THE GREEN CAR REPORT Investment Analysis of the Hybrid & Electric Vehicle Industry: Outlook for 2009 - 2012

Peter J. Conley Jon Hickman

November 10, 2008

“There is nothing more powerful than change whose time has come”

MDB CAPITAL GROUP 401 Wilshire Boulevard Santa Monica, California 90401 U.S.A. 310-526-5000 www.mdb.com

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Green Car At A Glance

“We’re borrowing money from China Research Conclusions to buy oil from the Persian Gulf to burn it in ways that destroys the planet. • Green Cars no longer an option, rather a global Every bit of that’s got to change” game-changer whose future is “when”, not - Al Gore, July 2008 “if”. Inflection point on the horizon. • There is a high stakes race underway for the “After 100 years of evolution, the automobile lead in Green Cars. The winners will lead the industry is on the verge of a revolution.” automotive industry and take the pole position - William Clay Ford Jr. in the global economy. Ford Blueprint for Sustainability, 2008 • “Confluence Effect” driving Green Cars resembles “Network Effect” driving Internet. • Specifically, within the next 12-24 months, 30 Companies Covered In This Report Green Car technology will reach the “tipping point” for price-performance. Large Cap Public (9) • Within the next 24-36 months, Green Car economies of scale will reach the “tipping BYD (1211 HK: $13.00) Not Rated point” for mass adoption. Daimler AG (DAI: $30.84) Not Rated • Within the next 24-36 months, mid-point of Ford (F: $1.98) Not Rated most “peak oil” forecasts will be exceeded General Motors (GM: $4.80) Not Rated with implications for oil price stability; Honda (HMC: $22.40) Not Rated accelerating mandate for green energy. Johnson Controls (JCI: $17.06) Not Rated • Within the next 48-60 months, the “point of no Mitsubishi (7211 JP: 159 ¥) Not Rated return” will be reached if sovereign CO2 Nissan (7201 JP: 455 ¥) Not Rated abatement measures are not implemented, with Toyota (TM: $67.09) Not Rated irreparable implications for climate change and the global economy. Small Cap / Micro Cap Public (13) • The increasing need for energy independence will be the primary growth driver for Green Advanced Battery (ABAT: $2.61) Buy Cars in the U.S., with implications for the U.S. Altair (ALTI: $1.43) Buy economy and national security. Azure Dynamic (AZD CN: $0.065) Neutral • The increasing need for environmental China Ritar Power (CRTP: $1.69) Buy sustainability will be the secondary growth China Sun (CSGH: $0.42) Buy driver for Green Cars, with implications for the Ecotality (ETLY: $0.05) Buy global environment and competitiveness. Ener1 (HEV: $6.87) Neutral • Government policy/funding, in conjunction Enova (ENA: $1.45) Neutral with private sector investment and consumer Hybrid Tech (HYBR: $0.71) Neutral awareness, will significantly impact rate of Quantum Fuel (QTWW: $0.79) Buy Green Car development and adoption. Satcon Tech (SATC: $1.79) Buy • Mass adoption of Green Cars will substantially UQM Tech (UQM: $2.19) Neutral reduce oil consumption to reduce deficit and Zap (ZAAP: $0.41) Buy CO2; leading to economic growth and environmental sustainability. Private Venture / Private Equity (8) • Winners include early adopter global OEMs, select niche OEMs and key supply chain A123 Systems players like batteries, drive trains. Aptera Motors • Losers include global OEMs “behind the Chrysler curve”; as well as much of legacy oil related Coulomb Technologies value chain. Miles Automotive • Intellectual property, strategic materials will be Phoenix Motorcars key success factors; management team, REVA balance sheet, market access and business Tesla Motors model will also be critical determinants. • Still in 2nd to 3rd inning of emerging $100 billion global market; better valuations in public, versus private, companies. Market volatility has created attractive entry point for long-term fundamental investors.

PLEASE READ THE DISCLOSURES ON PAGES 230-233 FOR IMPORTANT REQUIRED ______INFORMATION INCLUDING RISKS AND ANALYSTS CERTIFICATION. 1 MDB Capital Group The Green Car Report November 10, 2008 ______

Table of Contents

1. The Green Car Report a. The Authors……………………………………………………. page 4 b. Acknowledgements……………………………………………. page 4 c. About MDB Capital…………………………………………… page 4

2. The Investment Case a. Introduction…………………………………………………….. page 5 b. The Problem………...………………………………………….. page 5 c. The Solution………….………………...………………………. page 11 d. Green Car Index……………..…………………………………. page 12

3. The Green Car Market Opportunity a. Global Overview……………………………………………….. page 13 b. Market Size…………………………………………………….. page 13 c. Market Trends………………………………………………….. page 15

4. Green Car Market Drivers a. Economic……………………………………………………….. page 16 b. Environment……………………………………………………. page 17 c. Government…………………………………………………….. page 17 d. Social…………………………………………………………… page 18

5. Green Car Ecosystem a. OEMs…………………………………………………………… page 20 b. Supply Chain: Batteries, Electric Motors, Components……….. page 21 c. Distribution Channel: Dealers, Direct, JV/Partners…………… page 23 d. Infrastructure…………………………………………………… page 24

6. Green Car Economic Analysis a. Cost vs. Internal Combustion…………………………………… page 26 b. Running Costs & Maintenance………………………………… page 26 c. Cost Drivers & Sensitivity Analysis…………………………… page 27

7. Green Car Environmental Impact Analysis a. Energy Efficiency……………………………………………… page 28 b. CO2 Emissions………………………………………………… page 28 c. Implications for the Environment……………………………… page 29

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8. Green Car Companies (30 companies)

a. Large Cap Public (9 companies): 1. BYD………………………………………………….. page 31 2. Daimler………………………………………………. page 33 3. Ford…………………………………………………... page 36 4. GM…………………………………………………… page 39 5. Honda………………………………………………… page 42 6. Johnson Controls/Saft ……………………………...... page 44 7. Mitsubishi…………………………………………….. page 46 8. Nissan………………………………………………… page 48 9. Toyota………………………………………………… page 52

b. Small Cap / Micro Cap Public (13 companies): 1. Advanced Battery Technologies ……………………..... page 56 2. Altair Nanotechnologies ..……………………………... page 65 3. Azure Dynamics …..…………………………………… page 78 4. China Ritar Power ..……………………………………. page 91 5. China Sun … …………………………………………... page 101 6. Ecotality …...………………………………………….... page 110 7. Ener1 …………………………………………………… page 121 8. Enova ……...…………………………………………… page 135 9. Hybrid Technologies ………………………………….... page 146 10. Quantum Fuel Systems ………………………………… page 155 11. SatCon ..………………………………………………… page 167 12. UQM Technologies ……….……………………………. page 178 13. ZAP ..…………………………………………………… page 189

c. Private Venture / Private Equity (8 companies): 1. A123 Systems…………………………………………... page 204 2. Aptera Motors...………………………………………… page 208 3. Chrysler…………………………………………………. page 211 4. Coulomb Technologies…………………………………. page 214 5. Miles Automotive………………………………………. page 216 6. Phoenix Motorcars……………………………………… page 218 7. REVA…………………………………………………… page 220 8. Tesla Motors…………………………………………….. page 222

9. Notes & References …………………………………………………….. page 224

10. Disclosures………………………………………………………………. page 230

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1. The Green Car Report He authored AutoVision, the first ecommerce program copyrighted in the Library of Congress. AutoVision About The Authors launched on CompuServe in 1985 and was later implemented by IBM in their roll-out of Prodigy’s Peter Conley Managing Director, Equity Research on-line service in 1987. Featured in CIO, 310-526-5025 [email protected] BusinessWeek, Forbes and WSJ, AutoVision enabled consumers to research, shop and buy any car entirely Peter Conley has over 20 years of experience in equity online. In recognition of AutoVision’s pre-Internet research and equity capital markets focused on the success, Mr. Conley was invited by JD Powers & early identification of important, “game-changing” Associates to address the 1991 International trends. Since joining MDB in 2003, Mr. Conley has Roundtable of Automobile Dealers to make the case been credited with being among the first analysts to for consumers shopping on-line for cars and discuss identify emerging growth opportunities in China and the implications for the automotive industry. the first to uncover accounting irregularities at Fannie Mae. He has been a regular guest on CNBC, Jon Hickman Vice President, Equity Research Bloomberg TV and frequently featured in the media 310-526-5024 [email protected] including Pension & Investments, The Wall Street Jon Hickman joined MDB Capital in 2005 to cover Journal, Barrons, Forbes, Investors Business Daily, emerging growth companies in the technology, media, Reuters, BusinessWeek, Institutional Investor, New and health care sectors. Mr. Hickman has over 28 York Times, South China Morning Post, Washington years of investment experience as both a sell-side and Post, San Francisco Chronicle, Boston Globe, NEDO buy-side analyst and senior portfolio manager of small in Japan and Financial Times in London. cap growth equities.

In addition, Mr. Conley is regarded as a thought leader At MDB, Mr. Hickman has consistently earned in the emerging field of nanotechnology and has been Bloomberg’s #1 BARR ranking on the majority of his a keynote speaker at World Nano-Economic Congress, research universe and is regularly called upon by the NanoCommerce, CANEUS/NASA, Foresight Institute financial media to discuss emerging growth and National Nanotechnology Initiative conferences. companies.

Prior to MDB, Mr. Conley co-founded The Analytiq Prior to MDB, he was an Equity Analyst at Security Group, an independent research firm focused on th Research Associates and Halpern Capital covering emerging and enabling technologies ranked in the 90 technology and life science companies. percentile for investment performance and accuracy by Investars and Integrity Research Associates. Mr. Hickman began his career in 1980 working with Bank of America’s Trust Department in San Francisco In 1999, Mr. Conley was co-founder of E*Offering, analyzing private companies. He then spent 16 years the investment bank of E*Trade, where he served as managing institutional growth oriented money at Co-Head of Equity Capital Markets. From 1991- Wells Fargo Bank’s Wells Capital Management and 1998, he was Head of Institutional Equity Sales at later at Jurika & Voyles, where he was the Head of the Roth Capital Partners and began his financial career in Aggressive Growth Investment Team. 1988 with Lehman Brothers in Los Angeles. Mr. Hickman has a B.A. in Chemistry and MBA in Prior to his financial career, Mr. Conley was an Finance from Brigham Young University. ecommerce pioneer in the automotive industry.

Acknowledgements

The authors would like to acknowledge the work of MDB’s research associates led by Ana J. Saavedra and Scarlett H. Urroz. In addition to the contributions of these and other MDB employees, the authors would like to thank MDB founders, Chris Marlett and Anthony DiGiandomenico; without their support, this report would not have been possible.

We also acknowledge and thank the countless entrepreneurs, innovators and thought leaders behind the movement toward sustainable mobility from which The Green Car Report was inspired; most especially Nobel Laureate Al Gore for his Energy Challenge, President-Elect Barack Obama for his Blueprint for Change and Dr. James Hansen of NASA for his work on global warming; whom together form the predicate for the opportunities in this report. Lastly, we thank this nation’s most astute long-term investor, Warren Buffett, for leading the way in Green Car investment.

About MDB Capital Group

Founded in 1997, MDB Capital Group strives to find actionable ideas resulting from transformational change – as distinct from incremental change – and seeks such opportunities while they are still over the horizon and not quite in view. This effort requires a deeply contrarian discipline and a willingness to see change before others do; yet invariably in the end, yield the greatest value and returns on capital. To that end, The Green Car Report was written.

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2. The Investment Case

The Green Car Report attempts to look at a rapidly evolving industry still in its infancy. It is focused primarily on companies and developments within the United States, although many industry leaders and most promising innovators are in China, Korea, Japan and Europe. Therein, lay the shortcomings of our report. Perhaps, in future editions, we will have the resources to look at the Green Car industry more completely, more globally. Our purpose now is to identify emerging trends, enabling technologies and pioneering companies comprising the Green Car industry which will impact the U.S. over the next 1-4 years. Some companies will win. Many will lose. As history has shown us, when one considers 100% of the net market value in U.S. technology stocks have been created by less than 5% of the companies, that ratio is a good yardstick in gauging risk-reward. In the end, our purpose is to provide investors with a rudimentary roadmap with which to navigate the exciting world of Green Cars. To state the obvious, Green Cars are a small sub-set of the automotive industry, which in turn is a larger sub-set of the global economy. It is our contention, that over a relatively short period of time, the automotive industry and global economy will be fundamentally changed by the mass adoption of Green Cars. Why?

THE PROBLEM: “We’re borrowing money from China to buy oil from the Persian Gulf to burn it in ways that destroys the planet. Every bit of that’s got to change” - Al Gore, July 2008

• Figure 1: China’s Foreign Exchange Reserves (FER) is the largest in the world and growing faster than any other country, reaching $403 billion in 2003, $819 billion in 2005 and $1.91 trillion in 2008, a 36% CAGR. • According to Roubini Global Economics, approximately 70% of China’s Foreign Exchange Reserves are US Dollar denominated assets, primarily U.S. Treasury and Government Agency Debt. • US in unsustainable credit-dependent relationship with China to ensure its economic growth and price stability.

China Foreign Exchange Reserves 1996-2008

"Americans end up owning a reduced portion of our country while non-Americans own a greater part; this force-feeding of American wealth to the rest of the world is now proceeding at the rate of $2 billion daily." - Warrren Buffett, Letter to Berkshire Hathaway Shareholders 2007

• Figure 2: Deficit borrowing destabilizing an already unstable U.S. financial system as reflected in Bloomberg Financial Condition Index Z-Score (defined as number of standard deviations that credit, liquidity and volatility spreads lie above or below average levels from 1992-2008). • This time is different – contrasting prior recessions, liquidity crises (’98, 9/11, ’02) at less than -2.5 vs. current unprecedented -8 /-10 Z-Score. This is highly correlated to credit and economic growth. • FY2009 budget deficit will be close to $2 trillion further destabilizing credit and financial markets. No room for oil price instability / price shocks.

Bloomberg Financial Conditions Index 1992-2008

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THE PROBLEM: “We’re borrowing money from China to buy oil from the Persian Gulf to burn it in ways that destroys the planet. Every bit of that’s got to change” - Al Gore, July 2008

• Figure 3: U.S. Imports of Crude Oil have risen from $84 billion in 2003 to $468 billion in 2008, a 42% CAGR and would be projected to exceed $1 trillion by 2011. • In 1970, the U.S. imported 24% of its oil from abroad. Oil imports reached 42% by 1990, 52% by 2000 and will nearly reach 70% in 2008 according to data from Department of Energy EIA. • Daily global consumption of oil is 85 million barrels; the U.S. consumes 21 million barrels per day. • The United States has 4% of the world’s population yet consumes 25% of the oil, an unsustainable disparity with implications for Monthly U.S. Imports of Crude Oil ($ billions) oil price shocks and geopolitical stability.

Given the trend for foreign oil imports, what is the potential risk for energy price shock?

“Looming Gasoline Shortage will Soon Dwarf Financial Crisis” - Matt Simmons, Simmons & Co., September 2008 +

• Figure 4: DOE Weekly Finished Gasoline Inventories now at the lowest level since 1969 at 94 million barrels. U.S. gasoline demand stands at 9.5 million barrels/day imputing less than a 10 day supply of gasoline. • Recessionary economy/slack demand at pump mitigating problem. Collapsing oil prices creating false sense of security. Consumers conserving cash / expecting lower prices under-fill gas tanks temporarily depressing demand. • Potential for “Run on the (Gasoline) Bank” Scenario+ o U.S. has 220 million cars on the road o Average car holds 20 gallons o Average current tank has 5 gallons o Consumers perceiving scarcity, top off gas tank o 15 gallons x 220 million cars = stock draw of 78 million barrels o Current finished stocks = 94 million barrels o U.S. out of gas in 1 week; it would take 2-3 mos to restore stocks based on refinery capacity Weekly Finished Gasoline Stocks 1990-2008 • “Gas run” scenario poses severe implications for food supply, economic and financial market disruption

Other Demand Factors Affecting the Global “Gas Tank”

• U.S. has 220 million cars for 300 million people; uses 24 barrels per person per year • Mexico has 17 million cars for 109 million people; uses 7.5 barrels per person per year • China has 32 million cars for 1.3 billion people; uses 2.3 barrels per person per year • India has 20 million cars for 1.1 billion people; uses 1.1 barrels per person per year

• When China and India reach Mexico’s level of per capita consumption, the world oil supply will have to increase by 49 million barrels per day, +58% from current global demand of 85 million barrels/day. This would translate to adding the equivalent of another new Iran or Iraq to proven world oil reserves.

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THE PROBLEM: “We’re borrowing money from China to buy oil from the Persian Gulf to burn it in ways that destroys the planet. Every bit of that’s got to change” -Al Gore, July 2008

ƒ Figure 5: Direct Economic Cost of U.S. Imports 1970-2008: The direct economic costs of oil dependence to the United States are expected to reach $560 billion dollars in 2008, based on the Energy Information Administration's Short-term Energy Outlook Projections for 2008 and the Oak Ridge National Laboratory's Oil Security Metrics Model methodology.

Direct Economic Costs of U.S. Oil Dependence 1970-2008

“The investment income account of our country – positive in every previous year since 1915 – turned negative in 2006. Foreigners now earn more n their U.S. investments than we do on our investments abroad. In effect, we’ve used up our bank account and turned to our credit card. And like everyone who gets into hock, the U.S. will now experience “reverse compounding” as we pay ever-increasing amounts of interest on interest.” - Warren Buffett, Letter to Berkshire Hathaway Shareholders, 2006

ƒ Figure 6: Oil Dependence Costs Relative to U.S. GDP 1970-2007: Higher oil prices are expected to reduce U.S. GDP by over 1.5%, or approximately $230 billion. Most of the 2008 cost ($330 billion) will consist of the transfer of wealth from U.S. oil consumers to oil exporting economies. This will bring the 5- year (2004-2008) economic costs of U.S. oil dependence to $1.7 trillion, of which $1 trillion is wealth transfer to oil exporting states. – David L. Greene, Oak Ridge National Laboratory, April 28, 2008.

Oil Dependence Costs Relative to U.S. GDP 1970-2007

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THE PROBLEM: “We’re borrowing money from China to buy oil from the Persian Gulf to burn it in ways that destroys the planet. Every bit of that’s got to change” - Al Gore, July 2008

• Figure 7: DOE U.S. CO2 emissions from Fossil Fuels increased from 5.0 billion metric tons in 1992 to 6.0 billion metric tons in 2005, a 20% increase. From the emergence of the Industrial Age over 150 years ago, the DOE estimates greenhouse gases ppm have increased 25%. • U.S. CO2 is 22% of world despite being only 4% of the world’s population, 30% of U.S. CO2 comes from burning gasoline in passenger vehicles and trucks. • From 1992-2005, CO2 emissions from China declined - 36% and EU/Russia declined -19%. • Cumulative CO2 (1751-2006) from U.S. (30%) alone equals combined CO2 from China (8%), Russia (7%), U.K. (6.0%), Germany (6%) and Japan (3%) • CO2 emissions from vehicles are highly correlated to total vehicle-miles traveled with vehicle CO2 emissions increasing +35% and vehicle miles increasing +40% from 1992-2005. U.S. CO2 Emissions Fossil Fuels 1980-2005

ƒ Figure 8: Global Carbon Cycle illustrates the movement (flux) of CO2 between the atmosphere, land and oceans as dominated by natural processes such as photosynthesis which absorb 6.2 billion net metric tons of anthropogenic CO2 (human- caused) while estimated 4.1 billion metric tons are added annually to the atmosphere. ƒ IPCC estimates as a result of anthropogenic CO2, the Earth’s climate has warmed +0.6 to +0.9 degrees Celsius IPCC Global Carbon Cycle (Billion Metric Tons) over the past century.

ƒ Figure 9: CO2 Decay Rates Impact Cumulate Greenhouse Gas Effect - According to graph courtesy of Dr. James Hansen at NASA GISS, 33% of CO2 from vehicle exhaust will still be in the air in 2108 and 20% will still be in the air in 3000, nearly 1,000 years later. ƒ 20% increase of U.S. CO2 from fossil fuels since 1990 ƒ Each average U.S. household with 2 mid-sized sedans emits over 10 tons CO2 Added to Atmosphere from Automobiles CO2 annually.

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THE PROBLEM: “We’re borrowing money from China to buy oil from the Persian Gulf to burn it in ways that destroys the planet. Every bit of that’s got to change” -Al Gore, July 2008

Figure 10: Levels of Atmospheric CO2 are higher today than at anytime in past 650,000 years

“If humanity wishes to preserve a planet similar to that on which civilization developed and to which life on Earth is adapted, paleoclimate evidence and ongoing climate change suggest that CO2 will need to be reduced from its current 385 ppm to at most 350 ppm. If the present overshoot of this target CO2 is not brief, there is a possibility of seeding irreversible catastrophic effects . . . the present global mean CO2, 385 ppm is already in the dangerous zone. Despite rapid current CO2 growth, ~2 ppm/year, it is conceivable to lower CO2 this century to less than the current amount, but only via prompt policy changes. Stabilizing atmospheric CO2 and climate requires net CO2 emissions approach zero. Continued growth of greenhouse gas emissions, for just another decade, practically eliminates the possibility of near-term return of atmospheric composition beneath the tipping level for catastrophic effects. “ -Dr. James Hansen “Target Atmospheric CO2: Where Should Humanity Aim?” 2008

Figure 11: Global Mean Land & Sea Temperature Has Risen to +0.4-0.6◦ C

• The time series shows the combined global land and marine surface mean temperature record from 1850- 2007. The year 2007 was eighth warmest since thermometers first recorded weather data in 1659, exceeded only by 1998, 2005, 2003, 2002, 2004, 2006 and 2001. According to an IPCC study, the rate of

global warming has increased to 0.17 +/- 0.05◦ C per decade, a rate of change exceeding any 100-year rate of warming in the past 1,000 years.

• According to research conducted by Dr. James Hansen NASA GISS, the difference between global mean temperature at the peaks of Holocene (last 10,000 years) and Eemian (Ice Age) interglacial

periods were only 0.5 and 1.5◦ C warmer than in 1950 and the Earth has already warmed 0.5◦ C in the past 50 years. In his opinion, an additional +1.0 to 1.5◦C is sufficient global warming to remove large portions of Arctic and Antarctic ice sheets with devastating environmental and economic impact.

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THE PROBLEM: “We’re borrowing money from China to buy oil from the Persian Gulf to burn it in ways that destroys the planet. Every bit of that’s got to change” -Al Gore, July 2008

Figure 12: 1993-2008 Rising Sea Level Rate Has Accelerated +70% Over 1880-1990 Change

According to IPCC, the last Ice Age melted at >14,000 km3 /year, about 1 meter of sea level rise every year, which was maintained for several centuries. Sea level during the Eemian period is estimated to be 20 feet

higher than it is today. Global warming already “in the pipeline” will add another +0.5◦ C to take Earth halfway to the global temperature at the peak of the Eemian period which led to melting of the Ice Age. More damaging than CO2, there is an estimated 400 billion tons of methane trapped in permafrost ice.

“The clock is running out on irreversible climate change” – Dr. James Hansen, NASA 2008

According to the European Environmental Agency, the mean ocean temperature

of the Baltic and North Seas have increased +0.5◦ C since 1980. This has resulted in a 40% decrease in ice thickness and a 20% loss in the surface area of the polar cap. The EEA forecasts that Europe will be free of glaciers by 2050 and the Arctic Ocean will be ice-free by 2100. In 2004, the last polar research unit, North Pole-32, was evacuated by helicopter due to the sudden collapse of the underlying ice 1979 floe. North Pole-1 first began its mission in 1932. 2003

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THE SOLUTION: “We’re borrowing money from China to buy oil from the Persian Gulf to burn it in ways that destroys the planet. Every bit of that’s got to change” - Al Gore, July 2008

CHANGE = GREEN CARS

“When we have a Green Economy, it will be the best economy we’ve ever had.” -T. Boone Pickens, CNN Interview, November 2008

"(Green Cars) is a technology that can really be a game-changer if we’re serious about reducing emissions of carbon dioxide . . . as worldwide discussions relating to global climate change continue, the technologies being developed by BYD will be an integral part of that future." -David Sokol, Berkshire Hathaway, September 2008

Would You Buy This Car?

BYD E6 Electric Car Introduced at Beijing International Auto Show 2008

• 5 Passenger MPV built on BYD F6 Platform • European introduction 2010 with <23,000 € selling price • U.S. introduction 2011-2012 with <$30,000 selling price • Zero Emissions • Cost Per Mile: $0.025 • 0-100 km: 9.2 seconds • Top Speed: 100 mph • Battery Life: 373,000 miles / 2,000 cycles lifetime range • Charging Time: 80% SOC in 15 minutes with optional fast-charge system

Warren Buffett did . . .

“(I made an investment) in a company called BYD and they develop a really good electric car, I hope.”

“We’re looking for Saint Bernards, not Chihuahuas” -Warren Buffett

On 9/27/2008, Berkshire Hathaway bought 225 million shares for $231.6 million representing 10% of BYD; David Sokol joins BYD Board of Directors. Given Berkshire Hathaway’s hurdle rate and track record, this should make investors think seriously about Green Cars. It made us do so . . .

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MDB Green Car Select Index

The MDB Green Car Select Index is a price-weighted index of publicly-traded companies whose primary business is in the Green Car industry and whose share price is trading above $1.00. Real-time pricing for MDB Green Car Select Index is maintained by Bloomberg Finance L.P. and the initial 8 constituents are:

BYD Auto 1211 HK Advanced Battery ABAT Ener1 HEV Enova ENA UQM UQM SatCon SATC Altair Nano ALTI China Ritar CRTP

11/09/07 – 11/07/08

One Year Comparative Performance of MDB Green Car Select Index(-37.42%) vs. S&P 500 (SPX: -34.53%) and WilderHill New Energy Global Innovation Index (NEX: -59.03%). -289 bps behind SPX

9/26/08 – 11/07/08

Comparative Performance of MDB Green Car Select Index(-1.55%) vs. S&P 500 (SPX: -23.01%) and WilderHill New Energy Global Innovation Index (NEX: -40.82%) since Warren Buffett’s 10 % investment in BYD for $230 million 9/26/08. +2147 bps ahead SPX

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3. The Green Car Market Opportunity

It took 100 years to put the first 800 million vehicles on the road worldwide; yet industry analysts believe it will take less than 30 years to double that number. The environmental and economic impact from the growth of new cars and trucks on the road will be enormous. Due to the confluence of environmental and economic factors, the world currently stands on the verge of a major shift to hybrid and electric vehicles using with more efficient drive trains that are estimated to significantly reduce both the utilization of fossil fuels and negative impact on the environment from burning these fuels. To most reasoned analysis, Green Cars in numerous varieties will play an integral role in providing personal mobility to the global economy.

The accelerating shift towards clean vehicles technology is being fueled through government mandated programs to help the environment and from a bottom up demand from consumers who feel motivated to be more “green”, but who also want a cheaper cost of ownership than is currently available with a convention gasoline powered automobile. The growth in the global market for “green cars” has been dramatic. Automakers have launched approximately 25 models between 1997 and 2007 with a compounded annual sales growth rate of almost 70% during the last five years. For the future industry analysts are predicting a continued increase in sales volumes. According JD Powers, by 2012, it is estimated that 10% of all new vehicle sales will be alternative vehicles and research from AllianceBernstein suggests that by 2015 50% of new vehicles sold will be green/clean technology cars. If these estimates are at all close, the sales of new alternative energy vehicles could exceed 10 million in the U.S. market alone.

Market Size The alternative power or clean tech vehicle market in the U.S. encompasses a variety of vehicle segments and includes everything from electric mopeds to city busses and from $100,000 high- performance, all electric sports cars to sub $10,000 neighborhood electric vehicles (NEVs) with top speeds of 25 miles per hour. As mentioned above the whole category of clean tech vehicles is growing rapidly. This market is also evolving and expanding in order to meet consumer preferences. For example GM, in an attempt to crave out a leadership roll in the expanding niche for low-speed NEVs is introducing the Peapod (pictured at left) in 2009. This vehicle is all electric with a top speed of 25 mph and a range of 30 miles per charge. This is a zero emission vehicle and is likely to retail for about $10,000. Though this car will appeal to a small segment of the overall market, it is likely to be popular in retirement and resort communities and as part of fleet systems.

At the upper end of the performance spectrum, U.S. consumers are already very familiar with the “Hybrid” car. The Toyota Prius hit the American auto market in 1997 and last year (2007) total hybrid vehicle sales we about 350,000, with the Prius accounting for roughly half of the market. Estimates from JD Power (April 2008) project that the sales of hybrid and diesel cars will more than triple by 2015. Hybrids comprised 2.2% of market in 2007 and are estimated to make up 7% of the total market by 2015. These statistics could go even higher if car manufactures are able to advance the technologies needed to improve performance and lower the costs of electrical and hybrid vehicles. The “Holy Grail” so to speak for the auto industry, is to develop vehicles that will perform like an internal combustion vehicle (speed and distance) and deliver that vehicle with a cost of ownership that is on par with today’s conventional light duty cars and trucks. The demand exists and during the next several years, leadership in hybrid and electric vehicles market segment will equate to nothing short of leadership of the automotive industry. As pictured above, even though hybrid sales have been decline month to month due to the economy, sales are still much higher that in earlier years and this trend is likely to increase with better technologies and an improve economy in the years ahead.

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With the sales potential for just hybrid vehicles conservatively estimated at 1.5 million (see chart), the total market opportunity for manufactures of alternative power/green tech vehicles in the U.S. by 2012 is huge. As detailed in the table below, with an estimated average sales price for hybrid vehicles in the mid $30,000 range, the total market for these vehicles by 2012 could approach $52.5 billion ($35,000 X 1,500,000 cars). Every one per cent penetration made by hybrid cars into the total market in the United States is equal to $5.2 billion.

US New Car Sales Suggested Retail Price Green Car U. S. Green Car Penetration Market Size 5% $26.2 Billion 15 Million Units $35,000 10% $52.5 Billion 15% $78.7 Billion

Industry analysts currently believe that roughly one half the cost of an electric vehicle or hybrid lies in the cost of the drivetrain, with about 80% of this cost incorporated in the battery pack and battery management system. The remaining components include the motor, controllers, software, and some other associated electronics. Doing the math provides a

14 MDB Capital Group The Green Car Report November 10, 2008 ______market opportunity exceeding $25 billion for the component manufactures alone. These numbers could easily double if we were to include potential sales volumes for vehicles in the rest of world outside the United States.

Market Trends J.D. Power, and Polk Automotive, surveys show that the customer satisfaction rates among buyers of hybrid vehicles are 80 to 90 percent and that sales in this segment of the car market are now moving past just the market early-adopter types. We believe this trend will accelerate as price and performance improve. The main draw back right now to higher demand for alternative vehicles is the higher cost of a hybrid. The chart at the right details the dollar difference that consumers must pay to own a hybrid in today’s market. The primary driver behind this differential is the current high cost of quality, high- performance battery packs. Most current hybrid models use nickel-metal hydride batteries, but the auto industry appears to be quickly moving to lithium- ion battery chemistries in hopes of providing the necessary performance in terms of speed and travel distances at a more affordable prices. We believe a large part of lowering the price of the battery packs will come with volume production (millions of units instead of tens of thousands). Developing and manufacturing a low-cost, high performance and long life battery pack for EVs and HEVs is the focus of battery companies and consortiums around the world. The success of this effort will be the major factor in the affordability of clean tech vehicles for the near and intermediate term.

These same factors are influencing vehicles that are all electric to an even greater degree, because the battery is the only power source for the car. Thus the performance of the vehicle in terms of speed, power and driving distance rest solely on the battery pack and generally requires a larger and more powerful battery, especially for those cars designed for highway speeds. The price of the battery pack becomes an even larger issue for manufactures and consumers. To some degree, the price of all electric cars is being subsidized with government rebate programs and tax credits. These programs are particularly attractive for fleet buyers. The Electric Drive Transportation Association estimated (see chart at left) that 70,000 electric vehicles were on the road in the U.S. in 2007. In 2004, that estimate was 49,000. Today there are over 100,000 NEV’s on U.S. streets. This number has the potential for much faster growth if and when battery and drivetrain prices come down.

There is no question that the demand for more environmentally friendly and lower cost vehicles is real and growing. The huge spike in gas prices this past summer just added to the growing realization among consumers and governments that gasoline powered internal combustion vehicles are not a viable longer term solution to the personal transportation needs here or around the world. The demand is here and now, the market is here and now and the consumer is just waiting for technology to catch up. For those that are able to meet the challenge, the revenue potentials are nearly open ended.

15 MDB Capital Group The Green Car Report November 10, 2008 ______

4. Green Car Market Drivers

For individuals around the world (particularly those in developed nations) with concerns about green house emissions, environmentally friendlier transportation options such as the Toyota Prius have been a welcome choice in the first years of the new century. More recently, the availability of such models coupled with high oil prices has led auto manufacturers to refocus their efforts to offer mass-market alternatives that incorporate greater fuel economy and lower emissions. We believe the primary drivers fueling the ongoing growth in demand for electric and hybrid vehicles can be classified into four major areas – economic, environmental, government and social – which we have detailed below.

Economic High oil prices (above $140 per barrel in July 2008 and still above $60 per barrel) pushed gasoline in the U.S. from the $2.00 level in the past several years to record prices that approached $5.00 per gallon in mid 2008. Filling a 20 gallon tank suddenly cost nearly $100.00 and quickly began changing driver attitudes and vehicle preferences as a matter of economic necessity for both consumers and the auto industry. A recent RBC survey concluded that 90% of Americans have made changes in their daily lives to counter higher energy prices. The major change has been to simply drive fewer miles. According to Federal Highway Administration (FHA) data, Americans drove 9.6 billion fewer vehicles miles in May 2008 than in May 2007 – the third largest drop in the 66 years of the recorded data. The chart below is from the FHA and shows the actual 2008 decline of daily travel on U.S. urban highways by month. In addition, 82% of survey respondents said they would consider buying a hybrid when purchasing their next vehicle. In fact, gasoline powered vehicles accounted for 88.5 percent of vehicle sales in 2007 - down from 92.2 percent in 2005; and sales of hybrids increased from 1.4 to 2.6 percent. It is clear that fuel economy has become a major concern and that consumers are responding to new and different automobile choices, including the attractiveness of hybrid and electric cars.

For the future, the new Corporate Average Fuel Economy standards require automakers to boost gas mileage to 35 MPG for passenger cars by the year 2020. At this rate, a vehicle running at 35 MPG will cost on average $1,318 less to fuel each year than the car that burns gas at a rate of 20 MPG (assuming 15,000 miles of driving annually and a fuel cost of $4.10). Over a period of 5 years, the 35 MPG vehicle will save $6,590. The October drop in gas prices to around $3.15 per gallon amounts to more modest savings of $1,012 per year and $5,060 for five years. Alternative energy or “green” cars perform even better. Hybrid vehicles reduce gasoline use by about 20-50% (the 2007 Nissan Altima and Toyota Camry are rated at 39 MPG, the Honda Civic at 50 MPG and the Toyota Prius is rated at 55 MPG). Electric cars are about 80% energy efficient (compared to 20-40% for conventional internal combustion engine cars) and are even more fuel efficient than the current hybrid vehicles (on a miles-per-gallon equivalent) with an average of about 125 MPG. These electric vehicles cost between 1 to 4 cents in electricity per mile to operate. Even with the required refueling infrastructure (the electric grid) which is already largely in place, electric vehicles are much less expensive on a per mile basis.

Another economic driver is GDP growth and the creation of jobs. A study conducted by David Roland-Holst at the University of California at Berkeley shows that California's energy-efficiency programs have created 1.5 million jobs since the 1970s, increased payrolls by $45 billion, and yielded $56 billion in energy savings, and that the state's new mandates to curb greenhouse gases and further efficiency measures are expected to add 400,000 green jobs by 2020. The U.S government is already active in trying to promote alternative technologies for the transportation sector. Back is 2002 the DOE launched the Freedom Car and Vehicle Technologies Program with the long term goal to develop "leap frog" technologies that will provide Americans with greater freedom of mobility, increased energy security, lower cost

16 MDB Capital Group The Green Car Report November 10, 2008 ______solutions, and reducing the impact on the environment. The DOE has been active in providing industry with grants under this Program. The issue has also been a focal point of the Presidential election with both Barack Obama and John McCain promising to invest in green jobs as a potential problem solver for the economy.

Environment The U.S. consumes an estimated 21 million barrels of oil every day and roughly 40 percent of this oil is used in passenger cars. Autos on the highway are major contributors to air pollution and climate related problems as transportation generates nearly 30% of carbon dioxide emissions released into the atmosphere. Personal autos are responsible for about 20%. When burned, a gallon of gasoline produces 20 pounds of carbon dioxide contributing a large portion of the 6 billion metric tons of carbon dioxide generated per year in the U.S. The image at the left from the Energy Information Administration (EIA) shows that petroleum consumption has been the largest contributor to CO2 emissions in the U.S.

Excessive levels of carbon dioxide in the atmosphere are thought to cause global warming. Reducing harmful emissions of CO2 and CO would result in a significant reduction in air pollution and could lower the related health risks. Air pollution contributes to human respiratory problems associated with cancer, asthma and emphysema. Carbon monoxide prevents the blood stream's ability to carry oxygen to the brain, the heart, and throughout the body. In addition, air pollution emissions are washed out of the air by rain and into ground water and other water systems contributing to water pollution and compromising the health of plants and animals. Reducing pollution and preventing further damage to the atmosphere are two key environmental goals in which cars could play a major role with the increasing use of green technologies in the auto industry.

While technologies such as catalytic converters have helped reduce vehicle emissions of carbon monoxide and other harmful pollutants, statistics show that the growing number of new vehicles on the road has only allowed a marginal improvement in air quality. The image at the right from the EIA shows that transportation is still the largest CO2 emitter among end- user sectors even though emissions growth has flattened. Green cars use less gas and produce cleaner and fewer emissions. Electric cars running on electricity that has been obtained from solar, wind or water sources produce no emissions at all. Converting energy to electrical power, such as in hydrogen fuel cells, is also a cleaner option. The switch from a conventional car to a green car can reduce the number of greenhouse gases emitted by several tons.

Conserving non-renewable resources is another important environmental driver. Many scientists believe we have reached “peak oil” and there is some debate as to how long this resource will last. Using fossil fuels more efficiently, such as in hybrids, buys time to develop new and better energy sources. As more and more consumers go green, manufacturers will be more inclined to invest in these alternatives and improve technology, which will ultimately make choosing a green car a more likely reality.

Government In recent years, there has been a growing awareness that U.S. dependence on foreign oil is a national security issue. To this effect, President George W. Bush established the Advanced Energy Initiative (AEI) in 2006. As stated in the President’s 2006 State of the Union Address, the “reduction of dependence on foreign sources of oil” could be largely eliminated by accelerating the deployment of efficient hybrid and clean diesel vehicles in the near term; developing domestic renewable alternatives to gasoline and diesel fuels in the mid-term; and investing in advanced battery and hydrogen fuel-cell technologies. Today, new programs in the office of Energy Efficiency and Renewable Energy

17 MDB Capital Group The Green Car Report November 10, 2008 ______

(EERE1) have been put in place to meet the goal of using less imported oil and creating clean and affordable energy. Below are some of the current efforts that are included in the FY 2009 Budget of the U.S government, including the Department of Energy (source: http://www.whitehouse.gov/omb/):

ƒ Hydrogen Technology (2008 est. $211 million / 2009 est. $146 million): This program goal is to develop hydrogen production, storage, and delivery systems and fuel cell technologies that are more energy efficient, cleaner, safer, and have a lower cost than current energy alternatives. ƒ Biomass and biorefinery systems R&D (2008 est. $208 million / 2009 est. 225 million): This program funds research, development, and technology validation on advanced technologies that could enable future biorefineries to sustainably and economically convert cellulosic biomass to an affordable fuel. ƒ Solar energy ((2008 est. $168 million / 2009 est. 156 million): Through the Solar America Initiative (SAI),2 the program – part of President’s AEI - will help accelerate the market competitiveness of photovoltaic (PV) systems using several industry-led consortia which are focused on lowering the cost of solar energy through manufacturing and efficiency improvements. ƒ Vehicle technologies (2008 est. $223 million / 2009 est. 221 million): This program supports the FreedomCAR and Fuel Partnership and the 21st Century Truck Partnership with industry participants. Program activities encompass research on a variety of technologies to advance hybrid, plug-in hybrid, and fuel cell vehicles. This research includes lightweight materials, electronic power control and electric drive motors, and advanced energy storage devices. This program also supports research to improve the efficiency of advanced combustion engines, using fuels with formulations incorporating non-petroleum based components.

On October 3, 2008 President Bush signed the Emergency Economic Stabilization Act of 2008 (Public Law 110-343) commonly referred to as the $700 billion bailout bill which includes tax credits for U.S. buyers of electric vehicles and plug-in hybrids. Total funding for the credits is $1 billion, and will expire in 2014. The legislation provides tax credits of $2,500 plus $417 for each kilowatt-hour (kWh) of battery capacity over 4 kilowatt-hours, up to $7,500 for cars under 10,000 pounds, and up to $15,000 for larger trucks and heavy equipment. Tax credits will be applied to the first 250,000 qualified plug-in cars sold in the U.S. and will phase out after December 31, 2008 down to 50% for the next six months and 25% for another half year after that. To be eligible, vehicles must comply with the Clean Air Act, meaning that private converters would have to certify their vehicles under the Environmental Protection Agency’s emissions testing cycles. The bill also extends current tax credits for development of cellulosic ethanol and biodiesel; wind, solar and hydroelectric power; and heavy-truck idling reduction equipment.

Social The challenges that have arisen in the U.S. related to the transportation sector, including rising fuel costs, escalating dependence on foreign oil, increased greenhouse gas emissions along with other air pollutants and a decreasingly competitive domestic automobile industry, are driving automobile manufacturers to improve vehicle designs to be less harmful to the environment. This effort has resulted in better performing internal combustion engines, better fuels and better designs for electric vehicles. James Hansen, Director of NASA’s Goddard Institute for Space Studies, said “Vehicle emissions are the greatest challenge that we must overcome to stabilize climate. The plug-in hybrid approach seems to be our best bet for controlling vehicle CO2 emissions in the near-term.”

Currently, plug-in vehicles are gaining a lot of attention from consumers and energy experts because electricity is 50- 70% less expensive than the equivalent cost of a gallon of gasoline and provides twice the fuel economy of a conventional hybrid. Plug-in hybrids use larger battery packs that can be recharged by connecting to common household electric outlets. PHEV use affordable, clean domestic electricity for short trips and daily commutes, displacing or eliminating oil consumption and greenhouse gas emissions. Scientists at the Pacific Northwest National Laboratory estimate that PHEVs have the technical potential to displace 6.5 million barrels of oil per day, which is about 52% of the U.S.'s oil imports.

1 In 2008, Congress created four separate accounts to replace Energy Supply and Conservation: Energy Efficiency and Renewable Energy, Electricity Delivery and Energy Reliability, Nuclear Energy, and Legacy Management. 2 The mission of the SAI is to help lower the cost of solar electricity so that it is cost-competitive across all U.S. market sectors by 2015. The SAI also brings significant environmental gains and reduced water consumption by avoiding fossil fuel, nuclear, and natural gas generation.

18 MDB Capital Group The Green Car Report November 10, 2008 ______

Figures from the annual AutoTECHCAST3 Europe study conducted by Harris Interactive show that people are open to the new approach of adding energy to their vehicles with plug-in hybrid technology. The convenience of plugging in a vehicle every night instead of filling it up at the gas station every week is very appealing to potential plug-in hybrid consumers. 72% of respondents in Europe and 84% of respondents in the U.S. preferred the plug-in option. Another study by Harris Interactive found that the vast majority of U.S adults (94%) believe it is important to reduce the energy consumption from automobile use (see chart below). Respondents to this poll consider encouraging the development and use of alternative fuels and increasing fuel efficiency standards on all vehicles to be the top strategies for reducing vehicle energy consumption in the U.S.

Plug-in hybrid cars represent the potential for a major leap in fuel savings from that of conventional combustion vehicles and are thought to be a near-term solution for today’s issues surrounding energy consumption and the environment. According to the Electric Power Research Institute (EPRI) and the Natural Resources Defense Council (NRDC) PHEVs could reduce GHG emissions from vehicles by more than 450 million metric tons annually – equivalent to removing 82.5 million passenger cars from the road – and reduce gasoline consumption by 3-4 million barrels per day in 2050.

• According to industry leaders polled in IBM Automotive 2020 Study, sustainability concerns will move to #2 from #6. • Micro hybrids with stop-start capability and regenerative braking hold the potential to make sizeable contributions to carbon emission reduction and lower fossil fuel consumption. Current projections include estimates of up to 10 percent reduction in carbon emissions and fuel savings of up to 13 percent under certain driving conditions. • Mild hybrids, designed to provide extra power as needed but incapable of propelling the vehicle alone, are gaining attention, with several OEMs announcing agreements to collaborate and develop this technology. • Full hybrids, not unlike vehicles available today (powered exclusively by the electric motor under certain operating conditions) will continue to see increasing adoption.

3 The 2008 AutoTECHCAST Europe study was conducted online within the United Kingdom, France, Italy, Germany and Spain by Harris Interactive between 12 May and 30 June 2008 among 19,933 European adults aged 18 and over. The US AutoTECHCAST study was conducted online within the United States by Harris Interactive between 28 December 2007 and 14 January 2008 among 12,891 US adults ages 18 and over.

19 MDB Capital Group The Green Car Report November 10, 2008 ______

5. Green Car Ecosystem

The electric vehicle ecosystem is composed of OEMs, the supply chain for the various parts, the distribution channels through to the consumer, and the electric grid/infrastructure required to power the coming generation of EVs and HEVs. The appropriate development and interaction of these components are needed to allow for the electric vehicle industry to meet the world’s transportation and environment needs in the coming decades.

OEMs In the emerging electric vehicle industry, there are numerous companies in the U.S. and internationally engaged in the development and manufacturing of electric and hybrid vehicles, batteries and related components. As demand for electric vehicles increases, the number of OEMs is anticipated to climb and then eventually consolidate into fewer, but larger enterprises. The other major trend associated with OEMs is the ongoing drive to seek sources for components from lower cost suppliers. At times cost savings can be found by employing international manufacturers and often lower costs require technology advances. The expected rising demand for transportation worldwide and the need for better technology are likely to continue giving rise to additional players in the industry and providing ever changing market dynamics. OEMs can be largely classified as those companies manufacturing the complete electric vehicle and those that supply the primary components such as batteries and motors. For the purposes of this report we will break down the OEMs into three parts; vehicle manufactures, battery suppliers, and other components suppliers.

Main electric and hybrid vehicle manufacturers are the large traditional automotive companies such as Toyota, GM, Ford, Daimler, Chrysler, Honda, Nissan, and Mitsubishi. Toyota has the distinction of delivering the world's first commercially mass-produced hybrid car, the Prius, in Japan in 1997. This car has sold more than all other hybrids combined. According to Toyota Motors, worldwide cumulative sales of the Toyota Prius passed the 1 million mark as of the end of April 2008. Honda has also been a pioneer and active player in this market. In 1999 Honda released its first hybrid vehicle available in the U.S., the Honda Insight. Honda later introduced the Honda Civic Hybrid in 2003 and the Honda Accord Hybrid a year later. In addition, Honda plans to soon release a sporty hybrid car, the Honda CR- Z and most importantly, a new Honda Insight model which is expected to pose greater competition to Toyota’s Prius. In 2004, Ford introduced the first hybrid SUV, the Ford Escape Hybrid, and a year later introduced the Mercury Mariner, a compact luxury SUV that is produced by Ford’s Mercury. Ford plans to introduce hybrid versions of half of its models by 2010. Nissan’s first hybrid car was the Altima Hybrid Electric released in 2007 and built using Toyota’s hybrid technology. The company expects to launch an originally own hybrid model in 2010. General Motors has models of hybrid vehicles in the market but its much anticipated vehicle is the Chevrolet Volt, a plug-in electric vehicle that is expected to roll out sometime in 2010. Smaller firms such as Tesla, Phoenix Motorcars and Quantum Technologies have also developed or are developing their own versions of electric vehicles. In fact there are numerous examples of both larger and small auto manufacturers that are building and testing what they believe to be more efficient electric and hybrid vehicles. Many of these companies have set released dates for these new vehicles for late 2009 and 2010.

Battery suppliers are also an essential element of the green car ecosystem. Many of the battery manufacturers have partnerships or joint ventures with large automobile companies, government agencies, academic institutions or another battery firm in an effort to leverage the required capital and technological expertise in the development of a better, next-generation HEV/EV battery. Johnson Controls for example, has formed a joint venture with French battery producer Saft to combine efforts in the manufacture of batteries for current and future hybrid and electric vehicle models. Altair Nanotechnologies, has developed a nano-structured Li-ion battery that is slated to be used by Phoenix Motorcars in demonstration electric vehicles. A123, a supplier of Li-Ion batteries, is co-developing a Li-ion battery cell with GM for the Chevrolet Volt. In addition, Johnson Controls-Saft, A123 and Ener1 each have a Li-Ion battery development project with the United States Advanced Battery Consortium (USABC). Furthermore, a great deal of the

20 MDB Capital Group The Green Car Report November 10, 2008 ______electric and hybrid battery development effort is ongoing at a growing number of battery manufactures in both China and Korea, making the battery industry increasingly diverse and competitive. Since the properties and performance of the Li-ion battery directly depend on the active materials used to build its components (cathode, anode and electrolyte), battery suppliers everywhere are experimenting with new materials with the object to obtain the better battery characteristics. For example, commonly used graphite for the anode is being replaced by nano-sized titanate materials by Altair Nanotechnologies whereas EnerDel replaces the graphite with Lithium Titanate Oxide (LTO) and uses the lithium manganese spinel (LTO) for the cathode. As such, the battery industry is currently a fairly wide open field for materials’ testing in an effort to develop the highest performing battery chemistry.

The third group of OEMs includes those companies supplying the other key components needed in the powertrain of an EV or HEV. Such companies supply the materials inside a battery, drive systems, electric motors and related components such as inverters and control systems software. China Sun Group High Tech is a Chinese producer of lithium cobalt oxide, the most widely used material in Li-Ion battery’s anode. Similar companies exist throughout China, Japan and Korea. Quantum Fuel Systems and Enova Systems offer electric drive systems, battery management systems and other applications that integrate electric vehicles. UQM Technologies has developed and manufactures a high end brushless electric motor, generators and electronic controllers for advanced technology cars and trucks. Larger and better known companies such as Bosch Corporation and Siemens AG currently provide a wide range of automobile components, representing a high level of competition to smaller companies.

The part played by the myriad of large and small OEMs is key to the ultimate success and development of a green car ecosystem. These companies are the likely source for components and technologies that will support the transformation of HEVs and EVs into affordable, mainstream vehicles around the world. As technologies prove successful and companies deliver better performing products on a commercial scale, the outlook for OEMs is quite positive especially as the total market expands and industry consolidation takes its natural course.

Supply Chain: Batteries, Electric Motors, Components The dedicated supply chain for the electric vehicle industry includes primarily; batteries, electric motors, power electronics (inverters, controllers, etc.,) and the associated management systems (software). These components make up the significant internal workings of a finished product or “green” car to customers.

Batteries The battery is one of the most important components of the supply chain as this is the part of the vehicle that provides the power for movement and determines the distance EVs can reach on a single charge. The energy in the battery combined with the discharge rate will also determine the speed an EV will be able to attain. Different chemistries such as Lead-acid, Nickel-metal hydride (NiMH) and Lithium Ion (Li-ion) have been/are being used in vehicles today. Each of these technologies feature different power and speed performance ranges, recharge rates, life cycles, costs and safety factors.

For EV applications, batteries are required to have an appropriate balance between energy and power. To understand the relationship of energy and power in a battery, consider the analogy of an internal combustion automobile. In an electric car, the energy stored in the battery represents the gas tank; the larger it is, the longer distance the car is able to travel on a single tank of gas. The car’s engine is analogous to the power delivered by the battery, the larger it is, the faster the car can accelerate and the faster it will be able to move on the road.

In internal combustion automobiles the lead-acid batteries are commonly used to start the care as they have a high specific power (power-to-weight ratio), meaning that relatively small size/weight battery is able to provide high power pulses (i.e. engine starting). However, a lead-acid battery’s specific energy (energy-to- weight ratio) is very limited at about 15-35 Wh/Kg. With this type of energy levels lead-acid batteries are only able to power an EV for distances up to 50-70 miles on a single charge. Since in many markets a 50 mile, single-charge range is perfectly adequate, many electric vehicles

21 MDB Capital Group The Green Car Report November 10, 2008 ______produced and sold today use a series of lead-acid cells to power the vehicle. Other drawbacks of lead-acid batteries include poor cycle life (300-350 recharge cycles), slow charging rates (4-10 hours) and weak safety features.

For more performance oriented EVs and HEV such as the Toyota Prius auto manufactures have installed NiMH technology. The typical NiMH battery is able to deliver specific energies in the range of 60-70 Wh/Kg, which works well for a driving range of 100 to 120 miles on a single charge. NiMH batteries also feature excellent safety, longer cycle life (up to 1,000 recharge cycles) and higher specific power (600 W/Kg compared to 200 W/Kg in lead acid batteries). The major drawback with NiMH chemistries is that the battery packs are relatively expensive. Several research studies suggest that the cost of NiMH is around $300-700 per kWh, while lead-acid is down around the $150- 200 per kWh level.

Today’s research and development efforts are primarily centered on Li-Ion battery chemistries. The next generation of announced production vehicles by the leading EV and HEV manufacturers is generally slated to use lithium-ion cells. The advantage of lithium-ion systems is in the higher specific energy and power compared to NiMH. This advantage comes in large part due to the lighter weight of lithium cells. Specific energies for Li-ion cells can approach 200 Wh/Kg which is high enough for 250 to 300 miles of driving on a single full-electric charge. The graph above depicts the classic representation of power vs. energy for the different cell chemistries. Li-ion batteries deliver the greatest amount of energy for EV applications. Li-Ion cells exhibit voltages of about 3.6 volts (V) compared to about 1.2V for NiMH, and 2.0V for lead-acid cells. Furthermore, Li-Ion is cheaper and more abundant than NiHM, with a price of about $180-220 kWh. Lithium-ion cells are also able to be formed to almost any shape, allowing for less physical design limitations. Li-ion technology has in the past been hampered by problems with safety, recharge time, power delivery, and extreme temperature performance. Recent advances with this type of chemistry appear to have solved most of the issues and lithium-on seems slated as the wave of the future for EVs, Hybrids and plug-in Hybrids. The following table shows some of the most advanced Li-ion technologies being developed at the present time at different companies’ research labs (some of these companies are covered in this report).

Company Traditional Li-Ion Altairnano A123 Systems LTC (LTHU) (ALTI) Power Density 1000 W/Kg 4000 W/Kg 3000 W/Kg 1500 W/Kg Energy Density 120 Wh/Kg 100 Wh/Kg 130 Wh/Kg 70 Wh/Kg Battery Life 1000 cycles 9000 cycles 7000 cycles 1000 cycles Charge Rate 90 min. 2 min. 5 min. 11 min. Temperature Range 0 °C to 40 °C -35 °C to 75 -7 °C to 60 -30 °C to 60 °C °C °C Safety Regular Excellent Good Good Cell Voltage 3.6 V 3.6 V 3.6 V 3.6 V Source: MDB Capital Group, approximate values.

With any battery system for a vehicle the other important considerations besides the chemistries include: ƒ Manufacturing – each cell in the battery pack must match the other cells so to provide the most optimal performance. ƒ The Battery Management System – without quality software to continually monitor and balance the charge on each cell of the battery pack, the propulsion system will degrade and the performance will not be optimal. BMS are the programming for optimizing charging, discharging and other operating characteristics or application features. ƒ Integration – The battery pack and battery management system must be engineered to match the vehicle to provide real optimal performance. This requires engineering by those familiar with battery chemistry as well as automobile performance.

DC and AC Motors The electric motor converts the electrical energy provided by the battery pack into mechanical energy needed to drive the car. There are different types of electric motors suitable for EV applications. For instance, DC motors are designed to run on a direct current (DC) input voltage and the most common types are “brushed” and “brushless”. Brushed motors employ a commutator which consists of a mechanical rotary switch that periodically reverses the current direction. By reversing the current direction in the moving coil of a motor’s armature, a steady rotating force (torque) is produced. The typical problem with brushed motors is that the contact between brushes and the commutator create friction which in turn causes heat and energy loss. In addition, this friction also produces irregularities or sparks in the commutator

22 MDB Capital Group The Green Car Report November 10, 2008 ______surface and increases maintenance costs. These problems are resolved through the newer brushless DC motor (BLDC) design. Brushless motors replace the commutator/brush-gear assembly by a permanent external magnet in the rotor, a stator, and sensors to detect the position of the rotor. Since there is no commutator, BLDCs tend to be more efficient (85-90% efficiency compared to 75-80%) and more powerful than brushed motors. However, the main disadvantage for EV use is the cost of the large permanent magnets ($50/Kg) required for the rotor and the added expense of a speed controller; therefore in terms of costs, brushed DC motors are a better option for EV developments. Two examples of manufacturers currently producing good brushless motors are UQM and Aveox, while the most popular brands of brushed DC motors for EVs are Advanced DC and NetGain.

AC motors, on the other hand, are driven directly by an alternating current (AC) and consist of two main parts: an external stator with coils supplied by an alternating current to produce a rotating magnetic field and a rotor attached to the output shaft. Three phase AC or induction motors are very common for industrial use because they are highly efficient and reliable. These same advantages apply for EV use, except for the added complication that a variable-speed inverter is required to control the AC motor from a DC power supply (the battery) – inverters are a relatively expensive piece of hardware. Although AC systems currently cost about twice as much as DC systems, most car manufacturers (Toyota, Tesla, ZAP, REVA) are choosing AC systems because they provide higher efficiencies when load requirements or machine size increase. The most popular brands for AC induction motors suitable for EVs are Siemens and Azure Dynamics.

Power Electronics Most of the subsystems in EVs are completely electronic and under direct software control – they are designed as an integrated system, just as computer systems are designed today. The Power Electronics Module (PEM) is another piece in the supply chain, and a very important one. It includes all the electronic components to match and control the characteristics of the battery and the electric motors. The PEM also controls motor torque, battery charging, and regenerative braking, and it monitors things like the voltage delivered by the battery pack, the speed of rotation of the motor, and the temperatures of the motor and power electronics. Usually, the PEMs are designed directly by the car manufacturers according to the design specifications on their cars. The battery companies also develop their own. Based on customer requirements, the. The figure above shows the principal components of EnerDel’s BMS, one of the battery companies covered in this report. Both, PEMs and BMS depend on electronics components such as power capacitors, inductors, controllers, inverters, contactors, and switches, among others, to operate and deliver the control functions required for a safe and efficient EV drive.

Distribution Channel: Dealers, Direct, JV/Partners As seen by the information presented in section 3, the electric car industry is again on the upswing, this time with much better technology and a stronger competitive position. Now, Electric and Hybrid Car Companies (public and private) are employing different types of distribution channels to bring their respective offerings of electric and hybrid cars to the consumer market. The major auto manufactures will continue to use their wide retail dealer channel. However, the smaller/emerging participants are utilizing a number of marketing or distribution strategies. Below are a few examples:

ƒ Tesla – Wanting to have more direct control over the customer's buying experience, Tesla has chosen to bypass independent dealers and market its vehicles through its web site and company-owned dealership/service centers. The belief is that selling and servicing an electric car requires a different skill set and not one that most traditional dealerships will likely possess. These company-owned dealers will provide Tesla with more control, but will also require that the company will have to shoulder the costs and operational issues involved with establishing a chain of dealership. Hiring and training employees, managing real estate, developing IT systems and a distribution network will all require management time and added costs. The Tesla Roadster is now in production and reservations to buy the car are available through the web site. For calendar 2008, Tesla plans to open 5 dealer outlets in Chicago, Northern California, Southern California, New York and Florida.

23 MDB Capital Group The Green Car Report November 10, 2008 ______

ƒ Aptera Motors -- This Company is currently limiting its initial distribution to California residents due to the company’s desire for seamless customer service. Aptera will expand the availability of its cars as it expands the geographic locations of maintenance centers. The company expects production to begin in late 2008 and buyers may reserve a car through the company’s web site. ƒ Phoenix Motorcars: Phoenix Motorcars is also using a direct online distribution strategy. The company will release a consumer version of its zero-emission, freeway-speed, and green vehicle in late 2008. Reservations can be made through its official web site. ƒ REVA: The REVA Electric car was launched in June 2001 in Bangalore, India, and is currently available in 6 cities across the country (dealerships). REVA is currently being exported to UK and Malta. A recent export order of 500 cars from Goingreen, UK, marked the entry of REVA Electric Cars in the global market. The company has recently expanded its European operations, and now, REVA EVs are available in Ireland, Spain, Norway, Belgium, Greece, and Cyprus. Riva’s main objective is to launch one new EV per year starting in 2009 and work through distributors in order to develop sales and post-sales operating models according to each country’s particular needs. ƒ Miles Automotive: Currently, MILES has over 50 authorized car dealers across U.S. territory. Some states that has dealers outlets include Washington, Oregon, California, Colorado, Oklahoma, Illinois, Michigan, Georgia, North Carolina, Pennsylvania, and New Hampshire. MILES low-speed EVs are currently being used in ‘green’ fleets on the campuses of many universities such as Stanford, Yale, UCLA, as well as NASA, the National Park Service, and the Sacramento Municipal Utility District. The company is developing the MILES XS500, a sedan type with a top speed of 80 mph and a driving range of 120 miles on a single charge. In addition, early this year, MILES completed its first international distribution agreement with AllGreenVehicles of the Netherlands, which will be responsible for EU certification of Miles low-speed EVs, as well as establishing sales and service channels in the Benelux countries (Belgium, Luxembourg, and the Netherlands). ƒ Fisker Automotive: In July, Fisker announced that Valmet Automotive, a Finland’s company that builds cars for Porsche AG, will build its high-performance sport model FISKER KARMA – later models are expected to be produced in the U.S. The company plans to sale its first units by the fourth quarter of 2009 and it expects to have 40 U.S. dealers by that time. Fisker is currently accepting on-line preorders for its Fisker four-door plug-in hybrid sports sedan. ƒ ZAP (public, covered in this report): ZAP is utilizing independent dealers as its main distribution strategy. Dealers can receive a new car dealer license by affiliating themselves with ZAP. Currently, the company has 54 sales and service centers across the U.S. Additionally, ZAP owns a fleet of over 100 electric rental cars, the world's largest, and is looking at expanding into other rental locations. Through its official web site, customers can sign-up online for a test drive at regional ZAP dealers.

Infrastructure As efforts to develop fully functional electric and hybrid vehicles are underway, the need for the adequate infrastructure to support these vehicles comes into play. Indeed, for EVs and HEVs to be a viable alternative to today’s automobiles, the proper infrastructure has to be in place and easily accessible to the public. In fact, the type of infrastructure available may be a key determinant of which alternative fuel vehicle will be popular in a given location. The main issue right now is availability of electric recharge facilities for the growing number of electric vehicles along with the related question of the available supply of electrical power. For now, the more immediate concern is that of how and where to recharge a vehicle. A typical recharging facility (home or on the road) might look something like the figure at the right. This type of away-from-home infrastructure is already underway in some countries. Israel was one of the first countries to commit to an all-electric car infrastructure through a partnership with the Renault-Nissan alliance and Better Place, a company engaged in the development of electric vehicles (including plug-in hybrids).

The Better Place model relies on an EV design that allows for the battery to be easily removed and replaced. Better Place’s focus is to create a network of charging stations and battery exchange spots thus eliminating one of the current limitations of electric vehicles, the driving range. At these service stations drivers will be able to swap empty batteries for a fully charged battery in less time than it takes to fill the gas tank today thanks to a fully automated system. The company has designed a subscription based

24 MDB Capital Group The Green Car Report November 10, 2008 ______model in which the consumer can make an initial purchase of an electric vehicle for a subsidized cost in return for signing up for a service contract which will cover the cost of renting the battery, swapping it out, and the electricity for charging it up. According to the company, the car will not cost more than a comparable gasoline car. Better Place has a similar project in Denmark and recently announced a partnership with AGL Energy and the Macquarie Capital Group to build an electric vehicle network in Australia. And in October 2008, Renault announced a partnership with French electric utility EDF to set up electric vehicle charging infrastructure in France by 2011.

The other part of this model is to incorporate fast charging systems in these electronic car service stations that would allow for a complete recharge of the car’s battery in less than 10 minutes. This technology is available from companies such as Ecotality (covered in this report) and AeroVironment, Inc.

As to the question of power availability, it is true that a vast proliferation of EVs and plug-in hybrids would place a significant added demand on the nation’s power grid. Critics claim that we do not have the infrastructure to accommodate this demand and the proponents point out that there are large quantities of available power in off-peak hours to meet the growing demand. In addition, there is (for the first time in three decades) worldwide growth in the construction of new power producing facilities. Nuclear plants are coming on line and new solar and wind farm facilities are also being constructed in record numbers. Since the ramp-up in the ownership of EVs and plug-in hybrids will likely be measured, we anticipate that the power utilities will likely be able to generate the required level of electrical power.

Green Car Infrastructure: Illustration of Smartlet Charging System

25 MDB Capital Group The Green Car Report November 10, 2008 ______

6. Green Car Economic Analysis

Though the idea of owning a more fuel efficient “green car” is appealing to many as a means to help the environment, most individuals will likely give careful consideration to purchase price and potential operating costs before making such a choice. Below is a summary and comparison of the major costs associated with owning a passenger car in the U.S. today.

Cost vs. Internal Combustion According to the National Automobile Dealers Association, the average price of a new car sold in the U.S. is estimated to be around $28,400. In comparison, hybrid-electric vehicles are currently about 20% more expensive than the traditional internal combustion engine vehicle. This cost difference is mostly attributable to the additional electric motor and the nickel-metal hydride battery system which Electric Vehicle Prices by itself can cost around $3,000 to replace. Pure $120,000 electric vehicles on the other $100,000 hand, range from about $80,000 $12,000 for a minute city car $60,000 to about $110,000 for a high $40,000 performance sports car. The average price of seven $20,000 popular EV models that we $0 analyzed rounded to about Phoenix Tesla Fisker Aptera REV A Miles ZAP Xebra $46,000 as seen in the Karma Elec tr ic XS500 following chart. This is roughly 60% higher than the price of an ordinary gasoline vehicle. The most expensive component of an EV is the cost of batteries, which can be around $5,000 to $8,000 (or even more), depending on the type, size and power capacity. We believe that one of the most important elements in the future of EVs will depend on the cost and availability of effective and efficient batteries. As EVs become more and more popular, we expect the prices to decline as production volumes go up and manufacturing costs benefit from economies of scale.

Running Costs & Maintenance The higher retail price tag of EVs versus that of ordinary gasoline vehicles should be compensated or made up for with gasoline savings as well as lower maintenance and running costs. Considering that Americans spend an average of one hour per day in the car and a single family household generates approximately ten vehicle trips per day, it is no surprise that some American households are now spending more than 10% of their house hold income on fuel during 2008. According to the Environmental Protection Agency (EPA), this figure is double to that spent a decade ago. The average fuel economy of a U.S. passenger vehicle is currently 23 miles per gallon (mpg). At the current $2.91 (week of Oct. 21st) price per gallon, this is equivalent to a fuel cost of $0.13 per mile or about $1,500 per year when driving an average of 12,000 miles. Most households have two or more vehicles, which greatly increases the yearly fuel spending. In comparison, a hybrid electric vehicles’ average fuel economy is 46 MPG, which is a large improvement at the equivalent fuel cost of $0.06 per mile or $760 per year.

When measuring the fuel consumption of an EV, we must take into account that the charge/discharge efficiency of an EV is about 81%, while an internal Cost Per Mile combustion engine is only about 20% $0.25 efficient, in addition a $0.20 gallon of gasoline $0.15 contains 33.7 kWh of $0.10 energy. Therefore, an $0.05 internal combustion $0.00 engine getting 30 Toyota Chrysler Volkswagen Honda Civic Chevrolet Toyota Prius Electric MPG will require Corolla Sebring Jetta Diesel Hybrid Malibu Hybrid Vehicle Hybrid (33.7/30)*0.20 = 0.22 kWh per mile. A Gasoline Price battery electric $2 $3 $4 $5 version of the same car with an 81% efficiency and charged at an average cost of $0.10 per kWh (according to the DOE, In June 2008, the average cost per

26 MDB Capital Group The Green Car Report November 10, 2008 ______

kWh was $0.10 for all sectors in the U.S.) would require (0.22/0.81)*0.10 = $0.027 per mile. Currently, the average EV has a fuel cost of $0.02 per mile or $240 per year as seen in the comparative chart. Taking into account that the average price per kWh varies by region, but is generally the price is considered rather stable, unlike petroleum fuels. The chart above illustrates the changes in cost per mile of selected gasoline, diesel and hybrid vehicles at various fuel prices in comparison to pure electric vehicles. This chart assumes Diesel is 19.5% more expensive than gasoline.

AAA estimates that in 2008 the average vehicle owner will spend $8,121 during the year to operate their automobile. These costs include a variety of expenses such as depreciation, fuel, repairs, financing, insurance, parking, tolls, vehicle inspection and registration, washes, and accessories. In general, the maintenance and operating costs of a gasoline- powered vehicle are somewhat dependent on the price of petroleum. As petroleum prices rise, so do the prices of petroleum based products such as oil, lubricants and tires. In addition, the demand for steel has been pushing up the prices of other automotive parts. Electric vehicles on the other hand do not require oil and filter changes, and have fewer moving parts. There are no gearboxes, cooling systems, exhaust components, belts, gaskets, plugs, etc. built into the typical electrical vehicle. For example, the Tesla Roadster’s driveline only has 12 moving parts. This translates into significant savings for EV owners. REVA Electric Car Company estimates that maintenance on its EV’s is around 40% lower than that of normal gasoline-powered cars.

Cost Drivers & Sensitivity Annual Fuel Costs at Current Prices Analysis Although most EV batteries are $1,800 expected to last around 100,000 $1,600 miles, there is a strong likelihood of an EV battery lasting 130,000 – $1,400 150,000 miles. This is comparable $1,200 to the lifecycle of some internal $1,000 combustion engines. As mentioned $800 earlier, we expect that one of the $600 important factors in the future of $400 EV’s will depend on the cost and $200 availability of replacement $0 batteries. The following tables include a review of the pros and Prius Toyota Toyota Corolla Electric Vehicle Hybrid Sebring Malibu cons in the adoption of EV’s along Sebring Ethanol Chrysler Chrysler Clarity Hybrid Chevrolet Jetta TDI Hydrogen

with a gasoline price sensitivity FCX Honda Honda Civic Honda Volkswagen analysis of fuel costs and savings Regular Gas Diesel Hybrid Electric Other Green over a 72 month period. Technology

Pros Cons Greater fuel efficiency Higher acquisition costs Reduced maintenance costs Unknown depreciation and resale values Independence from fossil fuel price fluctuations Costly battery replacement Fewer repairs Source: MDB Capital

Toyota Gasoline Toyota Prius Advantage Advantage Months Miles price Corolla Hybrid Electric over gasoline over hybrid 72 72,000 $2 $4,645 $3,130 $1,440 $3,205 $1,690 72 72,000 $3 $6,968 $4,696 $1,440 $5,528 $3,256 72 72,000 $4 $9,290 $6,261 $1,440 $7,850 $4,821 72 72,000 $5 $11,613 $7,826 $1,440 $10,173 $6,386

27 MDB Capital Group The Green Car Report November 10, 2008 ______

7. Green Car Environmental Impact Analysis

One of the over riding factors fueling the demand for alternative energy powered vehicles is growing concern worldwide, for the environment and the impact that fossil fuel-based vehicles have on air-quality, global warming, and the general health of the earth. These advantage of “clean” or “green” technologies for the environment in the form of greater fuel or energy efficiencies (more miles on lesser amounts of non-renewable fuel sources), lesser amounts of carbon emissions into the atmosphere and a general cleaner/healthier mother earth as we do less damage to the environment. There is also a related economic impact that monies currently being spent on expanding the fossil fuel industries can be re allocated to other more profitable industries.

Energy Efficiency Today, the United States imports approximately 60% of its petroleum, two thirds of which is used to fuel vehicles in the form of gasoline and diesel. With the emerging economies in China and India, the global demand for petroleum imports continues to be in an upward trend. With much of the worldwide petroleum reserves located in politically volatile countries, the available supply in United States is vulnerable to supply disruptions. On the left is an American Petroleum Institute (API) image with data from the DOE that shows the percentage of crude and products imports to the U.S by country. In July 2008 OPEC countries provided more than 31% of the domestic product while Persian Gulf countries supplied almost 13%.

The fuel benefit provided from electrical (EVs) and hybrid electric vehicles (HEVs) is derived from the overall efficiency of a fuel cell verses that of an internal combustion engine (ICE). Industry studies have demonstrated that days standard ICEs used in automobiles are able to turn about 15%-20% energy into useable power to drive the car. In comparison, vehicles running on batteries are able to utilize about 75%-80% of available energy to actually power the vehicle. By today’s standards a good miles-per-gallon (MPH) output for an auto is in the mid to high 20s. Hybrid electric vehicles boast of 40 to 70 miles on one gallon of gasoline and some all electric vehicles, are claiming a MPH equivalent of as mush as 500 miles-per-gallon. A more accurate measure of the fuel advantage that battery power vehicles have above gasoline powered vehicles is measuring the kilowatt hours per mile (kW-h/mi). The average car in the U.S. runs at about 23 mpg of gasoline. This is equivalent to 1.58 kW-h/mi. Today’s hybrids are able to run at about 0.50 kW-h/mi and electrical vehicles are averaging power consumption in the range of .27 kW-h/mi. These figure point out that hybrids are about 3X more fuel efficient than the typical gas powered car on the road today and that all electric vehicles are roughly 5.5X more fuel efficient. Electric vehicles are running at a miles-per-gallon equivalent of about 125 mph. These numbers are likely to improve over time as new battery chemistries are developed with even higher energy production capacities.

Another advantage in fuel consumption and efficiency that EV and HEV have is the ability to create and store the energy generated in braking and then use this stored energy to power the car or recharge the battery. Additionally, in electric vehicles the auxiliary systems (engine cooling, ac, and power steering) can be taken off the engine and controlled with their own individual electric motors which can save another 15% in total power consumption.

Hybrid vehicles make efficient use of both an engine and another source of motive power, such as electricity or pressure. Hybrid vehicles provide substantial advantages in terms of environmental protection, including outstanding fuel economy and a dramatic reduction in CO2 and other exhaust emissions.

CO2 Emissions American cars and light trucks are a huge source of global warming pollution. U.S. autos emit more than 333 million tons of carbon dioxide each year, more than one-fifth of the nation's total carbon dioxide emissions. For a regular vehicle a gallon of gasoline weighs just over 6 pounds. When burned, the carbon in the fossil fuel combines with oxygen and the chemical reaction produces about 19 pounds of CO2. Adding in the energy that went into making and distributing the fuel, the total output is about 25 pounds of CO2 per gallon. An average car that gets 21 mpg and is driven about 30 miles a day uses 1.4 gallons daily and emits 35.7 pounds of CO2 every day. Compared with the rest of

28 MDB Capital Group The Green Car Report November 10, 2008 ______the world, American auto emissions are disproportionately high. With only 5 percent of the world's population and 30 percent of the world's automobiles, the United States contributes about 48 percent of the world's automotive CO2 emissions. In fact, the Global Warming on the Road study by the Environmental Defense found that in 2004 carbon emissions from major automakers surpassed the total CO2 emissions from many major electric power companies in the U.S. (see image left).

Green vehicles are clean-energy vehicles that use energy sources other than gasoline or diesel such as natural gas (CNG), electricity, methanol, hydrogen, or solar energy. These vehicles offer the advantages of reduced emissions of CO2 and other exhaust gases. The importance of the CO2 emissions is the effect this gas has on the ozone layer in the atmosphere and the related effect on the issue of global warming. Though not everyone agrees on the degree of the threat of global warming, we believe everyone would agree that the fewer C02 emissions released into the atmosphere the better the total environment will be.

Implications for the Environment The emissions from vehicles using gasoline and diesel are clearly one cause of air pollution, green house effects, and also have harmful effects on human health. A major solution to the problem lies in the use of alternate fuels like battery power and even the use of cleaner organic fuels such as natural gas and hydrogen to power vehicles. The environmental impact of driving conventional cars as opposed to greener alternatives such as electric cars and hybrid cars is huge. Here are some of the effects of our day-to-day driving: ƒ Global warming – As mentioned above, when a gallon of petrol is burned it combines with oxygen to produce nearly 20 pounds of carbon dioxide (CO2). By moving from a conventional car to a green car, one can literally reduce the number of greenhouse gases emitted by several tons. Plug-in hybrid-electric vehicles offer an added advantage in that these cars can use the electrical grid to cut fossil fuel consumption even further. This advantage is especially prevalent in regions where electricity is generated with low-carbon fuels. In California, electricity is comparatively low-carbon, a plug-in with a 40-mile range could cut carbon dioxide (CO2) emissions about one-third relative to a hybrid. In regions with coal-heavy electricity generation, the plug-in would not reduce CO2 emissions at all. A study on plug-in hybrids by the Oak Ridge National Laboratory demonstrated that if charged at night, off peak, electric vehicles might not put much additional strain on the grid. This is because coal plants cannot be shut down and restarted rapidly, so they generally continue operating at night. ƒ Health effects - Vehicle air pollution contributes to a number of health issues and common diseases. The by products associated with burning fossil fuels (besides CO2) can increase a person's risk of cancer, impair the body's immune system and cause respiratory problems. It is also commonly linked to asthma and is believed to be a contributor to some birth defects. ƒ Other pollutants - Oil and other car fluids contribute to water pollution while noise from car traffic adds to a general reduction in our quality of life and causes stress and high blood pressure. Air and water pollution also effects the environment around us, compromising the growth of plants and harming animals.

From a public health perspective, the benefits of plug-ins are again highly dependent upon the mix of electricity generation. Charging on the grid today, a plug-in would emit 5% to 40% less nitrogen oxides (NOx) than a hybrid, depending on geographic region, but at the same time plugging into the grid could cause an increase in sulfur oxides (SOx) depending on the how the electricity is generated in a particular local. Power plant emissions of mercury also continue to be a concern. According to federal agency projections, full implementation of the Clean Air Interstate and Clean Air Mercury Rules will greatly reduce power plants’ emissions of all three pollutants by 2020. The drive to reduce emissions of all types, use less fossil fuel and be more energy efficient will be an ongoing effort for years to come in the U.S. and around the world. Electric vehicles, hybrids and plug-in hybrids are all viable near term remedies. There are already more than one million hybrid vehicles running on American roads and car manufactures large and small are working to improve the technologies and make these vehicles more affordable and “cleaner”.

29 MDB Capital Group The Green Car Report November 10, 2008 ______

Large Cap Public Companies

BYD (1211 HK: $13.00) Not Rated Daimler AG (DAI: $30.84) Not Rated Ford (F: $1.98) Not Rated General Motors (GM: $4.80) Not Rated Honda (HMC: $22.40) Not Rated Johnson Controls (JCI: $17.06) Not Rated Mitsubishi (7211 JP: 159 ¥) Not Rated Nissan (7201 JP: 455 ¥) Not Rated Toyota (TM: $67.09) Not Rated

30 MDB Capital Group The Green Car Report November 10, 2008 ______

BYD COMPANY OVERVIEW

COMPANY STATISTICS Stock Symbol HKSE:1211.HK Share Price $13.00 Market Capitalization (B) $7.52 2007 Sales (B) $146.4

Established in 1995 with a focus on consumer technology and rapidly developed a high quality lithium ion battery business, BYD Company Limited (BYD) is now a Hong Kong listed high-tech enterprise. BYD has seven production bases in Guangdong, Beijing, Shanghai, and Xi’an with nearly 10 million square meters’ area and branches and offices in America, Europe, Japan, South Korea, India, Taiwan, and Hong Kong.

The company now has two main industrial segments: the IT segment and the auto manufacturing industry. The IT products group includes rechargeable batteries and a variety of related products for the cell phone industry. In 2003, BYD officially entered the auto business by purchasing the Tsinchuan Automobile Company Limited (now BYD Auto Company Limited).

The company is currently manufacturing several models of convention vehicles and is now producing an all electric car, the F3e. BYD also has plans for hybrids and plug-in hybrid models in the coming years and appears to be launching a plug-in hybrid in China at the end of 2008. The company has recently attracted more notice with the announcement of Berkshire Hathaway Inc’s., investment of approximately $230 million. This amounts to about a 10% ownership stake in BYD for Warren Buffets’ company.

BYD GREEN CAR INITIATIVES Now, based on four main industry areas in Shenzhen, Shanghai, Xi’an and Beijing, BYD is becoming a recognized leader in whole-car manufacture. The company produced about 100,000 cars in 2007 and is predicting a 70% growth rate for 2008. BYD has set up a world-class R&D center in Shanghai, possessing a skilled automobile R&D team consisting of roughly 3,000 personnel. The company has set up an internationally leading car product line in Xi'an, with total production capacity of about 200,000 units per year and has another facility in Shenzhen, with potential total production capacity of about 300,000 units, as well as the second R&D center. As the front runner of both electric cars and rechargeable battery, BYD will make use of its technical advantage which is incomparable in the world to manufacture more auto products of clean energy.

In July 2006, BYD launched its F3e equipped with a Fe battery giving a range of 180 miles. The battery is claimed to be safe, environmentally friendly with a life cycle of 2,000 charges or 300,000 miles. This car is available in China and is also selling in the Ukraine. The company is now focused on building dual mode (hybrid) vehicles for the European and American markets. Using European designers and internal technology the company has developed a prototype Dual Mode hybrid and pure electric vehicles. The model is being called the F6 and will be available as an all electric and as a hybrid (see below). The pure electric vehicle has household plug-in capability while the hybrid vehicle can freely switch between pure electric and hybrid power modes.

The company claims the F6 DM hybrid car has a range of 190 miles from its pure electric and hybrid electric system. The battery can take a 50 percent charge in 10 minutes and a full charge takes 9 hours. Its battery alone gives it a range of 60 miles at highway speeds. The company is also saying that it will be able to convert any of its current car models hybrid power for just $6,000.

The all electric model is anticipated to travel 300 kilometers on a single full charge.

31 MDB Capital Group The Green Car Report November 10, 2008 ______

The electric car will follow a launch later this year in China of a gasoline-electric hybrid electric car that can be plugged into a home electric outlet and is capable of going 100 kilometers all on electric when fully charged. BYD displayed the plug-in hybrid, the F6DM (for "dual mode"), at the North American International Auto Show in Detroit in January. The company hopes to have a car ready for the U.S. market in three to five years. BYD will try to market both vehicles in North America and Europe. In China, the Chinese auto maker plans to sell the plug-in hybrid for about $21,460.

32 MDB Capital Group The Green Car Report November 10, 2008 ______

DAIMLER COMPANY OVERVIEW

COMPANY STATISTICS Stock Symbol NYSE: DAI Share Price $30.84 Market Capitalization (B) $30.90 2007 Sales (B) $146.4

Daimler AG is the German automobile manufacturer of brands such as Mercedes-Benz, Daimler, Maybach, Freightliner, Sterling, Western Star, Mitsubishi Fuso, Setra, Orion and Thomas Built Buses. It is a globally leading producer of premium passenger cars and the largest manufacturer of commercial vehicles in the world. The company sells its products in nearly all countries around the world and has production facilities on five continents.

DAIMLER GREEN CAR INITIATIVES Daimler has established a strategic approach and “road map for “sustainable mobility” for both its passenger cars and commercial vehicles. The strategy consists of the ongoing optimization of the company’s vehicles with innovative internal combustion engines, the additional improvement of efficiency through hybridization and zero emission driving with fuel cell and battery drive systems. Key objectives include the reduction of fuel consumption and CO2 emissions. Current progress and activities in the implementation of this strategy is described below.

Passenger Cars Daimler’s long-term goals for its passenger car lines aim at producing economical and environmentally friendly vehicles that conserve resources throughout the entire production process and minimize polluting emissions through innovations and technologies. The real goal is to reduce fossil fuel consumption and carbon emissions.

CGI (stratified charge gasoline injection) CGI is a direct gasoline injection system that sprays fuel around the spark plugs in the shape of a hollow cone, which enables precise fuel dosages and optimal fuel utilization. This system is used in the Mercedes-Benz E 350 CGI, which now consumes 8.7 to 9.2 liters of fuel per 100 kilometers – around 10 percent less than a vehicle equipped with a conventional V6 gasoline engine that operates with duct injection. The CLS 350 CGI introduced in April 2006, was the world’s first vehicle to feature spray- guided direct injection and the system was then implemented in 2007 in the E 350 CGI. The system will be available in the Mercedes-Benz C350 CGI sports sedan (right image of C350 with a 288-hp gasoline direct-injection 3.5-liter V-6 engine) by the end of 2008 and the company plans to convert its four- cylinder gasoline engines to this direct injection system in 2009.

