UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
DC 20549
  
 FORM
10-K
 
 (Mark
One)
 x
              ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 For the fiscal year ended December 31,
2008.
  OR
  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 jurisdictionof
                incorporation
      or organization)
              33-0989901
                (I.R.S.
      Employer
                Identification
      No.)1701
      E. Edinger Avenue, Unit E-3, Santa Ana, California
                (Address
      of principal executive offices)
              92705
                (Zip
      Code)
  Registrant’s
telephone number, including area code: (714) 836-6342
  Securities
registered pursuant to Section 12(b) of the Act:
 None
  Securities
registered pursuant to Section 12(g) of the Act:
 Common
Stock, $0.001 par value
 (Title
of class)
  Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.  Yeso    Nox
  Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.  Yeso    Nox
  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 registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.  Yesx Noo
  Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. o
  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.  (Check
one):
  Large
      Accelerated Filer
                o
                Accelerated
      Filer
                oNon-accelerated
      Filer
                o
                Smaller
      Reporting Company
                x(Do
      not check if a smaller reporting company.)
 
 Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).  Yeso    Nox
  The
aggregate market value of the voting common equity held by nonaffiliates of the
registrant, computed by reference to the average bid and asked price on
June 30, 2008, the last business day of the registrant’s most recently
completed second fiscal quarter, cannot be computed as the registrant’s common
stock was not trading on such date.  The registrant has no non-voting
common equity.
  The
number of shares outstanding of the Registrant’s common stock, $0.001 par value,
as of March 27, 2009 was 25,518,348.
  DOCUMENTS
INCORPORATED BY REFERENCE
 None
  1
 
