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, 2009
  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 jurisdiction of incorporation or organization)
33-0989901

(I.R.S. Employer Identification No.)1420 240th Street, Harbor City, California 90710

(Address of principal executive offices)
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.   Yes o  No x
  Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.   Yes o  No x
  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.   Yes x  No o
  Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes o  No o
  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 (do not check if Smaller Reporting Company)  o
Smaller Reporting Company  x
 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes o  No x
  The aggregate market value of the voting common equity held by nonaffiliates of the registrant, computed by reference to the closing price of such stock on June 30, 2009 (or the last date preceding June 30, 2009 when the registrant’s common stock was traded), the last business day of the registrant’s most recently completed second fiscal quarter, was $14,100,042.
  The number of shares outstanding of the Registrant’s common stock, $0.001 par value, as of March 23, 2010was 25,718,348.
  DOCUMENTS INCORPORATED BY REFERENCE
 None
 BALQON CORPORATION
 ANNUAL REPORT ON
 FORM 10-K
 FOR THE YEAR ENDED DECEMBER 31, 2009
 
 TABLE OF CONTENTS
 
 PagePART IItem 1.
Business.
3Item 1A.
Risk Factors.
21Item 1B.
Unresolved Staff Comments.
32Item 2.
Properties.
32Item 3.
Legal Proceedings.
32Item 4.
(Removed and Reserved).
33PART IIItem 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
33Item 6.
Selected Financial Data.
34Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
34Item 7A.
Quantitative and Qualitative Disclosures About Market Risk.
45Item 8.
Financial Statements and Supplementary Data.
46Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
46Item 9A.
Controls and Procedures.
46Item 9A(T).
Controls and Procedures.
46Item 9B.
Other Information.
48PART IIIItem 10.
Directors, Executive Officers and Corporate Governance.
49Item 11.
Executive Compensation.
55Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
61Item 13.
Certain Relationships and Related Transactions, and Director Independence.
74Item 14.
Principal Accounting Fees and Services.
80PART IVItem 15.
Exhibits and Financial Statement Schedules.
82
 2
  CAUTIONARY STATEMENT
  All statements included or incorporated by reference in this Amendment No. 1 to 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 zero-emissions 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 California South Coast Air Quality Management District, or AQMD.  We also design, assemble and market components for electric vehicles including flux vector motor controllers (which control the speed of an electric motor by varying the input frequency and voltage from a vehicle’s batteries), electric drive systems (each system includes an electric motor, a flux vector motor controller, a transmission assembly and related propulsion software) and battery modules (which features our proprietary battery management system, or BMS, an electronic device mounted on each battery cell to monitor the state of charge of the battery, including its temperature, voltage and current during charge and discharge cycles) to original equipment manufacturers, or OEMs, of automotive products.
  In 2009, we released our lithium-ion battery powered product line of heavy-duty electric trucks and tractors with the capability to transport over 30 tons of load in off-highway and on-highway applications.  In 2009, we also upgraded all our heavy-duty electric vehicles from lead acid batteries to lithium-ion batteries.  Prior to the incorporation of lithium-ion battery modules into our electric vehicles, our Nautilus product line featured predecessors of the Nautilus XE20 and Nautilus XE30, the Nautilus E20 and Nautilus E30, respectively, which were powered by lead acid battery modules.  As of the date of this report, our product portfolio features two products in our Nautilus product line, the Nautilus XE20, a heavy-duty electric yard tractor, and the Nautilus XE30, a heavy-duty electric short-haul tractor.  In addition, our product portfolio features  a heavy-duty Class 7 and Class 8 electric truck, the Mule M150, which is designed as a zero emissions solution to transport loads of up to 7 tons in short-haul on-highway applications.
  3
 Currently, the majority of vehicles used to transport containers and trailers in off-highway applications such as marine terminals, industrial plants and warehouses worldwide are powered by fossil fuels resulting in air and noise pollution.  In addition, these fossil fuel powered vehicles have low fuel economy and high vehicle maintenance costs due to the high idle rate of these off-highway applications.  During 2009, tests conducted on our Nautilus XE20 in industrial warehousing applications demonstrated significantly lower operating costs when compared to diesel powered competitive yard tractors.  A key element of our strategy is to establish a global network of dealers and strategic chassis partners to market and sell our zero emissions heavy-duty electric vehicles in high idling off-highway and short-haul on-highway applications worldwide as a lower operating cost and environmentally friendly alternative to fossil fuel powered vehicles.  In addition, we plan to market and sell our electric drive systems, flux vector motor controllers and battery modules to OEMs worldwide.
  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 five speed automatic transmission which results in high torque to pull heavy loads during start-stop applications.  In addition, in 2008, we acquired the assets of a company that designed and manufactured a complete line of flux vector motor controllers for electric vehicles since 1997, and had an installed base of over 250 flux vector motor controllers in mining, industrial and automotive industries at the time of the acquisition.  In 2007, we developed a high capacity 240 kW flux vector motor controller that is Society of Automotive 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 between engine and transmission to optimize fuel efficiency and vehicle emissions.  Our flux vector motor controllers are designed with proprietary software which provides high speed digital communication between the electric motor and five speed automatic transmission of our vehicles resulting in a higher efficiency and higher torque electric drive system than a conventional direct electric drive system.  In addition, we utilize a SAE J1939 Can Bus system to communicate between our charger, batteries and vehicle diagnostic system.  We believe that having our vehicles designed on a single platform communication system (i.e., a J1939 CAN Bus) equipped with a proprietary intuitive diagnostic system connecting all major propulsion, energy and vehicle systems provides reliability and a high level of efficiency for our vehicles in the field.
  During 2009, we entered into a three year agreement with Autocar LLC, or Autocar, to be the  exclusive supplier of on-road cab-over Class 7 and Class 8 vehicle chassis for our Nautilus XE30 and Mule M150 product line in North America.  Our agreement also outlines joint marketing and sales terms and conditions under which we will utilize Autocar’s nationwide dealer network to provide aftermarket support and service for our Nautilus XE30 and Mule M150.
  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, or Merger Transaction.  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.
  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 at the Port of Los Angeles, a heavy-duty electric drayage tractor incorporating what is now our proprietary flux vector motor controller technology and heavy-duty electric drive system.  The zero emissions electric tractor has since successfully passed rigorous testing conducted by the Port of Los Angeles.
  In May 2008, Balqon California received a purchase order from the AQMD for one Nautilus E20 electric yard tractor to be used in a demonstration program to demonstrate the benefits of using zero emissions electric vehicles in off-highway container transportation applications.  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 were 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.  In March 2009, we delivered a Nautilus E20 to the AQMD and under the terms of the AQMD Purchase Agreement.  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.
  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 5 Nautilus E30 short-haul tractors, all of which will be used at the Port of Los Angeles.  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.  As of March 23, 2010, we have delivered 14 Nautilus E20s (including four Nautilus XE20s), to the Port of Los Angeles under the terms of the City of Los Angeles Agreement.
  5
 In September 2008, Balqon California entered into an agreement with Electric Motorsports, LLC, or EMS, and its sole member, Robert Gruenwald, to acquire substantially all of the assets of EMS, including all intellectual property assets used in the development and manufacture of flux vector motor controllers.  At the time of the acquisition, EMS had been engaged in developing, designing and manufacturing flux vector motor controllers 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 motor controllers 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, delivery trucks 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 motor controllers for use in heavy-duty applications.
  In May 2009, we received a grant of up to $400,000 from the City of Los Angeles to reimburse us for costs we incur in connection with the installation, demonstration and evaluation of lithium-ion powered battery modules in two of our zero emissions Nautilus vehicles, or Lithium-ion Grant.  Upon completion of the testing of these two vehicles, one Nautilus XE20 and one Nautilus XE30, the City of Los Angles will have the right to purchase these test vehicles against the City of Los Angeles Agreement.  In June 2009, we completed the assembly of a Nautilus XE30 retrofitted with lithium-ion battery modules, and an initial testing of this Nautilus XE30 demonstrated a range of over 150 miles on a single charge under unloaded conditions.  In August 2009, we  completed the assembly of a Nautilus XE20 retrofitted with lithium-ion battery modules, and an initial testing of this Nautilus XE20 demonstrated a range of 95 miles on a single charge under unloaded conditions.
  In June 2009, we entered into an agreement with Autocar to collaborate on the development, marketing and sale of cab-over on-highway Class 7 and Class 8 zero emissionselectric trucks to be used in short-haul drayage and refuse hauling applications in North America.  Under the terms of the Autocar Agreement, we agreed to purchase Department of Transportation, or DOT, compliant chassis designed for cab-over-engine-heavy-duty vehicles, or Autocar Chassis, exclusively from Autocar for a period of at least three years.  The Autocar Agreement is for an initial term commencing on June 9, 2009 and ending 36 months after the first sale of an Autocar Truck by us to an end user, or the First Sale.  After the initial term, the Autocar Agreement will automatically continue for successive one-year terms until it is terminated at the end of its term by either party giving the other party notice of termination at least 60 days prior to the end of the applicable term.  Under the Autocar Agreement, we agreed to purchase: a minimum of 50 Autocar Chassis during the first 12-month period after the First Sale (with at least 5 Autocar Chassis being purchased by December 9, 2009), a minimum of 75 Autocar Chassis during the second 12-month period after the First Sale, and a minimum of 112 Autocar Chassis during the third 12-month period after the First Sale.  We purchased five Autocar Chassis during 2009 and, as of March 23, 2010, we have assembled one XE30 using an Autocar Xpeditor chassis and incorporating our heavy-duty drive system and lithium–ion battery technology.  As of the date of this report, the completed XE30 is undergoing DOT testing.  Upon completion of the DOT testing, we plan to market our vehicles through Autocar’s existing authorized commercial truck dealer network in North America.
  During the term of the Autocar Agreement, Autocar has agreed that it will not partner with any supplier of electric drive systems other than with us for Autocar’s production of on-highway Class 7 or Class 8 drayage vehicles for sale in North America (other than partners or suppliers of hydraulic hybrid or parallel hybrid systems), without our prior written consent.  During the term of the Autocar Agreement and for an additional 12 months following termination of the Autocar Agreement, we agreed that we will not partner with, sell or otherwise supply or install electric drive systems to any OEM other than Autocar for all on highway Class 7 and Class 8 drayage vehicles, refuse vehicles, aircraft service vehicles or any other application appropriate for cab-over engine chassis for sale in the United States, Canada or Mexico, without Autocar’s prior written consent.  However, we may sell such vehicles during the 12 months following termination of the Autocar Agreement without Autocar’s prior written consent if we pay Autocar a fee of $6,000 per vehicle.
  6
 We have agreed with Autocar to jointly provide aftermarket services for the Autocar Trucks, with us servicing the drive systems and Autocar servicing the Chassis.  We have also agreed with Autocar to jointly develop sales leads, coordinate sales facilities, and train each other’s sales forces in the operation and sale/lease of the Autocar Trucks.  During the term of the Autocar Agreement, we will pay Autocar a sales commission of 3% of the purchase price of any electric vehicle we sell to an end-user arising out of or resulting from sales leads generated by Autocar or its dealers.
  In September 2009, we released our first on-highway heavy-duty electric truck for short-haul on-highway applications, the Mule M150.  The Mule M150, is 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.  The Mule M150 is equipped with our fully integrated heavy-duty electric drive system and lithium-ion batteries.  Our Mule M150 can travel at a maximum speed of 55 miles per hour and has a range of 150 miles on a single charge under unloaded conditions.
  In January 2010, we released our lithium-ion battery powered yard tractor, the Nautilus XE20, with a range of 95 miles and maximum speed of 25 miles per hour under unloaded conditions.  The Nautilus XE20 incorporates our latest drive system and proprietary BMS on a Autocar Xspotter yard tractor chassis.  In February 2010, we successfully completed eight weeks of cold weather testing on our Nautilus XE20 in actual industrial applications during two eight hour shift operations at temperatures below 10°F under loads exceeding 30 tons.
  In March 2010, we completed design and testing of our proprietary BMS, which monitors battery condition and balances battery cells during charge and discharge cycles.  Our proprietary software allows our BMS to be used on any battery cell chemistry.  We use our proprietary BMS in all our heavy-duty electric vehicles.  In addition, we market our battery modules to other OEMs worldwide.  As of the date of this filing, we have  received purchase orders for our battery modules and heavy-duty electric drive systems from OEM of electric and hybrid buses.
  Electric Vehicle Industry
  Over the past 20 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 and improved performance.  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 2008, petroleum consumption in the United States, as reported by the United States Department of Energy in the Transportation Energy Data Book, averaged approximately 19 million barrels per day, which represents an average annual percentage increase in consumption of approximately 0.3% over a period of ten years.  According to data published by the United States Department of Energy, of the total amount of crude oil consumed in the United States in 2008, approximately 69% was consumed by the transportation industry which has seen an increase in consumption of approximately 0.8% per year over a ten 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.
  7
 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 20-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 vehicle platforms as an alternative to current fossil fuel based transportation solutions.  In addition to being incorporated into our heavy-duty electric vehicles, our electric drive systems can also be incorporated into refuse trucks, street sweepers, delivery vans, airport ground support equipment and inner city delivery trucks.
  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 (such as the development of lithium cobalt oxide thin cathodes) are expected to improve battery energy density and increase battery life by approximately 200% resulting in an expected increase in range of production vehicles 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 vehicles fully integrate components such as an electric motor, a transmission, a flux vector motor controller, battery modules, and a battery charger on a single software platform.  We believe that our proprietary software allows us the agility and adaptability to configure our vehicles to specific application needs in both on-highway and off-highway markets.  Our operational strategy to partner with existing chassis manufacturers in each various market segments 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.
  8
 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 or 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 natural 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.
  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 capable high capacity liquid cooled flux vector motor controllers and fully integrated and configurable heavy-duty electric drive system increase the reliability of our electric vehicles.  Our flux vector motor controllers, that range in power from 20 kW to 240 kW, 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 products, the Nautilus XE30 electric short-haul tractor and the Nautilus XE20 electric yard tractor, incorporate lithium-ion batteries, our proprietary flux vector motor controller, and an electric motor that is directly coupled to a heavy-duty automatic transmission, which allows for the ability to transport heavy loads over long distances.
  ·
Low Operating Costs.Our products target high idling vehicle applications, applications that most current fossil fuel powered vehicle designs have poor fuel economy.  Our vehicles are designed such that their electric motors shut off while they are idling, resulting in our vehicles having lower operating and maintenance costs and increased vehicle life than fossil fuel powered vehicles operating in high idling applications.
  9
  ·
High Efficiency.  Our heavy-duty electric drive system consumes lower energy in high idling applications when compared to combustion powered vehicles.  In addition, our heavy-duty electric drive system is equipped with a regenerative braking system which captures the energy back into the batteries during braking, saving brake wear and increasing energy efficiency as compared to fossil fuel powered vehicles.
  ·
Highly Configurable Technology. Our proprietary technologies can be configured to serve a variety of platforms and the specific needs of our customers.  All major components in our fully integrated heavy-duty electric drive system communicate over an SAE J1939 CAN Bus system that allows us to configure a vehicle’s performance through uploading of key parameters utilizing our 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 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 leaders in the zero emissions heavy-duty electric truck market worldwide, we plan to continue the development of new drive system technologies that increase the performance of our vehicles and simultaneously continue the development of additional configurations of our products to address short-haul on-highway markets.  We believe that growing environmental concerns related to heavy-duty vehicle emissions combined with our belief that electric vehicles are inherently more cost effective and reliable than fossil fuel powered vehicles is the primary value proposition of our heavy-duty trucks.  We believe that continued development in battery technology resulting in increased vehicle range will benefit the market of zero emissions heavy-duty electric vehicles in short-haul and off-highway applications.  The primary elements of our business strategy include:
  ·
Increase our current market presence and selectively pursue new opportunities.  We intend to increase our global distribution network to increase the markets for the Nautilus XE30 and Nautilus XE20.  In addition, we plan to partner with OEMs of body manufacturers for application such as refuse vehicles, delivery vans, refueling vehicles and street cleaning vehicles to offer additional product configurations to our customers and dealers worldwide.
  ·
Develop technologies that can be easily adapted for use in various platforms.Our proprietary electric drive system and our lithium-ion battery modules are configurable to meet different vehicle platform specifications such as electric buses, delivery vans, forklifts and medium duty on-road delivery trucks.  Our software centric design approach allows us to develop system level solutions for OEMs of vehicles worldwide.
  ·
Implement retrofit business model on existing yard tractors to accelerate market changeover.Our proprietary electric drive system and battery modules (that feature our proprietary BMS) 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 and higher fuel economy will accelerate market changeover to zero emissions vehicle alternatives in the heavy-duty vehicle industry.  Our integrated 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.
  10
  ·
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.  In addition, we plan to utilize the existing distribution system of our chassis suppliers to provide aftermarket support for our products worldwide.  Several members of our senior management have significant experience in managing global dealer networks for material handling and electric vehicle manufacturers.
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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 proprietary diagnostic system that monitors and stores the performance of all critical components during the life of the vehicle allowing our service network to monitor vehicle performance and institute preventative maintenance programs to reduce vehicle downtime and increase vehicle life.
  ·
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 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 a five speed automatic transmission directly coupled to an electric motor resulting in high end torque at low speeds without compromising top end speed.  This heavy-duty electric drive system powered by our proprietary 240 kW liquid cooled flux vector motor controller provides necessary torque to transport more than a 30 ton of load at speeds of 55 miles per hour.  The incorporation of lithium-ion battery modules in our vehicles during 2009 has resulted in increased range, lower vehicle weight and decreased the time needed to charge our vehicles.  Our vehicles can now be completely charged in less than four hours.
  Flux Vector Motor Controller Technology
  Our flux vector motor controllers are micro-processer controlled inverters designed to control motor speed through varying voltage and frequency.  We currently offer both liquid and air cooled versions of our flux vector motor controllers in power ranging from 20 kW to 240 kW.  Although our flux vector motor controllers 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 motor controllers 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 motor controller technology, we have the capability to remotely modify, diagnose and monitor key performance parameters to meet specific application requirements.  We have sold and marketed our flux vector motor controllers for use in electric buses, mining vehicles and other specialty vehicles applications with over one million miles logged in actual operations.
  11
 CAN Bus Diagnostic System
  All key components of our electric vehicles, including the electric motor, transmission, flux vector motor controllers, battery module, battery charger and accessory motor, are connected through our proprietary CAN Bus software.  Our CAN Bus system monitors, measures, communicates, stores and diagnoses key performance parameters of our vehicles and provides an intuitive vehicle status display of all vehicle performance parameters to the operator through a digital dash display mounted in the truck cabin.  The diagnostic system 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 be used to monitor vehicles remotely to determine vehicle performance or to schedule vehicle maintenance.
