. Our
subsidiaries and primary operating segments consist of Electric Transportation
Engineering Corporation (eTec), Innergy Power Corporation (Innergy), and
ECOtality Stores (dba Fuel Cell Store). In addition we have a wholly-owned
subsidiary in Mexico providing manufacturing services for us and a wholly-owned
subsidiary in Australia, ECOtality Australia Pty Ltd, to market and distribute
battery charging equipment to support on-road electric vehicles, industrial
equipment, and electric airport ground support equipment.
We
operate with a commercial “electro-centric” strategy, targeting only products
and companies involved in the creation, storage, and/or delivery of clean or
renewable electric power. This strategy has resulted in the development and
acquisition of various operating companies.. While focused on electric
transportation infrastructure, we have developed a diversified technology
portfolio that is linked through the ability to deliver comprehensive
electro-centric energy alternatives and solutions. By establishing a
technologically diverse multi-product base we are able to mitigate the
uncertainty of clean technology demands and regulatory changes. Our current
primary focus is to facilitate and execute the development and implementation of
electric vehicle charging infrastructure in anticipation of mass
commercialization of plug-in hybrid electric vehicles (PHEV) and battery
electric vehicles (BEV) in the 2010 to 2012 timeframe.
On August
5, 2009 our wholly owned subsidiary, eTec, was selected by the U.S.
Department of Energy for a grant of approximately $99.8 million to undertake the
largest deployment of electric vehicles (EVs) and charging infrastructure in
U.S. history. On September 30, 2009 eTec accepted the grant of
$99.8 million, of which $13 million was sub-funded to federal research and
development centers, which will net eTec $86 million in
revenue. eTec, as the lead applicant for the proposal,
partnered with Nissan North America to deploy EVs and the charging
infrastructure to support them. The project takes advantage of the early
availability of the Nissan LEAF, a zero-emission electric vehicle, to develop,
implement and study techniques for optimizing the effectiveness of charging
infrastructure that will support widespread EV deployment. The project will
install electric vehicle charging infrastructure and deploy up to a total of
4,700 Nissan battery electric vehicles in strategic markets in five states:
Arizona, California, Oregon, Tennessee, and Washington.
Electric
Transportation Engineering Corporation (eTec)
Electric
Transportation Engineering Corporation (eTec) was incorporated in Arizona in
1996 to support the development and installation of battery charging
infrastructures for electric vehicles. As our primary operating
subsidiary, eTec is a recognized leader in the research, development and testing
of advanced transportation and energy systems, and is the exclusive provider of
the Minit-Charger line of battery fast-charge systems and technologies.
Specializing in alternative-fuel, hybrid and electric vehicles and
infrastructures, eTec offers consulting, technical support and field services
and is committed to developing and commercially advancing clean electric
technologies with clear market advantages.
eTec’s
primary product line consists of the Minit-Charger line of battery fast-charge
systems. The Minit-Charger brand is the result of a consolidation of the two
leading fast-charging technologies: eTec
SuperCharge™ and Edison Minit-Charger. Prior
to rebranding all eTec fast-charge systems under the Minit-Charger brand, eTec
held exclusive patent rights to the flagship product line, eTec
SuperCharge™ - battery fast-charge systems that allow for
rapid charging while generating less heat and promoting longer battery life than
conventional chargers. The
eTec SuperCharge technology was licensed to eTec from Norvic Traction in
1999. The eTec
SuperCharge™ system was specifically designed for airport ground
support equipment, neighborhood and on-road electric vehicle, and marine and
transit system operations. Since the acquisition of the technology, eTec has
made considerable engineering and product advancements and is currently a leader
in providing these clean electric fast-charging technologies to airports
throughout North America.
25
In 2007,
we acquired the Minit-Charger business of Edison Source, a division of Edison
International . The core
Minit-Charger technology allows for material handling equipment to
convert to electric power systems that can be charged quickly, conveniently and
efficiently, thereby eliminating the need for propane or diesel-powered
equipment or for backup batteries and costly change-out operations required with
traditional straight-line charging.. eTec’s Minit-Charger line of
battery fast charge systems has a large customer base that consists of Fortune
500 companies and other corporate entities throughout North
America.
In March
of 2008, all eTec fast-charging products, including the eTec SuperCharge™ product
line, were consolidated under the eTec Minit-Charger brand. By
unifying the underlying fast-charging technologies under a single engineering,
manufacturing and sales entity (eTec Minit-Charger), we are
better able to streamline our operations and sales and marketing efforts. The
complete portfolio of eTec
Minit-Charger products provides eTec with a leadership position in
current fast charging markets and positions us well to capitalize on the rapidly
growing clean technology sector for electric vehicle infrastructure
technologies. We believe Minit-Charger is the most superior fast-charge
technology on the market as it is a smart charging system that can charge
batteries (of almost all chemistries) as fast as possible, while best
controlling the battery temperature and avoiding the devastating effects of
overcharging.
eTec has
a comparatively long history in clean and renewable technologies and has various
standing contractual relationships as a test contractor and/or primary and
consulting engineer for projects with the United States Department of Energy
(DoE), several national research laboratories, national energy storage
consortiums, and large electric utilities where they provide services in energy
storage, monitoring, systems design and fabrication, product and vehicle
testing, and product development. Their work has been in the areas of electric
vehicle systems, recharging stations, energy demand management systems, utility
communication systems, advanced battery technologies, fast charging
technologies, hydrogen creation, storage and dispensing systems, and coal
gasification programs. Currently, eTec is holds the exclusive contract for the
DoE’s Advanced Vehicle Testing Activity (AVTA) program and has conducted more
than 6 million miles of vehicle testing on more than 200 advanced fuel
vehicles.
We
acquired eTec as an expansion platform for its core expertise in battery
technologies, fast charging systems, energy distribution infrastructure, and
advanced vehicle technologies and testing, which includes electric vehicle (EV),
hybrid electric vehicle (HEV), plug-in hybrid electric vehicle (PHEV) and
hydrogen vehicle technologies. We believe that eTec will expand its core
technologies through new product development, joint ventures, acquisitions and
organic growth. Because eTec has unparalleled experience with
electric vehicle infrastructure, we believe our experience with electric
vehicles infrastructure, our knowledge of the vehicle and battery systems, as
well as our industry leading fast-charging technology provides us with a
distinct competitive advantage to be leading provider of electric vehicle
infrastructure services and installation.
eTec has
been involved in every North American EV initiative to date and is a leading
provider of solutions for electric vehicles and its supporting infrastructure.
Currently, eTec has installed more than 5,100 charging stations for motive
applications, and has installed more chargers for on-road applications than any
other company in North America.
On August
5, 2009 eTec was selected as the lead grantee by the U.S. Department of Energy
for a grant of approximately $99.8 million to undertake the largest
deployment of electric vehicles (EVs) and charging infrastructure in
U.S. history. On September 30, eTec accepted the $99.8 million
grant, of which approximately $13 million was sub-funded to federal
research and development centers, which will net eTec $86.4 million in
revenues. eTec, as the lead applicant for the proposal, partnered with
Nissan North America to deploy EVs and the charging infrastructure to support
them. The Project takes advantage of the early availability of the Nissan LEAF,
a zero-emission electric vehicle, to develop, implement and study techniques for
optimizing the effectiveness of charging infrastructure including more than
11,000 residential and publicly available charges that will support
widespread EV deployment. The Project will install a robust electric vehicle
charging infrastructure and will deploy 4,700 Nissan battery electric
vehicles in strategic markets in five states: Arizona, California, Oregon,
Tennessee, and Washington.
The
Project will collect and analyze data to characterize vehicle use in diverse
topographic and climatic conditions, evaluate the effectiveness of charge
infrastructure, and conduct trials of various revenue systems for commercial and
public charge infrastructure.
26
Innergy
Power Systems
Founded
in 1989, Innergy Power Systems is based in San Diego, California with a
manufacturing facility in Tijuana, Mexico. Innergy is the only North American
manufacturer of both renewable energy solar modules and thin-sealed rechargeable
batteries, as its solar photovoltaic (PV) product line addresses the burgeoning
worldwide demand for solar energy products and off-grid power. Innergy’s
fiberglass reinforced panel (FRP) solar modules are designed to meet a broad
range of applications for emergency preparedness and recreation, where quality,
durability, rugged construction and light weight are important in the outdoor
environment. Applications include logistics tracking, asset management systems,
off-grid lighting, mobile communications, mobile computing, recreational
vehicles, signaling devices and surveillance cameras.
Innergy
and our wholly owned subsidiary providing manufacturing services, Portable
Energy De Mexico, S.A. DE C.V., provides us the ability to further expand our
production, manufacturing and assembly capabilities for Innergy’s solar products
and energy storage devices, as well as products of our other subsidiaries,
including eTec’s Minit-Charger products. Innergy provides us the ability to
expand our offering of solar products and solutions into current and developing
commercial markets, as well as providing strong manufacturing and assembly
operations to assist other aspects of our business. While we expect solar to
become a major future energy source, Innergy’s battery systems that support the
electric vehicle market that is quickly expanding is vital as well, and we
expect the combination of solar solutions and new battery sales to contribute to
our long and short-term earnings and revenue growth. Innergy is actively
pursuing growth opportunities through product line expansion, joint ventures,
acquisitions, and manufacturing contracts.
ECOtality
Stores (dba Fuel Cell Store)
ECOtality
Stores (dba Fuel Cell Store) is our wholly-owned subsidiary and operates as our
online retail division. Fuel Cell Store (www.fuelcellstore.com) is an e-commerce
marketplace that offers consumers a wide array of fuel cell products from around
the globe. Based in San Diego, California and with active international
operations in Japan, Russia, Italy, and Portugal, Fuel Cell Store develops,
manufactures, and sells a diverse and comprehensive range of fuel cell products
that includes fuel cell stacks, systems, component parts and educational
materials. In addition to primary retail operations, Fuel Cell Store also offers
consulting services for high schools, colleges, and leading research institutes
and is available to host workshops, conferences and corporate events. Fuel Cell
Store is the leading market place for fuel cell stack, component, and hydrogen
storage manufacturers to unite with consumers and is an attractive source for
hydrogen and fuel cell industry activity and direction.
Hydrality™
Hydrality™
is a complex reactor system that stores and delivers hydrogen on-demand
using magnesium compounds and water. The EPC/Hydrality technology, which was
initially developed in conjunction with NASA’s Jet Propulsion Laboratory (JPL)
and subsequently advanced by Arizona State University, Green Mountain
Engineering and Airboss Aerospace, Inc. continues to have promise for a variety
of commercial applications. While we initially sought to design and license a
cost efficient Hydrality system for use in motorized vehicles and industrial
equipment, we have identified several additional and promising applications for
Hydrality that include stationary applications for remote power, back-up power
systems, and large scale industrial and utility use.
Products
We
currently offer the following products:
|
·
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Energy engineering services
(hydrogen, solar, battery, coal gasification, energy delivery
infrastructure)
|
|
·
|
eTec’s Minit-Charger fast-charge
systems for material handling and airport ground support
equipment
|
|
·
|
Charging systems (Level 2 &
3) for on-road grid-connected electric
vehicles
|
|
·
|
Energy engineering services
(hydrogen, solar, battery, coal gasification, energy delivery
infrastructure, etc.)
|
|
·
|
eTec Bridge Power Manager (BPM)
systems
|
|
·
|
Hydrogen internal combustion
engine (HICE) vehicle
conversions
|
|
·
|
Industrial battery
systems
|
|
·
|
Solar panel
production
|
|
·
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Specialty solar
solutions
|
27
|
·
|
Specialty thin-sealed lead
battery products
|
|
·
|
Various proprietary solar
products for consumer, emergency response programs and remote power
systems.
|
|
·
|
Third-party hydrogen and
education related products
|
|
·
|
EV Microclimate
Program
|
Minit-Charger
On July
29, 2008, eTec announced the launch of the new eTec Minit-Charger SC battery
fast-charging system. Approved by Underwriters Laboratories Inc. (UL), the SC
Charger utilizes Minit-Charger’s patented advanced algorithm technology to
provide a lighter, compact and a more cost-effective fast-charging system that
serves a variety of material handling equipment applications. The SC Charger is
a high-frequency, single-connector charger designed for medium and heavy duty
applications. Providing up to 250 amps of output, the SC Charger can fast-charge
battery systems of 36 volts or lower four times faster than convention charger.
The SC Charger features a light and compact design that allows for the system to
be pole or wall mounted in order to save valuable floor space and allows better
cable management. The SC Charger also features advanced data collection
capabilities, including the patented Minit-Trak™ fleet and system data
management system, which provides the most comprehensive performance evaluation
of a battery’s state-of-health and state-of-charge and automatically adjusts its
charging rates to increase and maximize battery life.
Charging
Systems
On July
22, 2008, ECOtality’s eTec announced it has launched a Plug-in Hybrid Electric
Vehicles (PHEVs) Grid Interaction Project to demonstrate and evaluate
bi-directional fast-charging operations for PHEVs in conjunction with smart grid
technologies for facility energy management. Funded by the USDOE through Idaho
National Laboratory (INL) and supported by project partner V2Green, the project
will demonstrate eTec’s ability to fast-charge a PHEV in 10 minutes and will
analyze the benefits and costs of using the energy storage capability of PHEVs
to provide energy back to a smart metered electric grid system. Pairing the eTec
Minit-Charger fast-charge system with utility smart meter interconnections, the
PHEV Grid Interaction Project will demonstrate and evaluate a bi-directional
fast-charge system capable of both fast-charging a PHEV in 10 minutes and
supplying the stored energy of a PHEV back to a smart grid. The project utilizes
V2Green’s smart grid technology to enable charging facilities (home or business)
to communicate and adaptively control the flow of energy between the
fast-charged PHEVs and the grid. Better energy consumption management results
from vehicles recharging during off-peak periods and providing stored energy
back to the grid during periods of peak-demand. The project will also evaluate
the impact of bi-directional fast-charging on PHEV battery life and performance
as PHEVs involved in the project will be subject to strenuous charge-discharge
cycles as each vehicle will be operated for a total of 5,440 miles.
Bridge
Power Management
On May
28, 2008, eTec announced the launch of the eTec Bridge Power Manager (BPM) that
allows for eTec
Minit-Charger’s fast-charge systems for electric ground support equipment
(eGSE) to share power with existing 480VAC supply circuits at airport terminal
gates and jetway bridges. The eTec Bridge Power Manager
significantly reduces infrastructure transition and conversion costs by
utilizing existing 480VAC gate power supply circuits that are typically used
only when a jetway bridge is aligning with a plane. The BPM decreases power to
Minit-Charger fast
charge systems when a jetway bridge is in use, then returns to full power once
the bridge is aligned. Up to four fast charge ports can operate from each
existing bridge supply with no impact to the airport operations. By eliminating
the need for new supply circuits, the BPM substantially reduces transition costs
as it provides a solution for the lengthy time needed to design and construct
new power circuits at an airport. As electric ground support equipment has been
shown to reduce annual fueling costs by 70 to 80% and total operating costs by
30 to 40% (when compared to internal combustion engine ground support equipment
that operates on gasoline or diesel fuel), the BPM additionally increases
efficiency by saving time and electricity by allowing electric GSE fleets to
recharge at the site of operation.
EV
Microclimate Program
In
January 8, 2009 ECOtality announced the EV Microclimate Program An integrated
turnkey program that provides a blueprint for a comprehensive Electric Vehicle
infrastructure system. As part of this program ECOtality works with
all relevant stakeholders to ensure an area is prepared for consumer adoption of
electric transportation. The implementation of an EV Micro-Climate
includes physical charge infrasture installations at residential, commercial and
public locations, as well as comprehensive regulatory, public awareness and
marketing programs to support the various value chains associated with a n EV
Micro-Climate. As part of the process, ECOtality will assist the
automotive manufactures with the installation of home charging systems in
car owners’ homes (or in public areas) in advance of vehicle delivery, as well
as install fast charging systems in strategic locations (ie fuel stations,
grocery stores, shopping areas).
28
Customers
We have a
strong base of commercial, industrial, institutional, governmental, and utility
customers. As the transition to renewable clean energy continues to advance, we
believe that our positioning within the commercial sector gives us an advantage
over companies who focus on consumer products or distribution. Our customer base
includes many Fortune 500 companies, colleges and universities, international
research institutes, major electric utilities, the Department of Energy, the
Department of Transportation, major industry research consortiums, regional
government organizations, vehicle manufacturers and original equipment
manufacturers (OEM). By providing testing and engineering services, as well as
being a product provider, we are on the cutting edge of technology and product
development for the production, storage and delivery of renewable energy
sources, which allows us to develop innovative products and solutions for
industry and government needs. Our customers use our products in industrial
applications and for OEM applications.
We
believe that commercial/industrial entities will be the early users of clean
electric and renewable energy technologies and products, precipitated by
regulatory, financial, employee, and customer pressures. While we continue to
achieve growth in the sale of fast-charge products for material handling and
airport applications, we have identified an emerging new market for our
fast-charging products for on-road electric vehicles. We are currently targeting
large international retailers, property management firms, major utilities,
traditional fuel providers and other commercial entities as potential on-road
vehicle fast-charge customers.
Manufacturing
We have
through our wholly-owned subsidiary Portable Energy De Mexico S.A.De C.V.,
manufacturing facilities in Tijuana, Mexico operated under a
“maquilladora” program for the production of solar and battery
products. The facility is highly labor-intensive. We have a high-value assembly
operation in Phoenix, Arizona. Additionally, we have manufacturing agreements
with third parties in Canada and China.
If
needed, we have the ability to substantially expand our Mexican operations
as well as our high-value manufacturing capability in Phoenix, Arizona. We are
planning for new leased facilities in Mexico and Arizona to handle our
anticipated growth. Part of our strategic growth plan would include more
mechanized production systems, inclusive of International Organization for
Standardization (ISO) quality and environmental certifications. Should the
market for on-road grid-connected vehicles continue to expand, we anticipate a
tremendous increase in market demand for electric vehicle supply equipment
(EVSE) by 2012. As the market for EVSE enters a growth phase, the manufacturing
capabilities in Mexico and Phoenix may need to be expanded through the lease or
purchase of additional adjacent buildings that will allow us to increase
manufacturing capacity to meet the appropriate levels of market
demands
Research
and Development
We
devoted a large percentage of our 2007 research and development expenditures to
the Hydrality project. This expenditure was with third-party technology and
engineering partners including NASA’s Jet Propulsion Laboratories (JPL) and
others, we have determined that we will reduce our technology research and
development expenditures at levels in-line with traditional operating technology
companies based upon a reasonable percentage of revenues.
We have
also determined that the vagaries of the hydrogen industry, the advancement of
other renewable technologies to the commercial forefront, and the potentially
long and expensive road to commercialization and profitability for hydrogen
technologies necessitate that we prudently scale back our hydrogen research and
development expenditures as indicated above, and proceed only on the basis of
joint development projects with third-parties or significantly subsidized
development with potential licensees or federal grants.
This
shift to joint development projects and the scaling back on our hydrogen
research and development expenditures is clearly reflected in our 2009
operating results. The most significant research and development expenditures
for 2008 relate to final payments on Hydrality- related projects initiated in
2007 that were scheduled for completion in the first half of
2008.
29
Sales
and Marketing
We are
actively marketing all of our companies and products under the ECOtality brand
as well as under their historic brand names. We are striving to build a strong
corporate identity as a “leader in clean electric transportation and storage
technologies”. This corporate branding of group products is an important part of
our strategy to provide individual and integrated electro-centric products and
solutions. Product marketing is handled on a divisional and subsidiary level,
with cross-marketing efforts to be a key element of the corporate marketing
program. Corporate marketing and overall brand management, investor relations
and group representation is handled out of our corporate headquarters in Tempe,
Arizona.
The
majority of our products and services are sold directly on a
business-to-business basis. ECOtality Stores conducts sales operations through
the internet of hydrogen fuel cell products and educational kits and
systems.
Government
Regulation
The
energy industry is highly regulated. Several states in the U.S. along with
Canada and various countries in Europe and Asia have adopted a variety of
government subsidies to allow new renewable sources of energy and technologies
to compete with conventional fossil fuel based sources. Government grants for
research and development are often the precursors to the acceptance of and
government incentives for new clean technologies. We closely track government
policy and strategy as it relates to renewable and clean tech energy. Our eTec
subsidiary has a large portfolio of DOE contracts and is in regular contact with
leaders of U.S energy and technology policies.
President
Barack Obama and his Administration continue to be strong proponents of
grid-connected vehicles and supporting infrastructure. Solid evidence of this
commitment can be found in the provisions of the Recovery Act. In a December
2009 report to the President, Vice President Joe Biden wrote, “The energy
components of the Recovery Act represent the largest single investment in clean
energy in American history… The Recovery Act investments of $80 billion for
clean energy will produce as much as $150 billion in additional clean energy
projects.” The Vice President also referenced the EV Project when he wrote, “We
are also building the infrastructure to support these vehicles including
construction of more than 10,000 charging locations in more than twelve
cities.”
We
believe that the Obama Administration will continue to help advance the electric
transportation technologies and to provide ongoing substantial funding
opportunities to establish and advance renewable energy infrastructure, electric
grid enhancements, and physical infrastructure to support this new method of
transportation. At the very least, substantial tax incentives and
rebates are offered for the purchase and use of reduced emissions vehicles, for
which all grid-connected vehicles currently apply, that are designed to support
consumer adoption. With our strong focus on electric transportation
infrastructure, grid-connected vehicles, and renewable energy technologies, we
believe the focus by the Obama Administration will continue to provide robust
funding opportunities for us and our core technologies.
eTec’s
portfolio of battery-charging and fast-charging systems may be subject to
regulation under the 2002 National Electric Code (“NEC”), which is a model code
adopted by the National Fire Protection Association that governs, among other
things, the installation of charging systems. Accordingly, any of our
systems installed in a jurisdiction that has adopted the 2002 NEC must be
installed in accordance with Article 692. Additionally, standards are being
devised by the Society of Automotive Engineers (SAE) for the connection and
communications standards between battery charging systems and grid-connected
vehicles. Our eTec subsidiary occupies leadership positions on both
the SAE’s Level 2 and Level 3 (fast-charging) committees. We expect all of our
electric vehicle supply equipment (EVSE) to comply with the necessary SAE
standards and specifications.
The
Federal Bayh-Dole Act requires the California Institute of Technology (CalTech-
operators of NASA’s JPL) to grant to the Federal government a worldwide,
non-exclusive, non-transferable, irrevocable, paid-up license in connection with
any invention developed under the Hydrality license agreement.
Therefore, under this provision, the Federal government would have a
license to use each subject invention for NASA-related applications and for
other applications of the Federal government.
The
Federal government also retains “March-in Rights, ” which would allow the
Federal government to grant licenses to others if: (1) we do not “achieve
practical application” of a subject invention (i.e. commercialize the
technology); (2) such action is necessary to alleviate health or safety needs
that are not reasonably satisfied by us; (3) such action is necessary to meet
requirements for public use specified by federal regulations and such
requirements are not reasonably satisfied by us; or (4) such action is necessary
because we and/or our sub licensees are manufacturing patented products
outside of the United States. We believe that the Federal government is
not likely to exercise its March-in Rights with regard to any of our patented
technology because March-in Rights have rarely, if ever, been invoked by the
Federal government since the Bayh-Dole Act was enacted in 1980. However, we
cannot assure you that the Federal government will not invoke its March-in
Rights against us in the future.
30
General
Competition
While
many of our individual technologies and products do have direct market
competition, we are aware of no other entity that has consolidated its products
and technology offerings to extend to such diverse renewable energy market
segments.
As
competition in the renewable energy sectors intensifies, the potential
competition for each of the individual products and technologies that we
offer ranges from development stage companies to major domestic and
international companies, many of which have financial, technical, marketing,
sales, manufacturing, distribution and other resources that are significantly
greater than ours.
Fast-Charge
Competition
The eTec SuperCharge and Minit-Charger systems
(consolidated under the eTec
Minit-Charger brand) are designed for material handling applications,
airport ground support equipment and electric vehicles. We believe that the
principal competitive factors in the markets for our battery fast charging
products and services include product performance, features, acquisition cost,
lifetime operating cost, including maintenance and support, ease of use,
integration with existing equipment, quality, reliability, customer support,
brand and reputation.
The
primary direct competitors to the Minit-Charger systems are
other fast-charge suppliers, including AeroVironment, Inc., Aker Wade Power
Technologies LLC, Power Designers, LLC, and C&D Technologies, Inc. Some of
the major industrial battery suppliers have begun to align themselves with fast
charge suppliers, creating a potentially more significant source of competition.
In addition, the eTec
SuperCharge and
Minit-Charger systems compete against the traditional method of battery
changing. Competitors in this area include suppliers of battery changing
equipment and infrastructure, designers of battery changing rooms, battery
manufacturers and dealers who may experience reduced sales volume because
the
Minit-Charger fast charge system reduces or eliminates the
need for extra batteries.
Electric
Vehicle Infrastructure Competition
Electric
vehicle infrastructure refers to companies that provide electric vehicle supply
equipment (EVSE) and services that support grid-connected vehicles. From a
product standpoint, this would primarily include the physical charging system
hardware and integrated software requirements. While the market is still in its
relative infancy, competing firms that have publically announced intentions to
enter this market include Better Place, Coulomb Technologies, AeroVironment,
Inc., Aker Wade Power Technologies, LLC, Delta-Q Technologies and Elektromotive
(UK). We are unaware of any competitor with comparable actual experience in
installing EV infrastructure in North America. Additionally, we are unaware of
any competitors that are actively engaged in extensive consulting operations for
major automotive OEMS, utilities, governmental organizations, research
institutes, or industry and trade groups.
Solar
Competition
The
market for solar electric power technologies is competitive and continually
evolving. Innergy’s solar products compete with a large number of competitors in
the solar power market, including BP Solar International Inc., Evergreen Solar,
Inc., First Solar Inc., Kyocera Corporation, Mitsubishi Electric Corporation,
Motech Industries Inc., Q-Cells AG, Sanyo Corporation, Sharp Corporation,
SolarWorld AG and Suntech Power Holdings Co., Ltd. Many of these companies have
established strong market positions, greater name recognition, a more
established distribution network and a larger installed base of customers. Some
competitors also have more available capital and significantly greater access to
financial, technical, manufacturing, marketing, sales, distribution, management
and other resources than we do. Many of our competitors also have
well-established relationships with our current and potential suppliers,
resellers and their customers and have extensive knowledge of our target
markets. As a result, our competitors may be able to devote greater
resources to the research, development, promotion and sale of their products and
respond more quickly to evolving industry standards and changing customer
requirements than we can.
31
In
addition to intense market competitors, universities, research institutions and
other companies have brought to market advanced and alternative technologies
such as thin films and concentrators, which may compete with our technology in
certain applications. Furthermore, the solar power market in general competes
with other sources of renewable energy and conventional power
generation.
The
principal elements of competition in the solar systems market include technical
expertise, experience, delivery capabilities, diversity of product offerings,
financing structures, marketing and sales, price, product performance, quality
and reliability, and technical service and support. We believe that we compete
favorably with respect to each of these factors, although we may be at a
disadvantage in comparison to larger companies with broader product lines and
greater technical service and support capabilities and financial
resources.
Hydrality
Competition
Hydrality
is a complex reactor system that is currently in developmental stages and stores
and delivers hydrogen on-demand using magnesium compounds and water. As
Hydrality provides an alternative method of storage and delivery of hydrogen, it
competes with current suppliers of delivered hydrogen and with other
manufacturers of on-site hydrogen generators. Competitors in the delivered
hydrogen market include Airgas, Inc., Air Liquide, Air Products and
Chemicals, Inc., Linde AG, Praxair Technology, Inc., and Distributed Energy
Systems Corporation. Hydrality will also compete with older generations of
electrolysis-based hydrogen generation equipment sold by Hydrogenics
Corporation, Statoil Hydro, Teledyne Energy Systems, Inc., and other companies.
We believe that many of these current hydrogen creation, storage and delivery
methods are bulky, unreliable, expensive, energy inefficient, contain hazardous
materials, or require the assistance of mechanical compressors to produce
hydrogen at high pressures.
There are
a number of companies located in the United States, Canada and abroad that are
developing Proton Exchange Membrane (PEM) fuel cell technology. These companies
include Ballard Power Systems Inc., General Motors Corporation,
Giner, Inc., Honda Motor Company, Toyota Motor Corporation, SANYO Electric
Co., Ltd., IdaTech LLC, Hydrogenics Corporation, Nuvera Fuel Cells, Plug Power
Inc. and United Technologies Corporation. Although we believe these companies
are currently primarily targeting vehicular and residential applications, they
could decide to enter the hydrogen generation and backup power markets we
address. We may also encounter competition from companies that have developed or
are developing fuel cells based on non-PEM technology, as well as other
distributed hydrogen generation technologies.
Retail
Fuel Cell Competition
Fuel Cell
Store has active operations in the United States, Japan, Russia, Italy, and
Portugal, and is an online retailer (e-commerce) that develops, manufacturers,
and sells a diverse and comprehensive range of fuel cell products. We believe
that the principal competitive factors in the retail fuel cell and e-commerce
markets include breadth of product offerings, product quality, product
availability, distribution capabilities, internet rankings, ease of use of the
website, customer service, technical support, brand and reputation.
The
primary direct competitors to Fuel Cell Store are fuel cell manufacturers, and
other fuel cell e-commerce sites. Fuel cell manufacturers that sell products
directly to consumers include Heliocentris Fuel Cells AG, Horizon Fuel Cell
Technologies, Ltd., BCS Fuel Cells, Inc., Electrochem, Inc., and Fuel Cell
Scientific, LLC. New e-commerce sites that are coming online in the U.S. and
abroad and are duplicating the Fuel Cell Store format and sourcing from similar
vendors are providing growing competition. These companies include GasHub
Technology, JHT Power, H-Tech, Inc., Element-1 Power Systems, and miniHYDROGEN.
Other renewable technologies, including solar and wind, as well as advanced
batteries and conventional fossil fuel technologies are also competing
technologies for fuel cells.
Intellectual
Property
Our
success depends, in part, on our ability to maintain and protect our proprietary
technology and to conduct our business without infringing on the proprietary
rights of others. We rely primarily on a combination of patents, trademarks and
trade secrets, as well as employee and third party confidentiality agreements,
to safeguard our intellectual property. As of December 31, 2008, in the United
States we held three patent applications and 16 issued patents, which will
expire at various times between 2010 and 2021. We also held two PCT patent
applications, two Canadian patent applications, one Japanese patent application,
one European patent application, 11 issued Canadian patents, four issued
Japanese patents, seven issued European patents, and one issued Australian
patent. Our patent applications and any future patent applications, might not
result in a patent being issued with the scope of the claims we seek, or at all
and any patents we may receive may be challenged, invalidated, or declared
unenforceable. We continually assess appropriate occasions for seeking patent
protection for those aspects of our technology, designs and methodologies and
processes that we believe provide significant competitive advantages. Our
patents and patent applications generally relate to our hydrogen, battery
charging, and thin-cell battery technologies.
32
In May
2006, CalTech filed a provisional patent application on the hydrogen technology
being developed pursuant to a task plan between ECOtality and Jet Propulsion
Laboratory (“JPL”), a Federally Funded Research and Development Center for the
National Aeronautics and Space Administration (“NASA”). The California
Institute of Technology (“CalTech”) is the operator of JPL and assignee of its
patent and technology rights. On May 7, 2007, a non-provisional
patent application was filed by Stinson Morrison Hecker LLP in the name of
California Institute of Technology as assignee and ECOtality, Inc. as
exclusive licensee of the technology, for a Method and System for Storing and
Generating Hydrogen, claiming priority from a provisional application filed by
CalTech on May 8, 2006 The details of the patent application and
invention are confidential until publication or issue, which did not occur prior
December 31, 2008. The patent application is generally directed towards the
hydrogen reactor design that has been under development.
On June
12, 2006, we entered into a License Agreement with California Institute of
Technology, which operates JPL, whereby we acquired certain exclusive licensed
patent and/or patent applications rights and improvement patent rights related
to research performed under the JPL Task Plan No. 82-10777, as well as a
nonexclusive licensed technology rights developed as a result of the Task Plan.
The license agreement with CalTech relates to CalTech’s rights to patents
and technology based on inventions that are: (a) identified in the license
agreement, (b) developed under the development agreement with JPL, (c) related
to electric power cell technology developed at JPL with the involvement of our
personnel, or (d) funded, in whole or in part, by us (the “CalTech Rights”).
As partial consideration paid in connection with the License Agreement, we
issued 97,826 shares of our common stock to CalTech with a fair market value of
$84.00 per share, based upon the closing price of our common stock on June 12,
2006, for a total aggregate value of $8,217,391. Furthermore, we are
obligated to pay an annual maintenance fee of $50,000 to CalTech, beginning on
June 12, 2009, continuing until the expiration, revocation, invalidation or
unenforceability of the last exclusively licensed patent rights or improvement
patent rights. The License Agreement carries a perpetual term, subject to
default, infringement, expiration, revocation or unenforceability of the License
Agreement and the licenses granted thereby.
eTec’s
primary product line consists of the Minit-Charger line of battery fast-charge
systems. The Minit-Charger brand is the result of a consolidation of the two
leading fast-charging technologies: eTec SuperCharge™ and Edison Minit-Charger. Prior
to rebranding all eTec fast-charge systems under the Minit-Charger brand, eTec
held exclusive patent rights to the flagship product line, eTec SuperCharge™ - battery
fast-charge systems that allow for rapid charging while generating less heat and
promoting longer battery life than conventional chargers. The eTec SuperCharge technology
was licensed to eTec from Norvic Traction in 1999. The eTec SuperCharge system was
specifically designed for airport ground support equipment, neighborhood and
on-road electric vehicle, and marine and transit system operations. Since the
acquisition of the technology, eTec has made considerable engineering and
product advancements and is currently a leader in providing these clean electric
fast-charging technologies to airports throughout North America.
In 2007,
we acquired the Minit-Charger business of Edison Source, a division of Edison
International . The core
Minit-Charger technology allows for material handling equipment to
convert to electric power systems that can be charged quickly, conveniently and
efficiently, thereby eliminating the need for propane or diesel-powered
equipment or for backup batteries and costly change-out operations required with
traditional straight-line charging In March of 2008, all eTec fast-charging
products, including the eTec
SuperCharge product line, were consolidated under the eTec Minit-Charger brand. By
unifying the underlying fast-charging technologies under a single engineering,
manufacturing and sales entity (eTec Minit-Charger), we are
better able to streamline our operations and sales and marketing
efforts.
With
respect to, among other things, proprietary know-how that is not patentable and
processes for which patents are difficult to enforce, we rely on trade secret
protection and confidentiality agreements to safeguard our interests. We believe
that many elements of our products and manufacturing process involve proprietary
know-how, technology, or data that are not covered by patents or patent
applications, including technical processes, equipment designs, algorithms and
procedures. We have taken security measures to protect these elements. All of
our research and development personnel have entered into confidentiality and
proprietary information agreements with us. These agreements address
intellectual property protection issues and require our employees to assign to
us all of the inventions, designs and technologies they develop during the
course of employment with us. We also require our customers and business
partners to enter into confidentiality agreements before we disclose any
sensitive aspects of our solar cells, technology, or business
plans.
33
Employees
As of
June 1, 2010, we had 96 employees, including 13 in manufacturing and the rest in
research and development, sales and marketing, and general and administration
positions. None of our employees are represented by labor unions or covered by a
collective bargaining agreement 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.
DESCRIPTION
OF PROPERTIES
Our
primary property consists of office and manufacturing facilities to support our
operations. On March 1, 2010, we entered into a lease for a new corporate
headquarters in Tempe, Arizona. This lease is for a term of 68
months for 4,441 square feet. For the first 8 months, rent was abated
and all tenant improvements were funded by the landlord. The first 20
months of the lease call for monthly payments starting in month 9 of $10,177
based on an annual rate of $27.50 per square foot. Future monthly
rates are as follows: Month 21 - 32 ($28.00 per sf.), Month 33-44
($28.50 per sf.), Month 45-56 ($29.00 per sf.), Month 57-68 ($29.50 per
sf.).
Our other
facilities are summarized in the following table:
Type
|
Location
|
Ownership
|
Approximate
Square Feet
|
|||||
Office
|
Scottsdale,
AZ
|
Owned
|
1,700
|
|||||
Manufacturing/Office
|
Phoenix,
AZ
|
Leased
|
2,350
|
|||||
Manufacturing/Office
|
Phoenix,
AZ
|
Leased
|
7,500
|
|||||
Manufacturing/Office
|
Phoenix,
AZ
|
Leased
|
3,650
|
|||||
Manufacturing/Office
|
Phoenix,
AZ
|
Leased
|
15,000
|
|||||
Manufacturing/Office
|
San
Diego, CA
|
Leased
|
5,400
|
|||||
Manufacturing/Office
|
Tijuana,
Mexico
|
Leased
|
19,000
|
|||||
Office
|
Brisbane,
Australia
|
Leased
|
300
|
We
purchased the office building that previously served as our corporate
headquarters and which is located in Scottsdale, Arizona, on January 16,
2007 for an aggregate price of $575,615. A total of $287,959 has been paid
as of December 31, 2009 and a tax credit has been recorded in the amount of
$156. The remaining balance of $287,500 is structured as an interest-only
loan, bears interest at a rate of 6.75% calculated annually, with monthly
payments in the amount of $1,617 due beginning on February 16, 2007.
The entire principal balance of the loan is due on or before January 16,
2012. The loan is secured by a deed of trust on the office
building.
Our lease
terms range from month to month through to 2013, with all terminating on or
before May 30, 2013.
It is our
belief that we are adequately insured regarding our leased and owned
properties.
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. We are currently not aware
of any such legal proceedings or claims that we believe will have, individually
or in the aggregate, a material adverse affect on our business, financial
condition or operating results.
34
MANAGEMENT
Names:
|
Ages
|
Titles:
|
Board of Directors
|
|||
Jonathan
R. Read
|
53
|
Chief
Executive Officer and President
|
Director
|
|||
Barry
S. Baer
|
66
|
Chief
Financial Officer
|
Director
|
|||
Donald
Karner
|
58
|
Chief
Executive Officer – Electric Transportation Engineering
Corporation
|
||||
Kevin
Morrow
|
47
|
Vice
President – Electric Transportation Engineering
Corporation
|
||||
Harold
W. Sciotto
|
68
|
Secretary
and Treasurer
|
||||
E.
Slade Mead
|
48
|
Director
|
||||
Carlton
Johnson
|
50
|
Director
|
||||
Daryl
Magana
|
41
|
Director
|
||||
Jack
Smith
|
41
|
Director
|
||||
Dave
Kuzma
|
64
|
Director
|
Directors
are elected to serve until the next annual meeting of stockholders and until
their successors are elected and qualified. Currently there are five seats on
our board of directors, of which, one seat is currently vacant.
Officers
are elected by the Board of Directors and serve until their successors are
appointed by the Board of Directors. Biographical resumes of each officer and
director are set forth below.
Jonathan
R. Read, Chief Executive Officer, President and Director
Mr. Read
has been our Chief Executive Officer, President and a Director since February
2006. From 1976 to 1978, Mr. Read was a Regional Manager for Specialty
Restaurant Corporation, operating a theme dinner house throughout California.
From 1979 to 1984, he was Managing Director for a group of international
companies based in Malaysia, Indonesia and Singapore ranging from hospitality
interests to manufacturing and real estate. From 1984 until he sold that
company in 1989, he was the Chairman and Chief Executive Officer of Shakey’s
International, a worldwide restaurant chain with operations in the United
States, Southeast Asia, Japan, South America, Mexico, Europe and the Caribbean.
In 1986, Mr. Read founded Park Plaza International (Park Inn
International/ Park Plaza Worldwide) and served as Chairman and CEO from 1986 to
2003. He expanded Park Plaza from four hotels into a global hotel group.
Mr. Read sold the companies to Carlson Hospitality and Golden Wall
Investments in 2003 and was an investor for his own accounts until he joined us
in February 2006.
Barry
S Baer, Chief Financial Officer, Director
Colonel
Barry S. Baer joined us as our Chief Financial Officer in December, 2006. He was
the CFO at Obsidian Enterprises from February 2003 to March 2004, and
at a number of manufacturing corporations including Max Katz Bag Company
(March 2004 to the present), Apex Industries (August 2002 to
December 2003) and Pharmaceutical Corporation of America (March 1993
to August 2002). Previously, he worked with the City of Indianapolis as its
Director of Public Works. Between June 2005 and December 2008, Mr. Baer
served as a member of the State of Indiana Unemployment Insurance Board. Since
October 2007, Colonel Baer has also served as CFO for Buck-A-Roo$ Holding
Corporation.
He was a
member of the U.S. Army from 1965 to 1992 ending his career as a Colonel. He
received his certification as a Certified Public Accountant while serving on
active duty in the Army. Colonel Baer’s military service includes Commander of
an armored cavalry troop in Vietnam; Director of the Accounting Systems for the
U.S. Army; Commander of the 18th Finance Group during Operation Desert
Shield/Desert Storm in the first Gulf War and Deputy Chief of Staff for Resource
Management for the Army Material Command.