 BALQON
CORPORATION
 ANNUAL
REPORT ON
 FORM
10-K
 FOR
THE YEAR ENDED DECEMBER 31, 2008
 
 TABLE
OF CONTENTS
  PagePART
      IItem
      1.
                Business
                3Item
      1A.
                Risk
      Factors
                19Item
      1B.
                Unresloved
      Staff Comments
                30Item
      2
                Properties
                30Item
      3
                Legal
      Proceedings
                30Item
      4
                Submission
      of Matters to a Vote of Security Holders
                30PART
      IIItem
      5
                Market
      for Registrant's Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
                31Item
      6
                Selected
      Financial Data
                32Item
      7
                Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
                32Item
      7A.
                Quantitative
      and Qualitative Disclosures About Market Risk
                42Item
      8
                Financial
      Statements and Supplementary Data
                42Item
      9
                Changes
      in and Disagreements With Accountants on Accounting and Financial
      Disclosure
                42Item
      9A.
                Controls
      and Procedures
                42Item
      9A (T).
                Controls
      and Procedures
                42Item
      9B.
                Other
      Information
                43PART
      IIIItem
      10.
                Directors
      and Executive Officers and Corporate Governance
                44Item
      11.
                Executive
      Compensation
                49Item
      12.
                Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                65Item
      13.
                Certain
      Relationships and Related Transactions, and Director
      Independence
                67Item
      14.
                Principal
      Accountant Fees and Services
                74PART
      IVItem
      15.
                Exhibits
      and Financial Statement Schedules
                75
 2
  CAUTIONARY
STATEMENT
  All
statements included or incorporated by reference in this Annual Report on Form
10-K, 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 industries; and our prospective needs for additional
capital. These forward-looking statements are based on our current expectations,
estimates, approximations and projections about our industries 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 words
such 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 listed under “Risk Factors” in Item 1A of this Report. 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.
  PART
I
  Item 1.
              Business.
  Overview
  We
design, assemble and market heavy-duty electric vehicles for use in the
transportation of containers and heavy loads at facilities such as marine
terminals, rail yards, industrial warehouses, intermodal facilities (facilities
where freight is transferred from one mode of transportation to another without
actual handling of the freight itself when changing modes), military bases and
industrial plants.  We currently sell our heavy-duty electric vehicles
for use at the Port of Los Angeles and have also sold a heavy duty electric
vehicle for use in a demonstration program to the South Coast Air Quality
Management District, or AQMD.  We also market, and plan to sell,
components of our heavy duty electric vehicles that we have developed, including
our heavy duty electric drive systems and flux vector inverters, which control
the speed of electric motors by varying the input frequency and voltage from the
batteries.  In 2008, we released our first zero emissions heavy-duty
vehicle, the Nautilus E30, which is part of our Nautilus product line that is
designed to target applications requiring transportation of cargo containers
weighing over 60,000 pounds.
  Fossil
fuel powered equipment used to transport containers in off-highway applications
have experienced minimal improvements in emission and propulsion technology over
the past two decades.  As a result, sea ports and intermodal
facilities throughout the world have experienced increased levels of
pollution.  We believe that the life-cycle costs of our heavy-duty
electric vehicles are lower than the current operating costs of fossil fuel
based vehicles in high idling off-highway and on-highway
applications.  A key element of our strategy is to market and sell, on
a world-wide basis, our zero emissions heavy-duty electric vehicles in high
idling off-highway and on-highway applications as a cost effective and
environmentally friendly alternative to fossil fuel based heavy-duty
vehicles.  In addition, we plan to market and sell on a worldwide
basis our heavy-duty electric drive systems and flux vector inverters to
original equipment manufacturers, or OEMs, for use in heavy-duty electric
vehicles and heavy-duty material handling equipment.
  3
  Our
Nautilus E30 drayage tractor, a vehicle used to haul heavy loads in short haul
operations, which can tow over 60,000 pounds at speeds of up to 45 miles per
hour and has a range of between 30 and 60 miles on a single battery charge, has
successfully completed initial testing at the Port of Los Angeles.  As
a result of this successful testing, we received purchase orders for an
additional five Nautilus E30 electric drayage tractors and 21 Nautilus E20
electric yard tractors.  Prior to releasing our Nautilus product line,
we spent two years developing our heavy duty electric drive system that couples
an electric motor directly to an automatic transmission which provides high
torque to pull heavy loads during start-stop applications. In addition, in 2008
we acquired the assets of a company that had developed a high capacity 240 kW
flux vector inverter that is Society of Automation Engineers, or SAE, J1939
controller area network, or CAN Bus, capable.  SAE J1939 CAN Bus is a
standard communication protocol used in the automotive industry to communicate
and diagnose between vehicle components.  For example, diesel engine
manufacturers use SAE J1939 CAN Bus communications to control emissions and
transmission operations in off-highway and on-highway vehicle
applications.  Our flux vector inverters have been designed to
communicate with other vehicle components on the same SAE J1939 CAN Bus thereby
allowing us to incorporate our heavy-duty electric drive system into other
fossil fuel vehicle platforms including container lift trucks, reach stackers,
roll-on/roll-off tractors, drayage vehicles and high capacity
forklifts.
  Company
History
  We are a
Nevada corporation that was incorporated on November 21, 2001, as BMR Solutions,
Inc.  From inception to May 2006, we were engaged in the business
of providing Internet website hosting and development services.  In
May 2006, we underwent a change in management and adopted a new business plan of
providing local delivery and transportation of mattresses, furniture and futons
in Southern California.  On September 15, 2008, we entered into an
Agreement and Plan of Merger, or Merger Agreement, with Balqon Corporation, a
California corporation, or Balqon California, and our wholly-owned subsidiary
Balqon Acquisition Corp., or Acquisition Subsidiary.  Upon the closing
of the Merger Agreement on October 24, 2008, Balqon California merged with
and into Acquisition Subsidiary with Acquisition Subsidiary surviving and
immediately thereafter, Acquisition Subsidiary merged with and into our company
and at that time we also changed our name from BMR Solutions, Inc. to Balqon
Corporation.  Our current business is comprised solely of the business
of Balqon California.  Balqon California was incorporated on April 21,
2005 and commenced operations in 2006.
  In
September 2008, Balqon California entered into an agreement with Electric
Motorsports, LLC, or EMS, and its sole member, Robert Gruenwald, to acquire
certain of the assets of EMS, including all intellectual property
assets.  At the time of the acquisition, EMS had been engaged in
developing, designing and manufacturing flux vector inverters within the
automotive and material handling equipment industries since 1997.  At
the time of the acquisition, Mr. Gruenwald was, and continues to be, our
Vice President Research and Development.  See “Item 13. Certain
Relationships and Related Transactions, and Director Independence—Balqon
California’s Transactions Prior to the Consummation of the Merger
Transaction.”  As a result of this acquisition, Balqon California
acquired proprietary technology and designs that we currently use in our
heavy-duty electric vehicles. Since its inception in 1997, EMS has sold over 250
inverters for use in applications including industrial conveyor systems,
electric buses, delivery trucks, a monorail system and mining
vehicles.  EMS sold products primarily to OEMs of electric buses,
mining vehicles and specialty automotive vehicles. We believe that the
acquisition of EMS’s technology and knowhow provides us with the ability to
further develop, market and sell flux vector inverters for use in heavy-duty
applications. For example, we plan to sell these flux vector inverters to OEMs
for use in existing fossil fuel based vehicle platforms.
 4
 In
October 2006, the management of Balqon California met with representatives of
the Port of Los Angeles and the AQMD, to propose the use of zero emissions
electric tractors at the port terminal facilities located in San Pedro and Los
Angeles, California.  In April 2007, Balqon California entered into an
agreement with the AQMD, or AQMD Development Agreement, to develop a heavy-duty
zero emissions electric drayage tractor to be used for demonstration and testing
purposes at the Port of Los Angeles.  Under the terms of the AQMD
Development Agreement, which was co-funded by the AQMD and the Port of Los
Angeles, the AQMD agreed to pay Balqon California up to $527,000 for the
development of this electric tractor.  In January 2008, Balqon
California delivered to the AQMD and commenced testing a heavy-duty electric
drayage tractor incorporating what is now our proprietary flux vector inverter
technology and heavy-duty electric drive system at the Port of Los Angeles. The
zero emissions electric tractor has since successfully passed rigorous testing
by the Port of Los Angeles.
  In May
2008, Balqon California received a purchase order from the AQMD for oneNautilus
E20 electric yard tractor to be used in a loaner program under which the AQMD
will loan the tractor to various terminal operators to demonstrate the benefits
of using zero emissions electric vehicles in off-highway container
transportation applications. In June 2008, Balqon California 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, all of which will be used at
the Port of Los Angeles.
  The
purchase order from the AQMD is pursuant to a Purchase and Service Agreement
with the AQMD, dated May 15, 2008, or AQMD Purchase Agreement, under which
we are obligated to deliver one Nautilus E20 heavy-duty electric yard tractor to
the AQMD for use in a loaner program that will allow the owners of multiple
terminals to test the electric yard tractor in anticipation of a
purchase.  The term of the AQMD Purchase Agreement expires on
May 15, 2010.  Under the terms of the AQMD Purchase Agreement,
the AQMD will pay us up to an aggregate of $300,000 for products delivered and
services provided under the agreement, which amount includes $280,000 to be paid
for the delivery of a operational yard tractor, a replacement battery pack and a
battery charger.  Under
the terms of the AQMD Purchase Agreement, we are also obligated to install and
remove chargers at least five times at five different sites. In addition, we are
obligated to pay the AQMD a royalty fee of $1,000 per electric vehicle sold or
leased to anyone other than the AQMD or the Port of Los Angeles.  The
royalty fee will be adjusted for inflation every five years.  Under
the terms of the AQMD Purchase Agreement, the AQMD has the right to use data
collected during the test phase and has a royalty free, nonexclusive,
irrevocable license to produce any copyrighted material produced under the AQMD
Purchase Agreement.
  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,
under which we are obligated to produce and deliver to the City of Los Angeles
20 electric yard tractors, five electric drayage tractors and certain additional
components.  The City of Los Angeles Agreement is for a term of three
years.  Under the terms of the City of Los Angeles Agreement, the City
of Los Angeles will pay us up to an aggregate of $5,383,750, comprised of
$189,950 for each Nautilus E20 yard tractor, $208,500 for each Nautilus E30
drayage tractor, and $542,250 for the delivery of five sets of battery
chargers.  Under the terms of the City of Los Angeles Agreement, we
are also obligated to pay the City of Los Angeles a royalty fee of $1,000 per
electric vehicle sold or leased to any party other than the City of Los Angeles
or the AQMD.  The royalty fee will be adjusted for inflation every
five years.
  In March
2009, we delivered a Nautilus E20 to the AQMD under the terms of the AQMD
Purchase Agreement and we delivered a Nautilus E20 to the Port of Los Angeles
under the terms of the City of Los Angeles Agreement.
 5
  Electric Vehicle Industry
  Over the
past twenty years, the electric vehicle industry has grown rapidly as a result
of increasing demand for environmentally friendly modes of
transportation.  The high price of fossil fuel and heightened
environmental concerns over greenhouse gas emissions worldwide have resulted in
increased demand for electric and hybrid vehicles.  Similarly,
there has been increase in demand for battery powered low or zero
emissions vehicles in off-highway material handling applications.
  We
believe that potentially large electric vehicle markets are developing in a
wide-range of vehicle platforms for a variety reasons, including improved fuel
economy, lower emissions, greater reliability, lower maintenance costs, improved
performance and vehicle control.  Of these myriad reasons, improved
fuel economy has emerged as a significant factor in the development and
potential growth of the emerging electric vehicle markets as crude oil prices
rise, and consumers and businesses alike contend with higher gasoline and diesel
prices.
  During
2007, crude oil consumption in the United States, as reported by the United
States Department of Energy in the Transportation Energy Data Book, averaged
approximately 21 million barrels per day, which represents an average annual
percentage increase in consumption of approximately 1% over a period of 10
years.  According to data published by the United States Department of
Energy, of the amount of crude oil consumed in the United States in 2007,
approximately 68% was consumed by the transportation industry which has seen an
increase in consumption of approximately 1.5% per year over a 10 year
period.  The United States Department of Energy also reports that
increases in crude oil based fuel demand worldwide has resulted in accelerated
growth of fuel costs worldwide.  We believe that the cost of fuel will
continue to remain high relative to historic levels, and therefore believe that
electric vehicles will offer a cost effective and environmentally efficient
alternative solution to fossil fuel based vehicles.
  We
believe that the continued liberalization of global trade coupled with the
growth in container packaging of goods has resulted in the use of larger
container ships which, in turn, has resulted in a commensurate increase in ship
capacities.  This increase in the size of container ships has resulted
in concentrated growth at larger ports which, in turn, has resulted in a higher
rate of increase in air pollution at these ports, thereby requiring more
stringent environmental regulations.
  As a
result of increased imports from South Asia to the United States over the past
five years, the number of twenty-foot equivalent units, or TEUs, transported to
ports and through intermodal facilities located on the west coast of the United
States has also increased.This expansion in trade
has resulted in increased pollution at the largest ports on the west coast of
the United States, resulting in more stringent requirements on vehicle emissions
in many of these areas.  For example, the Port of Los Angeles and the
Port of Long Beachrecentlyapproved a comprehensive
“Clean Air Action Plan” aimed at reducing pollution and health risks associated
with mobile air emissions resulting from activities at these
ports.  See “—Recent Initiatives.”  We believe that electric
trucks are the leading cost competitive solution to reduce the environmental
impact of increased activity and pollution at ports and intermodal facilities
located on the west coast of the United States.
  In light
of these recent regulatory initiatives, and the identification of heavy-duty
truck pollution as the most significant source of air pollution at ports, we
believe that the demand for heavy-duty electric vehicles will
increase.  In response to this anticipated increase in demand, we have
developed and will continue to develop zero emissions heavy-duty vehicle
platforms as an alternative to current fossil fuel based container
transportation solutions.  In addition to being incorporated into our
heavy-duty electric vehicles, our heavy-duty electric drive systems can also be
incorporated into drayage vehicles, container lift trucks, roll-on/roll-off
trucks, reach stackers and large industrial forklifts.  In addition,
we also believe that our heavy-duty electric drive system is ideally suited for
vehicles used in connection with short-haul inner city on-highway delivery of
goods to retail or industrial facilities.
  6
  The
electric vehicle industry is highly competitive and characterized by rapid
technological advancements.  Most of the technological advancements
target the on-highway consumer automotive markets. We believe that technological
improvements in battery technology have increased the probability of production
electric vehicles reaching consumer markets by 2012. The success of electric
vehicles in the consumer market industry is generally based on vehicle range,
speed and acquisition cost, while success of electric vehicles in the
off-highway heavy-duty markets is based on product customization, productivity,
functionality, durability and after market support. In response to what we
believe to be the market needs, our fully integrated heavy-duty electric drive
system that incorporates an electric motor, transmission, flux vector inverter
and communication components into a single integrated unit allow us the agility
and adaptability to enter various heavy-duty vehicle market niches through
incorporation of our technologies into varied vehicle platforms.  We
have ensured adaptability to a variety of application needs through the design
of our flux vector inverter which determines key performance features of the
vehicle such as speed, acceleration and energy consumption and which is software
configurable thereby allowing us to adapt to specific application needs in the
field.  Our operational strategy to partner with existing chassis
manufacturers in each niche market provides our customers with a proven vehicle
platform and established service support worldwide while providing us with a
capital efficient model to enter a number of market segments.
  Heavy-Duty
Electric Vehicles Industry
  Industries
related to container transportation have seen modest improvements in vehicle
technology over the past five decades. This is mainly a result of low duty cycle
needs for vehicles operated in terminals or in short-haul drayage applications
which, in turn, has resulted in the use of older model and higher-polluting
vehicles in these applications. The high growth rates at large ports has
resulted in an increase in the population of these older model vehicles which,
in turn, has resulted in increased regulatory oversight within port facilities
that historically were relatively unregulated. We believe that this increase in
regulatory oversight, coupled with continued increases in fossil fuel costs,
have resulted in the opportunity for electric vehicles to be a commercially
viable environmental solution in these markets. We believe that the benefits of
zero emissions and lower operating costs of electric vehicles, when compared to
fossil fuel powered or hybrid vehicles, provides us with an opportunity to
market cost-effective heavy-duty zero emissions electric vehicles to a number of
markets worldwide.
  We believe that as the monetary and environmental costs of fossil
fuels increase, environmental regulations will continue to be promulgated
worldwide to ensure significant decreases in harmful
emissions.  Efforts to reduce greenhouse gas emissions during the past
five years using alternative fuels such as compressed natural gas and liquefied
petroleum gas have resulted in modest improvements in air quality.  We
believe that stringent environmental regulations will result in an increased
demand for cost effective zero emissions technologies that can be incorporated
into current vehicle platforms to replace current fossil fuel-based
vehicles.  Furthermore, we believe that electric vehicles will be the
ideal solution in resolving emissions and operating cost issues faced by the
heavy-duty electric vehicle industry.
  Heavy-Duty
Material Handling Equipment Industry
  Our fully
integrated heavy-duty electric drive system design provides us with ability to
incorporate our zero emissions technology into material handling equipment
platforms that are used in high load carrying capacity
applications.  Heavy load carrying capacity material handling
equipment is used to transport containers or cargo at marine terminals, on cargo
vessels and within industries, such as the lumber, concrete, paper and steel
industries, that have been generally unregulated in terms of emissions generated
by equipment utilizing off-highway engines. Increases in fuel costs and
regulatory oversight provides us with the opportunity to transition this
industry to zero emissions product solutions.
  7
  Our
heavy-duty electric drive systems are designed to target the needs of industries
that utilize 10 to 45 ton capacity forklifts, 20 to 45 ton capacity reach
stackers, 20 to 45 ton capacity roll-on/roll-off trucks and 8 to 45 ton capacity
container lift trucks, all of which are primarily used in ports and rail yards
to stack empty containers or to load and unload ships, barges or rail carts.
High capacity forklifts are also used to load and unload below deck cargo at
smaller ports. In addition, these forklifts are used in industrial facilities to
transport heavy metals, concrete, paper and lumber. A reach stacker is a
material handling equipment equipped with a hydraulic boom assembly that can
lift and move containers from barges, ships or rail carts. Reach stackers are
more cost effective and productive at smaller port facilities as compared to
fixed gantry crane systems. Roll-on/roll-off trucks are used to transport
containers onto barges or under-deck facilities mainly at small ports, providing
agility in loading and unloading operations. Container lift trucks are used at
ports and rail yards to stack empty or loaded containers within terminal or
intermodal facilities. These container lifts can stack empty containers up to
six containers high and are used to save valuable space at container handling
facilities.
  All of
the heavy-duty material handling equipment described above utilize fossil fuel
propulsion systems and are customized for each application. Most of this
equipment is considered industrial equipment and therefore regulated under
off-highway emissions and safety standards. We believe that due to the high
idling and start/stop nature of these applications, electric propulsion systems
can be more cost effective and environmentally friendly in these market niches.
We are developing modified configurations of our current heavy-duty electric
drive system to provide alternative zero emissions product solutions for our
targeted applications.
  Our
Competitive Strengths
  Our
heavy-duty electric yard tractors and our fully integrated heavy-duty electric
drive system provides us with the opportunity to incorporate our zero emissions
technology into existing vehicles and material handling equipment used in high
load carrying capacity applications. Growing public awareness of the
relationship between burning fossil fuels, health risks and global warming has
increased the demand for a cost effective alternative to vehicles powered by
fossil fuels.  We believe the following competitive strengths serve as
a foundation for our strategy:
  ·
              Quality,
      Excellence and Reliability.  We believe that our
      proprietary technologies and designs, including our SAE J1939 CAN Bus and
      diagnostic capable high capacity liquid cooled flux vector inverters and
      fully integrated and configurable heavy-duty electric drive system
      increase the reliability of electric vehicles.  Our flux vector
      inverters have been sold for over 10 years by EMS and have proven
      reliability in a wide range of
applications.
  ·
              Heavy-Duty
      Electric Vehicle Technology.Our first
      product releases, the Nautilus E30 electric drayage tractor and the
      Nautilus E20 electric yard tractor, incorporate an electric motor that is
      directly coupled to a heavy-duty automatic transmission, which allows for
      the ability to transport heavy
loads.
  ·
              Low
      Operating Costs.Most
      current fossil fuel powered vehicle designs consume energy during vehicle
      idling.  Our vehicles, powered with electric motors, shut off
      during idling applications which results in lower operating costs and less
      wear and tear on drive train components.  These features reduce
      maintenance costs and increase vehicle life. We believe that our strategy
      to target high idling off-highway applications further enhances the
      benefits of using our electric vehicles in our targeted
      applications.
  ·
              High
      Efficiency.Our vehicles are powered by electric motors which produce higher
      levels of torque at lower speeds than fossil fuel powered motors and are
      therefore more suitable for heavy-duty applications that operate for short
      periods of time between starts and stops. In addition, our
      heavy duty electric drive system is equipped with a regenerative braking
      system which captures the energy back into the batteries during stops,
      saving brake wear and increasing energy efficiency as compared to fossil
      fuel powered vehicles.
  8
  ·
              Highly
      Configurable Technology. Our
      proprietary technologies can be configured to serve a variety of platforms
      and the specific needs of our customers.  All components in our
      fully integrated heavy-duty electric drive system communicate over an SAE
      J1939 CAN Bus system that allows us to configure key parameters of a
      vehicle’s performance through uploading of proprietary
      software.  This capability allows us to configure a vehicle to
      specific application needs with minimum hardware changes.  In
      addition , this capability provides us with full diagnostic capability to
      monitor and diagnose the performance of various components in the field
      during the life of the vehicle.  We believe that our fully
      integrated heavy-duty electric drive system, which includes an electric
      motor, transmission, flux vector inverter and communication software
      installed into a single assembly provides us with ability to incorporate
      our technologies across various product platforms such as container reach
      stackers, drayage vehicles, forklifts and straddle carriers, and positions
      us to be a leader in the heavy-duty vehicle industry.  We
      believe that this flexibility and configurability will enable us to serve
      a wider variety of markets and product
  applications.
  ·
              Experienced
      Management Team and Access to an Extensive Distribution
      Network.  Our senior
      management team has over 80 years of combined experience in the electric
      vehicle industry and has extensive experience in startup technology
      companies within this industry. In addition, members of our senior
      management have significant experience within the transportation
      industry.
  Our
Strategy
  As one of
the few companies focused on heavy-duty electric vehicles and material handling
equipment, we are dedicated to providing cost effective solutions to the
heavy-duty electric vehicle and material handling equipment
markets.  Our business strategy is based on our belief that electric
vehicles are inherently more cost effective and reliable than fossil fuel
powered vehicles.  We believe that despite the limitation in battery
energy density as compared to fossil fuel applications, there are a significant
number of off-highway high idling niche applications that can benefit from the
use of zero emissions electric vehicles and material handling
equipment.  The primary elements of our business strategy
include:
  Increase our
current market presence and selectively pursue new
opportunities.  We intend to use our products to pursue new
opportunities and capture market share within the heavy-duty electric vehicle
market.  In addition to producing and selling heavy-duty electric
vehicles, we currently market and plan to sell our flux vector inverters and
heavy-duty electric drive systems to other industry OEMs that manufacture
heavy-duty vehicles and material handling equipment. We are currently focused on
heavy-duty vehicle and material handling equipment applications requiring
heavy-duty electric drive systems exceeding 100 kW requirements. While the release of our
Nautilus E30 and Nautilus E20 electric tractors has proven that the use of
electric vehicles is technologically feasible in heavy-duty applications, we
believe that the use of electric vehicles in heavy-duty applications is also
economically beneficial. Our objective is to incorporate our heavy-duty electric
drive system into products that vertically integrate into all aspects of
heavy-duty transportation of cargo and containers in off-highway
applications.
  Develop
technologies that can be easily adapted for use in various
platforms.Our proprietary
heavy-duty electric drive system has been built as an assembly that can be
readily modified to meet different vehicle platform
specifications.  For example, our heavy-duty electric drive systems
can be incorporated into container handlers, reach stackers, gantry cranes,
large industrial forklifts, roll-on/roll-off trucks and drayage
vehicles.  We believe that our ability to incorporate our technology
into other product lines will help to diversify our revenue stream across
diverse target markets and provide us with additional growth opportunities in
the future.  Our operations strategy focuses on integration of our
heavy-duty electric drive systems and battery packs into existing vehicle
platforms and sourcing component fabrication processes through local
suppliers.
  9
  Implement
retrofit business model on existing yard tractors to accelerate market
changeover.Our proprietary heavy-duty electric drive and battery
management systems can be retrofitted into existing yard tractor vehicle
platforms.  We believe that the increase in fuel costs and the
adoption of environmental regulations calling for lower emissions will
accelerate market changeover to lower or zero emissions vehicle alternatives in
the heavy-duty vehicle industry. Furthermore, we believe that most vehicles are
being replaced prematurely due to the end of life of certain key components such
as the vehicle’s engine and transmission assembly. We intend to either sell
replacement vehicles or provide our heavy-duty electric drive system that can be
retrofitted into existing fossil fuel powered vehicles.  Our
integrated heavy-duty electric drive systems can be incorporated into most yard
tractor vehicle platforms currently in use at ports, marine terminals,
intermodal facilities, mail facilities, distribution centers and industrial
warehouses.
  Develop global
sales and service network. We plan to build a global distribution system
that utilizes regional dealers to promote, sell and service our vehicles
worldwide. Several members of our senior management have significant experience
in managing global dealer networks for material handling and electric vehicle
manufacturers.
  Provide superior
after market service.We believe that after market service is
the key to success in the heavy-duty electric vehicle and material handling
equipment markets.  Our heavy duty electric vehicles are designed with
a fully integrated diagnostic system that monitors the performance of all
critical components during the life of the vehicle and makes such performance
related data available in connection with our after-market
services.  The availability of such performance related data will
enable us to provide our customers with prevention based service schedules, and
thereby reduce repair costs.
  Build capital
efficient industry alliances.We purchase several components
and assemblies for the production of our vehicles from leading manufactures
within our industry.  Our integrated heavy-duty electric drive system,
which is preassembled and installed into vehicle chassis upon receipt, reduces
our need to maintain a high inventory of chassis.  In addition, the
purchase of vehicle assemblies from leading manufacturers also reduces our need
for capital investment in inventory that would otherwise be required to
manufacture chassis.  This operation strategy provides us with the
ability to focus a significant portion of our available capital into research
and development, design, marketing and sales of our products while using high
quality components from other manufacturers.
  Our
Technology
  We have
developed and acquired proprietary technologies that we believe provides us with
a significant competitive advantage within the industries we
compete.  In 2007, Balqon California completed the development of a
heavy-duty electric drive system that incorporates an automatic five speed
transmission and electric motor coupled with an in-line drive system resulting
in high torque at low speeds without compromising top end speed. This heavy-duty
electric drive system also includes a 240 kW liquid cooled flux vector
inverter with SAE J1939 CAN Bus capability that provides efficient transfer of
energy from batteries to an electric motor resulting the vehicle being able to
tow more than 60,000 pounds of load at a maximum speed of 45 mph.
  10
  Flux
Vector Inverter Technology
  Our flux
vector inverters are micro-processer controlled inverters designed to control
motor speed through varying voltage and frequency.  The ability to
control speed in heavy-duty applications is obtained through use of our
proprietary software which is customized to meet each application
need.  In addition, hardware components of our flux vector inverters
are varied to produce different configurations ranging in power from 40 kW
to 240 kW.  Although our flux vector inverters are available in
both analog and SAE J1939 digital communication capabilities, we only utilize
SAE J1939 capable inverters to provide efficient communication and diagnosis of
complete vehicle systems in our heavy-duty electric vehicles.  Based
on power requirements, our inverters can be manufactured to meet specific motor
or vehicle requirements ranging from electric motorcycles to high capacity
on-highway or off-highway vehicles.  Due to the software centric
design capability of our flux vector inverter technology, we have the capability
to remotely modify, diagnose and monitor key performance parameters to meet
specific application requirements.  Our inverters have a capacity of
over 200 kW at a voltage range of 200 to 800 volts, which we believe makes
them ideally suited for high load carrying applications.  These flux
vector inverters have been used in electric buses, mining vehicles and other
specialty vehicles applications with over one million miles logged in actual
operations.
  CAN
Bus Diagnostic System
  All key
components of our heavy-duty electric traction drive system, including the
electric motor, transmission, flux vector inverter, contactors, fuses, accessory
motor and inverter, are connected through our proprietary CAN Bus diagnostic
system. Our CAN Bus system monitors, measures, communicates, stores and
diagnoses key performance parameters of our heavy-duty electric drive system
components and provides an intuitive vehicle status display of all vehicle
systems to the operator through a digital dash display mounted in the truck
cabin.  The display communicates the status of all major traction and
accessory systems providing real time information to the
operator.  The diagnostic system also records daily energy
consumption, fuel economy, fault codes, and the thermal status of major
components on the vehicle.  Our CAN Bus diagnostic system can also
communicate information to a central data system on a wireless network and store
key application parameters that can be reviewed to determine energy efficiency
and performance of the vehicle.  In addition, our CAN Bus diagnostic
system provides the vehicle user with the ability to optimize drive efficiency
levels to meet specific application needs.
  Battery
Management System
  We have
designed and developed an automatic battery management system that monitors and
maintains battery packs in conjunction with our CAN Bus diagnostic
system.  This battery management system records daily energy usage and
charge energy received and then automatically determines battery watering
intervals and maintains battery water levels after the completion of a charge
cycle without operator intervention.  This system also accurately
monitors battery usage over the life of a vehicle, allowing end users of our
vehicles to accurately determine the life cycle of the battery.  We
believe that this system increases battery life and reduces maintenance costs of
a vehicle.
  Products
  Heavy-Duty
Electric Vehicles
  Our
current product line of zero emissions heavy-duty electric vehicles, named
Nautilus, are the flagships of our product portfolio.  Our Nautilus
product line consists of two product configurations, Nautilus E30 and Nautilus
E20, with each model featuring our proprietary heavy-duty electric drive system
and battery management system.  We are also developing a heavy-duty
electric truck, the Mule M150, which is a high-capacity on-highway delivery
truck targeting inner city delivery applications.
  11
  Our
heavy-duty electric vehicles include our heavy-duty electric drive systems that
feature an automatic five speed transmission coupled to an electric motor driven
by our proprietary liquid cooled flux vector inverters.  Our flux
vector inverter and transmission are SAE J1939 CAN Bus capable which allows
seamless communication and monitoring of all vehicle systems on a real time
basis.  This capability also allows us to monitor and modify key
parameters in the field to optimize vehicle efficiency and performance to
application needs.  Our heavy-duty electric vehicles also include our
quick-change battery packs that are equipped with our battery management
system.
  Nautilus
E20 – Electric Yard Tractor
  The
Nautilus E20is a
zero emissions electric tractor that is a smaller wheelbase version of our
Nautilus E30 and is designed for “in-terminal” operations to transport
containers at shipyards, rail yards, intermodal facilities, industrial plants,
distribution warehouses, food production facilities, military bases and mail
facilities.  The Nautilus E20 can tow 60,000 pound cargo containers at
a speed of up to 25 miles per hour with a range of 30 to 60 miles per battery
charge.
  The
Nautilus E20 features our heavy-duty electric drive system and quick-change
battery pack incorporated into a yard tractor chassis.  The Nautilus
E20 is designed with a short wheel base and lifting fifth wheel which improves
the maneuverability of the vehicle and its efficiency in high duty cycle
applications.  The Nautilus E20 complies with all applicable
regulations associated with off-highway use vehicles.
  The
battery pack of the Nautilus E20 contains 140 kW hour commercially
available long-life tubular lead acid traction batteries used in applications
requiring high power and energy density. The vehicle contains two battery packs
that can be replaced with fully charged battery packs in less than five minutes
thereby increasing the range of the vehicle in longer shift
operations.  The battery packs are equipped with a forced air cooling
and a battery watering system that increases battery life and reduces
maintenance costs. In addition, the battery packs include our advanced battery
management system that communicates via a CAN Bus system to a central computer
recording energy usage, temperature and efficiency data.
  The
Nautilus E20 is equipped with smart fast charger technology that can charge up
to four vehicles simultaneously in four hours.  The smart charger can
also provide up to 60% of the charge in one hour to meet peak demands during
daily operations.
  Nautilus
E30 – Electric Drayage Tractor
  The
Nautilus E30is
anoff-highway
electric drayage zero emissions tractor designed for short haul or “drayage”
operations such as the transportation of containers from ship yards to rail
yards or local warehouses.  This tractor has a load capacity of 60,000
pounds and can travel at a speed of up to 45 miles per hour and has a range of
between 30 to 60 miles per battery charge.  We plan to obtain
on-highway certification from the United States Department of Transportation for
the Nautilus E30.
  The
Nautilus E30 is equipped with tandem axles which allows the vehicle to tow loads
greater than 60,000 pounds in off-highway applications. In addition, the vehicle
is equipped with a higher capacity electric motor and flux vector inverter to
provide the ability to tow loads in excess of 60,000 pounds at higher speeds.
The vehicle is designed with an ABS braking system and five speed transmission
to allow operations at higher speeds in off-highwayapplications.
  12
  The
Nautilus E30 battery packs contain 160 kW hour commercially available
long-life tubular lead acid traction batteries used in applications requiring
high power and energy density.  In order to provide increased range in
certain applications, our battery pack is designed to be replaced with fully
charged battery packs in the field resulting in a vehicle range of over 80
miles.
  Mule
M150 – Electric Truck
  We are
currently developing and designing our first on-highway heavy-duty electric
truck for short-haul off-highway applications.  Our Mule M150 is
expected to be a zero emissions electric truck incorporating a heavy-duty
transmission and drive axles and is expected to be competitive in performance
with current Class 6 fossil fuel powered vehicles in short-haul
markets.  It is anticipated that the Mule M150 will be able to travel
at a speed of up to 55 miles per hour and will have a range of over 80 miles on
single charge.  The Mule M150 will be designed as a zero emissions
solution for short haul on-highway routes in inner cities, port facilities and
airports for the distribution of goods and cargo.
  We expect
that the Mule M150 will feature various flatbed configurations including cargo
box trucks, trash trucks and application specific fuel trucks used at large
airports.  We intend to partner with cargo bed OEMs to provide various
configurations currently available in similar sized fossil fuel powered
vehicles.  We expect to release the Mule M150 in 2009.
  Heavy-Duty
Electric Drive Systems
  Our fully
integrated heavy-duty electric drive systems have been designed and developed
with a view towards use in existing vehicle platforms in the container
transportation and material handling equipment industries.  Our
heavy-duty electric drive system includes a high efficiency alternating current,
or AC, electric motor design that is directly coupled to a five speed automatic
transmission system and powered by our proprietary liquid cooled flux vector
inverters.  Our use of an automatic transmission provides us with a
high torque to weight ratio which is essential in heavy load carrying
applications.
  We
assemble all the components of our drive system into a single integrated unit
that can be readily installed into the existing engine compartment of many
trucks, tractors, and material handling equipment.  Our proprietary
flux vector inverter is SAE J1939 CAN Bus capable which allows for
communication with existing electrical and transmission components on fossil
fuel powered vehicles. We believe that this feature provides us with an
opportunity to design and develop new vehicle platforms and enter new
off-highway market niches, thereby expanding our overall product
offerings.
  Our
heavy-duty electric drive system, which is designed and developed for use in
heavy-duty electric vehicles, can also be readily integrated into other vehicle
platforms with minor modifications to its current design.  Our
heavy-duty electric drive system has been tested to tow loads of over 50 tons on
a reliable basis which provides us with an opportunity to retrofit vehicles such
as container forklifts, reach stackers and roll-on/roll-off
vehicles.
  We are
currently seeking strategic partnerships with OEMs of heavy-duty vehicles and
material handling equipment to develop zero emissions solutions for their
current vehicle platforms.
  Flux
Vector Inverters
  Our
proprietary variable flux vector inverters range in power from 40 kW to
240 kW.  Our flux vector inverters are available in liquid cooled
or air cooled versions depending on application, duty cycle and power
requirements.  Our flux vector inverters are available with analog or
digital output based on application needs. Our heavy duty flux vector inverters
are also SAE J1939 CAN Bus capable which allows our customers to fully integrate
our inverter into their own vehicle diagnostic systems.  Our
proprietary software in the processor allows the inverter to be customized for
use in electric vehicles, hybrid vehicles, plug-in hybrids and other
applications.  Prior to our acquisition of EMS, EMS sold its flux
vector invertersfor use in electric
buses, mining equipment and other automobiles.  Our inverters can
operate between 200 to 800 volts direct current, or DC, and can be used in
stationary and mobile applications.  As of the date of this report, we
have two outstanding purchase orders for our flux vector inverters from electric
bus and hybrid drive system manufacturers.
  13
  We
design, manufacture, assemble and test our inverters at our Harbor City
facility.  We have designed our inverters for high-vibration mobile
applications which includes a wash down enclosure design that allows the
inverter to be used in outdoor rugged mobile applications.  In
addition, our inverters include a liquid cooling system that results in a higher
efficiency and reliability.  Our below 100 kW inverters are
available in air cooled versions and are ideal for use in industrial vehicles,
light duty pickup trucks and recreational vehicles.  Our heavy-duty
inverters, which include a liquid cooling system, are ideal for use in
heavy-duty electric vehicles such as electric tractors, forklifts, buses,
delivery vans, Class 4-6 cargo trucks and mining vehicles.
  Service, Parts and Consumables
  We plan
to sell our products through an authorized sales and service dealer
network.Our
products require periodic maintenance and replacement of certain vehicle
components.  We plan to sell these components through a trained and
authorized dealer network.  Batteries, which are a key component in
our vehicles, require replacement after a certain period of use based on
application. We believe that our quick replacement battery packs that feature
our battery management systems, given its integrated design with our heavy-duty
electric drive system and communication systems, will require replacement only
through authorized service dealers.  Periodically we may also provide
vehicle upgrades or accessories to enhance performance and efficiency of our
vehicles in the field, which we expect will provide additional revenues through
sales of aftermarket parts marketed through our trained dealer
network.  Currently, sales and service of our products are being
performed by our staff located at our facility in Harbor City.
  Manufacturing
and Assembly
  Our
executive offices are located in Santa Ana, California and our primary
manufacturingand
assembly facility is located in Harbor City, California.  We lease a
3,500 square foot facility comprised of approximately 1,500 square feet of
office space and 2,000 square feet of assembly space in Santa Ana.  We
lease a 15,500 square foot manufacturing and assembly facility in Harbor City,
California.
 Key
components used in the assembly of our proprietary flux vector inverters,
heavy-duty electric drive systems, battery modules, charging system,
transmissions and vehicle chassis, are supplied to us by large global
manufacturers that we believe have the production capacity to meet our current
and projected future production requirements.  Our key components are
supplied with manufacturer’s warranties which meet or exceed the warranties
provided to our customers.  We sell all of our products with a minimum
of a one-year limited warranty with a prorated warranty on batteries based on
usage.  In addition, suppliers of our key components have an extensive
global sales and service network to support our dealers and customer service
needs in a timely manner.  Our management team has extensive
experience in global sourcing of automotive components and has implemented a
procurement and management system to monitor material costs on a real-time
basis.
  Final
assembly of our heavy-duty electric vehicles and heavy-duty electric drive
systems is conducted at our Harbor City location. We also assemble and test our
battery management systems and charging systems at the same location. We have also located our
engineering and procurement offices at our Harbor City facility to support our
production needs. We estimate that our current manufacturing capacity at this
facility provides us with the ability to substantially increase sales with the
addition of direct labor personnel and relatively modest capital equipment
expenditures.  We believe that our facilities in Harbor City are
sufficient to meet our anticipated production needs over the next three
years.
  14
  Customers
  In 2008,
we received a purchase order from the City of Los Angeles for 20 Nautilus E20
yard tractors and five Nautilus E30 drayage tractors and a purchase order
from the AQMD for one Nautilus E20 for use as a demonstration vehicle at marine
terminals and industrial facilities.  Our acquisition of the
intellectual property assets of EMS provides us with an installed base of flux
vector inverters used in light and medium duty applications such as delivery
trucks, automobiles and vans.  We plan to sell our heavy-duty electric
drive systems and flux vector inverters to OEMs for use in heavy-duty vehicles
and heavy-duty material handling equipment.
  Sales
and Marketing
  Our sales
and marketing strategy focuses on establishing Balqon Corporation as the premier
provider of heavy-duty electric vehicles and heavy-duty electric drive systems
by building an active customer base.
  Heavy-Duty
Electric Vehicle Sales
  We
currently use Internet advertising and public relations campaigns to promote our
products in domestic and international markets.  We plan to market,
sell and service our heavy-duty vehicles through an authorized and trained
worldwide dealer network which we are in the process of establishing. We expect
that our dealers will beassigned geographic
territories, the sizes of which will vary based on a dealer’s infrastructure and
ability to adequately perform sales and service functions. We expect that
authorized dealers will receive discounts along with installation fees as deemed
appropriate for each territory and the dealer’s annual sales. In order to
promote sales growth we intend to implement a scaled discount structure based on
annual sales or performance to yearly goals and objectives. In addition, we plan
to provide marketing incentives to dealers in terms of cooperation on trade
shows, providing demonstration equipment, marketing collateral materials, etc.
as deemed necessary to increase sales and gain market share.
  As we
grow our business through the expansion of our dealernetwork, we plan to
establish facilities to provide sales and service support to our customers in
countries outside the United States. We currently have dealers that are
marketing our Nautilus E20 yard tractor in western Canada and South
Korea.
  OEM
Sales
  We
currently market and plan to sell our heavy-duty electric drive systems and flux
vector inverters directly to OEMs in the automotive and material handling
equipment industries. We plan to target OEMs that manufacture vehicle platforms
that do not directly compete with our heavy-duty electric vehicle product line.
In addition, we plan to develop long term agreements with adequate protections
for our proprietary technologies prior to developing assemblies or component
configurations that meet OEM product needs.  We plan to develop a
business development organization that will focus solely on OEM relationships
worldwide.  We expect that this organization will be supported by
engineering and manufacturing personnel on as needed basis.
  15
  Competition
  Our
competitors in our addressed markets consist of small to large global
corporations providing heavy-duty vehicles powered by fossil fuels. Currently,
we are not aware of any other new or current vehicle manufacturer providing zero
emissions heavy-duty electric yard tractors in our addressed markets. Our
competitors have substantially greater customer bases, businesses, and financial
resources than us, and are currently engaged in the development of products and
technologies related to hybrid drive systems that utilize current fossil fuel
based drive systems combined with electric or hydraulic propulsion
systems.
  Heavy-Duty
Electric Vehicles
  Our
primary competition in the heavy-duty electric vehicle market are vehicles
designed to operate with diesel propulsion systems.  We also compete
with other fuel powered vehicles such as bio-diesel, compressed natural gas,
plug-in hybrid and liquid natural gas powered vehicles.
  Our
competitors vary based on off-highway and on-highway market segments. Our
Nautilus product line primarily addresses the off-highway, in-terminal
applications for container transportation.  We expect that our Mule
product line will address short haul on-highway applications for load carrying
applications. We believe that we are the first manufacturer addressing these
heavy load short haul applications with zero emissions technologies and
therefore expect most of our competitors to be current manufacturers of
on-highway fossil fuel-based vehicles. Our competitors sell their products
through qualified dealer networks which sell, promote and service their
products. In most cases, qualified dealers are assigned territories and are
compensated for any vehicle or aftermarket parts shipped into their
territory.
  Our
Nautilus product line addresses applications related to container transportation
at shipyards, rail yards, intermodal facilities, industrial plants, distribution
warehouses, food production facilities, military bases and mail facilities.
These applications require products with high visibility, tight turning radius,
low speed and a lifting fifth wheel for increased operator productivity.
Currently, this market is addressed by five main competitors, all of which
produce diesel or other fossil fuel powered vehicles. These competitors are
Kalmar Industries Corp., Capacity of Texas, Inc., MAFI Transport Systems GmbH,
Mitsui O.S.K. Lines, Ltd. and Terberg DTS UK Ltd.  We consider Kalmar
Industries Corp. and Capacity of Texas, Inc. to be two manufacturers that have
global presence, while Terberg DTS UK Ltd. and Mitsui O.S.K. Lines, Ltd. have a
regional presence in Europe.
 We expect
that our Mule product line will address applications related to short-haul
transportation of cargo at ports, airports, rail yards and inner cities. We
anticipate that the Mule product line will target customized market niches where
air pollution is a key driver for vehicle selection. In this product category
our competitors include large automotive vehicle manufacturers such as Kenworth
Truck Company, Peterbilt Motors Company, Mack Trucks, Inc. and Freightliner
Trucks. Our success in this market niche will depend upon increased regulatory
incentives for use of zero emissions vehicles. We will also focus our efforts in
promoting sales of these vehicles in international markets for distribution of
goods and consumables in congested inner city areas.
  Material
Handling Equipment Industry
  Our
competitors in the heavy-duty material handling equipment industry consist of
fossil fuel equipment manufacturers of forklifts, reach stackers,
roll-on/roll-off vehicles and container forklifts. Our competitors sell their
products through global distribution networks and are currently developing
alternative fuel or hybrid configurations of their current products to address
new regulatory requirements related to engine emissions.
  16
  We
believe that our strategy to partner with current OEMs of heavy duty material
handling equipment will provide us an early market entry into zero emissions
markets in the heavy-duty material handling equipment
industry.  Significant steps have been taken during the past 20 years
to transition the material handling industry from fossil fuel based to electric
power based vehicle designs.  This effort has been limited to light
and medium duty applications.  Our strategy to provide full integrated
heavy-duty electric drive systems to this industry is consistent with this
transition towards zero emission vehicles in off-highway
applications.
  Our
current competitors within this industry include fossil fuel powered OEMs such
as Kalmar Industries Corp., Hyster Company, Linde Material Handling GmbH,
Svetruck AB, Mitsubishi Heavy Industries, Ltd., TCM Corporation and
Mitsui & Co., Inc. Most of these competitors have a global presence and
provide additional value added services such as equipment leasing, contract
labor and full maintenance contracts.  We believe that our strategy to
enter the material handling equipment market as a provider of heavy-duty
electric drive systems benefits both the customers and OEMs within this
industry.
  Flux
Vector Inverters
  Electric
vehicle propulsion systems consist of mainly two types of motor technologies, DC
and AC.  DC powered systems are more dominant and cost effective in
lower voltage and load carrying applications. We believe that during the past
five years, cost effective AC systems have started to gain market share in lower
cost products mainly due to inherent lower maintenance costs of AC propulsion
systems.
  Heavy
duty electric vehicles require higher power and voltage rated propulsion systems
requiring high level of safety, diagnostics and customization.  Our
competitors in this market consist of manufacturers of high capacity variable
frequency inverters.  These manufacturers market directly to OEMs or
vehicle manufacturers.  Our current competitors in the marketplace
include Enova Systems Inc., Azure Dynamics Inc., UQM Technologies, Inc. and
Raser Technologies, Inc.
  Product
Development
  Product
development is spearheaded by members of our senior management who evaluate the
development of new products and new market applications for existing
products.  We believe our future success depends on our ability to
introduce product enhancements integrating new battery technologies into current
vehicle designs increasing the range of our vehicles for on-highway
applications.
  Our
research and development team has over 80 years of combined experience in the
development of electric vehicle technologies. We focus our efforts into seamless
integration of leading technologies into a product configuration that is cost
competitive in a market niche. We utilize the most advanced CAD design systems
to reduce time to market of our new products.
  We
believe in our market driven approach to the development of new technologies and
product configurations. We place increased emphasis on developing zero emissions
technologies that are cost effective and that reliably address today’s market
needs. We continue to develop our proprietary flux inverter technology to
address higher capacity market niches, meanwhile we are also actively engaged in
identifying suppliers for higher energy density battery technology.
  Intellectual
Property
  We
believe that we have a broad intellectual property portfolio.  We
primarily own intellectual property protecting the proprietary technology for
the flux vector inverters designed by us.  Our portfolio consists of a
trade name, trade secrets and proprietary processes.
  17
  Currently,
we rely on common law rights to protect our trade name “Balqon.”  The
common law rights protect the use of this mark used to identify our
products.  It is possible that our competitors will adopt product or
service names similar to ours, thereby impeding our ability to build brand
identity and possibly leading to customer confusion.  Our inability to
protect our trade name will have a material adverse effect on our business,
results of operations, and financial condition.  We also rely on trade
secrets and proprietary know-how and employ various methods to protect our
proprietary technology and concepts.  However, such methods may not
afford complete protection, and there can be no assurance that others will not
independently develop similar know-how or obtain access to our know-how and
concepts.  There can be no assurance that we will be able to
adequately protect our intellectual property.  Third parties may
assert infringement claims against us or against third parties upon whom we rely
and, in the event of an unfavorable ruling on any claim, we may be unable to
obtain a license or similar agreement to use trade secrets that we rely upon to
conduct our business.
  Government
Regulation
  The
trucking industry within the United States is regulated by the United States
Department of Transportation and by various state agencies.  We are
also subject to federal, state and local laws and regulations applied to
businesses generally. We believe that our products are in conformity with all
applicable laws in all relevant jurisdictions.
  Our
electric vehicles are designed to comply with a significant number of industry
standards and regulations, some of which are evolving as new technologies are
deployed.  Government regulations regarding the manufacture, sale and
implementation of products and systems similar to our electric trucks are
subject to future change. We cannot predict what impact, if any, such changes
may have upon our business.
  Recent
Initiatives
  Recent
regulations adopted by the Port of Los Angeles and the Port of Long Beach, which
are referred to in this report collectively as the San Pedro Bay Ports, have
resulted in increased attention on alternative fuel vehicles generally and our
heavy-duty electric vehicles specifically.  In November 2006, the San
Pedro Bay Ports approved a comprehensive five-year “Clean Air Action Plan” aimed
at reducing pollution and health risks associated with the air emissions
resulting from activities of the San Pedro Bay Ports.  According to
the Port of Los Angeles, the goal of the “Clean Air Action Plan” is an 80%
reduction in port-related truck pollution.  The Clean Air Action Plan
outlines a “Clean Trucks Program” that calls for the San Pedro Bay Ports to
scrap and replace approximately 16,000 drayage tractors being used at the San
Pedro Bay Ports with the assistance of San Pedro Bay Ports.  The Clean
Air Action Plan also provides for grants andloan subsidies that will
be sponsored and administered jointly by the San Pedro Bay
Ports.  Under the Clean Trucks Program, trucks manufactured prior to
1989 have been banned from entering the San Pedro Bay Ports’ shipping
terminals.  Additionally, by 2012, all trucks manufactured prior to
2007 will be banned from entering the San Pedro Bay Ports.  The San
Pedro Bay Ports are also providing financial assistance to truckers to acquire
trucks that comply with their new requirements.  As a result of these
regulations, the emphasis on energy independence and general increased interest
in environmentally friendly alternatives, we believe that the demand for our
heavy-duty electric vehicles will increase significantly over the next several
years.
  The Port
of Los Angeles estimates that on an annual basis, more than two million truck
drayage trips take place between the port terminals and rail and warehouse
facilities within five to ten miles of the port.  Because of the
significant number of trips, the Port of Los Angeles and the City of Los Angeles
have expressed confidence that an emissions-free fleet of trucks will cut noise
and air pollution at the Port of Los Angeles.
  18
  The Port
of Los Angeles has estimated that if our heavy-duty electric vehicles were used
for the estimated 1.2 million truck trips that occurred in 2006 between the
ports and a near-dock rail yard, the average pollution discharge generated would
be reduced by approximately 35,605 tons of tailpipe emissions, including
approximately 22 tons of diesel particulate matter, 427 tons of localized
nitrogen oxide emissions, 168 tons of carbon and 34,987 tons of carbon
dioxide.
  The
increased focus on environmentally friendly and energy efficient solutions at
ports in Southern California is further exemplified by a program recently
announced by the AQMD that provides financial incentives and assistance for
truck owners and operators to replace older trucks with newer, environmentally
friendlier solutions.  Under The Carl Moyer Fleet Modernization
Program, the AQMD is providing funding assistance for heavy-duty on-highway
truck fleet modernization in the South Coast Air Basin. This program is designed
to assist truck owners and operators to replace pre-1990 heavy-duty diesel
trucks with newer diesel-fueled trucks or trucks with less emissions that their
diesel fueled counterparts.  The AQMD has approximately $56 million
available for funding and could pay up to 80% of the cost of replacing a
pre-1990 heavy-duty diesel truck.
  Employees
  As of
March 27, 2009, we employed sevenemployees on a full-time
basis.  None of our employees are represented by labor unions, and
there have not been any work stoppages at our facilities.  We
generally consider our relationships with our employees to be
satisfactory.  In addition, from time to time, we utilize outside
consultants or contractors for specific assignments.
  Internet
Website
  Our
Internet website is www.balqon.com.  The
content of our Internet website does not constitute a part of this
report.
  Item
      1A.
              Risk
      Factors.
  The
following summarizes material risks that investors should carefully consider
before deciding to buy or maintain an investment in our common
stock.  Any of the following risks, if they actually occur, would
likely harm our business, financial condition and results of
operations.  As a result, the trading price of our common stock could
decline, and investors could lose the money they paid to buy our common
stock.
  Risks
Relating to Our Business
  We
have a history of only nominal revenues, have incurred significant losses,
expect continued losses and may never achieve profitability. If we continue to
incur losses, we may have to curtail our operations, which may prevent us from
successfully deploying our heavy-duty electric vehicles, flux vector inverters,
heavy-duty electric drive systems and battery management systems as well as
operating and expanding our business.
  We have a
history of only nominal revenues, have not been profitable and expect continued
losses. Historically, we have relied upon cash from financing activities to fund
substantially all of the cash requirements of our activities and have incurred
significant losses and experienced negative cash flow. As of December 31,
2008, we had an accumulated deficit of $1,493,395.  For our fiscal
years ended December 31, 2008 and 2007, we incurred a net loss of
$1,405,821 and $82,744, respectively.  We cannot predict when we will
become profitable or if we ever will become profitable, we may continue to incur
losses for an indeterminate period of time and may never achieve or sustain
profitability. An extended period of losses and negative cash flow may prevent
us from successfully producing and selling our heavy-duty electric vehicles,
flux vector inverters, heavy-duty electric drive systems and battery management
systems and operating or expanding our business. As a result of our financial
condition, our independent auditors have issued a report questioning our ability
to continue as a going concern.
  19
  Our
significant losses have resulted principally from costs incurred in connection
with the development of our heavy-duty electric vehicles and from costs
associated with our administrative activities. We expect our operating expenses
to dramatically increase as a result of our planned production and sale of our
heavy-duty electric vehicles.  Since we have only recently completed
the development of our heavy-duty electric vehicles, have no significant
operating history and have delivered only two heavy-duty electric vehicles as of
the date of this report, we cannot assure you that our business will ever become
profitable or that we will ever generate sufficient revenues to meet our
expenses and support our planned activities. Even if we are able to achieve
profitability, we may be unable to sustain or increase our profitability on a
quarterly or annual basis.
  Our
independent auditors have issued a report questioning our ability to continue as
a going concern. This report may impair our ability to raise additional
financing and adversely affect the price of our common stock.
  The
report of our independent auditors contained in our consolidated financial
statements for the years ended December 31, 2008 and 2007 includes a
paragraph that explains that we have incurred substantial losses. This report
raises substantial doubt about our ability to continue as a going concern.
Reports of independent auditors questioning a company’s ability to continue as a
going concern are generally viewed unfavorably by analysts and investors. This
report may make it difficult for us to raise additional debt or equity financing
necessary to continue the development and deployment of our heavy-duty electric
vehicles, flux vector inverters and heavy-duty electric drive systems. We urge
potential investors to review this report before making a decision to invest in
Balqon Corporation.
  The
current global financial crisis and uncertainty in global economic conditions
may have significant negative effects on our customers and our suppliers and may
therefore affect our business, results of operations, and financial
condition.
  The
current global financial crisis—which has included, among other things,
significant reductions in available capital and liquidity from banks and other
providers of credit, substantial reductions and/or fluctuations in equity and
currency values worldwide, and concerns that the worldwide economy may enter
into a prolonged recessionary period—may have a significant negative effect on
our business and operating results.The potential effects
of the current global financial crisis are difficult to forecast and mitigate.
As a consequence, our operating results for a particular period are difficult to
predict, and, therefore, prior results are not necessarily indicative of results
to be expected in future periods.
  The
current economic crisis may affect our current and potential, direct and
indirect, customers’ access to capital or willingness to spend capital on our
products, and/or their levels of cash liquidity with which or willingness to pay
for products that they will order or have already ordered from
us.  The effect of the current economic conditions on our customers
may therefore lead to decreased demand, including order delays or cancellations,
which in turn may result in lower revenue and adversely affect our business,
results of operations and financial condition.
  Likewise,
the current global financial crisis may negatively affect our suppliers’ access
to capital and liquidity with which to maintain their inventories, production
levels, and/or product quality, and could cause them to raise prices or lower
production levels, or result in their ceasing operations.  The
challenges that our suppliers’ may face in selling their products or otherwise
in operating their businesses may lead to our inability to obtain the materials
we use to manufacture our products. These actions could cause reductions in our
revenue, increased price competition and increased operating costs, which could
adversely affect our business, results of operations and financial
condition.
  20
  The
current global financial crisis and uncertainty in global economic conditions
may have significant negative effects on our access to credit and our ability to
raise capital.
  If the
current global financial crisis adversely affects Bridge Bank, National
Association, Bridge Bank may not have the ability to provide us with access to
the funds available under our credit facility, resulting in our access to cash
and our ability to operate our business being negatively
affected.  Additionally, the financial market disruption may make it
difficult for us to raise additional capital or obtain additional credit, when
needed, on acceptable terms or at all.
  The
current global financial crisis and uncertainty in global economic conditions
could prevent us from accurately forecasting demand for our products which could
adversely affect our operating results or market share.
  The
current market instability makes it increasingly difficult for us, our customers
and our suppliers to accurately forecast future product demand
trends.  If, as a result, we produce excess products our inventory
carrying costs will increase and result in obsolete
inventory.  Alternatively, due to the forecasting difficulty caused by
the unstable economic conditions, we may be unable to satisfy demand for our
products which may in turn result in a loss of market share.
  The
current global financial crisis may lead to a reduction in federal, state and
local environmental initiatives and spending, which could adversely affect our
business.
  Our
ability to obtain future public sector work is largely a function of the level
of government funding available.  In January 2009, a new federal
administration took office, and it is widely expected that the new
administration will increase environmental spending.  However, as a
result of the current economic crisis, federal, state and local government
agencies are facing potentially significant budget shortfalls as a result of
declining tax and other revenues, which may cause them to defer or cancel
planned environmental and infrastructure projects.  If environmental
spending is reduced, it may affect our current contracts as well as our ability
to procurer additional government contracts, which could adversely affect our
business, results of operations and financial
condition.
  We
need and may be unable to obtain additional financing on satisfactory terms,
which may require us to accept financing on burdensome terms that may cause
substantial dilution to our shareholders and impose onerous financial
restrictions on our business.
  We
require significant additional financing. Deteriorating global economic
conditions, including the recent turmoil in the United States capital markets,
may cause prolonged declines in investor confidence in and accessibility to
capital markets. Future financing may not be available on a timely basis, in
sufficient amounts or on terms acceptable to us. Any future financing will
likely dilute existing stockholders’ equity. Any debt financing or other
financing of securities senior to our common stock 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 and results of
operations because we could lose any then-existing sources of financing and our
ability to secure new sources of financing may be impaired.
  21
  We
depend on the services of Balwinder Samra, and the loss of him could adversely
affect our ability to achieve our business objectives.
  Our
continued success depends in part upon the continued service of Balwinder Samra,
who is our President and Chief Executive Officer.  Mr. Samra is
critical to the overall management of Balqon Corporation as well as to the
development of our technologies, our culture and our strategic direction and is
instrumental in developing and maintaining close ties with our customer
base.  Although we have entered into an employment agreement with
Mr. Samra, the agreement does not guarantee the service of Mr. Samra
for a specified period of time.  In addition, we do not maintain a
“key-person” life insurance policy on Mr. Samra.  The loss of
Mr. Samra could significantly delay or prevent the achievement of our
business objectives.  Consequently, the loss of Mr. Samra could
adversely affect our business, financial condition and results of
operations.
  Our
failure to manage our growth effectively could prevent us from achieving our
goals.
  Our
strategy envisions a period of growth that may impose a significant burden on
our administrative, financial and operational resources.  The growth
of our business will require significant investments of capital and management’s
close attention.  Our ability to effectively manage our growth will
require us to substantially expand the capabilities of our administrative and
operational resources and to attract, train, manage and retain qualified
management, engineers and other personnel.  We may be unable to do
so.  In addition, our failure to successfully manage our growth could
result in our sales not increasing commensurately with our capital
investments.  If we are unable to successfully manage our growth, we
may be unable to achieve our goals.
  We
have very limited operating experience; therefore, regardless of the viability
or market acceptance of heavy-duty electric vehicles, we may be unable to
achieve profitability or realize our other business goals.
  The
production of our heavy-duty electric vehicles is the result of a new venture.
We have been engaged primarily in research and development of heavy-duty
electric vehicles technologies since 2006, and we have only recently begun
shipments of our electric vehicles.  Our success will depend in large
part on our ability to address problems, expenses and delays frequently
associated with bringing a new product to market.  We may not be able
to successfully sell our products even if our heavy-duty electric vehicles prove
to be a viable solution and achieve market acceptance. Consequently, we may be
unable to achieve profitability or realize our other business
goals.
  We
are targeting a new and evolving market and we cannot be certain that our
business strategy will be successful.
  The
market for heavy-duty electric vehicles is relatively new and rapidly
changing.  We cannot accurately predict the size of this market or its
potential growth. Our vehicles represent only one possible solution for
alternative fuel vehicles for container transportation and other material
handling equipment applications.  Use of electric vehicles for
container transportation at terminals and/or other facilities has not been
adopted as an industry standard and it may not be adopted on a broad
scale.  The new and evolving nature of the market that we intend to
target makes an accurate evaluation of our business prospects and the
formulation of a viable business strategy very difficult. Thus, our business
strategy may be faulty or even obsolete and as a result, we may not properly
plan for or address many obstacles to success, including the
following:
  22
 
