UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 WASHINGTON,
D.C. 20549
  
 FORM
10-Q
 
 (Mark
One)
  x
              QUARTERLY REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
  For
      the quarterly period ended March 31,
      2009
  o
              TRANSITION REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
  For the
transition period from _____ to ________
  Commission
File Number: 000-52337
  BALQON
CORPORATION
 (Exact
name of registrant as specified in its charter)
  Nevada
                (State
      or other jurisdiction
                of
      incorporation or organization)
              33-0989901
                (I.R.S.
      Employer
                Identification
      No.)
  1420
240th
Street, Harbor City, California, 90710
 (Address of principal executive
offices)(Zip
Code)
  (310)
326-3056
 (Registrant’s
telephone number, including area code)
  1701
E. Edinger Avenue, Unit E-3, Santa Ana, California 92705
 (Former
name, former address and former fiscal year, if changed since last
report)
  Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.  Yes S No £
  Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter periods that the registrant was required to
submit and post such files).  Yes £ No £
  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
 
 Large
      accelerated filer   ̈
              Accelerated
      filer   ̈Non-accelerated
      filer   ̈(Do
      not check if a smaller reporting company)
              Smaller
      reporting company  x
  Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).  Yes £ No S
  As of May
20, 2009, there were 25,518,348 shares of the issuer’s common stock issued and
outstanding.
  
 
 CAUTIONARY
STATEMENT
  All statements included or incorporated
by reference in this Quarterly Report on Form 10-Q, other than statements or
characterizations of historical fact, are “forward-looking statements.” Examples
of forward-looking statements include, but are not limited to, statements
concerning projected net sales, costs and expenses and gross margins; our
accounting estimates, assumptions and judgments; the demand for our products;
the competitive nature of and anticipated growth in our industry; and our
prospective needs for additional capital. These forward-looking statements are
based on our current expectations, estimates, approximations and projections
about our industry and business, management’s beliefs, and certain assumptions
made by us, all of which are subject to change. Forward-looking statements can
often be identified by such words as “anticipates,” “expects,” “intends,”
“plans,” “predicts,” “believes,” “seeks,” “estimates,” “may,” “will,” “should,”
“would,” “could,” “potential,” “continue,” “ongoing,” similar expressions and
variations or negatives of these words. These statements are not guarantees of
future performance and are subject to risks, uncertainties and assumptions that
are difficult to predict. Therefore, our actual results could differ materially
and adversely from those expressed in any forward-looking statements as a result
of various factors, some of which are set forth in the “Risk Factors” section of
our Amendment No. 1 to Annual Report on Form 10-K for the year ended
December 31, 2008 filed with the Securities and Exchange Commission, or
SEC, on May 22, 2009, which could cause our financial results, including our net
income or loss or growth in net income or loss to differ materially from prior
results, which in turn could, among other things, cause the price of our common
stock to fluctuate substantially. These forward-looking statements speak only as
of the date of this report. We undertake no obligation to revise or update
publicly any forward-looking statement for any reason, except as otherwise
required by law.
  i
  TABLE
OF CONTENTS
  PagePART
IFINANCIAL
      INFORMATIONItem
      1.
                Financial
      Statements
                1Item
      3.
                Quantitative
      and Qualitative Disclosures About Market Risk
                25Item
      4.
                Controls
      and Procedures
                25Item
      4T.
                Controls
      and Procedures
                25PART
      IIOTHER
      INFORMATIONItem
      1.
                Legal
      Proceedings
                28Item
      1A.
                Risk
      Factors
                28Item
      2.
                Unregistered
      Sales of Equity Securities and Use of Proceeds
                28Item
      3.
                Defaults
      Upon Senior Securities
                29Item
      4.
                Submission
      of Matters to a Vote of Security Holders
                29Item
      5.
                Other
      Information
                29Item
      6.
                Exhibits
                29Exhibits
      Filed with this Report
 ii
  ITEM
      1.
              FINANCIAL
      STATEMENTS
  BALQON
CORPORATION
 CONDENSED
BALANCE SHEETS
   March
      31,
                    2009
                    (Unaudited)
                
                
                December
      31,
                    2008ASSETSCurrent
      assetsCash
      and cash equivalents
                
                $
                39,749
                
                
                $
                355,615Accounts
      receivable
                
                
                775,750
                
                
                
                —Inventories
                
                
                724,992
                
                
                
                1,159,601Prepaid
      expenses
                
                
                21,962
                
                
                
                43,020Total
      current assets
                
                
                1,562,453
                
                
                
                1,558,236Property
      and equipment
                
                
                90,721
                
                
                
                89,393Other
      assets:Deposits
                
                
                33,641
                
                
                
                33,641Intangible
      production costs, net of $31,160 and $15,580 ofaccumulated
      amortization, respectively
                
                
                155,805
                
                
                
                171,385Goodwill
                
                
                166,500
                
                
                
                166,500Total
      assets
                
                $
                2,009,120
                
                
                $
                2,019,155LIABILITIES
      AND SHAREHOLDERS’ EQUITYCurrent
      liabilitiesAccounts
      payable and accrued expenses
                
                $
                1,281,137
                
                
                $
                1,225,807Loan
      payable, Bridge Bank
                
                
                497,038
                
                
                
                —Notes
      payable to related parties
                
                
                100,000
                
                
                
                100,875Advances
      from shareholder
                
                
                25,877
                
                
                
                34,877Billings
      in excess of costs and estimated earnings
                  on
      uncompleted contracts
                
                
                2,604
                
                
                
                2,604Total
      current liabilities
                
                
                1,906,656
                
                
                
                1,364,163Long-term
      liabilitiesSenior
      secured convertible promissory notes, net of discount
                
                
                —
                
                
                
                —Total
      liabilities
                
                
                1,906,656
                
                
                
                1,364,163SHAREHOLDERS’EQUITYCommon
      stock, $0.001 par value, 100,000,000 shares authorized,25,518,348
      shares issued and outstanding
                
                
                25,518
                
                
                
                25,518Additional
      paid in capital
                
                
                8,700,329
                
                
                
                8,650,329Accumulated
      deficit
                
                
                (8,623,383
                )
                
                
                (8,020,855
                )Total
      shareholders' equity
                
                
                102,464
                
                
                
                654,992Total
      liabilities and shareholders' equity
                
                $
                2,009,120
                
                
                $
                2,019,155
   The
accompanying notes are an integral part of these condensed financial
statements.
  1
  BALQON
CORPORATION
 CONDENSEDSTATEMENTS OF OPERATIONS
 FOR
THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008 (Unaudited)
 
 
 Three
      Months Ended
                  March
      31,2009
              
              
              2008REVENUES
              
              $
              776,650
              
              
              $
              60,000COST
      OF REVENUES
              
              
              747,620
              
              
              
              11,446GROSS
      PROFIT
              
              
              29,030
              
              
              
              48,554OPERATING
      EXPENSES:General
      and administrative
              
              
              546,125
              
              
              
              104,794Research
      & development
              
              
              60,945
              
              
              
              —Depreciation
      and amortization
              
              
              23,238
              
              
              
              —Total
      operating expenses
              
              
              630,308
              
              
              
              104,794Loss
      from operations
              
              
              (601,278
              )
              
              
              (56,240
              )Interest
      expense
              
              
              (1,250
              )
              
              
              —NET
      LOSS
              
              $
              (602,528
              )
              
              $
              (56,240
              )Net
      loss per share-basic and diluted
              
              $
              0.02
              
              
              $
              0.00Weighted
      average shares outstanding, basic and diluted
              
              
              25,518,348
              
              
              
              16,667,000
   The
accompanying notes are an integral part of these condensed financial
statements.
  2
  BALQON
CORPORATION
 CONDENSED
STATEMENT OF SHAREHOLDERS’ EQUITY
 FOR
THE THREE MONTHS ENDED MARCH 31, 2009 (Unaudited)
 AdditionalCommon
      Stock
                
                
                Paid
      in
                
                
                AccumulatedNumber
                
                
                Amount
                
                
                Capital
                
                
                Deficit
                
                
                TotalBalance,
      December 31, 2008
                
                
                25,518,348
                
                
                $
                25,518
                
                
                $
                8,650,329
                
                
                $
                (8,020,855
                )
                
                $
                654,992Fair
      value of beneficial conversion featureand
      warrants, recorded as note discount
                
                
                
                
                
                
                
                
                
                
                50,000
                
                
                
                
                
                
                
                50,000Net
      loss
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                (602,528
                )
                
                
                (602,528
                )Balance,
      March 31, 2009 (unaudited)
                
                
                25,518,348
                
                
                $
                25,518
                
                
                $
                8,700,329
                
                
                $
                (8,623,383
                )
                
                $
                102,464
 The
accompanying notes are an integral part of these condensed financial
statements.
  3
 BALQON
CORPORATION
 CONDENSEDSTATEMENTS OF CASH FLOWS
 FOR
THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008 (Unaudited)
 Three
      Months Ended
                  March 31,2009
              
              
              2008Cash
      flow from operating activities:Net
      loss
              
              $
              (602,528
              )
              
              $
              (56,240
              )Adjustments
      to reconcile net loss to net cash provided by (used in) operating
      activitiesDepreciation
      and amortization
              
              
              23,238
              
              
              
              —Changes
      in operating assets and liabilitiesAccounts
      receivable
              
              
              (775,750
              )
              
              
              35,000Inventories
              
              
              434,609
              
              
              
              —Prepaid
      expenses
              
              
              21,058
              
              
              
              —Accounts
      payable and accrued expense
              
              
              55,330
              
              
              
              92,969Billings
      in excess of costs and estimated earnings on uncompleted
      contracts
              
              
              —
              
              
              
              (68,975
              )Net
      cash provided by (used in) operating activities
              
              
              (844,043
              )
              
              
              2,754Cash
      flows from investing activities:Acquisition
      of furniture, equipment and software
              
              
              (8,986
              )
              
              
              —Net
      cash used in investing activities
              
              
              (8,986
              )
              
              
              —Cash
      flows from financing activities:Net
      proceeds on loan payable
              
              
              497,038
              
              
              