Colonel
Baer earned a BS (Accounting) and an MBA from the University of Colorado.
He devotes approximately 40% of his time to other business
interests.
35
Donald
Karner, Chief Executive Officer - Electric Transportation Engineering
Corporation
Donald
Karner has been Chief Executive Officer - Electrical Transportation Engineering
Corporation since 1996. From 1988 to 1989, Mr. Karner held the
position of Chief Nuclear Officer for Arizona Public Service Company during the
construction and commissioning of the 3800 MWe Palo Verde Nuclear Generating
Station. During this period Mr. Karner directed a staff of 3,000 and
interfaced with and provided testimony for the multiple plant owners, the NRC,
various State regulatory commissions and the financial community regarding plant
matters. , Mr. Karner earned a B.S. in Electrical Engineering from Arizona State
University in 1973 and an M.S. in Nuclear Engineering from the University of
Arizona in 1974.
Kevin
Morrow, Vice President - Electric Transportation Engineering
Corporation
Kevin
Morrow has been Vice President - Electric Transportation Engineering Corporation
since. 1996. From January 1987 to September 1996 Mr. Morrow worked for the Salt
River Project (SRP) in Phoenix, Arizona. While at SRP, Mr. Morrow was
responsible for overseeing their Electric Vehicle Program which included
evaluating electric utility infrastructure impacts, evaluating and testing a
fleet of electric vehicles utilizing fast charging methods and regular overnight
charging, and managing SRP’s participation in the General Motors PrEView program
conducted in Phoenix, Arizona that was the pre-curser to the market introduction
of the GM EV1 electric vehicle. Mr. Morrow is a member of the SAE AGE-2
Air Cargo & Aircraft Ground Equipment & Systems Committee, the Electric
Power Research Institute Non-Road Advisory Committee and was past Steering
Committee Member, National Infrastructure Working Council (IWC). Mr. Morrow
earned a B.S. in Electrical Engineering from Arizona State
University.
Harold
W. Sciotto, Secretary and Treasurer
Mr.
Sciotto has been our Secretary and Treasurer since March 2007. Mr. Sciotto
was employed from June 1964 until his retirement in May 1993, by Sears
Roebuck & Company in various sales and management positions.
These positions encompassed store sales and department management
positions, such as store merchandise manager, district business manager for six
states and store manager of three stores in Arizona. His duties included
sales, advertising, personnel management, financial statement preparation and
accounting. From 1989 through the present, Mr. Sciotto has also been
an independent business consultant to various early-stage business ventures.
He was our Chief Executive Officer from April 2005 through
February 2006, our Chief Financial Officer from February 2006 through
December 2006 and a Director from December 2004 through October 2009.
Slade
Mead, Director
Mr. Mead
has been a Director since October 2007. Since July 2009,
Mr. Mead has been the Director of College Placement at the Trinity-Pawling
School in Pawling, New York. Mr. Mead also does some consulting work
representing professional athletes. Previously, Mr. Mead worked
for Advantage International, a leading global sports management firm, where he
ran the London office and represented several professional tennis and baseball
players. Between 2002 and 2004, Mr. Mead was an Arizona State Senator where he
served on the Appropriations, Government and Education (Vice-Chair) Committees.
With a deep commitment to education, Mr. Mead was voted the Arizona
School Board Legislator of the Year (2003), Arizona Women’s Political Caucus
Legislator of the Year (2004), and Arizona Career Technical Education Policy
Maker of the Year (2004). Mr. Mead remains very active in education
and state politics as he ran for Arizona Superintendent of Public Instruction in
2006, and is a Court appointed School Board and Receiver Board member for the
Maricopa Regional School District. Mr. Mead holds a Yale
Undergraduate and attended the University of Connecticut Law
School.
Carlton
Johnson, Director
Mr.
Johnson has been a Director since October 2009. Mr. Johnson has been In-House Legal
Counsel of Roswell Capital Partners, a fund management company located in
Alpharetta, GA since April 1996. His responsibilities include general corporate,
securities law, business litigation, and corporate governance. Mr. Johnson has
been a member of the Alabama Bar since 1986, the Florida Bar since 1988, and the
State Bar of Georgia since 1997. From 1993 to 1996 he served on the
Florida Bar Young Lawyers Division Board of Governors. Mr. Johnson earned a
degree in History/Political Science, with high honors, at Auburn University in
1982 and Juris Doctorate at Samford University – Cumberland School of Law, with
high honors in 1986. He has served on the Board of Directors for Peregrine
Pharmaceuticals Inc., a biopharmaceutical company located in Tustin, CA since
1999. He is the Chair of their Audit Committee, and has served in various
positions for this biotech company including assisting in business development
and licensing, financing and general corporate governance. Since 2001, Mr.
Johnson has served on the Board of Directors of Patriot Scientific, Inc, an
intellectual property licensing company located in Carlsbad, CA. He is Chair of
the Compensation Committee and serves on the Audit Committee, as well as the
Executive Committee and is Patriot Scientific Co-Chair to the holding company
for intellectual property licensing and enforcement.
36
Daryl
Magana, Director
Mr.
Magana has been a Director since December 2009. Mr. Magana is a Partner at
Cybernaut Capital Management, a private equity firm with a focus on the China
market. Mr. Magana joined Cybernaut in February of 2006 as Partner and Head of
Global Operations. In 2002, Mr. Magana Founded, and was Chairman and CEO
of the China based consulting and technology firm SRS2. Mr. Magana
served as CEO of SRS2 until April of 2006, and continues to serve as
Chairman. In 1997, Mr. Magana founded Bidcom; one of the
industry’s first Application Service Providers. BidCom was recognized by Fortune
Magazine as one of 1999’s Top Ten Technology Companies. Mr. Magana is a
respected technology expert and innovative web-pioneer featured in numerous
conferences, major business publications, television and radio broadcasts and
has served as guest lecturer at several Universities including Harvard and
Stanford. Mr. Magana attended the University of San Francisco.
Jack
Smith, Director
Mr. Smith
has been a Director since December 2009. Mr. Smith invented and
co-founded Hotmail and served as the company’s Chief Technology Officer prior to
it being acquired by Microsoft in 1997. After Hotmail’s acquisition, Mr. Smith
focused on advanced infrastructure design as a general manager at Microsoft. Mr.
Smith next served as co-founder and CEO of Akamba Corporation where he invented
and marketed the first Web server accelerator card that boosted server
performance by 300 percent. From 2001 until September 2007, Mr. Smith seed
funded, advised, and/or directed early stage tech startup companies. One such
company was Ironport Systems, into which he invested and where he served on its
board from 1999 to 2006, prior to its acquisition by Cisco. Mr. Smith has been a
Director since 2004, and the CEO of Proximex Corporation since September 2007
and has successfully developed Proximex’s leadership margin in the physical
security information management market. Mr. Smith co-founded Valley Inception,
LLC in December 2008 which makes seed
investments in early stage companies and provides marketing, public relations,
and project management services for equity. His earlier background includes
semiconductor design as an engineer and various technical positions at Apple
Computer and FirePower Systems, a subsidiary of Canon Computer
Systems.
Dave
Kuzma, Director
Mr. Kuzma
has been a Director since December 2009. Mr. Kuzma has been retired
since 1999. Previously, Mr. Kuzma was the president of Sempra Energy
Resources, based in San Diego California. Sempra is a diversified
energy company involved in electric generation, oil and gas drilling, pipelines
and gas processing. Prior to Sempra Energy, Mr. Kuzma was Chief Financial
Officer and treasurer of Enova Corporation, which is the parent company of San
Diego Gas & Electric (SDG&E) and several other US-based subsidiaries,
for which he also served as CFO/Treasurer. He also served as the Chief Financial
Officer and Senior Vice President at Florida Progress Corporation. Mr. Kuzma
began his career as an auditor for Price Waterhouse, after which he joined
Consolidated Natural Gas Company of Pittsburgh. There he held the positions of
Manager of Finance, Director of Internal Auditing, Assistant Treasurer, Finance
Treasurer and Vice President and General Manager during his 20-year career with
the company. Mr. Kuzma is a Certified Public Accountant.
Audit
Committee
Our Audit
Committee currently consists of David Kuzma, Carlton Johnson and Daryl Magana,
with Mr. Kuzma elected as Chairman of the Committee. Our Board of Directors has
determined that all of the members are “independent” as that term is defined
under applicable SEC rules and under the current listing standards of the NASDAQ
Stock Market. Mr. Kuzma is our audit committee financial expert.
Our Audit
Committee’s responsibilities include: (i) reviewing the independence,
qualifications, services, fees, and performance of the independent auditors,
(ii) appointing, replacing and discharging the independent auditor, (iii)
pre-approving the professional services provided by the independent auditor,
(iv) reviewing the scope of the annual audit and reports and recommendations
submitted by the independent auditor, and (v) reviewing our financial reporting
and accounting policies, including any significant changes, with management and
the independent auditor. Our Audit Committee also prepares the Audit Committee
report that is required pursuant to the rules of the SEC.
37
Compensation
Committee
Our
Compensation Committee currently consists of David Kuzma, Jack Smith, Slade Mead
and Daryl Magana, with Mr. Kuzma elected as Chairman of the Committee. Our Board
of Directors has determined that all of the members are “independent” under the
current listing standards of the NASDAQ Stock Market. Our Board of Directors has
adopted a written charter setting forth the authority and responsibilities of
the Compensation Committee.
Our
Compensation Committee has responsibility for assisting the Board of Directors
in, among other things, evaluating and making recommendations regarding the
compensation of our executive officers and directors, assuring that the
executive officers are compensated effectively in a manner consistent with our
stated compensation strategy, producing an annual report on executive
compensation in accordance with the rules and regulations promulgated by the
SEC, periodically evaluating the terms and administration of our incentive plans
and benefit programs and monitoring of compliance with the legal prohibition on
loans to our directors and executive officers.
Code
of Ethics
We have
not adopted a Code of Business Conduct and Ethics that applies to our principal
executive officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions.
Section
16(a) Compliance
Section 16(a) of
the Securities Exchange Act of 1934, as amended, requires our directors and
executive officers, and persons who beneficially own more than 10% of a
registered class of our equity securities, to file reports of beneficial
ownership and changes in beneficial ownership of our securities with the SEC on
Forms 3 (Initial Statement of Beneficial Ownership), 4 (Statement of Changes of
Beneficial Ownership of Securities) and 5 (Annual Statement of Beneficial
Ownership of Securities). Directors, executive officers and beneficial owners of
more than 10% of our Common Stock are required by SEC regulations to furnish us
with copies of all Section 16(a) forms that they file. Based
solely on review of the copies of such forms furnished to us, or written
representations that no reports were required, we believe that for the fiscal
year ended December 31, 2009, our directors, executive officers and 10%
stockholders complied with all Section 16(a) filing
requirements.
38
EXECUTIVE
COMPENSATION
Summary
Compensation Table
The
following table provides certain summary information concerning compensation
awarded to, earned by or paid to our Chief Executive Officer, two other highest
paid executive officers and two non-executive officers whose total annual salary
and bonus exceeded $100,000 for fiscal years 2009 and 2008.
Summary Compensation Table
|
||||||||||||||||||||||||||||||||||
Name and Principal
Position
|
Year
|
Salary ($)
|
Bonus ($)
|
Stock
Awards ($)
|
Option
Awards ($)
|
Non-Equity
Incentive Plan
Compensation
|
Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings ($)
|
All Other
Compensation
($)
|
Total ($)
|
|||||||||||||||||||||||||
Johnathan
R Read
|
2009
|
390,884 | 75,000 | 3,731,778 | (1),(2) | 4,197,662 | ||||||||||||||||||||||||||||
CEO
and President
|
2008
|
337,224 | 55,168 | (3) | 392,392 | |||||||||||||||||||||||||||||
Harold
W. Sciotto
|
2009
|
120,000 | 120,000 | |||||||||||||||||||||||||||||||
Secretary
and Treasurer
|
2008
|
120,000 | 120,000 | |||||||||||||||||||||||||||||||
Barry
S. Baer
|
2009
|
143,844 | 39,375 | 27,500 | (4) | 210,719 | ||||||||||||||||||||||||||||
Chief
Financial Officer
|
2008
|
142,908 | 142,908 | |||||||||||||||||||||||||||||||
Donald
B. Karner
|
2009
|
262,500 | 600,000 | (5) | 8,083 | (6) | 870,583 | |||||||||||||||||||||||||||
CEO,
eTec Subsidiary
|
2008
|
250,001 | 8,750 | (6) | 258,751 | |||||||||||||||||||||||||||||
Kevin
P. Morrow
|
2009
|
170,833 | 400,000 | (5) | 9,800 | (6) | 580,633 | |||||||||||||||||||||||||||
Exec.
VP eTec Subsidiary
|
2008
|
132,150 | 6,000 | (6) | 138,150 |
Notes:
(1) On
September 30, 2009, triggering conditions were met under the management
incentive plan resulting in the grant of an equity award to Mr. Read valued at
$8.1MM. This award, originally stated in terms of warrants was never issued, was
subsequently revised and reduced, with final grant and award of 673,505 shares
of our common stock being granted to Mr. Read on January 15, 2010, with final
issuance of the shares on January 27, 2010. The value of the final award was
calculated at the time of the issuance of the shares on January 27, 2010. The
share price on that date was $5.50 for total compensation of
$3,704,278.
(2) On
July 28, 2009 we issued 4,167 (post-Reverse Split) shares of our common stock to
Mr. Read as compensation for services valued at $27,500, calculated at $6.60
using the Black Scholes Option Calculator.
(3) On
November 1, 2007 we granted 33,333 (post-Reverse Split) options to acquire
shares of our common stock to Mr. Read as additional incentive compensation for
services, the first 16,667 options vested on November 1,2007 and were valued at
$281,300 calculated at $16.878 per share using the Black Scholes Option
Calculator. The second 16,666 options vested on November 1, 2008. The portion of
these options earned in 2007 was valued at $14,442, calculated at $10.398 using
the Black Scholes Option Calculator, the remainder of the options were earned in
2008 and were valued at $55,168, calculated monthly resulting in a weighted
average value per share of $6.618 using the Black Scholes Option
Calculator.
(4) On
July 28, 2009 we issued 4,167 (post-Reverse Split) shares of our common stock to
Mr. Baer as compensation for services valued at $27,500, calculated at $6.60
using the Black Scholes Option Calculator.
(5) On
September 30, 2009, triggering conditions were met under the management
incentive plan resulting in the payment of a cash award on December 22, 2009 to
Don Karner of $600,000 and to Kevin Morrow of $400,000.
(6)
Employer match for 401K contributions.
39
Employment
Agreements with Executive Officers
Jonathan
Read
In April 2009, we entered into a
two-year employment agreement with Mr. Read to serve as our Chief Executive
Officer. In October 2009, the agreement was amended to increase the term of the
employment agreement until October 31, 2011. Pursuant to the agreement, Mr. Read
receives an annual salary of $300,000. Mr. Read is reimbursed up to
$1,000 per month for automobile expenses. Additionally, he is entitled to
participate in any and all benefit plans, from time to time, in effect for
executives, along with vacation, sick and holiday pay in accordance with our
policies established and in effect from time to time. In the event that Mr.
Read’s employment is terminated by us without cause (as defined in the
agreement) or by Mr. Read for good reason (as defined in the agreement), Mr.
Read is entitled to the continuation of payment of annual salary until the end
of the term of the employment agreement.
Amendments made on May 15, 2009 and
October 31, 2009 to certain outstanding Debentures contained management
incentives providing for the issuance of securities subject to our achievement
of certain performance targets. Our performance target for 2009 was to secure
executed stimulus contracts valued at $20,000,000 or more on or before October
1, 2009, which was achieved. As a result of these stimulus contracts,
Mr. Read received a bonus of 673,506 shares of our common stock for achieving
the first management incentive target.
Equity
Incentive Plan
In
January 2007 we adopted, subject to stockholder approval, an equity
incentive plan which provides for the grant of options intended to qualify as
“incentive stock options” and “non-statutory stock options” within the meaning
of Section 422 of the Internal Revenue Code of 1986 together with the grant
of bonus stock and stock appreciation rights at the discretion of our Board of
Directors. Incentive stock options are issuable only to our eligible
officers, directors and key employees. Non-statutory stock options are
issuable only to our non-employee directors and consultants.
The plan
is administered by our Board of Directors. Currently, we have 6,100,000
shares of common stock reserved for future issuance upon the exercise of stock
options granted under the plan. Under the plan, the Board of Directors
determine which individuals will receive options, grants or stock appreciation
rights, the time period during which the rights may be exercised, the number of
shares of common stock that may be purchased under the rights and the option
price.
With
respect to stock options, the per share exercise price of the common stock may
not be less than the fair market value of the common stock on the date the
option is granted. No person who owns, directly or indirectly, at the time
of the granting of an incentive stock option, more than 10% of the total
combined voting power of all classes of our stock is eligible to receive
incentive stock options under the plan unless the option price is at least 110%
of the fair market value of the common stock subject to the option on the date
of grant. The option price for non-statutory options is established by the
Board and may not be less than 100% of the fair market value of the common stock
subject to the option on the date of grant.
No
options may be transferred by an optionee other than by will or the laws of
descent and distribution, and during the lifetime of an optionee, the option may
only be exercisable by the optionee. Options may be exercised only if the
option holder remains continuously associated with us from the date of grant to
the date of exercise, unless extended under the plan grant. Options under
the plan must be granted within ten years from the effective date of the
plan and the exercise date of an option cannot be later than five years
from the date of grant. Any options that expire unexercised or that
terminate upon an optionee’s ceasing to be employed by us will become available
once again for issuance. Shares issued upon exercise of an option will
rank equally with other shares then outstanding.
40
Option/SAR
Grants in Last Fiscal Year
None.
Outstanding
Equity Awards at Fiscal Year-End Table.
Option Awards
|
Equity Awards
|
||||||||||||||||||||||||||||||||
Name and Principal
Position
|
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
|
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
|
Equity
Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
|
Option
Exercise
Price ($)
|
Option
Expiration
Date
|
Number or
shares or
Units of
Stock That
Have Not
Vested (#)
|
Market Value
of Shares or
Units of
Stock That
Have Not
Vested ($)
|
Equity
Incentive
Plan Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested (#)
|
Equity
Incentive
Plan Awards:
Market of
Payout Value
of Unearned
Shares, Units
or Other
Rights That
Have Not
Vested ($)
|
||||||||||||||||||||||||
Johnathan
R. Read
|
16,667 | - | - | $ | 2.40 |
11/1/2018
|
(1)
|
- | - | - | - | ||||||||||||||||||||||
CEO
and President
|
16,667 | - | - | $ | 16.80 |
11/1/2017
|
(1)
|
- | - | - | - | ||||||||||||||||||||||
Barry
S. Baer
Chief
Financial
Officer
|
8,333 | - | - | $ | 11.40 |
12/31/2012
|
(2)
|
- | - | - | - |
Notes:
(1) On
November 1, 2007 we granted 33,334 options to acquire shares of our common stock
to Mr. Read as additional incentive compensation for services, the first 16,667
options vested on November 1, 2007 and were valued at $281,300 calculated at
$16.8777 per share using the Black Scholes Option Calculator. The second 278
options vested on November 1, 2008. The portion of these options earned in 2007
was valued at $14,442, calculated at $l0.398 using the Black Scholes Option
Calculator, the remainder of the options were earned in 2008 and were valued at
$55,l68, calculated monthly resulting in a weighted average value per share of
$6.618 using the Black Scholes Option Calculator.
(2) On
December 31, 2007 we issued 8,333 options to acquire shares of our common stock
to Mr. Baer as compensation for services valued at $86,650, calculated at
$10.3984 using the Black Scholes Option Calculator.
Director
Compensation
Our
directors are elected by the vote of a majority in interest of the holders of
our voting stock and hold office until the expiration of the term for which he
or she was elected and until a successor has been elected and qualified.
A
majority of the authorized number of directors constitutes a quorum of the Board
of Directors for the transaction of business. The directors must be present at
the meeting to constitute a quorum. However, any action required or permitted to
be taken by the Board of Directors may be taken without a meeting if all members
of the Board of Directors individually or collectively consent in writing to the
action.
41
Directors
received compensation for their services for the fiscal year ended December 31,
2009 as set forth below:
DIRECTOR COMPENSATION
|
||||||||||||||||||||||||
Name
|
Fees Earned or
Paid in Cash $
|
Stock
Awards $
|
Non-Equity
Incentive Plan
Compensation
|
Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
|
All Other
Compensation
$
|
Total $
|
||||||||||||||||||
E.
Slade Mead
|
$
|
12,000
|
(1)
|
-
|
-
|
-
|
-
|
$
|
12,000
|
|||||||||||||||
Jerry
Y.S. Lin
|
$
|
35,000
|
(2)
|
-
|
-
|
-
|
-
|
$
|
35,000
|
|||||||||||||||
$
|
47,000
|
-
|
-
|
-
|
-
|
$
|
47,000
|
(1) E.
Slade Mead serves as a member of the Board of Directors and is compensated at a
rate of $1,000 per month to cover his travel expenses and time for attending
meetings and managing correspondence.
(2) Jerry
Y.S. Lin served as a Director through November 1, 2009 and was compensated at a
rate of $3,500 per month to serve as both a member of the Board of Directors, as
well as our technology liaison. This compensation covered his travel expenses
and time for attending meetings and managing correspondence.
Dr. Lin’s
responsibilities as our technology liaison included the following:
a. Maintain
currency in the field of hydrogen research and development and ensuring we stay
abreast of developments in this field.
b. Maintain
currency in the commercialization of hydrogen based energy/storage products and
advising us on the appropriateness of performing further work to commercialize
products for which we own or have the license to the intellectual
property.
c. Oversee
the development or commercialization of any of our hydrogen related
products.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Other
than as disclosed below, during the last two fiscal years, there have been no
transactions, or proposed transactions, which have materially affected or will
materially affect us in which any director, executive officer or beneficial
holder of more than 5% of the outstanding common or preferred stock, or any of
their respective relatives, spouses, associates or affiliates, has had or will
have any direct or material indirect interest. We have no policy regarding
entering into transactions with affiliated parties.
On August
29, 2008, Mr. Donald Karner, one of our directors, and Kathryn Forbes agreed to
provide us a line of credit for up to $650,000. This Line is secured by a second
position on receivables (junior to previously issued debentures). During the
nine months ended September 30, 2008, $300,000 was advanced by Mr. Karner and
Ms. Forbes. This line carried a loan fee of $45,000 payable when the line
expired on December 15, 2008. No other interest payments or fees were required
under the agreement. The fee of $45,000 was expensed over the life of the Line.
Imputed interest of $1,425 and financing charges of $6,962 were expensed in the
nine month period ending September 30, 2008. The balance of the note
payable of $450,000 was paid July 9, 2009.
42
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth certain information regarding beneficial ownership of
our common stock as of June 7, 2010.
·
|
By
each person who is known by us to beneficially own more than 5% of our
common stock;
|
·
|
By
each of our officers and directors; and
|
·
|
By
all of our officers and directors as a
group.
|
NAME AND ADDRESS
OF OWNER (1)
|
TITLE OF
CLASS
|
NUMBER OF
SHARES OWNED (2)
|
PERCENTAGE
OF CLASS PRIOR
TO
OFFERING (3)
|
PERCENTAGE
OF CLASS
AFTER
OFFERING (4)
|
||||||||||
Jonathan
R. Read
|
Common
Stock
|
805,173 | (5) | 8.92 | % | * | ||||||||
Barry
S. Baer
|
Common
Stock
|
12,500 | (6) | * | * | |||||||||
Donald
Karner
|
Common
Stock
|
163,240 | 1.81 | % | * | |||||||||
Kevin
Morrow
|
Common
Stock
|
106,560 | 1.18 | % | * | |||||||||
E.
Slade Mead
|
Common
Stock
|
11,776 | * | * | ||||||||||
Carlton
Johnson
|
Common
Stock
|
0 | * | * | ||||||||||
Daryl
Magana
|
Common
Stock
|
391,596 | (7) | 4.17 | % | * | ||||||||
Jack
Smith
|
Common
Stock
|
0 | * | * | ||||||||||
Dave
Kuzma
|
Common
Stock
|
0 | * | * | ||||||||||
Howard
Sciotto
|
Common
Stock
|
95,098 | 1.06 | % | * | |||||||||
All
Officers and Directors As a Group (10 persons)
|
Common
Stock
|
817,340 | (8) | 16.82 | % | 2.10 | % | |||||||
Enable
Capital Management, LLC (9)
|
Common
Stock
|
998,217 | (10) | 9.99 | % | 1.35 | % | |||||||
One
Ferry Building, Suite 255
|
||||||||||||||
San
Francisco, CA 94111
|
||||||||||||||
BridgePoint
Master Fund Ltd. (11)
|
Common
Stock
|
998,217 | (12) | 9.99 | % | * | ||||||||
1120
Sanctuary Pkwy, Suite 325
|
||||||||||||||
Alpharetta,
GA 30004
|
||||||||||||||
Zhu-Xu
Charitable Remainder Trust (13)
|
Common
Stock
|
998,217 | (14) | 9.99 | % | * | ||||||||
12167
Kate Drive
|
||||||||||||||
Los
Altos Hills, California 94022
|
||||||||||||||
Valley
2010 Investment LLC (13)
|
Common
Stock
|
998,217 | (15) | 9.99 | % | * | ||||||||
12167
Kate Drive
|
||||||||||||||
Los
Altos Hills, California 94022
|
||||||||||||||
Global
LearnNet Ltd. (13)
|
Common
Stock
|
998,217 | (15) | 9.99 | % | * | ||||||||
12167
Kate Drive
|
||||||||||||||
Los
Altos Hills, California 94022
|
||||||||||||||
Ardsley
Partners Fund (16)
|
Common
Stock
|
998,217 | (17) | 9.99 | % | * | ||||||||
262
Harbor Drive
|
||||||||||||||
Stamford,
CT 06902
|
||||||||||||||
Edison
Enterprises (18)
|
Common
Stock
|
555,556 | 6.18 | % | 2.74 | % | ||||||||
2244
Walnut Grove
|
||||||||||||||
Rosemead,
CA 91770
|
43
* Less
than 1%.
(1)
Unless otherwise noted, the mailing address of each beneficial owner is c/o
ECOtality, Inc., 80 Rio Salado Parkway, Suite 710, Tempe, Arizona
85281.
(2)
Beneficial Ownership is determined in accordance with the rules of the SEC and
generally includes voting or investment power with respect to securities. Shares
of common stock subject to options or warrants currently exercisable or
convertible, or exercisable or convertible within 60 days of June 7, 2010 are
deemed outstanding for computing the percentage of the person holding such
option or warrant but are not deemed outstanding for computing the percentage of
any other person.
(3)
Percentage based upon 8,993,950 shares of common stock issued and
outstanding as of June 7, 2010.
(4)
Percentage based upon 20,258,050 shares of common stock issued and
outstanding upon the completion of the offering and assumes that all shares
registered hereunder are sold.
(5)
Includes 33,334 shares of common stock issuable upon exercise of common stock
purchase warrants. Upon the completion of the offering and assumes that all
shares registered hereunder are sold, Mr. Read will own 98,334 shares of common
stock and 33,334 shares of common stock issuable upon exercise of common stock
purchase warrants.
(6)
Includes 8,333 shares of common stock issuable upon exercise of common stock
purchase warrants.
(7)
Represents shares of common stock issuable upon exercise of Series A Convertible
Preferred Stock. Upon the completion of the offering and assumes that
all shares registered hereunder are sold, Mr. Magana will not own any
securities.
(8)
Includes 391,596 shares of common stock issuable upon exercise of Series A
Convertible Preferred Stock and 41,667 shares of common stock issuable upon
exercise of common stock purchase warrants. Upon the completion of
the offering and assumes that all shares registered hereunder are sold, the
officers and directors will own 384,077 shares of common
stock, 391,596 shares of common stock issuable upon exercise of
Series A Convertible Preferred Stock and 41,667 shares of common stock issuable
upon exercise of common stock purchase warrants. Upon the completion of the
offering and assumes that all shares registered hereunder are sold, the officers
and directors will own 384,077 shares of common stock and 41,667 shares of
common stock issuable upon exercise of common stock purchase
warrants.
(9)
Mitchell S. Levine, managing member and majority owner of Enable Capital
Management, LLC, the general partner or investment manager of Enable Growth
Partners, L.P., Enable Opportunity Partners, L.P., Pierce Diversified Strategy
Master Fund, LLC and other client accounts, has voting and investment control
over shares held by this entity. Mr. Levine disclaims beneficial ownership of
the securities, except to the extent of his pecuniary interests
therein.
(10)
Represents the aggregate maximum number and percentage of shares that the
selling stockholder can own at one time (and therefore, offer for resale at any
one time) as Investor has agreed to restrict its ability to convert its Series A
Convertible Preferred Stock and/or exercise its warrants and receive shares of
our common stock such that the number of shares of common stock held by them in
the aggregate and their affiliates after such conversion or exercise does not
exceed 9.99% of the then issued and outstanding shares of common
stock. Investor owns 551,111 shares of common stock, warrants that
are exercisable into 277,778 shares of common stock and Series A Convertible
Preferred Stock that is convertible into 4,585,632 shares of common stock. Upon
the completion of the offering and assumes that all shares registered hereunder
are sold, Enable will own 273,333 shares of common stock.
44
(11) Eric
S. Swartz and Michael C. Kendrick, as principals and co-owners of Roswell
Capital Partners, LLC, the investment manager of BridgePoint Master Fund Ltd.,
have voting and investment control over shares held by this entity. Messrs.
Swartz and Kendrick disclaim beneficial ownership of the securities, except to
the extent of each of their pecuniary interests therein.
(12)
Represents the aggregate maximum number and percentage of shares that the
selling stockholder can own at one time (and therefore, offer for resale at any
one time) as Investor has agreed to restrict its ability to convert its Series A
Convertible Preferred Stock and/or exercise its warrants and receive shares of
our common stock such that the number of shares of common stock held by them in
the aggregate and their affiliates after such conversion or exercise does not
exceed 9.99% of the then issued and outstanding shares of common
stock. Investor owns 626,666 shares of common stock, warrants that
are exercisable into 416,666 shares of common stock and Series A Convertible
Preferred Stock that is convertible into 1,322,365 shares of common stock. Upon
the completion of the offering and assumes that all shares registered hereunder
are sold, BridgePointe will own 150,000 shares of common stock.
(13)
Yuqing Xu has voting and investment control over shares held by this
entity.
(14)
Represents the aggregate maximum number and percentage of shares that the
selling stockholder can own at one time (and therefore, offer for resale at any
one time) as Investor has agreed to restrict its ability to convert its Series A
Convertible Preferred Stock and/or exercise its warrants and receive shares of
our common stock such that the number of shares of common stock held by them in
the aggregate and their affiliates after such conversion or exercise does not
exceed 9.99% of the then issued and outstanding shares of common
stock. Investor owns Series A Convertible Preferred Stock that is
convertible into 1,430,741 shares of common stock. Upon the completion of the
offering and assumes that all shares registered hereunder are sold, investor
will not own any securities.
(15) Represents
the aggregate maximum number and percentage of shares that the selling
stockholder can own at one time (and therefore, offer for resale at any one
time) as Investor has agreed to restrict its ability to convert its Series A
Convertible Preferred Stock and/or exercise its warrants and receive shares of
our common stock such that the number of shares of common stock held by them in
the aggregate and their affiliates after such conversion or exercise does not
exceed 9.99% of the then issued and outstanding shares of common
stock. Investor owns 694,444 shares of common stock and warrants that
are exercisable into 694,444 of common stock. Upon the completion of the
offering and assumes that all shares registered hereunder are sold, investor
will not own any securities.
(16)
Philip J. Hempleman has voting and investment control over shares held by this
entity.
(17) Represents
the aggregate maximum number and percentage of shares that the selling
stockholder can own at one time (and therefore, offer for resale at any one
time) as Investor has agreed to restrict its ability to convert its Series A
Convertible Preferred Stock and/or exercise its warrants and receive shares of
our common stock such that the number of shares of common stock held by them in
the aggregate and their affiliates after such conversion or exercise does not
exceed 9.99% of the then issued and outstanding shares of common
stock. Investor owns 694,443 shares of common stock and warrants that
are exercisable into 694,443 of common stock. Upon the completion of the
offering and assumes that all shares registered hereunder are sold, investor
will not own any securities.
(18) W.
James Scilacci, CEO, President, Financial Officer and Chairman of the Board;
Robert L. Adler, Vice President and Director; and Theodore F. Craver, Jr.,
Director, each have voting and investment control over shares held by this
entity.
45
DESCRIPTION
OF SECURITIES
COMMON
STOCK
We are
authorized to issue up to 1,300,000,000 shares of common stock, par value $.001.
As of June 7, 2010, there were 8,993,950 shares of common stock outstanding.
Holders of the common stock are entitled to one vote per share on all matters to
be voted upon by the stockholders. Holders of common stock are entitled to
receive ratably such dividends, if any, as may be declared by the Board of
Directors out of funds legally available therefor. Upon the liquidation,
dissolution, or winding up of our company, the holders of common stock are
entitled to share ratably in all of our assets which are legally available for
distribution after payment of all debts and other liabilities and liquidation
preference of any outstanding common stock. Holders of common stock have no
preemptive, subscription, redemption or conversion rights. The outstanding
shares of common stock are validly issued, fully paid and
nonassessable.
The transfer agent of our common stock
is Corporate Stock Transfer Inc, 3200 Cherry Creek South Dr Ste 430, Denver,
Colorado 80209.
PREFERRED
STOCK
We are
authorized to issue up to 200,000,000 shares of preferred stock, par value $.001
per share. The shares of preferred stock may be issued in series, and shall have
such voting powers, full or limited, or no voting powers, and such designations,
preferences and relative participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, as shall be stated and
expressed in the resolution or resolutions providing for the issuance of such
stock adopted from time to time by the board of directors. The board of
directors is expressly vested with the authority to determine and fix in the
resolution or resolutions providing for the issuances of preferred stock the
voting powers, designations, preferences and rights, and the qualifications,
limitations or restrictions thereof, of each such series to the full extent now
or hereafter permitted by the laws of the State of Nevada.
Series
A Convertible Preferred Stock
On
October 31, 2009, our Board of Directors adopted and created a series of
preferred stock consisting of 10,000,000 shares designated as Series A
Convertible Preferred Stock. The shares of Series A Convertible Preferred Stock
do not have a liquidation preference and do not accrue any dividends. Each share
of Series A Convertible Preferred Stock is convertible at the option of the
holder, into one share of our common stock. Pursuant to the Securities Exchange
Agreement dated as of October 31, 2009, each holder of the Series A Convertible
Preferred Stock may not convert more than 20% of the Series A Convertible
Preferred Stock into common stock until the earlier of (i) July 310, 2010 and
(ii) the trading day that the closing price of our common stock equals or
exceeds $30.00. As of June 7, 2010, there are 8,416,881 shares of
Series A Convertible Preferred Stock issued and outstanding.
WARRANTS
& OPTIONS
In addition to the following, between
July 2006 and December 2009, we have issued warrants to purchase 101.442 shares
of common stock with a weighted average exercise price of $30.96 per
share. The warrants expire either five or ten years from the date of
issuance.
October
2009/January 2010 Warrants
In
connection with a private placement that first closed on October 31, 2009, we
issued warrants to purchase 2,152,775 shares of common stock. On January 7,
2010, in connection with the second closing of the private placement, we issued
warrants to purchase 694,444 shares of common stock. The warrants expire five
years from the date of issuance and are exercisable at $9.00 per share. In
addition, the exercise price of the warrants will be adjusted in the event we
issue common stock at a price below the exercise price. Upon an
issuance of shares of common stock below the exercise price, the exercise price
of the warrants will be reduced to equal the share price at which the additional
securities were issued and the number of warrant shares issuable will be
increased such that the aggregate exercise price payable for the warrants, after
taking into account the decrease in the exercise price, shall be equal to the
aggregate exercise price prior to such adjustment.
46
At any
time after a registration statement registering the shares of common stock
underlying the warrants is declared effective, and if certain conditions are
met, we have the right to call for cancellation the warrants upon two business
days prior written notice for cash consideration of $0.001 per unexercised
warrant. We can only exercise this call option if (i) the closing
price for each of 20 consecutive trading days, which 20 consecutive trading day
period shall not have commenced until after the effective date of the
registration statement registering for resale the shares of common stock
issuable upon exercise of the warrants) exceeds $27.00 per share (subject to
adjustment), (ii) the trading volume of our common stock shall exceed 16,667
shares (subject to adjustment) per trading day for each trading day during the
20 consecutive trading day period, and (iii) the warrant holder is not in
possession of any information that constitutes, or might constitute, material
non-public information which we provided.
CONVERTIBLE
SECURITIES
None.
INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Our
Articles of Incorporation, as amended, provide to the fullest extent permitted
by Nevada law, our directors or officers shall not be personally liable to us or
our shareholders for damages for breach of such director's or officer's
fiduciary duty. The effect of this provision of our Articles of Incorporation,
as amended, is to eliminate our rights and our shareholders (through
shareholders' derivative suits on behalf of our company) to recover damages
against a director or officer for breach of the fiduciary duty of care as a
director or officer (including breaches resulting from negligent or grossly
negligent behavior), except under certain situations defined by statute. We
believe that the indemnification provisions in our Articles of Incorporation, as
amended, are necessary to attract and retain qualified persons as directors and
officers.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 (the
“Act” or “Securities Act”) may be permitted to directors, officers or persons
controlling us pursuant to the foregoing provisions, or otherwise, we have been
advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
PLAN
OF DISTRIBUTION
Each
selling stockholder of the common stock and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of common stock covered hereby on the NASDAQ Capital Market or any other stock
exchange, market or trading facility on which the shares are traded or in
private transactions. These sales may be at fixed or negotiated
prices. A selling stockholder may use any one or more of the
following methods when selling shares:
|
·
|
ordinary brokerage transactions
and transactions in which the broker-dealer solicits
purchasers;
|
|
·
|
block trades in which the
broker-dealer will attempt to sell the shares as agent but may position
and resell a portion of the block as principal to facilitate the
transaction;
|
|
·
|
purchases by a broker-dealer as
principal and resale by the broker-dealer for its
account;
|
|
·
|
an exchange distribution in
accordance with the rules of the applicable
exchange;
|
|
·
|
privately negotiated
transactions;
|
|
·
|
settlement of short sales entered
into after the effective date of the registration statement of which this
prospectus is a part;
|
|
·
|
in transactions through
broker-dealers that agree with the selling stockholders to sell a
specified number of such shares at a stipulated price per
share;
|
|
·
|
through the writing or settlement
of options or other hedging transactions, whether through an options
exchange or otherwise;
|
47
|
·
|
a combination of any such methods
of sale; or
|
|
·
|
any other method permitted
pursuant to applicable law.
|
The
selling stockholders may also sell shares under Rule 144 under the Securities
Act of 1933, as amended, if available, rather than under this
prospectus.
Broker-dealers
engaged by the selling stockholders may arrange for other brokers-dealers to
participate in sales. Broker-dealers may receive commissions or
discounts from the selling stockholders (or, if any broker-dealer acts as agent
for the purchaser of shares, from the purchaser) in amounts to be negotiated,
but, except as set forth in a supplement to this Prospectus, in the case of an
agency transaction not in excess of a customary brokerage commission in
compliance with FINRA Rule 2440; and in the case of a principal transaction a
markup or markdown in compliance with FINRA IM-2440.
In
connection with the sale of the common stock or interests therein, the selling
stockholders may enter into hedging transactions with broker-dealers or other
financial institutions, which may in turn engage in short sales of the common
stock in the course of hedging the positions they assume. The selling
stockholders may also sell shares of the common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The
selling stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or create one or more derivative
securities which require the delivery to such broker-dealer or other financial
institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such
transaction).
The
selling stockholders and any broker-dealers or agents that are involved in
selling the shares may be deemed to be “underwriters” within the meaning of the
Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. Each selling
stockholder has informed us that it does not have any written or oral agreement
or understanding, directly or indirectly, with any person to distribute the
common stock. In no event shall any broker-dealer receive fees, commissions and
markups which, in the aggregate, would exceed eight percent (8%).
We are
required to pay certain fees and expenses incurred by us incident to the
registration of the shares. We have agreed to indemnify the selling
stockholders against certain losses, claims, damages and liabilities, including
liabilities under the Securities Act.
Because
selling stockholders may be deemed to be “underwriters” within the meaning of
the Securities Act, they will be subject to the prospectus delivery requirements
of the Securities Act including Rule 172 thereunder. The selling
stockholders have advised us that there is no underwriter or coordinating broker
acting in connection with the proposed sale of the resale shares by the selling
stockholders.