  Battery Management System
  In 2009, we converted our vehicles from lead acid battery technology to lithium-ion battery technology.  Because our vehicles are used in heavy-duty applications, we believe our products utilize significantly larger battery modules than other automotive applications.  In order to ensure long term reliability and battery life for a large battery format battery module, we developed our own proprietary BMS that monitors and balances all battery cells during charge and discharge cycles.
  On March 3, 2010, we released our new BMS designed to optimize the battery cycle life of large format batteries, including the large format lithium-ion batteries used in our vehicles.  Our new BMS controllers are equipped with multiple temperature sensors and a flash microcontroller powered by our proprietary software that can work with any electric vehicle’s battery cell chemistry.
  Products
  Heavy-Duty Electric Vehicles
  Our current product line of zero emissions heavy-duty electric vehicles consists of our Nautilus product that features zero emissions heavy-duty electric tractors and our Mule product line that features zero emissions heavy-duty electric trucks.  Our Nautilus product line, the flagships of our product portfolio, consists of two product configurations, our on-highway product, the Nautilus XE30, and our off-highway product, the Nautilus XE20.  We have also developed a heavy-duty electric truck, the Mule M150, which is a high-capacity on-highway delivery truck targeting inner city delivery applications.  Each of our products is equipped with our proprietary heavy-duty electric drive system and our lithium-ion battery module that features our proprietary BMS.
  Nautilus XE20 – Electric Yard Tractor
  The Nautilus XE20is a zero emissions heavy-duty short wheelbase electric yard tractor 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 XE20 can tow 30 tons cargo containers at a speed of up to 25 miles per hour with a range of 95 miles on a single battery charge under unloaded conditions.
  The Nautilus XE20 features our heavy-duty electric drive system and quick-change lithium-ion battery module allowing it to be operated for three eight hour shift operations.  The Nautilus XE20 is designed with a short wheel base and lifting fifth wheel which improves the maneuverability of the vehicle and its efficiency in high idling off-highway applications.  The Nautilus XE20 complies with all applicable regulations associated with off-highway use vehicles.
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 The battery module of the Nautilus XE20 contains 140 kW hour lithium-ion large format batteries equipped with our proprietary BMS.  The Nautilus XE20 incorporates our heavy-duty 240 kW electric drive system into an Autocar Xspotter chassis.  The Nautilus XE20 is available with off-board chargers varying in capacity from 20 kW to 50 kW and communicates directly with our BMS over a J1939 Can Bus connection.
  In February 2010, we successfully completed eight weeks of cold weather testing on our Nautilus XE20.  The vehicle was tested in an industrial application during dual eight hour shift operations with ambient temperatures below 10°F under and loads exceeding 25 tons.
  Nautilus XE30 – Electric Short-haul Tractor
  Our Nautilus XE30 is an on-road-electric Class 8 heavy-duty tractor that is designed for short-haul on-road applications designed to transport trailers and containers at ports and in inner city applications.  The Nautilus XE30 is designed to compete with short-haul day cab fossil fuel powered vehicles used to transport cargo short distances within metropolitan areas.  The Nautilus XE30 is equipped with lithium-ion batteries and our proprietary heavy-duty drive system and is capable of hauling up to 30 tons of load at speeds of 55 miles per hour with a range of 150 miles on a single battery charge under unloaded conditions.
  The Nautilus XE30 incorporates our proprietary heavy-duty electric drive system into an Autocar Xpeditor chassis is equipped with tandem axles.  The Nautilus XE30 is designed for up to 57,000 gross vehicle weight ratings which allows the vehicle to tow loads greater than 30 tons in short-haul on-road applications.  The Nautilus XE30 contains a 240 kW hour lithium-ion battery module equipped with our proprietary BMS.  The Nautilus XE30 competes with conventional and cab-over Class 8 short-haul day cab tractors designed for use in inner city applications for towing beverage trailers, cargo and containers between a port and local rail yards and warehouses.  As of the date of this report, the completed XE30 is undergoing DOT testing.
  In June 2009, we completed assembly of a Nautilus E30 retrofitted with lithium-ion battery modules, and an initial testing of this Nautilus XE30 demonstrated a range of over 150 miles on a single charge under unloaded conditions.
  Mule M150 – Electric Truck
  In September 2009, we released our first on-highway heavy-duty electric truck, the Mule M150, 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 believe that our Mule M150, which has a 7 ton capacity with a single axle and a 12 ton capacity with tandem axles, is an ideal solution for inner city applications such as delivery trucks, refuse vehicles, beverage delivery and street sweepers.
  The Mule M150 is equipped with our fully integrated 240 kW heavy-duty electric drive system and lithium-ion batteries to provide increased range and performance.  Our Mule M150 is able to travel at a speed of up to 55 miles per hour and has a range of 150 miles on a single charge under unloaded conditions and is expected to be competitive in performance with current Class 7 and Class 8 fossil fuel powered vehicles in short-haul markets.  The Mule M150 targets inner city congested applications with high idle duty cycles resulting in improved fuel economy and lower maintenance costs. As of the date of this report, the completed Mule M150 is undergoing DOT testing.
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 Heavy-Duty Electric Drive Systems
  Our fully integrated electric drive systems have been designed and developed with a view towards use in existing vehicle platforms in electric buses, large industrial forklifts, medium duty electric trucks and delivery vans.  All our drive systems incorporate an automatic transmission and our proprietary flux vector motor controller technology.  We target OEMs of medium to heavy-duty vehicles worldwide to incorporate our drive systems into their current vehicle configurations of electric buses, delivery vans and inner city delivery vehicles.
  We plan to offer 80 kW to 240 kW complete drive systems to OEMs of products that address inner city short range applications worldwide.  We believe our complete drive systems, with a fully integrated J1939 CAN Bus communication system and proprietary software customized to specific applications, provides our customers with a single source solution to their zero-emissions vehicle design needs.
  Flux Vector Motor Controllers
  Our proprietary variable flux vector motor controllers range in power from 40 kW to 240 kW.  Our flux vector motor controllers are available in liquid cooled or air cooled versions depending on the application, duty cycle and power requirements.  Our flux vector motor controllers are available with analog or digital output based on application needs.  Our heavy-duty flux vector motor controllers are also SAE J1939 CAN Bus capable which allows our customers to fully integrate our motor controller into their own vehicle diagnostic systems.  Our proprietary software in the processor allows the motor controller 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 motor controllersto OEMs for use in electric buses, mining equipment, military vehicles, delivery vans and other automobiles.  Our motor controllers 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 motor controllers from an electric bus and Class 4-6 truck manufacturer.
  We design, manufacture, assemble and test our motor controllers at our Harbor City facility.  We have designed our motor controllers for high-vibration mobile applications which includes a wash down enclosure design that allows the motor controller to be used in outdoor rugged mobile applications.  In addition, our motor controllers include a liquid cooling system that results in a higher efficiency and reliability.  Our below 100 kW motor controllers are available in air cooled versions and are ideal for use in industrial vehicles, light duty pickup trucks and recreational vehicles.  Our heavy-duty motor controllers, 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 sell our products through an authorized sales and service dealer network.  Our products require periodic maintenance and replacement of certain vehicle components.  We sell components of our vehicles, including our battery modules and battery chargers, 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 modules that feature our BMS, 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.
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 Manufacturing and Assembly
  Our executive offices and our manufacturingand assembly facility is located in Harbor City, California, where we lease a 15,500 square foot manufacturing and assembly facility.
  Key components used in the assembly of our proprietary flux vector motor controllers, heavy-duty electric drive systems, battery modules and charging systems, including 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 modules and charging systems at the same location.  Our engineering and procurement offices are also located at our Harbor City facility to support our production needs.  We estimate that our current manufacturing and assembly capacity at this facility provides us with the ability to substantially increase sales with the addition of direct labor personnel and relatively modest capital investments in plant, tooling and equipment.  We believe that our facilities in Harbor City are sufficient to meet our anticipated production needs over the next three years.
  Customers
  In 2008, we received a purchase order from the City of Los Angeles for 20 Nautilus E20 yard tractors and five Nautilus E30 short-haul 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 motor controllers used in light and medium duty applications such as delivery trucks, automobiles and vans.  We sell our heavy-duty electric drive systems and flux vector motor controllers to OEMs for use in heavy-duty vehicles and heavy-duty material handling equipment.
  While our current backlog of $2,182,200 for our heavy-duty electric vehicles consists solely of our outstanding purchase order from the City of Los Angeles, we are actively pursuing a more diversified customer base and we believe that we will sell, in the aggregate, over 500 of our heavy-duty electric vehicles to customers other than the AQMD or the City of Los Angeles by December 31, 2011.  We anticipate that a majority of our future sales of our heavy-duty electric vehicles will be made directly to end users, such as large terminal operators, shipping companies and OEMs, rather than directly to governmental agencies such as the AQMD and the City of Los Angeles.
  Our expectation that a majority of our future sales of our heavy-duty electric vehicles is based on the improved range of our electric vehicles as a result of the implementation use of lithium-ion batteries in our vehicles.  Demonstration of our Nautilus XE30 with various potential industrial and warehousing customers indicates that we have sufficient range to perform two 8 hour shift operations in certain yard tractor applications.  Based on our agreement with Autocar to collaborate on the development, marketing and sale of on-highway Class 7 and Class 8 zero emissionselectric vehicles, the successful testing of our vehicles and the positive feedback we have received from the demonstration of the capabilities of our vehicles, we believe that we can meet our sales objectives by December 31, 2011.
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 The implementation of lithium-ion batteries into our vehicles provides us with ability to market our electric drive systems to medium duty applications such as inner city delivery trucks, electric buses and beverage trucks.
  Sales and Marketing
  Our sales and marketing strategy focuses on establishing Balqon Corporation as the premier global 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 XE20 yard tractor in western Canada, Argentina, Colombia and South Korea.  We have also expanded our staff in the United States to address our focus on increasing international sales.
  In June 2009, we entered into the Autocar Agreement with Autocar and plan to use Autocar’s sales and dealer network to provide aftermarket services for our products.   Under the terms of the agreement we agreed with Autocar to collaborate on the marketing and sale of on-highway Class 7 and Class 8 zero emissions vehicles through Autocar’s existing authorized commercial truck dealer network.  We believe that Autocar has an established nationwide network of over 200 service locations that will provide aftermarket support for our vehicles in North America.
  In February 2010, we entered into an agreement with Autoelevadores Yale,a leading distributor of material handling equipment and electric vehicles in Argentina, under which Autoelevadores Yaleagreed to distribute our heavy-duty electric vehicles in Argentina.  Autoelevadores Yalealso provides servicing and parts for our products in the region.  Currently, sales and service of our products are also being performed by our staff located at our facility in Harbor City.
  In March 2010, we entered into an agreement with Industrias Ivor, a leading distributor of material handling equipment in Colombia.  The agreement calls for Industrial Ivor to provide sales and service for our off-highway and on-highway product lines in Colombia.
  We previously believed, based on our on-going discussions with potential customers located in Canada and Europe, that over 40% of our revenues potential in 2009 would be generated by sales to international customers.  However, as our discussions with these customers in Canada and Europe have not progressed as expeditiously as we had anticipated, in part due to the global economic crisis, we did not generate revenues by sales to international customers during 2009.  Our revenues during the year ended December 31, 2009 were comprised solely of sales to customers in the United States.  Nonetheless, we continue to believe that a substantial portion of our sales in the future will be made to customers located outside of the United States.
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 OEM Sales
  We currently market and plan to sell our heavy-duty electric drive systems, battery modules and flux vector motor controllers directly to OEMs in the automotive industries.  During 2009, we received purchase orders for our flux vector motor controllers from small and medium sized OEMs for electric buses, motorcycles and industrial equipment.  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.  As of the date of this report, we have received orders for our electric drive systems and battery modules from a large manufacturer of city transit buses in Asia and the United States.
  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, hydraulic hybrid and liquid natural gas powered vehicles.
  Our competitors also compete with us on the basis of price, operating costs, longevity and performance.  In general, our heavy-duty electric vehicles are significantly more expensive than heavy-duty vehicles powered by other fuels including vehicles powered by diesel or liquefied natural gas.  In terms of performance, our competitors compete based on performance standards such as range, speed, and capacity.  For example, Vision Industries Corp., a manufacturer of hydrogen fuel cell powered drayage vehicles, claims to have prototype of a hydrogen powered vehicle that has a range of 340 miles.
  Our competitors vary based on off-highway and on-highway market segments.  Our Nautilus XE20 primarily addresses the off-highway, in-terminal applications for container transportation.  Our Nautilus XE30 primarily addresses the on-highway, inner city applications for container transportation.  Our Mule M150 addresses short-haul on-highway applications for load carrying applications.  We believe that we are the first manufacturer to address 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.
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 Our Nautilus XE20 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, MOL Transport Solutions, 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., MAFI Transport Systems and MOL Transport Solutions have a regional presence in Europe.
  We expect that our XE30 and Mule M150 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, Vision Industries, 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.
  Flux Vector Motor Controllers
  Electric vehicle propulsion systems consist of mainly two types of motor technologies, DC and alternating current, or 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 motor controllers.  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.
  Heavy Duty Drive System
  We also face competition from small to medium size manufacturers of alternative fuel heavy-duty drive systems such has Cummins Inc., Westport Innovations Inc., US Hybrid Corporation and Enova Systems, Inc, UQM Technologies, Inc., and Azure Dynamics Corporation.  These competitors’ products target new and retrofit markets with drive systems powered by natural gas, electric hybrid and fuel cell powered vehicles.  These small to medium side manufacturers offer products competitive in price to our current product line and these products are expected to exceed the performance of our products in key performance specifications such as range and speed.
  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 increase our vehicle range through integration of new battery technologies into current vehicle designs increasing the range of our vehicles.  We incurred approximately $167,195 and $44,023 in research and development expenses during the years ended December 31, 2009 and 2008, respectively.
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 During 2009, we upgraded all our products from lead acid batteries to lithium-ion batteries increasing the range of our vehicles by 35%.  We also developed our own proprietary large format lithium-ion BMS to improve battery life and reduce charge time during 2009.
  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 computer-aided design (CAD) 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 vector motor controller technology to address higher capacity market niches; meanwhile we are also actively engaged in identifying suppliers for next generation of 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 motor controllers designed by us.  Our portfolio consists of a trade name, trade secrets and proprietary processes.
  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.
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 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, one of the goals 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 short-haul 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 that fail to meet 2007 emission standards 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.  The San Pedro Bay Ports are offering a subsidy of up to 80% of the cost to replace older trucks with a pre-approved new truck.
  On May 8, 2009, the Los Angeles Harbor Commission approved additional funding of up to $44.2 million for the 2009 Clean Truck Incentive Program, which will be used to bring 100 trucks that run on lithium-ion battery electric power and 900 trucks that run on liquefied natural gas or compressed natural gas into service.  Under this new initiative, terminal operators or concessionaires at the Port of Los Angeles will be eligible to receive up to 80% of the negotiated cost of an lithium-ion battery powered electric truck purchased for terminal or drayage truck use.  In May 2009, we received a $400,000 grant from the City of Los Angeles to reimburse us for costs we incur in connection with the installation, demonstration and evaluation of lithium-ion powered battery modules in two of our zero emissions Nautilus vehicles.  As a result of these regulations and programs, 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.  As a result of these regulations and programs, the emphasis on energy independence and 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.
  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 than their diesel fueled counterparts.  The AQMD has approximately $6 million available for funding and could pay up to 80% of the cost of replacing a pre-1990 heavy-duty diesel truck.
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 Employees
  As of March 23, 2010, we employed 15 employees on a full-time basis and one employee on a part-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 motor controllers, electric drive systems and battery modules 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, 2009, we had an accumulated deficit of $11,036,260.  For our fiscal years ended December 31, 2009 and 2008, we incurred a net loss of $3,015,405and $7,933,281, 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 motor controllers, electric drive systems and battery modules 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.
  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 no significant operating history and have delivered only 15heavy-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.
  21
 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 financial statements for the years ended December 31, 2009 and 2008 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 motor controllers and 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, including the economic conditions in the State of California, 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, including the economy of the State of California, 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.
  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.
  22
 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, including the instability of the financial condition of the State of California, 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 orders, grants or subsidies from the public sector 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 spending on environmental initiatives relating to the transportation sector.  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 government spending on environmental initiatives 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 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.  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 results of operations could be adversely affected as a result of impairments of goodwill and other intangible assets.
  In connection with the acquisition of substantially all of the assets of EMS, we recorded approximately $166,500 in goodwill and $186,965 of trade secrets based on the application of purchase accounting. The Company provides that goodwill and other intangible assets that have indefinite useful lives not be amortized, but instead be tested at least annually for impairment, and intangible assets that have finite useful lives continue to be amortized over their useful lives.  Management makes certain estimates and assumptions when allocating goodwill to reporting units and determining the fair value of reporting unit net assets and liabilities, including, among other things, an assessment of market conditions, projected cash flows, investment rates, cost of capital and growth rates, which could significantly impact the reported value of goodwill and other intangible assets. Fair value is determined using a combination of the discounted cash flow, market multiple and market capitalization valuation approaches. Absent any impairment indicators, we perform our impairment tests annually during the fourth quarter. Our impairment test in the fourth quarter of 2009 did not indicate that the intangible assets we purchased from EMS were impaired as of December 31, 2009.Any future impairments, including impairments of the goodwill or intangible assets recorded in connection with the acquisition of substantially all of the assets of EMS, would negatively impact our results of operations for the period in which the impairment is recognized.
  23
 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 of the possible solutions 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:
 