 ·
              the
      timing and necessity of substantial expenditures for the development,
      production and sale of our heavy-duty electric
  vehicles;
 ·
              the
      emergence of newer, more competitive technologies and
      products;
 ·
              the
      future cost of batteries used in our
systems;
 ·
              applicable
      regulatory requirements;
 ·
              the
      reluctance of potential customers to consider new
      technologies;
 ·
              the
      failure to strategically position ourselves in relation to joint venture
      or strategic partners, and potential and actual
    competitors;
 ·
              the
      failure of our heavy-duty electric vehicles to satisfy the needs of the
      markets that we intend to target and the resulting lack of widespread or
      adequate acceptance of our heavy-duty electric vehicles;
    and
 ·
              the
      difficulties in managing rapid growth of operations and
      personnel.
  The
industries within which we compete are highly competitive.  Many of
our competitors have greater financial and other resources and greater name
recognition than we do and one or more of these competitors could use their
greater financial and other resources or greater name recognition to gain market
share at our expense.
  The
industries within which we compete are highly competitive. New developments in
technology may negatively affect the development or sale of some or all of our
products or make our products uncompetitive or obsolete.  Competition
for our products may come from current drive system technologies, improvements
to current drive system technologies and new alternative drive system
technologies, including other fuel systems.  Each of our target
markets is currently serviced by existing manufacturers with existing customers
and suppliers using proven and widely accepted fossil fuel powered
technologies.  Additionally, there are competitors working on
developing technologies such as cleaner diesel engines, bio-diesel, fuel cells,
natural gas and hybrid battery/internal combustion engines in each of our
targeted markets.  Many of these existing and potential competitors,
including Kalmar Industries Corp, Mitsui O.S.K. Lines, Ltd., Terberg DTS UK
Ltd., Kenworth Truck Company, Freightliner Trucks, Mack Trucks, Inc. and
Peterbilt Motors Company, have substantially greater financial resources, more
extensive engineering, manufacturing, marketing and customer service and support
capabilities, larger installed bases of current generation products, as well as
greater name recognition than we do. As a result, our competitors may be able to
compete more aggressively and sustain that competition over a larger period of
time than we could.  Each of these competitors has the potential to
capture market share in various markets, which could have a material adverse
effect on our position in the industry and our financial results.  In
order for our products to be successful against competing technologies,
especially diesel engines, they must offer advantages in one or more of these
areas: emissions performance; fuel economy; engine performance; power density;
engine and fuel system weight; and engine and fuel system
price.  There can be no assurance that our products will be able to
offer advantages in all or any of these areas.  Our lack of resources
relative to many of our significant competitors may cause us to fail to
anticipate or respond adequately to new developments and other competitive
pressures.  This failure could reduce our competitiveness and cause a
decline in our market share, sales and profitability.
  Our
lack of purchase orders and commitments other than our contracts with the City
of Los Angeles and the AQMD for our heavy-duty electric vehicles could lead to a
rapid decline in our sales and profitability.
  We have
received purchase orders covering a total of 26 heavy-duty electric vehicles
from the City of Los Angeles and the AQMD.  These purchase orders
represent the only orders for our heavy-duty electric vehicles.  As of
the date of this report we have delivered only two of these
vehicles.  If we are unable to fill the remainder of these orders or
obtain additional orders for our products, our sales and financial condition
will decline.
  23
  Products
within the industries in which we operate are subject to rapid technological
changes.  If we fail to accurately anticipate and adapt to these
changes, the products we sell will become obsolete, causing a decline in our
sales and profitability.
  The
industries within which we compete are subject to rapid technological change and
frequent new product introductions and enhancements which often cause product
obsolescence.  We believe that our future success depends on our
ability to continue to enhance our existing products and their technologies
capabilities, and to develop and manufacture in a timely manner new products
with improved technology.  We may incur substantial unanticipated
costs to ensure product functionality and reliability early in its products’
life cycles.  If we are not successful in the introduction and
manufacture of new products or in the development and introduction, in a timely
manner, of new products or enhancements to our existing products and
technologies that satisfy customer needs and achieve market acceptance, our
sales and profitability will decline.
  We
obtain some of the components and subassemblies included in our products from a
single source or limited group of suppliers, the partial or complete loss of
which could have an adverse effect on our sales and profitability.
  We obtain
some of the components and subassemblies for our products from a single source
or a limited group of suppliers.  Although we seek to reduce
dependence on these sole and limited source suppliers, the partial or complete
loss of these sources could adversely affect our sales and profitability and
damage customer relationships by impeding our ability to fulfill our customers’
orders.  Further, a significant increase in the price of one or more
of these components or subassemblies could adversely affect our profit margins
and profitability if no lower-priced alternative source is
available.
  We
manufacture and assemble all of our products at one facility.  Any
prolonged disruption in the operations of this facility would result in a
decline in our sales and profitability.
  We
assemble our heavy-duty electric vehicles and heavy-duty electric drive systems
and we manufacture and assemble our flux vector invertors in a facility located
in Harbor City, California.  Any prolonged disruption in the
operations of our manufacturing and assembly facility, whether due to technical
or labor difficulties, destruction of or damage to this facility as a result of
an earthquake, fire or any other reason, would result in a decline in our sales
and profitability.
  Because
we believe that proprietary rights are material to our success, misappropriation
of those rights or claims of infringement or legal actions related to
intellectual property could adversely impact our financial
condition.
  We
currently rely on a combination of contractual rights, copyrights, trade names
and trade secrets to protect our proprietary rights. However, although our flux
vector inverters, heavy-duty electric drive systems, and theirconstituent components
could benefit from patent protection, we have chosen to retain the proprietary
rights associated with our flux vector inverters, heavy-duty electric drive
systems, and battery management systems predominantly as trade secrets. Although
we currently rely to a great extent on trade secret protection for much of our
technology, we cannot assure you that our means of protecting our proprietary
rights will be adequate or that our competitors will not independently develop
comparable or superior technologies or obtain unauthorized access to our
proprietary technology.
  We own,
license or have otherwise obtained the right to use certain technologies
incorporated in our flux vector inverters.  We may receive
infringement claims from third parties relating to our products and
technologies. In those cases, we intend to investigate the validity of the
claims and, if we believe the claims have merit, to respond through licensing or
other appropriate actions. To the extent claims relate to technology included in
components purchased from third-party vendors for incorporation into our
products, we would forward those claims to the appropriate vendor. If we or our
component manufacturers are unable to license or otherwise provide any necessary
technology on a cost-effective basis, we could be prohibited from marketing
products containing that technology, incur substantial costs in redesigning
products incorporating that technology, or incur substantial costs defending any
legal action taken against us.
  24
  Fluctuation
in the price, availability and quality of materials could increase our cost of
goods and decrease our profitability.
  We
purchase materials directly from various suppliers. The prices we charge for our
products are dependent in part on the cost of materials used to produce them.
The price, availability and quality of our materials may fluctuate
substantially, depending on a variety of factors, including demand, supply
conditions, transportation costs, government regulation, economic climates and
other unpredictable factors. Any material price increases could increase our
cost of goods and decrease our profitability unless we are able to pass higher
prices on to our customers. We do not have any long-term written agreements with
any of these suppliers and do not anticipate entering into any such agreements
in the near future.
  Our
limited production, commercial launch activities and continued field tests could
encounter problems.
  We are
currently conducting, and plan to continue to conduct, limited production and
field tests on a number of our products as part of our product development cycle
and we are working on scaling up our production capabilities.  These
production readiness activities and additional field tests may encounter
problems and delays for a number of reasons, including the failure of our
technology, the failure of the technology of others, the failure to combine
these technologies properly and the failure to maintain and service the test
prototypes properly.  Some of these potential problems and delays are
beyond our control.  Any problem or perceived problem with our limited
production and field tests could hurt our reputation and the reputation of our
products and delay their commercial launch.
  Demand
for our heavy-duty electric vehicles may fluctuate as the price of diesel fuel
changes.
  If diesel
fuel prices decrease to a level such that using our heavy-duty electric vehicles
does not result in fuel cost savings, potential customers may not purchase our
heavy-duty electric vehicles. Any decrease in demand for our heavy-duty electric
vehicles could have a material adverse effect on our business, prospects,
financial condition and results of operations. If in the future we need to
reduce the price of our heavy-duty electric vehicles to keep them competitive
with the life cycle cost of diesel fuel powered vehicles, our business might
suffer and our revenue might decline.
  Significant
changes in government regulation may hinder our sales.
  The
production, distribution and sale in the United States of our products are
subject to various federal, state, and local statutes and regulations. New
statutes and regulations may also be instituted in the future. If a regulatory
authority finds that a current or future product is not in compliance with any
of these regulations, we may be fined, or our product may have to be recalled,
thus adversely affecting our financial condition and operations.
  If
we do not properly manage foreign sales and operations, our business could
suffer.
  We expect
that a significant portion of our future revenues will be derived from sales
outside of the United States, and we may operate in jurisdictions where we may
lack sufficient expertise, local knowledge or contacts.  Establishment
of an international market for our products may take longer and cost more to
develop than we anticipate, and is subject to inherent risks, including
unexpected changes in government policies, trade barriers, significant
regulation, difficulty in staffing and managing foreign operations, longer
payment cycles, and foreign exchange controls that restrict or prohibit
repatriation of funds.  As a result, if we do not properly manage
foreign sales and operations, our business could suffer.
  25
  Our
inability to diversify our operations may subject us to economic fluctuations
within the heavy-duty electric vehicle industry.
  Our
limited financial resources reduce the likelihood that we will be able to
diversify our operations. Our probable inability to diversify our activities
into more than one business area will subject us to economic fluctuations within
the heavy-duty electric vehicle industry and therefore increase the risks
associated with our operations.
  Risks
Relating to Ownership of Our Common Stock
  We
cannot predict the extent to which an active public trading market for our
common stock will develop or be sustained.  If a public trading market
does not develop or cannot be sustained, you may be unable to liquidate your
investment in Balqon Corporation.
  We cannot
predict the extent to which an active public market for our common stock will
develop or be sustained due to a number of factors, including the fact that we
are a small company that is relatively unknown to stock analysts, stock brokers,
institutional investors, and others in the investment community that generate or
influence sales volume, and that even if we came to the attention of such
persons, they tend to be risk-averse and would be reluctant to follow an
unproven company such as ours or purchase or recommend the purchase of our
shares of common stock until such time as we became more seasoned and viable. As
a consequence, there may be periods of several days or more when trading
activity in our shares is minimal or non-existent, as compared to a seasoned
issuer which has a large and steady volume of trading activity that will
generally support continuous sales without an adverse effect on share price. We
cannot give you any assurance that a public trading market for our common stock
will be sustained.  If such a market cannot be sustained, you may be
unable to liquidate your investment in Balqon Corporation.
  In
addition, the market price for our common stock may be particularly volatile
given our status as a relatively small company with a presumably small and
thinly-traded “float” that could lead to wide fluctuations in our share price.
You may be unable to sell your common stock at or above your purchase price if
at all, which may result in substantial losses to you.
  Our
common stock may be subject to significant price volatility which may have an
adverse effect on your ability to liquidate your investment in our common
stock.
  The
market for our common stock may be characterized by significant price volatility
when compared to seasoned issuers, and we expect that our share price will be
more volatile than a seasoned issuer for the indefinite future. The potential
volatility in our share price is attributable to a number of factors. First, our
common shares may be sporadically and/or thinly traded. As a consequence of this
lack of liquidity, the trading of relatively small quantities of shares by our
stockholders may disproportionately influence the price of those shares in
either direction. The price for our shares could, for example, decline
precipitously in the event that a large number of our common shares are sold on
the market without commensurate demand, as compared to a seasoned issuer that
could better absorb those sales without adverse impact on its share price.
Secondly, an investment in us is a speculative or “risky” investment due to our
lack of meaningful revenues or any profits to date and uncertainty of future
market acceptance for current and potential products. As a consequence of this
enhanced risk, more risk-adverse investors may, under the fear of losing all or
most of their investment in the event of negative news or lack of progress, be
more inclined to sell their shares on the market more quickly and at greater
discounts than would be the case with the stock of a seasoned
issuer.
  26
  Voting
power of a majority of our common stock is held by our president and chief
executive officer, who, as a result, is able to control or exercise significant
influence over the outcome of matters to be voted on by our
stockholders.
  Balwinder
Samra, our President and Chief Executive Officer, has voting power equal to
approximately 71% of all votes eligible to be cast at a meeting of our
stockholders.  As a result of his significant ownership interest,
Mr. Samra will be able to control or exercise significant influence with
respect to the election of directors, offers to acquire Balqon Corporation and
other matters submitted to a vote of all of our stockholders.
  Shares
of our common stock eligible, or to become eligible, for public sale could
adversely affect our stock price and make it difficult for us to raise
additional capital through sales of equity securities.
  We cannot
predict the effect, if any, that market sales of shares of our common stock or
the availability of shares of common stock for sale will have on the market
price prevailing from time to time.  As of March 27, 2009, we had
outstanding 25,518,348 shares of common stock, of which 25,133,348 shares of
common stock were restricted under the Securities Act.  As of March
27, 2009, we also had outstanding options and warrants that were exercisable for
approximately 7,606,370 shares of common stock and notes convertible into 35,000
shares of our common stock. Sales of shares of our common stock in the public
market, or the perception that sales could occur, could adversely affect the
market price of our common stock. Any adverse effect on the market price of our
common stock could make it difficult for us to raise additional capital through
sales of equity securities at a time and at a price that we deem
appropriate.
  The
exercise of outstanding options and warrants to purchase our common stock and
the conversion into common stock of our outstanding convertible notes could
substantially dilute your investment, impede our ability to obtain additional
financing, and cause us to incur additional expenses.
  Under the
terms of our outstanding options and warrants to purchase our common stock
issued to employees and others and the terms of our outstanding convertible
notes, the holders are given an opportunity to profit from a rise in the market
price of our common stock that, upon the exercise of the options and/or warrants
or the conversion of the notes, could result in dilution in the interests of our
other stockholders.  The terms on which we may obtain additional
financing may be adversely affected by the existence and potentially dilutive
impact of our outstanding options, warrants and convertible notes.  In
addition, holders of the warrants and convertible notes have registration rights
with respect to the common stock underlying such warrants and convertible notes,
the registration of which will cause us to incur a substantial
expense.
  The
market price of our common stock and the value of your investment could
substantially decline if our warrants, options or convertible notes are
exercised or converted into shares of our common stock and resold into the
market, or if a perception exists that a substantial number of shares will be
issued upon exercise or conversion of our warrants, options or convertible notes
and then resold into the market.
  If the
exercise or conversion prices of our warrants, options and convertible notes are
lower than the price at which you made your investment, immediate dilution of
the value of your investment will occur. In addition, sales of a substantial
number of shares of common stock issued upon exercise or conversion of our
warrants, options and convertible notes, or even the perception that such sales
could occur, could adversely affect the market price of our common
stock.  You could, therefore, experience a substantial decline in the
value of your investment as a result of both the actual and potential exercise
or conversion of our warrants, options or convertible notes.
  27
  Because
we may be subject to the “Penny Stock” rules, the level of trading activity in
our common stock may be reduced.
  Our
common stock is quoted on the OTC Bulletin Board.  The last reported
sale price per share of our common stock on March 27, 2009, was
$2.60.  As a result, our common stock will most likely constitute
“Penny Stock.” Broker-dealer practices in connection with transactions in Penny
Stocks are regulated by rules adopted by the Securities and Exchange Commission,
or SEC.  Penny Stocks are generally equity securities with a price per
share of less than $5.00 (other than securities registered on certain national
exchanges).  The Penny Stock rules require a broker-dealer, prior to a
transaction in Penny Stocks not exempt from the rules, to deliver a standardized
risk disclosure document that provides information about Penny Stocks and the
nature and level of risks in the Penny Stock market.  The
broker-dealer must also provide the customer with current bid and offer
quotations for the Penny Stock, the compensation of the broker-dealer and the
salesperson in the transaction, and monthly accounting statements showing the
market value of each Penny Stock held in the customer’s account. In addition,
the broker-dealer must make a special written determination that the Penny Stock
is a suitable investment for the purchaser and receive the purchaser’s written
agreement to the transaction.  These requirements may have the effect
of reducing the level of trading activity in a Penny Stock, such as our common
stock, and investors in our common stock may find it difficult to sell their
shares.
  Because
our common stock is not listed on a national securities exchange, you may find
it difficult to dispose of or obtain quotations for our common
stock.
  Our
common stock is quoted on the OTC Bulletin Board under the symbol
“BLQN.”  Because our stock is quoted on the OTC Bulletin Board rather
than on a national securities exchange, you may find it difficult to either
dispose of, or to obtain quotations as to the price of, our common
stock.
  Our
articles of incorporation, our bylaws and Nevada law each contain provisions
that could discourage transactions resulting in a change in control of Balqon
Corporation, which may negatively affect the market price of our common
stock.
  Our
articles of incorporation and our bylaws contain provisions that may enable our
board of directors to discourage, delay or prevent a change in the ownership of
Balqon Corporation or in our management. In addition, these provisions could
limit the price that investors would be willing to pay in the future for shares
of our common stock. These provisions include the following:
  ·
              our
      board of directors is authorized, without prior stockholder approval, to
      create and issue preferred stock, commonly referred to as “blank check”
      preferred stock, with rights senior to those of our common stock;
      and
  ·
              our
      board of directors is expressly authorized to make, alter or repeal our
      bylaws.
  In
addition, we may be subject to the restrictions contained in Sections 78.378
through 78.3793 of the Nevada Revised Statutes which provide, subject to certain
exceptions and conditions, that if a person acquires a “controlling interest,”
which is equal to either one-fifth or more but less than one-third, one-third or
more but less than a majority, or a majority or more of the voting power of a
corporation, that person is an “interested stockholder” and may not vote that
person’s shares. The effect of these restrictions may be to discourage, delay or
prevent a change in control of Balqon Corporation.
  28
  Failure
to achieve and maintain effective internal controls in accordance with Section
404 of the Sarbanes-Oxley Act of 2002 could result in a restatement of our
financial statements, cause investors to lose confidence in our financial
statements and our company and have a material adverse effect on our business
and stock price.
  We
produce our financial statements in accordance with accounting principles
generally accepted in the United States.  Effective internal controls
are necessary for us to provide reliable financial reports to help mitigate the
risk of fraud and to operate successfully as a publicly traded company. As a
public company, we are required to document and test our internal control
procedures in order to satisfy the requirements of Section 404 of the
Sarbanes-Oxley Act of 2002, or Section 404, which will require annual management
assessments of the effectiveness of our internal controls over financial
reporting and a report by our independent registered public accounting firm that
addresses both management’s assessments and our internal controls.  We
are currently subject to the requirement that we provide management’s assessment
regarding internal control over financial reporting.  The requirement
that we provide our auditor’s attestation will apply to us starting with our
annual report for the year ending December 31, 2009.
  Testing
and maintaining internal controls can divert our management’s attention from
other matters that are important to our business. We may not be able to conclude
on an ongoing basis that we have effective internal controls over financial
reporting in accordance with Section 404 or our independent registered public
accounting firm may not be able or willing to issue a favorable assessment if we
conclude that our internal controls over financial reporting are effective. If
either we are unable to conclude that we have effective internal controls over
financial reporting or our independent registered public accounting firm is
unable to provide us with an unqualified report as required by Section 404,
investors could lose confidence in our reported financial information and our
company, which could result in a decline in the market price of our common
stock, and cause us to fail to meet our reporting obligations in the future,
which in turn could impact our ability to raise additional financing if needed
in the future.
  The
requirements of being a public company, including compliance with the reporting
requirements of the Securities Exchange Act of 1934 and the requirements of the
Sarbanes-Oxley Act of 2002, may strain our resources, increase our costs and
distract management, and we may be unable to comply with these requirements in a
timely or cost-effective manner.
  As a
public company, we need to comply with laws, regulations and requirements,
certain corporate governance provisions of the Sarbanes-Oxley act of 2002,
related regulations of the SEC, and requirements of the principal trading market
upon which our common stock may trade, with which we are not required to comply
as a private company.  As a result, we will incur significant legal,
accounting and other expenses that we did not incur as a private
company.  Complying with these statutes, regulations and requirements
will occupy a significant amount of the time of our board of directors and
management, will require us to have additional finance and accounting staff, may
make it more difficult to attract and retain qualified officers and members of
our board of directors, particularly to serve on our audit committee, and make
some activities more difficult, time consuming and costly.  We will
need to:
 
 ·
              institute
      a more comprehensive compliance
function;
 ·
              establish
      new internal policies, such as those relating to disclosure controls and
      procedures and insider trading;
 ·
              design,
      establish, evaluate and maintain a system of internal control over
      financial reporting in compliance with the requirements of the
      Sarbanes-Oxley Act of 2002 and the related rules and regulations of the
      SEC and the Public Company Accounting Oversight
  Board;
  29
  ·
              prepare
      and distribute periodic reports in compliance with our obligations under
      the federal securities laws including the Securities Exchange Act of 1934,
      or Exchange Act;
 ·
              involve
      and retain to a greater degree outside counsel and accountants in the
      above activities; and
 ·
              establish
      an investor relations function.
  If we are
unable to accomplish these objectives in a timely and effective fashion, our
ability to comply with our financial reporting requirements and other rules that
apply to reporting companies could be impaired.  If our finance and
accounting personnel insufficiently support us in fulfilling these
public-company compliance obligations, or if we are unable to hire adequate
finance and accounting personnel, we could face significant legal liability,
which could have a material adverse effect on our financial condition and
results of operations.  Furthermore, if we identify any issues in
complying with those requirements (for example, if we or our independent
registered public accountants identified a material weakness or significant
deficiency in our internal control over financial reporting), we could incur
additional costs rectifying those issues, and the existence of those issues
could adversely affect, our reputation or investor perceptions of
us.
  Item
      1B.
              Unresolved
      Staff Comments.
  Not
Applicable.
  Item
      2.
              Properties.
  Our
executive offices are located at 1701 E. Edinger Avenue, Unit E-3, Santa Ana,
California 92705, where we occupy approximately 3,500 square feet of office and
light manufacturing space.  This space is used as offices by our
senior management. Our manufacturing facility is located in Harbor City,
California, where we occupy a 15,500 square foot manufacturing and assembly
facility which is being used for final assembly of our electric drive systems,
battery modules, flux vector inverters and heavy-duty electric
vehicles.  We lease our Santa Ana facility for $3,206 a month and our
Harbor City facility for $10,540 a month.  During each of the years
ended December 31, 2008 and 2007, we reported $98,008 and $25,787,
respectively, in lease expenses.
 We
believe that our existing facilities are sufficient to meet our present needs
and anticipated needs for the foreseeable future.
  Item 3.
              Legal
      Proceedings.
  We are
not a party to any material pending legal proceedings.
  Item
      4.
              Submission
      of Matters to a Vote of Security
Holders.
  None.
  30
  PART
II
  Item 5.
              Market for Registrant’s Common
      Equity, Related Stockholder Matters and Issuer Purchases of Equity
      Securities.
  Market
Price and Holders
  Our
common stock became eligible for quotation on the OTC Bulletin Board under the
symbol “BMRU” on April 10, 2007.  On October 31, 2008, as a
result of the Merger Transaction, our common stock became eligible for quotation
on the OTC Bulletin Board under the symbol “BLQN.”  Shares of our
common stock began trading on the OTC Bulletin Board on November 20,
2008.  Between November 20, 2008 and December 31, 2008, the
reported high and low closing bid price of our common stock on the OTC Bulletin
Board was $2.00 and $1.50, respectively.On March 27, 2009, the
last reported sale price of our common stock on the OTC Bulletin Board was $2.60
per share.
  As of
March 30, 2009, we had 25,518,348 shares of common stock outstanding held of
record by approximately 68stockholders.  These
holders of record include depositories that hold shares of stock for brokerage
firms which, in turn, hold shares of stock for numerous beneficial
owners.
  Dividend
Policy
  We
currently anticipate that we will not declare or pay cash dividends on our
common stock in the foreseeable future.  We will pay dividends on our
common stock only if and when declared by our board of directors.  The
ability of our board of directors to declare a dividend is subject to
restrictions imposed by Nevada and California law.  In determining
whether to declare dividends, our board of directors will consider these
restrictions as well as our financial condition, results of operations, working
capital requirements, future prospects and other factors it considers
relevant.
  Equity
Compensation Plan
  The
information provided in Part III-Item 12 of this Annual Report under the
heading “—Equity Compensation Plan Information” is incorporated herein by
reference.
  Recent
Sales of Unregistered Securities
  On June
30, 2006, we sold 1,090,000 shares of our common stock to four investors at
$0.10 per share, or gross proceeds of $109,000. The proceeds of $109,000 were
used for working capital purposes.
  On August
1, 2007, we sold 250,000 shares of our common stock to two investors at $0.10
per share, or gross proceeds of $25,000. The proceeds of $25,000 were used for
working capital purposes.
  On
October 24, 2008, immediately preceding the closing of the Merger Transaction,
we issued warrants to purchase an aggregate of 184,598 shares of common stock
(the “BMR Warrants”) to seven accredited investors in consideration of services
provided. One-third of the BMR Warrants have an exercise price of $1.50 per
share and expire on October 24, 2009, one-third of the BMR Warrants have an
exercise price of $2.00 per share and expire on October 24, 2010 and one-third
of the BMR Warrants have an exercise price of $2.50 per share and expire on
October 24, 2011.
  31
  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.  Of the Warrants issued to
Balqon California, (i) warrants to purchase 243,060 shares have an exercise
price of $1.50 per share and expire on June 30, 2010; (ii) warrants to purchase
243,060 shares have an exercise price of $2.00 per share and expire on June 30,
2011; (iii) warrants to purchase 243,060 shares have an exercise price of $2.50
per share and expire on June 30, 2012; (iv) warrants to purchase 500,000 shares
have an exercise price of $1.50 per share and expire on July 2011; (v) warrants
to purchase 810,000 shares have an exercise price of $1.50 per share and expire
on September 2011; and (vi) warrants to purchase 575,000 shares have an exercise
price of $1.50 per share and expire on October 2011.  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.
  On
December 22, 2008, we entered into an agreement with 10 accredited investors for
the sale by us of an aggregate of 210,000 shares of our common stock at a
purchase price of $1.00 per share for total aggregate proceeds of
$210,000.  Additionally, we issued three-year warrants to purchase an
aggregate of 210,000 shares of common stock at an exercise price of $1.50 per
share.
  In March
2009, we entered into agreements with two accredited investors for the sale by
us of an aggregate of $35,000 of 10% Unsecured Subordinated Convertible
Promissory Noteswhich are
convertible into an aggregate of 35,000 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 35,000 shares of common stock at an exercise price of $1.50 per
share.
  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.
  Sales
by Balqon California Prior to the Merger Transaction
  In June
2008, Balqon California issued 332,910 shares of common stock and options to
purchase 4,166,751 shares of common stock to Balwinder Samra in consideration of
services rendered.
  In June
2008, Balqon California issued 333,340 shares of common stock and options to
purchase 83,344 shares of common stock to Henry Velasquez in consideration of
engineering and design consulting services rendered.
  In June
2008, Balqon California issued 1,250,025 shares of common stock and options to
purchase 312,507 shares of common stock to Amarpal Samra in consideration of
business strategy consulting services rendered.
  In June
2008, Balqon California issued 100,000 shares of common stock to Robert Miranda,
its current Chief Financial Officer, in consideration of business strategy
consulting services rendered.
  In June
2008, Balqon California issued 250,000 shares of common stock to Robert
Gruenwald in consideration of services provided.
  In June
2008, Balqon California issued 2,916,725 shares of common stock and warrants to
purchase 729,180 shares of common stock to Marlin Financial in consideration of
business strategy and financial advisory services rendered and to be
rendered.
  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
      6.
              Selected
      Financial Data.
  Not
applicable.
  Item
      7.
              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 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;
  32
  ·
              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 this report 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
AQMD to develop and test a heavy-duty zero emissions electric drayage
tractor.  Under the terms of 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 2007 and 63% of our revenues for 2008 were associated with the AQMD
Development Agreement.  The remaining 37% of revenues for 2008 were
from the sale of parts 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.
  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 the City of Los Angeles Agreement.
  Our total
revenues decreased by $179,076, or 48.8%, to $203,660 for the year ended
December 31, 2008 as compared to $382,736 for the year ended
December 31, 2007.  We reported a net loss of $1,381,915 for the
year ended December 31, 2008 as compared to a net loss of $82,744 for the
year ended December 31, 2007.  The decline in financial
performance during 2008 as compared to 2007 is a direct result of having 73% of
the progress work on the AQMD Development Agreement completed during 2007 while
only 19% of the progress work on this contract was completed during
2008.  We experienced increased expenses in 2008 associated with the
ramp up of our business including leasing production facilities in Harbor City,
California, hiring full-time senior management and production personnel. We
incurred  legal and consulting expenses relating to the reverse merger
of $414,384.  While our business activities resulted in a revenue
decrease of approximately 47%, we experienced decreased cost of revenues of
$142,210, or 51%, and increased operating and other expenses of $1,262,305, or
682%, over 2007.  The $1,447,522 of operating and other expenses
incurred during 2008 includes $414,384 of expenses relating to the Merger
Transaction described below.
  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.).
  33
  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.
See
“ Item 13. Certain Relationships and Related Transactions, and Director
Independence – Merger Transaction.”
  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.
  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 Recognitionon Prototype
Vehicle.  In accounting for our AQMD Development
Agreement, 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.
 34
  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 Revenue.  We recognize revenue from sales
of production units 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.
 Sales of Parts
Revenue.  We recognize revenue from sales of 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.
  Stock-Based
Compensation
  We
periodically issue stock options and warrants 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 (a) the date at which a performance commitment is
reached, or (b) at the date at which the necessary performance to earn the
equity instrument is complete.
  We
recognize compensation cost for equity-based compensation for all new or
modified grants issued after December 31, 2005. In addition, commencing January
1, 2006, we recognized the unvested portion of the grant date fair value of
awards issued prior to adoption of SFAS No. 123(R) based on the fair value
previously calculated for disclosure purposes over the remaining vesting period
of the outstanding stock options and warrants.
  We
estimate the fair value of stock options pursuant to SFAS No. 123(R) using the
Black-Scholes option-pricing model, which was developed for use in estimating
the fair value of options that have no vesting restrictions and are fully
transferable. This model requires the input of subjective assumptions, including
the expected price volatility of the underlying stock and the expected life of
stock options. Projected data related to the expected volatility of stock
options is based on the average volatility of the trading prices of comparable
companies and the expected life of stock options is based upon the average term
and vesting schedules of the options. Changes in these subjective assumptions
can materially affect the fair value of the estimate, and therefore the existing
valuation models do not provide a precise measure of the fair value of our
employee stock options.
  35
  Long-lived
Assets
  We
account for the impairment and disposition of long-lived assets in accordance
with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived
Assets.”  In accordance with SFAS No. 144, long-lived assets to
be held are reviewed for events or changes in circumstances that indicate that
their carrying value may not be recoverable. We periodically review the carrying
value of long-lived assets to determine whether or not impairment to such value
has occurred.  Based on management’s assessments, no impairments were
recorded during the years ended December 31, 2008 and 2007.
  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.
  Warrants
  We
evaluate our warrants on an ongoing basis considering the provisions of SFAS No.
150, “Accounting for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity,” which establishes standards for issuers of financial
instruments with characteristics of both liabilities and equity related to the
classification and measurement of those instruments.  The warrants are
evaluated considering the provisions of SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities,” which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities, and EITF, Issue No.
00-19, “Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Company’s Own Stock.”
  Results
of Operations
  We have
based our financial statements on the assumption of our operations continuing as
a going concern.  As of December 31, 2008, we had working capital
of $194,074, had an accumulated deficit of $1,493,395 and reported a net loss
for the year ended December 31, 2008 of $1,405,821,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.  During July, September and
October 2008, Balqon California raised approximately $1,885,000 in connection
with private placements of convertible promissory notes, common stock and
warrants.  During December 2008, we raised $210,000 in connection with
a private placement of our common stock and warrants and during March 2009 we
raised $35,000 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.
  36
  The
tables presented below, which compare our results of operations for 2007 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.
  ·
              The
      last two columns in each table show the results for each period as a
      percentage of net revenues.
  Results
      as a PercentageDollar
              
