10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

 (Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2008.

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to _____________

Commission file number: 000-52337

BALQON CORPORATION

(Exact name of registrant as specified in its charter)

Nevada (State or other jurisdiction of incorporation or organization)	33-0989901 (I.R.S. Employer Identification No.)
1701 E. Edinger Avenue, Unit E-3, Santa Ana, California (Address of principal executive offices)	92705 (Zip Code)

Registrant’s telephone number, including area code: (714) 836-6342

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.001 par value

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yeso    Nox

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yeso    Nox

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yesx    Noo

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

Large Accelerated Filer	o	Accelerated Filer	o
Non-accelerated Filer	o	Smaller Reporting Company	x
	(Do not check if a smaller reporting company.)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yeso    Nox

The aggregate market value of the voting common equity held by nonaffiliates of the registrant, computed by reference to the average bid and asked price on June 30, 2008, the last business day of the registrant’s most recently completed second fiscal quarter, cannot be computed as the registrant’s common stock was not trading on such date.  The registrant has no non-voting common equity.

The number of shares outstanding of the Registrant’s common stock, $0.001 par value, as of March 27, 2009 was 25,518,348.

DOCUMENTS INCORPORATED BY REFERENCE

None

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BALQON CORPORATION

ANNUAL REPORT ON

FORM 10-K

FOR THE YEAR ENDED DECEMBER 31, 2008

TABLE OF CONTENTS

		Page
PART I
Item 1.	Business	3
Item 1A.	Risk Factors	19
Item 1B.	Unresloved Staff Comments	30
Item 2	Properties	30
Item 3	Legal Proceedings	30
Item 4	Submission of Matters to a Vote of Security Holders	30
PART II
Item 5	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	31
Item 6	Selected Financial Data	32
Item 7	Management's Discussion and Analysis of Financial Condition and Results of Operations	32
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	42
Item 8	Financial Statements and Supplementary Data	42
Item 9	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	42
Item 9A.	Controls and Procedures	42
Item 9A (T).	Controls and Procedures	42
Item 9B.	Other Information	43
PART III
Item 10.	Directors and Executive Officers and Corporate Governance	44
Item 11.	Executive Compensation	49
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	65
Item 13.	Certain Relationships and Related Transactions, and Director Independence	67
Item 14.	Principal Accountant Fees and Services	74
PART IV
Item 15.	Exhibits and Financial Statement Schedules	75

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CAUTIONARY STATEMENT

All statements included or incorporated by reference in this Annual Report on Form 10-K, other than statements or characterizations of historical fact, are forward-looking statements.  Examples of forward-looking statements include, but are not limited to, statements concerning projected net sales, costs and expenses and gross margins; our accounting estimates, assumptions and judgments; the demand for our products; the competitive nature of and anticipated growth in our industries; and our prospective needs for additional capital. These forward-looking statements are based on our current expectations, estimates, approximations and projections about our industries and business, management’s beliefs, and certain assumptions made by us, all of which are subject to change. Forward-looking statements can often be identified by words such as “anticipates,” “expects,” “intends,” “plans,” “predicts,” “believes,” “seeks,” “estimates,” “may,” “will,” “should,” “would,” “could,” “potential,” “continue,” “ongoing,” similar expressions, and variations or negatives of these words. These statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, our actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors, some of which are listed under “Risk Factors” in Item 1A of this Report. These forward-looking statements speak only as of the date of this Report. We undertake no obligation to revise or update publicly any forward-looking statement for any reason, except as otherwise required by law.

PART I

Item 1. Business.

Overview

We design, assemble and market heavy-duty electric vehicles for use in the transportation of containers and heavy loads at facilities such as marine terminals, rail yards, industrial warehouses, intermodal facilities (facilities where freight is transferred from one mode of transportation to another without actual handling of the freight itself when changing modes), military bases and industrial plants.  We currently sell our heavy-duty electric vehicles for use at the Port of Los Angeles and have also sold a heavy duty electric vehicle for use in a demonstration program to the South Coast Air Quality Management District, or AQMD.  We also market, and plan to sell, components of our heavy duty electric vehicles that we have developed, including our heavy duty electric drive systems and flux vector inverters, which control the speed of electric motors by varying the input frequency and voltage from the batteries.  In 2008, we released our first zero emissions heavy-duty vehicle, the Nautilus E30, which is part of our Nautilus product line that is designed to target applications requiring transportation of cargo containers weighing over 60,000 pounds.

Fossil fuel powered equipment used to transport containers in off-highway applications have experienced minimal improvements in emission and propulsion technology over the past two decades.  As a result, sea ports and intermodal facilities throughout the world have experienced increased levels of pollution.  We believe that the life-cycle costs of our heavy-duty electric vehicles are lower than the current operating costs of fossil fuel based vehicles in high idling off-highway and on-highway applications.  A key element of our strategy is to market and sell, on a world-wide basis, our zero emissions heavy-duty electric vehicles in high idling off-highway and on-highway applications as a cost effective and environmentally friendly alternative to fossil fuel based heavy-duty vehicles.  In addition, we plan to market and sell on a worldwide basis our heavy-duty electric drive systems and flux vector inverters to original equipment manufacturers, or OEMs, for use in heavy-duty electric vehicles and heavy-duty material handling equipment.

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Our Nautilus E30 drayage tractor, a vehicle used to haul heavy loads in short haul operations, which can tow over 60,000 pounds at speeds of up to 45 miles per hour and has a range of between 30 and 60 miles on a single battery charge, has successfully completed initial testing at the Port of Los Angeles.  As a result of this successful testing, we received purchase orders for an additional five Nautilus E30 electric drayage tractors and 21 Nautilus E20 electric yard tractors.  Prior to releasing our Nautilus product line, we spent two years developing our heavy duty electric drive system that couples an electric motor directly to an automatic transmission which provides high torque to pull heavy loads during start-stop applications. In addition, in 2008 we acquired the assets of a company that had developed a high capacity 240 kW flux vector inverter that is Society of Automation Engineers, or SAE, J1939 controller area network, or CAN Bus, capable.  SAE J1939 CAN Bus is a standard communication protocol used in the automotive industry to communicate and diagnose between vehicle components.  For example, diesel engine manufacturers use SAE J1939 CAN Bus communications to control emissions and transmission operations in off-highway and on-highway vehicle applications.  Our flux vector inverters have been designed to communicate with other vehicle components on the same SAE J1939 CAN Bus thereby allowing us to incorporate our heavy-duty electric drive system into other fossil fuel vehicle platforms including container lift trucks, reach stackers, roll-on/roll-off tractors, drayage vehicles and high capacity forklifts.

Company History

We are a Nevada corporation that was incorporated on November 21, 2001, as BMR Solutions, Inc.  From inception to May 2006, we were engaged in the business of providing Internet website hosting and development services.  In May 2006, we underwent a change in management and adopted a new business plan of providing local delivery and transportation of mattresses, furniture and futons in Southern California.  On September 15, 2008, we entered into an Agreement and Plan of Merger, or Merger Agreement, with Balqon Corporation, a California corporation, or Balqon California, and our wholly-owned subsidiary Balqon Acquisition Corp., or Acquisition Subsidiary.  Upon the closing of the Merger Agreement on October 24, 2008, Balqon California merged with and into Acquisition Subsidiary with Acquisition Subsidiary surviving and immediately thereafter, Acquisition Subsidiary merged with and into our company and at that time we also changed our name from BMR Solutions, Inc. to Balqon Corporation.  Our current business is comprised solely of the business of Balqon California.  Balqon California was incorporated on April 21, 2005 and commenced operations in 2006.

In September 2008, Balqon California entered into an agreement with Electric Motorsports, LLC, or EMS, and its sole member, Robert Gruenwald, to acquire certain of the assets of EMS, including all intellectual property assets.  At the time of the acquisition, EMS had been engaged in developing, designing and manufacturing flux vector inverters within the automotive and material handling equipment industries since 1997.  At the time of the acquisition, Mr. Gruenwald was, and continues to be, our Vice President Research and Development.  See “Item 13. Certain Relationships and Related Transactions, and Director Independence—Balqon California’s Transactions Prior to the Consummation of the Merger Transaction.”  As a result of this acquisition, Balqon California acquired proprietary technology and designs that we currently use in our heavy-duty electric vehicles. Since its inception in 1997, EMS has sold over 250 inverters for use in applications including industrial conveyor systems, electric buses, delivery trucks, a monorail system and mining vehicles.  EMS sold products primarily to OEMs of electric buses, mining vehicles and specialty automotive vehicles. We believe that the acquisition of EMS’s technology and knowhow provides us with the ability to further develop, market and sell flux vector inverters for use in heavy-duty applications. For example, we plan to sell these flux vector inverters to OEMs for use in existing fossil fuel based vehicle platforms.

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In October 2006, the management of Balqon California met with representatives of the Port of Los Angeles and the AQMD, to propose the use of zero emissions electric tractors at the port terminal facilities located in San Pedro and Los Angeles, California.  In April 2007, Balqon California entered into an agreement with the AQMD, or AQMD Development Agreement, to develop a heavy-duty zero emissions electric drayage tractor to be used for demonstration and testing purposes at the Port of Los Angeles.  Under the terms of the AQMD Development Agreement, which was co-funded by the AQMD and the Port of Los Angeles, the AQMD agreed to pay Balqon California up to $527,000 for the development of this electric tractor.  In January 2008, Balqon California delivered to the AQMD and commenced testing a heavy-duty electric drayage tractor incorporating what is now our proprietary flux vector inverter technology and heavy-duty electric drive system at the Port of Los Angeles. The zero emissions electric tractor has since successfully passed rigorous testing by the Port of Los Angeles.

In May 2008, Balqon California received a purchase order from the AQMD for oneNautilus E20 electric yard tractor to be used in a loaner program under which the AQMD will loan the tractor to various terminal operators to demonstrate the benefits of using zero emissions electric vehicles in off-highway container transportation applications. In June 2008, Balqon California received a purchase order from the City of Los Angeles for 20 Nautilus E20 heavy-duty electric yard tractors and five Nautilus E30 drayage tractors, all of which will be used at the Port of Los Angeles.

The purchase order from the AQMD is pursuant to a Purchase and Service Agreement with the AQMD, dated May 15, 2008, or AQMD Purchase Agreement, under which we are obligated to deliver one Nautilus E20 heavy-duty electric yard tractor to the AQMD for use in a loaner program that will allow the owners of multiple terminals to test the electric yard tractor in anticipation of a purchase.  The term of the AQMD Purchase Agreement expires on May 15, 2010.  Under the terms of the AQMD Purchase Agreement, the AQMD will pay us up to an aggregate of $300,000 for products delivered and services provided under the agreement, which amount includes $280,000 to be paid for the delivery of a operational yard tractor, a replacement battery pack and a battery charger.  Under the terms of the AQMD Purchase Agreement, we are also obligated to install and remove chargers at least five times at five different sites. In addition, we are obligated to pay the AQMD a royalty fee of $1,000 per electric vehicle sold or leased to anyone other than the AQMD or the Port of Los Angeles.  The royalty fee will be adjusted for inflation every five years.  Under the terms of the AQMD Purchase Agreement, the AQMD has the right to use data collected during the test phase and has a royalty free, nonexclusive, irrevocable license to produce any copyrighted material produced under the AQMD Purchase Agreement.

The purchase order from the City of Los Angeles is pursuant to an agreement with the City of Los Angeles, dated June 26, 2008, or City of Los Angeles Agreement, under which we are obligated to produce and deliver to the City of Los Angeles 20 electric yard tractors, five electric drayage tractors and certain additional components.  The City of Los Angeles Agreement is for a term of three years.  Under the terms of the City of Los Angeles Agreement, the City of Los Angeles will pay us up to an aggregate of $5,383,750, comprised of $189,950 for each Nautilus E20 yard tractor, $208,500 for each Nautilus E30 drayage tractor, and $542,250 for the delivery of five sets of battery chargers.  Under the terms of the City of Los Angeles Agreement, we are also obligated to pay the City of Los Angeles a royalty fee of $1,000 per electric vehicle sold or leased to any party other than the City of Los Angeles or the AQMD.  The royalty fee will be adjusted for inflation every five years.

In March 2009, we delivered a Nautilus E20 to the AQMD under the terms of the AQMD Purchase Agreement and we delivered a Nautilus E20 to the Port of Los Angeles under the terms of the City of Los Angeles Agreement.

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Electric Vehicle Industry

Over the past twenty years, the electric vehicle industry has grown rapidly as a result of increasing demand for environmentally friendly modes of transportation.  The high price of fossil fuel and heightened environmental concerns over greenhouse gas emissions worldwide have resulted in increased demand for electric and hybrid vehicles.  Similarly, there has been increase in demand for battery powered low or zero emissions vehicles in off-highway material handling applications.

We believe that potentially large electric vehicle markets are developing in a wide-range of vehicle platforms for a variety reasons, including improved fuel economy, lower emissions, greater reliability, lower maintenance costs, improved performance and vehicle control.  Of these myriad reasons, improved fuel economy has emerged as a significant factor in the development and potential growth of the emerging electric vehicle markets as crude oil prices rise, and consumers and businesses alike contend with higher gasoline and diesel prices.

During 2007, crude oil consumption in the United States, as reported by the United States Department of Energy in the Transportation Energy Data Book, averaged approximately 21 million barrels per day, which represents an average annual percentage increase in consumption of approximately 1% over a period of 10 years.  According to data published by the United States Department of Energy, of the amount of crude oil consumed in the United States in 2007, approximately 68% was consumed by the transportation industry which has seen an increase in consumption of approximately 1.5% per year over a 10 year period.  The United States Department of Energy also reports that increases in crude oil based fuel demand worldwide has resulted in accelerated growth of fuel costs worldwide.  We believe that the cost of fuel will continue to remain high relative to historic levels, and therefore believe that electric vehicles will offer a cost effective and environmentally efficient alternative solution to fossil fuel based vehicles.

We believe that the continued liberalization of global trade coupled with the growth in container packaging of goods has resulted in the use of larger container ships which, in turn, has resulted in a commensurate increase in ship capacities.  This increase in the size of container ships has resulted in concentrated growth at larger ports which, in turn, has resulted in a higher rate of increase in air pollution at these ports, thereby requiring more stringent environmental regulations.

As a result of increased imports from South Asia to the United States over the past five years, the number of twenty-foot equivalent units, or TEUs, transported to ports and through intermodal facilities located on the west coast of the United States has also increased.This expansion in trade has resulted in increased pollution at the largest ports on the west coast of the United States, resulting in more stringent requirements on vehicle emissions in many of these areas.  For example, the Port of Los Angeles and the Port of Long Beachrecentlyapproved a comprehensive “Clean Air Action Plan” aimed at reducing pollution and health risks associated with mobile air emissions resulting from activities at these ports.  See “—Recent Initiatives.”  We believe that electric trucks are the leading cost competitive solution to reduce the environmental impact of increased activity and pollution at ports and intermodal facilities located on the west coast of the United States.

In light of these recent regulatory initiatives, and the identification of heavy-duty truck pollution as the most significant source of air pollution at ports, we believe that the demand for heavy-duty electric vehicles will increase.  In response to this anticipated increase in demand, we have developed and will continue to develop zero emissions heavy-duty vehicle platforms as an alternative to current fossil fuel based container transportation solutions.  In addition to being incorporated into our heavy-duty electric vehicles, our heavy-duty electric drive systems can also be incorporated into drayage vehicles, container lift trucks, roll-on/roll-off trucks, reach stackers and large industrial forklifts.  In addition, we also believe that our heavy-duty electric drive system is ideally suited for vehicles used in connection with short-haul inner city on-highway delivery of goods to retail or industrial facilities.

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The electric vehicle industry is highly competitive and characterized by rapid technological advancements.  Most of the technological advancements target the on-highway consumer automotive markets. We believe that technological improvements in battery technology have increased the probability of production electric vehicles reaching consumer markets by 2012. The success of electric vehicles in the consumer market industry is generally based on vehicle range, speed and acquisition cost, while success of electric vehicles in the off-highway heavy-duty markets is based on product customization, productivity, functionality, durability and after market support. In response to what we believe to be the market needs, our fully integrated heavy-duty electric drive system that incorporates an electric motor, transmission, flux vector inverter and communication components into a single integrated unit allow us the agility and adaptability to enter various heavy-duty vehicle market niches through incorporation of our technologies into varied vehicle platforms.  We have ensured adaptability to a variety of application needs through the design of our flux vector inverter which determines key performance features of the vehicle such as speed, acceleration and energy consumption and which is software configurable thereby allowing us to adapt to specific application needs in the field.  Our operational strategy to partner with existing chassis manufacturers in each niche market provides our customers with a proven vehicle platform and established service support worldwide while providing us with a capital efficient model to enter a number of market segments.

Heavy-Duty Electric Vehicles Industry

Industries related to container transportation have seen modest improvements in vehicle technology over the past five decades. This is mainly a result of low duty cycle needs for vehicles operated in terminals or in short-haul drayage applications which, in turn, has resulted in the use of older model and higher-polluting vehicles in these applications. The high growth rates at large ports has resulted in an increase in the population of these older model vehicles which, in turn, has resulted in increased regulatory oversight within port facilities that historically were relatively unregulated. We believe that this increase in regulatory oversight, coupled with continued increases in fossil fuel costs, have resulted in the opportunity for electric vehicles to be a commercially viable environmental solution in these markets. We believe that the benefits of zero emissions and lower operating costs of electric vehicles, when compared to fossil fuel powered or hybrid vehicles, provides us with an opportunity to market cost-effective heavy-duty zero emissions electric vehicles to a number of markets worldwide.