              —Proceeds
      from senior secured promissory notes
              
              
              50,000
              
              
              
              —Repayment
      of note payable to related party
              
              
              (875
              )
              
              
              —Advances
      from shareholder
              
              
              (9,000
              )
              
              
              2,448Net
      cash provided by financing activities
              
              
              537,163
              
              
              
              2,448Increase
      (decrease) in cash and cash equivalents
              
              
              (315,866
              )
              
              
              5,202Cash
      and cash equivalents, beginning of period
              
              
              355,615
              
              
              
              34Cash
      and cash equivalents, end of period
              
              $
              39,749
              
              
              $
              5,236Supplemental
      cash flow informationInterest
      paid
              
              $
              —
              
              
              $
              —Income
      taxes paid
              
              $
              —
              
              
              $
              —Supplemental
      non-cash investing and financing informationFair
      value of beneficial conversion and warrants recorded as note
      discount
              
              $
              50,000
              
              
              $
              —
   The
accompanying notes are an integral part of these condensed financial
statements.
  4
 BALQON
CORPORATION
 
 NOTES
TOCONDENSED FINANCIAL STATEMENTS
 FOR
THE THREE MONTHS ENDED MARCH 31, 2009
 NOTE
1 – NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
  The
Company
  Balqon
Corporation (the “Company”) was incorporated on April 21, 2005 as a California
corporation and commenced business operations in 2006. The Company develops,
assembles and markets heavy-duty electric vehicles, flux vector inverters and
heavy-duty electric drive systems.
  On July
11, 2008, the Company signed a term sheet in which the Company agreed to merge
with BMR Solutions, Inc., a Nevada corporation (“BMR”).  On October
24, 2008, the Company completed the merger with BMR.  Pursuant to the
merger agreement, the issued and outstanding common shares of the Company were
exchanged on a one-for-one basis for common shares of BMR.  After the
merger was completed, the Company’s shareholders own approximately 94% of the
outstanding shares of common stock of BMR and the original shareholders of BMR
own approximately 6% of the outstanding shares of common stock of BMR, not
including warrants.  The transaction was accounted for as a reverse
merger (recapitalization) with the Company deemed to be the accounting acquirer
and BMR deemed to be the legal acquirer.  Upon the closing, BMR
changed its name to Balqon Corporation.  The financial statements
presented herein are those of the accounting acquirer given the effect of the
issuance of 1,400,000 shares of common stock upon completion of the transaction
and reflecting the net liabilities assumed of BMR of $40,365 as a cost of the
reverse merger. In addition, the Company incurred expenses of
$374,019  in connection with the reverse merger.
 Going
Concern
  For the
three months ended March 31, 2009 and for the year ended December 31, 2008, the
Company recorded net losses of $602,528 and $7,933,281, respectively, and had a
working capital deficit of $344,503, and an accumulated deficit of $8,623,383 at
March 31, 2009.  These matters raise substantial doubt about the
Company’s ability to continue as a going concern.  The financial
statements do not include any adjustments that might result from this
uncertainty.  The Company intends to raise funds to finance operations
until the Company achieves profitable operations. The Company’s capital
requirements for the next 12 months, as they relate to the production of our
products will continue to be significant.  If adequate funds are not
available to satisfy either medium or long-term capital requirements, our
operations and liquidity could be materially adversely affected and we could be
forced to cut back our operations.  Subsequent to March 31, 2009, the
Company received $315,000 from the issuance of  subordinated unsecured
convertible promissory notes. (See Note 10).
  5
 BALQON
CORPORATION
 
 NOTES
TOCONDENSED FINANCIAL STATEMENTS
 FOR
THE THREE MONTHS ENDED MARCH 31, 2009
 NOTE
1 – NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(continued)
  Basis
of Presentation of Unaudited Financial Information
  The
unaudited financial statements of the Company for the three months ended March
31, 2009 and 2008 have been prepared in accordance with accounting principles
generally accepted in the United States of America for interim financial
information and pursuant to the requirements for reporting on Form 10-Q and
Regulation S-K for scaled disclosures for smaller reporting
companies.  Accordingly, they do not include all the information and
footnotes required by accounting principles generally accepted in United States
of America for complete financial statements.  However, such
information reflects all adjustments (consisting solely of normal recurring
adjustments), which are, in the opinion of management, necessary for the fair
presentation of the financial position and the results of operations. Results
shown for interim periods are not necessarily indicative of the results to be
obtained for a full fiscal year.  The condensed balance sheet information as
of December 31, 2008 was derived from the audited financial statements included
in the Company's restated financial statements as of and for the years ended
December 31, 2008 and 2007 included in Amendment No. 1 to Form 10-K filed with
the SEC on May 22, 2009. These financial statements should be read in
conjunction with that report.
  Estimates
  The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period.  Material estimates relate to the recognition of
contract revenues and estimated costs to complete contracts in process, and
recoverability of reported amounts of long-lived assets.  Actual
results may differ from those estimates.
  Revenues
  Contract
Revenue and Cost Recognition on Prototype Vehicles
  In
accounting for contracts, the Company follows the provisions of the AICPA’s
Statement of Position 81-1 – Accounting for Performance of
Construction-Type and Certain Production-Type Contracts.  The Company
recognizes revenues using the percentage-of-completion method of accounting by
relating contract costs incurred to date to the total estimated costs at
completion.  This method is used because management considers costs to
be the best available measure of progress on its contracts.  Contract
losses are provided for in their entirety in the period that they become known,
without regard to the percentage-of-completion.  The Company also
recognizes as revenues costs associated with claims and unapproved change orders
to the extent it is probable that such claims and change orders will result in
additional contract revenue, and the amount of such additional revenue can be
reliably estimated.
  Contract
costs include all direct material and labor costs.  The liability
“billings in excess of costs and estimated earnings on uncompleted contracts”
represents billings in excess of revenues earned.
  6
  BALQON
CORPORATION
 
 NOTES
TOCONDENSED FINANCIAL STATEMENTS
 FOR
THE THREE MONTHS ENDED MARCH 31, 2009
 NOTE
1 – NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(continued)
  Revenues
(continued)
  Sales
of Production Units and Parts
  The
Company recognizes revenue from the sale of completed production units and parts
when there is persuasive evidence that an arrangement exists, delivery of the
product has occurred and title has passed, the selling price is both fixed and
determinable, and collectibility is reasonably assured, all of which generally
occurs upon shipment of the Company’s product or delivery of the product to the
destination specified by the customer.
  The
Company determines whether delivery has occurred based on when title transfers
and the risks and rewards of ownership have transferred to the buyer, which
usually occurs when the Company places the products with the buyer’s
carrier.  The Company regularly reviews its customers’ financial
positions to ensure that collectibility is reasonably assured.  Except
for warranties, the Company has no post-sales obligations.
  Product
Warranties
  The
Company provides limited warranties for parts and labor at no cost to its
customers within a specified time period after the sale.  The Company
estimates the actual historical warranty claims coupled with an analysis of
unfulfilled claims at the balance sheet date. As of March 31, 2009, the Company
had no warranty reserve nor did it incur warranty expenses during the three
month periods ended March 31, 2009 or 2008.
  Inventories
  Inventories
are stated at the lower of cost or market. Cost is determined principally on a
first-in-first-out average cost basis.  Inventories consist of the
following:
 
 March
      31, 2009 (unaudited)
              
              
              December
      31,
                  2008Raw
      materials
              
              $
              624,613
              
              
              $
              1,044,816Work
      in process
              
              
              100,379
              
              
              
              —In-transit
              
              
              —
              
              
              
              114,785$
              724,992
              
              
              $
              1,159,601
  Goodwill
and Intangible Assets
  As
required by Statement of Financial Accounting Standards (“SFAS”) No. 142,
management performs impairment tests of goodwill and indefinite-lived intangible
assets whenever an event occurs or circumstances change that indicate impairment
has more likely than not occurred. Also, as required by SFAS No. 142, management
performs impairment testing of goodwill and indefinite-lived intangible assets
at least annually.
  7
 BALQON
CORPORATION
 
 NOTES
TOCONDENSED FINANCIAL STATEMENTS
 FOR
THE THREE MONTHS ENDED MARCH 31, 2009
 NOTE
1 – NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(continued)
  Goodwill
and Intangible Assets (continued)
  In
accordance with SFAS No. 142, management tests goodwill for impairment at the
reporting unit level.  The Company has only one reporting
unit.  At the time of goodwill impairment testing, management
determines fair value through the use of a discounted cash flow valuation model
incorporating discount rates commensurate with the risks involved its reporting
unit. If the calculated fair value is less than the current carrying value,
impairment of the Company may exist. The use of a discounted cash flow valuation
model to determine estimated fair value is common practice in impairment testing
in the absence of available domestic and international transactional market
evidence to determine the fair value. The key assumptions used in the discounted
cash flow valuation model for impairment testing include discount rates, growth
rates, cash flow projections and terminal value rates. Discount rates are set by
using the Weighted Average Cost of Capital (“WACC”) methodology. The WACC
methodology considers market and industry data as well as Company-specific risk
factors for each reporting unit in determining the appropriate discount rates to
be used. The discount rate utilized is indicative of the return an investor
would expect to receive for investing in such a business. Operational
management, considering industry and Company-specific historical and projected
data, develops growth rates and cash flow projections for the
Company.  Terminal value rate determination follows common methodology
of capturing the present value of perpetual cash flow estimates beyond the last
projected period assuming a constant WACC and low long-term growth rates. As an
indicator that each reporting unit has been valued appropriately through the use
of the discounted cash flow valuation model, the aggregate fair value of all
reporting units is reconciled to the total market capitalization of the Company.
The discounted cash flow valuation methodology and calculations will be used in
2009 impairment testing.  The Company’s first measurement period will
be in the third quarter of 2009.
  Impairment
of Long-Lived Assets
  SFAS No.
144, “Accounting for the Impairment or Disposal of Long-Lived Assets,”
establishes guidelines regarding when impairment losses on long-lived assets,
which include property and equipment, should be recognized and how impairment
losses should be measured.  This statement also provides a single
accounting model for long-lived assets to be disposed of and significantly
changes the criteria that would have to be met to classify an asset as
held-for-sale. The Company periodically reviews, at least annually, such assets
for possible impairment and expected losses. If any losses are determined to
exist they are recorded in the period when such impairment is determined. Based
upon management’s assessment, there are no indicators of impairment of the
Company’s long lived assets at March 31, 2009 or December 31,
2008.
  8
  BALQON
CORPORATION
 