DIESOTTO The Mercedes-Benz DIESOTTO system combines features of diesel and gasoline engines to provide better fuel economy (total consumption reduction potential of 15-20%) and reduced CO2 emissions as well as lower nitrogen oxide emissions (NOx). The technology enables operating a gasoline engine in certain situations with auto ignition, like a diesel. The system also includes CGI gasoline direct injection combined with turbo charging, variable valve control, lower number of cylinders, lower displacement, and an automatic start/stop feature. In 2007, the DIESOTTO engine was presented for the first time in the F 700 research vehicle that is similar in size and appearance to the current S- Class series. The F 700 achieves fuel consumption of only 5.3 liters per 100 kilometers and generates CO2 emissions of 127 grams per kilometer. The core elements of the DIESOTTO concept are now gradually being incorporated into the individual model series from Mercedes-Benz and the finalization of the first stage of this project is set for 2012.

NGT (Natural Gas Technology) NGT vehicles are equipped with a bivalent drive system that enables the operation on either natural gas or premium- grade gasoline. The technology has been available since mid-2004 in the Mercedes-Benz E 200 NGT. A new model – the B 170 NGT BlueEFFICIENCY – was launched in the summer of 2008.

33 MDB Capital Group The Green Car Report November 10, 2008 ______

BlueEFFICIENCY BlueEFFICIENCY is a package of innovative measures based on a holistic approach to vehicle optimization and the use of intelligent solutions for further improving fuel economy by about 10%. Measures include an extended gear ratio, a lower chassis, extremely low rolling resistance tires, and aerodynamic improvements. The first BlueEFFICIENCY models – the Mercedes-Benz C 180 Kompressor BlueEFFICIENCY (1.8-liter engine is replaced by a 1.6-liter unit, 154 hp, mileage improves from 31.8 mpg to 36.2 mpg and CO2 emissions reduced by 15%) and the C 200 CDI BlueEFFICIENCY (diesel powered 134 hp improves mileage from 41.2 mpg to 46.1 mpg and C02 emissions reduced by 17%) – were launched in April 2008.

Hybrids The first of three different hybrid solutions developed by Daimler for its passenger cars has been available since October 2007 in the Smart ForTwo micro hybrid drive (mhd) model (right image). The vehicle’s three cylinder gasoline engine is linked with an intelligent start/stop function that reduces fuel consumption from 4.7 to 4.3 liters per 100 kilometers, which corresponds to CO2 emissions of 103 grams per kilometer. Additional models equipped with hybrid modules will be launched in 2009. Daimler has an alliance with General Motors, Chrysler and BMW since 2005 for the joint development of a hybrid drive system in the U.S. In addition, the company formed an alliance with BMW in 2007 to develop a hybrid module for rear-wheel drive passenger cars in the premium segment.

Fuel cells Daimler’s latest generation of hydrogen-powered vehicles – the Mercedes-Benz A-Class F-Cell, fuel cell Sprinters, and Citaro urban buses – is now undergoing global testing. Daimler operates the largest fuel cell fleet of all manufacturers worldwide. In the summer of 2010, Mercedes-Benz will launch the B-Class F-Cell (right) – the world’s first series-produced car with a local emission-free fuel cell drive.

Battery-Electric Daimler’s electric drive system in the Smart ForTwo ed does 12 kilowatt-hours per 100 kilometers. The electric two-seater can travel approximately 115 kilometers on a fully charged battery, and dead batteries can be recharged up to 1,000 times or more using any 230-volt socket. The battery can last as long as ten years. The first 100 smart ed models produced are undergoing tests in London since November 2007, and in February 2008 Daimler delivered its first smart ed test vehicle for Germany to the fleet of the energy supply company RWE. Daimler has not set a date to begin series production of the model and is waiting for the availability of adequate lithium-ion technology.

Commercial Vehicles Daimler’s environmental strategy for commercial vehicles focuses on providing clean and efficient drive systems and alternative fuels. Optimization of the internal combustion engine focuses on diesel engines, which the company believes will remain the backbone of heavy-duty commercial vehicle drive systems for decades to come. The company also manufactures models running on natural gas and is working on hybrid buses and trucks as well as on fuel cell buses.

Internal Combustion Engines Daimler’s BLUETEC technology has been available for commercial vehicles since January 2005; it saves between 1,500 and 2,000 liters of diesel fuel in long-distance truck operation per vehicle per year, as compared to other exhaust- gas treatment systems. This means that trucks equipped with BLUETEC, which currently number about 150,000, save approximately 300 million liters of fuel per year. The current generation of Mercedes-Benz trucks with automated PowerShift transmissions, also achieve very low levels of fuel consumption.

Natural Gas The Mercedes-Benz Citaro CNG (compressed natural gas) is built as both a single and an articulated bus with a natural gas engine; there are currently around 900 such buses in use. There are also 600 Mercedes-Benz Econic NGT models throughout Europe that are used for garbage collection and other municipal applications, and also serve as delivery vehicles. Like the Citaro CNG, the Econic NGT has lower emissions than those required by the Euro V or EEV standards. One drawback of natural gas vehicles is the complexity involved in storing the fuel in heavy pressurized tanks and the lack of fuel infrastructure.

34 MDB Capital Group The Green Car Report November 10, 2008 ______

Hybrid Vehicles Daimler manufactures Orion hybrid buses and the Fuso Eco Canter truck with hybrid drive systems. The company is the world market leader for hybrid buses. The introduction of the Fuso Aero Star Eco Hybrid in September 2007 marked the launch of the second generation of Mitsubishi Fuso hybrid buses. The Freightliner M2 Hybrid began production in 2008 and the series production of the Citaro G BlueTec Hybrid bus will be launched in 2009. For the future, Daimler is considering testing hybrid operation in long-haulage trucks and touring buses.

Fuel Cells A major test of 36 Mercedes-Benz Citaro fuel cell buses in ten European cities, as well as in Beijing (China) and Perth (Australia), has demonstrated that fuel cell drives function reliably under a broad range of practical conditions. In the next stage of development, the Citaro G BlueTec Hybrid model will serve as the basis for a Citaro fuel cell hybrid bus.

DAIMLER PATENTVEST SUMMARY

35 MDB Capital Group The Green Car Report November 10, 2008 ______

FORD COMPANY OVERVIEW

COMPANY STATISTICS Stock Symbol NYSE: F Share Price $1.98 Market Capitalization (B) $4.25 2007 Sales (B) $172.5

Ford is the 3rd largest automaker based on worldwide sales. The company is based in Dearborn, Michigan and was founded by Henry Ford and incorporated in 1903. Ford was the first to introduce methods for large scale manufacturing of cars and large scale management of an industrial workforce through a moving assembly line. In 2007, the company reported $173.9 billion in revenues and produced 6.5 million automobiles, while employing 245,000 workers in 100 plants and facilities worldwide. The company has operations in Canada, Mexico, United Kingdom, Germany, Brazil, Turkey, Argentina, Australia, China and South Africa. It has equity investments in Volvo, Mazda, and Aston Martin and recently sold Jaguar and Land Rover to Tata Motors of India.

FORD GREEN CAR INITIATIVES EV Ford was the original owner of Th!nk City, an electric car company based in Norway. Ford sold its ownership in 2003 and moved away from an all electric vehicle strategy. Ford was one of the first to make use of battery electric vehicles through the Ford Ranger EV. The vehicle used a nickel metal hydride battery and had a range of 65 miles and a top speed of 65 mph. A full charge took about 6 – 8 hours and stored 30 kWh. The company also contracted with the USPS to deliver electric postal vans based on the Ranger EV platform. Ford produced about 1,500 of these trucks from 1998 through 2002.

Hybrid Ford was the third automaker to introduce a hybrid electric vehicle with the introduction of the hybrid-electric Escape in 2005. The company announced a goal to make 250,000 hybrids a year by 2010, but later announced it would not be able to meet that goal due to high costs and lack of sufficient supplies of hybrid-electric batteries and drive-train system components.

Currently Ford has two full hybrid electric vehicle models on the road today—the Ford Escape Hybrid and the Mercury Mariner Hybrid—with more models on the way and a targeted increase in hybrid production capacity to 250,000 vehicles a year globally by the end of the decade. Ford Escape Hybrid taxi’s are already in service in NY and San Francisco, and will soon be in service in Chicago. For the model year 2010 Ford plans to introduce the Ford Fusion and Mercury Milan hybrids. These cars will include Ford’s SmartGauge with EcoGuide – an innovative new instrument cluster that provides real-time information to help drivers maximize the fuel efficiency of the car.

More recently, Ford announced that it will team up with Southern California Edison (SCE) to examine the future of plug-in hybrids in terms of how home and vehicle energy systems will work with the electrical grid. Under the multi- million-dollar, multi-year project, Ford will convert a demonstration fleet of Ford Escape Hybrids into plug-in hybrids (image at the left). SCE will evaluate how the vehicles interact with the home and the utility's electrical grid.

The first Ford Escape Plug-In Hybrid demonstration vehicle was delivered to Southern California Edison http://en.wikipedia.org/wiki/Thomas_Edison for testing in early December. The Ford Escape Plug-In Hybrid (PHEV), capable of delivering up to 120 miles per gallon when driven on surface streets for the first 30 miles following a full charge. The vehicle is equipped with a 10 kilowatt lithium ion battery that can take it up to 30 miles at speeds under 40 mph before needing to fire up its fuel-fed hybrid-electric engine. The parallel hybrid electric vehicle uses common household current (120 volts) for charging, with a full charge of the battery completed within six to eight hours

36 MDB Capital Group The Green Car Report November 10, 2008 ______

Ford has committed to accelerating development of next-generation hybrid-electric auto power plants in Britain, in collaboration with Volvo, Jaguar, and Land Rover. This engineering study is expected to yield more than 100 new hybrid-electric vehicle models and derivatives in the coming years.

Other Green Alternatives Ford continues to demonstrate leadership and commitment to putting alternative fuel vehicles on the road. Since 1996, Ford has sold more than 1.6 million vehicles that run on ethanol, a renewable fuel made from corn or other starch feed stock. To harness the power of ethanol, Ford has designed Flexible Fuel Vehicles (FFVs). FFVs are "flexible" because you can fill them up with E85 (a blend of 85% ethanol and 15% gasoline), regular gasoline or a combination of the two. Ford has partnered with VeraSun Energy Corporation to increase the number of stations offering E85. Currently, E85 is available at about 600 stations nationwide. Ford plans to produce as many as 250,000 FFVs in 2008. Currently, four vehicle models are available as FFVs: the Ford F-150, Ford Crown Victoria, Mercury Grand Marquis and Lincoln Town Car. Today, ethanol is produced mainly from corn, but can be made from virtually any starch feed stock such as sugar cane, wheat, or barley. Compared to gasoline, ethanol emits 18-29% less CO2 (greenhouse gas). The use of 10% ethanol (E10) in gasoline nationwide would cut gasoline consumption by over 10 billion gallons annually.

Flexible fuel vehicles are designed to operate smoothly using a wide range of available fuel mixtures—from pure gasoline, to bioethanol-gasoline blends such as E85 (85% ethanol, 15% gasoline). Part of the challenge of successful marketing alternative and flexible fuel vehicles, is the general lack of the needed infrastructure of sufficient fueling stations, which will be essential for these vehicles to be attractive to a wide range of consumers. Significant efforts to ramp up production and distribution of E85 fuels are underway and expanding. The company has plans to produce up to 250,000 FFV this year with various models including:

• Ford F-150 • Ford Crown Victoria • Ford Focus / Focus C-MAX / Ford Focus FFV (Flexible- fuel vehicle). • Ford Taurus • Ford Ranger • Ford Explorer • Mercury Grand Marquis • Lincoln Town Car

The Ford Escape Hybrid E85, with a flexible-fuel engine is capable of running either gasoline or ethanol blends of up to 85% (E85). This prototype vehicle is the first from a major car company to actually mate the two technologies (flexible-fuel engines and hybrid power-trains) together. The Ford Escape Hybrid would produce about 25% less carbon dioxide if operated exclusively on E85 fuel instead of gasoline.

Another green fuel alternative are vehicles like some versions of the Crown Victoria especially in fleet and taxi service, that operate on compressed natural gas (CNG). Some CNG vehicles have dual fuel tanks - one for gasoline, the other for CNG - the same engine can operate on either fuel via a selector switch.

Ford also continues to study Fuel Cell-powered electric power-trains, and has demonstrated hydrogen-fueled internal combustion engine technologies and is looking at Fuel Cells for the next-generation hybrid-electric systems. In 2006, Ford introduced a hydrogen fuel cell version of the Explorer SUV with a 174 hp engine and a 350 mile range.

The Focus FCV is one of the industry's first hybridized fuel cell vehicles and combines the improved range and performance of hybrid technology with the overall environmental benefits of a fuel cell. The Ford Focus FCV is powered by electric motor and receives its electricity from its fuel cell and from the car’s battery pack. Ford already launched the production of hydrogen-powered shuttle buses, using hydrogen instead of gasoline in a standard internal combustion engine, for use at airports and convention centers.

37 MDB Capital Group The Green Car Report November 10, 2008 ______

FORD PATENTVEST SUMMARY

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GM COMPANY OVERVIEW

COMPANY STATISTICS Stock Symbol NYSE: GM Share Price $4.80 Market Capitalization (B) $2.35 2007 Sales (B) $181.1

General Motors, the annual global industry vehicle sales leader for 77 years, was founded in 1908. Until recently, GM was the world's #1 maker of cars and trucks, losing this position to Toyota in 2008. GM sells its vehicles under the brands of Buick, Wulling, Vauxhall, Cadillac, Chevrolet, GMC, GM Daewoo, Holden, Pontiac, Saab, Hummer, Opel and Saturn. The company develops, manufactures and markets vehicles worldwide through four automotive regions. GM also sales parts, accessories, engines and powertrains.

GM owns more than 50% of South Korea's GM Daewoo Auto & Technology and it has numerous product or technology collaborations with other renowned automakers such as Suzuki Motor, DaimlerChrysler AG, BMW AG of Germany and Toyota Motor of Japan. Most of GM’s products are commercialized through retail dealers in North America, and through distributors and dealers outside of North America. The company’s largest market is the United States, followed by China, Brazil and the United Kingdom. In 2007, GM sold approximately 9.4 million cars globally and during its most recent quarter, the company sold 2.1 million vehicles. The company has manufacturing facilities in 35 countries and employs about 266,000 people around the world. Its headquarters are located in Detroit, Michigan.

As with many other automakers, GM has also set as a priority the adoption of alternative fuels drive systems. With this in mind, the company has partnered with battery and alternative fuel companies to accelerate the development of commercially viable hybrid vehicles.

GM GREEN CAR INITIATIVES GM green car initiatives started with the introduction of the EV1, an electric modern vehicle that was launched in 1996 and was later discontinued after management’s conclusion that the EV1 was not a profitable venture. Availability of the EV1 was limited and obtaining one was a rather complex process. However, with the introduction of the EV1, GM became the first automaker in decades to market an electric car to the public. Another early green car initiative by GM was the development of a two mode hybrid systems for city buses which was introduced in 2003. This system is now licensed by GM to Allison Transmission which assembles and sells the hybrid transmission to bus manufacturers. More than 1,000 hybrid buses in more than 80 cities across the U.S. and Canada are powered with the GM-Allison hybrid propulsion system. In fact, this propulsion system sparked GM’s co-development with DaimlerChrysler and BMW of the two-mode hybrid system for passenger vehicles. GM’s propulsion systems include:

• The Mild Hybrid or BAS (Belt Alternator Starter) system uses an automatic transmission, employs a 36-volt nickel metal hydride battery and a 3kW electric motor. It saves fuel by shutting down the engine when the vehicle is at idle or decelerating and thorough regenerative breaking. GM vehicles using this system include the Saturn Vue, Saturn Aura, and Chevrolet Malibu. • The Two-Mode Hybrid, co-developed with DaimlerChrysler and BMW, can operate on engine power, electric power or a combination of both. Mode 1 is designed for low speed and light load driving and thus operates on electric power alone using the system’s 300 volt battery. Mode 2 fuels vehicles with the battery and engine for fuel efficient highway driving. This system also employs regenerative breaking and is used in the Chevrolet Tahoe, GMC Yukon, Cadillac Escalade, Chevy Silverado and Sierra Hybrid.

39 MDB Capital Group The Green Car Report November 10, 2008 ______

• The E-Flex electric system employs an electric motor and a lithium-ion battery that can be recharged onboard through a generator running on gasoline or E85 thus extending the driving range substantially. According to GM data, this driving system could result in an estimated 50 equivalent miles per gallon using gasoline. The Chevy Volt will be the first car to use this system.

By early next year, GM plans to have a lineup of 8 hybrid models available. In 2009 the company is slated to introduce the Sierra Hybrid pickup truck, the Cadillac Escalade Hybrid and the Chevy Silverado Hybrid. The Sierra Hybrid is expected to offer a 40% fuel economy improvement in the city when compared to the 2008 non-hybrid Sierra.

According to GM’s website, GM’s next generation of hybrids will deliver up to 20% in fuel savings and three times as much power as GM’s actual hybrid system. Future hybrid models are to use lithium-ion batteries and be available in the U.S. market in 2010. The company expects to employ this new system in over 100,000 of its vehicles annually. To meet this end, GM currently engages in battery technology development efforts with Compact Power, Continental Automotive Systems, and A123Systems. The relationship with A123Systems specifically aims to develop the battery for the Chevy Volt (see image below). GM expects battery chemistry to result in 10 years of battery life.

The Chevy Volt which is scheduled for 2010, is a plug-in hybrid electric sedan powered by a 16kWh lithium ion battery which can be fully charged in approximately six hours with a 110-volt household outlet. This vehicle is expected to be able to drive 40 miles on electricity only. Beyond that range, the Volt will be able to recharge the battery with back up generators creating additional electricity to extend the range up to 640 miles. This vehicle will be powered by GM’s E-Flex electric propulsion system. GM has also presented a second version of the E-Flex system for the Chevrolet Volt which uses a hydrogen fuel cell system as its primary power source. This system combines a fuel cell stack with a lithium-ion battery to provide up to 300 miles of driving range and it is also plug-in capable.

GM also offers eleven different models of Flex fuel vehicles that can operate on gasoline or E85. E85 is fuel that blends ethanol and gasoline. GM has sold over 3 million of the 7 million flex-fuel vehicles in the U.S., making it an important contender in this market. The company’s goal is to have half of its annual vehicle production be E85 or biodiesel capable by 2012.

In addition, GM has experience exploring the potential of fuel-cell powered vehicles beginning with vehicles such as the HydroGen1. Today, the company continues to develop new generations of fuel cell vehicles in search for more efficient and cost effective models. In this attempt, the company has put more than 100 Chevy Equinox fuel cell vehicles on the road in the hands of customers as part of Project Driveway, a market test to understand the implication of bringing fuel cell vehicles into the market. The project has placed roughly 100 Chevy Equinox fuel cell vehicles on the road in L.A., New York and Washington, D.C. GM plans to have 1,000 hydrogen fuel cell vehicles in California between 2012 and 2014. However, the lack of an infrastructure for refueling is still an issue for fuel cells vehicles to be feasible.

According to the Green Car Congress GM sold approximately 1,900 hybrid vehicles in September 2008 whereas Toyota sold more than 14,500 during that time. The image above from the Green Car Congress shows the distribution of hybrid sales per company as a component of total brand sales in September 2008. Compared to other automakers, GM hybrid sales are still a small percentage of its total vehicle sales.

40 MDB Capital Group The Green Car Report November 10, 2008 ______

GM PATENVEST SUMMARY

41 MDB Capital Group The Green Car Report November 10, 2008 ______

HONDA COMPANY OVERVIEW

COMPANY STATISTICS Stock Symbol NYSE: HMC Share Price $22.40 Market Capitalization (B) $83.87 2007 Sales (B) $121.2

The Honda Technology Research Institute Company, Limited was founded in 1948 by Soichiro Honda and is headquartered in Tokyo, Japan. Honda began exporting to the US in the 1960’s as a small manufacturer of Japanese motorcycles. Today, Honda manufactures automobiles and motorcycles, trucks, scooters, robots, jets and jet engines, ATV, water craft, electrical generators, marine engines, lawn and garden equipment. It is the 5th largest automobile manufacturer in the world as well as the largest engine maker in the world. It produces more than 14 million internal combustion engines each year and is the 2nd largest manufacturer in Japan, behind Toyota and ahead of Nissan. In 2007, the company reported revenues of $94.2 billion and currently has 167,231 employees.

HONDA GREEN CAR INITIATIVES In 1975, Honda produced the first engine to meet the 1970 US Clean Air Act. Today, the company offers a variety of green vehicle alternatives. In addition, Honda’s product line of mostly small and midsized fuel efficient vehicles have allowed the company to remain profitable despite recent record gas prices and a weak US economy. The company’s current green car initiatives include:

Hybrid Electric Honda currently offers a hybrid version of its Civic which was first introduced in 2003, and gets a combined 43 mpg. In 2005, Honda introduced the Accord hybrid; however, the vehicle only averaged 1 mpg better than the regular Accord according to Consumer Reports. The vehicle was discontinued after the 2007 model. Currently the company has three new hybrid vehicles in development, including a new small hybrid scheduled for introduction in early 2009. This new vehicle is expected to be based on the discontinued Insight model and is anticipated to be the most affordable hybrid to date. It will be offered as a 5- passenger, 5-door hatchback. The vehicle will launch in the U.S. on April 2009 and Honda expects to sell 200,000 of these vehicles each year. In addition, Honda is also planning to introduce a hybrid version of its Fit, as well as a small hybrid based on the CR-Z concept.

Hydrogen Fuel Cell On June 2008, Honda introduced the first assembly-line FCX Clarity which combines hydrogen and oxygen from ordinary air to make electricity. The company expects the vehicle to be more efficient than a hybrid and does not require a costly rechargeable battery or use of electricity. In addition, the vehicle does not emit any pollutants. The major draw back is the lack of the needed filling station infrastructure throughout the U.S. The company expects to keep production volumes low and will only offer the vehicle through a lease program at $600 per month.

Natural Gas In 2005, Honda introduced the first retail natural gas vehicle with its own home refueling machine. The company began selling these vehicles at dealerships throughout California and other states. Natural gas-powered internal-combustion engines emit 87% less nitrogen oxide, 70% less carbon monoxide and 25% less carbon dioxide than the typical gasoline powered internal combustion engine. For 2008, Honda offers this vehicle in a Civic Natural Gas Vehicle (NGV) model.

42 MDB Capital Group The Green Car Report November 10, 2008 ______

HONDA PATENTVEST SUMMARY

43 MDB Capital Group The Green Car Report November 10, 2008 ______

JOHNSON CONTROLS COMPANY OVERVIEW

COMPANY STATISTICS Stock Symbol NYSE: JCI Share Price $17.06 Market Capitalization (B) $10.09 2007 Sales (B) $34.6

Johnson Controls Inc., founded in 1885, manufactures automotive interior parts and car batteries for passenger and hybrid electric vehicles, as well as energy-efficient HVAC systems for commercial buildings. Car interior products include seating, instrument panels, and electronics. Major OEM customers include GM, Daimler, Chrysler, and Ford. The battery unit makes more than 120 million lead-acid car batteries annually under brand names Optima, Varta, Heliar and LTH, for OEMs and retailers such as Advance Auto, AutoZone, Pep Boys, and Wal-Mart. Johnson Controls also offers nickel-metal-hydride and lithium-ion battery technologies to power hybrid vehicles.

Johnson Controls has achieved consistent growth that includes 62 consecutive years of increased sales and 18 consecutive years of increased earnings. The company trades on the NYSE, has 136,000 employees in more than 1,000 locations and is headquartered in Milwaukee, Wisconsin.

In January 2006, Johnson Controls launched a joint venture with Saft Advanced Power Solutions LLC of France, which designs and manufactures advanced-technology batteries used in high-performance applications, such as industrial infrastructure and processes, and the transportation, space and defense industries. Through the joint venture, the companies will supply batteries for hybrid electric vehicles (HEVs) and electric vehicles (EVs).

JOHNSON CONTROLS GREEN CAR INITIATIVES Johnson Controls and Saft Advanced Power Solutions joined forces to develop, manufacture and market nickel-metal- hydride and lithium-ion batteries for current and future generations of HEVs and EVs. Hybrid-electric vehicles currently rely on high voltage nickel-metal-hydride batteries to provide stop/start and other advanced capabilities and some models also use 12 volt lead-acid batteries for starting (particularly in cold weather) and for auxiliary loads. However, lithium-ion batteries appear likely to become more mainstream for HEVs in the coming years, because they offer significant advantages in size, weight and power-storage capacity. Johnson Controls and Saft have combined their development teams with the idea to offer global automakers new sources and options for a full range of EV and HEV battery solutions.

Both companies have extensive experience developing advanced batteries for HEVs. Johnson Controls has been working on developing nickel-metal-hydride batteries for over 15 years and has for over a decade produced batteries for HEV buses operating along regular service routes in Europe. In 2007, Johnson Controls sold 400,000 batteries for start/stop microhybrids (cars that stop the engine when they slow down or stop) in Europe; these batteries helped save 5 - 8% in fuel per vehicle and collectively emitted 130,000 metric tons less of carbon dioxide. Sales in Europe are expected to grow to more than 1 million units in 2008. Since 2006, Johnson Controls has tripled its investment in research and development for advanced battery technology for hybrids, from $13 million to an estimated $37 million in 2008.

For its part Saft has been developing lithium-ion batteries for the automotive industry for over 10 years. It provided lithium-ion batteries for the Chevrolet Sequel fuel cell concept vehicle. In addition, both companies have done extensive work in lithium-ion battery development sponsored by the United States Advanced Battery

44 MDB Capital Group The Green Car Report November 10, 2008 ______

Consortium (USABC members include Chrysler, Ford and GM). On August, 2008, the USABC, with funding from the U.S. Department of Energy, awarded Johnson Controls-Saft a 24-month contract valued at $8.2 million to develop lithium-ion (Li-ion) batteries for 10- and 40-mile range plug-in hybrids (PHEVs), with an emphasis on optimizing cell performance and reducing costs.

Through the joint venture, the companies were also awarded a production contract to supply lithium-ion cells for the Mercedes-Benz S-Class 400 mild hybrid sedan (image above); Continental Automotive will be the battery pack integrator. The car, which will go into production in 2009, is expected to be the world’s first serial production hybrid using Li-ion technology. In October 2008, Johnson Controls signed its second lithium-ion production contract to provide 120 volt Li-ion battery packs (image below) for the BMW 7 Series ActiveHybrid car. The lithium-ion cells and modules will be produced at the Johnson Controls-Saft production facility in Nersac, France. The facility, which is the world’s first production facility for lithium-ion batteries for hybrid, plug-in, fuel cell and electric vehicles, opened in January 2008.

More recently, in June 2008 the joint venture announced that it will supply Li-ion batteries to Ford Motor Company for a demonstration fleet of 20 PHEV Escape vehicles. Johnson Controls-Saft, Ford, the Electric Power Research Institute (EPRI) and Southern California Edison are partners in this program, which aims to test battery technology, vehicle systems, customer usage and grid infrastructure, as well as possible stationary and secondary usages for advanced batteries.

Other key developments achieved through the joint venture include:

• A development collaboration announced in April 2008 with Maxwell Technologies, Inc. to produce lithium- ion battery electrodes for testing and evaluation by Johnson Controls-Saft for mass production. The goal of this collaboration is to develop breakthrough technology on electrode manufacturing to reduce cost and environmental impact of batteries for HEVs. • A production contract announced in January 2008 for Li-ion HEV batteries for a European OEM. • A production contract to provide a Ni-MH Hybrid Battery System for the new hybrid A5 ISG sedan from Chinese automaker Chery to be launched in the latter half of 2008. • A contract to supply lithium-ion batteries to SAIC Motor Corporation of China for use in its demonstration fleet of new energy vehicles in 2008. The Li-ion battery systems are produced in the U.S. • In March 2007, the companies announced a contract with Daimler for a Dodge Sprinter plug-in hybrid test fleet of up to 20 vehicles to test battery technology among other things. Johnson Controls-Saft will supply the Li-ion batteries. • In early 2007, GM awarded Johnson Controls-Saft an advanced development contract to design and test lithium-ion batteries for use in GM’s prototype Saturn Vue Green Line plug-in hybrid SUV.

45 MDB Capital Group The Green Car Report November 10, 2008 ______

MITSUBISHI COMPANY OVERVIEW

COMPANY STATISTICS Stock Symbol 7211 JP Share Price ¥159 Market Capitalization (B) ¥886.0 FY 2008 Sales (B) ¥2.68

Mitsubishi Motors dates back to 1870 when the Tsukomo Shokai Shipping Company was founded. In 1917, Mitsubishi Heavy Industries launched the Model A, one of the first mass produced automobiles in Japan. In 1970, the automobile division was spun off from Mitsubishi Heavy Industries, giving rise to an independent Mitsubishi Motors Corporation. Mitsubishi went public in 1988. The company’s principal activity is the manufacture and sale of automobiles and the development of automobile engines. Currently, Mitsubishi has a lineup of 20 global vehicles including brands such as Colt, Delica, Lancer, Galant and Pajero and sells these vehicles in more than 160 countries. Mitsubishi owns 7 car manufacturing facilities in 5 countries and co-owns more than 12 manufacturing facilities in roughly 11 countries. The company has about 50 consolidated subsidiaries. Mitsubishi operations are carried out through two divisions, the automobile division which deals with cars, trucks, buses, automobile parts and car goods and the financing division which provides consumer financing services.

According to OICA, a federation of automobile manufacturers based in Paris, Mitsubishi is the 15th largest automaker in the world by global unit sales with a total of 1.4 million vehicles sold in 2007. The company is headquartered in Tokyo, Japan and has more than 33,000 employees worldwide.

MITSUBISHI GREEN CAR INITIATIVES Mitsubishi’s experience building electric vehicles goes back to the 1990’s. Between 1993 and 1996, 36 Libero EV’s were sold to power companies for evaluation. The Libero was one of the company’s first complete alternative propulsion based prototypes. Later, Mitsubishi Motors built several test vehicles using lithium-ion battery systems, including the Mitsubishi HEV in 1996, the FTO EV in 1998 and the Eclipse EV in 2000. In 1999, the FTO EV prototype sports car broke the record for the furthest distance achieved by an electric vehicle in 24 hours, covering more than 2,000 km 1999. In addition, the Eclipse EV was able to complete 400km on public roads on a single battery charge.

In 2005 the company started development and testing of the MIEV (Mitsubishi In-wheel motor Electric Vehicle) concept using its compact vehicle Colt as a testing platform. The concept Colt EV was built with rear in-wheel motors and was powered by a floor-mounted lithium-ion battery system. The Colt EV had a top speed of 150 km/h and an estimated range of 150 km on a single charge. Using the MIEV technology, Mitsubishi has produced many other EV’s as concept cars, such as the Lancer Evolution MIEV, the Concept CT MIEV and the Concept EZ MIEV. Most recently, the company developed the Mitsubishi i MiEV (Mitsubishi innovative Electric Vehicle). The MiEV is another alternative system developed by Mitsubishi that does not have the in-wheel motors but exhibits a more traditional electric powertrain. The company is currently fleet testing the i MiEV which is scheduled to be commercial available in Japan in 2009.

The i MiEV is an electric vehicle with no carbon dioxide emissions and a 160 km driving range under Japanese 10-15 cycle driving conditions. The car uses a 16kWh lithium-ion battery that has a voltage of 330V. This vehicle uses a 47 kW permanent magnet motor which is capable of producing high torque at low revolutions. In addition, top speed is 130km/h. The vehicle has the capacity to be charged in approximately 7 and 14 hours with a 200V and 100V outlet respectively, as well as 30 minutes when using quick chargers. Mitsubishi is conducting joint research with power companies in Japan and the U.S. to test compatibility of the i MiEV with the infrastructure for electric vehicles. Mitsubishi hopes to sell 2,000 i MiEVs in the first year and to increase the figure to 10,000 units by fiscal 2011.

To effectively produce the i MiEV, in December 2007 Lithium Energy Japan was formed as a joint venture between GS Yuasa Corporation, Mitsubishi Corporation and Mitsubishi Motors Corporation to manufacture high-capacity, high-

46 MDB Capital Group The Green Car Report November 10, 2008 ______performance lithium-ion batteries built specifically for automobiles. Lithium Energy Japan is building a battery manufacturing plant in Japan that is expected to go online in early 2009. The plant is slated to produce 200,000 cells annually to build lithium ion batteries for electric vehicles. According to the company, the targeted production is enough to power 2000 of i MiEVs. This plant is expected to be the world’s first mass production facility of large lithium-ion batteries for electric vehicles.

MITSUBISHI PATENTVEST SUMMARY

47 MDB Capital Group The Green Car Report November 10, 2008 ______

NISSAN COMPANY OVERVIEW

COMPANY STATISTICS Stock Symbol 7201 JP Share Price ¥455 Market Capitalization (B) ¥2,036.6 FY 2008 Sales (B) ¥10,824.2

Nissan Motor Co., Ltd. was founded in Japan in 1933. The automobile manufacturer offers a broad lineup of vehicles including sporty coupes, family sedans, minivans, trucks and SUVs known for their quality, dependability and performance. The company is currently implementing a medium-term environmental program named the Nissan Green Program 2010, whose main focus is to develop vehicle technologies to reduce CO2 emissions and improve fuel economy in both its line of conventional gasoline engine vehicles and alternative fuel vehicles.

Headquartered in Kanagawa Prefecture, the company has 188 subsidiaries and 15 associated companies spread across the world.

NISSAN GREEN CAR INITIATIVES Nissan announced a medium-term environmental action plan in 2006 – the Nissan Green Program 2010. The three key goals of the plan are: 1) reducing CO2 emissions; 2) reducing other emissions as a whole to preserve the atmosphere, water, and soil; and 3) promoting a resource cycle through reduction, reuse, and recycling of materials. The primary focus is on reducing CO2 emissions. The company is working to improve efficiency and fuel economy of gasoline-fueled engines. At the same time, it is developing hybrid and plug-in hybrid cars, fuel-cell vehicles and electric cars as part of its mid- to long-term vision in the belief that electric-powered cars may become the mainstream vehicles of the future.

Reducing CO2 emissions is at the core of Nissan’s current green initiatives because the company believes that in the short and medium-term, internal combustion engines will remain the mainstream for cars and trucks. Improving the efficiency of engines is really the key to reducing total emission of CO2 from its products. In its efforts to develop and successively introduce engines with lower emissions, Nissan is focusing on the following areas:

• Gasoline-engine vehicles – Improving fuel efficiency with the goal of producing vehicles that will run 100 km on 3 liters of gasoline. • Clean diesel-engine vehicles – Reduce emission gases significantly compared with current conventional vehicles. • Flexible-fuel (biofuel-compatible) vehicles – Design vehicles that burn biofuels which reduce well-to-wheel CO2 emission. • Hybrid vehicles – The use of battery power will also reduce CO2 emissions. • Electric vehicles – Completely eliminate CO2 and other tailpipe emissions. • Fuel cell vehicles – Develop vehicles with the sole exhaust emission being water.

48 MDB Capital Group The Green Car Report November 10, 2008 ______

Gasoline-Engine vehicles Nissan has already improved fuel efficiency in compact vehicles above that of previous models thanks to a new-type 1.5 liter gasoline engine and the improved XTRONIC CVT (continuously variable transmission). Nissan has also developed an original new technology that continuously changes the amount of event and lift of engine intake valves in response to engine status (accelerator opening, RPMs, and other factors). This technology, called Variable Valve Event and Lift (VVEL) has been adopted in V-6 and V-8 engines now used in the Skyline coupe and in the Infiniti G37 (right image). This technology helps achieve both increased power and improved environmental performance reducing CO2 emissions up to 10%.

For 2010, the company also plans the worldwide introduction of gasoline-engine vehicles with CO2 emissions reduced to the level of diesel engines (approximately 20% reduction). Additionally, Nissan plans to introduce a “three-liter car“ that runs approximately 100km on three liters of gasoline, or has a higher mileage than 30km/l or more than 75 miles per gallon) and reduces carbon emissions by about 30% - roughly equivalent to a hybrid car. The company has yet to produce actual models of this car, but is confident this can be achieved using a range of advanced technologies including super high efficiency turbocharged engines, next-generation CVTs, and integrated control systems. The “three-liter car” is planned for introduction in Japan in 2010.

Clean Diesel-engine Vehicles Clean diesel-engine vehicles have lower exhaust emissions than conventional diesel vehicles. Nissan has already launched a clean diesel engine, the M9R, in the European market, which can run on blends of bio-diesel (a fuel made from renewable resources such as vegetable and animal oils, and can be used in place of diesel fuel). In 2007, Nissan equipped the Qashqai model (left image) in Europe with a clean diesel engine fitted with a filter that traps, oxidizes and almost eliminates soot. In Japan, Nissan will be the first automaker to launch a clean diesel-engine vehicle, the X-Trail, in the fall of 2008. In the coming years, Nissan will launch clean diesel engines that meet future emissions regulations in North America and China. Nissan is also developing clean diesel technology that achieves the SU-LEV (super-ultra-low emission vehicles) level stipulated in the emissions regulations of California.

Flexible-fuel (biofuel compatible) vehicles Biofuels are produced mainly from plant materials such as sugarcane, corn, and construction (wood) waste, so they do not increase the amount of carbon in the atmosphere with combustion. As such, they have attracted considerable attention as a renewable energy. Most of the biofuel used for automobiles is either bio-ethanol or bio- diesel. All of the gasoline engine vehicles that Nissan sells worldwide can already use fuel with a blend of 10% bio-ethanol (E10). In North America, the company is selling vehicles (the Titan FFV pictured right and the Armada FFV) that can use fuels with blends of up to 85% ethanol (E85). In the next couple of years, Nissan plans to introduce E100 vehicles in Brazil that can run on 100% biofuel.

Hybrid vehicles/Plug-In Hybrid Vehicles In early 2007, Nissan launched the Altima Hybrid (left image) in the American market. The Altima Hybrid combines acceleration comparable to that of a V-6 engine with fuel efficiency like that of a compact car. Nissan is currently developing an original hybrid system that will be featured in future hybrid vehicles targeted for release in North America and Japan in fiscal 2010. The company is also moving forward with research and development on plug-in hybrid vehicles that do not emit CO2 when operating in the electric-only range.

Electric vehicles (EVs) Powered by an electric motor and battery, EVs are clean vehicles that do not emit any CO2 or exhaust gas during operation. Nissan has been working to develop EVs since the 1960s, and has introduced and sold a number of these vehicles on the market. The company is currently working together with other industries to develop the necessary infrastructure, especially charging stations, for a more widespread

49 MDB Capital Group The Green Car Report November 10, 2008 ______use of EVs. The company plans to launch a new EV in Japan in early 2010. The Pivo 2 concept car (image above) is a next-generation EV introduced at the 2007 Tokyo Motor Show.

Fuel cell vehicles (FCVs) Fuel cells derive electric energy directly from the reaction of hydrogen and oxygen, and their sole emission is water, making them an exceptionally efficient and clean power source.

Nissan's goal is to develop a practical FCV with superior environmental and energy-saving performance while maintaining ease of handling as an automobile, by employing elements of the various technologies Nissan has cultivated over the years (lithium-ion batteries for electric vehicles, high voltage electric system technology, control technology for hybrid vehicles, high pressure gas storage technology for compressed natural gas vehicles, and more).

In 2005, Nissan achieved driving range and acceleration performance in the latest model X-Trail FCV that was the equivalent of a similar gasoline vehicle. This X-Trail FCV is equipped with a 70 MPa high-pressure hydrogen tank and a fuel cell stack developed in-house by Nissan. The company is now making further improvements on this model with the aim of launching next-generation FCVs in 2010 in North America and Japan.

The compact lithium-ion battery used in the X-Trail FCV was independently developed by Nissan and features a laminated cell design and high-power electrode technology that improve power output by 1.5 times and reduce the volume by more than half compared with the conventional cylindrical cell and a thin cell construction that also enables a thin module design for a substantial improvement in battery cooling efficiency. The battery is located under the floor of the vehicle to achieve compact and highly efficient vehicle packaging, including a low, flat floor, among other advantages.

Low emission vehicles Looking to the future, Nissan has adopted strict restrictions and targets in the design and production of its products. The Sentra CA, launched in the United States in January 2000, was the world's first gasoline vehicle to meet the emissions standards set by the California Air Resources Board (CARB), and received Partial Zero Emissions Vehicle (PZEV) certification.

The Bluebird Sylphy (right image), introduced in Japan in August 2000, acquired the nation's first ultra-low emission vehicle (U-LEV) certification as established by the Ministry of Transport. Then, in 2003, it was certified as Japan's first super ultra-low emission vehicle (SU- LEV) by reducing exhaust emissions 75% below the 2005 emissions standards. SU-LEVs have roughly half the level of emissions of U- LEVs. In May 2006, more than 80% of all new Nissan vehicles sold in Japan were SU-LEVs.

50 MDB Capital Group The Green Car Report November 10, 2008 ______

NISSAN PATENTVEST SUMMARY

51 MDB Capital Group The Green Car Report November 10, 2008 ______

TOYOTA MOTORS COMPANY OVERVIEW

COMPANY STATISTICS Stock Symbol NYSE:TM Share Price $67.09 Market Capitalization (B) $126.6 2007 Sales (B) $262.4

Toyota Motor Corporation was founded in 1937 and is one of the largest car companies in the world with sales of more than $3 billion for its most recent quarter. The company engages in the design and manufacture of passenger cars, minivans, trucks, and related car accessories. The company’s gas-powered cars, pickups, minivans, and SUVs include such models as Camry, Corolla, 4Runner, Land Cruiser, Sienna, the luxury Lexus line, and a full-sized pickup truck, the V-8 Tundra.

Toyota also manufactures and sells a hybrid-powered (gas and electric) sedan -- the Prius. Toyota introduced the Prius in 1997 (the first car of its kind in the U.S. market) and has sold more than 1 million vehicles. Toyota also makes forklifts and manufactured housing, and offers consumer financial services. The Japanese automaker now has 40 vehicle assembly plants around the world and 12 research, development and design centers. It employs 310,000 people and is headquartered in Toyota City, Japan.

TOYOTA GREEN CAR INITIATIVES Toyota is first of the major auto manufactures to push hybrid vehicles into the market and the first to commercially mass-produce and sell such vehicles. Its first commercial model was the Toyota Prius and was first sold in 1997. The company first began providing the hybrid option on its smaller car lines and then later with the Lexus divisions, producing some hybrid luxury vehicles.

Toyota, as a brand, now has three hybrid vehicles in its lineup: the Prius, Highlander, and Camry (see image). The popular minivan, the Toyota Sienna is scheduled to join the hybrid lineup by 2010. The Lexus division also has its own hybrid lineup, consisting of the GS 450h, RX 400h, and the LS 600h/LS 600h L which were launched in 2007.

Toyota is well recognized for its Hybrid Synergy Drive (HSD) system, which is the technology behind its hybrid offerings. The HSD employs a series/parallel configuration which operates as a combination of a series hybrid and a parallel hybrid delivering the energy-savings benefit of the series system together with the acceleration benefit of a parallel system. This system constantly optimizes the flows of mechanical power and electric power for safe and comfortable vehicle operation at the highest possible efficiency by using the energy-efficient battery-powered electric motors at low speeds, and calls on the gas/petrol engine for higher speed performance. The basic components of the system include a Nickel-metal hydride (NiMH) battery, an AC electric motor, the gas/petrol engine, a generator, the power split device and the power control unit (DC-AC inverter/converter). The power split device (see figure below) is a key technology feature in Toyota’s hybrids. This power split component transfers part of the power produced by the gas/petrol engine to drive the wheels, and the rest to the generator to either provide electric power for the electric motors or to recharge the battery. The HSD system delivers the following combined (city and highway) fuel economies: Prius (65 mpg); Highlander (29 mpg); and Camry (39 mpg).

In addition, Toyota has an extensive program for sustainability that combines principles of environmental preservation and corporate activities. The company has a policy of “zeronize” and “maximize” which encloses the vision of minimizing the negative aspects of vehicles such as environmental impact, traffic congestion and traffic accidents, as

52 MDB Capital Group The Green Car Report November 10, 2008 ______well as maximizing the positive elements such as fun, comfort and convenience. Other initiatives in this broad program include:

• High-efficiency diesel and gasoline combustion engines: Over the past 10 years, Toyota has improved the fuel efficiency in all its vehicles up to 28%. The company is downsizing its engines based on direct injection and supercharging. • Accelerate Hybrid transition: Toyota’s goal is to have hybrid model for all of its vehicle series by 2020. In the near term NiMH will remain the major chemistry for its batteries, but the output density is expected to improve. It appears that the company will begin transitioning to lithium- ion chemistries in 2010. • Alternative fuels: The company is conducting research on the conversion of wood chips and other biomass to ethanol. • Electricity: Toyota is financing research activities in order to develop the batteries of the future with greater energy densities than even current Li-ion technologies. • Hydrogen fuel cells: The company continues to develop its fuel cell vehicles, most recently introducing its latest version of the Fuel Cell Hybrid Vehicle (FCHV).

The Hybrid Synergy drive is currently the most widely rolled-out environment-friendly system in the automotive industry. More than 1,000,000 units have been sold since the introduction in 1997 and Toyota's CEO has committed to making every Toyota model available as hybrid vehicle (though all hybrid versions may not be sold in the U.S.).

The company has a number of concept cars available for viewing on the toyota.com web site but gives very little information about the exact technologies. Toyota does boast that it is spending about $23 million every day in research and development to develop more energy efficient and consumer friendly vehicles.

Toyota has stated that by the year 2030, the company plans to offer its entire lineup of cars, trucks, and SUVs with a HSD option. Additionally, at the 2008 Detroit Auto Show Toyota announced that it would introduce (see image below) a plug-in hybrid in 2010 powered with lithium-ion battery technology. This product announcement is Toyota’s counter to the Chevrolet Volt. The Chevy Volt is General Motors announced plug-in hybrid that will be available in 2010 and also includes lithium-ion battery technology.

53 MDB Capital Group The Green Car Report November 10, 2008 ______

TOYOTA PATENTVEST SUMMARY

54 MDB Capital Group The Green Car Report November 10, 2008 ______

Small Cap / Micro Cap Public Companies – Initiation Reports

Advanced Battery (ABAT: $2.61) Buy Altair (ALTI: $1.43) Buy Azure Dynamic (AZD CN: $0.065) Neutral China Ritar Power (CRTP: $1.69) Buy China Sun (CSGH: $0.42) Buy Ecotality (ETLY: $0.05) Buy Ener1 (HEV: $6.87) Neutral Enova (ENA: $1.45) Neutral Hybrid Tech (HYBR: $0.71) Neutral Quantum Fuel (QTWW: $0.79) Buy Satcon Tech (SATC: $1.79) Buy UQM Tech (UQM: $2.19) Neutral Zap (ZAAP: $0.41) Buy

55 MDB Capital Group The Green Car Report November 10, 2008 ______

RESEARCH INITIATION Peter Conley 310-526-5025 ADVANCED BATTERY TECHNOLOGIES, INC. [email protected] (ABAT: $2.61) Jon Hickman 310-526-5024 [email protected]

RECOMMENDATION: BUY Breakthrough Nano-Battery Chemistry PRICE TARGET: $7.00 = Catalyst for Revenue Growth INDUSTRIAL ELECTRICAL INDUSTRY: EQUIPMENT

SECTOR: INDUSTRIAL GOODS INVESTMENT HIGHLIGHTS

Advanced Battery Technologies (ABAT) has developed an innovative COMPANY STATISTICS polymer lithium ion (PLI) battery using nanomaterials which, by virtue of 52-wk range $2.40 – $7.00 the greater available surface area of the chemical components, allow for Avg. Daily Vol. 551,677 the delivery of higher energy densities while improving performance, battery life and safety. Although the company’s PLI batteries are Market Capitalization (M) $138.2 presently in a number of consumer electronics and portable devices, this

technology is particularly well-suited for use in the growing electric EARNINGS SUMMARY vehicle (EV) market. ABAT is already involved in several collaborative FYE Dec 2007A 2008E 2009E 2010E partnership agreements with EV manufacturers. The demand for ABAT's P/SALES 4.28X 2.78X 2.12X 1.72X- PLI batteries has created a backlog of orders for the next 21 months and P/E (cash) 11.95X 6.7X 5.72X 4.66X- SALES (M): Q1 5.4 10A - - has allowed the company report record revenues in the most recent Q2 7.7 11.7A - - quarter. We believe ABAT is now positioned for an extended period of Q3 8.6 13.0 - - significant revenue growth driven by: Q4 10.2 14.5 - - • ABAT’s recent contract with Veken USA to deliver 10,000 Total 31.9 49.2 65.0 80.0- CASH EPS: Q1 0.03 0.09 - - battery modules per month, generating approximately $27.0 Q2 0.07 0.10 - - million in annual revenues; Q3 0.08 0.11 - - • the growth (2.4 billion cells in 2007 growing at double digits Q4 0.05 0.11 - - rates) of smaller, lighter handheld devices such as laptops, Total: 0.23 0.41 0.48 0.59- personal digital assistants (PDA’s) and cellular telephones all which continue to provide a huge market for lithium batteries; SHARE PRICE PERFORMANCE • strong ongoing EV partnerships which include the Aiyingsi Company of Taiwan, Left Coast Conversions, ZAP (ZAAP: $0.47) and the Beijing Guoqiang Global Technology Development Co. (BGTDC); • the recent contract with Beijing's Ding Xin Yi Tong Science & Technology Co., Ltd. To produce 110,000 External Mobile Power Supplies; and • the company’s strong financial position aided by the raise of $21.5 million in a recent private placement In anticipation of expanding demand for its products, ABAT plans to PLEASE READ THE DISCLOSURES expand its assembly lines and double current productions levels by mid ON PAGE 230 FOR IMPORTANT 2009. Given this type of growth, we are estimating revenues of $65 REQUIRED INFORMATION million in 2009 and non-GAAP cash earnings of $0.48 per share and we INCLUDING RISKS AND ANALYST anticipate a similar rate of growth for calendar 2010. As such we are CERTIFICATION. initiating coverage of Advanced Battery Technologies with a Buy rating and a near term price target of $7.00.

MDB Capital Group LLC • 401 Wilshire Blvd, Suite 1020 • Santa Monica, CA 90401 • 310-526-5000 • www.mdb.com 56

MDB Capital Group The Green Car Report November 10, 2008 ______

INVESTMENT SUMMARY Advanced Battery Technologies, Inc., develops, manufactures and distributes rechargeable Polymer Lithium-Ion (PLI) batteries. The Company's products include rechargeable PLI batteries for electric automobiles, motorcycles, mine-use lamps, notebook computers, walkie-talkies and other electronic devices.

During the second quarter of 2008, the company improved their production capabilities by maximizing the utilization of their raw materials, while making sure that their production process is even more efficient than before. The company is successfully implementing a strategy to pursue the new and rapidly growing large-capacity battery cell market, which is currently made up of the electric vehicle, stationary and other large applications. The competition for that market is currently less intense than the small-capacity battery cell markets. Additionally the company is successfully establishing a footprint in the large-capacity battery cell markets, while at the same time securing market share.

In March 2008 the company collaborated with Wuxi Angell on the development of an electric hybrid motorcycle that utilizes cells that were initially designed for mining equipment. Advanced Battery Technologies, Inc. solved key battery issues for this product such as low volume capacity, impractical size, and undesirable weight. This hybrid motorcycle is expected to be exported to Germany, Italy, France, Spain and other European countries throughout the remainder of 2008. In early April 2008 the company signed a contract with Beijing's Ding Xin Yi Tong Science & Technology Co., Ltd., under which Advanced Battery Technologies will produce 110,000 External Mobile Power Supplies. In addition the company also signed a contract with Quanzhou Hongtian Science & Technology Development Co., Ltd. (QHSTD) in June 2008. The PLI cells being sold to QHSTD will be utilized to power a new generation of high-power and long life handheld searchlights. Most recently, ABAT announced the signing of a five-year sales contract with Veken USA Co. Ltd., a China-based leading OEM manufacturer serving many famous power sports brands. During the first year of the contract, which will commence in December 2008, ABAT anticipates delivering 10,000 battery modules per month to Veken USA, generating approximately $27.0 million in annual revenues.

Revenue for the second quarter of 2008 was $11.7 million, an increase of 53% compared to $7.7 million in the second quarter of 2007. The increase in revenue was due primarily to increased sales volume, especially from the large and medium capacity battery cells. The total revenue from sales of large capacity battery cells used by electric vehicles and other large scale battery applications has reached a record level of $5.9 million, generating 50% of the total revenue in the second quarter of 2008. Medium capacity battery cells contributed $5.1 million, generating 43% of total revenue in the second quarter of 2008. For calendar 2009, we are anticipating revenues to climb 30% to $62 million and for non-GAAP cash earnings to reach $0.48 per share. We believe the company has the potential for this type of growth for the foreseeable future.

In August of 2008 the company raised a total of $21.5 million in private placements. The proceeds from the financing will be used primarily for funding expansion of assembly lines and other general corporate purposes, including working capital and possible acquisitions. Management expects to increase their production capacity by 165%.

CORPORATE BACKGROUND Advanced Battery Technologies began operations in 2002 under the name Buy It Cheap.com, Inc. with a focus on Internet retailing. However, this business venture was unsuccessful and in May 2004 Buy It Cheap.com acquired all of the outstanding capital stock of Cashtech Investment Limited, a British Virgin Islands corporation. At the time Cashtech Investment Limited owned 70% of the capital stock of ZQ Power-Tech which was involved in the battery business and Buy It Cheap.com changed its name to Advanced Battery Technologies to reflect the nature of the new business focus. In January 2006, the Chairman, Fu Zhiguo, transferred the remaining capital stock of ZQ Power Tech

57 MDB Capital Group The Green Car Report November 10, 2008 ______

to Cashtech creating ZQ Power-Tech a fully owned subsidiary of Cashtech Investment Limited and the operating unit of Advanced Battery Technologies.

ZQ Power-Tech designs, manufactures and markets rechargeable polymer lithium-ion ("PLI") batteries. PLI batteries produce a relatively high average of 3.8 volts per cell, which makes them attractive in terms of both weight and volume. Additionally, these batteries are able to be manufactured in very thin configurations and with large footprints. PLI cells can be configured in almost any prismatic shape, and can be made thinner than 0.0195 inches (0.5 mm) to fill virtually any shape efficiently. This combination of power and versatility makes rechargeable PLI batteries particularly attractive for use in consumer products such as portable computers, personal digital assistants (PDA's) and cellular telephones.

Currently, ZQ Power-Tech produces only one finished product. This is a miner's lamp equipped with a rechargeable PLI battery that ZQ Power-Tech sells to an agency of the Chinese government. All of ZQ Power-Tech's other sales and pending contracts are for battery cells, which are sold on an OEM basis as a component of various finished products. Among ZQ Power-Tech's current customers are companies that use their batteries in cell phones, laptop computers, and in digital cameras.

In 2004 ZQ Power-Tech produced an automobile battery under a contract from the government of Harbin the capital of the Heilongjiang Province in Northeast China. This rechargeable PLI battery weighs approximately 500 pounds, and is designed for commuter vehicles. The development of ZQ Power-Tech’s vehicle battery technologies has given rise to a variety of other relationships, with the result that ZQ Power-tech is gradually developing a significant presence in the growing market for vehicle batteries. The initial success of the Harbin venture was marked, in the summer of 2004, by a $21 million order to supply 3.7 volt PLI battery sets for electric cars manufactured by Aiyingsi Company of Taiwan. Aiyingsi and ZQ Power-Tech cooperated on development for two years, until in January 2006 Aiyingsi completed initial testing of ZQ Power-Tech batteries in thirty electric bicycles and motorcycles, and announced that it was satisfied with the results. Initial shipments under the order were made during 2006 and have continued to date.

The company recently reported $11.7 million in revenues for the second quarter of 2008, an increase of 53% year-over-year. The increase in revenue was due primarily to increased sales volume, especially from the large and medium capacity battery cells. Net income was $4.7 million for the second quarter of 2008 or $0.09 per diluted share, and increase of 42% year-over-year.

PRODUCT SUITE OVERVIEW POLYMER LITHIUM ION BATTERY The polymer lithium-ion (PLI) battery is a rechargeable battery which evolved from classic lithium ion batteries. PLI batteries first appeared in consumer electronics around 1996 as manufacturers searched for smaller, thinner and lighter devices. Today they are common among portable computers, personal digital assistants (PDA’s) and cellular telephones. Most recently, these batteries are being used in electric transportation/automotive applications.

PLI batteries differ from regular lithium ion batteries in that the lithium-salt electrolyte is held in a solid polymer composite rather than in an organic solvent. This allows polymer cells to have a flexible foil-type case where the electrode sheets and the separator sheets are laminated onto each other. This requires no metal battery casing and allows the battery to be formed in any shape. Additional advantages over regular lithium ion batteries include: lower manufacturing costs, lighter weight and more resistance to

58 MDB Capital Group The Green Car Report November 10, 2008 ______

physical damage. Also, the energy density of PLI batteries is over 20% higher than that of a classical lithium ion battery. As with the classic lithium-ion cells, polymer cells do not exhibit a memory problem and can be charged at any state of charge without having to be completely discharged

ZQ Power Tech’s rechargeable PLI batteries combine high-energy chemistry with state-of-the-art polymer technology for a longer life cycle (about 1,000 – 1,500 cycles) and increased safety. The result is a thin (as little as 0.5 mm) and lightweight rechargeable battery. The company’s PLI batteries are presently in a number of consumer electronics and portable devices such as mobile phones and PDA’s. ZQ Power Tech currently holds seven Chinese patents and one U.S. patent, which covers a high capacity polymeric lithium-ion cell and its production method.

PLI VEHICLE BATTERY Since 2004, ZQ Power Tech has been actively participating in electric vehicle battery development under a contract from the government of Harbin, China. In 2005, the company entered a development and supply agreement with Altair Nanotechnologies, Inc. (ALTI: $1.43) to be supplied with their nano-structured lithium spinel electrode materials. Altair’s nanomaterials are proven to greatly increase the power delivery in vehicle batteries and reduce the time required for recharge. ZQ Power Tech’s rechargeable PLI automobile battery pack has a travel distance of 240 miles per charge and a top speed of 120 mph. It weighs 500 pounds and discharges 5% of its energy per hour, when not in use. The battery can be charged in 3 to 4 hours.

In addition, ZQ Power Tech has partnered with several different companies and organizations to develop batteries for other non-gas powered vehicles. These partnerships include the Aiyingsi Company of Taiwan, Left Coast Conversions, ZAP (ZAAP: $0.41) and the Beijing Guoqiang Global Technology Development Co. (BGTDC). For the 2008 Olympics, ZQ Power Tech supplied BGTDC with a total of 3,000 PLI battery packs for use in electric garbage trucks; the full contract was valued at $10 million. In addition, ZQ Power Tech has developed rechargeable PLI battery packs for electric scooters and all-electric buses.

PLI MINER’S LAMP In addition to batteries, the company also has one finished product to date. This product is a cordless miner’s lamp equipped with a rechargeable PLI battery. ZQ Power Tech has sold its miners lamp to an agency of the Chinese government for several years; however, in 2006 the company received an order from a Hong Kong-based mining company for 450,000 PLI miners’ lamps over a three year period. As such, ZQ Power Tech is expanding its production line of miner’s lamps to a capacity of 100,000 lamps per year. More recently, in November of 2007 ZQ Power Tech signed a $3.2 million contract with Jilin Jinao Mining Equipment Co. (JME) for the use of its rechargeable PLI battery cells in JME’s mining equipment.

COMPETITION There are many companies, large and small, involved in the market for rechargeable batteries. Some of their existing and potential competitors have longer operating histories and significantly greater financial, technical, marketing and other resources. The technology utilized in producing polymer lithium-ion batteries is widely available throughout the world, and is utilized by many competitors most notably by China BAK Battery (CBAK). ZQ Power-Tech’s patents give it some competitive advantage with respect to certain products. However, the key to competitive success will be ZQ Power Tech’s ability to deliver high quality products in a cost-efficient manner. This, in turn,

59 MDB Capital Group The Green Car Report November 10, 2008 ______

will depend on the quality and efficiency of the assembly lines that the company has been developing at their plant in Harbin.

The company is successfully implementing a strategy to pursue the new and rapidly growing large- capacity battery cell market which is currently made up of the electric vehicle, stationary and other large applications. The competition for that market currently is less intense than the small-capacity battery cells markets. Additionally the company is successfully establishing a footprint in the large- capacity battery cell markets, while at the same time securing market share.

FINANCIALS Advanced Battery Technologies most recent financial results are quite encouraging. For its most recent FY 2008 second quarter the company reported record revenues of $11.7 million, representing a 17% growth above the previous quarter and 53% over the same quarter one year ago. In addition, the company’s operating facilities are now at a productive level which will allow for significant market expansion. As such, we anticipate higher levels of sales to be driven by the growing demand of PLI batteries. Our 2H 2008 and full 2009 revenue estimates predict a ramp in sales volumes as the company takes advantage of market demand and its expanded manufacturing capacity. For calendar 2009 we expect a 30% jump in revenues to $62 million.

On June 31, 2008 Advanced Battery Technologies had $22.1 million in cash and cash equivalents; however, in August of 2008 the company raised a total of $21.5 million in a private placement bringing the total cash position to about $43 million. The company plans to utilize this capital to fund the expansion of assembly lines as well as other general corporate purposes, including working capital and possible acquisitions. In particular, the company plans to double current production levels by mid 2009.

VALUATION ABAT is a well established provider of lithium-ion batteries and is now taking its proprietary technology into the electrical vehicle market. We anticipate continued bottom line earnings growth of roughly 20% for next few years. Given this level of growth and profitability, we feel a fair value for the shares should be based on a multiple of our estimate for calendar 2009 earnings. We believe a conservative multiple of 15 fairly discounts the investment risks associated with ABAT. A 15 multiple of 2009 non-GAAP earnings ($0.48 per share) equates to a stock price of roughly $7.00. We feel this is a conservative target price in light of the ongoing expansion in the market, the company’s solid earnings outlook and impressive financial position.

INVESTMENT RISKS Advanced Battery Technologies has only one product line, rechargeable polymer lithium-ion batteries. It will be difficult for the company to establish a reputation in the market so that manufacturers chose their batteries rather than those of other competitors. Unless the company is able to expand their sales volume significantly, they will not be able to operate efficiently and their business could fail. Other risks to consider include: ƒ Advanced Battery Technologies is a small company and may require additional capital to fund it operations. ƒ The company may be unable to gain a substantial share of the market for batteries. ƒ The company may face legal or governmental restrictions on how to do business. ƒ More efficient battery and energy sources may be developed to replace polymer Li-ion batteries.

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MANAGEMENT TEAM ZHINGUO FU, CHAIRMAN AND CHIEF EXECUTIVE OFFICER Mr. Fu organized ZQ Power-Tech in 2002 and has served as Chairman since then. Prior to this, Mr. Fu founded Heilongjiang Guangsha Group in 1993 and served as its Chairman until the year 2000 when it was sold. During this time Heilongjiang Guangsha Group had over 3,000 employees and was engaged in several hundred construction projects, at which time it had annual revenues of over $25 million. Previously, Mr. Fu had twenty years of experience in construction management.

WAN GUOHUA, CHIEF FINANCIAL OFFICER AND DIRECTOR Ms. Guohua has served as Chief Financial Officer of ZQ Power-Tech since 2003. Prior to this, Ms. Guohua was Vice President and Chief Financial Officer of Harbin Ridaxing Science and Technology Co. from 1999 until 2003.

GAO GUOPENG, VICE PRESIDENT, GENERAL MANAGER AND DIRECTOR Mr. Guopeng has served as Vice President and General Manager of ZQ Power-Tech since 2002. From 2000 until 2002, Mr. Guopeng was Technical Manager for Heilongjiang Shuangtai Electric Co.

HONGJUN SI, CHIEF TECHNOLOGY OFFICER AND DIRECTOR Mr. Si has served as Chief Technology Officer of ZQ Power-Tech since 2002. Prior to joining ZQ Power-Tech, Mr. Si was employed as an engineer in the Battery Division of Weiyou Chemical Company, Inc.

ABAT PATENTVEST SUMMARY

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ANNUAL INCOME STATEMENT ANNUAL INCOME STATEMENTS (000'S) CY Ending December 2006 2007 2008E 2009E 2010E

Revenues$ 16,329 $ 31,898 $ 47,530 $ 62,500 $ 77,500 Cost of goods sold 7,345 18,040 23,766 31,000 38,250 Gross profit$ 8,985 $ 13,858 $ 23,764 $ 31,500 $ 39,250 Operating expenses: Research and development 181 384 404 600 800 Selling, general and administrative 1,424 3,283 2,997 3,750 4,500 Total Operating Expenses$ 1,605 $ 3,667 $ 3,402 $ 4,350 $ 5,300 Operating income$ 7,380 $ 10,191 $ 20,363 $ 27,150 $ 33,950 Other income (expenses) (9) 0 36 - - Interest expense (237) - - Interest income - 15 - - - Profit (Loss) before Income Taxes$ 7,134 $ 10,206 $ 20,799 $ 27,150 $ 33,950 Provision from income taxes (907) - 2,855 4,887 7,469 Net Income$ 8,041 $ 10,206 $ 17,944 $ 22,263 $ 26,481 Other comprehensive income Foreign currency translation 844 2,125 4,635 3,000 3,000 Comprehensive income$ 8,885 $ 12,331 $ 22,578 $ 25,263 $ 29,481 Shares fully diluted 45,158 49,644 49,850 50,000 50,000 EPS - fully diluted$ 0.18 $ 0.21 $ 0.36 $ 0.45 $ 0.53 Depreciation and amortization 516 700 871 950 1,000 Stock-Based Compensation 425 561 580 650 700 Cash Earnings$ 8,982 $ 11,467 $ 19,395 $ 23,863 $ 28,181 Cash Earnings (Loss) Per Share$ 0.20 $ 0.23 $ 0.39 $ 0.48 $ 0.56 % of TOTAL REVENUE

Gross Profit 55.0% 43.4% 50.0% 50.4% 50.6% Research and development 1.1% 1.2% 0.9% 1.0% 1.0% Selling, general and administrative 8.7% 10.3% 6.3% 6.0% 5.8% Total Operating Expenses 9.8% 11.5% 7.2% 7.0% 6.8% Operating income 45.2% 31.9% 42.8% 43.4% 43.8% Net Income 49.2% 32.0% 37.8% 35.6% 34.2% Cash Earnings 55.0% 35.9% 40.8% 38.2% 36.4% % YEAR OVER YEAR INCREASE

Total Revenue N/A 95.3% 49.0% 31.5% 24.0% Gross Profit N/A 54.2% 71.5% 32.6% 24.6% Total Operating Expenses N/A 128.5% -7.2% 27.9% 21.8% Operating income N/A 38.1% 99.8% 33.3% 25.0% Net Income N/A 26.9% 75.8% 24.1% 18.9% Cash Earnings N/A 27.7% 69.1% 23.0% 18.1%

62 MDB Capital Group The Green Car Report November 10, 2008 ______

QUARTERLY INCOME STATEMENT QUARTERLY INCOME STATEMENT (000's) CY 2006 CY 2007 CY 2008E 3/31/2006 6/30/2006 9/30/2006 12/31/2006 3/31/2007 6/30/2007 9/30/2007 12/31/2007 3/31/2008 6/30/2008 9/30/2008E 12/31/2008E

Revenues$ 1,909 $ 3,175 $ 4,052 $ 7,193 $ 5,364 $ 7,697 $ 8,573 $ 10,263 $ 10,032 $ 11,748 $ 12,500 $ 13,250 Cost of goods sold 1,207 2,134 2,712 1,293 2,760 4,024 4,592 6,665 4,990 5,776 6,300 6,700 Gross profit$ 702 $ 1,042 $ 1,341 $ 5,900 $ 2,604 $ 3,674 $ 3,981 $ 3,599 $ 5,042 $ 5,972 $ 6,200 $ 6,550 Operating expenses: Research and development - - - 181 43 - - 341 4 - - 400 Selling, general and administrative 373 400 289 362 1,223 394 390 1,277 568 580 600 1,250 Total Operating Expenses$ 373 $ 400 $ 289 $ 544 $ 1,267 $ 394 $ 390 $ 1,617 $ 572 $ 580 $ 600 $ 1,250 Operating income$ 329 $ 642 $ 1,052 $ 5,357 $ 1,337 $ 3,280 $ 3,592 $ 1,982 $ 4,470 $ 5,392 $ 5,600 $ 5,300 Other income (expenses) (61) (70) (53) 175 1 5 5 (10) 8 9 10 10 Interest expense - - - (237) ------Interest income ------15 - - - - Income before Income Taxes$ 269 $ 572 $ 998 $ 5,295 $ 1,338 $ 3,285 $ 3,597 $ 1,986 $ 4,478 $ 5,401 $ 5,610 $ 5,310 Provision from income taxes - - - (907) - - - - 629 726 800 700 Net Income$ 269 $ 572 $ 998 $ 6,202 $ 1,338 $ 3,285 $ 3,597 $ 1,986 $ 3,849 $ 4,675 $ 4,810 $ 4,610 Other comprehensive income Foreign currency translation - - 97 747 250 - 475 1,400 1,591 1,044 $ 1,000 $ 1,000 Comprehensive income$ 269 $ 572 $ 1,096 $ 6,949 $ 1,588 $ 3,285 $ 4,072 $ 3,386 $ 5,439 $ 5,719 $ 5,810 $ 5,610 Shares fully diluted 40,273 44,664 49,127 46,569 49,628 49,628 49,645 49,677 49,689 49,710 50,000 50,000 EPS - fully diluted$ 0.01 $ 0.01 $ 0.02 $ 0.13 $ 0.03 $ 0.07 $ 0.07 $ 0.04 $ 0.08 $ 0.09 $ 0.10 $ 0.09 Depreciation and amortization 232 131 226 (73) 200 105 218 177 296 175 200 200 Stock-Based Compensation 51 114 114 147 125 125 165 146 134 146 150 150 Cash Earnings$ 551 $ 817 $ 1,338 $ 6,276 $ 1,662 $ 3,515 $ 3,980 $ 2,309 $ 4,278 $ 4,997 $ 5,160 $ 4,960 Cash Earnings (Loss) Per Share$ 0.01 $ 0.02 $ 0.03 $ 0.13 $ 0.03 $ 0.07 $ 0.08 $ 0.05 $ 0.09 $ 0.10 $ 0.10 $ 0.10 % of TOTAL REVENUE

Gross Profit 36.8% 32.8% 33.1% 82.0% 48.5% 47.7% 46.4% 35.1% 50.3% 50.8% 49.6% 49.4% Research and development 0.0% 0.0% 0.0% 2.5% 0.8% 0.0% 0.0% 3.3% 0.0% 0.0% 0.0% 3.0% Selling, general and administrative 19.5% 12.6% 7.1% 5.0% 22.8% 5.1% 4.5% 12.4% 5.7% 4.9% 4.8% 9.4% Total Operating Expenses 19.5% 12.6% 7.1% 7.6% 23.6% 5.1% 4.5% 15.8% 5.7% 4.9% 4.8% 9.4% Operating income 17.3% 20.2% 26.0% 74.5% 24.9% 42.6% 41.9% 19.3% 44.6% 45.9% 44.8% 40.0% Net Income 14.1% 18.0% 24.6% 86.2% 24.9% 42.7% 42.0% 19.4% 38.4% 39.8% 38.5% 34.8% Cash Earnings 28.9% 25.7% 33.0% 87.3% 31.0% 45.7% 46.4% 22.5% 42.6% 42.5% 41.3% 37.4% % YEAR OVER YEAR INCREASE

Total Revenue NA NA NA NA 181.0% 142.4% 111.6% 42.7% 87.0% 52.6% 45.8% 29.1% Gross Profit NA NA NA NA 270.9% 252.6% 197.0% -39.0% 93.6% 62.6% 55.7% 82.0% Total Operating Expenses NA NA NA NA 239.8% -1.5% 34.9% 197.5% -54.9% 47.4% 54.0% -22.7% Operating income NA NA NA NA 306.0% 410.8% 241.6% -63.0% 234.3% 64.4% 55.9% 167.5% Net Income NA NA NA NA 398.1% 474.5% 260.2% -68.0% 187.6% 42.3% 33.7% 132.1% Cash Earnings NA NA NA NA 201.5% 330.4% 197.6% -63.2% 157.4% 42.2% 29.6% 114.8% % SEQUENTIAL INCREASE Total Revenue NA 66.3% 27.6% 77.5% -25.4% 43.5% 11.4% 19.7% -2.3% 17.1% 6.4% 6.0% Gross Profit NA 48.4% 28.7% 340.2% -55.9% 41.1% 8.4% -9.6% 40.1% 18.4% 3.8% 5.6% Total Operating Expenses NA 7.2% -27.7% 88.2% 133.0% -68.9% -1.0% 315.1% -64.6% 1.4% 3.5% 108.3% Operating income NA 95.0% 63.7% 409.4% -75.0% 145.3% 9.5% -44.8% 125.6% 20.6% 3.9% -5.4% Net Income NA 112.9% 74.6% 521.2% -78.4% 145.5% 9.5% -44.8% 93.8% 21.5% 2.9% -4.2% Cash Earnings NA 48.1% 63.8% 369.2% -73.5% 111.4% 13.2% -42.0% 85.2% 16.8% 3.3% -3.9%

63 MDB Capital Group The Green Car Report November 10, 2008 ______

BALANCE SHEET BALANCE SHEET (000's) CY 2006 CY 2007 CY 2008 3/31/2006 6/30/2006 9/30/2006 12/31/2006 3/31/2007 6/30/2007 9/30/2007 12/31/2007 3/31/2008 6/30/2008 ASSETS Current Assets: Cash and cash equivalents 4 2 3 13 487 871 2,552 2,705 11,354 22,178 Accounts receivable 2,189 2,842 4,082 4,947 5,246 8,212 11,049 16,027 13,927 7,846 Inventory 310 314 472 439 432 530 1,596 1,159 2,297 1,861 Other receivables 912 825 297 661 1,511 753 106 85 15 47 Advance to suppliers - - 833 1,024 1,860 2,781 2,684 1,609 1,305 2,410 Loans to related parties - - - 885 101 69 70 - - - Taxes receivables 207 - - - - 1,641 1,479 - - - Total current assets$ 3,622 $ 3,982 $ 5,687 $ 7,969 $ 9,636 $ 14,857 $ 19,535 $ 21,585 $ 28,898 $ 34,342 Long-term assets Property and equipment, net 8,342 8,229 8,156 12,889 12,852 12,963 12,985 13,243 13,501 13,648 Security deposit ------6 6 6 Intangible assets - - - 1,540 1,529 1,526 1,523 1,563 1,603 1,616 Goodwill 2,117 2,113 2,147 2,174 147 127 129 2,326 2,420 2,474 Construction in progress 4,312 4,324 4,373 ------Deposits for aqcuisitions of property 2 2 2 ------Rights to use land and power 816 808 813 ------Patents 763 742 746 ------Prepaid expense 1,388 1,300 1,211 ------Total assets$ 21,362 $ 21,499 $ 23,135 $ 24,572 $ 24,164 $ 29,473 $ 34,172 $ 38,723 $ 46,428 $ 52,085

LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable 526 241 264 618 596 1,940 2,381 406 1,636 1,259 Customer deposits 200 108 200 49 64 98 66 75 54 84 Accured expenses and other payables 993 1,025 1,191 315 157 260 217 618 335 1,484 Loan from officers ------736 937 1,168 Short-term bank and other borrowing 4,111 3,848 3,898 - - - - - 901 - Welfare payable 135 146 157 ------Total current liabilities$ 5,965 $ 5,367 $ 5,710 $ 981 $ 817 $ 2,298 $ 2,664 $ 1,835 $ 3,863 $ 3,995 Long-term liabilities Notes payable - - - 384 388 419 425 411 428 -

Total liabilities$ 5,965 $ 5,367 $ 5,710 $ 1,366 $ 1,206 $ 2,717 $ 3,089 $ 2,246 $ 4,291 $ 3,995

Stockholders' Equity: Common stock 42 49 49 50 50 50 50 50 50 50 Additional paid-in capital 17,874 17,982 18,151 17,091 24,898 17,519 17,773 18,030 18,251 18,485 Unearned stock compensation - - - - (6,563) - - - - - Prepaid consulting expenses - - - - (1,030) - - - - - Accumulated other comprehensive loss (2,681) (2,081) (1,055) 975 1,225 1,578 2,054 3,100 4,691 5,735 Retained earnings 162 183 280 5,092 4,379 7,609 11,206 15,297 19,145 23,821 Total stockholders' equity$ 15,397 $ 16,132 $ 17,425 $ 23,206 $ 22,959 $ 26,756 $ 31,083 $ 36,476 $ 42,137 $ 48,090

Total Liabilities and Stockholders' Equity$ 21,362 $ 21,499 $ 23,135 $ 24,572 $ 24,164 $ 29,473 $ 34,172 $ 38,723 $ 46,428 $ 52,085

64 MDB Capital Group The Green Car Report November 10, 2008 ______

RESEARCH INITIATION Peter Conley 310-526-5025 ALTAIR NANOTECHNOLOGIES, INC. [email protected] (ALTI: $1.43) Jon Hickman 310-526-5024 [email protected]

RECOMMENDATION: BUY Leveraging Nano-Materials Leadership in PRICE TARGET: $3.25 Multiple Growth Markets INDUSTRY: SPECIALTY CHEMICALS

SECTOR: BASIC MATERIALS INVESTMENT HIGHLIGHTS COMPANY STATISTICS Altairnano Inc., a small high-tech startup based in Reno, NV., has 52-wk range $1.36 – $5.24 developed a nano-structured lithium titanate spinel oxide (nLTO) and designed the “NanoSafe” battery cell. This new battery chemistry could Avg. Daily Vol. 454,259 be key in solving a number of challenging battery design constraints Market Capitalization (M) $119.49 involved in the development of the next-generation electric and hybrid vehicles (see the Green Car report). Altairnano’s nLTO-based battery EARNINGS SUMMARY chemistry has demonstrated excellent energy/power balance, long cycle FYE Dec 2007A 2008E 2009E 2010E life, fast charging rates, and a better safety profile. These battery cells P/SALES 14X 15X 5X 3X have been successfully tested in battery packs used in Phoenix electric P/E NM NM NM 52X cars and 47 battery packs will be shipped to Phoenix by the end of the SALES (M) Q1 1.1 1.1A 5.9 11.7 year. Moreover, Altairnano’s impressive nanomaterial technology is also Q2 3.1 1.9A 7.3 12.8 Q3 3.4 2.8 8.7 14.0 being employed in the development of pharmaceuticals and higher Q4 1.5 4.0 10.3 16.3 performance industrial pigment products. Under the guidance of new Total 9.1 9.7 32.3 54.8 CEO, Terry Copeland, Altairnano is executing on a strategic plan to Non-GAAP Q1 (0.05) (0.09)A (0.04) 0.01 commercialize its nanomaterial products and generate revenues and EPS: real earnings. We believe the company’s near term revenue growth is Q2 (0.06) (0.06)A (0.03) 0.03 Q3 (0.07) (0.07) (0.02) 0.05 being driven by: Q4 (0.18) (0.06) 0.00 0.07 • the worldwide growing demand for safe, efficient, lightweight energy Total: (0.36) (0.27) (0.09) 0.17 storage solutions;

SHARE PRICE PERFORMANCE • the company’s nLTO battery chemistry that delivers three times the power output of conventional lithium ion (Li-ion) batteries, a battery life close to 20 years, a charge rate of only a few minutes, and excellent safety features; • the recent shipment of battery packs to Phoenix MC, and DesignLine International; and • the many other strategic partnerships with commercial companies (Phoenix, Sherwin-Williams); government agencies (U.S. Air Force, the U.S. Department of Energy); and academic entities

As the company is just now transitioning from an R&D entity to a

company with viable commercial products, it is difficult to anticipate near PLEASE READ THE DISCLOSURES ON term revenues and earnings. However, we are impressed with the PAGE 230 FOR IMPORTANT company’s novel battery chemistry and believe the company is poised REQUIRED INFORMATION for an extended period of significant revenue growth. For calendar 2010 INCLUDING RISKS AND ANALYST we are estimating revenues of $54.8 million and non-GAAP cash CERTIFICATION. earnings of 0.17 per share. Given the predicted industry growth and the company’s current partners, we are initiating coverage with a Buy rating and a target price of $3 25

MDB Capital Group LLC • 401 Wilshire Blvd, Suite 1020 • Santa Monica, CA 90401 • 310-526-5000 • www.mdb.com 65

MDB Capital Group The Green Car Report November 10, 2008 ______

INVESTMENT SUMMARY Altair Nanotechnologies engages in the development and production of advanced ceramic nanomaterials which are being used in high performance products primarily for the automotive, energy, pharmaceutical and pigment industries. Today, nanotechnology is a rapidly growing industry impacting several large markets worldwide. According to Lux Research, nano-enabled products reached $147 billion in revenues in 2007 and they anticipate this figure to grow to $3.1 trillion in 2015. The Lux Research study breaks the market into three main sectors: manufacturing, electronics and life sciences. The manufacturing sector is anticipated to remain the leading market sector in terms of product revenue, with an estimated 45% growth rate reaching a total of $1.8 trillion by 2015. Lux Research also calculates that the electronics applications using nanotechnology will grow at a 51% compound annual growth rate in the coming years and reach $940 billion in the year 2015. The healthcare and life sciences segment is estimated to grow at 46% annually and reach $31 billion. The growth in the use of nanomaterials across various industries is creating significant commercial opportunities for companies such as Altair Nanotechnologies.

The company’s flagship product is the Altairnano NanoSafeTM battery which incorporates nano- titanate materials replacing the graphite used in traditional Li-ion batteries of electric vehicles. The company’s proprietary battery technology enables improved battery characteristics such as increased safety and longer battery life. The company also develops nanomaterials for use in water and air management applications, pharmaceuticals, industrial coatings and pigments.

The company’s commercial partners include AES Corporation, Phoenix Motorcars, Sherwin Williams, Eli Lilly and Company and Spectrum Pharmaceuticals. Altair has also developed strategic partnerships with several government agencies such as the U.S. Air Force, the U.S. Department of Defense, the U.S. Department of Energy and the National Science Foundation. Recently, Altairnano received an order of $540,000 from DesignLine International for four hybrid electric vehicle (HEV) battery packs – three will be used in transportation buses, and one will be used for a testing program. The company anticipates an initial ramp up of orders from DesignLine in FY09.

Altairnano generates revenues from diverse sources such as license fees, product sales, commercial collaborations, contracts and grants. To date, revenues have been minimal and the company has yet to reach profitability. For Q2 FY08 the company generated $1.9 million in revenues and a net loss of $5.6 million or $0.07 per share. However, given the current potential in its Power and Energy business (due to the emerging market for alternative energy sources) revenues in future quarters are expected to grow rapidly. Leveraging its proprietary nanotechnology, particularly with the NanoSafe™ battery, the company has the potential to capture a significant share of the electric car battery market and pave the way to long term growth and profitability.

COMPANY BACKGROUND Altair Nanotechnologies Inc. (Altairnano) was originally incorporated in Ontario, Canada in April 1973 as Diversified Mines Limited. From inception and through 1996 the company was engaged in the acquisition and exploration of mineral properties. As these mineral operations did not prove successful, the company decided to change its business focus and in November 1999 acquired all the rights and assets related to the nanomaterials and titanium dioxide pigment technologies from BHP Minerals International. After a series of several name changes, the company adopted its current name in July 2002.

Today, Altairnano’s primary business involves the development and commercialization of various Nanomaterials and titanium dioxide pigments for a diverse range of energy, pharmaceutical, and industrial applications primarily in the U.S and Canadian market. The company has segmented its operations into three business units: the Power and Energy Group, Performance Materials and Life Sciences. Power and Energy – this unit develops and manufactures lithium titanate spinel (LTO) electrode nanomaterials for use in the production of a new type of lithium-ion (Li-ion) battery. This division

66 MDB Capital Group The Green Car Report November 10, 2008 ______

also engages in the development of lithium titanate battery cells, batteries and battery packs. In September 2006, the company delivered the first Altairnano NanoSafeTM batteries to Phoenix Motorcars. The Altairnano NanoSafeTM battery replaces the graphite in traditional Li-ion batteries with nano-titanate materials thus improving battery characteristics. As opposed to Li-ion batteries, Altairnano’s battery exhibits higher power, greater safety, very rapid recharge, longer life and superior performance at extreme temperatures. The company has a multi-year joint development and equipment purchase agreement with AES Energy Storage, a subsidiary of The AES Corporation, whereby both companies are developing a suite of energy storage solutions specifically for AES. In this regard, the company recently announced that its had successfully completed a demonstration and validation program for a two- megawatt 500 kilowatt-hour battery system developed for AES. The company also has battery development projects with the U.S. Navy and the U.S. Army. The company recently announced the development of a unique lithium titanate battery for the U.S. Navy’s backup power systems in naval applications. Under the U.S. Army contract, the company is expected to deliver prototype batteries by the fall of 2008.