We believe that as the monetary and environmental costs of fossil fuels increase, environmental regulations will continue to be promulgated worldwide to ensure significant decreases in harmful emissions.  Efforts to reduce greenhouse gas emissions during the past five years using alternative fuels such as compressed natural gas and liquefied petroleum gas have resulted in modest improvements in air quality.  We believe that stringent environmental regulations will result in an increased demand for cost effective zero emissions technologies that can be incorporated into current vehicle platforms to replace current fossil fuel-based vehicles.  Furthermore, we believe that electric vehicles will be the ideal solution in resolving emissions and operating cost issues faced by the heavy-duty electric vehicle industry.

Heavy-Duty Material Handling Equipment Industry

Our fully integrated heavy-duty electric drive system design provides us with ability to incorporate our zero emissions technology into material handling equipment platforms that are used in high load carrying capacity applications.  Heavy load carrying capacity material handling equipment is used to transport containers or cargo at marine terminals, on cargo vessels and within industries, such as the lumber, concrete, paper and steel industries, that have been generally unregulated in terms of emissions generated by equipment utilizing off-highway engines. Increases in fuel costs and regulatory oversight provides us with the opportunity to transition this industry to zero emissions product solutions.

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Our heavy-duty electric drive systems are designed to target the needs of industries that utilize 10 to 45 ton capacity forklifts, 20 to 45 ton capacity reach stackers, 20 to 45 ton capacity roll-on/roll-off trucks and 8 to 45 ton capacity container lift trucks, all of which are primarily used in ports and rail yards to stack empty containers or to load and unload ships, barges or rail carts. High capacity forklifts are also used to load and unload below deck cargo at smaller ports. In addition, these forklifts are used in industrial facilities to transport heavy metals, concrete, paper and lumber. A reach stacker is a material handling equipment equipped with a hydraulic boom assembly that can lift and move containers from barges, ships or rail carts. Reach stackers are more cost effective and productive at smaller port facilities as compared to fixed gantry crane systems. Roll-on/roll-off trucks are used to transport containers onto barges or under-deck facilities mainly at small ports, providing agility in loading and unloading operations. Container lift trucks are used at ports and rail yards to stack empty or loaded containers within terminal or intermodal facilities. These container lifts can stack empty containers up to six containers high and are used to save valuable space at container handling facilities.

All of the heavy-duty material handling equipment described above utilize fossil fuel propulsion systems and are customized for each application. Most of this equipment is considered industrial equipment and therefore regulated under off-highway emissions and safety standards. We believe that due to the high idling and start/stop nature of these applications, electric propulsion systems can be more cost effective and environmentally friendly in these market niches. We are developing modified configurations of our current heavy-duty electric drive system to provide alternative zero emissions product solutions for our targeted applications.

Our Competitive Strengths

Our heavy-duty electric yard tractors and our fully integrated heavy-duty electric drive system provides us with the opportunity to incorporate our zero emissions technology into existing vehicles and material handling equipment used in high load carrying capacity applications. Growing public awareness of the relationship between burning fossil fuels, health risks and global warming has increased the demand for a cost effective alternative to vehicles powered by fossil fuels.  We believe the following competitive strengths serve as a foundation for our strategy:

·   Quality, Excellence and Reliability.  We believe that our proprietary technologies and designs, including our SAE J1939 CAN Bus and diagnostic capable high capacity liquid cooled flux vector inverters and fully integrated and configurable heavy-duty electric drive system increase the reliability of electric vehicles.  Our flux vector inverters have been sold for over 10 years by EMS and have proven reliability in a wide range of applications.

·   Heavy-Duty Electric Vehicle Technology.  Our first product releases, the Nautilus E30 electric drayage tractor and the Nautilus E20 electric yard tractor, incorporate an electric motor that is directly coupled to a heavy-duty automatic transmission, which allows for the ability to transport heavy loads.

·   Low Operating Costs.  Most current fossil fuel powered vehicle designs consume energy during vehicle idling.  Our vehicles, powered with electric motors, shut off during idling applications which results in lower operating costs and less wear and tear on drive train components.  These features reduce maintenance costs and increase vehicle life. We believe that our strategy to target high idling off-highway applications further enhances the benefits of using our electric vehicles in our targeted applications.

·   High Efficiency. Our vehicles are powered by electric motors which produce higher levels of torque at lower speeds than fossil fuel powered motors and are therefore more suitable for heavy-duty applications that operate for short periods of time between starts and stops. In addition, our heavy duty electric drive system is equipped with a regenerative braking system which captures the energy back into the batteries during stops, saving brake wear and increasing energy efficiency as compared to fossil fuel powered vehicles.

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·   Highly Configurable Technology. Our proprietary technologies can be configured to serve a variety of platforms and the specific needs of our customers.  All components in our fully integrated heavy-duty electric drive system communicate over an SAE J1939 CAN Bus system that allows us to configure key parameters of a vehicle’s performance through uploading of proprietary software.  This capability allows us to configure a vehicle to specific application needs with minimum hardware changes.  In addition , this capability provides us with full diagnostic capability to monitor and diagnose the performance of various components in the field during the life of the vehicle.  We believe that our fully integrated heavy-duty electric drive system, which includes an electric motor, transmission, flux vector inverter and communication software installed into a single assembly provides us with ability to incorporate our technologies across various product platforms such as container reach stackers, drayage vehicles, forklifts and straddle carriers, and positions us to be a leader in the heavy-duty vehicle industry.  We believe that this flexibility and configurability will enable us to serve a wider variety of markets and product applications.

·   Experienced Management Team and Access to an Extensive Distribution Network.  Our senior management team has over 80 years of combined experience in the electric vehicle industry and has extensive experience in startup technology companies within this industry. In addition, members of our senior management have significant experience within the transportation industry.

Our Strategy

As one of the few companies focused on heavy-duty electric vehicles and material handling equipment, we are dedicated to providing cost effective solutions to the heavy-duty electric vehicle and material handling equipment markets.  Our business strategy is based on our belief that electric vehicles are inherently more cost effective and reliable than fossil fuel powered vehicles.  We believe that despite the limitation in battery energy density as compared to fossil fuel applications, there are a significant number of off-highway high idling niche applications that can benefit from the use of zero emissions electric vehicles and material handling equipment.  The primary elements of our business strategy include:

Increase our current market presence and selectively pursue new opportunities.  We intend to use our products to pursue new opportunities and capture market share within the heavy-duty electric vehicle market.  In addition to producing and selling heavy-duty electric vehicles, we currently market and plan to sell our flux vector inverters and heavy-duty electric drive systems to other industry OEMs that manufacture heavy-duty vehicles and material handling equipment. We are currently focused on heavy-duty vehicle and material handling equipment applications requiring heavy-duty electric drive systems exceeding 100 kW requirements. While the release of our Nautilus E30 and Nautilus E20 electric tractors has proven that the use of electric vehicles is technologically feasible in heavy-duty applications, we believe that the use of electric vehicles in heavy-duty applications is also economically beneficial. Our objective is to incorporate our heavy-duty electric drive system into products that vertically integrate into all aspects of heavy-duty transportation of cargo and containers in off-highway applications.

Develop technologies that can be easily adapted for use in various platforms.Our proprietary heavy-duty electric drive system has been built as an assembly that can be readily modified to meet different vehicle platform specifications.  For example, our heavy-duty electric drive systems can be incorporated into container handlers, reach stackers, gantry cranes, large industrial forklifts, roll-on/roll-off trucks and drayage vehicles.  We believe that our ability to incorporate our technology into other product lines will help to diversify our revenue stream across diverse target markets and provide us with additional growth opportunities in the future.  Our operations strategy focuses on integration of our heavy-duty electric drive systems and battery packs into existing vehicle platforms and sourcing component fabrication processes through local suppliers.

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Implement retrofit business model on existing yard tractors to accelerate market changeover. Our proprietary heavy-duty electric drive and battery management systems can be retrofitted into existing yard tractor vehicle platforms.  We believe that the increase in fuel costs and the adoption of environmental regulations calling for lower emissions will accelerate market changeover to lower or zero emissions vehicle alternatives in the heavy-duty vehicle industry. Furthermore, we believe that most vehicles are being replaced prematurely due to the end of life of certain key components such as the vehicle’s engine and transmission assembly. We intend to either sell replacement vehicles or provide our heavy-duty electric drive system that can be retrofitted into existing fossil fuel powered vehicles.  Our integrated heavy-duty electric drive systems can be incorporated into most yard tractor vehicle platforms currently in use at ports, marine terminals, intermodal facilities, mail facilities, distribution centers and industrial warehouses.

Develop global sales and service network. We plan to build a global distribution system that utilizes regional dealers to promote, sell and service our vehicles worldwide. Several members of our senior management have significant experience in managing global dealer networks for material handling and electric vehicle manufacturers.

Provide superior after market service.  We believe that after market service is the key to success in the heavy-duty electric vehicle and material handling equipment markets.  Our heavy duty electric vehicles are designed with a fully integrated diagnostic system that monitors the performance of all critical components during the life of the vehicle and makes such performance related data available in connection with our after-market services.  The availability of such performance related data will enable us to provide our customers with prevention based service schedules, and thereby reduce repair costs.

Build capital efficient industry alliances.  We purchase several components and assemblies for the production of our vehicles from leading manufactures within our industry.  Our integrated heavy-duty electric drive system, which is preassembled and installed into vehicle chassis upon receipt, reduces our need to maintain a high inventory of chassis.  In addition, the purchase of vehicle assemblies from leading manufacturers also reduces our need for capital investment in inventory that would otherwise be required to manufacture chassis.  This operation strategy provides us with the ability to focus a significant portion of our available capital into research and development, design, marketing and sales of our products while using high quality components from other manufacturers.

Our Technology

We have developed and acquired proprietary technologies that we believe provides us with a significant competitive advantage within the industries we compete.  In 2007, Balqon California completed the development of a heavy-duty electric drive system that incorporates an automatic five speed transmission and electric motor coupled with an in-line drive system resulting in high torque at low speeds without compromising top end speed. This heavy-duty electric drive system also includes a 240 kW liquid cooled flux vector inverter with SAE J1939 CAN Bus capability that provides efficient transfer of energy from batteries to an electric motor resulting the vehicle being able to tow more than 60,000 pounds of load at a maximum speed of 45 mph.

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Flux Vector Inverter Technology

Our flux vector inverters are micro-processer controlled inverters designed to control motor speed through varying voltage and frequency.  The ability to control speed in heavy-duty applications is obtained through use of our proprietary software which is customized to meet each application need.  In addition, hardware components of our flux vector inverters are varied to produce different configurations ranging in power from 40 kW to 240 kW.  Although our flux vector inverters are available in both analog and SAE J1939 digital communication capabilities, we only utilize SAE J1939 capable inverters to provide efficient communication and diagnosis of complete vehicle systems in our heavy-duty electric vehicles.  Based on power requirements, our inverters can be manufactured to meet specific motor or vehicle requirements ranging from electric motorcycles to high capacity on-highway or off-highway vehicles.  Due to the software centric design capability of our flux vector inverter technology, we have the capability to remotely modify, diagnose and monitor key performance parameters to meet specific application requirements.  Our inverters have a capacity of over 200 kW at a voltage range of 200 to 800 volts, which we believe makes them ideally suited for high load carrying applications.  These flux vector inverters have been used in electric buses, mining vehicles and other specialty vehicles applications with over one million miles logged in actual operations.

CAN Bus Diagnostic System

All key components of our heavy-duty electric traction drive system, including the electric motor, transmission, flux vector inverter, contactors, fuses, accessory motor and inverter, are connected through our proprietary CAN Bus diagnostic system. Our CAN Bus system monitors, measures, communicates, stores and diagnoses key performance parameters of our heavy-duty electric drive system components and provides an intuitive vehicle status display of all vehicle systems to the operator through a digital dash display mounted in the truck cabin.  The display communicates the status of all major traction and accessory systems providing real time information to the operator.  The diagnostic system also records daily energy consumption, fuel economy, fault codes, and the thermal status of major components on the vehicle.  Our CAN Bus diagnostic system can also communicate information to a central data system on a wireless network and store key application parameters that can be reviewed to determine energy efficiency and performance of the vehicle.  In addition, our CAN Bus diagnostic system provides the vehicle user with the ability to optimize drive efficiency levels to meet specific application needs.

Battery Management System

We have designed and developed an automatic battery management system that monitors and maintains battery packs in conjunction with our CAN Bus diagnostic system.  This battery management system records daily energy usage and charge energy received and then automatically determines battery watering intervals and maintains battery water levels after the completion of a charge cycle without operator intervention.  This system also accurately monitors battery usage over the life of a vehicle, allowing end users of our vehicles to accurately determine the life cycle of the battery.  We believe that this system increases battery life and reduces maintenance costs of a vehicle.

Products

Heavy-Duty Electric Vehicles

Our current product line of zero emissions heavy-duty electric vehicles, named Nautilus, are the flagships of our product portfolio.  Our Nautilus product line consists of two product configurations, Nautilus E30 and Nautilus E20, with each model featuring our proprietary heavy-duty electric drive system and battery management system.  We are also developing a heavy-duty electric truck, the Mule M150, which is a high-capacity on-highway delivery truck targeting inner city delivery applications.

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Our heavy-duty electric vehicles include our heavy-duty electric drive systems that feature an automatic five speed transmission coupled to an electric motor driven by our proprietary liquid cooled flux vector inverters.  Our flux vector inverter and transmission are SAE J1939 CAN Bus capable which allows seamless communication and monitoring of all vehicle systems on a real time basis.  This capability also allows us to monitor and modify key parameters in the field to optimize vehicle efficiency and performance to application needs.  Our heavy-duty electric vehicles also include our quick-change battery packs that are equipped with our battery management system.

Nautilus E20 – Electric Yard Tractor

The Nautilus E20is a zero emissions electric tractor that is a smaller wheelbase version of our Nautilus E30 and is designed for “in-terminal” operations to transport containers at shipyards, rail yards, intermodal facilities, industrial plants, distribution warehouses, food production facilities, military bases and mail facilities.  The Nautilus E20 can tow 60,000 pound cargo containers at a speed of up to 25 miles per hour with a range of 30 to 60 miles per battery charge.

The Nautilus E20 features our heavy-duty electric drive system and quick-change battery pack incorporated into a yard tractor chassis.  The Nautilus E20 is designed with a short wheel base and lifting fifth wheel which improves the maneuverability of the vehicle and its efficiency in high duty cycle applications.  The Nautilus E20 complies with all applicable regulations associated with off-highway use vehicles.

The battery pack of the Nautilus E20 contains 140 kW hour commercially available long-life tubular lead acid traction batteries used in applications requiring high power and energy density. The vehicle contains two battery packs that can be replaced with fully charged battery packs in less than five minutes thereby increasing the range of the vehicle in longer shift operations.  The battery packs are equipped with a forced air cooling and a battery watering system that increases battery life and reduces maintenance costs. In addition, the battery packs include our advanced battery management system that communicates via a CAN Bus system to a central computer recording energy usage, temperature and efficiency data.

The Nautilus E20 is equipped with smart fast charger technology that can charge up to four vehicles simultaneously in four hours.  The smart charger can also provide up to 60% of the charge in one hour to meet peak demands during daily operations.

Nautilus E30 – Electric Drayage Tractor

The Nautilus E30is anoff-highway electric drayage zero emissions tractor designed for short haul or “drayage” operations such as the transportation of containers from ship yards to rail yards or local warehouses.  This tractor has a load capacity of 60,000 pounds and can travel at a speed of up to 45 miles per hour and has a range of between 30 to 60 miles per battery charge.  We plan to obtain on-highway certification from the United States Department of Transportation for the Nautilus E30.

The Nautilus E30 is equipped with tandem axles which allows the vehicle to tow loads greater than 60,000 pounds in off-highway applications. In addition, the vehicle is equipped with a higher capacity electric motor and flux vector inverter to provide the ability to tow loads in excess of 60,000 pounds at higher speeds. The vehicle is designed with an ABS braking system and five speed transmission to allow operations at higher speeds in off-highwayapplications.

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The Nautilus E30 battery packs contain 160 kW hour commercially available long-life tubular lead acid traction batteries used in applications requiring high power and energy density.  In order to provide increased range in certain applications, our battery pack is designed to be replaced with fully charged battery packs in the field resulting in a vehicle range of over 80 miles.

Mule M150 – Electric Truck

We are currently developing and designing our first on-highway heavy-duty electric truck for short-haul off-highway applications.  Our Mule M150 is expected to be a zero emissions electric truck incorporating a heavy-duty transmission and drive axles and is expected to be competitive in performance with current Class 6 fossil fuel powered vehicles in short-haul markets.  It is anticipated that the Mule M150 will be able to travel at a speed of up to 55 miles per hour and will have a range of over 80 miles on single charge.  The Mule M150 will be designed as a zero emissions solution for short haul on-highway routes in inner cities, port facilities and airports for the distribution of goods and cargo.

We expect that the Mule M150 will feature various flatbed configurations including cargo box trucks, trash trucks and application specific fuel trucks used at large airports.  We intend to partner with cargo bed OEMs to provide various configurations currently available in similar sized fossil fuel powered vehicles.  We expect to release the Mule M150 in 2009.

Heavy-Duty Electric Drive Systems

Our fully integrated heavy-duty electric drive systems have been designed and developed with a view towards use in existing vehicle platforms in the container transportation and material handling equipment industries.  Our heavy-duty electric drive system includes a high efficiency alternating current, or AC, electric motor design that is directly coupled to a five speed automatic transmission system and powered by our proprietary liquid cooled flux vector inverters.  Our use of an automatic transmission provides us with a high torque to weight ratio which is essential in heavy load carrying applications.

We assemble all the components of our drive system into a single integrated unit that can be readily installed into the existing engine compartment of many trucks, tractors, and material handling equipment.  Our proprietary flux vector inverter is SAE J1939 CAN Bus capable which allows for communication with existing electrical and transmission components on fossil fuel powered vehicles. We believe that this feature provides us with an opportunity to design and develop new vehicle platforms and enter new off-highway market niches, thereby expanding our overall product offerings.