 NOTES
TOCONDENSED FINANCIAL STATEMENTS
 FOR
THE THREE MONTHS ENDED MARCH 31, 2009
 NOTE
1 – NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(continued)
  Loss
Per Share
  Basic
loss per share has been computed using the weighted average number of common
shares outstanding and issuable during the period. Diluted loss per share is
computed based on the weighted average number of common shares and all common
equivalent shares outstanding during the period in which they are dilutive.
Common equivalent shares consist of shares issuable upon the exercise of stock
options or warrants. As of March 31, 2009, common stock equivalents composed of
options convertible into 4,562,592 shares of the Company’s common stock,
warrants convertible into 3,058,778 shares of the Company's common stock and
notes convertible into 50,000 shares of the Company’s common stock. For the
three month periods ended March 31, 2009 and 2008, common stock equivalent
shares have been excluded from the calculation of loss per share as their effect
is anti-dilutive.
 Stock-Based
Compensation
  The
Company periodically issues stock purchase options to employees and
non-employees in non-capital raising transactions for services rendered, for
financing costs and on a merit basis. Stock purchase options issued to
nonemployees are issued as warrants with the warrants sharing the same vesting
and exercise attributes of the company’s stock purchase options issued to
employees.
  The
Company accounts for stock option and warrant grants issued and vesting to
employees using SFAS No. 123(R), “Share-Based Payment” effective January 1,
2006, for all share-based payments granted based on the requirements of SFAS No.
123(R) for all awards granted to employees.
  The
Company accounts for stock option and warrant grants issued and vesting to
non-employees in accordance with Emerging Issues Task Force (“EITF”) Issue No.
96-18, “Accounting for Equity Instruments that are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services” and
EITF Issue No. 00-18, “Accounting Recognition for Certain Transactions involving
Equity Instruments Granted to Other Than Employees” whereas the value of the
stock compensation is based upon the measurement date as determined at either
(i) the date at which a performance commitment is reached, or (ii) at the date
at which the necessary performance to earn the equity instruments is
complete.
  Concentrations
  Financial
instruments, which potentially subject the Company to concentrations of credit
risk, consist principally of cash and unsecured accounts
receivable.
  The
Company maintains cash balances at one bank. At times, the amount on deposit
exceeds the federally insured limits. Management believes that the financial
institution that holds the Company’s cash is financially sound and, accordingly,
minimal credit risk exists.
  For the
three months ended March 31, 2009 and 2008, revenues are from contracts with the
City of Los Angeles and the South Coast Air Quality Management District
(“AQMD”).
  For the
three months ended March 31, 2009 14.8%  of cost of sales incurred
were to a single vendor.  At March 31, 2009, accounts payable to this
vendor represented 25.7% of total accounts payable.  At March 31,
2009, three other vendors had balances representing 31%, 18%, and 9%,
respectively, of total accounts payable.
  9
 BALQON
CORPORATION
 
 NOTES
TOCONDENSED FINANCIAL STATEMENTS
 FOR
THE THREE MONTHS ENDED MARCH 31, 2009
 NOTE
1 – NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(continued)
  Recent
Accounting Pronouncements
  In
December 2007, SFAS No. 141R, “Business Combinations (revised 2007)” was
issued.  SFAS No. 141R replaces SFAS No. 141, “Business
Combinations.”  SFAS No. 141R requires the acquirer of a business to
recognize and measure the identifiable assets acquired, the liabilities assumed,
and any non-controlling interest in the acquiree at fair value. SFAS No. 141R
also requires transactions costs related to the business combination to be
expensed as incurred. SFAS No. 141R applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15,
2008.  The effective date, as well as the adoption date for the
Company was January 1, 2009.  Although SFAS No. 141R may impact our
reporting in future financial periods, the Company has determined that the
standard did not have any impact on its historical consolidated financial
statements at the time of adoption.
  In April
2008 the Financial Accounting Standards Board (“FASB”) issued FASB Staff
Position (“FSP”) No. 142-3, “Determination of the Useful Life of Intangible
Assets,” which amends the factors that should be considered in developing
renewal or extension assumptions used to determine the useful life of a
recognized intangible asset under SFAS No. 142.  This pronouncement
requires enhanced disclosures concerning a company’s treatment of costs incurred
to renew or extend the term of a recognized intangible asset. FST 142-3 is
effective for financial statements issued for fiscal years beginning after
December 15, 2008.  The effective date, as well as the adoption date
for the Company was January 1, 2009.  Although FSP 142-3 may impact
the Company’s reporting in future financial periods, the Company has determined
that the standard did not have any impact on its historical consolidated
financial statements at the time of adoption.
  Other
recent accounting pronouncements issued by the FASB (including its Emerging
Issues Task Force), the AICPA, and the SEC did not or are not believed by
management to have a material impact on the Company's present or future
consolidated financial statements.
  NOTE
2 - PROPERTY AND EQUIPMENT
  Property
and equipment are comprised as follows:
 
 March
      31, 2009
                  (Unaudited)
              
              
              December
      31, 2008Computer
      equipment and software
              
              $
              61,376
              
              
              $
              52,390Office
      furniture
              
              
              26,725
              
              
              
              26,725Machinery
              
              
              6,395
              
              
              
              6,395Leasehold
      improvements
              
              
              21,711
              
              
              
              21,711Total
      property and equipment, cost
              
              
              116,207
              
              
              
              107,221Less:
      accumulated depreciation
              
              
              (
      25,486
              )
              
              
              (17,828
              )Property
      and equipment, net
              
              $
              90,721
              
              
              $
              89,393
  Depreciation
and amortization expense on property and equipment for the three months ended
March 31, 2009 and 2008 was $7,658 and $0, respectively.
  10
 BALQON
CORPORATION
 
 NOTES
TOCONDENSED FINANCIAL STATEMENTS
 FOR
THE THREE MONTHS ENDED MARCH 31, 2009
 NOTE 3 – BUSINESS ACQUISITION
  On
September 9, 2008, the Company acquired certain assets of Electric Motor Sports,
LLC (“EMS”), an Ohio limited liability company that was owned by Mr. Robert
Gruenwald.  The assets acquired included goodwill and intellectual
properties used in the development and manufacture of flux vector
inverters.
  Prior to
the acquisition of the EMS assets, EMS was a supplier of flux vector
inverters that were used to develop the Company’s first electric vehicle
prototype, the Nautilus E30. EMS had been in the business of developing,
manufacturing and selling flux vector inverters since 1997. The Company also was
contracting with EMS to provide engineering design services that were delivered
by EMS’ sole member, Robert Gruenwald.
  The
expenses of EMS during the period since the acquisition are primarily the salary
and related benefits of the Company’s Vice President Research and Development,
Mr. Robert Gruenwald.
  The
following unaudited pro forma operating data shown below presents the results of
operations for the three months ended March 31 2008, as if the acquisition of
EMS had occurred on the last day of the immediately preceding fiscal
period.  Accordingly, transaction costs related to the acquisition are
not included in the loss from operations shown below. The pro forma results are
not necessarily indicative of the financial results that might have occurred had
the acquisition actually taken place on the respective dates, or of future
results of operations.
 
 March
      31, 2008

                  (Unaudited)Revenues
              
              $
              123,000Net
      loss
              
              $
              (66,000
              )Net
      loss per share-basic and diluted
              
              $
              (0.00
              )Weighted
      average shares outstanding-basic and diluted
              
              
              16,667,000
  NOTE
4 – LOAN PAYABLE – BRIDGE BANK
  On
February 25, 2009, the Company executed a Business Financing Agreement, dated
February 18, 2009, with Bridge Bank, National Association (the “Lender”) (the
“Initial Agreement”).  On February 27, 2009, the Company executed a
Business Financing Modification Agreement, dated February 26, 2009, which
modified the Initial Agreement (the “Modification Agreement,” and together with
the Initial Agreement, the “Credit Agreement”).  The Credit Agreement
provides the Company with an accounts receivable based credit facility in the
aggregate amount of up to $5,000,000 (the “Credit Facility”).  Under
the terms of the Credit Agreement, the Company may not borrow in excess of
$500,000 unless and until the Company receives an executed term sheet with
respect to an equity financing of at least $2,500,000 on terms and conditions
acceptable to the Lender.  At March 31, 2009, $497,038 was
outstanding and $2,962 was available under the terms of the Credit
Facility.
  11
  BALQON
CORPORATION
 
 NOTES
TOCONDENSED FINANCIAL STATEMENTS
 FOR
THE THREE MONTHS ENDED MARCH 31, 2009
 NOTE
4 – LOAN PAYABLE – BRIDGE BANK (continued)
  The
Credit Facility is formula-based and generally provides that the outstanding
borrowings under the Credit Facility may not exceed an aggregate of 80% of
eligible accounts receivable. The Company must immediately pay any advance made
under the Credit Facility within 90 days of the earlier of (i) the invoice date
of the receivable that substantiated the advance or (ii) the date on which the
advance was made.  The Credit Facility is secured by a continuing
first priority security interest in all the Company’s personal property (subject
to customary exceptions).  Interest on the Credit Facility is payable
monthly, at the per annum prime rate as published by the Lender plus two
percentage points, subject to a minimum rate of 6.0% per annum (6% at March 31,
2009).  The Credit Agreement matures on February 24, 2010 and may be
terminated at any time by either party to the Credit Agreement.
  NOTE
5 - UNSECURED SUBORDINATED CONVERTIBLE PROMISSORY NOTES
  The
amounts payable under these notes, less the beneficial conversion feature
attributable to the value of the warrants is as follows:
 