Performance Materials – this unit produces a range of advanced nanomaterials-based products that can be used in air and water treatment applications, customized or ready-to-use powders for industrial coatings, and titanium dioxide pigment used in paints, paper and plastics. The Altair Hydrochloride Pigment (AHP) is the company’s proprietary process for the production of titanium dioxide (TiO2) pigments. In June 2007, the company initiated a joint venture with Sherwin- Williams known as AlsherTitania, to combine Altairnano’s AHP process, with the Sherwin Williams Hychlor Pigment (SWHP) process in the development of high quality titanium dioxide pigments for use in paint and coatings.

Altair Life Sciences – this unit is engaged in the development of RenaZorb and Renalan, both of which are pharmaceuticals for the treatment of elevated phosphate levels in humans and animals related to chronic kidney disease. In 2005, the company signed a license agreement with Spectrum Pharmaceuticals granting Spectrum exclusive rights to develop and commercialize RenaZorb. Spectrum is preparing to file a new drug application with the FDA. In addition, the company has an agreement with Elanco Animal Health, a division of Eli Lilly and Co., to develop and market animal health products using the company’s nanotechnology based products.

Altairnano generates revenues from license fees, product sales, commercial collaborations, contracts and grants. However, these revenues have been inconsistent, which combined with higher operating expenses have resulted in net losses for the company since inception. Revenues for the company’s 2008 second quarter (ended June) totaled $1.9 million versus roughly $3.0 million in the same period in 2007 due mainly to lower automobile battery packs sales. The net loss came in at $5.6 million or $0.07 per share versus a loss $5.4 million or $0.08 per share in the June quarter of 2007.

The company currently has 112 employees with operations in Reno, Nevada and Indiana. The corporate headquarters are in Reno where Altairnano owns a 100,000 square feet facility used for manufacturing, laboratory and testing activities. The company also leases a facility in Indiana which is used for the production of prototype batteries and battery cells.

PRODUCT OVERVIEW As mentioned above, Altairnano has three business units (Power and Energy, Performance Materials, Life Sciences), all based on the company’s unique nano-structured ceramic materials. Below is a detailed description of each unit and its current product portfolio.

THE POWER AND ENERGY UNIT This business unit develops and manufactures a new electrode material called nano-structured lithium titanate spinel oxide (nLTO) used to power up different energy solutions including a new

67 MDB Capital Group The Green Car Report November 10, 2008 ______

generation of environmentally safe, powerful, and reliable battery cells and battery packs, which are critical for the further improvement of current ‘green car’ technologies.

Battery Technology As seen described in section 6 of The Green Car Report, lithium is the lightest and most energetic metal for use in batteries. Specific energy (energy-to-weight ratio) for lithium ion (Li-Ion) cells can reach 200 Wh/Kg, compared to 70 Wh/Kg for nickel metal hydride (NiMH) cells and 30 Wh/Kg for lead acid (PbA) cells. Standard Li-Ion cells also exhibit a higher voltage of 3.6V compared to 1.2V for NiMH cells, and 2.0V for PbA cells. In addition, Li-Ion cells can be formed into a wide variety of shapes/sizes and exhibit a low self discharge rate of about 5% per month as compared to 30% per month in common NiMH battery cells . However, Li-Ion battery technology is not without problems; most notably safety issues surrounding thermal runaway (overheating, catching fire and/or exploding). Research has shown that the graphite component in Li-Ion batteries is the catalyst for thermal runaway and the safety issues. Altairnano’s scientists have replaced the highly reactive graphite electrode material with nLTO electrode material, producing the “NanoSafe” battery cell. Altairnano has tested the battery at temperatures up to 240 oC, more than 100 oC above the temperature at which graphite-based batteries can explode, with zero safety issues. Furthermore, nLTO-based batteries can be charged at temperatures below - 30 oC whereas traditional Li-Ion batteries have virtually no charging capabilities at this temperature. This improved thermal performance of the NanoSafe battery cell supports the use of the battery cell in vehicles as the risk of thermal runaway is minimal. In a conventional automobile, the gas tank is analogous to the amount of energy in the battery, the larger it is, the farther the car can drive. The engine is analogous to the power contained in a battery, the larger it is, the faster the car can accelerate and the faster it can drive. To compare different battery chemistries the industry the energy and power in each battery are normalized per unit weight (specifically energy/power density). As discussed in section 6 of The Green Car Report, battery power is important for EV applications since high bursts of power from their batteries are required for effective freeway acceleration. They also require large amount of energy stored in the batteries since the battery represents the only source of energy to move the car. As seen from the energy vs. power chart at the left (axes are logarithmic), NanoSafe batteries safely deliver power per unit weight several times higher than conventional Li-Ion and other battery chemistries.

68 MDB Capital Group The Green Car Report November 10, 2008 ______

Indeed, Altairnano’s laboratory measurements indicate power density as high as 4000 W/Kg. However, as seen from the figure, Altairnano’s battery has one drawback: energy density. Conventional Li-ion cells deliver close to 200 Wh/Kg of specific energy, but with low power output (less than 1000 W/Kg). In contrast, the NanoSafe batteries deliver a much higher specific power, but with only half (around 90 Wh/Kg) the energy density of conventional Li- Ion batteries. Resuming the car analogy, Altairnano’s battery technology equates to a vehicle with a large and powerful motor, but with a small gas tank. In addition to the improved safety and high-power features, the NanoSafe batteries also offer the following important advantages: ƒ Long battery life. Conventional Li-Ion batteries can be typically charged about 1,000 times before they are no longer useful. Altairnano’s nLTO material has a zero strain property that allows the battery to be charged and discharged much more often than conventional Li-Ion batteries. With the absence of particle fatigue inherent in materials such as graphite, the NanoSafe battery can hold up to more than 9,000 charge and discharge cycles. As an example, if a conventional lithium battery is charged and discharged every day then it would last approximately 2 years. Under the same operating scenario, Altairnano’s battery is projected to last almost 25 years. ƒ Excellent charge rate. Conventional Li-ion batteries require hours to be fully charged, and at low temperatures, charging takes much longer or is at times impossible. The nLTO-based electrode does not react with the electrolytes used in most lithium ion systems. No reaction means that no Solid Electrolyte Interface (SEI) barrier is formed around the electrode, making it easier for lithium ions to reach the surface of the electrode. And, with a nano-structured component, there’s more surface area available to the ions—up to 100 times more surface area than with conventional, graphite electrodes. In addition, the small size of nLTO materials dramatically reduces the distance from the surface to the site. All of these help accelerate recharging and discharging (less than 10 minutes).

THE PERFORMANCE MATERIALS UNIT This business unit employs a unique, proprietary manufacturing process to produce a range of advanced nano-materials for different industrial and home applications. It also offers a new and economically viable pigment production process.

Flexible, patented process Altairnano’s flexible, patented manufacturing process provides precise control over nanomaterial properties, including surface area, morphology, particle size and purity. It can create a variety of material structures from hollow and porous nanomaterials of titanium dioxide through

69 MDB Capital Group The Green Car Report November 10, 2008 ______

specialized coated ceramic materials and compounds. The materials can be used in a wide variety of applications such as batteries, thermal spray coatings, paint pigments, air and water purification systems, bio-compatible materials, abrasion-resistance coatings and phosphate binding drugs. Altairnano has the manufacturing capability to produce large quantities (tons) of these materials.

Solutions for cleaning water and air Algae feed on phosphate nutrients found in water to grow and reproduce. Altairnano has developed Nanocheck, a lanthanum-based compound that binds with phosphate anions and removes the algae’s main food source. Nanocheck is a nano-material with a high surface area designed for quicker response and higher capacity than other algae killing chemicals applications such as chlorine. In addition, it provides phosphate binding over an extended time period. Nanocheck can be used in a variety of water treatment applications, from recreational pools to industrial water management systems.

Industrial coatings Altairnano has developed nanomaterial powders, which can be applied to the surface of metals by standard thermal spray techniques. The resulting coatings are extremely tough and highly resistant to abrasion. They also feature lower porosity over thermal spray coatings created from conventional powders, making them more resistant to corrosion. The nano-materials are well suited for harsh environments such as aerospace propulsion systems, blades and vanes, medical applications, textile and paper machinery, boilers for power plants, waste incinerators and petrochemical plants.

Pigment Process Titanium dioxide is the most widely used white pigment because of its brightness and high refractive characteristics. According to GoldInsider, more than 4 million tons of Titanium dioxide pigments are consumed annually worldwide. This pigment is employed to provide whiteness to products such as paints, coatings, plastics, papers, inks, foods, medicines, as well as most toothpastes. In cosmetic and skin care products, titanium dioxide is used both as a pigment and a thickener. Since the 1950’s, titanium dioxide pigment has been manufactured using either a sulfate or chloride process. However, these processes have been controlled by a few select producers that offer their products at very high costs. The Altair Hydrochloride Pigment (AHP) process is a new generation offering a cost-effective and environmentally friendly alternative for the production of titanium dioxide pigment. Altairnano has been developing the AHP process for more than 10 years to make it flexible, cost-effective and environmentally friendly. The process—backed by worldwide patents— can produce a premium grade, pure-white titanium dioxide pigment in large or small quantities from a wide variety of feedstock. The AHP process can process ilmenite feedstock with relatively high quantities of magnesium, manganese, chromium, and other elements without impacting product quality. Altairnano has formed a joint venture company with the Sherwin-Williams company which is called AlSherTitania LLC (AlSher). AlSher has an exclusive license of the use of the AHP process and it represents the first step to an effective commercialization of the technology.

THE LIFE SCIENCE UNIT Altairnano also targets the Life Science industry with the development of drugs for chronic kidney disease and other biotechnology applications.

Phosphate binder for renal disease: RenaZorb People with end stage kidney disease usually have a build up of phosphate in their body, which can lead to life-threatening cardiovascular complications. Altairnano has developed RenaZorb to help control the phosphate buildup in these kinds of patients. With the use of RenaZorb’s nanotechnology, patients will be able to take fewer pills than with current treatments, which should significantly improve compliance and patients’ lifestyle. RenaZorb has been licensed to Spectrum Pharmaceuticals, Inc. which is currently at the first stage of

70 MDB Capital Group The Green Car Report November 10, 2008 ______

the FDA approval process. The company has also developed Renalan, a drug candidate with the same nanotechnology, for controlling phosphate buildup in dogs and cats.

TiNano Spheres Altairnano also offers a controlled chemical delivery system called TiNano Spheres. These microstructures act as a carrier with the active chemical ingredient inside or on the surface of the carrier until released to the target location. This capability is important for developing a broad platform of drug delivery systems that can address a multitude of market opportunities. Indeed, custom designed TiNano Spheres have the potential to provide highly targeted delivery for medical, chemical and agricultural applications. TiNano Spheres may also prove effective in the sustained release of products for other uses such as tile cleaning, cosmetics, mildew prevention in paints, coatings and fabrics, wood protection and preservation, and controlled fertilizer release.

Biocompatible Materials Altairnano’s Zirconia nanomaterials are being used in the development of dental materials to provide greater flexural strength and wear performance. Altairnano’s Zirconia nanomaterials offer more efficient milling and isometric shrinkage than conventional Zirconia materials. These properties make Altairnano materials ideal for use as dental crowns and bridges. Altairnano is currently developing a nanotechnology that could overcome rejection in orthopedic implants, which is the most common problem in these medical procedures. The company is developing a nano-titanium dioxide coating that exhibits mechanical properties, such as hardness and bond strength, much superior to those of existing implant coatings using hydroxyapatite, a mineral that can be found in teeth and bones within the human body. In addition, Altairnano’s nano-manufactured materials showed high biocompatibility with bone cells which could lead to longer life for the prosthetic implants.

COMPETITION Competition for Altair Nanotechnologies as a whole is more intense in the Power and Energy business segment. Currently, there are many battery manufacturers and automobile companies who are jointly or independently striving to develop better performing battery systems for hybrid and electric vehicles. This competition is coming from small development stage companies and from major (Fortune 500) domestic and international companies including well known auto manufacturers such as Nissan, Toyota, General Motors and Mitsubishi. Much of this effort is coming from a growing number of battery developers in both China and Korea.

Toyota, the industry leader in the production of HEVs, is developing its own Li-ion battery in a joint venture with Matsushita Electric Industrial known as Panasonic EV Energy. Similarly, Nissan and NEC Electronics have established the Automotive Energy Supply Co. to develop and mass produce Li-ion batteries with production beginning sometime in 2009. Another partnership with the same purpose is Lithium Energy Japan, which was formed between Mitsubishi and GS Yuasa. Similar initiatives and development programs are in the works by most of the other major car companies and battery manufacturers.

In North America battery manufacturers such as EnerDel, Johnson Controls, A123 Systems, Hitachi and Compact Power have development programs underway for Li-ion batteries to supply domestic and European automobile manufacturers. Hitachi Electric for example, was awarded a contract by General Motors in March 2008 for an estimated 100,000 Li-ion battery packs per year. A123 and Compact Power are both providing samples under development contracts for the Chevrolet Volt concept PHEV. In addition, EnerDel is expected to begin commercial production of its Li-ion battery for Th!nk Global under a two-year $70 million contract by the end of 2008.

One of Altair Nanotechnologies’ closest competitors in the battery market is EnerDel as EnerDel is also replacing the graphite in the anode of batteries with lithium titanate material. However, the two companies use different technologies resulting in different battery properties. Altarinano’s use of

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nano structured LTO electrode materials to replace the graphite in conventional Li-ion batteries results in batteries with improved characteristics such as greater cycle life, superior performance at extreme temperatures and faster recharge.

Competition in the area of the company’s test-stage RenaZorb is widespread. Competing brands include Tums and Gaviscon by Glaxo Smith Kline, Renvela by Genzyme, Phoslo by Frenesius Medical Care and Fosrenol by Shire Pharmaceuticals. Some of the competition comes in the form of over the counter drugs which if used long term by kidney dialysis patients may pose severe side effects such as increased blood pressure and aluminum dementia. Among existing phosphate binding drugs, Altairnano believes that RenaZorb has the potential for fewer side effects, lower cost and better patient compliance due to the smaller tablet formulation and the need to take fewer doses.

FINANCIALS The company ended its second quarter (June 2008) with cash and cash equivalents of $27.7 million, down from $35.6 million in Q1 2008. Working capital as of June was $25.4 million. On the 2Q conference call management discussed current steps to reduce the cash burn rate. As a result, second quarter’s cash burn of roughly $8.0 million was down more than $6 million from the total cash used in the first quarter of 2008. Management believes the current cash balances are sufficient to continue product development until higher margin revenues and positive cash flow can be generated. As of August 1, 2008, the company had outstanding warrants to purchase more than 1.1 million shares and options to purchase more than 4.4 million shares. And this month, the company announced an additional equity investment of $10 million by Al Yousuf LCC. This private investment will be used as working capital to fund current operations and expansion plans.

Altairnano’s year-to-date sales have not been significant at roughly $3.0 million. The Power and Energy business unit accounted for nearly 57% of this total. The Office of Naval Research, AES and Elanco Animal Health were the largest customers during this period accounting for approximately 22%, 17% and 19% of revenues respectively. For the March and June quarter the company delivered $1.0 million and $2.0 million in revenues respectively. As a result of little revenues and higher operating expenses, the company’s net loss came to $8.3 million or $0.10 per share in Q1 and $5.7 million or $0.07 per share in Q2 for a total net loss of almost $14 million year to date.

SUMMARY AND VALUATION Recently, Altairnano has gone under deep restructuring changes with the departure of former CEO, Alan Gotcher. Now, under the direction of Terry Copeland, the company appears on track to deliver a Li-ion battery technology that is safe, powerful, and reliable. Indeed, Altairnano has solved the design issues that delayed the battery development program with Phoenix MC, and now, Phoenix will use Altairnano’s original Generation 1 batteries for the first 50 demonstration vehicles with the addition of a new safety system by the end of the year.

Clearly, the potential of Altairnano’s nano technology is huge just within the emerging market of ‘green’ cars. Copeland’s team is diligently working to secure a productive long-term supply agreement with Phoenix. In terms of product revenue, we anticipate that the long-term deal with Phoenix could represent more than $20.0 million by FY2009. Moreover, Phoenix demonstration vehicles are expected to qualify for zero-emission vehicle (ZEV) credits under the California Air Resources Board (CARB) Type III program. If Phoenix receives any ZEV credits and is able to monetize them, Altairnano will receive 10% of that monetized value awarded for cars containing its battery packs.

As such, for the rest of FY2008, we are expecting total revenue of $9.7 million, with a GAAP loss per share of $0.27. And for FY2009, we project a <200% increase in revenues resulting in $32.3 million on the top line and a non-GAAP loss per share of $0.09. On a non-GAAP basis, we estimate the company could reach breakeven by the first half of its fiscal 2010. We feel a fair market value for the shares should be based on our estimate of non-GAAP cash earnings for fiscal 2010, $0.17 per

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share. In our view a conservative multiple for the company’s potential growth would be 25. 25 x our $0.17 estimate equates to a fair market value of $4.25. Discounting this number back to the present at 30% equates to a near term target price of $3.25.

We believe Altairnano has one of the most advanced battery technology in the market today. And its nano-scale particles (roughly 1000 times smaller than the diameter of a human hair) have valuable applications in materials and life sciences too. We like the potential upside opportunity in these shares – most particularly in light of the huge growth expected in the Electric Car market. As such, we’re initiating coverage of Altairnano’s shares with a Buy rating and target price of $3.25.

INVESTMENT RISKS Altairnano is a small company that has incurred operating losses since inception, accumulating a deficit of $125.7 million as of the June quarter of 2008. For such a company, reaching significant growth and sustained profitability poses several risks. Some of these risks include:

ƒ the capacity of the company to successfully develop and commercialize its products and services; ƒ more intense competition which might reduce the company’s capacity to grow; ƒ the capacity of the company to generate enough cash to fund operations; ƒ the ability of the company to capitalize on contracts and product development programs; ƒ the ability of the company to make accretive acquisitions and investments; ƒ the possibility of the company’s intellectual property infringing on the property rights of others; and ƒ the loss of critical management which could inhibit the successful execution of the company’s business plan.

MANAGEMENT Terry Copeland, Ph.D, President and Chief Executive Officer- Dr. Copeland was appointed Altair’s President and CEO in June 2008 after serving as interim President since March 2008. He joined the company in November 2007 as Vice President, Operations, of Altair’s Power and Energy group, leading global operations and supply chain management for the company’s lithium titanate battery products. Prior to joining Altair, Dr. Copeland operated T. M. Copeland Associates, an engineering, technology and operations consulting firm. In 2000, Dr. Copeland joined Millennium Cell, Inc., a development stage company in the hydrogen fuels sector as Vice President, Product Development, and Research and Development. Previously, he served as Director of Engineering for Duracell since 1992. At Duracel he was responsible for the program leading to the development of Duracell's on-cell battery tester. Dr. Copeland managed Duracell's largest plant in North America, with 1000 employees, in South Carolina. When Gillette purchased Duracell, Dr. Copeland became the company’s Director of Product Development. He graduated from the University of Delaware in 1973, with a B.S. in Chemical Engineering. He then earned a Ph.D. in Chemical Engineering from the Massachusetts Institute of Technology in 1978, with a minor in law.

John Fallini, Chief Financial Officer- Mr. Fallini joins Altairnano from Alloptic, Inc., a producer of optical networking equipment, where he served as CFO. Prior to his tenure at Alloptic, Mr. Fallini held management positions at three technology companies, including Pacific Bell, where he held various executive and management positions between 1976 and 1998. From 1998 to 2000, he was the COO at Butterfield & Butterfield. Mr. Fallini graduated Cum Laude with a B.S. degree in engineering and applied science from UCLA, and earned an MBA in finance from Oklahoma City University. He is a member of the Institute of Management Accountants (IMA) and an IMA Certified Management Accountant.

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Bruce Sabacky, Ph.D., Vice President, Chief Technology Officer-Previously, Dr. Sabacky was Manager, Process Development for BHP Minerals' Center for Minerals Technology in Reno, Nevada. He received his B.S. and M.S. degrees in metallurgical engineering from South Dakota School of Mines and Technology in Rapid City and his Ph. D. in materials science and mineral engineering from the University of California, Berkeley. Dr. Sabacky has worked as a metallurgical engineer at AMAX Extractive Research Laboratory, and he was the manager of engineering at Bandgap Technology Corp.

C. Robert Pedraza, Vice President, Corporate Strategy -Previously, Mr. Pedraza founded Tigré Trading an institutional equity trading boutique which facilitated transactions for hedge funds and assisted in fund raising. Prior to that Mr. Pedraza held senior sales roles with Fidelity Investments Institutional Services Company, Alliance Capital Management L.P., Compass Bancshares, Inc. and Prudential-Bache Securities, Inc. Mr. Pedraza received his B.S. in Business and Economics from Lehigh University where he was a recipient of the Leonard P. Pool Entrepreneurial Scholarship. He also completed the Graduate Marketing Certificate Program at the Southern Methodist University Cox School of Business.

ALTAIRNANO PATENTVEST SUMMARY

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ANNUAL INCOME STATEMENT ANNUAL INCOME STATEMENTS (000's) FYE: December Fiscal Years 2006 2007 2008E 2009E 2010E

Revenue Product sales 961 4,058 3,389 20,000 35,600 License fees 465 - - 2,000 5,200 Commercial collaboration 1,420 2,910 3,714 6,300 8,200 Contracts & grants 1,479 2,141 2,619 3,950 5,800 Total revenues$ 4,325 $ 9,108 $ 9,722 $ 32,250 $ 54,800

Operating expenses: Cost of sales - product 1,034 5,164 2,379 11,900 16,300 Cost of sales - warranty & inventory reserves - 6,843 (2,865) - - Research & development 10,077 15,444 20,670 18,500 13,000 Sales & marketing 1,879 2,001 2,885 3,500 4,200 General & administrative 7,495 10,770 10,753 10,950 11,900 Depreciation & amortization 1,520 1,954 2,523 2,740 2,900 Notes receivable extinguishment - - 1,722 - - Total Operating Expenses$ 22,005 $ 42,176 $ 38,067 $ 47,590 $ 48,300

Loss from operations$ (17,680) $ (33,067) $ (28,345) $ (15,340) $ 6,500

Other income (expense) Interest expense (172) (134) (101) (150) (230) Interest income 654 1,102 1,160 1,260 1,420 Gain (loss) on foreign exchange (2) (1) (9) - - Total other income (expense)$ 481 $ 966 $ 1,050 $ 1,110 $ 1,190

Loss from continuing operations$ (17,199) $ (32,101) $ (27,295) $ (14,230) $ 7,690 Minority interest share - 631 340 535 630

Net loss$ (17,199) $ (31,471) $ (26,955) $ (13,695) $ 8,320 EPS - fully diluted$ (0.29) $ (0.44) $ (0.32) $ (0.16) $ 0.10 Depreciation and amortization 1,520 1,954 2,523 2,740 2,900 Stock-based compensation 2,284 3,885 2,021 3,042 3,490 Non-GAAP EPS - fully diluted$ (0.22) $ (0.36) $ (0.27) $ (0.09) $ 0.17 Weighted average shares outstanding 59,709 71,008 84,452 85,000 85,350 % of TOTAL REVENUE Operating expenses: Product gross margin -7.6% -27.2% 29.8% 40.5% 54.2% Research & development 233.0% 169.6% 212.6% 57.4% 23.7% Sales & marketing 43.4% 22.0% 29.7% 10.9% 7.7% General & administrative 173.3% 118.2% 110.6% 34.0% 21.7% Total Operating Expenses 508.8% 463.0% 391.6% 147.6% 88.1% Loss from operations -408.8% -363.0% -291.6% -47.6% 11.9% Net loss -397.7% -345.5% -277.3% -42.5% 15.2% % YEAR OVER YEAR INCREASE Revenue NA 110.6% 6.7% 231.7% 69.9% Total Operating Expenses NA 91.7% -9.7% 25.0% 1.5% Loss from operations NA 87.0% -14.3% -45.9% -142.4% Net loss NA 83.0% -14.3% -49.2% -160.8%

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QUARTERLY INCOME STATEMENT QUARTERLY INCOME STATEMENT (000's) FYE : December FY2007 FY2008E FY2009E FY2010E 1Q 2Q 3Q 4Q 1Q 2Q 3QE 4QE 1QE 2QE 3QE 4QE 1QE 2QE 3QE 4QE

Revenue Product sales 177 1,756 1,864 261 164 225 1,000 2,000 3,500 4,500 5,500 6,500 7,500 8,200 9,000 10,900 License fees ------200 400 600 800 1,000 1,200 1,400 1,600 Commercial collaboration 347 735 980 847 521 993 1,000 1,200 1,400 1,500 1,600 1,800 1,900 2,000 2,100 2,200 Contracts & grants 616 575 525 424 384 685 750 800 850 900 1,000 1,200 1,300 1,400 1,500 1,600 Total revenues$ 1,141 $ 3,066 $ 3,370 $ 1,532 $ 1,069 $ 1,903 $ 2,750 $ 4,000 $ 5,950 $ 7,300 $ 8,700 $ 10,300 $ 11,700 $ 12,800 $ 14,000 $ 16,300

Operating expenses: Cost of sales - product 210 2,192 2,084 678 58 21 800 1,500 2,400 2,800 3,200 3,500 3,700 3,900 4,100 4,600 Cost of sales - warranty & inventory reserves - - - 6,843 - (2,865) ------Research & development 2,997 3,239 4,423 4,784 5,258 5,112 5,100 5,200 5,000 4,750 4,500 4,250 4,000 3,500 3,000 2,500 Sales & marketing 381 409 519 692 666 769 700 750 800 850 900 950 1,000 1,050 1,100 1,050 General & administrative 2,611 2,601 2,386 3,172 3,263 2,440 2,500 2,550 2,600 2,700 2,800 2,850 2,900 2,950 3,000 3,050 Depreciation & amortization 431 474 507 542 573 640 650 660 670 680 690 700 710 720 730 740 Notes receivable extinguishment - - - - - 1,722 - - - - - Total Operating Expenses$ 6,630 $ 8,915 $ 9,919 $ 16,711 $ 9,818 $ 7,839 $ 9,750 $ 10,660 $ 11,470 $ 11,780 $ 12,090 $ 12,250 $ 12,310 $ 12,120 $ 11,930 $ 11,940

Loss from operations$ (5,489) $ (5,850) $ (6,549) $ (15,179) $ (8,749) $ (5,936) $ (7,000) $ (6,660) $ (5,520) $ (4,480) $ (3,390) $ (1,950) $ (610) $ 680 $ 2,070 $ 4,360

Other income (expense) Interest expense (35) (32) (33) (34) (27) (23) (25) (26) (30) (35) (40) (45) (50) (55) (60) (65) Interest income 343 293 215 251 382 248 250 280 300 310 320 330 340 350 360 370 Gain (loss) on foreign exchange (0) 0 1 (2) (3) (1) (2) (3) ------Total other income, net$ 308 $ 261 $ 182 $ 215 $ 352 $ 224 $ 223 $ 251 $ 270 $ 275 $ 280 $ 285 $ 290 $ 295 $ 300 $ 305

Loss from continuing operations$ (5,181) $ (5,588) $ (6,367) $ (14,965) $ (8,397) $ (5,712) $ (6,777) $ (6,409) $ (5,250) $ (4,205) $ (3,110) $ (1,665) $ (320) $ 975 $ 2,370 $ 4,665 Minority interest share - 158 237 237 108 52 80 100 120 130 140 145 150 155 160 165

Net loss$ (5,181) $ (5,431) $ (6,130) $ (14,728) $ (8,289) $ (5,660) $ (6,697) $ (6,309) $ (5,130) $ (4,075) $ (2,970) $ (1,520) $ (170) $ 1,130 $ 2,530 $ 4,830 EPS - fully diluted$ (0.07) $ (0.08) $ (0.09) $ (0.21) $ (0.10) $ (0.07) $ (0.08) $ (0.07) $ (0.06) $ (0.05) $ (0.03) $ (0.02) $ (0.00) $ 0.01 $ 0.03 $ 0.06 Depreciation and amortization 431 474 507 542 573 640 650 660 670 680 690 700 710 720 730 740 Stock-based compensation 993 808 762 1,322 493 243 455 830 950 735 525 832 560 940 1,200 790 Non-GAAP EPS - fully diluted$ (0.05) $ (0.06) $ (0.07) $ (0.18) $ (0.09) $ (0.06) $ (0.07) $ (0.06) $ (0.04) $ (0.03) $ (0.02) $ 0.00 $ 0.01 $ 0.03 $ 0.05 $ 0.07 Weighted average shares outstanding 69,264 69,926 70,024 71,009 84,220 84,488 84,500 84,600 84,800 85,000 85,100 85,100 85,200 85,300 85,400 85,500 % of TOTAL REVENUE Operating expenses: Product gross margin -18.5% -24.9% -11.8% -159.6% 64.6% 90.7% 20.0% 25.0% 31.4% 37.8% 41.8% 46.2% 50.7% 52.4% 54.4% 57.8% Research & development 262.7% 105.6% 131.2% 312.4% 491.9% 268.6% 185.5% 130.0% 84.0% 65.1% 51.7% 41.3% 34.2% 27.3% 21.4% 15.3% Sales & marketing 33.4% 13.3% 15.4% 45.2% 62.3% 40.4% 25.5% 18.8% 13.4% 11.6% 10.3% 9.2% 8.5% 8.2% 7.9% 6.4% General & administrative 228.9% 84.8% 70.8% 207.1% 305.2% 128.2% 90.9% 63.8% 43.7% 37.0% 32.2% 27.7% 24.8% 23.0% 21.4% 18.7% Total Operating Expenses 581.1% 290.8% 294.3% 1091.1% 918.4% 411.9% 354.5% 266.5% 192.8% 161.4% 139.0% 118.9% 105.2% 94.7% 85.2% 73.3% Loss from operations -481.1% -190.8% -194.3% -991.1% -818.4% -311.9% -254.5% -166.5% -92.8% -61.4% -39.0% -18.9% -5.2% 5.3% 14.8% 26.7% Net loss -454.1% -177.1% -181.9% -961.7% -775.4% -297.4% -243.5% -157.7% -86.2% -55.8% -34.1% -14.8% -1.5% 8.8% 18.1% 29.6% % YEAR OVER YEAR INCREASE Revenue 108.9% 190.1% 349.4% -22.3% -6.3% -37.9% -18.4% 161.2% 456.6% 283.6% 216.4% 157.5% 96.6% 75.3% 60.9% 58.3% Total Operating Expenses 25.8% 78.8% 102.1% 144.3% 48.1% -12.1% -1.7% -36.2% 16.8% 50.3% 24.0% 14.9% 7.3% 2.9% -1.3% -2.5% Loss from operations 16.2% 48.9% 57.5% 211.8% 59.4% 1.5% 6.9% -56.1% -36.9% -24.5% -51.6% -70.7% -88.9% -115.2% -161.1% -323.6% Net loss 13.7% 43.3% 51.2% 207.1% 60.0% 4.2% 9.2% -57.2% -38.1% -28.0% -55.7% -75.9% -96.7% -127.7% -185.2% -417.8% % SEQUENTIAL INCREASE Revenue -42.1% 168.7% 9.9% -54.6% -30.2% 78.0% 44.5% 45.5% 48.8% 22.7% 19.2% 18.4% 13.6% 9.4% 9.4% 16.4% Total Operating Expenses -3.1% 34.5% 11.3% 68.5% -41.2% -20.2% 24.4% 9.3% 7.6% 2.7% 2.6% 1.3% 0.5% -1.5% -1.6% 0.1% Loss from operations 12.8% 6.6% 12.0% 131.8% -42.4% -32.2% 17.9% -4.9% -17.1% -18.8% -24.3% -42.5% -68.7% -211.5% 204.4% 110.6% Net loss 8.0% 4.8% 12.9% 140.3% -43.7% -31.7% 18.3% -5.8% -18.7% -20.6% -27.1% -48.8% -88.8% -764.7% 123.9% 90.9%

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BALANCE SHEET ANNUAL INCOME STATEMENTS (000's) FYE: December Fiscal Years 2006 2007 2008E 2009E 2010E

Revenue Product sales 961 4,058 3,389 20,000 35,600 License fees 465 - - 2,000 5,200 Commercial collaboration 1,420 2,910 3,714 6,300 8,200 Contracts & grants 1,479 2,141 2,619 3,950 5,800 Total revenues$ 4,325 $ 9,108 $ 9,722 $ 32,250 $ 54,800

Operating expenses: Cost of sales - product 1,034 5,164 2,379 11,900 16,300 Cost of sales - warranty & inventory reserves - 6,843 (2,865) - - Research & development 10,077 15,444 20,670 18,500 13,000 Sales & marketing 1,879 2,001 2,885 3,500 4,200 General & administrative 7,495 10,770 10,753 10,950 11,900 Depreciation & amortization 1,520 1,954 2,523 2,740 2,900 Notes receivable extinguishment - - 1,722 - - Total Operating Expenses$ 22,005 $ 42,176 $ 38,067 $ 47,590 $ 48,300

Loss from operations$ (17,680) $ (33,067) $ (28,345) $ (15,340) $ 6,500

Other income (expense) Interest expense (172) (134) (101) (150) (230) Interest income 654 1,102 1,160 1,260 1,420 Gain (loss) on foreign exchange (2) (1) (9) - - Total other income (expense)$ 481 $ 966 $ 1,050 $ 1,110 $ 1,190

Loss from continuing operations$ (17,199) $ (32,101) $ (27,295) $ (14,230) $ 7,690 Minority interest share - 631 340 535 630

Net loss$ (17,199) $ (31,471) $ (26,955) $ (13,695) $ 8,320 EPS - fully diluted$ (0.29) $ (0.44) $ (0.32) $ (0.16) $ 0.10 Depreciation and amortization 1,520 1,954 2,523 2,740 2,900 Stock-based compensation 2,284 3,885 2,021 3,042 3,490 Non-GAAP EPS - fully diluted$ (0.22) $ (0.36) $ (0.27) $ (0.09) $ 0.17 Weighted average shares outstanding 59,709 71,008 84,452 85,000 85,350 % of TOTAL REVENUE Operating expenses: Product gross margin -7.6% -27.2% 29.8% 40.5% 54.2% Research & development 233.0% 169.6% 212.6% 57.4% 23.7% Sales & marketing 43.4% 22.0% 29.7% 10.9% 7.7% General & administrative 173.3% 118.2% 110.6% 34.0% 21.7% Total Operating Expenses 508.8% 463.0% 391.6% 147.6% 88.1% Loss from operations -408.8% -363.0% -291.6% -47.6% 11.9% Net loss -397.7% -345.5% -277.3% -42.5% 15.2% % YEAR OVER YEAR INCREASE Revenue NA 110.6% 6.7% 231.7% 69.9% Total Operating Expenses NA 91.7% -9.7% 25.0% 1.5% Loss from operations NA 87.0% -14.3% -45.9% -142.4% Net loss NA 83.0% -14.3% -49.2% -160.8%

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RESEARCH INITIATION Peter Conley 310-526-5025 AZURE DYNAMICS CORPORATION [email protected] (AZD: $0.065) Jon Hickman 310-526-5024 [email protected]

RECOMMENDATION: NEUTRAL Heavy Duty Powertrains for Trucks and PRICE TARGET: $0.20 Vans Powering Revenue Growth INDUSTRY: TECHNOLOGY SOFTWARE

SECTOR: INDUSTRIAL PRODUCTS INVESTMENT HIGHLIGHTS COMPANY STATISTICS Azure Dynamics supplies powertrain and control systems for hybrid 52-wk range $0.04 - $0.41 electric and electric vehicles with a specific focus on general delivery Avg. Daily Vol. 788,805 trucks and shuttle buses. The company also provides electric drive solutions for a variety of light to heavy duty commercial vehicles. Though Market Capitalization (M) $18.6 a very small company on a capitalization basis, the company has

developed key proprietary technology and has partnered with important EARNINGS SUMMARY industry leaders to develop and distribute its products. Azure’s key FYE Dec 2007A 2008E 2009E 2010E strategic partner is Ford Motor Company, for which Azure provides a P/SALES 5.0x 1.7x 1.0x 0.7x parallel hybrid electric drive system (Balance Hybrid Electric) for the E- P/E NM NM NM NM SALES (M): Q1 0.16 0.37A 4.5 7.5 350 and E-450 Vans. In addition the company is now selling a series Q2 0.59 3.4A 5.5 8.0 electric drive system to propel the StarTrans shuttle buses. During the Q3 1.5 2.8 5.0 8.5 second quarter of 2008, the company shipped 49 hybrid electric vehicle Q4 0.52 4.0 7.0 10.0 systems, including 35 Balance Hybrid Electric systems and 14 CitiBus Total 2.8 10.5 22.0 34.0 shuttle bus systems. As a result revenues for the quarter climbed to $3.4 CASH EPS: Q1 (0.03) (0.03) (0.02) (0.01) million, up 470% year-over-year. We anticipate that Azure electric drive Q2 (0.03) (0.03) (0.02) (0.01) systems will gain more awareness in the market and that revenues will Q3 (0.04) (0.03) (0.02) (0.01) Q4 (0.04) (0.02) (0.02) (0.00) continue to climb driven by: Total: (0.13) (0.10) (0.07) (0.03) ƒ rapid industry growth as vehicle manufactures around the world move toward electric and hybrid technologies; SHARE PRICE PERFORMANCE ƒ increasing demand for the company’s E-Force line of motors, controllers and converters for electric vehicles; and ƒ new sales from the company’s LEEP system for refrigerated trucks and lift systems for aerial boom trucks. We anticipate continued impressive revenue growth in calendar 2008 versus 2007 as product lines transition from development phase to commercial production. However, we also anticipate high costs of revenue and research and development expenses to continue to weigh down on margins. As the company is only now beginning to sell its products, we believe it will be some time before the company generates positive earnings. For calendar 2010 we estimate that revenues might PLEASE READ THE DISCLOSURES approach $34 million, but non-GAAP earnings are still likely to be ON PAGE 230 FOR IMPORTANT negative. Therefore, we are initiating coverage of Azure with a Neutral REQUIRED INFORMATION rating and a target price of $0.20. INCLUDING RISKS AND ANALYST CERTIFICATION.

MDB Capital Group LLC • 401 Wilshire Blvd, Suite 1020 • Santa Monica, CA 90401 • 310-526-5000 • www.mdb.com 78

MDB Capital Group The Green Car Report November 10, 2008 ______

INVESTMENT SUMMARY Azure Dynamics develops electric and hybrid electric technology for the light to heavy duty commercial vehicle category. The company’s proprietary technology includes controls software, power electronics, electric machine design, vehicle systems engineering and vehicle integration. Based on this technology, Azure offers hybrid electric vehicle and electric vehicle control and powertrain systems for three primary target markets including general delivery, shuttle-bus and electric solutions.

Azure has only recently (in early 2008) become a profit oriented company with certain products now generating commercial revenues, but still many products remain in the development stage. Its business model is to use commercial vehicle suppliers to assemble products to Azure’s specifications rather than manufacture the products in-house; these products are then distributed through industry channels to the customer. The company currently has partnership agreements with Ford Motor Company, StarTrans, and Utilimaster Corporation. These companies have been instrumental in the development and distribution of Azure’s CitiBus (G1 series hybrid) and Balance Hybrid Electric (P1 parallel hybrid) systems for general delivery and shuttle buses. During the second quarter of 2008, the company shipped 49 hybrid electric vehicle systems, including 35 gasoline Balance Hybrid Electric Ford E-450 vehicles, 15 of which were shipped to AT&T and 20 were shipped to FedEx Express, and 14 CitiBus shuttle buses to the Pennsylvania Department of Transportation and other customers.

Electric solutions products include electric drive systems and components using Low Emission Electric Power (LEEP) technology. Within this area, the company has partnered with Kidron and has recently signed a Memorandum of Understanding with Altec for the branding, marketing, and sale of its LEEP freeze system for refrigerated trucks and LEEP lift systems for aerial boom trucks, respectively. It also has an agreement with Electro Autos Eficaces of Mexico for electric drive systems and components. During the second quarter of 2008, the company shipped 37 Force Drive electric vehicle systems to various customers.

Second quarter revenue was $3.4 million representing a 470% increase year-over-year. In order to increase revenues and broaden its distribution network, the company is in plans to sign approximately 50 dealers in the next year in the United States and Canada. In the second quarter of 2008, it signed its first four sales and service agreements with Ford dealerships; received an initial order for three units from Con Edison of New York for its Balance Hybrid Electric system integrated on Ford's E450 chassis; and received an order from one of the largest baking companies in the U.S. for two Balance Hybrid Electric Ford E-450 Walk In Vans. The new orders represent the 145th and 146th Balance Hybrid Electric sales since their launch in May 2008.

COMPANY BACKGROUND Azure Dynamics Corporation (AZD) was formed on April 24, 2001 when Azure Dynamics Inc. completed a reverse take-over of Wild Horse Resources Ltd., a dormant public company incorporated in May of 1993 under the laws of Alberta, Canada. Azure Dynamics Inc. was originally spun out of BC Research Inc. (BCR)4 in 1997 with technology surrounding control systems for hybrid electric and electric vehicle powertrains. BC Research effectively transferred all of its HEV technology to Azure Dynamics Inc. in January of 2000. That same year in October, D. Campbell Deacon became the company’s CEO and went on to develop its commercialization strategy and secure its listing on the TSX Venture Exchange by way of the reverse take-over.

Through the reverse take-over, Azure Dynamics Inc. became a wholly-owned subsidiary of Azure Dynamics Corporation (AZD). The company’s shares were first traded on the TSX Venture

4 BC Research Inc. was a Vancouver, British Columbia private company started in 1993 from the non-profit BC Research Council dating back to 1944 that specialized in consulting and applied research and development in the area of plant biotechnology and environment, health and safety, process and analysis, transportation and ship dynamics. BCR was originally created as an integrated technology incubator and consulting company and commenced its hybrid technology research in 1994 under the direction of Dr. Nigel Fitzpatrick (who later became Chairman of the Azure Advisory Board).

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Exchange, however, in June of 2004 the Company moved onto the main Toronto exchange, the TSX. Some of the company’s more significant recent business developments include:

ƒ November 2004 – AZD reached a major milestone with the delivery of the first 30 courier hybrid electric delivery vans in the initial phase of its Purolator Supply Agreement (signed in September 2003), which could see the delivery of up to 2,000 hybrid electric vehicles over a five- year period, thus effectively transitioning the company into a commercial enterprise. Purolator Courier Ltd. continues to be one of the company’s principal customers and in August 2007 increased its order to 105 P1 parallel hybrid delivery vehicles.

ƒ January 2005 – the company acquired Solectria Corporation, a Boston-based hybrid electric powertrain and components supplier (now Azure Dynamics U.S. Inc.). The acquisition established a base for the company’s expansion in the U.S. and strengthened its engineering expertise in hybrid commercial vehicles.

ƒ August 2006 – AZD announced it had signed a supply agreement with StarTrans for production of Azure’s CitiBus hybrid electric shuttle bus. The first units of the CitiBus were delivered in 2007.

ƒ October 2006 – AZD signed a strategic agreement with Ford Motor Company to develop a parallel hybrid electric system for certain Ford E-series commercial vehicle chassis. Production for this product began in Q2 of 2008 and now the company has attracted several additional customers for this product including FedEx.

ƒ May 2007 – the company signed an agreement with FedEx Express to demonstrate and deliver 20 P1 parallel hybrid Ford E450 delivery trucks for the FedEx commercial delivery fleet. These vehicles are to be delivered in 2008.

ƒ October 2007 – AZD finalized an agreement with partner Kidron, a leading U.S. supplier of truck bodies and trailers, for the development of AZD’s Low Emission Electric Power (LEEP) freeze system for cold storage delivery vehicles. The LEEP system developed for Kidron’s Ultra Temp, an advanced hybrid system for refrigerated distribution, stores energy in the cold plate refrigeration system when the engine is running. When the engine is off, the stored energy is used to maintain refrigeration temperatures.

ƒ November 2007 – AZD announced that its Canadian facility in Vancouver, B.C. became certified to the ISO 9001:2000 Quality Management System standard. The company’s Boston, MA facility was so certified since October of 2003.

Additionally, in April 2007 Mr. Deacon resigned as CEO in order to become Chairman of the Board. Scott Harrison was named CEO in his place; Mr. Harrison was chosen for his production and supply chain experience in the automotive industry to help advance AZD’s ongoing product development and commercialization programs.

In early 2008, the Company transitioned from a development stage enterprise to a profit oriented enterprise that is starting to realize significant revenues growth and positive cash flow. For the first and second quarters of 2008 revenues were $0.4 million and $3.4 million, respectively.

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AZD is headquartered in Detroit with offices in four centers across the U.S. and Canada and trades on the TSX Exchange in Canada, the AIM market in London, UK and internationally on the OTCQX. The total number of employees increased from 127 at the end of FY2007 to 140 at June 30, 2008.

PRODUCT SUITE OVERVIEW The company has developed proprietary electric and hybrid electric technology principally for the light to heavy duty commercial vehicle category. The AZD technology delivers up to a 40% fuel economy improvement, up to a 30% savings in maintenance costs, and fewer greenhouse gas emissions. AZD has expertise in the areas of vehicle controls software, power electronics, vehicle systems engineering, and vehicle integration. AZD’s principal business is in supplying hybrid electric vehicle (HEV) and electric vehicle (EV) control and powertrain systems. The company has an established portfolio of proprietary component products that compliment its core technical skills. In conjunction with an extensive base of other component suppliers, AZD is able to offer complete powertrain solutions to its target markets which includes: a shuttle-bus (the AZD CitiBus - G1 series hybrid), a general delivery van (the Balance Hybrid Electric - P1 parallel hybrid), and electric solutions (Force Drive Electric Vehicle Systems, Controllers, Converters, & Low Emission Electric Power). These products are discussed in detail below.

BALANCE HYBRID ELECTRIC E-450 – PARALLEL HYBRID ELECTRIC Working in collaboration with Ford Motor Company, AZD signed an agreement to develop a parallel hybrid electric drive system on Ford’s Cutaway and Strip chassis platforms E-350 (left) and E-450 (right). Ford will distribute the hybridized chassis through Ford’s distribution channels and will provide technical support in the integration of the hybrid system with the engine and transmission. The company’s parallel hybrid technology uses both an engine and an electric motor to power the truck (see figure below). A patented mechanical connection between the engine and the electric motor also functions as a generator to create and capture regenerative energy when braking. The details of this drive system are described below:

ƒ Starting: When the car is first started, the battery can power accessories such as the radio, air-conditioning, etc. The engine turns on if the battery needs charging. ƒ Low Speeds: At low speeds, the electric motor can often power the car on its own. ƒ Acceleration: During heavy acceleration, the gasoline engine and electric motor work together. ƒ Cruising: At steady cruising speeds, the engine alone powers the car, with help from the electric motor if needed.

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ƒ Braking: When braking, the electric motor is reversed – instead of the motor turning the wheels, the wheels now turn the motor, which acts like a generator to charge the battery. ƒ Stopped: When idling, the engine and motor are turned off to avoid wasting energy, while the battery continues to run the accessories. This type of hybrid technology is better adapted to urban vehicles that also need to operate effectively on highways. AZD’s Balance Hybrid Electric technology is well suited for the commercial fleet market such as taxi fleets, delivery/courier vehicles and customer service vehicles that experience a lot of urban driving.

The agreement to develop a parallel hybrid powertrain on the Ford E-series chassis provides AZD with avenue to achieve rapid penetration of the high volume market for commercial vehicles. During the second quarter of 2008, the company completed the production readiness phase of the main Balance Hybrid Electric program and started production of hybrid stripped and cutaway chassis. AZD was able to ship 35 gasoline Balance Hybrid Electric (P15 parallel hybrid) Ford E-450 electric vehicles systems during the second quarter. The company is in the process for the production build of 105 P1 E-450 to be delivered to Purolator Courier Ltd. in the second half of 2008. AZD also announced that it had delivered demonstration vehicles to Florida Power and Light (FPL) and another (unnamed) customer that could become the lead customer for this product.

CITIBUS – SERIES HYBRID ELECTRIC AZD has developed a commercially available series hybrid electric CitiBus (left) for paratransit and shuttle bus customers. The CitiBus uses the Senator HD6 (Heavy-Duty) bus body manufactured by StarTrans, a member of Supreme Bus Corporation.

In series hybrid vehicles, the electric motor (right) obtains energy from one of two sources: either a battery pack or an on-board generator powered by the vehicle’s engine. The batteries are recharged by an engine generator called a “gen-set”7 and by regenerative energy produced when the vehicle is braking. Below are some advantages that AZD Hybrid Electric CitiBus provides:

ƒ Engine-off at idle ƒ Regenerative braking ƒ Up to 40% fuel economy improvement depending on duty cycle ƒ Up to 30% reduction in greenhouse gas emissions ƒ Up to 30% reduction in vehicle maintenance During the second quarter of 2008 the company completed shipment on an order from Pennsylvania Department of Transportation (PennDOT) for 10 AZD CitiBus (G18 series hybrid) shuttle buses with an option for 15 additional buses at a later date. Four additional CitiBus shuttle buses were shipped to several other customers.

5 Parallel hybrid for class 3 to 5 trucks and buses - 10,000 - 19,000 lbs. Gross Vehicle Weight (GVW). 6 StarTrans's Senator HD body utilizes a strong fiberglass-reinforced panel (FRP) skin which encases a rugged steel cage for optimal safety. StarTrans is known for their smooth styling, passenger comfort and convenience, spacious interior and windows, engineering excellence and quality construction. 7 An engine-generator is the combination of an electrical generator and an engine mounted together to form a single piece of equipment. This combination is also called an engine-generator set or a gen-set. 8 G1 Series Hybrids - 7,500 to 16,000 lbs. GVW.

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FORCE DRIVE – ELECTRIC DRIVE SOLUTIONS AZD has developed a full range of electric drive components, including AC motors, inverters, and converters, controllers and battery chargers The company’s proprietary Force Drive solutions have been deployed in applications such as solar cars, passenger vehicles (left) and various models of electric delivery trucks for more than seventeen years. These components are utilized in electric drive systems that do not have internal combustion engines. Instead, an electric motor (right) propels the vehicle from a battery pack that stores energy. The company’s Force Drive solutions have a pure brushless design, which means fewer moving parts, and thus fewer parts to maintain.

Below is a list of the company’s various motors with digital motor controllers and DC-to-DC Converters:

ƒ AC24 motor (& optional AT 1200 Gearbox) with DMOC445 controller: This drive system is designed to provide enough torque9 and power to drive vehicles in the 1,000 to 3,500 lbs. The optional gearbox provides a 10:1 overall vehicle drive ratio with differential included. ƒ AC24LS motor (& optional AT 1200 Gearbox) with DMOC445 controller: This drive system is designed to provide enough torque and power to drive vehicles in the 1,000 to 3,500 lbs. The optional gearbox provides a 10:1 or 12:1 overall vehicle drive ratio with differential included. Difference between the AC24 and the AC24LS is in the gear ratios that are used throughout a vehicle to increase torque. ƒ AC55 motor with DMOC445 controller: The motor controller inverts the DC voltage from the battery to AC voltage for the motor and demands a torque from the motor based on the input from the accelerator pedal. Unlike an internal combustion engine, the motor can provide full torque at zero speed, and it has a much wider speed range than an engine. This drive system is designed for vans, trucks and buses weighing from 5,000 to 11,000 lbs. The motor is of a low-speed design for a typical 3-5:1 overall vehicle drive ratio. ƒ AC90 motor with DMOC645 controller: The motor controller inverts the DC voltage from the battery to AC voltage for the motor and demands a torque from the motor based on the input from the accelerator pedal. Unlike an internal combustion engine, the motor can provide full torque at zero speed, and it has a much wider speed range than an engine. This drive system is designed for vans, trucks and buses weighing from 10,000 to 18,000 lbs. The motor is of a low-speed design for a typical 5-10:1 overall vehicle drive ratio. ƒ DCDC750 converter: This sealed, solid-state DC-to-DC converter takes a range of input voltages and delivers fixed 12VDC output at a maximum of 63A to run vehicle’s accessories such as fans, lights, horn, etc. These DC-to-DC converters are fully automatic. The input supply voltage can be turned on whether or not the load is connected to the motor. Azure’s Force Drive components are supported with key patents (7 issued, 6 pending) surrounding energy and battery management. In addition, AZD’s patented Smart Energy Management Software creates regenerative energy and is able to recapture the energy normally lost from braking to charge the battery pack and boost the driving range. Some other features and advantages the AZD’s motors are detailed below. ƒ AC induction motors (Simple design, low-cost, low maintenance and very reliable) ƒ Air-cooled ƒ High-efficiency brushless10 design

9 Torque is the measure of the force applied to rotate an object about an axis.

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ƒ Compact, lightweight construction ƒ Low electrical resistance ƒ Cost effectiveness and high reliability ƒ Internal contactor with pre-charged circuitry11 (This feature will disable the system during inactive periods and act as an emergency disconnect should the motor current regulator fail) In the second quarter of 2007, the company signed a supply agreement with Electro Autos Eficaces (EAE) of Mexico. This Initial agreement is for 1,000 Force Drive electric vehicle systems for integration into the Nissan Tsuru platform, which is commonly used in the municipal fleet of Mexico City. The pace of the company’s municipal vehicles program in Mexico City has been disappointing, but the company believes it represents significant potential and the company is continuing the production of drive systems planned for delivery against a 200 unit release within the supply agreement to EAE.

LOW EMISSION ELECTRIC POWER SYSTEM – LEEP As discussed earlier, AZD signed a supply agreement with Kidron to provide LEEP systems for integration into the heart of the Ultra Temp’s truck body units. LEEP systems deliver efficient power refrigeration while cutting fuel consumption and emissions of a conventional mechanical system by 90% (see chart below). LEEP has the potential to replace the ancillary motor/generators used in the other method of cooling refrigerator trucks, thereby reducing fuel consumption, noise and emissions.

The LEEP system uses the vehicle’s powertrain to generate clean power, which is stored in the refrigeration system. When the engine is shut down, the stored energy maintains the cargo area temperature. This same system can be used in telecom service trucks to provide power to underground and above-ground cables and networks while the engine is off. The company is currently developing two models of the LEEP system: a refrigeration variant (LEEP Freeze – top left) and a utility/telecom truck variant (LEEP Lift – left). The chart above details the amount of carbon emissions that can be eliminated with the use of a system such as LEEP. AZD anticipates purchase orders for initial prototype deliveries to commence in 2008, with purchase orders for production deliveries to commence in 2009.

10 A synchronous electric motor which is powered by direct-current electricity (DC) and which has an electronically controlled commutation system, instead of a mechanical commutation system based on brushes. A brush is a device which conducts current between stationary wires and moving parts (copper or brass). 11 Pre-charging reduces the electrical hazards which may occur when the system integrity is compromised due to hardware damage or failure.

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COMPETITION Azure competes in two segments of the market for hybrid electric vehicles: the light duty passenger market and the heavy duty market. In the light duty passenger market, the company competes with large automotive OEMs such as Toyota, Honda, General Motors, and Ford, which currently offer hybrid passenger vehicles. Additionally other OEMs including Daimler Chrysler, Nissan and General Motors have announced plans to market HEV passenger cars and light trucks over the next few years. However, these efforts are not truly direct competition for Azure, as the company is really a component supplier and could possibly be included in the HEV plans of any of the above named companies much like the company’s partnership with Ford. The company does compete with other powertrain suppliers such as Quantum Technologies, Enova Systems and Allison Transmission, but focuses on components for commercial vehicle fleets rather than passenger vehicles.

In the heavy duty market, Azure competes with component manufacturers and system integrators such as ISE Research Corporation and the following.

ƒ BAE Systems has a hybrid electric propulsion system for large vehicles in city transit buses, military and commercial trucks. ƒ ISE Research Corporation is a supplier of electric and hybrid-electric drive systems for heavy-duty bus and truck applications. ƒ Eaton Corporation is developing hybrid electric and hybrid hydraulic powertrains for commercial vehicles in both the medium and heavy duty markets. ƒ Enova Systems, Inc. is developing electric powertrain components with the Hyundai Heavy Industries division with a focus on medium and heavy duty markets. ƒ Quantum Technologies develops and manufactures grid-rechargeable plug-in hybrid electric powertrains for passenger automobiles. ƒ Allison Transmission, Inc., a major manufacturer of automatic transmissions and powertrain components for the truck and bus industries, is currently developing an electric engine-assist module that would replace the automatic transmission in a bus or heavy truck. ƒ Other companies, such as DRS, which focus exclusively on military vehicle applications. Azure’s competitive advantages include patents for its intellectual property in the company’s areas of expertise including control software, hardware design and system integration expertise. Azure also employs equally effective but smaller powertrain components than the typical HEV system in order to contain costs.

FINANCIALS AZD posted revenues of $3.4 million for the second quarter of its 2008 fiscal year, which was up 814% from $0.4 million in the previous quarter, and up 470% from $0.6 million during the same quarter a year ago. The increase in revenues was due to sales of 14 Azure CitiBus shuttle buses and 35 Balance Hybrid Electric systems as well as deliveries of 37 Force Drive electric vehicle systems and components to other customers.

Gross margin for the quarter was $0.2 million or a negative 5.4% of revenues compared to a gross margin of $0.1 million or a negative 40% in the previous quarter and a gross margin of $10,000 in the same quarter a year ago. The decrease in gross margin was due to typical negative production variances associated with low volume early-stage production.

Operating expenses increased to $8.0 million or 13% from $7.0 million in the same quarter a year ago and up 4.2% sequentially. This increase in operating expenses was due higher levels of engineering expenses as a result of the company’s ongoing technology development. On the bottom-line, second quarter GAAP net loss was $8.1 million or $0.03 per share compared to a net loss of $8.0 million or $0.03 per share during the previous year, and a net loss of $7.0 million, or

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$0.03 per share during the same quarter a year ago. Historically, variations in revenues, gross margin, expenses and net loss are driven primarily by the timing of development projects which vary on a project by project basis.

As of June 30, 2008, the company had $5.4 million in cash and cash equivalents, a current ratio close to 4.8 and working capital of $17.5 million. In addition, the company has in the past, subject to Technology Partnerships Canada (TPC) conditions, been eligible to access a grant of up to $9.0 million available under the terms of the TPC contribution agreement.12 As of December 31, 2007 the company had claimed approximately $7.4 million in accordance with the terms of the TPC agreement. Revenues posted in the first and second quarters of 2008 reflect early sales from the mentioned programs (G1 series hybrid & P1 parallel hybrid). The company expects to see increases in future revenues as it gains additional customers and completes the product launches of the development programs mentioned.

VALUATION Though we believe that the market potential for electrical and hybrid vehicles is huge and that Azure Dynamics has developed a suite of impressive products, we do not foresee the company generating positive cash earnings during the next couple of years. Unlike other participants in the clean tech vehicle market, Azure has yet (to our knowledge) to land a significant long term contract with a major OEM or automotive company. As such, for calendar 2010 we are estimating moderate growth (for the industry) and anticipate revenues of $34 million and non-GAAP cash loss of $0.03. We believe that a fair valuation would be a based on a multiple of revenues. We believe that the company should be valued at 2 times the calendar 2010 revenue estimate, equating to a fair value of about $0.20 per share. As such we are initiating coverage of Azure Dynamics with a Neutral rating and a target price of $0.20.

INVESTMENT RISKS Our expectations for AZD’s success are subject to certain risks some of which are included below:

ƒ Credit risk: AZD’s contribution receivable consists of a receivable due from Technology Partnerships Canada (TPC) only. Currently, there is a delay in payment due to a contract amendment with TPC; however, the Company does not anticipate any difficulty in the collection of amounts due.

ƒ Foreign currency exchange risk: The Company substantially holds its cash in Canadian dollars.

ƒ Liquidity risk: As at June 30, 2008, the Company accounts payable and accrued liabilities were approx. $4.4 mm (2007 - $4.3 mm) which fall due for payment within twelve months of the balance sheet.

MANAGEMENT TEAM SCOTT HARRISON, 41, CHIEF EXECUTIVE OFFICER, DIRECTOR Mr. Harrison comes to Azure Dynamics from Hayes Lemmerz, a two billion US dollar per annum Tier 1 auto supplier, where he was Group President responsible for two global businesses. Before joining Hayes Lemmerz in 2001, Mr. Harrison worked for Fisher Scientific Inc., where he was Vice President and General Manager of the Lab Equipment Group. Mr. Harrison began his automotive career with General Motors where he spent seven years in various positions of increasing responsibility at the

12 AZD is required to make royalty payments equal to the greater of 0.28% of yearly gross business revenues or in accordance with a fixed repayment schedule, with repayment amounts from $0.7 million - $1.0 million per year starting in 2008 and totaling $1.3 million, provided that certain minimum sales levels are achieved. The obligation to make royalty payments commences when the minimum sales levels are achieved until Dec. 31, 2020, or when a cumulative payment ceiling of $20.5 million is reached. The company has made no royalty payments to date.

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Delco Chassis Division. During this time he participated in GM’s Supervisor Exchange Program with Toyota Motor Corporation. With 17 years of direct experience in the automotive industry, Mr. Harrison has a strong record of sales growth, lean implementation, new product introduction as well as operations and supply chain experience.

CURT HUSTON, CHIEF OPERATING OFFICER Mr. Huston is Chief Operating Officer for the company and is responsible for the company's operations and supply chain functions. Mr. Huston comes to Azure Dynamics from Hayes Lemmerz, a two billion US dollar per annum Tier 1 auto supplier, where he was Vice President, North American Wheel Operations responsible for a US$400 million business division with 1,000 employees and four manufacturing facilities. During his tenure, Mr. Huston led a number of organizational restructuring and process improvement initiatives that resulted in significant improvement in the division’s financial performance. He also led new business initiatives that expanded the group’s customer base to include Toyota, Nissan and BMW. Before joining Hayes Lemmerz, Mr. Huston was a Senior Manager at Honeywell International, a global Fortune 100 company with operations in the automotive, aerospace and engineered materials sectors. At Honeywell, Mr. Huston was responsible for the operational performance and strategic planning process for eight manufacturing facilities within the Company’s North American and European automotive parts business. Mr. Huston began his career with Delphi Chassis Systems in 1988 before joining General Motors Corporation in 1994.

RYAN CARR, CHIEF FINANCIAL OFFICER Mr. Carr is Chief Financial Officer for the company and is responsible for all financial, information technology and human resources activities. Mr. Carr came to Azure Dynamics from Ryko Enterprises, a leading global car wash equipment manufacturing and service organization, were he served as Chief Financial Officer. Mr. Carr was successful in leading a number of initiatives to improve liquidity, working capital, operational efficiencies and overall profitability. Mr. Carr has also worked in various financial and operational leadership capacities for leading global companies such as Hayes-Lemmerz, AlliedSignal and Ernst & Young. With over 15 years of finance and operations leadership experience, Mr. Carr has a solid track record of helping companies to achieve their financial objectives.

RONALD IACOBELLI, CHIEF TECHNOLOGY OFFICER Mr. Iacobelli joined Azure from Ballard Power Systems where he developed and led a supplier management program. Prior to that, Mr. Iacobelli spent 7 years at Ford Motor Company as Supplier Quality Manager, Senior Electrical Systems Engineer and Senior Chassis Systems Engineer. His experience includes exposure to all automotive systems with an emphasis on quality, manufacturing, process development and supplier management. Prior to joining Ford, Mr. Iacobelli was a Thermal Station Engineer with Ontario Hydro. He has a Bachelor of Applied Science in Mechanical Engineering from the University of Windsor and holds the P. Eng. designation in Ontario and British Columbia.

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ANNUAL INCOME STATEMENT ANNUAL INCOME STATEMENTS (000's) Fiscal Years 2006 2007 2008E 2009E 2010E

Revenue$ 5,771 $ 2,801 $ 10,503 $ 22,000 $ 34,000 Cost of sales 4,590 3,098 10,832 19,850 24,650 Gross Margin$ 1,181 $ (297) $ (329) $ 2,150 $ 9,350 Cost & expenses Engineering, R&D, & related costs, net 13,466 16,690 21,692 20,600 14,000 Selling & mark eting 3,171 3,683 3,007 3,155 3,725 General & administrative 8,376 7,813 6,975 7,225 7,700 Total Cost & Expenses$ 25,013 $ 28,186 $ 31,674 $ 30,980 $ 25,425 Loss from operations$ (23,832) $ (28,483) $ (32,003) (28,830) (16,075) Interest & other income, net 487 934 473 539 636 Interest expense - - (4) - - Other expense - (2,604) (561) - - Foreign currency gain/(losses) (89) (82) (76) (142) (179) Net loss for the period (23,434) $ (30,235) $ (32,171) $ (28,433) $ (15,618) Deficit, beginning of period (44,195) (67,629) (97,864) (130,035) (158,468) Deficit, end of period$ (67,629) $ (97,864) $ (130,035) $ (158,468) $ (174,086) Weighted average shares outstanding 164,130 214,274 279,376 340,000 360,000 EPS - basic$ (0.14) $ (0.14) $ (0.12) $ (0.08) $ (0.04) EPS - fully diluted$ (0.41) $ (0.46) $ (0.47) $ (0.47) $ (0.48) Amortization of property, equip. & intangible assets 2,529 2,362 2,314 2,270 2,360 Stock option compensation expense 1,696 967 972 1,280 1,620 Cash Earnings$ (19,209) $ (26,906) $ (28,885) $ (24,883) $ (11,638) Cash Earnings (Loss) Per Share$ (0.12) $ (0.13) $ (0.10) $ (0.07) $ (0.03) % of TOTAL REVENUE Cost & expenses Gross margin 20.5% -10.6% -3.1% 9.8% 27.5% Engineering, R&D, & related costs, net 233.3% 595.9% 206.5% 93.6% 41.2% Selling & mark eting 54.9% 131.5% 28.6% 14.3% 11.0% General & administrative 145.1% 278.9% 66.4% 32.8% 22.6% Total Cost & Expenses 433.4% 1006.3% 301.6% 140.8% 74.8% Loss from operations -413.0% -1016.9% -304.7% -131.0% -47.3% Net loss for the period -1984.3% 10180.1% 9778.4% -1322.5% -167.0% % YEAR OVER YEAR INCREASE Revenue NA -51.5% 275.0% 109.5% 54.5% Total Cost & Expenses NA 12.7% 12.4% -2.2% -17.9% Loss from operations NA 19.5% 12.4% -9.9% -44.2% Net loss for the period NA 29.0% 6.4% -11.6% -45.1%

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QUARTERLY INCOME STATEMENT QUARTERLY INCOME STATEMENT (000's) FY2007 FY2008E FY2009E FY2010E 1Q 2Q 3Q 4Q 1Q 2Q 3QE 4QE 1QE 2QE 3QE 4QE 1QE 2QE 3QE 4QE

Revenue$ 156 $ 593 $ 1,534 $ 518 $ 370 $ 3,383 $ 2,750 $ 4,000 $ 4,500 $ 5,500 $ 5,000 $ 7,000 $ 7,500 $ 8,000 $ 8,500 $ 10,000 Cost of sales 67 603 1,731 697 517 3,565 2,850 3,900 4,250 5,000 4,600 6,000 6,000 6,050 6,100 6,500 Gross Margin$ 89 $ (10) $ (197) $ (179) $ (147) $ (182) $ (100) $ 100 $ 250 $ 500 $ 400 $ 1,000 $ 1,500 $ 1,950 $ 2,400 $ 3,500 Cost & expenses Engineering, R&D, & related costs, net 3,947 3,921 4,132 4,690 4,737 5,505 5,700 5,750 5,600 5,500 5,000 4,500 4,000 3,500 3,500 3,000 Selling & marketing 831 863 940 1,049 921 691 695 700 705 750 850 850 900 925 925 975 General & administrative 1,964 2,157 1,870 1,822 1,887 1,663 1,700 1,725 1,750 1,775 1,825 1,875 1,900 1,925 1,925 1,950 Total Cost & Expenses$ 6,742 $ 6,941 $ 6,942 $ 7,561 $ 7,545 $ 7,859 $ 8,095 $ 8,175 $ 8,055 $ 8,025 $ 7,675 $ 7,225 $ 6,800 $ 6,350 $ 6,350 $ 5,925 Loss from operations$ (6,653) $ (6,951) $ (7,139) $ (7,740) $ (7,692) $ (8,041) $ (8,195) $ (8,075) $ (7,805) $ (7,525) $ (7,275) $ (6,225) $ (5,300) $ (4,400) $ (3,950) $ (2,425) Interest & other income, net 197 106 156 475 145 99 103 126 56 93 210 180 320 64 147 105 Interest expense - - - - (1) (3) ------Other expense - - (1,537) (1,067) (452) (109) ------Foreign currency gain/(losses) (51) (71) 66 (26) 93 (65) (43) (61) (87) (54) (79) 78 (64) 16 (48) (83) Net loss for the period (6,507) (6,916) (8,454) (8,358) (7,907) (8,119) (8,135) (8,010) (7,836) (7,486) (7,144) (5,967) (5,044) (4,320) (3,851) (2,403) Deficit, beginning of period (67,629) (74,136) (81,052) (67,629) (97,864) (105,771) (113,890) (97,864) ------Deficit, end of period$ (74,136) $ (81,052) $ (89,506) $ (75,987) $ (105,771) $ (113,890) $ (122,025) $ (105,874) $ (7,836) $ (7,486) $ (7,144) $ (5,967) $ (5,044) $ (4,320) $ (3,851) $ (2,403) Weighted average shares outstanding 198,275 198,276 198,276 214,274 279,376 279,376 280,000 290,000 300,000 310,000 320,000 330,000 340,000 350,000 360,000 370,000 EPS - basic$ (0.03) $ (0.03) $ (0.04) $ (0.04) (0.03) (0.03) (0.03) (0.03) (0.03) (0.02) (0.02) (0.02) (0.01) (0.01) (0.01) (0.01) EPS - fully diluted$ (0.37) $ (0.41) $ (0.45) $ (0.35) (0.38) (0.41) (0.44) (0.37) (0.03) (0.02) (0.02) (0.02) (0.01) (0.01) (0.01) (0.01) Amortization of property, equip. & intangible assets 551 629 574 608 566 598 580 570 590 575 560 545 620 605 580 555 Stock option compensation expense 236 288 284 159 354 98 250 270 290 310 330 350 370 390 420 440 Cash Earnings$ (5,720) $ (5,999) $ (7,596) $ (7,591) $ (6,987) $ (7,423) $ (7,305) $ (7,170) $ (6,956) $ (6,601) $ (6,254) $ (5,072) $ (4,054) $ (3,325) $ (2,851) $ (1,408) Cash Earnings (Loss) Per Share$ (0.03) $ (0.03) $ (0.04) $ (0.04) $ (0.03) $ (0.03) $ (0.03) $ (0.02) $ (0.02) $ (0.02) $ (0.02) $ (0.02) $ (0.01) $ (0.01) $ (0.01) $ (0.00) % of TOTAL REVENUE Cost & expenses Gross margin 57.1% -1.7% -12.8% -34.6% -39.7% -5.4% -3.6% 2.5% 5.6% 9.1% 8.0% 14.3% 20.0% 24.4% 28.2% 35.0% Engineering, R&D, & related costs, net 2530.1% 661.2% 269.4% 905.4% 1280.3% 162.7% 207.3% 143.8% 124.4% 100.0% 100.0% 64.3% 53.3% 43.8% 41.2% 30.0% Selling & marketing 532.7% 145.5% 61.3% 202.5% 248.9% 20.4% 25.3% 17.5% 15.7% 13.6% 17.0% 12.1% 12.0% 11.6% 10.9% 9.8% General & administrative 1259.0% 363.7% 121.9% 351.7% 510.0% 49.2% 61.8% 43.1% 38.9% 32.3% 36.5% 26.8% 25.3% 24.1% 22.6% 19.5% Total Cost & Expenses 4321.8% 1170.5% 452.5% 1459.7% 2039.2% 232.3% 294.4% 204.4% 179.0% 145.9% 153.5% 103.2% 90.7% 79.4% 74.7% 59.3% Loss from operations -4264.7% -1172.2% -465.4% -1494.2% -2078.9% -237.7% -298.0% -201.9% -173.4% -136.8% -145.5% -88.9% -70.7% -55.0% -46.5% -24.3% Net loss for the period -4171.2% -1166.3% -551.1% -1613.5% -2137.0% -240.0% -295.8% -200.3% -174.1% -136.1% -142.9% -85.2% -67.3% -54.0% -45.3% -24.0% % YEAR OVER YEAR INCREASE Revenue -86.4% -50.8% 273.2% -82.8% 137.2% 470.5% 79.3% 672.2% 1116.2% 62.6% 81.8% 75.0% 66.7% 45.5% 70.0% 42.9% Total Cost & Expenses 36.0% 36.7% -22.1% 24.6% 11.9% 13.2% 16.6% 8.1% 6.8% 2.1% -5.2% -11.6% -15.6% -20.9% -17.3% -18.0% Loss from operations 43.0% 39.0% -21.4% 51.8% 15.6% 15.7% 14.8% 4.3% 1.5% -6.4% -11.2% -22.9% -32.1% -41.5% -45.7% -61.0% Net loss for the period 42.5% 42.7% -6.2% 66.9% 21.5% 17.4% -3.8% -4.2% -0.9% -7.8% -12.2% -25.5% -35.6% -42.3% -46.1% -59.7% % SEQUENTIAL INCREASE Revenue -94.8% 280.1% 158.7% -66.2% -28.6% 814.3% -18.7% 45.5% 12.5% 22.2% -9.1% 40.0% 7.1% 6.7% 6.3% 17.6% Total Cost & Expenses 11.1% 3.0% 0.0% 8.9% -0.2% 4.2% 3.0% 1.0% -1.5% -0.4% -4.4% -5.9% -5.9% -6.6% 0.0% -6.7% Loss from operations 30.5% 4.5% 2.7% 8.4% -0.6% 4.5% 1.9% -1.5% -3.3% -3.6% -3.3% -14.4% -14.9% -17.0% -10.2% -38.6% Net loss for the period 30.0% 6.3% 22.2% -1.1% -5.4% 2.7% 0.2% -1.5% -2.2% -4.5% -4.6% -16.5% -15.5% -14.4% -10.9% -37.6%

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BALANCE SHEET BALANCE SHEET (000's) FY2006 FY2007 FY2008 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q ASSETS CURRENT ASSETS Cash and cash equivalents$ 15,775 $ 10,747 $ 3,818 $ 27,192 $ 20,592 $ 16,847 $ 5,852 $ 24,133 $ 13,728 $ 5,428 Accounts receivable 583 1,130 777 3,394 3,553 319 691 590 908 3,151 Contributions receivable 782 639 604 1,274 557 608 865 1,128 1,184 1,127 Inventory & related prepayments 3,043 4,328 4,308 3,821 4,561 5,433 7,876 10,201 12,095 11,374 Prepaid expenses 1,067 1,017 962 831 953 890 879 702 776 1,039 Total current assets$ 21,250 $ 17,861 $ 10,469 $ 36,512 $ 30,216 $ 24,097 $ 16,163 $ 36,754 $ 28,691 $ 22,119 Restricted cash 701 670 671 699 914 843 977 1,172 1,214 1,206 Property & equipment 5,615 5,789 5,707 5,614 5,733 5,851 5,806 5,746 5,820 5,867 Other assets 54 44 ------Intagible assets, net of amortization 11,754 11,411 11,085 10,542 10,217 9,869 9,548 9,283 9,003 8,674 Goodwill 2,932 2,932 2,932 2,932 2,932 2,932 2,932 2,932 2,932 2,932 Total assets$ 42,306 $ 38,707 $ 30,864 $ 56,299 $ 50,012 $ 43,592 $ 35,426 $ 55,887 $ 47,660 $ 40,798 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable & accrued liabilities$ 2,397 $ 3,043 $ 4,237 $ 2,814 $ 2,715 $ 3,367 $ 4,148 $ 4,275 $ 3,410 $ 4,399 Customer deposits & deferred revenue 1,042 912 541 1,046 1,164 939 307 166 96 153 Current portion of notes payable 2,554 2,427 2,417 212 210 194 181 35 39 38 Current portion of obligations under capital leases 14 35 Total current liabilities$ 5,993 $ 6,382 $ 7,195 $ 4,072 $ 4,089 $ 4,500 $ 4,636 $ 4,476 $ 3,559 $ 4,625 LONG-TERM Deferred revenue 1,015 986 965 943 926 906 945 941 - - Obligations under capital leases ------92 141 Customer deposits & deferred revenue ------999 1,046 Notes payable - - - 2,294 2,263 2,080 1,934 2,064 2,126 2,103 1,015 986 965 3,237 3,189 2,986 2,879 3,005 3,217 3,290 Stockholders' Equity: Share capital 81,387 82,178 82,356 112,803 112,822 112,822 112,734 140,665 140,664 140,663 Contributed surplus 2,672 2,768 2,970 3,816 4,048 4,336 4,683 5,605 5,991 6,110 Deficit (48,761) (53,607) (62,622) (67,629) (74,136) (81,052) (89,506) (97,864) (105,771) (113,890) Total stockholders' equity$ 35,298 $ 31,339 $ 22,704 $ 48,990 $ 42,734 $ 36,106 $ 27,911 $ 48,406 $ 40,884 $ 32,883 Total Liabilities and Stockholders' Equity$ 42,306 $ 38,707 $ 30,864 $ 56,299 $ 50,012 $ 43,592 $ 35,426 $ 55,887 $ 47,660 $ 40,798

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RESEARCH INITIATION Peter Conley 310-526-5025 CHINA RITAR POWER CORP. [email protected] (CRPT: $1.69) Jon Hickman 310-526-5024 [email protected]

RECOMMENDATION: BUY

PRICE TARGET: $4.00 Lead-Acid Batteries Still Growth Story

INDUSTRIAL ELECTRICAL INDUSTRY: EQUIPMENT

SECTOR: INDUSTRIAL GOODS INVESTMENT HIGHLIGHTS

China Ritar Power is a leading Chinese manufacturer of environmentally COMPANY STATISTICS friendly lead-acid batteries. The company has a wide range of products 52-wk range $1.63 – $14.00 with differing capacities for many applications including Avg. Daily Vol. (000) NA telecommunications, Uninterrupted Powers Supply (UPS) devices and Light Electrical Vehicles (LEV). With high energy prices and Market Capitalization (M) $35.4 environmental concerns, there has been a rising global effort to increase

the utilization of alternative (other than fossil fuels) energy sources. EARNINGS SUMMARY Recently, the company made the strategic decision to aggressively FYE Dec 2007A 2008E 2009E pursue entry into two of the more promising segments of the alternative P/SALES 0.48x 0.29x 0.19x energy market; solar and wind power. China Ritar has developed P/E (cash) 5x 2.89x 1.68x SALES (M): Q1 8.8 19.2A 40 several series of batteries that are specially designed to meet the Q2 12.4 30.8A 45 specific demands for solar and wind energy systems. The effectiveness Q3 27.8 35.5 52.5 of the designs combined with the high quality standards and competitive Q4 24.2 41 57.5 pricing has allowed China Ritar to rapidly penetrate this market and Total 73.3 126.5 195 develop business in the alternative energy sector. We believe China CASH EPS: Q1 0.03 0.09 0.21 Ritar is currently poised for a significant upward shift in revenue growth Q2 0.05 0.15 0.24 driven by: Q3 0.17 0.19 0.29 Q4 0.11 0.21 0.35 • the overall worldwide expansion in the demand for non-fossil fuel Total: 0.37 0.64 1.1 sources of power and energy storage systems

• the expansion from 8 alternative energy customers in the first SHARE PRICE PERFORMANCE half of 2007 to 25 in the first part of 2008; • the growth in the energy demands in niche markets such telecommunications, UPS, LEV’s and alternative energy systems which also provide higher margins; and • the addition of two new lead-acid battery production lines in the Hengyang facility which will approximately double the Company's lead-acid battery production capacity.

It is expected that over the next three years expansion at the Hengyang

facility will increase China Ritar's overall battery production capacity to a PLEASE READ THE DISCLOSURES level four times that of 2007. We believe this capacity expansion will ON PAGE 230 FOR IMPORTANT further expand revenues throughout FY 2009 and 2010. For calendar REQUIRED INFORMATION 2009 we are anticipating revenues of $195 million and GAAP earnings of $0.82. Given this earnings potential we are initiating coverage of China INCLUDING RISKS AND ANALYST Ritar with a Buy rating and a price target of $4.00 CERTIFICATION.

MDB Capital Group LLC • 401 Wilshire Blvd, Suite 1020 • Santa Monica, CA 90401 • 310-526-5000 • www.mdb.com 91

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INVESTMENT SUMMARY China Ritar Power derives most of its revenues from outside China, with overseas sales accounting for 78% of total revenue in its most recent first quarter of FY2008. The company has over 170 customers with no one customer accounting for more than 15% of total sales. Its results have been encouraging to start the year; for the first quarter of 2008 revenues increased approximately 118% compared to the same period in 2007. The company credited this increase to sales of UPS and telecom batteries in overseas markets, where countries like Brazil, India, Thailand, and Vietnam are rapidly expanding their telecom infrastructures.

In addition, the company has recently begun selling systems into the solar and wind power markets and this business is showing encouraging early results. China Ritar Power reported revenues from the solar and wind sector in 2Q08 of $3.8 million, which is an increase of approximately 90% compared to the previous quarter. This is especially encouraging because the solar and wind market provides the highest margins for the company with gross margins of 35%-40% compared to an estimated 18% in the uninterrupted power source (UPS) market. These results provide some early validation of management’s decision to focus on growing markets and should also provide increasing growth opportunities in the foreseeable future.

In the past, the company has been unable to meet customer demand during peak periods. To address this issue, the company invested roughly $12M to aggressively increase working capital and expand capacity including building an additional manufacturing facility in China’s Hunan Province. This facility opened in March 2008 and is expected to double the company’s capacity throughout 2008.

CORPORATE BACKGROUND China Ritar Power Corp. was originally incorporated in 1985 under the name Concept Capital Corporation. In 2006, the company was merged with and into Concept Ventures Corporation, a Nevada corporation. From inception in 1985 until February 2007 the company was principally a corporate shell and did not engage in active business operations other than the search for, and evaluation of potential business opportunities for acquisition or participation. In 2002, the company completed a reverse merger transaction with Ritar International Group Limited and became the first Chinese sealed lead-acid (SLA) battery company to trade publicly on the U.S. NASDAQ Market and has grown to be one of the largest SLA battery manufacturers in Asia. The company changed its name to China Ritar Power Corp. in March of 2007 in order to reflect current business operations.

Today, China Rita Power Corp. is a leading manufacturer of lead-acid batteries in China. The company has three operating subsidiaries (Shenzhen Ritar, Shanghai Ritar, and Hengyang Ritar). These subsidiaries are production companies that design, develop, manufacture and sell environmentally friendly lead-acid batteries for a wide range of applications; including niche markets, such as telecommunications, uninterrupted power source devices, light electric vehicles and alternative energy production (solar and wind power).

The company recently completed the first phase of construction of its new technical and manufacturing complex at Hengyang Ritar. Lead acid battery production at this facility began in April of 2008. Through manufacturing facilities located in Shenzhen, Shanghai and Hengyang, the company currently has 17 lead acid battery production lines that are operational. Eleven of these are located at Shenzhen, three in at Shanghai and the remaining three are located at Hengyang.

Presently, all of the company’s operations are conducted in China. This has been an advantage for the company since China has a large supply of low-cost skilled labor, raw materials (China is a leading producer of lead and lead is the most important raw material used in battery production), machinery and facilities. By using its own internal resources, the company has been able to maintain competitive prices in an increasingly price-sensitive market. China Ritar Power currently markets and sells 6 different series of batteries locally in China, as well as internationally serving about 700 clients in 56 countries. The company markets, sells and services its products nationally

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and globally through a combination of company-owned offices and independent manufacturer representatives.

China Ritar recently reported second quarter revenues of approximately $30.8 million and net income of $1.74 million or $0.09 per share as of June 30, 2008. The company derives most of its revenues from outside of China, with overseas sales accounting for 66% of total revenue in its latest quarter. Its major export markets include: Germany, India, Italy, Australia, the United States and Brazil and it is seeking to further expand presence in the worldwide marketplace.

PRODUCT SUITE OVERVIEW Lead-acid battery technology dates back to the mid 1800’s, and is considered the oldest type of rechargeable battery. Despite the low energy-to-weight and energy-to-volume ratios; the large power to weight ratio and low cost make SLA batteries (see image at the right) very popular among motor vehicle, stand-by (stationary) and traction (propulsion) applications.

A lead-acid battery is made up of plates, lead and lead oxide. In a charged state each cell contains electrodes of lead metal and lead dioxide in an electrolyte of about 35% sulfuric acid and 65% water solution. In the discharged state, both electrodes turn into lead sulfate and the electrolyte becomes primarily water. The diagram below offers a cut away view of the inside of a lead-acid battery.

China Ritar currently markets both gel and absorbent glass mat (AGM) batteries.