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the timing and necessity of substantial expenditures for the development, production and sale of our heavy-duty electric vehicles;
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the emergence of newer, more competitive technologies and products;
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the future cost of batteries used in our systems;
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applicable regulatory requirements;
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the reluctance of potential customers to consider new technologies;
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the failure to strategically position ourselves in relation to joint venture or strategic partners, and potential and actual competitors;
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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
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the difficulties in managing rapid growth of operations and personnel.
  24
  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 fossil fuel based drive system technologies, improvements to current drive system technologies and new alternative fuel drive system technologies.  Each of our target markets is currently serviced by existing manufacturers with existing customers and suppliers using proven and widely accepted fossil fuel powered drive systems.  Additionally, there are competitors working on developing technologies such as cleaner diesel engines, bio-diesel, fuel cells, natural gas and hybrid electric/internal combustion engines in each of our targeted markets.  Our products compete directly with heavy-duty fossil fuel powered vehicles which are lower in price and higher in key performance specifications such as range, speed and load carrying capacity.  In addition, our competitors have a long history of producing high volume products with established dealer and service networks.  Many of our existing and potential competitors, including Kalmar Industries Corp, MOL Transport Solutions, 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.
  We also face competition from small to medium size manufacturers of alternative fuel heavy-duty drive systems such has Cummins Inc., Westport Innovations Inc., US Hybrid Corporation and Vision Industries Corp.  These competitors’ products target new and retrofit markets with drive systems powered by natural gas, electric hybrid and fuel cell powered vehicles.  These small to medium size manufacturers offer products competitive in price to our current product line and these products are expected to exceed the performance of our products in key performance specifications such as range and speed.  There can be no assurance that our zero emissions products will be able to offer competitive advantages over alternative fuel powered vehicles being developed by our competitors.   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 that we have received through the date of this report.In March 2009, we delivered one vehicle to the AQMD and thereby fulfilled our purchase order for an electric vehicle from the AQMD.  As of March 23, 2010, we have also delivered 14 electric vehicles to the City of Los Angeles against its purchase order for 25 of our electric vehicles.  If we are unable to fill the remainder of our order from the City of Los Angeles or obtain additional orders for our products, our sales and financial condition will decline.
  25
 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 qualified 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 qualified source or a limited group of suppliers.  Although we seek to qualify additional 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 current 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 approved.
  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 motor controllers 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 motor controllers, electric drive systems, and theirconstituent components could benefit from patent protection, we have chosen to retain the proprietary rights associated with our flux vector motor controllers, electric drive systems, and BMSs 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 motor controllers.  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.
  26
 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; except for Autocar, 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 and profits 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.
  27
 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.
  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.
  28
 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 30, 2010, we had outstanding 25,718,348 shares of common stock, of which 22,200,000 shares of common stock were restricted under the Securities Act.  Of the 22,200,000 shares of common stock that were restricted under the Securities Act on March 30, 2010, 22,000,000 shares of common stock were issued by us more than six months prior to March 30, 2010 and, therefore, can be sold without restriction subject to the limitations imposed by Rule 144 of the Securities Act (of these 22,000,000 shares of our common stock that have been held for more than six months, 3,066,725 shares of our common stock are held by non-affiliates).  As of March 30, 2010, we also had outstanding options and warrants that were exercisable for approximately 10,259,167 shares of common stock and notes convertible into 2,733,329 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.
  29
 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.
  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 23, 2010, was $0.95.  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.
  30
 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
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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.
  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, or GAAP.  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, 2010.
  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.
  31
 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:
 
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institute a more comprehensive compliance function;
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establish new internal policies, such as those relating to disclosure controls and procedures and insider trading;
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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;
 ·
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 located at 1420 240th Street, Harbor City, California 90710, where we occupy approximately 15,500 square feet of space.  We lease our Harbor City facility for $10,540 a month.  During each of the years ended December 31, 2009 and 2008, we reported $138,508 and $98,008, 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.
  32
  Item 4.  (Removed and Reserved).
  PART II
  Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
  Market Price of Common Stock 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.The table below sets forth for the quarters indicated, the reported high and low bid prices of our common stock as reported on the OTC Bulletin Board.  The prices shown reflect inter-dealer quotations without retail markups, markdowns or commissions, and may not necessarily represent actual transactions.
  High


LowYear Ended December 31, 2008Fourth Quarter (November 20, 2008 – December 31, 2008)

$2.00


$1.50Year Ended December 31, 2009First Quarter

$3.00


$1.65Second Quarter

$3.05


$0.05Third Quarter

$2.95


$1.00Fourth Quarter

$2.00


$0.10
  As of March 23, 2010, we had 25,718,348 shares of common stock outstanding held of record by approximately 71 stockholders.  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. On March23, 2010, the last reported sale price of our common stock on the OTC Bulletin Board was $0.95 per share.
  Dividend Policy
  We did not declare any dividends on our common stock during 2009.  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
  During March 2009 and June 2009, we entered into agreements with 34 accredited investors for the sale by us of an aggregate of $1,000,000 of 10% Unsecured Subordinated Convertible Promissory Noteswhich are convertible into an aggregate of 1,000,000 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 1,000,000 shares of common stock at an exercise price of $1.50 per share.  The proceeds of $1,000,000 are allocated to working capital.
  33
 On February 2, 2010, Balqon issued 200,000 shares of its common stock to an accredited investor in consideration of consulting services (for investor relations) to be rendered.
  Between February 5, 2010 and March 30, 2010, we entered into agreements with seven accredited investors for the sale by us of an aggregate of $1,300,000 of 10% Unsecured Subordinated Convertible Promissory Noteswhich are convertible into an aggregate of 1,733,329 shares of our common stock at a conversion price of $0.75 per share of common stock, subject to adjustment.  Additionally, we issued three-year warrants to purchase an aggregate of 1,733,329 shares of common stock at an exercise price of $0.50 per share.  The proceeds of $1,300,000 are allocated to working capital.  In connection with the sale of certain of the 10% Unsecured Subordinated Convertible Promissory Notes, we (i) paid $15,999 in finder’s fees and (ii) issued three year warrants to  purchase 15,999 shares of our common stock at an exercise price of $0.50 per share to two accredited investors in consideration of finder services rendered. In addition, on March 2, 2010, in connection with the sale of $500,000 in principal amount of our 10% Unsecured Subordinated Convertible Promissory Notes,  we granted to a certain accredited investor a right to buy, on or before May 15, 2010, up to an additional $500,000 in principal amount of our 10% Unsecured Subordinated Convertible Promissory Notes convertible into up to 666,666 shares of common stock at a conversion price of $0.75 per share and warrants exercisable into 666,666 shares of common stock at an exercise price of $0.50 per share  for an aggregate purchase price of $500,000.
 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.  Each investor was given adequate access to sufficient information about us to make an informed investment decision. Except as set forth above, there were no commissions paid on the sale of the issuance of securities described above.
  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;
  ·
anticipated trends in our financial condition and results of operations; and
  ·
our ability to distinguish ourselves from our current and future competitors.
  34
  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 motor controllers and 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 the AQMD Development Agreement with the AQMD to develop and test a heavy-duty zero emissions electric short-haul 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 short-haul tractor.  The City of Los Angeles agreed with the AQMD to fund 50% of the total development costs related to the short-haul tractor.  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 City of Los Angeles.  During the year ended December 31, 2009, 81% of our revenues were from the sale of vehicles and parts of the City of Los Angeles, 10% of revenues were from a grant from the Lithium-ion Grant, and 8% of revenues were from the sale of an electric yard tractor and parts to the AQMD and the City of Los Angeles.  The revenues and costs associated with the AQMD Development Agreement and the Lithium-ion Grant are recorded as contract revenues and costs. As such, the costs associated with the development of our demonstration vehicle are recorded as “contract costs,” not as research and development expenses.
  In May 2008, we received a purchase order from the AQMD for one of our Nautilus E20 heavy-duty electric yard tractors.  We delivered a Nautilus E20 to the AQMD in March 2009.  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 short-haul tractors.  The purchase order from the City of Los Angeles is pursuant to an agreement with the City of Los Angeles Agreement, dated June 26, 2008, or City of Los Angeles Agreement.  Previously, we believed that we would deliver the 25 Nautilus tractors ordered under the City of Los Angeles purchase order by December 31, 2009.  However, primarily due to working capital constraints, we have revised our initial forecast, and we now believe that we will deliver the remaining 6 Nautilus XE20s and 5 Nautilus XE30s to the City of Los Angeles by September 30, 2010.
  While our current backlog of $2,182,200 for our heavy-duty electric vehicles consists solely of our outstanding purchase order from the City of Los Angeles, we are actively pursuing a more diversified customer base and we believe that we will sell, in the aggregate, over 500 of our heavy-duty electric vehicles to customers other than the AQMD or the City of Los Angeles by December 31, 2011.  We anticipate that a majority of future sales of our heavy-duty electric vehicles will be made directly to end users, such as large terminal operators, shipping companies and OEMs, rather than directly to governmental agencies such as the AQMD and the City of Los Angeles.  Our expectation that a majority of our future sales of our heavy-duty electric vehicles will be made directly to end users is based, in part, on the results of our initial test of the Nautilus XE30 powered by lithium-ion batteries and our agreement with Autocar to collaborate on the development, marketing and sale of on-highway Class 7 and Class 8 zero emissionselectric vehicles.  In addition, we expect to use Autocar’s existing authorized dealer network to sell our heavy-duty electric vehicles.  Our expectations regarding future customers are also based on our current on-going discussions with potential customers located in Canada, Asia, Latin America and Europe, and additional governmental incentives and funding that we believe will become available for electric vehicles, which, in turn, is expected to improve the competitive advantage of our electric vehicles.
  35
 Our total revenues increased by $3,395,092, or 1,667%, to $3,598,092 for the year ended December 31, 2009 as compared to $203,660 for the year ended December 31, 2008.  We reported a net loss of $3,015,405 for the year ended December 31, 2009 as compared to a net loss of $7,933,281 for the year ended December 31, 2008.  The improvement in our financial performance during 2009 is a direct result of a $3,148,798 increase in sales in 2009 over 2008.  Our contract revenues also increased by $246,294 during 2009 largely due to progress work on the Lithium-ion Grant.  In 2009, costs of revenues increased by $3,350,745 largely due to the increased costs associated with the increased sales of vehicles and parts.  General and administrative expenses decreased by $4,371,816 in 2009.  The decrease in general and administrative expenses is attributable to a decrease of $5,940,713 of fair value of stock based compensation in 2009, offset by a net increase of $1,568,897 in other general and administrative expenses incurred as a result of the ramp up of our sales and business activities in 2009.  During 2009 we experienced an increase of $123,172 of research and development expenses due to incurring a full year of research and development expenses in 2009 as compared to only incurring research and development expenses in the last four months of 2008.  During 2009 our depreciation and amortization expenses increased by $70,268, largely due to the fact that we reported a full year of amortization of the trade secrets we acquired from EMS.  Interest expense during 2009 decreased by $280,768, largely due to the decrease of the beneficial conversion feature interest cost incurred on our issuance of convertible notes and warrants.
  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 acquirer.  As a result, the historical financial statements of Balqon California are now the historical financial statements of the legal acquirer, Balqon Corporation (formerly, BMR Solutions, Inc.).
  In connection with the Merger Transaction, we issued an aggregate of 23,908,348 shares of our common stock to the shareholders of Balqon California.  In addition, the holders of warrants to acquire an aggregate of 2,614,180 shares of common stock of Balqon California were deemed to hold warrants to acquire an equal number of shares of our common stock upon completion of the Merger Transaction.  In connection with the Merger Transaction, we also issued under our 2008 Plan options to purchase an aggregate of 4,562,592 shares of our common stock to certain of our directors and employees who held options to purchase an equal number of shares of Balqon California’s common stock immediately prior to the completion of the Merger Transaction.  In connection with the consummation of the Merger Transaction, we cancelled 6,377,500 shares of our issued and outstanding common stock held by certain of our stockholders such that concurrent with the closing of the Merger Transaction we had approximately 1,400,000 shares of common stock issued and outstanding.  See “Item 13. Certain Relationships and Related Transactions, and Director Independence—Merger Transaction” for additional details on the 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.
  36
 
 Acquisition of Electric MotorSports, LLC
  When we consummated the Merger Transaction, we acquired substantially all of the assets of EMS that Balqon California had acquired in September 2008.  In September 2008, Balqon California entered into an agreement with EMS and its sole member, Robert Gruenwald, to acquire substantially all of the assets of EMS, including all intellectual property assets used in the development and manufacture of flux vector motor controllers.  At the time of the acquisition, EMS had been engaged in developing, designing and manufacturing flux vector motor controllers within the automotive and material handling equipment industries since 1997.  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 flux vector motor controllers 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 motor controllers for use in heavy-duty applications.
  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 Recognition on Prototype Vehicles.  In accounting for 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.
  37
 Contract costs include all direct material and labor costs.  The liability “Billings in excess of costs and estimated earnings on uncompleted contracts” represents billings in excess of revenues earned.
 