 March
      31, 2009
                  (unaudited)
              
              
              December
      31, 2008Subordinated
      unsecured convertible notes payable, interest at 10% per annum payable
      quarterly, due March 31, 2012
              
              $
              50,000
              
              
              $
              —Less:
      beneficial conversion feature attributable to the value of
      warrants
              
              
              (50,000
              )
              
              
              —Total
      notes payable
              
              $
              —
              
              
              $
              —
  In March
2009, the Company entered into agreements with three accredited investors for
the sale by the Company of an aggregate of $50,000 of 10% Unsecured Subordinated
Convertible Promissory Notes which are convertible into an aggregate of 50,000
shares of the Company’s common stock at a conversion price of $1.00 per share of
common stock, subject to adjustment.  Additionally, the Company issued
three-year warrants to purchase an aggregate of 50,000 shares of the Company’s
common stock at an exercise price of $1.50 per share.  The conversion
price is only subject to adjustment based on stock splits, stock dividends,
spin-off, rights offering, or recapitalization through a large, nonrecurring
cash dividend.
  The
Company determined that the relative fair value of the warrants was
$31,132.  The relatively fair value was determined using the
methodology prescribed by APB No. 14, “Accounting for Convertible Debt and Debt
Issued with Stock Purchase Warrants.”  The Company determined the
initial fair value of the beneficial conversion feature was approximately
$18,868.  These amounts were calculated by a Black-Scholes option
pricing model using as assumptions an expected life of 3 years, an industry
volatility of 54.39%, a risk free interest rate of 1.15%, and no expected
dividend yield. The relative value of the warrants of $31,132 and the beneficial
conversion feature of $18.868 was recorded by the Company as a loan discount
of  $50,000, which the Company will amortize to interest expense over
the original life of the loan.  At March 31, 2009, the total discount
of $50,000 is offset against the balance of the convertible notes.
  12
  BALQON
CORPORATION
 
 NOTES
TOCONDENSED FINANCIAL STATEMENTS
 FOR
THE THREE MONTHS ENDED MARCH 31, 2009
 NOTE
6 – NOTE PAYABLE - RELATED PARTIES, UNSECURED
  Note
payable, unsecured, consists of the following at:
 March
      31, 2009 (Unaudited)
              
              
              December
      31, 2008Notes
      payable to a shareholder, un secured, interest at
                6%
      per annum payable at maturity, due December 6, 2008
              
              $
              —
              
              
              $
              875Note
      payable to a shareholder, issued in conjunction with
                the acquisition of
      EMS (see Note 3), unsecured, interest at
                the prime rate (5%
      at March 31, 2009) per annum, payable
                at maturity, due in
      two principal installments: $50,000 on
                May 15, 2009 and
      $50,000 on June 15th, plus interest.
              
              
              100,000
              
              
              
              100,000Total
      notes payable
              
              $
              100,000
              
              
              $
              100,875
 
 NOTE
7 – INCOME TAXES
  At March
31, 2009, the Company had available Federal and state net operating loss
carryforwards to reduce future taxable income. The amounts available were
approximately$8,789,000for Federal and for state purposes. The Federal carryforward expires in
2028 and the state carryforward expires in 2018. Given the Company’s history of
net operating losses, management has determined that it is more likely than not
the Company will be able to realize the tax benefit of the
carryforwards.
  Accordingly,
the Company has not recognized a deferred tax asset for this benefit. Upon the
attainment of taxable income by the Company, management will assess the
likelihood of realizing the tax benefit associated with the use of the
carryforwards and will recognize a deferred tax asset at that time.
  SFAS No.
109 requires that a valuation allowance be established when it is more likely
than not that all or a portion of deferred tax assets will not be
realized.
  Significant
components of the Company’s deferred income tax assets are as
follows:
  March 31, 2009
                    (Unaudited)Deferred
      income tax asset:Net
      operating loss carryforward
              
              $
              3,498,000Valuation
      allowance
              
              
              (3,498,000
              )Net
      deferred income tax asset
              
              $
              —
  Reconciliation
of the effective income tax rate to the U.S. statutory rate is as
follows:
  Three
      Months Ended March 31, 2009Tax
      expense at the U.S. statutory income tax
              
              
              (34.0
              )%State
      tax net of federal tax benefit
              
              
              (5.8.
              )%Effective
      tax rate
              
              
              39.8
              %
  13
  BALQON
CORPORATION
 
 NOTES
TOCONDENSED FINANCIAL STATEMENTS
 FOR
THE THREE MONTHS ENDED MARCH 31, 2009
 NOTE
7 – INCOME TAXES (continued)
  Effective
January 1, 2007, the Company adopted Financial Accounting Standards Board
Interpretation No. 48,“Accounting for
Uncertainty in Income Taxes (“FIN 48”)—an interpretation of FASB
Statement No. 109, Accounting for Income Taxes.” The Interpretation
addresses the determination of whether tax benefits claimed or expected to be
claimed on a tax return should be recorded in the financial statements. Under
FIN 48, the Company may recognize the tax benefit from an uncertain tax position
only if it is more likely than not that the tax position will be sustained on
examination by the taxing authorities, based on the technical merits of the
position. The tax benefits recognized in the financial statements from such a
position should be measured based on the largest benefit that has a greater than
fifty percent likelihood of being realized upon ultimate settlement. FIN 48 also
provides guidance on derecognition, classification, interest and penalties on
income taxes, accounting in interim periods and requires increased disclosures.
At the date of adoption, and as of March 31, 2009,
the Company does not have a liability for unrecognized tax
benefits.
  NOTE
8 – STOCK OPTIONS AND WARRANTS
  Stock
Options
  At March
31, 2009, options shares outstanding are as follows:
  Shares
              
              
              Average
                  Exercise
                  PriceBalance
      at January 1, 2009
              
              
              4,562,592
              
              
              $
              2.00Granted
              
              
              —
              
              
              
              —Exercised
              
              
              —
              
              
              
              —Cancelled
              
              
              —
              
              
              
              —Balance
      at March 31, 2009 (unaudited)
              
              
              4,562,592
              
              
              $
              2.00
  The
following table summarizes information about stock options outstanding and
exercisable as of March 31, 2009:
  Options
      Outstanding
              
              
              Options
      ExercisableRange
      of
                Exercise
                Prices
              
              
              Number
                  of
      Shares
                  Underlying
                  Options
              
              
              Weighted
                  Average
                  Exercise
                  Price
              
              
              Weighted
                  Average
                  Remaining
      Contractual
                  Life
      (in years)
              
              
              Number
                  of
      Shares
              
              
              Weighted
                  Average
                  Exercise
      Price$
              1.50
              
              
              
              1,520,864
              
              
              $
              1.50
              
              
              
              1.0
              
              
              
              1,520,864
              
              
              $
              1.50$
              2.00
              
              
              
              1,520,864
              
              
              $
              2.00
              
              
              
              2.0
              
              
              
              1,520,864
              
              
              $
              2.00$
              2.50
              
              
              
              1,520,864
              
              
              $
              2.50
              
              
              
              3.0
              
              
              
              1,520,864
              
              
              $
              2.504,562,592
              
              
              
              
              
              
              
              
              
              
              
              4,562,592
  At March
31, 2009, the aggregate intrinsic value of the 4,562,592 options outstanding and
exercisable was
$3,901,153.  At March31, 2009, all options were vested and
there were no unvested options outstanding.
  14
  BALQON
CORPORATION
 
 NOTES
TOCONDENSED FINANCIAL STATEMENTS
 FOR
THE THREE MONTHS ENDED MARCH 31, 2009
 NOTE
8 – STOCK OPTIONS AND WARRANTS (continued)
  Warrants
  At March
31, 2009, warrants shares outstanding are as follows:
  Shares
              
              
              Average
                  Exercise
      PriceBalance
      at January 1, 2009
              
              
              3,008,778
              
              
              $
              1.50Granted
              
              
              50,000
              
              
              $
              1.50Exercised
              
              
              —
              
              
              
              —Cancelled
              
              
              —
              
              
              
              —Balance
      at March 31, 2009 (unaudited)
              
              
              3,058,778
              
              
              $
              1.50
  The
following table summarizes information about stock warrants outstanding and
exercisable as of March 31, 2009:
 
 Warrants
      Outstanding
              
              
              Warrants
      ExercisableRange
      of
                Exercise
                Prices
              
              
              Number
                  of
      Shares
                  Underlying
                  Warrants
              
              
              Weighted
                  Average
                  Exercise
                  Price
              
              
              Weighted
                  Average
                  Remaining
      Contractual
                  Life
      (in years)
              
              
              Number
                  of
      Shares
              
              
              Weighted
                  Average
                  Exercise
      Price$
              1.50
              
              
              
              2,449,594
              
              
              $
              1.50
              
              
              
              2.8
              
              
              
              2,449,594
              
              
              $
              1.50$
              2.00
              
              
              
              304,592
              
              
              $
              2.00
              
              
              
              2.0
              
              
              
              304,592
              
              
              $
              2.00$
              2.50
              
              
              
              304,592
              
              
              $
              2.50
              
              
              
              3.0
              
              
              
              304,592
              
              
              $
              2.503,058,778
              
              
              
              
              
              
              
              
              
              
              