Our heavy-duty electric drive system, which is designed and developed for use in heavy-duty electric vehicles, can also be readily integrated into other vehicle platforms with minor modifications to its current design.  Our heavy-duty electric drive system has been tested to tow loads of over 50 tons on a reliable basis which provides us with an opportunity to retrofit vehicles such as container forklifts, reach stackers and roll-on/roll-off vehicles.

We are currently seeking strategic partnerships with OEMs of heavy-duty vehicles and material handling equipment to develop zero emissions solutions for their current vehicle platforms.

Flux Vector Inverters

Our proprietary variable flux vector inverters range in power from 40 kW to 240 kW.  Our flux vector inverters are available in liquid cooled or air cooled versions depending on application, duty cycle and power requirements.  Our flux vector inverters are available with analog or digital output based on application needs. Our heavy duty flux vector inverters are also SAE J1939 CAN Bus capable which allows our customers to fully integrate our inverter into their own vehicle diagnostic systems.  Our proprietary software in the processor allows the inverter to be customized for use in electric vehicles, hybrid vehicles, plug-in hybrids and other applications.  Prior to our acquisition of EMS, EMS sold its flux vector invertersfor use in electric buses, mining equipment and other automobiles.  Our inverters can operate between 200 to 800 volts direct current, or DC, and can be used in stationary and mobile applications.  As of the date of this report, we have two outstanding purchase orders for our flux vector inverters from electric bus and hybrid drive system manufacturers.

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We design, manufacture, assemble and test our inverters at our Harbor City facility.  We have designed our inverters for high-vibration mobile applications which includes a wash down enclosure design that allows the inverter to be used in outdoor rugged mobile applications.  In addition, our inverters include a liquid cooling system that results in a higher efficiency and reliability.  Our below 100 kW inverters are available in air cooled versions and are ideal for use in industrial vehicles, light duty pickup trucks and recreational vehicles.  Our heavy-duty inverters, which include a liquid cooling system, are ideal for use in heavy-duty electric vehicles such as electric tractors, forklifts, buses, delivery vans, Class 4-6 cargo trucks and mining vehicles.

Service, Parts and Consumables

We plan to sell our products through an authorized sales and service dealer network.Our products require periodic maintenance and replacement of certain vehicle components.  We plan to sell these components through a trained and authorized dealer network.  Batteries, which are a key component in our vehicles, require replacement after a certain period of use based on application. We believe that our quick replacement battery packs that feature our battery management systems, given its integrated design with our heavy-duty electric drive system and communication systems, will require replacement only through authorized service dealers.  Periodically we may also provide vehicle upgrades or accessories to enhance performance and efficiency of our vehicles in the field, which we expect will provide additional revenues through sales of aftermarket parts marketed through our trained dealer network.  Currently, sales and service of our products are being performed by our staff located at our facility in Harbor City.

Manufacturing and Assembly

Our executive offices are located in Santa Ana, California and our primary manufacturingand assembly facility is located in Harbor City, California.  We lease a 3,500 square foot facility comprised of approximately 1,500 square feet of office space and 2,000 square feet of assembly space in Santa Ana.  We lease a 15,500 square foot manufacturing and assembly facility in Harbor City, California.

Key components used in the assembly of our proprietary flux vector inverters, heavy-duty electric drive systems, battery modules, charging system, transmissions and vehicle chassis, are supplied to us by large global manufacturers that we believe have the production capacity to meet our current and projected future production requirements.  Our key components are supplied with manufacturer’s warranties which meet or exceed the warranties provided to our customers.  We sell all of our products with a minimum of a one-year limited warranty with a prorated warranty on batteries based on usage.  In addition, suppliers of our key components have an extensive global sales and service network to support our dealers and customer service needs in a timely manner.  Our management team has extensive experience in global sourcing of automotive components and has implemented a procurement and management system to monitor material costs on a real-time basis.

Final assembly of our heavy-duty electric vehicles and heavy-duty electric drive systems is conducted at our Harbor City location. We also assemble and test our battery management systems and charging systems at the same location. We have also located our engineering and procurement offices at our Harbor City facility to support our production needs. We estimate that our current manufacturing capacity at this facility provides us with the ability to substantially increase sales with the addition of direct labor personnel and relatively modest capital equipment expenditures.  We believe that our facilities in Harbor City are sufficient to meet our anticipated production needs over the next three years.

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Customers

In 2008, we received a purchase order from the City of Los Angeles for 20 Nautilus E20 yard tractors and five Nautilus E30 drayage tractors and a purchase order from the AQMD for one Nautilus E20 for use as a demonstration vehicle at marine terminals and industrial facilities.  Our acquisition of the intellectual property assets of EMS provides us with an installed base of flux vector inverters used in light and medium duty applications such as delivery trucks, automobiles and vans.  We plan to sell our heavy-duty electric drive systems and flux vector inverters to OEMs for use in heavy-duty vehicles and heavy-duty material handling equipment.

Sales and Marketing

Our sales and marketing strategy focuses on establishing Balqon Corporation as the premier provider of heavy-duty electric vehicles and heavy-duty electric drive systems by building an active customer base.

Heavy-Duty Electric Vehicle Sales

We currently use Internet advertising and public relations campaigns to promote our products in domestic and international markets.  We plan to market, sell and service our heavy-duty vehicles through an authorized and trained worldwide dealer network which we are in the process of establishing. We expect that our dealers will beassigned geographic territories, the sizes of which will vary based on a dealer’s infrastructure and ability to adequately perform sales and service functions. We expect that authorized dealers will receive discounts along with installation fees as deemed appropriate for each territory and the dealer’s annual sales. In order to promote sales growth we intend to implement a scaled discount structure based on annual sales or performance to yearly goals and objectives. In addition, we plan to provide marketing incentives to dealers in terms of cooperation on trade shows, providing demonstration equipment, marketing collateral materials, etc. as deemed necessary to increase sales and gain market share.

As we grow our business through the expansion of our dealernetwork, we plan to establish facilities to provide sales and service support to our customers in countries outside the United States. We currently have dealers that are marketing our Nautilus E20 yard tractor in western Canada and South Korea.

OEM Sales

We currently market and plan to sell our heavy-duty electric drive systems and flux vector inverters directly to OEMs in the automotive and material handling equipment industries. We plan to target OEMs that manufacture vehicle platforms that do not directly compete with our heavy-duty electric vehicle product line. In addition, we plan to develop long term agreements with adequate protections for our proprietary technologies prior to developing assemblies or component configurations that meet OEM product needs.  We plan to develop a business development organization that will focus solely on OEM relationships worldwide.  We expect that this organization will be supported by engineering and manufacturing personnel on as needed basis.

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Competition

Our competitors in our addressed markets consist of small to large global corporations providing heavy-duty vehicles powered by fossil fuels. Currently, we are not aware of any other new or current vehicle manufacturer providing zero emissions heavy-duty electric yard tractors in our addressed markets. Our competitors have substantially greater customer bases, businesses, and financial resources than us, and are currently engaged in the development of products and technologies related to hybrid drive systems that utilize current fossil fuel based drive systems combined with electric or hydraulic propulsion systems.

Heavy-Duty Electric Vehicles

Our primary competition in the heavy-duty electric vehicle market are vehicles designed to operate with diesel propulsion systems.  We also compete with other fuel powered vehicles such as bio-diesel, compressed natural gas, plug-in hybrid and liquid natural gas powered vehicles.

Our competitors vary based on off-highway and on-highway market segments. Our Nautilus product line primarily addresses the off-highway, in-terminal applications for container transportation.  We expect that our Mule product line will address short haul on-highway applications for load carrying applications. We believe that we are the first manufacturer addressing these heavy load short haul applications with zero emissions technologies and therefore expect most of our competitors to be current manufacturers of on-highway fossil fuel-based vehicles. Our competitors sell their products through qualified dealer networks which sell, promote and service their products. In most cases, qualified dealers are assigned territories and are compensated for any vehicle or aftermarket parts shipped into their territory.

Our Nautilus product line addresses applications related to container transportation at shipyards, rail yards, intermodal facilities, industrial plants, distribution warehouses, food production facilities, military bases and mail facilities. These applications require products with high visibility, tight turning radius, low speed and a lifting fifth wheel for increased operator productivity. Currently, this market is addressed by five main competitors, all of which produce diesel or other fossil fuel powered vehicles. These competitors are Kalmar Industries Corp., Capacity of Texas, Inc., MAFI Transport Systems GmbH, Mitsui O.S.K. Lines, Ltd. and Terberg DTS UK Ltd.  We consider Kalmar Industries Corp. and Capacity of Texas, Inc. to be two manufacturers that have global presence, while Terberg DTS UK Ltd. and Mitsui O.S.K. Lines, Ltd. have a regional presence in Europe.

We expect that our Mule product line will address applications related to short-haul transportation of cargo at ports, airports, rail yards and inner cities. We anticipate that the Mule product line will target customized market niches where air pollution is a key driver for vehicle selection. In this product category our competitors include large automotive vehicle manufacturers such as Kenworth Truck Company, Peterbilt Motors Company, Mack Trucks, Inc. and Freightliner Trucks. Our success in this market niche will depend upon increased regulatory incentives for use of zero emissions vehicles. We will also focus our efforts in promoting sales of these vehicles in international markets for distribution of goods and consumables in congested inner city areas.

Material Handling Equipment Industry

Our competitors in the heavy-duty material handling equipment industry consist of fossil fuel equipment manufacturers of forklifts, reach stackers, roll-on/roll-off vehicles and container forklifts. Our competitors sell their products through global distribution networks and are currently developing alternative fuel or hybrid configurations of their current products to address new regulatory requirements related to engine emissions.

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We believe that our strategy to partner with current OEMs of heavy duty material handling equipment will provide us an early market entry into zero emissions markets in the heavy-duty material handling equipment industry.  Significant steps have been taken during the past 20 years to transition the material handling industry from fossil fuel based to electric power based vehicle designs.  This effort has been limited to light and medium duty applications.  Our strategy to provide full integrated heavy-duty electric drive systems to this industry is consistent with this transition towards zero emission vehicles in off-highway applications.

Our current competitors within this industry include fossil fuel powered OEMs such as Kalmar Industries Corp., Hyster Company, Linde Material Handling GmbH, Svetruck AB, Mitsubishi Heavy Industries, Ltd., TCM Corporation and Mitsui & Co., Inc. Most of these competitors have a global presence and provide additional value added services such as equipment leasing, contract labor and full maintenance contracts.  We believe that our strategy to enter the material handling equipment market as a provider of heavy-duty electric drive systems benefits both the customers and OEMs within this industry.

Flux Vector Inverters

Electric vehicle propulsion systems consist of mainly two types of motor technologies, DC and AC.  DC powered systems are more dominant and cost effective in lower voltage and load carrying applications. We believe that during the past five years, cost effective AC systems have started to gain market share in lower cost products mainly due to inherent lower maintenance costs of AC propulsion systems.

Heavy duty electric vehicles require higher power and voltage rated propulsion systems requiring high level of safety, diagnostics and customization.  Our competitors in this market consist of manufacturers of high capacity variable frequency inverters.  These manufacturers market directly to OEMs or vehicle manufacturers.  Our current competitors in the marketplace include Enova Systems Inc., Azure Dynamics Inc., UQM Technologies, Inc. and Raser Technologies, Inc.

Product Development

Product development is spearheaded by members of our senior management who evaluate the development of new products and new market applications for existing products.  We believe our future success depends on our ability to introduce product enhancements integrating new battery technologies into current vehicle designs increasing the range of our vehicles for on-highway applications.

Our research and development team has over 80 years of combined experience in the development of electric vehicle technologies. We focus our efforts into seamless integration of leading technologies into a product configuration that is cost competitive in a market niche. We utilize the most advanced CAD design systems to reduce time to market of our new products.

We believe in our market driven approach to the development of new technologies and product configurations. We place increased emphasis on developing zero emissions technologies that are cost effective and that reliably address today’s market needs. We continue to develop our proprietary flux inverter technology to address higher capacity market niches, meanwhile we are also actively engaged in identifying suppliers for higher energy density battery technology.

Intellectual Property

We believe that we have a broad intellectual property portfolio.  We primarily own intellectual property protecting the proprietary technology for the flux vector inverters designed by us.  Our portfolio consists of a trade name, trade secrets and proprietary processes.

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Currently, we rely on common law rights to protect our trade name “Balqon.”  The common law rights protect the use of this mark used to identify our products.  It is possible that our competitors will adopt product or service names similar to ours, thereby impeding our ability to build brand identity and possibly leading to customer confusion.  Our inability to protect our trade name will have a material adverse effect on our business, results of operations, and financial condition.  We also rely on trade secrets and proprietary know-how and employ various methods to protect our proprietary technology and concepts.  However, such methods may not afford complete protection, and there can be no assurance that others will not independently develop similar know-how or obtain access to our know-how and concepts.  There can be no assurance that we will be able to adequately protect our intellectual property.  Third parties may assert infringement claims against us or against third parties upon whom we rely and, in the event of an unfavorable ruling on any claim, we may be unable to obtain a license or similar agreement to use trade secrets that we rely upon to conduct our business.

Government Regulation

The trucking industry within the United States is regulated by the United States Department of Transportation and by various state agencies.  We are also subject to federal, state and local laws and regulations applied to businesses generally. We believe that our products are in conformity with all applicable laws in all relevant jurisdictions.

Our electric vehicles are designed to comply with a significant number of industry standards and regulations, some of which are evolving as new technologies are deployed.  Government regulations regarding the manufacture, sale and implementation of products and systems similar to our electric trucks are subject to future change. We cannot predict what impact, if any, such changes may have upon our business.

Recent Initiatives

Recent regulations adopted by the Port of Los Angeles and the Port of Long Beach, which are referred to in this report collectively as the San Pedro Bay Ports, have resulted in increased attention on alternative fuel vehicles generally and our heavy-duty electric vehicles specifically.  In November 2006, the San Pedro Bay Ports approved a comprehensive five-year “Clean Air Action Plan” aimed at reducing pollution and health risks associated with the air emissions resulting from activities of the San Pedro Bay Ports.  According to the Port of Los Angeles, the goal of the “Clean Air Action Plan” is an 80% reduction in port-related truck pollution.  The Clean Air Action Plan outlines a “Clean Trucks Program” that calls for the San Pedro Bay Ports to scrap and replace approximately 16,000 drayage tractors being used at the San Pedro Bay Ports with the assistance of San Pedro Bay Ports.  The Clean Air Action Plan also provides for grants andloan subsidies that will be sponsored and administered jointly by the San Pedro Bay Ports.  Under the Clean Trucks Program, trucks manufactured prior to 1989 have been banned from entering the San Pedro Bay Ports’ shipping terminals.  Additionally, by 2012, all trucks manufactured prior to 2007 will be banned from entering the San Pedro Bay Ports.  The San Pedro Bay Ports are also providing financial assistance to truckers to acquire trucks that comply with their new requirements.  As a result of these regulations, the emphasis on energy independence and general increased interest in environmentally friendly alternatives, we believe that the demand for our heavy-duty electric vehicles will increase significantly over the next several years.

The Port of Los Angeles estimates that on an annual basis, more than two million truck drayage trips take place between the port terminals and rail and warehouse facilities within five to ten miles of the port.  Because of the significant number of trips, the Port of Los Angeles and the City of Los Angeles have expressed confidence that an emissions-free fleet of trucks will cut noise and air pollution at the Port of Los Angeles.

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The Port of Los Angeles has estimated that if our heavy-duty electric vehicles were used for the estimated 1.2 million truck trips that occurred in 2006 between the ports and a near-dock rail yard, the average pollution discharge generated would be reduced by approximately 35,605 tons of tailpipe emissions, including approximately 22 tons of diesel particulate matter, 427 tons of localized nitrogen oxide emissions, 168 tons of carbon and 34,987 tons of carbon dioxide.

The increased focus on environmentally friendly and energy efficient solutions at ports in Southern California is further exemplified by a program recently announced by the AQMD that provides financial incentives and assistance for truck owners and operators to replace older trucks with newer, environmentally friendlier solutions.  Under The Carl Moyer Fleet Modernization Program, the AQMD is providing funding assistance for heavy-duty on-highway truck fleet modernization in the South Coast Air Basin. This program is designed to assist truck owners and operators to replace pre-1990 heavy-duty diesel trucks with newer diesel-fueled trucks or trucks with less emissions that their diesel fueled counterparts.  The AQMD has approximately $56 million available for funding and could pay up to 80% of the cost of replacing a pre-1990 heavy-duty diesel truck.

Employees

As of March 27, 2009, we employed sevenemployees on a full-time basis.  None of our employees are represented by labor unions, and there have not been any work stoppages at our facilities.  We generally consider our relationships with our employees to be satisfactory.  In addition, from time to time, we utilize outside consultants or contractors for specific assignments.

Internet Website

Our Internet website is www.balqon.com.  The content of our Internet website does not constitute a part of this report.

Item 1A. Risk Factors.

The following summarizes material risks that investors should carefully consider before deciding to buy or maintain an investment in our common stock.  Any of the following risks, if they actually occur, would likely harm our business, financial condition and results of operations.  As a result, the trading price of our common stock could decline, and investors could lose the money they paid to buy our common stock.

Risks Relating to Our Business

We have a history of only nominal revenues, have incurred significant losses, expect continued losses and may never achieve profitability. If we continue to incur losses, we may have to curtail our operations, which may prevent us from successfully deploying our heavy-duty electric vehicles, flux vector inverters, heavy-duty electric drive systems and battery management systems as well as operating and expanding our business.