 Sales of Production Units and Parts.  We recognize revenue from the sale of completed production units and parts when there is persuasive evidence that an arrangement exists, delivery of the product has occurred and title has passed, the selling price is both fixed and determinable, and collectability 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.
  We determine whether delivery has occurred based on when title transfers and the risks and rewards of ownership have transferred to the buyer, which usually occurs when we place the products with the buyer’s carrier.  We regularly reviews our customers’ financial positions to ensure that collectability is reasonably assured.  Except for warranties, we have no post-sales obligations.
  Product Warranties
  We provide limited warranties for parts and labor at no cost to our customers within a specified time period after the sale.  We estimate the actual historical warranty claims coupled with an analysis of unfulfilled claims at the balance sheet date. As of December 31, 2009, we had no warranty reserve nor did we incur warranty expenses during the years ended December 31, 2009 or 2008.
  Stock-Based Compensation
  We periodically issue stock instruments, including shares of our common stock, stock options and warrants to purchase shares of our common stock to employees and non-employees in non-capital raising transactions for services and for financing costs.
  We adopted “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) for all share-based payments granted after the effective date and (b) for all awards granted to employees prior to the effective date that remain unvested on the effective date. We account for stock option and warrant grants issued and vesting to non-employees whereby the fair value of the stock compensation is based on the measurement date as determined at either (i) the date at which a performance commitment is reached, or (ii) at the date at which the necessary performance to earn the equity instrument is complete.
  We estimate the fair value of stock options and warrants 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.
  We estimate the fair value of shares of common stock issued for services based on the closing price of our common stock on the date shares are granted.  For periods prior to the consummation of the Merger Transaction, there was no readily available market quotations for our shares of common stock and, as such, we used alternative methods to value shares of our common stock including valuations based upon the conversion price per share of common stock of our convertible notes and the sale price of units consisting of one share of our common stock and warrants to purchase one share of common stock, which management believes were the best indicators of the fair value of our common stock.
  38
  Goodwill and Intangible Assets
  Management performs impairment tests of goodwill and indefinite-lived intangible assets whenever an event occurs or circumstances change that indicate impairment has more likely than not occurred.   Management performs impairment testing of goodwill and indefinite-lived intangible assets at least annually.
  Management tests goodwill for impairment at the reporting unit level.  We only have one reporting unit.  At the time of goodwill impairment testing, management determines fair value through the use of a discounted cash flow valuation model incorporating discount rates commensurate with the risks involved with its reporting unit. If the calculated fair value is less than the current carrying value, impairment may exist. The use of a discounted cash flow valuation model to determine estimated fair value is common practice in impairment testing in the absence of available domestic and international transactional market evidence to determine the fair value. The key assumptions used in the discounted cash flow valuation model for impairment testing include discount rates, growth rates, cash flow projections and terminal value rates. Discount rates are set by using the Weighted Average Cost of Capital, or WACC, methodology. The WACC methodology considers market and industry data as well as Balqon-specific risk factors for each reporting unit in determining the appropriate discount rates to be used. The discount rate utilized is indicative of the return an investor would expect to receive for investing in such a business. Operational management, considering industry and Balqon-specific historical and projected data, develops growth rates and cash flow projections for Balqon.  Terminal value rate determination follows common methodology of capturing the present value of perpetual cash flow estimates beyond the last projected period assuming a constant WACC and low long-term growth rates. As an indicator that each reporting unit has been valued appropriately through the use of the discounted cash flow valuation model, the aggregate fair value of all reporting units is reconciled to our total market capitalization. The discounted cash flow valuation methodology and calculations will be used in 2009 impairment testing.  Our first impairment test of the goodwill and trade secrets we acquired from EMS was conducted during the fourth quarter of 2009.  This impairment test did not indicate that the goodwill and trade secrets we acquired from EMS were impaired as of December 31, 2009.
  We review intangible assets subject to amortization at least annually to determine if any adverse conditions exist or a change in circumstances has occurred that would indicate impairment or a change in the remaining useful life.  If the carrying value of an asset exceeds its undiscounted cash flows, we write-down the carrying value of the intangible asset to its fair value in the period identified.  If the carrying value of assets is determined not to be recoverable, we record an impairment loss equal to the excess of the carrying value over the fair value of the assets.  Our estimate of fair value is based on the best information available to us, in the absence of quoted market prices.  We generally calculate fair value as the present value of estimated future cash flows that we expect to generate from the asset using a discounted cash flow income approach as described above.  If the estimate of an intangible asset’s remaining useful life is changed, we amortize the remaining carrying value of the intangible asset prospectively over the revised remaining useful life.
  Impairment of Long-Lived Assets
  The Financial Accounting Standards Board, or FASB, has established guidelines regarding when impairment losses on long-lived assets, which include property and equipment, should be recognized and how impairment losses should be measured.  Guidance of the FASB also provides a single accounting model for long-lived assets to be disposed of and significantly changes the criteria that would have to be met to classify an asset as held-for-sale. We periodically review, at least annually, such assets for possible impairment and expected losses. If any losses are determined to exist they are recorded in the period when such impairment is determined. Based upon management’s assessment, there are no indicators of impairment of our long lived assets at December 31, 2009 or 2008.
  39
 Income Taxes
  We recognize income taxes for the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets are recognized for the future tax consequences of transactions that have been recognized in our financial statements or tax returns. A valuation allowance is provided when it is more likely than not that some portion or the entire deferred tax asset will not be realized.
  Results of Operations
  We have based our financial statements on the assumption of our operations continuing as a going concern.  As of December 31, 2009, we had a working capital deficiency of $1,563,117, an accumulated deficit of $11,036,260 and reported a net loss for the year ended December 31, 2009 of $3,015,405, 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. During March 2009 and June 2009, we raised an aggregate of $1,000,000 in connection with a private placement of convertible notes and warrants.
  Between February 5, 2010 and March 31, 2010, we raised $1,300,000 in connection with a private placement of convertible notes and warrants.  Over the longer-term, we plan to achieve profitability through our operations from the sale of our heavy-duty electric vehicles and drive systems.  Our financial statements do not include any adjustments relating to the recoverability and classification of the recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue our existence.
  The tables presented below, which compare our results of operations for 2008 and 2009, 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.
  40
  Year Ended

December 31,


Dollar

Variance


Percentage

Variance


Results as a Percentage

of Net Revenues for the

Years Ended

December 31,2009


2008


Favorable

(Unfavorable)


Favorable

(Unfavorable)


2009


2008Net revenues

$
3,598,752


$
203,660


$
3,395,092



1,667
%


100
%


100
%Cost of revenues


3,488,797



138,053



(3,350,744
)


(2,427
)%


97
%


68
%Gross profit


109,955



65,607



(44,348
)


(68
)%


3
%


32
%Operating and interest expenses


3,125,360



7,998,888



4,873,528



61
%


87
%


3,928
%Net loss

$
(3,015,405
)

$
(7,933,281
)

$
4,917,876



62
%


(84
)%


(3,895
)%
 Net Revenues.  The increase in net revenues in 2009 is a direct result of the ramp up of our business in 2009 during which sales of our vehicles and parts increased by $3,148,798 over 2008.  We also increased our contract revenues by $246,294 largely from progress work toward completion of the AQMD Agreement and the Lithium-ion Grant.
  Gross Profit.  The increase in cost of revenues in 2009 was largely due to increased costs associated with the ramp up of our business.  Our 2009 gross profit margin of 3% is comprised of a 10% gross margin on the vehicle materials costs, offset by 5% direct labor and 2% manufacturing overhead costs.  In 2008, our gross profit margin was 32%, and was comprised of 46% gross margin on the progress work completed on the AQMD Development Agreement combined with an 8% profit margin associated with the sale of a battery charger system in April 2008. The gross margin on products sold and to be sold under the City of Los Angeles Agreement was relatively low due to higher than anticipated material and freight costs associated with a lower than anticipated production volume.  We anticipate that our gross profit margin will be approximately 18% of net revenues for 2010 based on current cost data for the remaining 11 electrical vehicles that must be delivered under the City of Los Angeles Agreement, and the pricing of orders we expect to receive during 2010.
  Operating and Interest Expenses.  The decrease in operating and interest expenses in 2009 was primarily due to a $4,371,816 decrease in general and administrative expenses.  This decrease is attributable to a $5,940,713 decrease in fair value of stock based compensation in 2008 as compared to 2009 due to us not issuing any stock based compensation in 2008, offset by a $1,568,897 net increase in other general and administrative expenses incurred during 2009 due to the increased volume of business activity.  In addition, we incurred legal and consulting expenses relating to the Merger Transaction of $414,384 in 2008.
  Our research and development expenses for 2009 and 2008 were $167,195 and $44,023, respectively.  The increase in research and development expenses in 2009 is reflective of a full year of research and development expenses as compared to only four months of such expenses in 2008.  This increase is also attributable to expenses associated with the employment of our vice president of research and development in September 2008.
  In 2009, we experienced a $70,268 increase in depreciation and amortization expense.  This increase was due to the fact that we reported a full year of amortization of the trade secrets we acquired from EMS in 2009 as compared to reporting four months of amortization in 2008.
  Interest expense decreased by $280,768 in 2009.  This decrease is comprised of a $377,237 decrease in beneficial conversion feature interest cost offset by $96,509 of other interest expense incurred in connection with our $10% unsecured convertible promissory notes issued during 2009 and interest incurred on the funds we borrowed under our credit facility with Bridge Bank.
  41
 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.    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.
  Liquidity and Capital Resources
  During 2009 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, 2009, we had a working capital deficiency of $1,563,117 as compared to working capital of $194,073 at December 31, 2008.  At December 31, 2009 and 2008 we had an accumulated deficit of $11,036,260 and $8,020,855, respectively, and cash and cash equivalents of $118,635 and $355,615, respectively.
  During 2009, under the terms of the City of Los Angeles Agreement, we were issued an advance in the amount of $1,159,601 against a purchase order for 25 electric vehicles issued under the City of Los Angeles Agreement.
  Our available capital resources at December 31, 2009 consisted primarily of approximately $118,635 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 in 2009 was $1,188,756 as compared to $1,328,569 of cash used in operating activities for 2008, and includes a net loss of $3,015,405, depreciation and amortization of $100,104, amortization of note discount of $209,510 and changes in operating assets and liabilities of $1,517,035.  Material changes in asset and liabilities at December 31, 2009 as compared to December 31, 2008 that affected these results include:
  ·
an increase in accounts receivable of $167,925;
 ·
a decrease in inventory of $156,853;
 ·
a decrease in deposits of $19,241;
 ·
a netincreasein accounts payable and accrued expenses of $361,581; and
 ·
an increase in customer deposits of $1,159,601.
  Cash used in investing activities totaled $70,640 for 2009 as compared to $336,068 of cash used in investing activities for 2008.
  Cash provided by financing activities totaled $1,022,416 for 2009 as compared to $2,020,218 for 2008.
  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.
  42
 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 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.
  During March 2009 and June 2009, we raised an aggregate of $1,000,000 through the issuance of convertible notes to 34accredited investors.  The convertible notes are convertibles into an aggregate of 1,000,000 shares of our common stock.  In connection with this offering, we also issued three-year warrants to purchase an aggregate of 1,000,000 shares of common stock at an exercise price of $1.50 per share.
  Between February 5, 2010 and March 30, 2010, we raised an aggregate of $1,300,000 through the issuance of convertible notes to 7 accredited investors.  The convertible notes are convertibles into an aggregate of 1,733,329 shares of our common stock.  In connection with this offering, we also issued three-year warrants to purchase an aggregate of 1,733,329 shares of common stock at an exercise price of $0.50 per share.
  We are obligated under registration rights agreements related to above described private placement to file a registration statement with the SEC, registering for resale the shares of common stock underlying the convertible notes and warrants issued in the private placement transactions consummated between March 2009 and March 2010.
  Effective February 18, 2009, we entered into a Business Financing Agreement with Bridge Bank, National Association, or the Bridge Bank Agreement.  The Bridge Bank Agreement, as amended to date,  provides us with an accounts receivable based credit facility in the aggregate amount of up to $2,000,000.
  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.  As of December 31, 2009, eligible accounts receivable was $167,925 and availability under the credit facility was $6,190.
  43
 The interest rate is variable and is adjusted monthly based on the per annum prime rate as published by Bridge Bank plus two percentage points, subject to a minimum rate of 6.0% per annum.
  In the event of a default and continuation of a default, Bridge Bank may accelerate the payment of the principal balance requiring us to pay the entire indebtedness outstanding on that date.  Upon the occurrence and during the continuation of an event of default, the interest rate applicable to the outstanding balance borrowed under the credit facility will be increased by five percentage points above the per annum interest rate that would otherwise be applicable.
  The credit facility is secured by a continuing first priority security interest in all of our personal property (subject to customary exceptions).  The credit facility may be terminated at any time by either party.
  Our plan of operations for the next 12 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 chargers. We also expect to receive additional orders for our products over the next 12 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 2010, we expect to incur approximately $500,000 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 15 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, 2009 and for the year ended December 31, 2008 have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. As discussed in this report and in notes to our consolidated financial statements included in this report, we have suffered recurring losses from operations and at December 31, 2009 we had an accumulated deficit of $11,036,260.  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, 2009, 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.
  44
 If adequate funds are not available, we may be required to delay, scale back or eliminate portions of our operations and product and service development efforts or to obtain funds through arrangements with strategic partners or others that may require us to relinquish rights to certain of our technologies or potential products or other assets. Accordingly, the inability to obtain such financing could result in a significant loss of ownership and/or control of our proprietary technology and other important assets and could also adversely affect our ability to fund our continued operations and our product and service development efforts.
  Backlog
  As of March 26, 2010, we had a backlog of approximately $2,587,020.  Our backlog includes a contract to produce and deliver six electric yard tractors and five electric short-haul tractors (and associated equipment), flux vector motor controllers, drive systems and battery modules. We believe that products in our backlog will be shipped by December 31, 2010.
  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 June 2009, the FASB issued authoritative guidance on accounting standards codification and the hierarchy of GAAP.  The FASB Accounting Standards CodificationTM (“Codification”) has become the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in accordance with GAAP.  All existing accounting standard documents are superseded by the Codification and any accounting literature not included in the Codification will not be authoritative.  However, rules and interpretive releases of the SEC issued under the authority of federal securities laws will continue to be sources of authoritative GAAP for SEC registrants.  The Codification is effective for interim and annual reporting periods ending after December 15, 2009.  Therefore, beginning with the quarter ending December 31, 2009, all references made to GAAP in our financial statements now use the new Codification numbering system.  Other than the manner in which new accounting guidance is referenced, the adoption of these changes had no impact on our financial statements.
  In October 2009, the FASB issued authoritative guidance on revenue recognition that will become effective for us beginning July 1, 2010, with earlier adoption permitted.  Under the new guidance, tangible products that have software components that are essential to the functionality of the tangible product will no longer be within the scope of the currently existing software revenue recognition guidance, and software-enabled products will now be subject to other relevant revenue recognition guidance.  We believe that the adoption of this new guidance will not have a material impact on our financial statements.
  We do not believe that the adoption of the above recent pronouncements will have a material effect on our 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 financial statements.
 Item 7A.  Quantitative and Qualitative Disclosures About Market Risk.
  Not applicable.
  45
  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, 2009 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
  (iii)          provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.
  46
 All internal control systems, no matter how well designed, have inherent limitations.  Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and reporting.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
  A material weakness is a control deficiency (within the meaning of Public Company Accounting Oversight Board (PCAOB) Auditing Standard No. 5) or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
  Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2009 based on the framework in Internal Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  Based on the results of management’s assessment and evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of December 31, 2009 our internal control over financial reporting were 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 year that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
  47
  Item 9B.  Other Information.
  Not Applicable.
  48
  PART III
  Item 10.  Directors, Executive Officers and Corporate Governance.
  Directors and Executive Officers
  The names, ages and positions held by our directors and executive officers as of March 23, 2010 and their business experience are as follows:
 
 Name

Age

Positions HeldBalwinder Samra(1)(2)

48

President, Chief Executive Officer and Chairman of the BoardRobert Miranda

57

Chief Financial OfficerHenry Velasquez(1)

33

Vice President Engineering and DirectorRobert Gruenwald

51

Vice President Research and DevelopmentAmarpal Singh Samra(1)(2)