              3,058,778
 
 At March
31, 2009, the aggregate intrinsic value of the warrantsoutstanding and
exercisable was $3,672,462.
  NOTE
9 – COMMITMENTS AND CONTINGENCIES
  On June
25, 2008, the Company entered into an agreement with the City of Los Angeles to
produce and deliver 20 electric yard hostlers, 5 short-haul electric drayage
trucks, and associated equipment including chargers, batteries and controllers
for a total of $5,383,750.  In September 2008, the Company began work
on the first units it intends to produce and expects to deliver all the vehicles
and associated equipment to the City of Los Angeles during 2009.
  The
Company has agreed to pay to each of the City of Los Angeles and the AQMD a
royalty fee of $1,000 per electric vehicle it sells to a purchaser other than
the City of Los Angeles or the AQMD.
  NOTE
10 - SUBSEQUENT EVENTS
  Between April 1, 2009 and
May 20, 2009, the Company entered into agreements with 15 accredited
investors for the sale by the Company of an aggregate of $315,000 of 10%
Unsecured Subordinated Convertible Promissory Notes which are convertible into
an aggregate of 315,000 shares of the Company’s common stock at a conversion
price of $1.00 per share of common stock, subject to
adjustment.  Additionally, the Company issued three-year warrants to
purchase an aggregate of 315,000 shares of the Company’s common stock at an
exercise price of $1.50 per share.
  15
  MANAGEMENT’S
DISCUSSION AND ANALYSIS OF
  FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
  The
following discussion and analysis should be read in conjunction with our
financial statements and the related notes to financial statements included
elsewhere in this report.  This report and our financial statements
and notes to financial statements contain forward-looking statements, which
generally include the plans and objectives of management for future operations,
including plans and objectives relating to our future economic performance and
our current beliefs regarding revenues we might generate and profits we might
earn if we are successful in implementing our business strategies. Our actual
results could differ materially from those expressed in these forward-looking
statements as a result of any number of factors, including those set forth under
the “Risk Factors” section of our Amendment No. 1 to our Annual Report on
Form 10-K for the year ended December 31, 2008 and elsewhere in this
report. The forward-looking statements and associated risks may include, relate
to or be qualified by other important factors, including, without
limitation:
  ·
              the
      projected growth or contraction in the industries within which we
      operate;
  ·
              our
      business strategy for expanding, maintaining or contracting our presence
      in these markets;
  ·
              anticipated
      trends in our financial condition and results of operations;
      and
  ·
              our
      ability to distinguish ourselves from our current and future
      competitors.
  We do not
undertake to update, revise or correct any forward-looking
statements.
  Any of
the factors described above, elsewhere in this report or in the “Risk Factors”
section of our Amendment No. 1 to our Annual Report on Form 10-K for the
year ended December 31, 2008 could cause our financial results, including
our net income or loss or growth in net income or loss to differ materially from
prior results, which in turn could, among other things, cause the price of our
common stock to fluctuate substantially.
  Overview
  We
currently develop, assemble and market heavy-duty electric vehicles, flux vector
inverters, and heavy-duty electric drive systems.  We currently sell
our heavy-duty electric vehicles and plan to begin selling our other products in
the near future.  In May 2007, we entered into an agreement with the
South Coast Air Quality Management District, or AQMD, to develop and test a
heavy-duty zero emissions electric drayage tractor.  Under the terms
of an agreement with the AQMD, which agreement is referred to in this report as
the AQMD Development Agreement, the AQMD agreed to pay us up to $527,000 for the
development and testing of the heavy-duty drayage tractor.  The Port
of Los Angeles agreed with the AQMD to fund 50% of the total development
costs.  All of our revenues for the three months ended March 31,
2008 were associated with the AQMD Development Agreement.  All of our
revenues for the three months ended March 31, 2009 were from the sale of a
battery charger system and one electric trucks to the Port of Los Angeles. The
revenues and costs associated with the AQMD Development Agreement are recorded
as contract revenues and costs, in accordance with the AICPA’s Statement of
Position 81-1, “Accounting for Performance of Construction-Type and Certain
Production-type Contracts.”  As such, the costs associated with the
development of our demonstration vehicle are recorded as “contract costs,” not
as research and development expenses.
  16
  In June
2008, we received a purchase order from the City of Los Angeles for 20 Nautilus
E20 heavy-duty electric yard tractors and five Nautilus E30 drayage
tractors.  The purchase order from the City of Los Angeles is pursuant
to an agreement with the City of Los Angeles, dated June 26, 2008, or City
of Los Angeles Agreement.
  Our total
revenues increased by $716,650, or 1,194.4%, to $776,750 for the quarterly
period ended March 31, 2009 as compared to $60,000 for the quarterly period
ended March 31, 2008.  We reported a net loss of $602,528 for the
quarterly period ended March 31, 2009 as compared to a net loss of $56,240 for
the quarterly period ended March 31, 2008.  We experienced increased
expenses in 2009 associated with the ramp up of our business, including leasing
production facilities in Harbor City, California, hiring full-time senior
management and production personnel. Additionally, we incurred significant
additional legal, accounting, auditing and consulting expenses relating to the
annual audit of SEC reporting requirements. While our business activities
resulted in a revenue increase of approximately 1,194%, we experienced increased
cost of revenues of $736,174, or 6,432%, and increased operating and other
expenses of $526,764, or 503%, over the same period in 2008.
  Merger
Transaction
  On
October 24, 2008, we completed an Agreement and Plan of Merger, or Merger
Transaction, with Balqon Corporation, a California corporation, or Balqon
California, and changed our name from BMR Solutions, Inc. to Balqon
Corporation.  Upon completion of the Merger Transaction, we acquired
the business of Balqon California.  In connection with the Merger
Transaction, we issued an aggregate of 23,908,348 shares of our common stock to
the shareholders of Balqon California which resulted in a change in control of
our company.  The Merger Transaction has been accounted for as a
recapitalization of Balqon California, with Balqon California being the
accounting acquiror.  As a result, the historical financial statements
of Balqon California are now the historical financial statements of the legal
acquiror, Balqon Corporation (formerly, BMR Solutions, Inc.).
  In
connection with the Merger Transaction, we issued an aggregate of 23,908,348
shares of our common stock to the shareholders of Balqon
California.  In addition, the holders of warrants to acquire an
aggregate of 2,614,180 shares of common stock of Balqon California were deemed
to hold warrants to acquire an equal number of shares of our common stock upon
completion of the Merger Transaction.  In connection with the Merger
Transaction, we also issued under our 2008 Plan options to purchase an aggregate
of 4,562,592 shares of our common stock to certain of our directors and
employees who held options to purchase an equal number of shares of Balqon
California’s common stock immediately prior to the completion of the Merger
Transaction.  In connection with the consummation of the Merger
Transaction, we cancelled 6,377,500 shares of our issued and outstanding common
stock held by certain of our stockholders such that concurrent with the closing
of the Merger Transaction we had approximately 1,400,000 shares of common stock
issued and outstanding.
  At the
time of the closing of the Merger Transaction, we were engaged in the business
of providing local delivery and transportation of mattresses, furniture and
futons in Southern California.  Our current business is comprised
solely of the business of Balqon California.
  Critical
Accounting Policies
  Our
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these financial
statements requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. We base our estimates on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis of making judgments
about the carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these estimates
under different assumptions or conditions.
  17
  We
believe that the following critical accounting policies, among others, affect
our more significant judgments and estimates used in the preparation of our
financial statements:
  Estimates
  The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period.  Material estimates relate to the recognition of
contract revenues and estimated costs to complete contracts in process, and
recoverability of reported amounts of long-lived assets.  Actual
results may differ from those estimates.
  Revenues
  Contract Revenue and Cost
Recognition on Prototype Vehicles.  In accounting for
contracts, we follow the provisions of the AICPA’s Statement of Position
81-1,  “Accounting for Performance of Construction-Type and Certain
Production-Type Contracts.”  We recognize revenues using the
percentage-of-completion method of accounting by relating contract costs
incurred to date to the total estimated costs at completion.  This
method is used because management considers costs to be the best available
measure of progress on its contracts.  Contract losses are provided
for in their entirety in the period that they become known, without regard to
the percentage-of-completion.  We also recognize as revenues costs
associated with claims and unapproved change orders to the extent it is probable
that such claims and change orders will result in additional contract revenue,
and the amount of such additional revenue can be reliably
estimated.
  Contract
costs include all direct material and labor costs.  The liability
“Billings in excess of costs and estimated earnings on uncompleted contracts”
represents billings in excess of revenues earned.
  Sales of Production Units
and Parts.  We recognize revenue from the sale of completed
production units and parts when there is persuasive evidence that an arrangement
exists, delivery of the product has occurred and title has passed, the selling
price is both fixed and determinable, and collectibility is reasonably assured,
all of which generally occurs upon shipment of our product or delivery of the
product to the destination specified by the customer.
  18
  We
determine whether delivery has occurred based on when title transfers and the
risks and rewards of ownership have transferred to the buyer, which usually
occurs when we place the products with the buyer’s carrier.  We
regularly review its customers’ financial positions to ensure that
collectibility is reasonably assured.  Except for warranties, we have
no post-sales obligations.
  Product
Warranties
  We
provide limited warranties for parts and labor at no cost to its customers
within a specified time period after the sale.  We estimate the actual
historical warranty claims coupled with an analysis of unfulfilled claims at the
balance sheet date. As of March 31, 2009, we had no warranty reserve nor did we
incur warranty expenses during the three month periods ended March 31, 2009 or
2008.
 Stock-Based
Compensation
  We
periodically issue stock instruments, including shares of our common stock,
stock options and warrants to purchase shares of our common stock to employees
and non-employees in non-capital raising transactions for services and for
financing costs. We adopted Statement of Financial Accounting Standards, or
SFAS, No. 123(R), “Accounting for Stock-Based Compensation” effective January 1,
2006, and are using the modified prospective method in which compensation cost
is recognized beginning with the effective date (a) based on the requirements of
SFAS No. 123(R) for all share-based payments granted after the effective date
and (b) based on the requirements of SFAS No. 123(R) for all awards granted to
employees prior to the effective date of SFAS No. 123(R) that remain unvested on
the effective date. We account for stock option and warrant grants issued and
vesting to non-employees in accordance with Emerging Issues Task Force, or EITF,
Issue No. 96-18, “Accounting for Equity Instruments that are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services,” and EITF Issue No. 00-18, “Accounting Recognition for Certain
Transactions involving Equity Instruments Granted to Other Than Employees”
whereby the fair value of the stock compensation is based on the measurement
date as determined at either (i) the date at which a performance commitment is
reached, or (ii) at the date at which the necessary performance to earn the
equity instrument is complete.
  Goodwill
and Intangible Assets
  As
required by SFAS No. 142, management performs impairment tests of goodwill and
indefinite-lived intangible assets whenever an event occurs or circumstances
change that indicate impairment has more likely than not occurred. Also, as
required by SFAS No. 142, management performs impairment testing of goodwill and
indefinite-lived intangible assets at least annually.
  In
accordance with SFAS No. 142, management tests goodwill for impairment at the
reporting unit level.  We have only one reporting unit.  At
the time of goodwill impairment testing, management determines fair value
through the use of a discounted cash flow valuation model incorporating discount
rates commensurate with the risks involved its reporting unit. If the calculated
fair value is less than the current carrying value, impairment may exist. The
use of a discounted cash flow valuation model to determine estimated fair value
is common practice in impairment testing in the
absence of available domestic and international transactional market evidence to
determine the fair value. The key assumptions used in the discounted cash flow
valuation model for impairment testing include discount rates, growth rates,
cash flow projections and terminal value rates. Discount rates are set by using
the Weighted Average Cost of Capital,
orWACC, methodology. The WACC methodology considers market and
industry data as well as Balqon-specific risk factors for each reporting unit in
determining the appropriate discount rates to be used. The discount rate
utilized is indicative of the return an investor would expect to receive for
investing in such a business. Operational management, considering industry and
Balqon-specific historical and projected data, develops growth rates and cash
flow projections for Balqon.  Terminal value rate determination
follows common methodology of capturing the present value of perpetual cash flow
estimates beyond the last projected period assuming a constant WACC and low
long-term growth rates. As an indicator that each reportingunit has been
valued appropriately through the use of the discounted cash flow valuation
model, the aggregate fair value of all reporting units is reconciled to our
total market capitalization. The discounted cash flow valuation methodology and
calculations will be used in 2009 impairment testing.  Our first
measurement period will be in the third quarter of 2009.
  19
  Impairment
of Long-Lived Assets
  SFAS No.
144, “Accounting for the Impairment or Disposal of Long-Lived Assets,”
establishes guidelines regarding when impairment losses on long-lived assets,
which include property and equipment, should be recognized and how impairment
losses should be measured.  This statement also provides a single
accounting model for long-lived assets to be disposed of and significantly
changes the criteria that would have to be met to classify an asset as
held-for-sale. We periodically review, at least annually, such assets for
possible impairment and expected losses. If any losses are determined to exist
they are recorded in the period when such impairment is determined. Based upon
management’s assessment, there are no indicators of impairment of our long lived
assets at March 31, 2009 or December 31, 2008.
  Income
Taxes
  We
account for income taxes in accordance with SFAS No. 109, “Accounting for Income
Taxes.” Under SFAS No. 109, income taxes are recognized for the amount of taxes
payable or refundable for the current year and deferred tax liabilities and
assets are recognized for the future tax consequences of transactions that have
been recognized in our financial statements or tax returns. A valuation
allowance is provided when it is more likely than not that some portion or the
entire deferred tax asset will not be realized.
  Results
of Operations
  We have
based our financial statements on the assumption of our operations continuing as
a going concern.  As of March 31, 2009, we had working capital deficit
of $344,503, had an accumulated deficit of
$8,623,383 and reporteda net loss for the quarterly period ended March
31, 2009 of $602,528,which raise substantial
doubt about our ability to continue as a going concern.Our plans for correcting
these deficiencies include the future sales of our products and technologies and
the raising of capital, which are expected to help provide us with the liquidity
necessary to meet operating expenses.  Between April 1, 2009 and May
20, 2009 we raised $315,000 in connection with a private placement of our
convertible notes and warrants.  Over the longer-term, we plan to
achieve profitability through our operations from the sale of our high capacity
electric vehicles.  Our financial statements do not include any
adjustments relating to the recoverability and classification of the recorded
asset amounts or the amounts and classification of liabilities that might be
necessary should we be unable to continue our existence.
  The
tables presented below, which compare our results of operations for the first
quarter of 2009 and 2008, present the results for each period, the change in
those results from one period to another in both dollars and percentage change,
and the results for each period as a percentage of net revenues. The columns
present the following:
  ·
              The
      first two data columns in each table show the absolute results for each
      period presented.
  ·
              The
      columns entitled “Dollar Variance” and “Percentage Variance” show the
      change in results, both in dollars and percentages. These two columns show
      favorable changes as a positive and unfavorable changes as negative. For
      example, when our net revenues increase from one period to the next, that
      change is shown as a positive number in both columns. Conversely, when
      expenses increase from one period to the next, that change is shown as a
      negative in both columns.
  20
 ·
              The
      last two columns in each table show the results for each period as a
      percentage of net revenues.
  Three
      Months ending
                March
      31,
              