We agreed
to keep this prospectus effective until the earlier of (i) the date on which the
shares may be resold by the selling stockholders without registration and
without regard to any volume or manner-of-sale limitations by reason of Rule
144, without the requirement for us to be in compliance with the current public
information under Rule 144 under the Securities Act or any other rule of similar
effect or (ii) all of the shares have been sold pursuant to this prospectus or
Rule 144 under the Securities Act or any other rule of similar
effect. The resale shares will be sold only through registered or
licensed brokers or dealers if required under applicable state securities laws.
In addition, in certain states, the resale shares of common stock covered hereby
may not be sold unless they have been registered or qualified for sale in the
applicable state or an exemption from the registration or qualification
requirement is available and is complied with.
Under
applicable rules and regulations under the Exchange Act, any person engaged in
the distribution of the resale shares may not simultaneously engage in market
making activities with respect to the common stock for the applicable restricted
period, as defined in Regulation M, prior to the commencement of the
distribution. In addition, the selling stockholders will be subject
to applicable provisions of the Exchange Act and the rules and regulations
thereunder, including Regulation M, which may limit the timing of purchases and
sales of shares of the common stock by the selling stockholders or any other
person. We will make copies of this prospectus available to the
selling stockholders and have informed them of the need to deliver a copy of
this prospectus to each purchaser at or prior to the time of the sale (including
by compliance with Rule 172 under the Securities Act).
48
SELLING
STOCKHOLDERS
The table
below sets forth information concerning the resale of the shares of common stock
by the selling stockholders. We will not receive any proceeds from the resale of
the common stock by the selling stockholders. We will receive proceeds from the
exercise of the warrants. Assuming all the shares registered below are sold by
the selling stockholders, none of the selling stockholders will continue to own
any shares of our common stock.
The
following table also sets forth the name of each person who is offering the
resale of shares of common stock by this prospectus, the number of shares of
common stock beneficially owned by each person, the number of shares of common
stock that may be sold in this offering and the number of shares of common stock
each person will own after the offering, assuming they sell all of the shares
offered.
Total Shares of
|
Total
|
|||||||||||||||||||||||||||
Common Stock,
|
Percentage
|
Percentage
|
||||||||||||||||||||||||||
Including Upon
|
of Common
|
Shares of
|
Beneficial
|
of Common
|
||||||||||||||||||||||||
Conversion of
|
Stock,
|
Common Stock
|
Beneficial
|
Percentage of
|
Ownership
|
Stock Owned
|
||||||||||||||||||||||
Preferred Stock
|
Assuming
|
Included in
|
Ownership
|
Common Stock
|
After the
|
After
|
||||||||||||||||||||||
and/or Warrants
|
Full
|
Prospectus
|
Before the
|
Owned Before
|
Offering
|
Offering
|
||||||||||||||||||||||
Name
|
(1)
|
Conversion
|
(2)
|
Offering
|
Offering
|
(3)
|
(3)
|
|||||||||||||||||||||
Enable
Growth
|
4,718,261 | 35.66 | % |
Up
to
|
998,217 | (4) | 9.99 | % | 232,333 | 1.15 | % | |||||||||||||||||
Partners
L.P. (5)
|
4,485,928 | |||||||||||||||||||||||||||
shares
of
|
||||||||||||||||||||||||||||
common
stock
|
||||||||||||||||||||||||||||
Enable
Opportunity
|
542,175 | 5.72 | % |
Up
to
|
542,175 | 5.72 | % | 27,333 | * | |||||||||||||||||||
Partners
L.P. (5)
|
514,842 | |||||||||||||||||||||||||||
shares
of
|
||||||||||||||||||||||||||||
common
stock
|
||||||||||||||||||||||||||||
Pierce
Diversified
|
154,085 | 1.69 | % |
Up
to
|
154,085 | 1.69 | % | 13,667 | * | |||||||||||||||||||
Strategy
Master
|
140,418 | |||||||||||||||||||||||||||
Fund,
LLC (5)
|
shares
of
|
|||||||||||||||||||||||||||
common
stock
|
||||||||||||||||||||||||||||
BridgePointe
Master
|
2,226,809 | 21.08 | % |
Up
to
|
998,217 |
(4)
|
9.99 | % | 150,000 | * | ||||||||||||||||||
Fund
Ltd. (6)
|
2,076,809 | |||||||||||||||||||||||||||
shares
of
|
||||||||||||||||||||||||||||
common
stock
|
||||||||||||||||||||||||||||
Providence
Christian
|
138,888 | 1.53 | % |
Up
to
|
138,888 | 1.53 | % | — | — | |||||||||||||||||||
Foundation
Inc. (7)
|
138,888 | |||||||||||||||||||||||||||
shares
of
|
||||||||||||||||||||||||||||
common
stock
|
||||||||||||||||||||||||||||
Zhu-Xu
Charitable
|
1,430,741 | 13.72 | % |
Up
to
|
998,217 |
(4)
|
9.99 | % | — | — | ||||||||||||||||||
Remainder
Trust (8)
|
1,430,741 | |||||||||||||||||||||||||||
shares
of
|
||||||||||||||||||||||||||||
common
stock
|
||||||||||||||||||||||||||||
Valley
2010
|
1,388,888 | 14.34 | % |
Up
to
|
998,217 |
(4)
|
9.99 | % | — | — | ||||||||||||||||||
Investment
LLC (8)
|
1,388,888 | |||||||||||||||||||||||||||
shares
of
|
||||||||||||||||||||||||||||
common
stock
|
||||||||||||||||||||||||||||
Global
LearnNet
|
1,388,888 | 14.34 | % |
Up
to
|
998,217 |
(4)
|
9.99 | % | — | — | ||||||||||||||||||
Ltd.
(8)
|
1,388,888 | |||||||||||||||||||||||||||
shares
of
|
||||||||||||||||||||||||||||
common
stock
|
||||||||||||||||||||||||||||
Marion
Lynton
|
15,554 | * |
Up
to
|
15,554 | * | — | — | |||||||||||||||||||||
15,554 | ||||||||||||||||||||||||||||
shares
of
|
||||||||||||||||||||||||||||
common
stock
|
||||||||||||||||||||||||||||
Ardsley
Partners
|
374,300 | 4.08 | % |
Up
to
|
374,300 | 4.08 | % | — | — | |||||||||||||||||||
Institutional
Fund
|
374,300 | |||||||||||||||||||||||||||
L.P.
(9)
|
shares
of
|
|||||||||||||||||||||||||||
common
stock
|
49
Ardsley
Partners
|
490,000 | 5.30 | % |
Up
to
|
490,000 | 5.30 | % | — | — | ||||||||||||||||||
Fund
II, L.P. (9)
|
490,000 | ||||||||||||||||||||||||||
shares
of
|
|||||||||||||||||||||||||||
|
common
stock
|
||||||||||||||||||||||||||
Ardsley
Offshore
|
92,366 | 1.02 | % |
Up
to
|
92,366 | 1.02 | % | — | — | ||||||||||||||||||
Fund,
Ltd.(9)
|
92,366 | ||||||||||||||||||||||||||
shares
of
|
|||||||||||||||||||||||||||
|
common
stock
|
||||||||||||||||||||||||||
Ardsley
Partners
|
301,250 | 3.29 | % |
Up
to
|
301,250 | 3.29 | % | — | — | ||||||||||||||||||
Renewable
Energy
|
301,250 | ||||||||||||||||||||||||||
Fund,
L.P. (9)
|
shares
of
|
||||||||||||||||||||||||||
|
common
stock
|
||||||||||||||||||||||||||
Ardsley
Renewable
|
115,416 | 1.28 | % |
Up
to
|
115,416 | 1.28 | % | — | — | ||||||||||||||||||
Energy
Offshore
|
115,416 | ||||||||||||||||||||||||||
Fund,
Ltd. (9)
|
shares
of
|
||||||||||||||||||||||||||
|
common
stock
|
||||||||||||||||||||||||||
Mingya
Tao
|
156,639 | 1.71 | % |
Up
to
|
156,639 | 1.71 | % | — | — | ||||||||||||||||||
156,639 | |||||||||||||||||||||||||||
shares
of
|
|||||||||||||||||||||||||||
|
common
stock
|
||||||||||||||||||||||||||
Shenzhen
Goch
|
313,277 | 3.37 | % |
Up
to
|
313,277 | 3.37 | % | — | — | ||||||||||||||||||
Investment
Ltd. (10)
|
313,277 | ||||||||||||||||||||||||||
shares
of
|
|||||||||||||||||||||||||||
|
common
stock
|
||||||||||||||||||||||||||
Wei
Lu
|
234,958 | 2.55 | % |
Up
to
|
234,958 | 2.55 | % | — | — | ||||||||||||||||||
234,958 | |||||||||||||||||||||||||||
shares
of
|
|||||||||||||||||||||||||||
|
common
stock
|
||||||||||||||||||||||||||
Glenwood
Capital
|
102,091 | 1.12 | % |
Up
to
|
102,091 | 1.12 | % | — | — | ||||||||||||||||||
Partners
(11)
|
102,091 | ||||||||||||||||||||||||||
shares
of
|
|||||||||||||||||||||||||||
|
common
stock
|
||||||||||||||||||||||||||
Savitr
Peak Energy
|
138,888 | 1.53 | % |
Up
to
|
138,888 | 1.53 | % | — | — | ||||||||||||||||||
Master Fund Ltd. (12)
|
138,888 | ||||||||||||||||||||||||||
shares
of
|
|||||||||||||||||||||||||||
|
common
stock
|
||||||||||||||||||||||||||
Daryl
Magna
|
391,596 | 4.17 | % |
Up
to
|
391,596 | 4.17 | % | — | — | ||||||||||||||||||
391,596 | |||||||||||||||||||||||||||
shares
of
|
|||||||||||||||||||||||||||
|
common
stock
|
||||||||||||||||||||||||||
Jonathan
Read
|
805,173 | 8.92 | % |
Up
to
|
805,173 | 8.92 | % | 131,668 | * | ||||||||||||||||||
673,505 | |||||||||||||||||||||||||||
shares
of
|
|||||||||||||||||||||||||||
|
common
stock
|
* Less
than 1%.
The
number and percentage of shares beneficially owned is determined in accordance
with Rule 13d-3 of the Securities Exchange Act of 1934, and the information is
not necessarily indicative of beneficial ownership for any other purpose. Under
such rule, beneficial ownership includes any shares as to which the selling
stockholders has sole or shared voting power or investment power and also any
shares, which the selling stockholders has the right to acquire within 60 days.
The actual number of shares of common stock issuable upon the conversion of the
convertible debentures is subject to adjustment depending on, among other
factors, the future market price of the common stock, and could be materially
less or more than the number estimated in the table.
(1) This
column includes shares of common stock issuable upon conversion of Series A
Convertible Preferred Stock issued in our October 2009 securities exchange and
exercise of warrants issued in our October 2009 private
placement.
50
(2)
Includes a good faith estimate of the shares issuable upon conversion of the
Series A Convertible Preferred Stock issued in October 2009 and exercise of
warrants issued in October 2009, based on current market prices. The actual
number of shares of common stock offered in this prospectus, and included in the
registration statement of which this prospectus is a part, includes such
additional number of shares of common stock as may be issued or issuable upon
conversion of the Series A Convertible Preferred Stock and exercise of the
warrants issued in October 2009 by reason of any stock split, stock dividend or
similar transaction involving the common stock, in accordance with Rule 416
under the Securities Act of 1933. However the selling stockholders
have contractually agreed to restrict their ability to convert their Series A
Convertible Preferred Stock or exercise their warrants issued and receive shares
of our common stock such that the number of shares of common stock held by them
in the aggregate and their affiliates after such conversion or exercise does not
exceed 9.99% of the then issued and outstanding shares of common stock as
determined in accordance with Section 13(d) of the Exchange
Act. Accordingly, the number of shares of common stock set forth in
the table for the selling stockholders may exceed the number of shares of common
stock that the selling stockholders could own beneficially at any given time
through their ownership of the Series A Convertible Preferred Stock and the
warrants. In that regard, the beneficial ownership of the common
stock by the selling stockholder set forth in the table is not determined in
accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as
amended.
(3)
Assumes that all securities registered will be sold.
(4)
Represents the aggregate maximum number and percentage of shares that the
selling stockholder can own at one time (and therefore, offer for resale at any
one time) due to their 9.99% limitation.
(5)
Mitchell S. Levine, managing member and majority owner of Enable Capital
Management, LLC, the general partner or investment manager of Enable Growth
Partners, L.P., Enable Opportunity Partners, L.P., Pierce Diversified Strategy
Master Fund, LLC and other client accounts, has voting and investment control
over shares held by this entity. Mr. Levine disclaims beneficial ownership of
the securities, except to the extent of his pecuniary interests
therein.
(6) Eric
S. Swartz and Michael C. Kendrick, as principals and co-owners of Roswell
Capital Partners, LLC, the investment manager of BridgePoint Master Fund Ltd.,
have voting and investment control over shares held by this entity. Messrs.
Swartz and Kendrick disclaim beneficial ownership of the securities, except to
the extent of each of their pecuniary interests therein.
(7) Eric
S. Swartz and Michael C. Kendrick, as principals and co-owners of Roswell
Capital Partners, LLC, the investment manager of Providence Christian Foundation
Inc., have voting and investment control over shares held by this entity.
Messrs. Swartz and Kendrick disclaim beneficial ownership of the securities,
except to the extent of each of their pecuniary interests therein.
(8)
Yuqing Xu has voting and investment control over shares held by this
entity.
(9)
Philip J. Hempleman, managing partner of Ardsley Advisory Partners and Ardsley
Partners I, the general partner or investment manager of Ardsley Partners Fund
II, L.P., Ardsley Partners Institutional Fund, L.P., Ardsley Partners Renewable
Energy Fund, L.P., Ardsley Offshore Fund, Ltd., and Ardsley Renewable Energy
Offshore Fund, Ltd. and other client accounts, has voting and investment control
over shares held by this entity. Mr. Hempleman disclaims beneficial ownership of
the securities, except to the extent of his pecuniary interests
therein.
(10) Dr.
Donoshen Goch has voting and investment control over shares held by this
entity.
(11)
Randall D. Humphreys and Daniel J. McLaughlin have voting and investment control
over shares held by this entity.
(12)
Andrew Midler has voting and investment control over shares held by this
entity.
July
2009 Private Placement/October 2009 Securities Exchange Agreement
To obtain
funding for our ongoing operations, we entered into a Securities Purchase
Agreement with three accredited investors, on July 2, 2009 for the sale of
$2,500,000 in secured convertible debentures. The secured convertible debentures
bore interest at 8%, matured October 1, 2010, and were convertible into our
common stock, at the selling stockholders' option, at $3.60 per
share. In addition, we issued a warrant to Shenzhen Goch Investment
Ltd., expiring May 1, 2014, to purchase 1,748,971 shares of restricted common
stock, exercisable at a per share of $0.60.
51
On October 31, 2009, we entered into a
Securities Exchange Agreement with all holders of the convertible
debentures issued on July 2, 2009 and holders of certain warrants to
convert all outstanding amounts ($9,111,170) under these debentures and all
related warrants into an aggregate of 8,597,299 shares of Series A
Convertible Preferred Stock. The Series A Convertible Preferred Stock has
no redemption, preferential dividend or voting rights, but may be converted, at
the holder’s option, into shares of our common stock at a 1:1
ratio. This prospectus relates to the resale of the common stock
issuable upon exercise of the Series A Convertible Preferred Stock.
The
conversion price of the Series A Convertible Preferred Stock may be adjusted in
certain circumstances such as if we pay a stock dividend, subdivide or combine
outstanding shares of common stock into a greater or lesser number of shares, or
take such other actions as would otherwise result in dilution of the investors’
position.
The
investors have agreed to restrict their ability to convert their Series A
Convertible Preferred Stock and receive shares of our common stock such that the
number of shares of common stock held by them in the aggregate and their
affiliates after such conversion or exercise does not exceed 9.99% of the then
issued and outstanding shares of common stock.
October
2009 Private Placement
To obtain
funding for our ongoing operations, we entered into a Securities Purchase
Agreement with seven accredited investors, on October 31, 2009 for the sale of
2,152,777 shares of common stock, at a price of $7.20 per share, for gross
proceeds of $15,500,000. On January 7, 2010, we sold an additional
694,444 shares of common stock, at a price of $7.20 per share, for gross
proceeds of $5,000,000. This prospectus relates to the resale of these shares of
common stock.
In
addition, we issued to each investor warrants to purchase an equal number of
shares of common stock purchased pursuant to the securities purchase agreement.
The warrants expire five years from the date of issuance and are exercisable at
$9.00 per share. In addition, the exercise price of the warrants will be
adjusted in the event we issue common stock at a price below the exercise
price. Upon an issuance of shares of common stock below the exercise
price, the exercise price of the warrants will be reduced to equal the share
price at which the additional securities were issued and the number of warrant
shares issuable will be increased such that the aggregate exercise price payable
for the warrants, after taking into account the decrease in the exercise price,
shall be equal to the aggregate exercise price prior to such
adjustment.
At any
time after a registration statement registering the shares of common stock
underlying the warrants is declared effective, and if certain conditions are
met, we have the right to call for cancellation the warrants upon two business
days prior written notice for cash consideration of $0.001 per unexercised
warrant. We can only exercise this call option if (i) the closing
price for each of 20 consecutive trading days, which 20 consecutive trading day
period shall not have commenced until after the effective date of the
registration statement registering for resale the shares of common stock
issuable upon exercise of the warrants) exceeds $27.00 per share (subject to
adjustment), (ii) the trading volume of our common stock shall exceed 16,667
shares (subject to adjustment) per trading day for each trading day during the
20 consecutive trading day period, and (iii) the warrant holder is not in
possession of any information that constitutes, or might constitute, material
non-public information which we provided.
The
investors have agreed to restrict their ability to exercise their warrants and
receive shares of our common stock such that the number of shares of common
stock held by them in the aggregate and their affiliates after such conversion
or exercise does not exceed 9.99% of the then issued and outstanding shares of
common stock.
In
connection with the Securities Purchase Agreement dated October 31, 2009, we
granted the investors registration rights. We are obligated to use
our best efforts to cause the registration statement to be filed no later than
December 15, 2009 and declared effective no later than January 29, 2010, which
will be extended to February 28, 2010 if the Securities and Exchange Commission
conducts a full-review of the registration statement, and to insure
that the registration statement remains in effect until all of the shares of
common stock issuable upon conversion of the secured convertible debentures have
been sold or may be sold without volume or manner-of-sale restrictions pursuant
to Rule 144 and (x) may be sold without the requirement for us to be in
compliance with the current public information requirement under Rule 144 or (y)
we are in compliance with the current public information requirement under Rule
144. In the event of a default of our obligations under the
Registration Rights Agreement, we are required pay to each investor, as
liquidated damages, for each month that the registration statement has not been
filed or declared effective, as the case may be, an amount in cash equal to 1%
of the aggregate purchase price paid by such investor, not to exceed 3% in the
aggregate to each investor. Due to the amount of time necessary to
close the second tranche of this financing, we have had discussions with the
investors to amend the deadlines for the filing and effectiveness of the
registration statement. We have not received an executed amendment,
nor can we guarantee we will obtain one. We have not paid any
liquidated damages as of the date of this filing although we are obligated to do
so.
52
LEGAL
MATTERS
Sichenzia
Ross Friedman Ference LLP, New York, New York will issue an opinion with respect
to the validity of the shares of common stock being offered
hereby.
EXPERTS
Weaver
& Martin, LLC, independent registered public accounting firm, have audited,
as set forth in their report thereon appearing elsewhere herein, our financial
statements at December 31, 2009 and 2008 and for the years then ended that
appear in the prospectus. The financial statements referred to above are
included in this prospectus with reliance upon the independent registered public
accounting firm’s opinion based on their expertise in accounting and
auditing.
AVAILABLE
INFORMATION
We have
filed a registration statement on Form S-1 under the Securities Act of 1933, as
amended, relating to the shares of common stock being offered by this
prospectus, and reference is made to such registration statement. This
prospectus constitutes the prospectus of ECOtality, Inc., filed as part of the
registration statement, and it does not contain all information in the
registration statement, as certain portions have been omitted in accordance with
the rules and regulations of the Securities and Exchange
Commission.
We are
subject to the informational requirements of the Securities Exchange Act of 1934
which requires us to file reports, proxy statements and other information with
the Securities and Exchange Commission. Such reports, proxy statements and other
information may be inspected at public reference facilities of the SEC at 100 F
Street, N.E., Washington D.C. 20549. Copies of such material can be obtained
from the Public Reference Section of the SEC at 100 F Street, N.E., Washington,
D.C. 20549 at prescribed rates. Because we file documents electronically with
the SEC, you may also obtain this information by visiting the SEC's Internet
website at http://www.sec.gov.
53
INDEX
TO FINANCIAL STATEMENTS
ECOTALITY,
INC.
INDEX TO
FINANCIAL STATEMENTS
For
the Years Ended December 31, 2009 and 2008
|
||
Report
of Independent Registered Public Accounting Firm
|
F-1
|
|
Consolidated
Balance Sheets
|
F-2
|
|
Consolidated
Statements of Operations
|
F-3
|
|
Consolidated
Statements of Stockholders’ Equity
|
F-4
|
|
Consolidated
Statements of Cash Flows
|
F-5
|
|
Notes
to Consolidated Financial Statements
|
F-6
to F-28
|
|
For
the Three Months Ended March 31, 2010 and 2009
|
||
Consolidated
Statements of Operations (unaudited)
|
F-29
|
|
Consolidated
Balance Sheets (unaudited)
|
F-30
|
|
Consolidated
Statements of Cash Flows (unaudited)
|
F-31
|
|
Notes
to Unaudited Consolidated Financial Statements
|
F-32
to F-55
|
54
WEAVER &
MARTIN
Certified
Public Accountants & Consultants
411
Valentine, Suite 300
Kansas
City, Missouri 64111
Phone:
(816) 756-5525
Fax:
(816) 756-2252
|
To the
Board of Directors and Stockholders
ECOtality, Inc.
Scottsdale,
AZ
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have
audited the accompanying consolidated balance sheets of ECOtality, Inc. and
Subsidiaries as of December 31, 2009 and 2008 and the related consolidated
statements of operations, stockholders’ equity, and cash flows for the years
then ended. ECOtality, Inc.’s management is responsible for these
financial statements. Our responsibility is to express an opinion on these
financial statements based on our audit.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. Our
audits of the financial statements include examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of ECOtality, Inc.
and Subsidiaries as of December 31, 2009 and 2008, and the results of its
consolidated operations, stockholders’ equity, and cash flows for the years then
ended in conformity with accounting principles generally accepted in the United
States of America.
/s/ Weaver & Martin,
LLC
|
||
Kansas
City, Missouri
|
||
April
15, 2010
|
||
Certified
Public Accountants & Consultants
|
||
411
Valentine, Suite 300
|
||
Kansas
City, Missouri 64111
|
||
Phone:
(816) 756-5525
|
||
Fax:
(816) 756-2252
|
F-1
ECOtality,
Inc.
Consolidated
Balance Sheets
|
Decenber 31, 2009
|
December 31, 2008
|
||||||
|
(Audited)
|
(Audited)
|
||||||
Assets
|
||||||||
Current
assets:
|
||||||||
Cash
|
$
|
11,824,605
|
$
|
327,332
|
||||
Certificates
of deposit
|
-
|
28,044
|
||||||
Receivables,
net of allowance for bad debt of $92,494 and $69,176 as of
12/31/09 and 12/31/08 respectively
|
1,296,696
|
1,963,073
|
||||||
Inventory,
net of allowance for obsolescence of $335,864 and $167,487 as of 12/31/09
and 12/31/08 respectively
|
749,492
|
1,149,881
|
||||||
Prepaid
expenses and other current assets
|
387,327
|
229,931
|
||||||
Total
current assets
|
14,258,120
|
3,698,263
|
||||||
Fixed
assets, net accumulated depreciation of $4,124,431, and $4,283,866 as of
12/31/09 and 12/31/08 respectively
|
1,872,347
|
1,632,315
|
||||||
Goodwill
|
3,495,878
|
3,495,878
|
||||||
Total
assets
|
$
|
19,626,344
|
$
|
8,826,457
|
||||
Liabilities
and Stockholders’ Equity
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable
|
$
|
372,982
|
$
|
1,510,277
|
||||
Accrued
liabilities
|
1,438,177
|
848,789
|
||||||
Accrued
Interest
|
-
|
1,281,115
|
||||||
Liability
for purchase price
|
-
|
2,115,253
|
||||||
Note
Payable - related party
|
-
|
450,000
|
||||||
Current
portion of LT Debt, net of discount of $0 and $1,530,101 as of 12/31/09
and 12/31/08 respectively
|
-
|
3,411,540
|
||||||
Total
current liabilities
|
1,811,159
|
9,616,975
|
||||||
Total
LT Debt, net of discount of $0 and $548,735 as of 12/31/09 and 12/31/08
respectively
|
287,500
|
1,971,849
|
||||||
Stockholders’
equity:
|
||||||||
Preferred
stock, $0.001 par value, 200,000,000 shares authorized, 8,597,299 and 0
shares issued and outstanding as of 12/31/09 and 12/31/08
respectively
|
8,597
|
-
|
||||||
Common
stock, $0.001 par value, 1,300,000,000 shares authorized, 6,713,285 and
2,157,048 shares issued and outstanding as of 12/31/09 and 12/31/08,
respectively
|
6,712
|
129,423
|
||||||
Common
stock owed but not issued; 2,079,061 shares at 12/31/09 and
1,250 at 12/31/08
|
2,079
|
75
|
||||||
Additional
paid-in capital
|
88,411,074
|
33,485,763
|
||||||
Subscription
receivable
|
(5,000,000
|
)
|
-
|
|||||
Retained
deficit
|
(65,845,368
|
)
|
(36,337,624
|
)
|
||||
Accumulated
Foreign Currency Translation Adjustments
|
(55,409
|
)
|
(40,006
|
)
|
||||
Total
stockholders' equity
|
17,527,685
|
(2,762,368
|
)
|
|||||
Total
liabilities and stockholders' equity
|
$
|
19,626,344
|
$
|
8,826,457
|
The
accompanying notes are an integral part of these financial
statements
F-2
ECOtality,
Inc.
Consolidated
Statement of Operations
|
For the Year Ended December 31,
|
|||||||
2009
|
2008
|
|||||||
(Audited)
|
(Audited)
|
|||||||
Revenue
|
$
|
8,601,674
|
$
|
11,187,384
|
||||
Cost
of goods sold
|
4,959,777
|
7,108,545
|
||||||
Gross
profit
|
3,641,897
|
4,078,839
|
||||||
Expenses:
|
||||||||
Depreciation
|
463,543
|
615,960
|
||||||
General
and administrative expenses
|
16,806,908
|
6,991,804
|
||||||
Research
and development
|
18,793
|
292,709
|
||||||
Total
expenses
|
17,289,244
|
7,900,473
|
||||||
Operating
loss
|
(13,647,347
|
)
|
(3,821,634
|
)
|
||||
Other
income:
|
||||||||
Interest
income
|
6,277
|
17,184
|
||||||
Other
Income
|
235
|
364,646
|
||||||
Total
other income
|
6,512
|
381,830
|
||||||
Other
expenses:
|
||||||||
Interest
expense
|
15,915,438
|
4,620,364
|
||||||
(Gain)
/ Loss on Disposal of Assets
|
(48,523
|
)
|
7,043
|
|||||
Total
other expenses
|
15,866,915
|
4,627,407
|
||||||
Loss
from operations before income taxes
|
(29,507,750
|
)
|
(8,067,211
|
)
|
||||
Provision
for income taxes
|
-
|
-
|
||||||
Net
(loss)
|
$
|
(29,507,750
|
)
|
$
|
(8,067,211
|
)
|
||
Weighted
average number of common shares outstanding - basic and fully
diluted
|
3,614,045
|
2,094,557
|
||||||
Net
(loss) per share-basic and fully diluted
|
$
|
(8.16
|
)
|
$
|
(3.85
|
)
|
The
accompanying notes are an integral part of these financial
statements
F-3
ECOtality,
Inc.
Consolidated
Statement of Stockholders’ Equity
Series
A Convertible
|
Common
Stock
|
Additional
|
Accum
Foreign
|
Total
|
||||||||||||||||||||||||||||||||||||
Preferred
Stock
|
Common
Stock
|
owed
but
|
Paid-in
|
Subscription
|
Retained
|
Currency
Trans
|
Stockholders’
|
|||||||||||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
not
issued
|
Capital
|
receivable
|
Deficit
|
Adjustment
|
Equity
|
|||||||||||||||||||||||||||||||
Balance,
December 31, 2007
|
-
|
$
|
-
|
2,070,409
|
$
|
2,070
|
$
|
-
|
$
|
30,903,146
|
$
|
-
|
$
|
(28,270,409
|
)
|
$
|
-
|
$
|
2,634,808
|
|||||||||||||||||||||
Shares
issued for professional services
|
-
|
-
|
9,417
|
9
|
-
|
81,716
|
-
|
-
|
-
|
81,725
|
||||||||||||||||||||||||||||||
Shares
issued for Conversion of Debt
|
-
|
-
|
5,555
|
6
|
-
|
99,994
|
-
|
-
|
-
|
100,000
|
||||||||||||||||||||||||||||||
Option
issued to purchase ECOtality Shares
|
-
|
-
|
-
|
-
|
-
|
55,168
|
-
|
-
|
-
|
55,168
|
||||||||||||||||||||||||||||||
Option
issued for compensation
|
-
|
-
|
5,000
|
5
|
1
|
24,994
|
-
|
-
|
-
|
25,000
|
||||||||||||||||||||||||||||||
Options
Revalued per Purchase Agreements
|
-
|
-
|
-
|
-
|
-
|
2,195,000
|
-
|
-
|
-
|
2,195,000
|
||||||||||||||||||||||||||||||
Amortization
of stock issued for services
|
-
|
-
|
-
|
-
|
-
|
253,151
|
-
|
-
|
-
|
253,151
|
||||||||||||||||||||||||||||||
Shares
issued for 2007 acquisitions
|
-
|
-
|
66,667
|
67
|
-
|
(67
|
)
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||||||
Accumulated
Foreign Currency Translation Adjustments
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(40,006
|
)
|
(40,006
|
)
|
||||||||||||||||||||||||||||
Net
loss for the year
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(8,067,215
|
)
|
-
|
(8,067,215
|
)
|
||||||||||||||||||||||||||||
Balance,
December 31, 2008
|
-
|
-
|
2,157,048
|
2,157
|
1
|
33,613,103
|
-
|
(36,337,624
|
)
|
(40,006
|
)
|
(2,762,369
|
)
|
|||||||||||||||||||||||||||
Shares
issued for 2007 acquisition
|
-
|
-
|
522,222
|
522
|
-
|
1,879,478
|
-
|
-
|
-
|
1,880,000
|
||||||||||||||||||||||||||||||
Shares
issued to satisfy accounts payable
|
-
|
-
|
17,917
|
18
|
-
|
89,982
|
-
|
-
|
-
|
90,000
|
||||||||||||||||||||||||||||||
Shares
issued for professional services
|
-
|
-
|
16,667
|
17
|
17
|
259,967
|
-
|
-
|
-
|
260,000
|
||||||||||||||||||||||||||||||
Shares
issued that were owed from previous year
|
-
|
-
|
1,250
|
1
|
(1
|
)
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||||||
Shares
issued for employee compensation
|
-
|
-
|
19,895
|
20
|
674
|
8,356,018
|
-
|
-
|
-
|
8,356,712
|
||||||||||||||||||||||||||||||
Cashless
exercise of warrants
|
-
|
-
|
2,217,333
|
2,217
|
-
|
(2,217
|
)
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||||||
Notes
payable converted for common stock
|
-
|
-
|
302,778
|
303
|
-
|
1,089,697
|
-
|
-
|
-
|
1,090,000
|
||||||||||||||||||||||||||||||
Amortization
of financing costs
|
-
|
-
|
-
|
-
|
-
|
11,514,051
|
-
|
-
|
-
|
11,514,051
|
||||||||||||||||||||||||||||||
Shares
issued for cash, net of expenses
|
-
|
-
|
1,458,330
|
1,458
|
1,388
|
19,292,219
|
(5,000,000
|
)
|
-
|
-
|
14,295,065
|
|||||||||||||||||||||||||||||
Warrants
issued for services
|
-
|
-
|
-
|
-
|
-
|
1,508,756
|
-
|
-
|
-
|
1,508,756
|
||||||||||||||||||||||||||||||
Notes
payable converted for preferred stock
|
8,597,299
|
8,597
|
-
|
-
|
-
|
9,102,573
|
-
|
-
|
-
|
9,111,170
|
||||||||||||||||||||||||||||||
Warrants
issued for anti-dilution provisions
|
-
|
-
|
-
|
-
|
-
|
1,707,446
|
-
|
-
|
-
|
1,707,446
|
||||||||||||||||||||||||||||||
Accumulated
Foreign Currency Translation Adjustments
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(15,403
|
)
|
(15,403
|
)
|
||||||||||||||||||||||||||||
Rounding
|
-
|
-
|
(155
|
)
|
(2
|
)
|
1
|
-
|
-
|
6
|
-
|
5
|
||||||||||||||||||||||||||||
Net
loss for the year
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(29,507,750
|
)
|
-
|
(29,507,750
|
)
|
||||||||||||||||||||||||||||
Balance,
December 31, 2009
|
8,597,299
|
$
|
8,597
|
6,713,285
|
$
|
6,712
|
$
|
2,079
|
$
|
88,411,074
|
$
|
(5,000,000
|
)
|
$
|
(65,845,368
|
)
|
$
|
(55,409
|
)
|
$
|
17,527,685
|
See
accompanying notes to the consolidated financial statements
F-4
ECOtality,
Inc.
Consolidated
Statement of Cash Flows
For the Year Ended December 31,
|
||||||||
2009
|
2008
|
|||||||
Cash
flows from operating activities
|
||||||||
Net
(loss)
|
$
|
(29,507,750
|
)
|
$
|
(8,067,211
|
)
|
||
Adjustments
to reconcile:
|
||||||||
Stock
and options issued for services and compensation
|
10,125,468
|
161,893
|
||||||
Stock
issued for interest expense
|
526,446
|
-
|
||||||
Depreciation
|
488,718
|
615,960
|
||||||
Amortization
of stock issued for services
|
-
|
253,151
|
||||||
Amortization
of discount on notes payable
|
2,078,836
|
1,590,148
|
||||||
Amortization
of financing costs
|
11,514,051
|
-
|
||||||
Warrants
issued for anti-dilution provisions
|
471,331
|
-
|
||||||
Gain
on disposal of assets
|
(48,523
|
)
|
7,043
|
|||||
Changes
in operating assets and liabilities:
|
||||||||
Certificate
of deposit
|
28,044
|
1,169,740
|
||||||
Accounts
Receivable
|
666,377
|
431,232
|
||||||
Inventory
|
400,389
|
641,293
|
||||||
Prepaid
expenses and other
|
(157,396
|
)
|
240,490
|
|||||
Accounts
Payable
|
(1,047,295
|
)
|
192,361
|
|||||
Accrued
interest
|
(45,000
|
)
|
-
|
|||||
Liability
for purchase price
|
(235,253
|
)
|
-
|
|||||
Accrued
Liabilities
|
589,394
|
1,059,158
|
||||||
Net
cash provided (used) by operating activities
|
(4,152,163
|
)
|
(1,704,743
|
)
|
||||
Cash
flows from investing activities
|
||||||||
Purchase
of fixed assets
|
(777,864
|
)
|
(263,284
|
)
|
||||
Proceeds
from sales of fixed assets
|
97,638
|
35,108
|
||||||
Net
cash (used) by investing activities
|
(680,226
|
)
|
(228,177
|
)
|
||||
Cash
flows from financing activities
|
||||||||
Proceeds
on sale of common stock, net of expenses
|
14,295,065
|
-
|
||||||
Payments
on notes payable
|
(450,000
|
)
|
(386,921
|
)
|
||||
Borrowings
on notes payable
|
2,500,000
|
2,009,859
|
||||||
Net
cash provided (used) by financing activities
|
16,345,065
|
1,622,938
|
||||||
Effects
of exchange rate changes
|
(15,403
|
)
|
(40,006
|
)
|
||||
Net
increase (decrease) in cash
|
11,497,273
|
(349,987
|
)
|
|||||
Cash
– beginning
|
327,332
|
677,318
|
||||||
Cash
– ending
|
$
|
11,824,605
|
$
|
327,332
|
||||
Supplemental
disclosures:
|
||||||||
Interest
paid
|
$
|
65,528
|
$
|
129,622
|
||||
Income
Taxes paid
|
$
|
800
|
$
|
800
|
||||
Non-cash
transactions:
|
||||||||
Stock
and options issued for services and compensation
|
$
|
10,125,468
|
$
|
161,893
|
||||
Shares
of stock issued
|
55,727
|
14,417
|
||||||
Number
of options issued
|
18,332
|
16,667
|
||||||
Stock
issued for acquisition
|
$
|
1,880,000
|
$
|
-
|
||||
Shares
of stock issued
|
522,222
|
-
|
||||||
Amortization
of stock issued for services
|
$
|
-
|
$
|
253,151
|
||||
Amortization
of discount on notes payable
|
$
|
2,078,836
|
$
|
1,590,148
|
||||
Shares
issued for cashless warrant exercise
|
$
|
-
|
$
|
-
|
||||
Shares
of stock issued
|
2,217,333
|
-
|
||||||
Note
Payable converted for common stock
|
$
|
1,090,000
|
$
|
100,000
|
||||
Shares
of stock issued
|
302,778
|
5,556
|
||||||
Note
Payable and accrued interest converted for preferred stock
|
$
|
9,111,170
|
$
|
-
|
||||
Shares
of preferred stock issued
|
8,597,299
|
-
|
See
accompanying notes to the consolidated financial statements
F-5
ECOtality, Inc.
Notes
to Consolidated Financial Statements
Note
1 – History and organization of the Company
The
Company was organized April 21, 1999 (Date of Inception) under the laws of
the State of Nevada, as Alchemy Enterprises, Ltd. The Company was
initially authorized to issue 25,000 shares of its no par value common
stock.
On
October 29, 2002, the Company amended its articles of incorporation to
increase its authorized capital to 25,000,000 shares with a par value of $0.001.
On January 26, 2005, the Company amended its articles of
incorporation again, increasing authorized capital to 100,000,000 shares of
common stock with a par value of $0.001. On March 1, 2006, the
Company amended its articles of incorporation, increasing authorized capital to
300,000,000 shares of common stock, each with a par value of $0.001, and
200,000,000 shares of preferred stock, each with a par value of
$0.001.
On
November 26, 2006, the Company amended its articles of incorporation to
change its name from Alchemy Enterprises, Ltd. to ECOtality, Inc to better
reflect our renewable energy strategy.
The
former business of the Company was to market a private-label biodegradable
product line. During the year ended December 31, 2006, the board of
directors changed the Company’s focus toward developing an electric power cell
technology.
On
June 11, 2007, the Company acquired the assets of the FuelCellStore.com, a
small web based seller of educational fuel cell products. The FuelCellStore.com
product line includes demonstration kits, educational materials, fuel cell
systems and component parts. It also offers consulting services on
establishing educational programs for all levels of educational
institutions. FuelCellStore.com now operates as a wholly owned subsidiary
call ECOtality Stores, Inc. See note 4 for further
information.
On
October 1, 2007, the Company purchased certain assets of Innergy Power
Corporation and its wholly owned subsidiary, Portable Energy De Mexico, S.A. DE
C.V. Innergy Power Corporation designs and manufactures standard and
custom solar-power and integrated solar-battery solutions for government,
industrial and consumer applications. See note 4 for further
information.
On
November 6, 2007 the Company acquired all the outstanding capital stock of
Electric Transportation Engineering Corporation, as well as its affiliated
company The Clarity Group (collectively referred to as eTec). eTec designs
fast-charge systems for material handling and airport ground support
applications. eTec also tests and develops plug-in hybrids, advanced battery
systems and hydrogen ICE conversions. See note 4 for further
information.
On
December 6, 2007 the Company acquired through eTec the Minit-Charger
business of Edison Enterprises. Minit-Charger makes products that enable fast
charging of lift trucks using revolutionary technologies. See note 4 for
further information.
On
August 26, 2009, ECOtality Inc. management met with the shareholders at its
annual shareholders' meeting. At this meeting the shareholders
approved an increase to the authorized number of common shares to 1,300,000,000
shares.
The
consolidated financial statements as of December 31, 2009 include the
accounts of ECOtality, Innergy Power Corporation and eTec. All significant
inter-company balances and transactions have been eliminated. ECOtality
and its subsidiaries will collectively be referred herein as the
“Company”.
On
November 24, 2009 the Company effected a reverse split of 1:60 of its
$0.001 par value common stock and the ticker symbol was changed from "ETLY" to
"ETLE". All shares in these financial statements have been
retroactively adjusted and presented for this reverse split.