49

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’s experience as our President and Chief Executive Officer combined with over 20 years of previous experience in senior management positions at other companies within the electric vehicle industry gives him unique insights into our challenges, opportunities and operations. Mr. Samra’s extensive experience in the electric vehicle industry qualifies him to serve as a director of Balqon.  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, including experience in 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.
  49
 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’s experience in vehicle design and his contacts with large automotive suppliers provides us with strategic insights into the global supply chain of automotive components. His extensive experience in engineering and manufacturing at various automotive and industrial companies qualifies him to serve as director of Balqon.  Mr. Velasquez holds a B.S. degree in Mechanical Engineering from Loyola Marymount University, Los Angeles, California.
  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 flux vector motor controllers 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 30 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.  Mr. Samra’s experience in senior management positions at publicly traded companies combined with his extensive business experience in leading and directing large businesses in Europe and Asia provides us with judgment and risk assessment skills that are essential as we execute our business plan and develop global relationships. Mr. Samra’s skills in business and financial matters and his experience in senior management positions in public companies qualifies him to serve as director of Balqon.
  Term of Office and Family Relationships
  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, directors and director nominees, except that Balwinder Samra is the brother of Amarpal Singh Samra.
  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.
  50
 Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to us during the year ended December 31, 2009 and Forms 5 and amendments thereto furnished us with respect to the year ended December 31, 2009, and written representations that no Form 5 is required, no person that was a reporting person during the year ended December 31, 2009, except for Robert Gruenwald and Marlin Financial Group, Inc., failed to file on a timely basis, as disclosed in the above Forms, reports required by Section 16(a) of the Exchange Act during the year ended December 31, 2009 or prior fiscal years.  Robert Gruenwald filed two late reports during 2009, a Form 3 and a Form 4, both of which reported a single transaction that was consummated on October 24, 2008.  Marlin Financial Group, Inc. filed one late report during 2009.  Marlin Financial Group filed a Form 4 on January 23, 2009 reporting three transactions that were reported as consummated in December 2008 (under Section 16 of the Exchange Act Marlin Financial Group, Inc. would have been required to file at least two separate Form 4s if the transactions had been reported on a timely basis).  In addition, Marlin Financial Group, Inc. did not file a Form 5 for the fiscal year ended December 31, 2009, and we have not received a written representation from Marlin Financial Group, Inc. 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.  At each annual meeting of our 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.
  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, or Codes of Ethics.  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.  Our Codes of Ethics are available on our Internet website, located at http://www.balqon.com/about_us.php.
  51
 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.
  In October 2008 and again in October 2009, our board of directors determined that none of the directors are independent under these standards.  Mr. Balwinder Samra and Henry Velasquez are our Chief Executive Officer and Vice President Engineering, respectively. Mr. Amarpal Samra is the brother of Mr. Balwinder Samra.
  Our board of directors intends to expand the number of directors to five and appoint at least two persons who qualify as “independent” under the current NASDAQ Marketplace Rules to our board of directors in the near future.
  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, 1420 240th Street, Harbor City, California 90710.
  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 2009, our board of directors held one meeting.  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 2009.
  52
 It is our policy to invite and encourage our directors to attend our annual meetings.  All of our directors attended our annual meeting of stockholders held on October 23, 2009.
  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.
  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.
  53
 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;
 ·
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.
  When considering the size and composition of our board during the evaluation of a potential candidate, our Nominating and Corporate Governance Committee examines, among other things, the following qualifications and skills of director candidates—their business or professional experience, their integrity and judgment, their records of public service, their ability to devote sufficient time to the affairs of the Company, the diversity of backgrounds and experience they will bring to our board and our needs. Our Nominating and Corporate Governance Committee also believes that all nominees should be individuals of substantial accomplishment with demonstrated leadership capabilities. Our Nominating and Corporate Governance Committee does not have a formal policy with regard to the consideration of diversity in indentifying nominees for director.
  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.
  54
  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 non-employee 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 – 2009
  The following table summarizes for the year ended December 31, 2009, the compensation awarded to or paid to, or earned by, Amarpal Samra, the only member of our board of directors who is not a named executive officer.
 
 Name

Fees Earned or

Paid in Cash

($)

Total

($)Amarpal Samra(1)

6,000

6,000
 
  (1)
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, 2009, Mr. Samra held 1,250,025 shares of our common stock.  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, 2009, Mr. Samra held options to purchase 312,507 shares of our common stock.
  Compensation of Executive Officers
  Summary Compensation Table
  The following table provides information concerning the compensation for the individual who served as our principal executive officer during the year ended December 31, 2009 and our two highest paid executive officers who were serving as an executive officer on December 31, 2009.  These three individuals are collectively referred to in this report as the “named executive officers.”
  55
  Name and Principal Position

Year

Salary

($)

Stock

Awards

($)(2)

Option

Awards

($)(2)

All other Compensation

($)(3)

Total

($)Balwinder Samra

President and Chief Executive Officer

2009

2008
(1)

250,000

212,205
(4)

—

332,910

—

539,614

—

1,500

250,000

1,086,229Robert Miranda

Chief Financial Officer

2009

2008
(1)

150,000

176,855
(5)(5)

—

100,000

—

—

—

—

150,000

276,855Henry Velasquez

Vice President Engineering and Director

2009

2008
(1)

150,000

71,712


—

333,340

—

40,471

—

1,500

150,000

474,023
  (1)
Represents salary earned for services provided as an executive officer of Balqon California and Balqon Corporation.
 (2)
The amount reflected in this column is the grant date fair value of the awards computed in accordance with FASB ASC Topic 718.  The grant date 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:
 2008Dividend 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 fees earned for services provided as a member of our board of directors in 2008.
 (4)
Of the $250,000 Mr. Samra earned in 2009 under the terms of his employment agreement, Mr. Samra was owed $206,141 in accrued salaries as of December 31, 2009.
 (5)
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 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 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.
  56
 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.
  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 18 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 18 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 18 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 18-month period described in clause (ii) in the preceding sentence.
  57
 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.
  58
 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.
  The agreement provides for an initial base salary of $150,000 per year with an increase to $175,000 per year after the second 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.
  59
 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.
  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 18 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 18 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 18 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 18-month period described in clause (ii) in the preceding sentence.
  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 and options to purchase 83,334 shares of common stock to Henry Velasquez.  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.  The material features of our 2008 Plan are described below in Part III – Item 12 of this Annual Report under the heading “—2008 Stock Incentive Plan” and in Note 10 to our financial statements for the year ended December 31, 2009.
  60
 
 Outstanding Equity Awards At Fiscal Year-End – 2009
  The following table sets forth information about outstanding equity awards held by our named executive officers as of December 31, 2009.
 
 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

—


—


—Henry Velasquez

27,778


$1.50


6/30/201027,778


$2.00


6/30/201127,778


$2.50


6/30/2012
 
 (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.
  Principal Stockholder Table
  The following table sets forth information with respect to the beneficial ownership of our voting stock as of March 23, 2010, 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 executive officers identified at the beginning of the “Management” section of this report; 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 25,718,348shares of common stock outstanding as of the date of the table.
  61
 The address of each of the following stockholders, unless otherwise indicated below, is c/o Balqon Corporation, 1420 240th Street, Harbor City, California 90710.  The address for Marlin Financial Group, Inc. is 9812 Falls Road, Suite 114-198, Potomac, Maryland 20854. The address for 6th Street Investments, LLC is 5705 N. West Avenue, Fresno, CA 93711.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.
  Name of Beneficial Owner

Title of Class

Amount and Nature of Beneficial Ownership

Percent

of ClassBalwinder Samra

Common

21,166,661
(1)

70.83
%Robert Miranda

Common

166,666
(2)

*Henry Velasquez

Common

416,674
(3)

1.61
%Robert Gruenwald

Common

250,000


*Amarpal Singh Samra

Common

1,562,532
(4)

6.00
%Marlin Financial Group, Inc.

Common

2,609,239
(5)

9.86
%6th Street Investments, LLC

Common

2,666,664
(6)

9.39
%All directors and executive officers

as a group (5 persons)

Common

23,495,867
(7)

77.64
%
 *
Less than 1%.
 (1)
Includes 4,166,751 shares of common stock underlying options.
 (2)
Includes 33,333 shares of common stock underlying convertible notes and 33,333 shares of common stock underlying warrants which Mr. Miranda acquired beneficial ownership of on February 10, 2010 through the Miranda & Associates, APC 401k Plan.
 (3)
Includes 83,334 shares of common stock underlying options.
 (4)
Includes 312,507 shares of common stock underlying options.
 (5)
Includes 754,180 shares 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.
 (6)
Includes 666,666 shares of common stock underlying convertible notes and 666,666 shares of common stock underlying warrants.  Also includes shares underlying a right to buy notes convertible into 666,666 shares of common stock and warrants exercisable into 666,666 shares of common stock on or before May 15, 2010.  Ryan Turner and Michael Rivera jointly hold the power to vote and dispose of the shares beneficially held by 6th Street Investments, LLC as its managers.
 (7)
Includes 4,562,592 shares of common stock underlying options, 33,333 shares of common stock underlying convertible notes, and 33,333 shares of common stock underlying warrants.  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, 2009.
  62
  Plan category

Number of securities to be issued upon exercise of outstanding options, warrants and 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 immediately below and in Note 10 to our financial statements for the year ended December 31, 2009.
 (2)
Represents shares of common stock available for issuance under options that may be issued 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.
  63
 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 and approved by our stockholders on October 23, 2009.  As of March 23, 2010,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.
  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.
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 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.
  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.
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  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.
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 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 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.
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 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.
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 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.
  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.
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 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. 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.
  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.
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 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.
  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.
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 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.
  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.
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 Accounting Treatment
  Pursuant to GAAP, 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.
  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.
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  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 and again in October 2009, our board of directors determined that none of our directors are independent under these standards.  Mr. Balwinder Samra and Henry Velasquez are our Chief Executive Officer and Vice President Engineering, respectively. Mr. Amarpal Samra is the brother of Mr. Balwinder Samra.
  Our board of directors intends to expand the number of directors to five and 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.
  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.
  74
 
 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.  As of the date of this proxy statement, the shareholders of Balqon California (including the shares now held by those shareholders who at that time of the Merger Transaction were our shareholders and also shareholders of Balqon California) own approximately 96% of our outstanding common stock.
  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 an aggregate of 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 23, 2010, to our knowledge, 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 23, 2010, these five shareholders also hold warrants to purchase an aggregate of 694,598 shares of our common stock, comprised of (i) warrants to purchase an aggregate of 96,400 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.
  75
 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 expire on June 30, 2010, one-third of the warrants have an exercise price of $2.00 per share and expire on June 30, 2011, and one-third of the warrants have an exercise price of $2.50 per share and expire 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 and Mr. Velasquez’s executive employment agreements.  On March 27, 2009, we entered into an executive employment agreement with Robert Gruenwald to be effective on October 24, 2008.
  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.
  76
 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.
  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 18 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 18 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 18 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 18-month period described in clause (ii) in the preceding sentence.
  77
 
 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 2001 to May 2006, Brian Mirrotto, our former director and executive officer, provided approximately 100 square feet of office space to us at no charge. The fair market value of that space was approximately $100 per month.
  In November 2001, we issued 2,000,000 shares of our common stock to Brian Mirrotto, our former director and executive officer.  These shares were issued in exchange for services and expenses of $2,000 related to our incorporation, or $0.001 per share.  Additional compensation expense of $38,000 was recognized to reflect the fair market value of the shares issued as of the date of issuance, which was $0.02 per share.
  In June 2006, we financed the purchase of a vehicle with a loan totaling $28,514 secured by the purchased vehicle.  Marla Andre and K. John Shukur, our former directors and executive officers, jointly and severally guaranteed repayment the loan.
  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.
  In September 2006, we paid $2,500 to Michael Andre, the father of Mark Andre, our former executive officer and director, for website development services.
  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 no interest loans were recorded as “Advances from Shareholder” on Balqon California’s financial statements.  The largest aggregate amount of principal outstanding on these loans during the years ended December 31, 2008 was $57,420.  During the fiscal year ended December 31, 2008, we paid $22,543in principal under the loans provided by Mr. Samra.  The largest aggregate amount of principal outstanding on these loans during the years ended December 31, 2009 was $34,877.  As of March 23, 2010, $5,018 in principal was outstanding under these loans.During the fiscal year ended December 31, 2009, we paid $29,859 in principal under the loans provided by Mr. Samra.
  78
 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 options to purchase 4,166,751 shares of common stock to Balwinder Samra in consideration of services rendered.  The fair value of the options was determined to be $539,614.
  In June 2008, Balqon California issued 333,340 shares of common stock and options to purchase 83,334 shares of common stock to Henry Velasquez in consideration of engineering and design consulting services rendered.  The value of the common stock was determined to be $333,340 and the fair value of the options was determined to be $10,792.
  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.  The value of the common stock was determined to be $1,250,025 and the fair value of the options was determined to be $40,471.
  In June 2008, pursuant to a certain Stock and Warrant Purchase Agreement, dated August 28, 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.  The value of the common stock was determined to be $2,916,725 and the fair value of the warrants was determined to be $94,432.  On March 30, 2009 we entered into Amendment No. 1 to Stock and Warrant Purchase Agreement with Marlin Financial Group, Inc. pursuant to which we revised certain terms of the warrants issued to Marlin Financial Group, Inc.  On May 20, 2010, we entered into Amendment No. 2 to Stock and Warrant Purchase Agreement with Marlin Financial Group, Inc. pursuant to  which we agreed with Marlin Financial Group, Inc. to terminate a contractual agreement between us and Marlin Financial Group, Inc. which restricted the ability of Marlin Financial Group, Inc. to dispose of or transfer our securities.  We and Marlin Financial Group, Inc. agreed to terminate this provision of the agreement due, in part, to the adverse tax consequences to Marlin Financial Group, Inc. associated with the change in valuation of the stock based compensation granted to Marlin Financial Group, Inc. as reflected in our financial statements.
  In August 2008, Balqon California issued 100,000 shares of common stock to Robert Miranda, its then current Chief Financial Officer, in consideration of business strategy consulting services rendered.  The value of the common stock was determined to be $100,000.
  In August 2008, Balqon California issued 250,000 shares of common stock to Robert Gruenwald in consideration of services provided.  The value of the common stock was determined be $250,000.
  In August 2008, Balqon California issued 332,910 shares of common stock to Balwinder Samra in consideration of services rendered.  The value of the common stock was determined be $332,910.
  79
 On September 9, 2008, Balqon California entered into an Asset Purchase Agreement with EMS, and its sole member, Robert Gruenwald, to acquire substantially all of the assets of EMS, including all intellectual property assets used in the development and manufacture of flux vector motor controllers, 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.  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.  The largest aggregate amount outstanding under the promissory note during the fiscal year ended December 31, 2009 was $100,000.  During the fiscal year ended December 31, 2009, we made principal payments of $75,000 on the promissory note issued to EMS.  The remaining principal balance of $25,000 and all accrued and unpaid interest under the note become due and payable on April 1, 2010.
  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.  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.  As of December 31, 2009, the $875 in principal that remained outstanding under the promissory note issued to Marlin Financial Group, Inc. had been written off.
  Private Placements
  In connection with a 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.
  In connection with a private placement transaction consummated on February 10, 2010, we issued to Miranda & Associates, APC 401(k) Plan an aggregate of $25,000 of 10% Unsecured Subordinated Convertible Promissory Notes which are convertible into an aggregate of 33,333 shares of our common stock at a conversion price of $0.75 per share of common stock, subject to adjustment.  Additionally, we issued to Miranda & Associates, APC 401k Plan three-year warrants to purchase an aggregate of 33,333 shares of common stock at an exercise price of $0.50 per share.
  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 $113,790 in consulting fees in consideration of accounting and advisory services.  Miranda & Associates was paid a total of $357,863 in consulting fees in consideration of accounting and advisory services during the year ended December 31, 2009.  As of March 23, 2010, Miranda & Associates was owed $73,408 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 years ended December 31, 2008 and 2009, respectively.  We appointed Weinberg as our independent registered public accounting firm on October 24, 2008.
  80
  2008


2009Audit Fees

$
28,873

$
176,505Audit-Related Fees


18,242


—Tax Fees


—


1,995All Other Fees


—


—Total

$
47,115

$
178,500
  Audit Fees.  Consist of amounts billed for professional services rendered for the audit of our annual consolidated financial statements included in our Annual Reports on Form 10-K, and reviews of our interim consolidated financial statements included in our Quarterly Reports on Form 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 2009, all services performed by Weinberg were pre-approved by our Audit Committee in accordance with these policies and applicable SEC regulations.
 
 81
 
 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.
 