              
              Dollar
                Variance
              
              
              Percentage
                Variance
              
              
              Results as a
      Percentage

                of
      Net Revenues for the
                  Three
      Months ending March 31,2009
              
              
              2008
              
              
              Favorable
                  (Unfavorable)
              
              
              Favorable
                  (Unfavorable)
              
              
              2009
              
              
              2008Net
      revenues
              
              $
              776,650
              
              
              $
              60,000
              
              
              $
              716,650
              
              
              
              1,194
              %
              
              
              100
              %
              
              
              100
              %Cost
      of
      revenues
              
              
              747,620
              
              
              
              11,446
              
              
              
              (736,174
              )
              
              
              (6,432
              )%
              
              
              96
              %
              
              
              19
              %Gross
      profit
              
              
              29,030
              
              
              
              48,554
              
              
              
              (19,524
              )
              
              
              (40
              )%
              
              
              4
              %
              
              
              81
              %Operating
      and interest expenses
              
              
              631,558
              
              
              
              104,794
              
              
              
              (526,764
              )
              
              
              (503
              )%
              
              
              81
              %
              
              
              175
              %Net
      loss
              
              $
              (602,528
              )
              
              $
              (56,240
              )
              
              $
              (546,288
              )
              
              
              (971
              )%
              
              
              (78
              )%
              
              
              (94
              )%
  Net
Revenues.  The increase in net revenues is comprised of the
sale of a battery charger system and two electric trucks for
$776,650.  We anticipate that our future revenues will be comprised of
primarily of sales of our heavy-duty electric vehicles, flux vector inverters
and our other products to customers including the City of Los
Angeles.
  Gross
Profit.  The decrease in gross profit was due to a 3.7% gross
margin associated with the sales of a battery system and electric trucks during
the first quarter of 2009 compared to a 81% gross margin associated with
contract revenues earned under the AQMD Development Agreement during the first
quarter of 2008. The decrease in gross margin during 2009 was largely
attributable to the startup of our electric truck manufacturing facility that
resulted in unused plant capacity, excess direct labor, and other manufacturing
overhead being charged to cost of sales during the quarter ended March 31, 2009.
We anticipate that our gross profit margin will be approximately 24% of revenues
for 2009 based on the current costs incurred associated with the 25 electric
vehicles for the Port of Los Angeles that are currently under production at our
Harbor City facility.
 Operating and Interest
Expenses.  The $526,764 increase inoperating and interest
expenses was due largely to the legal, accounting, audit and consulting fees
incurred in connection with the annual audit and related filings with the SEC
that were made during the quarterly period ended March 31, 2009. We expect that
over the near term, our general and administrative expenses will increase as a
result of increased management personnel, opening of new manufacturing
facilities, additional operational personnel to manufacture electric vehicle,
increased legal and accounting fees associated with increased corporate
governance activities in response to the Sarbanes-Oxley Act of 2002 and recently
adopted rules and regulations of the SEC and the filing of an amended
registration statement with the SEC.  Our research and development
expenses for the quarterly period ended March 31, 2009 were $60,945.  We
had no research and development expenses during the quarterly period ended March
31, 2008.  The increase in research and development expenses is largely
attributable to the expenses associated with the employment of our vice
president of research and development who was hired during the year ended
December 31, 2008.  While our general and administrative expenses are
expected to increase over the near term, these expenses as a percentage of net
revenues are expected to decrease as we increase our net revenues.
  Liquidity
and Capital Resources
  During
the first quarter of 2009, we funded our operations primarily with cash flow
from financing activities, which included the issuance of secured and unsecured
debt and the issuance of equity securities.  As of March 31,
2009, we had a working capital deficiency of $344,203 as compared to a working
capital of $194,074 at December 31, 2008.  At March 31, 2009 and
December 31, 2008 we had an accumulated deficit of $8,623,383 and $8,020,855,
respectively, and cash and cash equivalents of $39,749 and $355,615,
respectively.
 21
  Our
available capital resources at March 31, 2009 consisted primarily of
approximately $39,749 in cash and cash equivalents.  We expect that
our future available capital resources will consist primarily of cash on hand,
cash generated from our business, if any, and future debt and/or equity
financings, if any.
  Cash used
in operating activities for the three months ended March 31, 2009 was $844,043
as compared to $2,754 of cash provided by operating activities for the three
months ended March 31, 2008, and includes a net loss of $602,528, depreciation
and amortization of $23,238 and changes in operating assets and liabilities of
$(264,753).  Material changes in asset and liabilities at
March 31, 2009 as comparedto December 31,
2008 that affectedthese results include:
  ·
              an
      increase in accounts receivable of
$775,750;
  ·
              a
      decrease in inventory of $434,609;
  ·
              a
      decrease in prepaid expenses of $21,058;
and
  ·
              a
      netincreasein accounts
      payable and accrued expenses of
$55,330.
  Cash used
in investing activities totaled $8,986 for the first quarter of 2009 as compared
to $0 of cash used in investing activities for the first quarter of
2008.
  Cash
provided by financing activities totaled $537,163 for the first quarter of 2009
as compared to $2,448 for the first quarter of 2008.
  Between
March 1, 2009 and May 20, 2009, we raised an aggregate of $365,000 through the
issuance of convertible notes to 18 accredited investors.  The
convertible notes are convertibles into an aggregate of 365,000 shares of our
common stock.  In connection with this offering, we also issued
three-year warrants to purchase an aggregate of 365,000 shares of common stock
at an exercise price of $1.50 per share.
  We are
obligated under registration rights agreements related to above described
private placement to file a registration statement with the SEC, registering for
resale the shares of common stock underlying the convertible notes and warrants
issued in the private placement transaction.
  Effective
February 18, 2009, we entered into a Business Financing Agreement with
Bridge Bank, National Association.  Effective February 26, 2009,
we entered into a Business Financing Modification Agreement which modified the
initial financing agreement with Bridge Bank.  The amended financing
agreement with Bridge Bank provides us with an accounts receivable based credit
facility in the aggregate amount of up to $5,000,000.  Under the terms
of the credit facility, we may not borrow in excess of $500,000 unless and until
we receive an executed term sheet with respect to an equity financing of at
least $2,500,000 on terms and conditions acceptable to Bridge Bank.
  The
credit facility is formula-based and generally provides that the outstanding
borrowings under the credit facility may not exceed an aggregate of 80% of
eligible accounts receivable.  We must immediately pay any advance
made under the credit facility within 90 days of the earlier of (i) the invoice
date of the receivable that substantiated the advance or (ii) the date on which
the advance was made.
  22
  Interest
on the credit facility is payable monthly.  The interest rate is
variable and is adjusted monthly based on the per annum prime rate as published
by Bridge Bank plus two percentage points, subject to a minimum rate of 6.0% per
annum.
  In the
event of a default and continuation of a default, Bridge Bank may accelerate the
payment of the principal balance requiring us to pay the entire indebtedness
outstanding on that date.  Upon the occurrence and during the
continuation of an event of default, the interest rate applicable to the
outstanding balance borrowed under the credit facility will be increased by five
percentage points above the per annum interest rate that would otherwise be
applicable.
  The
credit facility is secured by a continuing first priority security interest in
all of our personal property (subject to customary exceptions).  The
credit facility may be terminated at any time by either party.  If we
terminate the credit facility prior to February 18, 2010, we will owe a
termination fee equal to 1.00% of the dollar amount resulting from dividing the
credit limit then in effect under the credit facility by 80% (or such greater or
lesser percentage as Bridge Bank may establish from time to time).
  Our plan
of operations for the next twelve months includes completion and delivery of the
remaining heavy-duty electric vehicles under the City of Los Angeles Agreement,
together with associated equipment including batteries and controllers. We also
expect to receive additional orders for our products over the next twelve
months. We expect that the anticipated gross margin from the sales of these
products will provide additional liquidity and capital resources.  Our
ability to increase the number of orders for our products and/or to achieve
sufficient gross margin through the sale of products to provide us with
meaningful additional liquidity and capital resources is subject to, among other
things, the effect of the current global economic crisis and our ability to
raise additional capital.
  During
2009, we expect to incur approximately $200,000 in research and development
expenses. We believe that we presently have sufficient plant and production
equipment to meet our current operational plan and we do not intend to dispose
of any plant and equipment.
  We
presently have seven employees and expect to hire additional personnel to meet
production demands of increased product sales. Until these new sales
materialize, our present staff is sufficient to meet our current operational
plan.
  Our
continued operations are dependent on securing additional sources of liquidity
through debt and/or equity financing.  As indicated above, our
financial statements as of March 31, 2009 and for the year ended
December 31, 2008 have been prepared on a going concern basis, which
contemplates the realization of assets and satisfaction of liabilities in the
normal course of business. As discussed in this report and in notes to our
financial statements included in this report, we have suffered recurring losses
from operations and at March 31, 2009 we had an accumulated deficit of
$8,623,382.  These factors, among others, raised substantial doubt
about our ability to continue as a going concern and, with respect to our
financial position on December 31, 2008, led our independent registered public
accounting firm to include in their report an explanatory paragraph related to
our ability to continue as a going concern. The financial statements included in
this report do not include any adjustments that might result from the outcome of
this uncertainty.
  We have
been, and currently are, working toward identifying and obtaining new sources of
financing. No assurances can be given that we will be successful in obtaining
additional financing in the future.  Any future financing that we may
obtain may cause significant dilution to existing stockholders. Any debt
financing or other financing of securities senior to common stock that we are
able to obtain will likely include financial and other covenants that will
restrict our flexibility. At a minimum, we expect these covenants to include
restrictions on our ability to pay dividends on our common stock. Any failure to
comply with these covenants would have a material adverse effect on our
business, prospects, financial condition, results of operations and cash
flows.
  23
  If
adequate funds are not available, we may be required to delay, scale back or
eliminate portions of our operations and product and service development efforts
or to obtain funds through arrangements with strategic partners or others that
may require us to relinquish rights to certain of our technologies or potential
products or other assets. Accordingly, the inability to obtain such financing
could result in a significant loss of ownership and/or control of our
proprietary technology and other important assets and could also adversely
affect our ability to fund our continued operations and our product and service
development efforts.
  Backlog
  As of
March 31, 2009, we had a backlog of approximately $4.9million.  As
of March 31, 2009, our backlog included a contract to produce and deliver 19
electric yard tractors, 5 electric drayage tractors, and associated equipment
including batteries and controllers.  We believe that products in our
backlog will be shipped during 2009.
  Effects
of Inflation
  The
impact of inflation and changing prices has not been significant on the
financial condition or results of operations of our company.
  Impacts
of New Accounting Pronouncements
  In
December 2007, SFAS No. 141R, “Business Combinations (revised 2007)” was
issued.  SFAS No. 141R replaces SFAS No. 141 “Business
Combinations.”  SFAS No. 141R requires the acquirer of a business
to recognize and measure the identifiable assets acquired, the liabilities
assumed, and any non-controlling interest in the acquiree at fair value. SFAS
No. 141R also requires transactions costs related to the business
combination to be expensed as incurred. SFAS No. 141R applies prospectively
to business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December
15, 2008.  The effective date, as well as the adoption date for Balqon
was January 1, 2009.  Although SFAS No. 141R may impact our
reporting in future financial periods, we have determined that the standard did
not have any impact on our historical consolidated financial statements at the
time of adoption.
  In April
2008, the Financial Accounting Standards Board, or FASB, issued FASB Staff
Position, or FSP, No. 142-3, “Determination of the Useful Life of Intangible
Assets”, which amends the factors that should be considered in developing
renewal or extension assumptions used to determine the useful life of a
recognized intangible asset under SFAS No. 142.  This
pronouncement requires enhanced disclosures concerning a company’s treatment of
costs incurred to renew or extend the term of a recognized intangible asset. FSP