We have a history of only nominal revenues, have not been profitable and expect continued losses. Historically, we have relied upon cash from financing activities to fund substantially all of the cash requirements of our activities and have incurred significant losses and experienced negative cash flow. As of December 31, 2008, we had an accumulated deficit of $1,493,395.  For our fiscal years ended December 31, 2008 and 2007, we incurred a net loss of $1,405,821 and $82,744, respectively.  We cannot predict when we will become profitable or if we ever will become profitable, we may continue to incur losses for an indeterminate period of time and may never achieve or sustain profitability. An extended period of losses and negative cash flow may prevent us from successfully producing and selling our heavy-duty electric vehicles, flux vector inverters, heavy-duty electric drive systems and battery management systems and operating or expanding our business. As a result of our financial condition, our independent auditors have issued a report questioning our ability to continue as a going concern.

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Our significant losses have resulted principally from costs incurred in connection with the development of our heavy-duty electric vehicles and from costs associated with our administrative activities. We expect our operating expenses to dramatically increase as a result of our planned production and sale of our heavy-duty electric vehicles.  Since we have only recently completed the development of our heavy-duty electric vehicles, have no significant operating history and have delivered only two heavy-duty electric vehicles as of the date of this report, we cannot assure you that our business will ever become profitable or that we will ever generate sufficient revenues to meet our expenses and support our planned activities. Even if we are able to achieve profitability, we may be unable to sustain or increase our profitability on a quarterly or annual basis.

Our independent auditors have issued a report questioning our ability to continue as a going concern. This report may impair our ability to raise additional financing and adversely affect the price of our common stock.

The report of our independent auditors contained in our consolidated financial statements for the years ended December 31, 2008 and 2007 includes a paragraph that explains that we have incurred substantial losses. This report raises substantial doubt about our ability to continue as a going concern. Reports of independent auditors questioning a company’s ability to continue as a going concern are generally viewed unfavorably by analysts and investors. This report may make it difficult for us to raise additional debt or equity financing necessary to continue the development and deployment of our heavy-duty electric vehicles, flux vector inverters and heavy-duty electric drive systems. We urge potential investors to review this report before making a decision to invest in Balqon Corporation.

The current global financial crisis and uncertainty in global economic conditions may have significant negative effects on our customers and our suppliers and may therefore affect our business, results of operations, and financial condition.

The current global financial crisis—which has included, among other things, significant reductions in available capital and liquidity from banks and other providers of credit, substantial reductions and/or fluctuations in equity and currency values worldwide, and concerns that the worldwide economy may enter into a prolonged recessionary period—may have a significant negative effect on our business and operating results.The potential effects of the current global financial crisis are difficult to forecast and mitigate. As a consequence, our operating results for a particular period are difficult to predict, and, therefore, prior results are not necessarily indicative of results to be expected in future periods.

The current economic crisis may affect our current and potential, direct and indirect, customers’ access to capital or willingness to spend capital on our products, and/or their levels of cash liquidity with which or willingness to pay for products that they will order or have already ordered from us.  The effect of the current economic conditions on our customers may therefore lead to decreased demand, including order delays or cancellations, which in turn may result in lower revenue and adversely affect our business, results of operations and financial condition.

Likewise, the current global financial crisis may negatively affect our suppliers’ access to capital and liquidity with which to maintain their inventories, production levels, and/or product quality, and could cause them to raise prices or lower production levels, or result in their ceasing operations.  The challenges that our suppliers’ may face in selling their products or otherwise in operating their businesses may lead to our inability to obtain the materials we use to manufacture our products. These actions could cause reductions in our revenue, increased price competition and increased operating costs, which could adversely affect our business, results of operations and financial condition.

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The current global financial crisis and uncertainty in global economic conditions may have significant negative effects on our access to credit and our ability to raise capital.

If the current global financial crisis adversely affects Bridge Bank, National Association, Bridge Bank may not have the ability to provide us with access to the funds available under our credit facility, resulting in our access to cash and our ability to operate our business being negatively affected.  Additionally, the financial market disruption may make it difficult for us to raise additional capital or obtain additional credit, when needed, on acceptable terms or at all.

The current global financial crisis and uncertainty in global economic conditions could prevent us from accurately forecasting demand for our products which could adversely affect our operating results or market share.

The current market instability makes it increasingly difficult for us, our customers and our suppliers to accurately forecast future product demand trends.  If, as a result, we produce excess products our inventory carrying costs will increase and result in obsolete inventory.  Alternatively, due to the forecasting difficulty caused by the unstable economic conditions, we may be unable to satisfy demand for our products which may in turn result in a loss of market share.

The current global financial crisis may lead to a reduction in federal, state and local environmental initiatives and spending, which could adversely affect our business.

Our ability to obtain future public sector work is largely a function of the level of government funding available.  In January 2009, a new federal administration took office, and it is widely expected that the new administration will increase environmental spending.  However, as a result of the current economic crisis, federal, state and local government agencies are facing potentially significant budget shortfalls as a result of declining tax and other revenues, which may cause them to defer or cancel planned environmental and infrastructure projects.  If environmental spending is reduced, it may affect our current contracts as well as our ability to procurer additional government contracts, which could adversely affect our business, results of operations and financial condition.

We need and may be unable to obtain additional financing on satisfactory terms, which may require us to accept financing on burdensome terms that may cause substantial dilution to our shareholders and impose onerous financial restrictions on our business.

We require significant additional financing. Deteriorating global economic conditions, including the recent turmoil in the United States capital markets, may cause prolonged declines in investor confidence in and accessibility to capital markets. Future financing may not be available on a timely basis, in sufficient amounts or on terms acceptable to us. Any future financing will likely dilute existing stockholders’ equity. Any debt financing or other financing of securities senior to our common stock will likely include financial and other covenants that will restrict our flexibility. At a minimum, we expect these covenants to include restrictions on our ability to pay dividends on our common stock. Any failure to comply with these covenants would have a material adverse effect on our business, prospects, financial condition and results of operations because we could lose any then-existing sources of financing and our ability to secure new sources of financing may be impaired.

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We depend on the services of Balwinder Samra, and the loss of him could adversely affect our ability to achieve our business objectives.

Our continued success depends in part upon the continued service of Balwinder Samra, who is our President and Chief Executive Officer.  Mr. Samra is critical to the overall management of Balqon Corporation as well as to the development of our technologies, our culture and our strategic direction and is instrumental in developing and maintaining close ties with our customer base.  Although we have entered into an employment agreement with Mr. Samra, the agreement does not guarantee the service of Mr. Samra for a specified period of time.  In addition, we do not maintain a “key-person” life insurance policy on Mr. Samra.  The loss of Mr. Samra could significantly delay or prevent the achievement of our business objectives.  Consequently, the loss of Mr. Samra could adversely affect our business, financial condition and results of operations.

Our failure to manage our growth effectively could prevent us from achieving our goals.

Our strategy envisions a period of growth that may impose a significant burden on our administrative, financial and operational resources.  The growth of our business will require significant investments of capital and management’s close attention.  Our ability to effectively manage our growth will require us to substantially expand the capabilities of our administrative and operational resources and to attract, train, manage and retain qualified management, engineers and other personnel.  We may be unable to do so.  In addition, our failure to successfully manage our growth could result in our sales not increasing commensurately with our capital investments.  If we are unable to successfully manage our growth, we may be unable to achieve our goals.

We have very limited operating experience; therefore, regardless of the viability or market acceptance of heavy-duty electric vehicles, we may be unable to achieve profitability or realize our other business goals.

The production of our heavy-duty electric vehicles is the result of a new venture. We have been engaged primarily in research and development of heavy-duty electric vehicles technologies since 2006, and we have only recently begun shipments of our electric vehicles.  Our success will depend in large part on our ability to address problems, expenses and delays frequently associated with bringing a new product to market.  We may not be able to successfully sell our products even if our heavy-duty electric vehicles prove to be a viable solution and achieve market acceptance. Consequently, we may be unable to achieve profitability or realize our other business goals.

We are targeting a new and evolving market and we cannot be certain that our business strategy will be successful.

The market for heavy-duty electric vehicles is relatively new and rapidly changing.  We cannot accurately predict the size of this market or its potential growth. Our vehicles represent only one possible solution for alternative fuel vehicles for container transportation and other material handling equipment applications.  Use of electric vehicles for container transportation at terminals and/or other facilities has not been adopted as an industry standard and it may not be adopted on a broad scale.  The new and evolving nature of the market that we intend to target makes an accurate evaluation of our business prospects and the formulation of a viable business strategy very difficult. Thus, our business strategy may be faulty or even obsolete and as a result, we may not properly plan for or address many obstacles to success, including the following:

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·   the timing and necessity of substantial expenditures for the development, production and sale of our heavy-duty electric vehicles;

·   the emergence of newer, more competitive technologies and products;

·   the future cost of batteries used in our systems;

·   applicable regulatory requirements;

·   the reluctance of potential customers to consider new technologies;

·   the failure to strategically position ourselves in relation to joint venture or strategic partners, and potential and actual competitors;

·   the failure of our heavy-duty electric vehicles to satisfy the needs of the markets that we intend to target and the resulting lack of widespread or adequate acceptance of our heavy-duty electric vehicles; and

·   the difficulties in managing rapid growth of operations and personnel.

The industries within which we compete are highly competitive.  Many of our competitors have greater financial and other resources and greater name recognition than we do and one or more of these competitors could use their greater financial and other resources or greater name recognition to gain market share at our expense.

The industries within which we compete are highly competitive. New developments in technology may negatively affect the development or sale of some or all of our products or make our products uncompetitive or obsolete.  Competition for our products may come from current drive system technologies, improvements to current drive system technologies and new alternative drive system technologies, including other fuel systems.  Each of our target markets is currently serviced by existing manufacturers with existing customers and suppliers using proven and widely accepted fossil fuel powered technologies.  Additionally, there are competitors working on developing technologies such as cleaner diesel engines, bio-diesel, fuel cells, natural gas and hybrid battery/internal combustion engines in each of our targeted markets.  Many of these existing and potential competitors, including Kalmar Industries Corp, Mitsui O.S.K. Lines, Ltd., Terberg DTS UK Ltd., Kenworth Truck Company, Freightliner Trucks, Mack Trucks, Inc. and Peterbilt Motors Company, have substantially greater financial resources, more extensive engineering, manufacturing, marketing and customer service and support capabilities, larger installed bases of current generation products, as well as greater name recognition than we do. As a result, our competitors may be able to compete more aggressively and sustain that competition over a larger period of time than we could.  Each of these competitors has the potential to capture market share in various markets, which could have a material adverse effect on our position in the industry and our financial results.  In order for our products to be successful against competing technologies, especially diesel engines, they must offer advantages in one or more of these areas: emissions performance; fuel economy; engine performance; power density; engine and fuel system weight; and engine and fuel system price.  There can be no assurance that our products will be able to offer advantages in all or any of these areas.  Our lack of resources relative to many of our significant competitors may cause us to fail to anticipate or respond adequately to new developments and other competitive pressures.  This failure could reduce our competitiveness and cause a decline in our market share, sales and profitability.

Our lack of purchase orders and commitments other than our contracts with the City of Los Angeles and the AQMD for our heavy-duty electric vehicles could lead to a rapid decline in our sales and profitability.

We have received purchase orders covering a total of 26 heavy-duty electric vehicles from the City of Los Angeles and the AQMD.  These purchase orders represent the only orders for our heavy-duty electric vehicles.  As of the date of this report we have delivered only two of these vehicles.  If we are unable to fill the remainder of these orders or obtain additional orders for our products, our sales and financial condition will decline.

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Products within the industries in which we operate are subject to rapid technological changes.  If we fail to accurately anticipate and adapt to these changes, the products we sell will become obsolete, causing a decline in our sales and profitability.

The industries within which we compete are subject to rapid technological change and frequent new product introductions and enhancements which often cause product obsolescence.  We believe that our future success depends on our ability to continue to enhance our existing products and their technologies capabilities, and to develop and manufacture in a timely manner new products with improved technology.  We may incur substantial unanticipated costs to ensure product functionality and reliability early in its products’ life cycles.  If we are not successful in the introduction and manufacture of new products or in the development and introduction, in a timely manner, of new products or enhancements to our existing products and technologies that satisfy customer needs and achieve market acceptance, our sales and profitability will decline.

We obtain some of the components and subassemblies included in our products from a single source or limited group of suppliers, the partial or complete loss of which could have an adverse effect on our sales and profitability.

We obtain some of the components and subassemblies for our products from a single source or a limited group of suppliers.  Although we seek to reduce dependence on these sole and limited source suppliers, the partial or complete loss of these sources could adversely affect our sales and profitability and damage customer relationships by impeding our ability to fulfill our customers’ orders.  Further, a significant increase in the price of one or more of these components or subassemblies could adversely affect our profit margins and profitability if no lower-priced alternative source is available.

We manufacture and assemble all of our products at one facility.  Any prolonged disruption in the operations of this facility would result in a decline in our sales and profitability.

We assemble our heavy-duty electric vehicles and heavy-duty electric drive systems and we manufacture and assemble our flux vector invertors in a facility located in Harbor City, California.  Any prolonged disruption in the operations of our manufacturing and assembly facility, whether due to technical or labor difficulties, destruction of or damage to this facility as a result of an earthquake, fire or any other reason, would result in a decline in our sales and profitability.

Because we believe that proprietary rights are material to our success, misappropriation of those rights or claims of infringement or legal actions related to intellectual property could adversely impact our financial condition.

We currently rely on a combination of contractual rights, copyrights, trade names and trade secrets to protect our proprietary rights. However, although our flux vector inverters, heavy-duty electric drive systems, and theirconstituent components could benefit from patent protection, we have chosen to retain the proprietary rights associated with our flux vector inverters, heavy-duty electric drive systems, and battery management systems predominantly as trade secrets. Although we currently rely to a great extent on trade secret protection for much of our technology, we cannot assure you that our means of protecting our proprietary rights will be adequate or that our competitors will not independently develop comparable or superior technologies or obtain unauthorized access to our proprietary technology.

We own, license or have otherwise obtained the right to use certain technologies incorporated in our flux vector inverters.  We may receive infringement claims from third parties relating to our products and technologies. In those cases, we intend to investigate the validity of the claims and, if we believe the claims have merit, to respond through licensing or other appropriate actions. To the extent claims relate to technology included in components purchased from third-party vendors for incorporation into our products, we would forward those claims to the appropriate vendor. If we or our component manufacturers are unable to license or otherwise provide any necessary technology on a cost-effective basis, we could be prohibited from marketing products containing that technology, incur substantial costs in redesigning products incorporating that technology, or incur substantial costs defending any legal action taken against us.

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Fluctuation in the price, availability and quality of materials could increase our cost of goods and decrease our profitability.

We purchase materials directly from various suppliers. The prices we charge for our products are dependent in part on the cost of materials used to produce them. The price, availability and quality of our materials may fluctuate substantially, depending on a variety of factors, including demand, supply conditions, transportation costs, government regulation, economic climates and other unpredictable factors. Any material price increases could increase our cost of goods and decrease our profitability unless we are able to pass higher prices on to our customers. We do not have any long-term written agreements with any of these suppliers and do not anticipate entering into any such agreements in the near future.

Our limited production, commercial launch activities and continued field tests could encounter problems.

We are currently conducting, and plan to continue to conduct, limited production and field tests on a number of our products as part of our product development cycle and we are working on scaling up our production capabilities.  These production readiness activities and additional field tests may encounter problems and delays for a number of reasons, including the failure of our technology, the failure of the technology of others, the failure to combine these technologies properly and the failure to maintain and service the test prototypes properly.  Some of these potential problems and delays are beyond our control.  Any problem or perceived problem with our limited production and field tests could hurt our reputation and the reputation of our products and delay their commercial launch.

Demand for our heavy-duty electric vehicles may fluctuate as the price of diesel fuel changes.

If diesel fuel prices decrease to a level such that using our heavy-duty electric vehicles does not result in fuel cost savings, potential customers may not purchase our heavy-duty electric vehicles. Any decrease in demand for our heavy-duty electric vehicles could have a material adverse effect on our business, prospects, financial condition and results of operations. If in the future we need to reduce the price of our heavy-duty electric vehicles to keep them competitive with the life cycle cost of diesel fuel powered vehicles, our business might suffer and our revenue might decline.

Significant changes in government regulation may hinder our sales.

The production, distribution and sale in the United States of our products are subject to various federal, state, and local statutes and regulations. New statutes and regulations may also be instituted in the future. If a regulatory authority finds that a current or future product is not in compliance with any of these regulations, we may be fined, or our product may have to be recalled, thus adversely affecting our financial condition and operations.

If we do not properly manage foreign sales and operations, our business could suffer.

We expect that a significant portion of our future revenues will be derived from sales outside of the United States, and we may operate in jurisdictions where we may lack sufficient expertise, local knowledge or contacts.  Establishment of an international market for our products may take longer and cost more to develop than we anticipate, and is subject to inherent risks, including unexpected changes in government policies, trade barriers, significant regulation, difficulty in staffing and managing foreign operations, longer payment cycles, and foreign exchange controls that restrict or prohibit repatriation of funds.  As a result, if we do not properly manage foreign sales and operations, our business could suffer.

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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.

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Voting power of a majority of our common stock is held by our president and chief executive officer, who, as a result, is able to control or exercise significant influence over the outcome of matters to be voted on by our stockholders.

Balwinder Samra, our President and Chief Executive Officer, has voting power equal to approximately 71% of all votes eligible to be cast at a meeting of our stockholders.  As a result of his significant ownership interest, Mr. Samra will be able to control or exercise significant influence with respect to the election of directors, offers to acquire Balqon Corporation and other matters submitted to a vote of all of our stockholders.

Shares of our common stock eligible, or to become eligible, for public sale could adversely affect our stock price and make it difficult for us to raise additional capital through sales of equity securities.