A gel battery is a rechargeable valve regulated lead-acid battery with a jellified electrolyte. The gelling agent is added to the electrolyte to reduce movement inside the battery case. Advantages of gel batteries include the elimination of electrolyte evaporation, spillage and its greater resistance to extreme temperatures, shock and vibration. In addition, gel batteries do not need to be kept in an upright position and will not leak if broken.

An absorbent glass mat battery (AGM) is a valve regulated led-acid battery in which the electrolyte is absorbed into a fiberglass mat. It allows for the lead in the plates to be purer as it does not need to support its own weight. As internal resistance is lower, it can handle higher temperatures and self discharges much slower. AGM’s have all the advantages of gelled batteries, but can take much more abuse. An AGM battery will not leak acid if broken.

Battery capacity is measured in ampere-hours (AH), which is a measure of current over time, or the amount of energy charge in a battery that will allow one ampere of current to flow for one hour. China Ritar is one of the few Chinese battery manufacturers whose products are based on lead-calcium-

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stannum formula which is free of toxic cadmium. The company was awarded ISO90001:2000 certification, and in December of 2007 a certificate by the Chinese National Product Quality Monitoring Testing and Quarantine Bureau (AQISQ) for its continual high quality standards. China Ritar Power currently has six battery series that include 197 models of branded valve regulated batteries for an array of applications and capacities including telecommunications and power systems, automatic control systems, solar and wind power systems, electric vehicles, medical equipment, vending machines and electric tools. The battery models vary with size and power requirements of the many different products and systems the batteries are design to power. The six battery series are detailed below.

RT Series (AGM & Gel) The RT series battery has a capacity of less than or equal to 28AH and is well known for its stable and reliable performance. The battery can withstand overcharge and over-discharge and is capable of extended storage. It has a sealed construction and requires no maintenance; in addition, it is equipped with a low pressure venting system to release excess gas. RT series battery applications include: UPS, automatic control systems, medical equipment as well as electric toys and tools. The RT series battery can weigh anywhere from 0.8 – 62.5 kilograms (kg), depending on its use.

RA Series (AGM & Gel) The RA series battery has a capacity of 28AH – 260AH and meets PPM and ISO 9001 standards. It has a special assembly technology in order to enhance power density and comes in a strong container that reduces case bulging and plate warping. In addition, this battery series can be easily recharged after an over-discharge. Applications include: UPS, telecommunications, power systems, automatic control systems and solar & wind powered systems. The RA series battery can weigh anywhere from 10.2 – 74 kg, depending on its use.

RL Series (AGM & Gel) The RL series battery has up to a 3,000AH capacity and is well known for its stable and reliable performance. In addition, its sealed construction guarantees no electrolyte leakage from the case terminals. The expected life of float service is 20 years and the there is no need for maintenance during this time. Also, this series comes with a low pressure venting system and heavy duty grids for extra performance and service life. Applications include emergency power systems, telecommunications & power systems, automatic control systems and solar & wind powered systems. The RL series battery can weigh anywhere from 6.8 – 202 kg, depending on its use.

DC Series (AGM & Gel) The DC series battery has up to a 200AH capacity as well as high power density. It has a longer life in deep cycle applications and excellent recovery from deep discharges. Applications for the DC series include: solar energy, power tools and electric power vehicles. The DC series battery can weigh anywhere from 1.8 – 67 kg, depending on its use.

EV Series (AGM) The EV series is only available as an AGM battery. It is specially designed for light electric vehicle use; its technology allows for more than 300 lifetime cycles and has an excellent quick-charge. The EV series battery can weigh anywhere from 3.9 – 7.2 kg, depending on its use.

FT Series (AGM & Gel) The FT series battery has a 55AH – 180AH capacity with low internal resistance and a low rate of self discharge. The battery has a high energy density and the longest available standby life. In addition, it has an excellent performance-to-price ratio and very low service costs. The FT series is mainly used in the area of communication. The FT series battery can weigh anywhere from 18 – 55 kg, depending on its use.

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HR Series (AGM) The HR series battery has a 4.5AH – 200AH capacity and is only available as an AGM battery. It has superior energy density with very high power output and operates at low internal pressure. Applications for the HR series include: office machines, telecommunications, UPS and electrical facilities. The HR series battery can weigh anywhere from 0.8 – 62.5 kg, depending on its use.

ML Series (AGM) The ML series is only available as an AGM battery and has a capacity of up to 1,500 AH. It comes in a high strength PP material container with a sealed flame retardant cover. Applications for the ML series include: solar and wind powered systems as well as telecommunications. The module weight is the total weight of on module and the cells included in it.

COMPETITION China Ritar Power participates in an extremely competitive environment. There are currently about 1,500 lead-acid storage battery manufacturers in China, accounting for about 1/3 of the world’s total output of lead storage batteries. More than 50% of large-scale battery manufacturing enterprises in China are joint ventures or wholly owned by foreign investors from Hong Kong, Macao, and Taiwan- enterprises. These foreign investors are seeking to take advantage of China’s low-cost skilled labor, raw materials, and improving infrastructure just as China Ritar is doing. For example, Japan-based Panasonic has already set up several plants throughout China.

Most of the lead-acid battery manufacturers in China are involved in production for the automotive market where product differentiation is difficult and competition is principally based on price (resulting in low margins). For this reason China Ritar Power has decided to focus on more specialized niche markets such as telecommunications, uninterrupted powers source (UPS) devices, light electric vehicles (LEV) and alternative energy systems (solar and wind power) where margins and the growth opportunities are more promising. In these specific market segments, China Ritar Power competes principally with Harbin Guangyu Battery Co., Ltd., and Exide Technologies. China Ritar has an environmental advantage over its competitors. The company has discontinued the use of cadmium (a potential environmental hazard) in their products, and currently uses a lead-calcium formula which is environmentally friendly.

The other source of competition for China Ritar (besides other lead acid battery manufactures) is coming from the development of newer energy storage technologies introduced over the past several years including lithium-ion battery packs, In addition, the battery industry faces potential competition from fuel cell manufacturers as a result of more recent developments in fuel cell technology as we have discussed in the Green Car report.

FINANCIALS While China Ritar Power’s product line has only been on the market throughout FY 2007 and the 1H 2008, the company is already enjoying a rapid ramp in revenues. For the most recent second quarter of FY 2008, China Ritar Power reported revenues of $30.1 million, representing a 60% growth over its previous quarter and 148% over the same quarter one year ago. Currently, the company has about $4.6 million in cash and short term investments, and recently expanded its manufacturing plants. The company is profitable and not utilizing cash for operations, we anticipate this to continue well into the future and the cash position to grow larger. Our revenue and earnings estimates for the 2H 2008 and full - FY2009 reflect the growing battery demand throughout the world and the company’s ability to profit from such.

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VALUATION To date, China Ritar has proved itself as a successful low cost provider of lead-acid battery systems and is now beginning to generate meaningful revenues and earnings. With its entry into the market for wind and solar power production facilities, the company is opening a large new source of revenues along with higher gross margins. For calendar 2009 we anticipate revenues of $195 million (50% above the previous year) and GAAP earnings of $0.82 per share. Given this earnings potential and the likelihood of continuing growth, we believe the company deserves an earnings multiple in line with other profitable mature industrial companies. In today’s market environment we believe a fair but conservative earnings multiple for calendar 2009 earnings would be 5, equating to a fair market value of roughly $4.00. As such we are initiating coverage of China Ritar with a Buy rating and a target price of $4.00.

INVESTMENT RISKS China Ritar Power Corporation sells lead-acid batteries in an extremely competitive environment. It is estimated that there are 1,500 manufacturers competing in China alone. The company is dependent on end-user markets that are adversely affected by the slowdown in the general economy. In addition the company is dependent on volatile lead prices that soared in the past year (2007), and sells today at approximately 29x last years reported earnings. Additional risks to consider include: ƒ China Ritar Power is a small company and may require additional capital to fund it operations. ƒ The company operates in China and may face legal or governmental restrictions on how to do business. ƒ The price of material and the difficulty finding it may fluctuate. ƒ Newer and more efficient battery and energy sources such as lithium-ion or hydrogen fuel cells may replace lead-acid batteries in the near future.

MANAGEMENT TEAM JIADA HU, CHIEF EXECUTIVE OFFICER, PRESIDENT, SECRETARY, TREASURER AND DIRECTOR Mr. Hu has Chief Executive Officer, President, Secretary and Treasurer since February 16, 2007 and director since March 11, 2007. Mr. Hu has been the Chairman and Chief Executive Officer of the subsidiary, Shenzhen Ritar, since June 2002. Before founding Shenzhen Ritar in June 2002, Mr. Hu was the Vice President of Sales at Shenzhen Senry Power Co., Ltd, a major lead-acid battery manufacturer in China from December 1998 to June 2002. Mr. Hu holds a B.S. degree from Jilin University and Master’s degree in Business Administration from TsingHua University.

JIANJUN ZENG, CHIEF OPERATING OFFICER Mr. Zeng became Chief Operating Officer on February 16, 2007 and has been the Chief Operating Officer of the subsidiary, Shenzhen Ritar, since June 2002. Prior to joining Shenzhen Ritar, Mr. Zeng was the Vice President of one of the major lead-acid battery manufacturers, ZhongShan Enduring Battery Co., Ltd from April 2000 to April 2002. From October 1999 to March 2000, Mr. Zeng was the Vice President of Sales of Shenzhen Jinxingguang Power Co., Ltd., a VRLA manufacturer and prior to that, Mr. Zeng had been chief of the production department of HengYang City TianYuan Inc. a metallurgy company. Mr. Zeng holds a bachelor’s degree from Hunan University and Master’s degree in Business Administration from Zhongshan University.

DEGANG HE, CHIEF TECHNOLOGY OFFICER Mr. He became Chief Technology Officer on February 16, 2007 and has been the Chief Technology Officer of the subsidiary, Shenzhen Ritar, since July 2003. Prior to joining Shenzhen Ritar, Mr. He was the Chief Technology Officer of Guangdong Panyu Storage Battery Co., Ltd., a manufacturer of VRLA and starting, lighting, and ignition motive and stationary lead-acid batteries from February 1993 to May 2003 and a large state-owned lead-acid battery enterprise in Hunan Province from July

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1963 to February 1993. He holds a B.S. in Chemistry from Guangxi University that he received in 1963.

ZHENGHUA CAI, CHIEF FINANCIAL OFFICER Mr. Cai became Chief Financial Officer on February 16, 2007 and has been the manager of the Finance Department of the subsidiary, Shenzhen Ritar since November 2002. Prior to joining Shenzhen Ritar, Mr. Cai was chief of the Finance Department of DaDa Electronics (Shenzhen) Co., Ltd., a manufacturer of electronic products from September 1999 to October 2002. Mr. Cai holds a bachelor’s degree from SouthWestern University of Finance and Economics in Chongqing, China.

CHINA RITAR PATENTVEST SUMMARY

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ANNUAL INCOME STATEMENT ANNUAL INCOME STATEMENTS (000's)

2006 2007 2008E 2009E

Total Revenue$ - $ 73,347 $ 126,573 $ 195,000

Cost of Sales - 57,966 100,525 153,000 Gross Profit $ - $ 15,381 $ 26,048 $ 42,000 Operating expenses: Salaries - 5,024 5,277 7,100 Sales comission - 1,236 2,656 4,800 Shipping and handling - 1,392 1,853 3,000 Selling, general and administrative 46 3,466 5,181 6,725 Total Operating Expenses$ 46 $ 11,118 $ 14,967 $ 21,625 Operating profit (loss) (46) 4,263 11,082 20,375 Other income (expense) Other income 3 42 20 60 Interest income - 51 139 140 Interest expense - (278) (304) (200) Exchange loss - (667) (1,532) (1,450) Other expenses - (10) (148) (400) Total other income (expense) 3 (861) (1,824) (1,850)

Income before income taxes and minority intere (43) 3,401 9,257 18,525 Provision for income taxes - 785 1,973 2,200 Minority interest - 26 47 60

Net income (loss)$ (43) $ 2,642 $ 7,331 $ 16,385 Other comprehensive income Foreign currency adjustment - 1,353 2,643 3,000 Comprehensive income$ (43) $ 3,995 $ 9,974 $ 19,385 Weighted average shares outstanding 942 18,866 19,528 20,000 EPS - fully diluted$ (0.05) $ 0.14 $ 0.38 $ 0.82 Depreciation and amortization 350 545 1,156 1,600 Stock-based Compensation - 3,853 3,927 4,000 Cash Earnings$ 307 $ 7,040 $ 12,414 $ 21,985 Ca sh Ea rnings (Loss) Pe r Sha re $ 0.33 $ 0.37 $ 0.64 $ 1.10 % of TOTAL REVENUE Gross Profit NA 21.0% 20.6% 21.5% Salaries NA 6.8% 4.2% 3.6% Sales comission NA 1.7% 2.1% 2.5% Shipping and handling NA 1.9% 1.5% 1.5% Selling, general and administrative NA 4.7% 4.1% 3.4% Total Operating Expenses NA 15.2% 11.8% 11.1% Operating profit (loss) NA 5.8% 8.8% 10.4% Net income (loss) NA 3.6% 5.8% 8.4% % YEAR OVER YEAR INCREASE Total Revenue NA #DIV/0! 72.6% 54.1% Gross Profit NA #DIV/0! 69.4% 61.2% Total Operating Expenses NA 24065.9% 34.6% 44.5% Operating profit (loss) NA 9365.4% 160.0% 83.9% Net income (loss) NA 6232.4% 177.5% 123.5%

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QUARTERLY INCOME STATEMENT QUARTERLY INCOME STATEMENT (000's) FY Ending 2006 FY Ending 2007 FY Ending 2008 FY Ending 2009E 3/31/2006 6/30/2006 9/30/2006 12/31/2006 3/31/2007 6/30/2007 9/30/2007 12/31/2007 3/31/2008 6/30/2008 9/30/2008E 12/31/2008E 3/31/2009E 6/30/2009E 9/30/2009E 12/31/2009E

Total Revenue$ - $ - $ - $ - $ 8,828 $ 12,424 $ 27,849 $ 24,245 $ 19,255 $ 30,818 $ 35,500 $ 41,000 $ 40,000 $ 45,000 $ 52,500 $ 57,500

Cost of Sales - - - - 7,206 9,745 21,531 19,484 15,221 24,804 28,000 32,500 31,500 35,500 41,000 45,000 Gross Profit $ - $ - $ - $ - $ 1,622 $ 2,679 $ 6,318 $ 4,761 $ 4,034 $ 6,014 $ 7,500 $ 8,500 $ 8,500 $ 9,500 $ 11,500 $ 12,500 Operating expenses: Salaries - - - - 269 343 258 4,154 1,211 1,266 1,300 1,500 1,600 1,700 1,800 2,000 Sales comission - - - - 126 108 726 275 179 277 1,000 1,200 1,000 1,100 1,300 1,400 Shipping and handling ------1,392 289 413 550 600 500 700 800 1,000 Selling, general and administrative 4 18 15 8 567 1,017 1,616 266 1,027 1,254 1,400 1,500 1,550 1,650 1,700 1,825 Total Operating Expenses$ 4 $ 18 $ 15 $ 8 $ 963 $ 1,467 $ 2,600 $ 6,088 $ 2,706 $ 3,211 $ 4,250 $ 4,800 $ 4,650 $ 5,150 $ 5,600 $ 6,225 Operating profit (loss)$ (4) $ (18) $ (15) $ (8) $ 659 $ 1,212 $ 3,718 $ (1,326) $ 1,328 $ 2,803 $ 3,250 $ 3,700 $ 3,850 $ 4,350 $ 5,900 $ 6,275 Other income (expense) Other income 1 2 0 (0) - 0 1 41 - 0 20 - 20 20 - 20 Interest income - - - - 5 11 5 30 46 33 40 20 40 40 20 40 Interest expense - - - - (84) (71) (80) (43) - (204) (50) (50) (50) (50) (50) (50) Exchange loss - - - - (102) - - (565) (306) (226) (500) (500) (450) (200) (700) (100) Other expenses - - - - (1) (0) (181) 173 (143) (5) (100) 100 (100) (100) (100) (100) Total other income (expense) 1 2 0 (0) (182) (60) (255) (364) (403) (401) (590) (430) (540) (290) (830) (190) Income before income taxes and minority interest (3) (17) (15) (9) 477 1,152 3,463 (1,691) 925 2,403 2,660 3,270 3,310 4,060 5,070 6,085 Provision for income taxes - - - - 51 163 327 244 405 668 400 500 500 600 600 500 Minority interest - - - - 0 4 9 13 14 3 15 15 15 15 15 15

Net income (loss)$ (3) $ (17) $ (15) $ (9) $ 427 $ 993 $ 3,127 $ (1,922) $ 534 $ 1,737 $ 2,275 $ 2,785 $ 2,825 $ 3,475 $ 4,485 $ 5,600 Other comprehensive income Foreign currency adjustment - - - - 55 365 305 628 1,011 631 500 500 1,000 1,000 500 500 Comprehensive income$ (3) $ (17) $ (15) $ (9) $ 482 $ 1,357 $ 3,432 $ (1,294) $ 1,546 $ 2,368 $ 2,775 $ 3,285 $ 3,825 $ 4,475 $ 4,985 $ 6,100 Weighted average shares outstanding 4,425 300 1,400 12,000 16,028 20,544 19,722 19,170 19,526 19,536 19,526 19,526 20,000 20,000 20,000 20,000 EPS - fully diluted$ (0.00) $ (0.06) $ (0.01) $ (0.00) $ 0.03 $ 0.05 $ 0.16 $ (0.10) $ 0.03 $ 0.09 $ 0.12 $ 0.14 $ 0.14 $ 0.17 $ 0.22 $ 0.28 Depreciation and amortization$ 79 81 90 100 130 122 139 154 190 216 350 400 400 400 400 400 Stock-based Compensation 3,853 963 964 1,000 1,000 1,000 1,000 1,000 1,000 Cash Earnings$ 76 $ 64 $ 75 $ 91 $ 557 $ 1,115 $ 3,266 $ 2,085 $ 1,687 $ 2,917 $ 3,625 $ 4,185 $ 4,225 $ 4,875 $ 5,885 $ 7,000 Cash Earnings (Loss) Per Share $ 0.02 $ 0.21 $ 0.05 $ 0.01 $ 0.03 $ 0.05 $ 0.17 $ 0.11 $ 0.09 $ 0.15 $ 0.19 $ 0.21 $ 0.21 $ 0.24 $ 0.29 $ 0.35 % of TOTAL REVENUE Gross Profit #DIV/0! #DIV/0! #DIV/0! #DIV/0! 18.4% 21.6% 22.7% 19.6% 21.0% 19.5% 21.1% 20.7% 21.3% 21.1% 21.9% 21.7% Salaries #DIV/0! #DIV/0! #DIV/0! #DIV/0! 3.0% 2.8% 0.9% 17.1% 6.3% 4.1% 3.7% 3.7% 4.0% 3.8% 3.4% 3.5% Sales comission #DIV/0! #DIV/0! #DIV/0! #DIV/0! 1.4% 0.9% 2.6% 1.1% 0.9% 0.9% 2.8% 2.9% 2.5% 2.4% 2.5% 2.4% Shipping and handling #DIV/0! #DIV/0! #DIV/0! #DIV/0! 0.0% 0.0% 0.0% 5.7% 1.5% 1.3% 1.5% 1.5% 1.3% 1.6% 1.5% 1.7% Selling, general and administrative #DIV/0! #DIV/0! #DIV/0! #DIV/0! 6.4% 8.2% 5.8% 1.1% 5.3% 4.1% 3.9% 3.7% 3.9% 3.7% 3.2% 3.2% Total Operating Expenses #DIV/0! #DIV/0! #DIV/0! #DIV/0! 10.9% 11.8% 9.3% 25.1% 14.1% 10.4% 12.0% 11.7% 11.6% 11.4% 10.7% 10.8% Operating profit (loss) #DIV/0! #DIV/0! #DIV/0! #DIV/0! 7.5% 9.8% 13.4% -5.5% 6.9% 9.1% 9.2% 9.0% 9.6% 9.7% 11.2% 10.9% Net income (loss) #DIV/0! #DIV/0! #DIV/0! #DIV/0! 4.8% 8.0% 11.2% -7.9% 2.8% 5.6% 6.4% 6.8% 7.1% 7.7% 8.5% 9.7% % YEAR OVER YEAR INCREASE Total Revenue NA NA NA NA #DIV/0! #DIV/0! #DIV/0! #DIV/0! 118.1% 148.0% 27.5% 69.1% 107.7% 46.0% 47.9% 40.2% Gross Profit NA NA NA NA #DIV/0! #DIV/0! #DIV/0! #DIV/0! 148.7% 124.5% 18.7% 78.5% 110.7% 58.0% 53.3% 47.1% Total Operating Expenses NA NA NA NA 23539.3% 7866.7% 17213.4% 71552.5% 181.0% 118.8% 63.5% -21.2% 71.9% 60.4% 31.8% 29.7% Operating profit (loss) NA NA NA NA 16287.0% 6678.7% 24857.0% -15511.8% 101.5% 131.3% -12.6% -379.0% 189.9% 55.2% 81.5% 69.6% Net income (loss) NA NA NA NA 15894.6% 5984.5% 20978.8% -22412.9% 25.1% 75.0% -27.2% -244.9% 428.9% 100.0% 97.1% 101.1% % SEQUENTIAL INCREASE Total Revenue NA #DIV/0! #DIV/0! #DIV/0! #DIV/0! 40.7% 124.2% -12.9% -20.6% 60.1% 15.2% 15.5% -2.4% 12.5% 16.7% 9.5% Gross Profit NA #DIV/0! #DIV/0! #DIV/0! #DIV/0! 65.2% 135.8% -24.6% -15.3% 49.1% 24.7% 13.3% 0.0% 11.8% 21.1% 8.7% Total Operating Expenses NA 352.2% -18.5% -43.4% 11232.7% 52.4% 77.2% 134.1% -55.6% 18.7% 32.4% 12.9% -3.1% 10.8% 8.7% 11.2% Operating profit (loss) NA -352.2% 18.5% 43.4% 7860.1% 83.8% 206.8% -135.7% 200.1% 111.1% 15.9% 13.8% 4.1% 13.0% 35.6% 6.4% Net income (loss) NA -524.2% 11.2% 43.0% 5101.5% 132.6% 214.9% -161.5% 127.8% 225.3% 31.0% 22.4% 1.4% 23.0% 29.1% 24.9%

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BALANCE SHEET BALANCE SHEET (000's) FY Ending 2006 FY Ending 2007 FY Ending 2008 3/31/2006 6/30/2006 9/30/2006 12/31/2006 3/31/2007 6/30/2007 9/30/2007 12/31/2007 3/31/2008 6/30/2008 ASSETS Current Assets: Cash and cash equivalents 198 456 5 5 9,543 4,552 6,800 4,776 4,599 4,673 Accounts receivable - - - - 6,902 9,099 10,056 12,043 14,271 20,902 Inventories - - - - 7,576 12,318 14,432 11,851 14,272 18,503 Prepaid expenses and other current assets - - - - 837 1,095 6,470 9,763 6,558 6,537 Total current assets$ 198 $ 456 $ 5 $ 5 $ 24,858 $ 27,063 $ 37,759 $ 38,432 $ 39,701 $ 50,615

Property, plant & equipment, net - - - - 1,429 2,134 3,391 6,274 7,613 9,800 Intangible assets - - - - 13 19 18 18 18 16 Other assets - - - - 212 410 72 658 690 492 Total assets$ 198 $ 456 $ 5 $ 5 $ 26,511 $ 29,626 $ 41,240 $ 45,382 $ 48,021 $ 60,925

LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable 2 2 2 9 6,477 8,435 10,822 10,879 10,675 17,764 Notes payable and other short-term debt - - - - 748 155 2,704 7,274 7,095 8,899 Dividends payable - 443 5 5 ------Income tax payable - - - - 1,694 1,897 1,094 1,169 1,234 1,640 Accured expenses and other current liabilities - - - 2 1,270 1,256 5,286 2,240 2,605 2,964 Total current liabilities 2 445 7 16 10,190 11,742 19,906 21,561 21,610 31,267 Other long-term liabilities - - - - 121 199 208 137 231 146 Total liabilities$ 2 $ 445 $ 7 $ 16 $ 10,311 $ 11,941 $ 20,114 $ 21,698 $ 21,841 $ 31,412

Minority Interest - - - - 51 49 58 28 15 12

Stockholders' Equity: Preferred stock ------Common stock 4 1 1 1 19 19 19 19 19 19 Additional paid-in capital 251 86 88 88 11,448 11,578 11,490 15,343 16,307 17,296 Accumulated other comprehensive income - - - 106 471 776 1,404 2,416 3,025 Retained earnings (59) (76) (91) (100) 4,575 5,568 8,783 6,889 7,423 9,160

Total stockholders' equity$ 196 $ 11 $ (2) $ (11) $ 16,149 $ 17,636 $ 21,068 $ 23,656 $ 26,165 $ 29,500 Total Liabilities and Stockholders' Equity $ 198 $ 456 $ 5 $ 5 $ 26,511 $ 29,626 $ 41,240 $ 45,382 $ 48,021 $ 60,925

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RESEARCH INITIATION Peter Conley 310-526-5025 CHINA SUN GROUP HIGH-TECH CO. [email protected] (CSGH: $0.42) Jon Hickman 310-526-5024 [email protected]

RECOMMENDATION: BUY Powering the Lithium PRICE TARGET: $2.25 Battery Development Curve INDUSTRY: ELECTRIC UTILITIES

SECTOR: UTILITIES INVESTMENT HIGHLIGHTS COMPANY STATISTICS China Sun Group High-Tech Co. (CSGH), through is subsidiary Da Lin 52-wk range $0.30 – $1.75 Xin Yang High-Tech Development Co. (DLX) is one of the largest cobalt series producers in China. The company’s cobaltosic oxide and lithium Avg. Daily Vol. 189,064 cobalt oxide materials are in great demand from lithium ion battery Market Capitalization (M) $22.44 producers. In addition, the market for lithium ion batteries continues to grow as their use expands from digital and portable devices to electric EARNINGS SUMMARY vehicles and solar and wind energy storage units. This growing demand FYE May 2007A 2008A 2009E 2010E for lithium batteries presents a huge market opportunity for DLX’s and its P/SALES 2.53x 0.91x 0.56x 0.44x future revenue growth. We believe the company’s scalable production P/E (cash) 17.66x 3.31x 2.40x 1.70x capacity, low-cost skilled labor pool, accessible raw materials and SALES (M): Q1 0.0 3.7 11.0A 15.0 technological expertise will help solidify its presence in the market. In Q2 0.0 5.4 11.8 15.0 Q3 2.7 7.1 13.0 16.3 addition, DLX plans to begin construction of a primary processing plant Q4 5.6 9.1 14.8 18.0 of cobalt ore in Africa by mid 2009 in an effort to control the key raw Total 8.3 25.3 50.6 64.3 material. The projected growth drivers for the company include: CASH EPS: Q1 (0.00) 0.01 0.05 0.07 Q2 (0.00) 0.01 0.05 0.07 • the global demand for lithium ion batteries which is estimated to Q3 (0.00) 0.05 0.06 0.08 reach 4.06 billion pieces by 2010, this represents an average Q4 0.03 0.06 0.07 0.09 annual growth rate of 79%; Total: 0.03 0.16 0.22 0.31 • anode materials for lithium ion batteries remain in relatively short

supply, positioning DLX to leverage its scalable production SHARE PRICE PERFORMANCE capacity to improve margins; and • the current move by lithium battery manufactures toward the use of ternary anode material (replacing lithium cobalt oxide) – DLX is one of the few suppliers of this material which allows for a battery that is cheaper, has a longer life and is safer.

Given DLX’s recent revenues financial results (fiscal 2009 Q1 revenues climbed 194% for the year ago period), we believe the company is now poised for a period of expanding growth and extended profitability. For this fiscal year (2009) we estimate that revenues could grow nearly 100% and approach $50 million. We anticipate continued gross margin PLEASE READ THE DISCLOSURES expansion and anticipate non-GAAP cash earnings of $0.22 per share. ON PAGE 230 FOR IMPORTANT With the recent decline in the share price we believe the company is REQUIRED INFORMATION particularly attractive given the current level of profitability. On this basis INCLUDING RISKS AND ANALYST we are initiating coverage of CSGH with a Buy rating and a target price CERTIFICATION. of $2.25 per share.

MDB Capital Group LLC • 401 Wilshire Blvd, Suite 1020 • Santa Monica, CA 90401 • 310-526-5000 • www.mdb.com 101

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INVESTMENT SUMMARY DLX is a large and profitable producer of cobaltosic oxide and lithium cobalt oxide, which are key components in the production of lithium-ion batteries. According to the China Battery Industry Association, DLX owns the second largest cobalt series production capacity in the People’s Republic of China. The lithium-ion battery industry in China is expected to continue to grow at an annual rate of 30%, driven by the continuous demand for smaller, lighter and faster handheld devices. By the year 2010, the global demand for lithium-ion batteries is estimated to reach 4.06 billion pieces, representing an average annual growth rate of 79%. Anode material is the key composition of lithium-ion batteries and accounts for approximately 30% of total cost. At present, over 90% of lithium-ion batteries apply lithium cobalt oxide as the anode material. We believe that DLX has the scalable production capacity, the access low-cost skilled labor, the necessary raw materials, and the technological expertise to meet the growing demand for lithium cobalt oxide components.

Currently, China Sun Group is looking to directly own cobalt producing mines that will provide direct access and control of the supply of cobalt ore, the primary raw material in the cobalt product industry. By the second quarter of 2009 the company will begin construction of a primary processing plant of cobalt ore in Africa. In June 2007, China Sun Group High-Tech acquired certain rights to a cobalt mine in Africa. This acquisition will help the company avoid export limitations imposed by the Congo, reduce freight expenses, and help ensure a stable supply of cobalt ore.

Fiscal 2008 has been a monumental year of growth. Revenue for the fiscal year ended May 31, 2008 totaled approximately $25 million, an increase of 206% year-over-year. This increase resulted from the development of new sales channels and the addition of new customers. Net income for the fiscal year ended May 31, 2008 was approximately $6.7 million, an increase of 1,031%, year-over- year. As anode materials for lithium-ion batteries are in relatively short supply, DLX appears well positioned to leverage its scalable production capacity to serve the expected growth in the lithium battery market in China.

CORPORATE BACKGROUND China Sun Group High-Tech Co. began operations in 2004 under the name Capital Resource Funding, Inc. Prior to 2007, the company’s primary business involved consultant services to small- mid sized businesses in need of financing sources ranging from SBA loans, commercial mortgages, factoring and asset based loans. In February 2007 the company acquired a 70% ownership interest in Da Lian Xin Yang-Tech Development Co. (DLX), a company that engages in the business of manufacturing and selling cobaltosic oxide products. In September of 2007, the Company changed its name to China Sun Group Higher-Tech Co. in order to better reflect the nature of its new business operations. Recently in September of 2008, the company completed a share exchange in order to acquire the remaining 30% interest in DLX, making DLX a wholly owned subsidiary of China Sun Group High-Tech Co.

Today, the company’s operations are conducted primarily through its subsidiary DLX. DLX operates twelve production lines. Currently, 8 of the 12 production lines manufacture cobaltosic oxide producing up to 1,500 tons per year (T/Y). The remaining four production lines process lithium cobalt oxide with a capacity of 1,000 T/Y. Cobaltosic oxide and lithium cobalt oxide are both key components for lithium ion battery production. According to the China Battery Industry Association, DLX has the second largest cobalt series production capacity in China helping meet the growing demand for lithium ion batteries. This demand is being driven by their versatility, high energy density and capacity, high voltage, compact size, light weight, and excellent energy retention characteristics. They are used in mobile phones, PDA’s, laptops, and digital cameras, as well as electric automobiles and solar and wind energy storage units.

Through its research and development group, DLX owns a proprietary series of nanometer technology that supply state-of-the-art components for advanced lithium ion batteries. Leveraging its technological leadership in the People’s Republic of China (PRC), its high-quality product line and its scalable production capacity, the company plans to create a fully integrated supply chain from the

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primary processing of cobalt ore all the way through to finished products, including lithium ion batteries.

Most recently, the company is furthering the evolution of anode materials for use in lithium ion batteries, including the latest material, Ternary (composed of lithium cobalt oxide, lithium nickel oxide and lithium manganese oxide). DLX plans to establish a facility capable of supplying 500 tons of ternary anode material. Ternary anode currently delivers the highest power source in the lithium ion battery industry. The material can be used as the main anodes in small communication and power devices such as portable power tools, laptops, video cameras, and is gradually replacing lithium cobalt oxide anodes. Ternary is also a good candidate for use in electric autos and electric cycles. Given that DLX’s current operations are solely in China, the company has an advantage of low-cost skilled labor, raw materials, machinery and facilities which allow competitive pricing within the market.

China Sun Group High-Tech recently reported year end revenues of approximately $25 million a 206% year-over-year increase for the year 2008. Net income for the year was just above $6.7 million an increase of 1,031% compared to the previous year.

PRODUCT SUITE OVERVIEW The lithium ion battery is a “green” energy source whose use is rapidly increasing. Its efficient energy-to-weight ratios make it increasingly popular as a power source in consumer electronics and portable devices, such as mobile phones, PDA’s, laptops and digital cameras. Most recently, lithium ion batteries have been garnering more attention for use in defense, transportation/automotive and aerospace applications. Specifically these batteries are being used in electric automobiles, military submarines, robots, un-manned airplanes and space satellites. It is anticipated that the use of lithium ion batteries is likely to grow rapidly as the cost/power ratio continues to improve and their use extends into additional applications.

The key component of lithium ion batteries is the anode material, which is in short supply and accounts for about 30% of the total cost. Today more than 90% of lithium ion batteries utilize lithium cobalt oxide as the anode material. The global demand for lithium cobalt oxide is about 40,000 to 50,000 tons per year and anticipated to grow.

DLX currently markets its products to lithium ion battery manufacturers in China. The key components manufactured by DLX are as followed:

BATTERY LEVEL COBALTOSIC OXIDE (CO3O4) Battery level cobaltosic oxide is mainly used in processing and fabricating lithium cobalt oxide. The raw material for processing battery level cobaltosic oxide is derived from creosote cobalt or oxalic acid cobalt, which is refined from the original cobalt ore. DLX’s production process for battery level cobaltoic oxide is protected by patents and includes specially designed equipment enabling industry leading quality. According to the company, both its chemical and physical performances of its cobaltosic oxide make it suitable to produce high quality lithium cobalt oxide.

HIGH-CRYSTALLINE SPHERIC LITHIUM COBALT OXIDE (LICOO2) High-crystallinity spheric lithium cobalt oxide is mainly used as anode material for lithium ion batteries. The cobaltic material for processing high-crystallinity spheric lithium cobalt oxide is derived from the company’s self produced battery level cobaltosic oxide. The production technology of high- crystallinity spheric lithium cobalt oxide has been awarded proprietary intellectual property rights. Due to special designed equipment in the production flow, the quality of China Sun’s cobaltosic oxide

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is among the highest in the industry. Its chemical performance, physical performance and electrochemical performance are excellent and work well in the production of lithium ion batteries.

TERNARY ANODE MATERIAL DLX began research of its ternary anode material in October 2005, today the conditions for mass production are a reality and only a handful of other competitors are able to produce this material. Ternary anode material is composed of lithium cobalt oxide, lithium nickel oxide and lithium manganese oxide. It is not only lower in price and safer to use but delivers the highest power source in the lithium ion battery industry, possessing a superior cycle, improved performance and a high cost to quality ratio. Ternary anode is gradually replacing lithium cobalt oxide. DLX is actively marketing this product.

COMPETITION China Sun Group High-Tech currently competes with manufacturers of battery anode materials located in China, Japan and Korea. Key competitors include Hunan Haina Advanced Material, Gansu Jinchuan Group, Henan Guangkuotiandi Cobalt Product, and Nanjing Hanrui Cobalt Product. Recently, Japan’s Diacelltec, Sanyo, Sony and Panasonic as well as Korea’s LG, Samsung, and SK have relocated their production operations to China.

China Sun Group has been able to leverage its low-cost advantage to compete favorably with its competitors. In addition, their proprietary technology at key stages of the manufacturing process has enabled the company to enhance their production efficiency. This higher efficiency translates into lower costs and at the same time insures reliability, high uniformity, steady technology parameter and high quality in the end product.

Currently, China Sun Group is looking to obtain direct ownership in cobalt mines allowing the company direct access and control of the supply of cobalt ore, the primary raw material in its products. To this end, in June 2007 China Sun Group High-Tech acquired certain rights to a cobalt mine in Africa. This acquisition will help the company avoid export limitations imposed by the Congo, reduce freight expenses, and help ensure a stable supply of cobalt ore.

FINANCIALS China Sun Group’s past results have been encouraging and with enhanced production capabilities the company is solidifying its presence as a key supplier to the lithium ion battery market. For its recently completed 2008 fiscal year, the company reported total revenues of $25 million versus $8 million in FY 2007. For the 1st quarter of fiscal 2009, the company reported revenues of $10.9 million, representing 21% sequential increase over its previous quarter and a 194% jump in revenues from the same quarter of the previous year. The company is profitable and we anticipate sales to continue growing throughout fiscal year 2009, with revenues reaching $50 million. China Sun Group currently has about $11 million in cash and cash equivalents. Some of this capital will be used to invest in a cobalt ore mine and processing plant in the Congo. Construction of the project is expected to begin in the second quarter of FY 2009 and the company may require additional capital to fund this operation.

We believe the company is well positioned for additional growth as the global demand for lithium ion battery materials continues to expand. As such, our revenue and earnings estimates for the full fiscal 2009 year reflect this opportunity.

VALUATION To date, China Sun Group has proved itself as a successful low cost provider of lithium cobalt oxide and is now moving to become a primary source for ternary anode material. The company has been profitable for several quarters and recently reported record fiscal 2009 1st quarter results. The

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company currently trades with an enterprise value of just $21 million or less than 0.5 times this year’s expected revenue level. We believe this low valuation is due to the company being located in China and that many investors are currently unaware of this company’s place in the “food chain” associated with the growth in lithium-ion batteries. We believe a more fair value and near term price target would be $2.25 per share. We arrive at this valuation by placing relatively conservative earnings multiple of 10 on our earnings estimate for fiscal 2009 of $0.22. With the company’s current and expected explosive growth we believe a 10 P/E is very conservative. As such we are initiating coverage of China Sun Group with a Buy rating and a target price of $2.25.

INVESTMENT RISKS The major risk to our investment thesis and positive outlook for the company lies on management’s ability to continue to execute their current business plan and deliver the anticipated growth. The company has the needed financial resources and a client base that is sufficient to propel the expected future growth. Other risks to consider include: ƒ China Sun Group is a small company and may require additional capital to fund it operations. ƒ The company operates in China and may face legal or governmental restrictions on how to do business. ƒ The company solely operates and sells in China, any negative impact on the country would directly affect China Sun Group. ƒ The price of material and the difficulty finding it may fluctuate. ƒ More efficient battery and energy sources may be developed to replace Li-ion.

MANAGEMENT TEAM WANG BIN - CHAIRMAN & CEO Mr. Bin is an entrepreneur with particular expertise in the high-tech sector. Prior to founding DLX in 2000, he was senior economist and chairman of Sun Group Dalian High-Tech Development Company Ltd., which had a market cap of $2.6 Billion RMD. Mr. Bin received a BBA from Ha Erbin Tech University.

WANG YULONG - VICE PRESIDENT Prior to joining DLX in 2002, Mr. Yulong was Director of Marketing for Sun Group Dalian High-Tech Development Company Ltd. Mr. Yulong was also the assistant to the chairman of Sun Group Dailan High-Tech Development Company Ltd from 2000 to 2002. At DLX, Mr. Yulong is in charge of production, R&D and sales management. He obtained his bachelor degree in Business Administration from Hei Longjiang University.

LIU MING FEN - CFO As an accountant, Ms. Fen graduated from Northeast Finance and Economics University, and is experienced in accounting law and regulations, and enterprise financing system and proceedings. Prior to DLX in 2004, Ms. Fen was an executive accountant for Dalian Chemical Engineering Group and the Financing Manager of the investment department for DLX.

CHENG YIJING – CHIEF TECHNOLOGY OFFICER Mr. Yijing graduated from Dalian Tech University. Mr. Yijing is a scientist by trade specializing in chemical and production practices. He enjoys special state allowance as a Professor Senior Engineer. His past positions include engineer, commander in chief, general director, technology factory director, and chief recorder. He is a recognized expert in the field of bio-chemicals, having deep management experience in China.

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CHINA SUN PATENTVEST SUMMARY

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ANNUAL INCOME STATEMENT ANNUAL INCOME STATEMENTS (000's)

2006 2007 2008 2009E 2010E

Total Revenue$ 21 $ 8,275 $ 25,294 $ 50,487 $ 64,750

Cost of Sales - 4,875 15,665 31,384 39,750 Gross Profit $ 21 $ 3,400 $ 9,630 $ 19,103 $ 25,000 Operating expenses: Selling, general and administrative 46 1,248 909 3,540 3,850 Research and development - 89 88 225 240 Depreciation - 213 424 314 450 Reversal of allowance for doubtful accounts - (806) - - Stock -based compensation 450 - - - Total Operating Expenses$ 46 $ 2,000 $ 615 $ 4,078 $ 4,540 Operating profit (loss) (25) 1,400 9,015 15,024 20,460 Other income (expense) Interest and other income, net (2) 1 28 23 32

Total other income (expense) (2) 1 28 23 32

Income before income taxes (27) 1,402 9,043 15,047 20,492 Provision for income taxes - (804) (2,491) (3,438) (4,150) Minority interest - (179) - - -

Net income (loss)$ (27) $ 419 $ 6,552 $ 11,609 $ 16,342 Other comprehensive income Foreign currency translation - 112 2,362 1,587 1,600 Comprehensive income (27) 531 8,914 13,196 17,942 Weighted average shares outstanding 10,893 39,478 43,420 53,606 54,000 EPS - fully diluted$ (0.00) $ 0.01 $ 0.15 $ 0.22 $ 0.30 Depreciation - 213 424 364 400 Stock -based compensation 450 - - - Cash Earnings$ (27) $ 1,082 $ 6,976 $ 11,973 $ 16,742 Cash Earnings (Loss) per share$ (0.00) $ 0.03 $ 0.16 $ 0.22 $ 0.31

% of TOTAL REVENUE Gross Profit 100.0% 41.1% 38.1% 37.8% 38.6% Selling, general and administrative 220.2% 15.1% 3.6% 7.0% 5.9% Research and development 0.0% 1.1% 0.3% 0.4% 0.4% Depreciation 0.0% 2.6% 1.7% 0.6% 0.7% Total Operating Expenses 220.2% 24.2% 2.4% 8.1% 7.0% Operating profit (loss) -120.2% 16.9% 35.6% 29.8% 31.6% Net income (loss) -130.5% 5.1% 25.9% 23.0% 25.2% % YEAR OVER YEAR INCREASE

Total Revenue NA 39928.4% 205.7% 99.6% 28.3% Gross Profit NA 16346.5% 183.2% 98.4% 30.9% Total Operating Expenses NA 4294.0% -69.3% 563.6% 11.3% Operating profit (loss) NA 5737.0% 543.8% 66.7% 36.2% Net income (loss) NA 1652.4% 1465.0% 77.2% 40.8%

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QUARTERLY INCOME STATEMENT QUARTERLY INCOME STATEMENT (000's) FY Ending 2007 FY Ending 2008 FY Ending 2009E FY Ending 2010E 8/31/2006 11/30/2006 2/28/2007 5/31/2007 8/31/2007 11/30/2007 2/29/2008 5/31/2008 8/31/2008 11/30/2008E 2/28/2009E 5/31/2009E 8/31/2009E 11/30/2009E 2/28/2010E 5/31/2010E

Total Revenue$ 17 $ 15 $ 2,662 $ 5,581 $ 3,736 $ 5,357 $ 7,107 $ 9,094 $ 10,987 $ 11,750 $ 13,000 $ 14,750 $ 15,000 $ 15,500 $ 16,250 $ 18,000

Cost of Sales - - 1,889 2,986 2,453 3,548 4,529 5,135 6,834 7,300 8,100 9,150 9,250 9,500 10,000 11,000 Gross Profit $ 17 $ 15 $ 773 $ 2,595 $ 1,283 $ 1,809 $ 2,578 $ 3,960 $ 4,153 $ 4,450 $ 4,900 $ 5,600 $ 5,750 $ 6,000 $ 6,250 $ 7,000 Operating expenses: Selling, general and administrative 31 31 595 591 178 519 10 202 845 870 900 925 925 950 975 1,000 Research and development - - 18 72 25 62 2 - 25 50 70 80 80 50 50 60 Depreciation - - 65 148 93 95 100 136 64 75 75 100 100 100 125 125 Reversal of allowance for doubtful accounts ------(574) (232) ------Stock-based compensation - - - 450 ------Total Operating Expenses$ 31 $ 31 $ 678 $ 1,261 $ 296 $ 675 $ (463) $ 106 $ 933 $ 995 $ 1,045 $ 1,105 $ 1,105 $ 1,100 $ 1,150 $ 1,185 Operating profit (loss)$ (13) $ (16) $ 95 $ 1,334 $ 987 $ 1,134 $ 3,041 $ 3,853 $ 3,219 $ 3,455 $ 3,855 $ 4,495 $ 4,645 $ 4,900 $ 5,100 $ 5,815 Other income (expense) Interest and other income, net 1 0 - - - 1 7 19 8 5 5 5 8 8 8 8

Total other income (expense) 1 0 - - - 1 7 19 8 5 5 5 8 8 8 8 Income before income taxes and minority interest (12) (15) 95 1,334 987 1,135 3,048 3,873 3,227 3,460 3,860 4,500 4,653 4,908 5,108 5,823 Provision for income taxes - - (200) (604) (344) (397) (296) (1,455) (838) (850) (900) (850) (950) (1,000) (1,050) (1,150) Minority interest - - (108) (71) (209) (241) (837) ------

Net income (loss)$ (12) $ (15) $ (213) $ 659 $ 434 $ 497 $ 1,915 $ 2,418 $ 2,389 $ 2,610 $ 2,960 $ 3,650 $ 3,703 $ 3,908 $ 4,058 $ 4,673 Other comprehensive income Foreign currency translation - - 5 107 664 382 744 572 387 400 400 400 400 400 400 400 Comprehensive income (12) (15) (208) 766 1,099 879 2,659 2,990 2,776 3,010 3,360 4,050 4,103 4,308 4,458 5,073 Weighted average shares outstanding 11,756 11,967 33,359 40,000 43,423 43,423 43,423 43,413 53,423 53,500 53,500 54,000 54,000 54,000 54,000 54,000 EPS - fully diluted$ (0.00) $ (0.00) $ (0.01) $ 0.02 $ 0.01 $ 0.01 $ 0.04 $ 0.06 $ 0.04 $ 0.05 $ 0.06 $ 0.07 $ 0.07 $ 0.07 $ 0.08 $ 0.09 Depreciation - - 65 148 93 95 100 136 64 100 100 100 100 100 100 100 Stock-based compensation - - - 450 ------Cash Earnings$ (12) $ (15) $ (148) $ 1,257 $ 527 $ 592 $ 2,015 $ 2,554 $ 2,453 $ 2,710 $ 3,060 $ 3,750 $ 3,803 $ 4,008 $ 4,158 $ 4,773 Cash Earnings (Loss) per share$ (0.00) $ (0.00) $ (0.00) $ 0.03 $ 0.01 $ 0.01 $ 0.05 $ 0.06 $ 0.05 $ 0.05 $ 0.06 $ 0.07 $ 0.07 $ 0.07 $ 0.08 $ 0.09

% of TOTAL REVENUE Gross Profit 100.0% 100.0% 29.0% 46.5% 34.3% 33.8% 36.3% 43.5% 37.8% 37.9% 37.7% 38.0% 38.3% 38.7% 38.5% 38.9% Selling, general and administrative 175.4% 205.3% 22.4% 10.6% 4.8% 9.7% 0.1% 2.2% 7.7% 7.4% 6.9% 6.3% 6.2% 6.1% 6.0% 5.6% Research and development 0.0% 0.0% 0.7% 1.3% 0.7% 1.1% 0.0% 0.0% 0.2% 0.4% 0.5% 0.5% 0.5% 0.3% 0.3% 0.3% Depreciation 0.0% 0.0% 2.4% 2.7% 2.5% 1.8% 1.4% 1.5% 0.6% 0.6% 0.6% 0.7% 0.7% 0.6% 0.8% 0.7% Total Operating Expenses 175.4% 205.3% 25.5% 22.6% 7.9% 12.6% -6.5% 1.2% 8.5% 8.5% 8.0% 7.5% 7.4% 7.1% 7.1% 6.6% Operating profit (loss) -75.4% -105.3% 3.6% 23.9% 26.4% 21.2% 42.8% 42.4% 29.3% 29.4% 29.7% 30.5% 31.0% 31.6% 31.4% 32.3% Net income (loss) -69.0% -102.9% -8.0% 11.8% 11.6% 9.3% 26.9% 26.6% 21.7% 22.2% 22.8% 24.7% 24.7% 25.2% 25.0% 26.0%

% YEAR OVER YEAR INCREASE

Total Revenue 3126.2% 918.3% 107053.4% 34376.4% 21264.7% 35958.4% 167.0% 62.9% 194.1% 119.3% 82.9% 62.2% 36.5% 31.9% 25.0% 22.0% Gross Profit 3126.2% 918.3% 31009.5% 15929.7% 7235.1% 12076.9% 233.6% 52.6% 223.8% 146.0% 90.1% 41.4% 38.5% 34.8% 27.6% 25.0% Total Operating Expenses 5124.2% 464.2% 13336.4% 3557.7% 864.6% 2113.7% -168.3% -91.6% 215.6% 47.4% -325.9% 941.8% 18.4% 10.6% 10.0% 7.2% Operating profit (loss) -29188.9% -296.4% 3818.8% 7393.6% 7587.2% 7347.1% 3095.4% 188.9% 226.2% 204.7% 26.8% 16.6% 44.3% 41.8% 32.3% 29.4% Net income (loss) -2802.2% -270.6% -6276.0% 3554.2% 3698.0% 3351.9% 998.4% 266.8% 449.9% 424.9% 54.6% 50.9% 55.0% 49.7% 37.1% 28.0% % SEQUENTIAL INCREASE Total Revenue 8.0% -15.0% 17815.4% 109.7% -33.1% 43.4% 32.7% 28.0% 20.8% 6.9% 10.6% 13.5% 1.7% 3.3% 4.8% 10.8% Gross Profit 8.0% -15.0% 5101.3% 235.8% -50.6% 41.0% 42.5% 53.6% 4.9% 7.2% 10.1% 14.3% 2.7% 4.3% 4.2% 12.0% Total Operating Expenses -11.1% -0.5% 2121.4% 86.1% -76.5% 128.3% -168.5% -122.9% 780.0% 6.6% 5.0% 5.7% 0.0% -0.5% 4.5% 3.0% Operating profit (loss) 27.9% -18.7% 708.2% 1301.6% -26.0% 14.9% 168.2% 26.7% -16.5% 7.3% 11.6% 16.6% 3.3% 5.5% 4.1% 14.0% Net income (loss) 36.7% -26.7% -1294.0% 409.3% -34.1% 14.5% 285.1% 26.3% -1.2% 9.3% 13.4% 23.3% 1.5% 5.5% 3.8% 15.2%

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BALANCE SHEET BALANCE SHEET (000's) FY Ending 2007 FY Ending 2008 FY Ending 2009 8/31/2006 11/30/2006 2/28/2007 5/31/2007 8/31/2007 11/30/2007 2/29/2008 5/31/2008 8/31/2008 ASSETS Current Assets: Cash and cash equivalents$ 17 $ 1 $ 359 $ 813 $ 1,482 $ 2,445 $ 10,046 $ 3,879 $ 11,089 Accounts receivable - - 4,742 4,755 4,611 3,203 437 1,302 1,097 Inventories - - - 2 3 1,215 586 4,705 2,299 Prepaid expenses and other current assets - - 596 - 428 - 1 521 536 Total current assets$ 17 $ 1 $ 5,698 $ 5,570 $ 6,524 $ 6,863 $ 11,069 $ 10,407 $ 15,021

Property, plant & equipment, net 4 4 10,697 10,774 11,323 11,505 11,918 14,599 14,665 Other assets (0) (0) - Total assets$ 21 $ 5 $ 16,395 $ 16,344 $ 17,847 $ 18,368 $ 22,987 $ 25,006 $ 29,686

LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable 63 0 2,334 596 276 166 778 733 979 Customers deposits - - 37 688 4 5 6 0 599 Value added tax payable - - 327 230 784 647 1,012 - 170 Income tax payable - - 255 810 1,161 765 577 980 1,840 Accured expenses and other current liabilities 2 - 296 279 574 617 911 449 478 Total current liabilities 65 0 3,249 2,603 2,799 2,199 3,284 2,162 4,067 Other long-term liabilities ------Total liabilities$ 65 $ 0 $ 3,249 $ 2,603 $ 2,799 $ 2,199 $ 3,284 $ 2,162 $ 4,067

Minority Interest - - 4,094 3,995 4,203 4,445 5,282 - -

Stockholders' Equity: Preferred stock ------Common stock 0 0 0 0 43 43 43 53 53 Additional paid-in capital 590 656 9,639 9,639 9,595 9,595 9,595 9,585 9,585 Accumulated other comprehensive income - - 9 226 890 1,272 2,016 2,588 2,975 Retained earnings - - - 316 813 2,767 9,717 12,105 Accumulated deficits (635) (651) (597) (118) - - - - - Statutory reserve ------900 900 Total stockholders' equity$ (44) $ 5 $ 9,051 $ 9,746 $ 10,845 $ 11,724 $ 14,421 $ 22,843 $ 25,619 Total Liabilities and Stockholders' Equity $ 21 $ 5 $ 16,395 $ 16,344 $ 17,847 $ 18,368 $ 22,987 $ 25,006 $ 29,686

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RESEARCH INITIATION Peter Conley 310-526-5025 ECOTALITY, INC. [email protected] (ETLY: $0.05) Jon Hickman 310-526-5024 [email protected]

RECOMMENDATION: BUY “Fast Charging” an Important Key PRICE TARGET: $0.30 to Mass Adoption INDUSTRY: ELECTRIC UTILITIES

SECTOR: UTILITIES INVESTMENT HIGHLIGHTS COMPANY STATISTICS Ecotality is a provider of energy storage technologies and clean electric 52-wk range $0.05 – $0.37 transportation systems. The company’s recent acquisitions have added commercially viable clean technology products that are now providing a Avg. Daily Vol. 82,561 solid revenue base. We believe the company is well positioned for future Market Capitalization (M) $6.24 expansion through organic growth as well as partnerships and potential acquisitions of other clean electric companies. For the 2nd quarter of EARNINGS SUMMARY 2008 revenues were $2.9 (a company record) and all of its subsidiaries FYE Dec 2007A 2008E 2009E 2010E generated positive earnings for the quarter. The company’s results P/SALES 2.14X 0.48X 0.35X - validate the successful integration of past acquisitions and its transition P/E (cash) NA NA 4.12X - into a revenue generating company with strong product lines, solid cost SALES (M): Q1 0 2.8A - - controls, and significant potential for financial growth in new and existing Q2 0 2.9A - - Q3 .2 3.5 - - markets. The company expects overall revenues of more than $13 Q4 2.3 4.0 - - million for the year and to continue growth in the years to come. The Total 2.5 13.3 20.0 - company’s promising growth outlook is being driven by: CASH EPS: Q1 (0.05) (0.01) - - Q2 (0.00) (0.01) - - • the growing market for solar, hydrogen, and energy storage systems Q3 (0.01) (0.00) - - which are cost efficient and environmentally friendly; Q4 (0.06) 0.00 - - Total: (0.12) (0.02) 0.01 - • the four acquisitions in 2007, (Fuel Cell Store.com, Innergy Power Corporation, eTec and the Minit Charger) which add valuable assets, intellectual property and resources to the company; SHARE PRICE PERFORMANCE • the growing demand for its unique fast battery charging system, the Minit Charger, which allows for the recharge of a battery vehicle in just 10 minutes; • the company manufacturing capacity in Mexico to produce advance battery cells; and • the recent contract to test existing battery configuration in fleet vehicles as a source of power during peak (high cost) periods of demand. We are impressed with Ecotality’s rapid transition to a revenue producing entity with a dedicated clean tech strategy. We feel that the company’s PLEASE READ THE DISCLOSURES commanding position as a testing facility for advanced transportation ON PAGE 230 FOR IMPORTANT systems and its “fast charging” expertise position the company for an REQUIRED INFORMATION extended period of continue revenue growth. For calendar 2009 we INCLUDING RISKS AND ANALYST anticipate revenues to approach $20 million and for the non-GAAP cash CERTIFICATION. earnings of $0.01 per share. Though revenue growth is robust, the larger outstanding share count makes earnings per share growth difficult. As such we are initiating coverage of Ecotality with a Buy rating and a target price of $0.30.

MDB Capital Group LLC • 401 Wilshire Blvd, Suite 1020 • Santa Monica, CA 90401 • 310-526-5000 • www.mdb.com 110

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INVESTMENT SUMMARY Ecotality has completed its evolution from a development stage company focused on a single technology to a viable revenue generating company with a tight focus on clean electric transportation and storage technologies. Ecotality’s successful transition from a development stage to a revenue- generating company is evident by the revenue jump in the June 2008 quarter. Revenues climbed to $2.9 million, up 8,000% compared to revenues of just $35,400 for the quarter ended June 30, 2007. The June 2008 represents Ecotality’s highest single quarter of revenue to date. The gross profit for the second quarter 2008 was $1.3 million and the operating loss for the quarter was just $0.4 million, a 67% improvement from the year ago period. Ecotality’s subsidiaries, which include Electric Transportation Engineering Corporation (eTec), Innergy Power Corporation, and Fuel Cell Store, all reported positive operating income for the second quarter.

The growing demand for clean energy technologies is creating huge opportunities for companies such as Ecotality that are developing products that can fulfill the promise of power and transportation that is renewable and environmentally friendly. Ecotality’s several recent acquisitions have added proven and commercially viable clean technology products that are now providing a solid revenue base from which the company should be able to continuing building. Ecotality is now well positioned for future expansion through a combination of organic growth in the existing operations, potential partnerships and additional acquisitions of other clean electro-centric companies.

CORPORATE BACKGROUND Ecotality Inc. began operations in 1999 under the name Alchemy Enterprise, Ltd. Prior to 2006, the company’s primary business involved the marketing of a line of private-label biodegradable products such as detergents, degreasers, cleansers, bleaches and solvents. Through internal research and development, innovation, a number of key acquisitions, and strategic partnerships, the Company transitioned from a development-stage company into a revenue-producing enterprise focused on providing renewable energy products and solutions. On November 26, 2006, the Company changed its name from Alchemy Enterprises, Ltd. to Ecotality, Inc in order to better reflect its focus on renewable energy products. Key acquisitions made during 2007 include: FuelCellStore.com – a small web based seller of educational fuel cell products. Currently Fuel Cell Store has distributors in Japan, Russia, Italy and Portugal, as well as in the U.S.; Innergy Power Corporation – based in San Diego, California, this company designs and manufactures thin sealed rechargeable lead batteries. The acquisition of Innergy Power provided Ecotality with a profitable expansion platform for solar and energy storage solutions, as well as access to a manufacturing facility in Mexico. The facility also provides additional manufacturing capabilities for fuel cell products for Ecotality’s Fuel Cell Store; Electric Transportation Engineering Corporation - Ecotality’s Electric Transportation Applications division and its Clarity Group (now collectively referred to as 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 is also major test facility for the electric vehicles and hybrids for the U.S. Department of Energy and is using this expertise to further existing technology for plug-in hybrids, advanced battery systems and other alternative energy systems; and Minit-Charger - a business of Edison Enterprises which makes products that enable fast charging of mobile material handling equipment using revolutionary proprietary technologies.

The Company operates 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 and the establishment of solar, hydrogen, and energy storage divisions. Ecotality has merged its business lines into three primary division; eTec, Innergy and the Fuel Store. Currently the primary source of revenues is coming from the eTec division with its testing for the Department of Energy (DOE) and the sales of its fast charging, Minit-Charger, systems.

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In Addition Ecotality is currently working with the National Aeronautics and Space Administration's (NASA) Jet Propulsion Labs (JPL), the California Institute of Technology (Caltech), Green Mountain Engineering, and Airboss Aerospace to develop Hydrality, a product designed to produce a continuous supply of hydrogen (using magnesium and water) for use in hydrogen fuel cells to create electricity.

Ecotality recently reported its second quarter of 2008 results with revenues of approximately $2.9 million, the company’s highest single revenue quarter to date. The operating loss for the quarter was $427,430, a 67% improvement from the same period in 2007 and the GAAP net loss amounted to approximately $900,000 or $0.01 per share as of June 30, 2008. Ecotality’s subsidiaries, Electric Transportation Engineering Corporation (eTec), Innergy Power Corporation, and Fuel Cell Store, all reported positive operating income for the second quarter of the year and management expects to be cash positive by the end of fiscal year 2008.

PRODUCT SUITE OVERVIEW Ecotality, and its three subsidiaries, are focused on clean and renewable energy technology products that address the world’s global energy challenges. The company’s range of electro-centric products offers a variety of innovative solutions to create, store and deliver renewable electric power. The current operations and technologies include the following:

Electric Transportation Engineering Corporation (eTec) eTec was incorporated in Arizona in 1996 to support the development and installation of battery charging infrastructures for electric vehicles. Today the company conducts research, development and testing of advanced transportation and energy systems, and offers consulting, technical support and field services. eTec has various contractual relationships as a primary test contractor and primary consulting engineer for projects with the Department of Energy (DOE). The company also does work for several national research laboratories, national energy storage consortiums and large electric utilities. eTec provides services surrounding energy storage, monitoring, systems design and fabrication, and product and vehicle testing. In addition, major automotive companies seek eTec support for EV recharging and infrastructure issues. Through the eTec subsidiary, Ecotality has done test work on every major advanced transportation and energy system in production today. The Company’s primary focus in advanced battery technology includes: fast charging technologies, hydrogen creation, storage and dispensing systems. The company is also working on electric vehicle systems, recharging stations and coal gasification programs. To date, eTec has conducted more than 6 million miles of vehicle testing on more than 200 alternative fuel vehicles.

eTec also produces a line of fast battery charging systems though the Minit- Charger line of products, The Minit- Charger enables a more environmentally friendly, safe and cost- efficient means to recharge batteries for electric vehicles such as those used in plug-in hybrid electric’s, mobile material handling, airport ground support, and marine and transit applications. The technology is based on advanced algorithms (the Minit-Charger technology reads a battery every second during recharge) that allow for the recharge of a vehicle battery in just 10 minutes (fast-charging), while improving overall battery life, preventing overcharging, improving safety and reducing the need for multiple (backup) batteries. Furthermore, the Minit-Charger increases productivity in fleet vehicles (allowing charging during breaks, lunches and shift changes), reducing electrical costs, and eliminating the need for designated battery change equipment and

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maintenance areas. To date, eTec has installed more than 4,800 charging stations of which about 4,000 are in airports or in materials handling facilities.

Innergy Power Corporation Innergy Power Corporation was founded in 1989 and is based in San Diego, California with a manufacturing facility in Tijuana, Mexico. This is a major asset for Ecotality as it is the only North American manufacturer of both renewable energy solar modules and rechargeable batteries. Additionally, the facility has capacity to produce new battery chemistries and the company is activity working to find partners to take advantage of this capacity. Currently, Innergy designs and manufactures standard and custom solar-power and integrated solar-battery solutions for government, industrial and consumer applications. Most recently, the company announced it will be moving toward development and manufacturing of advanced battery systems for electric vehicles (EV) and plug-in hybrid electric vehicle on road applications.

Solar Photovoltaic Modules Innergy’s photovoltaic (PV) solar products are designed for a wide array of recreational and emergency preparedness applications. The company’s fiberglass reinforced panel (FRP) line

is manufactured on lightweight fiberglass substrates and includes modules that will produce 1.5W up to 75W. Solar panels built on tempered glass are available in 20W to 50W modules. These solar power modules are used in applications including logistics tracking, asset management systems, off-grid lighting, mobile communications, recreational vehicles, signaling devices and surveillance cameras.

ThinLine Cells and Batteries Innergy’s ThinLine sealed lead-acid cell and battery designs are available to OEM, consumer and corporate markets and are used in a wide variety of applications, such as cell phones, laptops, music players and PDA’s and as backup power supplies for smaller electronics such as hospital-based equipment. These unique batteries are based on a patented ThinLine planar-case design, combined with thin metal film technology, which allows for one of the thinnest, flat and lightweight sealed-lead batteries. Innergy’s ThinLine battery has a patented pin and socket case design which allows for lightweight, thin-wall acrylonitrile butadiene styrene (ABS) plastic casings. Additionaly the ThinLine uses thin foil current collectors which are embossed to increase surface contact area and further reduce weight and volume of the cell. The reduction in weight and volume of the passive cell components results in improved specific energy and energy density allowing for performance comparable to that of nickel cadmium (NiCd) and nickel metal hydride (NiMH) batteries. In addition, the thin planar form provides unprecedented flexibility in battery pack configurations and optimizes space utilization. Other important merits of this battery include a 99% retention of charge after one month on shelf and up to 2,000 recharge cycles.

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Fuel Cell Store The Fuel Cell Store, a wholly owned subsidiary of Ecotality, was founded in Boulder, Colorado in 1999 and is currently based in San Diego, California. The company develops, manufactures and sells a diverse and comprehensive range of fuel cell products including fuel cell stacks, systems, component parts and educational material. It is one of the longest operating retail sites of the fuel cell industry and offers a fuel cell product line from an array of vendors. In addition, it also offers consulting services and is available to host workshops, conferences and corporate events. The Fuel Cell Store operates as an online retail store (www.fuelcellstore.com) with active international operations in Japan, Russia, Italy and Portugal.

The Hydrality Technology Hydrality is the company’s initial technology, it consists of a complex reactor system that stores and delivers hydrogen on demand using magnesium compounds and water, eliminating the need for compressed or liquefied hydrogen. Hydrogen from the Hydrality process can be released on demand and run through a fuel cell to produce electricity. When used in conjunction with existing fuel cell technology, Hydrality emits only pure water and produces no waste, as used magnesium from the reaction can be recycled for reuse. In addition, magnesium is widely available and accessible through several extraction methods.

The Hydrality technology can be used to power electrical motor applications, including buses, cars, trains, boats and industrial equipment. Also, this technology may be used to store large quantities of energy from other renewable sources like wind and water for use in back-up power systems and large-scale industrial and utility use. Most recently, the company teamed up with the Arizona Public Service (APS) and the Department of Energy (DOE) for the Advanced Hydrogasification Project (AHP) that will test and explore the use of Hydrality in a coal-hydrogasification process to reduce or eliminate harmful carbon emissions. The project will conduct testing to evaluate the process kinetics and reactor dynamics of the Hydrality process for large-scale hydrogen production and storage applications. APS previously received $8.9 million in funding for this pilot project from the DOE.

Ecotality plans to derive revenues from fees related to technology licenses, technology transfers, fuel licensing, as well as design, installation and technical support of Hydrality systems. Currently the company is not using any of its own resources to future this technology, but will continue to work with partners who are willing to fund the need research and development work.

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COMPETITION Due to the wide variety of services offered by Ecotality there are no true direct competitors, but the company competes with a number of companies in specific market segments.

Hydrality provides an alternative method of storage and delivery of hydrogen. The company competes with current suppliers of delivered hydrogen and with other manufacturers of on-site hydrogen generators. Competitors include: Air Products and Chemicals, Inc., Linde AG, Praxair Technology, Inc., and Distributed Energy Systems Corporation. Ecotality uses materials that are environmentally friendly, non-pollutant and do not contain combustive or toxic elements. Besides the obvious environmental benefits, hydrogen produced by Hydrality has the ability to be cost efficient compared to fossil fuels. It is estimated that the fuel cost per mile of a regular size hydrogen car (Honda Clarity) is about $0.07, approximately half the amount of an equivalent size auto burning gasoline which has a fuel cost of roughly $0.13 per mile.

Competitors to the eTec SuperCharge and Minit-Charger systems include: AeroVironment, Inc., Aker Wade Power Technologies LLC, Power Designers, LLC, and C&D Technologies, Inc. Ecotality’s competitive advantage in this market segment is its innovative technology that enables a battery charge up to four times faster than conventional chargers while generating less heat and expanding battery life. eTec SuperCharge and Minit-Charger fast charge systems also reduces or eliminates the need for extra batteries.

The principal competitive factors in the retail fuel cell and e-commerce markets include: product quality, product availability, distribution capabilities, internet rankings, ease of use of the website, customer service, technical support, brand and reputation. Fuel Cell Store offers the highest quality fuel cell products from renowned international vendors, and is a manufacturer of high-end fuel cell components, parts and kits under the fuel cell store brand name.

The market for solar electric power technologies is competitive and continually evolving. Innergy Power is the only North American manufacturer of both renewable energy solar modules and rechargeable batteries. 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 and others. A key advantage of Innergy Power is its manufacturing plant in Tijuana Mexico, which provides the company with the ability of further expanding the production and manufacturing of solar products and energy storage devices.

FINANCIALS Ecotality’s strategy to grow through acquisition and through partnerships with other clean technology companies combined with the organic growth of its existing operations has driven sales from $0 in FY2006 to $2.6 million in FY2007. For the most recent quarter (put the month end here) of FY 2008, the company reported revenues of $2.9 million, up 4% sequentially. We expect sales to expand significantly throughout the second half of 2008, and as such the company expects to be cash flow positive in the fourth quarter of FY 2008.

Ecotality currently has about $600,000 in cash and short term investments and may require additional capital to fund operations or to fund the acquisition of other mid-stage clean technology companies throughout the remainder of FY 2008 or FY 2009. Although a large percentage of 2007 R&D went toward the Hydrality Technology, the company has since halted these expenditures and is seeking partnerships to fund Hydrality. We consider hydrogen transport to be farther down the road and we estimate short term revenue growth to be directly attributed to electric transportation infrastructure and support (eTec and Innergy). As such, our revenue and earnings estimates for the 2H 2008 and full – FY 2009 reflect the company’s ability to profit from growth of plug in hybrids and electric vehicles.

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VALUATION With a lagging economy and the negative effects of high fuel costs on a significant portion of Ecotality’s consumers in the automotive, airline and corporate markets, the company has recently revised its overall revenue estimate for 2008 lower. Management now expects somewhat more than $13 million of revenues for the year. Despite this revised guidance, management believes that with company will still achieve positive cash flow operating results for the 4th quarter of the year. Based on the company’s growth prospects in the alternative energy market, we are estimating revenue in calendar 2009 of $20 million and cash earnings of $0.01 per share. We believe a fair valuation would be a 30 multiple on next year’s earnings estimate. 30 times our $0.01 estimate equates to a value of $0.30 as a near term price target.

INVESTMENT RISKS Much of the company’s success depends on the development of the Hydrality technology, which is as yet unproven and commercially untested. As such there is no assurance that Ecotality will be able to develop the technology though it is working with JPL and others bring the technology to commercial viability. In addition, the Company has incurred losses since inception and may not be able to generate sufficient net sales to reach and sustain profitability. Additional risks to consider include: ƒ market acceptance of the Hydrality technology, the absence of which will limit revenues and potential profits. ƒ the ultimate market success of the Hydrality technology will require the development and operation of fueling stations to provide the required infrastructure for this technology; and ƒ competition from larger and more established renewable and alternative energy development companies which are also seeking to develop alternative energy power sources.

MANAGEMENT TEAM JONATHAN R. READ – PRESIDENT / CEO 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. He built, owned, operated, managed, and franchised hotels across the United States as well as in England, France Germany, Switzerland, Holland, Belgium, Hungary, Austria, Ireland, Scotland, Spain, Poland, South Africa, Australia, New Zealand, Malaysia, Indonesia, Hong Kong, Philippines, New Guinea, Vietnam, Japan, Tahiti, Israel, Saudi Arabia, Dubai, Lebanon, Jordan, Mexico, Costa Rica and Brazil. 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 2005.

COLONEL BARRY S. BAER – CFO Colonel Barry S. Baer joined Ecotality as their Chief Financial Officer in December, 2006. He has had an extensive career and 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. Currently, Colonel Baer also serves as CFO for Buck_A-Roo$ Holding Corporation (BRHC) and is a member of the State of Indiana Unemployment

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Insurance Board. 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.

HAROLD W. SCIOTTO – DIRECTOR 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 served as Ecotality’s Chief Executive Officer from April 2005 through February 2006, when he served as their Chief Financial Officer from February 2006 through December 2006. Mr. Sciotto currently serves as Corporate Secretary and a Director.

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ANNUAL INCOME STATEMENT

ANNUAL INCOME STATEMENT CFY Ending December 2007 2008E 2009E

Revenues$ 2,589 $ 13,254 $ 20,000 Cost of Services$ 1,401 $ 7,234 $ 9,750 Gross Profit $ 1,188 $ 6,020 $ 10,250 Operating expenses: Depreciation 197 511 525 General and administrative 6,122 6,796 7,250 Research and Development 1,362 212 250 Settlement 1,800 - Impairment 4,101 - Total Operating Expenses$ 13,582 $ 7,518 $ 8,025 Loss from operations$ (12,394) $ (1,499) $ 2,225 Interest income (58) (8) - Interest expense 285 2,075 1,250 Gain / Loss on Disposal of assets - 5 Accrued expense- Potential Registration Penalty 1,069 - Net Profit (Loss)$ (13,691) $ (3,571) $ 975 Basic and diluted net loss per share 110,972 128,551 140,000 EPS - fully diluted$ (0.12) $ (0.03) $ 0.01 Depreciation and amortization 145 511 525 Stock Based Compensation 75 120 200 Cash Earnings$ (13,471) $ (2,940) $ 1,700 Cash Earnings (Loss) Per Share$ (0.12) $ (0.02) $ 0.01 % of TOTAL REVENUE Gross Profit 45.9% 45.4% 51.3% Depreciation 7.6% 3.9% 2.6% General and administrative 236.5% 51.3% 36.3% Total Operating Expenses 524.7% 56.7% 40.1% Loss from operations -478.8% -11.3% 11.1% Net Profit (Loss) -528.9% -26.9% 4.9% Cash Earnings -520.4% -22.2% 8.5% % YEAR OVER YEAR INCREASE Revenues NA 412.0% 672.6% Gross Profit NA 406.8% 763.0% Total Operating Expenses NA -44.6% -40.9% Loss from operations NA N/A N/A Net Profit (Loss) NA N/A N/A Cash Earnings NA N/A N/A

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QUARTERLY INCOME STATEMENT

QUARTERLY INCOME STATEMENT (000's) CY Ending 2007 CYE 2008 3/31/2007 6/30/2007 9/30/2007 12/31/2007 3/31/2008 6/30/2008 9/30/2008E 12/31/2008E

Revenues$ - $ 35 $ 235 $ 2,318 $ 2,818 $ 2,936 $ 3,500 $ 4,000 Cost of Services$ - $ 20 $ 173 $ 1,208 $ 1,616 $ 1,668 $ 1,900 $ 2,050 Gross Profit $ - $ 15 $ 62 $ 1,111 $ 1,202 $ 1,268 $ 1,600 $ 1,950 Operating expenses: Depreciation 48 48 49 52 142 124 120 125 General and administrative 543 621 1,197 3,762 2,357 1,539 1,475 1,425 Research and Development 374 320 467 202 116 32 32 32 Settlement 1,800 0 - - - Impairment 327 103 3,672 - - - Total Operating Expenses$ 2,764 $ 1,316 $ 1,814 $ 7,687 $ 2,614 $ 1,695 $ 1,627 $ 1,582 Loss from operations$ (2,764) $ (1,301) $ (1,752) $ (6,577) $ (1,413) $ (427) $ (27) $ 368 Interest income (22) (14) (16) (6) (8) Interest expense 3 5 4 273 562 503 510 500 Gain / Loss on Disposal of assets 25 (20) - - Accrued expense- Potential Registration Penalty 3,001 -1,104 -828 -1 Net Profit (Loss)$ (5,747) $ (188) $ (912) $ (6,843) $ (1,992) $ (910) $ (537) $ (132) Basic and diluted net loss per share 110,067 107,063 107,367 110,972 124,470 124,733 130,000 135,000 EPS - fully diluted$ (0.05) $ (0.00) $ (0.01) $ (0.06) $ (0.02) $ (0.01) $ (0.00) $ (0.00) Depreciation and amortization 48 48 49 142 124 120 125 Stock Based Compensation 75 52 18 25 25 Cash Earnings$ (5,699) $ (140) $ (788) $ (6,843) $ (1,798) $ (768) $ (392) $ 18 Cash Earnings (Loss) Per Share$ (0.05) $ (0.00) $ (0.01) $ (0.06) $ (0.01) $ (0.01) $ (0.00) $ 0.00 % of TOTAL REVENUE Gross Profit NA 42.7% 26.4% 47.9% 42.6% 43.2% 45.7% 48.8% Depreciation NA 136.2% 20.7% 2.3% 5.0% 4.2% 3.4% 3.1% General and administrative NA 1755.4% 509.1% 162.3% 83.6% 52.4% 42.1% 35.6% Total Operating Expenses NA 3718.1% 772.0% 331.6% 92.8% 57.7% 46.5% 39.6% Loss from operations NA -3675.4% -745.7% -283.7% -50.1% -14.5% -0.8% 9.2% Net Profit (Loss) NA -532.2% -388.3% -295.2% -70.7% -31.0% -15.3% -3.3% Cash Earnings NA -396.6% -335.5% -295.2% -63.8% -26.2% -11.2% 0.5% % YEAR OVER YEAR INCREASE Revenues NA NA NA NA NA 8193.8% 1389.4% 72.5% Gross Profit NA NA NA NA NA 8116.7% 998.3% 69.8% Total Operating Expenses NA NA NA NA -5.4% 28.8% -10.3% -79.4% Loss from operations NA NA NA NA -48.9% -67.2% -98.5% -105.6% Net Profit (Loss) NA NA NA NA -65.3% 383.0% -41.1% -98.1% Cash Earnings NA NA NA NA -68.4% 447.0% -50.3% -100.3% % SEQUENTIAL INCREASE Revenues NA NA 563.8% 886.5% 21.6% 4.2% 19.2% 14.3% Gross Profit NA NA 310.6% 1691.3% 8.2% 5.5% 26.2% 21.9% Total Operating Expenses NA -52.4% 37.8% 323.7% 44.1% -78.0% -37.8% -6.7% Loss from operations NA -52.9% 34.7% 275.3% -78.5% -69.8% -93.7% -1463.0% Net Profit (Loss) NA -96.7% 384.3% 650.0% -70.9% -54.3% -41.0% -75.4% Cash Earnings NA -97.5% 461.5% 768.0% -73.7% -57.3% -49.0% -104.6%

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BALANCE SHEET

BALANCE SHEET (000's) CFY 2006 CFY 2007 CFY2008 3/30/2006 6/30/2006 9/30/2006 12/31/2006 3/30/2007 6/30/2007 9/30/2007 12/31/2007 3/30/2008 6/30/2008 ASSETS Current Assets: Cash 357 18 3,936 5,048 3,125 1,201 212 677 617 601 Certificates of deposit 2,015 2,037 2,050 1,566 1,198 51 6 Receivables, net 30 37 2,388 2,625 1,827 Inventory 249 193 1,791 1,076 1,568 Prepaid expenses/other assets 95 42 21 89 83 664 659 477 587 308

Total current assets$ 452 $ 60 $ 3,957 $ 7,151 $ 5,245 $ 4,194 $ 2,667 $ 6,531 $ 4,955 $ 4,310 Fixed assets, net 2 19 18 778 1,341 1,306 1,289 2,027 2,029 1,901 Goodwill ------3,096 3,096 3,096

Total assets$ 454 $ 78 $ 3,975 $ 7,929 $ 6,585 $ 5,499 $ 3,956 $ 11,654 $ 10,079 $ 9,307 LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable 4 1 170 594 507 517 528 1,318 1,202 956 Accrued liabilities 12 32 25 12 14 21 28 671 771 783 Contingent liability-potential registration rights penalty 3,002 1,898 1,070 Liability for purchase price 4,075 4,246 2,518 Current portion of long term debt, net 1,147 1,335 1,782 Note payable, net 750 750 447

Total current liabilities$ 765 $ 783 $ 642 $ 606 $ 3,522 $ 2,436 $ 1,625 $ 7,211 $ 7,553 $ 6,039

Total Long term liabilities, net 288 288 288 1,808 1,533 1,417 Stockholders' Equity: Common stock 73 79 95 113 107 107 109 125 125 125 Additional paid-in capital 376 8,588 14,610 19,335 22,994 23,183 23,807 30,781 31,139 32,928 Unamortized stock issued for services (445) Accumulated deficit (760) (9,371) (11,373) (12,125) (20,325) (20,514) (21,426) (28,270) (30,263) (31,172) Accumulated foreign currency translation (8) (30) Total stockholders' equity$ (311) $ (705) $ 3,332 $ 7,323 $ 2,776 $ 2,776 $ 2,045 $ 2,635 $ 993 $ 1,851 Total Liabilities and Stockholders' Equity$ 454 $ 78 $ 3,975 $ 7,929 $ 6,585 $ 5,499 $ 3,956 $ 11,654 $ 10,079 $ 9,307

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RESEARCH INITIATION Peter Conley 310-526-5025 ENER1, INC. [email protected] (HEV: $6.87) Jon Hickman 310-526-5024 [email protected]

RECOMMENDATION: NEUTRAL Well-Positioned in the Race for the PRICE TARGET: $7.50 Ultimate Battery Technology INDUSTRY: ELECTRICAL EQUIPMENT

SECTOR: TECHNOLOGY INVESTMENT HIGHLIGHTS COMPANY STATISTICS Around the world billions of dollars are being spent in the effort design 52-wk range $1.68 – $9.24 and build affordable reliable hybrid and all electric vehicles. As part of this effort, entities worldwide are racing to develop new and better Avg. Daily Vol. 535,858 battery technologies. Ener1 through one of its subsidiaries, EnerDel, has Market Capitalization (M) $744.17 successfully developed and produced a highly functional lithium-ion (Li- ion) battery system that is smaller, lighter, safer and more fuel efficient EARNINGS SUMMARY than the current hybrid electric vehicle (HEV) battery technology. FYE Dec 2007A 2008E 2009E 2010E Working with the U.S. Advanced Battery Consortium Ener1 has P/SALES NM 393X 40X 12X effectively integrated its Li-ion battery in a hybrid vehicle and expects to P/E NM NM NM NM be the first company to mass produce (cost effectively) Li-ion batteries in SALES (M): Q1 0.07 0.10 1.0 11.0 the U.S. The EnerDel battery has been successful tested in the Th!nk Q2 0.11 0.44 3.0 13.0 Q3 0.19 0.50 5.5 15.0 Vehicle, a small electric automobile produced by Norway’s Th!nk Global Q4 (0.09) 0.75 8.0 18.5 and we anticipate commercial shipments of this battery system to begin Total 0.28 1.78 17.5 57.5 by the end of the calendar year. We believe that Ener1 is well Non-GAAP Q1 (0.02) (0.14) (0.12) (0.08) positioned for solid future growth in revenues and earnings driven by: EPS: Q2 (0.02) (0.07) (0.12) (0.07) • a differentiated Lithium Titanium Oxide (LTO) chemistry and battery Q3 (0.02) (0.12) (0.11) (0.05) cell design that delivers high-power performance, durability and a Q4 (0.04) (0.11) (0.10) (0.03) high degree of safety; Total: (0.12) (0.44) (0.46) (0.23) • solid strategic partnerships with the USABC, the U.S. Department of SHARE PRICE PERFORMANCE Energy’s Argonne National Laboratory, and ITOCHU Corporation; • excellent revenue visibility based on the $70 million two-year contract with Think Global; • a highly automated 92,000 square foot manufacturing facility with production capacity of 300,000 battery packs a year; and • a strong financial position ($34 million in cash) and a solid experienced management team.

With high fuel costs and a growing concern for the environment, the demand for alternate fuel vehicles is growing rapidly. Ener1’s proprietary Li-ion battery technology is a necessary component solution for these PLEASE READ THE DISCLOSURES types of current and future HEVs. Additionally, this technology is ON PAGE 230 FOR IMPORTANT applicable as a solution in other power markets. Given the company’s REQUIRED INFORMATION current contract with Th!nk Global and its unique position in the North INCLUDING RISKS AND ANALYST American market, we feel the company has the potential for significant CERTIFICATION. revenue and earnings growth in the coming years. As such we are initiating coverage with a Neutral rating and a target price of $7.50

MDB Capital Group LLC • 401 Wilshire Blvd, Suite 1020 • Santa Monica, CA 90401 • 310-526-5000 • www.mdb.com 121

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INVESTMENT SUMMARY Battery manufacturers and automobile companies are currently spending billions in the search for more efficient, higher performance battery technologies for hybrid and electric powered vehicles. A significant participant in this race, Ener1 (and its subsidiaries) is a small company engaged in developing alternative energy technologies. In the midst of rising competition, Ener1 through its subsidiary EnerDel, has already developed and is commercializing a fully functional lithium-ion (Li- ion) battery that has been successfully tested in the Th!nk Vehicle (pictured below), an electric automobile produced by Th!nk Global out of Norway. Ener1 is expected to begin full scale production of this battery for Th!nk Global under a two-year $70 million contract by the end of 2008. As opposed to conventional lead and nickel metal hydride batteries used today in hybrid vehicles, Ener1’s Li- ion battery is smaller, lighter and provides more power and a longer life cycle. The company anticipates signing two additional contracts with Tier one OEM or Automotive Manufacturers by the end of 2008.