              
              
              Percentage
              
              
              
              of
      Net Revenues for theYear
      Ended
              
              
              
              Variance
              
              
              
              Variance
              
              
              
              Years
      EndedDecember
      31,
              
              
              
              Favorable
              
              
              
              Favorable
              
              
              
              December
      31,2008
              
              
              
              2007
              
              
              
              (Unfavorable)
              
              
              
              (Unfavorable)
              
              
              
              2008
              
              
              
              2007Net
      revenues
              
              $
              203,660
              
              
              $
              382,736
              
              
              $
              (179,076
              )
              
              
              (47
              )%
              
              
              100
              %
              
              
              100
              %Cost
      of
      revenues
              
              
              138,053
              
              
              
              280,263
              
              
              
              142,210
              
              
              
              51
              %
              
              
              68
              %
              
              
              73
              %Gross
      profit
              
              
              65,607
              
              
              
              102,473
              
              
              
              (36,866
              )
              
              
              (36
              )%
              
              
              32
              %
              
              
              27
              %Operating
      and interest expenses
              
              
              1,471,428
              
              
              
              185,217
              
              
              
              (1,286,211
              )
              
              
              (694
              )%
              
              
              722
              %
              
              
              48
              %Net
      loss
              
              $
              (1,405,821
              )
              
              $
              (82,744
              )
              
              $
              (1,323,077
              )
              
              
              (1,599
              )%
              
              
              (690
              )%
              
              
              (22
              )%
  Net
Revenues.  The $179,076 decrease in net revenues is comprised
of decreased contract revenues of $254,076 offset by increased net revenues of
$75,000 relating to the sale of parts to the City of Los Angeles in April 2008
under the terms of the City of Los Angeles Agreement.  Contract
revenues decreased in 2008 due to the reduced progress work on our AQMD
Development Agreement in 2008 as compared to 2007.  During 2007, 72.3%
of the $527,000 AQMD Development Agreement was completed yielding contract
revenues of $382,736. During 2008, 19.2% of the AQMD Development Agreement was
completed yielding contract revenues of $128,660. We anticipate that our future
revenues will be comprised of sales revenues related to our heavy-duty electric
vehicles, flux vector inverters and our other products under the City of Los
Angeles Agreement and otherwise.
 Gross Profit.  The
$36,866 decrease in gross profit was due to the decrease in contract revenues
between the periods and the 8% profit margin associated with the sale of a
battery charger system in April 2008. We anticipate that our gross profit margin
will be approximately 24% of net 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 $1,286,211 increase inoperating and interest
expenses was due largely to the $414,384 of legal and consulting fees incurred
in connection with the Merger Transaction. The additional $871,827 of increased
operating expenses were attributable to amounts expended in establishing our
production facilities andthe ramp-up of our
business during 2008 and the fact that the results for 2007 reflect only eight
months of actual business operations.  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 a registration statement with
the SEC.  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.
  37
  Liquidity
and Capital Resources
  During
2007 and 2008, 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 December 31, 2008, we had
working capital of $194,074 as compared to a working capital deficiency of
$122,862 at December 31, 2007.  At December 31, 2008 and 2007 we
had an accumulated deficit of $1,493,395 and $87,574, respectively, and cash and
cash equivalents of $355,615 and $34, respectively.
  Our
available capital resources at December 31, 2008 consisted primarily of
approximately $355,615 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 2008 was $1,328,569 as compared to $34,127of cash
used in operating activities for 2007, and includes a net loss of $1,405,821,
depreciation and amortization of $29,836 and changes in operating assets and
liabilities of $54,086.  Material changes in asset and liabilities at
December 31, 2008 as compared to December 31, 2007 that affected these
results include:
  ·
              a
      decrease in accounts receivable of
$35,000;
  ·
              an  increase
      in inventory of $1,159,601;
  ·
              an
      increase in prepaid expenses of
$43,020;
  ·
              an
      increase in deposits of $14,400;
  ·
              a
      netincreasein accounts
      payable and accrued expenses of $1,196,595;
and
  ·
              a
      decrease in billings in excess of costs and estimated earnings on
      uncompleted contracts of $68,660.
  Cash used
in investing activities totaled $336,067 for 2008 as compared to $22,316 of cash
used in investing activities for 2007.
  Cash
provided by financing activities totaled $2,020,217 for 2008 as compared to
$56,477 for 2007.
  In July
2008, Balqon California raised an aggregate of $500,000 through the issuance of
senior secured convertible promissory notes to five accredited
investors.  The senior secured convertible promissory notes had a
conversion price of $1.00 per share.  In connection with this
offering, Balqon California also issued three-yearwarrants to acquire up
to an aggregate of 500,000 shares of common stock at an exercise price of $1.50
per share. The senior secured convertible promissory notes were converted into
an aggregate of 514,582 shares of common stock of Balqon California immediately
preceding the closing of the Merger Transaction.
  38
  In
September 2008, Balqon California raised an aggregate of $810,000 through the
issuance of convertible promissory notes to 15 accredited
investors.  The convertible promissory notes had a conversion price of
$1.00 per share.  In connection with this offering, Balqon California
also issued three-year warrants to acquire up to an aggregate of 810,000 shares
of common stock at an exercise price of $1.50 per share. The convertible
promissory notes were converted into an aggregate of 818,766 shares of common
stock of Balqon California immediately preceding the closing of the Merger
Transaction.
  In
October 2008, Balqon California raised an aggregate of $575,000 through the
issuance of an aggregate of 575,000 shares of common stock to six accredited
investors.  In connection with this offering, Balqon California also
issued three-year warrants to purchase an aggregate of 575,000 shares of common
stock at an exercise price of $1.50 per share.
  In June
2008, Balqon California issued 2,916,725 shares of common stock and warrants to
purchase 729,180 shares of common stock to Marlin Financial in consideration of
business strategy and financial advisory services rendered, and to be rendered,
to Balqon California.  In consideration of such issuance, Marlin
Financial Group, Inc. acted as a finder in connection with the private placement
offerings completed in September 2008 and October 2008.
 In
December 2008, we raised an aggregate of $210,000 through the issuance of
210,000 shares of common stock to ten accredited investors.  In
connection with this offering, we also issued three-year warrants to purchase an
aggregate of 210,000 shares of common stock at an exercise price of $1.50 per
share.
  In March
2009, we raised an aggregate of $50,000 through the issuance of convertible
notes to three accredited investors.  In connection with this
offering, we also issued three-year warrants to purchase an aggregate of 50,000
shares of common stock at an exercise price of $1.50 per share.
  We are
obligated under registration rights agreements related to the private placements
in July, September, October, November and December 2008 to file, on or before
December 23, 2008, a registration statement with the SEC, registering for
resale shares of common stock and the shares of common stock underlying the
warrants, issued in connection with the above private placement
transactions.  See “Selling Security Holders—Registration Rights
Agreements.”  We filed the registration statement with the SEC on
December 23, 2008 and are in the process of responding to comments made by
the staff of the SEC.
  We are
obligated under registration rights agreements related to the March 2009 private
placement to file, after the registration statement we filed with the SEC on
December 23, 2008 is declared effective, 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.
  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.
  39
 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.  See “Item 1A. Risk
Factors.”
  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
consolidated financial statements as of December 31, 2008 and for the year
ended December 31, 2007 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
consolidated financial statements included in this report, we have suffered
recurring losses from operations and at December 31, 2008 we had an
accumulated deficit of $1,493,395.  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
consolidated 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.
  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.
 40
  Backlog
  As of
March 27, 2009, we had a backlog of approximately $4.9million.  Our
backlog includes 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 the first half of 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, the Financial Accounting Standards Board, or FASB, issued SFAS
No. 141(R), “Business Combinations,” which establishes accounting principles and
disclosure requirements for all transactions in which a company obtains control
over another business.  SFAS  No. 141(R) 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 22, 2008. Earlier adoption is prohibited.
  In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51.” SFAS No. 160
establishes accounting and reporting standards that require that the ownership
interests in subsidiaries held by parties other than the parent be clearly
identified, labeled, and presented in the consolidated statement of financial
position within equity, but separate from the parent’s equity; the amount of
consolidated net income attributable to the parent and to the noncontrolling
interest be clearly identified and presented on the face of the consolidated
statement of income; and changes in a parent’s ownership interest while the
parent retains its controlling financial interest in its subsidiary be accounted
for consistently. SFAS No. 160 also requires that any retained noncontrolling
equity investment in the former subsidiary be initially measured at fair value
when a subsidiary is deconsolidated. SFAS No. 160 also sets forth the disclosure
requirements to identify and distinguish between the interests of the parent and
the interests of the noncontrolling owners. SFAS No. 160 applies to all entities
that prepare consolidated financial statements, except not-for-profit
organizations, but will affect only those entities that have an outstanding
noncontrolling interest in one or more subsidiaries or that deconsolidate a
subsidiary. SFAS No. 160 is effective for fiscal years, and interim periods
within those fiscal years, beginning on or after December 22, 2008. Earlier
adoption is prohibited. SFAS No. 160 must be applied prospectively as of the
beginning of the fiscal year in which it is initially applied, except for the
presentation and disclosure requirements. The presentation and disclosure
requirements are applied retrospectively for all periods presented.
  In March
2008, the FASB issued SFAS No. 161,“Disclosures about
Derivative Instruments and Hedging Activities—an amendment of FASB Statement No.
133,” to improve financial reporting of derivative instruments and hedging
activities by requiring enhanced disclosures to enable investors to better
understand their effects on an entity’s financial position, financial
performance and cash flows. SFAS No. 161 applies to fiscal years and interim
periods beginning after November 15, 2008.
  We do not
believe that the adoption of the above recent pronouncements will have a
material effect on our consolidated results of operations, financial position or
cash flow.  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 our present or future
consolidated financial statements.
  41
 Item
      7A.
                Quantitative
      and Qualitative Disclosures About Market
Risk.
  Not
applicable.
  Item
      8.
              Financial
      Statements and Supplementary Data.
  Reference
is made to the financial statements included in this Report, which begin at page
F-1.
  Item
      9.
              Changes
      in and Disagreements With Accountants on Accounting and Financial
      Disclosure.
  Not
applicable.
  Item
      9A.
              Controls
      and Procedures.
  Not
applicable.
  Item
      9A(T).
              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 December 31, 2008
that our disclosure controls and procedures were effective at the reasonable
assurance level.
  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
  42
  (iii)
              provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use or disposition of our assets that could have
      a material affect 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.
  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
December 31, 2007 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 December 31, 2007 our internal control over
financial reporting was effective.
  Attestation
Report of the Independent Registered Public Accounting Firm
  This
report does not include an attestation report of our independent registered
public accounting firm regarding internal control over financial
reporting.  Management’s report was not subject to attestation by our
independent registered public accounting firm pursuant to temporary rules of the
SEC that permit us to provide only management’s report in this
report.
  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.
  Item
      9B.
              Other
      Information.
  Not
applicable.
  43
  PART
III
  Item
      10.
              Directors,
      Executive Officers and Corporate
Governance.
  Directors
and Executive Officers
  Our
directors and executive officers as of March 27, 2009 are as
follows:
 
 Name
              Age
              Positions HeldBalwinder
      Samra(1)(2)
              47
              President,
      Chief Executive Officer and Chairman of the BoardRobert
      Miranda
              56
              Chief
      Financial OfficerHenry
      Velasquez(1)
              32
              Vice
      President Engineering and DirectorRobert
      Gruenwald
              50
              Vice
      President Research and DevelopmentAmarpal
      Singh Samra(1)(2)
              48
              Director
 
  (1)
              Member
      of our Audit Committee, Compensation Committee and Nominating and
      Corporate Governance Committee.
 (2)
              There
      are no family relationships among our executive officers and directors,
      except that Balwinder Samra is the brother of Amarpal Singh
      Samra.
  Balwinder Samra was appointed
as our President, Chief Executive Officer, Chairman of the Board and a director
in connection with the consummation of the Merger Transaction.  Mr.
Samra was the President, Chief Executive Officer and Chairman of the Board of
Balqon California from May 2005 to the closing of the Merger
Transaction.  Prior to that, Mr. Samra was president and chief
executive officer of EVI, a leading manufacturer of electric buses, trucks and
trailers.  From 1991 to 2000, Mr. Samra was Corporate Vice
President of Taylor-Dunn Manufacturing, a leading manufacturer of electric
industrial vehicles and tow tractors.  At Taylor-Dunn, Mr. Samra
was responsible for worldwide marketing, dealer sales and
operations.  Mr. Samra holds a B. S. degree in Chemistry from
Punjab University, India.
  Robert Miranda was appointed
as our Chief Financial Officer in connection with the consummation of the Merger
Transaction.  From October 2008 to the closing of the Merger
Transaction, Mr. Miranda served as Chief Financial Officer of Balqon
California.  Since October 2007, Mr. Miranda has been the
managing director of Miranda & Associates, a professional accountancy
corporation.  From March 2003 through October 2007, Mr. Miranda
was a Global Operations Director at Jefferson Wells, where he specialized in
providing Sarbanes-Oxley compliance reviews for public
companies.  Mr. Miranda was a national director at Deloitte &
Touche where he participated in numerous audits, corporate finance
transactions, mergers, and acquisitions.  Mr. Miranda is a
licensed Certified Public Accountant and has over 35 years of experience in
accounting, Sarbanes-Oxley compliance, auditing, business consulting, strategic
planning and advisory services.  Mr. Miranda holds a B.S. degree
in Business Administration from the University of Southern California, a
certificate from the Owner/President Management Program from the Harvard
Business School and membership in the American Institute of Certified Public
Accountants.
  Henry Velasquezwas appointed
as our Vice President Engineering and a director in connection with the
consummation of the Merger Transaction.  From October 2008 to the
closing of the Merger Transaction, Mr. Velasquez was Vice President
Engineering and a member of the board of directors of Balqon
California.  From January 2007 to August 2008 Mr. Velasquez
was a Senior Engineer at Honda Access America.  From October 2000
to January 2007, Mr. Velasquez was an Engineer at
Snugtop.  Mr. Velasquez has over 10 years of experience in
designing mechanical components, chassis and suspension systems for trucks,
buses, trailers and utility vehicles.  Mr. Velasquez has been awarded
one United States patent related to composite body designs for pickup
trucks.  Mr. Velasquez holds a B.S. degree in Mechanical
Engineering from Loyola Marymount University, Los Angeles, California and is the
Vice President of the American Society of Mechanical Engineers.
  44
  Robert Gruenwald was
appointed as our Vice President Research and Development in connection with the
consummation of the Merger Transaction.  From 1997 to 2008, Mr.
Gruenwald served as the President and Chief Engineer of EMS, where he designed
and manufactured inverters for electric vehicles used in a variety of
industries.  From 1991 to 2000, Mr. Gruenwald served as the Manager of
Product Development for Magnetek, where he was involved with the design and
development of electric vehicles and electric vehicle components and
software.  Mr. Gruenwald also served as a senior electrical controls
engineer for H-K Systems and an electrical designer for Procter &
Gamble.  Mr. Gruenwald has thirty years of experience in electrical
engineering and design.  Mr. Gruenwald has been named an inventor on
four United States patents related to hybrid electric vehicles.  Mr.
Gruenwald holds an A.S. degree in Electrical Engineering Technology from the
University of Cincinnati.
  Amarpal Singh Samrawas
appointed a director in connection with the consummation of the Merger
Transaction.  From May 2005 to the closing of the Merger Transaction,
Mr. Samra served as a member of the board of directors of Balqon
California.  Since August 2008, Mr. Samra has been employed by
Gemidis, a company that develops liquid crystal on silicon for television
images.  From April 1999 to October 2005, Mr. Samra was
the Senior Vice President and General Manager – Global Business Unit for
Infocus, a company that develops data video projectors.
  Section
16(a) Beneficial Ownership Reporting Compliance
  Section
16(a) of the Exchange Act requires our executive officers, directors and persons
who beneficially own more than 10% of a registered class of our equity
securities, or reporting persons, to file initial reports of ownership and
reports of changes in ownership of our common stock and other equity securities
with the SEC. The reporting persons are required by the SEC regulations to
furnish us with copies of all reports that they file.
  Based
solely upon a review of copies of the reports furnished to us during our fiscal
year ended December 31, 2008 and thereafter, our knowledge that disclosure on
Form 5 is not required, and any written representations received by us from
reporting persons that no other reports were required, we believe that all
Section 16(a) filing requirements applicable to our reporting persons, except
for Marla Andre, Marlin Financial Group, Inc. and Robert Gruenwald, during 2008
were complied with.  During 2008, Marlin Financial Group, Inc. did not
file one report, a Form 4, required by Section 16(a) on a timely basis and
in addition, Marlin Fiancial Group, Inc. did not report three transactions on a
timely basis.  During 2008, Mr. Gruenwald failed to file one Form 3
and one Form 4 and in addition, Mr. Gruenwald did not report one transaction
during 2008.  Marla Andre did not file a Form 5 for the fiscal year
ended December 31, 2008, and we have not received a written representation from
Ms. Andre stating that no Form 5 is required.
  Composition
of the Board of Directors
  Our board
of directors has responsibility for our overall corporate governance and meets
regularly throughout the year.  Our Articles of Incorporation provide
that our board of directors will be divided as equally as possible into three
classes.  Our bylaws provide that our board of directors may fix the
exact number of directors between one and fifteen.  Our board of
directors has fixed the number of directors at three.  Our board of
directors was reconstituted in connection with the Merger
Transaction.  As a result, at our next annual meeting of stockholders,
our stockholders will elect one individual to each of the three classes of our
board of directors such that one director will serve until the first, second and
third succeeding annual meeting of stockholders, respectively.  After
our next annual meeting, at each annual meeting of stockholders, directors are
to be elected for a term of three years to succeed those directors whose terms
expire on that annual meeting date and our directors hold office until the third
succeeding annual meeting of stockholders, until their successors are elected or
until their earlier death, resignation or removal.
  45
  Our
directors are kept informed of our business through discussions with our
executive officers, by reviewing materials provided to them and by participating
in meetings of our board of directors and its committees.
  Our
executive officers are appointed by and serve at the discretion of our board of
directors. There are no family relationships among our executive officers and
directors, except that Balwinder Samra is the brother of Amarpal Singh
Samra.
  As
discussed below, we have adopted procedures by which stockholders may elect
nominees to our board of directors.
  Corporate
Governance
  Our board
of directors believes that good corporate governance is paramount to ensure that
Balqon Corporation is managed for the long-term benefit of our
stockholders.  Our board of directors has adopted corporate governance
guidelines that guide its actions with respect to, among other things, the
composition of the board of directors and its decision making processes, board
of directors meetings and involvement of management, the board of director’s
standing committees and procedures for appointing members of the committees, and
its performance evaluation for our Chief Executive Officer.
  Our board
of directors has adopted a Code of Ethics and Corporate Conduct that applies to
all of our directors, officers and employees and an additional Code of Business
Ethics that applies to our Chief Executive Officer and senior financial
officers.  The Code of Ethics, as applied to our principal executive
officer, principal financial officer and principal accounting officer
constitutes our “code of ethics” within the meaning of Section 406 of the
Sarbanes-Oxley Act of 2002.
  We intend
to satisfy the disclosure requirement under Item 5.05 of Form 8-K relating to
amendments to or waivers from provisions of these codes that relate to one or
more of the items set forth in Item 406(b) of Regulation S-K, by describing on
our Internet website, located at http://www.balqon.com,
within four business days following the date of a waiver or a substantive
amendment, the date of the waiver or amendment, the nature of the amendment or
waiver, and the name of the person to whom the waiver was
granted.  Information on our Internet website is not, and shall not be
deemed to be, a part of this report or incorporated into any other filings we
make with the SEC.
  Director
Independence
  On an
annual basis, each of our directors and executive officers is obligated to
complete a director and officer questionnaire that requires disclosure of any
transactions with Balqon Corporation in which a director or executive officer,
or any member of his or her immediate family, have a direct or indirect material
interest.  Following completion of these questionnaires, the board of
directors, with the assistance of the Nominating and Corporate Governance
Committee, makes an annual determination as to the independence of each director
using the current standards for “independence” established by the SEC and NASDAQ
Market Place Rules, additional criteria set forth in our corporate governance
guidelines and consideration of any other material relationship a director may
have with Balqon Corporation.
  46
  In
October 2008, our board of directors determined that none of the directors are
independent under these standards.  In addition, K. John Shukur,
who served on our board of directors during the fiscal year ended
December 31, 2008, was not independent under these
standards.  Our board of directors intends to appoint at least two
persons who qualify as “independent” under the current NASDAQ Marketplace Rules
to our board of directors in the near future.  See “Certain
Relationships and Related Transactions” below.
  Stockholder
Communications with our Board of Directors
  Our board
of directors has implemented a process by which stockholders may send written
communications directly to the attention of our board of directors or any
individual member of our board of directors.  Mr. Velasquez, the
Chairman of our Audit Committee, is responsible for monitoring communications
from stockholders and providing copies of such communications to the other
directors as he considers appropriate.  Communications will be
forwarded to all directors if they relate to substantive matters and include
suggestions or comments that Mr. Velasquez considers to be important for
the directors to consider.  Stockholders who wish to communicate with
our board of directors can write to Mr. Henry Velasquez, The Board of
Directors, Balqon Corporation, 1701 E. Edinger, Unit E-3, Santa Ana, California
92705.
  Board
of Directors, Committees and Meetings
  Our
business, property and affairs are managed under the direction of our board of
directors. Directors are kept informed of our business through discussions with
our executive officers, by reviewing materials provided to them and by
participating in meetings of our board of directors and its committees. Our
bylaws provide that our board of directors shall consist of at least six
directors.
  During
2008, our board of directors did not hold any meetings.  Members of
our board of directors and its committees consulted informally with management
from time to time and acted at various times by written consent without a
meeting during 2008.
  It is our
policy to invite and encourage our directors to attend our annual
meetings.  We did not hold an annual meeting during the fiscal year
ended December 31, 2008.
  Our board
of directors has established standing Audit, Compensation and Nominating and
Corporate Governance Committees.  Each committee has a written charter
that is reviewed annually and revised as appropriate.  Our board of
directors intends to appoint at least two independent directors to our board of
directors and each of its committees in the near future.
  Audit
Committee
  Our Audit
Committee selects our independent auditors, reviews the results and scope of the
audit and other services provided by our independent auditors, and reviews our
financial statements for each interim period and for our year end.
  Our Audit
Committee operates pursuant to a charter approved by our board of directors and
our Audit Committee, according to the rules and regulations of the
SEC.  Our Audit Committee consists of Balwinder Samra, Henry Velasquez
and Amarpal Samra.  Mr. Velasquez serves as the Chairman of our
Audit Committee.  Our board of directors has determined that none of
Balwinder Samra, Henry Velasquez and Amarpal Samra are “independent” under our
Corporate Governance Guidelines, and the NASDAQ Marketplace Rules and none
satisfies the other requirements under SEC rules regarding audit committee
membership.  None of the members of our Audit Committee qualify as an
“audit committee financial expert” under applicable SEC rules and regulations
governing the composition of the Audit Committee, or satisfies the “financial
sophistication” requirements of the NASDAQ Marketplace Rules.
  47
  Compensation
Committee
  Our
Compensation Committee is responsible for establishing and administering our
overall policies on compensation and the compensation to be provided to our
executive officers, including, among other things, annual salaries and bonuses,
stock options, stock grants, other stock-based awards, and other incentive
compensation arrangements.  In addition, the Compensation Committee
reviews the philosophy and policies behind the salary, bonus and stock
compensation arrangements for all other employees.  Although our
Compensation Committee makes all compensation decisions as to our executive
officers, our Chief Executive Officer makes recommendations to our Compensation
Committee regarding compensation for the other named executive
officers.  Our Compensation Committee has the authority to administer
our 2008 Stock Incentive Plan, or 2008 Plan, with respect to grants to executive
officers and directors, and also has authority to make equity awards under our
2008 Plan to all other eligible individuals.  However, our board of
directors may retain, reassume or exercise from time to time the power to
administer our 2008 Plan.
  The
Compensation Committee evaluates both performance and compensation to ensure
that the total compensation paid to our executive officers is fair, reasonable
and competitive so that we can attract and retain superior employees in key
positions.  The Compensation Committee believes that compensation
packages offered to our executives, including the named executive officers,
should include both cash and equity-based compensation that reward performance
as measured against established goals.  The Compensation Committee has
the authority to retain consultants, and other advisors and in furtherance of
the foregoing objectives.
  Our
Compensation Committee operates pursuant to a charter approved by our board of
directors and our Compensation Committee.  Our Compensation Committee
consists of Balwinder Samra, Henry Velasquez and Amarpal
Samra.  Mr. Amarpal Samra acts as Chairman of our Compensation
Committee.  Our board of directors has determined that none of the
members of our Compensation Committee is “independent” under the NASDAQ
Marketplace Rules.
  Nominating
and Corporate Governance Committee
  Our
Nominating and Corporate Governance Committee selects nominees for our board of
directors.  The Nominating and Corporate Governance Committee will
consider candidates for director recommended by any stockholder that is the
beneficial owner of shares representing more than 1% of the then-outstanding
shares of our common stock and who has beneficially owned those shares for at
least one year.  The Nominating and Corporate Governance Committee
will evaluate those recommendations by applying its regular nominee criteria and
considering the additional information described in the Nominating and Corporate
Governance Committee’s below-referenced charter.  Stockholders that
desire to recommend candidates for the board of directors for evaluation may do
so by contacting Balqon Corporation in writing, identifying the potential
candidate and providing background and other relevant
information.  Our Nominating and Corporate Governance Committee
utilizes a variety of methods for identifying and evaluating nominees for
director.  Candidates may also come to the attention of the Nominating
and Corporate Governance Committee through current members of our board of
directors, professional search firms and other persons.  In evaluating
potential candidates, our Nominating and Corporate Governance Committee will
take into account a number of factors, including, among others, the
following:
 
 ·
              the
      candidate’s independence from
management;
 ·
              whether
      the candidate has relevant business
experience;
 ·
              judgment,
      skill, integrity and reputation;
 ·
              existing
      commitments to other businesses;
 ·
              corporate
      governance background;
  48
  ·
              financial
      and accounting background, to enable the committee to determine whether
      the candidate would be suitable for Audit Committee membership;
      and
 ·
              the
      size and composition of our board of
directors.
  Our
Nominating and Corporate Governance Committee operates pursuant to a charter
approved by our board of directors and our Nominating and Corporate Governance
Committee.  Our Nominating and Corporate Governance Committee consists
of Balwinder Samra, Henry Velasquez and Amarpal
Samra.  Mr. Balwinder Samra acts as chairman of our Nominating
and Corporate Governance Committee.  Our board of directors has
determined that none of the members of our Nominating and Corporate Governance
Committee is “independent” under the NASDAQ Marketplace Rules.
  Item
      11.
              Executive
      Compensation.
  Compensation
of Directors
  We use a
combination of cash and stock-based incentive compensation to attract and retain
qualified candidates to serve on our board of directors.  In setting
the compensation of directors, we consider the significant amount of time that
members of the board of directors spend in fulfilling their duties to Balqon
Corporation as well as the experience level we require to serve on our board of
directors.  The board of directors, through its Compensation
Committee, annually reviews the compensation and compensation policies for
members of the board of directors.  In recommending director
compensation, the Compensation Committee is guided by three goals:
 
 ·
              compensation
      should fairly pay directors for work required in a company of our size and
      scope;
 ·
              compensation
      should align directors’ interests with the long-term interests of our
      stockholders; and
 ·
              the
      structure of the compensation should be clearly disclosed to our
      stockholders.
  Each of
our directors is paid $6,000 per year for serving on the board of
directors.  Our directors do not receive additional compensation for
serving on the various committees of the board of
directors.  Directors are reimbursed for certain reasonable documented
expenses in connection with attendance at meetings of our board of directors and
its committees.  Employee directors do not receive compensation in
connection with their service as directors.
  Director
Compensation Table – 2008
  The
following table summarizes for the twelve months ended December 31, 2008, the
compensation awarded to or paid to, or earned by, Amarpal Samra and Henry
Velasques, the members of our board of directors that are not named executive
officers.  The following table also summarizes for the twelve months
ended December 31, 2008, the compensation awarded to or paid to, or earned
by, the former member of our board of directors.  Our former director,
K. John Shukur, was the sole member of our board of directors between October 1,
2007 and October 24, 2008.  Mr. Shukur resigned as a member of our
board of directors when our board was reconstituted in connection with the
Merger Transaction.
  49
 
 Name
              
              Fees
      Earned or Paid in Cash
                  ($)
              
              
              Stock
      Awards
                  ($)(1)
              
              
              Option
                  Awards
                  ($)(1)
              
              
              All
      Other Compensation
                  ($)
              
              
              Total
                  ($)Amarpal
      Samra
              
              
              1,500
              
              
              
              18,188
              (2)
              
              
              0(3)
              
              
              
              —
              
              
              
              18,338Henry
      Velasquez
              
              
              1,500
              
              
              
              4,850
              (4)
              
              
              0(5)
              
              
              
              71,712
              (6)
              
              
              78,062K.
      John Shukur
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              —
  