Note
2 – Summary of Significant Accounting Policies
Use
of estimates
Preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenue and expenses during the reporting period. Significant estimates have
been used by management in conjunction with the measurement of the valuation
allowance relating to deferred tax assets and future cash flows associated with
long-lived assets. Actual results could differ from those
estimates.
F-6
Cash
and cash equivalents
For
financial statement presentation purposes, the Company considers short-term,
highly liquid investments with original maturities of three months or less to be
cash and cash equivalents.
Interest
income is credited to cash balances as earned. For the year ended December 31,
2009 and 2008 interest income was $6,277 and $17,184, respectively.
Credit
Risk
Financial
instruments that potentially subject the Company to concentrations of credit
risk consist principally of cash deposits and accounts receivable. The Company
maintains cash and cash equivalent balances at financial institutions that are
insured by the Federal Deposit Insurance Corporation up to $250,000.
Deposits with these banks may exceed the amount of insurance provided on
such deposits. At December 31, 2009 and 2008, the Company had
approximately $11,500,000 and $100,000 in excess of FDIC insured limits,
respectively.
Accounts
receivable at December 31, 2009 was $1,296,696, and at December 31, 2008 was
$1,963,073. At December 31, 2009 we had one customers that represented in excess
of 10% of our receivable balance. Palco Telecom Service had a balance
of $184,190 that was remitted on February 9, 2010. The Company has not
experienced material losses in the past from this or any other significant
customer and continues to monitor its exposures to minimize potential credit
losses.
Impairment
of long-lived assets and intangible assets
Management
regularly reviews property, equipment, intangibles and other long-lived assets
for possible impairment. This review occurs quarterly, or more frequently if
events or changes in circumstances indicate the carrying amount of the asset may
not be recoverable. If there is indication of impairment, then management
prepares an estimate of future cash flows expected to result from the use of the
asset and its eventual disposition. If these cash flows are less than the
carrying amount of the asset, an impairment loss is recognized to write down the
asset to its estimated fair value. Management believes that the accounting
estimate related to impairment of its property and equipment, is a “critical
accounting estimate” because: (1) it is highly susceptible to change from
period to period because it requires management to estimate fair value, which is
based on assumptions about cash flows and discount rates; and (2) the
impact that recognizing an impairment would have on the assets reported on our
balance sheet, as well as net income, could be material. Management’s
assumptions about cash flows and discount rates require significant judgment
because actual revenues and expenses have fluctuated in the past and are
expected to continue to do so. During the year ended December 31, 2009 and 2008,
the Company had no impairment expense.
Revenue
recognition
The
Company’s revenue recognition policies are in compliance with ASC Subtopic
605-10. Revenue is recognized when a formal arrangement exists, the price is
fixed or determinable, all obligations have been performed pursuant to the terms
of the formal arrangement and collectibility is reasonably assured.
Sales
related to long-term contracts for services (such as engineering, product
development and testing) extending over several years are accounted for under
the percentage-of-completion method of accounting . Sales and
earnings under these contracts are recorded based on the ratio of actual costs
incurred to total estimated costs expected to be incurred related to the
contract under the cost-to-cost method based budgeted milestones or tasks as
designated per each contract. Anticipated losses on contracts are recognized in
full in the period in which losses become probable and estimable.
For all
other sales of product or services the Company recognizes revenues based on the
terms of the customer agreement. The customer agreement takes the form of
either a contract or a customer purchase order and each provides information
with respect to the product or service being sold and the sales price. If
the customer agreement does not have specific delivery or customer acceptance
terms, revenue is recognized at the time of shipment of the product to the
customer.
Warranty
Liability
The
Company warrants a limited number of eTec products against defects for periods
up to 120 months. The estimate of warranty liability is based on historical
product data and anticipated future costs. Should actual failure rates differ
significantly from our estimates, we record the impact of these unforeseen costs
or cost reductions in subsequent periods and update our assumptions and
forecasting models accordingly. At December 31, 2009 the warranty reserve was
$211,345. At December 31, 2008 the reserve was $163,751. The increase
to the reserve was made in response to lengthening the warrantee period on
several items.
F-7
Accounts
receivable
Accounts
receivable are carried on a gross basis, with no discounting, less the allowance
for doubtful accounts. Management estimates the allowance for doubtful accounts
based on existing economic conditions, the financial conditions of the
customers, and the amount and the age of past due accounts. Receivables are
considered past due if full payment is not received by the contractual due date.
Past due accounts are generally written off against the allowance for doubtful
accounts only after all collection attempts have been exhausted. There is no
collateral held by the Company for accounts receivable. The allowance for
doubtful accounts was $92,494 and $69,176 as of December 31 2009 and 2008,
respectively.
Inventory
Inventory
is valued at the lower of cost, determined on a first-in, first-out basis, or
market. Inventory includes material, labor, and factory overhead required in the
production of our products. Inventory obsolescence is examined on a regular
basis. The allowance for obsolescence as of December 31, 2009 and 2008 was
$335,864 and $167,487 respectively.
Advertising
costs
The
Company expenses all costs of advertising as incurred. Included in general and
administrative expenses for the year ended December 31, 2009 and 2008 were
advertising costs of $4,937 and $8,212 respectively.
Research
and development costs
Research
and development costs are charged to expense when incurred. For the year ended
December 31, 2009 and 2008, research and development costs were $18,793 and
$292,709 respectively.
Contingencies
The
Company is not currently a party to any pending or threatened legal proceedings.
Based on information currently available, management is not aware of any
matters that would have a material adverse effect on the Company’s financial
condition, results of operations or cash flows.
Fair
Value of Financial Instruments
The
carrying amounts of the Company’s financial instruments, including cash and cash
equivalents, accounts receivable, accounts payable, accrued expenses and notes
payable approximate their fair values based on their short-term nature. Fair
value estimates discussed herein are based upon certain market assumptions and
pertinent information available to management as of December 31, 2009 and 2008.
The respective carrying value of certain on-balance-sheet financial
instruments approximated their fair values. See Note 3 for further
information.
Loss
per Common Share
Net loss
per share is provided in accordance with ASC Subtopic 260-10. We present basic
loss per share (“EPS”) and diluted EPS on the face of statements of operations.
Basic EPS is computed by dividing reported losses by the weighted average
shares outstanding. Except where the result would be anti-dilutive to
income from continuing operations, diluted earnings per share has been computed
assuming the conversion of the convertible long-term debt and the elimination of
the related interest expense, and the exercise of stock warrants. Loss per
common share has been computed using the weighted average number of common
shares outstanding during the year. For the year ended December 31, 2009 and
2008, the assumed conversion of convertible long-term debt and the exercise of
stock warrants are anti-dilutive due to the Company’s net losses and are
excluded in determining diluted loss per share.
Foreign
Currency Translation
In 2008
and 2009, a Company subsidiary, Portable Energy De Mexico operated outside the
United States and their local currency is their functional currency. The
functional currency is translated into U.S. dollars for balance sheet accounts
using the period end rates in effect as of the balance sheet date and the
average exchange rate for revenue and expense accounts for each respective
period. The translation adjustments are deferred as a separate component of
stockholders' equity, within other comprehensive loss, net of tax where
applicable.
F-8
In 2009,
a Company subsidiary, eTec, conducted a portion of their business in Canadian
Dollars. Because their functional currency is US dollars, the impact of the
translation was taken directly to the income statement and included in General
and Administrative expense.
Stock-Based
Compensation
The
Company records stock-based compensation in accordance with SFAS No. 123R “Share
Based Payments”, using the fair value method. All transactions in which goods or
services are the consideration received for the issuance of equity instruments
are accounted for based on Emerging Issues Task Force Issue No. 96-18,
“Accounting for Equity Instruments That Are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods or Services” using the fair
value of the consideration received or the fair value of the equity instrument
issued, whichever is more reliably measurable.
Property
and Equipment
Property
and equipment are recorded at historical cost. Minor additions and
renewals are expensed in the year incurred. Major additions and renewals
are capitalized and depreciated over their estimated useful lives. When
property and equipment are retired or otherwise disposed of, the cost and
accumulated depreciation are removed from the accounts and any resulting gain or
loss is included in the results of operations for the respective period.
The Company uses other depreciation methods (generally accelerated) for
tax purposes where appropriate. The estimated useful lives for significant
property and equipment categories are as follows:
Equipment
|
5-7
years
|
Buildings
|
39
years
|
Income
Taxes
The
Company has adopted the provisions of ASC subtopic 740-10 which requires
recognition of deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Under this method, deferred tax liabilities and assets are
determined based on the difference between the financial statement and tax basis
of assets and liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse. Deferred income tax expenses or
benefits are based on the changes in the asset or liability each period. If
available evidence suggests that it is more likely than not that some portion or
all of the deferred tax assets will not be realized, a valuation allowance is
required to reduce the deferred tax assets to the amount that is more likely
than not to be realized. A valuation allowance is provided for those
deferred tax assets for which the related benefits will likely not be realized.
Future changes in such valuation allowance are included in the provision for
deferred income taxes in the period of change.
Deferred
income taxes may arise from temporary differences resulting from income and
expense items reported for financial accounting and tax purposes in different
periods. Deferred taxes are classified as current or non-current, depending on
the classification of assets and liabilities to which they relate. Deferred
taxes arising from temporary differences that are not related to an asset or
liability are classified as current or non-current depending on the periods in
which the temporary differences are expected to reverse.
The
Company does not anticipate any significant changes to its total unrecognized
tax benefits with the next twelve months. As of December 31, 2009 no income tax
expense has been incurred.
Dividends
The
Company has not adopted any policy regarding payment of dividends. No
dividends have been paid or declared since inception. For the foreseeable
future, the Company intends to retain any earnings to finance the development
and expansion of its business and it does not anticipate paying any cash
dividends on its common stock. Any future determination to pay dividends
will be at the discretion of the Board of Directors and will be dependent upon
then existing conditions, including the Company’s financial condition and
results of operations, capital requirements, contractual restrictions, business
prospects and other factors that the board of directors considers
relevant.
F-9
Segment
reporting
Generally
accepted accounting procedures require disclosures related to
components of a company for which separate financial information is available
that is evaluated regularly by a company’s chief operating decision maker in
deciding the allocation of resources and assessing performance. Upon completion
of FuelCellStores.com, Innergy Power Corporation, Electric Transportation
Engineering Corporation (eTec) and eTec’s Minit-Charger business acquisitions
from June through December 2007, the Company identified its segments based on
the way The Company has concluded it has three reportable segments; ECOtality
Stores, DBA Fuel Cell Store segment, Innergy Power segment and eTec segment. The
ECOtality Stores segment is the online marketplace for fuel cell-related
products and technologies with online distribution sites in the U.S., Japan,
Russia, Italy and Portugal. The Innergy Power segment is comprised of the sale
of solar batteries and other solar and battery powered devices to end-users. The
eTec segment relates to sale of fast-charge systems for material handling and
airport ground support applications to the testing and development of plug-in
hybrids, advanced battery systems and hydrogen ICE conversions and consulting
revenues. This segment also includes the Minit-Charger business which relates to
the research, development and testing of advanced transportation and energy
systems with a focus on alternative-fuel, hybrid and electric vehicles and
infrastructures. eTec holds exclusive patent rights to the eTec
SuperCharge™ and Minit-Charger systems - battery fast charge systems that allow
for faster charging with less heat generation and longer battery life than
conventional chargers. The Company has aggregated these subsidiaries into three
reportable segments: ECOtality/Fuel Cell Store, eTec and Innergy.
While
management is currently assessing how it evaluates segment performance, we
currently utilize income (loss) from operations, excluding depreciation of
corporate assets. We also exclude goodwill from segment assets. For the year
ended December 31, 2009 and 2008 inter-segment sales were $28,723 and $0
respectively. All inter-segment sales have been eliminated during the
consolidation process.
Recent
Accounting Pronouncements
The FASB
issued ASC subtopic 855-10 (formerly SFAS 165 “Subsequent
Events”), incorporating guidance on subsequent events into
authoritative accounting literature and clarifying the time following the
balance sheet date which management reviewed for events and transactions that
may require disclosure in the financial statements. The Company has
adopted this standard. The standard increased our disclosure by requiring
disclosure reviewing subsequent events. ASC 855-10 is included in the
“Subsequent Events” accounting guidance.
In April
2009, the FASB issued ASC subtopic 820-10 (formerly Staff Position
No. FAS 157-4, Determining Fair Value When Volume
and Level of Activity for the Asset or Liability Have Significantly Decreased
and Identifying Transactions That Are Not Orderly”). ASC 820-10 provides
guidance on how to determine the fair value of assets and liabilities when the
volume and level of activity for the asset/liability has significantly
decreased. FSP 157-4 also provides guidance on identifying circumstances
that indicate a transaction is not orderly. In addition, FSP 157-4 requires
disclosure in interim and annual periods of the inputs and valuation techniques
used to measure fair value and a discussion of changes in valuation techniques.
The Company determined that adoption of FSP 157-4 did not have a material
impact on its results of operations and financial position.
In
July 2006, the FASB issued ASC subtopic 740-10 (formerly Interpretation No.
(“FIN”) 48, “Accounting
for Uncertainty in Income Taxes”). ASC 740-10 sets forth a recognition
threshold and valuation method to recognize and measure an income tax position
taken, or expected to be taken, in a tax return. The evaluation is based on a
two-step approach. The first step requires an entity to evaluate whether the tax
position would “more likely than not,” based upon its technical merits, be
sustained upon examination by the appropriate taxing authority. The second step
requires the tax position to be measured at the largest amount of tax benefit
that is greater than 50 percent likely of being realized upon ultimate
settlement. In addition, previously recognized benefits from tax positions that
no longer meet the new criteria would no longer be recognized. The application
of this Interpretation will be considered a change in accounting principle with
the cumulative effect of the change recorded to the opening balance of retained
earnings in the period of adoption. Adoption of this new standard did not have a
material impact on our financial position, results of operations or cash
flows.
In April
2008, the FASB issued ASC 815-40 (formerly Emerging Issues Task Force (“EITF”)
07-05, "Determining whether an
Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock").
ASC815-40 applies to any freestanding financial instruments or embedded features
that have the characteristics of a derivative, and to any freestanding financial
instruments that are potentially settled in an entity’s own common stock. ASC
815-40 is effective for financial statements issued for fiscal years beginning
after December 15, 2008. The adoption of this pronouncement did not
have a material impact on its financial position, results of operations or cash
flows.
F-10
In
June 2009, the FASB issued ASC 105 Accounting Standards
Codification TM and the
Hierarchy of Generally Accepted Accounting Principles. The FASB
Accounting Standards Codification TM (the “Codification”) has become the source
of authoritative accounting principles recognized by the FASB to be applied by
nongovernmental entities in the preparation of financial statements in
accordance with Generally Accepted Accounting Principles (“GAAP”). All existing
accounting standard documents are superseded by the Codification and any
accounting literature not included in the Codification will not be
authoritative. Rules and interpretive releases of the SEC issued under the
authority of federal securities laws, however, will continue to be the source of
authoritative generally accepted accounting principles for SEC registrants.
Effective September 30, 2009, all references made to GAAP in our
consolidated financial statements will include references to the new
Codification. The Codification does not change or alter existing GAAP and,
therefore, will not have an impact on our financial position, results of
operations or cash flows.
In June
2009, the FASB issued changes to the consolidation guidance applicable to a
variable interest entity (VIE). FASB ASC Topic 810, "Consolidation," amends the
guidance governing the determination of whether an enterprise is the primary
beneficiary of a VIE, and is, therefore, required to consolidate an entity, by
requiring a qualitative analysis rather than a quantitative analysis. The
qualitative analysis will include, among other things, consideration of who has
the power to direct the activities of the entity that most significantly impact
the entity's economic performance and who has the obligation to absorb losses or
the right to receive benefits of the VIE that could potentially be significant
to the VIE. This standard also requires continuous reassessments of whether an
enterprise is the primary beneficiary of a VIE. FASB ASC 810 also requires
enhanced disclosures about an enterprise's involvement with a VIE. Topic 810 is
effective as of the beginning of interim and annual reporting periods that begin
after November 15, 2009. This will not have an impact on the Company’s financial
position, results of operations or cash flows.
In June
2009, the FASB issued Financial Accounting Standards Codification No. 860 -
Transfers and Servicing. FASB ASC No. 860 improves the relevance,
representational faithfulness, and comparability of the information that a
reporting entity provides in its financial statements about a transfer of
financial assets; the effects of a transfer on its financial position, financial
performance, and cash flows; and a transferor's continuing involvement, if any,
in transferred financial assets. FASB ASC No. 860 is effective as of the
beginning of each reporting entity's first annual reporting period that begins
after November 15, 2009, for interim periods within that first annual reporting
period and for interim and annual reporting periods thereafter. The adoption of
FASB ASC No. 860 will not have an impact on the Company’s financial
statements.
International
Financial Reporting Standards
In
November 2008, the Securities and Exchange Commission (“SEC”) issued for comment
a proposed roadmap regarding potential use of financial statements prepared in
accordance with International Financial Reporting Standards (“IFRS”) as issued
by the International Accounting Standards Board. Under the proposed roadmap, the
Company would be required to prepare financial statements in accordance with
IFRS in fiscal year 2014, including comparative information also prepared under
IFRS for fiscal 2013 and 2012. The Company is currently assessing the potential
impact of IFRS on its financial statements and will continue to follow the
proposed roadmap for future developments.
Reclassifications
Certain
reclassifications have been made to the prior years’ financial statements to
conform to the current year presentation. These reclassifications had no
effect on previously reported results of operations or retained
earnings.
Year
end
The
Company has adopted December 31 as its fiscal year end.
Note
3 – Fair Value Measurements
The
Company adopted ASC Topic 820-10 at the beginning of 2009 to measure the fair
value of certain of its financial assets required to be measured on a recurring
basis. The adoption of ASC Topic 820-10 did not impact the Company’s
financial condition or results of operations. ASC Topic 820-10
establishes a fair value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value. The hierarchy gives the
highest priority to unadjusted quoted prices in active markets for identical
assets or liabilities (Level 1 measurements) and the lowest priority to
unobservable inputs (Level 3 measurements). ASC Topic 820-10 defines
fair value as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants on
the measurement date. A fair value measurement assumes that the
transaction to sell the asset or transfer the liability occurs in the principal
market for the asset or liability. The three levels of the fair value
hierarchy under ASC Topic 820-10 are described below:
F-11
Level
1 – Valuations based on quoted prices in active markets for identical
assets or liabilities that an entity has the ability to access.
Level
2 – Valuations based on quoted prices for similar assets and liabilities in
active markets, quoted prices for identical assets and liabilities in markets
that are not active, or other inputs that are observable or can be corroborated
by observable data for substantially the full term of the assets or
liabilities.
Level
3 – Valuations based on inputs that are supportable by little or no market
activity and that are signifigant to the fair value of the asset or
liability.
The
following table presents a reconciliation of all assets and liabilities measured
at fair value on a recurring basis as of December 31, 2008:
|
Level 1
|
Level 2
|
Level 3
|
Fair Value
|
||||||||||||
Cash
and CDs
|
$
|
355,376
|
$
|
-
|
$
|
-
|
$
|
355,376
|
||||||||
Accounts
receivable
|
-
|
1,963,073
|
-
|
1,963,073
|
||||||||||||
Accounts
payable
|
-
|
1,510,277
|
-
|
1,510,277
|
||||||||||||
Accrued
liabilities
|
-
|
2,129,904
|
-
|
2,129,904
|
||||||||||||
Notes
payable
|
-
|
5,833,389
|
-
|
5,833,389
|
||||||||||||
Total
|
$
|
355,376
|
$
|
11,436,643
|
$
|
-
|
$
|
11,792,019
|
The
following table presents a reconciliation of all assets and liabilities measured
at fair value on a recurring basis as of December 31, 2009:
Level 1
|
Level 2
|
Level 3
|
Fair Value
|
|||||||||||||
Cash
and CDs
|
$
|
11,824,605
|
$
|
-
|
$
|
-
|
$
|
11,824,605
|
||||||||
Accounts
receivable
|
-
|
1,296,696
|
-
|
1,296,696
|
||||||||||||
Accounts
payable
|
-
|
372,982
|
-
|
372,982
|
||||||||||||
Accrued
liabilities
|
-
|
1,438,177
|
-
|
1,438,177
|
||||||||||||
Notes
payable
|
-
|
287,500
|
-
|
287,500
|
||||||||||||
Total
|
$
|
11,824,605
|
$
|
3,395,355
|
$
|
-
|
$
|
15,219,960
|
Note
4 - Acquisitions and Goodwill
FuelCellStore.com
acquisition
On
June 11, 2007, the Company acquired the assets of the FuelCellStore.com, a
small web based seller of educational fuel cell products. The FuelCellStore.com
product line includes demonstration kits, educational materials, fuel cell
systems and component parts. It also offers consulting services on
establishing educational programs for all levels of educational institutions.
FuelCellStore.com now operates as a wholly owned subsidiary called ECOtality
Stores, Inc. Our consolidated financial statements for the year ended December
31, 2008 and 2009 include the financial results of ECOtality Stores,
Inc.
Innergy
Power Corporation acquisition
On
October 1, 2007, the Company acquired certain assets of the Innergy Power
Corporation and its wholly owned subsidiary, Portable Energy De Mexico, S.A. DE
C.V. Innergy Power Corporation designs and manufactures standard and custom
solar-power and integrated solar-battery solutions for government, industrial
and consumer applications. Our consolidated financial statements for the year
ended December 31, 2009 and 2008 include the financial results of Innergy Power
Corporation and its subsidiary.
The fair
market value of the transaction was $3,000,000. The Company issued 50,000 shares
of the Company’s common stock for the acquisition. The Company guaranteed
to the sellers that the shares would be worth $60 each ($3,000,000) during the
30-day period commencing 11 months from the closing date. If the shares were not
worth $3,000,000, the company would be required to either (a) issue additional
shares such that the total shares are worth $3,000,000 at that time or, (b)
issue a total of 66,667 new shares, or (c) pay cash to the seller such that the
aggregate value of the 50,000 shares plus the cash given would equal
$3,000,000.
F-12
The
purchase price obligation was settled in full on October 17, 2008 with the
issuance of 66,667 shares of ECOtality’s $0.001 par value common
stock.
eTec
acquisition
On
November 6, 2007, the Company acquired all the outstanding capital stock of
Electric Transportation Engineering Corporation, as well as its affiliated
company The Clarity Group (collectively referred to as eTec). eTec develops and
provides fast-charge systems designed for electric vehicle (EVs and PHEVs),
mobile material handling, airport ground support, and marine and transit
applications. eTec also tests and develops plug-in hybrids, advanced battery
systems and hydrogen ICE conversions. Our consolidated financial statements for
the year ended December 31, 2009 and 2008 include the financial results of
eTec.
The fair
market value of the transaction was $5,437,193. The Company paid $2,500,000 in
cash, issued a $500,000 note payable, and issued 108,333 shares of the company’s
common stock for the acquisition, which was valued at $1,820,000 based on the
closing market price on the date of the agreement. The total value of the
transaction also included $217,193 in direct acquisition costs and the
subsequent Net Working Capital Adjustment discussed below.
The
$500,000 is payable was initially payable in monthly installments of $50,000
beginning December of 2007. Payment of the balance of the note
payable remaining at December 31, 2008 was $235,253 and payment of this amount
was made on December 11, 2009.
Included
in the purchase agreement was a Net Working Capital Adjustment which called for
an adjustment to the purchase price to be made via a post-Closing payment from
the Sellers to the Buyers or the Buyers to the Seller to the extent that the
actual Net Working Capital as of the Closing Date was more or less than the
agreed Net Working Capital Target. A reconciliation of actual vs. target net
working capital was presented by the Sellers in August 2008 and a True Up
Payment of $400,000 from the Buyers to the Sellers was agreed to in full
satisfaction of this purchase agreement requirement. The resulting note payable
represents an adjustment of the purchase price, and as such has been recorded as
an increase to Goodwill of $400,000.
The
balance of the note payable attributable to the Working Capital True up as of
December 31, 2008 was $400,000. Payment of this amount was made on
December 11, 2009.
The
aggregate purchase price was allocated to the assets acquired and liabilities
assumed on their preliminary estimated fair values at the date of the
acquisition. The preliminary estimate of the excess of purchase price
over the fair value of net tangible assets acquired was allocated to
identifiable intangible assets and goodwill. In accordance with U.S.
generally accepted accounting principles, we have up to twelve months from
closing of the acquisition to finalize the valuation. The purchase
price allocation is preliminary, pending finalization of our valuation of
certain liabilities assumed. The following table summarizes the
estimate of fair value of assets as part of the acquisition with
eTec:
Tangible
assets acquired, net of liabilities assumed
|
$
|
1,941,315
|
||
Goodwill
|
3,495,878
|
|||
$
|
5,437,193
|
The
Company reviewed the goodwill for impairment performing the necessary testing
for recoverability of the asset and measuring its fair value. This
testing revealed current, historic, and future (projected) positive cash flows
supporting the full amount of goodwill. As a result of this testing
in 2008 no impairment was taken in the year ended December 31,
2008. In December 2009, the Company reviewed the goodwill for
impairment performing the necessary testing for recoverability of the asset and
measuring its fair value. This testing again revealed
current, historic, and future (projected) positive cash flows supporting the
full amount of goodwill. As a result of this testing in 2009 no
impairment was taken in the year ended December 31, 2009, resulting in $0
impairment for those periods.
F-13
Minit-Charger
acquisition
On
December 6, 2007 the Company acquired through eTec the Minit-Charger business of
Edison Enterprises. Minit-Charger makes products that enable fast charging of
mobile material handling equipment using revolutionary proprietary
technologies.
The fair
market value of the transaction was $3,000,000. The company paid $1,000,000 in
cash and issued 33,333 shares of the company’s common stock for the
acquisition. The company guaranteed to the sellers that the shares would
be worth $60 each ($2,000,000) by the tenth day following the first anniversary
date of the transaction. If the shares are not worth $2,000,000, the company
would be required to either issue additional shares such that the total shares
are worth $2,000,000 at that time or pay cash to the seller so that the
aggregate value of the 33,333 shares plus the cash given would equal
$2,000,000.
The fair
value of the common stock given, based on the closing price of the Company’s
common stock on December 31, 2007, was $370,000. A liability for the balance of
$1,630,000 based on the December 31 closing price was recorded as a current
liability for purchase price on the consolidated balance sheet as of December
31, 2007. This liability has been adjusted to reflect the actual obligation due
of $1,880,000 on the December 31, 2008 balance sheet. This
obligation totals the $2,000,000 remaining purchase price obligation multiplied
by $56.40 (the difference between $60 and the VWAP of $3.60 for the thirty days
prior to the true up date of December 15, 2008).
Included
in the purchase agreement with Edison was a Net Working Capital Adjustment which
called for an adjustment to the purchase price to be made via a post-Closing
payment from the Sellers to the Buyers or the Buyers to the Seller to the extent
that the actual Net Working Capital as of the Closing Date was more or less than
the agreed Net Working Capital Target. A reconciliation of actual vs. target net
working capital was presented to the Sellers in April 2008. Based on this
reconciliation and additional documentation and updates from both parties a true
up payment of $390,174 was received in December 2008 in full satisfaction of
this obligation. This True Up represents an adjustment of the
purchase price. As all goodwill associated with the MinitCharger acquisition was
impaired and written down to $0 in year ended December 31, 2007, the $390,174
was recorded as other income in our eTec business segment for the year ended
December 31, 2008.
Note
5 – Fixed assets
Fixed
assets as of December 31, 2009 and 2008 consisted of the
following:
At December 31,
|
At December 31,
|
|||||||
2009
|
2008
|
|||||||
Equipment
|
$
|
3,200,649
|
$
|
3,143,273
|
||||
Buildings
|
575,615
|
575,615
|
||||||
Vehicles
|
1,282,577
|
1,600,849
|
||||||
Furniture
and fixtures
|
100,883
|
47,409
|
||||||
Leasehold
improvements
|
704,911
|
470,380
|
||||||
Computer
Software
|
132,144
|
78,655
|
||||||
5,996,778
|
5,916,181
|
|||||||
Less:
accumulated depreciation
|
(4,124,431
|
)
|
(4,283,866
|
)
|
||||
1,872,347
|
1,632,315
|
Depreciation
expense totaled $488,718 and $615,960, for the years ended December 31,
2009 and 2008 respectively.
Note
6 – Notes payable
For
the year ended December 31, 2007:
On
January 16, 2007, the Company purchased an office building for an aggregate
price of $575,615. $287,959 in cash was paid and the remaining
balance of $287,500 was structured as an interest-only loan. The loan
bears an interest rate of 6.75% calculated annually, with monthly interest-only
payments due beginning on February 16, 2007. The entire principal
balance is due on or before January 16, 2012 and is recorded as a long-term
note payable on the consolidated financial statements.
During
2007, the Company incurred a $500,000 note payable to the previous owners of
eTec through the acquisition of eTec. The loan is payable in ten monthly
installments of $50,000 each. See note 4 for details. As of December 31, 2008, $
235,253 was owed and recorded as an accrued liability for purchase price on the
consolidated financial statements. This balance was paid in full on
December 11, 2009 and $0 was reflected in the financial statements on December
31, 2009.
During
2007, the Company acquired a note payable in the acquisition of eTec. The note
related to a vehicle that was also acquired in the acquisition. As of December
31, 2008 the vehicle had been sold and the related note payable was paid in
full.
F-14
NOVEMBER
AND DECEMBER 2007 DEBENTURES & SUBSEQUENT AMENDMENTS
In
November and December of 2007, the Company received gross proceeds of $5,000,000
in exchange for a note payable of $5,882,356 as part of a private offering of 8%
Secured Convertible Debentures (the “Debentures”). The debentures were
convertible into common stock at $18 per share. Debenture principal payments
were due beginning in May and June of 2008 (1/24th of the outstanding amount is
due each month thereafter). In connection with these debentures, the Company
issued debenture holders warrants (“the Warrants”) to purchase up to 163,399
shares of the Company’s common stock with an exercise price of $19.20. The
warrants were exercisable immediately upon issue. The Warrants expire five years
from the date of issue. The aggregate fair value of the Warrants equaled
$2,272,942 based on the Black-Scholes pricing model using the following
assumptions: 3.39%-3.99% risk free rate, 162.69% volatility, and strike price of
$19.20, market price of $13.20-$19.20, no yield, and an expected life of 912
days. The gross proceeds received were bifurcated between the note payable and
the warrants issued and a discount of $3,876,256 was recorded. The discount is
being amortized over the loan term of two and one half years. As of
December 31, 2008, a total of $1,797,419 had been amortized and recorded as
interest expense and $2,078,836 remains as the unamortized discount. See
note 8 for additional discussion regarding the issuance of
warrants.
AUGUST
2008 AMENDMENT TO THE DEBENTURES
On August
29, 2008 the Company signed an Amendment to the Debenture agreements deferring
the payments indicated above. The purpose of the agreement is to provide the
Company time to fund its working capital requirements internally through organic
growth as well as to obtain both short and long term funding through equity
financing and other sources of capital.
AUGUST
2008 WAIVER PROVISIONS:
The
waiver, deferment agreement aligns with the Company’s short term working capital
plan and provides time to achieve company objectives in this regard. In exchange
for the Amendment to the Debentures, the Company agreed to:
A.
|
Waiver
of interest payments due between May-December
2008
|
B.
|
Deferment
of monthly redemptions for the period May-December
2008.
|
C.
|
Increase
to the outstanding principal amount plus accrued interest though December
31, 2008 for the debentures by 120% as of the effective date of the
agreement.
|
D.
|
Reset
of the common stock conversion rate from $18.00 to
$9.00.
|
E.
|
Commencement
of principal payments starting January 1, 2009 with no change to the
redemption period (May 2010)
|
F.
|
Commencement
of interest payments @ 8% per year April 1, 2009 (first payment
due).
|
G.
|
Inclusion
of make whole provisions to reset common stock warrant conversion prices
to the value used to “true-up” both the Innergy Power Company and
Minit-Charger (Edison) acquisitions when both “true-ups” are completed.
For both of these acquisitions the Sellers were issued shares which the
Company guaranteed would be worth $60.00 per share for the thirty days
prior to the anniversary date of the purchase. This guarantee requires the
issuance of additional shares or payment in cash for the difference in the
share price on the respective anniversary dates. In the case of Innergy,
the number of required “true up” shares is capped at
66,666.
|
H.
|
Inclusion
of further make whole provisions to issue additional warrants adequate to
maintain the pro rata debenture ownership % when fully diluted as per
schedule 13 in the waiver
agreement.
|
|
I.
|
Compliance
with covenants per quarterly public reports issued for the periods ending
June 30, September 30, and December 31, 2008 for the
following:
|
|
1.
|
Net
cash used
|
|
2.
|
Current
ratio adjusted for non-cash
liabilities
|
|
3.
|
Corporate
Headquarters accounts payable
amount
|
F-15
IMPACT
OF THE AUGUST 2008 WAIVER PROVISIONS ON THE FINANCIAL STATEMENTS
During
the period ended September 30, 2008 the impact to the financial statements for
the provisions of the waiver noted above were estimated, the portion
attributable to the period ending September 30, 2008 was charged to interest
expense, and the remainder was capitalized as prepaid financing charges (see
details in #1 through #3 below). During the last three months of the
waiver period, October to December 31, 2008, the remainder of the capitalized
prepaid financing charges of $2,378,672 were charged to interest
expense. At December 31, 2008 all costs of the initial waiver had
been fully expensed.
1.
|
The
increase to principal of $1,559,859 (see letter “C” above) was added to
the long term note, $1,157,315 was capitalized in prepaid financing
charges and the portion of the increase attributable to the nine month
period ending September 30, 2008 of $402,544, less previously accrued
interest (now incorporated in the principal) of $191,438 was charged to
interest expense. The capitalized remainder of $1,157,315 was charged to
interest expense in the year ended December 31,
2008.
|
2.
|
The
estimated change in value of the original 163,399 debenture warrants
related to the pending reset of the exercise price (see letter “G” above)
was calculated by using the Volume Weighted Average Price (VWAP) for the
most recent 30 days prior to September 30, 2008 of $4.80 as the estimated
new exercise price following the reset and the warrants were valued first
at their current exercise price then at the estimated new price using the
Black Scholes Model using the following assumptions: Strike Price $19.20
(old) and $4.80 (new), Stock Price $6.00 (price on date of agreement),
time 780 days for November Warrants and 795 for December Warrants,
Volatility 146.39%, Risk Free Interest Rate 3.83%. The increase in value
calculated totaled $207,941. Of the total, $154,279 was
capitalized as prepaid financing costs and was amortized over the waiver
period ending December 31, 2008.
|
3.
|
The
estimated number of additional warrants required to be issued to true up
to the original aggregate exercise price for the November and December
Warrants (see letter “G” above) following the reset of the exercise price
was calculated using the difference between the current aggregate exercise
price of $3,137,256 (163,399 total warrants at original exercise price
$19.20), and the new aggregate exercise price of $784,314 following the
reset of the exercise price to $4.80. This difference totaled $2,352,942
requiring the issuance of an estimated 490,196 warrants (at $4.80) to
maintain the previous aggregate exercise price. The new warrants were
valued at $1,438,235 using the Black Scholes Model with the following
assumptions: Strike Price $4.80, Stock Price $4.20 (price at September 30,
2008), time 753 days, Volatility 146.39%, Risk Free Rate 3.83%. Of the
total, $1,067,077 was capitalized as prepaid financing costs and was
amortized over the waiver period ending December 31,
2008.
|
IMPACT
OF OCTOBER 2008 TRUE-UP (REQUIRED BY THE AUGUST 2008 WAIVER) TO THE FINANCIAL
STATEMENTS
On
October 17, 2008, a purchase price true up with Innergy was completed, whereby
we satisfied our purchase price obligation to Innergy in the form of a share
issuance (please see Note 4 for details). This share issuance
triggered the make whole provision in the debenture waiver (letter “G” above)
which required us to immediately reset their warrant exercise price of $9.00 to
the VWAP in place at the time of the Innergy True up of $3.60, as well as to
change their debt conversion rate from the previous $9.00 to
$3.60. This true up also required the issuance of new warrants to
allow the denture holders to maintain their previous aggregate exercise price
following the update. The calculations for this change to our
debenture debt is outlined below. All related charges were
immediately charged to interest expense.
1.
|
The
estimated change in value of the restated debenture warrants
related to the reset of the exercise price (see letter “G” above) was
calculated by using the stock price employed for the Innergy true up
calculation of $3.60 as the new exercise price following the reset and the
warrants were valued first at their current exercise price then at the
estimated new price using the Black Scholes Model using the following
assumptions: Strike Price $4.80 (old) and $3.60 (new), Stock
Price $6.00 (price on date of agreement), time 780 days for November
Warrants and 795 for December Warrants, Volatility 146.39%, Risk Free
Interest Rate 3.83%. The increase in value calculated totaled $35,001 and
was charged to interest expense.
|
2.
|
The
estimated number of additional warrants required to be issued to true up
to the previous aggregate exercise price for the November and December
Warrants (see letter “G” above) following the reset of the exercise price
was calculated using the difference between the previous aggregate
exercise price of $4.80 and the new aggregate exercise price following the
reset to $3.60. This change required the issuance of an
additional 139,191 warrants (at $3.60) to maintain the previous aggregate
exercise price. The change in value of the old vs. the new
increased number of warrants was ($445,061) using the Black Scholes Model
with the following assumptions: Strike Price $3.60, Stock Price $2.40
(price at December 31, 2008), time 753 days, Volatility 146.39%, Risk Free
Rate 3.83%. The reduction in value (due to the lower stock price) was
charged to interest expense.
|
F-16
On
January 30, 2009 a purchase price true up with Edison was completed, whereby we
satisfied our purchase price obligation to Edison in the form of a share
issuance (please see Note 4 for details). This share issuance
triggered the make whole provision in the debenture waiver (letter “G” above)
which required the issuance of new warrants to allow the debenture holders to
maintain their previous aggregate exercise price following the
update. This calculation resulted in the issuance of an additional
4,720,408 warrants (at $0.06) to maintain the previous aggregate exercise price.
The change in value of the old vs. the new increased number of warrants was
$124,147 using the Black Scholes Model consistent with the Innergy true
up. The cost of the increased warrants of $124,147 was charged to
interest expense in the quarter ended March 31, 2009.
MARCH
2009 AMENDMENT TO THE DEBENTURES
On March
5, 2009 we entered in to an Agreement entitled “Amendment to Debentures and
Warrants, Agreement and Waiver” (the “Agreement”) restructuring our equity
with the institutional debt holders of the our Original Issue Discount 8% Senior
Secured Convertible Debentures, dated November 6, 2007 (the “November 2007
Debentures”) (aggregate principal amount equal to $4,117,649) and with our
debt holder of our Original Issue Discount 8% Secured Convertible Debentures,
dated December 6, 2007 (the “December 2007 Debenture”) (aggregate
principle amount equal to $1,764,707). The November and December 2007
Debentures are held by Enable Growth Partners LP (“EGP”), Enable Opportunity
Partners LP (“EOP”), Pierce Diversified Strategy Master Fund LLC, Ena
(“Pierce”), and BridgePointe Master Find
Ltd (“BridgePointe”)(individually referred to as “Holder” and
collectively as the “Holders”). The Agreement’s effective date is January 1,
2009.
MARCH
2009 WAIVER PROVISIONS:
In
exchange for signing an Amendment to Debentures and Warrants, Agreement and
Waiver which defers interest payments due for the first quarter 2009 until
May 1, 2009 and payment of monthly principal redemptions until May 1, 2009, we
agreed to the following:
|
A.
|
Adjust
the conversion price of the November 2007 Debentures and December 2007
Debenture s to $3.60.
|
|
B.
|
The
Holders collectively shall maintain an equity position in the Company, in
fully diluted shares, of 50.4 %. Should the Holders’ equity position
collectively become less than the 50.4%, the Company shall issue warrants
to each Holder, pro-ratably to bring Holders’ equity position back to
50.4%.
|
|
C.
|
Additional
covenants related to not exceeding $2,000,000 accounts payable amount or
payment of other liabilities while the debentures are
outstanding.
|
|
D.
|
The
right to recommend for placement on the Company 's Board of Directors, a
nominee by either BridgePointe or BridgePointe’s investment manager
Roswell Capital Partners LLC. Such a recommendation shall meet the
Company’s requirements as set forth in the Company’s Bylaws and all
applicable federal and state law. The nominee shall serve until such time
as the Company has redeemed the
debentures.
|
|
E.
|
All
outstanding Warrants (defined in the Securities Purchase Agreements dated
November 6, 2007 and December 6, 2007), and all Warrants issued to Holders
as consideration for the current or prior Amendments to the November 2007
Debentures and the December 2007 Debentures shall be amended t o have an
exercise price of $3.60 (to the extent that such exercise price was
previously above $3.60), and the expiration dates shall be extended to May
1, 2014.
|
|
F.
|
Use
best efforts to obtain stockholder approval of an increase in the
authorized number of shares of common stock of the Company. The proposal
shall increase the number of authorized common shares from 300,000,000 to
500,000,000.
|
|
G.
|
In
addition, the Securities Agreement, dated November 6, 2007 and all UCC-1
filings made as required thereof, shall be amended to include each of the
Company’s current and future Patents and Trademarks. In addition the
Company shall file notice of the Assignment for Security of the Company’s
current and any future Patents and Trademarks with the United States
Patent and Trademark Office and other foreign countries as
appropriate.
|
F-17
IMPACT
OF THE MARCH 2009 WAIVER PROVISIONS ON THE FINANCIAL STATEMENTS:
There was
no financial impact of the March 2009 waiver as the warrants mentioned were
reset to $3.60 at the time of the October 2008 true up.