Ener1’s other strategic partners in the development of advanced battery technology include the United States Advanced Battery Consortium (USABC), the U.S. Department of Energy’s Argonne National Laboratory and ITOCHU Corporation. In July 2008, Ener1 and the Argonne National Laboratory jointly received the R&D 100 award for excellence in the technology and innovative design of hybrid/electric vehicle batteries. In September of this year the company won a development contract with the U.S. Department of Defense to produce a battery for cold climates and for un-manned aerial vehicles.

Ener1 owns and operates a 92,000 feet highly automated manufacturing facility in Indiana for the manufacturing of the company’s battery cells and packs. This U.S. based facility provides the company with a significant competitive advantage for the North American market. Ener1 has near term plans to expand this facility in order to prepare for potential business expansion.

To date the company has generated minimal revenues from its current operations, however, given the company’s leading edge technologies related to alternative fuel generation and storage its potential for revenue growth is significant. We believe the company will begin delivering significant top line numbers as it starts to deliver products to Th!nk Global and other future customers. As such we are estimating revenues of $39 million for 2009 and $83.5 million for 2010. We also believe that the company is able to deliver a GAAP net loss of $0.25 and GAAP earnings of $0.10 in 2009 and 2010, respectively.

COMPANY BACKGROUND Ener1 Inc., was founded in 1985 under the name of Boca Research, Inc. Boca Research was engaged in developing and marketing modems, network communications systems and equipment. In 2000 the company changed its name to Inprimis, Inc to reflect its transition to a product design and engineering services provider for interactive TV, video on demand, Internet access, and other technology appliances. Then in early 2002 Inprimis was acquired by the Ener1 Group, a private global investment firm, and began another business transformation: changing its name to Ener1 in late 2002, exiting the previous business operations and focusing its efforts on alternative energy technologies. Currently, Ener1’s primary business is the development and manufacturing of lithium- ion batteries for the automotive industry. The company has been developing batteries since 2002

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and has focused on lithium-ion batteries for automotive and military applications since 2003. The company now provides an array of integrated energy storage solutions through three operating subsidiaries: EnerDel Inc, EnerFuel Inc and NanoEner Inc.

Ener1 had acquired Ener1 Battery Company, a company engaged in the research, development and marketing of Li-ion battery technologies in September 2002. Two years later in October 2004 Ener1 and Delphi Corporation created EnerDel as a joint venture that merged both company’s Lithium-ion (Li-ion) battery operations. Recently, Ener1 acquired full ownership of EnerDel. Also, the company owns EneDel Japan, founded in September 2007 after the company ended its joint venture in EnerStruct with ITOCHU Corporation. At the same time, the company signed a licensing agreement with ITOCHU regarding Li-ion battery technology. Another strategic collaborator in the development of the company’s advanced battery chemistry has been the Argonne National Laboratory since 2005. To further the company’s alternative fuel business, Ener1 formed EnerFuel in October 2004, a company engaged in the development of commercial fuel cell products and services. In addition, Ener1 formed NanoEner in April 2004 which currently develops nanotechnology related manufacturing processes and materials for batteries and other applications. EnerFuel and NanoEr operate in Florida while EnerDel operates in Indiana.

Ener1’s primary focus has been the development of a battery cell for Hybrid Electric Vehicles (HEVs) under a program with the United States Advanced Battery Consortium (USABC), which is an association of three major U.S. auto manufacturers, Ford, General Motors and Chrysler working with funds provided by the U.S. Department of Energy (DOE). In September 2007, the company was awarded a Phase II Li-ion battery technology development contract from the USABC to expand its Li- ion battery technology for HEVs. Also in September, the DOE awarded EnerDel a contract to develop a lithium titanate battery for Plug-in Hybrid Electric Vehicles (PHEVs) under a USABC program. A month later, the company unveiled a working model of an HEV battery pack (image at the left). Compared to a standard nickel metal hydride (NiMH) HEV battery pack, Ener1’s Li-ion battery pack is at least 50% smaller, more than 35% lighter, and has twice the available power. EnerDel claims its cell’s differentiated chemistry and design combine to create a higher performance and more efficient battery.

In October 2007, the company entered into a two year supply agreement with Norway’s Th!nk Global to supply Li-ion battery packs for “Th!nk City”, the company’s electric vehicle (EV). EnerDel has successfully integrated and tested its Li-ion battery pack in the Th!nk City vehicle and is currently delivering pre-production Li-ion battery packs. As per the Think Global agreement, if EnerDel’s battery meets the design and test requirements, EnerDel is expected to start producing Li-ion batteries on a commercial scale for the Th!nk City electric vehicle by the end of 2008. The company estimates that the Think contract could amount to roughly $70 million, a figure based on Think Global’s minimum forecasted vehicle deliveries for 2009 and 2010.

To date the company has generated minimal revenues from sales of its products. For its 2nd quarter of 2008 (ended in June), total revenues were $0.4 million, versus $0.07 million in the previous year’s quarter. In addition, the net loss came in at $7.8 million or $0.08 per share versus a net loss of $9.0 million or $0.14 per share the previous year.

To support its potential growth, the company leverages a highly automated production facility established in 2004 in Indianapolis. This 92,000 square feet plant is the only Li-ion battery plant in the U.S. and has the capacity to produce approximately 300,000 HEV battery packs per year at full capacity. Ener1’s headquarters recently moved from Florida to New York and the company has 100 full-time employees.

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PRODUCT OVERVIEW As mentioned above, Ener1 has three operating subsidiaries; all focused on new mobile power technologies and away from the traditional lead acid and nickel-metal hydride (Ni-MH) battery technologies. These subsidiaries (EnerDel, EnerFuel, and NanoEner) have entered into partnership agreements with one another aimed at further enhancing each subsidiary’s core technologies. Below is a detailed description of each subsidiary and its current product portfolio.

ENERDEL INC. – THE BATTERY BUSINESS EnerDel Inc. designs and produces Lithium-ion battery cells for use primarily in hybrid and electric vehicles.

Battery Cells EnerDel currently develops lithium ion cells for use in Hybrid Electric Vehicle (HEV), Plug-in Hybrid Electric Vehicles (PHEV) and Electric Vehicle (EV) applications. The company has designed two different battery chemistries in order to satisfy specific requirements for each of these ‘green car’ technologies. As described in section 6 of The Green Car Report, HEV applications require high-power density (ability to charge and discharge the battery quickly) for regeneration and engine power assistance. To better meet this need, EnerDel has designed a Lithium Titanium Oxide (LTO) battery cell that exhibits high-power performance, as well as excellent safety and durability features. Despite the fact that nominal voltage (2.5V) of LTO cells is lower than that of conventional Li-ion battery cells (3.6V), LTO cells have a wide power range. Specifically, when a 1.8Ah (ampere-hour) LTO- type cell is tested at different discharge rates, its voltage capacity remains very stable, that is, the voltage at a high discharge rate of 50C (Coulomb or Ampere per second) is almost the same as the voltage at a 2C discharge rate (see chart above). In addition, the life cycle expectancy of EnerDel’s LTO cells is ideal for HEV applications as the cell chemistry is capable of withstanding more than 1,000 (charge and discharge) cycles even at an elevated temperature of 55oC without losing more than 5% of its initial capacity. Furthermore, the LTO battery meets the U.S. Advance Battery Consortium’s (USABC) low temperature performance goal. Currently, cold cranking is one of the biggest challenges for regular Ni-MH batteries because of the use of a water-based electrolyte, which at low temperatures freezes and no longer conducts electricity efficiently. In contrast, LTO systems do not use liquid electrolytes and actually retain more than 90% of their initial capacity at temperatures as low as -30 oC. Additionally, EnerDel is developing a lithium-ion battery cell based on hard carbon (HC) for PHEVs and EVs, which run mostly on electric power (EVs operate 100% on electric power). PHEVs and EVs need a higher energy density (amount of stored energy) than HEV vehicles applications since they are required to run longer distances (100-150 miles) on a single battery charge (see section 6 of The Green Car Report). As shown in the figure at the left, HC cells have a higher energy

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capacity of 7 Ah (compared to LTO cells which come in 1.8 Ah and 5 Ah units) and still exhibit good voltage stability when submitted to discharges between 1C (Coulomb or Ampere per second) and 5C. EnerDel’s HC type cells carry a nominal voltage of 3.6V, which is the standard in Li-ion cells. Both of these battery chemistries (LTO and HC) exhibit excellent thermal performance compared to other commercially available lithium ion cells. EnerDel’s unique chemistry does not produce excessive heat during large current draws or during overcharge. In addition, the use of a prismatic (slim, rectangular shape similar to cell phone batteries) design provides the cell with a large surface area for better heat dissipation compared to the more common cylindrical designs. This excellent thermal performance of EnerDel’ cells allow for a wider variety of cooling options.

System Controls and Battery Packs When employed in an electrical vehicle, battery cells are combined in a module in parallel or series configurations. Battery packs are generally composed of several modules. EnerDel’s modules are linked together and controlled by a battery management system (BMS) that enables an efficient integration of the battery cells into the battery packs. EnerDel has designed two families of lithium BMS: a low voltage (8V-16V) controls for batteries used in lower voltage applications and a high voltage distributed controls for automotive applications. These battery control systems manage the various battery pack functions such as charge/discharge, thermal management, cell balancing, and state of charge (SOC). The BMS is also designed to indicate the state of charge and overall condition of the cells or pack, as well as provide a data bus for digital communications. The BMS monitors each cell’s condition and maintains the voltage balance among the cells making up the battery in order to optimize cell life. Based on customer requirements, the BMS may also be programmed to optimize charging, discharging and other operating characteristics or application features. BMS is an integral component of battery packs and is not currently sold as a separate product from battery packs.

EnerDel’s battery pack products include: 12V battery pack – a 4Ah smart pack designed for transportation and industrial applications. 24V battery pack – standard product for control systems, telecom, and UPS applications; flexible electronic architecture for 20V to 40V systems. 80V battery pack – certified to UN shipping requirements. It features advanced electric controls and communication features.

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120V and 240V battery packs – designed for HEV and EV applications respectively. Recently, EnerDel installed a fully-operational 240V battery pack into a Th!nk City EV, delivering a energy capacity of 28kWh and capable of reaching a 110+ miles range. The company is providing an end-to-end solution for the Think City EV battery pack, including cells, modules, electronic controls, and vehicle integration. Full production of battery packs is expected by the end of 2008.

ENERFUEL INC. - THE FUEL CELL BUSINESS EnerFuel develops fuel cell products and services. A fuel cell is an electrochemical power generator that transforms hydrogen and oxygen into water and produces electricity. Unlike a battery that stores its chemicals in a closed system and eventually must be recharged or discarded, fuel cells can work continuously as long as the flow of reactants is maintained. There are several types of fuel cell technologies, but EnerFuel focuses primarily on proton exchange membrane (PEM) fuel cells which are being developed for transportation purposes. EnerFuel’s products in development include fuel cell stacks, fuel cell systems, components for fuel cell systems and integrated products containing fuel cell systems.

Chemical Hydride Storage One of the main obstacles to the commercialization of hydrogen power systems has been the limitations of conventional hydrogen carrying systems. In particular, storage of hydrogen in a compact, light-weight unit has been a challenge for the fuel cell power industry. EnerFuel has developed a very dense, safe, reliable, and cost- efficient hydrogen storage solution using its proprietary chemical hydride chemistry (hydrogen compounds). This system has a 3.52% hydrogen weight which corresponds to approximately 460Wh/Kg of energy density, when used in a PEM cell. Based on its chemical hydride chemistry, the company also offers a Chemical Hydride Hydrogen Generator (EF-H2GEN-01) which provides hydrogen and can be refueled with additional fuel cartridges. This generator reaches a very high hydrogen storage density close to 6900Wh/Kg, and it is intended for laboratory use and other special indoor applications.

EFH Humidifiers EnerFuel's first product, released in June 2006, was a fuel cell humidifier. A fuel cell humidifier regulates the amount of water in a fuel cell system. A certain amount of water is necessary to keep the system functioning properly. Typical fuel cells will stop working if there is too little or too much water within the system. EnerFuel’s EFH solid- state humidifiers are based on permeable hollow fiber technology, which enables highly

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effective heat and humidity transfer between fluids. The humidifier transfers humidity via micro-porous fibers. This type of humidity transfer has several advantages over conventional humidification methods. It does not require an external power source for operation, it is intrinsically durable, capable of operating under harsh conditions and can be configured according to customer’s specifications.

EnerOptix Remote Surveillance System EnerOptix is EnerFuel's remote portable wireless surveillance camera that is powered by its own fuel cell/chemical hydride fuel technology. Together with other power sources (battery and solar power) the camera is able to operate for longer periods of time with a low voltage energy at a lower weight than competing products. Compared with other remote portable wireless cameras in the market today, each fuel cell cartridge in the EnerOptix allows the camera pack to generate 3,600 Wh of electricity (equivalent to 17 deep cycle golf cart batteries or 40 lithium ion laptop batteries – which retail at a cost of nearly $4,000).

NANOENER INC- THE NANOTECHNOLOGY BUSINESS NanoEner operations focus on the research and development of vapor deposition and solidification (VDS) and high pressure vapor deposition solidification (HDS) processes for the production of thick and thin coatings at the atomic or nano level. Coatings are layers of materials or reactants that through nanotechnology are deposited on a base (commonly known as substrate) with the purpose of producing a higher performance solid material including improved oxidation and wear resistance, appearance and adhesion. Deposition technology is widely used across several industries in the manufacture of semiconductors, fire arms, jewelry, optics and packaging. The more common deposition processes in use today include PVD (physical vapor deposition) and CVD (chemical vapor deposition) technology. The CVD process deposits materials onto the substrate through a chemical reaction which transforms gases into solids, while the PVD process is purely mechanical and involves the evaporation of solid materials to coat the substrate.

Vapor Deposition Solidification (VDS) NanoEner has developed a proprietary nanostructured deposition process known as Vapor Deposition Solidification that combines some properties of traditional deposition technologies into a higher performance and low cost deposition technology. VDS is a high pressure condensation process in which a liquid (of the desired material) is cooled and deposited on the substrate as a solid coating layer with high degrees of uniformity with a lower cost of production. VDS and HDS technology allow for the production of films (material layers) with thickness varying from 1 mm (a relatively thick coating) down to microscopic layers. The company has built prototype equipment that utilizes VDS process for depositing materials onto battery electrodes for use in high powered batteries. The company plans to expand this technology into other markets and applications, including high efficiency solar cells, fuel cell components, super capacitors (energy storage devices), thin film sensors and high- conductivity wires.

High Pressure Vapor Deposition Solidification (HDS) In the HDS process the substrate surface is melted to integrate the depositing reactants/materials. The resulting compound then solidifies into a final structure. This technology exhibits a very high deposition rate because material deposition can occur simultaneously with the movement of materials to the substrate, thus increasing the speed with which deposition is achieved. As a result, the HDS process coats at an estimated rate of 1,000 micrometers per second while common PVD technology reaches coating rates of only 0.25 micrometers per second. The HDS process is expected to result in: • Lower production costs due to higher speed; • Lower material costs due to lower structural requirements; • Lower capital costs;

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• Superior adhesion without binding agents; • High efficiency of material deposition; and • Increased homogeneity of applied materials.

MANUFACTURING FACILITIES EnerDel currently operates a 92,000 square foot facility outside of Indianapolis used primarily for cell development, engineering and prototype manufacturing. With the Th!nk development program reaching important milestones, the company has set short-term plans to expand this cell production

center and also build a new battery pack assembly center in nearby Noblesville, Indiana. This $40 million expansion effort will provide sufficient manufacturing capacity to produce approximately 300,000 HEV battery packs a year at full capacity. The company is also seeking local incentive offers from Indiana communities for a third manufacturing location.

Ener1 also owns a building located in Fort Lauderdale, Florida, which was used mostly for research and development of prototype battery products through 2006, but is now a research and development center for the NanoEner division. The Fort Lauderdale facility has three specialized glove box manufacturing lines (sealed containers allowing for the manipulation of hazardous materials through gloves, isolating the person from potential injury). This facility also has a testing laboratory, plus office space within a building of about 19,000 square feet.

Given its manufacturing leverage, EnerDel is well-positioned to capitalize on the $70 million revenue opportunity from the Th!nk Global contract for which commercial production is expected to begin by the end this of year. EnerDel is the only battery developer to have a manufacturing facility in the U.S. unlike most battery developers who have manufacturing operations in Asia. The U.S. location gives EnerDel an advantage in communicating with some of its clients and potential clients and allows for a significant reduction in product shipment costs.

COMPETITION Ener1 faces differing degrees of competition in each of its business segments. However, due to the significant revenue opportunity surrounding a fully functional high performance Li-ion battery for hybrid vehicles, the company’s battery business is relatively the most competitive and is expected to remain that way. Competition in the battery industry ranges from development stage companies to

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major domestic and international companies including key well known auto manufacturers such as Nissan, Toyota, General Motors and Mitsubishi.

Toyota, the industry leader in the production of HEVs, is developing its own Li-ion battery in a joint venture with Matsushita Electric Industrial known as Panasonic EV Energy. Similarly, Nissan and NEC Electronics have established the Automotive Energy Supply Co. to develop and mass produce Li-ion batteries with production beginning sometime in 2009. Another partnership with the same purpose is Lithium Energy Japan, which was formed between Mitsubishi and GS Yuasa. Similar initiatives and development programs are in the works by most of the other major car companies and battery manufacturers.

In North America battery manufacturers such as Johnson Controls, A123 Systems, Hitachi and Compact Power have development programs underway for Li-ion batteries to supply domestic and European automobile manufacturers. Hitachi Electric for example, was awarded a contract by General Motors in March 2008 for an estimated 100,000 Li-ion battery packs per year. And A123 and Compact Power are both providing samples under development contracts for the Chevrolet Volt concept PHEV. In addition, like EnerDel, Johnson Controls, A123 Systems and Compact Power are also participants in the USABC HEV and PHEV battery development programs. Furthermore, there are a growing number of battery developers in both China and Korea. In this context, EnerDel solidifies its competitive position with its 33 U.S. Patents, 10 foreign patents and 92 pending patent applications, all relating to the lithium-ion battery or related technologies.

Ener1’s competition in the fuel cell business comes from companies such as Ballard, Plug Power, UTC, ReliOn, Gore, DuPont and BASF, many of which have greater operational experience and resources. Nevertheless, many of these companies operate in either the stack or membrane sector, whereas EnerFuel is engaged in both business lines, giving the company some competitive advantage.

FINANCIALS As of the company’s second quarter (ended June 2008) the company had an ending cash balance of $34 million. The company was able to raise roughly $30 million through the exercise of 5.6 warrants at a price of $5.25. As a result of the warrant exercise the cash balance was up more than $20 million versus the 1st quarter of 2008. The company finished the quarter with working capital of $32.3 million. According to management, the current cash burn rate is approximately $1.8 million per month and management believes the current cash balance is sufficient to fund operations for at least the next 12 months. In addition, the company is debt free as of August 2008 when it completed the restructuring of its ownership interest in EnerDel and Delphi redeemed its Preferred Common stock A as part of the transaction.

Year–to-date the company has generated minimal revenues primarily from the sale of prototypes under the Think Supply agreement. For the March and the June quarter of this year the company reported revenues of $97,000 and $437,000, respectively. As a result the company’s net losses have been substantial. For the 2nd quarter of 2008 the company reported a loss of $7.8 million or $0.08 per share. We anticipate that as the company begins to ship batteries to Think Global in the later part of this year that quarterly revenues will grow meaningfully.

VALUATION Calendar 2008 is likely to be the year when the Ener1 could make the transition from a research and development powerhouse to a product and solutions company. With the successful delivery of three prototype packs to Think Global on April 30, Ener1 is on track to meet the targeted volume production for 2008, thereby seeing the first commercially available electric vehicle on the road incorporating EnerDel's Li-ion battery and systems technology. Under the supply agreement signed with Think Global, Ener1 could generate minimum $60-70 million of commercial revenues during FY2009 and FY2010. With the Think Global contract as a spring board, we believe the company

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could generate $40 million in revenues in 2009 and more than $80 million in 2010. With gross margin approaching 50% in 2010, we anticipate non-GAAP cash earnings of $0.15 per share. Given the company’s impressive growth potential we feel an appropriate valuation would be one base on the company’s rapidly growing revenue base. Other emerging battery companies have recently obtained valuations of 15 times revenues. Using a 15 multiple on 2010 revenues of $83.5 million equates to a valuation of $13.20 per share. Discounting this number back to the present at a 30% discount rate provides a fair market value of $7.50 per share. As such we are initiating coverage of these shares with a Neutral rating and a target price of $7.50.

INVESTMENT RISKS As of June 2008, Ener1 has accumulated a deficit of $262 million. For a small developing company like Ener1, there are always many risks associated with growth and reaching sustainable profitability. These risks include:

ƒ the capacity of the company to successfully develop and mass produce its products and services; ƒ the capacity of the company to generate enough cash to fund operations; ƒ the ability of the company to sign accretive contracts and product development programs; ƒ more intense competition which might reduce the company’s capacity to grow; ƒ the acquisition of Ener1 by a large competitor at a price below our estimated target value; ƒ the capacity of the company to establish third-party agreements for its distribution, servicing, and supply of components; and ƒ the possibility of the company’s intellectual property infringing on the property rights of others.

MANAGEMENT TEAM CHARLES GASSENHEIMER, CHIEF EXECUTIVE OFFICER AND CHAIRMAN Mr. Gassenheimer is the company’s CEO since August 2008 and he also serves as Ener1 Group’s CEO since January 2006. Mr. Gassenheimer has a served as director and as Vice Chairman since January 2006. He was appointed Chairman of the Board in November 2007. Prior to joining Ener1, Mr. Gassenheimer was Portfolio Manager of Satellite Asset Management's Convertible Arbitrage Division and Managing Director and Portfolio Manager of its Private Investment Group from 2002 through 2005. From 2001 through 2002, he was a Portfolio Manager and head of the distressed securities investment group at Tribeca Investments (Citigroup Global Investments). Prior to that Mr. Gassenheimer served as Vice President in Credit Suisse First Boston, where he was an Investment Manager of a proprietary hedge fund focused on private investments in public equity securities, and a Turnaround Management Consultant at Coopers & Lybrand. Mr. Gassenheimer has a B.A. in Economics from the University of Pennsylvania.

DR. PETER NOVAK, CHIEF TECHNOLOGY OFFICER AND PRESIDENT Dr. Peter Novak, a co-founder of Ener1 Group, served as Chief Executive Officer for the company from July 2006 through August 2008. He has been a director and President of the company since 2002 and 2007 respectively. He was recently appointed as Chief Technology Officer and will oversee the development of Ener1’s subsidiaries. Dr. Novak graduated from the Ural Polytechnic Institute, Physics and Technical Department, with a specialization in experimental nuclear physics. He obtained his Ph.D. in physical chemistry from the Institute of Solid State Chemistry's Ural Branch Academy of Science in Russia. Dr. Novak is the author of many scientific articles and patents and brings a broad interdisciplinary experience in transforming advanced research projects into business solutions.

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NAOKI OTA, CHIEF OPERATING OFFICER Mr. Ota is the COO of Ener1 since November 2007. He is also President and COO of EnerDel since July 2005. Mr. Ota has more than 15 years of management, technical, operations and marketing experience in Li-ion battery production and related industries. Prior to joining Ener1, Mr. Ota was Senior Manager of Technology Marketing for Hitachi Chemical Research Center, Inc. After 8 years of lithium ion business experiences in Japan, he was with Quallion, a manufacturer of batteries for medical implants and aerospace applications. At Quallion, Mr. Ota held senior management positions in Advanced Material Resources, Application Engineering and Marketing and Strategic Planning. He also has experience as a consultant for sourcing advanced materials for lithium batteries and other electrochemical devices. Mr. Ota earned a Bachelor of Applied Chemistry degree from Osaka Prefacture University, Japan.

GERARD HERLIHY, CHIEF FINANCIAL OFFICER Mr. Herlihy, who brings more than 30 years of management experience, serves as the company’s CFO since November 2007. Prior to joining Ener1, Herlihy served as President and Chief Operating Officer, as well as Chief Financial Officer of technology company Splinex Technology Inc., a majority owned subsidiary of Ener1 Group. His previous experience includes serving as Chief Financial and Administrative Officer of Williams Controls Inc. and president and COO of CliniCorp, Inc. He worked on Wall Street as an investment banker at Thomson McKinnon Securities, and began his career as a CPA with Peat Marwick Mitchell & Co in New York City. Mr. Herlihy received his MBA from the Harvard Business School and a Bachelor of Science degree from the University of Rhode Island.

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ANNUAL INCOME STATEMENT ANNUAL INCOME STATEMENTS (000's) FYE: December 2006 2007 2008E 2009E 2010E

Total Revenue$ 100 $ 280 $ 2,034 $ 39,000 $ 83,500

Cost of Sales - - 900 33,150 46,500 Gross Profit $ 100 $ 280 $ 1,134 $ 5,850 $ 37,000 Operating expenses: Selling, general and administrative 19,677 8,848 9,261 10,200 12,500 Research and development 6,442 11,948 19,299 16,250 12,250 Depreciation and amortization 391 530 548 620 620 Total Operating Expenses$ 26,510 $ 21,326 $ 29,108 $ 27,070 $ 25,370

Operating Income (26,410) (21,046) (27,974) (21,220) 11,630

Other income (expense) Interest expense (10,376) (17,233) (11,490) 100 80 Other (2,764) 107 309 - - Gain on derivative liability (146) (11,537) 3,936 - - Total other income (expense) (13,286) (28,663) (7,245) 100 80 - 1 Income before income taxes (39,696) (49,709) (35,219) (21,120) 11,710 Provision for income taxes - - - - - Minority interest (1,609) (2,001) (2,246) (2,220) (2,220) Preferred stock dividends (1,974) (10,227) - - -

Net income $ (43,279) $ (61,937) $ (37,465) $ (23,340) $ 9,490 Weighted average shares outstanding 401,534 510,456 94,100 94,400 95,150 EPS - fully diluted$ (0.11) $ (0.12) $ (0.40) $ (0.25) $ 0.10 Stock-based compensation 1,641 1,687 3,059 3,540 4,250 non-GAAP EPS - fully diluted$ (0.10) $ (0.12) $ (0.36) $ (0.20) $ 0.15 % of TOTAL REVENUE Gross Profit 100.0% 100.0% 55.8% 15.0% 44.3% General and administrative N/A 3160.0% 455.3% 26.2% 15.0% Research and development N/A 4267.1% 948.8% 41.7% 14.7% Depreciation and amortization N/A 189.3% 26.9% 1.6% 0.7% Total Operating Expenses N/A 7616.4% 1431.1% 69.4% 30.4% Other income (expense) N/A N/A -356.2% 0.3% 0.1% Net income N/A N/A -1841.9% -59.8% 11.4% % YEAR OVER YEAR INCREASE

Total Revenue NA 180.0% 626.4% 1817.4% 114.1% Gross Profit NA 180.0% 305.0% 415.9% 532.5% Total Operating Expenses NA -19.6% 36.5% -7.0% -6.3% Other income (expense) NA 115.7% -74.7% -101.4% -20.0% Net income NA 43.1% -39.5% -37.7% -140.7%

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QUARTERLY INCOME STATEMENT QUARTERLY INCOME STATEMENT (000's) FYE: December FY Ending 2007 FY Ending 2008 FY Ending 2009E FY Ending 2010E Q1 Q2 Q3 Q4 Q1 Q2 Q3E Q4E Q1E Q2E Q3E Q4E Q1E Q2E Q3E Q4E

Total Revenue$ 74 $ 111 $ 191 $ (96) $ 97 $ 437 $ 500 $ 1,000 $ 4,500 $ 7,500 $ 12,000 $ 15,000 $ 17,000 $ 19,000 $ 22,500 $ 25,000

Cost of Sales ------900 4,400 7,000 10,750 11,000 11,500 11,500 11,500 12,000 Gross Profit $ 74 $ 111 $ 191 $ (96) $ 97 $ 437 $ 500 $ 100 $ 100 $ 500 $ 1,250 $ 4,000 $ 5,500 $ 7,500 $ 11,000 $ 13,000 Operating expenses: General and administrative 1,884 2,260 1,674 3,030 2,582 2,179 2,200 2,300 2,400 2,500 2,600 2,700 2,750 3,000 3,250 3,500 Research and development 2,491 2,263 3,785 3,409 3,065 5,384 5,400 5,450 4,500 4,000 4,000 3,750 3,500 3,250 3,000 2,500 Depreciation and amortization 110 704 134 (418) 107 191 120 130 140 150 160 170 140 150 160 170 Total Operating Expenses$ 4,485 $ 5,227 $ 5,593 $ 6,021 $ 5,754 $ 7,754 $ 7,720 $ 7,880 $ 7,040 $ 6,650 $ 6,760 $ 6,620 $ 6,390 $ 6,400 $ 6,410 $ 6,170

Operating Income$ (4,411) $ (5,116) $ (5,402) $ (6,117) $ (5,657) $ (7,317) $ (7,220) $ (7,780) $ (6,940) $ (6,150) $ (5,510) $ (2,620) $ (890) $ 1,100 $ 4,590 $ 6,830

Other income (expense) Interest expense (3,352) (3,809) (4,192) (5,880) (11,625) - 75 60 40 25 15 20 20 20 20 20 Other (75) - 28 154 198 111 ------Gain on derivative liability 579 924 (512) (12,528) 3,936 ------Total other income (expense) (2,848) (2,885) (4,676) (5,726) (7,491) 111 75 60 40 25 15 20 20 20 20 20 Income before income taxes (7,259) (8,001) (10,078) (11,843) (13,148) (7,206) (7,145) (7,720) (6,900) (6,125) (5,495) (2,600) (870) 1,120 4,610 6,850 Provision for income taxes ------Minority interest (458) (485) (513) (545) (580) (616) (520) (530) (540) (550) (560) (570) (540) (550) (560) (570) Preferred stock dividends (516) (528) (537) (8,646) - -

Net income $ (8,233) $ (9,014) $ (11,128) $ (21,034) $ (13,728) $ (7,822) $ (7,665) $ (8,250) $ (7,440) $ (6,675) $ (6,055) $ (3,170) $ (1,410) $ 570 $ 4,050 $ 6,280

Weighted average shares outstanding 439,092 450,423 480,745 469,775 93,369 101,930 93,800 94,000 94,100 94,200 94,500 94,800 95,000 95,100 95,200 95,300 EPS - fully diluted$ (0.02) $ (0.02) $ (0.02) $ (0.04) $ (0.15) $ (0.08) $ (0.08) $ (0.09) $ (0.08) $ (0.07) $ (0.06) $ (0.03) $ (0.01) $ 0.01 $ 0.04 $ 0.07 Stock-based compensation 409 501 401 376 831 658 720 850 900 840 920 880 1,000 950 1,200 1,100 non-GAAP EPS - fully diluted$ (0.02) $ (0.02) $ (0.02) $ (0.04) $ (0.14) $ (0.07) $ (0.07) $ (0.08) $ (0.07) $ (0.06) $ (0.05) $ (0.02) $ (0.00) $ 0.02 $ 0.06 $ 0.08 % of TOTAL REVENUE Gross Profit 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 10.0% 2.2% 6.7% 10.4% 26.7% 32.4% 39.5% 48.9% 52.0% General and administrative 2545.9% 2036.0% 876.4% -3156.3% 2661.9% 498.6% 440.0% 230.0% 53.3% 33.3% 21.7% 18.0% 16.2% 15.8% 14.4% 14.0% Research and development 3366.2% 2038.7% 1981.7% -3551.0% 3159.8% 1232.0% 1080.0% 545.0% 100.0% 53.3% 33.3% 25.0% 20.6% 17.1% 13.3% 10.0% Depreciation and amortization 148.6% 634.2% 70.2% 435.4% 110.3% 43.7% 24.0% 13.0% 3.1% 2.0% 1.3% 1.1% 0.8% 0.8% 0.7% 0.7% Total Operating Expenses 6060.8% 4709.0% 2928.3% -6271.9% 5932.0% 1774.4% 1544.0% 788.0% 156.4% 88.7% 56.3% 44.1% 37.6% 33.7% 28.5% 24.7% Other income (expense) -3848.6% -2599.1% -2448.2% 5964.6% -7722.7% 25.4% 15.0% 6.0% 0.9% 0.3% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% Net income -11125.7% -8120.7% -5826.2% 21910.4% -14152.6% -1789.9% -1533.0% -825.0% -165.3% -89.0% -50.5% -21.1% -8.3% 3.0% 18.0% 25.1% % YEAR OVER YEAR INCREASE

Total Revenue 311.1% 1133.3% NA -231.5% 31.1% 293.7% 161.8% -1141.7% 4539.2% 1616.2% 2300.0% 1400.0% 277.8% 153.3% 87.5% 66.7% Gross Profit 311.1% 1133.3% NA -231.5% 31.1% 293.7% 161.8% -204.2% 3.1% 14.4% 150.0% 3900.0% 5400.0% 1400.0% 780.0% 225.0% Total Operating Expenses 1.8% -62.1% 61.2% 24.3% 28.3% 48.3% 38.0% 30.9% 22.3% -14.2% -12.4% -16.0% -9.2% -3.8% -5.2% -6.8% Other income (expense) -112.1% -84.1% 139.7% 544.8% 163.0% -103.8% -101.6% -101.0% -100.5% -77.5% -80.0% -66.7% -50.0% -20.0% 33.3% 0.0% Net income -146.2% -72.8% 66.7% 1042.8% 66.7% -13.2% -31.1% -60.8% -45.8% -14.7% -21.0% -61.6% -81.0% -108.5% -166.9% -298.1% % SEQUENTIAL INCREASE

Total Revenue 1.4% 50.0% 72.1% -150.3% -201.0% 350.5% 14.4% 100.0% 350.0% 66.7% 60.0% 25.0% 13.3% 11.8% 18.4% 11.1% Gross Profit 1.4% 50.0% 72.1% -150.3% -201.0% 350.5% 14.4% -80.0% 0.0% 400.0% 150.0% 220.0% 37.5% 36.4% 46.7% 18.2% Total Operating Expenses -7.4% 16.5% 7.0% 7.7% -4.4% 34.8% -0.4% 2.1% -10.7% -5.5% 1.7% -2.1% -3.5% 0.2% 0.2% -3.7% Other income (expense) 220.7% 1.3% 62.1% 22.5% 30.8% -101.5% -32.4% -20.0% -33.3% -37.5% -40.0% 33.3% 0.0% 0.0% 0.0% 0.0% Net income 347.3% 9.5% 23.5% 89.0% -34.7% -43.0% -2.0% 7.6% -9.8% -10.3% -9.3% -47.6% -55.5% -140.4% 610.5% 55.1%

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BALANCE SHEET BALANCE SHEET (000's) FYE: December FY Ending 2006 FY Ending 2007 FY Ending 2008 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 ASSETS Current Assets: Cash and cash equivalents$ 890 $ 873 $ 366 $ 291 $ 471 $ 2,018 $ 1,789 $ 24,826 $ 13,620 $ 34,020 Accounts receivable 639 - - 152 141 92 184 102 1,106 1,097 Due from related parties - 41 81 - - 623 151 94 32 - Prepaid expenses and other current assets - 169 337 248 340 126 434 608 546 2,009 Total current assets$ 1,529 $ 1,083 $ 784 $ 691 $ 952 $ 2,859 $ 2,558 $ 25,630 $ 15,304 $ 37,126

Property, plant & equipment, net 2,996 3,706 3,809 3,554 3,393 3,849 4,273 4,287 10,001 11,912 Investment in EnerStruct 658 476 197 40 ------Deffered debenture 3,441 3,383 3,152 2,812 2,721 2,359 1,958 835 - - Other assets 74 74 75 71 70 179 179 549 711 968 Total assets$ 8,698 $ 8,722 $ 8,017 $ 7,168 $ 7,136 $ 9,246 $ 8,968 $ 31,301 $ 26,016 $ 50,006

LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable and accrued expenses 4,349 6,154 6,383 5,937 4,978 4,167 3,497 3,798 4,369 4,710 Current portion of installment loan 25 25 26 27 26 26 - - - - Derivative liability 26,952 10,765 8,419 7,162 6,583 5,659 6,010 10,144 - - Interest payable - - - 1,300 1,272 1,286 1,300 - - - Notes payable - - - - 157 476 667 315 85 108 Total current liabilities 31,326 16,944 14,828 14,426 13,016 11,614 11,474 14,257 4,454 4,818 Other long-term liabilities 13 ,798 14,264 18,269 21,267 20,942 22,660 24 ,535 15 ,493 - - Total liabilities$ 45,124 $ 31,208 $ 33,097 $ 35,693 $ 33,958 $ 34,274 $ 36,009 $ 29,750 $ 4,454 $ 4,818

Minority Interest ------

Stockholders' Equity: Preferred stock series A 5,563 6,159 6,754 6,576 7,034 7,519 8,032 8,577 9,157 9,773 Preferred stock series B 13,882 14,560 15,221 15,162 15,678 16,206 16,743 - - - Common stock 3,921 4,170 4,170 4,174 4,391 4,758 5,010 6,482 988 1,047 Additional paid-in capital 74,395 135,223 136,789 137,507 145,278 153,693 160,456 228,145 266,218 296,398 Accumulated other comprehensive income ------Retained earnings ------Accumulated deficits (134,187) (182,598) (188,014) (191,944) (199,203) (207,204) (217,282) (241,653) (254,801) (262,030) Total stockholders' equity$ (55,871) $ (43,205) $ (47,055) $ (50,263) $ (49,534) $ (48,753) $ (51,816) $ (7,026) $ 12,405 $ 35,415 Total Liabilities and Stockholders' Equity $ 8,698 $ 8,722 $ 8,017 $ 7,168 $ 7,136 $ 9,246 $ 8,968 $ 31,301 $ 26,016 $ 50,006

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RESEARCH INITIATION Peter Conley 310-526-5025 ENOVA SYSTEMS, INC. [email protected] (ENA: $1.45) Jon Hickman 310-526-5024 [email protected]

RECOMMENDATION: NEUTRAL Integrated Drive Train Systems PRICE TARGET: $1.60 A Winning Strategy INDUSTRY: TECHNOLOGY

SECTOR: DIVERSIFIED ELECTRONICS INVESTMENT HIGHLIGHTS COMPANY STATISTICS As a manufacturer of drive systems and related components for mobile 52-wk range $1.00 – $6.49 hybrid vehicles and some selected stationary applications, Enova Systems is well positioned to benefit from the explosive growth in the Avg. Daily Vol. 16,523 alternative energy market. Enova’s HybridPower systems, which consist Market Capitalization (M) $25.79 of an enhanced electric motor and electronic controls, are fuel-efficient and environmental friendly, capable of delivering a 70% increase in fuel EARNINGS SUMMARY economy over the standard diesel propulsion system while also reducing FYE Dec 2007A 2008E 2009E 2010E carbon dioxide emissions by as much as 40%. Enova, which currently P/SALES 2.2X 1.7X 0.8X 0.4X targets the medium and heavy duty hybrid vehicles (trucks and vans) P/E NM NM NM 17.5X market, has provided products and services to Cox Communications, SALES (M) Q1 1.5 2.3 6.0 12.5 Verizon, Navistar and China FAW suite of city buses. The company has Q2 1.1 3.4 7.5 15.0 Q3 2.5 4.0 9.0 17.5 also provided hybrid drive systems for school, commercial and public Q4 4.0 5.0 11.0 20.0 transit buses in England, Italy, Korea, Malaysia, Mexico, and Canada. Total 9.2 14.6 33.5 65.0 We believe that Enova is entering a period of accelerated revenue Non-GAAP Q1 (0.07) (0.14) (0.09) (0.04) growth driven by: EPS: Q2 (0.17) (0.13) (0.08) (0.00) • its recent contract with IC Bus, the major school bus manufacturer in Q3 (0.12) (0.10) (0.08) (0.04) the U.S., as the exclusive supplier of drive systems – a contract that Q4 (0.18) (0.10) (0.06) (0.08) could be worth up to $120 million in sales over the next three years; Total: (0.55) (0.46) (0.31) (0.07) • the recent successful field trial of twenty China FAW’s hybrid city SHARE PRICE PERFORMANCE buses that use Enova’s hybrid drive systems; • Increased deliveries from 40 systems in 2006 to 384 systems in 2007 – 1000 systems are expected to be delivered by the end of FY2008, and more than 2800 systems in FY2009. • Potential plan for UK facility to support and grow customer base in Europe. • Solid strategic partnerships with Th!nk, Isuzu Motors, Tanfield, WrightBus, Ford Motors, and Hyundai Motor Company.

Enova has increased its top line revenues from $1.7 million in FY2006 to $9.2 million in FY2007 and projections going forward are very optimistic PLEASE READ THE DISCLOSURES based on the growing worldwide demand for hybrid electric systems. ON PAGE 230 FOR IMPORTANT However, we are uncertain as to the company’s ability to grow its gross REQUIRED INFORMATION margins in line with unit sales. For fiscal 2010 we are estimate revenues INCLUDING RISKS AND ANALYST of $65 million, but only $0.07 per share in non-GAAP cash earnings. As CERTIFICATION. such, we are initiating coverage of Enova with a Neutral rating and a target price of $1.60.

MDB Capital Group LLC • 401 Wilshire Blvd, Suite 1020 • Santa Monica, CA 90401 • 310-526-5000 • www.mdb.com 135

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INVESTMENT SUMMARY Enova System is a production stage company that develops and manufactures digital power management and conversion systems focused solely on medium and heavy duty electric, hybrid and fuel cell vehicles (trucks, vans and buses) and stationary power applications. The company has effectively installed and integrated its proprietary drive systems in transportation vehicles including those featured in the image at the right, taken from the company’s investor presentation. As noted, Navistar, Verizon, Cox Communications and Isuzu Motors are some of the companies currently using Enova’s drive systems to control and deliver electric power in some of their respective vehicles. First Auto Works of China (China FAW) recently placed an additional order of Enova’s hybrid drive systems after a successful field trial of its Hybrid City bus that uses the company’s pre-transmission hybrid drive system. Currently, Enova continues to work with several partners including International Truck and Engine (IC Corp), a wholly owned affiliate of Navistar, and also with Tanfield’s Smith Electric Vehicles to supply electric drive components for Tanfield’s zero emission vehicles.

A unique feature of Enova’s technology is its post transmission hybrid system that is designed as a fully integrated “drop in” product, but it is also flexible enough to be customized for “as needed” use. This design allowing customers to use the system without design changes to the existing vehicle on a trial basis or until demand for the hybrid vehicle accelerates. Furthermore, the company’s HybridPower solutions enable an efficient use of fuel and also compliance with environmental regulations by significantly reducing CO2 emissions.

The company currently has a limited revenue base and continues to deliver net losses in the bottom line. However, Enova is implementing several strategies to grow its revenue base and consequently achieve profitability. These strategies involve specific targets in the North American, UK/Europe and Asian markets including the a significant focus on the bus sector, a more intense penetration in the fleet service market, optimizing relationships with major electric and hybrid vehicle manufacturers and developing retrofit transit bus applications.

Due to the emerging market for electric and hybrid vehicle applications and the potential of its current contracts, Enova’s revenues are expected to grow rapidly in future quarters. Leveraging its proprietary technology, particularly with the HybridPower drive systems, the company has the potential to capture a significant share of the electric and hybrid vehicle market and pave its way to long term growth and profitability.

COMPANY BACKGROUND The company was incorporated in 1976 as Clover Solar Corporation and was originally engaged in the development and manufacture of battery-powered electric vehicles. In 1994, the company changed its name to U.S. Electricar and then again to Enova Systems in 2000, in order to better reflect its current business focus. Enova Systems currently develops and produces digital power management and conversion systems for heavy duty transportation vehicles. Specifically; the

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company designs and produces drive systems for electric, hybrid, fuel cell and turbine powered vehicles. In addition, Enova Systems develops and produces power management and power conversion components for stationary power generation systems.

Enova has developed a family of HybridPower drive systems and is a market leader in drivetrains for medium and heavy duty electric and hybrid vehicles. Enova’s HybridPower system consists primarily of an electric motor, electronic controls, a gear reduction unit and the necessary software. According to the company, these drive systems enable the same functionality of a conventional internal combustion vehicle. In addition, these drive systems seamlessly integrate with a wide range of power sources including battery, fuel cell, diesel generator and turbine. Enova also offers integration, retrofit, support, maintenance and upgrade services to its customers. The company holds four U.S. patents and has one patent pending relating to power management and control, and crash management safety.

Enova has sold products to and/or is currently working with several domestic and international vehicle manufacturers including China FAW, International Truck and Engine (IC Corp), Ford Motor Company, Hyundai Motor Car, Wright Bus of the United Kingdom, The Tanfield Group, Tomoe of Japan and Th!nk Global. The company has also provided services to the U.S. Army, Verizon and Cox Communications. In a partnership with IC Corp, the nation’s largest school bus manufacturer, the company developed the nation’s first hybrid school bus in 2006. Recently, IC Corp and Enova signed a long term agreement with a projected value of more than $120 million over three years whereby Enova will supply electric drive systems for IC Corp hybrid buses to be sold in the U.S., Canada and Mexico. Customers adopting Enova’s drive systems have experienced several benefits including a 25-50% improvement in fuel economy, lower maintenance costs, and reduced contamination from carbon dioxide emissions and noise.

Financially, the company has incurred operating losses since inception. For the year ended December 31, 2007, revenues totaled $9.1 million and the net loss was $9.3 million or $0.60 per share. In its most recent quarter (June 2008), revenues totaled roughly $3.4 million bringing the year- to-date total to $5.6 million. Due to higher operating expenses, the company has yet to become profitable. The GAAP net loss was roughly $3.0 million in the first quarter of 2008 and $2.7 million in the 2nd quarter of 2008. We anticipate that with recent contracts (most notably IC Corp); Enova’s revenue base is likely to expand at a rapid rate in future quarters and allow for profitable operations by calendar 2010.

The company is headquartered in Torrance California and has approximately 75 full time employees.

PRODUCT OVERVIEW Enova’s product portfolio includes Hybrid propulsion systems for medium and heavy-duty vehicles as well as power management systems and accessories used in these alternative drive systems.

SOME THOUGHTS ON HYBRID TECHNOLOGY As discussed in section 6 of the Green Car Report, hybrid-electric vehicles are so named due to the use of two different power sources to provide drive power to the wheels of the vehicle. The most common hybrid vehicles in use today include an internal combustion engine (ICE) and some type of an electric motor. Hybrid-electric vehicles can generally be divided into two groups; series-hybrids and parallel-hybrids. The difference between the two types is the connection to the drive wheel. In a series-hybrid system, the internal combustion engine (ICE) turns on the generator, which charges the battery, which powers the electric motor, which turns the wheels (only the electric motor connects directly to the drive wheels). In a parallel hybrid system, both the electric motor and the ICE can simultaneously operate the drive wheels (see image below).

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A series-hybrid system is especially well suited for vehicles involved in a lot of stop and go driving such as an urban transit bus. In stop and go driving the electric motor, which has a high efficiency in the acceleration phase, can provide the power to the wheels and the ICE can be operated in a more constant speed mode (charging the batteries) allowing for maximum efficiency. In contrast, a parallel-hybrid system will have an efficiency advantage in vehicles that do a lot of cruise driving such as a passenger car on the highway. In this drive system a small ICE and a small electric motor together replace a larger ICE. Both the ICE and the electric motor are used to accelerate the vehicle, and once cruise speed has been reached, the electric motor is shut down. The electric motor assistance allows the smaller ICE to provide the needed cruise power at a much higher efficiency than the larger ICE. Also, during cruise type driving, the ICE acts as a generator recharging the on-board battery in preparation for the next acceleration request.

ENOVA’S HYBRIDPOWER DRIVE SYSTEM FAMILY According to the type of vehicle operation and load requirements, Enova offers a variety of hybrid drive systems that include the traditional components of a hybrid drive train such as an enhanced electric motor which powers up the vehicle; the controller that regulates the flow of electricity to and from the batteries (the controller also includes a converter that converts direct DC electricity to AC electricity); and other optional components. In order to complement the HybridPower drive system family Enova offers drive system accessories ranging from battery management systems to safety control units.

Enova’s HybridPower systems offer auto manufacturers and systems integrators fuel-efficient and environmental friendly drive systems capable of delivering a 70% increase in fuel economy over the standard diesel system while also reducing CO2 emissions by more than 40%. In addition, these systems have the advantage of being able to be installed as a ‘drop in’ solution in new and existing vehicles, requiring little or no modification to the chassis, body, and instrumentation panel.

The company has four primary drive systems for hybrid vehicles: 90 kW Pre-Transmission Parallel Hybrid Systems – The Pre-Transmission Parallel Hybrid system is well suited for vehicles that are anticipated to perform a large amount of stop and go driving.

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In a Pre-Transmission Parallel Hybrid system, the electric motor is located between the ICE and the transmission. The 90 kW drive power delivered by this system presents an efficient choice for light duty electric vehicles such as inter-city transit buses and delivery trucks. This system can provide as much as 239 Nm (Nm, or Newton meter, which is the standard measure of torque) of motor shaft torque and operate on a DC input voltage that can range from 250 to 425VDC which gives excellent design flexibility for system integrators or car manufacturers.

100 kW Post-Transmission Parallel Hybrid System -- The Post-Transmission Parallel Hybrid system is designed for vehicles involved in a high percentage of stop and go driving, as well as constant speed cruising. This system is especially well suited for school buses which make frequent stops. The Post-Transmission Parallel Hybrid system locates the electric motor between the transmission and the rear axle. As in most Parallel Hybrid systems, both the electric motor and the ICE operate simultaneously to drive the wheels during acceleration. The advantage of the Post-Transmission hybrid system (unique to Enova) is that it is designed to be installed as a ‘drop in’ solution into the existing vehicle, requiring little or no modification to chassis, body, or instrument panel. The 100 kW power output is sufficient for the load requirement of most school busses.

120 kW Series Hybrid Systems -- The Series Hybrid is designed for vehicles with a driving environment that includes a high percentage of stop and go operations in hilly terrains. One advantage of a Series Hybrid system is that it allows the simplification of the drive system by removing both the starter and alternator components. The 120 kW power output is good enough for light trucks, delivery vans, and mid-sized buses using electric and series hybrid- electric propulsion. This system can provide 1,664Nm of drive shaft torque when used with a gear reduction unit and operates on a DC input voltage that can range from 250 to 425VDC.

240 kW Series Drive Systems – The 240kW series drive system is designed for larger trucks and full sized buses. This system can provide 3,874Nm of drive shaft torque when used with a gear reduction unit and operates on a DC input voltage that can range from 250 to 425VDC.

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Energy Management Systems BCU/SDU– Enova’s Battery Care Unit (BCU) monitors, manages, protects, and reports on the condition of the vehicles’ battery pack. It controls and manages battery performance, temperature, voltage and current to avoid harm to the batteries, to the entire system, and to the driver, operator and passengers. It also allows for monitoring for service to the battery and drive system. The device is approximately 7.1 inches by 4.3 inches by 1.6 inches. The Safety Disconnect Unit (SDU) is under the control of the BCU, and allows vehicle systems to connect and disconnect from the battery pack, when necessary, to prevent damage or harm. It also protects the battery pack during charging, protects it from surges, and constantly verifies that the battery pack is isolated from the vehicle chassis. In the event of a ground isolation fault, the BCU commands the SDU to break the battery connection thus ensuring a safe environment for the vehicle and operator. The SDU is available for the 90 kW and 120 kW drive systems.

COMPETITION Competition in the power management and power conversion industry is increasing rapidly as the market for hybrid and electric cars continues to expand. Direct competitors to Enova include large worldwide companies such as Allison Transmission, Siemens, BAE Systems and Eaton and also smaller companies such as ISE Research, Azure Dynamics and UQM Technologies. These large companies provide diversified power management and conversion products and services; have longer operating history, a significant customer base and greater financial resources.

In addition, the product offering of certain smaller electric car manufacturers represents an indirect competition to Enova’s Hybrid product portfolio as they develop their own power management systems for use in their own vehicles. For example, small public companies such as ZAP (ZAAP: $0.60) and Hybrid Technologies Inc. (HYBR: $2.00), as well as private companies such as Tesla Motors, Phoenix Motorcars, and REVA are now offering a variety of full electric cars ranging from small delivery trucks to high-performance sport vehicles. Enova’s competitive position is supported by the advanced features of its product offerings including:

ƒ a comprehensive product line of power management, power conversion and system integration solutions; ƒ a product line designed for the most sophisticated new fuel systems of vehicles and stationary power applications; ƒ an integrated, scalable and essentially non invasive “drop-in” energy management and conversion solution; ƒ high functionality, reduced weight and low cost applications; and ƒ high performance applications enabling significant fuel economy and CO2 emissions reductions.

Moreover, Enova’s R&D partnerships with Th!nk, Isuzu Motors, and IC Corp allows the company to further develop its hybrid systems and improve its product offering in this competitive market. Furthermore, Enova is looking to enhance its competitive position in the industry by integrating its hybrid technology into stationary power applications such as hybrid power plants and fuel-cell power conditioning systems.

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FINANCIALS The company ended its second quarter (June 2008) with roughly $13.0 million in cash, cash equivalents and short term investments. Working capital as of June was $19.7 million. Enova’s year- to-date sales have not been significant at about $5.7 million. However, revenues did increase 117% versus the first half of 2007 due entirely to higher product sales. During this period, revenues were derived from contracts with The Tanfield Group, Th!nk Global, First Auto Works of China, IC Corporation, and the Hawaii Center for Advanced Transportation Technologies.

Though revenues to-date (for the 2008 calendar year) have been insufficient to generate positive GAAP earnings or even positive cash flow, we anticipate much stronger revenue production in 2009 and 2010. For calendar 2010, we anticipate revenues approaching $65 million and non-GAAP earnings of $0.05. We believe this is a reasonable estimate based on the company’s leading position in the heavy duty vehicle market and its contract with IC Corp (a division of Navistar). Due to the “drop in” feature of Enova’s post transmission product, the lead time for contracts to turn into revenues is considerably shorter than projects that require a complete vehicle re-design. As a result these revenue projections could be conservative.

VALUATION Enova is currently in the midst of moving from a research and development company selling prototype or evaluation units, to a production company selling commercial quantities of its drivetrains. The company believes that it needs to sell roughly 1,000 units in a given quarter to reach profitability and we believe that this milestone is likely to be reached in the back half of calendar 2010. We estimate that the company’s revenues will approach $65 million in 2010 and that non- GAAP cash earnings will reach $0.07 per share. Given this growth and the market potential, we believe a fair value for the shares would be based on a multiple of 2010 earnings discounted back to the present. We believe a fair multiple is 30 which equates to a future value of $2.10. Discounting this value back to the present at 30% provides a present fair value of $1.60 per share.

INVESTMENT RISKS Enova Systems is a very small company that has incurred operating losses since inception, accumulating a deficit of $122.4 million as of the June quarter of 2008. To be a small company in this situation poses several risks which may hinder significant growth and sustained profitability. Some of these risks include: ƒ the capacity of the company to successfully produce and commercialize its products and services; ƒ legislation concerning vehicle pollution which might impede or delay the adoption of electric and hybrid vehicles; ƒ intense competition which might reduce the company’s capacity to grow; ƒ the capacity of the company to generate enough cash to fund operations; ƒ the ability of the company to capitalize on contracts; ƒ the ability of the company to make accretive acquisitions and investments; and ƒ the possibility of the company’s intellectual property infringing on the property rights of others.

MANAGEMENT Mike Staran, President and CEO- Mr. Staran serves as the company’s CEO and was appointed to the Board of Directors since 2007. He previously held the positions of COO and Executive Vice President. He entered the company as Director of Sales and Marketing after acting as a consultant for the company from November 2004 through February 2005. Mr. Staran has nearly 30 years of

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experience in business development, product management, sales and marketing, and engineering. Prior to joining Enova in 2006, he had served since 1998 as President of Effective Solutions People providing specialized consulting. His affiliations and work history range from companies such as Ford, General Motors and DaimlerChrysler to suppliers such as Johnson Controls and Decoma International where he was vice president of sales and marketing for 13 years. Mr. Staran has a B.S. in Mechanical Engineering with a minor in Mathematics from Lawrence Institute of Technology. In addition, he has developed three patented mechanical designs within the automotive components sector.

Jarett Fenton, Chief Financial Officer- Mr. Fenton has served as the company’s CFO since February 2007. He was previously the Chief Executive of the Clarity Group, a company he founded to provide SEC reporting and corporate compliance consultancy. From September 1998 to March of 2003, Mr. Fenton worked as a Senior Associate in the Middle Market practice of PricewaterhouseCoopers where he facilitated audit engagements, worked on SEC reporting issues, controls assessments, client reporting, financial guidance interpretation and staff development. He has a B.A. in Business Economics with an emphasis in Accounting from the University of California and is a Certified Public Accountant in the State of California.

Bill Frederiksen, Vice President and COO- Mr. Frederiksen, who joined the company in April 2007, brings 34 years of automotive technical background to Enova. He developed part of his career at General Motors where he eventually became Vehicle Chief Engineer of GM's first front-drive minivan. He also served for Magna International, a major automotive supplier, where he has held a variety of positions as Vice President, in sales and marketing, operations, business development, and engineering. Most recently he was responsible for sales and business development in the Asia- Pacific region for Magna's Decoma division. Mr. Frederiksen holds a Bachelor's degree in Engineering from Wayne State University in Detroit.

John Mullins, Executive Director of Operations- Mr. Mullins’ past experience includes COO/VP Operations for American Racing; SBU global General Manager of Ingersoll-Rand's industrial tool and pump business, based in Shanghai China; General Manager of TRW Automotives North American aftermarket business; Operations general manager- Europe for Lucas Aftermarket, based in Solihull England, and a variety of positions with Kelsey-Hayes company in engineering and program management, based in Tokyo Japan, and Detroit. He holds a master of international business degree from the University of South Carolina and an electrical engineering degree from Oklahoma State.

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ANNUAL INCOME STATEMENT ANNUAL INCOME STATEMENT (000's) Fiscal Years 2006 2007 2008E 2009E 2010E

Revenues$ 1,666 $ 9,175 $ 14,648 $ 33,500 $ 65,000

Cost of revenues 2,900 9,763 14,924 29,750 51,000

Gross profit (loss) $ (1,234) $ (588) $ (276) $ 3,750 $ 14,000

Research and development 1,363 1,159 2,749 3,650 4,450 Selling, general, and administrative 4,178 7,766 7,093 8,050 9,450 Total Operating Expenses$ 5,541 $ 8,925 $ 9,842 $ 11,700 $ 13,900

Profit (Loss) from Operations$ (6,775) $ (9,513) $ (10,118) $ (7,950) $ 100

Interest and financing fees, net 550 343 359 500 660 Equity in losses of non-consolidated joint venture (3) (177) (174) (221) (350) Debt extinguishment 920 - - - - Interest extinguishment 472 - - - - Other income (expense), net 1,939 166 185 279 310

Net Income before taxes$ (4,836) $ (9,347) $ (9,933) $ (7,671) $ 410 Income tax expense (benefit) - - - - -

Net Income (Loss)$ (4,836) $ (9,347) $ (9,933) $ (7,671) $ 410 GAAP EPS - fully diluted$ (0.33) $ (0.59) $ (0.51) $ (0.36) $ 0.02 Depreciation and amortization 419 300 426 465 515 Stock-based compensation 55 367 443 590 660 Non-GAAP EPS - fully diluted$ (0.29) $ (0.55) $ (0.46) $ (0.31) $ 0.07 Shares fully diluted 14,802 15,796 19,587 21,513 22,213 % of TOTAL REVENUE Gross margin -74.1% -6.4% -1.9% 11.2% 21.5% Selling, general, and administrative 250.8% 84.6% 48.4% 24.0% 14.5% Research and development 81.8% 12.6% 18.8% 10.9% 6.8% Total costs and expenses 506.7% 203.7% 169.1% 123.7% 99.8% Profit (Loss) from Operations -406.7% -103.7% -69.1% -23.7% 0.2% Net Income (Loss) -290.3% -101.9% -67.8% -22.9% 0.6% % YEAR OVER YEAR INCREASE Total Revenue NA 450.7% 59.7% 128.7% 94.0% Expenses NA 61.1% 10.3% 18.9% 18.8% Profit (Loss) from Operations NA -40.4% -6.4% 21.4% 101.3% Net Income (Loss) NA -93.3% -6.3% 22.8% 105.3%

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QUARTERLY INCOME STATEMENT

QUARTERLY INCOME STATEMENT (000's) FY2007 FY2008E FY2009E FY2010E Q1 Q2 Q3 Q4 Q1 Q2 Q3E Q4E Q1E Q2E Q3E Q4E Q1E Q2E Q3E Q4E

Revenues$ 1,543 $ 1,059 $ 2,541 $ 4,032 $ 2,278 $ 3,370 $ 4,000 $ 5,000 $ 6,000 $ 7,500 $ 9,000 $ 11,000 $ 12,500 $ 15,000 $ 17,500 $ 20,000

Cost of revenues 1,383 1,637 2,708 4,035 2,388 3,736 4,000 4,800 5,500 6,750 8,000 9,500 10,500 12,000 13,500 15,000

Gross profit (loss) $ 160 $ (578) $ (167) $ (3) $ (110) $ (366) $ - $ 200 $ 500 $ 750 $ 1,000 $ 1,500 $ 2,000 $ 3,000 $ 4,000 $ 5,000

Research and development 95 517 203 344 737 712 600 700 800 900 950 1,000 1,000 1,100 1,150 1,200 Selling, general, and administrative 1,328 1,543 1,702 3,193 1,858 1,935 1,600 1,700 1,800 2,000 2,100 2,150 2,250 2,325 2,400 2,475 Total Operating Expenses$ 1,423 $ 2,060 $ 1,905 $ 3,537 $ 2,595 $ 2,647 $ 2,200 $ 2,400 $ 2,600 $ 2,900 $ 3,050 $ 3,150 $ 3,250 $ 3,425 $ 3,550 $ 3,675

Profit (Loss) from Operations$ (1,263) $ (2,638) $ (2,072) $ (3,540) $ (2,705) $ (3,013) $ (2,200) $ (2,200) $ (2,100) $ (2,150) $ (2,050) $ (1,650) $ (1,250) $ (425) $ 450 $ 1,325

Interest and financing fees, net 111 65 59 108 85 69 100 105 110 120 130 140 150 160 170 180 Equity in losses of non-consolidated joint venture (41) (29) (60) (47) (53) (6) (55) (60) (70) (6) (70) (75) (80) (85) (90) (95) Debt extinguishment ------Interest extinguishment ------Other income (expense), net$ 70 $ 36 $ (1) $ 61 $ 32 $ 63 $ 45 $ 45 $ 40 $ 114 $ 60 $ 65 $ 70 $ 75 $ 80 $ 85

Net Income before taxes$ (1,193) $ (2,602) $ (2,073) $ (3,479) $ (2,673) $ (2,950) $ (2,155) $ (2,155) $ (2,060) $ (2,036) $ (1,990) $ (1,585) $ (1,180) $ (350) $ 530 $ 1,410 Income tax expense (benefit) ------

Net Income (Loss)$ (1,193) $ (2,602) $ (2,073) $ (3,479) $ (2,673) $ (2,950) $ (2,155) $ (2,155) $ (2,060) $ (2,036) $ (1,990) $ (1,585) $ (1,180) $ (350) $ 530 $ 1,410 GAAP EPS - fully diluted$ (0.08) $ (0.18) $ (0.13) $ (0.20) $ (0.16) $ (0.15) $ (0.11) $ (0.10) $ (0.10) $ (0.09) $ (0.09) $ (0.07) $ (0.05) $ (0.02) $ 0.02 $ 0.06 Depreciation and amortization 74 73 77 76 104 157 90 75 100 135 110 120 115 120 135 145 Stock-based compensation 20 20 20 307 89 184 80 90 135 140 155 160 150 165 175 170 Non-GAAP EPS - fully diluted$ (0.07) $ (0.17) $ (0.12) $ (0.18) $ (0.14) $ (0.13) $ (0.10) $ (0.10) $ (0.09) $ (0.08) $ (0.08) $ (0.06) $ (0.04) $ (0.00) $ 0.04 $ 0.08 Shares fully diluted 14,822 14,837 16,333 17,149 17,162 20,054 20,250 20,880 21,200 21,450 21,600 21,800 21,900 22,150 22,350 22,450 % of TOTAL REVENUE Gross margin 10.4% -54.6% -6.6% -0.1% -4.8% -10.9% 0.0% 4.0% 8.3% 10.0% 11.1% 13.6% 16.0% 20.0% 22.9% 25.0% Selling, general, and administrative 86.1% 145.7% 67.0% 79.2% 81.6% 57.4% 40.0% 34.0% 30.0% 26.7% 23.3% 19.5% 18.0% 15.5% 13.7% 12.4% Research and development 6.2% 48.8% 8.0% 8.5% 32.4% 21.1% 15.0% 14.0% 13.3% 12.0% 10.6% 9.1% 8.0% 7.3% 6.6% 6.0% Total costs and expenses 181.9% 349.1% 181.5% 187.8% 218.7% 189.4% 155.0% 144.0% 135.0% 128.7% 122.8% 115.0% 110.0% 102.8% 97.4% 93.4% Profit (Loss) from Operations -81.9% -249.1% -81.5% -87.8% -118.7% -89.4% -55.0% -44.0% -35.0% -28.7% -22.8% -15.0% -10.0% -2.8% 2.6% 6.6% Net Income (Loss) -77.3% -245.7% -81.6% -86.3% -117.3% -87.5% -53.9% -43.1% -34.3% -27.1% -22.1% -14.4% -9.4% -2.3% 3.0% 7.1% % YEAR OVER YEAR INCREASE Total Revenue 399.4% 134.3% 714.4% 579.9% 47.6% 218.2% 57.4% 24.0% 163.4% 122.6% 125.0% 120.0% 108.3% 100.0% 94.4% 81.8% Total Operating Expenses 13.9% 53.4% 31.3% 136.1% 82.4% 28.5% 15.5% -32.1% 0.2% 9.6% 38.6% 31.3% 25.0% 18.1% 16.4% 16.7% Profit (Loss) from Operations 9.8% -46.1% 17.8% -95.5% -114.2% -14.2% -6.2% 37.9% 22.4% 28.6% 6.8% 25.0% 40.5% 80.2% 122.0% 180.3% Net Income (Loss) 922.8% -55.8% 26.3% -108.3% -124.1% -13.4% -4.0% 38.1% 22.9% 31.0% 7.7% 26.5% 42.7% 82.8% 126.6% 189.0% % SEQUENTIAL INCREASE Total Revenue 160.2% -31.4% 139.9% 58.7% -43.5% 47.9% 18.7% 25.0% 20.0% 25.0% 20.0% 22.2% 13.6% 20.0% 16.7% 14.3% Total Operating Expenses -5.0% 44.8% -7.5% 85.7% -26.6% 2.0% -16.9% 9.1% 8.3% 11.5% 5.2% 3.3% 3.2% 5.4% 3.6% 3.5% Profit (Loss) from Operations 30.3% -108.9% 21.5% -70.8% 23.6% -11.4% 27.0% 0.0% 4.5% -2.4% 4.7% 19.5% 24.2% 66.0% 205.9% -194.4% Net Income (Loss) 28.6% -118.1% 20.3% -67.8% 23.2% -10.4% 26.9% 0.0% 4.4% 1.2% 2.3% 20.4% 25.6% 70.3% 251.4% -166.0%

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BALANCE SHEET

BALANCE SHEET (000's) FY2006 FY2007 FY2008 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q ASSETS Current Assets: Cash and cash equivalents 4,826 3,105 7,340 5,612 8,649 5,597 13,685 10,485 6,629 10,963 Short-term investments 10,000 10,000 5,000 5,000 - - - - - 2,000 Accounts receivable, net 774 1,062 183 358 1,102 1,234 2,763 4,256 2,671 4,088 Inventory 1,014 862 1,200 1,704 2,773 3,918 4,327 3,565 6,811 6,755 Prepaid and other current assets 274 386 429 708 184 246 300 457 739 301 Total current assets$ 16,888 $ 15,415 $ 14,152 $ 13,382 $ 12,708 $ 10,995 $ 21,075 $ 18,763 $ 16,850 $ 24,107

Property and equipment, net 597 614 680 627 665 656 646 870 2,015 2,029 Investment in non-consolidated joint venture 1,623 1,607 1,607 1,647 1,606 1,577 1,517 1,470 1,417 1,411 Intangible assets, net 163 134 102 74 73 71 71 70 69 68 Total Assets$ 19,271 $ 17,770 $ 16,541 $ 15,730 $ 15,052 $ 13,299 $ 23,309 $ 21,173 $ 20,351 $ 27,615 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable 160 185 88 382 321 925 1,630 1,877 2,176 1,649 Deferred revenue - - - 399 408 233 67 101 102 34 Accrued payroll and related obligations 207 202 245 220 307 237 332 680 374 316 Other accrued expenses 199 275 551 664 1,036 1,215 1,770 2,063 3,770 2,353 Current portion of notes payable 40 40 67 71 83 82 85 95 94 97 Total current liabilities$ 606 $ 702 $ 951 $ 1,736 $ 2,155 $ 2,692 $ 3,884 $ 4,816 $ 6,516 $ 4,449

Accrued interest payable 634 666 700 735 768 803 837 874 907 933 Notes payable, net of current portion 1,238 1,238 1,306 1,295 1,275 1,305 1,291 1,306 1,292 1,277 Total liabilities$ 2,478 $ 2,606 $ 2,957 $ 3,766 $ 4,198 $ 4,800 $ 6,012 $ 6,996 $ 8,715 $ 6,659

Stockholders' Equity: Series A convertible preferred stock 1679 1679 1679 1,679 1,679 1,679 1,679 1,679 1,679 1,679 Series B convertible preferred stock 2434 2434 2434 2,432 2,432 2,432 2,432 1,094 1,094 1,094 Common Stock 109,323 109,382 109,422 109,460 109,496 109,725 121,508 121,970 122,090 134,360 Common Stock subscribed 60 30 36 36 36 36 36 30 42 42 Stock notes receivable (1,176) (1,176) (1,176) (1,176) (1,149) (1,149) (1,149) (1,149) (1,149) (1,149) Additional-paid in capital 6,914 6,928 6,942 6,955 6,975 6,995 6,082 7,322 7,322 7,322 Accumulated deficit (102,441) (104,113) (105,753) (107,422) (108,615) (111,219) (113,291) (116,769) (119,442) (122,392) Total stockholders' equity$ 16,793 $ 15,164 $ 13,584 $ 11,964 $ 10,854 $ 8,499 $ 17,297 $ 14,177 $ 11,636 $ 20,956 Total Liabilities and Stockholders' Equity $ 19,271 $ 17,770 $ 16,541 $ 15,730 $ 15,052 $ 13,299 $ 23,309 $ 21,173 $ 20,351 $ 27,615

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RESEARCH INITIATION Peter Conley 310-526-5025 HYBRID TECHNOLOGIES, INC. [email protected] (HYBR: $0.71) Jon Hickman 310-526-5024 [email protected]

RECOMMENDATION: NEUTRAL Leveraging Lithium-Ion Technology PRICE TARGET: $1.25 To Meet Price-Performance Hurdle INDUSTRY: CONSUMER GOODS

SECTOR: RECREATIONAL VEHICLES INVESTMENT HIGHLIGHTS COMPANY STATISTICS Incorporated in Nevada in 2000 Hybrid Technologies, Inc., is currently 52-wk range $0.70 – $18.41 transitioning from a development stage technology company to a production entity. The company is focusing its resources and efforts on Avg. Daily Vol. 86,014 the development and marketing of lithium-powered vehicles and Market Capitalization (M) $21.01 products, as well as on commercial and residential properties. Hybrid produces a line of lithium-powered electric vehicles ranging from EARNINGS SUMMARY scooters, bicycles, mopeds, motorcycles, and cars. Hybrid uses existing FYE Jul 2007A 2008E 2009E 2010E auto models such as the PT Cruiser for its car bodies. The company also P/SALES 18.7X 15.4X 1.2X - markets products designed to convert homes to use alternative energy P/E (cash) NA NA NA - systems. The company focuses its product efforts around the benefits of SALES (M): Q1 0.3 0.3 0.8 - lithium battery chemistries. Lithium based battery cells have a distinct Q2 0.3 0.3 2.0 - Q3 0.4 0.2 4.0 - advantage in size, weight, power production and charging times. The Q4 0.4 0.4 6.0 - high price and environmental concerns of fossil fuels is driving Total 1.4 1.2 12.8 - consumers to alternative energy solutions. The revenue opportunity that CASH EPS: Q1 (0.11) (0.03) (0.08) - it’s developing is huge and we believe there is room in this emerging Q2 (0.23) (0.16) (0.06) - market for a number of smaller high quality product suppliers. Q3 (0.15) (0.09) (0.02) - Q4 0.05 (0.09) 0.03 - The marketing group at Hybrid has done a stellar job of attracting media Total: (0.37) (0.26) (0.14) - attention to the company and its various electric vehicle products. The company has showcased its products at a number of industry events SHARE PRICE PERFORMANCE and was present at the recent pre-Emmy Gifting Suite. The event allowed the company to expose its products to the many celebrities in Hollywood for the Emmys.

Due to the Hybrid’s lean cost structure, we believe that it has the potential to become cash positive from operations with sales of just a small number of vehicles each quarter. We estimate that 200 to 300 cars per quarter could provide a revenue base from which the company could be cash flow positive and potentially GAAP profitable. With the company’s model of using popular car models and retrofitting these cars with electric propulsion systems, we believe the company has the

potential to generate consumer interest and grow its revenue base PLEASE READ THE DISCLOSURES significantly in future years. ON PAGE 230 FOR IMPORTANT

REQUIRED INFORMATION For fiscal 2009, we believe the company could generate revenues of INCLUDING RISKS AND ANALYST $12.75 million and positive cash earnings in Q4 of fiscal 2009. As such, CERTIFICATION. we are initiating coverage of Hybrid Technologies with a Neutral rating and a near term target price of $1.25.

MDB Capital Group LLC • 401 Wilshire Blvd, Suite 1020 • Santa Monica, CA 90401 • 310-526-5000 • www.mdb.com 146

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INVESTMENT SUMMARY Hybrid Technologies, Inc. is currently transitioning from a development stage technology company to a production entity. The companies’ business model involves producing clean energy vehicles by replacing the existing internal combustion systems with electric power and battery management systems. Their lithium battery power source allows greater power and efficiency and zero carbon emissions. Hybrid produces a line of lithium-powered electric vehicles ranging from scooters, bicycles, mopeds, motorcycles, and cars. The company uses existing auto models such as the PT Cruiser for its car bodies. In addition the company also markets products designed to convert homes to use alternative energy systems.

Hybrid Technologies recently provided over 75 test drives of its popular LiVTM FLASH, an electric version of the BMW Mini Cooper, at the ALT Expo where it received rave reviews from drivers. Impressed by the power and performance of the vehicle, the eco-friendly crowd found the vehicles a solid solution to today’s fuel crisis and transportation options. The company is also providing all electric PT Cruisers as part of the New York City cab fleet.

For the most recent quarter, the 3rd quarter of fiscal 2008 ended April 2008, the company reported a net loss of $2.3 million on revenues of $170,000. This quarter included a non-cash charge of $800,000 for stock-based compensation expenses and an expense of $162,129 incurred in connection with the sale of their controlling interest in Zingo, Inc. Hybrid Technologies has the potential to become cash positive from operations with sales of just a few number of vehicles each quarter.

CORPORATE BACKGROUND Hybrid Technologies was founded in 2000 as Whistler Investments. Prior to 2005 the company was involved in the evaluation of various business opportunities including the exploration of the Queen Mineral Property in British Colombia; the Azra Shopping Center in Las Vegas; a Vancouver based coffee franchise; producing oil and gas properties in California; and a medical software product and service company. In 2003 the company began to focus on the development and marketing of electric powered vehicles and products and in 2005 changed its name to Hybrid Technologies in order to reflect current business operations. Today Hybrid Technologies is a development stage company that is focusing its resources and efforts on the development and marketing of lithium-powered transportation products, as well as on commercial and residential clean energy products.

In April of this year Hybrid Technologies sold its controlling interest (approximately 69%) in Zingo, Inc. (now Superlattice Power, Inc., “SPI”). More recently, in May 2008 Superlattice Power sold its VOIP telecommunications service subsidiaries and acquired Hybrid Technologies’ licensed patent applications and technologies for rechargeable lithium-ion batteries for hybrid vehicles and other applications. Under the license agreement, Superlattice Power will supply Hybrid Technologies with rechargeable lithium-ion batteries on a priority basis as compared to other customers. Following the licensing agreement with Superlattice Power, Hybrid Technologies opened a fully owned subsidiary in India with the purpose of creating greater in-house R&D capabilities taking the knowledge and experience of engineers available in India.

Now Hybrid Technologies’ business model involves producing clean energy vehicles by replacing the existing internal combustion systems with electric power and battery management systems. An important characteristic of the technology deployed in the retrofit vehicles is the lithium battery power source that allows greater power and efficiency and zero carbon emissions. The company uses a variety of electric motors, and is currently offering electric conversions of several vehicles, including Mini Coopers, Mercedes Smart Cars, scooters and ATV’s. In addition, Hybrid Technologies is working with other companies to develop hybrid living homes and facilities which utilize alternate zero-emission energy sources.

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Hybrid Technologies has many products under development and is participating in several joint venture activities with key players such as the U.S. Navy, NY City Taxi Commission and NASA. The company currently has 25 full-time employees and several external engineering consultants.

PRODUCT SUITE OVERVIEW At this time, Hybrid Technologies is developing and testing numerous electric vehicles and related products. The company is using a variety of electric motors on its prototype vehicles and plans to use several foreign and domestic manufacturers to fulfill its battery requirements along with its partnership with Superlattice Power. The product mix of electric vehicles available on the company’s web site (http://www.hybridtechnologies.com) ranges from scooters, to neighborhood electric vehicles and extends to highway capable electric vehicles. These vehicles all use rechargeable lithium batteries, which provide high energy density, high voltage, compact size, lightweight, and superior energy retention characteristics. Several of the company’s current electric-powered cars use existing popular auto bodies and some of these vehicles can travel more than 120 miles on a single charge with no carbon emissions and are able to accelerate from 0 to 60 in under 10 seconds. Below we have detailed Hybrid Technologies current product line up.

ELECTRIC CARS LiV DASH -- Based on Daimler’s popular Smart Car, the DASH is an all-electric version powered by a Li-ion battery pack. The car has a range 120 – 150 miles per charge and a top speed of about 80 mph. The vehicle charges fully in 8 – 10 hours with any standard 110V AC outlet. It does zero to sixty in 9.9 second.

LiV RUSH -- The RUSH is Hybrid Technologies’ Li-ion powered high speed roadster. This is an exotic looking sports car with a body that resembles a cross between a Ferrari and a Lotus. The electric motors in this model are able to generate the equivalent of 170 foot-pounds of torque. Zero- to-60 mph is achieved in 5.9 seconds, with a top speed of 120 mph and a 100-mile range. At 158 inches bumper to bumper the LiV Rush is one inch longer than a Mazda Miata and its 2,300-pound curb weight is about 100 pounds less than the Miata. Like the other LiV products, the Rush can fully recharge in 8 – 10 hours using a standard 110- or 220- volt AC outlet. The car retails at about $100,000.

LiV SURGE – With the PT Cruisers body, the SURGE has already become popular as the first Li-ion battery powered taxi in New York City. This vehicle is capable of a 75 mph top speed and zero-to-sixty in just 9 seconds. It has a range of 120+ miles on a 6 – 8 hour charge. This model is priced at $55,000.

LiV FLASH – The FLASH is a lithium battery powered version of the British Motors Mini-cooper. The car provides great handling and does not have the diminished power that people generally expect from an electric vehicle. The car can manage 0-60mph in just 9.0 seconds. The Liv FLASH is also capable of reaching speeds in excess of 80 miles per hour and can travel 100 to 120 miles on one 6-hour charge. The car battery pack has an estimated lifespan of over 2,500 charges or over 250,000 miles. This car sells for $57,500.

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Liv WISE – Hybrid’s LiV Wise city car is an all emission free electric car that performs as well as a gasoline fueled vehicle with a driving range of 90-120 miles and speeds in excess of 75 mph. This car sells for $39,700.

ELECTRIC SCOOTERS & RECREATIONAL VEHICLES E-Cobra – The E-Cobra is lightweight, with exceptional performance and environmentally conscious and zero emission two-wheel vehicle. Reaching speeds of up to 30 mph with a range of up to 50 miles, this lightweight electric motorcycle performs exceptionally well and is ideal for the rental market, or for personal transportation in urban areas. Geared with a unique Lithium Power System, the E-Cobra can be fully charged in a mere two hours.

LiV RYDER – The Ryder is an all-electric silent motorcycle that has a top speed of 50 mph on the highway, and a zero-to-thirty acceleration of 5.2 seconds. The bike has a 40+ mile range and a charge time of 6 hours.

LiV CRUZ – The CRUZ moped allows for pedaling or lithium acceleration and can reach a top speed of 20 mph. It charges in only 2 – 3 hours.

LiV BULLDOG – The BULLDOG accommodates 5-passengers with tilt steering and a 3-position winch capable of heavy rear loading. The CVT transmission and constant on-board 110V AC battery offers 4-wheel drive. It can reach a top speed of 40mph and accelerates from 0 – 30 in 17 seconds. The range is 40+ miles and charges in 4 – 6 hours.

ELECTRIC MILITARY VEHICLE LiV REAPER – The Reaper is a vehicle designed for military use. It comes fully loaded and armed with a 50-caliber gun and grenade launcher. It is capable of speeds of 85 mph and has a driving range of 185 miles.

ELECTRIC HOME CONSTRUCTION This house features Solar Panels for both electrical and heat production, Wind Turbines to capture the kinetic energy of near surface winds and a Geo- Thermal System to utilize the heat energy of the earth for efficient climate control (both heating and air-conditioning). The house is designed to

149 MDB Capital Group The Green Car Report November 10, 2008 ______

maximize natural day-lighting and wind ventilation. The landscaping incorporates "Xeriscaping": an approach that uses existing resources to minimize the disruption to the existing trees and other aspects of the local habitat, and promote native species while conserving water and energy. Natural material and highly efficient insulation is the foundation for reducing heating and cooling costs. Recycled materials are used where possible to include wall sheathing, insulation, exterior decking, roofing materials (includes roofing shingles) and batten material.

COMPETITION Hybrid Technologies’ vehicles compete with several alternative green technologies such as gas- hybrids, biodiesels and hydrogen fuel cell vehicles. However, the company’s quiet and emission-free transportation provides a fuel cost of only $0.02 per mile versus $0.07 (hydrogen fuel-cell) and $0.09 (gas-hybrid) per mile from other green technologies. In addition, battery powered vehicles have only 10% of the parts of a typical gas powered vehicle as there is no engine, transmission or muffler which may require maintenance or replacements (e.g. oil and filter changes). Direct competition comes from large auto manufactures that are moving into electric and hybrid vehicles. These companies include Toyota with the Prius and General Motors with its Volt model. In addition there are throughout the world smaller companies such Miles Automotive, Tesla Motors, Reva Electric and ZAP Automotive all which produce various electric vehicles.

In essence, Hybrid Technologies benefits from one of the most reliable batteries on the market, the lithium-ion battery technology which allows over 1,000 full cycle charges, versus the previous generation lead acid battery which only allows 300 cycle charges. Besides, the company has an additional competitive advantage with its next-generation rapid charger system; it has a 65% faster rate of charge than most other chargers on the market today. Earlier this year, Hybrid Technologies announced a substantial price reduction on several models due to a 30% cut in the cost of lithium batteries.

FINANCIALS To date Hybrid Technologies has generated only modest revenues and has incurred significant operating losses in past quarters. For the most recent quarter, the 3rd quarter of fiscal 2008 ended April 2008, the company reported a net loss of $2.3 million on revenues of $170,000. This quarter included a non-cash charge of $800,000 for stock-based compensation expenses and an expense of $162,129 incurred in connection with the sale of their controlling interest in Zingo, Inc

The company had a net cash position of just $16,000 as of the end of the April 2008 quarter, but entered into a Loan Agreement with Crystal Capital Ventures Inc. providing for total borrowing of company of up to $3,000,000. The minimum initial loan was for $500,000. The notes bear interest payable monthly at a rate of 10% per annum. The notes mature and are due and payable three years from the date of issuance and are secured with 2.5 shares for every dollar that is borrowed. We estimate that this financing should carry the company operationally through the next fiscal year.