142-3 is effective for financial statements issued for fiscal years beginning
after December 15, 2008.  The effective date, as well as the adoption
date for us was January 1, 2009.  Although FSP 142-3 may impact our
reporting in future financial periods, we have determined that the standard did
not have any impact on our historical consolidated financial statements at the
time of adoption.
  Other
recent accounting pronouncements issued by the FASB (including its Emerging
Issues Task Force), the AICPA, and the SEC did not or are not believed by
management to have a material impact on the Company's present or future
financial statements.
  24
  ITEM
      3.
              QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
  Not
Applicable.
  ITEM
      4.
              CONTROLS
      AND PROCEDURES
  Not
applicable.
  ITEM
      4T.
              CONTROLS
      AND PROCEDURES
  Evaluation
of Disclosure Controls and Procedures
  We
conducted an evaluation under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer,
our principal accounting officer, of the effectiveness of the design and
operation of our disclosure controls and procedures.  The term
“disclosure controls and procedures,” as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended, or Exchange
Act, means controls and other procedures of a company that are designed to
ensure that information required to be disclosed by the company in the reports
it files or submits under the Exchange Act is recorded, processed, summarized
and reported, within the time periods specified in the SEC’s rules and
forms.  Disclosure controls and procedures also include, without
limitation, controls and procedures designed to ensure that information required
to be disclosed by a company in the reports that it files or submits under the
Exchange Act is accumulated and communicated to the company’s management,
including its principal executive and principal financial officers, or persons
performing similar functions, as appropriate, to allow timely decisions
regarding required disclosure.  Based on this evaluation, our Chief
Executive Officer and Chief Financial Officer concluded as of March 31, 2009
that our disclosure controls and procedures were not effective at the reasonable
assurance level due to the material weaknesses described below.
  In light
of the material weaknesses described below, we performed additional analysis and
other post-closing procedures to ensure that our financial statements were
prepared in accordance with generally accepted accounting principles.
Accordingly, we believe that the financial statements included in this report
fairly present, in all material respects, our financial condition, results of
operations, changes in shareholder’s equity and cash flows for the periods
presented.
  Management’s
Report on Internal Control Over Financial Reporting
  Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act. Our internal control over financial reporting is
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. Our internal control
over financial reporting includes those policies and procedures
that:
  (i)
              pertain
      to the maintenance of records that, in reasonable detail, accurately and
      fairly reflect the transactions and dispositions of our
      assets;
  (ii)
              provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with generally accepted
      accounting principles, and that our receipts and expenditures are being
      made only in accordance with authorizations of our management and
      directors; and
  25
  (iii)
              provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use or disposition of our assets that could have
      a material effect on our financial
statements.
  All
internal control systems, no matter how well designed, have inherent
limitations.  Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial statement
preparation and reporting.  Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
  A
material weakness is a control deficiency (within the meaning of Public Company
Accounting Oversight Board (PCAOB) Auditing Standard No. 5) or combination of
control deficiencies, that results in more than a remote likelihood that a
material misstatement of the annual or interim financial statements will not be
prevented or detected on a timely basis.
  Under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting as of March
31, 2009 based on the framework in Internal Control–Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO).  Based on the results of management’s assessment and evaluation,
our Chief Executive Officer and Chief Financial Officer concluded that as of
March 31, 2009 our internal control over financial reporting was not effective
due to the material weaknesses described below
  Material
Weaknesses
  1.  In
conjunction with preparing our registration statement on Form S-1, and after
receiving comments from the Staff of the SEC relating to our registration
statement on Form S-1, management reviewed, in the first quarter of 2009, our
recording of the value of stock-based compensation awarded in June and August
2008, and the recording of a note discount related to a beneficial conversion
feature and associated warrants issued with certain convertible notes during
2008. As a result of this review, management concluded that our controls over
the key valuation assumptions of our stock-based compensation and note discount
related to a beneficial conversion feature and associated warrants issued with
convertible notes were not in accordance with generally accepted accounting
principles and that our expenses for the year ended December 31, 2008 and for
each of the quarterly periods ended June 30, 2008 and September 30, 2008, had
been misstated.  Based upon this conclusion, our Audit Committee and
senior management decided, in the second quarter of 2009, to restate our
financial statements as of and for the year ended December 31, 2008 and for each
of the quarterly periods ended June 30, 2008 and September 30,
2008.
  Management
evaluated the impact of this restatement on our assessment of our disclosure
controls and procedures and concluded that the control deficiency that resulted
in the incorrect recording of stock-based compensation and note discount related
to a beneficial conversion feature and associated warrants issued with
convertible notes represented a material weakness.
  2.  As
a result of our restatement of prior periods’ financial results, as discussed
above, we were unable to meet our requirements to timely file our Form 10-Q for
the quarterly period ended March 31, 2009. Management evaluated the impact of
our inability to timely file periodic reports with the SEC on our assessment of
disclosure controls and procedures and concluded that the control deficiency
that resulted in the inability to timely make these filings represented a
material weakness.
  26
  Remediation
of Material Weaknesses
  To
remediate the material weaknesses identified above, we have done the following
subsequent to December 31, 2008, in the periods specified below, which
correspond to the two material weaknesses identified above.
  1. We
revised our methodology for recording the value of stock-based compensation and
the recording of note discount related to a beneficial conversion feature and
associated warrants issued with convertible notes. We previously valued the
stock, options, and warrants associated with compensation and convertible notes
based on an alternative valuation methodology that was determined by management
with assistance from an independent third party valuation specialist during a
time when the company was still a private enterprise. Upon further examination
of our valuation methodology and largely in consideration of the sales in July
and September of convertible notes with a $1.00 per share conversion price, we
concluded that the $1.00 valuation per share was a better indicator of value
than the $0.015 per share valuation that was determined under the alternative
valuation methodology previously used by us.  We have determined the
effect of the correction on our previously issued financial statements and have
restated our financial statements for the year ended December 31, 2008 and
quarterly periods ended June 30, 2008 and September 30, 2008.  The
revision of our valuation methodology as it relates to stock-based compensation
and the recording of note discount related to a beneficial conversion feature
and associated warrants issued with convertible notes was completed in the
second quarter of 2009. We began using this new methodology for the quarter
ended June 30, 2008 and all periods included in this report now reflect this
change.  In addition, this methodology applies to all periods
subsequent to December 31, 2008.
  Management
believes that the remediation described in item 1 immediately above has
remediated the corresponding material weakness also described
above.
  2. In
connection with making the changes discussed above to our disclosure controls
and procedures, in addition to working with our independent auditors, in the
second quarter of 2009 we created a new position – Corporate Compliance Director
– to assist us in making timely required filings with the Securities and
Exchange Commission and ensuring the accuracy of our financial reporting and the
effectiveness of our disclosure controls and procedures. The individual that we
have assigned to the position of Corporate Compliance Director holds both a
bachelors and masters degree, is a certified public accountant, and is
experienced in compliance with generally accepted accounting principles, SEC
reporting, and taxation matters. In the second quarter of 2009 we further
improved our ability to timely make required filings by allocating part of the
time of our administrative assistant who possesses relevant administrative and
accounting experience to assist in promptly compiling information needed to meet
our disclosure controls and procedures. Also in the second quarter of 2009 we
established a Disclosure Committee comprised of the CFO, Corporate Compliance
Director, and the administrative assistant.  It is anticipated that
the Disclosure Committee will meet monthly and more frequently as reporting
deadlines approach, to ensure that we comply timely with our disclosure
obligations under the Securities Exchange Act of 1934, as amended.
  Management
expects that the remediation described in item 2 immediately above will
remediate the corresponding material weakness also describe above by December
31, 2009. Management is unable, however, to estimate our capital or other
expenditures associated with the allocation of time of certain of our personnel
to assist us in generating reports and schedules necessary to timely file our
periodic reports or our additional capital or other expenditures related to
higher fees paid to our independent auditors in connection with their review of
this remediation.
  27
  Inherent
Limitations on the Effectiveness of Controls
  Management
does not expect that our disclosure controls and procedures or our internal
control over financial reporting will prevent or detect all errors and all
fraud. A control system, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of the control
systems are met. Further, the design of a control system must reflect the fact
that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in a
cost-effective control system, no evaluation of internal control over financial
reporting can provide absolute assurance that misstatements due to error or
fraud will not occur or that all control issues and instances of fraud, if any,
have been or will be detected.
  These
inherent limitations include the realities that judgments in decision-making can
be faulty and that breakdowns can occur because of a simple error or mistake.
Controls can also be circumvented by the individual acts of some persons, by
collusion of two or more people, or by management override of the controls. The
design of any system of controls is based in part on certain assumptions about
the likelihood of future events, and there can be no assurance that any design
will succeed in achieving its stated goals under all potential future
conditions. Projections of any evaluation of controls effectiveness to future
periods are subject to risks. Over time, controls may become inadequate because
of changes in conditions or deterioration in the degree of compliance with
policies or procedures.
  Changes
in Internal Control over Financial Reporting
  There has
been no change in our internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the most recently
completed fiscal quarter that has materially affected, or is reasonably likely
to materially affect, our internal control over financial
reporting.
  PART
II – OTHER INFORMATION
  ITEM
      1.
              LEGAL
      PROCEEDINGS
  We are
not party to any legal proceedings.
  ITEM
      1A.
              RISK
      FACTORS
  In
addition to the other information set forth in this report, you should carefully
consider the factors discussed under “Risk Factors” in our Amendment No. 1 to
our Annual Report on Form 10-K for December 31, 2008 filed with the SEC on
May 22, 2009, which could materially affect our business, financial
condition and results of operations.  The risks described in our
Amendment No. 1 to our Annual Report on Form 10-K for December 31, 2008 filed
with the SEC on May 22, 2009 are not the only risks we face. Additional
risks and uncertainties not currently known to us or that we currently deem to
be immaterial also may materially adversely affect our business, financial
condition and results of operations.
  ITEM
      2.
              UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
  During
the three months ended March 31, 2009, we entered into agreements with 3
accredited investors for the sale by us of an aggregate of $50,000 of 10%
Unsecured Subordinated Convertible Promissory Notes which are convertible into
an aggregate of 50,000 shares of our common stock at a conversion price of $1.00
per share of common stock, subject to adjustment.  Additionally, we
issued three-year warrants to purchase an aggregate of 50,000 shares of common
stock at an exercise price of $1.50 per share.
  28
  The
issuances of our securities described above were made in reliance upon the
exemption from registration available under Section 4(2) of the Securities Act,
among others, as transactions not involving a public offering.  This
exemption was claimed on the basis that these transactions did not involve any
public offering and the purchasers in each offering were accredited or
sophisticated and had sufficient access to the kind of information registration
would provide. In each case, appropriate investment representations were
obtained and certificates representing the securities were issued with
restrictive legends.
  ITEM
      3.
              DEFAULTS
      UPON SENIOR SECURITIES
  None.
  ITEM
      4.
              SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY
HOLDERS
  None.
  ITEM
      5.
              OTHER
      INFORMATION
  On August
28, 2008 Balqon California into a Stock and Warrant Purchase Agreement with
Marlin Financial Group, Inc., which agreement we assumed in connection with the
Merger Transaction and amended on March 30, 2009.  On May 21, 2009, we
entered into Amendment No. 2 to Stock and Warrant Purchase Agreement with Marlin
Financial Group, Inc. pursuant to which a contractual agreement between us and
Marlin Financial Group, Inc. which restricted the ability of Marlin Financial
Group, Inc. to dispose of or transfer our securities.  The foregoing
summary of the terms of the Amendment No. 2 to Stock and Warrant Purchase
Agreement does not purport to be complete and is qualified in its entirety by
reference to the full text of the agreement filed as an exhibit to this report
or incorporated herein by reference.
  ITEM
      6.
              EXHIBITS
  Exhibit