MAY
2009 AMENDMENT TO THE DEBENTURES
Despite
the current tenuous economic situation, the financial opportunities specifically
in the Stimulus projects related to electric transportation, were
deemed material to the Company’s future, thus on May 15, 2009, the
Company and the Debenture Holders entered into an agreement entitled “Amendment
to Debentures and Warrants, Agreement and Waiver” (the “Agreement”)
restructuring the Company’s equity as well as establishing an inducement for
additional working capital for the Company. The Agreement’s effective date was
May 1, 2009.
MAY
2009 WAIVER PROVISIONS:
The
Company agreed to the following:
|
1.
|
Defer
payment of interest until November 1, 2009. Interest to be paid monthly
from that date. Interest accrued though September 30, 2009 will
be added to principal.
|
|
2.
|
Commence
redemption of principal on January 1, 2010 in 10 equal
payments.
|
|
3.
|
Consent
to obtaining additional working capital for specified uses not to exceed
$2,500,000 in the same form and rights of debentures pari pasu in
seniority both as to security interest priority and right of payment with
the debenture held by the existing
holders.
|
|
4.
|
Segregation
of payment of the Karner bridge note, reaffirmed Karner and Morrow
employment agreements, identifies specific contract carve outs should the
Company fail to achieve certain target objectives, and provide for a bonus
should the target be achieved.
|
|
5.
|
Maintain
the conversion price of the November 2007 Debentures and December 2007
Debentures at $.06.
|
|
6.
|
Additional
covenants related to not exceeding $2,500,000 accounts payable amount or
payment of other liabilities while the debentures are outstanding. Other
covenants include maintaining minimum cash flow amounts. Allowing for
inspection of financial records, and achieving Stimulus contract target
objectives.
|
|
7.
|
The
right to recommend for placement on the Company's Board of Directors, two
(2) nominees by either BridgePointe or BridgePointe’s
investment manager Roswell Capital Partners LLC or other debenture
holders. Such a recommendation will meet the Company’s requirements as set
forth in the Company’s Bylaws and all applicable federal and state law.
The nominees may serve until such time as the Company has redeemed the
debentures.
|
|
8.
|
The
existing Holders collectively will maintain an equity position in the
Company, in fully diluted shares, of 80%. Should the existing holders
Holders’ equity position collectively become less than the 80%, the
Company will issue warrants to each existing Holder, pro-ratably to bring
Holders’ equity position back to 80%. However, there are provisions (when
additional capital is raised (not to exceed $2,500,000)) to bring the
fully diluted position to 70% for the existing Holders as well as those
Holders of new capital debentures. There are provisions to
further reduce the debenture holders to 65% should management achieve
certain specified performance
targets.
|
|
9.
|
All
outstanding Warrants (defined in the Securities Purchase Agreements dated
November 6, 2007 and December 6, 2007), and all Warrants issued to Holders
as consideration for the current or prior Amendments to the November 2007
Debentures and the December 2007 Debentures will be amended to have
an exercise price of $0.60 (to the extent that such exercise price
was previously above $3.60), and the termination dates for the makeup
warrants will be five (5) years from date of
issuance.
|
F-18
|
10.
|
Use
best efforts to obtain stockholder approval of an increase in the
authorized number of shares of common stock of the Company. The
proposal shall increase the number of authorized common shares from
300,000,000 to 1,300,000,000.
|
|
11.
|
Agreed
to specific provisions relating to disclosure of material nonpublic
information by debenture holder board members, or at other times when
complying with the provisions of the debenture waive
agreement.
|
IMPACT
OF THE MAY 2009 WAIVER PROVISIONS ON THE FINANCIAL STATEMENTS:
In the
quarter ended June 30, 2009, the financial impact of the May waiver was
calculated and is being amortized as noted below, over the waiver period of May
15, 2009 through December 31, 2009.
1.
|
The
change in value of the restated debenture warrants related to the
reset of the exercise price (see #9 above) was calculated using the Black
Scholes Model using the following assumptions: Strike Price $0.06 (old)
and $0.01 (new), Stock Price $0.11 (price on date of agreement), time
162.34 days Volatility 162.34%, Risk Free Interest Rate 3.10%. The
increase in value calculated totaled $887,843. This amount was
added to additional paid in capital, and a contra-equity account
for “Unamortized Financing Charges” was established as the
offset. The portion of the Unamortized Financing Charges” that
was charged to interest expense through September 30, 2009 was $532,706
The remaining $355,137 was expensed over the remainder of the waiver
period (October through December
2009).
|
2.
|
The
number of additional warrants to be issued to support the
requirement of an 80% equity position as described in #8 above was
calculated as follows: Total Debenture warrants outstanding
prior to the waiver = 871,460 + shares available on debenture conversion
2,046,125 = 2,917,585 Total Fully Diluted Debenture Holder Ownership
Pre-Waiver. Total Company Fully Diluted Shares at May 15, 2009
of 14,347,848 was used as the base on which to calculate the 80% ownership
target of 11,478,278 shares. To determine
the warrants to be issued the 80% target figure of 11,478,278 less total
Debenture Holder Ownership of 2,917,585 resulted in 8,560,692 (additional
warrants to be issued). To value the new warrants we used the
market cap at the date of the issuance calculated as shares outstanding at
May 15, 2009 of 2,698,436 multiplied by the closing share price
of $6.60 = $17,809,681. To get the portion of the
market cap attributable to the new warrants (vs. those already
held by the debenture holders ) we divided the # of new warrants
(8,560,692) by the total 80% ownership target number of shares for the
debenture holders (11,478,278) to get (75%). The 75%
was multiplied by 80% total ownership %, and the resulting 60%
was then multiplied by the total market cap to get the portion of the
market cap attributable to the new issuance of $10,626,208.
This amount was added to additional paid in capital, and a contra-equity
account for “Unamortized Financing Charges” was used as the
offset.
|
All
Unamortized Financing Charges were amortized and charged to charged to interest
expense over the waiver period in the year ending December 31,
2009.
JUNE
2009 AMENDMENT TO THE MAY AMENDMENT TO THE DEBENTURES
The
debenture holders and the Company signed a First Amendment to Amendment to
Debentures and Warrants, Agreement and Waiver dated June 30,
2009. This amendment modified the May 15, 2009 Amendment
by:
|
a.
|
Increasing
approval authority for specified transactions for the November and
December 2007 and July 2009 Debenture Holders to 85% from 75% of
outstanding principal amount.
|
b.
|
Clarifying
whom has Board of Director member
rights
|
|
c.
|
Clarifying
the June 30, 2009 warrant true-up calculation, per the May 15, 2009
Amendment.
|
IMPACT
OF THE PROVISIONS OF THE JUNE AMENDMENT TO THE FINANCIAL
STATEMENTS:
There was
no impact to the financial statements related to the June amendment to the May
15, 2009 amendment.
The
current portion of the debentures is recorded, net of a $931,261 discount, is
$6,794,992 at September 30, 2009. The long-term portion of the
debentures is $858,472 as of September 30, 2009.
Included
in accrued interest is $466,107 of accrued interest relating to the debentures
at September 30, 2009.
F-19
JULY
2009 NEW DEBENTURE ISSUANCE
To
support ECOtality’s expansion and current working capital needs, the Company
received a direct investment of $2,5000,000 in 8% Secured Convertible Debentures
due October 1, 2010, of which Shenzhen Goch Investment Ltd was issued $2,000,000
in debentures, Enable Growth Partners (current debenture holder) was issued
$250,000 in debentures, and BridgePointe Master Fund (current debenture holder)
was issued $250,000 in debentures. The debentures have an exercise price or
$3.60 per share of ECOtality common stock. The July 2009
Debentures:
|
a.
|
Are
consistent with the initial debentures issued in November and December
2007 except this series is secured, convertible rather than original issue
discount debentures.
|
|
b.
|
Update
the original Security Purchase Agreements, Securities Agreements,
Registration Rights Agreements, Subsidiary Guarantees, and related
disclosure schedules.
|
c.
|
Provide
for issuance of warrants to Shenzhen Goch Investment Ltd for their capital
investment and adjusting the warrants held by Enable and BridgePointe
subject to the June 30, 2009 true up as defined in the May 15,
2009 Amendment.
|
|
d.
|
Restate
the agreement to increase the number of the Company’s authorized
common shares from 300,000,000 to
1,300,000,000.
|
e.
|
Restate
the covenants established in the May 15, 2009 Amendment and the Karner
“carve-out” should certain “Stimulus” contract targets not be achieved. In
accordance with the terms of the May 15 Amendment, the Company and Karner
agreed that if Karner continues to remain a full-time employee, and The
Company (with Karner’s assistance) fail to secure executed Stimulus
Contracts (as defined in the May 15 Amendment) having an aggregate total
contract value of $20,000,000 or more during the period from May 15, 2009
through October 1, 2009, then The Company must, on or prior to
October 9, 2009, transfer ownership of all stock and assets of The Clarity
Group, Inc. to Karner.
|
(NOTE -
on September 30, 2009 contracts totaling in excess of $20 million were
achieved so this carve out provision is no longer valid).
OCTOBER
2009 SECURITIES EXCHANGE AGREEMENT
On
October 31, 2009, ECOtality, Inc. (“ECOtality” or the “Company”) signed a
Securities Exchange Agreement with all holders of its convertible
debentures and holders of certain warrants to convert all outstanding
amounts ($9,111,170) under these debentures and all related warrants into an
aggregate of 8,597,299 shares of Series A Convertible Preferred Stock
(while not impacted by the current common stock split discussed herein, it could
be subject to adjustment for future forward and reverse stock splits, stock
dividends, recapitalizations and the like). The Series A Convertible
Preferred Stock has no redemption or preferential dividend rights, but may be
converted into shares of the Company’s common stock (the “Common Stock”) at a
1:1 ratio.
IMPACT
OF THE PROVISIONS OF THE SECURITIES EXCHANGE AGREEMENT ON THE FINANCIAL
STATEMENTS:
The
outstanding principal and unpaid interest on the date of the agreement was
$9,111,170. The oustanding debenture liability was relieved in full
and a credit was recorded to additional paid in capital in the amount
of 9,102,573 and preferred stock was credited at par value of $0.001
multiplied by the 8,597,299 shares that were issued, for a credit of
$8,597. The unamortized discount on the convertible debentures was
$676,244 immediately prior to the transaction. This amount was
charged in full to interest expense in the year ended December 31,
2009.
Interest
expense totaled $15,915,438 and $4,620,364 for the year ended December 31, 2009
and 2008 respectively.
On August
29, 2008, Mr. Donald Karner, a director of the Company, and Kathryn Forbes
agreed to provide the Company a line of credit for up to $650,000. This Line was
secured by a second position on receivables (junior to previously issued
debentures). During the year ended December 31, 2008, $450,000 was advanced by
Mr. Karner and Ms. Forbes. Further advances above $450,000 were contingent on
the Company securing additional financing as agreed by October 26, 2008. This
line carries a loan fee of $45,000 payable when the line expires. The
line was originally scheduled to expire December 15, 2008, but was extended to
April 20, 2009 by the Lenders. In consideration of the extension, an
interest fee of $50,000 was paid to the Lenders in December 2008. No
other interest payments or fees are required under the agreement. The fee of
$45,000 was expensed in full as of December 31, 2008. All amounts
advanced under the Line are due and payable in full on April 20, 2009. The
balance of the note payable was $450,000 at December 31, 2008. This
balance was paid in full on December 11, 2009 leaving a $0 balance in accrued
liabilities related to this item at December 31, 2009.
F-20
Note
7 – Stockholders’ equity
The
Company is authorized to issue 1,300,000,000 shares of its $0.001 par value
common stock and 200,000,000 shares of $0.001 par value preferred
stock.
Common
Stock
During
the year ended December 31, 2007, the Company issued a total of 13,167
shares of common stock to consultants for services. The stock was valued at the
current market price at the date of issue for a total of $400,400. This
amount was recorded as a prepaid expense for services to be amortized over the
periods of the related agreements. During the year ended December 31,
2007, $284,375 has been amortized and $116,025 remained in prepaid
expenses. During the year ended December 31, 2008, $116,025 was
amortized and $0 remained in prepaid expenses at December 31, 2008.
During
the year ended December 31, 2007, the Company signed an employment
agreement with the CEO of the Company. The Company agreed to issue a total
of 16,666 options for shares of common stock currently and issue another 16,666
options to him one year from the date of the agreement. The options issued
in 2007 have a term of ten years and a strike price of $3.60. The
aggregate fair value of the Warrants equals $281,300 based on the Black-Scholes
pricing model using the following assumptions: 3.95% risk free rate, 162.69%
volatility, strike price of $18.00, market price of $19.20, no yield, and an
expected life of 5 years. This amount was recorded as unamortized cost of
stock issued for services to be amortized over the two-year period of the
agreement. During the year ended December 31, 2007, $23,442 was
amortized into expense and $257,858 remained in unamortized cost of stock issued
for services. $140,650 was amortized in 2008, and the remaining
$117,208 was expensed in the six months ending June 30,
2009. The options issued in 2008 were treated as earned equally over
the two-year term of the agreement so that 1,389 of these options were
earned and expensed as of December 31, 2007. Those options were
valued using the Black-Scholes pricing model using the same assumptions and
valued at $14,442. The balance of the options were valued at $55,168 using
the Black Scholes pricing model and were expensed as earned in the year ending
December 31, 2008.
During
the year ended December 31, 2008, a debenture holder, BridgePointe, elected to
convert a portion of their principal to shares at the conversion rate in affect
at that time of $18.00 per share. $100,000 of principal was converted
to 5,555 shares
During
the year ended December 31, 2008 the Company entered into contracts with
employees that called for the issuance of 5,000 shares of the Company’s $0.001
common stock. These shares were valued at $25,000. This
amount was expensed to compensation in the year ended December 31,
2008.
On August
8, 2008 the Company entered into a contract for services with vendor that called
for the issuance of 6,500 shares of the Company’s $0.001 common
stock. These shares were valued at $54,900 and were expensed over the
life of the contract. At December 31, 2008 $22,750 had been expensed
leaving a balance of $31,850 in prepaid services. In the nine months
ended September 30, 2009 the remaining $31,850 was expensed leaving a balance of
$0 in prepaid services at September 30,2009.
On
October 1, 2007, the Company acquired certain assets of the Innergy Power
Corporation and its wholly owned subsidiary, Portable Energy De Mexico, S.A. DE
C.V. The fair market value of the transaction was $3,000,000. The Company issued
50,000 shares of the Company’s common stock for the acquisition. The
Company guaranteed to the sellers that the shares would be worth 60 each
($3,000,000) during the 30-day period commencing 11 months from the closing
date. If the shares were not worth $3,000,000, the company would be required to
either (a) issue additional shares such that the total shares are worth
$3,000,000 at that time or, (b) issue a total of 66,666 new shares, or (c) pay
cash to the seller such that the aggregate value of the 50,000 shares plus the
cash given would equal $3,000,000. On October 17, 2008, 66,666 shares were
issued to Innergy Power Corporation in full satisfaction of our purchase
obligation to them.
There
were 2,157,048 shares of common stock issued and outstanding at December
31, 2008.
F-21
On
December 6, 2007 the Company acquired through eTec the Minit-Charger business of
Edison Enterprises. The fair market value of the transaction was $3,000,000. The
company paid $1,000,000 in cash and issued 33,333 shares of the company’s common
stock for the acquisition. The company guaranteed to the sellers that the
shares would be worth $60 each ($2,000,000) by the tenth day following the first
anniversary date of the transaction. If the shares are not worth $2,000,000, the
company would be required to either issue additional shares such that the total
shares are worth $2,000,000 at that time or pay cash to the seller so that the
aggregate value of the 2,000,000 shares plus the cash given would equal
$2,000,000. This purchase price obligation was settled in full on
January 30, 2009 with the issuance of 522,222 shares of ECOtality’s $0.001 par
value common stock.
In March
2009 the Company issued 17,917 shares of the Company’s $0.001 common
stock in satisfaction of $90,000 in accounts payable owed to two service
vendors.
On April
13, 2009 1,250 shares of common stock owed in 2008 were issued to an employee in
accordance with an employment agreement.
For the
year ended December 31, 2009, 16,667 shares of common stock valued at $260,000
and were issued and 16,667 were owed in return for professional
services.
19,895
shares were issued to Corporate Headquarter employees as
compensation. These awards were valued at $128,987 and approved by
the Board and were issued in recognition of performance during the year ended
December 31, 2009.
On
October 31, 2009, ECOtality signed a Securities Purchase Agreement and a
Registration Rights Agreement with certain accredited investors (the
“Investors”) pursuant to which the Investors agreed to purchase shares of the
Company's Common Stock at a purchase price of $7.20 per
share. $20,500,000 was raised pursuant to the Purchase Agreement in
the year ended December 31, 2009. Total fees to brokers
associated with the capital raise were $1,204,935 in cash as per their
contracted fee agreements. $15,500,000 was received in the year ended
December 31, 2009. 1,458,330 Shares were issued in 2009 in
satisfaction of $10,500,000 of the investment received. The the
remaining $5,000,000 received in 2009 and an additional $5,000,000 subscribed in
2009 were related to a single investor. To capture the partial
receipt and outstanding commitment, a subscription receivable of $5,000,000
and 1,388,889shares owed but not issued were recorded at December 31, 2009 and
were subsequently issued upon receipt of the second half of the investor's total
$10,000,000 investment in January of 2010. In addition to the shares
and fees described above, the purchase agreement called for the issuance
of 2,847,222 warrants to the new investors and 163,194 warrants to the
brokers involved in the capital raise, as part of the contractual fee
agreements. These are five year warrants with an exercise price of
$9.00 and were issued November 10, 2009.
On
September 30, 2009, triggering conditions were met under the management
incentive plan resulting in the grant of an equity award to Mr. Jonathan Read
valued at $8.1 million. This award, originally stated in terms of warrants was
never issued, was subsequently revised and reduced, with final grant and award
of 673,505 shares of the Company’s $0.001 par value common stock being granted
to Mr. Read on January 15, 2010, with final issuance of the shares on January
27, 2010. The value of the final award was calculated at the time of the
issuance of the shares on January 27, 2010. The share price on that date was
$5.50 for total compensation of $3,704,278. At December 31, 2009 the full amount
of the original award of $8.1 million was recorded in additional paid in capital
and the shares were shown as owed but not issued. The award amount booked to
additional paid in capital was not reduced from the original $8.1 million
estimate to the $3.7 million final award value in compliance with
GAAP.
For the
year ended December 31, 2009, 2,118,723 shares were issued on the cashless
conversion of 2,256,656 debenture warrants with an exercise price of $0.60 as
follows. Enable Growth exercised 970,353 warrants in exchange for 913,805
shares, Enable Opportunity exercised 114,159 warrants in exchange for
107,506 shares, Pierce Diversified Master Fund exercised 57,079 warrants in
exchange for 53,753 shares, BridgePointe Master Fund exercised
1,080,210 warrants in exchange for 1,010,324 shares and Glenwood Capital, LLC
(recipient of assigned warrants) exercised 34,854 warrants in exchange for
33,333 shares
For the
year ended December 31, 2009, 98,610 shares were issued on the cashless
conversion of 105,306 Brookstreet Investor warrants at $0.60 exercise
price.
For the
year ended December 31, 2009, 302,778 shares on the Company's $0.001 par
value common stock were issued for conversion of debenture debt in the amount of
$1,090,000 at a rate of $3.60 as follows: Pierce Diversified Master Fund
converted $42,000 in debt for 11,667 shares, Enable Growth converted $714,000 in
debt for 198,333 shares, Enable Opportunity converted $84,000 in debt for 23,333
shares and BridgePointe Master Fund converted $250,000 in debt for 69,444
shares.
F-22
On September
30, 2009, triggering conditions were met under the management incentive plan
resulting in the grant of an equity award to Mr. Read valued at
$8.1MM. This award, originally stated in terms of warrants was never
issued, was subsequently revised and reduced, with final grant and award
of 673,505 shares of the Company's $0.001 par value common stock being
granted to Mr. Read on January 15, 2010, with final issuance of the shares on
January 27, 2010. The shares associated with this award were
recorded as shares owed but not issued as of December 31, 2009. The value of the
final award was calculated at the time of the issuance of the shares on January
27, 2010. The share price on that date was $5.50 for total
compensation of $3,704,278.
There
were 6,713,285 shares of Common Stock outstanding and 2,079,061 shares owed but
not issued at December 31, 2009.
Preferred
Shares
On
October 31, 2009, ECOtality, Inc. (“ECOtality” or the “Company”) signed a
Securities Exchange Agreement with all holders of its convertible
debentures and holders of certain warrants to convert all outstanding
amounts ($9,111,170) under these debentures and all 6,455,083 related warrants
into an aggregate of 8,597,299 shares of Series A Convertible
Preferred Stock (while not impacted by the current common stock split discussed
herein, it could be subject to adjustment for future forward and reverse stock
splits, stock dividends, recapitalizations and the like). The Series A
Convertible Preferred Stock has no redemption or preferential dividend rights,
but may be converted into shares of the Company’s common stock (the “Common
Stock”) at a 1:1 ratio
There
were 8,597,299 shares of Series A Convertible Preferred Stock outstanding at
December 31, 2009.
Note
8 – Options and Warrants
As
of December 31, 2007, there were 317,924 options and warrants
outstanding.
The
November and December debenture warrants issued in year ending December 31, 2007
were covered by the 2008 Debenture Waiver documents and as such were subject to
the reset provisions outlined in Note 6 (A-I). In October 2008 these
warrants were reset to an exercise price of $4.80 and additional “make whole”
warrants were issued to allow the denture holders to true up to the previous
aggregate exercise price (original number of warrants extended at previous
higher exercise price vs. the lower true up price triggered by the Innergy true
up make whole provision.). This reset led to the issuance of an
additional 490,196 warrants attributable to the November and December Warrants
with an exercise price of $4.80.
The
November and December debenture warrants were reset a second time in October
2008 from $4.80 to $3.60 due to the Innergy True Up outlined in Note 6 and an
additional 139,191 new warrants with an exercise price of $3.60 were
issued.
16,667
10-year options with and exercise price of $2.40 were issued to the CEO of the
Company in accordance with his employment agreement.
At
December 31, 2008, there were 963,979 options and warrants
outstanding.
A third
reset of the November and December debenture warrants occurred in January 2009
due to the Edison True up outlined in Note 6. This reset led to the
issuance of an additional 78,673 warrants attributable to the November and
December Warrants with an exercise price of $3.60.
On May
15, 2009 the November and December debentures were amended as outlined in Note
6. As a result, the existing warrants were reset from $3.60 to $0.60
exercise price and an additional 8,560,692 true up warrants were also issued to
provide for an 80% equity position agreed to as part of this
amendment.
In
conjunction with the new July 2 debentures discussed more fully in Note 6, the
November and December 2007 debenture holders surrendered 720,703warrants in
compliance with the June 30th True Up requirement contained in the May 15, 2009
debenture waiver.
For the
year ended December 31, 2009, 2,118,723 shares were issued on the cashless
conversion of 2,256,656 debenture warrants with an exercise price of $0.60 as
follows. Enable Growth exercised 970,353 warrants in exchange for 913,805
shares, Enable Opportunity exercised 114,159 warrants in exchange
for 107,506 shares, Pierce Diversified Master Fund exercised 57,079
warrants in exchange for 53,753 shares, BridgePointe Master Fund
exercised 1,080,210 warrants in exchange for 1,010,324 shares and Glenwood
Capital, LLC (recipient of assigned warrants) exercised 34,854 warrants in
exchange for 33,333 shares
F-23
In
accordance with our October 2009 Securities Purchase Agreement, new investors
would secure 1 share of common stock per $7.20 invested plus one warrant to
purchase one share of common stock for a price of $9.00. In return
for total equity investments received of $15.5 million in addition to a
subscription receivable of an additional $5 million, 2,847,222 five year
warrants were issued on November 10, 2009 with an exercise price of $9.00 to 13
new investors. In addition, 163,194 five year warrants with an
exercise price of $9.00 were issued to brokers involved in the capital raise
activities in accordance with their contractual agreements.
18,332
five year warrants with an exercise price of $0.60 were issued to two
consultants in accordance with their contractual agreements.
17,615
five year warrants with an exercise price of $0.60 were issued to Brookstreet
Investors in satisfaction of anti-dilution provisions as outlined in their
Securities Purchase Agreements.
105,693
warrants with an exercise price of $0.60 were cashless exercised by Brookstreet
Investors in return for 98,610 shares of common stock.
On
October 31, 2009, ECOtality, Inc. (“ECOtality” or the “Company”) signed a
Securities Exchange Agreement with all holders of its convertible
debentures and holders of certain warrants to convert all outstanding
amounts ($9,111,170) under these debentures and all 6,455,083 related warrants
into an aggregate of 8,597,299 shares of Series A Convertible
Preferred Stock.
|
Number
Of Shares
|
Weighted-
Average
Exercise
Price
|
||||||
Outstanding
at December 31, 2005
|
0
|
$
|
0.00
|
|||||
Granted
|
0
|
$
|
0.00
|
|||||
Exercised
|
0
|
$
|
0.00
|
|||||
Cancelled
|
0
|
$
|
0.00
|
|||||
Outstanding
at December 31, 2006
|
146,666
|
$
|
34.20
|
|||||
Granted
|
195,899
|
$
|
18.60
|
|||||
Exercised
|
(24,641
|
)
|
$
|
21.00
|
||||
Cancelled
|
-
|
$
|
0.00
|
|||||
Outstanding
at December3l, 2007
|
317,924
|
$
|
25.20
|
|||||
Granted
|
646,054
|
$
|
3.60
|
|||||
Exercised
|
0
|
$
|
0.00
|
|||||
Cancelled
|
-
|
$
|
0.00
|
|||||
Outstanding
at December 31, 2008
|
963,979
|
$
|
8.40
|
|||||
Granted
|
11,685,721
|
$
|
2.78
|
|||||
Exercised
|
(8,817,143
|
)
|
$
|
0.60
|
||||
Cancelled
|
(720,703
|
)
|
$
|
0.60
|
||||
Outstanding
at December 31, 2009
|
3,111,854
|
$
|
9.72
|
|
STOCK WARRANTS OUTSTANDING
|
|||||||||||
Range of
Exercise Prices
|
Number of
Shares
Outstanding
|
Weighted-
Average
Remaining
Contractual
Life in Years
|
Weighted-
Average
Exercise
Price
|
|||||||||
$74.40
- $85.20
|
31,665
|
1.55
|
$
|
81.66
|
||||||||
$21.00
|
2,281
|
1.83
|
$
|
21.00
|
||||||||
$16.80
|
16,666
|
7.83
|
$
|
16.80
|
||||||||
$11.10
|
15,832
|
8.00
|
$
|
11.10
|
||||||||
$9.00
|
3,010,412
|
4.81
|
$
|
9.00
|
||||||||
$2.40
|
16,666
|
8.83
|
$
|
2.40
|
||||||||
$0.60
|
18,332
|
4.81
|
$
|
0.60
|
||||||||
3,111,854
|
4.88
|
$
|
9.72
|
F-24
|
STOCK WARRANTS EXERCISABLE
|
|||||||
Range of
Exercise Prices
|
Number of
Shares
Exercisable
|
Weighted-
Average
Exercise
Price
|
||||||
$74.40
- $85.20
|
31,665
|
$
|
81.66
|
|||||
$21.00
|
2,281
|
$
|
21.00
|
|||||
$16.80
|
16,666
|
$
|
16.80
|
|||||
$11.10
|
15,832
|
$
|
11.10
|
|||||
$9.00
|
3,010,412
|
$
|
9.00
|
|||||
$2.40
|
16,666
|
$
|
2.40
|
|||||
$0.60
|
18,332
|
$
|
0.60
|
|||||
3,111,854
|
$
|
9.72
|
NOTE
9 – Income taxes
The
Company follows ASC subtopic 740-10 (formerly Statement of Financial Accounting
Standard No. 109, “Accounting for Income Taxes”) for recording the provision for
income taxes. ASC 740-10 requires the use of the asset and liability
method of accounting for income taxes. Under the asset and liability
method, deferred tax assets and liabilities are computed based upon the
difference between the financial statement and income tax basis of assets and
liabilities using the enacted marginal tax rate applicable when the related
asset or liability is expected to be realized or settled. Deferred
income tax expenses or benefits are based on the changes in the asset or
liability each period. If available evidence suggests that it is more
likely than not that some portion or all of the deferred tax assets will not be
realized, a valuation allowance is required to reduce the deferred tax assets to
the amount that is more likely than not to be realized. Future
changes in such valuation allowance are included in the provision for deferred
income taxes in the period of change.
Deferred
income taxes may arise from temporary differences resulting from income and
expense items reported for financial accounting and tax purposes in different
periods. Deferred taxes are classified as current or non-current,
depending on the classification of assets and liabilities to which they
relate. Deferred taxes arising from temporary differences that are
not related to an asset or liability are classified as current or non-current
depending on the periods in which the temporary differences are expected to
reverse.
The
Company’s effective income tax rate is higher than would be expected if the
federal statutory rate were applied to income before tax, primarily because of
expenses deductible for financial reporting purposes that are not deductible for
tax purposes during the year ended December 31, 2009 and 2008.
The
Company’s operations for the year ended December 31, 2009 and 2008 resulted in
losses, thus no income taxes have been reflected in the accompanying statements
of operations.
As of
December 31, 2009 and 2008, the Company has net operating loss carry-forwards
which may or may not be used to reduce future income taxes payable. Current
Federal Tax Law limits the amount of loss available to offset against future
taxable income when a substantial change in ownership occurs. Therefore, the
amount available to offset future taxable income may be limited. A
valuation allowance has been recorded to reduce the net benefit recorded in the
financial statements related to this deferred asset. The valuation allowance is
deemed necessary as a result of the uncertainty associated with the ultimate
realization of these deferred tax assets.
The
provision for income taxes consist of the following:
As of December 31,
|
||||||||
2009
|
2008
|
|||||||
Current
tax
|
$
|
-
|
$
|
-
|
||||
Benefits
of operating loss carryforward
|
3,295,000
|
3,780,000
|
||||||
Change
in valuation allowance
|
(3,295,000
|
)
|
(3,780,000
|
)
|
||||
Provision
for income tax
|
$
|
-
|
$
|
-
|
F-25
Below is
a summary of deferred tax asset calculations as of December 31, 2009 based on a
34% income tax rate. Currently there is no reasonable assurance that the Company
will be able to take advantage of a deferred tax asset. Thus, an offsetting
allowance has been established for the deferred asset.
|
Deferred tax
asset
|
34% tax rate
|
||||||
Net operating loss
|
$
|
27,730,124
|
$
|
9,425,000
|
||||
Reserves
and allowances
|
8,859,582
|
1,025,000
|
||||||
Goodwill,
net of amort.
|
3,027,045
|
3,010,000
|
||||||
13,460,000
|
||||||||
Valuation
allowance
|
(13,460,000
|
)
|
||||||
Deferred
tax asset
|
$
|
-
|
For
financial reporting purposes, the Company has incurred a loss since inception to
December 31, 2009. Based on the available objective evidence,
including the Company’s history of its loss, management believes it is more
likely than not that the net deferred tax assets will not be fully realizable.
Accordingly, the Company provided for a full valuation allowance against its net
deferred tax assets at December 31, 2009. Further, management does not believe
it has taken the position in the deductibility of its expenses that creates a
more likely than not potential for future liability under the guidance of FIN
48.
A
reconciliation between the amount of income tax benefit determined by applying
the applicable U.S. and State statutory income tax rate to pre-tax loss is as
follows:
Year ended December 31,
|
||||||||
2009
|
2008
|
|||||||
Federal
and state statutory rate
|
34
|
%
|
34
|
%
|
||||
Non-deductible
items in net loss
|
(23
|
)%
|
13
|
%
|
||||
Change
in valuation allowance
|
(11
|
)%
|
(47
|
)%
|
||||
-
|
-
|
Note
10 – Commitments and contingencies
As of
December 31, 2009, the Company has five leases in effect for operating
space. Future obligations under these commitments are $275,431 for 2010,
$234,775 for 2011, $239,777 for 2012 and $63,499 for 2013.
In June
of 2006, the Company entered into a License Agreement with California Institute
of Technology, whereby the Company obtained certain exclusive and non-exclusive
intellectual property licenses pertaining to the development of an electronic
fuel cell technology. The License Agreement carries an annual
maintenance fee of $50,000, with the first payment due on or about June 12, 2009
which has been accrued through the year ended December 31,
2009. The License Agreement carries a perpetual term, subject
to default, infringement, expiration, revocation or unenforceability of the
License Agreement and the licenses granted thereby.
Note
11 – Segment Reporting
Generally
Accepted Accounting Principles require disclosures related to components of a
company for which separate financial information is available that is evaluated
regularly by a company’s chief operating decision maker in deciding the
allocation of resources and assessing performance. Upon completion of
FuelCellStores.com, Innergy Power Corporation, Electric Transportation
Engineering Corporation (eTec) and eTec’s Minit-Charger business acquisitions
from June through December 2007, the Company identified its segments based on
the way management expects to organize the Company to assess performance and
make operating decisions regarding the allocation of resources. The Company
has concluded it has three reportable segments for the years ended December 31,
2009 and 2008; ECOtality Stores segment, Innergy Power segment and eTec segment.
The ECOtality Stores segment is the online marketplace for fuel cell-related
products and technologies with online distribution sites in the U.S., Japan,
Russia, Italy and Portugal . The Innergy Power segment is comprised
of the sale of solar batteries and other solar and battery powered devices to
end-users. The eTec segment relates to sale of fast-charge systems for material
handling and airport ground support applications to the testing and development
of plug-in hybrids, advanced battery systems and hydrogen ICE conversions and
consulting revenues. This segment also includes the Minit-Charger
business which relates to the research, development and testing of advanced
transportation and energy systems with a focus on alternative-fuel, hybrid and
electric vehicles and infrastructures. eTec holds exclusive patent rights
to the eTec SuperCharge™ and Minit-Charger systems - battery fast
charge systems that allow for faster charging with less heat generation and
longer battery life than conventional chargers. The Company has
aggregated these subsidiaries into three reportable segments: ECOtality/Fuel
Cell Store, eTec and Innergy.
F-26
The
accounting policies for the segments are the same as those described in the
summary of significant accounting policies in Note 2 of this Form
10-K. Management continues to assess how it evaluates segment
performance, and currently utilize income (loss) from operations, excluding
share-based compensation (benefits), depreciation and intangibles amortization
and income taxes. For year ended December 31, 2009 and 2008
inter-segment sales were $28,723 and $0. All inter-segment sales have
been eliminated in the consolidation process.
Summarized
financial information concerning our reportable segments for the year ended
December 31, 2009 are as follows:
YEAR ENDED DECEMBER 31, 2009
|
||||||||||||||||
ETEC
|
INNERGY
|
FUEL CELL
STORE
|
TOTAL
|
|||||||||||||
Total
net operating revenues
|
$
|
5,702,323
|
$
|
2,111,198
|
$
|
788,153
|
$
|
8,601,674
|
||||||||
Depreciation
and amortization
|
$
|
320,064
|
$
|
7,078
|
$
|
3,561
|
$
|
330,703
|
||||||||
Operating
income (loss)
|
$
|
(2,077,492
|
)
|
$
|
646,001
|
$
|
147,715
|
$
|
(1,283,776
|
)
|
||||||
Interest
Income (expense)
|
$
|
(1,289
|
)
|
$
|
-
|
$
|
-
|
$
|
(1,289
|
)
|
||||||
Gain
/ (Loss) on disposal of assets
|
$
|
48,523
|
$
|
-
|
$
|
-
|
$
|
48,523
|
||||||||
Other
Income (expense)
|
$
|
236
|
$
|
-
|
$
|
-
|
$
|
236
|
||||||||
Segment
Income before Corporate Overhead Allocation
|
$
|
(2,030,022
|
)
|
$
|
646,001
|
$
|
147,715
|
$
|
(1,236,306
|
)
|
||||||
Corporate
Overhead Allocation
|
$
|
18,653,977
|
$
|
6,906,350
|
$
|
2,578,280
|
$
|
28,138,607
|
||||||||
Segment
Income / (Loss)
|
$
|
(20,683,999
|
)
|
$
|
(6,260,349
|
)
|
$
|
(2,430,565
|
)
|
$
|
(29,374,913
|
)
|
||||
Not
Included in segment income:
|
||||||||||||||||
Depreciation
on Corporate Assets
|
$
|
132,840
|
||||||||||||||
Reported
Net income after tax
|
$
|
(29,507,750
|
)
|
|||||||||||||
Capital
Expenditures
|
$
|
771,919
|
$
|
-
|
$
|
5,945
|
$
|
777,864
|
||||||||
Total
segment assets - excluding intercompany receivables
|
$
|
2,876,733
|
$
|
714,433
|
$
|
186,909
|
$
|
3,778,075
|
||||||||
Other
items Not included in Segment Assets:
|
||||||||||||||||
Goodwill
|
$
|
3,495,878
|
||||||||||||||
Other
Corporate Assets
|
$
|
12,352,371
|
||||||||||||||
Total
Reported Assets
|
$
|
19,626,324
|
Summarized
financial information concerning the Company’s reportable segments for the year
ended December 31, 2008 is as follows:
YEAR ENDED DECEMBER 31, 2008
|
||||||||||||||||
ETEC
|
INNERGY
|
FUEL CELL
STORE
|
TOTAL
|
|||||||||||||
Total
net operating revenues
|
$
|
8,072,664
|
$
|
2,324,170
|
$
|
790,549
|
$
|
11,187,384
|
||||||||
Depreciation
and amortization
|
$
|
470,929
|
$
|
6,229
|
$
|
3,560
|
$
|
480,718
|
||||||||
Operating
income (loss)
|
$
|
(528,193
|
)
|
$
|
(40,368
|
)
|
$
|
49,859
|
$
|
(518,702
|
)
|
|||||
Interest
Income
|
$
|
9,632
|
$
|
519
|
$
|
-
|
$
|
10,151
|
||||||||
Gain
/ (Loss) on disposal of assets
|
$
|
(95
|
)
|
$
|
-
|
$
|
-
|
$
|
(95
|
)
|
||||||
Other
Income - Working Capital True Up
|
$
|
364,645
|
$
|
-
|
$
|
-
|
$
|
364,645
|
||||||||
Segment
Income before Corporate Overhead Allocation
|
$
|
(154,011
|
)
|
$
|
(39,849
|
)
|
$
|
49,859
|
$
|
(144,001
|
)
|
|||||
Corporate
Overhead Allocation
|
$
|
5,721,432
|
$
|
1,534,970
|
$
|
531,566
|
$
|
7,787,968
|
||||||||
Segment
Income / (Loss)
|
$
|
(5,875,443
|
)
|
$
|
(1,574,819
|
)
|
$
|
(481,707
|
)
|
$
|
(7,931,969
|
)
|
||||
Not
Included in segment income:
|
||||||||||||||||
Depreciation
on Corporate Assets
|
$
|
135,241
|
||||||||||||||
Reported
Net income after tax
|
$
|
(8,067,210
|
)
|
|||||||||||||
Capital
Expenditures
|
$
|
251,260
|
$
|
12,025
|
$
|
-
|
$
|
263,284
|
||||||||
Total
segment assets - excluding intercompany receivables
|
$
|
3,637,112
|
$
|
512,532
|
$
|
158,599
|
$
|
4,308,243
|
||||||||
Other
items Not included in Segment Assets:
|
||||||||||||||||
Goodwill
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
3,495,878
|
||||||||
Other
Corporate Assets
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
1,022,336
|
||||||||
Total
Reported Assets
|
$
|
8,826,457
|
F-27
NOTE
12 – Related Party Transactions
On August
29, 2008, Mr. Donald Karner, a director of the Company, and Kathryn Forbes
agreed to provide the Company a line of credit for up to $650,000. This Line is
secured by a second position on receivables (junior to previously issued
debentures). During the nine months ended September 30, 2008, $300,000 was
advanced by Mr. Karner and Ms. Forbes. This line carried a loan fee of $45,000
payable when the line expired on December 15, 2008. No other interest payments
or fees were required under the agreement. The fee of $45,000 was expensed over
the life of the Line. Imputed interest of $1,425 and financing charges of $6,962
were expensed in the nine month period ending September 30, 2008. The
balance of the note payable of $450,000 was paid July 9, 2009.