We cannot predict the effect, if any, that market sales of shares of our common stock or the availability of shares of common stock for sale will have on the market price prevailing from time to time.  As of March 27, 2009, we had outstanding 25,518,348 shares of common stock, of which 25,133,348 shares of common stock were restricted under the Securities Act.  As of March 27, 2009, we also had outstanding options and warrants that were exercisable for approximately 7,606,370 shares of common stock and notes convertible into 35,000 shares of our common stock. Sales of shares of our common stock in the public market, or the perception that sales could occur, could adversely affect the market price of our common stock. Any adverse effect on the market price of our common stock could make it difficult for us to raise additional capital through sales of equity securities at a time and at a price that we deem appropriate.

The exercise of outstanding options and warrants to purchase our common stock and the conversion into common stock of our outstanding convertible notes could substantially dilute your investment, impede our ability to obtain additional financing, and cause us to incur additional expenses.

Under the terms of our outstanding options and warrants to purchase our common stock issued to employees and others and the terms of our outstanding convertible notes, the holders are given an opportunity to profit from a rise in the market price of our common stock that, upon the exercise of the options and/or warrants or the conversion of the notes, could result in dilution in the interests of our other stockholders.  The terms on which we may obtain additional financing may be adversely affected by the existence and potentially dilutive impact of our outstanding options, warrants and convertible notes.  In addition, holders of the warrants and convertible notes have registration rights with respect to the common stock underlying such warrants and convertible notes, the registration of which will cause us to incur a substantial expense.

The market price of our common stock and the value of your investment could substantially decline if our warrants, options or convertible notes are exercised or converted into shares of our common stock and resold into the market, or if a perception exists that a substantial number of shares will be issued upon exercise or conversion of our warrants, options or convertible notes and then resold into the market.

If the exercise or conversion prices of our warrants, options and convertible notes are lower than the price at which you made your investment, immediate dilution of the value of your investment will occur. In addition, sales of a substantial number of shares of common stock issued upon exercise or conversion of our warrants, options and convertible notes, or even the perception that such sales could occur, could adversely affect the market price of our common stock.  You could, therefore, experience a substantial decline in the value of your investment as a result of both the actual and potential exercise or conversion of our warrants, options or convertible notes.

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Because we may be subject to the “Penny Stock” rules, the level of trading activity in our common stock may be reduced.

Our common stock is quoted on the OTC Bulletin Board.  The last reported sale price per share of our common stock on March 27, 2009, was $2.60.  As a result, our common stock will most likely constitute “Penny Stock.” Broker-dealer practices in connection with transactions in Penny Stocks are regulated by rules adopted by the Securities and Exchange Commission, or SEC.  Penny Stocks are generally equity securities with a price per share of less than $5.00 (other than securities registered on certain national exchanges).  The Penny Stock rules require a broker-dealer, prior to a transaction in Penny Stocks not exempt from the rules, to deliver a standardized risk disclosure document that provides information about Penny Stocks and the nature and level of risks in the Penny Stock market.  The broker-dealer must also provide the customer with current bid and offer quotations for the Penny Stock, the compensation of the broker-dealer and the salesperson in the transaction, and monthly accounting statements showing the market value of each Penny Stock held in the customer’s account. In addition, the broker-dealer must make a special written determination that the Penny Stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction.  These requirements may have the effect of reducing the level of trading activity in a Penny Stock, such as our common stock, and investors in our common stock may find it difficult to sell their shares.

Because our common stock is not listed on a national securities exchange, you may find it difficult to dispose of or obtain quotations for our common stock.

Our common stock is quoted on the OTC Bulletin Board under the symbol “BLQN.”  Because our stock is quoted on the OTC Bulletin Board rather than on a national securities exchange, you may find it difficult to either dispose of, or to obtain quotations as to the price of, our common stock.

Our articles of incorporation, our bylaws and Nevada law each contain provisions that could discourage transactions resulting in a change in control of Balqon Corporation, which may negatively affect the market price of our common stock.

Our articles of incorporation and our bylaws contain provisions that may enable our board of directors to discourage, delay or prevent a change in the ownership of Balqon Corporation or in our management. In addition, these provisions could limit the price that investors would be willing to pay in the future for shares of our common stock. These provisions include the following:

·   our board of directors is authorized, without prior stockholder approval, to create and issue preferred stock, commonly referred to as “blank check” preferred stock, with rights senior to those of our common stock; and

·   our board of directors is expressly authorized to make, alter or repeal our bylaws.

In addition, we may be subject to the restrictions contained in Sections 78.378 through 78.3793 of the Nevada Revised Statutes which provide, subject to certain exceptions and conditions, that if a person acquires a “controlling interest,” which is equal to either one-fifth or more but less than one-third, one-third or more but less than a majority, or a majority or more of the voting power of a corporation, that person is an “interested stockholder” and may not vote that person’s shares. The effect of these restrictions may be to discourage, delay or prevent a change in control of Balqon Corporation.

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Failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 could result in a restatement of our financial statements, cause investors to lose confidence in our financial statements and our company and have a material adverse effect on our business and stock price.

We produce our financial statements in accordance with accounting principles generally accepted in the United States.  Effective internal controls are necessary for us to provide reliable financial reports to help mitigate the risk of fraud and to operate successfully as a publicly traded company. As a public company, we are required to document and test our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, which will require annual management assessments of the effectiveness of our internal controls over financial reporting and a report by our independent registered public accounting firm that addresses both management’s assessments and our internal controls.  We are currently subject to the requirement that we provide management’s assessment regarding internal control over financial reporting.  The requirement that we provide our auditor’s attestation will apply to us starting with our annual report for the year ending December 31, 2009.

Testing and maintaining internal controls can divert our management’s attention from other matters that are important to our business. We may not be able to conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 or our independent registered public accounting firm may not be able or willing to issue a favorable assessment if we conclude that our internal controls over financial reporting are effective. If either we are unable to conclude that we have effective internal controls over financial reporting or our independent registered public accounting firm is unable to provide us with an unqualified report as required by Section 404, investors could lose confidence in our reported financial information and our company, which could result in a decline in the market price of our common stock, and cause us to fail to meet our reporting obligations in the future, which in turn could impact our ability to raise additional financing if needed in the future.

The requirements of being a public company, including compliance with the reporting requirements of the Securities Exchange Act of 1934 and the requirements of the Sarbanes-Oxley Act of 2002, may strain our resources, increase our costs and distract management, and we may be unable to comply with these requirements in a timely or cost-effective manner.

As a public company, we need to comply with laws, regulations and requirements, certain corporate governance provisions of the Sarbanes-Oxley act of 2002, related regulations of the SEC, and requirements of the principal trading market upon which our common stock may trade, with which we are not required to comply as a private company.  As a result, we will incur significant legal, accounting and other expenses that we did not incur as a private company.  Complying with these statutes, regulations and requirements will occupy a significant amount of the time of our board of directors and management, will require us to have additional finance and accounting staff, may make it more difficult to attract and retain qualified officers and members of our board of directors, particularly to serve on our audit committee, and make some activities more difficult, time consuming and costly.  We will need to:

·   institute a more comprehensive compliance function;

·   establish new internal policies, such as those relating to disclosure controls and procedures and insider trading;

·   design, establish, evaluate and maintain a system of internal control over financial reporting in compliance with the requirements of the Sarbanes-Oxley Act of 2002 and the related rules and regulations of the SEC and the Public Company Accounting Oversight Board;

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·   prepare and distribute periodic reports in compliance with our obligations under the federal securities laws including the Securities Exchange Act of 1934, or Exchange Act;

·   involve and retain to a greater degree outside counsel and accountants in the above activities; and

·   establish an investor relations function.

If we are unable to accomplish these objectives in a timely and effective fashion, our ability to comply with our financial reporting requirements and other rules that apply to reporting companies could be impaired.  If our finance and accounting personnel insufficiently support us in fulfilling these public-company compliance obligations, or if we are unable to hire adequate finance and accounting personnel, we could face significant legal liability, which could have a material adverse effect on our financial condition and results of operations.  Furthermore, if we identify any issues in complying with those requirements (for example, if we or our independent registered public accountants identified a material weakness or significant deficiency in our internal control over financial reporting), we could incur additional costs rectifying those issues, and the existence of those issues could adversely affect, our reputation or investor perceptions of us.

Item 1B. Unresolved Staff Comments.

Not Applicable.

Item 2. Properties.

Our executive offices are located at 1701 E. Edinger Avenue, Unit E-3, Santa Ana, California 92705, where we occupy approximately 3,500 square feet of office and light manufacturing space.  This space is used as offices by our senior management. Our manufacturing facility is located in Harbor City, California, where we occupy a 15,500 square foot manufacturing and assembly facility which is being used for final assembly of our electric drive systems, battery modules, flux vector inverters and heavy-duty electric vehicles.  We lease our Santa Ana facility for $3,206 a month and our Harbor City facility for $10,540 a month.  During each of the years ended December 31, 2008 and 2007, we reported $98,008 and $25,787, respectively, in lease expenses.

We believe that our existing facilities are sufficient to meet our present needs and anticipated needs for the foreseeable future.

Item 3. Legal Proceedings.

We are not a party to any material pending legal proceedings.

Item 4. Submission of Matters to a Vote of Security Holders.

None.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Price and Holders

Our common stock became eligible for quotation on the OTC Bulletin Board under the symbol “BMRU” on April 10, 2007.  On October 31, 2008, as a result of the Merger Transaction, our common stock became eligible for quotation on the OTC Bulletin Board under the symbol “BLQN.”  Shares of our common stock began trading on the OTC Bulletin Board on November 20, 2008.  Between November 20, 2008 and December 31, 2008, the reported high and low closing bid price of our common stock on the OTC Bulletin Board was $2.00 and $1.50, respectively.On March 27, 2009, the last reported sale price of our common stock on the OTC Bulletin Board was $2.60 per share.

As of March 30, 2009, we had 25,518,348 shares of common stock outstanding held of record by approximately 68stockholders.  These holders of record include depositories that hold shares of stock for brokerage firms which, in turn, hold shares of stock for numerous beneficial owners.

Dividend Policy

We currently anticipate that we will not declare or pay cash dividends on our common stock in the foreseeable future.  We will pay dividends on our common stock only if and when declared by our board of directors.  The ability of our board of directors to declare a dividend is subject to restrictions imposed by Nevada and California law.  In determining whether to declare dividends, our board of directors will consider these restrictions as well as our financial condition, results of operations, working capital requirements, future prospects and other factors it considers relevant.

Equity Compensation Plan

The information provided in Part III-Item 12 of this Annual Report under the heading “—Equity Compensation Plan Information” is incorporated herein by reference.

Recent Sales of Unregistered Securities

On June 30, 2006, we sold 1,090,000 shares of our common stock to four investors at $0.10 per share, or gross proceeds of $109,000. The proceeds of $109,000 were used for working capital purposes.

On August 1, 2007, we sold 250,000 shares of our common stock to two investors at $0.10 per share, or gross proceeds of $25,000. The proceeds of $25,000 were used for working capital purposes.

On October 24, 2008, immediately preceding the closing of the Merger Transaction, we issued warrants to purchase an aggregate of 184,598 shares of common stock (the “BMR Warrants”) to seven accredited investors in consideration of services provided. One-third of the BMR Warrants have an exercise price of $1.50 per share and expire on October 24, 2009, one-third of the BMR Warrants have an exercise price of $2.00 per share and expire on October 24, 2010 and one-third of the BMR Warrants have an exercise price of $2.50 per share and expire on October 24, 2011.

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In connection with the Merger Transaction, we issued an aggregate of 23,908,348 shares of our common stock to the shareholders of Balqon California.  In addition, the holders of warrants to acquire an aggregate of 2,614,180 shares of common stock of Balqon California were deemed to hold warrants to acquire an equal number of shares of our common stock upon completion of the Merger Transaction.  Of the Warrants issued to Balqon California, (i) warrants to purchase 243,060 shares have an exercise price of $1.50 per share and expire on June 30, 2010; (ii) warrants to purchase 243,060 shares have an exercise price of $2.00 per share and expire on June 30, 2011; (iii) warrants to purchase 243,060 shares have an exercise price of $2.50 per share and expire on June 30, 2012; (iv) warrants to purchase 500,000 shares have an exercise price of $1.50 per share and expire on July 2011; (v) warrants to purchase 810,000 shares have an exercise price of $1.50 per share and expire on September 2011; and (vi) warrants to purchase 575,000 shares have an exercise price of $1.50 per share and expire on October 2011.  In connection with the Merger Transaction, we also issued under our 2008 Plan options to purchase an aggregate of 4,562,592 shares of our common stock to certain of our directors and employees who held options to purchase an equal number of shares of Balqon California’s common stock immediately prior to the completion of the Merger Transaction.

On December 22, 2008, we entered into an agreement with 10 accredited investors for the sale by us of an aggregate of 210,000 shares of our common stock at a purchase price of $1.00 per share for total aggregate proceeds of $210,000.  Additionally, we issued three-year warrants to purchase an aggregate of 210,000 shares of common stock at an exercise price of $1.50 per share.

In March 2009, we entered into agreements with two accredited investors for the sale by us of an aggregate of $35,000 of 10% Unsecured Subordinated Convertible Promissory Notes which are convertible into an aggregate of 35,000 shares of our common stock at a conversion price of $1.00 per share of common stock, subject to adjustment.  Additionally, we issued three-year warrants to purchase an aggregate of 35,000 shares of common stock at an exercise price of $1.50 per share.

The issuances of our securities described above were made in reliance upon the exemption from registration available under Section 4(2) of the Securities Act, among others, as transactions not involving a public offering. This exemption was claimed on the basis that these transactions did not involve any public offering and the purchasers in each offering were accredited or sophisticated and had sufficient access to the kind of information registration would provide. In each case, appropriate investment representations were obtained and certificates representing the securities were issued with restrictive legends.

Sales by Balqon California Prior to the Merger Transaction

In June 2008, Balqon California issued 332,910 shares of common stock and options to purchase 4,166,751 shares of common stock to Balwinder Samra in consideration of services rendered.

In June 2008, Balqon California issued 333,340 shares of common stock and options to purchase 83,344 shares of common stock to Henry Velasquez in consideration of engineering and design consulting services rendered.

In June 2008, Balqon California issued 1,250,025 shares of common stock and options to purchase 312,507 shares of common stock to Amarpal Samra in consideration of business strategy consulting services rendered.

In June 2008, Balqon California issued 100,000 shares of common stock to Robert Miranda, its current Chief Financial Officer, in consideration of business strategy consulting services rendered.

In June 2008, Balqon California issued 250,000 shares of common stock to Robert Gruenwald in consideration of services provided.

In June 2008, Balqon California issued 2,916,725 shares of common stock and warrants to purchase 729,180 shares of common stock to Marlin Financial in consideration of business strategy and financial advisory services rendered and to be rendered.

The issuances of our securities described above were made in reliance upon the exemption from registration available under Section 4(2) of the Securities Act, among others, as transactions not involving a public offering. This exemption was claimed on the basis that these transactions did not involve any public offering and the purchasers in each offering were accredited or sophisticated and had sufficient access to the kind of information registration would provide. In each case, appropriate investment representations were obtained and certificates representing the securities were issued with restrictive legends.

Item 6. Selected Financial Data.

Not applicable.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis should be read in conjunction with our financial statements and the related notes to financial statements included elsewhere in this report.  This report and our financial statements and notes to financial statements contain forward-looking statements, which generally include the plans and objectives of management for future operations, including plans and objectives relating to our future economic performance and our current beliefs regarding revenues we might generate and profits we might earn if we are successful in implementing our business strategies. Our actual results could differ materially from those expressed in these forward-looking statements as a result of any number of factors, including those set forth under the “Risk Factors” section and elsewhere in this report. The forward-looking statements and associated risks may include, relate to or be qualified by other important factors, including, without limitation:

·   the projected growth or contraction in the industries within which we operate;

·   our business strategy for expanding, maintaining or contracting our presence in these markets;

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·   anticipated trends in our financial condition and results of operations; and

·   our ability to distinguish ourselves from our current and future competitors.

We do not undertake to update, revise or correct any forward-looking statements.

Any of the factors described above, elsewhere in this report or in the “Risk Factors” section of this report could cause our financial results, including our net income or loss or growth in net income or loss to differ materially from prior results, which in turn could, among other things, cause the price of our common stock to fluctuate substantially.

Overview

We currently develop, assemble and market heavy-duty electric vehicles, flux vector inverters, and heavy-duty electric drive systems.  We currently sell our heavy-duty electric vehicles and plan to begin selling our other products in the near future.  In May 2007, we entered into an agreement with the AQMD to develop and test a heavy-duty zero emissions electric drayage tractor.  Under the terms of the AQMD Development Agreement, the AQMD agreed to pay us up to $527,000 for the development and testing of the heavy-duty drayage tractor.  The Port of Los Angeles agreed with the AQMD to fund 50% of the total development costs.  All of our revenues for 2007 and 63% of our revenues for 2008 were associated with the AQMD Development Agreement.  The remaining 37% of revenues for 2008 were from the sale of parts to the Port of Los Angeles. The revenues and costs associated with the AQMD Development Agreement are recorded as contract revenues and costs, in accordance with the AICPA’s Statement of Position 81-1, “Accounting for Performance of Construction-Type and Certain Production-type Contracts.”  As such, the costs associated with the development of our demonstration vehicle are recorded as “contract costs”, not as research and development expenses.

In June 2008, we received a purchase order from the City of Los Angeles for 20 Nautilus E20 heavy-duty electric yard tractors and five Nautilus E30 drayage tractors.  The purchase order from the City of Los Angeles is pursuant to the City of Los Angeles Agreement.