 (1)
              The
      amount reflected in this column is the compensation cost we recognized for
      financial statement reporting purposes during 2008 under SFAS No.
      123(R).  The fair value of each grant is estimated on the date
      of grant using the Black-Scholes pricing model with the following
      weighted-average assumptions for
2008:
 Dividend
      yield
              0%Expected
      volatility
              58.43%Risk-free
      interest rates
              2.42%Expected
      option life (in years)
              3Weighted-average
      exercise price per common share
              $2.00
 (2)
              In
      June 2008, Mr. Samra was granted 1,250,025 shares of common stock in
      consideration of business strategy consulting services rendered to Balqon
      California, which shares were converted into the same number of shares of
      our common stock in connection with the Merger Transaction.  As
      of December 31, 2008, Mr. Samra held 1,250,025 shares of our common
      stock.
 (3)
              In
      June 2008, Mr. Samra was issued options to purchase 312,507 shares of
      common stock to in consideration of business strategy consulting services
      rendered to Balqon California, which options were converted into options
      to purchase the same number of shares of our common stock under our 2008
      Plan in connection with the Merger Transaction.  As of December
      31, 2008, Mr. Samra held options to purchase 312,507 shares of our common
      stock.
 (4)
              In
      June 2008, Mr. Velasquez was granted 333,340 shares of common stock in
      consideration of services rendered to Balqon California, which shares were
      converted into the same number of shares of our common stock in connection
      with the Merger Transaction.  As of December 31, 2008, Mr.
      Velasquez held 333,340 shares of our common
  stock.
 (5)
              In
      June 2008, Mr. Velasquez was issued options to purchase 83,334 shares of
      common stock to in consideration of services rendered to Balqon
      California, which options were converted into options to purchase the same
      number of shares of our common stock under our 2008 Plan in connection
      with the Merger Transaction.  As of December 31, 2008, Mr. Samra
      held options to purchase 83,334 shares of our common
  stock.
 (6)
              Represents
      Mr. Velasquez’s salary earned for services provided to Balqon California
      and Balqon Corporation during the year ended December 31,
      2008.
  Compensation
of Executive Officers
  Summary
Compensation Table
  Upon
consummation of the Merger Transaction on October 24, 2008, our executive
officers were reconstituted and none of our current executive officers served as
our executive officers during the years ended December 31, 2006 and December 31,
2007.  The following table provides information concerning the
compensation for all individuals who served as our principal executive officer
during the year ended December 31, 2008 and our only executive officer who was
serving as an executive officer on December 31, 2008 and whose total
compensation for the year ended December 31, 2008 exceeded
$100,000.  These individuals are collectively referred to in this
report as the “named executive officers.”
  K. John
Shukur, was our only executive officer from October 1, 2007 to
October 24, 2008.  Mr. Shukur resigned his positions in
connection with the Merger Transaction that was consummated on October 24,
2008.
  50
  Name and Principal
      Position
                
                Year
                
                
                Salary
                  ($) (1)
                
                
                Stock
                  Awards
                  ($) (2)
                
                
                Option
                  Awards
                  ($) (2)
                
                
                All
      other
                  Compensation
                  ($)
                
                
                Total
                  ($)Balwinder
      Samra
                
                2008
                
                
                212,205
                
                
                4,844
                
                
                0
                
                
                1,500
                (3)
                
                218,549President
      and Chief Executive OfficerRobert
      Miranda
                
                2008
                
                
                
                176,855
                (4)
                
                
                1,455
                
                
                
                -
                
                
                
                -
                
                
                
                178,310Chief
      Financial Officer 2008
                
                
                
                
                
                
                
                
                
                
                -
                
                
                
                -K.
      John Shukur
                
                2008
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Former
      President, Chief Financial Officer and Secretary
                
                2007
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
 
 (1)
              Represents
      compensation received for services provided as an executive officer of
      Balqon California and Balqon
Corporation.
 (2)
              The
      amount reflected in this column is the compensation cost we recognized for
      financial statement reporting purposes during 2008 under SFAS No.
      123(R).  The fair value of each grant is estimated on the date
      of grant using the Black-Scholes pricing model with the following
      weighted-average assumptions for
2008:
 Dividend
      yield
              0%Expected
      volatility
              58.43%Risk-free
      interest rates
              2.42%Expected
      option life (in years)
              3Weighted-average
      exercise price per common share
              $2.00
 (3)
              Represents
      $1,500 paid as fees for services provided as a member of our board of
      directors.
 (4)
              Represents
      the portion of the total consulting fees paid to Miranda & Associates,
      a professional accountancy corporation wholly-owned by Mr. Miranda, in
      consideration of services, attributable to the services provided by Mr.
      Miranda as an executive officer of Balqon California and Balqon
      Corporation.
  Employment
Agreements
  Employment
Agreement, dated October 24, 2008, between the Company and Balwinder
Samra
  On
October 24, 2008, we entered into an executive employment agreement with Mr.
Samra.  Under the terms of the executive employment agreement, Mr.
Samra has agreed to serve as our Chairman of the Board, President and Chief
Executive Officer on an at-will basis.
  The
agreement provides for an initial base salary of $250,000 per year with an
increase to $300,000 after the second anniversary of the effective date of the
employment agreement, paid vacation of at least six weeks per year and a monthly
automobile allowance of at least $750. Mr. Samra is eligible to receive
increases and annual cash incentive bonuses based on our net revenues as shown
on our Form 10-K for the previous fiscal year as compared to the internal
forecasts proposed at or about the beginning of the previous fiscal year by our
Chief Financial Officer and approved by our Audit Committee, as
follows:  (A) if the net revenues forecast is met, the incentive
bonus will equal 25% of his base salary and (B) if the net revenue forecast
is exceeded by more than 50%, the incentive bonus will equal 50% of his base
salary.  Mr. Samra is also eligible to participate in benefit and
incentive programs we may offer. We have agreed to nominate Mr. Samra as a
Class III member of our board of directors and to seek stockholder approval of
the nomination at our 2009 annual meeting of stockholders.  We have
also agreed to maintain in effect a directors’ and officers’ liability insurance
policy with a minimum limit of liability of $3 million and that we would enter
into an indemnification agreement with Mr. Samra upon terms mutually acceptable
to us and Mr. Samra.
  The
employment agreement contains non-competition provisions that prohibit Mr. Samra
from engaging or participating in a competitive business or soliciting our
customer or employees during his employment with us and for two years afterward.
The agreement also contains provisions that restrict disclosure by Mr. Samra of
our confidential information and assign ownership to us of inventions related to
our business that are created by him during his employment and for two years
afterward.
  51
  We may
terminate the agreement at any time, with or without due cause. “Due cause”
includes any intentional misapplication of our funds or other material assets,
or any other act of dishonesty injurious to us, or conviction of a felony or a
crime involving moral turpitude. “Due cause” also includes abuse of controlled
substances or alcohol and breach, nonperformance or nonobservance of any of the
terms of the agreement, provided that Mr. Samra fails to satisfactorily
remedy the performance problem following 30 days’ written notice.
  Mr. Samra
may terminate the agreement at any time, with or without good reason. However,
termination for good reason must occur within 90 days of the occurrence of an
event constituting good reason, and Mr. Samra must furnish us with written
notice of the event within 30 days after the initial existence of the event and
provide us with at least a 30-day cure period. “Good reason” includes: a
material diminution in his authority, duties, responsibilities, titles or
offices; a purported reduction in Mr. Samra’s base salary amounting to a
material diminution in his salary to an amount less than the greater of $250,000
or 10% below the base salary in effect at the time of the reduction; our failure
to timely cure or diligently initiate a cure of any material breach within 30
days after Mr. Samra gives us written notice of the breach.
  If we
terminate Mr. Samra’s employment for due cause or due to Mr. Samra’s breach
of his employment agreement by refusing to continue his employment, or if Mr.
Samra terminates his employment without good reason, then all compensation and
benefits for Mr. Samra will cease, other than amounts under retirement and
benefit plans and programs that were earned and vested by the date of
termination, pro rata annual salary through the date of termination, any stock
options that were vested as of the date of termination, and accrued vacation as
required by California law.
  If Mr.
Samra becomes incapacitated, we may terminate his employment under the agreement
upon 30 days’ prior written notice.  Upon Mr. Samra’s death, the
agreement terminates immediately. If Mr. Samra’s employment terminates due
to his incapacity or death, Mr. Samra or his estate or legal representative will
be entitled to receive benefits under our retirement and benefits plans and
programs that were earned and vested at the date of termination, a prorated
incentive bonus for the fiscal year in which incapacity or death occurred (to
the extent he would otherwise be eligible), and a lump sum cash payment in an
amount equal to one year of his then current annual salary.
  If Mr.
Samra’s employment terminates for good reason or other than as a result of due
cause, incapacity, death or retirement, Mr. Samra will be entitled to his salary
through the end of the month in which termination occurs plus credit for accrued
vacation, and a prorated incentive bonus, if eligible, for the fiscal year
during which termination occurred. In addition, under those circumstances, he
will be entitled to receive (i) a severance payment equal to (A) two times his
then current annual salary and (B) two times the amount of the average
incentive bonus paid during the two calendar years preceding the date of
termination, (ii) all medical insurance benefits to which he was entitled
immediately prior to the date of termination for a period of eighteen months or
the date that Mr. Samra’s continued participation in our medical insurance plan
was not possible under the plan, whichever was earlier, and (iii) a
lump-sum cash payment equal to eighteen times the estimated monthly COBRA
premiums at the time of termination (taking into account all known or
anticipated premium increases) to be used by Mr. Samra to maintain his medical
insurance coverage for an additional eighteen months.  If our medical
insurance plan does not allow Mr. Samra’s continued participation, then we will
be required to pay to Mr. Samra, in monthly installments, the monthly premium or
premiums for COBRA coverage, covering the eighteen month period described in
clause (ii) in the preceding sentence.
  52
  Immediately
preceding the occurrence of a change in control, and regardless of whether
Mr. Samra’s employment terminates and/or he receives severance payments as
a result of the change in control, Mr. Samra will be entitled to receive a
payment equal to (A) two times his then current annual salary and
(B) two times the amount of the average incentive bonus paid during the two
calendar years preceding the date of termination.  A “change in
control” includes the following circumstances:
  (a)           the
acquisition by any person or group of beneficial ownership of securities
entitled to vote generally in the election of our directors (“voting
securities”) that represent 40% or more of the combined voting power of our then
outstanding voting securities or 50% or more of the combined fair market value
of our then outstanding stock, other than:
  (i)              an
acquisition by a trustee or other fiduciary holding securities under any
employee benefit plan (or related trust) sponsored or maintained by us or any
person controlled by us or by any employee benefit plan (or related trust)
sponsored or maintained by us or any person controlled by us, or
  (ii)              an
acquisition of voting securities by us or a corporation owned, directly or
indirectly, by our stockholders in substantially the same proportions as their
ownership of our stock;
  (b)           a
majority of members of our board is replaced during any 12-month period by
directors whose appointment or election is not endorsed by a majority of members
of our board before the date of the appointment or election, excluding any
individual whose initial assumption of office occurs as a result of an actual or
threatened election contest with respect to the election or removal of directors
or other actual or threatened solicitation of proxies or consents by or on
behalf of a person other than our board;
  (c)           the
acquisition by any person or group, or combined acquisitions during the 12-month
period ending on the date of the most recent acquisition by such person or
group, of ownership of assets from us that have a total gross fair market value
equal to or more than 40% of the total gross fair market value of all of our
assets immediately before such acquisition; and
  (d)           stockholder
approval of a complete liquidation or dissolution of our company.
  Regardless
of circumstance (a) above, however, if we make an acquisition of our securities
that (x) causes our voting securities beneficially owned by a person or group to
represent 40% or more of the combined voting power of our then outstanding
voting securities or (y) causes our stock beneficially owned by a person or
group to represent 50% or more of the combined fair market value of our then
outstanding stock, the acquisition will not be considered an acquisition by any
person or group for purposes of circumstance (a) unless the person or group
subsequently becomes the beneficial owner of additional securities of Balqon
Corporation.
  For
purposes of circumstance (a) above, the calculation of voting power will be made
as if the date of the acquisition were a record date for a vote of our
stockholders, and for purposes of circumstance (c) above, the calculation of
voting power will be made as if the date of the consummation of the transaction
were a record date for a vote of our stockholders.
  Regardless
of the above, there will be no change in control event when there is a transfer
to an entity that is controlled by our stockholders immediately after the
transfer.  A transfer of assets by us is not treated as a change in
control if the assets are transferred to: a stockholder of Balqon Corporation
(immediately before the asset transfer) in exchange for or with respect to the
stockholders’ stock; an entity, 50% or more of the total value or voting power
of which is owned, directly or indirectly, by us; a person or group that owns,
directly or indirectly, 50% or more of the total value or voting power of all of
our outstanding stock; or an entity, at least 50% of the total value or voting
power of which is owned, directly or indirectly, by a person or group described
in the immediately preceding clause.
  53
  Issuances
of Stock Options Under our 2008 Plan
  In June
2008, in consideration of services provided to Balqon California, Balqon
California issued options to purchase 4,166,751 shares of Balqon California’s
common stock to Balwinder Samra.  These options vested immediately
upon grant.  In connection with the Merger Transaction, all
outstanding options to purchase shares of Balqon California’s common stock were
converted into options to purchase shares of our common stock under our 2008
Plan.
  2008
Stock Incentive Plan
  Our 2008
Plan is intended to promote Balqon Corporation’s interests by providing eligible
persons in our service with the opportunity to acquire a proprietary or economic
interest, or otherwise increase their proprietary or economic interest, in our
company as an incentive for them to remain in such service and render superior
performance during such service.  The 2008 Plan consists of two
equity-based incentive programs, the Discretionary Grant Program and the Stock
Issuance Program. Principal features of each program are summarized
below.
  Administration
  The
Compensation Committee of our board of directors has the exclusive authority to
administer the Discretionary Grant and Stock Issuance Programs with respect to
option grants, restricted stock awards, restricted stock units, stock
appreciation rights, direct stock issuances and other stock-based awards, or
equity awards, made to executive officers and non-employee board members, and
also has the authority to make equity awards under those programs to all other
eligible individuals. However, our board of directors may retain, reassume or
exercise from time to time the power to administer those programs. Equity awards
made to members of the Compensation Committee must be authorized and approved by
a disinterested majority of our board of directors.
  The term
“plan administrator,” as used in this summary, means the Compensation Committee
or our board of directors, to the extent either entity is acting within the
scope of its administrative jurisdiction under the 2008 Plan.
  Share
Reserve
  Initially,
7,500,000 shares of common stock are authorized for issuance under the 2008
Plan.  The 2008 Plan was adopted by our board of directors on
October 24, 2008.  We expect to submit the 2008 Plan for approval
by our stockholders by no later than October 24, 2009.  As of
March 27, 2009, options to purchase 4,562,592 shares of common stock were issued
and outstanding under the 2008 Plan.
  No
participant in the 2008 Plan may be granted equity awards for more than
5,000,000 shares of common stock per calendar year. This share-limitation is
intended to assure that any deductions to which we would otherwise be entitled,
either upon the exercise of stock options or stock appreciation rights granted
under the Discretionary Grant Program with an exercise price per share equal to
the fair market value per share of our common stock on the grant date or upon
the subsequent sale of the shares purchased under those options, will not be
subject to the $1.0 million limitation on the income tax deductibility of
compensation paid per covered executive officer imposed under Internal Revenue
Code Section 162(m). In addition, shares issued under the Stock Issuance
Program may qualify as performance-based compensation that is not subject to the
Internal Revenue Code Section 162(m) limitation, if the issuance of those
shares is approved by the Compensation Committee and the vesting is tied solely
to the attainment of the corporate performance milestones discussed below in the
summary description of that program.
  54
  The
shares of common stock issuable under the 2008 Plan may be drawn from shares of
our authorized but unissued shares or from shares reacquired by us, including
shares repurchased on the open market. Shares subject to any outstanding equity
awards under the 2008 Plan that expire or otherwise terminate before those
shares are issued will be available for subsequent awards. Unvested shares
issued under the 2008 Plan and subsequently repurchased by us at the option
exercise or direct issue price paid per share, pursuant to our repurchase rights
under the 2008 Plan, will be added back to the number of shares reserved for
issuance under the 2008 Plan and will be available for subsequent
reissuance.
  If the
exercise price of an option under the 2008 Plan is paid with shares of common
stock, then the authorized reserve of common stock under the 2008 Plan will be
reduced only by the net number of new shares issued under the exercised stock
option. If shares of common stock otherwise issuable under the 2008 Plan are
withheld in satisfaction of the withholding taxes incurred in connection with
the issuance, exercise or vesting of an equity award, then the number of shares
of common stock available for issuance under the 2008 Plan will be reduced only
by the net number of shares issued pursuant to that equity award. The withheld
shares will not reduce the share reserve. Upon the exercise of any stock
appreciation right granted under the 2008 Plan, the share reserve will only be
reduced by the net number of shares actually issued upon exercise, and not by
the gross number of shares as to which the stock appreciation right is
exercised.
  Eligibility
  Officers,
employees, non-employee directors, and consultants and independent advisors who
are under written contract and whose securities issued pursuant to the 2008
Plan, all of whom are in our service or the service of any parent or subsidiary
of ours, whether now existing or subsequently established, are eligible to
participate in the Discretionary Grant and Stock Issuance Programs.
  Valuation
  The fair
market value per share of our common stock on any relevant date under the 2008
Plan will be deemed to be equal to the closing selling price per share of our
common stock at the close of regular hours trading on the OTC Bulletin Board on
that date, as the price is reported by the Financial Industry Regulatory
Authority. If there is no closing selling price for our common stock on the date
in question, the fair market value will be the closing selling price on the last
preceding date for which a quotation exists.  In the absence of an
established market for our common stock or if the plan administrator determines
in good faith that our common stock is too thinly traded for fair market value
to be determined in the manner described above, the fair market value per share
of our common stock will be determined in good faith by the plan
administrator.
  Discretionary
Grant Program
  The plan
administrator has complete discretion under the Discretionary Grant Program to
determine which eligible individuals are to receive equity awards under that
program, the time or times when those equity awards are to be made, the number
of shares subject to each award, the time or times when each equity award is to
vest and become exercisable, the maximum term for which the equity award is to
remain outstanding and the status of any granted option as either an incentive
stock option or a non-statutory option under the federal tax laws.
  55
  Stock Options. Each granted
option will have an exercise price per share determined by the plan
administrator, provided that the exercise price will not be less than 100% of
the fair market value of a share on the grant date.  No granted option
will have a term in excess of ten years.  Incentive options granted to
an employee who beneficially owns more than 10% of our outstanding common stock
must have exercise prices not less than 110% of the fair market value of a share
on the grant date and a term of not more than five years measured from the grant
date. Options generally will become exercisable in one or more installments over
a specified period of service measured from the grant date. However, options may
be structured so that they will be immediately exercisable for any or all of the
option shares. Any unvested shares acquired under immediately exercisable
options will be subject to repurchase, at the exercise price paid per share, if
the optionee ceases service with us prior to vesting in those
shares.
  An
optionee who ceases service with us other than due to misconduct will have a
limited time within which to exercise outstanding options for any shares for
which those options are vested and exercisable at the time of cessation of
service. The plan administrator has complete discretion to extend the period
following the optionee’s cessation of service during which outstanding options
may be exercised (but not beyond the expiration date) and/or to accelerate the
exercisability or vesting of options in whole or in part; provided, that options
will remain exercisable for no less than 30 days from the date of the optionee’s
cessation of service (or no less than six months if the cessation is caused by
death or disability).  Discretion may be exercised at any time while
the options remain outstanding, whether before or after the optionee’s actual
cessation of service.
  Stock Appreciation Rights.
The plan administrator has the authority to issue the following three types of
stock appreciation rights under the Discretionary Grant Program:
  ·
              Tandem
      stock appreciation rights, which provide the holders with the right, upon
      approval of the plan administrator, to surrender their options for an
      appreciation distribution in an amount equal to the excess of the fair
      market value of the vested shares of common stock subject to the
      surrendered option over the aggregate exercise price payable for those
      shares.
  ·
              Standalone
      stock appreciation rights, which allow the holders to exercise those
      rights as to a specific number of shares of common stock and receive in
      exchange an appreciation distribution in an amount equal to the excess of
      the fair market value on the exercise date of the shares of common stock
      as to which those rights are exercised over the aggregate base price in
      effect for those shares. The base price per share may not be less than the
      fair market value per share of the common stock on the date the standalone
      stock appreciation right is granted, and the right may not have a term in
      excess of ten years.
  ·
              Limited
      stock appreciation rights, which may be included in one or more option
      grants made under the Discretionary Grant Program to executive officers or
      directors who are subject to the short-swing profit liability provisions
      of Section 16 of the Exchange Act. Upon the successful completion of
      a hostile takeover for more than 50% of our outstanding voting securities
      or a change in a majority of our board as a result of one or more
      contested elections for board membership over a period of up to 36
      consecutive months, each outstanding option with a limited stock
      appreciation right may be surrendered in return for a cash distribution
      per surrendered option share equal to the excess of the fair market value
      per share at the time the option is surrendered or, if greater and the
      option is a non-statutory option, the highest price paid per share in the
      transaction, over the exercise price payable per share under the
      option.
  56
  Payments
with respect to exercised tandem or standalone stock appreciation rights may, at
the discretion of the plan administrator, be made in cash or in shares of common
stock. All payments with respect to exercised limited stock appreciation rights
will be made in cash. Upon cessation of service with us, the holder of one or
more stock appreciation rights will have a limited period within which to
exercise those rights as to any shares as to which those stock appreciation
rights are vested and exercisable at the time of cessation of service. The plan
administrator will have complete discretion to extend the period following the
holder’s cessation of service during which his or her outstanding stock
appreciation rights may be exercised and/or to accelerate the exercisability or
vesting of the stock appreciation rights in whole or in part. Discretion may be
exercised at any time while the stock appreciation rights remain outstanding,
whether before or after the holder’s actual cessation of service.
  Repricing. The plan
administrator has the authority, with the consent of the affected holders, to
effect the cancellation of any or all outstanding options or stock appreciation
rights under the Discretionary Grant Program and to grant in exchange one or
more of the following: (i) new options or stock appreciation rights covering the
same or a different number of shares of common stock but with an exercise or
base price per share not less than the fair market value per share of common
stock on the new grant date or (ii) cash or shares of common stock, whether
vested or unvested, equal in value to the value of the cancelled options or
stock appreciation rights. The plan administrator also has the authority with
or, if the affected holder is not subject to the short-swing profit liability of
Section 16 under the Exchange Act, then without, the consent of the
affected holders, to reduce the exercise or base price of one or more
outstanding stock options or stock appreciation rights to the then current fair
market value per share of common stock or to issue new stock options or stock
appreciation rights with a lower exercise or base price in immediate
cancellation of outstanding stock options or stock appreciation rights with a
higher exercise or base price.  However, no exchange or cancellation
of outstanding options or stock appreciation rights may be effected so as to
constitute the deferral of compensation or an additional deferral feature that
would subject the stock options or stock appreciation rights to Internal Revenue
Code Section 409A or to the Treasury Regulations promulgated
thereunder.
  Stock
Issuance Program
  Shares of
common stock may be issued under the Stock Issuance Program for valid
consideration under the Nevada General Corporation Law as the plan administrator
deems appropriate, including cash, past services or other property. In addition,
restricted shares of common stock may be issued pursuant to restricted stock
awards that vest in one or more installments over the recipient’s period of
service or upon attainment of specified performance objectives. Shares of common
stock may also be issued under the program pursuant to restricted stock units or
other stock-based awards that entitle the recipients to receive the shares
underlying those awards upon the attainment of designated performance goals, the
satisfaction of specified service requirements and/or upon the expiration of a
designated time period following the vesting of those awards or units, including
without limitation, a deferred distribution date following the termination of
the recipient’s service with us.
  The plan
administrator will have complete discretion under the Stock Issuance Program to
determine which eligible individuals are to receive equity awards under the
program, the time or times when those equity awards are to be made, the number
of shares subject to each equity award, the vesting schedule to be in effect for
the equity award and the consideration, if any, payable per share. The shares
issued pursuant to an equity award may be fully vested upon issuance or may vest
upon the completion of a designated service period and/or the attainment of
pre-established performance goals.
  57
  To assure
that the compensation attributable to one or more equity awards under the Stock
Issuance Program will qualify as performance-based compensation that will not be
subject to the $1.0 million limitation on the income tax deductibility of the
compensation paid per covered executive officer imposed under Internal Revenue
Code Section 162(m), the Compensation Committee will also have the
discretionary authority to structure one or more equity awards under the Stock
Issuance Program so that the shares subject to those particular awards will vest
only upon the achievement of certain pre-established corporate performance
goals. Goals may be based on one or more of the following criteria:
(i) return on total stockholders’ equity; (ii) net income per share; (iii)
net income or operating income; (iv) earnings before interest, taxes,
depreciation, amortization and stock-based compensation costs, or operating
income before depreciation and amortization; (v) sales or revenue targets; (vi)
return on assets, capital or investment; (vii) cash flow; (viii) market share;
(ix) cost reduction goals; (x) budget comparisons; (xi) implementation or
completion of projects or processes strategic or critical to our business
operations; (xii) measures of customer satisfaction; (xiii) any combination of,
or a specified increase in, any of the foregoing; and (xiv) the formation of
joint ventures, research and development collaborations, marketing or customer
service collaborations, or the completion of other corporate transactions
intended to enhance our revenue or profitability or expand our customer base;
provided, however, that for purposes of items (ii), (iii) and (vii) above, the
Compensation Committee may, at the time the equity awards are made, specify
certain adjustments to those items as reported in accordance with generally
accepted accounting principles in the United States, or GAAP, which will exclude
from the calculation of those performance goals one or more of the following:
certain charges related to acquisitions, stock-based compensation, employer
payroll tax expense on certain stock option exercises, settlement costs,
restructuring costs, gains or losses on strategic investments, non-operating
gains, certain other non-cash charges, valuation allowance on deferred tax
assets, and the related income tax effects, purchases of property and equipment,
and any extraordinary non-recurring items as described in Accounting Principles
Board Opinion No. 30 or its successor, provided that those adjustments are in
conformity with those reported by us on a non-GAAP basis. In addition,
performance goals may be based upon the attainment of specified levels of our
performance under one or more of the measures described above relative to the
performance of other entities and may also be based on the performance of any of
our business groups or divisions thereof or any parent or subsidiary.
Performance goals may include a minimum threshold level of performance below
which no award will be earned, levels of performance at which specified portions
of an award will be earned, and a maximum level of performance at which an award
will be fully earned. The Compensation Committee may provide that, if the actual
level of attainment for any performance objective is between two specified
levels, the amount of the award attributable to that performance objective shall
be interpolated on a straight-line basis.
  The plan
administrator will have the discretionary authority at any time to accelerate
the vesting of any and all shares of restricted stock or other unvested shares
outstanding under the Stock Issuance Program. However, no vesting requirements
tied to the attainment of performance objectives may be waived with respect to
shares that were intended at the time of issuance to qualify as
performance-based compensation under Internal Revenue Code Section 162(m),
except in the event of certain involuntary terminations or changes in control or
ownership.
  Outstanding
restricted stock units or other stock-based awards under the Stock Issuance
Program will automatically terminate, and no shares of common stock will
actually be issued in satisfaction of those awards, if the performance goals or
service requirements established for those awards are not attained. The plan
administrator, however, will have the discretionary authority to issue shares of
common stock in satisfaction of one or more outstanding restricted stock units
or other stock-based awards as to which the designated performance goals or
service requirements are not attained. However, no vesting requirements tied to
the attainment of performance objectives may be waived with respect to awards
that were intended at the time of issuance to qualify as performance-based
compensation under Internal Revenue Code Section 162(m), except in the
event of certain involuntary terminations or changes in control or
ownership.
  58
  General
Provisions
  Acceleration.  If a
change in control occurs, each outstanding equity award under the Discretionary
Grant Program will automatically accelerate in full, unless (i) that award is
assumed by the successor corporation or otherwise continued in effect, (ii) the
award is replaced with a cash retention program that preserves the spread
existing on the unvested shares subject to that equity award (the excess of the
fair market value of those shares over the exercise or base price in effect for
the shares) and provides for subsequent payout of that spread in accordance with
the same vesting schedule in effect for those shares, or (iii) the acceleration
of the award is subject to other limitations imposed by the plan administrator.
In addition, all unvested shares outstanding under the Discretionary Grant and
Stock Issuance Programs will immediately vest upon the change in control, except
to the extent our repurchase rights with respect to those shares are to be
assigned to the successor corporation or otherwise continued in effect or
accelerated vesting is precluded by other limitations imposed by the plan
administrator. Each outstanding equity award under the Stock Issuance Program
will vest as to the number of shares of common stock subject to that award
immediately prior to the change in control, unless that equity award is assumed
by the successor corporation or otherwise continued in effect or replaced with a
cash retention program similar to the program described in clause (ii) above or
unless vesting is precluded by its terms.  Immediately following a
change in control, all outstanding awards under the Discretionary Grant Program
will terminate and cease to be outstanding except to the extent assumed by the
successor corporation or its parent or otherwise expressly continued in full
force and effect pursuant to the terms of the change in control
transaction.
  The plan
administrator will have the discretion to structure one or more equity awards
under the Discretionary Grant and Stock Issuance Programs so that those equity
awards will vest in full either immediately upon a change in control or in the
event the individual’s service with us or the successor entity is terminated
(actually or constructively) within a designated period following a change in
control transaction, whether or not those equity awards are to be assumed or
otherwise continued in effect or replaced with a cash retention
program.
  A change
in control will be deemed to have occurred if, in a single transaction or series
of related transactions:
  (i)           any
person (as that term is used in Section 13(d) and 14(d) of the Exchange
Act), or persons acting as a group, other than a trustee or fiduciary holding
securities under an employment benefit program, is or becomes a beneficial owner
(as defined in Rule 13-3 under the Exchange Act), directly or indirectly of
securities representing 51% or more of the combined voting power of our company,
or
  (ii)           there
is a merger, consolidation, or other business combination transaction of us with
or into another corporation, entity or person, other than a transaction in which
the holders of at least a majority of the shares of our voting capital stock
outstanding immediately prior to such transaction continue to hold (either by
such shares remaining outstanding or by their being converted into shares of
voting capital stock of the surviving entity) a majority of the total voting
power represented by the shares of voting capital stock of our company (or the
surviving entity) outstanding immediately after the transaction, or
  (iii)           all
or substantially all of our assets are sold.
  Stockholder Rights and Option
Transferability. The holder of an option or stock appreciation right will
have no stockholder rights with respect to the shares subject to that option or
stock appreciation right unless and until the holder exercises the option or
stock appreciation right and becomes a holder of record of shares of common
stock distributed upon exercise of the award. Incentive options are not
assignable or transferable other than by will or the laws of inheritance
following the optionee’s death, and during the optionee’s lifetime, may only be
exercised by the optionee. However, non-statutory options and stock appreciation
rights may be transferred or assigned during the holder’s lifetime to one or
more members of the holder’s family or to a trust established for the benefit of
the holder and/or one or more family members or to the holder’s former spouse,
to the extent the transfer is in connection with the holder’s estate plan or
pursuant to a domestic relations order.
  59
  A
participant will have certain stockholder rights with respect to shares of
common stock issued to the participant under the Stock Issuance Program, whether
or not the participant’s interest in those shares is vested. Accordingly, the
participant will have the right to vote the shares and to receive any regular
cash dividends paid on the shares, but will not have the right to transfer the
shares prior to vesting. A participant will not have any stockholder rights with
respect to the shares of common stock subject to restricted stock units or other
stock-based awards until the awards vest and the shares of common stock are
actually issued. However, dividend-equivalent units may be paid or credited,
either in cash or in actual or phantom shares of common stock, on outstanding
restricted stock units or other stock-based awards, subject to terms and
conditions the plan administrator deems appropriate.
  Changes in Capitalization. If
any change is made to the outstanding shares of common stock by reason of any
recapitalization, stock dividend, stock split, combination of shares, exchange
of shares or other change in corporate structure effected without our receipt of
consideration, appropriate adjustments will be made to (i) the maximum number
and/or class of securities issuable under the 2008 Plan, (ii) the maximum number
and/or class of securities for which any one person may be granted equity awards
under the 2008 Plan per calendar year, (iii) the number and/or class of
securities and the exercise price or base price per share in effect under each
outstanding option or stock appreciation right, and (iv) the number and/or class
of securities subject to each outstanding restricted stock unit or other
stock-based award under the 2008 Plan and the cash consideration, if any,
payable per share. All adjustments will be designed to preclude any dilution or
enlargement of benefits under the 2008 Plan and the outstanding equity awards
thereunder.
  Special Tax Election. Subject
to applicable laws, rules and regulations, the plan administrator may permit any
or all holders of equity awards to utilize any or all of the following methods
to satisfy all or part of the federal and state income and employment
withholding taxes to which they may become subject in connection with the
issuance, exercise or vesting of those equity awards:
  Stock Withholding: The
election to have us withhold, from the shares otherwise issuable upon the
issuance, exercise or vesting of an equity award, a portion of those shares with
an aggregate fair market value equal to the percentage of the withholding taxes
(not to exceed 100%) designated by the holder and make a cash payment equal to
the fair market value directly to the appropriate taxing authorities on the
individual’s behalf.
  Stock Delivery: The election
to deliver to us certain shares of common stock previously acquired by the
holder (other than in connection with the issuance, exercise or vesting that
triggered the withholding taxes) with an aggregate fair market value equal to
the percentage of the withholding taxes (not to exceed 100%) designated by the
holder.
  Sale and Remittance: The
election to deliver to us, to the extent the award is issued or exercised for
vested shares, through a special sale and remittance procedure pursuant to which
the optionee or participant will concurrently provide irrevocable instructions
to a brokerage firm to effect the immediate sale of the purchased or issued
shares and remit to us, out of the sale proceeds available on the settlement
date, sufficient funds to cover the withholding taxes we are required to
withhold by reason of the issuance, exercise or vesting.
  Amendment,
Suspension and Termination
  Our board
of directors may suspend or terminate the 2008 Plan at any time.  Our
board of directors may amend or modify the 2008 Plan, subject to any required
stockholder approval. Once Stockholder approval is obtained for the
establishment of the 2008 Plan, Stockholder approval will be required for any
amendment that materially increases the number of shares available for issuance
under the 2008 Plan, materially expands the class of individuals eligible to
receive equity awards under the 2008 Plan, materially increases the benefits
accruing to optionees and other participants under the 2008 Plan or materially
reduces the price at which shares of common stock may be issued or purchased
under the 2008 Plan, materially extends the term of the 2008 Plan, expands the
types of awards available for issuance under the 2008 Plan, or as to which
stockholder approval is required by applicable laws, rules or
regulations.
  60
  Unless
sooner terminated by our board, the 2008 Plan will terminate on the earliest to
occur of: (i) October 24, 2018; (ii) the date on which all shares
available for issuance under the 2008 Plan have been issued as fully-vested
shares; and (iii) the termination of all outstanding equity awards in
connection with certain changes in control or ownership.
  Federal
Income Tax Consequences
  The
following discussion summarizes income tax consequences of the 2008 Plan under
current federal income tax law and is intended for general information only. In
addition, the tax consequences described below are subject to the limitations of
Internal Revenue Code Section 162(m), as discussed in further detail below.
Other federal taxes and foreign, state and local income taxes are not discussed,
and may vary depending upon individual circumstances and from locality to
locality.
  Option Grants. Options
granted under the 2008 Plan may be either incentive stock options, which satisfy
the requirements of Internal Revenue Code Section 422, or non-statutory
stock options, which are not intended to meet those requirements. The federal
income tax treatment for the two types of options differs as
follows:
  Incentive Stock Options. No
taxable income is recognized by the optionee at the time of the option grant,
and, if there is no disqualifying disposition at the time of exercise, no
taxable income is recognized for regular tax purposes at the time the option is
exercised, although taxable income may arise at that time for alternative
minimum tax purposes equal to the excess of the fair market value of the
purchased shares at the time over the exercise price paid for those
shares.
  The
optionee will recognize taxable income in the year in which the purchased shares
are sold or otherwise made the subject of certain dispositions. For federal tax
purposes, dispositions are divided into two categories: qualifying and
disqualifying. A qualifying disposition occurs if the sale or other disposition
is made more than two years after the date the option for the shares involved in
the sale or disposition was granted and more than one year after the date the
option was exercised for those shares. If either of these two requirements is
not satisfied, a disqualifying disposition will result.
  Upon a
qualifying disposition, the optionee will recognize long-term capital gain in an
amount equal to the excess of the amount realized upon the sale or other
disposition of the purchased shares over the exercise price paid for the shares.
If there is a disqualifying disposition of the shares, the excess of the fair
market value of those shares on the exercise date over the exercise price paid
for the shares will be taxable as ordinary income to the optionee. Any
additional gain or any loss recognized upon the disposition will be taxable as a
capital gain or capital loss.
  If the
optionee makes a disqualifying disposition of the purchased shares, we will be
entitled to an income tax deduction, for our taxable year in which the
disposition occurs, equal to the excess of the fair market value of the shares
on the option exercise date over the exercise price paid for the shares. If the
optionee makes a qualifying disposition, we will not be entitled to any income
tax deduction.
  61
  Non-Statutory Stock Options.
No taxable income is recognized by an optionee upon the grant of a non-statutory
option. The optionee will, in general, recognize ordinary income, in the year in
which the option is exercised, equal to the excess of the fair market value of
the purchased shares on the exercise date over the exercise price paid for the
shares, and we will be required to collect certain withholding taxes applicable
to the income from the optionee.
  We will
be entitled to an income tax deduction equal to the amount of any ordinary
income recognized by the optionee with respect to an exercised non-statutory
option. The deduction will in general be allowed for our taxable year in which
the ordinary income is recognized by the optionee.
  If the
shares acquired upon exercise of the non-statutory option are unvested and
subject to repurchase in the event of the optionee’s cessation of service prior
to vesting in those shares, the optionee will not recognize any taxable income
at the time of exercise but will have to report as ordinary income, as and when
our repurchase right lapses, an amount equal to the excess of the fair market
value of the shares on the date the repurchase right lapses over the exercise
price paid for the shares. The optionee may elect under Internal Revenue Code
Section 83(b) to include as ordinary income in the year of exercise of the
option an amount equal to the excess of the fair market value of the purchased
shares on the exercise date over the exercise price paid for the shares. If a
timely Internal Revenue Code Section 83(b) election is made, the optionee
will not recognize any additional income as and when the repurchase right
lapses.
  Stock Appreciation Rights. No
taxable income is recognized upon receipt of a stock appreciation right. The
holder will recognize ordinary income in the year in which the stock
appreciation right is exercised, in an amount equal to the excess of the fair
market value of the underlying shares of common stock on the exercise date over
the base price in effect for the exercised right, and we will be required to
collect certain withholding taxes applicable to the income from the
holder.
  We will
be entitled to an income tax deduction equal to the amount of any ordinary
income recognized by the holder in connection with the exercise of a stock
appreciation right. The deduction will in general be allowed for our taxable
year in which the ordinary income is recognized by the holder.
  Direct Stock Issuances.Stock granted under the
2008 Plan may include issuances such as unrestricted stock grants, restricted
stock grants and restricted stock units. The federal income tax treatment for
such stock issuances are as follows:
  Unrestricted Stock Grants.
The holder will recognize ordinary income in the year in which shares are
actually issued to the holder. The amount of that income will be equal to the
fair market value of the shares on the date of issuance, and we will be required
to collect certain withholding taxes applicable to the income from the
holder.
  We will
be entitled to an income tax deduction equal to the amount of ordinary income
recognized by the holder at the time the shares are issued. The deduction will
in general be allowed for our taxable year in which the ordinary income is
recognized by the holder.
  Restricted Stock Grants. No
taxable income is recognized upon receipt of stock that qualifies as
performance-based compensation unless the recipient elects to have the value of
the stock (without consideration of any effect of the vesting conditions)
included in income on the date of receipt. The recipient may elect under
Internal Revenue Code Section 83(b) to include as ordinary income in the
year the shares are actually issued an amount equal to the fair market value of
the shares. If a timely Internal Revenue Code Section 83(b) election is
made, the holder will not recognize any additional income when the vesting
conditions lapse and will not be entitled to a deduction in the event the stock
is forfeited as a result of failure to vest.
  62
  If the
holder does not file an election under Internal Revenue Code Section 83(b),
he will not recognize income until the shares vest. At that time, the holder
will recognize ordinary income in an amount equal to the fair market value of
the shares on the date the shares vest. We will be required to collect certain
withholding taxes applicable to the income of the holder at that
time.
  We will
be entitled to an income tax deduction equal to the amount of ordinary income
recognized by the holder at the time the shares are issued, if the holder elects
to file an election under Internal Revenue Code Section 83(b), or we will
be entitled to an income tax deduction at the time the vesting conditions occur,
if the holder does not elect to file an election under Internal Revenue Code
Section 83(b).
  Restricted Stock Units. No
taxable income is recognized upon receipt of a restricted stock unit award. The
holder will recognize ordinary income in the year in which the shares subject to
that unit are actually issued to the holder. The amount of that income will be
equal to the fair market value of the shares on the date of issuance, and we
will be required to collect certain withholding taxes applicable to the income
from the holder.
  We will
be entitled to an income tax deduction equal to the amount of ordinary income
recognized by the holder at the time the shares are issued. The deduction will
in general be allowed for our taxable year in which the ordinary income is
recognized by the holder.
  Internal Revenue Code Section
409A.  It is the intention of Balqon Corporation that no option
or stock appreciation right granted under the 2008 Plan will be “deferred
compensation” that is subject to Internal Revenue Code Section
409A.
  Deductibility
of Executive Compensation
  We
anticipate that any compensation deemed paid by us in connection with
disqualifying dispositions of incentive stock option shares or the exercise of
non-statutory stock options or stock appreciation rights with exercise prices or
base prices equal to or greater than the fair market value of the underlying
shares on the grant date will qualify as performance-based compensation for
purposes of Internal Revenue Code Section 162(m) and will not have to be
taken into account for purposes of the $1.0 million limitation per covered
individual on the deductibility of the compensation paid to certain executive
officers, provided that the grants are approved by a committee of at least two
independent directors.  Accordingly, all compensation deemed paid with
respect to those options or stock appreciation rights should remain deductible
without limitation under Internal Revenue Code Section 162(m). However, any
compensation deemed paid by us in connection with shares issued under the Stock
Issuance Program will be subject to the $1.0 million limitation on deductibility
per covered individual, except to the extent the vesting of those shares is
based solely on one or more of the performance milestones specified above in the
summary of the terms of the Stock Issuance Program.
  Accounting
Treatment
  Pursuant
to the accounting standards established by SFAS No. 123(R), “Share-Based
Payment,” we are required to recognize all share-based payments, including
grants of stock options, restricted stock units and employee stock purchase
rights, in our financial statements effective January 1, 2006. Accordingly,
stock options that are granted to our employees and non-employee board members
will have to be valued at fair value as of the grant date under an appropriate
valuation formula, and that value will have to be charged as stock-based
compensation expense against our reported GAAP earnings over the designated
vesting period of the award. Similar option expensing will be required for any
unvested options outstanding on January 1, 2006, with the grant date fair value
of those unvested options to be expensed against our reported earnings over the
remaining vesting period. For shares issuable upon the vesting of restricted
stock units awarded under the 2008 Plan, we will be required to expense over the
vesting period a compensation cost equal to the fair market value of the
underlying shares on the date of the award. If any other shares are unvested at
the time of their direct issuance, the fair market value of those shares at that
time will be charged to our reported earnings ratably over the vesting period.
This accounting treatment for restricted stock units and direct stock issuances
will be applicable whether vesting is tied to service periods or performance
goals. The issuance of a fully-vested stock bonus will result in an immediate
charge to our earnings equal to the fair market value of the bonus shares on the
issuance date.
  63
  Stock
options and stock appreciation rights granted to non-employee consultants will
result in a direct charge to our reported earnings based on the fair value of
the grant measured on the vesting date of each installment of the underlying
shares. Accordingly, the charge will take into account the appreciation in the
fair value of the grant over the period between the grant date and the vesting
date of each installment comprising that grant.
  Interests
of Related Parties
  The 2008
Plan provides that our officers, employees, non-employee directors, and certain
consultants and independent advisors will be eligible to receive awards under
the 2008 Plan.
  As
discussed above, we may be eligible in certain circumstances to receive a tax
deduction for certain executive compensation resulting from awards under the
2008 Plan that would otherwise be disallowed under Internal Revenue Code
Section 162(m).
  Possible
Anti-Takeover Effects
  Although
not intended as an anti-takeover measure by our board of directors, one of the
possible effects of the 2008 Plan could be to place additional shares, and to
increase the percentage of the total number of shares outstanding, or to place
other incentive compensation, in the hands of the directors and officers of
Balqon Corporation.  Those persons may be viewed as part of, or
friendly to, incumbent management and may, therefore, under some circumstances
be expected to make investment and voting decisions in response to a hostile
takeover attempt that may serve to discourage or render more difficult the
accomplishment of the attempt.
  In
addition, options or other incentive compensation may, in the discretion of the
plan administrator, contain a provision providing for the acceleration of the
exercisability of outstanding, but unexercisable, installments upon the first
public announcement of a tender offer, merger, consolidation, sale of all or
substantially all of our assets, or other attempted changes in the control of
Balqon Corporation.  In the opinion of our board of directors, this
acceleration provision merely ensures that optionees under the 2008 Plan will be
able to exercise their options or obtain their incentive compensation as
intended by our board of directors and stockholders prior to any extraordinary
corporate transaction which might serve to limit or restrict that
right.  Our board of directors is, however, presently unaware of any
threat of hostile takeover involving Balqon Corporation.
  64
  Outstanding
Equity Awards At Fiscal Year-End – 2008
  The
following table sets forth information about outstanding equity awards held by
our named executive officers as of December 31, 2008.
  Option
      AwardsName
              