 Exhibit

Number

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)2.3

Asset Purchase Agreement, dated September 9, 2008, by and between Electric MotorSports, LLC and Balqon California (7)(###)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 (subject to adjustment) (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 (subject to adjustment) (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 (subject to adjustment) (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)
  82
  Exhibit

Number

Description4.7

Form of Warrants issued by the Registrant to certain security holders to purchase an aggregate of 184,598 shares of common stock (subject to adjustment) (one-third of these warrants were exercisable at an exercise price of $1.50 per share until October 14, 2009, one-third of these warrants are exercisable at an exercise price of $2.00 per share until October 14, 2010, and one-third of these warrants are exercisable at an exercise price of $2.50 per share until October 14, 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 (subject to adjustment) (5)4.9

Form of 10% Unsecured Subordinated Convertible Promissory Notes issued to certain security holders in the aggregate principal amount of $1,000,000, which are convertible into an aggregate of 1,000,000 shares of our common stock (subject to adjustment) (7)4.10

Form of Warrants issued by the Registrant to certain security holders to purchase an aggregate of 1,000,000 shares of common stock (subject to adjustment) (7)4.10

Form of 10% Unsecured Subordinated Convertible Promissory Notes issued to certain security holders in the aggregate principal amount of $1,300,000, which are convertible into an aggregate of 1,733,329 shares of our common stock (subject to adjustment) (*)4.11

Form of Warrants issued by the Registrant to certain security holders to purchase an aggregate of 1,733,329 shares of common stock (subject to adjustment) (*)4.12

Form of Warrants issued by the Registrant to certain security holders to purchase an aggregate of 15,999 shares of common stock in consideration of finder services (subject to adjustment) (*)10.1

Balqon Corporation 2008 Stock Incentive Plan (11)(#)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

Amended and Restated Registration Rights Agreement, dated September 15, 2008, by and between Balqon California and certain security holders (7)(##)10.7

Registration Rights Agreement, dated September 15, 2008, by and between Balqon California and certain security holders (7)(##)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 related to the registration rights of stockholders holdings 1,400,000 shares of our common stock immediately prior to the Merger Transaction) (4)(##)
  83
  Exhibit

Number

Description10.10

Purchase Agreement, dated June 26, 2008, between the City of Los Angeles and Balqon California (8)(##)10.11

Purchase and Service Agreement, dated May 15, 2008, between the South Coast Air Quality Management District and Balqon California (7)(##)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 (8)(##)10.13

Lease agreement, dated May 21, 2007, by and between 1701 E. Edinger, LLC, and Balqon California (8)(##)10.14

First Modification to Lease, dated June 18, 2008, by and between 1701 E. Edinger, LLC, and Balqon California (4)(##)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 Registrant (6)10.17

Business Financing Modification Agreement, dated February 26, 2009, between Bridge Bank, National Association and the Registrant (6)10.18

Promissory Note, dated September 9, 2009, in the amount of $100,000, issued to Electric MotorSports, LLC (7)10.19

Employment Agreement, dated October 24, 2008, by and between Robert Gruenwald and the Registrant (7)(#)10.20

Agreement, dated May 2007, by and between the South Coast Air Quality Management District and Balqon California (7)10.21

Stock and Warrant Purchase Agreement, dated August 28, 2008, by and between Marlin Financial Group, Inc. and Balqon California (8)10.22

Amendment No. 1 to Stock and Warrant Purchase Agreement, dated March 30, 2009, by and between Marlin Financial Group, Inc. and the Registrant (7)10.23

Amendment No. 2 to Stock and Warrant Purchase Agreement, dated May 20, 2009, by and between Marlin Financial Group, Inc. and the Registrant (8)10.24

Converter Agreement, dated June 9, 2009, by and between Balqon Corporation and Autocar, LLC (9)10.25

Business Financing Modification Agreement, dated effective August 4, 2009, by and between the Registrant and Bridge Bank, National Association (10)10.26

Supplemental Agreement, dated October 6, 2009, by and between Balqon Corporation and Autocar, LLC. (12)14.1

Code of Ethics (4)14.2

Code of Ethics for Chief Executive Officer and Senior Financial Officers (4)
  84
  Exhibit

Number

Description31.1

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 (*)
  (*)
Filed as an exhibit to this Annual Report.
 (#)
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.

The schedules to the agreement have not been filed.  The agreement contains certain representations and warranties made by the parties thereto. The assertions embodied in such representations and warranties are not necessarily assertions of fact, but a mechanism for the parties to allocate risk.  Accordingly, investors should not rely on the representation and warranties as characterizations of the actual state of facts or for any other purpose at the time they were made or otherwise.  The agreements are not intended as a document for investors to obtain factual information about the current state of affairs of the parties to the agreement.  Rather, investors should look to other disclosures contained in Balqon Corporation’s reports under the Exchange Act.
 
 
 
 
 
 
 (*)
Filed herewith.
 (1)
Filed as an exhibit to the Registrant’s current report on Form 8-K filed with the Securities and Exchange Commission on September 19, 2008.
 (2)
Filed as an exhibit to the Registrant’s current report on Form 8-K filed with the Securities and Exchange Commission 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 filed with the Securities and Exchange Commission on March 3, 2009.
 (7)
Filed as an exhibit to the Registrant’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2009.
 (8)
Filed as an exhibit to the Registrant’s Amendment No. 1 to Annual Report on Form 10-K filed with the Securities and Exchange Commission on May 22, 2009.
 (9)
Filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 15, 2009.
 (10)
Filed as an exhibit to the Registrant’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission August 14, 2009.
 (11)
Filed as Annex A to the Registrant’s definitive Proxy Statement filed with the Securities and Exchange Commission on October 9, 2009.
 (12)
Filed as an exhibit to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 13, 2009.
 85
  BALQON CORPORATION
 
 INDEX TO FINANCIAL STATEMENTS
  PageReport of Independent Registered Public Accounting Firm
F-2Balance Sheets as of December 31, 2009 and 2008
F-3Statements of Operations for the Years Ended December 31, 2009 and 2008
F-4Statement of Shareholder’s Equity (Deficiency) for the Years EndedDecember 31, 2009 and 2008
F-5Statements of Cash Flows for the Years Ended December 31, 2009 and 2008
F-6Notes to Financial Statements for the Years Ended December 31, 2009 and 2008
F-7
 
 F-1
 
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
 To the Shareholders of
 Balqon Corporation
 Santa Ana, California
 
 We have audited the accompanying balance sheets of Balqon Corporation (the “Company”) as of December 31, 2009 and 2008, and the related statements of operations, shareholders’ equity (deficiency) and cash flows for the years ended December 31, 2009 and 2008.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these 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 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 financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.
 
 In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2009 and 2008, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
 
 The accompanying 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. These conditions raise 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 financial statements.  The 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.
 
 
 Weinberg & Company, P.A.
 
 Los Angeles, California
 March 24, 2010
 
 F-2
 
 BALQON CORPORATION
 BALANCE SHEETS
 
 December 31,

2009


December 31,

2008ASSETSCurrent assetsCash and cash equivalents

$
118,635


$
355,615Accounts receivable


167,925



—Inventories


1,002,748



1,159,601Prepaid expenses


53,382



43,020Total current assets


1,342,690



1,558,236Property and equipment, net


122,251



89,393Other assets:Deposits


14,400



33,641Trade secrets, net


109,063



171,385Goodwill


166,500



166,500Total assets

$
1,754,904


$
2,019,155LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIENCY)Current liabilitiesAccounts payable and accrued expenses

$
1,587,388


$
1,225,807Customer deposit


1,159,601Loan payable, Bridge Bank


128,150Notes payable to related parties


25,000



100,875Advances from shareholder


5,018



34,877Billings in excess of costs and estimated earningson uncompleted contracts


650



2,604Total current liabilities


2,905,807



1,364,163Convertible notes payable, net of discount


209,510



—Total liabilities


3,115,317



1,364,163SHAREHOLDERS’ EQUITY (DEFICIENCY)Common stock, $0.001 par value, 100,000,000 shares authorized,

25,518,348 shares issued and outstanding


25,518



25,518Additional paid in capital


9,650,329



8,650,329Accumulated deficit


(11,036,260
)


(8,020,855
)Total shareholders’ equity (deficiency)


(1,360,413
)


654,992Total liabilities and shareholders’ equity (deficiency)

$
1,754,904


$
2,019,155
  The accompanying notes are an integral part of these financial statements.
  F-3
  BALQON CORPORATION
 STATEMENTS OF OPERATIONS
 
 Years Ended

December 31,2009


2008REVENUES


3,598,752



203,660COSTS OF REVENUESContract costs


359,350



69,078Costs of vehicles and parts


3,129,447



68,975Total cost of revenues


3,488,797



138,053Gross profit


109,955



65,607OPERATING EXPENSESGeneral and administrative


2,525,225



6,897,041Research and development


167,195



44,023Reverse merger expenses


—



414,384Depreciation and amortization


100,104



29,836Total operating expenses


2,792,524



7,385,284Loss from operations


(2,682,569
)


(7,319,677
)Interest expense


(332,836
)


(613,604
)NET LOSS

$
(3,015,405
)

$
(7,933,281
)Net loss per share – basic and diluted

$
(0.12
)

$
(0.39
)Weighted average shares outstanding, basic and diluted


25,518,348



20,206,507
  The accompanying notes are an integral part of these financial statements.
  F-4
  BALQON CORPORATION
 STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIENCY)
 FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
 
 Common Stock,

$0.001 Par Value

Additional


AccumulatedNumber

Amount

Paid in Capital


Deficit


TotalBalance, January 1, 2008

16,667,000

$
5,000

$
—


$
(87,574
)

$
(82,574
)Fair value of shares granted for services

5,333,000


5,333


5,327,667



—



5,333,000Fair value of options and warrants granted for services

—


—


709,215



—



709,215Fair value of beneficial conversion feature and warrants issued with convertible notes

—


—


586,747



—



586,747Effect 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

—


—


—



(7,933,281
)


(7,933,281
)Balance, December 31, 2008

25,518,348


25,518


8,650,329



(8,020,855
)


654,992Fair value of beneficial conversion feature and warrants issued with convertible notes

—


—


1,000,000



—



1,000,000Net loss

—


—


—



(3,015,405
)


(3,015,405
)Balance, December 31, 2009

25,518,348

$
25,518

$
9,650,329


$
(11,036,260
)

$
(1,360,413
)
 
 
 The accompanying notes are an integral part of these financial statements.
  F-5
  BALQON CORPORATION
 STATEMENTS OF CASH FLOWS
 
 Years Ended

December 31,2009


2008Cash flow from operating activities:Net loss

$
(3,015,405
)

$
(7,933,281
)Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization


100,104



29,836Fair value of common stock granted for services


—



5,333,000Fair value of options and warrants granted for services


—



709,215Amortization of note discount


209,510



586,747Changes in operating assets and liabilities:Accounts receivable


(167,925
)


35,000Inventories


156,853



(1,159,601
)Prepaid expenses


(10,362
)


(43,020
)Deposits


19,241



(14,400
)Accounts payable and accrued expenses


361,581



1,196,595Customer advances


1,159,601



—Billings in excess of costs and estimated earnings onuncompleted contracts


(1,954
)


(68,660
)Net cash used in operating activities


(1,188,756
)


(1,328,569
)Cash flows from investing activities:Acquisition of furniture, equipment and software


(70,640
)


(82,603
)Acquisition of EMS


—



(253,465
)Net cash used in investing activities


(70,640
)


(336,068
)Cash flows from financing activities:Net Proceeds from Bridge Bank loan


128,150Proceeds from notes payable, related parties


—



25,875Payment of notes payable, related parties


(75,875
)


(25,000
)Proceeds from  issuance of convertible notes, net


1,000,000



1,333,348Proceeds from sale of common stock


—



708,538Advances from shareholder


(29,859
)


(22,543
)Net cash provided by financing activities


1,022,416



2,020,218Increase (decrease) in cash and cash equivalents


(236,980
)


355,581Cash and cash equivalents, beginning of year


355,615



34Cash and cash equivalents, end of year

$
118,635


$
355,615Supplemental cash flow informationInterest Paid

$
91,029


$
26,857Income taxes Paid

$
—


$
—Supplemental non cash financing and investing activitiesNote payable issued in connection with acquisition of EMS

$
—


$
100,000Fair value of beneficial conversion feature and warrants issued with convertible notes

$
1,000,000


$
586,747Conversion of notes payable to common stock

$



$
1,333,348
   The accompanying notes are an integral part of these financial statements.
  F-6
  BALQON CORPORATION
 NOTES TO FINANCIAL STATEMENTS
 FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
  NOTE 1 – NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
  The Company
  Balqon Corporation, a California corporation (“Balqon California”) was incorporated on April 21, 2005 and commenced business operations in 2006.  On October 24, 2008, Balqon California completed a merger with BMR Solutions, Inc., a Nevada corporation (“BMR”).  Pursuant to the merger agreement, the issued and outstanding common shares of Balqon California were exchanged on a one-for-one basis for common shares of BMR.  After the merger was completed, the Balqon California’s shareholders owned approximately 94% of the outstanding shares of common stock of BMR and the original shareholders of BMR owned 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 California deemed to be the accounting acquirer and BMR deemed to be the legal acquirer.  Upon the closing, BMR changed its name to Balqon Corporation (the “Company”).  The financial statements presented herein are those of the accounting acquirer (i.e., Balqon California) given the effect of the issuance of 1,400,000 shares of common stock upon completion of the transaction and reflecting the net liabilities assumed of BMR of $40,365 as a cost of the reverse merger. In addition, the Company incurred expenses of $374,019 in connection with the reverse merger.
  The Company develops, assembles and markets heavy-duty electric vehicles, flux vector motor controllers and heavy-duty electric drive systems.
  Going Concern
  For the year ended December 31, 2009, the Company had a net loss of $3,015,405 and utilized $1,188,756 cash in operations, and had an accumulated deficit of $11,036,260 at December 31, 2009.  These matters raise substantial doubt about the Company’s ability to continue as a going concern.  The financial statements do not include any adjustments that might result from this uncertainty.  The Company intends to raise funds to finance operations until the Company achieves profitable operations. The Company’s capital requirements for the next 12 months, as they relate to the production of 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.  Subsequent to December 31, 2009, the Company raised an additional $1,300,000 through the sale of its convertible promissory notes (see note 12).
  Estimates
  The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) 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.
  F-7
 
  BALQON CORPORATION
 NOTES TO FINANCIAL STATEMENTS
 FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
  NOTE 1 – NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (continued)
  Revenues
  Contract Revenue and Cost Recognition on Prototype Vehicles
  The Company recognizes revenues using the percentage-of-completion method of accounting by relating contract costs incurred to date to the total estimated costs at completion.  This method is used because management considers costs to be the best available measure of progress on its contracts.  Contract losses are provided for in their entirety in the period that they become known, without regard to the percentage-of-completion.  The Company also recognizes as revenues costs associated with claims and unapproved change orders to the extent it is probable that such claims and change orders will result in additional contract revenue, and the amount of such additional revenue can be reliably estimated.
  Contract costs include all direct material and labor costs.  The liability “billings in excess of costs and estimated earnings on uncompleted contracts” represents billings in excess of revenues earned.
  The Company accounted for a grant from the City of Los Angeles (“City of Los Angeles Grant”) pursuant to current accounting guidelines, which provide that revenues for cost-reimbursement contract are recorded as costs are incurred and include estimated earned fees in the proportion that costs incurred to date bear to total estimated costs.
  Sales of Production Units and Parts
  The Company recognizes revenue from the sale of completed production units and parts when there is persuasive evidence that an arrangement exists, delivery of the product has occurred and title has passed, the selling price is both fixed and determinable, and collectability is reasonably assured, all of which generally occurs upon shipment of the Company’s product or delivery of the product to the destination specified by the customer.
  The Company determines whether delivery has occurred based on when title transfers and the risks and rewards of ownership have transferred to the buyer, which usually occurs when the Company places the products with the buyer’s carrier.  The Company regularly reviews its customers’ financial positions to ensure that collectability is reasonably assured.  Except for warranties, the Company has no post-sales obligations.
  Product Warranties
  The Company provides limited warranties for parts and labor at no cost to its customers within a specified time period after the sale.  The Company estimates the actual historical warranty claims coupled with an analysis of unfulfilled claims at the balance sheet date. As of December 31, 2009, the Company had no warranty reserve nor did it incur warranty expenses during the years ended December 31, 2009 or 2008.
  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.
  F-8
  BALQON CORPORATION NOTES TO FINANCIAL STATEMENTS
 FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
  NOTE 1 – NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (continued)
  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 the credit quality and payment history of the customer.  At December 31, 2009 and December 31, 2008, there was no allowance for doubtful accounts considered necessary.
  Inventories
  Inventories are stated at the lower of cost or market. Cost is determined principally on a first-in-first-out average cost basis.  Inventories consist of the following:
  December 31, 2009