VALUATION With a lagging economy and company is likely to find buyers for its electric vehicles somewhat harder to come by. However, it appears to us that with the company’s lean cost structure, it does not need to sell very many vehicles per quarter to reach a cash flow breakeven state. We anticipate that 200 to 300 vehicles per quarter would net enough revenues to reach cash positive earnings. For fiscal 2009 which begins with the October 2008 quarter, we estimate that the company could reach revenues of $12.7 million and that in the 4th quarter the company could generate non-GAAP cash earnings of $0.02 per share. With this growth potential and the expected growth of the market in general, we feel a fair value for the shares could be based on the annualized earnings the 4th fiscal quarter of 2009 and a multiple of 20. This calculation (20 x $0.08 = $1.60) provides a future valuation

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of $1.60. Discounting this number back to the present at 30% provides a fair value now of $1.25. Based on the company’s growth prospects, we believe $1.25 is a reasonable near term price target.

INVESTMENT RISKS The Company has incurred significant operating losses since inception. These operating losses have been funded by the issuance of capital, loans and advances. There are no guarantees that the Company will continue to be able to raise the funds necessary. Additionally, the lack of capital may limit the Company's ability to establish a viable business. Other risk factors include: ƒ Hybrid Technologies is only a development stage company and has minimal revenues and resources. ƒ Competitors may have more market presence and better technologies. ƒ The cost of Li-ion batteries and availability is dependent on suppliers. ƒ The high cost of electric-vehicle battery replacements may have a negative effect on consumer acceptance.

MANAGEMENT TEAM HOLLY ROSEBERRY, CHIEF EXECUTIVE OFFICER, PRESIDENT AND DIRECTOR Holly Roseberry was appointed secretary, treasurer and chief financial officer on February 20, 2002. On November 15, 2002, she resigned from these positions and was appointed president, chief executive officer and as a director. From 2001 to 2003, she acted as manager for the Azra Shopping Center. She obtained a Bachelor of Arts degree from Sacred Heart University in Bridgeport, Connecticut in 1973. Ms. Roseberry was employed from 1993 to 1996 as human resources manager, and from 1997 to 1999 as business office manager, of the Las Vegas location of Wards Department Store. Ms. Roseberry has held the positions of President, Chief Executive Officer and a Director of our majority-owned subsidiary, Zingo, Inc. since August 30, 2005.

MEHBOOB CHARANIA, DIRECTOR Mr. Charania has acted as Secretary since November 15, 2002. Since June of 2001, he has been the owner and operator of Infusion Bistro, a restaurant located in Calgary, Alberta. From 1998 to 2001, Mr. Charania acted as a Manager at IBM’s Calgary office. He has held the position of Secretary and Director of Hybrid Technologies’ majority owned subsidiary, Zingo Inc. since August of 2005.

BRIAN NEWMAN, DIRECTOR Mr. Newman has been a Director and President of Brian Newman Professional Corporation, a public accounting firm located in Calgalry, Alberta for the past 25 years. Since September of 2004 to the present, he has served as a Director of Olympia Financial Group, and since September 2004 to the present he has also served as a Director of Albury Resources Ltd. Mr. Newman graduated with a Bachelor of Commerce degree from the University of Calgary in 1978, and received a degree as a Chartered Accountant from the Institute of Chartered Accountants in Alberta in 1982.

GREGORY NAVONE, DIRECTOR For the past 2 years, Mr. Navone has been the owner and President of First Interstate Mortgage, a mortgage banking firm. Since 1987, he has been the owner and President of First Capital Financial. Mr. Navone was appointed a director of the company shortly following its incorporation in April of 2000, and served as a Director until February 2002. He graduated from St. Mary’s College in Morgan, California in 1968, with a Bachelor of Arts degree.

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ANNUAL INCOME STATEMENT ANNUAL INCOME STATEMENTS (000's)

2006 2007 2008E 2009E

Total Revenue$ 390 $ 1,379 $ 1,158 $ 12,750

Cost of Sales 843 1,306 948 8,650 Gross Profit $ (452) $ 72 $ 211 $ 4,100 Operating expenses: General and administrative 11,440 9,285 3,920 4,150 Compensatory element of stock - - 855 600 Research and development 1,939 1,009 1,508 1,900 Management and consulting fees 592 - - - License and permits 87 - - - Other professional fees 160 - - - Total Operating Expenses$ 14,219 $ 10,295 $ 6,282 $ 6,650 Operating Profit (loss) (14,671) (10,222) (6,072) (2,550) Other income (expense) Interest expense (102) (86) (242) (535) Interest income 20 1 1 - (Gain) loss from sale of assets - (314) (10) - Other income (expense) 832 2 0 - Loss from sale of subsidiaries - - 162 -

Net income (loss) before minority interest (13,922) (10,620) (6,161) (3,085) Minority interest - - 2 -

Net income (loss)$ (13,922) $ (10,620) $ (6,158) $ (3,085) Other comprehensive income Foreign currency translation - (8) 6 8

Net comprehensive income (loss)$ (13,922) $ (10,628) $ (6,153) $ (3,077) Weighted average shares outstanding 10,754 28,643 20,050 20,250 EPS - fully diluted$ (1.29) $ (0.37) $ (0.31) $ (0.15) Depreciation - 105 120 Stock -Based Compensation - 805 600 Non-GAAP Cash Earnings$ (13,922) $ (10,628) $ (5,243) $ (2,357) Non-GAAP Cash Earnings Per Share$ (1.29) $ (0.37) $ (0.26) $ (0.12)

% of TOTAL REVENUE Gross Profit -115.9% 5.2% 18.2% 32.2% General and administrative 2930.1% 673.4% 338.4% 32.5% Research and development 496.6% 73.2% 130.2% 14.9% Total Operating Expenses 3641.7% 746.6% 542.4% 52.2% Operating Profit (loss) -3757.6% -741.4% -524.2% -20.0% Net income (loss) -3565.6% -770.2% -531.7% -24.2% % YEAR OVER YEAR INCREASE Total Revenue NA 253.1% -16.0% 1000.8% Gross Profit NA -116.0% 191.1% 1846.8% Total Operating Expenses NA -27.6% -39.0% 5.9% Operating Profit (loss) NA 30.3% 40.6% -58.0% Net income (loss) NA 23.7% 42.0% -49.9%

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QUARTERLY INCOME STATEMENT QUARTERLY INCOME STATEMENT (000's) FY Ending 2007 FY Ending 2008 FY Ending 2009E 10/31/2006 1/31/2007 4/30/2007 7/31/2007 10/31/2007 1/31/2008 4/30/2008 7/31/2008E 10/31/2008E 1/31/2009E 4/30/2009E 7/31/2009E

Total Revenue$ 276 $ 325 $ 384 $ 393 $ 337 $ 301 $ 170 $ 350 $ 750 $ 2,000 $ 4,000 $ 6,000

Cost of Sales 307 312 396 292 372 241 60 275 600 1,500 2,750 3,800 Gross Profit $ (30) $ 14 $ (12) $ 102 $ (35) $ 60 $ 110 $ 75 $ 150 $ 500 $ 1,250 $ 2,200 Operating expenses: General and administrative 1,260 6,374 3,929 (2,278) 933 1,041 971 975 1,000 1,025 1,050 1,075 Compensatory element of stock ------805 50 150 150 150 150 Research and development 288 44 461 216 74 327 657 450 450 450 500 500 Management and consulting fees ------License and permits ------Other professional fees ------Total Operating Expenses$ 1,548 $ 6,418 $ 4,390 $ (2,062) $ 1,006 $ 1,369 $ 2,433 $ 1,475 $ 1,600 $ 1,625 $ 1,700 $ 1,725 Operating Profit (loss)$ (1,579) $ (6,405) $ (4,403) $ 2,163 $ (1,041) $ (1,309) $ (2,322) $ (1,400) $ (1,450) $ (1,125) $ (450) $ 475 Other income (expense) Interest expense (17) (25) (23) (22) (27) (18) (97) (100) (100) (120) (140) (175) Interest income 0 1 0 (0) 0 0 0 - - - - - (Gain) loss from sale of assets - - (314) - - (4) (6) - - - - - Other income (expense) 2 (0) 0 0 (0) 15 (14) - - - - - Loss from sale of subsidiaries ------162 - - - - - Net income (loss) before minority interest (1,593) (6,429) (4,739) 2,141 (1,068) (1,315) (2,278) (1,500) (1,550) (1,245) (590) 300 Minority interest - - - - - 2 ------Net income (loss)$ (1,593) $ (6,429) $ (4,739) $ 2,141 $ (1,068) $ (1,313) $ (2,278) $ (1,500) $ (1,550) $ (1,245) $ (590) $ 300 Other comprehensive income Foreign currency translation - - 0 (8) 4 (6) 7 - 2 2 2 2 Net comprehensive income (loss)$ (1,593) $ (6,429) $ (4,739) $ 2,133 $ (1,064) $ (1,318) $ (2,270) $ (1,500) $ (1,548) $ (1,243) $ (588) $ 302 Weighted average shares outstanding 14,734 28,080 31,793 39,965 39,501 7,988 15,713 17,000 18,500 20,000 21,000 21,500 EPS - fully diluted$ (0.11) $ (0.23) $ (0.15) $ 0.05 $ (0.03) $ (0.16) $ (0.14) $ (0.09) $ (0.08) $ (0.06) $ (0.03) $ 0.01 Depreciation - - - - 25 25 30 25 30 30 30 30 Stock-Based Compensation ------805 - 150 150 150 150 Non-GAAP Cash Earnings $ - $ - $ - $ - $ (1,039) $ (1,293) $ (1,435) $ (1,475) $ (1,368) $ (1,063) $ (408) $ 482 Non-GAAP Cash Earnings Per Share $ - $ - $ - $ - $ (0.03) $ (0.16) $ (0.09) $ (0.09) $ (0.07) $ (0.05) $ (0.02) $ 0.02

% of TOTAL REVENUE Gross Profit -11.0% 4.2% -3.2% 25.8% -10.3% 20.0% 64.8% 21.4% 20.0% 25.0% 31.3% 36.7% General and administrative 456.3% 1960.2% 1023.1% -578.9% 276.7% 345.8% 571.0% 278.6% 133.3% 51.3% 26.3% 17.9% Research and development 104.4% 13.5% 120.1% 55.0% 21.8% 108.7% 386.7% 128.6% 60.0% 22.5% 12.5% 8.3% Total Operating Expenses 560.7% 1973.7% 1143.2% -524.0% 298.5% 454.4% 1431.1% 421.4% 213.3% 81.3% 42.5% 28.8% Operating Profit (loss) -571.7% -1969.5% -1146.4% 549.8% -308.8% -434.5% -1366.2% -400.0% -193.3% -56.3% -11.3% 7.9% Net income (loss) -576.9% -1976.9% -1234.1% 544.1% -316.9% -435.8% -1340.0% -428.6% -206.7% -62.3% -14.8% 5.0% % YEAR OVER YEAR INCREASE Total Revenue 1973.4% 218.9% 286.3% 123.9% 22.1% -7.4% -55.7% -11.1% 122.5% 564.1% 2253.2% 1614.3% Gross Profit 326.1% -112.3% -89.5% -146.9% 13.9% 342.3% -987.0% -26.2% -532.5% 731.9% 1034.5% 2833.3% Total Operating Expenses 46.6% 487.5% 149.6% -120.0% -35.0% -78.7% -44.6% -171.5% 59.0% 18.7% -30.1% 16.9% Operating Profit (loss) -48.5% -432.3% -134.6% 120.5% 34.1% -79.6% -47.3% -164.7% 39.3% -14.0% -80.6% -133.9% Net income (loss) -41.4% -425.5% -140.7% 122.3% 32.9% 79.6% 51.9% -170.1% 45.1% -5.2% -74.1% -120.0% % SEQUENTIAL INCREASE Total Revenue 57.1% 17.8% 18.1% 2.5% -14.3% -10.7% -43.6% 105.9% 114.3% 166.7% 100.0% 50.0% Gross Profit -85.9% -144.6% -191.4% -918.2% -134.1% -273.3% 83.3% -31.9% 100.0% 233.3% 150.0% 76.0% Total Operating Expenses -85.0% 314.6% -31.6% -147.0% -148.8% 36.0% 77.7% -39.4% 8.5% 1.6% 4.6% 1.5% Operating Profit (loss) 85.0% -305.7% 31.3% 149.1% -148.1% -25.7% -77.5% -39.7% 3.6% -22.4% -60.0% -205.6% Net income (loss) 83.4% -303.6% 26.3% 145.2% -149.9% -22.9% -73.5% -34.1% 3.3% -19.7% -52.6% -150.8%

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BALANCE SHEET BALANCE SHEET (000's) FY Ending 2006 FY Ending 2007 FY Ending 2008 10/31/2005 1/31/2006 4/30/2006 7/31/2006 10/31/2006 1/31/2007 4/30/2007 7/31/2007 10/31/2007 1/31/2008 4/30/2008 ASSETS Current Assets: Cash and cash equivalents$ 34 $ 52 $ 4,071 $ 519 $ - $ 79 $ - $ 4 $ 217 $ 48 $ 16 Marketable securities - restricted ------42 - Accounts receivable 9 9 5 23 9 36 15 2 6 15 75 Inventories 32 15 54 283 276 508 362 426 456 460 205 Prepaid expenses and other current assets 13 21 104 62 90 58 70 85 54 71 142 Total current assets$ 88 $ 97 $ 4,235 $ 887 $ 374 $ 681 $ 446 $ 516 $ 732 $ 635 $ 438

Property, plant & equipment, net 58 77 2,001 2,092 2,167 2,143 2,136 2,120 2,156 2,145 2,023 Other long term assets: Other assets 47 68 42 1,535 1,534 1,546 92 93 78 71 57 Deferred patent costs ------22 Total assets$ 194 $ 242 $ 6,277 $ 4,513 $ 4,075 $ 4,369 $ 2,675 $ 2,729 $ 2,966 $ 2,851 $ 2,540

LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable and accrued expenses 1,394 1,474 930 345 463 373 507 490 568 412 327 Current portion of long-term debt 3,000 3,000 3,000 224 229 230 237 241 305 13 30 Deferred revenue - customer deposits - - 26 - - 30 3 3 3 35 66 Advances from related parties 910 799 - 84 1,102 1,377 588 - 973 - - Cash overdraft - - - - 55 - 68 - - - - Total current liabilities$ 5,304 $ 5,273 $ 3,956 $ 653 $ 1,849 $ 2,011 $ 1,403 $ 734 $ 1,849 $ 459 $ 423 Other long-term liabilities - - 1,300 1,025 985 879 865 803 990 3,580 4,364 Total liabilities$ 5,304 $ 5,273 $ 5,256 $ 1,678 $ 2,833 $ 2,890 $ 2,269 $ 1,537 $ 2,839 $ 4,039 $ 4,787

Minority Interest 2 2 2 2 2 2 2 2 2 - -

Stockholders' Equity: Preferred stock ------Common stock 8 9 12 26 26 30 35 40 40 6 6 Additional paid-in capital 17,670 25,081 33,099 37,598 37,598 44,261 47,921 46,570 46,570 46,604 47,808 Deficit accumulated during the development stage (22,792) (30,123) (32,092) (34,792) (36,385) (42,813) (47,553) (45,412) (46,480) (47,792) (50,062) Cumulative other comprehensive (loss) ------0 (8) (4) (6) -

Total stockholders' equity $ (5,114) $ (5,033) $ 1,019 $ 2,832 $ 1,239 $ 1,477 $ 404 $ 1,190 $ 125 $ (1,188) $ (2,248) Total Liabilities and Stockholders' Equity $ 193 $ 242 $ 6,277 $ 4,513 $ 4,075 $ 4,369 $ 2,675 $ 2,729 $ 2,966 $ 2,851 $ 2,540

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RESEARCH INITIATION Peter Conley 310-526-5025 QUANTUM FUEL SYSTEMS TECHNOLOGIES [email protected] (QTWW: $0.79) Jon Hickman 310-526-5024 [email protected]

RECOMMENDATION: BUY Leveraging Vertical Integration Across PRICE TARGET: $4.00 Solar, Hybrid and Battery Technologies INDUSTRY: CONSUMER GOODS

SECTOR: AUTO PARTS INVESTMENT HIGHLIGHTS COMPANY STATISTICS Quantum Fuel Systems Technologies is involved in the development and production of advanced propulsion systems, energy storage technologies, 52-wk range $0.37 – $3.22 alternative fuel vehicles, and is a major Tier 1 supplier of clean vehicle Avg. Daily Vol. (000s) 1,111.0 technologies to the automotive OEMs. Quantum’s robust and proven Market Capitalization (mil) $77.9 powertrain engineering, system integration, and assembly capabilities provide fast-to-market solutions to support the production of hybrid and plug- EARNINGS SUMMARY in hybrid, hydrogen-powered hybrid, fuel cell, and alternative fuel vehicles, FYE Apr 2007A 2008E 2009E 2010E and modular and transportable hydrogen refueling stations. P/SALES 0.7x 0.9x 2.5x 0.7x Since inception, Quantum has been continuously pushing high to create P/E NM NM NM 18.0x ground-up hybrid electric vehicles to meet broad market demand and SALES: Q1 41.9 30.4 2.3 14.0 develop proprietary high-performance plug-in hybrid electric propulsion Q2 35.4 26.0 6.0 19.5 Q3 2.3 7.1 8.3 30.0 systems. Fisker Automotive, a green American premium car company Q4 3.1 9.7 12.5 36.5 formed by Quantum and Fisker Coachbuild LLC, will deliver its first plug-in Total 82.7 73.7 29.0 100.0 hybrid vehicle, the Karma in Q4 2009. The Karma – a plug-in hybrid electric EPS (cash): Q1 (0.23) (0.91) (0.09) (0.03) 4-door sports sedan – will ramp production to 7,500 vehicles in 2010, and up Q2 (1.48) 0.09 (0.05) (0.01) to 15,000 vehicles per year starting in 2011. Quantum will experience Q3 (0.08) (0.05) (0.04) 0.02 meaningful revenue growth impacted by: Q4 (0.10) (0.06) (0.03) 0.06 Total: (2.19) (0.83) (0.70) 0.05 ƒ sale of 15,000 vehicles per year representing $300-$450 million in revenues from power trains; ƒ $20-$50 million in solar roof systems for the Fisker vehicles SHARE PRICE PERFORMANCE (supplied by Asola – German solar energy technology partner); ƒ $100-$150 million in battery systems (supplied by Advanced Lithium Power – partner in lithium-ion battery systems) Quantum has 40% stake in ALP; ƒ Quantum holds 25% stake in Asola and both have entered into a long-term supply agreement with Ersol Solar Energy for development of 155 MW silicon photovoltaic solar cells, with sales anticipated to generate $600 million for Asola and Quantum; and ƒ $65 million financing round for the Fisker Automotive program from United Arabs Emirates.

Given the imminent start of production for the Fisker Karma and Quantum’s PLEASE READ THE DISCLOSURES strategic investment in several alternative energy companies (particularly ON PAGE 230 FOR IMPORTANT Asola), we anticipate an impressive revenue growth during the coming REQUIRED INFORMATION years. For fiscal 2010 we anticipate revenues approaching $100 million and INCLUDING RISKS AND ANALYST non-GAAP cash earnings of $0.05 per share. As such, we are initiating CERTIFICATION. coverage of Quantum with a Buy rating and a target price of $4.00.

MDB Capital Group LLC • 401 Wilshire Blvd, Suite 1020 • Santa Monica, CA 90401 • 310-526-5000 • www.mdb.com 155

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INVESTMENT SUMMARY Quantum Technologies develops and produces advanced alternative fuel propulsion systems and energy storage technologies. With the sale of Tecstar, in January 2008, the company is now fully focused on clean energy and green vehicle technology. Using its expertise in these areas, the company is involved in the engineering and manufacturing of hybrid and fuel cell vehicles and its technology portfolio includes electronic controls, hybrid electric drive systems, and hydrogen storage and metering systems.

In the last five years Quantum has delivered roughly 20,000 natural gas vehicle systems for production on an automaker's production line or through Quantum's own special vehicle assemblies. In addition to this ongoing revenue source, Quantum is poised to benefit from two other emerging/explosive market opportunities:

ƒ Quantum is a founding shareholder (with about a 30% ownership) in Fisker Automotive which is set to produce four new plug-in hybrid electric vehicles to be introduced starting in 2009 The Karma sports sedan is slated to be the first model and production is scheduled for Q4 of fiscal 2009. All of the Fisker models will incorporate Quantum’s Q-drive design. The company is estimating revenues from the Fisker Automotive venture to reach $600 million in calendar 2011. A key part of the Quantum drivetrain system is the battery system from Advanced Lithium Power (ALP), a Vancouver company that provides lithium-ion batteries plus a very high-end battery management system. Quantum is also a founding shareholder and has a 36% equity interest in ALP.

ƒ Quantum has also acquired a 24% equity stake (with the option to increase its ownership to 32%) in Asola Advanced and Automotive Solar Systems, a rapidly growing German solar module manufacturer. Sole has contracted to provide solar roof panels for the Fisker plug-in hybrids. Additionally, Asola in partnership with Quantum is building four new solar panel manufacturing plants (Italy, Korea, Morocco and California) to meet the huge demand for solar power generation. In calendar 2010 these plants could be generating annual revenues for Quantum of nearly $300 million.

Additionally, the company’s strategic alliance with General Motors remains strong and GM is set to launch several hybrid models in the coming years incorporating Quantum’s technology. GM has funded Quantum with $75 million for engineering and development work since 1996 and is Quantum’s largest shareholder (6% of shares outstanding).

Revenue from continuing operations (not including Tecstar) for fiscal 2008 was $26.5 million compared to $17.7 million in fiscal 2007 as a result of increased contract revenues related to new programs with Fisker Automotive, continuing engineering development services related to hydrogen fuel storage programs and expanded military programs together with product shipments associated with General Motors’ Equinox fuel cell vehicle. We anticipate continued revenue growth as Quantum’s many development projects reach commercialization. These include the production and sale of the new Fisker models, the production of GM’s Chevrolet Equinox fuel cell vehicles equipped with Quantum’s advanced hydrogen storage tanks, the production of GM’s Sequel (the first hydrogen fuel cell vehicle to go 300 miles without refueling), the conversion of the Toyota Prius into a hydrogen hybrid version for U.S. and European markets, and the military/defense program in partnership with Ford to produce a hydrogen Ford Escape hybrid for military and civilian applications. Additionally, the company’s hydrogen refueling stations provide a modular solution for distribution infrastructure to meet the increased demand for hydrogen and fuel cell vehicles. We anticipate that together these transportation and energy storage programs will initiate an extended period of impressive revenue and earnings growth. For the 2010 fiscal year we are estimating revenues of $100,000, an increase greater than 200% over fiscal 2009.

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COMPANY BACKGROUND The company was originally incorporated in Delaware in October 2000 as Quantum Fuel Systems Technologies Worldwide, Inc., a wholly-owned subsidiary of IMPCO Technologies, Inc (IMPCO), manufacturer of aftermarket conversion kits that allowed gasoline engines to run on liquid propane or compressed natural gas. Quantum’s roots date back to 1993, when IMPCO started working with General Motors. Originally known as the Technology and Automotive OEM group, the division focused on IMPCO’s advanced technologies in fuel metering, fuel storage, electric controls, infrastructure and hydrogen handling. In July of 2002, the renamed company, Quantum Technologies WorldWide, spun off from IMPCO becoming a separate publically traded entity and began to focus on fuel cell technologies incorporating high-pressure hydrogen and other gaseous fuels. Immediately after the spin off, Quantum entered into a ten-year strategic alliance with General Motors to commercialize the integration of the company’s hydrogen handling systems into fuel systems used in the transportation markets. This strategic alliance expanded the relationship that has been in place between GM and Quantum since 1993, through which the company has provided packaged natural gas and propane fuel systems for GMs’ alternative fuel vehicle products.

Today Quantum provides state-of- the-art clean propulsion technologies for hybrid and plug-in electrical vehicles such as powertrain engineering, systems integration, advanced propulsion systems, and energy storage technologies. The company has a large customer base and has provided innovative solutions for industry leaders such as Toyota, Ford, Suzuki, Yamaha, and GM. The company has also done work for NASA and the U.S. Army. Quantum's customers (see chart) include automobile manufacturers and OEM suppliers. Quantum nearly quadrupled the size of its business after integrating the 2005 purchase of Tecstar Automotive (formerly Starcraft) in a stock-swap transaction worth about $185 mm. Tecstar manufactured after-market products including running boards, roof racks, trim, and other accessories primarily for GM cars and trucks. The main purpose of this merger was to expand Quantum’s OEM capabilities while positioning itself as a major player in the early stage development and production of fuel cell vehicles. Quantum has since transferred ownership of Tecstar to WB Automotive and has exited the after-market business.

In August 2007, Quantum and Fisker Coachbuild, LLC, launched a new venture, Fisker Automotive, Inc. to produce a line of premium plug-in hybrid automobiles running on Quantum’s “Q-Drive” propulsion system. On January, 14 2008, Fisker unveiled its first production car, the Karma (above left), at the North American International Auto Show (NAIAS) in Detroit. The Karma's Q-Drive configuration consists of a small gasoline engine that turns a generator that charges the lithium ion battery pack (life expectancy +10 years) powering the main electric motor that in turn powers the car’s rear wheels. Quantum is supplying its proprietary Q-Drive high-performance plug-in hybrid electric vehicle architecture for the current Fisker Karma Hybrid sedan as well as all future Fisker models. This advanced propulsion system is capable of powering the Karma from 0 to 60 mph in 5.8 seconds and reaching speeds in excess of 125 mph (200km/h). This partnership allows Quantum to benefit from

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all future productions from Fisker Automotive and takes the company one step closer to becoming a premier, fully integrated alternative energy company.

In January of 2008, the company acquired a 24.9% ownership interest in Asola Advanced and Automotive Solar Systems GmbH (“Asola”), a solar module manufacturer located in Erfurt, Germany and has a letter of intent to acquire 8% more. In addition to the Q-Drive, each Fisker Karma Hybrid sedan will incorporate Quantum-Asola’s solar roof. Asola has recently announced plans to build solar panel manufacturing plants in Italy, Korea and Morocco. Each of these plants will have the capacity to produce 35mW of solar panels annually and Quantum will have at least a 51% interest in each facility. In addition, Asola and Quantum are constructing a 45mW solar panel plant in California. Quantum will have an 85% ownership interest in this facility.

Since 1997 (when the company was still a division of IMPCO) to the present, Quantum has sold approximately 20,000 fuel systems for alternative fuel vehicles, primarily to General Motors Corporation and its affiliates. Quantum is headquartered in Lake Forest, California where the company also has facilities for the propulsion system development operations, vehicle integration and prototype center, state-of-the-art emissions and dynamometer laboratory, and for all technology and product development, engineering and advanced research, and compressed tank manufacturing and assembly. Currently, Quantum has 118 full-time employees. Quantum Technologies is listed on the NASDAQ.

PRODUCTS AND SERVICES Quantum offers a number of products used in fuel cell applications for transportation and industrial vehicles, stationary power generation and portable power generation and alternative fuel vehicles such as cars, trucks and buses operating on natural gas and propane. The company’s fuel and drive products include: fuel storage, fuel delivery, and electric vehicle control systems and software; and lithium and advanced battery control systems. In addition, the company now offers proprietary high- performance plug-in hybrid electric vehicle (PHEV) architecture, the Q-Drive, developed exclusively for Fisker Automotive. The Q-Drive system began as a hybrid system for military vehicles and has evolved over the past five years into a grid-rechargeable system. These products are discussed in detail below.

FISKER KARMA Initial deliveries of the four-door sports sedan, the Karma (right), will commence in Q4 of FY2009. Currently, Fisker Automotive has received more than 500 orders for the Fisker Karma since its 2008 debut at the North American International Auto Show (NAIAS) in January. However, only 100 of the Fisker Karma plug-in hybrids will be built at first in order to test the market, then ramp up to 7,500 vehicles in 2010, and then up to 15,000 vehicles per year starting in 2011. The starting estimated Manufacturer Suggested Retail Price (MSRP) for the Fisker Karma will be approximately $80,000. The company plans to introduce three additional models – a sports car, a two-door coupe, and a crossover style SUV – during FY2009 to FY2011. All models are planned to incorporate Quantum’s Q-Drive (PHEV) design to optimize the performance and vehicle dynamics. The company will not manufacture or assemble the vehicles, but only provide Quantum’s Q-Drive range-extended electric vehicle platform. The platform consists of the entire drivetrain (small gasoline engine that turns the generator), the generator, lithium-ion battery packs, inverters, drive motors, and software that controls the battery systems and provides on board diagnostics. The company believes that a key competitive advantage of its Q-Drive system is the software that controls the battery management and the other functions of the drivetrain. The Q-Drive takes full advantage of the performance potential of electric drive systems while achieving high fuel mileage and low emissions through its

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integrated plug-in hybrid electric design. Characteristics and benefits of Quantum’s Q-Drive architecture incorporated in the Karma are outlined below: • 0-60 mph in less than 6 seconds (0-100 km/h in 6 seconds); • Top speed of more than 125 mph (200 km/h); • Maximum torque13 available from 0 mph with a dramatic acceleration to its top speed; • Two Driving Modes: The driver will be able to select between Stealth Drive, which is the quiet economy mode for optimal relaxed and efficient driving and Sport Drive, which will access the full power of the vehicle; • Regenerative brakes featured to recapture braking energy; and low center of gravity provides optimal sport vehicle driving dynamics

The Karma also has the added benefits of utilizing the current gas station infrastructure, convenient battery recharging with any 110- volt outlet (220/240-volt can be used for fast-charging) and a solar roof panel (left) supplied by Quantum and its German partner, Asola. The solar roof panel will be offered as a factory installed option to provide power for ventilation when parking, pre-air conditioning of the vehicle, supplemental cooling of the lithium-ion battery pack, and opportunistic trickle charging of the vehicle batteries.

HYDROGEN TECHNOLOGIES Quantum develops advanced hydrogen technologies for hydrogen storage products and refueling systems that are paving the way for hydrogen to become a viable transportation fuel. • Hydrogen Storage: Quantum has developed ultra-lightweight tanks that provide cost-effective storage of hydrogen or natural gas. This proprietary TriShield™ technology (pictured right) provides fuel cell vehicles with a range of up to 300 miles (483 km) and can hold up to 10,000 pound-force per square inch (psi)14. The development of the Quantum TriShield technology was funded in part by the U.S. Department of Energy and through a collaborative effort with the Lawrence Livermore National Laboratory. Using this technology, Quantum became the first company in the world to successfully design and commence commercialization of an ultra-lightweight hydrogen storage system at the 10,000 psi, allowing for a marked improvement in the driving range and safety of hydrogen-powered vehicles. • Hydrogen Refueling Products & Models: Quantum's B35 and B70 refuelers (right) offer a hydrogen refueling solution for development vehicles and fleets. These systems use an oil-free gas compression system to deliver hydrogen at high pressure from a variety of sources, including industrial hydrogen bottles, bulk tube trailers and on-site hydrogen generating systems.

13 Torque is the measure of the force applied to rotate an object about an axis. 14 Pound-force per square inch (psi) is the pressure resulting from a force of one pound-force applied to an area of one square inch.

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Quantum’s refuelers are suited for small development fleets requiring a flexible hydrogen source that is compact and transportable. Advanced Fuel Delivery System Components and Hardware • Injectors: Quantum’s injector is designed as a true OEM gaseous fuel injector. The patented design permits precisely controlled flow rates for small to large (300+ horsepower V8) engines, which translates into improved performance over competing technologies. In durability testing, Quantum’s injector has demonstrated consistent, stable performance over more than 600 million cycles (equal to approximately twice the typical life of a vehicle). • Regulators: Quantum's pressure regulator incorporates advanced and patented technologies designed especially for gaseous fuels. It includes an In-Tank series for natural gas or hydrogen and an In- Line, or rail, series for natural gas, propane and hydrogen fuels. In- Tank Regulators reduce the storage tank pressure from as high as 10,000-psi (70 MPa) down to 150-psi (1 MPa), eliminating the need for high-pressure fuel lines running throughout the vehicle. • Electronic controllers: Quantum’s automotive engine controllers and mass flow sensors are used for gaseous fuel engine management systems. All circuit boards, assemblies, enclosures and wire harnesses are designed and validated in-house to OEM standards. ELECTRONIC VEHICLE CONTROL SYSTEMS & SOFTWARE The company uses its electronic vehicle controls, coupled with its proprietary software, to optimize fuel flow and drive systems in fuel cell, hybrid and internal combustion engine applications. Certain control products precisely control the flow and pressure of gaseous fuels such as natural gas, hydrogen and other gases.

LITHIUM ION & ADVANCED BATTERY CONTROL SYSTEMS Quantum’s lithium-ion and advanced battery control and software products and fully integrated battery packs are currently in the developmental stage by its affiliate, Advanced Lithium Power (ALP). ALP's integrated lithium-ion power system incorporates a number of advanced technologies to deliver the performance, reliability and durability demanded by automobile manufacturers. Characteristics include:

ƒ optimized lithium ion cell design; ƒ cell overcharge protection; ƒ advanced thermal management; ƒ integrated power interface and safety disconnect systems; ƒ control interface compatible with the latest industry standards; and ƒ light, compact packaging.

ASOLA Advanced and Automotive Solar Systems Though this is a separate company, Quantum currently owns a 24% interest in the entity and is slated to purchase an additional 8%. The potential revenues from the current production facility and the solar panel plants to be constructed in 2009 are substantial. A 35mW plant can generate roughly $120 million annually. By 2010 Quantum will have a 51% in 3 plants with a total capacity of 105mW of power and an 85% interest in the California 45mW solar panel plant. Together these facilities should produce revenues of more than $300 million annually at peak production. We anticipate that until the Fisker car line is fully commercialized (2012), the Asola solar panel plants will provide a majority of Quantum’s revenues.

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COMPETITION Because the fuel cell and hybrid propulsion technologies have the potential to replace existing power sources, competition for fuel cell and hybrid products will come from current power technologies, and from new alternative power technologies. The company competes in the fields of traditional automotive components, high-pressure gaseous storage cylinders, advanced lithium-ion battery cells, and battery system developers.

One of Quantum’s competitive advantages is its technology leadership and integration expertise derived from many years of experience with vehicle development and assembly programs. The other is its offering for complete packaged fuel systems based on its advanced technologies, including gaseous fuel storage, fuel metering and electronic controls. Its current competitors typically focus on individual components. Competitors include:

Automotive Components • Siemens AG (Siemens) – provides products and services to customers based on its expertise in electrical engineering. Company operations include designing, manufacturing, marketing, selling and servicing products and systems. • Bosch Corporation – primarily engages in the manufacture and sale of automobile components. The company’s automobile parts include fuel injection equipment for diesel engines, passenger car brake systems, as well as automobile electronic components and power trains. • Visteon Corporation (Visteon) – a global supplier of automotive systems, modules and components to international vehicle manufacturers and the automotive aftermarket. Visteon has four business segments: Climate (designs and produces components, modules and systems for automotive heating, ventilation, air conditioning and powertrain cooling); Electronics (supplies advanced in-vehicle entertainment, driver information, wireless communication, climate control, body and security electronics); Interiors (distributes cockpit modules, instrument panels, door and console modules); and Other (designs and manufactures driveline systems). High-pressure Gaseous Storage Cylinders • Dynetek Industries Ltd. – manufactures and develops alternative energy fuel storage cylinders and systems. • Lincoln Composites – a leading provider of natural gas and hydrogen storage solutions to the alternative fuel vehicle industry. • Structural Composites Inc. – specializes in the design and development of composites for marine, military, commercial, and theme park applications. • Linde AG – is a leading supplier of innovative process technologies and energy efficient engineering solutions. Its competence extends from the liquefaction of natural gas and the supply of hydrogen to refineries that produce low-sulphur petrol and diesel through the separation of carbon dioxide (CO2) from the fuel gases generated by coal-fired power plants to the safe underground storage of CO2. This process could be an alternative to high- pressure storage. • Energy Conversion Devices – commercializes materials, products and production processes for the alternative energy generation, energy storage and information technology markets. The company’s principal commercial products are thin-film solar (photovoltaic (PV)) modules. ADVANCED LITHIUM-ION BATTERY CELLS AND COMPLETE BATTERIES ƒ A123 Systems – a company that supplies high-power lithium-ion batteries using patented Nanophosphate™ technology designed to deliver a new combination of power, safety and life. ƒ Altair Nanotechnologies Inc. – a company that manufactures advanced novel, ceramic nanomaterials which are used in products that exhibit ground-breaking performance.

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ƒ Electron Devices Business – a company that provides the semiconductors, liquid crystal displays, electronic components and other products that play a vital role in realizing higher performance devices mainly for manufacturers involved in digital home electronics and automobiles. ƒ Saft – a company that designs, develops, and manufactures advanced technology batteries for industrial and defense applications. ƒ Valence – a company that provides high performance, safe, cost-effective, long-life battery systems.

BATTERY SYSTEM DEVELOPERS AND SUPPLIERS ƒ Cobasys – a company that provides advanced energy storage systems and solutions for the transportation and stationary markets. ƒ Johnson Controls – a company that provides batteries for automobiles and hybrid-electric vehicles, along with systems engineering and service expertise.

FINANCIALS Quantum posted total revenues of $3.7 million for the first quarter (ended July 2008) of its current FY2009, down 61% sequentially from $9.7 million, but up 6% year-over-year. Product revenue for the first quarter was only $0.2 million (down 85% year-over-year) due to the delivery of the last shipment of the original number of units ordered under GM’s Equinox program at the end of the fourth quarter of FY2008. Contract revenues grew to $3.5 million, a 71% year-over-year increase led by development program revenues arising from the Fisker Karma plug-in hybrid development program, military programs, and other advanced propulsion system development programs.

At July 31, 2008, the company had $6.0 mm in cash and cash equivalents, and a current ratio of 0.6 to 1.0. The company’s total working capital decreased by $14.2 mm, from a positive $0.9 mm in the previous quarter to a negative $13.3 million. The decline was mainly due to the revaluation of Quantum’s debt instruments upon the modifications that were entered into on May 30, 2008 with its lender.

VALUATION We believe that Quantum Technologies is on the verge of the commercialization of a number of technologies. The Fisker partnership expects to ship at least 100 vehicles this fiscal year and Asola is just beginning to expand the number of plants producing solar panels. Combined, these initiatives are expected to generate roughly $100 million in revenues in fiscal 2010 and positive cash earnings for the year. By the 4th quarter of fiscal 2010 we estimate that non-GAAP cash earnings per share will likely reach $0.06 per share. This equates to an annual run rate of $0.24. We believe a fair PE multiple on this earnings level would be 30. 30 times our Q4 fiscal 2010 estimate equates to a future value of $7.20. Discounting this value back to the present at 35% provides a present value for the shares of Quantum of roughly $4.00. Given the company’s impressive product lines and technology and intellectual property position, we believe this value is fair and reasonable. Thus we are initiating coverage with a target price of $4.00.

INVESTMENT RISKS The following investment risk factors could adversely impact the company’s ability to meet our objectives:

ƒ The company may require additional capital to complete product and application development, to expand operations, to fund future operating activities and/or pay off or refinance debt.

162 MDB Capital Group The Green Car Report November 10, 2008 ______

ƒ The company has a history of operating losses and negative cash flow that may continue into the foreseeable future. ƒ Business depends on the growth of hybrid and hydrogen based vehicles and the solar industry. ƒ Limited experience manufacturing propulsion and fuel systems for fuel cell and hybrid applications on a commercial basis. ƒ Revenues are highly concentrated on a small number of customers, creating dependency. ƒ The company may not be able to protect its IP rights or it might infringe on other companies’ intellectual property. ƒ Changes in the environmental policies could hurt the market of its current products.

MANAGEMENT TEAM Alan Niedzwiecki, 51, President, Chief Executive Officer, Director Mr. Niedzwiecki has served as President and as one of directors since February 2002 and was appointed as Chief Executive Officer in August 2002. Mr. Niedzwiecki served as Chief Operating Officer from November 2001 until he was appointed as Chief Executive Officer in August 2002. From October 1999 to November 2001, Mr. Niedzwiecki served as Executive Director of Sales and Marketing. From February 1990 to October 1999, Mr. Niedzwiecki was President of NGV Corporation, an engineering and marketing/commercialization consulting company. Mr. Niedzwiecki has more than 25 years of experience in the alternative fuels industry in product and technology development and commercialization relating to mobile, stationary power generation and refueling infrastructure solutions. Mr. Niedzwiecki is a graduate of Southern Alberta Institute of Technology.

Brian W. Olson, 44, Chief Financial Officer, Treasurer Mr. Olson has served as Chief Financial Officer and Treasurer since August 2002. From July 1999 to August 2002, Mr. Olson served as Treasurer, Vice President and Chief Financial Officer of IMPCO. He originally joined IMPCO in October 1994 and held various financial positions with IMPCO, including serving as Corporate Controller. Prior to joining IMPCO, Mr. Olson was with the public accounting firm of Ernst & Young LLP and its Kenneth Leventhal Group. Mr. Olson holds a B.S. degree in business and operations management from Western Illinois University and an M.B.A. degree in finance and economic policy from the University of Southern California. Mr. Olson is a Certified Financial Manager and a Certified Management Accountant.

Bradley Timon, 45, Chief Accounting Officer, Corporate Controller Mr. Timon has served as Corporate Controller and Chief Accounting Officer since April 2004. Prior to joining Quantum Fuel Systems Technologies, Mr. Timon worked as a financial consultant. From June 1998 to October 2001, Mr. Timon was with CORE, INC. serving as the Corporate Controller through the period of January 2001 and then as Acting Chief Financial Officer until the corporate operations were closed pursuant to a merger. Between September 1995 and May 1998, Mr. Timon served as a Controller for James Hardie Industries. Before entering private industry, Mr. Timon was with the public accounting firm KPMG from 1989 to 1995. Mr. Timon has a B.A. in accounting from California State University, Fullerton and is a Certified Public Accountant.

Kenneth Lombardo, 42, Vice President - Legal, General Counsel, Corporate Secretary Mr. Lombardo has served as Vice President and General Counsel since May 2005 and became Corporate Secretary in September 2005. From March 1996 to May 2005, Mr. Lombardo practiced law at Kerr, Russell and Weber, PLC in Detroit, Michigan, where he specialized in mergers and acquisitions, taxation, corporate and business law. Mr. Lombardo is also a certified public accountant with over six years of audit and tax experience with Deloitte & Touche. Mr. Lombardo received his law degree from Wayne State University Law School and a Bachelor of Science degree in Business Administration, with a major in Accounting, from Central Michigan University.

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ANNUAL INCOME STATEMENT ANNUAL INCOME STATEMENTS (000's) Fiscal Years 2006 2007 2008 2009E 2010E Revenue Net product sales$ 172,056 $ 73,385 $ 54,454 $ 14,964 $ 87,500 Contract revenue 19,821 9,359 18,748 14,053 12,500 Total revenue$ 191,877 $ 82,744 $ 73,202 $ 29,017 $ 100,000 Cost & expenses Cost of product sales 161,861 72,428 33,834 12,654 66,500 Research & development 25,859 16,593 21,618 18,119 17,000 Selling, general & administrative 33,407 29,729 27,541 17,447 22,000 Amortization of intangibles 4,082 3,104 2,374 1,672 1,680 Restructuring charges - 2,443 - - - Impairment of long-lived assets - 71,719 58,900 - - Total Cost & Expenses$ 225,209 $ 196,016 $ 144,267 $ 49,892 $ 107,180 Operating Income (loss) (33,332) (113,272) (71,065) (20,875) (7,180) Interest income 1,055 663 (589) - - Interest expense (3,034) (4,816) (3,402) (3,274) (950) Gain on disposal of subsidiary - 555 - - - Loss on early extinguishment of debt - (6,300) - (39,763) - Minority interest in earnings of subsidiaries 406 1,010 1,719 2,000 5,750 Equity in earnings of investment in affiliate - 14 323 - - Other income (expense), net 661 172 (19) (249) - Income tax provision 434 856 - - - Loss from continuing oper. before income taxes$ (33,810) $ (121,119) $ (73,033) $ (62,161) $ (2,380) Income tax expense (benefit) - 277 4,860 (1) - Net loss from continuing operations$ (33,810) $ (120,842) $ (68,173) $ (62,162) $ (2,380) Income (loss) from discontinued oper., net of tax effects (1,268) (14,386) 2,485 - - Net loss$ (35,078) $ (135,228) $ (65,688) $ (62,162) $ (2,380) Weighted average shares outstanding 53,284 61,760 76,791 79,986 80,625 EPS - fully diluted$ (0.66) $ (2.19) $ (0.86) $ (0.78) $ (0.03) Depreciation - - 883 3,811 4,000 Stock-based compensation - - 735 2,277 2,475 Cash Earnings$ (35,078) $ (135,228) $ (64,070) $ (56,074) $ 4,095 Ca sh Ea rnings (Loss) Pe r Sha re$ (0.66) $ (2.19) $ (0.83) $ (0.70) $ 0.05 % of TOTAL REVENUE Cost & expenses Product gross margin 5.9% 1.3% 37.9% 15.4% 24.0% Research & development 13.5% 20.1% 29.5% 62.4% 17.0% Selling, general & administrative 17.4% 35.9% 37.6% 60.1% 22.0% Total Cost & Expenses 117.4% 236.9% 197.1% 171.9% 107.2% Operating Income (loss) -17.4% -136.9% -97.1% -71.9% -7.2% Tax rate 0.0% -0.2% -6.7% 0.0% 0.0% Net loss -18.3% -163.4% -89.7% -214.2% -2.4% % YEAR OVER YEAR INCREASE Revenue NA -56.9% -11.5% -60.4% 244.6% Total Cost & Expenses NA -13.0% -26.4% -65.4% 114.8% Operating Income (loss) NA 239.8% -37.3% -70.6% -65.6% Net loss NA 285.5% -51.4% -5.4% -96.2%

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QUARTERLY INCOME STATEMENT QUARTERLY INCOME STATEMENT (000's) FY2007 FY2008 FY2009E FY2010E 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2QE 3QE 4QE 1QE 2QE 3QE 4QE Revenue Net product sales 38,437 32,611 765 1,572 26,505 20,808 2,521 4,620 214 2,000 4,250 8,500 10,000 16,500 27,000 34,000 Contract revenue 3,506 2,829 1,496 1,528 3,931 5,146 4,625 5,046 2,053 4,000 4,000 4,000 4,000 3,000 3,000 2,500 Total revenue$ 41,943 $ 35,440 $ 2,261 $ 3,100 $ 30,436 $ 25,954 $ 7,146 $ 9,666 $ 2,267 $ 6,000 $ 8,250 $ 12,500 $ 14,000 $ 19,500 $ 30,000 $ 36,500 Cost & expenses Cost of product sales 36,880 33,794 548 1,206 25,805 2,149 2,009 3,871 654 1,750 3,500 6,750 8,000 12,750 20,750 25,000 Research & development 5,659 4,866 3,223 2,845 5,083 6,052 4,691 5,792 4,619 4,500 4,500 4,500 4,500 4,250 4,250 4,000 Selling, general & administrative 10,782 11,128 3,880 3,939 10,364 9,091 3,871 4,215 4,247 4,300 4,400 4,500 5,000 5,250 5,750 6,000 Amortization of intangibles 1,134 1,134 418 418 1,117 419 419 419 415 419 419 419 420 420 420 420 Restructuring charges - - - 2,443 ------Impairment of long-lived assets - 71,719 - - 58,900 ------Total Cost & Expenses$ 54,455 $ 122,641 $ 8,069 $ 10,851 $ 101,269 $ 17,711 $ 10,990 $ 14,297 $ 9,935 $ 10,969 $ 12,819 $ 16,169 $ 17,920 $ 22,670 $ 31,170 $ 35,420 Operating Income (loss)$ (12,512) $ (87,201) $ (5,808) $ (7,751) $ (70,833) $ 8,243 $ (3,844) $ (4,631) $ (7,668) $ (4,969) $ (4,569) $ (3,669) $ (3,920) $ (3,170) $ (1,170) $ 1,080 Interest income - - - 663 - - (589) ------Interest expense (961) (983) 59 (461) (1,317) (1,406) - (679) (1,124) (700) (700) (750) (500) (300) (150) - Gain on disposal of subsidiary - - - 555 ------Loss on early extinguishment of debt - - - (6,300) - - - - (39,763) ------Minority interest in earnings of subsidiaries 286 259 216 249 374 448 496 401 - 500 750 750 750 1,000 1,500 2,500 Equity in earnings of investment in affiliate 14 - - - (13) - 98 238 ------Other income (expense), net - 180 (7) (1) - (4) (2) (13) (249) ------Income tax provision - - - 856 ------Loss from continuing oper. before income taxes$ (13,173) $ (87,745) $ (5,540) $ (6,445) $ (71,789) $ 7,281 $ (3,841) $ (4,684) $ (48,804) $ (5,169) $ (4,519) $ (3,669) $ (3,670) $ (2,470) $ 180 $ 3,580 Income tax expense (benefit) 121 158 (1) (1) 4,943 (81) (1) (1) (1) ------Net loss from continuing operations$ (13,052) $ (87,587) $ (5,541) $ (6,446) $ (66,846) $ 7,200 $ (3,842) $ (4,685) $ (48,805) $ (5,169) $ (4,519) $ (3,669) $ (3,670) $ (2,470) $ 180 $ 3,580 Income (loss) from discontinued oper., net of tax effects (375) (1,745) (1,604) (10,662) - - 2,485 ------Net loss (13,427) (89,332) (7,145) (17,108) (66,846) 7,200 (1,357) (4,685) (48,805) (5,169) (4,519) (3,669) (3,670) (2,470) 180 3,580 Weighted average shares outstanding 57,656 59,452 65,364 66,049 71,351 78,552 78,552 78,771 79,942 80,000 80,000 80,000 80,250 80,500 80,750 81,000 EPS - fully diluted (0.23) (1.50) (0.11) (0.26) (0.94) 0.09 (0.02) (0.06) (0.61) (0.06) (0.06) (0.05) (0.05) (0.03) 0.00 0.04 Depreciation - - - - 883 - - - 936 950 950 975 1,000 1,000 1,000 1,000 Stock-based compensation - - - - 735 - - - 577 550 550 600 600 600 625 650 Cash Earnings$ (13,173) $ (87,745) $ (5,540) $ (6,445) $ (65,228) $ 7,281 $ (3,841) $ (4,684) $ (7,529) $ (3,669) $ (3,019) $ (2,094) $ (2,070) $ (870) $ 1,805 $ 5,230 Cash Earnings (Loss) Per Share$ (0.23) $ (1.48) $ (0.08) $ (0.10) $ (0.91) $ 0.09 $ (0.05) $ (0.06) $ (0.09) $ (0.05) $ (0.04) $ (0.03) $ (0.03) $ (0.01) $ 0.02 $ 0.06 % of TOTAL REVENUE Cost & expenses Product gross margin 4.1% -3.6% 28.4% 23.3% 2.6% 89.7% 20.3% 16.2% -205.6% 12.5% 17.6% 20.6% 20.0% 22.7% 23.1% 26.5% Research & development 13.5% 13.7% 142.5% 91.8% 16.7% 23.3% 65.6% 59.9% 203.7% 75.0% 54.5% 36.0% 32.1% 21.8% 14.2% 11.0% Selling, general & administrative 25.7% 31.4% 171.6% 127.1% 34.1% 35.0% 54.2% 43.6% 187.3% 71.7% 53.3% 36.0% 35.7% 26.9% 19.2% 16.4% Total Cost & Expenses 129.8% 346.1% 356.9% 350.0% 332.7% 68.2% 153.8% 147.9% 438.2% 182.8% 155.4% 129.4% 128.0% 116.3% 103.9% 97.0% Operating Income (loss) -29.8% -246.1% -256.9% -250.0% -232.7% 31.8% -53.8% -47.9% -338.2% -82.8% -55.4% -29.4% -28.0% -16.3% -3.9% 3.0% Tax rate -0.9% -0.2% 0.0% 0.0% -6.9% -1.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Net loss -32.0% -252.1% -316.0% -551.9% -219.6% 27.7% -19.0% -48.5% -2152.8% -86.2% -54.8% -29.4% -26.2% -12.7% 0.6% 9.8% % YEAR OVER YEAR INCREASE Revenue -11.5% -43.9% -93.7% -93.2% -27.4% -26.8% 216.1% 211.8% -92.6% -76.9% 15.4% 29.3% 517.6% 225.0% 263.6% 192.0% Total Cost & Expenses -1.4% 86.5% -82.3% -81.5% 86.0% -85.6% 36.2% 31.8% -90.2% -38.1% 16.6% 13.1% 80.4% 106.7% 143.2% 119.1% Operating Income (loss) 59.1% 3277.3% -39.9% -41.4% 466.1% -109.5% -33.8% -40.3% -89.2% -160.3% 18.9% -20.8% -48.9% -36.2% -74.4% -129.4% Net loss 60.5% 2842.4% -27.4% 23.6% 397.8% -108.1% -81.0% -72.6% -27.0% -171.8% 233.0% -21.7% -92.5% -52.2% -104.0% -197.6% % SEQUENTIAL INCREASE Revenue -7.5% -15.5% -93.6% 37.1% 881.8% -14.7% -72.5% 35.3% -76.5% 164.7% 37.5% 51.5% 12.0% 39.3% 53.8% 21.7% Total Cost & Expenses -7.0% 125.2% -93.4% 34.5% 833.2% -82.5% -37.9% 30.1% -30.5% 10.4% 16.9% 26.1% 10.8% 26.5% 37.5% 13.6% Operating Income (loss) -5.4% 596.9% -93.3% 33.5% 813.8% -111.6% -146.6% 20.5% 65.6% -35.2% -8.0% -19.7% 6.8% -19.1% -63.1% -192.3% Net loss -3.0% 565.3% -92.0% 139.4% 290.7% -110.8% -118.8% 245.2% 941.7% -89.4% -12.6% -18.8% 0.0% -32.7% -107.3% 1888.9%

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BALANCE SHEET

BALANCE SHEET (000's) FY2007 FY2008 FY2009 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q ASSETS CURRENT ASSETS Cash and cash equivalents 19,062 12,529 12,748 2,526 4,952 3,501 7,374 6,024 9,011 Restricted cash equivalents 14,275 17,656 1,000 ------Marketable securities held-to-maturity ------Accounts receivable, net 22,657 21,302 22,377 3,144 21,684 18,510 7,250 9,665 5,546 Inventories 34,331 32,631 30,430 8,226 28,562 27,191 9,012 6,062 6,186 Assets of discountinued operations - - - 41,851 - - - - - Tooling and engineering 544 1,056 681 - 222 2,780 - - - Prepaids & other current assets 1,402 2,205 2,204 711 1,222 3,681 1,723 991 740 Refundable income taxes ------Other current assets ------Total current assets$ 92,270 $ 87,379 $ 69,439 $ 56,459 $ 56,642 $ 55,663 $ 25,359 $ 22,742 $ 21,483 Property and equipment, net 25,137 23,359 22,249 4,530 7,715 7,010 3,702 3,853 4,830 Restricted cash equivalents & marketable securities 1,725 - - - 1,000 1,000 - - - Deferred loan fees - - 1,657 540 1,403 1,263 393 344 - Investment in & deposit with affiliate ------3,875 2,781 3,018 Marketable securities held-to-maturity ------Intagible assets, net 58,818 57,686 56,540 8,899 8,491 8,098 7,669 7,021 6,606 Goodwill 105,594 33,276 33,276 30,400 30,400 30,400 30,400 30,400 30,400 Deposits and other assets 724 748 737 78 584 2,168 202 1,647 3,245 Assets of discontinued operations - - - 66,636 - - - - - Other assets ------Total assets$ 284,269 $ 202,448 $ 183,898 $ 167,543 $ 106,234 $ 105,601 $ 71,599 $ 68,786 $ 69,582 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable 26,016 30,179 28,865 2,916 20,083 17,101 3,555 3,365 2,618 Accrued payroll obligations 2,344 2,412 2,574 987 2,134 1,932 1,297 1,423 1,134 Accrued interest 506 738 326 - 381 852 153 - - Notes payable 2,220 2,215 2,209 - 2,200 2,194 - - - Deferred revenue 3,240 1,434 1,351 780 2,017 5,349 2,406 4,708 7,055 Accrued warranties 1,001 1,064 1,076 466 1,202 1,513 1,144 666 469 Customer deposit 6,246 1,547 1,557 ------Obligation payable to affiliate ------1,869 - Other accrued liabilities 2,318 1,863 2,323 505 2,613 3,602 4,149 1,458 2,000 Current maturities of long-term debt 25,071 24,992 3,112 3,872 5,520 53,971 7,073 8,325 21,532 Obligations of discontinued operations - - - 29,595 - - - - - Total current liabilities$ 68,962 $ 66,444 $ 43,393 $ 39,123 $ 36,150 $ 86,515 $ 19,778 $ 21,813 $ 34,808 Long-term debt, net of current maturities 17,998 17,900 42,046 27,157 40,525 - 34,274 33,624 19,889 Obligations of discontinued operations - - - 23,631 - - - - - Deferred income taxes 5,740 5,582 5,465 ------Other accrued liabilities 293 324 351 - 161 191 - - - Commitments & contingencies ------Minority interests 444 216 - 104 111 483 170 - - Unsubscribed stock purchase warrants - - - - 16,800 - - - - Stockholders' Equity: ------Preferred stock ------Series B common stock 1 1 1 1 1 1 1 1 1 Common stock 58 64 65 65 78 78 78 78 81 Additional paid-in-capital 275,694 286,013 287,946 289,371 291,072 308,851 309,199 309,902 358,588 Accumulated deficit (84,502) (173,832) (195,422) (211,606) (278,451) (290,588) (291,946) (296,632) (343,785) Unearned compensation - restricted stock awards ------Accumulated other comprehensive income (loss) (420) (264) 53 (302) (212) 71 47 - - Total stockholders' equity$ 190,831 $ 111,982 $ 92,643 $ 77,530 $ 12,487 $ 18,412 $ 17,378 $ 13,349 $ 14,885 Total Liabilities and Stockholders' Equity$ 284,269 $ 202,448 $ 183,898 $ 167,543 $ 106,234 $ 105,601 $ 71,599 $ 68,786 $ 69,582

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RESEARCH INITIATION Peter Conley 310-526-5025 SATCON TECHNOLOGY, CORP. [email protected] (SATC: $1.79) Jon Hickman 310-526-5024 [email protected]

RECOMMENDATION: BUY Global Leadership in Renewable Power PRICE TARGET: $4.00 Driving Revenue Growth SEMICONDUCTOR – INDUSTRY: INTEGRATED UNITS

SECTOR: TECHNOLOGY INVESTMENT HIGHLIGHTS

For over twenty years SatCon Technology Corp. has been providing COMPANY STATISTICS advanced technology and high tech components for a wide variety of 52-wk range $1.25 – $3.51 distributed power generation and power quality systems. The company’s Avg. Daily Vol. (000) 236.0 current focus is on providing high power solar and fuel cell inverters (devices for transforming power from DC to AC) for large scale Market Capitalization (M) $91.32 alternative/renewable energy projects. Currently the company is a world

leader in the market for inverters with 250kW capacity and above. The EARNINGS SUMMARY company’s most popular product is the 500kW PowerGate inverter. FYE Dec 2007A 2008E 2009E 2010E Recently, Satcon announced the sale of its Electronics and Motors P/SALES 1.2x 1.2x 1.0x 0.8x divisions (non-core operations) and the expansion of its inverter P/E NM NM NM 7.2x SALES: Q1 8.3 14.9A - - manufacturing capacity by 50%. Revenues are climbing rapidly and we Q2 11.7 16.9A - - anticipate continued sequential growth and improving gross margins Q3 21.0 17.3 - - driven by: Q4 15.6 18.8 - - Total 56.6 67.8 87.5 110.0 • the worldwide demand for renewable energy capacity driven in EPS (cash): Q1 (0.07) (0.03)A - - part by legislated Renewable Portfolio Standards (RPS) Q2 (0.08) (0.06)A - - requiring utilities to buy stated amounts of renewable power; Q3 (0.02) (0.02) - - Q4 (0.10) (0.01) - - • the company’s continued leadership in the very large (utility- Total: (0.27) (0.13) 0.20 0.42 scale) inverter market as indicated by the recent introduction of a 1 Megawatt inverter; SHARE PRICE PERFORMANCE • the company’s ongoing international expansion throughout Asia and Europe as demonstrated by the recent sale to one of Europe’s largest utilities, Energy21, of a 20MW facility in the Czech Republic; and • management’s focus on manufacturing and operational efficiencies which should result in gross margins improving dramatically in coming years. We are confident that SatCon’s ongoing focus on the utility-scale inverter business along with the ongoing operational improvements is setting the stage for an extended period of accelerated top line growth. This revenue growth coupled with higher gross margins and declining PLEASE READ THE DISCLOSURES operating expenses is likely to generate positive non-GAAP cash ON PAGE 230 FOR IMPORTANT earnings early in calendar 2009. We estimate that for calendar 2009 total REQUIRED INFORMATION revenues should approach $95 million (a 34% jump from calendar 2008) INCLUDING RISKS AND ANALYST with non-GAAP cash earnings per share of $0.14. Given this anticipated CERTIFICATION. growth, we are initiating coverage of Satcon with a Buy rating and a target price of $4.00.

MDB Capital Group LLC • 401 Wilshire Blvd, Suite 1020 • Santa Monica, CA 90401 • 310-526-5000 • www.mdb.com 167

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INVESTMENT SUMMARY SatCon Technology Corporation provides utility scale distributed power solutions for the renewable energy markets. Given the increasing global adoption of large scale alternative energy generation facilities, the company is currently concentrating its efforts on this market segment. To this end, SatCon announced in September the sale of its Electronics and Motors divisions. The Electronics division, which designs and manufactures high reliability defense electronics, was sold to Spectrum Control Inc., and the Motors divisions, which manufactures motors for hybrid electric vehicles and industrial purposes, was sold to U.S. Hybrid Corporation. Cash proceeds of $5.6 million from the sale will be used toward the development of SatCon’s core solar photovoltaic and fuel cell inverter business. The company now operates through two business segments:

ƒ SatCon Power Systems manufactures and sells inverters for solar photovoltaic, stationary fuel cell, wind-turbine, and battery energy storage systems. The image at the right taken from the company’s web site details the range of SatCon’s available alternative energy solutions. This segment also produces and markets rotary uninterruptible power systems, frequency converters, and industrial DC power converters, among other products.

ƒ SatCon Applied Technology develops, designs and builds power conversion products.

SatCon offers a wide selection of commercial and utility grade inverters, including models from 30kW to 500kW and the recently introduced 1MW model. Inverters are an important component in most alternative energy technologies as they are used to transform the power into usable AC electricity compatible with typical household and commercial appliances.

For the second quarter of 2008 total revenues grew 45% over the same period in 2007 driven by strong sales of solar PV (pictured at the right) and fuel cell inverters, with the fastest growth coming from the sale of the largest power units. Around the world, more attention is being directed toward the creation of renewable power. Many countries have established Renewable Portfolio Standards (RPS) that require a certain percentage of the total power generated in a specific geographic location to come from renewable sources. Currently 24 states in the U.S. (accounting for more than half of all U.S. utility sales) have RPS policies in place. In California the state is requiring utilities to buy a minimum of 10% of their power from renewable sources. Currently that supply of electrical power does not exist. To meet this growing demand, the company recently announced the expansion of its manufacturing capacity by 50% in the second half of 2008, centering

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specifically on the company's industrial 500kW and 225kW PowerGate Plus solar PV inverters. According to Solarbuzz, global sales of solar power system installations will increase at a 14% compound annual growth rate to $18.6 billion by 2010 from $9.8 billion in 2005, representing a significant growth opportunity.

SatCon’s power conversion systems for stationary fuel cells range from 25kW to the MW range. The market for stationary fuel cells is projected to reach $4.9 billion in 2010 and is growing at a rate of approximately 20% per year.

New CEO and President Steve Rhoades announced key strategic measures to position SatCon as a leading worldwide innovator of utility scale, distributed power solutions. The company is working to accelerate international growth particularly in Europe and Asia through direct sales and channel partnerships while keeping focus on the traditional North American market. Revenues in the most recent quarter (September 2008) were up dramatically at $18.5 million and gross margins climbed to 18%. Sales of units into the solar power segment rose 120% year-over-year. Satcon is placing greater emphasis on the core business, including increasing production capacity for renewable energy solutions and at the same time carrying out cost reduction measures and rationalizing other segments to ensure a sustainable business model. We believe these initiatives and particularly the strengthened focus on alternative energy solutions, coupled with a new management team and strong revenue growth in solar and fuel cell inverters, positions SatCon for a period of continued revenue growth and improving margins that will carry the company into profitability in the next couple of years.

COMPANY BACKGROUND Founded as a Massachusetts corporation in 1985, SatCon Technology Corporation was reincorporated in Delaware in 1992 with initial operations as a research and development company focused on developing new technologies in motion control, control software and electronics. From inception through the early 1990s, the company was funded through research and development contracts from the U.S. government and built a technology base that included magnetics, motor and motor drive, digital signal processing and high-speed electronics technology.

In the 1990s, through commercially funded R&D, the company expanded its technology base to include the design and packaging of high-power electronics and advanced materials. Later, in the mid 1990s, the company was able to effectively transform its technical capabilities into product manufacturing and began producing high power conversion and control systems for commercial alternative energy applications, a variety of advanced power control systems for hybrid electric vehicles, commercial motors including motors for hybrid electric vehicles, uninterruptible power supplies and ride-through devices for applications requiring high quality sustainable power, specialty magnetically levitated products and microelectronics primarily used in high reliability applications.

From 1997 up until 2002, SatCon carried out a number of strategic acquisitions that further expanded the company’s technology base (SatCon currently holds more than 150 patents for key technologies). Once past the research and development phase, these acquisitions provided expanded manufacturing capability enabling the company to focus on producing reliable high quality cutting-edge distributed power generation and power quality products. In addition, they allowed SatCon to increase revenues and expand its customer base. SatCon’s acquisitions include:

ƒ January 1997 – K&D MagMotor Corp., a manufacturer of custom and standard electric motor, was acquired for approximately $409,000 in cash and stock;

ƒ April 1997 – Film Microelectronics, Inc., a manufacturer of thin film substrates and custom hybrid microelectronics, was acquired for approximately $4.6 million in stock and the assumption of certain liabilities;

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ƒ January 1999 – Inductive Components, Inc., a value-added supplier of customized electric motors, was acquired for approximately $815,000 in stock and the assumption of certain debt;

ƒ April 1999 – HyComp, Inc., a manufacturer of hybrid microelectronics, was acquired for approximately $1.3 in cash, royalties and the assumption of certain liabilities and obligations;

ƒ October 1999 – Ling Electronics, Inc., a manufacturer of shaker vibration test and measurement systems, power converters, amplifiers and controllers, was acquired for $7.8 million in cash and stock, although the Ling shaker and amplifier product lines were eventually sold in 2005 to QualMark Corporation for $2.3 million in cash;

ƒ November 1999 – Northrop Grumman Corporation, from which SatCon acquired certain assets including intellectual property, tooling, engineers and technicians and other assets from applicable to power electronics and hybrid electric vehicles, for approximately $5.6 million company stock and warrants;

ƒ July 2001 – Inverpower Controls, Ltd., from which SatCon acquired most of the assets of this manufacturer of power electronics and high-speed digital controls for use in industrial power and power quality systems, including Inverpower's UL and CE certification capability, for approximately $4.4 million in cash and stock;

ƒ September 2002 – Sipex Corporation, from which SatCon acquired certain assets including the machinery, inventory, backlog and intellectual property of hybrid assembly operations that supply product to the defense and aerospace industry, for a maximum of $2.2 million in royalty payments.

SatCon combined these acquisitions into three business segments: Power Systems (which included the Motors division), Electronics, and Applied Technology.

In 2007 the company completed a $25 million private placement of Series C preferred stock with investors Rockport Capital Partners and NGP Energy Technology Partners in order to fund the growing opportunities in the alternative energy markets. The company then effected a management change in May 2008, appointing Mr. Steve Rhoades as the new CEO and President. Mr. Rhoades was hired to transition the company from its roots as an engineering/customer product company into a profitable product manufacturing entity. To this end and in an effort to focus solely on the expanding alternative energy markets, SatCon announced the sale of its Electronics division and its Motors division in September 2008.

The company is headquartered in Boston, MA and employs roughly 160 full-time employees. Customers include power utilities such as recently signed Energy 21 in Europe, and contract research and development customers such as the U.S. Department of Defense, the U.S. Department of Energy, NASA, General Dynamics, Northrop Grumman, Lockheed Martin, BAE Systems, General Atomics and Applied Materials.

SATCON’S PRODUCT SUITE OVERVIEW SatCon Technology Corporation designs, develops, and manufactures products for distributed power generation, power quality, hybrid electric vehicles, semiconductor fabrication capital equipment, industrial motors and drives, and high reliability defense electronics. The company currently operates in two business segments, namely Power Systems and Applied Technology.

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In the past several Revenue Growth by Product Line years, the company

25,000 has concentrated its efforts in providing power conversion solutions for the 20,000 alternative and renewable energy markets, including 15,000 solar photovoltaic, Total Revenue stationary fuel cells, Solar wind-turbines, and 10,000 Revenue (000s) Inverters energy storage Fuel Cell systems. As a result Inverters since its launch in 5,000 Motor-HEV components 2004, the solar PV Electronics inverter product line has become one of - the company’s major Q106 Q206 Q306 Q406 Q107 Q207 Q307 Q407 Q108 Q208 revenue producers accounting for approximately 26% and 38% of total revenues in 2006 and 2007, respectively. The chart to the left shows the revenue growth of selected product lines from 2006 onwards.

SATCON POWER SYSTEMS SatCon Power Systems is the business segment responsible for manufacturing the solar photovoltaic inverters mentioned above. The segment uses power electronics and advanced controls to develop and manufacture static power conversion and energy management systems. The current focus is on providing electric power systems for larger scale alternative energy applications, including power conversion systems for commercial photovoltaic and stationary fuel cells, as well as rotary uninterruptible power supply (UPS) systems for back-up power and power quality applications. SatCon Power Systems operates out of manufacturing facilities located in Burlington, Ontario, Canada. The main product lines in this segment include:

ƒ Solar Photovoltaic Commercial Inverters – inverters (also know as power control units) are the electrical or electro-mechanical devices that convert power from a direct-current (DC) source, such as batteries, solar panels, or fuel cells, to an alternating- current (AC) output for commercial or home use. SatCon designs and manufactures PowerGate photovoltaic inverters (right image) that convert DC power generated by solar arrays into useable utility grade AC power for export to the electric utility grid. The next-generation PowerGate Plus photovoltaic inverters launched in 2008 are offered in a variety of models ranging from 30 kW to 1 MW with improved features for higher efficiency, durability, and safety. These commercial PV inverters are recognized for their reliability, energy efficiency and ease-of-use and are fully certified to UL1741-2005 standards for independent power systems and have California Energy Commission (CEC) efficiency ratings of 97% to 98% with transformers, which is equal to, or above other models listed by the CEC. These inverters also incorporate next-generation Edge MPPT technology, a proprietary maximum power point tracking system that increases PV plant kilowatt yield up to 20% by extending the production window of solar arrays, enabling them to operate at optimal voltage and current levels for longer periods of time.

ƒ Fuel Cell Industrial Inverters – Satcon offers PowerGate FC industrial fuel cell inverters in 1MW models that efficiently convert power from clean energy sources for use in utility-scale power grids. All the company’s high power inverters are UL certified for safety.

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ƒ Rotary UPS Systems – SatCon provides rotary uninterruptible power supply systems for back- up power and power quality applications in power ranges from 250 kilowatts to 2.2 megawatts and beyond in single or multiple unit systems. The product combines a diesel generator, supplied by Cummins, Inc., a flywheel energy storage system, electronics and a proprietary control system that delivers an uninterruptible power supply said to be a superior alternative to lead-acid battery based UPS systems.

SATCON APPLIED TECHNOLOGY The Applied Technology business segment develops advanced technology to design and build power conversion products, including power electronics, machines and control systems for a variety of defense and commercial applications. The segment is in charge of transitioning technologies into products and has built products for use in distributed power generation, energy storage and power quality, high-performance electric machinery, transportation and defense systems, including components for military hybrid-electric vehicles, all-electric ships and aircraft subsystems.

COMPETITION SatCon is experiencing heightened competition as the company is increasingly able to transform its technology into new commercial power and electronic products for its various target markets. Competitors include several well established companies with greater financial, research and development, technical, manufacturing and marketing resources. Among these are:

ƒ Manufacturers of inverters for alternative energy solutions: Competitors include Xantrex Technology, Inc., the Canadian provider of advanced power electronic products and systems, which sells a variety of inverters for commercial and home use including three-phase PV inverters for commercial large-scale solar installations, with models ranging from 100 kW to 225 kW. Asea Brown Boveri Ltd., Siemens Corporation, Alstom S.A., and SMA Technologie AG are also large international manufacturers that produce inverters for solar photovoltaic applications.

ƒ Manufacturers of power regulators: Includes competitors such as International Rectifier, Sensitron and MS Kennedy.

ƒ Manufacturers of DC to DC converters: Competitors in this arena include manufacturers such as International Rectifier, VPT, Interpoint and Modular Devices.

ƒ Manufacturers of Uninterruptible Power Supplies: Includes competitors such as Piller, Inc. and Hitec Power Protection.

SatCon is responding to competition with efficient, quality, high power density, reliable and durable products that are developed from the company’s proprietary technology – the result of over 22 years of accumulated research and development, know-how and experience. The company is strengthening R&D initiatives in key areas such as silicon carbide as it attempts to introduce new commercially viable products and improvements particularly for the alternative energy markets.

FINANCIALS For calendar 2007, SatCon reported total revenues of $56.6 million, an impressive 68% increase over 2006 revenues of $33.8 million. Backlog also increased to around $45 million by year-end 2007 from $35 million at the end of 2006 – a 30% increase. The increase in revenues and backlog was driven by sales growth in the company’s alternative and renewable energy solutions. For example in 2007, combined revenues from solar and fuel cell inverters were approximately $23.4 million, or around 41% of total revenues. This compares to an estimated $10.6 million or 31% of total revenues from these same products in 2006. In the first half of 2008, total revenues increased 59% versus the same period in 2007 to $31.8 million, again driven by strong growth in sales of solar and fuel cell inverters.

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Even with the sale of the company’s Electronics and Motors divisions in the third quarter of 2008 we anticipate sequential revenue growth for the remainder of 2008 and estimate revenue growth in 2009 of roughly 34% to $95 million. For the 2008 year we anticipate revenues to exceed $70 million and for the net operating loss to decline to $15 million. In the third quarter of 2008, revenues climbed to $18.5 million and gross margins increase to 18%. Sales in the solar power segment climbed 120% year-over-year and 158% sequentially. Additionally, the backlog grew 30% to $39 million. For calendar 2009 we are estimating revenues to approach $95 million and we anticipate non-GAAP cash earnings of $7.3 million or $0.14 per share.

In 2007 the company completed a preferred stock financing and received a $25 million investment from RockPort Capital Partners and NGP Energy Technology Partners, which the company used partially to pay off senior convertible notes issued in July 2006 and reinvested the balance for working capital purposes. Additionally, in 2008 the company obtained a new working capital line of credit for $10 million and sold its Electronics and Motors divisions for $5.6 million in cash which will be used toward the development of SatCon’s photovoltaic and fuel cell inverter business. Cash and cash equivalents at the end of the June quarter of 2008 stood at $9.8 million.

VALUATION As a world leader in the market for large, utility-scale inverters, we believe that Satcon is extremely well positioned to benefit from the rapidly expanding demand for and production of alternative energy. The company is generating impressive revenue growth and we estimate that this growth along with improving gross margins will begin to produce positive bottom line results. For calendar 2009 we are estimating a 34% increase in revenues and positive non-GAAP cash earnings of $0.14 per share. We estimate that this type of growth is likely to continue into calendar 2010. With this potential, we feel that a fair valuation should be based on a multiple of the 2009 cash earnings. We feel that 30 times the 2009 estimate is a reasonable expectation. 30X the 2009 cash earnings estimate of $0.14 per share equates to a fair value of roughly $4.00.

INVESTMENT RISKS Many risk factors can affect the operating outcome of this company, particularly with the heightened challenges of doing business in the relatively new alternative energy market segment. SatCon has delivered seven consecutive quarters of positive year-over-year revenue growth, but has yet to achieve profitability due primarily to continued small gross margins and high R&D expenses. However, with a strengthened focus on the inverter product line for the rapidly growing alternative energy markets and a new management team, the company appears to now be on track to reach breakeven and commercial success. Risks to achieving these goals include:

ƒ Management’s ability to manage rapid growth and ramp manufacturing capabilities to meet large-scale production requirements and delivery of highly complex products on a timely and cost-effective basis; ƒ SatCon is a small company and may require additional capital to fund its operations; and ƒ Uncertainty of business and consumer adoption of alternative energy solutions, especially given U.S. government regulation and uncertain future of tax breaks and subsidies.

MANAGEMENT TEAM

STEVE RHOADES, PRESIDENT AND CEO Mr. Rhoades joined the Corporation on May 1, 2008 as President and Chief Executive Officer of the Corporation. Most recently, Mr. Rhoades was employed by Advanced Energy Industries, Inc. from September 2002 through 2007; on December 19, 2005, Mr. Rhoades was appointed Chief Operating Officer of Advanced Energy. Previously, Mr. Rhoades was Vice President, Corporate Development at Portera Systems. Prior to Portera Systems, he held senior positions at Lam

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Research, Trikon Technologies and Applied Materials. Mr. Rhoades holds BS and MS Degrees in Physics from the University of Illinois.

PETE DEGRAFF, VICE PRESIDENT OF SALES AND MARKETING Pete DeGraff joined SatCon in May 2008 as Corporate Vice President of Sales and Marketing. Mr. DeGraff is responsible for leading the development and execution of the global go-to-market strategies for SatCon's products and solutions, including marketing and sales programs that focus on the company's industry leading solutions for renewable energy. Mr. DeGraff has over 15 years of sales and marketing leadership experience in rapid growth technology organizations. He was Vice President of World Wide Alliances at i2Technologies, where he organized a highly successful global channel for its products and solutions. Mr. DeGraff has a Masters in Business Administration from San Francisco State University and a Bachelors Degree from Alma College. He has studied small business strategies in overseas economies and has advanced training in PV Solar Design and Installations.

LEO CASEY, VICE PRESIDENT AND CHIEF TECHNOLOGY OFFICER Dr. Casey joined SatCon in June 2000 and is Vice President and Chief Technology Officer. He is a Power Electronics Practitioner with experience in power systems, power circuit topologies, analog and digital circuit design, power device technology, control techniques along with manufacturing, packaging and thermal expertise. At SatCon, Dr. Casey is involved with the design and development of electronic power products including grid-connected inverters, Uninterruptible Power Supplies (UPS), and most recently systems based on Silicon Carbide (SiC) Semiconductor Technology. Dr. Casey was educated at the University of Auckland in New Zealand and then MIT, coming to the US as a Fulbright Scholar. He has worked in this industry since completing his graduate education and is an Editor of the Energy Conversion Transactions of the Power Engineering Society of the IEEE.