              Number
      of
                  Securities
                  Underlying
      Unexercised
                  Options
      (#)
                  Exercisable (1)
              
              
              Option
                  Exercise
                  Price
      ($)
              
              
              Option
                  Expiration
                  DateBalwinder
      Samra
              
              
              1,388,917
              
              
              $
              1.50
              
              
              6/30/20101,388,917
              
              
              $
              2.00
              
              
              6/30/20111,388,917
              
              
              $
              2.50
              
              
              6/30/2012Robert
      Miranda
              
              
              —
              
              
              
              —
              
              
              
              —K.
      John Shukur
              
              
              —
              
              
              
              —
              
              
              
              —
 
  (1)
              All
      options represented  in this table were granted in June 2008 in
      consideration of services provided to Balqon California and vested
      immediately upon grant.  In connection with the Merger
      Transaction, all outstanding options to purchase shares of Balqon
      California’s common stock were converted into options to purchase shares
      of our common stock.
  Item
      12.
              Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters.
  The
following table sets forth information with respect to the beneficial ownership
of our voting stock as of March 27, 2009, the date of the table,
by:
 
 ·
              each
      person known by us to beneficially own more than 5% of the outstanding
      shares any class of our voting
stock;
 ·
              each
      of our directors;
 ·
              each
      of our current executive officers identified at the beginning of the
      “Management” section of this
report;
 ·
              our
      former executive officer, K. John Shukur;
  and
 ·
              all
      of our current directors and executive officers as a
  group.
  Beneficial
ownership is determined in accordance with the rules of the SEC, and includes
voting or investment power with respect to the securities.  To our
knowledge, except as indicated by footnote, and subject to community property
laws where applicable, the persons named in the table below have sole voting and
investment power with respect to all shares of voting stock shown as
beneficially owned by them.  Except as indicated by footnote, all
shares of common stock underlying derivative securities, if any, that are
currently exercisable or convertible or are scheduled to become exercisable or
convertible for or into shares of common stock within 60 days after the date of
the table are deemed to be outstanding for the purpose of calculating the
percentage ownership of each listed person or group but are not deemed to be
outstanding as to any other person or group.  Percentage of beneficial
ownership of our common stock is based on 25,518,348shares of common stock
outstanding as of the date of the table.
  The
address of each of the following stockholders, unless otherwise indicated below,
is c/o Balqon Corporation, 1701 E. Edinger, Unit E­3, Santa Ana,
California  92705.  The address for K. John Shukur is 1184
Rutland Road, Suite 2, Newport Beach, California 92660.  The address
for Marlin Financial Group, Inc. is 9812 Falls Road, Suite 114-198,
Potomac, Maryland 20854.  Messrs. Balwinder Samra, Miranda,
Velasquez and Gruenwald are executive officers of Balqon
Corporation.  Messrs. Balwinder Samra, Velasquez and Amarpal
Samra are directors of Balqon Corporation.  Amarpal Samra is the
brother of Balwinder Samra.
  65
  Name
      of Beneficial Owner
              Title
      of Class
              Amount
      and
                  Nature
      of
                  Beneficial
                  Ownership
              Percent
                  of
      ClassBalwinder
      Samra
              Common
              21,166,661(1)
              71.30%Robert
      Miranda
              Common
              100,000
              *Henry
      Velasquez
              Common
              416,674(2)
              1.63%Robert
      Gruenwald
              Common
              250,000
              *Amarpal
      Singh
      Samra
              Common
              1,562,532(3)
              6.05%Marlin
      Financial Group,
      Inc.
              Common
              3,045,905(4)
              11.59%K.
      John
      Shukur
              Common
              110,000(5)
              *All
      directors and executive officers
                as
      a group (5
      persons)
              Common
              23,495,867(6)
              78.11%
 
 *
              Less
      than 1%.
 (1)
              Includes
      4,166,751 shares of common stock underlying options.  Does not
      include the shares held by Marlin Financial Group, Inc. over which Mr.
      Samra has indirect control pursuant to a contractual relationship that can
      be waived.
 (2)
              Includes
      83,334 shares of common stock underlying
  options.
 (3)
              Includes
      312,507 shares of common stock underlying
  options.
 (4)
              Includes
      754,180 shares of common stock underlying warrants.  Based
      exclusively on the Form 4s filed by Marlin Financial Group, Inc. on
      January 23, 2009 and October 31, 2008, and the Form 3 filed by
      Marlin Financial Group, Inc. on October 28, 2008.  Includes
      754,180shares of common
      stock underlying warrants.Mark Levin has the
      power to vote and dispose of the shares beneficially held by Marlin
      Financial Group, Inc. as its president.  Mark Levin has the
      power to vote and dispose of the shares beneficially held by Marlin
      Financial Group, Inc. as its president.  Pursuant to a
      contractual agreement between Marlin Financial Group, Inc. and Balqon
      California, which agreement may be waived, until June 4, 2011, Marlin
      Financial Group, Inc. can only dispose of that number of securities such
      that the securities sold by Marlin Financial Group, Inc. through the date
      of such disposition as a percentage of the securities held by Marlin
      Financial Group, Inc. on June 4, 2008 is less than the percentage of the
      securities held by Balwinder Samra on June 4, 2008 which Mr. Samra has
      disposed of as of the date of the proposed disposition by Marlin Financial
      Group, Inc.
 (5)
              Includes
      30,000 shares of common stock underlying
  warrants.
 (6)
              Includes
      4,562,592 shares of common stock underlying
  options.
  Equity
Compensation Plan Information
  The
following table gives information about our common stock that may be issued upon
the exercise of options, warrants and rights under all of our existing equity
compensation plans as of December 31, 2008.
  66
  Plan
      category
              Number
      of securities
                  to
      be issued  upon
                  exercise
      ofoutstanding
                  options,warrantsand
      rights
              Weighted-average
                  exercise
      price of
                  outstanding
      options,
                  warrants
      and rights
              Number
      of securities
                  remaining
      available
                  for
      future issuance
                  under
      equity
                  compensation
      plans
                  (excluding
      securities
                  reflected
      in column (a))(a)
              (b)
              (c)Equity
      compensation plans approved by security holders
              4,562,592
      (1)
              $     2.00
              2,937,408(2)Equity
      compensation plans not approved by security holders
              —
              —
              —Total
              4,562,592
              
              2,937,408
 
 (1)
              Represents
      shares of common stock underlying options that are outstanding under our
      2008 Plan.  The material features of our 2008 Plan are described
      above under Item 1-Executive Compensation —2008 Stock Incentive Plan”
      and in Note 8 to our consolidated financial statements for the year
      ended December 31, 2008.
 (2)
              Represents
      shares of common stock available for issuance under options that may be
      issued under our 2008 Plan.
  Item
      13.
              Certain
      Relationships and Related Transactions, and Director
      Independence.
  Director
Independence
  On an annual basis, each of our
directors and executive officers is obligated to complete a director and officer
questionnaire that requires disclosure of any transactions with Balqon
Corporation in which a director or executive officer, or any member of his or
her immediate family, have a direct or indirect material interest. 
Following completion of these questionnaires, the board of directors, with the
assistance of the Nominating and Corporate Governance Committee, makes an annual
determination as to the independence of each director using the current
standards for “independence” established by the SEC and NASDAQ Market Place
Rules, additional criteria set forth in our corporate governance guidelines and
consideration of any other material relationship a director may have with Balqon
Corporation.
  In October 2008, our board of directors
determined that none of the directors are independent under these
standards.  In addition, K. John Shukur, who served on our board of
directors during the fiscal year ended December 31, 2008, was not
independent under these standards.  Our board of directors intends to
appoint at least two persons who qualify as “independent” under the current
NASDAQ Marketplace Rules to our board of directors in the near
future.
  Policy
Regarding Related Party Transactions
  We
recognize that related party transactions present a heightened risk of conflicts
of interest and in connection with this offering, have adopted a policy to which
all related party transactions shall be subject.  Pursuant to the
policy, the Audit Committee of our board of directors will review the relevant
facts and circumstances of all related party transactions, including, but not
limited to, whether the transaction is on terms comparable to those that could
be obtained in arm’s-length dealings with an unrelated third party and the
extent of the related party’s interest in the transaction.  Pursuant
to the policy, no director may participate in any approval of a related party
transaction to which he or she is a related party.
  67
  The Audit
Committee will then, in its sole discretion, either approve or disapprove the
transaction.  If advance Audit Committee approval of a transaction is
not feasible, the transaction may be preliminarily entered into by management,
subject to ratification of the transaction by the Audit Committee at the Audit
Committee’s next regularly scheduled meeting.  If at that meeting the
Audit Committee does not ratify the transaction, management shall make all
reasonable efforts to cancel or annul such transaction.
  Certain
types of transactions, which would otherwise require individual review, have
been preapproved by the Audit Committee.  These types of transactions
include, for example, (i) compensation to an officer or director where such
compensation is required to be disclosed in our proxy statement,
(ii) transactions where the interest of the related party arises only by
way of a directorship or minority stake in another organization that is a party
to the transaction and (iii) transactions involving competitive bids or
fixed rates.
  Merger
Transaction
  Pursuant
to the  Merger Transaction we issued to the shareholders of Balqon
Californiaan
aggregate of 23,908,348 shares of our common stock upon conversion of the same
number of shares of Balqon California’scommon
stock.  The 1:1 exchange ratio was determined by arms-length
negotiations between Balqon Corporation (formerly, BMR Solutions, Inc.) and
Balqon California and was not based on any particular valuation or other
financial data with respect to either company or a comparison of comparable
companies or transactions.  We did not issue any shares of our common
stock to our then existing shareholders at the time of the closing of the Merger
Transaction, except for shares issued to those shareholders who at that time
were also shareholders of Balqon California.
  In
addition to the 23,908,348 shares common stock we issued to the shareholders of
Balqon California, 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 Stock Incentive Plan, or 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 John Shukur,
Mark Andre, Marla Andre, Ryan Neely, Brian Mirrotto, Eric Peterson, Peggy
Hancock and James L. Mirrotto such that concurrent with the closing of the
Merger Transaction we had approximately 1,400,000 shares of common stock issued
and outstanding.  The shares were cancelled as a result of our
agreement with Balqon California to have 1,400,000 shares of common stock
outstanding at the closing of the Merger Transaction.
  At the
closing of the Merger Transaction five of shareholders who held shares of our
common stock immediately prior to the closing of the Merger Transaction,
Anderson Hinsch, Thomas Chen, Ryan Neely, Michael Muellerleile and Jeffrey M.
Hoss, were issued 565,123 shares of our common stock upon conversion of the same
number of shares of Balqon California’scommon
stock that they held immediately prior to the closing of the Merger
Transaction.  At the closing of the Merger Transaction, we also issued
to these five shareholders warrants to purchase an aggregate of 550,000 shares
of our common stock upon conversion of warrants to purchase shares the same
number of shares of Balqon California that they held immediately prior to the
closing of the Merger Transaction.  Immediately prior to the closing
of the Merger Transaction, these five shareholders held an aggregate of 325,000
shares of our common stock and warrants to purchase an aggregate of 144,598
shares of our common stock.  As of March 27, 2009, these five
shareholders hold an aggregate of 890,291 shares of our common stock comprised
of (i) the 325,000 shares of our common stock they held immediately prior to the
closing of the Merger Transaction and (ii) the 565,123 shares of our common
stock they were issued in connection with the Merger Transaction.  As
of March 27, 2009, these five shareholders also hold warrants to purchase an
aggregate of 644,598 shares of our common stock, comprised of (i) warrants to
purchase an aggregate of 144,598 shares of our common stock they held
immediately prior to the closing of the Merger Transaction and (ii) warrants to
purchase an aggregate of 550,000 shares of our common stock that they were
issued in connection with the Merger Transaction.
 68
  In
connection with the Merger Transaction we issued to (i) Balwinder Samra,
our President and Chief Executive Officer, 16,999,910 shares of our common stock
upon conversion of the same number of shares of common stock of Balqon
Californiaheld by
Mr. Samra and options to purchase 4,166,751 shares of common stock upon
conversion of options to purchase the same number of shares of common stock of
Balqon California held by Mr. Samra; (ii) Robert Miranda, our Chief
Financial Officer, 100,000 shares of our common stock upon conversion of the
same number of shares of common stock of Balqon Californiaheld by Mr. Miranda;
(iii) Henry Velasquez, our Vice President Engineering and a director of our
company, 333,340 shares of our common stock upon conversion of the same number
of shares of common stock of Balqon Californiaheld by
Mr. Velasquez and options to purchase 83,334 shares of common stock upon
conversion of options to purchase the same number of shares of common stock of
Balqon California held by Mr. Velasquez; (iv) Robert Gruenwald, our Vice
President Research and Development 250,000 shares of our common stock upon
conversion of the same number of shares of common stock of Balqon
Californiaheld by
Mr. Gruenwald; and (v) Amarpal Singh Samra, a director of our company, 1,250,025
shares of our common stock upon conversion of the same number of shares of
common stock of Balqon Californiaheld by Mr. Samra and
options to purchase 312,507 shares of common stock upon conversion of options to
purchase the same number of shares of common stock of Balqon California held by
Mr. Samra.  As a result of the Merger Transaction each of
Mr. Balwinder Samra and Mr. Amarpal Samra became the beneficial owners of
more than 5% of our common stock.  The options issues to Messrs.
Balwinder Samra, Amarpal Samra, and Henry Velasquez were issued under our 2008
Plan.  One-third of these options have an exercise price of $1.50 per
share and expire on June 30, 2010, one-third of these options have an
exercise price of $2.00 per share and expire on June 30, 2011, and
one-third of these options have an exercise price of $2.50 per share and expire
on June 30, 2012.
  In
connection with the Merger Transaction we also issued to Marlin Financial Group,
Inc. 2,916,725 shares of our common stock upon conversion of the same number of
shares of common stock of Balqon Californiaheld by Marlin Financial
Group, Inc. and warrants to purchase 729,180 shares of our common stock upon the
conversion of warrants to purchase shares the same number shares of common stock
of Balqon Corporation.  One-third of the warrants have an exercise
price of $1.50 per share and expires on June 30, 2010, one-third of the
warrants have an exercise price of $2.00 per share and expires on June 30,
2011, and one-third of the warrants have an exercise price of $2.50 per share
and expires on June 30, 2012.  As a result of the Merger
Transaction, Marlin Financial Group, Inc. became the beneficial owner of more
than 5% of our common stock.
  Employment,
Compensation and Consulting Agreements
  We are or
have been a party to compensation arrangements with our
directors.  See “—Compen­sation of Directors.”  On
October 24, 2008, we entered into an executive employment agreement with each of
Balwinder Samra and Henry Velasquez.  See “—Compensation of Executive
Officers —Employment Agreements” for a description of Mr. Samra’s executive
employment agreement.  On March 27, 2009, we entered into an executive
employment agreement with Robert Gruenwald to be effective on October 24,
2008.
  Employment
Agreement, dated October 24, 2008, between the Company and Henry
Velasquez
  On
October 24, 2008, we entered into an executive employment agreement with Mr.
Henry Velasquez.  Under the terms of the executive employment
agreement, Mr. Velasquez has agreed to serve as our Vice President Engineering
on an at-will basis.  The employment agreement has an effective date
of October 24, 2008.
  69
  The
agreement provides for an initial base salary of $150,000 per year with an
increase to $175,000 per year after the second and third anniversary of the
effective date of the employment agreement, respectively, and paid vacation of
at least four weeks per year.  Mr. Velasquez is eligible to receive
salary increases and annual cash incentive bonuses at the discretion of our
Compensation Committee.  Mr. Velasquez is also eligible to
participate in benefit and incentive programs we may offer. We have agreed to
maintain in effect a directors’ and officers’ liability insurance policy with a
minimum limit of liability of $3 million and that we would enter into an
indemnification agreement with Mr. Velasquez upon terms mutually acceptable to
us and Mr. Velasquez.
  The
agreement contains non-competition provisions that prohibit Mr. Velasquez from
engaging or participating in a competitive business or soliciting our customer
or employees during his employment with us and for two years afterward. The
agreement also contains provisions that restrict disclosure by Mr. Velasquez of
our confidential information and assign ownership to us of inventions related to
our business that are created by him during his employment and for two years
afterward.
  We may
terminate the agreement at any time, with or without due cause. “Due cause”
includes any intentional misapplication of our funds or other material assets,
or any other act of dishonesty injurious to us, or conviction of a felony or a
crime involving moral turpitude. “Due cause” also includes abuse of controlled
substances or alcohol and breach, nonperformance or nonobservance of any of the
terms of the agreement, provided that Mr. Velasquez fails to satisfactorily
remedy the performance problem following 30 days’ written notice.
  Mr.
Velasquez may terminate the agreement at any time, with or without good reason.
However, termination for good reason must occur within 90 days of the occurrence
of an event constituting good reason, and Mr. Velasquez must furnish us with
written notice of the event within 30 days after the initial existence of the
event and provide us with at least a 30-day cure period. “Good reason” includes:
a material diminution in his authority, duties, responsibilities, titles or
offices; a purported reduction in Mr. Velasquez’s base salary amounting to
a material diminution in his salary to an amount less than the greater of
$150,000 or 10% below the base salary in effect at the time of the reduction;
our failure to timely cure or diligently initiate a cure of any material breach
within 30 days after Mr. Velasquez gives us written notice of the
breach.
  If we
terminate Mr. Velasquez’s employment for due cause or due to Mr.
Velasquez’s breach of his employment agreement by refusing to continue his
employment, or if Mr. Velasquez a terminates his employment without good reason,
then all compensation and benefits for Mr. Velasquez will cease, other than
amounts under retirement and benefit plans and programs that were earned and
vested by the date of termination, pro rata annual salary through the date of
termination, any stock options that were vested as of the date of termination,
and accrued vacation as required by California law.
  If Mr.
Velasquez becomes incapacitated, we may terminate his employment under the
agreement upon 30 days’ prior written notice.  Upon Mr. Velasquez’s
death, the agreement terminates immediately. If Mr. Velasquez’s employment
terminates due to his incapacity or death, Mr. Velasquez or his estate or legal
representative will be entitled to receive benefits under our retirement and
benefits plans and programs that were earned and vested at the date of
termination, a prorated incentive bonus for the fiscal year in which incapacity
or death occurred (to the extent he would otherwise be eligible), and a lump sum
cash payment in an amount equal to one year of his then current annual
salary.
  70
  If Mr.
Velasquez’s employment terminates for good reason or other than as a result of
due cause, incapacity, death or retirement, Mr. Velasquez will be entitled to
his salary through the end of the month in which termination occurs plus credit
for accrued vacation, and a prorated incentive bonus, if eligible, for the
fiscal year during which termination occurred. In addition, under those
circumstances, if Mr. Velasquez enters into a separation and release agreement
with us, then he will be entitled to receive (i) a severance payment equal to
two times his then current annual salary, (ii) all medical insurance
benefits to which he was entitled immediately prior to the date of termination
for a period of eighteen months or the date that Mr. Velasquez’s continued
participation in our medical insurance plan was not possible under the plan,
whichever was earlier, and (iii) a lump-sum cash payment equal to eighteen
times the estimated monthly COBRA premiums at the time of termination (taking
into account all known or anticipated premium increases) to be used by Mr.
Velasquez to maintain his medical insurance coverage for an additional eighteen
months.  If our medical insurance plan does not allow Mr. Velasquez’s
continued participation, then we will be required to pay to Mr. Velasquez, in
monthly installments, the monthly premium or premiums for COBRA coverage,
covering the eighteen month period described in clause (ii) in the
preceding sentence.
  Employment
Agreement, dated effective October 24, 2008, between the Company and Robert
Gruenwald
  On March
27, 2009, we entered into an executive employment agreement with Mr. Robert
Gruenwald.  Under the terms of the executive employment agreement, Mr.
Gruenwald has agreed to serve as our Vice President Research and Development on
an at-will basis.  The employment agreement has an effective date of
October 24, 2008.
  The
agreement provides for an initial base salary of $150,000 per year with an
increase to $175,000 and $200,000 per year after the second and third
anniversary of the effective date of the employment agreement, respectively, and
paid vacation of at least four weeks per year.  Mr. Gruenwald is
eligible to receive salary increases and annual cash incentive bonuses at the
discretion of our Compensation Committee.  Mr. Gruenwald is also
eligible to participate in benefit and incentive programs we may offer. We have
agreed to maintain in effect a directors’ and officers’ liability insurance
policy with a minimum limit of liability of $3 million and that we would enter
into an indemnification agreement with Mr. Gruenwald upon terms mutually
acceptable to us and Mr. Gruenwald.
  The
agreement contains non-competition provisions that prohibit Mr. Gruenwald from
engaging or participating in a competitive business or soliciting our customer
or employees during his employment with us and for two years afterward. The
agreement also contains provisions that restrict disclosure by Mr. Gruenwald of
our confidential information and assign ownership to us of inventions related to
our business that are created by him during his employment and for two years
afterward.
  We may
terminate the agreement at any time, with or without due cause. “Due cause”
includes any intentional misapplication of our funds or other material assets,
or any other act of dishonesty injurious to us, or conviction of a felony or a
crime involving moral turpitude. “Due cause” also includes abuse of controlled
substances or alcohol and breach, nonperformance or nonobservance of any of the
terms of the agreement, provided that Mr. Gruenwald fails to satisfactorily
remedy the performance problem following 30 days’ written notice.
  Mr.
Gruenwald may terminate the agreement at any time, with or without good reason.
However, termination for good reason must occur within 90 days of the occurrence
of an event constituting good reason, and Mr. Gruenwald must furnish us with
written notice of the event within 30 days after the initial existence of the
event and provide us with at least a 30-day cure period. “Good reason” includes:
a material diminution in his authority, duties, responsibilities, titles or
offices; a purported reduction in Mr. Gruenwald’s base salary amounting to
a material diminution in his salary to an amount less than the greater of
$150,000 or 10% below the base salary in effect at the time of the reduction;
our failure to timely cure or diligently initiate a cure of any material breach
within 30 days after Mr. Gruenwald gives us written notice of the
breach.
  71
  If we
terminate Mr. Gruenwald’s employment for due cause or due to Mr.
Gruenwald’s breach of his employment agreement by refusing to continue his
employment, or if Mr. Gruenwald a terminates his employment without good reason,
then all compensation and benefits for Mr. Gruenwald will cease, other than
amounts under retirement and benefit plans and programs that were earned and
vested by the date of termination, pro rata annual salary through the date of
termination, any stock options that were vested as of the date of termination,
and accrued vacation as required by California law.
  If Mr.
Gruenwald becomes incapacitated, we may terminate his employment under the
agreement upon 30 days’ prior written notice.  Upon Mr. Gruenwald’s
death, the agreement terminates immediately. If Mr. Gruenwald’s employment
terminates due to his incapacity or death, Mr. Gruenwald or his estate or legal
representative will be entitled to receive benefits under our retirement and
benefits plans and programs that were earned and vested at the date of
termination, a prorated incentive bonus for the fiscal year in which incapacity
or death occurred (to the extent he would otherwise be eligible), and a lump sum
cash payment in an amount equal to one year of his then current annual
salary.
  If Mr.
Gruenwald’s employment terminates for good reason or other than as a result of
due cause, incapacity, death or retirement, Mr. Gruenwald will be entitled to
his salary through the end of the month in which termination occurs plus credit
for accrued vacation, and a prorated incentive bonus, if eligible, for the
fiscal year during which termination occurred. In addition, under those
circumstances, if Mr. Gruenwald enters into a separation and release agreement
with us, then he will be entitled to receive (i) a severance payment equal to
two times his then current annual salary, (ii) all medical insurance
benefits to which he was entitled immediately prior to the date of termination
for a period of eighteen months or the date that Mr. Gruenwald’s continued
participation in our medical insurance plan was not possible under the plan,
whichever was earlier, and (iii) a lump-sum cash payment equal to eighteen
times the estimated monthly COBRA premiums at the time of termination (taking
into account all known or anticipated premium increases) to be used by Mr.
Gruenwald to maintain his medical insurance coverage for an additional eighteen
months.  If our medical insurance plan does not allow Mr. Gruenwald’s
continued participation, then we will be required to pay to Mr. Gruenwald, in
monthly installments, the monthly premium or premiums for COBRA coverage,
covering the eighteen month period described in clause (ii) in the
preceding sentence.
  Indemnification
Agreements
  On
October 24, 2008, we entered into an indemnification agreement with each of our
directors and executive officers other than Mr. Gruenwald.  We entered
into an indemnification agreement with Mr. Gruenwald on March 27,
2009.  The indemnification agreements and our articles of
incorporation and bylaws require us to indemnify our directors and officers to
the fullest extent permitted by Nevadalaw.
  Balqon
Corporation’s Transactions Prior to the Consummation of the Merger
Transaction
  From
August 2006 to November 9, 2006, Mark Andre, our former director and executive
officer, provided approximately 1,000 square feet of office space to us in
exchange for $1,400 per month on a month to month basis.  Effective
November 10, 2006, this amount was increased to $1,500 per month. We paid $1,400
per month directly to Mr. Andre’s landlord on this arrangement, with $560 per
month treated as rent expense and the remaining $840 per month charged to
compensation. The rent expense of $560 per month is the estimated fair value of
the facilities provided. Effective November 10, 2006, the rent and compensation
on this arrangement was increased to $600 and $900 per month,
respectively.
  Mark
Andre, our former director and executive officer, is the brother in law of John
Danna, an owner of one of our major customers prior to the Merger
Transaction.
  72
  Balqon
California’s Transactions Prior to the Consummation of the Merger
Transaction
  During
the fiscal years ended December 31, 2006 and 2007, Balwinder Samra loaned $943
and $56,477, respectively, to Balqon California to fund its
operations.  Between January 1, 2008 and September 30, 2008,
Mr. Samra loaned an additional $1,957to Balqon California to
help fund its operations.  These loans were recorded as “Advances from
Shareholder” on Balqon California’s financial statements.  As of
September 30, 2008, Mr. Samra was owed a total of $47,877as a result of these
loans.
  Between
January 1, 2008 and September 30, 2008, Miranda & Associates, a
professional accountancy corporation wholly-owned by Robert Miranda, our chief
financial officer, was paid a total of $38,000 in consulting fees in
consideration of accounting and advisory services. As of September 30,
2008, Miranda & Associates was owed $19,875for accounting and advisory
services rendered.
  In June
2008, Balqon California issued 332,910 shares of common stock and options to
purchase 4,166,751 shares of common stock to Balwinder Samra in consideration of
services rendered.
  In June
2008, Balqon California issued 333,340 shares of common stock and options to
purchase 83,344 shares of common stock to Henry Velasquez in consideration of
engineering and design consulting services rendered.
  In June
2008, Balqon California issued 1,250,025 shares of common stock and options to
purchase 312,507 shares of common stock to Amarpal Samra in consideration of
business strategy consulting services rendered.
  In June
2008, Balqon California issued 100,000 shares of common stock to Robert Miranda,
its current Chief Financial Officer, in consideration of business strategy
consulting services rendered.
  In June
2008, Balqon California issued 250,000 shares of common stock to Robert
Gruenwald in consideration of services provided.
  In June
2008, Balqon California issued 2,916,725 shares of common stock and warrants to
purchase 729,180 shares of common stock to Marlin Financial in consideration of
business strategy and financial advisory services rendered and to be
rendered.
 On
September 9, 2008, Balqon California entered into a Asset and Purchase Agreement
with EMS, and its sole member, Robert Gruenwald, to acquire certain of the
assets of EMS, including all intellectual property assets for an aggregate
purchase price of $350,000 of which $250,000 was paid in cash at closing and
$100,000 was paid in the form of a promissory note issued to EMS.  The
promissory note issued to EMS bares an interest rate of 5% per annum payable at
maturity.  All amounts due and payable under the promissory note
became due and payable on March 9, 2009.  As of March 27, 2009,
$100,000 in principal remains outstanding under the promissory note issued to
EMS.  During the fiscal year ended December 31, 2008, we did not make
any payments of principal or interest due under the promissory note to
EMS.
  On June
24, 2008, we issued a promissory note in the amount of $25,875 to Marlin
Financial Group, Inc.  The promissory note issued to Marlin Financial
Group, Inc. bares an interest rate of 6% per annum payable at maturity and
became due and payable on December 6, 2008.  As of March 27, 2009,
$875 in principal remains outstanding under the promissory note issued to Marlin
Financial Group, Inc.  During the fiscal year ended December 31, 2008,
we paid $25,000 in principal and did not make any interest payments due under
the promissory note to Marlin Financial Group, Inc.
  73
  December
2008 Private Placement
  In
connection with the private placement transaction consummated on December 22,
2008, we issued to Marlin Financial Group, Inc. 25,000 shares of our common
stock and warrants to purchase 25,000 shares of our common stock at an exercise
price of $1.50.
  Fees
Paid to Miranda & Associates
  Between
September 30, 2008 and December 31, 2008, Miranda & Associates, a
professional accountancy corporation wholly-owned by Robert Miranda, our chief
financial officer, was paid a total of $196,980 in consulting fees in
consideration of accounting and advisory services. As of December  31,
2008, Miranda & Associates was owed $12,500 for accounting and advisory
services rendered.
  Item
      14.
              Principal
      Accounting Fees and Services.
  Weinberg &
Company, P.A.
  The
following table presents the aggregate fees billed to us for professional audit
services rendered by Weinberg & Company, P.A., or Weinberg, for the
year ended December 31, 2008. We appointed Weinberg as our independent
registered public accounting firm on October 24, 2008.
  2008Audit
      Fees
              