December 31, 2008Raw materials

$
948,583


$
1,044,816In-transit


54,165



114,785Total

$
1,002,748


$
1,159,601
  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
3-5 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.
  Goodwill and Intangible Assets
  Management performs impairment tests of goodwill and indefinite-lived intangible assets whenever an event occurs or circumstances change that indicate impairment has more likely than not occurred. Also, management performs impairment testing of goodwill and indefinite-lived intangible assets at least annually.
  F-9
  BALQON CORPORATION NOTES TO FINANCIAL STATEMENTS
 FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
  NOTE 1 – NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (continued)
  Goodwill and Intangible Assets (continued)
  Management tests goodwill for impairment at the reporting unit level.  The Company has only one reporting unit.  At the time of goodwill impairment testing, management determines fair value through the use of a discounted cash flow valuation model incorporating discount rates commensurate with the risks involved with its reporting unit. If the calculated fair value is less than the current carrying value, impairment of the Company may exist. The use of a discounted cash flow valuation model to determine estimated fair value is common practice in impairment testing in the absence of available domestic and international transactional market evidence to determine the fair value. The key assumptions used in the discounted cash flow valuation model for impairment testing include discount rates, growth rates, cash flow projections and terminal value rates. Discount rates are set by using the Weighted Average Cost of Capital (“WACC”) methodology. The WACC methodology considers market and industry data as well as Company-specific risk factors for each reporting unit in determining the appropriate discount rates to be used. The discount rate utilized is indicative of the return an investor would expect to receive for investing in such a business. Operational management, considering industry and Company-specific historical and projected data, develops growth rates and cash flow projections for the Company.  Terminal value rate determination follows common methodology of capturing the present value of perpetual cash flow estimates beyond the last projected period assuming a constant WACC and low long-term growth rates. As an indicator that each reporting unit has been valued appropriately through the use of the discounted cash flow valuation model, the aggregate fair value of all reporting units is reconciled to the total market capitalization of the Company. The discounted cash flow valuation methodology and calculations was used in 2009 impairment testing.  The Company’s first measurement period was in the fourth quarter of 2009 and the Company determined that there were no indicators of impairment of its recorded goodwill or intangibles.
  The Company reviews intangible assets subject to amortization at least annually to determine if any adverse conditions exist or a change in circumstances has occurred that would indicate impairment or a change in the remaining useful life.  If the carrying value of an asset exceeds its undiscounted cash flows, the Company writes down the carrying value of the intangible asset to its fair value in the period identified.  If the carrying value of assets is determined not to be recoverable, the Company records an impairment loss equal to the excess of the carrying value over the fair value of the assets.  The Company’s estimate of fair value is based on the best information available, in the absence of quoted market prices.  The Company generally calculates fair value as the present value of estimated future cash flows that the Company expects to generate from the asset using a discounted cash flow income approach as described above.  If the estimate of an intangible asset’s remaining useful life is changed, the Company amortizes the remaining carrying value of the intangible asset prospectively over the revised remaining useful life.
  F-10
 BALQON CORPORATION NOTES TO FINANCIAL STATEMENTS
 FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
  NOTE 1 – NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (continued)
  Impairment of Long-Lived Assets
  The Financial Accounting Standards Board (“FASB”) has established guidelines regarding when impairment losses on long-lived assets, which include property and equipment, should be recognized and how impairment losses should be measured.  This statement also provides a single accounting model for long-lived assets to be disposed of and significantly changes the criteria that would have to be met to classify an asset as held-for-sale. The Company periodically reviews, at least annually, such assets for possible impairment and expected losses. If any losses are determined to exist they are recorded in the period when such impairment is determined. Based upon management’s assessment, there are no indicators of impairment of the Company’s long lived assets during the years ended December 31, 2009 and 2008.  Based upon management’s assessment, there were no indicators of impairment of the Company’s long-lived assets at December 31, 2009 or December 31, 2008.
  Income Taxes
  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.
  Loss Per Share
  Basic loss per share has been computed using the weighted average number of common shares outstanding and issuable during the period.  Diluted loss per share is computed based on the weighted average number of common shares and all common equivalent shares outstanding during the period in which they are dilutive.  Common equivalent shares consist of shares issuable upon the exercise of stock options or warrants.  As of December 31, 2008, common stock equivalents comprised of options exercisable into 4,562,592 shares of the Company’s common stock and warrant exercisable into 3,008,788 shares of the Company’s common stock.  As of December 31, 2009, common stock equivalents comprised of options exercisable into 4,562,592 shares of the Company’s common stock, warrants exercisable into 3,947,247 shares of the Company’s common stock and notes convertible into 1,000,000 shares of the Company’s common stock.  For the year ended December 31, 2009 and 2008, common stock equivalent shares have been excluded from the calculation of loss per share as their effect is anti-dilutive.
  Stock-Based Compensation
  The Company periodically issues stock instruments, including shares of its common stock, stock options, and warrants to purchase shares of our common stock to employees and non-employees in non-capital raising transactions for services and for financing costs.  Stock-based compensation is measured at the grant date, based on the fair value of the award, and is recognized as expense over the requisite service period.  Options to purchase shares of the Company’s common stock vest and expire according to the terms established at the grant date.
 F-11
 BALQON CORPORATION NOTES TO FINANCIAL STATEMENTS
 FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
  NOTE 1 – NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (continued)
  Financial Assets and Liabilities Measured at Fair Value
  The Company uses various inputs in determining the fair value of its investments and measures these assets on a recurring basis.  Financial assets recorded at fair value in the consolidated balance sheets are categorized by the level of objectivity associated with the inputs used to measure their fair value.  Authoritative guidance provided by the FASB defines the following levels directly related to the amount of subjectivity associated with the inputs to fair valuation of these financial assets:
  Level 1
Quoted prices in active markets for identical assets or liabilities.
  Level 2
Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly.
  Level 3
Unobservable inputs based on the Company’s assumptions.
  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 year ended December 31, 2008, contract revenue earned was from one development contract with the South Coast Air Quality Management District (“AQMD”). For the year ended December 31, 2008, sale of parts were to one customer, the City of Los Angeles.
  For the year ended December 31, 2009, 91% of total revenues were from one customer, the City of Los Angeles.
  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.
  For the year ended December 31, 2009, 20%, 18% and 10%, respectively, of costs of revenue were to three vendors.  At December 31, 2009, accounts payable to the largest vendor represented 12% of total accounts payable balances. Accounts payable to other two largest vendors represented 11% and 2%, respectively, of total accounts payable at December 31, 2009.
  Research and Development Costs
  The Company accounts for research and development costs by expensing costs as they are incurred.
 F-12
 BALQON CORPORATION NOTES TO FINANCIAL STATEMENTS
 FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
  NOTE 1 – NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (continued)
  Registration Payment Arrangements
  The Company accounts for registration payment arrangements in accordance with guidance published by the FASB which specifies that the contingent obligation to make future payments under a registration payment arrangement should be separately recognized and measured.  The Company has not made any provision for registration payment arrangements at December 31, 2009 or 2008 as it believes none will be payable.
  Recent Accounting Pronouncements
  In June 2009, the FASB issued authoritative guidance on accounting standards codification and the hierarchy of GAAP.  The FASB Accounting Standards CodificationTM (“Codification”) has become the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in accordance with GAAP.  All existing accounting standard documents are superseded by the Codification and any accounting literature not included in the Codification will not be authoritative.  However, rules and interpretive releases of the SEC issued under the authority of federal securities laws will continue to be sources of authoritative GAAP for SEC registrants.  The Codification is effective for interim and annual reporting periods ending after December 15, 2009.  Therefore, beginning with the quarter ending December 31, 2009, all references made to GAAP in the Company’s financial statements now use the new Codification numbering system.  Other than the manner in which new accounting guidance is referenced, the adoption of these changes had no impact on the Company’s financial statements.
  In October 2009, the FASB issued authoritative guidance on revenue recognition that will become effective for the Company beginning July 1, 2010, with earlier adoption permitted.  Under the new guidance, tangible products that have software components that are essential to the functionality of the tangible product will no longer be within the scope of the currently existing software revenue recognition guidance, and software-enabled products will now be subject to other relevant revenue recognition guidance.  The Company believes that the adoption of this new guidance will not have a material impact on the Company’s financial statements.
  Other recent accounting pronouncements issued by the FASB did not or are not believed by management to have a material impact on the Company’s present or future 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.  This contract is being accounted for under the percentage of completion method.  At December 31, 2008, the contract was estimated to be approximately 98% complete and was completed during 2009.
 F-13
 BALQON CORPORATION NOTES TO FINANCIAL STATEMENTS
 FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
  NOTE 2 – COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS (continued)
  In May 2009, the Company received a grant of up to $400,000 from the City of Los Angeles to reimburse the Company for costs incurred in connection with the installation, demonstration and evaluation of lithium-ion powered battery packs in two of the Company’s heavy-duty electric vehicles.  Reimbursement of up to $360,000 of the costs incurred shall be payable to the Company upon the delivery of a Nautilus E30 and a Nautilus E20 installed with lithium-ion batteries to the City of Los Angeles for testing, and reimbursement of up to $40,000 of the costs incurred shall be payable to the Company upon completion of testing required under the terms of the grant.  This contract is being accounted for under the percentage of completion method.  At December 31, 2009, the contract was estimated to be approximately 98% complete.
  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, 2009 and 2008 as follows:
 
 December 31,

2009


December 31,

2008Costs incurred on uncompleted contracts

$
359,350


$
349,341Estimated earnings


—



162,055359,350



511,396Less, billings to date


360,000



514,000$
(650
)

$
(2,604
)Included in accompanying balance sheets under the following captions:Billings in excess of costs and estimated earnings on uncompleted contracts

$
650


$
2,604
  NOTE 3 - PROPERTY AND EQUIPMENT
  Property and equipment are comprised as follows:
  December 31,

2009


December 31,

2008Computer equipment and software

$
100,742


$
52,390Office furniture


27,704



26,725Equipment


27,704



6,395Leasehold improvements


21,711



21,711Total property and equipment, cost


177,861



107,221Less: accumulated depreciation


(55,610
)


(17,828
)Property and equipment, net

$
122,251


$
89,393
  Depreciation expense for the years ended December 31, 2009 and 2008 was $37,782 and $14,256, respectively.
 F-14
 BALQON CORPORATION NOTES TO FINANCIAL STATEMENTS
 FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
  NOTE 4 – BUSINESS ACQUISITION
  On September 9, 2008, the Company acquired substantially all of the assets of Electric MotorSports, LLC (“EMS”), an Ohio limited liability company that was owned by Mr. Robert Gruenwald, the Company’s current Vice President Research and Development.  The assets acquired included goodwill and trade secrets used in the development and manufacture of flux vector motor controllers.  The purchase price of the assets was $350,00, of which $250,000 was paid in cash and the Company issued an unsecured promissory note for the balance of $100,000, of which $25,000 remains outstanding as of December 31, 2009 (see Note 5).  The acquisition was accounted for as a purchase in accordance with current accounting guidance.
  The following unaudited pro forma operating data shown below presents the results of operations for the year ended December 31, 2008, as if the acquisition of EMS had occurred on the last day of the immediately preceding fiscal period.  The pro forma results are not necessarily indicative of the financial results that might have occurred had the acquisition actually taken place on the respective dates, or of future results of operations.
  Twelve Months Ended

December 31,

2008(Unaudited)Revenues

$
332,596Net loss

$
(7,877,275
)Net loss per share-basic and diluted

$
(0.38
)Weighted average shares outstanding-basic and diluted


20,206,507
  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:
 
 Trade secrets

$
186,965Goodwill


166,500Total

$
353,465
  The amounts of intangible assets and accumulated amortization for the year ended December 31, 2009 and December 31, 2008 are as follows:``
  December 31,

2009


December 31,

2008Amortized intangible assets:Trade secrets

$
186,965


$
186,965Accumulated amortization


(77,902
)


(15,580
)Totals

$
109,063


$
171,385
 F-15
 BALQON CORPORATION NOTES TO FINANCIAL STATEMENTS
 FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
  NOTE 4 – BUSINESS ACQUISITION (continued)
  The trade secretsare being amortized over a three year period under the straight-line method.  Amortization expense for the year ended December 31, 2009 was $62,322 and for period September 9, 2008 through December 31, 2008 was $15,580. Amortization expense over the remaining amortization period is estimated to be as follows:
 
 Year Ending December 31,2010

62,3222011

46,741
  NOTE 5 – NOTES PAYABLE—RELATED PARTIES, UNSECURED
  Notes payable to related parties, unsecured, consists of the following at:
  December 31,

2009


December 31,

2008Note payable to a shareholder, unsecured, interest at 6% per annum payable at maturity, due December 6, 2008

$
—


$
875Note 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 one principal installments of $25,000 on April 10, 2010, plus accrued interest


25,000



100,000Total notes payable

$
25,000


$
100,875
  NOTE 6 – LOAN PAYABLE – BRIDGE BANK
  On February 25, 2009, the Company executed a Business Financing Agreement, dated February 18, 2009, with Bridge Bank, National Association (the “Lender”) (the “Initial Agreement”).  The initial agreement has been amended by Business Financing Modification Agreements dated effective February 26, 2009 and August 4, 2009, respectively (the “Modification Agreements,” 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 $2,000,000 (the “Credit Facility”).  At December 31, 2009, $128,150 was outstanding and $6,190 was available under the terms of the Credit Facility.
  The Credit Facility is formula-based and generally provides that the outstanding borrowings under the Credit Facility may not exceed an aggregate of 80% of eligible accounts receivable. The Company must immediately pay any advance made under the Credit Facility within 90 days of the earlier of (i) the invoice date of the receivable that substantiated the advance or (ii) the date on which the advance was made.  The Credit Facility is secured by a continuing first priority security interest in all the Company’s personal property (subject to customary exceptions).  Interest on the Credit Facility is payable monthly, at the per annum prime rate as published by the Lender plus two percentage points, subject to a minimum rate of 6.0% per annum (6% at December 31, 2009).  The Credit Agreement may be terminated at any time by either party to the Credit Agreement.
 F-16
 BALQON CORPORATION NOTES TO FINANCIAL STATEMENTS
 FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
  NOTE 7 – SUBORDINATED UNSECURED CONVERTIBLE PROMISSORY NOTES
  The amounts payable under these notes, less note discount related to the beneficial conversion feature and warrants issued with the convertible notes on December 31, 2009 was as follows:
  December 31,

2009


December 31,

2008Subordinated unsecured convertible notes payable, interest at 10% per annum payable quarterly, due March 31, 2012

$
1,000,000


$
—Less: note discount


(790,490
)


—Total notes payable, net

$
209,510


$
—
  Between March 25, 2009 and June 23, 2009, the Company entered into agreements with 34 accredited investors for the sale by the Company of an aggregate of $1,000,000 of 10% Unsecured Subordinated Convertible Promissory Notes which are convertible into an aggregate of 1,000,000 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 1,000,000 shares of the Company’s common stock at an exercise price of $1.50 per share.  The conversion price is only subject to adjustment based on stock splits, stock dividends, spin-offs, rights offerings, or recapitalization through a large, nonrecurring cash dividend.
  The Company determined that the relative fair value of the warrants was $639,061.  The relatively fair value was determined using the methodology prescribed by current accounting guidance.  The Company determined the initial fair value of the beneficial conversion feature was approximately $360,939. These amounts were calculated under a Black-Scholes option pricing model using as assumptions an expected life of 3 years, an industry volatility of 54.39%, a risk free interest rate of 1.15%, and no expected dividend yield. The relative value of the warrants of $639,061 and the beneficial conversion feature of $360,939 was recorded by the Company as a loan discount of $1,000,000, which the Company is amortizing to interest expense over the life of the notes.  At December 31, 2009, the total discount (less amortization of $209,510) of $790,490 is offset against the balance of the convertible notes for financial statement presentation.
  NOTE 8 – INCOME TAXES
  At December 31, 2009, the Company had available Federal and state net operating loss carryforwards to reduce future taxable income. The amounts available were approximately $10,657,000 for federal and for state purposes. The Federal carryforward expires in 2028 and the state carryforward expires in 2018.
  Given the Company’s history of net operating losses, management has determined that it is more likely than not the Company will be able to realize the tax benefit of the carryforwards.
  Accordingly, the Company has not recognized a deferred tax asset for this benefit. Upon the attainment of taxable income by the Company, management will assess the likelihood of realizing the tax benefit associated with the use of the carryforwards and will recognize a deferred tax asset at that time.
 F-17
 BALQON CORPORATION NOTES TO FINANCIAL STATEMENTS
 FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
  NOTE 8 – INCOME TAXES (continued)
  Current standards require 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:
 
 December 31,

2009


December 31,

2008Deferred income tax asset:Net operating loss carryforward

$
4,374,000


$
3,220,000Valuation allowance


(4,374,000
)


(3,220,000
)Net deferred income tax asset

$
—


$
—
  Reconciliation of the effective income tax rate to the U.S. statutory rate is as follows:
 