Our total revenues decreased by $179,076, or 48.8%, to $203,660 for the year ended December 31, 2008 as compared to $382,736 for the year ended December 31, 2007.  We reported a net loss of $1,381,915 for the year ended December 31, 2008 as compared to a net loss of $82,744 for the year ended December 31, 2007.  The decline in financial performance during 2008 as compared to 2007 is a direct result of having 73% of the progress work on the AQMD Development Agreement completed during 2007 while only 19% of the progress work on this contract was completed during 2008.  We experienced increased expenses in 2008 associated with the ramp up of our business including leasing production facilities in Harbor City, California, hiring full-time senior management and production personnel. We incurred  legal and consulting expenses relating to the reverse merger of $414,384.  While our business activities resulted in a revenue decrease of approximately 47%, we experienced decreased cost of revenues of $142,210, or 51%, and increased operating and other expenses of $1,262,305, or 682%, over 2007.  The $1,447,522 of operating and other expenses incurred during 2008 includes $414,384 of expenses relating to the Merger Transaction described below.

Merger Transaction

On October 24, 2008, we completed an Agreement and Plan of Merger, or Merger Transaction, with Balqon Corporation, a California corporation, or Balqon California, and changed our name from BMR Solutions, Inc. to Balqon Corporation.  Upon completion of the Merger Transaction, we acquired the business of Balqon California.  In connection with the Merger Transaction, we issued an aggregate of 23,908,348 shares of our common stock to the shareholders of Balqon California which resulted in a change in control of our company.  The Merger Transaction has been accounted for as a recapitalization of Balqon California, with Balqon California being the accounting acquiror.  As a result, the historical financial statements of Balqon California are now the historical financial statements of the legal acquiror, Balqon Corporation (formerly, BMR Solutions, Inc.).

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In connection with the Merger Transaction, we issued an aggregate of 23,908,348 shares of our common stock to the shareholders of Balqon California.  In addition, the holders of warrants to acquire an aggregate of 2,614,180 shares of common stock of Balqon California were deemed to hold warrants to acquire an equal number of shares of our common stock upon completion of the Merger Transaction.  In connection with the Merger Transaction, we also issued under our 2008 Plan options to purchase an aggregate of 4,562,592 shares of our common stock to certain of our directors and employees who held options to purchase an equal number of shares of Balqon California’s common stock immediately prior to the completion of the Merger Transaction.  In connection with the consummation of the Merger Transaction, we cancelled 6,377,500 shares of our issued and outstanding common stock held by certain of our stockholders such that concurrent with the closing of the Merger Transaction we had approximately 1,400,000 shares of common stock issued and outstanding. See “ Item 13. Certain Relationships and Related Transactions, and Director Independence – Merger Transaction.”

At the time of the closing of the Merger Transaction, we were engaged in the business of providing local delivery and transportation of mattresses, furniture and futons in Southern California.  Our current business is comprised solely of the business of Balqon California.

Critical Accounting Policies

Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe that the following critical accounting policies, among others, affect our more significant judgments and estimates used in the preparation of our financial statements:

Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.  Material estimates relate to the recognition of contract revenues and estimated costs to complete contracts in process, and recoverability of reported amounts of long-lived assets.  Actual results may differ from those estimates.

Revenues

Contract Revenue and Cost Recognition on Prototype Vehicle.  In accounting for our AQMD Development Agreement, we follow the provisions of the AICPA’s Statement of Position 81-1,  “Accounting for Performance of Construction-Type and Certain Production-Type Contracts.”  We recognize revenues using the percentage-of-completion method of accounting by relating contract costs incurred to date to the total estimated costs at completion.  This method is used because management considers costs to be the best available measure of progress on its contracts.  Contract losses are provided for in their entirety in the period that they become known, without regard to the percentage-of-completion.  We also recognize as revenues costs associated with claims and unapproved change orders to the extent it is probable that such claims and change orders will result in additional contract revenue, and the amount of such additional revenue can be reliably estimated.

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Contract costs include all direct material and labor costs.  The liability “Billings in excess of costs and estimated earnings on uncompleted contracts” represents billings in excess of revenues earned.

Sales of Production Units Revenue.  We recognize revenue from sales of production units when there is persuasive evidence that an arrangement exists, delivery of the product has occurred and title has passed, the selling price is both fixed and determinable, and collectibility is reasonably assured, all of which generally occurs upon shipment of our product or delivery of the product to the destination specified by the customer.

Sales of Parts Revenue.  We recognize revenue from sales of parts when there is persuasive evidence that an arrangement exists, delivery of the product has occurred and title has passed, the selling price is both fixed and determinable, and collectibility is reasonably assured, all of which generally occurs upon shipment of our product or delivery of the product to the destination specified by the customer.

Stock-Based Compensation

We periodically issue stock options and warrants to employees and non-employees in non-capital raising transactions for services and for financing costs. We adopted Statement of Financial Accounting Standards, or SFAS, No. 123(R), “Accounting for Stock-Based Compensation” effective January 1, 2006, and are using the modified prospective method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of SFAS No. 123(R) for all share-based payments granted after the effective date and (b) based on the requirements of SFAS No. 123(R) for all awards granted to employees prior to the effective date of SFAS No. 123(R) that remain unvested on the effective date. We account for stock option and warrant grants issued and vesting to non-employees in accordance with Emerging Issues Task Force, or EITF, Issue No. 96-18, “Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services,” and EITF Issue No. 00-18, “Accounting Recognition for Certain Transactions involving Equity Instruments Granted to Other Than Employees” whereby the fair value of the stock compensation is based on the measurement date as determined at either (a) the date at which a performance commitment is reached, or (b) at the date at which the necessary performance to earn the equity instrument is complete.

We recognize compensation cost for equity-based compensation for all new or modified grants issued after December 31, 2005. In addition, commencing January 1, 2006, we recognized the unvested portion of the grant date fair value of awards issued prior to adoption of SFAS No. 123(R) based on the fair value previously calculated for disclosure purposes over the remaining vesting period of the outstanding stock options and warrants.

We estimate the fair value of stock options pursuant to SFAS No. 123(R) using the Black-Scholes option-pricing model, which was developed for use in estimating the fair value of options that have no vesting restrictions and are fully transferable. This model requires the input of subjective assumptions, including the expected price volatility of the underlying stock and the expected life of stock options. Projected data related to the expected volatility of stock options is based on the average volatility of the trading prices of comparable companies and the expected life of stock options is based upon the average term and vesting schedules of the options. Changes in these subjective assumptions can materially affect the fair value of the estimate, and therefore the existing valuation models do not provide a precise measure of the fair value of our employee stock options.

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Long-lived Assets

We account for the impairment and disposition of long-lived assets in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”  In accordance with SFAS No. 144, long-lived assets to be held are reviewed for events or changes in circumstances that indicate that their carrying value may not be recoverable. We periodically review the carrying value of long-lived assets to determine whether or not impairment to such value has occurred.  Based on management’s assessments, no impairments were recorded during the years ended December 31, 2008 and 2007.

Income Taxes

We account for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes.” Under SFAS No. 109, income taxes are recognized for the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets are recognized for the future tax consequences of transactions that have been recognized in our financial statements or tax returns. A valuation allowance is provided when it is more likely than not that some portion or the entire deferred tax asset will not be realized.

Warrants

We evaluate our warrants on an ongoing basis considering the provisions of SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity,” which establishes standards for issuers of financial instruments with characteristics of both liabilities and equity related to the classification and measurement of those instruments.  The warrants are evaluated considering the provisions of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities, and EITF, Issue No. 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock.”

Results of Operations

We have based our financial statements on the assumption of our operations continuing as a going concern.  As of December 31, 2008, we had working capital of $194,074, had an accumulated deficit of $1,493,395 and reported a net loss for the year ended December 31, 2008 of $1,405,821, which raise substantial doubt about our ability to continue as a going concern.Our plans for correcting these deficiencies include the future sales of our products and technologies and the raising of capital, which are expected to help provide us with the liquidity necessary to meet operating expenses.  During July, September and October 2008, Balqon California raised approximately $1,885,000 in connection with private placements of convertible promissory notes, common stock and warrants.  During December 2008, we raised $210,000 in connection with a private placement of our common stock and warrants and during March 2009 we raised $35,000 in connection with a private placement of our convertible notes and warrants.  Over the longer-term, we plan to achieve profitability through our operations from the sale of our high capacity electric vehicles.  Our financial statements do not include any adjustments relating to the recoverability and classification of the recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue our existence.

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The tables presented below, which compare our results of operations for 2007 and 2008, present the results for each period, the change in those results from one period to another in both dollars and percentage change, and the results for each period as a percentage of net revenues. The columns present the following:

·   The first two data columns in each table show the absolute results for each period presented.

·   The columns entitled “Dollar Variance” and “Percentage Variance” show the change in results, both in dollars and percentages. These two columns show favorable changes as a positive and unfavorable changes as negative. For example, when our net revenues increase from one period to the next, that change is shown as a positive number in both columns. Conversely, when expenses increase from one period to the next, that change is shown as a negative in both columns.

·   The last two columns in each table show the results for each period as a percentage of net revenues.

												Results as a Percentage
								Dollar		Percentage		of Net Revenues for the
		Year Ended						Variance		Variance		Years Ended
		December 31,						Favorable		Favorable		December 31,
		2008			2007			(Unfavorable)		(Unfavorable)		2008		2007
Net revenues	$	203,660		$	382,736		$	(179,076	)	(47	)%	100	%	100	%
Cost of revenues		138,053			280,263			142,210		51	%	68	%	73	%
Gross profit		65,607			102,473			(36,866	)	(36	)%	32	%	27	%
Operating and interest expenses		1,471,428			185,217			(1,286,211	)	(694	)%	722	%	48	%
Net loss	$	(1,405,821	)	$	(82,744	)	$	(1,323,077	)	(1,599	)%	(690	)%	(22	)%

Net Revenues.  The $179,076 decrease in net revenues is comprised of decreased contract revenues of $254,076 offset by increased net revenues of $75,000 relating to the sale of parts to the City of Los Angeles in April 2008 under the terms of the City of Los Angeles Agreement.  Contract revenues decreased in 2008 due to the reduced progress work on our AQMD Development Agreement in 2008 as compared to 2007.  During 2007, 72.3% of the $527,000 AQMD Development Agreement was completed yielding contract revenues of $382,736. During 2008, 19.2% of the AQMD Development Agreement was completed yielding contract revenues of $128,660. We anticipate that our future revenues will be comprised of sales revenues related to our heavy-duty electric vehicles, flux vector inverters and our other products under the City of Los Angeles Agreement and otherwise.

Gross Profit.  The $36,866 decrease in gross profit was due to the decrease in contract revenues between the periods and the 8% profit margin associated with the sale of a battery charger system in April 2008. We anticipate that our gross profit margin will be approximately 24% of net revenues for 2009 based on the current costs incurred associated with the 25 electric vehicles for the Port of Los Angeles that are currently under production at our Harbor City facility.

Operating and Interest Expenses.  The $1,286,211 increase inoperating and interest expenses was due largely to the $414,384 of legal and consulting fees incurred in connection with the Merger Transaction. The additional $871,827 of increased operating expenses were attributable to amounts expended in establishing our production facilities andthe ramp-up of our business during 2008 and the fact that the results for 2007 reflect only eight months of actual business operations.  We expect that over the near term, our general and administrative expenses will increase as a result of increased management personnel, opening of new manufacturing facilities, additional operational personnel to manufacture electric vehicle, increased legal and accounting fees associated with increased corporate governance activities in response to the Sarbanes-Oxley Act of 2002 and recently adopted rules and regulations of the SEC and the filing of a registration statement with the SEC.  While our general and administrative expenses are expected to increase over the near term, these expenses as a percentage of net revenues are expected to decrease as we increase our net revenues.

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Liquidity and Capital Resources

During 2007 and 2008, we funded our operations primarily with cash flow from financing activities, which included the issuance of secured and unsecured debt and the issuance of equity securities.  As of December 31, 2008, we had working capital of $194,074 as compared to a working capital deficiency of $122,862 at December 31, 2007.  At December 31, 2008 and 2007 we had an accumulated deficit of $1,493,395 and $87,574, respectively, and cash and cash equivalents of $355,615 and $34, respectively.

Our available capital resources at December 31, 2008 consisted primarily of approximately $355,615 in cash and cash equivalents.  We expect that our future available capital resources will consist primarily of cash on hand, cash generated from our business, if any, and future debt and/or equity financings, if any.

Cash used in operating activities for 2008 was $1,328,569 as compared to $34,127of cash used in operating activities for 2007, and includes a net loss of $1,405,821, depreciation and amortization of $29,836 and changes in operating assets and liabilities of $54,086.  Material changes in asset and liabilities at December 31, 2008 as compared to December 31, 2007 that affected these results include:

·   a decrease in accounts receivable of $35,000;

·   an  increase in inventory of $1,159,601;

·   an increase in prepaid expenses of $43,020;

·   an increase in deposits of $14,400;

·   a netincreasein accounts payable and accrued expenses of $1,196,595; and

·   a decrease in billings in excess of costs and estimated earnings on uncompleted contracts of $68,660.

Cash used in investing activities totaled $336,067 for 2008 as compared to $22,316 of cash used in investing activities for 2007.

Cash provided by financing activities totaled $2,020,217 for 2008 as compared to $56,477 for 2007.

In July 2008, Balqon California raised an aggregate of $500,000 through the issuance of senior secured convertible promissory notes to five accredited investors.  The senior secured convertible promissory notes had a conversion price of $1.00 per share.  In connection with this offering, Balqon California also issued three-yearwarrants to acquire up to an aggregate of 500,000 shares of common stock at an exercise price of $1.50 per share. The senior secured convertible promissory notes were converted into an aggregate of 514,582 shares of common stock of Balqon California immediately preceding the closing of the Merger Transaction.

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In September 2008, Balqon California raised an aggregate of $810,000 through the issuance of convertible promissory notes to 15 accredited investors.  The convertible promissory notes had a conversion price of $1.00 per share.  In connection with this offering, Balqon California also issued three-year warrants to acquire up to an aggregate of 810,000 shares of common stock at an exercise price of $1.50 per share. The convertible promissory notes were converted into an aggregate of 818,766 shares of common stock of Balqon California immediately preceding the closing of the Merger Transaction.

In October 2008, Balqon California raised an aggregate of $575,000 through the issuance of an aggregate of 575,000 shares of common stock to six accredited investors.  In connection with this offering, Balqon California also issued three-year warrants to purchase an aggregate of 575,000 shares of common stock at an exercise price of $1.50 per share.

In June 2008, Balqon California issued 2,916,725 shares of common stock and warrants to purchase 729,180 shares of common stock to Marlin Financial in consideration of business strategy and financial advisory services rendered, and to be rendered, to Balqon California.  In consideration of such issuance, Marlin Financial Group, Inc. acted as a finder in connection with the private placement offerings completed in September 2008 and October 2008.

In December 2008, we raised an aggregate of $210,000 through the issuance of 210,000 shares of common stock to ten accredited investors.  In connection with this offering, we also issued three-year warrants to purchase an aggregate of 210,000 shares of common stock at an exercise price of $1.50 per share.

In March 2009, we raised an aggregate of $50,000 through the issuance of convertible notes to three accredited investors.  In connection with this offering, we also issued three-year warrants to purchase an aggregate of 50,000 shares of common stock at an exercise price of $1.50 per share.

We are obligated under registration rights agreements related to the private placements in July, September, October, November and December 2008 to file, on or before December 23, 2008, a registration statement with the SEC, registering for resale shares of common stock and the shares of common stock underlying the warrants, issued in connection with the above private placement transactions.  See “Selling Security Holders—Registration Rights Agreements.”  We filed the registration statement with the SEC on December 23, 2008 and are in the process of responding to comments made by the staff of the SEC.  

We are obligated under registration rights agreements related to the March 2009 private placement to file, after the registration statement we filed with the SEC on December 23, 2008 is declared effective, a registration statement with the SEC, registering for resale the shares of common stock underlying the convertible notes and warrants issued in the private placement transaction.

Effective February 18, 2009, we entered into a Business Financing Agreement with Bridge Bank, National Association.  Effective February 26, 2009, we entered into a Business Financing Modification Agreement which modified the initial financing agreement with Bridge Bank.  The amended financing agreement with Bridge Bank provides us with an accounts receivable based credit facility in the aggregate amount of up to $5,000,000.  Under the terms of the credit facility, we may not borrow in excess of $500,000 unless and until we receive an executed term sheet with respect to an equity financing of at least $2,500,000 on terms and conditions acceptable to Bridge Bank.

The credit facility is formula-based and generally provides that the outstanding borrowings under the credit facility may not exceed an aggregate of 80% of eligible accounts receivable.  We must immediately pay any advance made under the credit facility within 90 days of the earlier of (i) the invoice date of the receivable that substantiated the advance or (ii) the date on which the advance was made.

Interest on the credit facility is payable monthly.  The interest rate is variable and is adjusted monthly based on the per annum prime rate as published by Bridge Bank plus two percentage points, subject to a minimum rate of 6.0% per annum.

In the event of a default and continuation of a default, Bridge Bank may accelerate the payment of the principal balance requiring us to pay the entire indebtedness outstanding on that date.  Upon the occurrence and during the continuation of an event of default, the interest rate applicable to the outstanding balance borrowed under the credit facility will be increased by five percentage points above the per annum interest rate that would otherwise be applicable.

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The credit facility is secured by a continuing first priority security interest in all of our personal property (subject to customary exceptions).  The credit facility may be terminated at any time by either party.  If we terminate the credit facility prior to February 18, 2010, we will owe a termination fee equal to 1.00% of the dollar amount resulting from dividing the credit limit then in effect under the credit facility by 80% (or such greater or lesser percentage as Bridge Bank may establish from time to time).