              $
              28,873Audit-Related
      Fees
              
              
              18,242Tax
      Fees
              
              
              —All
      Other Fees
              
              
              —Total
              
              $
              47,115
  Audit
Fees.  Consist of amounts billed for professional services
rendered for the audit of our annual consolidated financial statements included
in our Annual Report on Form 10-K, and reviews of our interim consolidated
financial statements included in our Quarterly Report on Forms 10-Q and our
Registration Statement on Form S-1, including amendments thereto.
  Audit-Related
Fees.  Audit-Related Fees consist of fees billed for
professional services that are reasonably related to the performance of the
audit or review of our consolidated financial statements but are not reported
under “Audit Fees.”
  Tax Fees.Tax Fees
consist of fees for professional services for tax compliance activities,
including the preparation of federal and state tax returns and related
compliance matters.
  All Other
Fees.  Consists of amounts billed for services other than those
noted above.
  Our Audit
Committee has determined that all non-audit services provided by Weinberg are
and were compatible with maintaining Weinberg’s audit independence.
  Our Audit
Committee is responsible for approving all audit, audit-related, tax and other
services.  The Audit Committee pre-approves all auditing services and
permitted non-audit services, including all fees and terms to be performed for
us by our independent registered public accounting firm at the beginning of the
fiscal year.  Non-audit services are reviewed and pre-approved by
project at the beginning of the fiscal year.  Any additional non-audit
services contemplated by us after the beginning of the fiscal year are submitted
to the Audit Committee chairman for pre-approval prior to engaging the
independent auditor for such services.  These interim pre-approvals
are reviewed with the full Audit Committee at its next meeting for
ratification.  During 2008, all services performed by Weinberg were
pre-approved by our Audit Committee in accordance with these policies and
applicable SEC regulations.
  74
 PART
IV
  Item
      15.
              Exhibits
      and Financial Statement Schedules.
  (a)(1)  Financial
Statements.
  Reference
is made to the financial statements listed on and attached following the Index
to Financial Statements contained at page F-1 of this report.
  (a)(2)
and (c) Financial Statement Schedules.
  Not
applicable.
  (a)(3)
and (b) Exhibits.
  
 ExhibitNumber
              Description2.1
              Agreement
      and Plan of Merger, dated September 15, 2008, among the Registrant, Balqon
      California and a newly-created, wholly-owned subsidiary of the Registrant,
      Balqon Acquisition Corp. (1)2.2
              Amendment
      No. 1 to Agreement and Plan of Merger, dated October 15, 2008, among the
      Registrant, Balqon California and a newly-created, wholly-owned subsidiary
      of the Registrant, Balqon Acquisition Corp. (2)3.1
              Articles
      of Incorporation of the Registrant (3)3.2
              Bylaws
      of the Registrant (3)4.1
              Article
      Thirteenth of the Articles of Incorporation of the Registrant (contained
      in Exhibit 3.1 to this Registration Statement) (3)4.2
              Sections
      2 and 6 of the Bylaws of the Registrant (contained in Exhibit 3.2 to
      this Registration Statement) (3)4.3
              Form
      of Warrants issued by Balqon California to certain security holders to
      purchase an aggregate of 500,000 shares of commons stock
      (4)(##)4.4
              Form
      of Warrants issued by Balqon California to certain security holders to
      purchase an aggregate of 810,000 shares of common stock
      (4)(##)4.5
              Form
      of Warrants issued by Balqon California to certain security holders to
      purchase an aggregate of 575,000 shares of common stock
      (4)(##)4.6
              Form
      of Warrant to purchase common stock issued by Balqon California to Marlin
      Financial Group, Inc. (one-third of these warrants are exercisable at an
      exercise price of $1.50 per share until June 30, 2010, one-third of these
      warrants are exercisable at an exercise price of $2.00 per share until
      June 30, 2011, and one-third of these warrants are exercisable at an
      exercise price of $2.50 per share until June 30, 2012)
  (4)
 4.7
              Form
      of Warrants issued by the Registrant to certain security holders to
      purchase an aggregate of 184,598 shares of common stock (one-third of
      these warrants are exercisable at an exercise price of $1.50 per share
      until October 24, 2009, one-third of these warrants are exercisable at an
      exercise price of $2.00 per share until October 24, 2010, and one-third of
      these warrants are exercisable at an exercise price of $2.50 per share
      until October 24, 2011) (4)(##)4.8
              Form
      of Warrants issued by the Registrant to certain security holders to
      purchase an aggregate of 210,000 shares of common stock
  (5)4.9
              Form
      of Warrants issued by the Registrant to certain security holders to
      purchase an aggregate of 50,000 shares of common stock
      (*)10.1
              Balqon
      Corporation 2008 Stock Incentive Plan (4)(#)10.2
              Form
      of Stock Option Agreement under 2008 Stock Incentive Plan
      (4)(#)10.3
              Form
      of Indemnification Agreement for officers and directors
    (4)(#)10.4
              Employment
      Agreement, dated October 24, 2008, by and between Balwinder Samra and the
      Registrant (4)(#)10.5
              Employment
      Agreement, dated October 24, 2008, by and between Henry Velasquez and the
      Registrant (4)(#)10.6
              Amendment
      and Restated Registration Rights Agreement, dated September 15, 2008,
      by and between Balqon California and certain security holders
      (*)(##)10.7
              Registration
      Rights Agreement, dated September 15, 2008, by and between Balqon
      California and certain security holders (*)(##)10.8
              Registration
      Rights Agreement, dated October 24, 2008, by and between Balqon California
      and certain security holders (4)(##)10.9
              Registration
      Rights Agreement dated October 24, 2008, by and between the Registrant and
      certain security holders (which agreement relates to the registration
      rights of the stockholders holding 1,400,000 shares of our common stock
      immediately prior to the Merger Transaction) (4)(##)10.10
              Purchase
      Agreement, dated June 26, 2008, between the City of Los Angeles and Balqon
      California (4)(##)10.11
              Purchase
      and Service Agreement, dated May 15, 2008, between the South Coast Air
      Quality Management District and Balqon California
  (*)(##)10.12
              Lease
      Agreement for 1420 240th Street, Harbor City, California 90710, between
      Allan D. and Gloria G. Singer, Trustees for the U.D.T. Trust dated June 6,
      1984 and Balqon California dated June 17, 2008 (4)(##)10.13
              Lease
      agreement, dated May 21, 2007, by and between 1701 E. Edinger, LLC, and
      Balqon California (4)(##)10.14
              First
      Modification to Lease, dated June 18, 2008, by and between 1701 E.
      Edinger, LLC, and Balqon California
(4)(##)
 75
  ExhibitNumber
                Description
 10.15
              Registration
      Rights Agreement, dated December 22, 2008, by and between the Registrant
      and certain security holders (5)10.16
              Business
      Financing Agreement, dated February 18, 2009, between Bridge Bank,
      National Association and the Company (6)10.17
              Business
      Financing Modification Agreement, dated February 26, 2009, between
      Bridge Bank, National Association and the Company (7)10.18
              Asset
      Purchase Agreement, dated September 9, 2008, by and between Electric
      Motor Sports, LLC and Balqon California (*)10.19
              Promissory
      Note, dated September 9, 2009, in the amount of $100,000, issued to
      Electric Motor Sports, LLC (*)10.20
              Employment
      Agreement, dated October 24, 2008, by and between Robert Gruenwald and the
      Registrant (*)(#)10.21
              Agreement,
      dated May 2007, by and between the South Coast Air Quality Management
      District and Balqon California (*)10.22
              Stock
      and Warrant Purchase Agreement, dated August 28, 2008, by and between
      Marlin Financial Group, Inc. and Balqon California (*)10.23
              Amendment
      to Stock and Warrant Purchase Agreement, dated March 30, 2009, by and
      between Marlin Financial Group, Inc. and Balqon California
    (*)10.24
              Form
      of 10% Unsecured Subordinated Convertible Promissory Notes issued in March
      2009, in the aggregate principal amount of $50,000, which are convertible
      into an aggregate of 50,000 shares of our common stock
  (*)14.1
              Code
      of Ethics (4)14.2
              Code
      of Ethics for Chief Executive Officer and Senior Financial Officers
      (4)31.1
              Certification
      of Principal Executive Officer 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
      of Principal Financial Officer 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 Chief Executive Officer and Chief Executive Officer Pursuant to
      18 U.S.C. Section 350, as Adopted Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002 (*)99.1
              Consent
      of John Kinross-Kennedy (*)99.2
              Consent
      of John Kinross-Kennedy (*)
 
 (#)         Management
contract or compensatory plan, contract or arrangement.
 (##)
              The
      rights and obligations of Balqon California under this agreement were
      assumed by the registrant in connection with the Merger
      Transaction.
 (*)         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 September 19,
      2008.
 (2)
              Filed
      as an exhibit to the Registrant’s current report on Form 8-K with the
      Securities and Exchange Commission filed on October 21,
    2008.
 (3)
              Filed
      as an exhibit to the Registrant’s Registration Statement on Form SB-2
      filed with the Securities and Exchange Commission on September 19,
      2006.
 (4)
              Filed
      as an exhibit to the Registrant’s current report on Form 8-K filed
      with the Securities and Exchange Commission on October 30,
      2008.
 (5)
              Filed
      as an exhibit to the Registrant’s Registration Statement on Form S-1
      filed with the Securities and Exchange Commission on December 23,
      2008.
 (6)
              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.
 (7)
              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.
  76
  BALQON
CORPORATION
 
 INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
   PageReport
      of Independent Registered Public Accounting Firm
                F-2Consolidated
      Balance Sheets as of December 31, 2008 and 2007
                F-3Consolidated
      Statements of Operations for the Years Ended December 31, 2008 and
      2007
                F-4Consolidated
      Statement of Shareholder’s Equity (Deficiency) for the Years Ended December
      31, 2008 and 2007
                F-5Consolidated
      Statements of Cash Flows for the Years Ended December 31, 2008 and
      2007
                F-6Notes
      to Consolidated Financial Statements for the Years Ended December 31, 2008
      and 2007
                F-7
 
 F-1
  REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
   To the
Shareholder of
 Balqon
Corporation
 Santa
Ana, California
  We have
audited the accompanying consolidated balance sheets of Balqon Corporation and
Subsidiary (the Company) as of December 31, 2008 and 2007, and the related
consolidated statements of operations, changes in shareholder’s equity
(deficiency), and cash flows for the years then ended.  These
consolidated financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
  We
conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting.  Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting.  Accordingly, we express no
such opinion.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
  In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the Company at
December 31, 2008 and 2007, and the consolidated results of their operations and
their cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States.
  The
accompanying consolidated financial statements have been prepared assuming the
Company will continue as a going concern.  The Company has experienced
recurring losses since inception and has an accumulated deficit. This condition
raises substantial doubt regarding the Company’s ability to continue as a going
concern.  Management’s plans in regard to these matters are described
in Note 1 to the consolidated financial statements.  The consolidated
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the outcome of this
uncertainty.
  /s/
      Weinberg & Company, P.A.Weinberg
      & Company, P.A.
                  Los
      Angeles, California
                  March
      23, 2009
  F-2
  BALQON
CORPORATION
 CONSOLIDATED
BALANCE SHEETS
 
 December
                  31,
                  2008
              
              
              December
                  31,
                  2007ASSETSCurrent
      assetsCash
      and cash equivalents
              
              $
              355,615
              
              
              $
              34Accounts
      receivable
              
              
              —
              
              
              
              35,000Inventories
              
              
              1,159,601
              
              
              
              —Prepaid
      expenses
              
              
              43,020
              
              
              
              —Total
      current assets
              
              
              1,558,236
              
              
              
              35,034Property
      and equipment, net
              
              
              89,393
              
              
              
              21,047Other
      assets:Deposits
              
              
              33,641
              
              
              
              19,241Intangible
      production costs, net
              
              
              171,385
              
              
              
              —Goodwill
              
              
              166,500
              
              
              
              —Total
      assets
              
              $
              2,019,155
              
              
              $
              75,322LIABILITIES
      AND SHAREHOLDERS’ EQUITY (DEFICIENCY)Current
      liabilitiesAccounts
      payable and accrued expenses
              
              $
              1,225,806
              
              
              $
              29,212Notes
      payable to related parties
              
              
              100,875
              
              
              
              —Advances
      from shareholder
              
              
              34,877
              
              
              
              57,420Billings
      in excess of costs and estimated earningson
      uncompleted contracts
              
              
              2,604
              
              
              
              71,264Total
      current liabilities
              
              
              1,364,162
              
              
              
              157,896SHAREHOLDERS’
      EQUITY (DEFICIENCY)Common
      stock, $0.001 par value, 100,000,000 shares authorized,25,518,348
      and 16,667,000 shares issued and outstanding
              
              
              25,518
              
              
              
              5,000Additional
      paid in capital
              
              
              2,122,869
              
              
              
              —Accumulated
      deficit
              
              
              (1,493,395
              )
              
              
              (87,574
              )Total
      shareholders’ equity (deficiency)
              
              
              654,993
              
              
              
              (82,574
              )Total
      liabilities and shareholders’ equity (deficiency)
              
              $
              2,019,155
              
              
              $
              75,322
  The accompanying notes are
an integral part of these consolidated financial statements.
  F-3
  BALQON
CORPORATION
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 
 Years
      Ended
                  December
      31,2008
              
              
              2007REVENUESContract
      revenue earned
              
              $
              128,660
              
              
              $
              382,736Sale
      of parts
              
              
              75,000
              
              
              
              —Total
      revenues
              
              
              203,660
              
              
              
              382,736COSTS
      OF REVENUESContract
      costs
              
              
              69,078
              
              
              
              280,263Costs
      of parts
              
              
              68,975
              
              
              
              —Total
      cost of revenues
              
              
              138,053
              
              
              
              280,263Gross
      profit
              
              
              65,607
              
              
              
              102,473OPERATING
      EXPENSESGeneral
      and administrative
              
              
              956,328
              
              
              
              182,035Research
      & development
              
              
              44,023
              
              
              
              —Reverse
      merger expenses
              
              
              414,384
              
              
              
              —Depreciation
      and amortization
              
              
              29,836
              
              
              
              3,182Total
      operating expenses
              
              
              1,444,571
              
              
              
              185,217Loss
      from operations
              
              
              (1,378,964
              )
              
              
              (82,744
              )Interest
      expense
              
              
              (26,857
              )
              
              
              —NET
      LOSS
              
              $
              (1,405,821
              )
              
              $
              (82,744
              )Net
      loss per share – basic and diluted
              
              $
              (0.07
              )
              
              $
              (0.00
              )Weighted
      average shares outstanding, basic and diluted
              
              
              20,206,507
              
              
              
              16,667,000
   The accompanying notes are
an integral part of these consolidated financial statements.
  F-4


BALQON
CORPORATION
 CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIENCY)
 FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2008
 
   Common
      Stock, $0.001 par value
              
              
              Additional

                  Paid
      in
              
              
              AccumulatedNumber
              
              
              Amount
              
              
              Capital
              
              
              Deficit
              
              
              TotalBalance,
      January 1, 2007
              
              
              16,667,000
              
              
              $
              5,000
              
              
              $
              —
              
              
              $
              (4,830
              )
              
              $
              170Net
      loss
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (82,744
              )
              
              
              (82,744
              )Balance,
      December 31, 2007
              
              
              16,667,000
              
              
              
              5,000
              
              
              
              —
              
              
              
              (87,574
              )
              
              
              (82,574
              )Fair
      value of 5,333,000 shares granted for services
              
              
              5,333,000
              
              
              
              5,333
              
              
              
              72,263
              
              
              
              —
              
              
              
              77,596Fair
      value of 184,598 warrants granted for services
              
              
              —
              
              
              
              —
              
              
              
              23,906
              
              
              
              —
              
              
              
              23,906Effect
      of reverse merger transaction
              
              
              1,400,000
              
              
              
              13,067
              
              
              
              (13,067
              )
              
              
              —
              
              
              
              —Shares
      issued for cash
              
              
              785,000
              
              
              
              785
              
              
              
              707,753
              
              
              
              —
              
              
              
              708,538Shares
      issued upon conversion of convertible notes
              
              
              1,333,348
              
              
              
              1,333
              
              
              
              1,332,015
              
              
              
              —
              
              
              
              1,333,348Net
      loss
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              (1,405,821
              )
              
              
              (1,405,821
              )Balance,
      December 31, 2008
              
              
              25,518,348
              
              
              $
              25,518
              
              
              $
              2,122,869
              
              
              $
              (1,493,395
              )
              
              $
              654,993
   The
accompanying notes are an integral part of these consolidated financial
statements.
  F-5
  BALQON
CORPORATION
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
   Years
      Ended
                  December
      31,2008
              
              
              2007Cash
      flow from operating activities:Net
      loss
              
              $
              (1,405,821
              )
              
              $
              (82,744
              )Adjustments
      to reconcile net loss to net cash used in operating
    activitiesDepreciation
      and amortization
              
              
              29,836
              
              
              
              3,182Fair
      value of common stock granted for services
              
              
              77,596
              
              
              
              —Fair
      value of warrants granted for services
              
              
              23,906
              
              
              
              —Changes
      in operating assets and liabilitiesAccounts
      receivable
              
              
              35,000
              
              
              
              (35,000
              )Inventories
              
              
              (1,159,601
              )
              
              
              —Prepaid
      expenses
              
              
              (43,020
              )
              
              
              —Deposits
              
              
              (14,400
              )
              
              
              (19,241
              )Accounts
      payable and accrued expense
              
              
              1,196,595
              
              
              
              28,412Billings
      in excess of costs and estimated earnings onuncompleted
      contracts
              
              
              (68,660
              )
              
              
              71,264Net
      cash used in operating activities
              
              
              (1,328,569
              )
              
              
              (34,127
              )Cash
      flows from investing activities:Acquisition
      of furniture, equipment and software
              
              
              (82,603
              )
              
              
              (22,316
              )Acquisition
      of EMS
              
              
              (253,465
              )
              
              
              —Net
      cash used in investing activities
              
              
              (336,068
              )
              
              
              (22,316
              )Cash
      flows from financing activities:Proceeds
      from notes payable, related parties
              
              
              25,875
              
              
              
              —Payment
      of notes payable, related parties
              
              
              (25,000
              )Proceeds
      from  issuance of convertible notes, net
              
              
              1,333,348
              
              
              
              —Proceeds
      from sale of common stock
              
              
              708,538Advances
      from shareholder
              
              
              (22,543
              )
              
              
              56,477Net
      cash provided by financing activities
              
              
              2,020,218
              
              
              
              56,477Increase
      in cash and cash equivalents
              
              
              355,581
              
              
              
              34Cash
      and cash equivalents, beginning of year
              
              
              34
              
              
              
              —Cash
      and cash equivalents, end of year
              
              $
              355,615
              
              
              $
              34Supplemental
      cash flow informationInterest
      Paid
              
              $
              26,857
              
              
              $
              —Income
      taxes Paid
              
              $
              —
              
              
              $
              —Supplemental
      non cash financing and investing activitiesNote
      payable issued in connection with acquisition of EMS
              