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ANNUAL INCOME STATEMENT ANNUAL INCOME STATEMENT (000s) CFY Ending December 2004 2005 2006 2007 2008E 2009E 2010E Product revenue 29,033 27,659 28,767 47,577 63,048 87,500 110,000 Funded R&D and other revenue 6,121 6,230 4,990 8,995 7,542 7,500 7,500 Total Revenue$ 35,154 $ 33,889 $ 33,757 $ 56,571 $ 70,590 $ 95,000 $ 117,500 Cost of product revenue 24,394 26,214 27,823 44,876 53,428 61,500 68,500 Funded R&D and other revenue expense 5,350 5,776 4,041 6,727 5,978 6,000 6,000 Total Cost of Revenue 29,744 31,990 31,865 51,603 59,406 67,500 74,500 Gross Profit $ 5,410 $ 1,899 $ 1,892 $ 4,968 $ 11,184 $ 27,500 $ 43,000 Operating expense Unfunded R&D expense 47 728 2,000 3,159 5,641 5,000 5,000 Selling, general and administrative expense 9,643 10,768 13,008 12,404 17,442 18,000 19,250 Amortization of intangibles 448 447 431 351 315 325 325 Gains on sale of assets held for sale - (1,761) 399 - - - - Write-off of impaired long-lived assets - 1,190 - - - - - Restructuring costs (256) - 1,419 82 1,369 500 - Total Operating Expense$ 9,882 $ 11,372 $ 17,257 $ 15,996 $ 24,766 $ 23,825 $ 24,575 Operating Profit (Loss)$ (4,472) $ (9,473) $ (15,365) $ (11,027) $ (13,583) $ 3,675 $ 18,425 Change in fair value of convertible notes and warrants (111) (30) (4,192) (2,252) (1,322) - - Other income (loss), net (19) (101) 41 (977) (133) (200) (200) Interest income 12 87 384 280 281 250 250 Interest Expense (6,879) (603) (1,445) (3,790) (318) (500) (650) Net Profit (Loss) from continued operations$ 2,518 $ (10,121) $ (20,576) $ (17,766) $ (15,075) $ 3,225 $ 17,825

Loss from discountiuned operations (256) (990) - - Gain on sale of discountinued operations - 327 - - Net Profit (Loss)$ 2,518 $ (10,121) $ (20,576) $ (18,022) $ (15,738) $ 3,225 $ 17,825 Accretion on Series C preferred stock to redemption value - - - (185) (2,787) (2,750) (2,750) Dividend on Series C preferred stock - - - (100) (1,240) (1,250) (1,250) Deemed dividend on Series C preferred stock - - - (11,763) (126) (250) (250) Net Profit (Loss) Attributable to Common Stockholders$ 2,518 $ (10,121) $ (20,576) $ (30,070) $ (19,891) $ (1,025) $ 13,575 Shares fully diluted 28,044 35,210 39,290 45,434 50,362 54,000 56,500 EPS - fully diluted$ 0.09 $ (0.29) $ (0.52) $ (0.66) $ (0.39) $ (0.02) $ 0.24 Depreciation and amortization 1,912 1,761 1,446 1,553 998 500 600 Stock-based compensation - 4 986 1,112 2,538 2,750 2,750 Cash Earnings (Loss)$ 4,622 $ (7,910) $ (16,294) $ (14,924) $ (10,518) $ 7,300 $ 21,500 Cash Earnings (Loss) Per Share$ 0.16 $ (0.22) $ (0.41) $ (0.33) $ (0.21) $ 0.14 $ 0.38 % of TOTAL REVENUE Gross Profit 15.4% 5.6% 5.6% 8.8% 15.8% 28.9% 36.6% Total R&D expense 15.4% 19.2% 17.9% 17.5% 16.5% 11.6% 9.4% Selling, general and administrative expense 27.4% 31.8% 38.5% 21.9% 24.7% 18.9% 16.4% Amortization of intangibles 1.3% 1.3% 1.3% 0.6% 0.4% 0.3% 0.3% Total Operating Expense 28.1% 33.6% 51.1% 28.3% 35.1% 25.1% 20.9% Operating Profit (Loss) -12.7% -28.0% -45.5% -19.5% -19.2% 3.9% 15.7% Net Profit (Loss) from continued operations 7.2% -29.9% -61.0% -31.4% -21.4% 3.4% 15.2% Net Profit (Loss) Attributable to Common Stockholders 7.2% -29.9% -61.0% -53.2% -28.2% -1.1% 11.6% Cash Earnings (Loss) 13.1% -23.3% -48.3% -26.4% -14.9% 7.7% 18.3% % YEAR OVER YEAR INCREASE Total Revenue NA -3.6% -0.4% 67.6% 24.8% 34.6% 23.7% Gross Profit NA -64.9% -0.4% 162.6% 125.1% 145.9% 56.4% Total Operating Expense NA 15.1% 51.7% -7.3% 54.8% -3.8% 3.1% Operating Profit (Loss) NA 111.8% -62.2% 28.2% -23.2% 127.1% -401.4% Net Profit (Loss) from continued operations NA 502.0% -103.3% 13.7% 15.1% 121.4% -452.7% Net Profit (Loss) Attributable to Common Stockholders NA -502.0% -103.3% -46.1% 33.9% 94.8% 1424.4% Cash Earnings (Loss) NA -271.1% -106.0% 8.4% 29.5% 169.4% -194.5%

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QUARTERLY INCOME STATEMENT QUARTERLY INCOME STATEMENT (000's) CY Ending 2006 CY Ending 2007 CY Ending 2008 3/30/2006 6/30/2006 9/30/2006 12/31/2006 3/30/2007 6/30/2007 9/30/2007 12/31/2007 3/30/2008 6/30/2008 9/30/2008E 12/31/2008E Product revenue 6,661 6,853 7,232 8,021 6,533 9,919 18,266 12,858 13,702 13,130 17,215 19,000 Funded R&D and other revenue 946 1,250 1,259 1,534 1,785 1,775 2,725 2,710 1,184 3,807 1,301 1,250 Total Revenue$ 7,607 $ 8,103 $ 8,491 $ 9,555 $ 8,318 $ 11,694 $ 20,991 $ 15,568 $ 14,886 $ 16,938 $ 18,516 $ 20,250 Cost of product revenue 5,845 6,676 7,264 8,039 6,370 10,045 16,149 12,312 12,648 12,410 13,869 14,500 Funded R&D and other revenue expense 978 1,100 1,124 839 1,357 1,312 1,990 2,069 1,016 2,667 1,146 1,150 Total Cost of Revenue 6,823 7,776 8,387 8,878 7,727 11,357 18,138 14,380 13,664 15,077 15,015 15,650 Gross Profit $ 784 $ 327 $ 104 $ 677 $ 590 $ 337 $ 2,853 $ 1,188 $ 1,222 $ 1,861 $ 3,501 $ 4,600 Operating expense Unfunded R&D expense 560 513 522 405 677 646 848 988 998 1,251 1,642 1,750 Selling, general and administrative expense 3,359 3,394 2,899 3,356 2,742 3,114 3,058 3,490 3,155 5,452 4,585 4,250 Amortization of intangibles 112 112 98 110 110 84 79 79 79 79 79 79 Gains on sale of assets held for sale - (190) (209) 798 ------Write-off of impaired long-lived assets ------Restructuring costs - - 262 1,157 82 - - - - 607 512 250 Total Operating Expense$ 4,031 $ 3,828 $ 3,571 $ 5,826 $ 3,611 $ 3,843 $ 3,985 $ 4,557 $ 4,232 $ 7,387 $ 6,818 $ 6,329 Operating Profit (Loss)$ (3,247) $ (3,501) $ (3,467) $ (5,149) $ (3,021) $ (3,506) $ (1,132) $ (3,369) $ (3,010) $ (5,527) $ (3,317) $ (1,729) Change in fair value of convertible notes and warrants - - (3,573) (619) 235 385 (1,008) (1,864) (467) (2,397) 2,042 (500) Other income (loss), net 21 43 (21) (1) (41) (25) (64) (847) 54 (65) (57) (65) Interest income 95 57 122 110 86 37 57 101 69 71 56 85 Interest expense (103) (86) (643) (613) (645) (626) (496) (2,023) (47) (99) (98) (75) Net Profit (Loss) from continued operations$ (3,234) $ (3,486) $ (7,583) $ (6,273) $ (3,385) $ (3,736) $ (2,644) $ (8,001) $ (3,401) $ (8,016) $ (1,374) $ (2,284)

Loss from discountiuned operations ------(256) - - - (990) - Gain on sale of discountinued operations 327 Net Profit (Loss)$ (3,234) $ (3,486) $ (7,583) $ (6,273) $ (3,385) $ (3,736) $ (2,900) $ (8,001) $ (3,401) $ (8,016) $ (2,037) $ (2,284) Accretion on Series C preferred stock to redemption value ------(185) (638) (679) (745) (725) Dividend on Series C preferred stock ------(100) (304) (311) (310) (315) Deemed dividend on Series C preferred stock ------(11,763) - (116) (10) - Net Profit (Loss) Attributable to Common Stockholders$ (3,234) $ (3,486) $ (7,583) $ (6,273) $ (3,385) $ (3,736) $ (2,900) $ (20,049) $ (4,343) $ (9,121) $ (3,102) $ (3,324) Shares fully diluted 38,524 39,115 39,519 40,002 41,395 42,869 47,841 49,629 49,935 50,415 50,500 50,600 EPS - fully diluted$ (0.08) $ (0.09) $ (0.19) $ (0.16) $ (0.08) $ (0.09) $ (0.06) $ (0.40) $ (0.09) $ (0.18) $ (0.06) $ (0.07) Depreciation and amortization 365 396 538 146 360 470 335 389 396 381 102 120 Stock -based compensation 235 455 132 165 120 217 312 463 146 764 878 750 Cash Earnings (Loss)$ (2,522) $ (2,524) $ (6,553) $ (4,695) $ (2,715) $ (2,965) $ (2,175) $ (7,070) $ (2,781) $ (6,186) $ (466) $ (1,085) Cash Earnings (Loss) Per Share$ (0.07) $ (0.06) $ (0.17) $ (0.12) $ (0.07) $ (0.07) $ (0.05) $ (0.14) $ (0.06) $ (0.12) $ (0.01) $ (0.02) % of TOTAL REVENUE Gross Profit 10.3% 4.0% 1.2% 7.1% 7.1% 2.9% 13.6% 7.6% 8.2% 11.0% 18.9% 22.7% Total R&D expense 20.2% 19.9% 19.4% 13.0% 24.5% 16.7% 13.5% 19.6% 13.5% 23.1% 15.1% 14.3% Selling, general and administrative expense 44.2% 41.9% 34.1% 35.1% 33.0% 26.6% 14.6% 22.4% 21.2% 32.2% 24.8% 21.0% Amortization of intangibles 1.5% 1.4% 1.2% 1.1% 1.3% 0.7% 0.4% 0.5% 0.5% 0.5% 0.4% 0.4% Total Operating Expense 53.0% 47.2% 42.1% 61.0% 43.4% 32.9% 19.0% 29.3% 28.4% 43.6% 36.8% 31.3% Operating Profit (Loss) -42.7% -43.2% -40.8% -53.9% -36.3% -30.0% -5.4% -21.6% -20.2% -32.6% -17.9% -8.5% Net Profit (Loss) from continued operations -42.5% -43.0% -89.3% -65.6% -40.7% -31.9% -12.6% -51.4% -22.8% -47.3% -7.4% -11.3% Net Profit (Loss) Attributable to Common Stockholders -42.5% -43.0% -89.3% -65.6% -40.7% -31.9% -13.8% -128.8% -29.2% -53.9% -16.8% -16.4% Cash Earnings (Loss) -33.2% -31.1% -77.2% -49.1% -32.6% -25.4% -10.4% -45.4% -18.7% -36.5% -2.5% -5.4% % YEAR OVER YEAR INCREASE Total Revenue -8.1% -0.7% -17.9% 34.3% 9.3% 44.3% 147.2% 62.9% 79.0% 44.8% -11.8% 30.1% Gross Profit -9.0% -57.5% 63.3% 231.7% -24.7% 3.0% 2643.1% 75.4% 106.9% 451.9% 22.7% 287.3% Total Operating Expense 34.3% 28.5% -10.1% 311.2% -10.4% 0.4% 11.6% -21.8% 17.2% 92.2% 71.1% 38.9% Operating Profit (Loss) -51.7% -58.4% 11.3% -324.5% 7.0% -0.1% 67.4% 34.6% 0.3% -57.6% -193.1% 48.7% Net Profit (Loss) from continued operations -36.7% -53.3% -81.7% -379.7% -4.7% -7.1% 65.1% -27.6% -0.5% -114.6% 48.0% 71.5% Net Profit (Loss) Attributable to Common Stockholders -36.7% -53.3% -81.7% -379.7% -4.7% -7.1% 61.8% -219.6% -28.3% -144.2% -7.0% 83.4% Cash Earnings (Loss) -42.5% -48.0% -82.8% -472.9% -7.6% -17.5% 66.8% -50.6% -2.4% -108.6% 78.6% -84.7% % SEQUENTIAL INCREASE Total Revenue 6.9% 6.5% 4.8% 12.5% -13.0% 40.6% 79.5% -25.8% -4.4% 13.8% 9.3% 9.4% Gross Profit 283.9% -58.2% -68.2% 551.2% -12.8% -42.9% 746.2% -58.4% 2.9% 52.3% 88.2% 31.4% Total Operating Expense 184.5% -5.0% -6.7% 63.1% -38.0% 6.4% 3.7% 14.4% -7.1% 74.6% -7.7% -7.2% Operating Profit (Loss) -167.8% -7.8% 1.0% -48.5% 41.3% -16.1% 67.7% -197.6% 10.6% -83.6% 40.0% 47.9% Net Profit (Loss) from continued operations 147.3% -7.8% -117.5% 17.3% 46.0% -10.3% 29.2% -202.6% 57.5% -135.7% 82.9% -66.2% Net Profit (Loss) Attributable to Common Stockholders -147.3% -7.8% -117.5% 17.3% 46.0% -10.3% 22.4% -591.4% 78.3% -110.0% 66.0% -7.2% Cash Earnings (Loss) -207.8% -0.1% -159.7% 28.4% 42.2% -9.2% 26.7% -225.1% -60.7% -122.4% 92.5% -132.8%

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BALANCE SHEET BALANCE SHEET (000's) CY 2006 CY 2007 CY 2008 3/31/2006 6/30/2006 9/30/2006 12/30/2006 3/30/2007 6/30/2007 9/30/2007 12/30/2007 3/30/2008 6/30/2008 9/30/2008 ASSETS Current Assets: Cash and cash equivalents 6,806 3,324 9,957 7,191 4,543 1,834 3,505 12,616 11,701 9,769 10,445 Restricted cash and cash equivalents 84 84 84 84 84 84 84 84 84 84 84 Accounts receivable, net 5,255 6,076 6,416 8,550 6,904 9,241 9,313 10,462 10,090 10,253 9,518 Unbilled contract costs and fees 132 215 266 267 262 312 213 537 621 494 561 Inventory 6,442 7,005 7,113 7,946 11,177 14,397 13,961 17,190 20,476 20,865 16,288 Prepaid expenses and other current assets 766 666 420 757 2,068 3,394 2,061 1,073 1,083 963 1,168 Total current assets$ 19,484 $ 17,370 $ 24,255 $ 24,795 $ 25,038 $ 29,261 $ 29,137 $ 41,962 $ 44,054 $ 42,429 $ 38,064

Property and equipment, net 3,228 3,080 2,838 2,784 2,726 2,891 2,923 3,060 2,948 2,979 2,275 Goodwill 704 704 704 704 704 704 704 704 704 704 123 Intangibles, net 1,605 1,474 1,357 1,224 1,095 991 892 794 695 597 498 Restricted cash - - - 1,000 1,000 1,000 1,000 - - - - Other long-term assets 567 309 124 70 71 71 71 89 71 57 2 Total assets$ 25,589 $ 22,938 $ 29,279 $ 30,577 $ 30,634 $ 34,919 $ 34,728 $ 46,609 $ 48,473 $ 46,766 $ 40,962

LIABILITIES AND STOCKHOLDERS' EQUITY Bank line of credit 2,000 2,000 ------3,000 3,000 3,000 Current portion of long-term debt 158 161 157 123 83 42 - - - - - Accounts payable 3,251 3,396 3,710 4,539 5,692 6,820 8,513 9,153 6,871 6,113 8,071 Accrued payroll and payroll related expenses 1,622 1,556 1,747 1,449 1,589 1,616 1,901 1,881 2,306 1,850 2,511 Other accrued expenses 1,718 1,815 2,120 2,405 1,683 3,157 3,714 3,454 3,304 3,784 3,287 Accrued contract losses 85 85 85 - - - - 1,300 1,361 1,369 1,339 Accrued restructuring costs - - - 1,200 - - - - - 451 936 Current portion of senior secured convertible notes - - 2,502 5,500 5,500 5,500 4,721 - - - - Current portion of warrant liability - - 256 437 402 ------Deferred revenue 2,431 2,394 2,406 5,835 8,153 13,103 6,438 8,103 12,274 14,108 9,034 Total current liabilities$ 11,266 $ 11,407 $ 12,983 $ 21,488 $ 23,102 $ 30,238 $ 25,287 $ 23,891 $ 29,115 $ 30,675 $ 28,178

Warrant liability - - 2,472 2,484 2,737 2,542 3,471 3,244 3,140 5,536 3,494 Long-term senior secured convertible notes, net of current portion 76 35 9,515 7,240 6,083 4,259 2,954 - - - - Reedemable Series B preferred stock 2,125 1,725 1,725 1,725 1,725 1,725 1,725 1,700 1,700 1,700 1,450 Other long-term liabilities 333 111 109 108 107 106 105 134 166 195 59 Total liabilities 13,800 13,278 26,804 33,045 33,754 38,871 33,542 28,969 34,121 38,106 33,181

Reedemable Series C preferred stock ------13,276 14,218 15,092 16,137 Stockholders' Equity: Common stock 386 394 395 401 421 440 489 498 500 509 511 Additional paid-in capital 154,005 155,266 155,683 156,379 159,061 161,572 169,186 180,933 180,379 181,986 182,153 Accumulated deficit (142,448) (145,934) (153,517) (158,992) (162,377) (166,113) (168,757) (176,758) (180,159) (188,174) (190,096) Accumulated other comprehensive loss (155) (66) (86) (256) (225) 150 268 (310) (586) (752) (924) Total stockholders' equity$ 11,788 $ 9,660 $ 2,475 $ (2,468) $ (3,120) $ (3,952) $ 1,186 $ 4,363 $ 134 $ (6,432) $ (8,356) Total Liabilities and Stockholders' Equity$ 25,589 $ 22,938 $ 29,279 $ 30,577 $ 30,634 $ 34,919 $ 34,728 $ 46,609 $ 48,473 $ 46,766 $ 40,962

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RESEARCH INITIATION Peter Conley 310-526-5025 UQM TECHNOLOGIES, INC. [email protected] (UQM: $2.19) Jon Hickman 310-526-5024 [email protected]

RECOMMENDATION: NEUTRAL EV and HEV Propulsion System JVs PRICE TARGET: $2.00 Are Primary Revenue Drivers INDUSTRY: INDUSTRIAL GOODS

INDUSTRIAL ELECTRICAL SECTOR: EQUIPMENT INVESTMENT HIGHLIGHTS

UQM Technologies provides electric motors, generators and electronic COMPANY STATISTICS controllers for battery electric, hybrid electric, plug-in hybrid electric and 52-wk range $1.19 – $3.87 fuel cell electric vehicles. The company employs proprietary brushless, Avg. Daily Vol. (000s) 81.5 permanent magnet technology in its motors allowing for a more energy efficient and lower cost system. In FY08 the company shipped more than Market Capitalization (mil) $58.34 32,000 motors compared to 23,000 shipped in 2007. Total revenues for

fiscal 2008 (ended March) grew 13% to $7.5 million led by higher levels EARNINGS SUMMARY of product sales revenue, which grew 31% over the previous year. We FYE Mar 2007A 2008A 2009E 2010E anticipate that product revenues and earnings growth is likely to P/SALES 8.2x 7.5x 5.3x 2.6x accelerate driven by: P/E NM NM NM 53x SALES: Q1 1.3 1.4 1.8A 4.1 ƒ the rising demand for alternative vehicles to meet the challenges of Q2 1.6 2.0 2.2A 5.1 rising fuel costs and rising carbon emissions; Q3 1.7 1.7 3.3 6.1 Q4 2.0 2.3 3.6 7.7 ƒ the company’s impressive motor and controller technology; Total 6.7 7.5 11.0 23.1 ƒ the growing number of announced and as yet unnamed partnerships CASH EPS: Q1 (0.02) (0.04) (0.03) (0.01) with tier 1 transportation companies and OEMs; Q2 (0.02) (0.03) (0.03) 0.01 Q3 (0.02) (0.03) (0.03) 0.03 ƒ the potential of a significant contract with Chrysler’s new electric Q4 (0.02) (0.02) (0.03) 0.06 vehicles to be sold in 2010 that appear to be using UQM electric Total: (0.08) (0.11) (0.12) 0.10 drive components; and

ƒ the company is already approaching cash flow positive operations SHARE PRICE PERFORMANCE and boasts a strong financial position with nearly $10 million in cash on the balance sheet. Given the expected growth in the market and the company’s impressive product portfolio, we estimate significant revenue growth in the coming years. For fiscal 2010 we are conservatively estimating revenues of $23 million and non-GAAP cash earnings of $0.10 per share. This estimate assumes that the company lands at least one major contract with commercial shipments beginning towards the end of 2010. As such we feel a fair current value for the shares is $2.00 and are initiating coverage of UQM with a Neutral rating.

PLEASE READ THE DISCLOSURES ON PAGE 230 FOR IMPORTANT REQUIRED INFORMATION INCLUDING RISKS AND ANALYST CERTIFICATION.

MDB Capital Group LLC • 401 Wilshire Blvd, Suite 1020 • Santa Monica, CA 90401 • 310-526-5000 • www.mdb.com 178

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INVESTMENT SUMMARY UQM Technologies produces and develops high efficiency power dense electric power systems for varying degrees of electrification including battery electric, hybrid electric, plug-in hybrid electric and fuel cell electric vehicles. The company operates in two business segments: a technology segment responsible for research and development and the sale of prototype and evaluation systems, and a power products segment that manufactures and sells the permanent magnet electric motors, generators, and power electronic controllers that incorporate the company’s proprietary technology.

In the past, UQM has earned a significant portion of revenues from contract research and development services for customers including General Motors, the U.S. government, and other OEM suppliers. However, as market demand for alternative energy vehicles rises driven by the high cost of fuel, concerns for global warming, stronger government mandates and greater competition, manufacturers in each of the company’s target markets are more incented to produce electric vehicles. Hybrid electric vehicles have already sold over one million units in the North American market alone since their introduction in 2000. UQM expects to take advantage of this trend and become a major manufacturer and supplier of electric motors, generators and power electronic power systems for these markets.

Recent results have been encouraging as fiscal 2008 (ended in March) revenues grew 13% to $7.5 million led by higher levels of product sales revenue. Product sales jumped 31% over the previous year. In fiscal 2008 the company shipped more than 32,000 motors, up from 23,000 in fiscal 2007. We estimate product sales revenue is likely to continue to increase and generate more than 75% of total revenue in 2010. This growth is anticipated to be driven by recent key developments including the announcement in the 2nd half of fiscal 2008 by three separate companies (International Truck and Engine Corporation, Peterbilt Motors Company, and Freightliner Trucks) of plans to produce hybrid electric medium duty trucks powered by Eaton Corporation’s hybrid electric systems, which use DC- to-DC converters manufactured by UQM. This business should contribute to expanding product sales in fiscal 2009 and beyond. The company also announced it has development programs with three automakers and five smaller entrepreneurial vehicle developers on products for their electric and hybrid electric vehicles.

Though still unconfirmed, UQM could be supplying the electric drive components for at least one of Chrysler’s new electric vehicles. At a recent showcasing Chrysler presented three prototypes – an all-electric Dodge sports car and two range-extended electrics, a Jeep Wrangler and a Chrysler Town & Country. The company announced it will select one of the prototypes for production and sale to the North American market in 2010. Photos of the Dodge sports car (taken from greencar.com) show use of a UQM 268 hp electric drive motor and controllers.

Given these developments the company is investing to enhance its manufacturing capabilities and plans to increase volume production significantly during the next couple of years. Though the company is currently unprofitable, we believe that with decades of experience, a strong technology base and a comprehensive line of advanced highly efficient power-dense electric motors, generators and controllers, UQM is well

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prepared to take advantage of the rising demand for electric vehicles around the world and become a main supplier of electric propulsion systems and under-the-hood auxiliaries for these markets.

COMPANY BACKGROUND The company was founded in 1967 initially as a manufacturer of fiberglass parts for aircraft and kit automobiles. UQM Technologies, then known as Unique Mobility (hence UQM), made dune buggies in the early 1970s and then shifted its focus to building an all-composite, environmentally friendly, battery-powered electric passenger automobile called the “Electrek” in the late 1970s and early 1980s. The development of the Electrek resulted in UQM’s current patented core magnet motor technology and the development of numerous product extensions such as electronic controls, packaging of an electro-mechanical brake inside of a motor, and a low cost method for accurately sensing rotor position. Today, UQM technologies is a world recognized technology leader in the development and manufacture of power dense, high efficiency electric motors, generators and electronic controllers for the automotive, aerospace, medical, military and industrial markets. A particular focus is the development and manufacture of highly efficient electric propulsions systems for vehicles with varied degrees of electrification such as hybrid electric vehicles (including parallel, series and plug-in hybrids) and electric battery and fuel cell vehicles.

Apart from product sales, UQM derives revenue from funded contract research and development services performed for strategic partners, customers (see chart at the left), and the U.S. government. Contract R&D activities serve to either advance the company’s own proprietary technology portfolio or to apply these technologies to customers' products.

During the past year, UQM has made significant investments in its manufacturing capabilities to support a number of anticipated product programs (automotive, truck, bus, off-road, and military vehicles) and has shipped more than 32,000 motors, up 40% year-over-year. The majority of these were vehicle auxiliary actuator motors15 sold to Lippert Components Inc., for use in conventional gas-powered vehicles. During the fiscal first quarter of 2009 (ended June of 2008) UQM received vehicle-propulsion system orders totaling $2.62 million for propulsion motors, generators, and power electronic controllers to drive electric and hybrid electric on-road vehicles. The company began deliveries of these orders in Q1 FY2009 and will continue deliveries through December 2008. These orders are more than double the comparable orders received during the first quarter in the previous fiscal year and exceed the sales value of like hardware for all of fiscal 2008. Total revenue for Q1 FY2009 rose 23%, driven by double digit growth in both contract services revenue and product sales versus the same quarter a year ago. Other currently available commercial products adding to the growth in revenues include a direct-drive propulsion motor used in Invacare’s electric wheelchairs, a fan blower motor and compressor drive motor used in Keith Products’ aircraft air conditioning systems, and an electric brake actuation motor used in select Club Car’s golf carts.

15 These motors incorporate a rotary actuator, an electro-mechanical device that takes energy and converts it into a controlled rotary motion force, to electrically power vehicle auxiliaries such as power steering systems, cooling pumps, cooling fans, electric oil pumps, and other under-the-hood accessories more efficiently than the typical engine belts, pulleys and gears that connect directly to the engine and represent a significant load.

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UQM is headquartered in Frederick, Colorado with two operating companies, UQM Technologies, Inc. which includes the corporate headquarters & engineering and product development center; and the wholly-owned subsidiary UQM Power Products, Inc. ("UQM Power"), which acts as the company’s manufacturing arm.

PRODUCT SUITE OVERVIEW In a conventional internal combustion engine, 60-75% of the fuel power is lost as waste heat leaving only 25-40% as usable energy. In contrast UQM’s electric propulsion motors are 80-95% efficient with only 5-20% of electric power lost as waste heat. The company’s line of high performance and low-cost electric power systems, including motors, generators and electronic controllers for battery electric, hybrid electric, and fuel-cell electric vehicles are able to greatly improve fuel efficiency and reduce carbon emissions. The image at the left details the UQM motor (round silver object) and the controller (the black box) positioned in an electric vehicle. In addition, the current belt-driven, under-the-hood components (water pump, power steering, HVAC, cooling fans, etc.) in most conventional vehicles perform very inefficiently as they are directly connected to the engine and there is no way to independently vary the speed or modulate the power use. Using UQM’s line of electric actuators, generators, fan motors, and compressor motors to electrify these auxiliaries can provide added fuel economy of roughly 7-15%.

The company’s operations are divided into two primary business segments: Technology and Power Products. Both business segments are described below.

TECHNOLOGY The Technology segment conducts research and engineering activities directed towards the development of new motors, generators, and power electronics; the integration of these products into a specific customers' systems. The Technology group supports the Power Products segment by customizing the basic products for use in volume manufacturing or off-the-shelf use. Examples of current technology development programs include a contract with the U.S. Air Force for silicon carbide power electronics, with the U.S. Army for high torque electric wheel motors, with the U.S. Navy for advanced shipboard electric motors and with the U.S. Department of Energy and California Energy Commission for a distributed electric power grid-connect interface system. The company also has application and demonstration programs with rock legend Neil Young on his Linc Volt series hybrid electric vehicle, and a contract with Boeing on the world’s first manned flight of a fuel cell powered airplane.

Additionally, this business segment performs low volume manufacture of selected motors, generators, and power electronic controllers. For the past several years the company has consistently generated about $2 million per quarter in revenues from its contracted research activities and anticipates this level of business in the future.

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POWER PRODUCTS The Power Products segment manufactures and sells motors, generators, power electronic controllers, and related products for electric, hybrid electric, and fuel cell electric vehicles. These products are designed for vehicles ranging from passenger automobiles to trucks, buses, and military vehicles. UQM offers products in three separate categories; Electric Propulsion Systems, Power Electronics and Auxiliary Systems.

Electric Propulsion Systems (Motors) Using proprietary hardware technology with software code, UQM has developed and manufactures two basic models of brushless permanent magnet DC motors along with the necessary intelligent controls. These models include a 90 lb (50kw to 125kw) version and a larger 200lb (100kw to 150kw) version.

In UQM’s brushless DC motor the stator (left figure) or stationary part of the motor contains the armature. The armature contains three phase16 conductive coil windings (usually made of copper) that convert electrical power into mechanical torque17. In the UQM design the armature employs a high pole count configuration and dense copper fill for a more efficient use of copper which minimizes both energy loss and total cost. The hollow rotor (pictured to the right) or rotating part of the motor is mounted with rare earth permanent magnets (made of NdFeB18) on its outer circumference to create a magnetic field that interacts with the armature. Microprocessor-based electronic controllers manage the transfer of the electrical current between the magnets and the armature coil to produce rotational mechanical motion. This technology is referred to as “brushless electronic commutation”19 and allows for high operating efficiencies and low mechanical energy loss. This process can also produce electrical power with the unit operating as a generator (UQM machines can actually operate as both a motor and a generator by dynamically changing from one mode to the other with a millisecond response time).

UQM electronic controllers operate at up to 500 amps at 400 volts, have the ability to store DC charge (direct current bus capacitance), have a forward/reverse and motoring/generation control, user-configurable functionality that provides the ability to switch between torque, speed and voltage control dynamically under any operating condition. The UQM embedded digital signal processing (DSP) software is the intelligence that coordinates the interaction between the motor and the controller. One aspect of the software is a patented method of control referred to as Phase Timing Advancement that enables UQM motors to deliver both high output torque at low operating speeds and high power at cruising speeds. UQM motors incorporating this phase advance technology are able to power the vehicle from a standing stop to highway speeds without mechanical gear changes, thereby eliminating the size, weight, complexity, and cost of mechanical transmissions.

16 Three phase refers to the three cyclic electrical power sources or conductors in a high voltage system which allows available power to be constant at all times. 17 Torque is the measure of the force applied to rotate an object about an axis. 18 NdFeB or neodymium-iron-boron offers the best value when comparing performance, size and cost. These magnets are moderate in price, extremely strong, and typically allow for smaller dimensions. 19 Brushless motors rely on semiconductor switches to turn stator armature windings on and off at the appropriate time. This electronic commutation switches or transfers current from winding to winding, forcing the rotor to turn.

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In fiscal 2008, UQM shipped electric and hybrid electric propulsion systems to three as yet unnamed international automobile companies for use in their passenger automobile development programs. UQM also sold systems to five smaller vehicle developers, including Quantum Technologies, for their hybrid electric vehicle development programs. Most recently, the company announced that the new eRUF all electric sports car (shown below) produced by RUF Automobile GmbH is being powered by a UQM PowerPhase 150 electric propulsion system that produces a maximum 650 Nm of torque

UQM is also supplying generators, motor controllers and propulsion systems for hybrid electric shuttle buses and vehicle auxiliary actuator motors for conventional recreational vehicles. The company has sold prototype systems to the Denver Regional Transportation District, the Flint Michigan Mass Transportation Authority, Traction Technology Plc and Mobile Energy Solutions for their hybrid electric bus development programs. The company most recently announced in October it will provide its 150 kW permanent magnet propulsion motor (the PowerPhase 150 introduced in late 2007) to power Proterra’s hydrogen fuel cell hybrid-electric transit buses, which will go into service in early 2009 in a Federal Transit Authority (FTA)-sponsored nationwide trial starting in Columbia, South Carolina.

Power Electronics The second product line includes high power DC-to-DC converters and DC- to-AC inverters primarily for large trucks. The DC-to-DC converters allow for the high voltage from the batteries to be stepped down to 12 volts so as to power the vehicle’s many auxiliaries such as the A/C system. Eaton Corporation is using the company’s converters for medium and heavy-duty hybrid trucks.

The DC-to-AC inverters allow for the high voltage from the battery pack to be stepped down to normal 110v power. These inverters provide the ability to power consumer appliances such as TVs, microwave ovens, and laptop computers in trucks and recreational vehicles. UQM is developing DC-to-DC converters and DC-to-AC inverters for military vehicles and for distributed power renewable energy applications.

Auxiliary Systems The company also manufactures small motors (primarily as actuators) for the purpose of powering the auxiliary systems (A/C and water pumps etc.) in conventional and electric vehicles. These motors are currently used for electric brakes, wheelchairs, golf carts, fork trucks, riding lawn mowers, and snowmobiles. The image above details some of the components needed to electrify a truck (conventional or electric). UQM is rapidly developing its reputation as a quality supplier of these types of products. The company recently announced a new production order for auxiliary actuator motors from a supplier to Club Car Inc. for use on Club Car golf carts.

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COMPETITION UQM Technologies competes with a variety of auto parts manufacturing companies, primarily those that develop and manufacture electric propulsion products. Additionally, the market for the company’s technology segment is currently characterized by rapid change due to technological advances that may render existing technologies and products obsolete. Within this segment UQM competes with Honda, Toyota, General Motors, Daimler, Hitachi, Toshiba, Delphi, Danaher, Enova Systems, and United Technologies Corp.

The company’s power products segment competes primarily in the automotive, heavy equipment, military, aerospace and medical products industries. Principal competitors include: Allied Motion, Emerson Electric, General Electric, Moog, Rockwell International, Baldor, Hitachi, Hyundai, Toshiba, Delphi, Danaher, United Technologies, L-3 Communications, and Enova Systems.

FINANCIALS UQM Technologies, Inc. posted total revenues of $2.3 mm for the second quarter of its current fiscal year, FY2009, which were up 31% compared to $1.7 mm during the same quarter a year ago and up 14% sequentially. Contract service revenues of $586,000 for the quarter were down somewhat, but the product revenues were up nicely to $1.7 million from the $1.4 mm posted in the previous quarter.

Gross margins for the second quarter was up to 18.2% up from 9% in the same quarter a year ago. The gross margin on product sales climbed to 21% which is a marked increase from prior periods. The year-over-year increase was attributable to improved to increase volumes and better manufacturing efficiencies.

Operating expenses increased to $3.7 million, up from 2.9 million in the previous quarter. The primary increases came from engineering and sales and marketing expenses. On the bottom-line, 2nd quarter GAAP net loss was $1.5 million or $0.06.

At the end of the September quarter, the company had $7.2 mm in cash, cash equivalents and short- term investments.

VALUATION With the rising demand for alternative fuel vehicles, the potential for UQM’s product line of motors, controllers, and inverters is, we believe, significant. The company appears on the verge of landing meaningful contracts with major automobile companies. In addition the company is working with OEMs and even departments with the U.S. government. With this background we estimate that revenues in 2010 could approach $23 million and non-GAAP cash earnings per share could total $0.10. As such, we feel a fair valuation for the expected growth would be 25 times the 2010 earnings per share discounted back to the present at 30%. This calculation equates to a fair value of roughly $2.00 per share. As the current share price is slightly above the $2.00 level, we are initiating coverage with a Neutral rating.

INVESTMENT RISKS Our expectations for UQM’s success are subject to certain risks some of which are included below:

ƒ The company engages in a very competitive motor development market place.

ƒ The company has limited cash liquidity and will most likely require additional capital in order to achieve profitability.

ƒ The company’s patent library could be subject to infringement litigation that could be costly and also jeopardize its product and operating strategy.

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ƒ The company needs to develop and achieve market acceptance for its products in order to achieve growth.

MANAGEMENT TEAM RANKIN, WILLIAM, 64, CHAIRMAN OF THE BOARD, PRESIDENT, CHIEF EXECUTIVE OFFICER Mr. Rankin has served as Chairman of the Board of Directors since February 2000, Chief Executive Officer since August 1999 and President and Chief Operating Officer since January 1996. Mr. Rankin served as Executive Vice President-Operations from 1992 through 1995 and has been a member of the Board of Directors since 1994. He joined the Company in 1992.

BURTON, RONALD, 54, SENIOR VICE PRESIDENT - OPERATIONS Mr. Burton has served as Senior Vice President of Operations since September, 2007. Mr. Burton served as Vice President of Operations from March 2004 through September 2007. From 2001 to 2004 Mr. Burton was employed by Stature Electric, Inc., a motor manufacturing company, as Vice President of Sales and Engineering. From 1989 to 2001, Mr. Burton was employed by Globe Motors, a motor manufacturing company, where he served as Director of Engineering and Operations since 1993, and prior to that as Director of Engineering.

FRENCH, DONALD, 52, CHIEF FINANCIAL OFFICER, SECRETARY, TREASURER Mr. French has served as Treasurer, Secretary and Chief Financial Officer since he joined the Company in 1987. Mr. French also served as Controller from 1987 through 1998.

LUTZ, JON, 39, VICE PRESIDENT - TECHNOLOGY Mr. Lutz was appointed Vice President of Technology in September, 2007. From 2000 to 2007, Mr. Lutz served as Director of Engineering and prior to that as Motor Group Manager and Motor Magnetics Design Engineer. Mr. Lutz joined the Company in February 1993.

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ANNUAL INCOME STATEMENT ANNUAL INCOME STATEMENTS (000's) Fiscal Years 2006 2007 2008 2009E 2010E Revenue Contract services 2,502 2,908 2,592 2,447 2,650 Product Sales 1,820 3,746 4,916 8,581 20,500 Total revenue$ 4,323 $ 6,653 $ 7,508 $ 11,028 $ 23,150 Operating costs & expenses Costs of contract services 2,472 2,666 2,039 2,213 2,425 Costs of product sales 1,671 3,324 4,392 6,484 11,525 Research & development 242 321 462 532 610 Production engineering 784 1,287 1,707 1,893 1,900 Selling, general, & administrative 2,191 2,855 3,905 4,830 5,800 Loss (gain) on sale of property & equipment 3 1 (2) - - Total Cost & Expenses$ 7,362 $ 10,454 $ 12,504 $ 15,952 $ 22,260 Operating Income (loss) (3,040) (3,801) (4,995) (4,924) 890 Other income (expense) Interest income 345 446 463 292 292 Interest expense (63) (47) (41) (36) (35) Impairment of investment - (89) Other 1 - - 2 - Loss from continuing operations$ (2,757) $ (3,403) $ (4,573) $ (4,756) $ 1,147 Income (loss) from discontinued operations (28) (29) (13) - - Net loss$ (2,785) $ (3,431) $ (4,586) $ (4,756) $ 1,147 Weighted average shares outstanding 24,284 25,116 26,196 26,742 27,500 EPS - fully diluted$ (0.11) $ (0.14) $ (0.18) $ (0.18) $ 0.04 Depreciation & Amortization 364 414 438 463 655 Non-cash equity based compensation - 998 1,175 1,111 845 Cash Earnings$ (2,421) $ (2,019) $ (2,973) $ (3,182) $ 2,647 Cash Earnings (Loss) Per Share$ (0.10) $ (0.08) $ (0.11) $ (0.12) $ 0.10 % of TOTAL REVENUE Operating costs & expenses Contract gross margin 1.2% 8.3% 21.3% 9.6% 8.5% Product gross margin 8.2% 11.3% 10.7% 24.4% 43.8% Gross margin 4.2% 10.0% 14.3% 21.1% 39.7% Research & development 5.6% 4.8% 6.2% 4.8% 2.6% Production engineering 18.1% 19.3% 22.7% 17.2% 8.2% Selling, general, & administrative 50.7% 42.9% 52.0% 43.8% 25.1% Total Cost & Expenses 170.3% 157.1% 166.5% 144.7% 96.2% Operating Income (loss) -70.3% -57.1% -66.5% -44.7% 3.8% Net loss -64.4% -51.6% -61.1% -43.1% 5.0% % YEAR OVER YEAR INCREASE Revenue NA 53.9% 12.9% 46.9% 109.9% Total Cost & Expenses NA 42.0% 19.6% 27.6% 39.5% Operating Income (loss) NA 25.0% 31.4% -1.4% -118.1% Net loss NA 23.2% 33.7% 3.7% -124.1%

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QUARTERLY INCOME STATEMENT

QUARTERLY INCOME STATEMENT (000's) FYE:March FY2007 FY2008 FY2009 FY2010 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3QE 4QE 1QE 2QE 3QE 4QE Revenue Contract services 824 679 721 683 515 581 640 856 603 586 627 630 637 650 675 688 Product Sales 477 935 1,006 1,328 940 1,409 1,075 1,493 1,190 1,691 2,700 3,000 3,500 4,500 5,500 7,000 Total revenue 1,301 1,614 1,727 2,011 1,454 1,991 1,715 2,348 1,793 2,277 3,327 3,630 4,137 5,150 6,175 7,688 Operating costs & expenses Costs of contract services 655 613 708 690 461 418 493 666 536 542 565 570 575 590 620 640 Costs of product sales 524 879 866 1,055 964 1,208 948 1,271 1,063 1,320 2,000 2,100 2,225 2,700 3,000 3,600 Research & development 95 79 111 36 98 128 127 108 102 150 140 140 150 150 150 160 Production engineering 248 233 219 587 546 403 398 360 408 485 500 500 450 450 500 500 Selling, general, & administrative 673 780 736 667 630 1,083 1,189 1,004 760 1,269 1,400 1,400 1,400 1,450 1,450 1,500 Loss (gain) on sale of property & equipment - - - 1 (4) - (7) 9 ------Total Cost & Expenses$ 2,195 $ 2,585 $ 2,639 $ 3,035 $ 2,696 $ 3,241 $ 3,148 $ 3,419 $ 2,870 $ 3,767 $ 4,605 $ 4,710 $ 4,800 $ 5,340 $ 5,720 $ 6,400 Operating Income (loss)$ (894) $ (970) $ (913) $ (1,024) $ (1,241) $ (1,250) $ (1,433) $ (1,071) $ (1,076) $ (1,490) $ (1,278) $ (1,080) $ (663) $ (190) $ 455 $ 1,288 Other income (expense) Interest income 121 118 106 101 123 121 120 99 84 49 80 78 76 74 72 70 Interest expense (12) (12) (12) (11) (11) (10) (10) (9) (9) (9) (9) (9) (9) (9) (9) (9) Impairment of investment ------(89) ------Other ------2 ------Loss from continuing operations (786) (865) (818) (934) (1,129) (1,140) (1,323) (981) (1,000) (1,538) (1,207) (1,011) (596) (125) 518 1,349 Income (loss) from discontinued operations (2) (15) (6) (6) - - 16 (29) ------Net loss$ (788) $ (880) $ (824) $ (940) $ (1,129) $ (1,140) $ (1,307) $ (1,010) $ (1,000) $ (1,538) $ (1,207) $ (1,011) $ (596) $ (125) $ 518 $ 1,349 Weighted average shares outstanding 25,026 25,138 25,143 25,116 25,255 26,484 26,517 26,196 26,527 26,640 26,800 27,000 27,200 27,400 27,600 27,800 EPS - fully diluted (0.03) (0.03) (0.03) (0.04) (0.05) (0.04) (0.05) (0.04) (0.04) (0.06) (0.05) (0.04) (0.02) (0.00) 0.02 0.05 Depreciation & Amortization 98 109 103 104 106 111 109 112 114 126 114 110 130 150 175 200 Non-cash equity based compensation 161 313 285 239 130 182 456 407 174 567 180 190 200 210 215 220 Cash Earnings$ (529) $ (457) $ (436) $ (597) $ (892) $ (847) $ (742) $ (491) $ (712) $ (845) $ (913) $ (711) $ (266) $ 235 $ 908 $ 1,769 Cash Earnings (Loss) Per Share (0.02) (0.02) (0.02) (0.02) (0.04) (0.03) (0.03) (0.02) (0.03) (0.03) (0.03) (0.03) (0.01) 0.01 0.03 0.06 % of TOTAL REVENUE Operating costs & expenses Contract gross margin 20.5% 9.7% 1.8% -1.0% 10.4% 28.0% 23.0% 22.1% 11.2% 7.6% 9.9% 9.5% 9.7% 9.2% 8.1% 7.0% Product gross margin -9.9% 6.0% 13.9% 20.6% -2.6% 14.3% 11.8% 14.8% 10.6% 21.9% 25.9% 30.0% 36.4% 40.0% 45.5% 48.6% Gross margin 9.4% 7.5% 8.9% 13.2% 2.0% 18.3% 16.0% 17.5% 10.8% 18.2% 22.9% 26.4% 32.3% 36.1% 41.4% 44.8% Research & development 7.3% 4.9% 6.4% 1.8% 6.8% 6.4% 7.4% 4.6% 5.7% 6.6% 4.2% 3.9% 3.6% 2.9% 2.4% 2.1% Production engineering 19.1% 14.4% 12.7% 29.2% 37.5% 20.3% 23.2% 15.3% 22.7% 21.3% 15.0% 13.8% 10.9% 8.7% 8.1% 6.5% Selling, general, & administrative 51.7% 48.3% 42.6% 33.1% 43.3% 54.4% 69.3% 42.8% 42.4% 55.7% 42.1% 38.6% 33.8% 28.2% 23.5% 19.5% Total Cost & Expenses 168.7% 160.1% 152.9% 150.9% 185.3% 162.8% 183.6% 145.6% 160.0% 165.4% 138.4% 129.8% 116.0% 103.7% 92.6% 83.2% Operating Income (loss) -68.7% -60.1% -52.9% -50.9% -85.3% -62.8% -83.6% -45.6% -60.0% -65.4% -38.4% -29.8% -16.0% -3.7% 7.4% 16.8% Net loss -60.5% -54.5% -47.7% -46.7% -77.6% -57.3% -76.2% -43.0% -55.7% -67.5% -36.3% -27.8% -14.4% -2.4% 8.4% 17.6% % YEAR OVER YEAR INCREASE Revenue NA NA NA NA 11.8% 23.3% -0.7% 16.8% 23.3% 14.4% 94.0% 54.6% 130.7% 126.1% 85.6% 111.8% Total Cost & Expenses NA NA NA NA 22.8% 25.4% 19.3% 12.7% 6.5% 16.2% 46.3% 37.7% 67.3% 41.8% 24.2% 35.9% Operating Income (loss) NA NA NA NA 38.9% 28.8% 57.0% 4.6% -13.3% 19.1% -10.8% 0.9% -38.4% -87.2% -135.6% -219.3% Net loss NA NA NA NA 43.3% 29.6% 58.6% 7.5% -11.4% 34.9% -7.6% 0.0% -40.4% -91.9% -142.9% -233.5% % SEQUENTIAL INCREASE Revenue NA 24.0% 7.0% 16.5% -27.7% 36.9% -13.9% 36.9% -23.6% 27.0% 46.1% 9.1% 14.0% 24.5% 19.9% 24.5% Total Cost & Expenses NA 17.7% 2.1% 15.0% -11.2% 20.2% -2.9% 8.6% -16.1% 31.3% 22.3% 2.3% 1.9% 11.3% 7.1% 11.9% Operating Income (loss) NA 8.5% -6.0% 12.2% 21.2% 0.7% 14.6% -25.3% 0.5% 38.4% -14.2% -15.5% -38.6% -71.3% -339.5% 183.1% Net loss NA 11.6% -6.3% 14.1% 20.1% 1.0% 14.7% -22.7% -1.1% 53.9% -21.5% -16.2% -41.1% -79.0% -515.1% 160.4%

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BALANCE SHEET BALANCE SHEET (000's) FY2007 FY2008 FY2009 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q ASSETS CURRENT ASSETS Cash and cash equivalents 3,900 2,094 2,220 1,952 4,158 3,798 4,426 3,176 3,863 2,626 Short-term investments 5,852 6,750 6,163 5,982 7,716 7,277 6,150 6,590 5,428 4,636 Accounts receivable 835 1,176 1,347 1,435 1,317 1,843 1,218 1,304 1,046 1,495 Accounts receivable from discontinued operations - - 58 76 31 26 28 - - - Cost & estimated earnings in excess of billings on uncompleted contracts 486 151 355 188 98 204 320 650 548 405 Inventories 655 843 699 900 1,154 1,015 974 961 1,131 1,442 Prepaids expenses & other current assets 318 240 220 279 390 319 229 120 256 244 Total current assets$ 12,046 $ 11,254 $ 11,062 $ 10,812 $ 14,862 $ 14,481 $ 13,344 $ 12,801 $ 12,272 $ 10,847 Property and equipment, at cost: Land 182 182 182 182 182 182 182 182 182 182 Building 2,304 2,304 2,306 2,306 2,306 2,429 2,429 2,460 2,460 2,464 Machinery & Equip. 3,044 3,121 3,171 3,152 3,273 3,385 3,434 3,559 3,672 4,066 Total fixed assets 5,529 5,607 5,659 5,640 5,761 5,995 6,044 6,200 6,314 6,712 Less accumulated depreciation (2,757) (2,840) (2,931) (2,977) (3,063) (3,157) (3,237) (3,318) (3,418) (3,529) Net property & Equip. 2,773 2,766 2,728 2,663 2,698 2,838 2,807 2,882 2,896 3,183 Patent & trademark costs 531 509 496 482 499 485 472 478 465 451 Other assets 5 5 57 56 54 55 55 242 348 98 Total assets$ 15,355 $ 14,534 $ 14,344 $ 14,013 $ 18,114 $ 17,859 $ 16,678 $ 16,403 $ 15,980 $ 14,579

LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable 571 366 649 983 811 549 462 741 964 728 Other current liabilities 261 218 230 345 272 322 318 372 518 452 Current portion of long-term debt 94 95 97 99 101 102 104 106 108 110 Short-term deferred compensation under exec. employment agreements 128 132 137 149 149 340 360 364 368 381 Liabilities & commitments of discontinued oper. 43 26 12 14 ------Billings in excess of cost & estimated earnings on uncompleted contracts 363 372 439 313 479 964 698 708 760 704 Total current liabilities$ 1,459 $ 1,209 $ 1,564 $ 1,902 $ 1,812 $ 2,277 $ 1,942 $ 2,291 $ 2,719 $ 2,375 Long-term debt, less current portions 598 573 548 523 497 471 444 417 389 361 Long-term deferred compensation under exec. employment agreements 132 152 172 396 404 603 631 634 637 668 Total liabilities 2,190 1,935 2,284 2,821 2,714 3,351 3,017 3,341 3,745 3,403 Stockholders' Equity: Common stock 251 251 251 252 264 265 265 265 265 267 Additional paid-in-capital 70,499 70,812 71,097 71,376 76,702 76,948 77,409 77,819 77,993 78,470 Accumulated deficit (57,585) (58,464) (59,288) (60,437) (61,566) (62,706) (64,013) (65,023) (66,023) (67,561) Total stockholders' equity 13,166 12,599 12,060 11,191 15,400 14,508 13,661 13,061 12,235 11,175 Total Liabilities and Stockholders' Equity$ 15,355 $ 14,534 $ 14,344 $ 14,013 $ 18,114 $ 17,859 $ 16,678 $ 16,403 $ 15,980 $ 14,579

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RESEARCH INITIATION Peter Conley 310-526-5025 ZAP [email protected] (ZAAP.OB: $0.41) Jon Hickman 310-526-5024 [email protected]

RECOMMENDATION: BUY Driving Global Mobility With Electric PRICE TARGET: $1.75 Vehicles at Affordable Price Points INDUSTRY: CONSUMER GOODS

SECTOR: AUTO MANUFACTURERS-MAJOR INVESTMENT HIGHLIGHTS COMPANY STATISTICS ZAP (Zero Air Pollution) engages in the development, commercialization 52-wk range $0.32 – $1.19 and distribution of electric vehicles and electric power systems in the United States. ZAP’s products comprise electric city cars and trucks, Avg. Daily Vol. (000) 160.2 motorcycles, electric scooters, and rechargeable battery sources using Market Capitalization (M) $24.0 lithium-ion and lithium polymer technology for mobile electronics from cell phones to laptops. Today, ZAP is investing in progressive energy EARNINGS SUMMARY solutions, utilizing advanced batteries and innovative fuel cell designs. FYE Dec 2007A 2008E 2009E 2010E Though the company has experienced some difficult years in the past, it P/SALES 4.2x 3.2x 1.7x 1.1x has maintained focus on the EV market and successfully developed a P/E NM NM NM NM line of consumer friendly all electric vehicles. Specifically, for the 3rd SALES: Q1 1.1 1.1A 3.5 6.0 quarter of 2008 the company shipped a record 240 Xebra cars and Q2 1.4 1.9A 4.5 7.0 Q3 2.0 3.0 4.0 6.8 trucks – up 200% year-over-year. We feel ZAP is now poised to enter a Q4 1.2 3.3 5.5 8.0 new growth phase and extended period of revenue and earnings growth Total 5.7 9.2 17.5 27.8 driven by: EPS Q1 (0.04) (0.01) (0.00) 0.02 (cash): ƒ increasing global demand for electric and hybrid vehicles, a market Q2 (0.03) (0.02) 0.01 0.02 that is expected to reach $42 billion in 2010 (Source: Electric Drive Q3 (0.02) (0.01) 0.00 0.02 Train Assoc., US Dept of Transportation); Q4 (0.04) (0.00) 0.01 0.03 ƒ a growing number of ZAP automobile dealers (more than 50 Total: (0.12) (0.05) 0.02 0.09 nationwide) and 75 additional retailers distributing the consumer products (Zappys, Recharge-It-All, etc.); SHARE PRICE PERFORMANCE ƒ a vastly improved financial position with the recent capital infusion ($5 million equity and $10 credit line) from the Al Yousuf Group; ƒ new manufacturing capacity being developed in both the United States and in Uruguay (for distribution in South America); and ƒ strategic additions to management in operation, sales and marketing, and a recent 30% increase in the company’s test and assembly work force. We believe that ZAP has a distinct advantage in the lower priced electrical vehicle market with its brand name and nation wide availability. With the addition of the Al Yousuf financial and management backing, PLEASE READ THE DISCLOSURES we are confident that the company will be able to continue to improve ON PAGE 230 FOR IMPORTANT the quality of the vehicles and expand distribution around the world. We REQUIRED INFORMATION estimate that revenues in 2010 could approach $27 million and that non- INCLUDING RISKS AND ANALYST GAAP cash earnings could total $0.09 per share. Given the potential of CERTIFICATION. the expanding market opportunity, we anticipate an impressive revenue growth in years to come. We are initiating coverage of ZAP with a Buy rating and a target price of $1.75.

MDB Capital Group LLC • 401 Wilshire Blvd, Suite 1020 • Santa Monica, CA 90401 • 310-526-5000 • www.mdb.com 189

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INVESTMENT SUMMARY ZAP develops and distributes alternative energy and fuel efficient vehicles, as well as rechargeable battery storage products for mobile electronic devices. The company manufactures, through contract manufactures in China, a variety of electric vehicles using parts manufactured by various subcontractors. Since inception in 1994, the company has consistently added new products to its product line that now includes electric bicycles, scooters and motorbikes, electric dive scooters and electric automobiles (first introduced in 2003). To date, the company has delivered over 100,000 electric vehicles and consumer products to customers worldwide. ZAP’s products are sold through ZAP’s own retail outlet and through independent automobile dealers as well as through the company’s web site zapworld.com.

The company derives current revenues from three reportable segments: the sale and marketing of electronic consumer products including the Zappy 3 scooters and ATVs; operation of a retail outlet that sells pre-owned conventional vehicles and advanced technology vehicles; and sales of ZAP’s own advanced technology vehicles (the Xebra electric sedans and trucks introduced in 2006 and Zapino electric scooters) to more than 30 licensed automotive dealers throughout the U.S. In the 4th quarter of 2008, the company is introducing its line of rechargeable portable energy products (Recharge-It-All Batteries) and anticipates sales for the holiday season.

In 2007 the company reported revenues of $5.7 million, down 47% compared to revenues of $10.3 million in 2006. This decrease was attributed to lower sales of smart cars, as supply of the car by its manufacturer (Daimler AG) was discontinued in late 2006 for the North American market. On a more positive note, the company’s sales of Xebras increased to $2.1 million in 2007 compared to $737,000 in 2006. Additionally, the company recently announced record sales of Xebra electric vehicles in the third quarter of 2008. During the quarter, the company shipped 240 Xebra vehicles, up 200% from the 80 shipped in the second quarter of 2007. These numbers point to solid revenue growth in the third quarter and we estimate 2008 revenues to reach approximately $9.2 million, a $3.5 million increase over 2007, driven primarily by increased sales of the Xebra electric vehicles. Xebra vehicles are currently one of the few affordable, street-legal, city-speed electric vehicles being produced on an assembly line.

The company currently has in development the ZAP Alias, an affordable electric vehicle targeted for release in the second quarter of 2009; and the ZAP Truck XL, a low speed utility truck that should be available late in 2008. In July 2008, the company received $15 million from a financing arrangement with the Al Yousuf Group, a Dubai-based conglomerate. The Al Yousuf Group made a $5 million equity investment acquiring a 12% interest in the company and has provided ZAP with a $10 million credit line for working capital needs. To meet the growing demand, the company is also working to expand its manufacturing capabilities through a joint venture with Integrity Manufacturing with the intent of adding a facility in Kentucky. In addition, the government of Montevideo in Uruguay has set aside land to build a 43,000 sq. ft. facility that would serve as an assembly plant to produce electric vehicles for distribution throughout South America. Construction is expected to begin in October 2008. The company has been operating a marketing unit in Montevideo since 2002 to develop consumer awareness and distribution programs in Latin America.

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COMPANY BACKGROUND Today ZAP, short for Zero Air Pollution, designs, manufactures, and markets electric bicycles, scooters, and other short distance electric vehicles. ZAP was founded in Sebastopol, California in 1994 as “ZAP Power Systems” by James McGreen, an inventor who specializes in lightweight motorized vehicles, and Gary Starr, co-founder of electric vehicle retrofitter U.S. Electricar. Initially, the company's revenue was derived primarily from development contracts from a foreign private entity and domestic government agencies. These contracts were aimed at developing low-cost ZAP type commercial electric vehicles. In late 1995, ZAP began selling electric bikes and kits through bicycle dealers.

In the first half of 1996 the company launched zapbikes.com allowing customers to buy ZAP products online and entered into a contract with Power Biking Inc. to enroll auto dealers in North America to sell the Company's electric bicycles. In this same year ZAP began selling its electric bicycles and electric motor kits through mail order catalogs. Soon after, the company became the first company in history to sell its stock directly to the public via the Internet.

ZAP’s business continued to expand and in 1997 ZAP and Italian electric scooter maker Movity formed ZAP Europa to cross-distribute products. The company also signed manufacturing and distribution agreements that year with Dantroh Japan, XtraMOBIL of Switzerland, and Forever Bicycle Co. (Shanghai). These contract negotiations and deals contributed to further exposing ZAP’s products to the U.S., China, and Europe markets and prompted the company to change its name to ZAPWORLD.COM in May 16, 1999.

From 1999 to 2007, ZAP enhanced its product portfolio through a number of strategic acquisitions and alliances in the advanced transportation industry including:

ƒ emPower Corp. (Dec. 20, 1999): This company manufactures a three wheel electric scooter called the Transport that incorporates an advanced brushless DC motor and charging technology. EmPower was founded by engineers from Massachusetts Institute of Technology. ƒ Electric Vehicle Systems (February 2000): This company develops a new form of power skating called the PowerSki. The PowerSki is a two-wheeled electrical transportation device for inline skating that pulls skaters along the cement somewhat like a boat pulling a water skier. ƒ Aquatic Propulsion Technology Inc. (June 24, 2000): This company makes electric sea scooters - a personal water propeller that gives swimmers, snorkelers and divers a boost through the water. This acquisition also included 5 patents on electric sea scooters. ƒ Electric Motorbike, Inc. (EMB) (October 2000): This company develops electric motorcycles. EMB’s technology includes all proprietary components and designs for the LECTRA motorcycle and its proprietary VR24 drive system. ƒ Electric Transportation Company, LLC (ETC) (April 2004): This company develops advanced drivetrains for electric propulsion technology. ƒ Youngman Automotive Group Co. (Sept. 2007): China’s number one luxury motor coach and high-quality commercial truck manufacturer. This strategic alliance will focus on the development and manufacturing of electric and hybrid vehicles for the passenger car, truck and bus market like the ZAP-X crossover SUV. ƒ Integrity Manufacturing: A Kentucky-based joint venture is currently in discussions with ZAP to manufacture electric vehicles including the ZAP Alias exclusively for ZAP’s global distribution.

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As a result of these acquisitions, ZAP has been able to greatly expand its product offering. In 1998 the company introduced the ZAPPY scooter followed by electric motorbikes in 1999, and electric dive scooters in 2001. The company then shortened its name to ZAP to solidify its brand name recognition. With sinking sales and a falling stock price the company filed Chapter 11 bankruptcy in March 2002. ZAP was able to exit bankruptcy in late June of that year through a merger with automotive distribution companies Voltage Vehicles and The RAP group. In 2003, ZAP introduced the first-ever production of electric automobiles imported from China, and in 2004, the company introduced electric all-terrain vehicles (ATVs) and the fuel-efficient Smart Car.

Despite the bankruptcy filing and many years of limited financial resources, Zap has grown from a single product line to a full line of electric vehicles and advanced power products. At present, the company has delivered more than 100,000 electric vehicles and is the volume leader of electric vehicles worldwide. Record sales of Xebra vehicles during the second and third quarters of 2008 demonstrate the increasing demand for affordable electric vehicles. To keep up with demand, the company is now aggressively trying to expand its manufacturing capabilities in the U.S. and overseas.

Total revenues in 2007 were $5.7 million including $2.1 million in sales of ZAP’s Xebra electric vehicles, which grew 185% compared to revenues of $737,000 in 2006. ZAP is headquartered in Santa Rosa, California and wholly owns the following subsidiaries: Voltage Vehicles, which distributes and sells advanced technology and conventional automobiles; RAP Group, Inc., which was engaged in the sale and liquidation of conventional automobiles and now has an electric vehicle dealership; ZAP Stores, Inc., which engages in consumer sales of ZAP products; ZAP Manufacturing located in Santa Rosa, which distributes ZAP products in the U.S and worldwide.

PRODUCT SUITE OVERVIEW ZAP is a brand and distribution portal for electric and other advanced technology vehicles. ZAP has assembled an extensive line of products to meet the transportation needs of a growing number of environmentally conscious consumers. The company focuses on two primary businesses - ZAP Electric Vehicles and ZAP Recharge-It-All. The products offered as part of these two businesses are discussed below.

ZAP ELECTRIC VEHICLES This business focuses on building upon its independent distribution network by offering a line of electric and alternative fuel-efficient vehicles including cars, trucks, scooters and bicycles.

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Xebra Electric Sedan Xebra Electric Truck

Speed: Up to 40 mph (65 km/ph) Speed: Up to 40 mph (65 km/ph) Charger: Onboard 110 Volt AC Charger: Onboard 110 Volt AC Seating: 3 wheel motorcycle (Zero Emission Seating: 3 wheel motorcycle (Zero Emission Vehicle) Vehicle) Range: Up to 25 miles per charge (40km), Up to 40 Range: Up to 25 miles per charge (40km), Up to 40 miles per day with opportunity charging; Energy to miles per day with opportunity charging; Energy to charge 4.75 kwh charge 4.75 kwh Motor: DC Motor: DC Target market: City/commuter use, government & Target market: Municipalities, maintenance corporate fleets, families with 2 or more cars facilities, universities, ranches & warehouses MSRP: approx. $11,700 MSRP: approx. $12,500 Source: zapcars.com

The Xebra vehicles are pictured above. The sedan or “City Car” has a unique design suitable for urban, non-freeway driving. This car was designed for short trips in the city or as an economy vehicle for municipal and corporate fleets. The Xebra runs solely on electricity and can be recharged through any conventional outlet.

A particular advantage with ZAP vehicles is the fact that the company is technology agnostic. As new and better EV technologies become affordable, the company can easily adopt the upgrades. For example the company is already looking at the advantages of lithium-ion batteries. In early 2007, ZAP and Lithium Balance of Denmark (formerly Eco Tech A/S) teamed up to develop lithium-ion battery Xebras that can go 152 miles per charge. The Xebra Electric Truck (pictured to the left) is fitted with 23 Li-Ion cells from a Chinese manufacturer, providing a nominal voltage of 72V and a nominal capacity of 400AH. The Li-Ion cells weigh 13 kg each, making the total weight of the battery pack approximately 300kg. A Battery Management System (BMS) from Lithium Balance is included to ensure safe, reliable and maximum performance of the batteries. The overall system increases the energy density by eight to ten times that of the lead acid batteries that are common in today's electric cars. This upgrade to the Xebra's capabilities – the current range for a Xebra is 25 miles – will be offered to customers in the near future.

Both the Xebra Sedan and Truck have a solar panel option (figure at the right). The solar panel ZAP allows short commutes on sunlight alone. Xebra vehicles are currently produced by ZAP’s Chinese manufacturing partner and are available in the U.S. from licensed ZAP dealers.

ZAP also offers several other personal transportation electric vehicles (pictured below) such as the Zapino and the Zappy3. The Zapino is an electric scooter powered by a 3000-watt brushless DC hub motor that reaches speeds of 30 mph and is targeted at environmentally conscious commuters. The Zappy3 is an electric three-wheel scooter targeted for industrial and commercial applications. The scooter is designed for stability and maneuverability to provide ease of use with only minimal

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training. In addition, the company offers electric motor kits for bicycles that consist of permanent magnet DC motors and lead acid dry cell 12v, 20ah batteries.

Zapino Electric Scooter Zappy 3 Pro Electric Bike DX

Speed: Up to 30 mph Speed: Up to 13 mph Speed: Up to 18 mph Motor: 3000W Brushless Hub Motor: 350 watt geared motor Motor: High output, 5,000 RPM Motor Battery: 60V Green saver Battery: Lead acid dry-cell 12V Battery: 2 batteries : 36V 10.5 Ah silicone battery 20Ah Range: Up to 30 miles Range: Up to 24 miles Range: Up to 15 miles MSRP: $3,495 MSRP: $580 MSRP: $449 Source: zapcars.com

UNDER DEVELOPMENT ZAP is currently engaged in developing advanced technology vehicles such as the ZAP-Alias in collaboration with China Youngman Automotive group and the ZAP-X in collaboration with Lotus Engineering. These vehicles are described below.

ZAP-Alias ZAP and China’s Youngman Automotive Group, a leading maker of luxury motor coaches and high-quality commercial trucks, are currently seeking financing to fund a joint venture to be known as Detroit Electric (reviving the name of a 100-year-old electric car brand). Detroit

Electric plans to build an array of cars, trucks and buses with the latest electric automotive technologies. It is anticipated that the ZAP Alias will be one of several vehicles to carry the Detroit Electric brand. The vehicles will be manufactured under the supervision of Youngman Automotive and ZAP will manage the sales, marketing and distribution. The Alias will be a two-seater with two wheels in front and one in back. Under ZAP’s partnership with Lotus Engineering, the Alias will incorporate a significant portion of the advanced technology and design that Lotus has already developed for the ZAP-X, including wheel hub motors and lithium polymer batteries. The Zap Alias is expected to be able to go 100 miles on a single charge with a top speed of over 100 mph; two in-wheel motors will provide potential 320 horsepower performance. Expected delivery is set for Q2 of FY2009 at an MSRP of approximately $32,500.

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ZAP-X ZAP is also involved in a project with Lotus Engineering and Detroit Electric to be the U.S. distributor for the next generation electric vehicle, the ZAP-X that incorporates more of the latest advances in electric technology. The ZAP-X is a 7-seater (in reality a 5 + 2 with the two rear seats being occasional) four-wheel drive crossover' vehicle based on Lotus’ Aluminum Performance Crossover (APX) design that incorporates Versatile Vehicle Architecture (VVA), a new strong lightweight and highly efficient structure for an increased power-to-weight ratio. Potential performance of 644 horsepower comes from four in-wheel electric motors (hub motors) powered by a battery system (details have yet to be disclosed) claiming a 350 mile range between charges and a 10 minute recharge time. The ZAP-X promises sports car-like performance of 5.4 seconds to 100 km/h (5.0 seconds to 60 mph) before reaching a top speed of 245 km/h (152 mph). Delivery was first announced for 2008 and has now been set for 2010 at an MSRP of approximately $60,000.

ZAP RECHARGE-IT-ALL UNIVERSAL CHARGERS Recharge-It-All is a unique battery recharging technology from ZAP that combines advanced portable battery storage, using lithium-ion and lithium polymer technology, with smart charge controller technology that adapts to a range of different voltages. Recharge-It-All powers or charges a wide range of consumer electronics extending the use of small and medium-sized electronic devices up to two to five times their normal battery life. Some models are designed to work with all the major iPod products, including the iPod, iPod nano, iPod shuffle and the iPod with video. The various products are explained in detail below:

ƒ R07-PL2 Rechargeable Lithium-Ion Battery and USB Car Charger: Is a 2000 mAh Lithium-ion battery for use as a power source or charger that fits a range of electronic devices including cell phones, mobile digital devices, MP3 players, digital cameras, PDAs, Bluetooth® enabled products, and smartphones. Output voltage automatically adjusts for the electronic device in use. List Price: $39.99

ƒ M-48 Laptop Recharge-It-All Battery: The M48 (pictured right) has 49 watts of power to keep laptops and notebook computers running for up to 4 hours. There is also a USB output on the battery to power or charge up to 12 other mobile electronics while working. Works with: Acer/TI, ASUS, Dell, Fujitsu, HP/Compaq, IBM, NEC, Sony and Toshiba. List Price: $139.99

ƒ RX4-AA AA Powerpack Universal Recharge-It-All Battery: The RX4-AA comes with 4 rechargeable and removable AA batteries and can be used as a rechargeable battery pack or external power source for cell phones, digital cameras, camcorders, MP3 players, CDs, MDs, portable DVD players, multimedia players and Bluetooth devices. It works with: Blackberry, Canon, Casio, FUJI, JVC, KODAK, Minolta, Motorola, Nikon, Nokia, Olympus, Palm, Panasonic, Samsung, Sharp, and Sony. List Price: $29.99

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ƒ R08-IV iZAP: is a lightweight Lithium-Polymer battery pack especially designed for the 30G and 60G iPod Video, which can also be used as a docking station for new iPods for easier synchronization while charging. List Price: $79.99

ƒ R12 Universal Recharge-It-All Battery: The R12 (pictured right) powers or recharges most portable electronics and mobile phones. Adapters are included to power or charge MP3 players, cell phones, smart phones, Bluetooth headsets, PDAs, digital cameras, professional cameras, camcorders, PSPs, game players, and more. It has a DC output and a USB output which can charge two devices simultaneously. List Price: $59.99

ƒ RO3 Mini Lithium Recharge-It-All Battery for iPhone and Cell Phones: The RO3 Mini (pictured right) is a lithium ion back up charger that powers and charges cell phones from Nokia, Motorola, Samsung and LG and high tech devices like the iPhone, new 5V iPod products, Blackberry and Palm products. List Price: $19.99

ZAP Recharge-It-All helps reduce the need for disposable batteries, which can be bulky, expensive and harmful to the environment. The lithium-ion battery system can be recharged up to 1000 times and has up to four times the power of conventional batteries.

COMPETITION The company offers one of the broadest lines of personal electric vehicles currently available, which reinforces ZAP’s name recognition in the market place. However, the race to develop and market advanced clean technology vehicles has been intense and is expected to continue to increase. ZAP’s principal competitive advantages over its competitors include its ownership of fundamental technology, ZAP’s trade name and brand recognition, and its growing distribution network. Additionally, ZAP’s production activities have been transferred to lower cost contract manufacturers outside the United States, which enables the company to offer its products at competitive prices. Within the advanced technology market in the U.S., ZAP competes with larger and financially stronger manufacturers such as Daimler AG, General Motors, Honda, and Toyota, described below. The company also competes with smaller companies that manufacture and sell electric bicycles and scooters, such as Currie Technologies in the U.S. and manufacturers in China.

ƒ Daimler AG engages in the development, manufacture, distribution, and sale of automotive products, including passenger cars, trucks, vans, and buses worldwide. It operates in four segments: Mercedes-Benz Cars, Daimler Trucks, Daimler Financial Services, and Vans, Buses, Other. ƒ General Motors engages in the development, production, and marketing of cars, trucks, and related parts worldwide. It offers small, midsize, sports, and luxury cars; and pickup, van, utilities, and medium duty trucks. The company sells its products under the Chevrolet, Buick, Saab, GMC, Pontiac, Cadillac, Hummer, and Saturn, Opel, Vauxhall, Isuzu, Holden, and Daewoo brand names in Canada, Europe, Latin America, and Asia Pacific. By the end of 2008, GM will offer eight hybrid models, estimated to be more than any automotive manufacturer in the U.S. ƒ Honda Motors together with its subsidiaries engages in the development, manufacture, distribution, and sale of motorcycles, automobiles, and power products worldwide. Its motorcycle business manufactures motorcycles, all-terrain vehicles, and personal watercrafts. The FCX (fuel cell vehicle) Clarity will be available for consumer use in the summer.

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ƒ Toyota Motor Corporation engages in the design, manufacture, assembly, and sale of passenger cars, minivans, and trucks and related parts and accessories. The company offers hybrid vehicles primarily under the Prius brand, which run on a combination of gasoline engine and electric motor.

FINANCIALS Zap posted revenues of $1.9 mm for the second quarter of its 2008 fiscal year, which was up 82% from $1.0 mm in the previous quarter, and up 37% from $1.4 mm during the same quarter a year ago. The increase in revenues was due to increased sales of Advanced Technology vehicles (the Xebra 3-wheel electric vehicles and the Zapino) driven by the high price of gasoline and the increasing number of dealers that now carry the company’s products, as well as retail sales of portable energy products.

Gross profit for the quarter was $223,000 or 11.6% of revenues compared to a gross profit of $94,000 or 9% in the previous quarter and a gross profit of $216,000 in the same quarter a year ago. The increase in gross profit was due to less quality control issues with the Advanced Technology vehicles and +142% Portable Energy Product line gross profits.

Operating expenses decreased to $2.6 mm or 16% from $3.1 mm in the same quarter a year ago but increased 9.2% sequentially. This increase in operating expenses was due to additional research and development expenses (up 461% year-over-year) associated with the ZAP-X and ZAP’s new ZAP Alias. Sales and marketing also increased in the recent period due to higher salaries with added personnel and outside consultants. On the bottom-line, second quarter GAAP net loss was $2.6 mm or $0.05 per share compared to a net loss of $2.3 mm or $0.04 per share during the previous year, and a net loss of $3.3 mm, or $0.07 per share during the same quarter a year ago. The additional losses in FY2007 were mainly due to a one time non-cash charge ($12.0 mm) to the modification and extension of certain expiring warrants issued by Zap to selected shareholders and current ZAP employees.

As of June 30, 2008, the company had $1.1 mm in cash and cash equivalents, a current ratio close to 1.4 and no debt. It is also important to mention ZAP received a $15.0 mm financing arrangement from the Al Yousuf Group, a Dubai-based conglomerate to provide future working capital to ZAP and help meet the growing demand for the company’s electric vehicles.

VALUATION As we believe that the market potential for electrical and hybrid vehicles is huge and that ZAP has the ability to be quite successful catering to the low end of this market, we believe the company is well positioned for an extended period of significant revenue and earnings growth. We are also impressed with the economic and management participation by the Al Yousuf Group out of Dubai. For calendar 2010 we are estimating revenues climbing to $27.5 million and for non-GAAP cash earnings to reach $0.09 per share. We believe that a fair valuation would be based on a multiple of the 2010 cash earnings. We believe that given the expected growth rate, a fair multiple would be 25. Our 2010 estimate of $0.09 multiplied by 25 equates to future value for ZAP’s shares of $2.25. Discounting this value back to the present provides a near term target price of $1.75. As such we are initiating coverage of ZAP with a Buy rating and a target price of $1.75.

INVESTMENT RISKS Risks may impede Zap’s achievement of our target price. These risks include:

ƒ ZAP has limited cash liquidity and will most likely require additional capital in order to achieve profitability.

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ƒ The electric vehicle technology market is subject to rapid technological change, and the company depends on the introduction of new products to maintain and grow its business.

ƒ Loss of key personnel could severely disrupt the company’s operating model.

ƒ The company may infringe on other companies’ intellectual property.

ƒ ZAP may not be able to protect its internet address.

ƒ Failure of certain key suppliers to provide its components could have a severe and negative impact upon its business.

MANAGEMENT TEAM SCHNEIDER, STEVEN, 46, CHIEF EXECUTIVE OFFICER, DIRECTOR Mr. Schneider has been director and Chief Executive Officer of ZAP since October 26, 2002. Mr. Schneider has a 30-year career in the automotive industry and a long-time interest in fun, fuel- efficient cars. He has served as ZAP's CEO since 2002, when the company acquired Auto Distributors, Inc. and Voltage Vehicles, businesses he founded which specialized in the distribution of electric and alternative fuel vehicles including automobiles, motorcycles and bicycles. Mr. Schneider also founded the RAP Group, an automotive liquidator and reseller, which ZAP also acquired. He serves on the board of directors of Apollo Energy Systems, a developer of fuel cells and advanced batteries. He also serves as a director of Rotoblock Corporation, a public company focused on the continued development of the oscillating piston engine. He is an active member with various industry groups, including the Electric Drive Transportation Association in Washington, DC., and is a member of the Bay Area Alliance of CEOs. He lectures frequently on industry topics at universities and other organizations.

HARTMAN, WILLIAM, 60, CHIEF FINANCIAL OFFICER, SECRETARY Mr. Hartman was appointed Chief Financial Officer in March 2001. He was engaged with the Company as a financial consultant starting in January 2001. Prior to his engagement at ZAP, Mr. Hartman provided financial and accounting consulting services to various Internet start up companies in the San Francisco Bay Area from 1999 to 2001. Mr. Hartman is a Certified Public Accountant in the State of California with a Masters in Accounting Degree from the State University of New York. He also had previous public accounting experience as an audit manager with Price Waterhouse Coopers in San Francisco. Mr. Hartman was appointed Corporate Secretary effective April 10, 2008 due to the resignation of Ms. Cude.

AMOS KAZZAZ, 52, CHIEF OPERATING OFFICER; PRESIDENT OF VOLTAGE VEHICLES AUTO DISTRIBUTION SUBSIDIARY Mr. Kazzaz is Chief Operating Officer and President of Voltage Vehicles Auto Distribution Subsidiary. He was appointed Chief Operating Officer on March 26, 2007. Prior to joining ZAP, Mr. Kazzaz served as Vice President of Cost Management at United Airlines, Inc. where he oversaw United Airline's operations, process improvement, and cost management. From 2003 to 2006, Mr. Kazzaz served as United Airline's Vice President of Financial Planning and Analysis during which time he accounted for United Airline's planning and analysis function and capital budget. From 2002 to 2004, Mr. Kazzaz served as United Airline's Vice President of the Business Transformation Office, the company's first enterprise project management office, during which time he was responsible for identifying areas of revenue and cost improvements; concurrently, Mr. Kazzaz served as the Chief Operating Officer at Avolar, a subsidiary of United Airlines. He currently sits on the Boards of Directors of Alliant Credit Union, SkyTech Solutions in India, and Integres. Mr. Kazzaz holds a bachelors degree in International Affairs from the University of Colorado and a Masters in Business Administration from the University of Denver.

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ZAP PATENTVEST SUMMARY

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ANNUAL INCOME STATEMENT ANNUAL INCOME STATEMENTS (000's) Fiscal Years 2006 2007 2008E 2009E 2010E Total Revenue$ 10,830 $ 5,712 $ 9,229 $$ 17,500 $$ 27,750 Cost Of Goods Sold 10,305 4,937 6,862 11,050 16,500 Gross Profit $ 525 $ 775 $ 2,367 $ 6,450 $ 11,250 Operating expenses: Sales & Marketing 1,319 1,508 1,647 1,825 2,235 General & administrative 15,452 25,284 8,029 8,465 8,775 Research & development 715 616 423 290 390 Loss on disposal of fixed assets - - - - - Loss on joint venture investment - - - - - Impairment loss on Smart Car license & equip. 2,448 175 - - - Total Operating Expenses$ 19,934 $ 27,583 $ 10,099 $ 10,580 $ 11,400 Operating Income (19,409) (26,808) (7,732) (4,130) (150) Other income (expense) Gain on settlement of Smart Auto liability 7,051 - - - - Gain on revaluation of warrant liability 581 - - - - Interest expense, net (241) (1,393) (350) (240) (200) Other income (expense) 107 199 (40) - - Total other income (expense) 7,498 (1,194) (390) (240) (200) Income before income taxes (11,911) (28,002) (8,122) (4,370) (350) Reorganization Items Professional fees - - - - - Provision to rejected executory contracts - - - - - Loss before income taxes (11,911) (28,002) (8,122) (4,370) (350) Provision for income taxes 4 (4) (4) (4) (4) Net loss$ (11,915) $ (28,006) $ (8,126) $ (4,374) $ (354) Weighted average shares outstanding 39,021 47,822 58,613 60,750 62,625 EPS - fully diluted$ (0.31) $ (0.59) $ (0.14) $ (0.07) $ (0.01) Depreciation and Amortization 1,434 318 286 310 400 Stock-based compensation expense 8,749 21,977 5,111 5,100 5,800 Cash Earnings$ (1,732) $ (5,711) $ (2,729) $ 1,036 $ 5,846 Ca sh Ea rnings (Loss) Pe r Sha re$ (0.04) $ (0.12) $ (0.05) $ 0.02 $ 0.09 % of TOTAL REVENUE Operating expenses: Gross margin 4.8% 13.6% 25.6% 36.9% 40.5% Sales & Marketing 12.2% 26.4% 17.8% 10.4% 8.1% General & administrative 142.7% 442.6% 87.0% 48.4% 31.6% Research & development 6.6% 10.8% 4.6% 1.7% 1.4% Total Operating Expenses 184.1% 482.9% 109.4% 60.5% 41.1% Operating Income -179.2% -469.3% -83.8% -23.6% -0.5% Net loss -110.0% -490.3% -88.0% -25.0% -1.3% % YEAR OVER YEAR INCREASE NET SALES NA -47.3% 61.6% 89.6% 58.6% Total Operating Expenses NA 38.4% -63.4% 4.8% 7.8% Operating Income NA 38.1% -71.2% -46.6% -96.4% Net loss NA 135.0% -71.0% -46.2% -91.9%

200 MDB Capital Group The Green Car Report November 10, 2008 ______

QUARTERLY INCOME STATEMENT QUARTERLY INCOME STATEMENT (000's) FY2007 FY2008E FY2009E FY2010E 1Q 2Q 3Q 4Q 1Q 2Q 3QE 4QE 1QE 2QE 3QE 4QE 1QE 2QE 3QE 4QE NET SALES$ 1,137 $ 1,405 $ 2,019 $ 1,151 $ 1,056 $ 1,923 $ 3,000 $ 3,250 $ 3,500 $ 4,500 $ 4,000 $ 5,500 $ 6,000 $ 7,000 $ 6,750 $ 8,000 Cost Of Goods Sold 1,083 1,189 1,476 1,189 962 1,700 2,000 2,200 2,300 2,800 2,600 3,350 3,600 4,200 4,000 4,700 Gross Profit $ 54 $ 216 $ 543 $ (38) $ 94 $ 223 $ 1,000 $ 1,050 $ 1,200 $ 1,700 $ 1,400 $ 2,150 $ 2,400 $ 2,800 $ 2,750 $ 3,300 Operating expenses: Sales & Marketing 371 264 519 354 390 412 420 425 435 440 450 500 525 535 575 600 General & administrative 13,990 2,798 3,525 4,971 1,999 1,910 2,050 2,070 2,090 2,100 2,125 2,150 2,175 2,175 2,200 2,225 Research & development 335 54 23 204 15 303 45 60 65 70 75 80 90 95 100 105 Loss on disposal of fixed assets ------Loss on joint venture investment ------Impairment loss on Smart Car license & equip. - - - 175 ------Total Operating Expenses$ 14,696 $ 3,116 $ 4,067 $ 5,704 $ 2,404 $ 2,625 $ 2,515 $ 2,555 $ 2,590 $ 2,610 $ 2,650 $ 2,730 $ 2,790 $ 2,805 $ 2,875 $ 2,930 Operating Income$ (14,642) $ (2,900) $ (3,524) $ (5,742) $ (2,310) $ (2,402) $ (1,515) $ (1,505) $ (1,390) $ (910) $ (1,250) $ (580) $ (390) $ (5) $ (125) $ 370 Other income (expense) Gain on settlement of Smart Auto liability ------Gain on revaluation of warrant liability ------Interest expense, net (216) (384) (210) (583) (46) (184) (60) (60) (60) (60) (60) (60) (50) (50) (50) (50) Other income (expense) 23 (24) (10) 210 1 (44) 3 ------Total other income (expense) (193) (408) (220) (373) (45) (228) (57) (60) (60) (60) (60) (60) (50) (50) (50) (50) Income before income taxes (14,835) (3,308) (3,744) (6,115) (2,355) (2,630) (1,572) (1,565) (1,450) (970) (1,310) (640) (440) (55) (175) 320 Reorganization Items Professional fees ------Provision to rejected executory contracts ------Loss before income taxes (14,835) (3,308) (3,744) (6,115) (2,355) (2,630) (1,572) (1,565) (1,450) (970) (1,310) (640) (440) (55) (175) 320 Provision for income taxes (4) - - - (4) - - - - (4) - - (4) - - - Net loss$ (14,839) $ (3,308) $ (3,744) $ (6,115) $ (2,359) $ (2,630) $ (1,572) $ (1,565) $ (1,450) $ (974) $ (1,310) $ (640) $ (444) $ (55) $ (175) $ 320 Weighted average shares outstanding 41,526 45,455 46,957 47,882 57,355 58,596 59,000 59,500 60,000 60,500 61,000 61,500 62,000 62,500 63,000 63,500 EPS - fully diluted (0.36) (0.07) (0.08) (0.13) (0.04) (0.05) (0.03) (0.03) (0.02) (0.02) (0.02) (0.01) (0.01) (0.00) (0.00) 0.01 Depreciation and Amortization 114 68 69 67 60 71 75 80 80 70 75 85 100 100 100 100 Stock -based compensation expense 12,927 1,906 2,791 4,353 1,527 1,134 1,200 1,250 1,250 1,250 1,300 1,300 1,400 1,400 1,500 1,500 Cash Earnings$ (1,798) $ (1,334) $ (884) $ (1,695) $ (772) $ (1,425) $ (297) $ (235) $ (120) $ 346 $ 65 $ 745 $ 1,056 $ 1,445 $ 1,425 $ 1,920 Cash Earnings (Loss) Per Share$ (0.04) $ (0.03) $ (0.02) $ (0.04) $ (0.01) $ (0.02) $ (0.01) $ (0.00) $ (0.00) $ 0.01 $ 0.00 $ 0.01 $ 0.02 $ 0.02 $ 0.02 $ 0.03 % of TOTAL REVENUE Operating expenses: Gross margin 4.7% 15.4% 26.9% -3.3% 8.9% 11.6% 33.3% 32.3% 34.3% 37.8% 35.0% 39.1% 40.0% 40.0% 40.7% 41.3% Sales & Marketing 32.6% 18.8% 25.7% 30.8% 36.9% 21.4% 14.0% 13.1% 12.4% 9.8% 11.3% 9.1% 8.8% 7.6% 8.5% 7.5% General & administrative 1230.4% 199.1% 174.6% 431.9% 189.3% 99.3% 68.3% 63.7% 59.7% 46.7% 53.1% 39.1% 36.3% 31.1% 32.6% 27.8% Research & development 29.5% 3.8% 1.1% 17.7% 1.4% 15.8% 1.5% 1.8% 1.9% 1.6% 1.9% 1.5% 1.5% 1.4% 1.5% 1.3% Total Operating Expenses 1292.5% 221.8% 201.4% 495.6% 227.7% 136.5% 83.8% 78.6% 74.0% 58.0% 66.3% 49.6% 46.5% 40.1% 42.6% 36.6% Operating Income -1287.8% -206.4% -174.5% -498.9% -218.8% -124.9% -50.5% -46.3% -39.7% -20.2% -31.3% -10.5% -6.5% -0.1% -1.9% 4.6% Net loss -1305.1% -235.4% -185.4% -531.3% -223.4% -136.8% -52.4% -48.2% -41.4% -21.6% -32.8% -11.6% -7.4% -0.8% -2.6% 4.0% % YEAR OVER YEAR INCREASE NET SALES -61.2% -67.8% -23.5% 27.6% -7.1% 36.9% 48.6% 182.4% 231.4% 134.0% 33.3% 69.2% 71.4% 55.6% 68.8% 45.5% Total Operating Expenses 342.8% -3.2% -40.7% -12.7% -83.6% -15.8% -38.2% -55.2% 7.7% -0.6% 5.4% 6.8% 7.7% 7.5% 8.5% 7.3% Operating Income 405.8% -1.0% -47.8% -16.0% -84.2% -17.2% -57.0% -73.8% -39.8% -62.1% -17.5% -61.5% -71.9% -99.5% -90.0% -163.8% Net loss 435.1% 20.0% -1327.5% -8.6% -84.1% -20.5% -58.0% -74.4% -38.5% -63.0% -16.7% -59.1% -69.4% -94.4% -86.6% -150.0% % SEQUENTIAL INCREASE NET SALES 26.1% 23.6% 43.7% -43.0% -8.3% 82.1% 56.0% 8.3% 7.7% 28.6% -11.1% 37.5% 9.1% 16.7% -3.6% 18.5% Total Operating Expenses 124.9% -78.8% 30.5% 40.3% -57.9% 9.2% -4.2% 1.6% 1.4% 0.8% 1.5% 3.0% 2.2% 0.5% 2.5% 1.9% Operating Income 114.2% -80.2% 21.5% 62.9% -59.8% 4.0% -36.9% -0.7% -7.6% -34.5% 37.4% -53.6% -32.8% -98.7% 2400.0% -396.0% Net loss 121.8% -77.7% 13.2% 63.3% -61.4% 11.5% -40.2% -0.4% -7.3% -32.8% 34.5% -51.1% -30.6% -87.6% 218.2% -282.9%

201 MDB Capital Group The Green Car Report November 10, 2008 ______

BALANCE SHEET BALANCE SHEET (000's) FY2006 FY2007 FY2008 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q ASSETS CURRENT ASSETS Cash and cash equivalents$ 2,610 $ 1,663 $ 306 $ 2,160 $ 2,561 $ 1,555 $ 739 $ 4,339 $ 2,514 $ 1,146 Accounts receivable 343 312 415 224 248 339 937 373 157 307 Inventories 2,060 1,852 2,386 2,347 2,017 1,883 1,881 1,437 1,959 1,345 Advances on Smart Car inventory 143 460 ------Prepaid non-cash professional fees - - - 715 903 425 463 283 170 91 Other prepaid expenses and other current assets 294 425 614 449 320 706 533 747 806 1,397 Total current assets$ 5,450 $ 4,712 $ 3,721 $ 5,895 $ 6,049 $ 4,908 $ 4,553 $ 7,179 $ 5,606 $ 4,286 Property, plant & equipment, net 4,905 5,144 4,780 4,466 4,420 4,358 4,346 4,471 4,282 4,235 OTHER ASSETS Smart Automobile license, net 2,703 2,314 ------Notes receivables Smart Automobile ------Licenses and distribution fee, net ------Goodwill 175 175 175 175 175 175 175 - - - Patents and trademarks 62 54 33 91 41 37 33 10 8 4 Prepaid non-cash professional fees, less current portion - - - 146 207 207 78 82 82 82 Deferred offering costs - - - 25 40 - - 20 17 - Deposits and other assets 430 576 616 18 63 97 85 176 318 415 Total assets$ 13,725 $ 12,975 $ 9,325 $ 10,816 $ 10,995 $ 9,782 $ 9,270 $ 11,938 $ 10,313 $ 9,022 LIABILITIES AND STOCKHOLDERS' EQUITY Current portion of long-term debt$ 104 $ 104 $ 104 $ 104 $ 1,679 $ 104 $ 104 $ 104 $ 104 - 8% Senior convertible notes - - - 2 144 1,829 1,721 546 357 475 Accounts payable 177 50 171 250 184 378 152 128 76 51 Accrued liabilities 2,176 1,533 1,602 2,703 2,745 2,645 3,357 2,259 1,648 1,936 Liability to Smart Auto - 7,052 ------Advances from related party ------License fee payable 906 ------Warrant liability - - - 300 ------Put option liability - 291 - 230 ------Note derivative liability - - - 1,189 ------Deferred revenue 1,100 1,089 1,206 1,190 1,026 910 753 752 710 637 Total current liabilities$ 4,463 $ 10,119 $ 3,083 $ 5,968 $ 5,778 $ 5,866 $ 6,087 $ 3,789 $ 2,895 $ 3,099 LONG-TERM LIABILITIES Long-term debt, less current portion 1,880 1,854 1,828 - 1,768 - - 1,724 - - Secured convertible note - - - 1,833 - 1,751 1,725 - 1,696 1,782 Other long-term debt - - - 5 ------Total liabilities$ 6,343 $ 11,973 $ 4,911 $ 7,806 $ 7,546 $ 7,617 $ 7,812 $ 5,513 $ 4,591 $ 4,881 Stockholders' Equity: Preferred stock 7,500 ------Common stock 80,395 84,272 87,242 91,227 106,529 108,552 111,589 122,672 122,777 123,832 Common stock issued as loan collateral (2,929) (2,929) (2,846) (1,549) (1,549) (1,549) (1,549) (1,549) - - Notes receivables from Stockholders (56) (56) ------Accumulated deficit (77,528) (80,285) (79,982) (86,668) (101,531) (104,838) (108,582) (114,698) (117,055) (119,691) Total stockholders' equity$ 7,382 $ 1,002 $ 4,414 $ 3,010 $ 3,449 $ 2,165 $ 1,458 $ 6,425 $ 5,722 $ 4,141 Total Liabilities and Stockholders' Equity$ 13,725 $ 12,975 $ 9,325 $ 10,816 $ 10,995 $ 9,782 $ 9,270 $ 11,938 $ 10,313 $ 9,022

202 MDB Capital Group The Green Car Report November 10, 2008 ______

Private Venture / Private Equity Companies

A123 Systems Aptera Motors Chrysler Coulomb Technologies Miles Automotive Phoenix Motorcars REVA Tesla Motors

203 MDB Capital Group The Green Car Report November 10, 2008 ______

A132SYSTEMS COMPANY OVERVIEW A123Systems is a private company founded in 2001 that is engaged in the production of high power, long life lithium ion batteries using its proprietary and patented Nanophosphate Technology. This technology was originally developed at the Massachusetts Institute of Technology. The company was founded by Dr. Yet-Ming Chiang, Dr. Bart Riley, VP of Research and Development and Ric Fulop, VP of Business Development and Marketing. Major investors in the company include General Electric, Motorola, Alliance Bernstein, Qualcomm, Sequoia Capital, North Bridge Venture Partners, CMEA Ventures, OnPoint and MIT. The name of the company “A123Systems” is derived from the name of the Hamaker force constant which is used to calculate the attractive and repulsive forces between particles at nano dimensions. The equation begins “A123”. A123’s research and product development efforts are focused on introducing new products and improving the performance of existing products. The company funds its research and development initiatives with both internal and external sources. Through March 2008, the company had invested more than $50 million into numerous research and development projects. An integral part of the R&D strategy is to have certain customers fund or partially fund projects efforts to design and customize batteries and battery systems for their specific applications.