Our plan of operations for the next twelve months includes completion and delivery of the remaining heavy-duty electric vehicles under the City of Los Angeles Agreement, together with associated equipment including batteries and controllers. We also expect to receive additional orders for our products over the next twelve months. We expect that the anticipated gross margin from the sales of these products will provide additional liquidity and capital resources.  Our ability to increase the number of orders for our products and/or to achieve sufficient gross margin through the sale of products to provide us with meaningful additional liquidity and capital resources is subject to, among other things, the effect of the current global economic crisis and our ability to raise additional capital.  See “Item 1A. Risk Factors.”

During 2009, we expect to incur approximately $200,000 in research and development expenses. We believe that we presently have sufficient plant and production equipment to meet our current operational plan and we do not intend to dispose of any plant and equipment.

We presently have seven employees and expect to hire additional personnel to meet production demands of increased product sales. Until these new sales materialize, our present staff is sufficient to meet our current operational plan.

Our continued operations are dependent on securing additional sources of liquidity through debt and/or equity financing.  As indicated above, our consolidated financial statements as of December 31, 2008 and for the year ended December 31, 2007 have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. As discussed in this report and in notes to our consolidated financial statements included in this report, we have suffered recurring losses from operations and at December 31, 2008 we had an accumulated deficit of $1,493,395.  These factors, among others, raised substantial doubt about our ability to continue as a going concern and, with respect to our financial position on December 31, 2008, led our independent registered public accounting firm to include in their report an explanatory paragraph related to our ability to continue as a going concern. The consolidated financial statements included in this report do not include any adjustments that might result from the outcome of this uncertainty.

We have been, and currently are, working toward identifying and obtaining new sources of financing. No assurances can be given that we will be successful in obtaining additional financing in the future.  Any future financing that we may obtain may cause significant dilution to existing stockholders. Any debt financing or other financing of securities senior to common stock that we are able to obtain will likely include financial and other covenants that will restrict our flexibility. At a minimum, we expect these covenants to include restrictions on our ability to pay dividends on our common stock. Any failure to comply with these covenants would have a material adverse effect on our business, prospects, financial condition, results of operations and cash flows.

If adequate funds are not available, we may be required to delay, scale back or eliminate portions of our operations and product and service development efforts or to obtain funds through arrangements with strategic partners or others that may require us to relinquish rights to certain of our technologies or potential products or other assets. Accordingly, the inability to obtain such financing could result in a significant loss of ownership and/or control of our proprietary technology and other important assets and could also adversely affect our ability to fund our continued operations and our product and service development efforts.

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Backlog

As of March 27, 2009, we had a backlog of approximately $4.9million.  Our backlog includes a contract to produce and deliver 19 electric yard tractors, 5 electric drayage tractors, and associated equipment including batteries and controllers.  We believe that products in our backlog will be shipped during the first half of 2009.

Effects of Inflation

The impact of inflation and changing prices has not been significant on the financial condition or results of operations of our company.

Impacts of New Accounting Pronouncements

In December 2007, the Financial Accounting Standards Board, or FASB, issued SFAS No. 141(R), “Business Combinations,” which establishes accounting principles and disclosure requirements for all transactions in which a company obtains control over another business.  SFAS  No. 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 22, 2008. Earlier adoption is prohibited.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51.” SFAS No. 160 establishes accounting and reporting standards that require that the ownership interests in subsidiaries held by parties other than the parent be clearly identified, labeled, and presented in the consolidated statement of financial position within equity, but separate from the parent’s equity; the amount of consolidated net income attributable to the parent and to the noncontrolling interest be clearly identified and presented on the face of the consolidated statement of income; and changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary be accounted for consistently. SFAS No. 160 also requires that any retained noncontrolling equity investment in the former subsidiary be initially measured at fair value when a subsidiary is deconsolidated. SFAS No. 160 also sets forth the disclosure requirements to identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS No. 160 applies to all entities that prepare consolidated financial statements, except not-for-profit organizations, but will affect only those entities that have an outstanding noncontrolling interest in one or more subsidiaries or that deconsolidate a subsidiary. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 22, 2008. Earlier adoption is prohibited. SFAS No. 160 must be applied prospectively as of the beginning of the fiscal year in which it is initially applied, except for the presentation and disclosure requirements. The presentation and disclosure requirements are applied retrospectively for all periods presented.

In March 2008, the FASB issued SFAS No. 161,“Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133,” to improve financial reporting of derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance and cash flows. SFAS No. 161 applies to fiscal years and interim periods beginning after November 15, 2008.

We do not believe that the adoption of the above recent pronouncements will have a material effect on our consolidated results of operations, financial position or cash flow.  Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA and the SEC did not or are not believed by management to have a material impact on our present or future consolidated financial statements.

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Item 7A.  Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

Item 8. Financial Statements and Supplementary Data.

Reference is made to the financial statements included in this Report, which begin at page F-1.

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

Not applicable.

Item 9A. Controls and Procedures.

Not applicable.

Item 9A(T). Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We conducted an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, our principal accounting officer, of the effectiveness of the design and operation of our disclosure controls and procedures.  The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.  Disclosure controls and procedures also include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.  Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded as of December 31, 2008 that our disclosure controls and procedures were effective at the reasonable assurance level.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:

(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

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(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material affect on our financial statements.

All internal control systems, no matter how well designed, have inherent limitations.  Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and reporting.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2007 based on the framework in Internal Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  Based on the results of management’s assessment and evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of December 31, 2007 our internal control over financial reporting was effective.

Attestation Report of the Independent Registered Public Accounting Firm

This report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this report.

Inherent Limitations on the Effectiveness of Controls

Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control systems are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in a cost-effective control system, no evaluation of internal control over financial reporting can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been or will be detected.

These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information.

Not applicable.

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PART III

Item 10. Directors, Executive Officers and Corporate Governance.

Directors and Executive Officers

Our directors and executive officers as of March 27, 2009 are as follows:

Name	Age	Positions Held
Balwinder Samra(1)(2)	47	President, Chief Executive Officer and Chairman of the Board
Robert Miranda	56	Chief Financial Officer
Henry Velasquez(1)	32	Vice President Engineering and Director
Robert Gruenwald	50	Vice President Research and Development
Amarpal Singh Samra(1)(2)	48	Director

(1) Member of our Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee.

(2) There are no family relationships among our executive officers and directors, except that Balwinder Samra is the brother of Amarpal Singh Samra.

Balwinder Samra was appointed as our President, Chief Executive Officer, Chairman of the Board and a director in connection with the consummation of the Merger Transaction.  Mr. Samra was the President, Chief Executive Officer and Chairman of the Board of Balqon California from May 2005 to the closing of the Merger Transaction.  Prior to that, Mr. Samra was president and chief executive officer of EVI, a leading manufacturer of electric buses, trucks and trailers.  From 1991 to 2000, Mr. Samra was Corporate Vice President of Taylor-Dunn Manufacturing, a leading manufacturer of electric industrial vehicles and tow tractors.  At Taylor-Dunn, Mr. Samra was responsible for worldwide marketing, dealer sales and operations.  Mr. Samra holds a B. S. degree in Chemistry from Punjab University, India.

Robert Miranda was appointed as our Chief Financial Officer in connection with the consummation of the Merger Transaction.  From October 2008 to the closing of the Merger Transaction, Mr. Miranda served as Chief Financial Officer of Balqon California.  Since October 2007, Mr. Miranda has been the managing director of Miranda & Associates, a professional accountancy corporation.  From March 2003 through October 2007, Mr. Miranda was a Global Operations Director at Jefferson Wells, where he specialized in providing Sarbanes-Oxley compliance reviews for public companies.  Mr. Miranda was a national director at Deloitte & Touche where he participated in numerous audits, corporate finance transactions, mergers, and acquisitions.  Mr. Miranda is a licensed Certified Public Accountant and has over 35 years of experience in accounting, Sarbanes-Oxley compliance, auditing, business consulting, strategic planning and advisory services.  Mr. Miranda holds a B.S. degree in Business Administration from the University of Southern California, a certificate from the Owner/President Management Program from the Harvard Business School and membership in the American Institute of Certified Public Accountants.

Henry Velasquez was appointed as our Vice President Engineering and a director in connection with the consummation of the Merger Transaction.  From October 2008 to the closing of the Merger Transaction, Mr. Velasquez was Vice President Engineering and a member of the board of directors of Balqon California.  From January 2007 to August 2008 Mr. Velasquez was a Senior Engineer at Honda Access America.  From October 2000 to January 2007, Mr. Velasquez was an Engineer at Snugtop.  Mr. Velasquez has over 10 years of experience in designing mechanical components, chassis and suspension systems for trucks, buses, trailers and utility vehicles.  Mr. Velasquez has been awarded one United States patent related to composite body designs for pickup trucks.  Mr. Velasquez holds a B.S. degree in Mechanical Engineering from Loyola Marymount University, Los Angeles, California and is the Vice President of the American Society of Mechanical Engineers.

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Robert Gruenwald was appointed as our Vice President Research and Development in connection with the consummation of the Merger Transaction.  From 1997 to 2008, Mr. Gruenwald served as the President and Chief Engineer of EMS, where he designed and manufactured inverters for electric vehicles used in a variety of industries.  From 1991 to 2000, Mr. Gruenwald served as the Manager of Product Development for Magnetek, where he was involved with the design and development of electric vehicles and electric vehicle components and software.  Mr. Gruenwald also served as a senior electrical controls engineer for H-K Systems and an electrical designer for Procter & Gamble.  Mr. Gruenwald has thirty years of experience in electrical engineering and design.  Mr. Gruenwald has been named an inventor on four United States patents related to hybrid electric vehicles.  Mr. Gruenwald holds an A.S. degree in Electrical Engineering Technology from the University of Cincinnati.

Amarpal Singh Samra was appointed a director in connection with the consummation of the Merger Transaction.  From May 2005 to the closing of the Merger Transaction, Mr. Samra served as a member of the board of directors of Balqon California.  Since August 2008, Mr. Samra has been employed by Gemidis, a company that develops liquid crystal on silicon for television images.  From April 1999 to October 2005, Mr. Samra was the Senior Vice President and General Manager – Global Business Unit for Infocus, a company that develops data video projectors.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our executive officers, directors and persons who beneficially own more than 10% of a registered class of our equity securities, or reporting persons, to file initial reports of ownership and reports of changes in ownership of our common stock and other equity securities with the SEC. The reporting persons are required by the SEC regulations to furnish us with copies of all reports that they file.

Based solely upon a review of copies of the reports furnished to us during our fiscal year ended December 31, 2008 and thereafter, our knowledge that disclosure on Form 5 is not required, and any written representations received by us from reporting persons that no other reports were required, we believe that all Section 16(a) filing requirements applicable to our reporting persons, except for Marla Andre, Marlin Financial Group, Inc. and Robert Gruenwald, during 2008 were complied with.  During 2008, Marlin Financial Group, Inc. did not file one report, a Form 4, required by Section 16(a) on a timely basis and in addition, Marlin Fiancial Group, Inc. did not report three transactions on a timely basis.  During 2008, Mr. Gruenwald failed to file one Form 3 and one Form 4 and in addition, Mr. Gruenwald did not report one transaction during 2008.  Marla Andre did not file a Form 5 for the fiscal year ended December 31, 2008, and we have not received a written representation from Ms. Andre stating that no Form 5 is required.

Composition of the Board of Directors

Our board of directors has responsibility for our overall corporate governance and meets regularly throughout the year.  Our Articles of Incorporation provide that our board of directors will be divided as equally as possible into three classes.  Our bylaws provide that our board of directors may fix the exact number of directors between one and fifteen.  Our board of directors has fixed the number of directors at three.  Our board of directors was reconstituted in connection with the Merger Transaction.  As a result, at our next annual meeting of stockholders, our stockholders will elect one individual to each of the three classes of our board of directors such that one director will serve until the first, second and third succeeding annual meeting of stockholders, respectively.  After our next annual meeting, at each annual meeting of stockholders, directors are to be elected for a term of three years to succeed those directors whose terms expire on that annual meeting date and our directors hold office until the third succeeding annual meeting of stockholders, until their successors are elected or until their earlier death, resignation or removal.

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Our directors are kept informed of our business through discussions with our executive officers, by reviewing materials provided to them and by participating in meetings of our board of directors and its committees.

Our executive officers are appointed by and serve at the discretion of our board of directors. There are no family relationships among our executive officers and directors, except that Balwinder Samra is the brother of Amarpal Singh Samra.

As discussed below, we have adopted procedures by which stockholders may elect nominees to our board of directors.

Corporate Governance

Our board of directors believes that good corporate governance is paramount to ensure that Balqon Corporation is managed for the long-term benefit of our stockholders.  Our board of directors has adopted corporate governance guidelines that guide its actions with respect to, among other things, the composition of the board of directors and its decision making processes, board of directors meetings and involvement of management, the board of director’s standing committees and procedures for appointing members of the committees, and its performance evaluation for our Chief Executive Officer.

Our board of directors has adopted a Code of Ethics and Corporate Conduct that applies to all of our directors, officers and employees and an additional Code of Business Ethics that applies to our Chief Executive Officer and senior financial officers.  The Code of Ethics, as applied to our principal executive officer, principal financial officer and principal accounting officer constitutes our “code of ethics” within the meaning of Section 406 of the Sarbanes-Oxley Act of 2002.

We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K relating to amendments to or waivers from provisions of these codes that relate to one or more of the items set forth in Item 406(b) of Regulation S-K, by describing on our Internet website, located at http://www.balqon.com, within four business days following the date of a waiver or a substantive amendment, the date of the waiver or amendment, the nature of the amendment or waiver, and the name of the person to whom the waiver was granted.  Information on our Internet website is not, and shall not be deemed to be, a part of this report or incorporated into any other filings we make with the SEC.

Director Independence

On an annual basis, each of our directors and executive officers is obligated to complete a director and officer questionnaire that requires disclosure of any transactions with Balqon Corporation in which a director or executive officer, or any member of his or her immediate family, have a direct or indirect material interest.  Following completion of these questionnaires, the board of directors, with the assistance of the Nominating and Corporate Governance Committee, makes an annual determination as to the independence of each director using the current standards for “independence” established by the SEC and NASDAQ Market Place Rules, additional criteria set forth in our corporate governance guidelines and consideration of any other material relationship a director may have with Balqon Corporation.

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In October 2008, our board of directors determined that none of the directors are independent under these standards.  In addition, K. John Shukur, who served on our board of directors during the fiscal year ended December 31, 2008, was not independent under these standards.  Our board of directors intends to appoint at least two persons who qualify as “independent” under the current NASDAQ Marketplace Rules to our board of directors in the near future.  See “Certain Relationships and Related Transactions” below.

Stockholder Communications with our Board of Directors

Our board of directors has implemented a process by which stockholders may send written communications directly to the attention of our board of directors or any individual member of our board of directors.  Mr. Velasquez, the Chairman of our Audit Committee, is responsible for monitoring communications from stockholders and providing copies of such communications to the other directors as he considers appropriate.  Communications will be forwarded to all directors if they relate to substantive matters and include suggestions or comments that Mr. Velasquez considers to be important for the directors to consider.  Stockholders who wish to communicate with our board of directors can write to Mr. Henry Velasquez, The Board of Directors, Balqon Corporation, 1701 E. Edinger, Unit E-3, Santa Ana, California 92705.

Board of Directors, Committees and Meetings

Our business, property and affairs are managed under the direction of our board of directors. Directors are kept informed of our business through discussions with our executive officers, by reviewing materials provided to them and by participating in meetings of our board of directors and its committees. Our bylaws provide that our board of directors shall consist of at least six directors.

During 2008, our board of directors did not hold any meetings.  Members of our board of directors and its committees consulted informally with management from time to time and acted at various times by written consent without a meeting during 2008.

It is our policy to invite and encourage our directors to attend our annual meetings.  We did not hold an annual meeting during the fiscal year ended December 31, 2008.

Our board of directors has established standing Audit, Compensation and Nominating and Corporate Governance Committees.  Each committee has a written charter that is reviewed annually and revised as appropriate.  Our board of directors intends to appoint at least two independent directors to our board of directors and each of its committees in the near future.

Audit Committee

Our Audit Committee selects our independent auditors, reviews the results and scope of the audit and other services provided by our independent auditors, and reviews our financial statements for each interim period and for our year end.

Our Audit Committee operates pursuant to a charter approved by our board of directors and our Audit Committee, according to the rules and regulations of the SEC.  Our Audit Committee consists of Balwinder Samra, Henry Velasquez and Amarpal Samra.  Mr. Velasquez serves as the Chairman of our Audit Committee.  Our board of directors has determined that none of Balwinder Samra, Henry Velasquez and Amarpal Samra are “independent” under our Corporate Governance Guidelines, and the NASDAQ Marketplace Rules and none satisfies the other requirements under SEC rules regarding audit committee membership.  None of the members of our Audit Committee qualify as an “audit committee financial expert” under applicable SEC rules and regulations governing the composition of the Audit Committee, or satisfies the “financial sophistication” requirements of the NASDAQ Marketplace Rules.

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Compensation Committee

Our Compensation Committee is responsible for establishing and administering our overall policies on compensation and the compensation to be provided to our executive officers, including, among other things, annual salaries and bonuses, stock options, stock grants, other stock-based awards, and other incentive compensation arrangements.  In addition, the Compensation Committee reviews the philosophy and policies behind the salary, bonus and stock compensation arrangements for all other employees.  Although our Compensation Committee makes all compensation decisions as to our executive officers, our Chief Executive Officer makes recommendations to our Compensation Committee regarding compensation for the other named executive officers.  Our Compensation Committee has the authority to administer our 2008 Stock Incentive Plan, or 2008 Plan, with respect to grants to executive officers and directors, and also has authority to make equity awards under our 2008 Plan to all other eligible individuals.  However, our board of directors may retain, reassume or exercise from time to time the power to administer our 2008 Plan.