              $
              100,000
              
              
              $
              —
   The accompanying notes are an integral part of these consolidated
financial statements.
  F-6
 BALQON
CORPORATION
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
  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 is involved
in research, development and commercialization of technologies for heavy-duty
electric vehicles used in off-highway applications.
  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, Balqon’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 Balqon deemed to be the accounting acquirer and
BMR deemed to be the legal acquirer.  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.  The Company incurred additional costs of $374,019 in
connection with the reverse merger that are reflected as costs in the
accompanying December 31, 2008 statement of operations.
  Going
Concern
  For the
year ended December 31, 2008, the Company had a net loss of $1,405,821 and
utilized cash of $1,328,569 in operations, and had an accumulated deficit of
$1,493,395 at December 31, 2008.  These matters raise substantial
doubt about the Company’s ability to continue as a going concern.  The
consolidated 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 its products will continue to be significant.  If
adequate funds are not available to satisfy either medium or long-term capital
requirements, the Company’s operations and liquidity could be materially
adversely affected and the Company could be forced to cut back its
operations.
  Principles
of Consolidation
  The
consolidated financial statements include the accounts of Balqon Corporation and
its wholly-owned subsidiary. Inter-company accounts and transactions have been
eliminated.
  F-7
 BALQON
CORPORATION
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
 NOTE
1 – NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(continued)
  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 Vehicle
  In
accounting for the development contract with the South Coast Air Quality
Management District (“AQMD”) of our prototype vehicle, 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.  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 Revenue
  The
Company recognizes revenue from sales of production units 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.
 Sales
of Parts Revenue
  The
Company recognizes revenue from sales of 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.
 Cash
and Cash Equivalents
  The
Company considers all highly liquid instruments with maturity of three months or
less at the time of issuance to be cash equivalents.
  Accounts
Receivable
  Trade
receivables are recorded at net realizable value consisting of the carrying
amount less an allowance for uncollectible accounts, as needed.
  The
Company uses the allowance method to account for uncollectible trade receivable
balances. Under the allowance method, if needed, an estimate of uncollectible
customer balances is made based upon specific account balances that are
considered uncollectible. Factors used to establish an allowance
include
  F-8
 BALQON
CORPORATION
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
 NOTE
1 – NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(continued)
  the
credit quality and payment history of the customer.  At December 31,
2008 and December 31, 2007, there was no allowance for doubtful
accounts.
  Inventories
  Inventories
consist of raw materials to be used for assembly and are stated at the lower of
cost or market. Cost is determined principally on a first-in-first-out average
cost basis
   Property
and Equipment
  Property
and equipment are stated at cost. The cost of property and equipment is
depreciated on the straight-line method over the following estimated useful
lives:
  Computer
      equipment and software
              3
      yearsFurniture
              3
      yearsMachinery
              3
      years
  Leasehold
improvements are amortized using the straight-line method over the shorter of
the estimated useful life of the asset or the lease term.
  Long-lived
Assets
  The
Company accounts for the impairment and disposition of long-lived assets in
accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144,
“Accounting for the Impairment or Disposal of Long-Lived Assets.”  In
accordance with SFAS No. 144, long-lived assets to be held are reviewed for
events or changes in circumstances that indicate that their carrying value may
not be recoverable. The Company periodically reviews the carrying value of
long-lived assets to determine whether or not impairment to such value has
occurred.  Based on management’s assessments, no impairments were
recorded during the years ended December 31, 2008 and 2007.
  Income
Taxes
  The
Company accounts 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 the Company’s 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.
  F-9
  BALQON
CORPORATION
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
 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. The computation of basic loss
per share includes the 1,400,000 shares issued in connection with the reverse
merger since October 24, 2008, the date of the merger (see
Note 1).  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 December 31, 2008 common stock equivalents composed of options
exercisable into 4,562,592 shares of the Company’s common stock and warrants
exercisable into 3,008,778 shares of the Company’s common stock. For the years
ended December 31, 2008 and 2007, common 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® “Share-Based Payment” effective January 1, 2006,
for all share-based payments granted based on the requirements of SFAS No. 123R
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.
  Financial
Assets and Liabilities Measured at Fair Value
  Effective
January 1, 2008, the Company adopted SFAS No. 157, “Fair Value
Measurements.” This Statement defines fair value for certain financial and
nonfinancial assets and liabilities that are recorded at fair value, establishes
a framework for measuring fair value, and expands disclosures about fair value
measurements. This guidance applies to other accounting pronouncements that
require or permit fair value measurements. On February 12, 2008, the Financial
Accounting Standards Board (“FASB”) finalized FASB Staff Position (“FSP”) No.
157-2, Effective Date of FASB Statement No. 157. This FSP delays the effective
date of SFAS No. 157 for nonfinancial assets and liabilities to fiscal years
beginning after November 15, 2008 and interim periods within those fiscal
years, except for those items that are recognized or disclosed at fair value in
the financial statements on a recurring basis (at least annually). The adoption
of SFAS No. 157 had no effect on the Company’s consolidated financial position
or results of operations.
  F-10
 BALQON
CORPORATION
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
 NOTE
1 – NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(continued)
  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
years ended December 31, 2008 and 2007, contract revenue earned was from one
development contract with the AQMD.  For
the year ended December 31, 2008, sale of parts were to one
customer.
 For the
year ended December 31, 2007, 35%, 31% and 13%, respectively, of contract
costs incurred were to three vendors.  At December 31, 2007, accounts
payable to one of these vendors represented 95% of total accounts
payable.
  For the
year ended December 31, 2008, 39%, 14% and 10%, respectively, of costs of
revenue were to three vendors.  At December 31, 2008, accounts
payable to the largest vendor represented 30% of total accounts payable
balances. Accounts payable to other two largest vendors represented 52% and 13%,
respectively, of total accounts payable at December 31, 2008.
  Research
and Development Costs
 The
Company accounts for research and development costs in accordance with SFAS No.
2, “Accounting for Research and Development Costs.” In accordance with SFAS No.
2 research and development costs are expensed as incurred.
  Registration
Payment Arrangements
  The
Company accounts for registration payment arrangements under FSP EITF Issue
No. 00-19-2, “Accounting for Registration Payment Arrangements.” FSP EITF
Issue No. 00-19-2 specifies that the contingent obligation to make future
payments under a registration payment arrangement should be separately
recognized and measured in accordance with SFAS No. 5, “Accounting for
Contingencies.”  The Company has not made any provision for
registration payment arrangements at December 31, 2008 or 2007 as it believes
none will be payable.
  Recent
Accounting Pronouncements
  In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations,” which
establishes accounting principles and disclosure requirements for all
transactions in which a company obtains control over another
business.  SFAS No. 141(R) 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 22, 2008. Earlier
adoption is prohibited.
  F-11
 BALQON
CORPORATION
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
 NOTE
1 – NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(continued)
  Recent
Accounting Pronouncements (continued)
  In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51.” SFAS No. 160
establishes accounting and reporting standards that require that the ownership
interests in subsidiaries held by parties other than the parent be clearly
identified, labeled, and presented in the consolidated statement of financial
position within equity, but separate from the parent’s equity; the amount of
consolidated net income attributable to the parent and to the noncontrolling
interest be clearly identified and presented on the face of the consolidated
statement of income; and changes in a parent’s ownership interest while the
parent retains its controlling financial interest in its subsidiary be accounted
for consistently. SFAS No. 160 also requires that any retained noncontrolling
equity investment in the former subsidiary be initially measured at fair value
when a subsidiary is deconsolidated. SFAS No. 160 also sets forth the disclosure
requirements to identify and distinguish between the interests of the parent and
the interests of the noncontrolling owners. SFAS No. 160 applies to all entities
that prepare consolidated financial statements, except not-for-profit
organizations, but will affect only those entities that have an outstanding
noncontrolling interest in one or more subsidiaries or that deconsolidate a
subsidiary. SFAS No. 160 is effective for fiscal years, and interim periods
within those fiscal years, beginning on or after December 22, 2008. Earlier
adoption is prohibited. SFAS No. 160 must be applied prospectively as of the
beginning of the fiscal year in which it is initially applied, except for the
presentation and disclosure requirements. The presentation and disclosure
requirements are applied retrospectively for all periods presented.
  In March
2008, the FASB issued SFAS No. 161,“Disclosures about
Derivative Instruments and Hedging Activities—an amendment of FASB Statement No.
133,” to improve financial reporting of derivative instruments and hedging
activities by requiring enhanced disclosures to enable investors to better
understand their effects on an entity’s financial position, financial
performance and cash flows. SFAS No. 161 applies to fiscal years and interim
periods beginning after November 15, 2008.
  The
Company does not believe that the adoption of the above recent pronouncements
will have a material effect on the Company’s consolidated results of operations,
financial position, or cash flows.
 
 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 – COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
  In May
2007, the Company entered into a $527,000 contract with the AQMD to develop a
prototype zero-emissions short-range heavy-duty all-electric truck used for
hauling fully loaded 40-foot cargo containers around the Port of Los
Angeles.  At December 31, 2008, the contract was estimated to be
approximately 98% complete.
  F-12
 BALQON
CORPORATION
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
 NOTE
2 – COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
(continued)
  The
asset, “costs in excess of billings and estimated earnings on uncompleted
contracts” and the liability, “billings in excess of costs and estimated
earnings on uncompleted contracts,” represents costs incurred or billings in
excess of revenue recognized at December 31, 2008 and 2007 as
follows:
 
 December
      31, 2008
              
              
              December
      31,
                  2007Costs
      incurred on uncompleted contracts
              
              $
              349,341
              
              
              $
              280,263Estimated
      earnings
              
              
              162,055
              
              
              
              102,473511,396
              
              
              
              382,736Less,
      billings to date
              
              
              514,000
              
              
              
              454,000$
              (2,604
              )
              
              $
              (71,264
              )Included
      in accompanying consolidated balance sheets under the following
      captions:Billings
      in excess of costs and estimated earnings on uncompleted
      contracts
              
              $
              2,604
              
              
              $
              71,264
  NOTE
3 - PROPERTY AND EQUIPMENT
  Property
and equipment are comprised as follows:
 December
      31, 2008
              
              
              December
      31, 2007Computer
      equipment and software
              
              $
              52,390
              
              
              $
              9,052Office
      furniture
              
              
              26,725
              
              
              
              9,172Machinery
              
              
              6,395
              
              
              
              6,395Leasehold
      improvements
              
              
              21,711
              
              
              
              —Total
      property and equipment, cost
              
              
              107,221
              
              
              
              24,619Less:
      accumulated depreciation
              
              
              (17,828
              )
              
              
              (3,572
              )Property
      and equipment, net
              
              $
              89,393
              
              
              $
              21,047
  Depreciation
expense for the years ended December 31, 2008 and 2007 was $14,256 and
$3,182, respectively.
  NOTE
4 – 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.
  F-13
 BALQON
CORPORATION
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
 NOTE
4 – BUSINESS ACQUISITION (continued)
  The
results of operations of EMS are included in the consolidated financial
statements of Balqon Corporation for the period of September 9, 2008 through
December 31, 2008. During this period the Company did not engage in the business
of selling flux vector inverters. 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
purchase price of the assets was $350,000, of which $250,000 was paid in cash
and the Company issued an unsecured promissory note for the balance of $100,000
is due in two installments of $50,000 each on April 10, 2009 and
May 10, 2009 (see Note 5).  The $350,000 purchase price,
together with legal costs of $3,465 incurred in connection with this asset
purchase, resulted in a total purchase price of the EMS assets of $353,465. The
Company engaged an independent valuation firm to assist management in the
allocation of the purchase price of the assets.  Based on management’s
assessment, including the utilization of the results of the independent
valuation report, the Company allocated the purchase price to the following
assets as of the acquisition date as follows:
  Intellectual
      property assets
              
              $
              186,965Goodwill
              
              
              166,500Total
              
              $
              353,465
  The
amounts of intangible assets and accumulated amortization for the year ended
December 31, 2008 and December 31, 2007 are as follows:
  December
      31,
                  2008
              
              
              December
      31,
                  2007Amortized
      intangible assets:Intellectual
      property assets
              
              $
              186,965
              
              
              $
              —Accumulated
      amortization
              
              
              (15,580
              )
              
              
              —Totals
              
              $
              171,385
              
              
              $
              —
  The
intangible production assets are being amortized over a three year period under
the straight-line method.  Amortization expense for the period
September 9 through December 31, 2008 was $15,580. Amortization expense over the
remaining amortization period is estimated to be as follows:
 
 Year Ending December
      31,2009
              
              $
              62,3222010
              
              
              62,3222011
              
              
              46,741
  F-14
 BALQON
CORPORATION
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
 NOTE
4 – BUSINESS ACQUISITION (continued)
  Pro-forma
statements of operations for the current and prior periods, as though the
business acquisition had been completed as of the beginning of the earliest
period presented are as follows:
 
 2008
                  (Unaudited)
              
              
              2007
                  (Unaudited)Revenues
              
              $
              332,596
              
              
              $
              494,585Cost
      of  revenues
              
              
              240,135
              
              
              
              337,954Gross
      profit
              
              
              92,461
              
              
              
              156,631Operating
      expenses
              
              
              1,451,419
              
              
              
              233,710Other
      income (expense)
              
              
              (26,857
              )
              
              
              —Net
      income (loss)
              
              $
              (1,385,815
              )
              
              $
              (77,079
              )Net
      loss per share – basic and diluted
              
              $
              (0.07
              )
              
              $
              (0.00
              )
  NOTE
5 – NOTES PAYABLE TO RELATED PARTIES
  Notes
payable consists of the following at:
  December
      31, 2008
              
              
              December
      31, 2007Note
      payable to a shareholder, unsecured, interest at 6%
                per
      annum payable at maturity, due December 6, 2008
              
              $
              875
              
              
              $
              —Note
      payable to a shareholder, issued in connection with
                the
      acquisition of EMS (see Note 4), unsecured, interest at
                the
      prime rate (5% at December 31, 2008) per annum, payable
                at
      maturity, due in two principal installments; $50,000 on
                April
      10, 2009 and $51,000 on May 10, 2009, plus accrued
                interest
              
              
              100,000
              
              
              
              —Total
      notes payable
              
              $
              100,875
              
              
              $
              —
  NOTE
6 – INCOME TAXES
  At
December 31, 2008, the Company had available Federal and state net
operating loss carryforwards to reduce future taxable income. The amounts
available were approximately $1,500,000 for Federal and for state purposes. The
Federal carryforward expires in 2027 and the state carryforward expires in 2017.
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.
  F-15
 BALQON
CORPORATION
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
 NOTE
6 – INCOME TAXES (continued)
  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:
 
 December31,
                  2008
              
              
              December31,
                  2007Deferred
      income tax asset:Net
      operating loss carryforward
              
              $
              1,478,692
              
              
              $
              83,230Valuation
      allowance
              
              
              (1,478,692
              )
              
              
              (83,230
              )Net
      deferred income tax asset
              
              $
              —
              
              
              $
              —
 
 Reconciliation
of the effective income tax rate to the U.S. statutory rate is as
follows:
 
 Year
      Ended December 31,2008
              
              
              2007Tax
      expense at the U.S. statutory income tax
              
              
              (34.00
              )%
              
              
              (34.00
              )%Increase
      in the valuation allowance
              
              
              34.00
              %
              
              
              34.00
              %Effective
      tax rate
              
              
              —
              %
              
              
              —
              %
  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 December 31, 2008, the Company does not have
a liability for unrecognized tax benefits.
  NOTE
7 – SHAREHOLDERS’ EQUITY
  The
Company was capitalized on April 21, 2005 when it issued 16,667,000 shares of no
par common stock for $5,000 to its founding shareholder.
  On June
4, 2008, the Board of Directors of the Company approved a 16,667:1 stock split
of the Company’s no par common stock. All share amounts in the accompanying
consolidated financial statements are presented as if the stock split occurred
at the beginning of the period presented.
  F-16
 BALQON
CORPORATION
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
 NOTE
7 – SHAREHOLDERS’ EQUITY (continued)
  Shares
Issued For Services
  On June
4, 2008, the Company issued 4,500,090 shares of common stock to consultants for
services rendered. The shares were valued at $65,476. Included in the 4,500,090
shares of common stock granted to consultants on June 4, 2008, are 1,250,025
shares of common stock, valued at $18,189, that were granted to the brother of
the founding shareholder. On August 28, 2008, the Company issued 500,000 shares
of common stock valued at $7,275 to three consultants for services rendered.
Also on August 28, 2008, the Company issued 332,910 shares of common stock
valued at $4,844 to its Chief Executive Officer and founding
shareholder.
  The
Company was private on the date the shares discussed above were granted and
there was no readily available market quotations for the Company’s shares of
common stock.  As such, the shares granted prior to the reverse merger
transaction were valued by management with the assistance of an independent
valuation firm. The valuation determined by management based upon the valuation
information resulted in a value of $0.015 per share, which amount was the basis
of the compensation expense recorded on the issuance of the shares.
  Shares
Issued For Cash
  During
2008, the Company raised aggregate net proceeds of $708,538 (after closing
costs) through the issuance of 785,000 shares of its common
stock.  The shares were sold in units that allowed the investor to
acquire one share of common stock and 1 warrant to acquire one share of common
stock at a price of $1 per unit as follows:
  On
October 24, 2008, immediately preceding the closing of the merger with
Balqon Corporation (formerly BMR) (see Note 1), Balqon California raised an
aggregate of $575,000 through the issuance of 575,000 shares of common stock at
$1.00 per share to six accredited investors (the “October Private Placement”).
In connection with this offering, Balqon California also issued three-year
warrants to purchase an aggregate of 575,000 shares of common stock at an
exercise price of $1.50 per share (the “October Warrants”).
  On
December 22, 2008, Balqon Corporation (formerly BMR) the Company raised an
aggregate of $210,000 through the issuance of 210,000 shares of common stock at
$1.00 per share to ten accredited investors (the “December Private Placement”).
In connection with this offering, Balqon Corporation (formerly BMR) also issued
three-year warrants to purchase an aggregate of 210,000 shares of common stock
at an exercise price of $1.50 per share (the “December Warrants”).
  F-17
 BALQON
CORPORATION
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
 NOTE
7 – SHAREHOLDERS’ EQUITY (continued)
  Shares
Issued Upon Conversion Of Convertible Notes
  During
July and September 2008, the Company raised an aggregate of $1,310,000 through
the issuance to accredited investors of senior secured convertible promissory
notes (the “July Private Placement” and the “September Private Placement”). The
notes were due January 2, 2009, bore interest at a rate of 10% per annum
that was due at maturity, and were secured by substantially all of the assets of
the Company.  The notes were convertible into shares of common stock
of the Company at a conversion price of $1.00 per share.  In
connection with the placement, the Company also issued warrants to acquire
1,310,000 shares of common stock at an exercise price of $1.50 per share. The
Company determined the fair value of the warrants and the conversion features
were di minimis at the date of issuance (see Note 8).
  On
October 24, 2008, the notes issued in the July and September Private Placements,
including accrued interest thereon, were converted into an aggregate of
1,333,348 shares of common stock of the Company.
  NOTE
8 – STOCK OPTIONS AND WARRANTS
  Stock
Options
  At
December 31, 2008, options shares outstanding are as follows:
  Shares
              
              
              Weighted
                  Average
                  Exercise
                  PriceBalance
      at January 1, 2008
              
              
              —
              
              
              
              —Granted
              
              
              4,562,592
              
              
              $
              2.00Exercised
              
              
              —
              
              
              
              —Cancelled
              
              
              —
              
              
              
              —Balance
      at December 31, 2008
              
              
              4,562,592
              
              
              $
              2.00
  On June
4, 2008, the Company granted options to purchase 4,562,592 shares of common
stock at $1.50 to $2.50 per share to an employee and two consultants. The
options vested immediately on the date granted, and expire between June 30,
2010 and June 30, 2012.  The Company determined that the fair
value of the options issued was di minimis as calculated by a Black-Scholes
option pricing model using as assumptions an expected life of 3 years, an
industry volatility of 58.43%, a risk free interest rate of 2.42%, and no
expected dividend yield. Because the Company was private on the date the options
were granted and there was no readily available market quotations for the
Company’s shares of common stock, the fair value of the options granted were
valued using a fair value of $0.015 per share, which is based on a valuation
performed by management prior to the reverse merger transaction with the
assistance of an independent valuation firm.
  On
October 24, 2008, immediately preceding the consummation of the merger with
Balqon California (see Note 1), Balqon Corporation (formerly BMR) adopted the
2008 Stock Incentive Plan (“2008 Plan”). Initially, 7,500,000 shares of common
stock are authorized for issuance under the 2008 Plan.
  F-18
 BALQON
CORPORATION
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
 NOTE
8 – STOCK OPTIONS AND WARRANTS (continued)
  Stock
Options (continued)
  The
following table summarizes information about stock options outstanding and
exercisable as of December 31, 2008:
  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
December 31, 2008, the aggregate intrinsic value of the 4,562,592 options
outstanding and exercisable was zero.  At December 31, 2008, all
options were vested and there were no unvested options outstanding.
  Warrants
  At
December 31, 2008, warrants shares outstanding are as follows:
  Shares
              
              
              Weighted
                  Average
      Exercise PriceBalance
      at January 1, 2008
              
              
              —
              
              
              
              —Granted
              
              
              3,008,778
              
              
              $
              1.50Exercised
              
              
              —
              
              
              
              —Cancelled
              
              
              —
              
              
              
              —Balance
      at December 31, 2008
              
              
              3,008,778
              
              
              $
              1.50
  F-19
  BALQON
CORPORATION
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
  NOTE
8 – STOCK OPTIONS AND WARRANTS (continued)
  Warrants
(continued)
  On June
4, 2008, the Company granted a warrant to purchase 729,180 shares of the
Company’s common stock at an exercise price of $1.50 to $2.50 per share to a
consultant (the “Marlin Warrants”). The Company determined that the fair value
of the warrants issued to this consultant was di minimis as calculated by a
Black-Scholes option pricing model using as assumptions an expected life of 3
years, an industry volatility of 58.43%, a risk free interest rate of 2.42%, and
no expected dividend yield. Because the Company was private on the date the
options were granted and there was no readily available market quotations for
the Company’s shares of common stock, the fair value of the options granted were
valued using a fair value of $0.015 per share, which is based on a valuation
performed by management prior to the reverse merger transaction with the
assistance of an independent valuation firm.
  On
September 15, 2008, the Company issued warrants to purchase 1,310,000 shares of
the Company’s common stock at an exercise price of $1.50 per share in connection
with the issuance of convertible promissory notes entered into with investors on
July 11, 2008 and September 15, 2008.  The Company determined that the
fair value of the warrants was di minimis as calculated by a Black-Scholes
option pricing model using as assumptions an expected life of 3 years, an
industry volatility of 58.43%, a risk free interest rate of 2.42%, and no
expected dividend yield. Because the Company was private on the date the
warrants were granted and there was no readily available market quotations for
the Company’s shares of common stock, the fair value of the warrants granted
were valued using a fair value of $0.015 per share, which is based on a
valuation performed by management prior to the reverse merger transaction with
the assistance of an independent valuation firm.
  On
October 24, 2008, immediately preceding the closing of the merger (see
Note 1), Balqon Corporation (formerly BMR) issued warrants (the “BMR
Warrants”) to purchase an aggregate of 184,598 shares of common stock. One-third
of the BMR Warrants have an exercise price of $1.50 per share and expire on
October 24, 2009, one-third of the BMR Warrants have an exercise price of
$2.00 per share and expire on October 24, 2010, and one-third of the BMR
Warrants have an exercise price of $2.50 per share and expire on
October 24, 2011. The Company determined that the fair value of the
warrants was $23,906 as calculated by a Black-Scholes option pricing model using
as assumptions a market price of the stock of $1.00 per share based upon sales
of securities around the same date, an expected life of 3 years, an industry
volatility of 58.43%, a risk free interest rate of 2.42%, and no expected
dividend yield.
  During
2008, the Company sold units to acquire one share of common stock and one
warrant to acquire a share of common stock at a price of $1 per unit. In
connection with the sale of these units, on October 24, 2008, the Company issued
three-year warrants to purchase 575,000 shares of the Company’s common stock at
an exercise price of $1.50 per share in connection with the issuance of 575,000
common shares to six accredited investors.  On December 22, 2008, the
Company issued three-year warrants to purchase an aggregate of 210,000 shares of
common stock at an exercise price of $1.50 per share.  The Company did
not allocate a value to these warrants since the amount would be an allocation
between paid in capital of the common stock and warrants, and have no effect on
the overall paid in capital.
 F-20
 BALQON
CORPORATION
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
 NOTE
8 – STOCK OPTIONS AND WARRANTS (continued)
  Warrants
(continued)
  The
Company did not allocate any value to these warrants are such value would have
no effect on recorded additional paid in capital.
  The
following table summarizes information about stock warrants outstanding and
exercisable as of December 31, 2008:
 
 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
              2,399,594
              $1.50
              2.8
              2,399,594
              $1.50$2.00
              304,592
              $2.00
              2.0
              304,592
              $2.00$2.50
              304,592
              $2.50
              3.0
              304,592
              $2.503,008,778
              
              
              3,008,778
 
 At
December 31, 2008, the aggregate intrinsic value of the warrants outstanding and
exercisable was zero
  NOTE
9 – COMMITMENTS AND CONTINGENCIES
  Contract
  On June
25, 2008, the Company entered into an agreement with the City of Los Angeles to
manufacture 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 Angelesin 2009.  The
Company will recognize revenues from the sale of these vehicles and associated
equipment at the time that delivery of product has occurred and title has
transferred.
  The
Company agreed to move its research and production facilities to the City of Los
Angeles and also agreed to pay the City of Los Angeles a royalty fee of $1,000
per electric vehicle it sells to a purchaser other than the City of Los Angeles
or the AQMD.
  On May
14, 2008, the Company entered into an agreement with the AQMD to manufacture and
deliver one  electric yard hostler and associated equipment including
batteries, battery chargers , and equipment maintenance services for a total of
$300,000. The Company will recognize revenues from the sale of this vehicle and
associated equipment at the time that delivery of the product has occurred and
title has transferred.
  F-21
  BALQON
CORPORATION
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
 NOTE
9 – COMMITMENTS AND CONTINGENCIES (continued)
  Employment
Contracts
  On
October 24, 2008, the Company signed an at will employment agreement with its
CEO. The employment agreement is effective October 24, 2008 and provides for,
among other items, the CEO to receive compensation of $250,000 per year with an
increase to $300,000 per year after the second anniversary of the effective date
of the employment agreement.
  On
October 24, 2008, the Company signed an at will employment agreement with its
Vice President Engineering. The employment agreement is effective October 24,
2008 and provides for, among other items, the Vice President Engineering to
receive compensation of $150,000 per year with an increase to $175,000 per year
after the second anniversary of the effective date of the
agreement.
  On March
27, 2009, the Company signed an at will employment agreement with its Vice
President Research and Development. The employment agreement is effective
October 24, 2008 and provides for, among other items, the Vice President
Research and Development to receive compensation of $150,000 per year with an
increase to $175,000 and $200,000 per year after the second and third
anniversary, respectively, of the effective date of the
agreement.
  Leases
  The
Company leases its research and development facilities located in Santa Ana,
California under a lease that expires on May 31, 2009. The lease has a current
monthly payment of $3,206. On July18, 2008, the Company entered into a
three-year lease of a manufacturing facility located in Harbor City, California
that expires on July 31, 2011. The lease has a base monthly rent of
$10,540.
  Rent
expense for the years ended December 31, 2008 and 2007 was $98,008 and $25,787,
respectively.
  The
following is a schedule by years of future minimum rental payments required
under the non-cancelable operating leases described above as of December 31,
2008:
  Years ending December
      31:2009
                
                $
                96,8332010
                
                
                139,4402011
                
                
                122,8802012
                
                
                71,680Thereafter
                
                
                —
  F-22
 BALQON
CORPORATION
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
 NOTE
9 – COMMITMENTS AND CONTINGENCIES (continued)
  Registration
Rights Agreements
  In
connection with the July Private Placement, September Private Placement and
October Private Placement, Balqon California entered into certain registration
rights agreements (collectively, the “Balqon California Registration Rights
Agreements”). In connection with the December Private Placement, Balqon
Corporation (formerly BMR) entered into certain registration rights agreements
(collectively, the “Balqon Corporation Registration Rights Agreements”). Under
the Balqon California Registration Rights Agreements and the Balqon Corporation
Registration Rights Agreements, Balqon Corporation (formerly BMR) is obligated
to register for resale an aggregate of up to 3,793,348 shares of common stock,
of which an aggregate of 1,885,000 shares of common stock underly the July
Warrants, September Warrants, October Warrants and December Warrants.
Immediately preceding the consummation of the merger with Balqon California,
Balqon Corporation (formerly BMR) also entered into a registration rights
agreement (the “BMR Registration Rights Agreement”) with its stockholders to
register for resale an aggregate of up to 1,400,000 shares of BMR’s common stock
and with the holders of the BMR Warrants to register for resale an aggregate of
184,598 shares of common stock underlying the BMR Warrants.
  Under the
Balqon California Registration Rights Agreements, Balqon Corporation
Registration Rights Agreements and the BMR Registration Rights Agreement, Balqon
Corporation (formerly BMR)  filed a registration statement with the
SEC on December 23, 2008, registering for resale all shares of common stock
covered by the Balqon Registration Rights Agreements, Balqon Corporation
Registration Rights Agreements and BMR Registration Rights
Agreement.
 NOTE
10 - SUBSEQUENT EVENTS
  Bank
Financing Agreement
  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.
  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.
  F-23
 BALQON
CORPORATION
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
 NOTE
10 - SUBSEQUENT EVENTS (continued)
  Bank
Financing Agreement (continued)
  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 the Lender
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, the Lender may accelerate the
payment of the principal balance requiring the Company 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 the Company’s personal property (subject to customary exceptions). The
Credit Agreement may be terminated at any time by either party to the Credit
Agreement. If the Company terminates the Credit Agreement prior to February 18,
2010, the Company 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
Agreement by 80% (or such greater or lesser percentage as the Lender may
establish from time to time).
  Sale
of 10% Unsecured Subordinated Convertible Promissory Notes
  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.
 F-24
 
 SIGNATURES
  Pursuant
to the requirements of Section 13 or 15(d) 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 on this 31st day of March,
2009.
  BALQON
      CORPORATIONBy:
                /s/ BALWINDER
      SAMRABalwinder
      Samra,
                  Chairman
      of the Board, President and
                    Chief
      Executive Officer (principal executive
officer)
 By:
                  /s/ ROBERT
      MIRANDARobert
      Miranda,
                    Chief
      Financial Officer (principal financial
officer)
 Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
  Name
                
                Title
                
                Date/s/
      BALWINDER SAMRA
                
                President,
      Chief Executive Officer and
                
                March
      31, 2009Balwinder
      Samra
                
                Director
      (principal executive officer)/s/
      ROBERT MIRANDA
                
                Chief
      Financial Officer (principal financial
                
                March
      31, 2009Robert
      Miranda
                
                officer
      and principal accounting officer)/s/
      HENRY VELASQUEZ
                
                Director
                
                March
      31, 2009Henry
      Velasquez/s/
      AMARPAL SINGH SAMRA
                
                Director
                
                March
      31, 2009Amarpal
      Singh Samra
  77
  BALQON
CORPORATION
 EXHIBITS
ATTACHED TO THIS REPORT
 
 ExhibitNumber
              Description4.9
              Form
      of Warrants issued by the Registrant to certain security holders to
      purchase an aggregate of 50,000 shares of common stock10.6
              Amendment
      and Restated Registration Rights Agreement, dated September 15, 2008,
      by and between Balqon California and certain security
    holders10.7
              Registration
      Rights Agreement, dated September 15, 2008, by and between Balqon
      California and certain security holders10.11
              Purchase
      and Service Agreement, dated May 15, 2008, between the South Coast Air
      Quality Management District and Balqon California10.18
              Asset
      Purchase Agreement, dated September 9, 2008, by and between Electric
      Motor Sports, LLC and Balqon California10.19
              Promissory
      Note, dated September 9, 2009, in the amount of $100,000, issued to
      Electric Motor Sports, LLC10.20
              Employment
      Agreement, dated October 24, 2008, by and between Robert Gruenwald and the
      Registrant10.21
              Agreement,
      dated May 2007, by and between the South Coast Air Quality Management
      District and Balqon California10.22
              Stock
      and Warrant Purchase Agreement, dated August 28, 2008, by and between
      Marlin Financial Group, Inc. and Balqon California10.23
              Amendment
      to Stock and Warrant Purchase Agreement, dated March 30, 2009, by and
      between Marlin Financial Group, Inc. and Balqon
  California10.24
              Form
      of 10% Unsecured Subordinated Convertible Promissory Notes issued in March
      2009, in the aggregate principal amount of $50,000, which are convertible
      into an aggregate of 50,000 shares of our common stock31.1
              Certification
      of Principal Executive Officer 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 200231.2
              Certification
      of Principal Financial Officer 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 200232.1
              Certification
      of Chief Executive Officer and Chief Executive Officer Pursuant to
      18 U.S.C. Section 350, as Adopted Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 200299.1
              Consent
      of John Kinross-Kennedy99.2
              Consent
      of John Kinross-Kennedy








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