 Year Ended December 31,2009


2008Tax expense at the U.S. statutory income tax


(34.0
)%


(34.0
)%State tax net of federal tax benefit


(5.8
)%


(5.8
)%Increase in the valuation allowance


39.8
%


39.8
%Effective tax rate


—
%


—
%
  The Company adopted authoritative guidance issued by the GAAP which 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 the current accounting guidelines, 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 50 percent likelihood of being realized upon ultimate settlement. Current accounting guidelines also provide guidance on derecognition, classification, interest and penalties on income taxes, accounting in interim periods and require increased disclosures. At the date of adoption, and as of December 31, 2009, the Company does not have a liability for unrecognized tax benefits.
  NOTE 9 – SHAREHOLDERS’ EQUITY
  The Company was capitalized on April 21, 2005 when it issued 1,000 shares of no par common stock (not adjusted for the 16,1667:1 stock split described below) 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. Except as otherwise noted, all share amounts in the accompanying financial statements are presented as if the stock split occurred at the beginning of the period presented.
 F-18
 BALQON CORPORATION NOTES TO FINANCIAL STATEMENTS
 FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
  NOTE 9 – 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 $4,500,090. 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 $1,250,025, that were granted to Amarpal Samra. On August 28, 2008, the Company issued 500,000 shares of common stock valued at $500,000to three consultants for services rendered. Also on August 28, 2008, the Company issued 332,910 shares of common stock valued at $332,910to its Chief Executive Officer and founding shareholder.
  In June and August 2008, when the shares discussed above were granted, an active market for the Company’s common stock did not exist. As such, management determined the value of the shares of common stock issued in June and August 2008 to be $1.00 per share using  the $1.00 conversion price per share of common stock of the Company’s convertible notes that were offered and sold in July and September 2008 (and converted on October 24, 2008) and the $1.00 per unit sale price of units comprised of one share of common stock and a warrant to purchase one share of common stock that were offered and sold in October and December 2008, which management believes are the best indicators of the fair value of the Company’s common stock.
  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 one warrant to acquire one share of common stock at a price of $1.00 per unit as follows:
  (A)
On October 24, 2008, immediately preceding the closing of the merger with Balqon Corporation (formerly BMR) (see Note 1), the Company 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, the Company 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”).
  (B)
On December 22, 2008, Balqon Corporation (formerly BMR) 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-19
 BALQON CORPORATION NOTES TO FINANCIAL STATEMENTS
 FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
  NOTE 9 – 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 conversion price is only subject to adjustment based on stock splits, stock dividends, spinoff, rights offering, or recapitalization through a large, nonrecurring cash dividend.
  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.
  In connection with the original issuance of the convertible notes and associated warrants, the Company determined that the relative fair value of the warrants was $293,374 and the value of the beneficial conversion feature was $293,374.  These amounts were 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. The Black-Scholes calculation of the fair value of the warrants also included the assumption that the fair value of the  underlying shares of common stock was $1.00.  In October 2008, when the warrants were granted, an active market for the Company’s common stock did not exist. As such, management determined the fair value of the shares of common stock underlying the warrants to be $1.00 per share using  the $1.00 conversion price per share of common stock of the Company’s convertible notes that were offered and sold in July and September 2008 (and converted on October 24, 2008) and the $1.00 per unit sale price of units comprised of one share of common stock and a warrant to purchase one share of common stock that were offered and sold in October and December 2008, which management believes are the best indicators of the fair value of the Company’s common stock. The relative value of the warrants of $293,374 and the beneficial conversion feature of $293,374 was recorded by the Company as a loan discount of  $586,748, which the Company was to amortize to interest expense over the original life of the loan.  The Company amortized note a discount of $138,663 through October 24, 2008, the date at which the notes were converted, and expensed the remainder of the loan discount of $448,085 at the date of conversion.  As such, $586,748 was reflected as interest expense in the accompanying statement of operations for the year ending December 31, 2008.
 F-20
 BALQON CORPORATION NOTES TO FINANCIAL STATEMENTS
 FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
  NOTE 10 – STOCK OPTIONS AND WARRANTS
  Stock Options
  At December 31, 2009, options shares outstanding were 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


$
2.00Granted


—



—Exercised


—



—Cancelled


—



—Balance at December 31, 2009


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 $590,877 calculated by a Black-Scholes option pricing model using as assumptions an expected life of one to three years, an industry volatility of 58.43%, a risk free interest rate of 2.42%, and no expected dividend yield. The Black-Scholes calculation of the fair value of the options also included he assumption that the fair value of the  underlying shares of common stock was $1.00.  In June 2008, when the options discussed above were granted, an active market for the Company’s common stock did not exist. As such, management determined the fair value of the shares of common stock underlying the options issued in June 2008 to be $1.00 per share using  the $1.00 conversion price per share of common stock of the Company’s convertible notes that were offered and sold in July and September 2008 (and converted on October 24, 2008) and the $1.00 per unit sale price of units comprised of one share of common stock and a warrant to purchase one share of common stock that were offered and sold in October and December 2008, which management believes are the best indicators of the fair value of the Company’s common stock.
  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-21
 BALQON CORPORATION NOTES TO FINANCIAL STATEMENTS
 FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
  NOTE 10 – STOCK OPTIONS AND WARRANTS (continued)
  Stock Options (continued)
  The following table summarizes information about stock options outstanding and exercisable as of December 31, 2009:
  Options Outstanding

Options ExercisableRange of

Exercise

Prices

Number

of Shares

Underlying

Options

Weighted

Average

Exercise

Price

Weighted

Average

Remaining Contractual

Life (in years)

Number

of Shares

Weighted

Average

Exercise Price$1.50

1,520,864

$1.50

0.58

1,520,864

$1.50$2.00

1,520,864

$2.00

1.58

1,520,864

$2.00$2.50

1,520,864

$2.50

2.58

1,520,864

$2.504,562,592





4,562,592
  At December 31, 2009, the aggregate intrinsic value of the 4,562,592 options outstanding and exercisable was zero.  At December 31, 2009, all options were vested and there were no unvested options outstanding.
  Warrants
  At December 31, 2009, warrants shares outstanding were 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


$
1.50Granted


1,000,000


$
1.50Exercised


—



—Cancelled


(61,531
)


—Balance at December 31, 2009


3,947,247


$
1.50
 F-22
 BALQON CORPORATION NOTES TO FINANCIAL STATEMENTS
 FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
  NOTE 10 – 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 $94,432 as calculated by a Black-Scholes option pricing model using as assumptions an expected life of one to three years, an industry volatility of 58.43%, a risk free interest rate of 2.42%, and no expected dividend yield. The Black-Scholes calculation of the fair value of the warrants also included the assumption that the fair value of the  underlying shares of common stock was $1.00.  In June 2008, when the warrants discussed above were granted, an active market for the Company’s common stock did not exist. As such, management determined the fair value of the shares of common stock underlying the warrants issued in June 2008 to be $1.00 per share using the $1.00 conversion price per share of common stock of the Company’s convertible notes that were offered and sold in July and September 2008 (and converted on October 24, 2008) and the $1.00 per unit sale price of units comprised of one share of common stock and a warrant to purchase one share of common stock that were offered and sold in October and December 2008, which management believes are the best indicators of the fair value of the Company’s common stock.
  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 (See Note 9).
  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 BMR Warrants to be $23,906 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.   The Black-Scholes calculation of the fair value of the warrants also included the assumption that the fair value of the  underlying shares of common stock was $1.00.  In October 2008, when the BMR Warrants were granted, an active market for the Company’s common stock did not exist. As such, management determined the fair value of the shares of common stock underlying the BMR Warrants to be $1.00 per share using the $1.00 conversion price per share of common stock of the Company’s convertible notes that were offered and sold in July and September 2008 (and converted on October 24, 2008) and the $1.00 per unit sale price of units comprised of one share of common stock and a warrant to purchase one share of common stock that were offered and sold in October and December 2008, which management believes are the best indicators of the fair value of the Company’s common stock.
 F-23
 BALQON CORPORATION NOTES TO FINANCIAL STATEMENTS
 FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
  NOTE 10 – STOCK OPTIONS AND WARRANTS (continued)
  Warrants (continued)
  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 (see Note 9). 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.
  During March and June 2009, the Company raised an aggregate of $1,000,000 through the issuance of its 10% Unsecured Subordinated Convertible Promissory Notes which are convertible into an aggregate of 1,000,000 shares of the Company’s common stock at a conversion price of $1.00 per share of common stock, subject to adjustment, to 34 accredited investors.  In connection with this offering, the Company also issued three-year warrants to purchase an aggregate of 1,000,000 shares of common stock at an exercise price of $1.50 per share.
  The following table summarizes information about stock warrants outstanding and exercisable as of December 31, 2009:
  Warrants Outstanding

Warrants ExercisableRange of

Exercise

Prices

Number

of Shares

Underlying

Warrants

Weighted

Average

Exercise

Price

Weighted

Average

Remaining Contractual

Life (in years)

Number

of Shares

Weighted

Average

Exercise Price$1.50

3,338,063

$1.50

1.8

3,338,063

$1.50$2.00

304,592

$2.00

1.6

304,592

$2.00$2.50

304,592

$2.50

2.4

304,592

$2.503,947,247





3,947,247
  At December 31, 2009, the aggregate intrinsic value of the warrants outstanding and exercisable was zero.
  NOTE 11 – COMMITMENTS AND CONTINGENCIES
  City of Los Angeles Agreement
  On June 26, 2008, the Company entered into an agreement with the City of Los Angeles to manufacture and deliver 20 electric yard tractors, 5 short-haul electric tractors, and associated equipment including chargers, batteries and controllers for a total of $5,383,750. As of December 31, 2009, the Company had delivered 14 electric yard tractors to the City of Los Angeles.
  As of March 23, 2010, the Company had delivered 14 electric yard tractors to the City of Los Angeles. The Company expects to deliver the remaining 6 electric yard tractors, 5 short-haul electric tractors and associated equipment to the City of Los Angelesby September 30, 2010.  Of the Company’s backlog of $2,587,020 on March 26, 2010, $2,343,300 was attributable to the eleven electric vehicles and associated parts the Company is required to deliver under its agreement with the City of Los Angeles.
 F-24
 BALQON CORPORATION NOTES TO FINANCIAL STATEMENTS
 FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
  NOTE 11 – COMMITMENTS AND CONTINGENCIES
  City of Los Angeles Agreement (continued)
  Under its agreement with the City of Los Angeles, 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.
  During 2009, under the terms of the Company’s agreement with the City of Los Angeles, the Company requested and was issued an advance payment in the amount of $1,159,601.  This advance payment was recorded as a customer deposit.  This customer deposit will be applied against the Company’s final invoices under its purchase order for 25 electric vehicles.
  Employment Agreements
  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.
  City of Los Angeles Grant
  In May 2009, the Company received a grant of up to $400,000 from the City of Los Angeles to reimburse the Company for costs it incurs in connection with the installation, demonstration and evaluation of lithium-ion powered battery packs in two of the Company’s zero emissions Nautilus vehicles.  Reimbursement of up to $360,000 of the costs incurred shall be payable to the Company upon the delivery of a Nautilus E30 and a Nautilus E20 installed with lithium-ion batteries to the City of Los Angeles for testing, and reimbursement of up to $40,000 of the costs incurred shall be payable to the Company upon completion of testing required under the terms of the grant.  Upon completion of the testing of these two vehicles, one Nautilus E20 and one Nautilus E30, the City of Los Angles will have the right to purchase these test vehicles against its existing purchase order with the Company.  In June 2009, the Company completed assembly of a Nautilus E30 retrofitted with 280 kilowatt hours (“kWh”) lithium-ion battery packs, and an initial testing of this Nautilus E30 demonstrated a range of over 150 miles on a single charge under unloaded conditions. As of November 13, 2009, the Company has retrofitted 5 Nautilus E20s with 140 kWh lithium-ion battery packs, and initial testing of this Nautilus E20 demonstrated a range of over 95 miles on a single charge under unloaded conditions.
 F-25
 BALQON CORPORATION NOTES TO FINANCIAL STATEMENTS
 FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
  NOTE 11 – COMMITMENTS AND CONTINGENCIES
  City of Los Angeles Grant (continued)
  As of December 31, 2009, the Company has invoiced the City of Los Angeles $360,000 in accordance with the City of Los Angeles grant.  Through the 12 months ended December 31, 2009, the Company has incurred $359,350 of costs related to the City of Los Angeles grant and has recognized the same amount as revenue. The billings in excess of cost equal to $650 is reflected as a liability in the Company’s balance sheet for December 31, 2009 (See Note 2).
  Autocar Agreement
  In 2009, the Company entered into an agreement (the “Autocar Agreement”) with Autocar, LLC (“Autocar”), a manufacturer and marketer of severe service heavy-duty trucks, under which the Company agreed with Autocar to collaborate on the development, marketing and sale of on-road Class 7 and Class 8 zero emissions electric trucks to be used in short-haul drayage and trash hauling applications (the “Autocar Truck”).  Under the terms of the Autocar Agreement, the Company agreed to purchase Department of Transportation compliant chassis designed for cab-over-engine-heavy-duty vehicles (the “Autocar Chassis”) exclusively from Autocar for a period of at least three years.  The Autocar Agreement is for an initial term commencing on June 9, 2009 and ending 36 months after the first sale of an Autocar Truck by us to an end user (the “First Sale”).  After the initial term, the Autocar Agreement will automatically continue for successive one-year terms until it is terminated at the end of its term by either party giving the other party notice of termination at least 60 days prior to the end of the applicable term.  Under the Autocar Agreement, the Company agreed to purchase: a minimum of 50 Autocar Chassis during the first 12-month period after the First Sale (with at least 5 Autocar Chassis being purchased by December 9, 2009), a minimum of 75 Autocar Chassis during the second 12-month period after the First Sale, and a minimum of 112 Autocar Chassis during the third 12-month period after the First Sale.
  Leases
  The Company currently leased facilities located in Santa Ana, California under a lease that expired on May 31, 2009.  The lease had a current monthly payment of $3,206 for the Santa Ana facility. 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, 2009 and 2008 was $138,509 and $98,008, 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:
 
 Year Ending December 31:2010

$
122,8802011

$
71,680
 F-26
 BALQON CORPORATION NOTES TO FINANCIAL STATEMENTS
 FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
  NOTE 11 – 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 12 - SUBSEQUENT EVENTS
  Sale of 10% Unsecured Subordinated Convertible Promissory Notes
  On February 2, 2010, Balqon issued 200,000 shares of its common stock to an accredited investor in consideration of consulting services rendered, or to be rendered, between January 1, 2010 through June 30, 2010.
  Between February 5, 2010 and March 31, 2010, the Company entered into agreements with seven accredited investors for the sale by the Company of an aggregate of $1,300,000 of 10% Unsecured Subordinated Convertible Promissory Notes which are convertible into an aggregate of 1,733,329 shares of the Company’s common stock at a conversion price of $0.75 per share of common stock, subject to adjustment.  Additionally, the Company issued three-year warrants to purchase an aggregate of 1,733,329 shares of the Company’s common stock at an exercise price of $0.50 per share.  The proceeds of $1,300,000 are allocated to working capital.  In connection with the sale of certain of the 10% Unsecured Subordinated Convertible Promissory Notes, the Company issued three year warrants to  purchase 15,999 shares of its common stock at an exercise price of $0.50 per share to two accredited investors in consideration of finder services rendered.
  F-27
  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, 2010.
  BALQON CORPORATIONBy:
/s/ BALWINDER SAMRABalwinder Samra,Chairman of the Board, President andChief 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

Balwinder Samra

President, Chief Executive Officer and Director (principal executive officer)

March 31, 2010/s/ ROBERT MIRANDA

Robert Miranda

Chief Financial Officer (principal financial officer and principal accounting officer)

March 31, 2010/s/ HENRY VELASQUEZ

Henry Velasquez

Director

March 31, 2010/s/ AMARPAL SINGH SAMRA

Amarpal Singh Samra

Director

March 31, 2010
 
 
  BALQON CORPORATION
 EXHIBITS ATTACHED TO THIS REPORT
 
 Exhibit

Number

Description4.10

Form of 10% Unsecured Subordinated Convertible Promissory Notes issued to certain security holders in the aggregate principal amount of $1,300,000, which are convertible into an aggregate of 1,733,329 shares of our common stock (subject to adjustment)4.11

Form of Warrants issued by the Registrant to certain security holders to purchase an aggregate of 1,733,329 shares of common stock (subject to adjustment)4.12

Form of Warrants issued by the Registrant to certain security holders to purchase an aggregate of 15,999 shares of common stock in consideration of finder services rendered (subject to adjustment)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 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 2002