Please
refer to Note 7 for information on equity awards to employees.
Note
13 – Subsequent Events
The
Company has evaluated all subsequent events through April 15, 2010, the date the
financial statements were issued, and determined that there are no subsequent
events to record, and the following subsequent events to disclose:
On
January 6, 2010, ECOtality Inc. established a new, wholly-owned subsidiary,
ECOtality Australia Pty Ltd. The Company, headquartered in Brisbane,
Queensland, will market and distribute battery charging equipment to support
on-road electric vehicles (EV), industrial equipment, and electric airport
ground support equipment (GSE).
On
January 15, 2010 the Company issued 673,505 common shares to the CEO of the
Company in satisfaction of the management incentive plan award that was
triggered in September 2009 but for which the final structure of the equity
award was not determined and finalized until 2010. This award is
described further in footnote 7.
On
October 31, 2009, ECOtality Inc. signed a Securities Purchase Agreement and a
Registration Rights Agreement with certain accredited investors pursuant
to which the Investors agreed to purchase shares of the Common Stock at a
purchase price of $7.20 per share. On January 7, 2010 we received the
remaining $5,000,000 investment in this offering that remained outstanding after
the closing on November 20, 2009. As a result, the Company
issued 1,388,888 shares in January 2010 to the investor for whom the total
commitment was $10 million, of which $5 million was received in 2009 and $5
million was received in 2010.
From
January 1, through April 13, 2010, a consultant to the company exercised
19,998 warrants with an exercise price of $0.60 for cash and 19,998 shares of
the Company's common stock were issued.
On March
1, 2010 a lease for a new Corporate Headquarters location for ECOtality went
into effect. This lease is for a term of 68 months for
4,441 rentable square feet in Tempe, AZ. For the first 8 months of
rent were abated and all tenant improvements were funded by the landlord, CH
Realty III. The first 20 months of the lease call for monthly
payments starting in month 9 of $10,177 based on an annual rate of $27.50 per
square foot. Future monthly rates are as follows: Month 21
- 32 ($28.00 per sf.), Month 33-44 ($28.50 per sf.), Month 45-56 ($29.00 per
sf.), Month 57-68 ($29.50 per sf.).
On March
3rd, 2010 BridgePointe Master Fund converted 60,000 of their series A preferred
shares into 60,000 shares of the Company's common stock.
From
January 1, through April 13, 2010, 17,766 shares of the Company's common
stock were issued in to two consultants in accordance with their
contracts.
On April
7th 2010, 1,100 shares were issued to an employee of eTec in accordance with an
employment agreement.
F-28
Condensed
Consolidated Statement of Operations
Unaudited
For
the Three Months
Ended
March 31,
|
||||||||
2010
|
2009
|
|||||||
Revenue
|
$
|
2,700,086
|
$
|
2,470,199
|
||||
Cost
of goods sold
|
2,391,524
|
1,394,293
|
||||||
Gross
profit
|
308,561
|
1,075,906
|
||||||
Expenses:
|
||||||||
Depreciation
|
141,605
|
138,970
|
||||||
General
and administrative expenses
|
2,239,554
|
1,342,509
|
||||||
Research
and development
|
12,834
|
11,467
|
||||||
Total
expenses
|
2,393,991
|
1,492,944
|
||||||
Operating
loss
|
(2,085,429
|
)
|
(417,038
|
)
|
||||
Other
income:
|
||||||||
Interest
income
|
15,210
|
-
|
||||||
Gain
on Disposal of Assets
|
-
|
9,760
|
||||||
Total
other income
|
15,210
|
9,760
|
||||||
Other
expenses:
|
||||||||
Interest
expense
|
328,794
|
616,277
|
||||||
Total
other expenses
|
328,794
|
616,277
|
||||||
Loss
from operations before income taxes
|
(2,399,015
|
)
|
(1,023,555
|
)
|
||||
Provision
for income taxes
|
-
|
-
|
||||||
Net
(loss)
|
$
|
(2,399,015
|
)
|
$
|
(1,023,555
|
)
|
||
Weighted
average number of common shares outstanding - basic and fully
diluted
|
8,297,496
|
2,522,375
|
||||||
Net
(loss) per share-basic and fully diluted
|
$
|
(0.29
|
)
|
$
|
(0.41
|
)
|
The
accompanying notes are an integral part of these financial
statements
F-29
Condensed
Consolidated Balance Sheets
March
31,
2010
|
Decenber
31,
2009
|
|||||||
|
(Unaudited)
|
(Audited)
|
||||||
Assets
|
||||||||
Current
assets:
|
||||||||
Cash
|
$
|
14,885,506
|
$
|
11,824,605
|
||||
Receivables,
net of allowance for bad debt of $88,898 and $92,494 as of
3/31/10 and 12/31/09 respectively
|
1,474,495
|
1,296,696
|
||||||
Inventory,
net of allowance for obsolescence of $292,896 and $335,864 as
of 03/31/10 and 12/31/09 respectively
|
994,949
|
749,492
|
||||||
Prepaid
expenses and other current assets
|
364,812
|
387,327
|
||||||
Total
current assets
|
17,719,762
|
14,258,120
|
||||||
Fixed
assets, net accumulated depreciation of $4,284,328,
and $4,124,431 as of 3/31/10 and 12/31/09
respectively
|
1,933,149
|
1,872,347
|
||||||
Goodwill
|
3,495,878
|
3,495,878
|
||||||
Total
assets
|
$
|
23,148,788
|
$
|
19,626,344
|
||||
Liabilities
and Stockholders’ Equity
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable
|
$
|
882,933
|
$
|
372,982
|
||||
Accrued
liabilities
|
1,839,256
|
1,438,177
|
||||||
Total
current liabilities
|
2,722,188
|
1,811,159
|
||||||
Total
LT Debt
|
287,500
|
287,500
|
||||||
Stockholders’
equity:
|
||||||||
Preferred
stock, $0.001 par value, 200,000,000 shares authorized, 8,537,299 and
8,597,299 shares issued and outstanding as of 3/31/10 and
12/31/09 respectively
|
8,537
|
8,597
|
||||||
Common
stock, $0.001 par value, 1,300,000,000 shares authorized,
8,872,474 and 6,713,285 shares issued and outstanding as of
3/31/10 and 12/31/09, respectively
|
8,871
|
6,712
|
||||||
Common
stock owed but not issued; 0 and 2,079,061 shares at 3/31/10 and 12/31/09
respectively
|
-
|
2,079
|
||||||
Additional
paid-in capital
|
88,423,053
|
88,411,074
|
||||||
Subscription
receivable
|
-
|
(5,000,000
|
)
|
|||||
Retained
deficit
|
(68,244,383
|
)
|
(65,845,368
|
)
|
||||
Accumulated
Foreign Currency Translation Adjustments
|
(56,979
|
)
|
(55,409
|
)
|
||||
Total
stockholders' equity
|
20,139,099
|
17,527,685
|
||||||
Total
liabilities and stockholders' equity
|
$
|
23,148,788
|
$
|
19,626,344
|
The
accompanying notes are an integral part of these financial
statements
F-30
Condensed
Consolidated Statement of Cash Flows
Unaudited
For
the three Months
Ended
March 31,
|
||||||||
2010
|
2009
|
|||||||
Cash
flows from operating activities
|
||||||||
Net
Income (loss)
|
$
|
(2,399,015
|
)
|
$
|
(1,023,555
|
)
|
||
Adjustments
to reconcile:
|
||||||||
Stock
and options issued for services and compensation
|
-
|
90,000
|
||||||
Depreciation
|
159,894
|
138,970
|
||||||
Amortization
of stock issued for services
|
-
|
35,163
|
||||||
Amortization
of discount on notes payable
|
-
|
382,525
|
||||||
Gain
on disposal of assets
|
-
|
(9,760
|
)
|
|||||
Changes
in operating assets and liabilities:
|
||||||||
Accounts
Receivable
|
(177,799
|
)
|
187,322
|
|||||
Inventory
|
(245,458
|
)
|
143,291
|
|||||
Prepaid
expenses and other
|
22,531
|
90,497
|
||||||
Accounts
Payable
|
509,951
|
(97,350
|
)
|
|||||
Accrued
Liabilities
|
401,064
|
191,934
|
||||||
Net
cash provided (used) by operating activities
|
(1,728,832
|
)
|
129,036
|
|||||
Cash
flows from investing activities
|
||||||||
Purchase
of fixed assets
|
(220,696
|
)
|
(4,157
|
)
|
||||
Proceeds
from sales of fixed assets
|
-
|
9,760
|
||||||
Net
cash (used) by investing activities
|
(220,696
|
)
|
5,603
|
|||||
Cash
flows from financing activities
|
||||||||
Proceeds
from Warrant Exercise
|
11,999
|
-
|
||||||
Proceeds
from Subscription Receivable
|
5,000,000
|
-
|
||||||
Net
cash provided (used) by financing activities
|
5,011,999
|
-
|
||||||
Effects
of exchange rate changes
|
(1,570
|
)
|
(5,319
|
)
|
||||
Net
increase (decrease) in cash
|
3,060,901
|
129,320
|
||||||
Cash
– beginning
|
11,824,605
|
327,332
|
||||||
Cash
– ending
|
$
|
14,885,506
|
$
|
456,652
|
||||
Supplemental
disclosures:
|
||||||||
Interest
paid
|
$
|
4,852
|
$
|
-
|
||||
Income
Taxes paid
|
$
|
-
|
$
|
-
|
||||
Non-cash
transactions:
|
||||||||
Stock
and options issued for services
|
$
|
-
|
$
|
90,000
|
||||
Shares
of stock issued
|
-
|
1,075,000
|
||||||
Stock
issued for acquisition
|
$
|
-
|
$
|
1,880,000
|
||||
Shares
of stock issued
|
-
|
31,333,333
|
||||||
Amortization
of stock issued for services
|
$
|
-
|
$
|
35,163
|
||||
Amortization
of discount on notes payable
|
$
|
-
|
$
|
382,525
|
The
accompanying notes are an integral part of these financial
statements
F-31
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note
1 – History and organization of the company
The
Company was organized April 21, 1999 (Date of Inception) under the laws of
the State of Nevada, as Alchemy Enterprises, Ltd. The Company was
initially authorized to issue 25,000 shares of its no par value common
stock.
On
October 29, 2002, the Company amended its articles of incorporation to
increase its authorized capital to 25,000,000 shares with a par value of $0.001.
On January 26, 2005, the Company amended its articles of
incorporation again, increasing authorized capital to 100,000,000 shares of
common stock with a par value of $0.001. On March 1, 2006, the
Company amended its articles of incorporation, increasing authorized capital to
300,000,000 shares of common stock, each with a par value of $0.001, and
200,000,000 shares of preferred stock, each with a par value of
$0.001.
On
November 26, 2006, the Company amended its articles of incorporation to
change its name from Alchemy Enterprises, Ltd. to ECOtality, Inc to better
reflect its renewable energy strategy.
The
former business of the Company was to market a private-label biodegradable
product line. During the year ended December 31, 2006, the board of
directors changed the Company’s focus toward developing an electric power cell
technology.
On
June 11, 2007, the Company acquired the assets of the FuelCellStore.com, a
small web based seller of educational fuel cell products. The FuelCellStore.com
product line includes demonstration kits, educational materials, fuel cell
systems and component parts. It also offers consulting services on
establishing educational programs for all levels of educational
institutions. FuelCellStore.com now operates as a wholly owned subsidiary
call ECOtality Stores, Inc. See note 4 for further
information.
On
October 1, 2007, the Company purchased certain assets of Innergy Power
Corporation and its wholly owned subsidiary, Portable Energy De Mexico, S.A. DE
C.V. Innergy Power Corporation designs and manufactures standard and
custom solar-power and integrated solar-battery solutions for government,
industrial and consumer applications. See note 4 for further
information.
On
November 6, 2007 the Company acquired all the outstanding capital stock of
Electric Transportation Engineering Corporation, as well as its affiliated
company The Clarity Group (collectively referred to as eTec). eTec designs
fast-charge systems for material handling and airport ground support
applications. eTec also tests and develops plug-in hybrids, advanced
battery systems and hydrogen ICE conversions. See note 4 for further
information.
On
December 6, 2007 the Company acquired through eTec the Minit-Charger
business of Edison Enterprises. Minit-Charger makes products that enable fast
charging of lift trucks using revolutionary technologies. See note 4 for
further information.
On
August 26, 2009, ECOtality Inc. management met with the shareholders at its
annual shareholders' meeting. At this meeting the shareholders
approved an increase to the authorized number of common shares to 1,300,000,000
shares.
On
November 24, 2009 the Company effected a reverse split of 1:60 of its
$0.001 par value common stock and the ticker symbol was changed from "ETLY" to
"ETLE". All shares in these financial statements have been
retroactively adjusted and presented for this reverse split.
On
January 7, 2010 the Company established a new, wholly owned subsidiary,
ECOtality Australia Pty Ltd., headquartered in Brisbane,
Queensland. This subsidiary will market and distribute battery
charging equipment to support on-road vehicles (EV), industrial equipment , and
electric airport ground support equipment (GSE).
F-32
The
consolidated financial statements as of March 31, 2010 include the accounts of
ECOtality Stores, Innergy Power Corporation, eTec and ECOtality Australia Pty
Ltd. . All significant inter-company balances and transactions
have been eliminated. ECOtality and its subsidiaries will collectively be
referred herein as the “Company”.
Note
2 — Summary of Significant Accounting Policies
Use
of estimates
Preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenue and expenses during the reporting period. Significant estimates have
been used by management in conjunction with the measurement of the valuation
allowance relating to deferred tax assets and future cash flows associated with
long-lived assets. Actual results could differ from those
estimates.
Cash
and cash equivalents
For
financial statement presentation purposes, the Company considers short-term,
highly liquid investments with original maturities of three months or less to be
cash and cash equivalents.
Interest
income is credited to cash balances as earned. For the quarter ended
March 31, 2010 and 2009 interest income was $15,120 and $0
respectively.
Credit
risks
Financial
instruments that potentially subject the Company to concentrations of credit
risk consist principally of cash deposits. The Company maintains cash
and cash equivalent balances at financial institutions that are insured by the
Federal Deposit Insurance Corporation up to $250,000. Deposits with these
banks may exceed the amount of insurance provided on such deposits. At
March 31, 2010 and 2009, the Company had approximately $14,000,000 and $250,000
in excess of FDIC insured limits, respectively.
Accounts
receivable at March 31, 2010 was $1,474,495, and at March 31, 2009 was
$1,296,696. At March 31, 2010 we had one customer that represented in excess of
10% of our receivable balance. United States Department of Energy had a
balance of $514,337. The Company has not experienced material losses in the past
from this or any other significant customer and continues to monitor its
exposures to minimize potential credit losses.
Impairment
of long-lived assets and intangible assets
Management
regularly reviews property, equipment, intangibles and other long-lived assets
for possible impairment. This review occurs quarterly, or more frequently if
events or changes in circumstances indicate the carrying amount of the asset may
not be recoverable. If there is indication of impairment, then management
prepares an estimate of future cash flows expected to result from the use of the
asset and its eventual disposition. If these cash flows are less than the
carrying amount of the asset, an impairment loss is recognized to write down the
asset to its estimated fair value. Management believes that the accounting
estimate related to impairment of its property and equipment, is a “critical
accounting estimate” because: (1) it is highly susceptible to change from
period to period because it requires management to estimate fair value, which is
based on assumptions about cash flows and discount rates; and (2) the
impact that recognizing an impairment would have on the assets reported on our
balance sheet, as well as net income, could be material. Management’s
assumptions about cash flows and discount rates require significant judgment
because actual revenues and expenses have fluctuated in the past and are
expected to continue to do so. During the three months ended March 31, 2010 and
2009, the Company had no impairment expense.
Revenue
recognition
The
Company’s revenue recognition policies are in compliance with Staff Accounting
Bulletin (SAB) 104 and Accounting Research Bulletin (ARB) 45. Revenue is
recognized when a formal arrangement exists, the price is fixed or determinable,
all obligations have been performed pursuant to the terms of the formal
arrangement and collectability is reasonably assured.
F-33
Sales
related to long-term contracts for services (such as engineering, product
development and testing) extending over several years are accounted for under
the percentage-of-completion method of accounting . Sales and
earnings under these contracts are recorded based on the ratio of actual costs
incurred to total estimated costs expected to be incurred related to the
contract under the cost-to-cost method based budgeted milestones or tasks as
designated per each contract. Anticipated losses on contracts are recognized in
full in the period in which losses become probable and estimable.
For all
other sales of product or services the Company recognizes revenues based on the
terms of the customer agreement. The customer agreement takes the form of
either a contract or a customer purchase order and each provides information
with respect to the product or service being sold and the sales price. If
the customer agreement does not have specific delivery or customer acceptance
terms, revenue is recognized at the time of shipment of the product to the
customer.
Management
periodically reviews all product returns and evaluates the need for establishing
either a reserve for product returns. As of March 31, 2010 and 2009,
management has concluded that no reserve is required for product
returns.
The
Company warrants a limited number of eTec products against defects for periods
up to 120 months. The estimate of warranty liability is based on historical
product data and anticipated future costs. Should actual failure rates differ
significantly from our estimates, we record the impact of these unforeseen costs
or cost reductions in subsequent periods and update our assumptions and
forecasting models accordingly. At March 31, 2010 and 2009 the warranty reserve
was $243,489 and $144,613 respectively. The increase to the reserve
was made in response to lengthening the warrantee period on several
items.
Accounts
receivable
Accounts
receivable are carried on a gross basis, with no discounting, less the allowance
for doubtful accounts. Management estimates the allowance for doubtful accounts
based on existing economic conditions, the financial conditions of the
customers, and the amount and the age of past due
accounts. Receivables are considered past due if full payment is not
received by the contractual due date. Past due accounts are generally
written off against the allowance for doubtful accounts only after all
collection attempts have been exhausted. There is no collateral held
by the Company for accounts receivable. The allowance for doubtful
accounts was $88,898 and $38,641 as of March 31, 2010 and 2009,
respectively.
Inventory
Inventory
is valued at the lower of cost, determined on a first-in, first-out basis, or
market. Inventory includes material, labor, and factory overhead
required in the production of our products. Inventory obsolescence is
examined on a regular basis. The allowance for obsolescence as of
March 31, 2010 and 2009 was $292,896 and $182,487 respectively.
Advertising
costs
The
Company expenses all costs of advertising as incurred. There were
advertising costs of $574 and $4,087 included in general and
administrative expenses for the quarter ended March 31, 2010 and 2009,
respectively.
Research
and development costs
Research
and development costs are charged to expense when incurred. For the
quarter ended March 31, 2010 and 2009, research and development costs were
$12,834 and
$11,467, respectively.
Contingencies
The
Company is not currently a party to any pending or threatened legal proceedings.
Based on information currently available, management is not aware of any
matters that would have a material adverse effect on the Company’s financial
condition, results of operations or cash flows.
Fair
Value of Financial Instruments
The
carrying amounts of the Company’s financial instruments, including cash and cash
equivalents, accounts receivable, accounts payable, accrued expenses and notes
payable approximate their fair values based on their short-term nature. Fair
value estimates discussed herein are based upon certain market assumptions and
pertinent information available to management as of March 31, 2010 and 2009.
The respective carrying value of certain on-balance-sheet financial
instruments approximated their fair values.
F-34
Loss
per Common Share
Net loss
per share is provided in accordance with ASC Subtopic 260-10. We present basic
loss per share (“EPS”) and diluted EPS on the face of statements of operations.
Basic EPS is computed by dividing reported losses by the weighted average
shares outstanding. Except where the result would be anti-dilutive to
income from continuing operations, diluted earnings per share has been computed
assuming the conversion of the convertible long-term debt and the elimination of
the related interest expense, and the exercise of stock warrants. Loss per
common share has been computed using the weighted average number of common
shares outstanding during the year. For the quarter ended March 31, 2010 and
2009, the assumed conversion of convertible long-term debt and the exercise of
stock warrants are anti-dilutive due to the Company’s net losses and are
excluded in determining diluted loss per share.
Foreign
Currency Translation
For the
quarter ended March 31, 2009 one Company subsidiary, Portable Energy De
Mexico, was operating outside the United States. In the quarter ended
March 31, 2010 a second subsidiary, ECOtality Australia Pty was established and
the two entities were operating outside the United States . For both
entities their local currency is their functional currency. The functional
currency is translated into U.S. dollars for balance sheet accounts using the
period end rates in effect as of the balance sheet date and the average exchange
rate is used for revenue and expense accounts for each respective period. The
resulting translation adjustments are deferred as a separate component of
stockholders' equity, within other comprehensive loss, net of tax where
applicable.
Stock-Based
Compensation
The
Company records stock-based compensation in accordance with SFAS No. 123R “Share
Based Payments”, using the fair value method. All transactions in which goods or
services are the consideration received for the issuance of equity instruments
are accounted for based on Emerging Issues Task Force Issue No. 96-18,
“Accounting for Equity Instruments That Are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods or Services” using the fair
value of the consideration received or the fair value of the equity instrument
issued, whichever is more reliably measurable.
Property
and Equipment
Property
and equipment are recorded at historical cost. Minor additions and
renewals are expensed in the year incurred. Major additions and renewals
are capitalized and depreciated over their estimated useful lives. When
property and equipment are retired or otherwise disposed of, the cost and
accumulated depreciation are removed from the accounts and any resulting gain or
loss is included in the results of operations for the respective period.
The Company uses other depreciation methods (generally accelerated) for
tax purposes where appropriate. The estimated useful lives for significant
property and equipment categories are as follows:
Equipment
|
5-7
years
|
Buildings
|
39
years
|
Income
Taxes
The
Company has adopted the provisions of ASC subtopic 740-10 which requires
recognition of deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Under this method, deferred tax liabilities and assets are
determined based on the difference between the financial statement and tax basis
of assets and liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse. Deferred income tax expenses or
benefits are based on the changes in the asset or liability each period. If
available evidence suggests that it is more likely than not that some portion or
all of the deferred tax assets will not be realized, a valuation allowance is
required to reduce the deferred tax assets to the amount that is more likely
than not to be realized. A valuation allowance is provided for those
deferred tax assets for which the related benefits will likely not be realized.
Future changes in such valuation allowance are included in the provision for
deferred income taxes in the period of change.
F-35
Deferred
income taxes may arise from temporary differences resulting from income and
expense items reported for financial accounting and tax purposes in different
periods. Deferred taxes are classified as current or non-current, depending on
the classification of assets and liabilities to which they relate. Deferred
taxes arising from temporary differences that are not related to an asset or
liability are classified as current or non-current depending on the periods in
which the temporary differences are expected to reverse.
The
Company does not anticipate any significant changes to its total unrecognized
tax benefits with the next twelve months. As of March 31, 2010 no income tax
expense has been incurred.
Dividends
The
Company has not yet adopted any policy regarding payment of dividends. No
dividends have been paid or declared since inception. For the foreseeable
future, the Company intends to retain any earnings to finance the development
and expansion of its business and it does not anticipate paying any cash
dividends on its common stock. Any future determination to pay dividends
will be at the discretion of the Board of Directors and will be dependent upon
then existing conditions, including the Company’s financial condition and
results of operations, capital requirements, contractual restrictions, business
prospects and other factors that the board of directors considers
relevant.
Segment
reporting
Generally
accepted accounting procedures require disclosures related to
components of a company for which separate financial information is available
that is evaluated regularly by a company’s chief operating decision maker in
deciding the allocation of resources and assessing performance. In
this manner the Company has concluded it has three reportable segments;
ECOtality Stores,, Innergy Power segment and eTec segment (which includes
ECOtality Australia). The ECOtality Stores segment is the online marketplace for
fuel cell-related products and technologies with online distribution sites in
the U.S., Japan, Russia, Italy and Portugal. The Innergy Power segment is
comprised of the sale of solar batteries and other solar and battery powered
devices to end-users. The eTec segment includes our ECOtality Australia
operations and relates to sale of fast-charge systems for material handling and
airport ground support applications to the testing and development of plug-in
hybrids, advanced battery systems and hydrogen ICE conversions and consulting
revenues. This segment also includes the Minit-Charger business which relates to
the research, development and testing of advanced transportation and energy
systems with a focus on alternative-fuel, hybrid and electric vehicles and
infrastructures. eTec holds exclusive patent rights to the eTec
SuperCharge™ and Minit-Charger systems - battery fast charge systems that allow
for faster charging with less heat generation and longer battery life than
conventional chargers. The Company has aggregated these subsidiaries into three
reportable segments: ECOtality/Fuel Cell Store, eTec and Innergy.
While
management is currently assessing how it evaluates segment performance, we
currently utilize income (loss) from operations, excluding depreciation of
corporate assets. We also exclude goodwill from segment assets. For the quarter
ended March 31, 2010 and 2009 inter-segment sales were $128,354 and $28,723
respectively. All inter-segment sales have been eliminated during the
consolidation process.
Recent
Accounting Pronouncements
The FASB
issued ASC subtopic 855-10 (formerly SFAS 165 “Subsequent
Events”), incorporating guidance on subsequent events into
authoritative accounting literature and clarifying the time following the
balance sheet date which management reviewed for events and transactions that
may require disclosure in the financial statements. The Company has
adopted this standard. The standard increased our disclosure by requiring
disclosure reviewing subsequent events. ASC 855-10 is included in the
“Subsequent Events” accounting guidance.
In April
2009, the FASB issued ASC subtopic 820-10 (formerly Staff Position
No. FAS 157-4,
Determining Fair Value When Volume and Level of Activity for the Asset or
Liability Have Significantly Decreased and Identifying Transactions That Are Not
Orderly”) . ASC 820-10 provides guidance on how to determine the fair
value of assets and liabilities when the volume and level of activity for the
asset/liability has significantly decreased. FSP 157-4 also provides
guidance on identifying circumstances that indicate a transaction is not
orderly. In addition, FSP 157-4 requires disclosure in interim and annual
periods of the inputs and valuation techniques used to measure fair value and a
discussion of changes in valuation techniques. The Company determined that
adoption of FSP 157-4 did not have a material impact on its results of
operations and financial position.
F-36
In
July 2006, the FASB issued ASC subtopic 740-10 (formerly Interpretation No.
(“FIN”) 48, “Accounting
for Uncertainty in Income Taxes ”). ASC 740-10 sets forth a recognition
threshold and valuation method to recognize and measure an income tax position
taken, or expected to be taken, in a tax return. The evaluation is based on a
two-step approach. The first step requires an entity to evaluate whether the tax
position would “more likely than not,” based upon its technical merits, be
sustained upon examination by the appropriate taxing authority. The second step
requires the tax position to be measured at the largest amount of tax benefit
that is greater than 50 percent likely of being realized upon ultimate
settlement. In addition, previously recognized benefits from tax positions that
no longer meet the new criteria would no longer be recognized. The application
of this Interpretation will be considered a change in accounting principle with
the cumulative effect of the change recorded to the opening balance of retained
earnings in the period of adoption. Adoption of this new standard did not have a
material impact on our financial position, results of operations or cash
flows.
In April
2008, the FASB issued ASC 815-40 (formerly Emerging Issues Task Force (“EITF”)
07-05, "Determining whether an
Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock ").
ASC815-40 applies to any freestanding financial instruments or embedded features
that have the characteristics of a derivative, and to any freestanding financial
instruments that are potentially settled in an entity’s own common stock. ASC
815-40 is effective for financial statements issued for fiscal years beginning
after December 15, 2008. The adoption of this pronouncement did not
have a material impact on its financial position, results of operations or cash
flows.
In
June 2009, the FASB issued ASC 105 Accounting Standards
Codification TM and the
Hierarchy of Generally Accepted Accounting Principles . The FASB
Accounting Standards Codification TM (the “Codification”) has become the source
of authoritative accounting principles recognized by the FASB to be applied by
nongovernmental entities in the preparation of financial statements in
accordance with Generally Accepted Accounting Principles (“GAAP”). All existing
accounting standard documents are superseded by the Codification and any
accounting literature not included in the Codification will not be
authoritative. Rules and interpretive releases of the SEC issued under the
authority of federal securities laws, however, will continue to be the source of
authoritative generally accepted accounting principles for SEC registrants.
Effective September 30, 2009, all references made to GAAP in our
consolidated financial statements will include references to the new
Codification. The Codification does not change or alter existing GAAP and,
therefore, will not have an impact on our financial position, results of
operations or cash flows.
In June
2009, the FASB issued changes to the consolidation guidance applicable to a
variable interest entity (VIE). FASB ASC Topic 810, "Consolidation," amends the
guidance governing the determination of whether an enterprise is the primary
beneficiary of a VIE, and is, therefore, required to consolidate an entity, by
requiring a qualitative analysis rather than a quantitative analysis. The
qualitative analysis will include, among other things, consideration of who has
the power to direct the activities of the entity that most significantly impact
the entity's economic performance and who has the obligation to absorb losses or
the right to receive benefits of the VIE that could potentially be significant
to the VIE. This standard also requires continuous reassessments of whether an
enterprise is the primary beneficiary of a VIE. FASB ASC 810 also requires
enhanced disclosures about an enterprise's involvement with a VIE. Topic 810 is
effective as of the beginning of interim and annual reporting periods that begin
after November 15, 2009. This will not have an impact on the Company’s financial
position, results of operations or cash flows.
In June
2009, the FASB issued Financial Accounting Standards Codification No. 860 -
Transfers and Servicing. FASB ASC No. 860 improves the relevance,
representational faithfulness, and comparability of the information that a
reporting entity provides in its financial statements about a transfer of
financial assets; the effects of a transfer on its financial position, financial
performance, and cash flows; and a transferor's continuing involvement, if any,
in transferred financial assets. FASB ASC No. 860 is effective as of the
beginning of each reporting entity's first annual reporting period that begins
after November 15, 2009, for interim periods within that first annual reporting
period and for interim and annual reporting periods thereafter. The adoption of
FASB ASC No. 860 will not have an impact on the Company’s financial
statements.
International
Financial Reporting Standards
In
November 2008, the Securities and Exchange Commission (“SEC”) issued for comment
a proposed roadmap regarding potential use of financial statements prepared in
accordance with International Financial Reporting Standards (“IFRS”) as issued
by the International Accounting Standards Board. Under the proposed roadmap, the
Company would be required to prepare financial statements in accordance with
IFRS in fiscal year 2014, including comparative information also prepared under
IFRS for fiscal 2013 and 2012. The Company is currently assessing the potential
impact of IFRS on its financial statements and will continue to follow the
proposed roadmap for future developments.
F-37
Reclassifications
Certain
reclassifications have been made to the prior years’ financial statements to
conform to the current year presentation. These reclassifications had no
effect on previously reported results of operations or retained
earnings.
Year
end
The
Company has adopted December 31 as its fiscal year end.
Note
3 – Fair Value Measurements
The
Company adopted ASC Topic 820-10 at the beginning of 2009 to measure the fair
value of certain of its financial assets required to be measured on a recurring
basis. The adoption of ASC Topic 820-10 did not impact the Company’s
financial condition or results of operations. ASC Topic 820-10
establishes a fair value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value. The hierarchy gives the
highest priority to unadjusted quoted prices in active markets for identical
assets or liabilities (Level 1 measurements) and the lowest priority to
unobservable inputs (Level 3 measurements). ASC Topic 820-10 defines
fair value as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants on
the measurement date. A fair value measurement assumes that the
transaction to sell the asset or transfer the liability occurs in the principal
market for the asset or liability. The three levels of the fair value
hierarchy under ASC Topic 820-10 are described below:
Level
1 – Valuations based on quoted prices in active markets for identical
assets or liabilities that an entity has the ability to access.
Level
2 – Valuations based on quoted prices for similar assets and liabilities in
active markets, quoted prices for identical assets and liabilities in markets
that are not active, or other inputs that are observable or can be corroborated
by observable data for substantially the full term of the assets or
liabilities.
Level
3 – Valuations based on inputs that are supportable by little or no market
activity and that are significant to the fair value of the asset or
liability.
The
following table presents a reconciliation of all assets and liabilities measured
at fair value on a recurring basis as of March 31, 2010:
Level 1
|
Level 2
|
Level 3
|
Fair Value
|
|||||||||||||
Cash
and CDs
|
$
|
14,885,506
|
$
|
-
|
$
|
-
|
$
|
14,885,506
|
||||||||
Accounts
receivable
|
-
|
1,474,495
|
-
|
1,474,495
|
||||||||||||
Accounts
payable
|
-
|
882,966
|
-
|
882,933
|
||||||||||||
Accrued
liabilities
|
-
|
1,839,256
|
-
|
1,839,256
|
||||||||||||
Notes
payable
|
-
|
287,500
|
-
|
287,500
|
||||||||||||
Total
|
$
|
14,885,506
|
$
|
4,484,217
|
$
|
-
|
$
|
19,369,690
|
The
following table presents a reconciliation of all assets and liabilities measured
at fair value on a recurring basis as of December 31, 2009:
Level 1
|
Level 2
|
Level 3
|
Fair Value
|
|||||||||||||
Cash
and CDs
|
$
|
11,824,605
|
$
|
-
|
$
|
-
|
$
|
11,824,605
|
||||||||
Accounts
receivable
|
-
|
1,296,696
|
-
|
1,296,696
|
||||||||||||
Accounts
payable
|
-
|
372,982
|
-
|
372,982
|
||||||||||||
Accrued
liabilities
|
-
|
1,438,177
|
-
|
1,438,177
|
||||||||||||
Notes
payable
|
-
|
287,500
|
-
|
287,500
|
||||||||||||
Total
|
$
|
11,824,605
|
$
|
3,395,355
|
$
|
-
|
$
|
15,219,960
|
F-38
Note
4 - Acquisitions and Goodwill
FuelCellStore.com
acquisition
On
June 11, 2007, the Company acquired the assets of the FuelCellStore.com, a
small web based seller of educational fuel cell products. The FuelCellStore.com
product line includes demonstration kits, educational materials, fuel cell
systems and component parts. It also offers consulting services on
establishing educational programs for all levels of educational institutions.
FuelCellStore.com now operates as a wholly owned subsidiary called ECOtality
Stores, Inc. Our consolidated financial statements for the quarter ended March
31, 2010 and 2009 include the financial results of ECOtality Stores,
Inc.
Innergy
Power Corporation acquisition
On
October 1, 2007, the Company acquired certain assets of the Innergy Power
Corporation and its wholly owned subsidiary, Portable Energy De Mexico, S.A. DE
C.V. Innergy Power Corporation designs and manufactures standard and custom
solar-power and integrated solar-battery solutions for government, industrial
and consumer applications. Our consolidated financial statements for the the
quarter ended March 31, 2010 and 2009 include the financial results
of Innergy Power Corporation and its subsidiary.
eTec
acquisition
On
November 6, 2007, the Company acquired all the outstanding capital stock of
Electric Transportation Engineering Corporation, as well as its affiliated
company The Clarity Group (collectively referred to as eTec). eTec develops and
provides fast-charge systems designed for electric vehicle (EVs and PHEVs),
mobile material handling, airport ground support, and marine and transit
applications. eTec also tests and develops plug-in hybrids, advanced battery
systems and hydrogen ICE conversions. Our consolidated financial statements for
the quarter ended March 31, 2010 and 2009 include the financial results of
eTec.
The fair
market value of the transaction was $5,437,193. The Company paid $2,500,000 in
cash, issued a $500,000 note payable, and issued 108,333 shares of the company’s
common stock for the acquisition, which was valued at $1,820,000 based on the
closing market price on the date of the agreement. The total value of the
transaction also included $217,193 in direct acquisition costs and the
subsequent Net Working Capital Adjustment discussed below.
The
$500,000 is payable was initially payable in monthly installments of $50,000
beginning December of 2007. Payment of the balance of the note
payable remaining at December 31, 2008 was $235,253 and payment of this amount
was made on December 11, 2009.
Included
in the purchase agreement was a Net Working Capital Adjustment which called for
an adjustment to the purchase price to be made via a post-Closing payment from
the Sellers to the Buyers or the Buyers to the Seller to the extent that the
actual Net Working Capital as of the Closing Date was more or less than the
agreed Net Working Capital Target. A reconciliation of actual vs. target net
working capital was presented by the Sellers in August 2008 and a True Up
Payment of $400,000 from the Buyers to the Sellers was agreed to in full
satisfaction of this purchase agreement requirement. The resulting note payable
represents an adjustment of the purchase price, and as such has been recorded as
an increase to Goodwill of $400,000.
The
balance of the note payable attributable to the Working Capital True up as of
December 31, 2008 was $400,000. Payment of this amount was made on
December 11, 2009. The balance due at March 31, 2010 was
$0.
The
aggregate purchase price was allocated to the assets acquired and liabilities
assumed on their preliminary estimated fair values at the date of the
acquisition. The preliminary estimate of the excess of purchase price
over the fair value of net tangible assets acquired was allocated to
identifiable intangible assets and goodwill. In accordance with U.S.
generally accepted accounting principles, we have up to twelve months from
closing of the acquisition to finalize the valuation. The purchase
price allocation is preliminary, pending finalization of our valuation of
certain liabilities assumed. The following table summarizes the
estimate of fair value of assets as part of the acquisition with
eTec:
Tangible
assets acquired, net of liabilities assumed
|
$ | 1,941,315 | ||
Goodwill
|
3,495,878 | |||
$ | 5,437,193 |
F-39
The
Company reviewed the goodwill for impairment performing the necessary testing
for recoverability of the asset and measuring its fair value. This
testing revealed current, historic, and future (projected) positive cash flows
supporting the full amount of goodwill. As a result of this testing
in 2008 no impairment was taken in the year ended December 31,
2008. In December 2009 and March 2010, the Company
reviewed the goodwill for impairment performing the necessary testing for
recoverability of the asset and measuring its fair value. This
testing again revealed current, historic, and future (projected) positive
cash flows supporting the full amount of goodwill. As a result of
this testing no impairment was taken in the year ended December 31, 2009,
resulting in $0 impairment for those periods.
Minit-Charger
acquisition
On
December 6, 2007 the Company acquired through eTec the Minit-Charger business of
Edison Enterprises. Minit-Charger makes products that enable fast charging of
mobile material handling equipment using revolutionary proprietary
technologies.
The fair
market value of the transaction was $3,000,000. The company paid $1,000,000 in
cash and issued 33,333 shares of the company’s common stock for the
acquisition. The company guaranteed to the sellers that the shares would
be worth $60 each ($2,000,000) by the tenth day following the first anniversary
date of the transaction. If the shares are not worth $2,000,000, the company
would be required to either issue additional shares such that the total shares
are worth $2,000,000 at that time or pay cash to the seller so that the
aggregate value of the 33,333 shares plus the cash given would equal
$2,000,000.
The fair
value of the common stock given, based on the closing price of the Company’s
common stock on December 31, 2007, was $370,000. A liability for the balance of
$1,630,000 based on the December 31 closing price was recorded as a current
liability for purchase price on the consolidated balance sheet as of December
31, 2007. This liability has been adjusted to reflect the actual obligation due
of $1,880,000 on the December 31, 2008 balance sheet. This
obligation totals the $2,000,000 remaining purchase price obligation multiplied
by $56.40 (the difference between $60 and the VWAP of $3.60 for the thirty days
prior to the true up date of December 15, 2008). The stock was issued
in full satisfaction of the agreement in the first quarter of 2009.
Note
5 – Fixed assets
Fixed
assets as of March 31, 2010 and 2009 consisted of the following:
At March 31, 2010
|
At March 31, 2009
|
|||||||
Equipment
|
$
|
3,294,003
|
$
|
3,145,604
|
||||
Buildings
|
575,615
|
575,615
|
||||||
Vehicles
|
1,282,577
|
1,575,010
|
||||||
Furniture
and fixtures
|
167,847
|
47,409
|
||||||
Leasehold
improvements
|
727,203
|
470,380
|
||||||
Computer
Software
|
170,232
|
80,530
|
||||||
6,217,477
|
5,894,548
|
|||||||
Less:
accumulated depreciation
|
(4,284,328
|
)
|
(4,397,046
|
)
|
||||
1,933,149
|
1,497,503
|
Depreciation
expense totaled $141,605 and $138,970, for the quarters ended March 31, 2010 and
2009 respectively.
Note
6 – Notes payable
On
January 16, 2007, the Company purchased an office building for an aggregate
price of $575,615. $287,959 in cash was paid and the remaining
balance of $287,500 was structured as an interest-only loan. The loan
bears an interest rate of 6.75% calculated annually, with monthly interest-only
payments due beginning on February 16, 2007. The entire principal
balance is due on or before January 16, 2012 and is recorded as a long-term
note payable on the consolidated financial statements.
During
2007, the Company incurred a $500,000 note payable to the previous owners of
eTec through the acquisition of eTec. The loan is payable in ten monthly
installments of $50,000 each. See note 4 for details. As of December 31, 2008, $
235,253 was owed and recorded as an accrued liability for purchase price on the
consolidated financial statements. This balance was paid in full on
December 11, 2009 and $0 was reflected in the financial statements on March 31,
2010.