The company began selling its first commercial products in the 1st quarter of 2006 and has generated (through March of 2008) $87.1 million in revenue, with $72.6 million from battery sales and $14.5 million from research and development activities. Revenues for the 2007 calendar year were $41.3 million and $10.3 million for the three months ended March 31, 2008. A123’s initial battery products were aimed at the portable power tool market. To date the company’s revenues have been highly concentrated with a single customer, Black & Decker and its affiliates. Sales to Black & Decker amounted to 55% of total revenue for the three months ended March 31, 2008. However, management expects this customer will become a much smaller percentage of sales now that the company has diversified to include higher energy dense cells for electric vehicles (EVs) and hybrid vehicles (HEVs). A123Systems currently manufactures over ten million cells annually making it the world’s largest producer of batteries with nanophosphate chemistry. Currently, several automakers are developing alternative fuel vehicles using A123Systems’ cells including Daimler, GM, Venture Vehicles and Th!nk Global. The company also provides customized power solutions for advanced applications in the government and aviation sectors.

The company has expanded its operations through a series of acquisitions including: • Enerland Co., Ltd. of South Korea – In August of 2007, A123 acquired all the outstanding capital stock of Enerland, a battery company, for $14.3 million in cash. The purchase price was financed from the proceeds received from a private placement of preferred stock in August 2007. • 2080418 Ontario Inc., d/b/a Hymotion – In February of 2007, the company acquired substantially all of the assets of Hymotion. This company has developed the Hymotion Battery Range Extender Module for converting HEVs to plug-in hybrids (PHEVs). The purchase price was $0.4 million and consisted of approximately $0.3 million of assumed liabilities and $0.1 million of directly related acquisition costs. • T/J Technologies, Inc – In January of 2006, A123 purchased all of the outstanding stock of.T/J Technologies, a company that provided contract research to various departments of the U.S. government. The price of $6.8 million consisted of cash of $1.6 million, 1.5 million shares of our series B-1 convertible preferred stock, valued at $5.2 million, and transaction costs of $0.1 million

The company operates manufacturing facilities in Asia which have the capacity to produce millions of battery cells per year. A123 has more than 400,000 square feet of manufacturing facilities worldwide. The company mass produces its cell from raw powder to finished batteries and battery systems using both its own facilities and third-party contractors. The primary manufacturing facilities are located in Changzhou, China in an export processing zone approximately 100 miles west of Shanghai. The production of the prismatic batteries occurs at facilities in Icheon, Korea and the company also has the capability to manufacture and assemble low volume battery modules and battery systems at our energy solutions group facility in Hopkinton, Massachusetts. A123Systems has over 1,100 employees and its headquarters are located in Watertown, Massachusetts. Recently, in August of 2008, the company filed with the SEC a registration statement for a proposed initial public offering.

204 MDB Capital Group The Green Car Report November 10, 2008 ______

A123SYSTEMS GREEN CAR TECHNOLOGY AND INITIATIVES A123Systems uses its nanoscale phosphate technology to produce an array of products from single cells to large format, integrated high-power systems that are applicable of providing power for wide variety of applications and industries. The company believes that its batteries and battery systems overcome the limitations of other currently available lithium-ion formulations and non-lithium-ion battery technologies. Its solution is based on proprietary nanophosphate chemistry originally developed at the Massachusetts Institute of Technology and is exclusively licensed to A123. The battery chemistry is supplemented with innovative battery designs and systems technologies that increase the performance for use in high-power applications. The company’s high power products deliver superior power by weight and/or volume in a cost effective solution. For the automotive sector, the company has developed the Automotive Class Lithium Ion™ cell which incorporates the proprietary Nanophosphate™ material and offers advanced features for hybrid applications including more power, improved safety and a longer battery life.

Nanophosphate is a positive electrode material that demonstrates superior characteristics critical to support high power systems. Nanophosphate particles exhibit high charge/discharge power and very low capacity loss even at high discharge rates. The company’s active materials are more stable than metal oxide based chemistries which allows for particles to be reduced to a nano level to obtain greater power densities without meaningfully reducing cell safety or life. In addition, nanophosphate cathodes are inherently more stable, experiencing less energetic reactions and leading to increased abuse tolerance. This is important in the battery management function as the individual cells are likely to be more easily balanced during charging and discharging. When it comes to life, A123Systems batteries have a projected calendar and cycle life of more than 10 years, which makes them ideal for automotive applications. The long life of the A123 cell is related to the stable impedance characteristics of the chemistry. According to the company’s research, even after almost 4,000 100% Depth of Discharge (DOD) cycles, cell impedance is essentially unchanged (see image), meaning that cells retain more power and experience less heat leading to reduced battery size and reduced applications costs.

Currently the company is primarily focused on developing a new generation of lithium-ion batteries and battery systems to serve applications and markets outside the historical domain of lithium-ion. A123 has already been successful at penetrating the power tool market and now turning its R&D efforts at applications that include HEVs, PHEVs and EVs, electric grid ancillary services and aviation batteries. These applications require battery systems having much higher total energy or power outputs than have been used in previous lithium-ion applications.

A123Systems’ technology and performance specifications have naturally attracted the attention of various automakers that are developing electric and hybrid vehicles. Currently the company has a number of partners and customers that have committed to use A123 battery systems in current or upcoming vehicle programs. In fact, the company has a commercial supply agreement with Th!nk Global to provide Nanophosphate lithium-ion batteries for the TH!NK City vehicle (see the image at right) which is now in production and on the market in Norway. Sales of the Th!nk City car in the U.S. and other countries are expected to in the near future. A123Systems was also selected to supply batteries for the BAE Systems’ Hybrid Propulsion System which powers commercial hybrid bus fleets. Other projects include an agreement

205 MDB Capital Group The Green Car Report November 10, 2008 ______to co-develop battery cell chemistry for use in GM’s electric drive E-Flex drivetrain system which will be used to power the Chevrolet Volt and other alternative power vehicles from GM.

A123Systems is also currently working with the Department of Energy as well as other government agencies and automotive OEMs to develop next-generation battery technology for HEVs and PHEVs. The company has received two significant awards from the Department of Energy's collaboration with the United States Advanced Battery Consortium, or USABC. In December 2006, A123 commenced the HEV battery development program with the USABC. This is a $15 million program, with a 50/50 cost share whereby USABC will provide us up to $7.5 million, designed to accelerate development of a high-performance, low cost HEV battery. The second award is a A123 USABC program for $12.5 million. This program is also with a 50/50 cost share, with a goal of developing high- energy, low cost PHEV batteries. The company is targeting the development of two different kinds of PHEV batteries, one with ten miles of electric equivalent range and the other with 40 miles of electric equivalent range. Since it is unclear what the future mix of alternative vehicles will be, the goal is to have a portfolio of products that will satisfy the demand for advanced batteries in a variety of applications.

A123systems is also developing its battery technology for the Electrical Grid Services market space. In February 2008, the company executed a joint development and supply agreement with AES, one of the world's largest power companies. Under this agreement, A123 will develop two multi-megawatt battery systems that will provide reserve capacity and regulation services to help preserve grid power quality and reliability. These systems may be used to offer electric grid ancillary services to utilities. The initial projects are planned in South America and the United States, and it is expected that these units will commence deployment in 2008. This agreement was amended in July 2008 and AES committed to purchase a total of 25 additional battery system units, either directly or through designated affiliate companies, for delivery in 2009.

Another recent initiative on the part of A123Systems is the development and launch of its Hymotion product line. These products are plug-in conversion modules (PCM) that allow the battery pack in a certain hybrid vehicles to be swapped out/exchanged for a plug-in battery pack. This conversion allows for the battery to be recharged from a wall outlet as well as while the car is running. A123Systems’ Hymotion product line is the only fully tested PCM that meets or exceeds federal requirements for crash-worthiness and emissions. A123Systems has been selling Hymotion Plug-in Conversion Modules to fleet and government buyers, with more than 50 vehicles currently on the road in corporate and government demonstration programs. More recently A123 has engineered and is now offering a L5 Plug-in Conversion Module (PCM) for owners of the Toyota Prius (see image above). The company believes the L5 PCM will enable a Toyota Prius to obtain fuel economies of more than 100 miles per gallon.

In late October of this year, GE announced at the Battery Technology Symposium that is was investing an additional $30 million in A123Systems. GE purchased $30 million A123’s $102 million Series E financing bringing GE’s equity ownership up 9% ($55 million) and making GE the largest single cash investor in A123. This latest investment provides a market valuation for A123 of roughly $611 million or more than 15 times 2008 1st quarter’s annualized revenues. The relationship with GE is more than financial as A123 is participating in the research and technology development expertise of GE Global Research to design battery system components for automotive programs. Specifically, A123Systems says that it is participating in GE’s exploration of a dual battery system—the combination of two battery chemistries, one biased toward power and the other toward energy, into a single battery pack, in a DOE- funded project with Chrysler.

Beyond the green car market opportunities, GE’s battery focus is also aimed at bringing a hybrid locomotive to market. GE (and by association A123) is also evaluating hybrid technologies for other transportation platforms such as tugboats and buses.

206 MDB Capital Group The Green Car Report November 10, 2008 ______

A123 MANAGEMENT David Vieau, President and CEO David Vieau is the President and CEO of A123Systems. Mr. Vieau has served as A123Systems only President and CEO, joining the company in March of 2002, three months after the company’s initial financing. He brings more than thirty years of experience and leadership in developing rapid-growth technology and component businesses. Applying his expertise to A123Systems, Mr. Vieau has led the expansion of A123 from its initial creation to currently more than 1,100 employees, and through more than $250 million in private financing. Prior to A123Systems, Mr. Vieau held corporate officer positions at American Power Conversion [NASDAQ: APCC], serving as VP of Marketing and VP of Worldwide Business Development. During his nine years at APC, Mr. Vieau helped grow the company from $50MM to $1.5B, becoming the world leader in power protection for PC and IS markets and employing 6,000 globally. Mr. Vieau serves as a Board Member for Avocent, a leading global provider of IT infrastructure management solutions for enterprise data centers. He earned a Bachelor of Science Degree in Mechanical Engineering from Syracuse University in 1972.

Grace Chang, Vice President of Manufacturing Grace Chang is responsible for A123Systems’ cell assembly and pack manufacturing operations. Grace brings more than twenty years of cell engineering and manufacturing experience for tier 1 accounts. Prior to A123Systems, Grace was a co-founder of E-One Moli Energy Corporation. As the director of the production division at E-One Moli, she was responsible for directing the activities of production staff and for executing future expansion plans. Grace also held senior positions at Nexcell, Shin-Shin-Shin technology and CSIST, where she conducted research and engineering in lithium cell, silver-zinc, fuse and sea water battery technology.

Dr. Yet-Ming Chiang, Co-Founder Dr. Yet-Ming Chiang, a co-founder of A123Systems, is also a full professor in the Materials Science and Engineering Department at MIT. Dr. Chiang’s research at MIT focuses on the design and synthesis of advanced materials, and the development of new devices enabled by material advances, including new energy storage and mechanical actuator technologies. In 1987 he co-founded American Superconductor [NASDAQ: AMSC]. He has published widely in materials science and engineering, and served on numerous government panels and editorial boards of journals in his field. Prof. Chiang has a SB Materials Science and Engineering, MIT, 1980 and a ScD Ceramics, MIT, 1985.

Ric Fulop, Co-Founder and Vice President of Business Development Ric Fulop co-founded A123Systems in 2001 to commercialize novel technology developed at the Material Sciences and Engineering Department at MIT and is Vice President of Marketing and Business Development for the company. One of Ric's greater goals for A123Systems is to help promote clean energy technologies that can improve the world's carbon cycle by providing compelling energy storage solutions to the transportation, and electric grid services markets. His experience in entrepreneurship includes founding six technology companies that have raised over $370M in industries as varied as energy storage, software, semi-conductors and wireless communications. Ric has an MBA from the MIT Sloan School of Management where he was a Sloan Fellow.

Michael Rubino, CFO and Vice President of Finance and Administration With more than twenty-five years experience leading the financial and operational development of high-growth venture capital and publicly traded companies, Mike brings a wealth of financial leadership and senior executive experience to A123Systems. Michael has extensive experience in managing venture capital funded companies through all stages of growth. Prior to A123Systems Mike was the Chief Financial Officer of Maker Communications (acquired by Conexant Systems after a successful IPO), Agile Networks (acquired by Lucent Technologies), Ellacoya Networks, and Telephotonics (acquired by DuPont).

Dr. Bart Riley, Co-Founder, CTO and Vice President of R&D Dr. Bart Riley has more than fifteen years of experience in technology development and commercialization in the advanced materials, portable power and superconductor industries. Prior to co-founding A123Systems, Bart held a number of key development and management positions over an 11-year career at American Superconductor. In his most recent role, he was Senior Manager in Corporate Engineering where he led Research for Superconductor Wire Products. Dr. Riley holds more than 40 patents and has published over 80 papersin the field of advanced materials. Bart has a Ph.D. and M.S. degrees in Materials Science and Engineering from Cornell University and a B.A. in Physics and Geology from Middlebury College.

207 MDB Capital Group The Green Car Report November 10, 2008 ______

APTERA COMPANY OVERVIEW Aptera Motors (formerly Accelerated Composites based in San Diego, CA) is developing lightweight, low cost composite-based electric and plug-in hybrid vehicles. The company is located in Carlsbad, California and is now accepting pre-orders for its cars through its web site. The first Aptera (Greek for “wingless”) prototype was a three- wheeled two-seater, the Mk-o, and was a parallel hybrid diesel with no electric assist. The prototype averaged 230 miles per gallon at 55 miles per hour. However, the company had to re-design, re-engineer and refine the Aptera Mk-o due to emissions considerations and the unfeasibility of obtaining the necessary emissions certificate in California for a small Diesel engine. Therefore, the newer model, theTyp-1h (series plug in hybrid), uses a small, water-cooled electronic fuel injection 20(EFI) Gasoline engine with closed loop oxygen feedback and catalytic converter. This engine is coupled to a lightweight 12KW starter/generator making it very clean and quiet.

In March 2008, Steve Fambro, the founder of Aptera, revealed that Aptera Motors was pursuing "other projects that are certainly more mainstream." Industry analysts believe this statement could be a reference to "Project X," a four- wheeled five-passenger model first publicly discussed in December 2007.

APTERA GREEN CAR INITIATIVES Aptera will also produce the Typ-1 car in an all-electric configuration. Both models are anticipated to consume 80 watt- hours/mi at 55 mph, about half the energy needed to propel the record-holding EV121. For the all electric model (see image at the right), this means a 120 mile range on 10 kWh of electricity or an equivalent of about 340 mpg. For the hybrid vehicle, this performance leads to projections of 130 mpg on gasoline alone, or 300 mpg if plugged in every 120 miles.

Based on the wheel layout and weight, the Aptera Typ-1 is registered as a motorcycle. Despite the motorcycle designation Aptera has made safety a number one priority and is a fundamental part of the vehicle design. As an example, the roof on the Typ- 1 is designed to exceed the rollover strength requirements spelled out in Federal Motor Vehicle Safety Standards (FMVSS) number 216 for passenger vehicles. The doors also exceed the strength requirements spelled out in FMVSS number 214. The goal was to not just to meet many of the specs for passenger vehicles, but to exceed these standards whenever possible. Included in the safety systems on the Typ-1 are airbag-in seatbelt technology and a front subframe and a firewall that redirect energy around the occupants.

The Typ-1e has two front wheels steering, and the rear wheel is driven by the electric motor. The Typ-1 uses a commoditized, 'ruggedized' 3-phase motor controller designed for vehicular applications, and a 3-phase motor made for Aptera by a company Southern California (see image at the right). The rear drive suspension, and the drive reduction, are all designed and made by Aptera. Since the Typ-1e (electric) and the Typ-1h (series plug in hybrid) have different battery needs, this may result in different battery manufacturers for the two models. The Typ-1e is designed to use a 10 KWh pack, while the Typ-1h uses a smaller pack. The cycles and DOD are different for both applications. The company will announce further information regarding the battery lifespan and warranty policy well before it begins manufacturing the Typ-1 late in 2008. The Lithium phosphate batteries are located in the area in front of the driver, behind the headlights. The typical recharge time is estimated at 2-4 hours. The car is also equipped with solar panels on the roof that will be capable of charging the battery during the day. The energy generated by the solar cells embedded under the roof will also power the climate control system. The controller (DMOC445) and the

20 A means of metering fuel into an internal combustion engine. EFI replaces carburetors as a method to meter fuel. 21 The EV1 was the first modern production electric vehicle from a major automaker and also the first purpose-built electric car produced by General Motors (GM) in the United States.

208 MDB Capital Group The Green Car Report November 10, 2008 ______motor (AC24LS) both are from Azure Dynamics, a developer of electric and hybrid electric technology for light and heavy duty commercial vehicles. The battery will also be paired with supercapacitors 22 for acceleration and braking.

The Typ-1h, as mentioned above, uses a small, water-cooled EFI Gasoline engine with a tank capacity of up to five gallons. In the design of the plug-in series hybrid this engine is not connected directly to the drivetrain, but instead is used to recharge the batteries.

The Aptera is a "two plus one" concept -- two adults can fit comfortably in the driver and passenger seat, and a removable third seat is located in the back for infants. For durability as well as weight and cost savings, the majority of the Typ-1e is constructed top and bottom from advanced composite structures bonded together along the midsection. With the top and bottom weighing in at a mere 160 and 180 pounds, respectively, the entire vehicle sits at approximately 1480 pounds today. Everything about the body of two models (electric and hybrid) is identical with air vents to cool the gasoline engine already included in the shell. The only exception is an oval hole under bottom of the nosecone to accommodate the exhaust on the Typ-1h.

The company announced that the Aptera Typ-1e is now available for reservations and plans to begin production of the all-electric in late 2008 and the hybrid in early 2010. Aptera Motors has received around 4,000 refundable deposits (see chart below) for Typ-1s models. The company says it already has 400 pre-orders, without having done any advertising to this point The approximate price tag for the Aptera Typ-1e electric model is $27,000 and the Typ-1h plug-in hybrid model $30,000. (Prices are subject to change any time before beginning production). Steve Fambro, founder and CEO of the three-wheeled electric vehicle, says the company expects to be profitable once it has sold 2,000 vehicles, forecasted to take place in the second year of sales.

Aptera’s cabin (see image above) comes furnished with sustainable EcoSpun23 materials on the dash, door panels and seats. You can toggle a small switch between the seats for Park, Drive, Neutral and Reverse. The Aptera Typ-1 uses a rearview system with three cameras that display images on small dash panels offering a 180- degree view behind the vehicle. The vehicle’s vital information (speed, battery life, etc.) is displayed on one of these screens too. The large central screen, meanwhile, houses a navigation and audio system.

For the immediate future Aptera will only sell its car in the state of California, but plans to expand its distribution to other states in future years. The limited roll out is to insure that the company will have an adequate high-quality service infrastructure in place for the early buyers of its cars. In addition, the company will save management time and money by obtaining the needed marketing certifications in other states only as really needed.

Steve Fambro, CEO/co-founder, invested around $100,000 to found Aptera Motors and other investors have injected another $24 million in a Series “C” convertible note.

22 Supercapacitors offer a unique combination of high power and high energy. Supercapacitors are capable of very fast charges and discharges, and are able to go through a large number of cycles without degradation. 23 EcoSpun is a polyester fiber made from 100% recycled plastic bottles.

209 MDB Capital Group The Green Car Report November 10, 2008 ______

APTERA MANAGEMENT Steve Fambro CEO/co-founder Steve grew up in Georgia learning how to work on cars well before he could drive. After four years in the Army repairing electronics, at almost 30, he decided to pursue his engineering degree and put himself through college while working as a freelance programmer and building custom loudspeakers. Working in the biotech industry at Illumina, Steve contributed greatly to their patent portfolio and efficiency, while successfully bringing several projects from R&D into manufacturing. Steve also brought a great deal of automation and IP to traditionally labor-intensive manufacturing steps helping to ensure Illumina's market dominance. While most of his colleagues left to start their own biotech firms, Steve left Illumina in 2006 to start Aptera. Starting from his garage and teaching himself composites, he has since grown the company to 15 employees, completed the pre-manufacturing phase of development, and raised two-rounds of funding from outside investors. Steve has a BSEE from the University of Utah and enjoys flying composite airplanes.

Chris Anthony COO/co-founder Chris also founded Epic Boats LLC and grew it from the ground up to become one of the most well recognized brands in its market segment. Through Epic Boats he has developed many useful design and prototyping techniques that have been extremely valuable to Aptera's initial growth process. In conjunction with Epic's building out a manufacturing facility in the Northwest, he also developed a resin infusion process that is currently recognized as the World's Leading Large Part Composite Manufacturing Method in use today, with several patents forthcoming. Chris has a legacy in hydrodynamic and aerodynamic theory, which he has put to use in the design of several Olympic Class Whitewater Kayaks and Man Made Whitewater Courses. His skills in operations management, part design and assembly have been invaluable in the development of the Aptera and its unique build processes. Chris holds a degree in Finance from The University of North Carolina, a brokerage and insurance license, and various technical certifications in computer programming and network management.

Neil Hannemann SVP of Program Management & Manufacturing Neil was a GMI grad (BSME), and started early in his career at GM. There, he assembled and directed an engineering team responsible for the aerodynamic development of NASCAR Winston Cup cars, including the design and manufacture of stamped steel racecar body panels, composite front and rear fascias, and Lexan windshields. From there, he did a stint in a crash sled lab and went on to spend many years with DaimlerChrysler, where he focused on hard-core product development in chassis, suspensions, powertrain, and body structures. During his time there, Neil also held the Viper and NASCAR program manager posts. He then went to work at Saleen, where he managed the development of the S7, a limited-production, 200mph American Supercar. Next, Ford Motor Company hired Hannemann to run its Supercar GT program. Upon completion of the GT, Neil moved on to McLaren Automotive— another household name in the niche car industry—overseeing all aspects of engineering and technical integrity for products, including a new mid-engine sports car for Mercedes-Benz.

210 MDB Capital Group The Green Car Report November 10, 2008 ______

CHRYSLER COMPANY OVERVIEW Chrysler LLC is an American automobile manufacturer founded in 1925. Through its subsidiaries (Chrysler, Dodge, Jeep, GEM, ENVI and Mopar), Chrysler designs, manufactures, assembles, and sells a full range of cars, minivans, full and mid-size trucks; sport utility vehicles; and full-size vans. Chrysler also sells parts and accessories and provides vehicle financing or leasing through its Chrysler Financial division.

From 1998 to 2007, Chrysler and its subsidiaries were part of the German based DaimlerChrysler (now Daimler AG) after the two companies merged in 1998. Prior to 1998, Chrysler Corporation traded under the "C" symbol on the NYSE. In 2007, DaimlerChrysler AG announced the sale of 80.1% of Chrysler Group to American equity firm Cerberus Capital Management, L.P. and continues to hold a 19.9% stake in the company. The deal was finalized in August of that same year. The name of the company was changed to Chrysler LLC and a new logo was unveiled and Mr. Robert Nardelli became Chairman and CEO of Chrysler.

Chrysler has 15 years of experience working with environmentally-friendly alternative energy vehicles. The company assembles and markets GreenEcoMobility (GEM) low-speed personal electric vehicles and is now preparing to deliver its first all electric passenger cars in 2010.

CHRYSLER GREEN CAR INITIATIVES For the past 15 years, Chrysler has been investing in environmentally-friendly innovations. The company currently offers several green car models, including battery electric personal vehicles such as the GEM low-speed vehicles, also known as Neighborhood Electric Vehicles (NEVs), as well as all-electric and hybrid electric options from Chrysler, Jeep and Dodge.

GEM Since 1997, GreenEcoMobility (GEM, formerly stood for Global Electric Motorcars), a wholly owned subsidiary of Chrysler LLC, has been pioneering environmentally-friendly alternative transportation. GEM assembles and markets battery-powered neighborhood electric vehicles. GEM vehicles were the first NEVs available for sale from a major automaker and engineered to meet federal safety requirements for street-legal operation as a low-speed vehicle (LSV). These multipurpose vehicles are designed for: fleet services, hospitals, military bases, airports, college and industrial campuses, parks and planned communities. There are currently more than 38,000 GEM vehicles in use around the world, with the majority of these vehicles operating in the U.S. and California being the strongest market.

GEM cars are driven by a 72-volt battery system, which powers the electric drive motor allowing a top speed of 25 mph and a range of up to 30 miles on a single charge. These cars plug into a standard 110-volt outlet and charge in approximately 6 to 8 hours. They produce zero tailpipe emissions and offer an eightfold greater fuel efficiency and lower cost of ownership than a standard internal combustion vehicle.

GEM cars are available in six models: the GEM e2 two-passenger, the GEM e4 four-passenger, the GEM e6 six- passenger, the GEM eS two-passenger with a short-back bed, the GEM eL two-passenger with a long-back bed, and the GEM eL XD two-passenger extra duty with a long-back bed.

Chrysler recently presented the new GEM Peapod (right), a low-speed electric vehicle designed primarily for city use. The Peapod is more car-like in its look than previous GEM models and has a real enclosure with four doors. The dashboard incorporates iPod and iPhone integration. The Peapod is expected to be available for sale next year.

In addition, GEM also has plans to launch "a new light-duty, battery electric commercial truck and a larger city electric

211 MDB Capital Group The Green Car Report November 10, 2008 ______vehicle, with more range and performance", which according to some reports may be an electric version of the Tata Ace.

ENVI ENVI, Chrysler’s new electric vehicle team established in September 2007, operates semi-independently but with access to all of Chrysler's engineering and research resources to design and develop electric-drive vehicles and related technologies. The division led by Lou Rhodes specifically deals with new all-electric and hybrid vehicles not based on existing models. It plans to deliver fuel-less electric vehicles that produce zero tailpipe emissions and extremely fuel- efficient range-extended electric vehicles, which use an electric-drive system powered by pure electricity for the first 40 miles and then rely on electricity that is produced by an integrated internal combustion engine and generator that produces 50% fewer CO2 emissions than a comparable vehicle. The company has unveiled three pre-production models from Chrysler, Jeep and Dodge described below, the first of which is planned for delivery in 2010 for North America, followed soon after by European markets.

• Dodge EV – A two-passenger rear-wheel-drive sports car with responsive, agile performance with a high torque of the 200 kW (268 hp) electric-drive motor that accelerates the Dodge EV to 60 mph in less than five seconds, with quarter-mile times of 13 seconds and top speed of more than 120 mph. It uses advanced lithium-ion battery technology for a continuous driving range of 150 to 200 miles and plugs into any standard 110-volt household outlet to charge for eight hours. • Jeep EV –The Jeep EV is a four-passenger SUV with an electric motor and advanced lithium-ion battery system for the first 40 miles. For longer drives, a small gasoline engine with an integrated electric generator produces additional energy needed to power the electric-drive system - up to 400 miles on eight to ten gallons of gas. Also features 200 kW (268 hp) power, two-wheel or four-wheel drive, regenerative braking and a performance of 0 to 60 mph in 9.0 seconds and top speed of more than 90 mph. • Chrysler EV –The Chrysler EV is a Town & Country range-extended seven-passenger electric minivan with an electric drive system with an integrated small-displacement engine and generator to produce additional electricity to power the electric-drive system when needed and promises greater fuel efficiency with eight to ten gallons of gas yielding 400 miles. Also features 190 kW (268 hp) power, regenerative braking, a 22 kWh lithium-ion battery and performance of 0 to 60 mph in 8.7 seconds and top speed of more than 100 mph.

Hybrid Hybrid technology uses electric motors and an internal combustion engine. Most hybrid vehicles are single mode systems that can operate on gas, electric, or both. However, Chrysler, together with General Motors and BMW AG, has developed a two-mode HEMI hybrid system with Electrically Variable Transmission (EVT). The vehicle can operate in electric-only, engine-only, or a combination of the two. The first mode is for low speeds and in this mode the engine is shut off and fuel consumption is reduced significantly, especially in heavy stop-and-go traffic where regenerative braking harnesses the energy normally lost when braking and uses it to charge the battery.

The second mode is for higher speeds. The system utilizes the full power from the 5.7 L HEMI V-8 engine and in the third mode receives an electrical assist. This feature improves passing and acceleration performance without sacrificing fuel economy, while providing the capability of a full-size SUV. A controller determines which mode the vehicle should operate in and the most efficient combination of electric and engine power. The two-mode architecture is more efficient than traditional hybrid systems and the powertrain adjusts at different speeds to yield the most efficient use of power, which will deliver almost a 40 percent fuel economy improvement in city mileage and nearly 25 percent improvement overall.

The first Chrysler LLC products to feature this technology would have been the 2009 Dodge Durango Hybrid and 2009 Chrysler Aspen Hybrid. However plans for the release of these models were scratched as Chrysler recently closed down the assembly plant where they were to be manufactured. However, plans continue for an all-new Dodge Ram 1500 pickup hybrid for 2010. The Dodge Ram HEMI Hybrid will combine a two-mode hybrid system with a 5.7-liter HEMI V-8 engine. In addition, Chrysler has been experimenting with a Hybrid Diesel truck for military applications.

Biofuels Chrysler LLC has a strong collaboration relationship with research organization NextEnergy Inc. and Biodiesel Industries Inc., developing advanced renewable fuels for the future. These partners focus on research targeting biodiesel fuel development, technical innovation, and the development and refinement of industry standards for the rapidly growing biodiesel industry.

Chrysler LLC is also the industry leader in supporting the development of a national standard for B20, or 20 percent biodiesel fuel. In order for the industry to produce, sell and warranty vehicles that run on B20, a strong national standard is critical. Chrysler predicts that 50 percent of Chrysler vehicles will be capable of running on alternative fuels such as ethanol and biodiesel by 2012.

212 MDB Capital Group The Green Car Report November 10, 2008 ______

Diesel Vehicles

• Jeep Grand Cherokee (3.0-liter CRD engine) • Dodge Ram (6.7-liter Cummins turbo diesel engine) • Dodge Sprinter (3.0-liter CRD engine) (approved for the use of B20)

Flex Fuel Vehicles

4.7-liter engines: • Jeep Grand Cherokee • Jeep Commander • Dodge Durango • Chrysler Aspen • Dodge Ram • Dodge Dakota

2.7-liter engines: • Dodge Avenger • Chrysler Sebring Sedan and Convertible

CHRYSLER MANAGEMENT Robert L. Nardelli, Chairman/CEO Mr. Nardelli joined Chrysler LLC in August 2007 as Chairman and Chief Executive Officer and as a member of the Board of Directors, Chrysler LLC. Prior to joining Chrysler, Nardelli served as Chairman, President and CEO of The Home Depot beginning in 2000. Nardelli began his career at GE in 1971 and advanced through a series of leadership positions in the company's Appliances, Lighting and Transportation Systems business units. In 1988, he left GE to join Case Corporation in Racine, Wis., where he led Case Construction Equipment's global business. He returned to GE in 1992 and was ultimately named President and CEO of GE Power Systems and Senior Vice President of General Electric. He has an MBA from the University of Louisville.

James Press, Vice-Chairman/President Mr. Press joined Chrysler LLC as Vice Chairman and President in September 2007. He also serves in the new Office of the Chairman and on the Board of Directors of Chrysler LLC. Press became Vice Chairman of the Board of Managers of Cerberus Operations and Advisory Co. (COAC), LLC in the same month. At Chrysler, he is responsible for North American sales, international sales, global marketing, product strategy and service and parts. Prior to joining Chrysler, Press was President and Chief Operating Officer of Toyota Motors North America and a Senior Managing Director of the parent company, Toyota Motor Corporation. Mr. Press has a Bachelor of Science from Kansas State College (now Pittsburgh State University).

Frank O. Klegon, Executive Vice-President/Product Development Mr. Klegon was appointed Executive Vice President - Product Development, Chrysler LLC on August 6, 2007. In this position, he leads all product development teams, product development strategy and advance vehicle engineering. In addition, Klegon is responsible for areas involved in the product development processes, testing, validation and quality. He is a member of the Board of Trustees of the Detroit Science Center in Detroit, Mich. Prior to this position, Mr. Klegon was Vice President – Product Development Process and Components for Chrysler, overseeing the core component and system teams. He joined Chrysler Corporation in 1985 as Manager – Product Engineering. He earned an MBA from the Michigan State University, and a B. S. in Electrical Engineering from the Wayne State University.

213 MDB Capital Group The Green Car Report November 10, 2008 ______

COULOMB TECHNOLOGIES COMPANY OVERVIEW Coulomb Technologies provides public infrastructure space, products and services for curbside charging of plug-in hybrid electric and electric vehicles. Coulomb’s ChargePoint Network addresses the needs of drivers, utilities, governments, and parking space owners.

The company was founded in 2007 by six entrepreneurs and executives from Cisco Systems, Lucent Technologies, 3Com Networks, Echelon Corporation, and Tesla Motors. Coulomb has several patents filed. The company forms and maintains alliances with automakers, utilities, and municipalities, all of which are working toward building a sustainable, scalable business model to enable a publicly accessible smart charging infrastructure for plug-in vehicles. Coulomb Technologies is headquartered in Campbell, California.

COULOMB TECHNOLOGIES GREEN CAR INITIATIVES Coulomb Technologies was created to address the growing need for an adequate public infrastructure to charge a plug-in electric vehicle. With just 54 million garages for the 247 million registered passenger vehicles in the U.S., many potential consumers of plug-in vehicles do not have a space to charge such vehicles, and in addition, studies show that most drivers will want to charge their cars more than once a day. Thus as expected demand for plug-in vehicles grows led by major automakers like GM, Toyota and Nissan, which have announced the delivery of plug-in vehicles to the U.S. market by 2010, charging stations located in public and private parking areas will become a necessity.

In response, Coulomb Technologies offers the ChargePoint Network, a family of products and services that provide a charging infrastructure for plug-in vehicles. The ChargePoint Network consists of Smartlet Charging Stations located in public and private parking areas. The charging stations are sold as capital equipment to business customers such as municipalities, parking lot and parking structure owners. Charging access is sold to drivers of electric, plug-in hybrid electric or neighborhood electric vehicles as a subscription service.

The ChargePoint Network benefits drivers, parking space owners, electric utilities and governments:

• Drivers benefit from convenient, easy-to-use charging stations. • Municipalities and other parking lot owners can provide charging stations that are easy to install and maintain and are profitable through a recurring income stream. • Electric utility companies and grid operators are provided with a means to control the load that plug-in vehicles put on the grid. • A revenue flow from charging subscriptions provides the money needed to pay for capital, energy, maintenance, and taxes.

214 MDB Capital Group The Green Car Report November 10, 2008 ______

Each Smartlet charging station is individually controlled through the wireless Smartlet Communications Network and the ChargePoint Network Operating System to provide user authentication and real-time monitoring that enables a “pay for what you use” model. Users subscribe to the ChargePoint Network and receive an RFID key fob that allows them to charge their car at any Smartlet. The ChargePoint Network also provides web portals for subscribers, hosts and utilities. Functions include user authentication, access control, energy flow control, location management, utility company policy administration, user portal, host property portal, utility portal and GPS system interface.

There are currently three models of Smartlet charging stations, pictured right.

• Smartlet CT1000 110V Pole Mount Model: straps onto a streetlight and uses the conduit already available at a streetlight pole, therefore reducing installation costs. This model only supports 110V/15A charging. • Smartlet CT1000 110V Bollard Model: stands on its own and is designed for curbside and parking structure installation. It supports 110V/15A charging. • Smartlet CT1000 Dual Mode (110V and 220V) Bollard Model: also stands on its own and supports 110V 15 Amp and 220V 15A charging.

Each Smartlet charging system will likely cost between $1,000 and $2,000 to set up. The city of San Jose recently signed a two year contract to install and test these systems.

COULOMB MANAGEMENT Richard Lowenthal, CEO/Co Founder From 1998 to 2006 Mr.Lowenthal provided business formation consulting services for high-tech startup firms as sole proprietor of Berteleda Consulting. Through his consulting firm, he has been involved in starting several companies, including Lightera, Pipal Systems and Procket Networks. From 1996 to 1997, he was VP and general manager of Cisco's WAN Access Products Division. From 1990 through 1995, he was vice president of Research and Development for StrataCom, a telecommunications product development and manufacturing company. Prior to StrataCom, Mr. Lowenthal was co-founder and VP of Engineering for Stardent Computers, a high-performance computer company in Sunnyvale, California. Mr. Lowenthal was also vice president of Engineering for Convergent Technologies in San Jose. Mr. Lowenthal is also a former Mayor of Cupertino, California. He is currently Chair of the Board of the YMCA's of Santa Clara Valley. Mr. Lowenthal has a BS degree in Electrical Engineering from UC Berkeley.

Praveen K. Mandal, President/Co Founder Mr. Mandal brings to Coulomb Technologies more than 18 years of experience. Prior to Coulomb, he was VP of research and development for Carrier Ethernet Solutions at Lucent Technologies. Before joining Lucent, Mr. Mandal was the VP of engineering at Riverstone Networks. He joined Riverstone when Pipal Systems, where he served as CEO and Founder, was acquired. Before founding Pipal, he held consulting and Venture Partner positions with numerous Venture Capital firms in Silicon Valley. Mr. Mandal is a veteran of five successful start-ups, including Redback Networks, Global Internet and ZeitNet. He holds a B.S. in Computer Engineering from Santa Clara University.

Harjinder S. Bhade, Vice President of Engineering-Software Mr. Bhade has been in the networking field for more than 20 years, delivering highly scalable, fault-tolerant systems for the world's most demanding applications. He has held variety of roles in this field, ranging from software engineer, to senior director of engineering, to positions in product quality and project management. Prior to Coulomb Technologies, Mr. Bhade was senior director of engineering at Lucent Technologies and Riverstone Networks. He holds a B.S. degree in computer science from Chico State and an MBA from the University of Phoenix.

Dave Baxter, Founder and Vice President of Engineering, Hardware Dave Baxter is a technology innovator and product developer. Mr. Baxter has held many senior management positions, including vice president of engineering at 3Com Corporation, where he led the development of numerous router based products, and vice president of engineering at Adept Technology, where he developed multiple generations of assembly robots and flexible automation controllers used in factories and food packaging plants worldwide. Mr. Baxter received a B.S. from the Engineering College at Cornell University.

215 MDB Capital Group The Green Car Report November 10, 2008 ______

MILES ELECTRIC VEHICLES COMPANY OVERVIEW Miles Electric Vehicles was founded in 2004 by entrepreneur Miles Rubin with the goal to rapidly develop advanced all electric vehicles to reduce gasoline consumption and carbon emissions while meeting the transportation needs of organizations and consumers. The company’s first vehicles include two low speed (by law these are vehicles that do not exceed 25 miles per hour) cars and a low speed truck. All three are completely electric vehicles, emit zero tailpipe emissions and operate at a very low cost per mile. These performance specifications make the cars and truck ideal fleet customers. Current fleet customers include several universities in California, NASA, the US Navy, and the National Park Service. The company is also working on prototypes of an affordable highway speed sedan.

Miles Electric Vehicles is owned by Miles Automotive Group, Ltd, and headquartered at the Santa Monica Airport in Santa Monica, CA.

MILES ELECTRIC VEHICLES GREEN CAR INITIATIVES As mentioned above, Miles Automotive was founded in 2004 with the goal of delivering all-electric vehicles to the market place. Miles’ first entries were into the low-speed vehicle market. Low speed vehicles have a government mandated top speed of 25 mph and as such have lower certification standards for sale in the U.S. In 1999 the National Highway Transportation Safety Administration (NHTSA) published the Standard 500 regulation. This set of standard was written to regulate golf carts, which were starting to be used on public roadways in retirement communities.

Standard 500 limits low-speed vehicles to 25 miles per hour on roads and added other standards to improve safety such as DOT glass and DOT safety belts. With Standard 500 came the real genesis of the neighborhood electric vehicle (NEV), or the low-speed vehicle, market. During the last decade, more than 77,000 NEVs have been sold throughout the United States.

Miles Electric Vehicles currently sells three low speed models: the ZX40, the ZX40ST (work truck), and the ZX40S advanced design car (see right). These models are manufactured in China, utilize lead-acid battery cells, have a range of 40 to 60 miles on a single charge and the battery life is estimated at 25,000 miles on a single charge and the charging time is roughly 4 to 6 hours on a standard 120v power supply. The ZX40S is built with a newer 72 volt brushless AC motor, giving it a longer range, better acceleration and more load capacity. This same motor is in the work truck. Through 2007 Miles Automotive delivered more than 500 low cars and trucks to fleets, primarily for use on campuses and bases. In 2008, the company is on track to deliver about 2,000 vehicles. These vehicles retail for about $18,000 and are now eligible for a $1,500 rebate in California.

For the future, Miles Automotive is working hard to bring its XS500 prototype to the market. The XS500 (see image at the left) is a full sized, four door, highway speed sedan anticipated to be available for sale to consumers by late 2009. The car was designed by Pininfarina and was funded in part by a $15 million equity investment in Miles by the Angeleno Group.

The car is based on an existing Chinese vehicle made by First Auto Works (FAW) and is anticipated to travel at speeds in excess of 80 mph for a distance of roughly

216 MDB Capital Group The Green Car Report November 10, 2008 ______

120 miles on a single charge. The all electric car uses lithium ion iron phosphate batteries manufactured by a partner, Lishen Battery Co. located in Tianjin, China. These battery packs for the XS500 are designed to deliver 125,000 to 150,000 miles before requiring replacement. They are expected to require 4-6 hours to charge at home using a 220 volt current, and store up to 25 kilowatt-hours. The XS500 will also employ the AC motor and is expected to retail for under $40,000. This is considerably lower than the projected price of the Tesla, the Quantum Fisker, or even the Phoenix highway speed electric vehicles. It is quite possible that the Miles XS500 will be the first affordable all electric, full sized vehicle to hit the U.S. roadways. The company is hopeful of producing 18,000 highway-speed cars the first year and move to 38,000 the second year.

MILES ELETRIC VEHICLES MANAGEMENT Miles Rubin Chairman/Founder In early 2004 he founded Miles Electric Vehicles to develop a line of safe, affordable, all electric vehicles that produce zero emissions. He centered the company's activities in Tianjin, China, where the battery industry had expert manufacturing experience. Since then, Miles Electric Vehicles has begun importing low speed vehicles and is working to develop a highway speed, all electric, midsize sedan. He has served as chief executive of a number of public and private industrial corporations. During the 1970s, along with Paul Newman and others, he helped to create Energy Action, an advocacy group dedicated to American energy independence, and he continues to be active in organizations working for energy conservation. He is also a member of the Advisory Board of the Peggy Guggenheim Collection, Italy, as well as a presidential appointee to the Board of Trustees of the Kennedy Center for Performing Arts. Mr. Rubin graduated from Stanford University Law School.

Kevin Czinger President/CEO Mr. Czinger has extensive operating experience and a proven track record of performance in start-up and emerging growth companies. He has served as a senior executive with Goldman Sachs, Bertelsmann AG, the Webvan Group and Global Signal. He has also been active at Benchmark Capital and as a senior Managing Director of Fortress Private Equity Funds. He is a graduate of Yale College and Yale Law School where he remains active, and is a leader in the charter school initiative for inner cities through his sponsorship of Achievement First Schools.

Kevin Kiley, Senior Vice President Having joined Miles Electric Vehicles at its inception, Mr. Kiley established working relationships with the company’s OEM partners and key Chinese sources of supply. He continues to oversee production, quality control, and product development. Mr. Kiley has also served as president of S. Shamash & Sons, an international textile, apparel, and home products importer and distributor with offices in New York, Los Angeles, Shanghai, Hong Kong and Cologne. Previously, he served as managing director of S. Shamash & Sons HK, where he restructured the company after a buyout from Jardine Matheson. Prior to that, he was involved in Chinese trading as an executive at Wellman, Inc., an international fiber manufacturer and trading company.

217 MDB Capital Group The Green Car Report November 10, 2008 ______

PHOENIX MOTORS COMPANY OVERVIEW Phoenix Motorcars was founded in 2001 with the vision to manufacture zero-emission, freeway-speed fleet vehicles. After years of development work and researching the merits of the available components, Phoenix believes that it has found the right blend of platform and technologies to provide a best-in-class all-electric vehicle. Phoenix has gathered an experienced automotive team that understands the challenges faced with launching a new alternative vehicle platform. The company is currently shipping cars to fleet customers and has become a leader in the alternative fuel industry. Phoenix currently is producing two models, an SUV and a newer Sports Utility Truck. Phoenix is projecting 2008 fleet sales of 500 vehicles and hopes to ramp up to 6,000 units in 2009. The company is headquartered in Ontario, California.

PHOENIX MOTORS GREEN CAR INITIATIVES Phoenix Motors is currently in production with two all electric vehicles; the Phoenix SUT and the Phoenix SUV. Both of these vehicles use body designs “a glider” produced by Ssangyong, Korea’s fourth largest automaker. Ssangyong’s products are not presently available in the United States and the body designs are completely new in America, providing Phoenix with a little more notoriety with its EV introduction. The Phoenix SUT is based on Ssangyong’s Actyon (see image below) and has a real “new” look and feel because there are no gas-powered counterparts in this country. Phoenix Motors made somewhat of a big media splash back in 2006 and then became rather quiet until the more recent news that the company is using Altairnano's lithium titanate batteries. Now that cars are actually shipping (along with help from the spike in oil prices this past summer) the company is once again in the news. Recently the company began taking a small number of orders from selected retail customers.

Phoenix Motorcars production strategy has been to capitalize on and utilize the best available technologies to provide optimal power train performance. As a result Phoenix (as mentioned above) has decided to use the lithium titanate battery technology developed by Altairnano. This battery uses a chemistry similar to lithium- ion, but with a titanium electrodes that prevents the fundamental cause of uncontrolled thermal runaway. The Altairnano lithium titanate battery delivers safety, long life and high performance. This battery is expected to last more than 12 years (250,000 miles) and can be recharged in less than 10 minutes. The battery pack on the Phoenix models will weigh roughly 900 lbs and provide enough power for 0-60 mph in less than 10 seconds and a top speed of 95 mph. The SUT will be able to transport 1,000 pounds of payload. Originally the Phoenix models were going to employ a motor from UQM, but now the company has discarded the UQM motor in favor of a new custom-designed unit. The new motor has a peak power output of 200kW with 600lb-ft of torque and claims a 97% efficiency rating. Additionally, Phoenix has changed the design from rear-wheel drive a new front wheel drive system. The resulting performance of the battery and drivetrain is an all-electric with performance similar to gas or diesel-powered vehicles without the polluting by-products.

Both the SUV (at the left) and the truck will be able to travel at freeway speeds, carry four passengers and have a driving range of more than 100 miles on a single charge. Pricing for the SUT pickup has been set at $47,000 with the SUV going for $54,000. Each Phoenix comes with an integrated on-board 6.6kW charger that plugs into 220V power for a 5 to 6 hour charge. A customer will also have a connector to utilize an off-board 10 minute rapid charge. However, this technology requires industrial power and expensive equipment to move the power quick enough to accomplish a 10 minute rapid charge.

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For the future, the company is moving to develop a plug-in hybrid model of the Phoenix SUT. This model will include a small gasoline fueled internal combustion engine. Prototypes are expected in 2008. The company believes this model will likely broaden the range of potential customers as the vehicle would be able to manage cross-country travel while still allowing drivers the benefits of saving money and reducing emissions.

PHOENIX MOTORS MANAGEMENT Daniel J. Elliott, President/CEO Having been working in and around alternative fuel vehicles for a long time, I am not only convinced that they can play a vital role in improving the global environment; I am also committed to playing a role in their development. After spending six years in Asia and observing the pollution there first hand, as well as here in Southern California, I felt it was my duty as a father to provide a better future for my four year old son! It is my belief that the Western World should take the initiative and lead in providing solutions to the environmental issues all of us on this planet are facing. In 2002 I met the founders of Phoenix Motorcars and was reacquainted again in 2006 when the founders asked me to come aboard and help make a difference. I am proud of the company’s innovative engineering and design capabilities in providing vehicles that have a real car feel that most consumers can relate to and would like to have. We have developed a team at Phoenix Motorcars that, in my view, is like no other. Every one of them brings a unique set of skills that together will come to represent a car company the likes of which the world has never seen. I’m impressed with their work ethic and, just as importantly, they know how to have fun at the same time! That embodies the cars we are producing, hardworking and fun. And you know what? Our team, and the cars they make, is pretty cool too.

Alexander S. Lee, Executive Vice President and Chief Operating Officer There’s no doubt that I was attracted to the idea of building a company that developed zero-emission vehicles. On this count, only a true grouch could quarrel with my choice to work at Phoenix Motorcars. However, what really sealed the deal for me were the people. It is so rare to find a company (large or small) with such an experienced, dedicated and fun-loving team. It really has been a sheer pleasure to work at Phoenix Motorcars.

Dennis Hogan, CFO I have been interested in the developmental progress of electric vehicles since I was in high school, so much so that I did a report on the electric vehicle. When I became an adult, I conducted research on electric vehicles, as I wanted to purchase one but soon found out that there were none available! I then began my own research into the design and production of an electric vehicle company. During this process, I met one of the founders of the company and learned of the progress Phoenix Motorcars had already made. Beyond serving as a CFO to the company, I am also a member of several environmental groups that are looking to improve the environment!

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REVA COMPANY OVERVIEW REVA Electric Car Company Private Ltd. (RECC), based in Bangalore, India, was established in 1994 as a joint venture between the Maini Group India and AEV LLC, California USA, to manufacture and commercialize India’s first zero polluting, noiseless and cost-effective electric vehicle for city mobility.

REVA GREEN CAR INITIATIVES The basic REVA model (left) is a battery electric vehicle designed for low speed, congested, urban conditions and is classified as a quadricycle (category L7e) under UK and European law. The REVA is a small 3-door hatchback measuring 8 ft 6 in long, 4 ft 3 in wide and 4 ft 11 in high. It weighs 745 kg (1,640 lb), including its eight (total of 620 lbs.) lead-acid batteries. It is a fully automatic (no clutch - no gears), two-door hatchback, easily seats two adults in the front and two children in the rear. The back seats can also fold down to increase cargo space. The maximum passenger and cargo weight is 600 lb. REVA’s current models offer a top speed of 65 km/h and a range of 80 Km. But on April 2005, RECC launched the REVA-NXG (right) with an extended range of up to 200km per charge and a top speed of 120 km/h. The car is powered by a high performance 37 kW AC induction motor that drives the front wheels and uses Sodium Nickel Chloride batteries instead of conventional lead acid batteries for extended life.

The details of REVA’s drive system are described below:

• Motor: REVA has a 3 phase AC induction motor with a torque of 52 Nm at zero speed. When in use, the motor converts the energy stored in the Power Pack into mechanical motion. The high torque electric motor ensures a quick acceleration. The power from the motor is delivered to the wheels through the Trans- axle that propels the vehicle. While braking, the motor acts like a generator (regenerative braking) and recharges the Power Pack. • Power Pack: Power comes from eight 6- Volt EV lead acid batteries that attain 80% state of charge (quick-charge mode) in under 2.5 hours. A complete charge is achieved in less than 8 hours and gives a range of 80km. The batteries are located under the front seats. The REVA can be charged by just plugging into a 220 Volt, 15 Ampere socket at home or at work. • Charger: REVA has an on-board Charger, which converts AC into DC power to charge the power pack. The charger is computer controlled with an in-built stabilizer and auto shut-off mechanism. • Computerized Motor Controller: This regulates the flow of energy from the Power Pack to the Motor in direct relation to pressure applied on the accelerator. It ensures perfect speed control and optimum use of energy in both forward and reverse directions. • Energy Management System (EMS): It monitors and controls all vital functions. The EMS is a computer based system that optimizes charging and energy output of batteries to maximize operating range and improve performance.

The company is constantly working on future technologies, and REVA is considered the first company in India currently working to develop Fuel Cell technology. REVA is also researching Lithium-Ion and Lithium Polymer batteries because of the longer battery life, faster charge rates, larger energy density than a conventional lead acid battery chemistry. Since 2001, the company has placed more than 2,500 vehicles on the road in 16 countries. For FY 2008, the company plans to sell between 3,000 and 5,000 cars, and in 2009 the goal is to sell 12,000 vehicles. RECC also wants to expand sales to 10 and 25 more cities by the end of 2008 and 2009, respectively. To date, RECC has

220 MDB Capital Group The Green Car Report November 10, 2008 ______invested $22 million of its own money since research began in 1994. However, in December 2006, the company received another $20 million from Draper Fisher Jurveston and the Global Environment Fund. This new investment will help expand RECC’s annual production capacity from 6,000 cars a year to 30,000. The company will also increase its employee head count from 275 to roughly 350 over the next year.

RECC is building a new state-of-the-art and state-of-the-environment assembly plant in Bangalore with a capacity of 30,000 units per year, due for completion in the beginning of 2009. The company hopes to reach this capacity within the next three years as demand increases in its existing markets.

RECC is also working on a planned new product development program and aims to introduce one new model and one variation of a model every year from 2009.

REVA MANAGEMENT Dr Lon Bell, Co Founder/Vice Chairman After receiving degrees in Mathematics, Rocket Propulsion, and Mechanical Engineering from the California Institute of Technology, Dr. Lon Bell launched an entrepreneurial career to advance the development and commercialization of automotive sensing devices and thermoelectric systems. Dr. Bell founded three successful corporations and received over 60 U.S. and foreign patents. His developments have included advancements in automotive safety, thermoelectric system performance, and electric vehicle technology. Five of his inventions in these fields have gone into mass production, and dominated their target market sectors. He co-founded RECC to pursue the commercialization of low cost, efficient and low emission world vehicles. He currently serves as Vice Chairman of RECC. Mr. Bell is President of BSST, LLC (a subsidiary of Amerigon Incorporated), which he formed in 1999 to develop advanced thermoelectric systems for waste power recovery and high efficiency cooling and heating systems. BSST has developed and demonstrated the highest efficiency achieved with thermoelectric technology to date.

Sudarshan K. Maini, Chairman Mr. Maini is the Chairman of Maini Group of Industries & REVA Electric Car Company Pvt. Ltd., which was established by him in Bangalore over thirty years ago. Before starting Maini Group, Sudarshan Maini was the first Indian to take over MICO-BOSCH factory’s production management from a German Executive in 1968. As Chairman of the Metrication Committee of Indian Standards Institution (ISI) for Bolts and Nuts, he was instrumental in conversion to metric standards from inches in India in the early 1960’s and attended the ISO conference in Delhi in 1965 as the youngest Chairman of Technical Committee from India. He is the patron of Indian Institution Production Engineers (India), Fellow of Institution of Engineers (India), and Fellow of Institution of Electrical Engineers (UK). He was felicitated as Distinguished Engineer by the Institution of Engineers, Karnataka State Centre in 1997 for his contribution to Indian Engineering Excellence. Mr. Maini was awarded in 2004 Distinguished Fellowship of the Institute of Directors. A firm believer of Indian ethos, values, culture and traditions, Mr Maini is deeply interested in human resource development, entrepreneurship, quality, productivity, technology and innovation, environment, competitive manufacturing and management education.

H. Jeffrey Leonard, Ph.D, President/Founding Shareholder Dr. Leonard is the President and Founder of Global Environment Fund, an SEC-registered investment management firm with approximately $800 million in assets under management. He is a member of the Clean Tech Venture Network and serves as co-Chairman of its Advisory Board. In addition, Dr. Leonard is a member of the Board of Directors of the Emerging Markets Private Equity Association. From 1992 through 1998, he served as a member of U.S. Department of Energy’s Hydrogen Technical Advisory Panel to the Secretary of Energy, and has previously served as an advisor or consultant to, among others, the World Bank, the U.S. Agency for International Development, the World Resources Institute and the U.S. Environmental Protection Agency. Dr. Leonard has strategic responsibility for GEF’s clean technology investments specializing in companies whose technologies help traditional industries operate more efficiently, cleanly and safely. In this capacity, he currently serves as Chairman of the Board of Athena Controls, Warrenton, VA; and sits on the Boards of the following GEF portfolio companies: Signature Control Systems, Inc. (Denver, CO); Unirac, (Albuquerque, NM); and Blue Ridge Numerics, (Charlottesville,VA). He also serves on the Boards of several other portfolio companies which include Xymetrex, Inc. (Tinton Falls, NJ) and Global Forest Products (Sabie, South Africa).

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TESLA MOTORS COMPANY OVERVIEW Tesla Motors is a private company founded in 2003 that is engaged in the production of high performance, electric vehicles. The company was created out of former Tesla’s CEO Martin Eberhard’s desire to build a fast and energy efficient vehicle that would appeal to sports cars enthusiasts. Three years later, the company unveiled its first all- electric sports car, the Tesla Roadster, in Santa Monica, CA. The Tesla Roadster is currently being produced in a Lotus factory in England and while some cars have already been delivered, there are approximately 1,000 customers on the waiting list for this vehicle. The current production rate is about 10 cars a week, but the company expects to ramp up production towards a monthly rate of more than 100 cars in December.

In addition, the company initiated sales in Europe with a limited edition of the Tesla Roadster that is schedule for delivery in early 2009. The company also plans to unveil its next generation vehicle, the Model S, early in 2009 and start commercial production in mid 2011. Currently, the company has two revenue producing business lines, the Tesla Roadster business segment with a growing order book and the Powertrain business segment which is already profitable.

Elon Musk, PayPal co-founder and one of Tesla’s first investors, was recently named CEO to go along with his current duties as Chairman of the Board and product architect. Telsa has suffered from lower than expected manufacturing yields and higher costs and has recently consolidated some operation and announced headcount reductions. Mr Musk is anticipating the company to become cash-flow positive within six to nine months.

The company’s headquarters are currently located in San Carlos, CA but will eventually move to a new 89 acres corporate campus that is to be built (starting in the summer of 2009) in San Jose, CA. This site will also hold an R&D lab and an assembly plant that will be initially used to produce the company’s next vehicle, the Model S, a 100% electric sports sedan. The San Jose facility is expected to employ around 1,000 workers.

TESLA MOTORS GREEN CAR INITIATIVES Tesla Motors’ first production vehicle is the Tesla Roadster, a zero-emission sports car with a 100% electric powertrain. The base price for the 2008 model was approximately $100,000, and reservation list for this car is already full. About 1,200 people put down a deposit to reserve this car. As of September 2008, 30 Roadsters had been delivered to customers. The Roadster has some impressive performance specifications. According to the company’s website, the Roadster can accelerate from 0 to 60 mph in less than 4 seconds with a top speed of 125 mph. In addition, the car exhibits peak torque beginning at 0 rpm and stays powerful at 14,000 rpm. The Roadster is powered by a lithium-ion battery pack (see image below) which has a battery life of 5 years or 100,000 miles. The lithium-ion battery pack designed by the company is made up of more than 6,800 individual cells and weights about 990 lbs and is viewed by the company as a key component of Tesla’s proprietary intellectual property. With this battery, the car can be fully charged in roughly 3.5 hours. In addition, the Tesla Roadster employs a 375 volt AC induction air-cooled electric motor that exhibits an average efficiency of 92% and 85% at peak power. The car uses a single-speed fixed gear transmission.

Moreover, in February 2008 the company conducted EPA (U.S. Environmental Protection Agency) driving cycle tests which showed that the Tesla Roadster has a driving range of approximately 220 miles (in a combined city/highway driving cycle) without the need to recharge.

As mentioned above, the Roadster is produced by Lotus in the UK, with powertrain installation and final assembly occurring in Menlo Park, California. The new manufacturing plant in San Jose is slated to produce Tesla Motors’ Model S, a zero-emission, family luxury sedan also powered by a lithium-ion battery pack. It is expected to have a base price of about $60,000 and drive about 240 miles per charge. Management recently announced a delay in the start of production of the first sedans to mid 2011, as the company is awaiting a DOE loan guarantee to cover most of costs of the Model S program. According to the company, the new manufacturing plant will be able to produce at least 15,000 sedans per year and up to 30,000 with an added shift.

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The base price of the 2009 Tesla Roadster in the U.S. is now upwards of a $109,000 and reservations for the car are still available through the company’s website. In addition, the company sells its cars through storefronts in Menlo Park and Los Angeles which also operate as service facilities to service cars that are scheduled for delivery. The company plans to open new stores in New York, Chicago, Miami and Seattle by the first quarter of 2009.

Finally, the company has hinted at plans to develop a more economical all-electric sedan which would sell for less than $30,000 and be available sometime in 2012.

TESLA MANAGEMENT Elon Musk, Chairman/ Product Architect/CEO As Chairman, Product Architect and CEO, Elon Musk drives the development of Tesla’s product strategy, product development and design efforts. Mr. Musk has been involved in key product decisions since the start of Tesla Motors, co-leading design of the Tesla Roadster, for which he won an Index and a Global Green award. He has influenced the design, performance goals and technology roadmap of the Tesla Roadster from the early developmental phase to the finished product in production today. Today, Elon is working with other members of the team to drive continuous improvements in the Roadster while preparing the company’s second car, a sports sedan, for mass production. He also serves as Chairman of Tesla Motors and has been the principal funder of the company, having provided the Series A and B funding and co-leading the Series C, D and bridge financings. Mr. Musk is also CEO and CTO of Space Exploration Technologies (SpaceX) and Chairman of the board of Solar City. Previously, he co-founded Zip2 and PayPal.

Mike Donoughe, Executive Vice President Vehicle Engineering and Manufacturing Mr. Donoughe is a veteran of the automotive industry, having served at Chrysler in various positions for over 24 years. As EVP Vehicle Engineering & Manufacturing, he oversees the Model S and Roadster programs, as well the manufacturing, operations, quality and supply chain functions of the company. Mr. Donoughe was previously VP of ‘Project D’ at Chrysler, where he led the redesign of their global mid-size vehicle portfolio. Prior to that, he led various product creation efforts, including the Stow N Go minivans, Jeep Wrangler and Dodge Ram programs. He also spent 3 years with Mercedes Benz in Stuttgart as Director of passenger car development, M and R Class, and is recognized as one of the top engineers in the auto industry.

JB Straubel, Chief Technical Officer Mr. Straubel oversees the technical and engineering design of the vehicles, focusing on the battery, motor, power electronics, and high-level software sub-systems. Additionally, he evaluates new technology, manages vehicle systems testing, and handles technical interface with key vendors. Prior to Tesla Motors, he was the CTO and co-founder of the aerospace firm, Volacom, which designed a specialized high-altitude electric aircraft platform using a novel power plant. At Volacom, he invented and patented a new long-endurance hybrid electric propulsion concept that was later licensed to Boeing. Before Volacom, Mr. Straubel worked at Rosen Motors as a propulsion engineer developing a new hybrid electric vehicle drivetrain based on a micro turbine and a high-speed flywheel. He was also part of the early team at Pentadyne, where he designed and built a first-generation 150kW power inverter, motor-generator controls, and magnetic bearing systems. Mr. Straubel holds a bachelor's in energy systems engineering and an master's in energy engineering from Stanford University. He built an electric Porsche 944 that held a world EV racing record, a custom electric bicycle, and a pioneering hybrid trailer system.

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9. Notes & References

I. Notes:

This speech by Al Gore was delivered on July 17, 2008 at the D.A.R. Constitutional Hall.

Ladies and Gentlemen:

There are times in the history of our nation when our very way of life depends upon dispelling illusions and awakening to the challenge of a present danger. In such moments, we are called upon to move quickly and boldly to shake off complacency, throw aside old habits and rise, clear-eyed and alert, to the necessity of big changes. Those who, for whatever reason, refuse to do their part must either be persuaded to join the effort or asked to step aside. This is such a moment. The survival of the United States of America as we know it is at risk. And even more -- if more should be required -- the future of human civilization is at stake.

I don't remember a time in our country when so many things seemed to be going so wrong simultaneously. Our economy is in terrible shape and getting worse, gasoline prices are increasing dramatically, and so are electricity rates. Jobs are being outsourced. Home mortgages are in trouble. Banks, automobile companies and other institutions we depend upon are under growing pressure. Distinguished senior business leaders are telling us that this is just the beginning unless we find the courage to make some major changes quickly.

The climate crisis, in particular, is getting a lot worse -- much more quickly than predicted. Scientists with access to data from Navy submarines traversing underneath the North polar ice cap have warned that there is now a 75 percent chance that within five years the entire ice cap will completely disappear during the summer months. This will further increase the melting pressure on Greenland. According to experts, the Jakobshavn glacier, one of Greenland's largest, is moving at a faster rate than ever before, losing 20 million tons of ice every day, equivalent to the amount of water used every year by the residents of New York City.

Two major studies from military intelligence experts have warned our leaders about the dangerous national security implications of the climate crisis, including the possibility of hundreds of millions of climate refugees destabilizing nations around the world.

Just two days ago, 27 senior statesmen and retired military leaders warned of the national security threat from an "energy tsunami" that would be triggered by a loss of our access to foreign oil. Meanwhile, the war in Iraq continues, and now the war in Afghanistan appears to be getting worse.

And by the way, our weather sure is getting strange, isn't it? There seem to be more tornadoes than in living memory, longer droughts, bigger downpours and record floods. Unprecedented fires are burning in California and elsewhere in the American West. Higher temperatures lead to drier vegetation that makes kindling for mega-fires of the kind that have been raging in Canada, Greece, Russia, China, South America, Australia and Africa. Scientists in the Department of Geophysics and Planetary Science at Tel Aviv University tell us that for every one degree increase in temperature, lightning strikes will go up another 10 percent. And it is lightning, after all, that is principally responsible for igniting the conflagration in California today.

Like a lot of people, it seems to me that all these problems are bigger than any of the solutions that have thus far been proposed for them, and that's been worrying me.

I'm convinced that one reason we've seemed paralyzed in the face of these crises is our tendency to offer old solutions to each crisis separately -- without taking the others into account. And these outdated proposals have not only been ineffective - they almost always make the other crises even worse.

Yet when we look at all three of these seemingly intractable challenges at the same time, we can see the common thread running through them, deeply ironic in its simplicity: our dangerous over- reliance on carbon-based fuels is at the core of all three of these challenges --the economic,

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environmental and national security crises.

We're borrowing money from China to buy oil from the Persian Gulf to burn it in ways that destroy the planet. Every bit of that's got to change.

But if we grab hold of that common thread and pull it hard, all of these complex problems begin to unravel and we will find that we're holding the answer to all of them right in our hand. The answer is to end our reliance on carbon-based fuels.

In my search for genuinely effective answers to the climate crisis, I have held a series of "solutions summits" with engineers, scientists, and CEOs. In those discussions, one thing has become abundantly clear: when you connect the dots, it turns out that the real solutions to the climate crisis are the very same measures needed to renew our economy and escape the trap of ever-rising energy prices. Moreover, they are also the very same solutions we need to guarantee our national security without having to go to war in the Persian Gulf.

What if we could use fuels that are not expensive, don't cause pollution and are abundantly available right here at home?

We have such fuels. Scientists have confirmed that enough solar energy falls on the surface of the earth every 40 minutes to meet 100 percent of the entire world's energy needs for a full year. Tapping just a small portion of this solar energy could provide all of the electricity America uses.

And enough wind power blows through the Midwest corridor every day to also meet 100 percent of U.S. electricity demand. Geothermal energy, similarly, is capable of providing enormous supplies of electricity for America.

The quickest, cheapest and best way to start using all this renewable energy is in the production of electricity. In fact, we can start right now using solar power, wind power and geothermal power to make electricity for our homes and businesses.

But to make this exciting potential a reality, and truly solve our nation's problems, we need a new start. That's why I'm proposing today a strategic initiative designed to free us from the crises that are holding us down and to regain control of our own destiny. It's not the only thing we need to do. But this strategic challenge is the lynchpin of a bold new strategy needed to re-power America.

Today I challenge our nation to commit to producing 100 percent of our electricity from renewable energy and truly clean carbon-free sources within 10 years.

This goal is achievable, affordable and transformative. It represents a challenge to all Americans -- in every walk of life: to our political leaders, entrepreneurs, innovators, engineers, and to every citizen.

A few years ago, it would not have been possible to issue such a challenge. But here's what's changed: the sharp cost reductions now beginning to take place in solar, wind, and geothermal power -- coupled with the recent dramatic price increases for oil and coal -- have radically changed the economics of energy.

When I first went to Congress 32 years ago, I listened to experts testify that if oil ever got to $35 a barrel, then renewable sources of energy would become competitive. Well, today, the price of oil is over $135 per barrel. And sure enough, billions of dollars of new investment are flowing into the development of concentrated solar thermal, photovoltaics, windmills, geothermal plants, and a variety of ingenious new ways to improve our efficiency and conserve presently wasted energy.

And as the demand for renewable energy grows, the costs will continue to fall. Let me give you one revealing example: the price of the specialized silicon used to make solar cells was recently as high as $300 per kilogram. But the newest contracts have prices as low as $50 a kilogram.

You know, the same thing happened with computer chips -- also made out of silicon. The price paid for the same performance came down by 50 percent every 18 months --year after year, and that's what's happened for 40 years in a row.

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To those who argue that we do not yet have the technology to accomplish these results with renewable energy: I ask them to come with me to meet the entrepreneurs who will drive this revolution. I've seen what they are doing and I have no doubt that we can meet this challenge.

To those who say the costs are still too high: I ask them to consider whether the costs of oil and coal will ever stop increasing if we keep relying on quickly depleting energy sources to feed a rapidly growing demand all around the world. When demand for oil and coal increases, their price goes up. When demand for solar cells increases, the price often comes down.

When we send money to foreign countries to buy nearly 70 percent of the oil we use every day, they build new skyscrapers and we lose jobs. When we spend that money building solar arrays and windmills, we build competitive industries and gain jobs here at home.

Of course there are those who will tell us this can't be done. Some of the voices we hear are the defenders of the status quo -- the ones with a vested interest in perpetuating the current system, no matter how high a price the rest of us will have to pay. But even those who reap the profits of the carbon age have to recognize the inevitability of its demise. As one OPEC oil minister observed, "The Stone Age didn't end because of a shortage of stones."

To those who say 10 years is not enough time, I respectfully ask them to consider what the world's scientists are telling us about the risks we face if we don't act in 10 years. The leading experts predict that we have less than 10 years to make dramatic changes in our global warming pollution lest we lose our ability to ever recover from this environmental crisis. When the use of oil and coal goes up, pollution goes up. When the use of solar, wind and geothermal increases, pollution comes down.

To those who say the challenge is not politically viable: I suggest they go before the American people and try to defend the status quo. Then bear witness to the people's appetite for change.

I for one do not believe our country can withstand 10 more years of the status quo. Our families cannot stand 10 more years of gas price increases. Our workers cannot stand 10 more years of job losses and outsourcing of factories. Our economy cannot stand 10 more years of sending $2 billion every 24 hours to foreign countries for oil. And our soldiers and their families cannot take another 10 years of repeated troop deployments to dangerous regions that just happen to have large oil supplies.

What could we do instead for the next 10 years? What should we do during the next 10 years? Some of our greatest accomplishments as a nation have resulted from commitments to reach a goal that fell well beyond the next election: the Marshall Plan, Social Security, the interstate highway system. But a political promise to do something 40 years from now is universally ignored because everyone knows that it's meaningless. Ten years is about the maximum time that we as a nation can hold a steady aim and hit our target.

When President John F. Kennedy challenged our nation to land a man on the moon and bring him back safely in 10 years, many people doubted we could accomplish that goal. But 8 years and 2 months later, Neil Armstrong and Buzz Aldrin walked on the surface of the moon.

To be sure, reaching the goal of 100 percent renewable and truly clean electricity within 10 years will require us to overcome many obstacles. At present, for example, we do not have a unified national grid that is sufficiently advanced to link the areas where the sun shines and the wind blows to the cities in the East and the West that need the electricity. Our national electric grid is critical infrastructure, as vital to the health and security of our economy as our highways and telecommunication networks. Today, our grids are antiquated, fragile, and vulnerable to cascading failure. Power outages and defects in the current grid system cost U.S. businesses more than $120 billion dollars a year. It has to be upgraded anyway.

We could further increase the value and efficiency of a Unified National Grid by helping our struggling auto giants switch to the manufacture of plug-in electric cars. An electric vehicle fleet would sharply reduce the cost of driving a car, reduce pollution, and increase the flexibility of our electricity grid.

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At the same time, of course, we need to greatly improve our commitment to efficiency and conservation. That's the best investment we can make.

America's transition to renewable energy sources must also include adequate provisions to assist those Americans who would unfairly face hardship. For example, we must recognize those who have toiled in dangerous conditions to bring us our present energy supply. We should guarantee good jobs in the fresh air and sunshine for any coal miner displaced by impacts on the coal industry. Every single one of them.

Of course, we could and should speed up this transition by insisting that the price of carbon-based energy include the costs of the environmental damage it causes. I have long supported a sharp reduction in payroll taxes with the difference made up in CO2 taxes. We should tax what we burn, not what we earn. This is the single most important policy change we can make.

In order to foster international cooperation, it is also essential that the United States rejoin the global community and lead efforts to secure an international treaty at Copenhagen in December of next year that includes a cap on CO2 emissions and a global partnership that recognizes the necessity of addressing the threats of extreme poverty and disease as part of the world's agenda for solving the climate crisis.

Of course the greatest obstacle to meeting the challenge of 100 percent renewable electricity in 10 years may be the deep dysfunction of our politics and our self-governing system as it exists today. In recent years, our politics has tended toward incremental proposals made up of small policies designed to avoid offending special interests, alternating with occasional baby steps in the right direction. Our democracy has become sclerotic at a time when these crises require boldness.

It is only a truly dysfunctional system that would buy into the perverse logic that the short-term answer to high gasoline prices is drilling for more oil ten years from now.

Am I the only one who finds it strange that our government so often adopts a so-called solution that has absolutely nothing to do with the problem it is supposed to address? When people rightly complain about higher gasoline prices, we propose to give more money to the oil companies and pretend that they're going to bring gasoline prices down. It will do nothing of the sort, and everyone knows it. If we keep going back to the same policies that have never ever worked in the past and have served only to produce the highest gasoline prices in history alongside the greatest oil company profits in history, nobody should be surprised if we get the same result over and over again. But the Congress may be poised to move in that direction anyway because some of them are being stampeded by lobbyists for special interests that know how to make the system work for them instead of the American people.

If you want to know the truth about gasoline prices, here it is: the exploding demand for oil, especially in places like China, is overwhelming the rate of new discoveries by so much that oil prices are almost certain to continue upward over time no matter what the oil companies promise. And politicians cannot bring gasoline prices down in the short term.

However, there actually is one extremely effective way to bring the costs of driving a car way down within a few short years. The way to bring gas prices down is to end our dependence on oil and use the renewable sources that can give us the equivalent of $1 per gallon gasoline.

Many Americans have begun to wonder whether or not we've simply lost our appetite for bold policy solutions. And folks who claim to know how our system works these days have told us we might as well forget about our political system doing anything bold, especially if it is contrary to the wishes of special interests. And I've got to admit, that sure seems to be the way things have been going. But I've begun to hear different voices in this country from people who are not only tired of baby steps and special interest politics, but are hungry for a new, different and bold approach.

We are on the eve of a presidential election. We are in the midst of an international climate treaty process that will conclude its work before the end of the first year of the new president's term. It is a great error to say that the United States must wait for others to join us in this matter. In fact, we must move first, because that is the key to getting others to follow; and because moving first is in our own national interest.

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So I ask you to join with me to call on every candidate, at every level, to accept this challenge -- for America to be running on 100 percent zero-carbon electricity in 10 years. It's time for us to move beyond empty rhetoric. We need to act now.

This is a generational moment. A moment when we decide our own path and our collective fate. I'm asking you -- each of you -- to join me and build this future. Please join the WE campaign at wecansolveit.org. We need you. And we need you now. We're committed to changing not just light bulbs, but laws. And laws will only change with leadership.

On July 16, 1969, the United States of America was finally ready to meet President Kennedy's challenge of landing Americans on the moon. I will never forget standing beside my father a few miles from the launch site, waiting for the giant Saturn 5 rocket to lift Apollo 11 into the sky. I was a young man, 21 years old, who had graduated from college a month before and was enlisting in the United States Army three weeks later.

I will never forget the inspiration of those minutes. The power and the vibration of the giant rocket's engines shook my entire body. As I watched the rocket rise, slowly at first and then with great speed, the sound was deafening. We craned our necks to follow its path until we were looking straight up into the air. And then four days later, I watched along with hundreds of millions of others around the world as Neil Armstrong took one small step to the surface of the moon and changed the history of the human race.

We must now lift our nation to reach another goal that will change history. Our entire civilization depends upon us now embarking on a new journey of exploration and discovery. Our success depends on our willingness as a people to undertake this journey and to complete it within 10 years. Once again, we have an opportunity to take a giant leap for humankind.

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II. References

1. Warren Buffett, Letters to Berkshire Hathaway Shareholders, 2003, 2004, 2005, 2006, 2007

2. Nouriel Roubini, Forecast for Global Economy, 2006

3. James Hansen, “Target Atmospheric CO2: Where Should Humanity Aim?”, 2008

4. James Hansen, “Can We Defuse the Global Warming Time Bomb?”, 2003

5. Framework Convention on Climate Change, United Nations, 1992

6. Intergovernmental Panel on Climate Change IPCC Climate Change 2007

7. Environmental News Service “Earth’s Climate Approaches Dangerous Tipping Point”, 2007

8. David L. Greene, “Cost of U.S. Oil Dependence” Oak Ridge National Laboratory, 2008

9. Matt Simmons, Simmons & Co., “Peak Oil” ASPO Presentation, 2006, 2007, 2008

10. EEA Global Warming Report, 2003, 2004, 2005

11. IPCC Greenhouse Gas Study 2006

12. IBM, Automotive 2020, 2008

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10. Disclosures

Current Distribution of MDB Capital Group Research

Buy 62.3% Sell 28.3%

Neutral 9.4%

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Closing price on page one is the closing price as of the last business day immediately prior to the date of this publication.

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This publication has been issued and approved by MDB under a compliance routine approved by MDB, for distribution to non-private clients. MDB Capital uses the following rating system for securities it covers: Buy, Neutral, and Sell. MDB instituted the above three tiered rating system in May 2003. MDB stock ratings are defined as follows: Buy: the stock is expected to outperform the market by 15 or more percentage points; Neutral: the stock is expected to perform in line with the market, plus or minus 5 percentage points; Sell: the stock is expected to under perform the market by 15 or more percentage points. The current distribution of MDB’s ratings is as follows: Buy =62.3%, Neutral = 9.4% and Sell = 28.3%. The percentage of issuers in each of three tiered rating categories to which MDB has provided investment banking services in the past 12 months is as follows: 6.1% of Buy Rated Companies; 0% of Neutral Rated Companies and 0% of Sell Rated Companies. These percentages are accurate as of midnight on October 31, 2008.

Copyright 2008 MDB Capital Group. All rights reserved.

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10. Disclosures

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10. Disclosures

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Disclosures

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