                Number
              Description10.1
              Business
      Financing Agreement, dated February 18, 2009, between Bridge Bank,
      National Association and the Company
(1)
  10.2
              Business
      Financing Modification Agreement, dated February 26, 2009, between Bridge
      Bank, National Association and the Company
(1)
  10.3
              Amendment
      No. 2 to Stock and Warrant Purchase Agreement, dated May 21, 2009, by and
      between Marlin Financial Group, Inc. and Registrant
  (2)
  31.1
              Certification
      Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as
      amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002 (*)
  31.2
              Certification
      Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as
      amended, as Adopted Pursuant to Section 302 of the Sarbanes–Oxley Act of
      2002 (*)
  32.1
              Certification
      of President and Chief Financial Officer Pursuant to 18 U.S.C. Section
      1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
      (*)
 ___________________
 (*)
              Filed
      herewith.(1)
              Filed
      as an exhibit to the Registrant’s Current Report on Form 8-K with the
      Securities and Exchange Commission filed on March 3,
      2009.
 (2)
              Filed
      as an exhibit to the Registrant’s Amendment No. 1 to Annual Report on Form
      10-K with the Securities and Exchange Commission filed on May 22,
      2009.
  29
  SIGNATURES
  Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
  BALQON
    CORPORATIONDated:  May
      22, 2009
                By:
                /s/ BALWINDER
      SAMRABalwinder
      Samra, Chief Executive Officer
                  (principal
      executive officer)
    EXHIBITS
FILED WITH THIS REPORT
  Exhibit
                Number
              Description31.1
              Certification
      Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as
      amended, as Adopted Pursuant to Section 302 of the Sarbanes–Oxley Act of
      2002
 
 31.2
              Certification
      Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as
      amended, as Adopted Pursuant to Section 302 of the Sarbanes–Oxley Act of
      2002
 
 32.1
              Certification
      of President and Chief Financial Officer Pursuant to 18 U.S.C. Section
      1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002
 
 30