F-40
NOVEMBER
AND DECEMBER 2007 DEBENTURES & SUBSEQUENT AMENDMENTS
In
November and December of 2007, the Company received gross proceeds of $5,000,000
in exchange for a note payable of $5,882,356 as part of a private offering of 8%
Secured Convertible Debentures (the “Debentures”). The debentures were
convertible into common stock at $18 per share. Debenture principal payments
were due beginning in May and June of 2008 (1/24th of the outstanding amount is
due each month thereafter). In connection with these debentures, the Company
issued debenture holders warrants (“the Warrants”) to purchase up to 163,399
shares of the Company’s common stock with an exercise price of $19.20. The
warrants were exercisable immediately upon issue. The Warrants expire five years
from the date of issue. The aggregate fair value of the Warrants equaled
$2,272,942 based on the Black-Scholes pricing model using the following
assumptions: 3.39%-3.99% risk free rate, 162.69% volatility, and strike price of
$19.20, market price of $13.20-$19.20, no yield, and an expected life of 912
days. The gross proceeds received were bifurcated between the note payable and
the warrants issued and a discount of $3,876,256 was recorded. The discount is
being amortized over the loan term of two and one half years. As of
December 31, 2009 the total discount was fully amortized and recorded as
interest expense. $0 was remaining at March 31, 2010.
AUGUST
2008 AMENDMENT TO THE DEBENTURES
On August
29, 2008 the Company signed an Amendment to the Debenture agreements deferring
the payments indicated above. The purpose of the agreement is to provide the
Company time to fund its working capital requirements internally through organic
growth as well as to obtain both short and long term funding through equity
financing and other sources of capital.
AUGUST
2008 WAIVER PROVISIONS:
The
waiver, deferment agreement aligns with the Company’s short term working capital
plan and provides time to achieve company objectives in this regard. In exchange
for the Amendment to the Debentures, the Company agreed to:
A.
|
Waiver
of interest payments due between May-December
2008
|
B.
|
Deferment
of monthly redemptions for the period May-December
2008.
|
C.
|
Increase
to the outstanding principal amount plus accrued interest though December
31, 2008 for the debentures by 120% as of the effective date of the
agreement.
|
D.
|
Reset
of the common stock conversion rate from $18.00 to
$9.00.
|
E.
|
Commencement
of principal payments starting January 1, 2009 with no change to the
redemption period (May 2010)
|
F.
|
Commencement
of interest payments @ 8% per year April 1, 2009 (first payment
due).
|
G.
|
Inclusion
of make whole provisions to reset common stock warrant conversion prices
to the value used to “true-up” both the Innergy Power Company and
Minit-Charger (Edison) acquisitions when both “true-ups” are completed.
For both of these acquisitions the Sellers were issued shares which the
Company guaranteed would be worth $60.00 per share for the thirty days
prior to the anniversary date of the purchase. This guarantee requires the
issuance of additional shares or payment in cash for the difference in the
share price on the respective anniversary dates. In the case of Innergy,
the number of required “true up” shares is capped at
66,666.
|
H.
|
Inclusion
of further make whole provisions to issue additional warrants adequate to
maintain the pro rata debenture ownership % when fully diluted as per
schedule 13 in the waiver
agreement.
|
I.
|
Compliance
with covenants per quarterly public reports issued for the periods ending
June 30, September
30, and December 31, 2008 for the
following:
|
1.
|
Net
cash used
|
F-41
2.
|
Current
ratio adjusted for non-cash
liabilities
|
3.
|
Corporate
Headquarters accounts payable
amount
|
IMPACT
OF THE AUGUST 2008 WAIVER PROVISIONS ON THE FINANCIAL STATEMENTS
During
the period ended September 30, 2008 the impact to the financial statements for
the provisions of the waiver noted above were estimated, the portion
attributable to the period ending September 30, 2008 was charged to interest
expense, and the remainder was capitalized as prepaid financing charges (see
details in #1 through #3 below). During the last three months of the
waiver period, October to December 31, 2008, the remainder of the capitalized
prepaid financing charges of $2,378,672 were charged to interest
expense. At December 31, 2008 all costs of the initial waiver had
been fully expensed.
1.
|
The
increase to principal of $1,559,859 (see letter “C” above) was added to
the long term note, $1,157,315 was capitalized in prepaid financing
charges and the portion of the increase attributable to the nine month
period ending September 30, 2008 of $402,544, less previously accrued
interest (now incorporated in the principal) of $191,438 was charged to
interest expense. The capitalized remainder of $1,157,315 was charged to
interest expense in the year ended December 31,
2008.
|
2.
|
The
estimated change in value of the original 163,399 debenture warrants
related to the pending reset of the exercise price (see letter “G” above)
was calculated by using the Volume Weighted Average Price (VWAP) for the
most recent 30 days prior to September 30, 2008 of $4.80 as the estimated
new exercise price following the reset and the warrants were valued first
at their current exercise price then at the estimated new price using the
Black Scholes Model using the following assumptions: Strike Price $19.20
(old) and $4.80 (new), Stock Price $6.00 (price on date of agreement),
time 780 days for November Warrants and 795 for December Warrants,
Volatility 146.39%, Risk Free Interest Rate 3.83%. The increase in value
calculated totaled $207,941. Of the total, $154,279 was
capitalized as prepaid financing costs and was amortized over the waiver
period ending December 31, 2008.
|
3.
|
The
estimated number of additional warrants required to be issued to true up
to the original aggregate exercise price for the November and December
Warrants (see letter “G” above) following the reset of the exercise price
was calculated using the difference between the current aggregate exercise
price of $3,137,256 (163,399 total warrants at original exercise price
$19.20), and the new aggregate exercise price of $784,314 following the
reset of the exercise price to $4.80. This difference totaled $2,352,942
requiring the issuance of an estimated 490,196 warrants (at $4.80) to
maintain the previous aggregate exercise price. The new warrants were
valued at $1,438,235 using the Black Scholes Model with the following
assumptions: Strike Price $4.80, Stock Price $4.20 (price at September 30,
2008), time 753 days, Volatility 146.39%, Risk Free Rate 3.83%. Of the
total, $1,067,077 was capitalized as prepaid financing costs and was
amortized over the waiver period ending December 31,
2008.
|
IMPACT
OF OCTOBER 2008 TRUE-UP (REQUIRED BY THE AUGUST 2008 WAIVER) TO THE FINANCIAL
STATEMENTS
On
October 17, 2008, a purchase price true up with Innergy was completed, whereby
we satisfied our purchase price obligation to Innergy in the form of a share
issuance (please see Note 4 for details). This share issuance
triggered the make whole provision in the debenture waiver (letter “G” above)
which required us to immediately reset their warrant exercise price of $9.00 to
the VWAP in place at the time of the Innergy True up of $3.60, as well as to
change their debt conversion rate from the previous $9.00 to
$3.60. This true up also required the issuance of new warrants to
allow the denture holders to maintain their previous aggregate exercise price
following the update. The calculations for this change to our
debenture debt is outlined below. All related charges were
immediately charged to interest expense.
1.
|
The
estimated change in value of the restated debenture warrants
related to the reset of the exercise price (see letter “G” above) was
calculated by using the stock price employed for the Innergy true up
calculation of $3.60 as the new exercise price following the reset and the
warrants were valued first at their current exercise price then at the
estimated new price using the Black Scholes Model using the following
assumptions: Strike Price $4.80 (old) and $3.60 (new), Stock
Price $6.00 (price on date of agreement), time 780 days for November
Warrants and 795 for December Warrants, Volatility 146.39%, Risk Free
Interest Rate 3.83%. The increase in value calculated totaled $35,001 and
was charged to interest expense.
|
F-42
2.
|
The
estimated number of additional warrants required to be issued to true up
to the previous aggregate exercise price for the November and December
Warrants (see letter “G” above) following the reset of the exercise price
was calculated using the difference between the previous aggregate
exercise price of $4.80 and the new aggregate exercise price following the
reset to $3.60. This change required the issuance of an
additional 139,191 warrants (at $3.60) to maintain the previous aggregate
exercise price. The change in value of the old vs. the new
increased number of warrants was ($445,061) using the Black Scholes Model
with the following assumptions: Strike Price $3.60, Stock Price $2.40
(price at December 31, 2008), time 753 days, Volatility 146.39%, Risk Free
Rate 3.83%. The reduction in value (due to the lower stock price) was
charged to interest expense.
|
On
January 30, 2009 a purchase price true up with Edison was completed, whereby we
satisfied our purchase price obligation to Edison in the form of a share
issuance (please see Note 4 for details). This share issuance
triggered the make whole provision in the debenture waiver (letter “G” above)
which required the issuance of new warrants to allow the debenture holders to
maintain their previous aggregate exercise price following the
update. This calculation resulted in the issuance of an additional
4,720,408 warrants (at $0.06) to maintain the previous aggregate exercise price.
The change in value of the old vs. the new increased number of warrants was
$124,147 using the Black Scholes Model consistent with the Innergy true
up. The cost of the increased warrants of $124,147 was charged to
interest expense in the quarter ended March 31, 2009.
MARCH
2009 AMENDMENT TO THE DEBENTURES
On March
5, 2009 we entered in to an Agreement entitled “Amendment to Debentures and
Warrants, Agreement and Waiver” (the “Agreement”) restructuring our equity
with the institutional debt holders of the our Original Issue Discount 8% Senior
Secured Convertible Debentures, dated November 6, 2007 (the “November 2007
Debentures”) (aggregate principal amount equal to $4,117,649) and with our
debt holder of our Original Issue Discount 8% Secured Convertible Debentures,
dated December 6, 2007 (the “December 2007 Debenture”) (aggregate
principle amount equal to $1,764,707). The November and December 2007
Debentures are held by Enable Growth Partners LP (“EGP”), Enable Opportunity
Partners LP (“EOP”), Pierce Diversified Strategy Master Fund LLC, Ena
(“Pierce”), and BridgePointe Master Find
Ltd (“BridgePointe”)(individually referred to as “Holder” and
collectively as the “Holders”). The Agreement’s effective date is January 1,
2009.
MARCH
2009 WAIVER PROVISIONS:
In
exchange for signing an Amendment to Debentures and Warrants, Agreement and
Waiver which defers interest payments due for the first quarter 2009 until
May 1, 2009 and payment of monthly principal redemptions until May 1, 2009, we
agreed to the following:
|
A.
|
Adjust the conversion price of
the November 2007 Debentures and December 2007 Debenture s to
$3.60.
|
|
B.
|
The Holders collectively shall
maintain an equity position in the Company, in fully diluted shares, of
50.4 %. Should the Holders’ equity position collectively become less than
the 50.4%, the Company shall issue warrants to each Holder, pro-ratably to
bring Holders’ equity position back to
50.4%.
|
|
C.
|
Additional covenants related to
not exceeding $2,000,000 accounts payable amount or payment of other
liabilities while the debentures are
outstanding.
|
|
D.
|
The right to recommend for
placement on the Company 's Board of Directors, a nominee by either
BridgePointe or BridgePointe’s investment manager Roswell Capital Partners
LLC. Such a recommendation shall meet the Company’s requirements as set
forth in the Company’s Bylaws and all applicable federal and state law.
The nominee shall serve until such time as the Company has redeemed the
debentures.
|
|
E.
|
All outstanding Warrants (defined
in the Securities Purchase Agreements dated November 6, 2007 and December
6, 2007 ), and all Warrants issued to Holders as consideration for the
current or prior Amendments to the November 2007 Debentures and the
December 2007 Debentures shall be amended t o have an exercise price
of $3.60 (to the extent that such exercise price was previously above
$3.60), and the expiration dates shall be extended to May 1,
2014.
|
|
F.
|
Use best efforts to obtain
stockholder approval of an increase in the authorized number of shares of
common stock of the Company. The proposal shall increase the number of
authorized common shares from 300,000,000 to
500,000,000.
|
F-43
|
G.
|
In addition, the Securities
Agreement, dated November 6, 2007 and all UCC-1 filings made as required
thereof, shall be amended to include each of the Company’s current and
future Patents and Trademarks. In addition the Company shall file notice
of the Assignment for Security of the Company’s current and any future
Patents and Trademarks with the United States Patent and Trademark Office
and other foreign countries as
appropriate.
|
F-44
IMPACT
OF THE MARCH 2009 WAIVER PROVISIONS ON THE FINANCIAL STATEMENTS:
There was
no financial impact of the March 2009 waiver as the warrants mentioned were
reset to $3.60 at the time of the October 2008 true up.
The
current portion of the debentures was recorded, net of a $1,530,101 discount, at
$4,448,837 at March 31, 2009. The long-term portion of the debentures
was recorded, net of a $166,211 discount, at $1,029,577 as of March 31,
2009.
Included
in accrued liabilities was $104,753 of accrued interest relating to the
debentures at March 31, 2009.
Interest
expense totaled $616,277 for the quarter ended March 31, 2009.
For
the quarter ended March 31, 2010
MAY
2009 AMENDMENT TO THE DEBENTURES
Despite
the current tenuous economic situation, the financial opportunities specifically
in the Stimulus projects related to electric transportation, were
deemed material to the Company’s future, thus on May
15, 2009, the Company and the Debenture Holders entered into an agreement
entitled “Amendment to Debentures and Warrants, Agreement and Waiver” (the
“Agreement”) restructuring the Company’s equity as well as establishing an
inducement for additional working capital for the Company. The
Agreement’s effective date was May 1, 2009.
MAY
2009 WAIVER PROVISIONS:
The
Company agreed to the following:
|
1.
|
Defer payment of interest until
November 1, 2009. Interest to be paid monthly from that
date. Interest accrued though September 30, 2009 will be added
to principal.
|
|
2.
|
Commence redemption of principal
on January 1, 2010 in 10 equal
payments.
|
|
3.
|
Consent to obtaining additional
working capital for specified uses not to exceed $2,500,000 in the same
form and rights of debentures pari pasu in seniority both as to security
interest priority and right of payment with the debenture held by the
existing holders.
|
|
4.
|
Segregation of payment of the
Karner bridge note, reaffirmed Karner and Morrow employment agreements,
identifies specific contract carve outs should the Company fail to achieve
certain target objectives, and provide for a bonus should the target be
achieved.
|
|
5.
|
Maintain the conversion price of
the November 2007 Debentures and December 2007 Debentures at
$.06.
|
|
6.
|
Additional covenants related to
not exceeding $2,500,000 accounts payable amount or payment of other
liabilities while the debentures are outstanding. Other covenants include
maintaining minimum cash flow amounts. Allowing for inspection of
financial records, and achieving Stimulus contract target
objectives.
|
|
7.
|
The right to recommend for
placement on the Company's Board of Directors, two (2) nominees
by either BridgePointe or BridgePointe’s investment manager Roswell
Capital Partners LLC or other debenture holders. Such a recommendation
will meet the Company’s requirements as set forth in the Company’s Bylaws
and all applicable federal and state law. The nominees may serve until
such time as the Company has redeemed the
debentures.
|
|
8.
|
The existing Holders collectively
will maintain an equity position in the Company, in fully diluted shares,
of 80%. Should the existing holders Holders’ equity position collectively
become less than the 80%, the Company will issue warrants to each existing
Holder, pro-ratably to bring Holders’ equity position back to 80%.
However, there are provisions (when additional capital is raised (not to
exceed $2,500,000)) to bring the fully diluted position to 70% for the
existing Holders as well as those Holders of new capital
debentures. There are provisions to further reduce the
debenture holders to 65% should management achieve certain specified
performance targets.
|
F-45
|
9.
|
All outstanding Warrants (defined
in the Securities Purchase Agreements dated November 6, 2007 and December
6, 2007), and all Warrants issued to Holders as consideration for the
current or prior Amendments to the November 2007 Debentures and the
December 2007 Debentures will be amended to have an exercise price
of $0.60 (to the extent that such exercise price was previously above
$3.60), and the termination dates for the makeup warrants will be five (5)
years from date of issuance.
|
10.
|
Use best efforts to obtain
stockholder approval of an increase in the authorized number of shares of
common stock of the Company. The proposal shall increase the
number of authorized common shares from 300,000,000 to
1,300,000,000.
|
11.
|
Agreed to specific provisions
relating to disclosure of material nonpublic information by debenture
holder board members, or at other times when complying with the provisions
of the debenture waive
agreement..
|
IMPACT
OF THE MAY 2009 WAIVER PROVISIONS ON THE FINANCIAL STATEMENTS:
In the
quarter ended June 30, 2009, the financial impact of the May waiver was
calculated and fully amortized as noted below, over the waiver period of May 15,
2009 through December 31, 2009.
1.
|
The change in value of the
restated debenture warrants related to the reset of the exercise
price (see #9 above) was calculated using the Black Scholes Model using
the following assumptions: Strike Price $0.06 (old) and $0.01 (new), Stock
Price $0.11 (price on date of agreement), time 162.34 days Volatility
162.34%, Risk Free Interest Rate 3.10%. The increase in value calculated
totaled $887,843. This amount was added to additional paid in
capital, and a contra-equity account for “Unamortized Financing
Charges” was established as the offset. The portion of the
Unamortized Financing Charges” that was charged to interest expense
through September 30, 2009 was $532,706 The remaining $355,137 was
expensed over the remainder of the waiver period (October through December
2009).
|
2.
|
The number of additional
warrants to be issued to support the requirement of an 80%
equity position as described in #8 above was calculated as
follows: Total Debenture warrants outstanding prior to the
waiver = 871,460 + shares available on debenture conversion 2,046,125 =
2,917,585 Total Fully Diluted Debenture Holder Ownership
Pre-Waiver. Total Company Fully Diluted Shares at May 15, 2009
of 14,347,848 was used as the base on which to calculate the 80% ownership
target of 11,478,278 shares. To determine
the warrants to be issued the 80% target figure of 11,478,278 less total
Debenture Holder Ownership of 2,917,585 resulted in 8,560,692 (additional
warrants to be issued). To value the new warrants we used the
market cap at the date of the issuance calculated as shares outstanding at
May 15, 2009 of 2,698,436 multiplied by the closing share price
of $6.60 = $17,809,681. To get the portion of the
market cap attributable to the new warrants (vs. those already
held by the debenture holders ) we divided the # of new warrants
(8,560,692) by the total 80% ownership target number of shares for the
debenture holders (11,478,278) to get (75%). The 75%
was multiplied by 80% total ownership %, and the resulting 60%
was then multiplied by the total market cap to get the portion of the
market cap attributable to the new issuance of $10,626,208.
This amount was added to additional paid in capital, and a contra-equity
account for “Unamortized Financing Charges” was used as the
offset.
|
All
Unamortized Financing Charges were amortized and charged to charged to interest
expense over the waiver period in the year ending December 31,
2009.
JUNE
2009 AMENDMENT TO THE MAY AMENDMENT TO THE DEBENTURES
The
debenture holders and the Company signed a First Amendment to Amendment to
Debentures and Warrants, Agreement and Waiver dated June 30,
2009. This amendment modified the May 15, 2009 Amendment
by:
|
a.
|
Increasing approval authority for
specified transactions for the November and December 2007 and July 2009
Debenture Holders to 85% from 75% of outstanding principal
amount.
|
|
b.
|
Clarifying whom has Board of
Director member rights
|
F-46
|
c.
|
Clarifying the June 30, 2009
warrant true-up calculation, per the May 15, 2009
Amendment.
|
IMPACT
OF THE PROVISIONS OF THE JUNE AMENDMENT TO THE FINANCIAL
STATEMENTS:
There was
no impact to the financial statements related to the June amendment to the May
15, 2009 amendment.
JULY
2009 NEW DEBENTURE ISSUANCE
To
support ECOtality’s expansion and current working capital needs, the Company
received a direct investment of $2,5000,000 in 8% Secured Convertible Debentures
due October 1, 2010, of which Shenzhen Goch Investment Ltd was issued $2,000,000
in debentures, Enable Growth Partners (current debenture holder) was issued
$250,000 in debentures, and BridgePointe Master Fund (current debenture holder)
was issued $250,000 in debentures. The debentures have an exercise price or
$3.60 per share of ECOtality common stock. The July 2009
Debentures:
|
a.
|
Are consistent with the initial
debentures issued in November and December 2007 except this series is
secured, convertible rather than original issue discount
debentures.
|
|
b.
|
Update the original Security
Purchase Agreements, Securities Agreements, Registration Rights
Agreements, Subsidiary Guarantees, and related disclosure
schedules.
|
|
c.
|
Provide for issuance of warrants
to Shenzhen Goch Investment Ltd for their capital investment and adjusting
the warrants held by Enable and BridgePointe subject to the June 30,
2009 true up as defined in the May 15, 2009
Amendment.
|
|
d.
|
Restate the
agreement to increase the number of the Company’s authorized
common shares from 300,000,000 to
1,300,000,000.
|
|
e.
|
Restate the covenants established
in the May 15, 2009 Amendment and the Karner “carve-out” should certain
“Stimulus” contract targets not be achieved. In accordance with the terms
of the May 15 Amendment, the Company and Karner agreed that if Karner
continues to remain a full-time employee, and The Company (with Karner’s
assistance) fail to secure executed Stimulus Contracts (as defined in the
May 15 Amendment) having an aggregate total contract value of $20,000,000
or more during the period from May 15, 2009 through October 1, 2009, then
The Company must, on or prior to October 9, 2009, transfer
ownership of all stock and assets of The Clarity Group, Inc. to
Karner.
|
OCTOBER
2009 SECURITIES EXCHANGE AGREEMENT
On
October 31, 2009, ECOtality, Inc. (“ECOtality” or the “Company”) signed a
Securities Exchange Agreement with all holders of its convertible
debentures and holders of certain warrants to convert all outstanding
amounts ($9,111,170) under these debentures and all related warrants into an
aggregate of 8,597,299 shares of Series A Convertible Preferred Stock
(while not impacted by the current common stock split discussed herein, it could
be subject to adjustment for future forward and reverse stock splits, stock
dividends, recapitalizations and the like). The Series A Convertible
Preferred Stock has no redemption or preferential dividend rights, but may be
converted into shares of the Company’s common stock (the “Common Stock”) at a
1:1 ratio.
As of
March 31, 2010 a liability has been accrued of $641,089 in
anticipation of a potential penalty related to the registration
rights agreement as included in the October 31 Securities Purchase Agreement
(SPA). This agreement’s provisions called for the filing of a
registration statement within 45 days of the SPA being signed. For
reasons largely outside Management’s control, this filing has been
delayed. A waiver agreement is currently being circulated amongst the
affected investors seeking relief for all or the majority of this penalty to be
waived in recognition of these circumstances. As no waiver has yet
been signed, at the date of this filing the maximum penalty has been accrued and
expensed.
F-47
IMPACT
OF THE PROVISIONS OF THE SECURITIES EXCHANGE AGREEMENT ON THE FINANCIAL
STATEMENTS:
The
outstanding principal and unpaid interest on the date of the agreement was
$9,111,170. The outstanding debenture liability was relieved in full
and a credit was recorded to additional paid in capital in the amount
of 9,102,573 and preferred stock was credited at par value of $0.001
multiplied by the 8,597,299 shares that were issued, for a credit of
$8,597. The unamortized discount on the convertible debentures was
$676,244 immediately prior to the transaction. This amount was
charged in full to interest expense in the year ended December 31,
2009.
The
balance of the debenture debt at March 31, 2010 was $0.
On August
29, 2008, Mr. Donald Karner, a director of the Company, and Kathryn Forbes
agreed to provide the Company a line of credit for up to $650,000. This Line was
secured by a second position on receivables (junior to previously issued
debentures). During the year ended December 31, 2008, $450,000 was advanced by
Mr. Karner and Ms. Forbes. Further advances above $450,000 were contingent on
the Company securing additional financing as agreed by October 26, 2008. This
line carries a loan fee of $45,000 payable when the line expires. The
line was originally scheduled to expire December 15, 2008, but was extended to
April 20, 2009 by the Lenders. In consideration of the extension, an
interest fee of $50,000 was paid to the Lenders in December 2008. No
other interest payments or fees are required under the agreement. The fee of
$45,000 was expensed in full as of December 31, 2008. All amounts
advanced under the Line are due and payable in full on April 20, 2009. The
balance of the note payable was $450,000 at December 31, 2008. This
balance was paid in full on December 11, 2009 leaving a $0 balance in accrued
liabilities related to this item at March 31, 2010.
.
Note
7 – Stockholders’ equity
The
Company is authorized to issue 1,300,000,000 shares of its $0.001 par value
common stock and 200,000,000 shares of $0.001 par value preferred
stock.
Common
Stock
On August
8, 2008 the Company entered into a contract for services with vendor that called
for the issuance of 6,500 shares of the Company’s $0.001 common
stock. These shares were valued at $54,900 and were expensed over the
life of the contract. At December 31, 2008 $22,750 had been expensed
leaving a balance of $31,850 in prepaid services. In the nine months
ended September 30, 2009 the remaining $31,850 was expensed leaving a balance of
$0 in prepaid services at September 30,2009.
There
were 2,157,048 shares of common stock issued and outstanding at December
31, 2008.
On
December 6, 2007 the Company acquired through eTec the Minit-Charger business of
Edison Enterprises. The fair market value of the transaction was $3,000,000. The
company paid $1,000,000 in cash and issued 33,333 shares of the company’s common
stock for the acquisition. The company guaranteed to the sellers that the
shares would be worth $60 each ($2,000,000) by the tenth day following the first
anniversary date of the transaction. If the shares are not worth $2,000,000, the
company would be required to either issue additional shares such that the total
shares are worth $2,000,000 at that time or pay cash to the seller so that the
aggregate value of the 2,000,000 shares plus the cash given would equal
$2,000,000. This purchase price obligation was settled in full on
January 30, 2009 with the issuance of 522,222 shares of ECOtality’s $0.001 par
value common stock.
In March
2009 the Company issued 17,917 shares of the Company’s $0.001 common
stock in satisfaction of $90,000 in accounts payable owed to two service
vendors.
On April
13, 2009 1,250 shares of common stock owed in 2008 were issued to an employee in
accordance with an employment agreement.
For the
year ended December 31, 2009, 16,667 shares of common stock valued at $260,000
and were issued and 16,667 were owed in return for professional
services.
19,895
shares were issued to Corporate Headquarter employees as
compensation. These awards were valued at $128,987 and approved by
the Board and were issued in recognition of performance during the year ended
December 31, 2009.
F-48
On
October 31, 2009, ECOtality signed a Securities Purchase Agreement and a
Registration Rights Agreement with certain accredited investors (the
“Investors”) pursuant to which the Investors agreed to purchase shares of the
Company's Common Stock at a purchase price of $7.20 per
share. $20,500,000 was raised pursuant to the Purchase Agreement in
the year ended December 31, 2009. Total fees to brokers
associated with the capital raise were $1,204,935 in cash as per their
contracted fee agreements. $15,500,000 was received in the year ended
December 31, 2009. 1,458,330 Shares were issued in 2009 in
satisfaction of $10,500,000 of the investment received. The the
remaining $5,000,000 received in 2009 and an additional $5,000,000 subscribed in
2009 were related to a single investor. To capture the partial
receipt and outstanding commitment, a subscription receivable of
$5,000,000 and 1,388,889shares owed but not issued were recorded at December 31,
2009 and were subsequently issued upon receipt of the second half of the
investor's total $10,000,000 investment in January of 2010. At March
31, 2010 all related shares were issued and outstanding. In addition
to the shares and fees described above, the purchase agreement called for the
issuance of 2,847,222 warrants to the new investors and 163,194
warrants to the brokers involved in the capital raise, as part of the
contractual fee agreements. These are five year warrants with an
exercise price of $9.00 and were issued November 10, 2009.
On
September 30, 2009, triggering conditions were met under the management
incentive plan resulting in the grant of an equity award to Mr. Jonathan Read
valued at $8.1 million. This award, originally stated in terms of warrants was
never issued, was subsequently revised and reduced, with final grant and award
of 673,505 shares of the Company’s $0.001 par value common stock being granted
to Mr. Read on January 15, 2010, with final issuance of the shares on January
27, 2010. The value of the final award was calculated at the time of the
issuance of the shares on January 27, 2010. The share price on that date was
$5.50 for total compensation of $3,704,278. At December 31, 2009 the full amount
of the original award of $8.1 million was recorded in additional paid in capital
and the shares were shown as owed but not issued. At March 31, 2010 the 673,505
shares are issued and outstanding. The award amount booked to
additional paid in capital was not reduced from the original $8.1 million
estimate to the $3.7 million final award value in compliance with
GAAP.
For the
year ended December 31, 2009, 2,118,723 shares were issued on the cashless
conversion of 2,256,656 debenture warrants with an exercise price of $0.60 as
follows. Enable Growth exercised 970,353 warrants in exchange for 913,805
shares, Enable Opportunity exercised 114,159 warrants in exchange for
107,506 shares, Pierce Diversified Master Fund exercised 57,079 warrants in
exchange for 53,753 shares, BridgePointe Master Fund exercised
1,080,210 warrants in exchange for 1,010,324 shares and Glenwood Capital, LLC
(recipient of assigned warrants) exercised 34,854 warrants in exchange for
33,333 shares
For the
year ended December 31, 2009, 98,610 shares were issued on the cashless
conversion of 105,306 Brookstreet Investor warrants at $0.60 exercise
price.
For
the year ended December 31, 2009, 302,778 shares on the Company's $0.001
par value common stock were issued for conversion of debenture debt
in the amount of $1,090,000 at a rate of $3.60 as
follows: Pierce Diversified Master Fund converted $42,000 in debt for
11,667 shares, Enable Growth converted $714,000 in debt for 198,333 shares,
Enable Opportunity converted $84,000 in debt for 23,333 shares and BridgePointe
Master Fund converted $250,000 in debt for 69,444 shares.
There
were 6,713,285 shares of Common Stock outstanding and 2,079,061 shares owed but
not issued at December 31, 2009.
Shares
owed but not issued at December 31, 2009 (as described in detail above) were
subsequently issued in the quarter ended March 31, 2010 as
follows: 673,505 shares were issued to Jonathan Read, 16,666 shares
were issued to a consultant and 1,388,888 shares were issued to new
investors.
19,998
shares of Common Stock were issued in the quarter ended March 31, 2010 relating
to the exercise of warrants with an exercise price of
$0.60. The warrants were exercised in the following
increments: 9,999 on January 11, 2010, 3,333 on January 15, 2010,
3,333 on January 19, 2010 and 3,333 on March 22, 2010. These warrants
were exercised for cash.
On March
3, 2010 60,000 shares were issued to BridgePointe Master fund on the conversion
of the same number of preferred shares.
130
previously outstanding fractional shares of Common Stock (resulting from the
November 2009 reverse stock split) were bought back and cancelled by the Company
reducing the total outstanding shares by that amount.
There
were 8,872,474 shares of Common Stock outstanding and 0 shares owed but not
issued at March 31, 2010.
F-49
Preferred
Shares
On
October 31, 2009, ECOtality, Inc. (“ECOtality” or the “Company”) signed a
Securities Exchange Agreement with all holders of its convertible
debentures and holders of certain warrants to convert all outstanding
amounts ($9,111,170) under these debentures and all 6,455,083 related warrants
into an aggregate of 8,597,299 shares of Series A Convertible
Preferred Stock (while not impacted by the current common stock split discussed
herein, it could be subject to adjustment for future forward and reverse stock
splits, stock dividends, recapitalizations and the like). The Series A
Convertible Preferred Stock has no redemption or preferential dividend rights,
but may be converted into shares of the Company’s common stock (the “Common
Stock”) at a 1:1 ratio
There
were 8,597,299 shares of Series A Convertible Preferred Stock outstanding at
December 31, 2009.
On March
3, 2010 BridgePointe Master Fund converted 60,000 shares of their preferred
stock into 60,000 shares of Common Stock.
There
were 8,537,299 shares of Series A Convertible Preferred Stock outstanding at
March 31, 2010.
Note
8 – Options and Warrants
At
December 31, 2008, there were 963,979 options and warrants
outstanding.
A third
reset of the November and December debenture warrants occurred in January 2009
due to the Edison True up outlined in Note 6. This reset led to the
issuance of an additional 78,673 warrants attributable to the November and
December Warrants with an exercise price of $3.60.
On May
15, 2009 the November and December debentures were amended as outlined in Note
6. As a result, the existing warrants were reset from $3.60 to $0.60
exercise price and an additional 8,560,692 true up warrants were also issued to
provide for an 80% equity position agreed to as part of this
amendment.
In
conjunction with the new July 2 debentures discussed more fully in Note 6, the
November and December 2007 debenture holders surrendered 720,703warrants in
compliance with the June 30th True Up requirement contained in the May 15, 2009
debenture waiver.
For the
year ended December 31, 2009, 2,118,723 shares were issued on the cashless
conversion of 2,256,656 debenture warrants with an exercise price of $0.60 as
follows. Enable Growth exercised 970,353 warrants in exchange for 913,805
shares, Enable Opportunity exercised 114,159 warrants in exchange
for 107,506 shares, Pierce Diversified Master Fund exercised 57,079
warrants in exchange for 53,753 shares, BridgePointe Master Fund
exercised 1,080,210 warrants in exchange for 1,010,324 shares and Glenwood
Capital, LLC (recipient of assigned warrants) exercised 34,854 warrants in
exchange for 33,333 shares
In
accordance with our October 2009 Securities Purchase Agreement, new investors
would secure 1 share of common stock per $7.20 invested plus one warrant to
purchase one share of common stock for a price of $9.00. In return
for total equity investments received of $15.5 million in addition to a
subscription receivable of an additional $5 million, 2,847,222 five year
warrants were issued on November 10, 2009 with an exercise price of $9.00 to 13
new investors. In addition, 163,194 five year warrants with an
exercise price of $9.00 were issued to brokers involved in the capital raise
activities in accordance with their contractual agreements.
During
the year ended December 31, 2009: 18,332 five year warrants with an
exercise price of $0.60 were issued to two consultants in accordance with their
contractual agreements, 17,615 five year warrants with an exercise price of
$0.60 were issued to Brookstreet Investors in satisfaction of anti-dilution
provisions as outlined in their Securities Purchase Agreements, and 105,693
warrants with an exercise price of $0.60 were cashless exercised by Brookstreet
Investors in return for 98,610 shares of common stock.
F-50
On
October 31, 2009, ECOtality, Inc. (“ECOtality” or the “Company”) signed a
Securities Exchange Agreement with all holders of its convertible
debentures and holders of certain warrants to convert all outstanding
amounts ($9,111,170) under these debentures and all 6,455,083 related warrants
into an aggregate of 8,597,299 shares of Series A Convertible Preferred
Stock.
The
following is a summary of the status of the Company’s stock
warrants:
Number Of Shares
|
Weighted-Average
Exercise Price
|
|||||||
Outstanding at December 31,
2008
|
963,979
|
$
|
8.40
|
|||||
Granted
|
11,685,721
|
$
|
2.78
|
|||||
Exercised
|
(8,817,143
|
)
|
$
|
0.60
|
||||
Cancelled
|
(720,703
|
)
|
$
|
0.60
|
||||
Outstanding at December 31,
2009
|
3,111,854
|
$
|
9.71
|
|||||
Granted
|
9,999
|
$
|
0.60
|
|||||
Exercised
|
(9,999
|
)
|
$
|
0.60
|
||||
Cancelled
|
-
|
$
|
0.60
|
|||||
Outstanding
at March 31, 2010
|
3,111,854
|
$
|
9.71
|
STOCK WARRANTS
OUTSTANDING
|
||||||||||||
Range of
Exercise Price
|
Number of
Shares
Outstanding
|
Weighted-Average
Remaining
Contractual
Life in Years
|
Weighted-Average
Exercise Price
|
|||||||||
$74.40-$85.20
|
31,665
|
1.30
|
$
|
81.66
|
||||||||
$21.00
|
2,281
|
1.58
|
$
|
21.00
|
||||||||
$16.80
|
16,666
|
7.58
|
$
|
16.80
|
||||||||
$11.10
|
15,832
|
7.75
|
$
|
11.10
|
||||||||
$9.00
|
3,010,412
|
4.61
|
$
|
9.00
|
||||||||
$2.40
|
16,666
|
8.58
|
$
|
2.40
|
||||||||
$0.60
|
18,332
|
4.81
|
$
|
0.60
|
||||||||
3,111,854
|
4.61
|
$
|
9.71
|
STOCK WARRANTS
EXERCISABLE
|
||||||||
Range of
Exercise Price
|
Number of
Shares
Exercisable
|
Weighted-Average
Exercise Price
|
||||||
$74.40-$85.20
|
31,665
|
$
|
81.66
|
|||||
$21.00
|
2,281
|
$
|
21.00
|
|||||
$16.80
|
16,666
|
$
|
16.80
|
|||||
$11.10
|
15,832
|
$
|
11.10
|
|||||
$9.00
|
3,010,412
|
$
|
9.00
|
|||||
$2.40
|
16,666
|
$
|
2.40
|
|||||
$0.60
|
18,332
|
$
|
0.60
|
|||||
3,111,854
|
$
|
9.71
|
Note
9 – Income taxes
The
Company follows ASC subtopic 740-10 (formerly Statement of Financial Accounting
Standard No. 109, “Accounting for Income Taxes”) for recording the provision for
income taxes. ASC 740-10 requires the use of the asset and liability
method of accounting for income taxes. Under the asset and liability
method, deferred tax assets and liabilities are computed based upon the
difference between the financial statement and income tax basis of assets and
liabilities using the enacted marginal tax rate applicable when the related
asset or liability is expected to be realized or settled. Deferred
income tax expenses or benefits are based on the changes in the asset or
liability each period. If available evidence suggests that it is more
likely than not that some portion or all of the deferred tax assets will not be
realized, a valuation allowance is required to reduce the deferred tax assets to
the amount that is more likely than not to be realized. Future
changes in such valuation allowance are included in the provision for deferred
income taxes in the period of change.
F-51
Deferred
income taxes may arise from temporary differences resulting from income and
expense items reported for financial accounting and tax purposes in different
periods. Deferred taxes are classified as current or non-current,
depending on the classification of assets and liabilities to which they
relate. Deferred taxes arising from temporary differences that are
not related to an asset or liability are classified as current or non-current
depending on the periods in which the temporary differences are expected to
reverse.
The
Company’s effective income tax rate is higher than would be expected if the
federal statutory rate were applied to income before tax, primarily because of
expenses deductible for financial reporting purposes that are not deductible for
tax purposes during the year ended December 31, 2009 and 2008.
The
Company’s operations for the year ended December 31, 2009 and 2008 resulted in
losses, thus no income taxes have been reflected in the accompanying statements
of operations.
As of
December 31, 2009 and 2008, the Company has net operating loss carry-forwards
which may or may not be used to reduce future income taxes payable. Current
Federal Tax Law limits the amount of loss available to offset against future
taxable income when a substantial change in ownership occurs. Therefore, the
amount available to offset future taxable income may be limited. A
valuation allowance has been recorded to reduce the net benefit recorded in the
financial statements related to this deferred asset. The valuation allowance is
deemed necessary as a result of the uncertainty associated with the ultimate
realization of these deferred tax assets.
The
provision for income taxes consist of the following:
As of December 31,
|
||||||||
2009
|
2008
|
|||||||
Current
tax
|
$
|
-
|
$
|
-
|
||||
Benefits
of operating loss carryforward
|
3,295,000
|
3,780,000
|
||||||
Change
in valuation allowance
|
(3,295,000
|
)
|
(3,780,000
|
)
|
||||
Provision
for income tax
|
$
|
-
|
$
|
-
|
Below is
a summary of deferred tax asset calculations as of December 31, 2009 based on a
34% income tax rate. Currently there is no reasonable assurance that the Company
will be able to take advantage of a deferred tax asset. Thus, an offsetting
allowance has been established for the deferred asset.
Deferred tax
asset
|
34% tax rate
|
|||||||
Net
operating loss
|
$
|
27,730,124
|
$
|
9,425,000
|
||||
Reserves
and allowances
|
8,859,582
|
1,025,000
|
||||||
Goodwill,
net of amort.
|
3,027,045
|
3,010,000
|
||||||
13,460,000
|
||||||||
Valuation
allowance
|
(13,460,000
|
)
|
||||||
Deferred
tax asset
|
$
|
-
|
For
financial reporting purposes, the Company has incurred a loss since inception to
December 31, 2009. Based on the available objective evidence,
including the Company’s history of its loss, management believes it is more
likely than not that the net deferred tax assets will not be fully realizable.
Accordingly, the Company provided for a full valuation allowance against its net
deferred tax assets at December 31, 2009. Further, management does not believe
it has taken the position in the deductibility of its expenses that creates a
more likely than not potential for future liability under the guidance of FIN
48.
A
reconciliation between the amount of income tax benefit determined by applying
the applicable U.S. and State statutory income tax rate to pre-tax loss is as
follows:
F-52
Year ended December 31,
|
||||||||
2009
|
2008
|
|||||||
Federal
and state statutory rate
|
34
|
%
|
34
|
%
|
||||
Non-deductible
items in net loss
|
(23
|
)%
|
13
|
%
|
||||
Change
in valuation allowance
|
(11
|
)%
|
(47
|
)%
|
||||
-
|
-
|
For
financial reporting purposes, the Company has incurred a loss since inception to
March 31, 2010. Based on the available objective evidence, including
the Company’s history of losses, management believes it is more likely than not
that the deferred tax asset will not be fully realized and has therefore
provided a valuation allowance for the full amount of the deferred tax
assets.
The
federal and state statutory income tax rate of 34% has been fully offset by the
change in the valuation allowance during the quarters ended March 31, 2010 and
2009. The effective income tax rate of the Company over these years
is 0%.
Note
10– Commitments and contingencies
As of
March 31, 2010, the Company has eleven leases in effect for operating
space. Future obligations under these commitments are $306,398 for 2010,
$396,238 for 2011, $404,240 for 2012, $19,589 for 2013, $129,159 for 2014,
$109,175 for 2015.
In June
of 2006, the Company entered into a License Agreement with California Institute
of Technology, whereby the Company obtained certain exclusive and non-exclusive
intellectual property licenses pertaining to the development of an electronic
fuel cell technology. The License Agreement carries an annual
maintenance fee of $50,000, with the first payment due on or about June 12, 2009
which has been accrued (net $25,000 allowable reductions) through the quarter
ended March 31, 2010. The License Agreement carries a perpetual
term, subject to default, infringement, expiration, revocation or
unenforceability of the License Agreement and the licenses granted
thereby.
Note
11 – Segment Reporting
Generally
accepted accounting procedures require disclosures related to
components of a company for which separate financial information is available
that is evaluated regularly by a company’s chief operating decision maker in
deciding the allocation of resources and assessing performance. In
this manner the Company has concluded it has three reportable segments;
ECOtality Stores,, Innergy Power segment and eTec segment (which includes
ECOtality Australia). The ECOtality Stores segment is the online marketplace for
fuel cell-related products and technologies with online distribution sites in
the U.S., Japan, Russia, Italy and Portugal. The Innergy Power segment is
comprised of the sale of solar batteries and other solar and battery powered
devices to end-users. The eTec segment includes our ECOtality Australia
operations and relates to sale of fast-charge systems for material handling and
airport ground support applications to the testing and development of plug-in
hybrids, advanced battery systems and hydrogen ICE conversions and consulting
revenues. This segment also includes the Minit-Charger business which relates to
the research, development and testing of advanced transportation and energy
systems with a focus on alternative-fuel, hybrid and electric vehicles and
infrastructures. eTec holds exclusive patent rights to the eTec
SuperCharge™ and Minit-Charger systems - battery fast charge systems that allow
for faster charging with less heat generation and longer battery life than
conventional chargers. The Company has aggregated these subsidiaries into three
reportable segments: ECOtality/Fuel Cell Store, eTec and Innergy.
While
management is currently assessing how it evaluates segment performance, we
currently utilize income (loss) from operations, excluding depreciation of
corporate assets. We also exclude goodwill from segment assets. For the quarter
ended March 31, 2010 and 2009 inter-segment sales were $128,354 and $28,723
respectively. All inter-segment sales have been eliminated during the
consolidation process.
Summarized
financial information concerning the Company’s reportable segments for the
quarter ended March 31, 2010 is as follows:
F-53
THREE MONTHS ENDED MARCH 31,
2010
|
||||||||||||||||
ETEC
|
INNERGY
|
FUEL CELL
STORE
|
TOTAL
|
|||||||||||||
Total
net operating revenues
|
$
|
2,148,750
|
$
|
347,456
|
$
|
203,879
|
$
|
2,700,086
|
||||||||
Depreciation
and amortization
|
$
|
105,101
|
$
|
969
|
$
|
891
|
$
|
106,961
|
||||||||
Operating
income (loss)
|
$
|
(988,796
|
)
|
$
|
50,432
|
$
|
46,934
|
$
|
(891,431
|
)
|
||||||
Interest
Income (expense)
|
$
|
(31
|
)
|
$
|
-
|
$
|
-
|
$
|
(31
|
)
|
||||||
Gain
/ (Loss) on disposal of assets
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||
Other
Income (expense)
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||
Segment
Income before Corporate Overhead Allocation
|
$
|
(988,826
|
)
|
$
|
50,432
|
$
|
46,934
|
$
|
(891,461
|
)
|
||||||
Corporate
Overhead Allocation
|
$
|
(1,172,152
|
)
|
$
|
(189,539
|
)
|
$
|
(111,217
|
)
|
$
|
(1,472,907
|
)
|
||||
Segment
Income / (Loss)
|
$
|
(2,160,978
|
)
|
$
|
(139,107
|
)
|
$
|
(64,283
|
)
|
$
|
(2,364,370
|
)
|
||||
Not
Included in segment income:
|
||||||||||||||||
Depreciation
on Corporate Assets
|
$
|
34,645
|
||||||||||||||
Reported
Net income after tax
|
$
|
(2,399,015
|
)
|
|||||||||||||
Capital
Expenditures
|
$
|
220,696
|
$
|
-
|
$
|
-
|
$
|
220,696
|
||||||||
Total
segment assets - excluding intercompany receivables
|
$
|
3,318,011
|
$
|
566,923
|
$
|
255,321
|
$
|
4,140,255
|
||||||||
Other
item Not included in Segment Assets:
|
||||||||||||||||
Goodwill
|
$
|
3,495,878
|
||||||||||||||
Other
Corporate Assets
|
$
|
15,512,655
|
||||||||||||||
Total
Reported Assets
|
$
|
23,148,788
|
3 MONTHS ENDED MARCH 31,
2009
|
||||||||||||||||
ETEC
|
INNERGY
|
FUEL CELL
STORE
|
TOTAL
|
|||||||||||||
Total
net operating revenues
|
$
|
1,775,086
|
$
|
478,814
|
$
|
216,299
|
$
|
2,470,199
|
||||||||
Depreciation
and amortization
|
$
|
103,510
|
$
|
1,455
|
$
|
891
|
$
|
105,856
|
||||||||
Operating
income (loss)
|
$
|
(50,980
|
)
|
$
|
136,360
|
$
|
47,648
|
$
|
133,028
|
|||||||
Interest
Income (expense)
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||
Gain
/ (Loss) on disposal of assets
|
$
|
9,760
|
$
|
-
|
$
|
-
|
$
|
9,760
|
||||||||
Other
Income (expense)
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||
Segment
Income before Corporate Overhead Allocation
|
$
|
(41,220
|
)
|
$
|
136,360
|
$
|
47,648
|
$
|
142,788
|
|||||||
Corporate
Overhead Allocation
|
$
|
814,340
|
$
|
219,661
|
$
|
99,230
|
$
|
1,133,231
|
||||||||
Segment
Income / (Loss)
|
$
|
(855,560
|
)
|
$
|
(83,301
|
)
|
$
|
(51,582
|
)
|
$
|
(990,443
|
)
|
||||
Not
Included in segment income:
|
||||||||||||||||
Depreciation
on Corporate Assets
|
$
|
33,114
|
||||||||||||||
Reported
Net income after tax
|
$
|
(1,023,555
|
)
|
|||||||||||||
Capital
Expenditures
|
$
|
4,157
|
$
|
-
|
$
|
-
|
$
|
4,157
|
||||||||
Total
segment assets - excluding intercompany receivables
|
$
|
3,194,463
|
$
|
526,609
|
$
|
208,800
|
$
|
3,929,872
|
||||||||
Other
item Not included in Segment Assets:
|
||||||||||||||||
Goodwill
|
$
|
3,495,878
|
||||||||||||||
Other
Corporate Assets
|
$
|
974,102
|
||||||||||||||
Total
Reported Assets
|
$
|
8,399,852
|
NOTE
12 – Related Party Transactions
On August
29, 2008, Mr. Donald Karner, a director of the Company, and Kathryn Forbes
agreed to provide the Company a line of credit for up to $650,000. This Line is
secured by a second position on receivables (junior to previously issued
debentures). During the nine months ended September 30, 2008, $300,000 was
advanced by Mr. Karner and Ms. Forbes. This line carried a loan fee of $45,000
payable when the line expired on December 15, 2008. No other interest payments
or fees were required under the agreement. The fee of $45,000 was expensed over
the life of the Line. Imputed interest of $1,425 and financing charges of $6,962
were expensed in the nine month period ending September 30, 2008. The
balance of the note payable of $450,000 was paid July 9, 2009.
Please
refer to Note 7 for information on equity awards to employees.
F-54
Note
13 – Subsequent Events
The
Company has evaluated all subsequent events through May 14, 2010, the date the
financial statements were issued, and determined that there are no subsequent
events to record, and the following subsequent events to disclose:
On April
7, 2010 we issued 83 shares of Common Stock to an employee for
compensation.
On April
8, 2010 we issued 1,100 shares of Common Stock to a consultant in accordance
with an approved contract.
On April
21, 2010 we issued 20,418 shares of Common Stock to Glenwood Capital based on
their conversion of an equal number of convertible preferred
shares.
On April
27, 2010 we issued 100,000 shares of Common Stock to BridgePointe Master Fund
based on their conversion of an equal number of convertible preferred
shares.
F-55
14,965,242
Shares
Common
Stock
PROSPECTUS
__________,
2010
Dealer
Prospectus Delivery Obligation
Until
[*], 2010, all dealers that effect transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
You
should rely only on the information contained in this prospectus. We have not
authorized anyone to provide you with information different from that which is
set forth in this prospectus. We are offering to sell shares of our common stock
and seeking offers to buy shares of our common stock only in jurisdictions where
offers and sales are permitted. The information contained in this prospectus is
accurate only as of the date of this prospectus, regardless of the time of
delivery of this prospectus or any sale of these securities. Our business,
financial condition, results of operation and prospects may have changed after
the date of this prospectus.
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
ITEM
13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The
following table sets forth an itemization of all estimated expenses, all of
which we will pay, in connection with the issuance and distribution of the
securities being registered:
NATURE
OF EXPENSE AMOUNT
SEC
Registration fee
|
$ | 7,188.29 | ||
Accounting
fees and expenses
|
50,000.00 | * | ||
Legal
fees and expenses
|
50,000.00 | * | ||
Miscellaneous
|
5,000.00 | |||
TOTAL
|
$ | 112,188.29 | * |
*
Estimated.
ITEM
14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our
Articles of Incorporation, as amended, provide to the fullest extent permitted
by Nevada law, our directors or officers shall not be personally liable to us or
our shareholders for damages for breach of such director's or officer's
fiduciary duty. The effect of this provision of our Articles of Incorporation,
as amended, is to eliminate our right and our shareholders (through
shareholders' derivative suits on behalf of our company) to recover damages
against a director or officer for breach of the fiduciary duty of care as a
director or officer (including breaches resulting from negligent or grossly
negligent behavior), except under certain situations defined by statute. We
believe that the indemnification provisions in its Articles of Incorporation, as
amended, are necessary to attract and retain qualified persons as directors and
officers.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
ITEM
15. RECENT SALES OF UNREGISTERED SECURITIES.
During
the past three years, the registrant has sold the following securities which
were not registered under the Securities Act of 1933, as amended.
On
November 6, 2007, we entered into a financing arrangement with a group of
accredited investors pursuant to which we sold our Original Issue Discount 8%
Secured Convertible Debentures and warrants to purchase our common stock in
consideration of an aggregate of $4,117,649. We received gross proceeds of
approximately $3,500,000 from this offering. In connection with the
November 2007 financing, we issued the following securities to the
investors:
II-1
|
·
|
$4,117,649
in Secured Original Issue Discount Convertible Debentures;
and
|
|
·
|
Common
Stock Purchase Warrants to purchase 6,862,748 shares of common stock at
$0.32 per share for a period of five
years.
|
The
warrants are exercisable to purchase one share of common stock at $0.32 per
share, and have a term of exercise equal to 5 years. The warrant holders
may not exercise the warrants for a number of shares of common stock in excess
of that number of shares which upon giving effect to such exercise would cause
the aggregate number of shares beneficially owned by the holder to exceed 9.99%
of the outstanding shares of the common stock following such exercise. As
of December 31, 2007, no shares of common stock had been issued upon
conversion of the debentures or the warrants issued on November 6,
2007.
In
connection with an asset purchase agreement and stock purchase agreement signed
on December 4, 2007, we issued an aggregate of 2,000,000 shares of our
common stock.
On
December 6, 2007, we entered into a financing arrangement with a group of
accredited investors pursuant to which we sold our Original Issue Discount 8%
Secured Convertible Debentures and warrants to purchase our common stock in
consideration of an aggregate of $1,764,706.. We received gross proceeds
of approximately $1,500,000 from this offering. In connection with the
December 2007 financing, we issued the following securities to the
investors:
|
·
|
$1,764,706.50
in Secured Original Issue Discount Convertible Debentures;
and
|
|
·
|
Common
Stock Purchase Warrants to purchase 2,941,177 shares of common stock at
$0.32 per share for a period of five
years.
|
The
warrants are exercisable to purchase one share of common stock at $0.30 per
share, and have a term of exercise equal to 5 years. The Warrant holders
may not exercise the Warrants for a number of shares of common stock in excess
of that number of shares which upon giving effect to such exercise would cause
the aggregate number of shares beneficially owned by the holder to exceed 9.99%
of the outstanding shares of the Common stock following such exercise. As
of December 31, 2007, no shares of common stock had been issued upon
conversion of the debentures or the warrants issued on December 6,
2007.
During
the year ended December 31, 2008, a debenture holder, BridgePointe, elected to
convert a portion of their principal to shares at the conversion rate in affect
at that time of $0.30 per share. $100,000 of principal was converted
to 333,332 shares.
During
the year ended December 31, 2008 the Company entered into contracts with
employees that called for the issuance of 300,000 shares of the Company’s $0.001
common stock. These shares were valued at $19,750. This
amount was expensed to compensation in the year ended December 31,
2008.
On August
8, 2008 the Company entered into a contract for services with vendor that called
for the issuance of 390,000 shares of the Company’s $0.001 common
stock. These shares were valued at $54,900 and were expensed over the
life of the contract.
On
October 17, 2008, 4,000,000 shares were issued to Innergy Power Corporation
pursuant to an asset purchase agreement entered into in October
2007.
On
January 30, 2009, 31,333,333 shares were issued to Edison Source pursuant to a
share purchase agreement entered into in December 2007.
In March
2009 the Company issued 1,075,000 shares of the Company’s $0.001 common stock in
satisfaction of payables owed to two service vendors.
On April
13, 2009 75,000 shares of common stock were issued to an employee in accordance
with an employment agreement.
II-2
On June
1, 2009, 45,370 shares of common stock were issued to BridgePointe Master Fund
Ltd in satisfaction of a cashless exercise of 50,000 warrants.
For the
period July 1 through September 30, 2009, 88,178,132 shares of the
Company's $0.001 par value common stock were issued
for the cashless exercise by our debenture holders
of 93,976,001 warrants with an exercise price of $0.01 as
follows: Enable Growth exercised 43,350,000 warrants in exchange for
40,888,329 shares, Enable Opportunity exercised 5,100,000 warrants in
exchange for 4,810,391 shares, Pierce Diversified Master Fund exercised
2,550,000 warrants in exchange for 2,405,196 shares, BridgePointe
Master Fund exercised 40,884,760 warrants in exchange for 38,074,216 shares and
Glenwood Capital, LLC (recipient of assigned warrants) exercised 2,091,241
warrants in exchange for 2,000,000 shares.
For the
period July 1 through September 30, 2009, 18,166,666 shares on the
Company's $0.001 par value common stock were issued for conversion of
debenture debt in the amount of $1,090,000 at a rate of $0.06 as
follows: Pierce Diversified Master Fund converted $42,000 in debt for
700,000 shares, Enable Growth converted $714,000 in debt for 11,900,000 shares,
Enable Opportunity converted $84,000 in debt for 1,400,000 shares and
BridgePointe Master Fund converted $250,000 in debt for 4,166,666
shares.
For the
period July 1 through September 30, 1,100,000 shares of the Company's $0.001 par
value common stock were issued to employees per employment agreements
.
A one
year contract was signed on August 1, 2009 with a consultant calling for
the issuance of 2,000,000 shares of the Company's $0.001 par value common stock
in return for services to be provided over the life to the
contract. The rights to the shares vested on the signing date of
August 1, 2009 and were issuable in two tranches: 1 million shares within thirty
days of the contract signing and the second one million shares after 180
days. The first tranche of 1,000,000 shares was issued on August 31,
2009.
A six
month contract was signed on September 18, 2009 with a consultant calling for
the issuance of 1, 200,000 five year warrants to purchase shares of the
Company's $.001 par value common stock at an exercise price of
$0.01. These warrants to be issued (vested) ratably over the contract
period and to be issued in tranches of 200,000 at the end of
each 30 day service period (first service period September 15 - November 15,
2009).
A one
year contract was signed on September 28, 2009 with a consultant calling for the
issuance of 500,000 five year warrants to purchase shares of the Company's $.001
par value common stock at an exercise price of $0.01. These warrants
are to be issued at the end of the contract period and are to be
vested ratably over the contract period.
The First
Management Incentive Target as defined in our May 15, 2009 Debenture Waiver
Agreement was defined as the signing of a contract valued at $20,000 000 or more
on or before October 1, 2009. This target was reached on September
30, 2009 with the signing of our contract with the Department of
Energy. Upon reaching this target the Company became obligated issue
a number of warrants (“First Management Penny Warrants”) to Jonathan Read,
President and Chief Executive Officer of the Company, equal to 5% of the fully
diluted number of shares of common stock of the Company as of the applicable
Target Date (defined as the signing date or October 1, 2009 whichever occurred
earlier), having an exercise price of $0.01, which warrants were to be in the
same form as the Warrants of the Existing Holders (as amended). This
obligation was accrued on September 30, 2009 as follows: The number
of warrants to be issued was calculated using the fully diluted number of shares
on the target date of September 30, 2009 of 859,948,007 multiplied by 5% to
get 42,997,400 as the number of warrants to be issued. This award
has been subsequently modified in the Third Amendment to the Amendment to
Debentures and Warrants Agreement and Waiver signed on October 31,
2009. The modifications in the Third amendment call for the
replacement of the original award with the issuance of a fixed number
(40,410,312 shares or rights to acquire shares) of any of the following or a
combination thereof: common stock, preferred shares or
options to acquire shares at fair market value on the date of
grant.
II-3
To obtain
funding for our ongoing operations, we entered into a Securities Purchase
Agreement with three accredited investors, on July 2, 2009 for the sale of
$2,500,000 in secured convertible debentures. The secured convertible debentures
bore interest at 8%, matured October 1, 2010, and were convertible into our
common stock, at the selling stockholders' option, at $3.60 per
share. In addition, we issued a warrant to Shenzhen Goch Investment
Ltd., expiring May 1, 2014, to purchase 1,748,971 shares of restricted common
stock, exercisable at a per share of $0.60.
On
October 31, 2009, we entered into a Securities Exchange Agreement with all
holders of the convertible debentures issued on July 2, 2009 and holders of
certain warrants to convert all outstanding amounts ($9,111,170) under these
debentures and all related warrants into an aggregate of 9,270,804 shares
of Series A Convertible Preferred Stock. The Series A Convertible Preferred
Stock has no redemption, preferential dividend or voting rights, but may be
converted, at the holder’s option, into shares of our common stock at a 1:1
ratio.
To obtain
funding for our ongoing operations, we entered into a Securities Purchase
Agreement with seven accredited investors, on October 31, 2009 for the sale of
2,152,777 shares of common stock, at a price of $7.20 per share, for gross
proceeds of $15,500,000. On January 7, 2010, we sold an additional
694,444 shares of common stock, at a price of $7.20 per share, for gross
proceeds of $5,000,000.
In
addition, we issued to each investor warrants to purchase an equal number of
shares of common stock purchased pursuant to the securities purchase agreement.
The warrants expire five years from the date of issuance and are exercisable at
$9.00 per share. In addition, the exercise price of the warrants will be
adjusted in the event we issue common stock at a price below the exercise
price. Upon an issuance of shares of common stock below the exercise
price, the exercise price of the warrants will be reduced to equal the share
price at which the additional securities were issued and the number of warrant
shares issuable will be increased such that the aggregate exercise price payable
for the warrants, after taking into account the decrease in the exercise price,
shall be equal to the aggregate exercise price prior to such
adjustment.
On
January 15, 2010, we issued 673,505 common shares to Jonathan Read, our CEO, in
satisfaction of the management incentive plan award that was triggered in
September 2009 but for which the final structure of the equity award was not
determined and finalized until 2010.
From
January 1, through April 13, 2010, a consultant exercised 19,998 warrants
with an exercise price of $0.60 and received 19,998 shares of our common
stock.
On March
3, 2010, BridgePointe Master Fund converted 60,000 of their series A preferred
shares into 60,000 shares of our common stock.
From
January 1, through April 13, 2010, 17,766 shares of our common stock were
issued to two consultants in accordance with their contracts.
On April
7, 2010 we issued 83 shares of Common Stock to an employee for
compensation.
On April
8, 2010, 1,100 shares of our common stock were issued to an employee of eTec in
accordance with an employment agreement.
On April
21, 2010 we issued 20,418 shares of Common Stock to an investor upon their
conversion of an equal number of shares of convertible preferred
stock.
On April
27, 2010 we issued 100,000 shares of Common Stock to an investor upon on their
conversion of an equal number of shares of convertible preferred
stock.
II-4
* All of
the above offerings and sales were deemed to be exempt under rule 506 of
Regulation D and Section 4(2) of the Securities Act of 1933, as amended. No
advertising or general solicitation was employed in offering the securities. The
offerings and sales were made to a limited number of persons, all of whom were
accredited investors, business associates of ECOtality or executive officers of
ECOtality, and transfer was restricted by ECOtality in accordance with the
requirements of the Securities Act of 1933. In addition to representations by
the above-referenced persons, we have made independent determinations that all
of the above-referenced persons were accredited or sophisticated investors, and
that they were capable of analyzing the merits and risks of their investment,
and that they understood the speculative nature of their investment.
Furthermore, all of the above-referenced persons were provided with access to
our Securities and Exchange Commission filings. Except as expressly
set forth above, the individuals and entities to whom we issued securities as
indicated in this section of the registration statement are unaffiliated with
us.
ITEM
16. EXHIBITS.
The
following exhibits are included as part of this Form S-1. References to “the
Company” in this Exhibit List mean ECOtality, Inc., a Nevada
corporation.
Exhibit No.
|
Description
|
|
2.01
|
Technology
Contribution Agreement, between Alchemy Enterprises, Ltd. and Howard Foote
and Elliott Winfield, dated as of February 15, 2006, filed as an exhibit
to the current report on Form 8-K filed with the Securities and Exchange
Commission on February 21, 2006 and incorporated herein by
reference.
|
|
3.01
|
Amended
and Restated Articles of Incorporation, filed as an exhibit to the current
report on Form 8-K filed with the Securities and Exchange Commission on
November 23, 2009 and incorporated herein by reference.
|
|
3.02
|
Certificate
of Designation of Preferences, Rights and Limitations of Series A
Convertible Preferred Stock, filed as an exhibit to the current report on
Form 8-K filed with the Securities and Exchange Commission on November 4,
2009 and incorporated herein by reference.
|
|
3.03
|
Amended
and Restated Bylaws of the Company, filed as an exhibit to the
registration statement on Form SB-2 filed with the Securities and Exchange
Commission on February 12, 2007 and incorporated herein by
reference.
|
|
5.1
|
Opinion
of Sichenzia Ross Friedman Ference LLP
|
|
10.01
|
Settlement
Agreement and Release, dated as of February 15, 2007, by and among
ECOtality, Inc., Howard Foote, Elliott Winfield and Universal Power
Vehicles Corporation, filed as an exhibit to the current report on Form
8-K filed with the Securities and Exchange Commission on February 21, 2007
and incorporated herein by reference.
|
|
10.02
|
Form
of Securities Purchase Agreement, dated as of November 6, 2007, filed as
an exhibit to the current report on Form 8-K filed with the Securities and
Exchange Commission on November 9, 2007 and incorporated herein by
reference.
|
|
10.03
|
Form
of Debenture, dated as of November 6, 2007, filed as an exhibit to the
current report on Form 8-K filed with the Securities and Exchange
Commission on November 9, 2007 and incorporated herein by
reference.
|
|
10.04
|
Form
of Security Agreement, dated as of November 6, 2007, filed as an exhibit
to the current report on Form 8-K filed with the Securities and Exchange
Commission on November 9, 2007 and incorporated herein by
reference.
|
|
10.05
|
Form
of Registration Rights Agreement, dated as of November 6, 2007, filed as
an exhibit to the current report on Form 8-K filed with the Securities and
Exchange Commission on November 9, 2007 and incorporated herein by
reference.
|
II-5
10.06
|
Form
of Common Stock Warrant, dated as of November 6, 2007, filed as an exhibit
to the current report on Form 8-K filed with the Securities and Exchange
Commission on November 9, 2007 and incorporated herein by
reference.
|
|
10.07
|
Form
of Lock Up Agreement, dated as of November 6, 2007, filed as an exhibit to
the current report on Form 8-K filed with the Securities and Exchange
Commission on November 9, 2007 and incorporated herein by
reference.
|
|
10.08
|
Form
of Subsidiary Guarantee, dated as of November 6, 2007, filed as an exhibit
to the current report on Form 8-K filed with the Securities and Exchange
Commission on November 9, 2007 and incorporated herein by
reference.
|
|
10.09
|
Form
of Share Purchase Agreement, dated as of December 4, 2007, by and among
Electric Transportation Engineering Corporation, ECOtality, Inc., Edison
Source and Edison Enterprises filed as an exhibit to the current report on
Form 8-K filed with the Securities and Exchange Commission on December 7,
2007 and incorporated herein by reference.
|
|
10.10
|
Form
of Asset Purchase Agreement, dated as of December 4, 2007, by and among
0810009 B.C. Unlimited Liability Company, ECOtality, Inc., Edison Source
Norvik Company and Edison Enterprises filed as an exhibit to the current
report on Form 8-K filed with the Securities and Exchange Commission on
December 7, 2007 and incorporated herein by reference.
|
|
10.11
|
Form
of Securities Purchase Agreement, dated as of December 6, 2007, filed as
an exhibit to the current report on Form 8-K filed with the Securities and
Exchange Commission on December 7, 2007 and incorporated herein by
reference.
|
|
10.12
|
Form
of Debenture, dated as of December 6, 2007, filed as an exhibit to the
current report on Form 8-K filed with the Securities and Exchange
Commission on December 7, 2007 and incorporated herein by
reference.
|
|
10.13
|
Form
of Registration Rights Agreement, dated as of December 6, 2007, filed as
an exhibit to the current report on Form 8-K filed with the Securities and
Exchange Commission on December 7, 2007 and incorporated herein by
reference.
|
|
10.14
|
Form
of Common Stock Warrant, dated as of December 6, 2007, filed as an exhibit
to the current report on Form 8-K filed with the Securities and Exchange
Commission on December 7, 2007 and incorporated herein by
reference.
|
|
10.15
|
Form
of Lock Up Agreement, dated as of December 6, 2007, filed as an exhibit to
the current report on Form 8-K filed with the Securities and Exchange
Commission on December 7, 2007 and incorporated herein by
reference.
|
|
10.16
|
Form
of Subsidiary Guarantee, dated as of December 6, 2007, filed as an exhibit
to the current report on Form 8-K filed with the Securities and Exchange
Commission on December 7, 2007 and incorporated herein by
reference.
|
|
10.17
|
License
Agreement, dated as of June 12, 2006, by and between Alchemy Enterprises,
Ltd. and California Institute of Technology, filed as an exhibit to the
current report on Form 8-K filed with the Securities and Exchange
Commission on July 12, 2006 and incorporated herein by
reference.
|
|
10.18
|
2007 Stock Incentive Plan,
filed as an exhibit to the
registration statement on Form SB-2/A filed with the Securities and
Exchange Commission on April 17, 2007 and incorporated herein by
reference.
|
II-6
10.19
|
Employment
Agreement, dated as of April 13, 2009, by and between ECOtality, Inc. and
Jonathan R. Read
|
|
10.20
|
Employment
Agreement, dated as of February 16, 2007, by and between ECOtality, Inc.
and Harold Sciotto, filed as an exhibit to the registration statement on
Form SB-2/A filed with the Securities and Exchange Commission on April 17,
2007 and incorporated herein by reference.
|
|
10.21
|
Amendment
to Debentures and Warrants, Agreement and Waiver, dated as of August 29,
2008 and effective as of May 1, 2008, relating to agreements dated
November 6, 2007 and December 7, 2007, filed as an exhibit to the current
report on Form 8-K filed with the Securities and Exchange Commission on
September 4, 2008 and incorporated herein by reference.
|
|
10.22
|
Bridge
Loan Agreement, dated as of August 29, 2008, filed as an exhibit to the
current report on Form 8-K filed with the Securities and Exchange
Commission on September 25, 2008 and incorporated herein by
reference.
|
|
10.23
|
Deferral
Agreement, dated as of December 29, 2008, relating to debentures issued on
November 6, 2007, filed as an exhibit to the current report on Form 8-K
filed with the Securities and Exchange Commission on December 30, 2008 and
incorporated herein by reference.
|
|
10.24
|
Amendment
to Debentures and Warrants, Agreement and Waiver, dated as of March 5,
2009, relating to agreements dated November 6, 2007 and December 7, 2007,
filed as an exhibit to the current report on Form 8-K filed with the
Securities and Exchange Commission on March 10, 2009 and incorporated
herein by reference.
|
|
10.25
|
Amendment
to Debentures and Warrants, Agreement and Waiver, dated as of May 15,
2009, relating to agreements dated November 6, 2007 and December 7, 2007,
filed as an exhibit to the current report on Form 8-K filed with the
Securities and Exchange Commission on May 18, 2009 and incorporated herein
by reference.
|
|
10.26
|
Letter
of Intent for Joint Venture, dated as of June 29, 2009, by and between
ECOtality, Inc. and Shenzhen Goch Investment Ltd., filed as an exhibit to
the current report on Form 8-K filed with the Securities and Exchange
Commission on July 7, 2009 and incorporated herein by
reference.
|
|
10.27
|
First
Amendment to Amendment to Debentures and Warrants, Agreement and Waiver,
dated as of July 2, 2009, relating to agreements dated November 6, 2007
and December 7, 2007, filed as an exhibit to the current report on Form
8-K filed with the Securities and Exchange Commission on July 7, 2009 and
incorporated herein by reference.
|
|
10.28
|
Second
Amendment to Amendment to Debentures and Warrants, Agreement and Waiver,
dated as of July 2, 2009, relating to agreements dated November 6, 2007
and December 7, 2007, filed as an exhibit to the current report on Form
8-K filed with the Securities and Exchange Commission on July 7, 2009 and
incorporated herein by reference.
|
|
10.29
|
Form
of Securities Purchase Agreement, dated as of July 2, 2009, filed as an
exhibit to the current report on Form 8-K filed with the Securities and
Exchange Commission on July 7, 2009 and incorporated herein by
reference.
|
|
10.30
|
Form
of Secured Convertible Debenture, dated as of July 2, 2009, filed as an
exhibit to the current report on Form 8-K filed with the Securities and
Exchange Commission on July 7, 2009 and incorporated herein by
reference.
|
II-7
10.31
|
Form
of Security Agreement, dated as of July 2, 2009, filed as an exhibit to
the current report on Form 8-K filed with the Securities and Exchange
Commission on July 7, 2009 and incorporated herein by
reference.
|
|
10.32
|
Form
of Registration Rights Agreement, dated as of July 2, 2009, filed as an
exhibit to the current report on Form 8-K filed with the Securities and
Exchange Commission on July 7, 2009 and incorporated herein by
reference.
|
|
10.33
|
Form
of Warrant, dated as of July 2, 2009, filed as an exhibit to the current
report on Form 8-K filed with the Securities and Exchange Commission on
July 7, 2009 and incorporated herein by reference.
|
|
10.34
|
Form
of Subsidiary Guarantee, dated as of July 2, 2009, filed as an exhibit to
the current report on Form 8-K filed with the Securities and Exchange
Commission on July 7, 2009 and incorporated herein by
reference.
|
|
10.35
|
Form
of Intercreditor Agreement, dated as of July 2, 2009, filed as an exhibit
to the current report on Form 8-K filed with the Securities and Exchange
Commission on July 7, 2009 and incorporated herein by
reference.
|
|
10.36
|
Form
of Securities Exchange Agreement, dated as of October 31, 2009, filed as
an exhibit to the current report on Form 8-K filed with the Securities and
Exchange Commission on November 4, 2009 and incorporated herein by
reference.
|
|
|
||
10.37
|
Form
of Securities Purchase Agreement, dated as of October 31, 2009, filed as
an exhibit to the current report on Form 8-K filed with the Securities and
Exchange Commission on November 4, 2009 and incorporated herein by
reference.
|
|
|
||
10.38
|
Form
of Registration Rights Agreement, dated as of October 31, 2009, filed as
an exhibit to the current report on Form 8-K filed with the Securities and
Exchange Commission on November 4, 2009 and incorporated herein by
reference.
|
|
10.39
|
Form
of Warrant, dated as of October 31, 2009, filed as an exhibit to the
current report on Form 8-K filed with the Securities and Exchange
Commission on November 4, 2009 and incorporated herein by
reference.
|
|
10.40
|
Third
Amendment to Amendment to Debentures and Warrants, Agreement and Waiver,
dated as of July 2, 2009, relating to agreements dated November 6, 2007
and December 7, 2007, filed as an exhibit to the current report on Form
8-K filed with the Securities and Exchange Commission on November 4, 2009
and incorporated herein by reference.
|
|
10.41
|
Form
of Securities Purchase Agreement, dated as of November 9, 2009, filed as
an exhibit to the current report on Form 8-K filed with the Securities and
Exchange Commission on November 18, 2009 and incorporated herein by
reference.
|
|
10.42
|
Form
of Registration Rights Agreement, dated as of November 9, 2009, filed as
an exhibit to the current report on Form 8-K filed with the Securities and
Exchange Commission on November 18, 2009 and incorporated herein by
reference.
|
|
10.43
|
Board
Representative Agreement, dated as of November 9, 2009, by and among
ECOtality, Inc., BridgePointe Master Fund Ltd., Shenzhen Goch Investment
Ltd., and Cybernaut Investments, filed as an exhibit to the current report
on Form 8-K filed with the Securities and Exchange Commission on November
18, 2009 and incorporated herein by
reference.
|
II-8
10.44
|
Amendment,
dated as of November 30, 2009, to Employment Agreement by and between
ECOtality, Inc. and Jonathan R. Read.
|
|
|
||
10.45
|
Third
Amendment to Amendment to Debentures and Warrants, Agreement and Waiver,
dated as of October 31, 2009, by and among ECOtality, Inc., Enable Growth
Partners LP, Enable Opportunity Partners LP, Pierce Diversified Strategy
Master Fund LLC, and BridgePointe Master Fund Ltd.
|
|
10.46
|
First
Amendment to Registration Rights Agreement, dated as of September 28,
2009, amending the Registration Rights Agreement dated July 2,
2009.
|
|
21.01
|
List
of subsidiaries.
|
|
23.01
|
Consent
of Weaver & Martin, LLC.
|
|
24.01
|
Power
of Attorney (included on signature page to the registration
statement).
|
ITEM
17. UNDERTAKINGS.
The
undersigned registrant hereby undertakes to:
(1) File,
during any period in which offers or sales are being made, a post-effective
amendment to this registration statement to:
(i) Include
any prospectus required by Section 10(a)(3) of the Securities Act of 1933, as
amended (the “Securities Act”);
(ii) Reflect
in the prospectus any facts or events which, individually or together, represent
a fundamental change in the information in the registration
statement. Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of the securities
offered would not exceed that which was registered) and any deviation from the
low or high end of the estimated maximum offering range may be reflected in the
form of a prospectus filed with the Commission pursuant to Rule 424(b) under the
Securities Act if, in the aggregate, the changes in volume and price represent
no more than a 20% change in the maximum aggregate offering price set forth in
the “Calculation of Registration Fee” table in the effective registration
statement, and
(iii) Include
any additional or changed material information on the plan of
distribution.
(2) For
determining liability under the Securities Act, treat each post-effective
amendment as a new registration statement of the securities offered, and the
offering of the securities at that time to be the initial bona fide
offering.
(3) File
a post-effective amendment to remove from registration any of the securities
that remain unsold at the end of the offering.
(4) For
determining liability of the undersigned registrant under the Securities Act to
any purchaser in the initial distribution of the securities, the undersigned
undertakes that in a primary offering of securities of the undersigned
registrant pursuant to this registration statement, regardless of the
underwriting method used to sell the securities to the purchaser, if the
securities are offered or sold to such purchaser by means of any of the
following communications, the undersigned registrant will be a seller to the
purchaser and will be considered to offer or sell such securities to such
purchaser:
(i) Any
preliminary prospectus or prospectus of the undersigned registrant relating to
the offering required to be filed pursuant to Rule 424;
(ii) Any
free writing prospectus relating to the offering prepared by or on behalf of the
undersigned registrant or used or referred to by the undersigned
registrant;
II-9
(iii) The
portion of any other free writing prospectus relating to the offering containing
material information about the undersigned registrant or its securities provided
by or on behalf of the undersigned registrant; and
(iv) Any
other communication that is an offer in the offering made by the undersigned
registrant to the purchaser.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
In the
event that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such
issue.
Each
prospectus filed pursuant to Rule 424(b) as part of a registration statement
relating to an offering, other than registration statements relying on Rule 430B
or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be
part of and included in the registration statement as of the date it is first
used after effectiveness. Provided, however, that no statement made in a
registration statement or prospectus that is part of the registration statement
or made in a document incorporated or deemed incorporated by reference into the
registration statement or prospectus that is part of the registration statement
will, as to a purchaser with a time of contract of sale prior to such first use,
supersede or modify any statement that was made in the registration statement or
prospectus that was part of the registration statement or made in any such
document immediately prior to such date of first use.
II-10
SIGNATURES
In
accordance with the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements of filing on Form S-1 and authorizes this registration statement to
be signed on its behalf by the undersigned, in the City of Scottsdale, State of
Arizona, on June 10, 2010.
ECOTALITY,
INC.
|
||
Date: June
10, 2010
|
By:
|
/s/ JONATHAN R. READ
|
Jonathan
R. Read
|
||
Chief
Executive Officer (Principal Executive Officer) and
Director
|
||
Date: June
10, 2010
|
By:
|
/s/ BARRY S. BAER
|
Barry
S. Baer
|
||
Chief
Financial Officer (Principal Financial Officer and
Principal
Accounting Officer) and
Director
|
II-11
POWER
OF ATTORNEY
KNOW
ALL PERSONS BY THESE PRESENTS:
That the
undersigned officers and directors of ECOtality, Inc., a Nevada corporation, do
hereby constitute and appoint Jonathan Read and Barry Baer and each of them his
or her true and lawful attorney-in-fact and agent with full power and authority
to do any and all acts and things and to execute any and all instruments which
said attorney and agent, determine may be necessary or advisable or required to
enable said corporation to comply with the Securities Act of 1933, as amended,
and any rules or regulations or requirements of the Securities and Exchange
Commission in connection with this Registration Statement. Without limiting the
generality of the foregoing power and authority, the powers granted include the
power and authority to sign the names of the undersigned officers and directors
in the capacities indicated below to this Registration Statement, and to any and
all instruments or documents filed as part of or in conjunction with this
Registration Statement or amendments or supplements thereof, including
post-effective amendments, to this Registration Statement or any registration
statement relating to this offering to be effective upon filing pursuant to
Rule 462(b) under the Securities Act of 1933, and each of the undersigned
hereby ratifies and confirms that said attorney and agent, shall do or cause to
be done by virtue thereof. This Power of Attorney may be signed in several
counterparts.
IN
WITNESS WHEREOF, each of the undersigned has executed this Power of Attorney. In
accordance with the requirements of the Securities Act of 1933, as amended, this
registration statement was signed by the following persons in the capacities and
on the dates stated:
Signature
|
Title
|
Date
|
||
/s/ JONATHAN R. READ
|
Chief
Executive Officer (Principal Executive
|
June
10, 2010
|
||
Jonathan
R. Read
|
Officer) and
Director
|
|||
/s/ BARRY S. BAER
|
Chief
Financial Officer (Principal Financial
|
June
10, 2010
|
||
Barry
S. Baer
|
Officer
and Principal Accounting Officer)
|
|||
and
Director
|
||||
/s/ E. SLADE MEAD
|
Director
|
June
10, 2010
|
||
E.
Slade Mead
|
||||
/s/ CARLTON JOHNSON
|
Director
|
June
10, 2010
|
||
Carlton
Johnson
|
||||
/s/ DARYL MAGANA
|
Director
|
June
10, 2010
|
||
Daryle
Magana
|
||||
Director
|
June
10, 2010
|
|||
Jack
Smith
|
||||
/s/ DAVE KUZMA
|
Director
|
June
10, 2010
|
||
Dave
Kuzma
|
II-12