The Compensation Committee evaluates both performance and compensation to ensure that the total compensation paid to our executive officers is fair, reasonable and competitive so that we can attract and retain superior employees in key positions.  The Compensation Committee believes that compensation packages offered to our executives, including the named executive officers, should include both cash and equity-based compensation that reward performance as measured against established goals.  The Compensation Committee has the authority to retain consultants, and other advisors and in furtherance of the foregoing objectives.

Our Compensation Committee operates pursuant to a charter approved by our board of directors and our Compensation Committee.  Our Compensation Committee consists of Balwinder Samra, Henry Velasquez and Amarpal Samra.  Mr. Amarpal Samra acts as Chairman of our Compensation Committee.  Our board of directors has determined that none of the members of our Compensation Committee is “independent” under the NASDAQ Marketplace Rules.

Nominating and Corporate Governance Committee

Our Nominating and Corporate Governance Committee selects nominees for our board of directors.  The Nominating and Corporate Governance Committee will consider candidates for director recommended by any stockholder that is the beneficial owner of shares representing more than 1% of the then-outstanding shares of our common stock and who has beneficially owned those shares for at least one year.  The Nominating and Corporate Governance Committee will evaluate those recommendations by applying its regular nominee criteria and considering the additional information described in the Nominating and Corporate Governance Committee’s below-referenced charter.  Stockholders that desire to recommend candidates for the board of directors for evaluation may do so by contacting Balqon Corporation in writing, identifying the potential candidate and providing background and other relevant information.  Our Nominating and Corporate Governance Committee utilizes a variety of methods for identifying and evaluating nominees for director.  Candidates may also come to the attention of the Nominating and Corporate Governance Committee through current members of our board of directors, professional search firms and other persons.  In evaluating potential candidates, our Nominating and Corporate Governance Committee will take into account a number of factors, including, among others, the following:

·   the candidate’s independence from management;

·   whether the candidate has relevant business experience;

·   judgment, skill, integrity and reputation;

·   existing commitments to other businesses;

·   corporate governance background;

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·   financial and accounting background, to enable the committee to determine whether the candidate would be suitable for Audit Committee membership; and

·   the size and composition of our board of directors.

Our Nominating and Corporate Governance Committee operates pursuant to a charter approved by our board of directors and our Nominating and Corporate Governance Committee.  Our Nominating and Corporate Governance Committee consists of Balwinder Samra, Henry Velasquez and Amarpal Samra.  Mr. Balwinder Samra acts as chairman of our Nominating and Corporate Governance Committee.  Our board of directors has determined that none of the members of our Nominating and Corporate Governance Committee is “independent” under the NASDAQ Marketplace Rules.

Item 11. Executive Compensation.

Compensation of Directors

We use a combination of cash and stock-based incentive compensation to attract and retain qualified candidates to serve on our board of directors.  In setting the compensation of directors, we consider the significant amount of time that members of the board of directors spend in fulfilling their duties to Balqon Corporation as well as the experience level we require to serve on our board of directors.  The board of directors, through its Compensation Committee, annually reviews the compensation and compensation policies for members of the board of directors.  In recommending director compensation, the Compensation Committee is guided by three goals:

·   compensation should fairly pay directors for work required in a company of our size and scope;

·   compensation should align directors’ interests with the long-term interests of our stockholders; and

·   the structure of the compensation should be clearly disclosed to our stockholders.

Each of our directors is paid $6,000 per year for serving on the board of directors.  Our directors do not receive additional compensation for serving on the various committees of the board of directors.  Directors are reimbursed for certain reasonable documented expenses in connection with attendance at meetings of our board of directors and its committees.  Employee directors do not receive compensation in connection with their service as directors.

Director Compensation Table – 2008

The following table summarizes for the twelve months ended December 31, 2008, the compensation awarded to or paid to, or earned by, Amarpal Samra and Henry Velasques, the members of our board of directors that are not named executive officers.  The following table also summarizes for the twelve months ended December 31, 2008, the compensation awarded to or paid to, or earned by, the former member of our board of directors.  Our former director, K. John Shukur, was the sole member of our board of directors between October 1, 2007 and October 24, 2008.  Mr. Shukur resigned as a member of our board of directors when our board was reconstituted in connection with the Merger Transaction.

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Name	Fees Earned or Paid in Cash ($)		Stock Awards ($)(1)			Option Awards ($)(1)		All Other Compensation ($)			Total ($)
Amarpal Samra		1,500		18,188	(2)		0 (3)		—			18,338
Henry Velasquez		1,500		4,850	(4)		0 (5)		71,712	(6)		78,062
K. John Shukur		—		—			—		—			—

(1) The amount reflected in this column is the compensation cost we recognized for financial statement reporting purposes during 2008 under SFAS No. 123(R).  The fair value of each grant is estimated on the date of grant using the Black-Scholes pricing model with the following weighted-average assumptions for 2008:

Dividend yield	0%
Expected volatility	58.43%
Risk-free interest rates	2.42%
Expected option life (in years)	3
Weighted-average exercise price per common share	$2.00

(2) In June 2008, Mr. Samra was granted 1,250,025 shares of common stock in consideration of business strategy consulting services rendered to Balqon California, which shares were converted into the same number of shares of our common stock in connection with the Merger Transaction.  As of December 31, 2008, Mr. Samra held 1,250,025 shares of our common stock.

(3) In June 2008, Mr. Samra was issued options to purchase 312,507 shares of common stock to in consideration of business strategy consulting services rendered to Balqon California, which options were converted into options to purchase the same number of shares of our common stock under our 2008 Plan in connection with the Merger Transaction.  As of December 31, 2008, Mr. Samra held options to purchase 312,507 shares of our common stock.

(4) In June 2008, Mr. Velasquez was granted 333,340 shares of common stock in consideration of services rendered to Balqon California, which shares were converted into the same number of shares of our common stock in connection with the Merger Transaction.  As of December 31, 2008, Mr. Velasquez held 333,340 shares of our common stock.

(5) In June 2008, Mr. Velasquez was issued options to purchase 83,334 shares of common stock to in consideration of services rendered to Balqon California, which options were converted into options to purchase the same number of shares of our common stock under our 2008 Plan in connection with the Merger Transaction.  As of December 31, 2008, Mr. Samra held options to purchase 83,334 shares of our common stock.

(6) Represents Mr. Velasquez’s salary earned for services provided to Balqon California and Balqon Corporation during the year ended December 31, 2008.

Compensation of Executive Officers

Summary Compensation Table

Upon consummation of the Merger Transaction on October 24, 2008, our executive officers were reconstituted and none of our current executive officers served as our executive officers during the years ended December 31, 2006 and December 31, 2007.  The following table provides information concerning the compensation for all individuals who served as our principal executive officer during the year ended December 31, 2008 and our only executive officer who was serving as an executive officer on December 31, 2008 and whose total compensation for the year ended December 31, 2008 exceeded $100,000.  These individuals are collectively referred to in this report as the “named executive officers.”

K. John Shukur, was our only executive officer from October 1, 2007 to October 24, 2008.  Mr. Shukur resigned his positions in connection with the Merger Transaction that was consummated on October 24, 2008.

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Name and Principal Position	Year	Salary ($) (1)			Stock Awards ($) (2)		Option Awards ($) (2)		All other Compensation ($)			Total ($)
Balwinder Samra	2008	212,205			4,844		0		1,500		(3)	218,549
President and Chief Executive Officer
Robert Miranda	2008		176,855	(4)		1,455		-		-			178,310
Chief Financial Officer 2008						-		-
K. John Shukur	2008		-			-		-		-			-
Former President, Chief Financial Officer and Secretary	2007		-			-		-		-			-

(1) Represents compensation received for services provided as an executive officer of Balqon California and Balqon Corporation.

(2) The amount reflected in this column is the compensation cost we recognized for financial statement reporting purposes during 2008 under SFAS No. 123(R).  The fair value of each grant is estimated on the date of grant using the Black-Scholes pricing model with the following weighted-average assumptions for 2008:

Dividend yield	0%
Expected volatility	58.43%
Risk-free interest rates	2.42%
Expected option life (in years)	3
Weighted-average exercise price per common share	$2.00

(3) Represents $1,500 paid as fees for services provided as a member of our board of directors.

(4) Represents the portion of the total consulting fees paid to Miranda & Associates, a professional accountancy corporation wholly-owned by Mr. Miranda, in consideration of services, attributable to the services provided by Mr. Miranda as an executive officer of Balqon California and Balqon Corporation.

Employment Agreements

Employment Agreement, dated October 24, 2008, between the Company and Balwinder Samra

On October 24, 2008, we entered into an executive employment agreement with Mr. Samra.  Under the terms of the executive employment agreement, Mr. Samra has agreed to serve as our Chairman of the Board, President and Chief Executive Officer on an at-will basis.

The agreement provides for an initial base salary of $250,000 per year with an increase to $300,000 after the second anniversary of the effective date of the employment agreement, paid vacation of at least six weeks per year and a monthly automobile allowance of at least $750. Mr. Samra is eligible to receive increases and annual cash incentive bonuses based on our net revenues as shown on our Form 10-K for the previous fiscal year as compared to the internal forecasts proposed at or about the beginning of the previous fiscal year by our Chief Financial Officer and approved by our Audit Committee, as follows:  (A) if the net revenues forecast is met, the incentive bonus will equal 25% of his base salary and (B) if the net revenue forecast is exceeded by more than 50%, the incentive bonus will equal 50% of his base salary.  Mr. Samra is also eligible to participate in benefit and incentive programs we may offer. We have agreed to nominate Mr. Samra as a Class III member of our board of directors and to seek stockholder approval of the nomination at our 2009 annual meeting of stockholders.  We have also agreed to maintain in effect a directors’ and officers’ liability insurance policy with a minimum limit of liability of $3 million and that we would enter into an indemnification agreement with Mr. Samra upon terms mutually acceptable to us and Mr. Samra.

The employment agreement contains non-competition provisions that prohibit Mr. Samra from engaging or participating in a competitive business or soliciting our customer or employees during his employment with us and for two years afterward. The agreement also contains provisions that restrict disclosure by Mr. Samra of our confidential information and assign ownership to us of inventions related to our business that are created by him during his employment and for two years afterward.

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We may terminate the agreement at any time, with or without due cause. “Due cause” includes any intentional misapplication of our funds or other material assets, or any other act of dishonesty injurious to us, or conviction of a felony or a crime involving moral turpitude. “Due cause” also includes abuse of controlled substances or alcohol and breach, nonperformance or nonobservance of any of the terms of the agreement, provided that Mr. Samra fails to satisfactorily remedy the performance problem following 30 days’ written notice.

Mr. Samra may terminate the agreement at any time, with or without good reason. However, termination for good reason must occur within 90 days of the occurrence of an event constituting good reason, and Mr. Samra must furnish us with written notice of the event within 30 days after the initial existence of the event and provide us with at least a 30-day cure period. “Good reason” includes: a material diminution in his authority, duties, responsibilities, titles or offices; a purported reduction in Mr. Samra’s base salary amounting to a material diminution in his salary to an amount less than the greater of $250,000 or 10% below the base salary in effect at the time of the reduction; our failure to timely cure or diligently initiate a cure of any material breach within 30 days after Mr. Samra gives us written notice of the breach.

If we terminate Mr. Samra’s employment for due cause or due to Mr. Samra’s breach of his employment agreement by refusing to continue his employment, or if Mr. Samra terminates his employment without good reason, then all compensation and benefits for Mr. Samra will cease, other than amounts under retirement and benefit plans and programs that were earned and vested by the date of termination, pro rata annual salary through the date of termination, any stock options that were vested as of the date of termination, and accrued vacation as required by California law.

If Mr. Samra becomes incapacitated, we may terminate his employment under the agreement upon 30 days’ prior written notice.  Upon Mr. Samra’s death, the agreement terminates immediately. If Mr. Samra’s employment terminates due to his incapacity or death, Mr. Samra or his estate or legal representative will be entitled to receive benefits under our retirement and benefits plans and programs that were earned and vested at the date of termination, a prorated incentive bonus for the fiscal year in which incapacity or death occurred (to the extent he would otherwise be eligible), and a lump sum cash payment in an amount equal to one year of his then current annual salary.

If Mr. Samra’s employment terminates for good reason or other than as a result of due cause, incapacity, death or retirement, Mr. Samra will be entitled to his salary through the end of the month in which termination occurs plus credit for accrued vacation, and a prorated incentive bonus, if eligible, for the fiscal year during which termination occurred. In addition, under those circumstances, he will be entitled to receive (i) a severance payment equal to (A) two times his then current annual salary and (B) two times the amount of the average incentive bonus paid during the two calendar years preceding the date of termination, (ii) all medical insurance benefits to which he was entitled immediately prior to the date of termination for a period of eighteen months or the date that Mr. Samra’s continued participation in our medical insurance plan was not possible under the plan, whichever was earlier, and (iii) a lump-sum cash payment equal to eighteen times the estimated monthly COBRA premiums at the time of termination (taking into account all known or anticipated premium increases) to be used by Mr. Samra to maintain his medical insurance coverage for an additional eighteen months.  If our medical insurance plan does not allow Mr. Samra’s continued participation, then we will be required to pay to Mr. Samra, in monthly installments, the monthly premium or premiums for COBRA coverage, covering the eighteen month period described in clause (ii) in the preceding sentence.

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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.

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Issuances of Stock Options Under our 2008 Plan

In June 2008, in consideration of services provided to Balqon California, Balqon California issued options to purchase 4,166,751 shares of Balqon California’s common stock to Balwinder Samra.  These options vested immediately upon grant.  In connection with the Merger Transaction, all outstanding options to purchase shares of Balqon California’s common stock were converted into options to purchase shares of our common stock under our 2008 Plan.

2008 Stock Incentive Plan

Our 2008 Plan is intended to promote Balqon Corporation’s interests by providing eligible persons in our service with the opportunity to acquire a proprietary or economic interest, or otherwise increase their proprietary or economic interest, in our company as an incentive for them to remain in such service and render superior performance during such service.  The 2008 Plan consists of two equity-based incentive programs, the Discretionary Grant Program and the Stock Issuance Program. Principal features of each program are summarized below.

Administration

The Compensation Committee of our board of directors has the exclusive authority to administer the Discretionary Grant and Stock Issuance Programs with respect to option grants, restricted stock awards, restricted stock units, stock appreciation rights, direct stock issuances and other stock-based awards, or equity awards, made to executive officers and non-employee board members, and also has the authority to make equity awards under those programs to all other eligible individuals. However, our board of directors may retain, reassume or exercise from time to time the power to administer those programs. Equity awards made to members of the Compensation Committee must be authorized and approved by a disinterested majority of our board of directors.

The term “plan administrator,” as used in this summary, means the Compensation Committee or our board of directors, to the extent either entity is acting within the scope of its administrative jurisdiction under the 2008 Plan.

Share Reserve

Initially, 7,500,000 shares of common stock are authorized for issuance under the 2008 Plan.  The 2008 Plan was adopted by our board of directors on October 24, 2008.  We expect to submit the 2008 Plan for approval by our stockholders by no later than October 24, 2009.  As of March 27, 2009, options to purchase 4,562,592 shares of common stock were issued and outstanding under the 2008 Plan.

No participant in the 2008 Plan may be granted equity awards for more than 5,000,000 shares of common stock per calendar year. This share-limitation is intended to assure that any deductions to which we would otherwise be entitled, either upon the exercise of stock options or stock appreciation rights granted under the Discretionary Grant Program with an exercise price per share equal to the fair market value per share of our common stock on the grant date or upon the subsequent sale of the shares purchased under those options, will not be subject to the $1.0 million limitation on the income tax deductibility of compensation paid per covered executive officer imposed under Internal Revenue Code Section 162(m). In addition, shares issued under the Stock Issuance Program may qualify as performance-based compensation that is not subject to the Internal Revenue Code Section 162(m) limitation, if the issuance of those shares is approved by the Compensation Committee and the vesting is tied solely to the attainment of the corporate performance milestones discussed below in the summary description of that program.

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The shares of common stock issuable under the 2008 Plan may be drawn from shares of our authorized but unissued shares or from shares reacquired by us, including shares repurchased on the open market. Shares subject to any outstanding equity awards under the 2008 Plan that expire or otherwise terminate before those shares are issued will be available for subsequent awards. Unvested shares issued under the 2008 Plan and subsequently repurchased by us at the option exercise or direct issue price paid per share, pursuant to our repurchase rights under the 2008 Plan, will be added back to the number of shares reserved for issuance under the 2008 Plan and will be available for subsequent reissuance.

If the exercise price of an option under the 2008 Plan is paid with shares of common stock, then the authorized reserve of common stock under the 2008 Plan will be reduced only by the net number of new shares issued under the exercised stock option. If shares of common stock otherwise issuable under the 2008 Plan are withheld in satisfaction of the withholding taxes incurred in connection with the issuance, exercise or vesting of an equity award, then the number of shares of common stock available for issuance under the 2008 Plan will be reduced only by the net number of shares issued pursuant to that equity award. The withheld shares will not reduce the share reserve. Upon the exercise of any stock appreciation right granted under the 2008 Plan, the share reserve will only be reduced by the net number of shares actually issued upon exercise, and not by the gross number of shares as to which the stock appreciation right is exercised.

Eligibility

Officers, employees, non-employee directors, and consultants and independent advisors who are under written contract and whose securities issued pursuant to the 2008 Plan, all of whom are in our service or the service of any parent or subsidiary of ours, whether now existing or subsequently established, are eligible to participate in the Discretionary Grant and Stock Issuance Programs.

Valuation

The fair market value per share of our common stock on any relevant date under the 2008 Plan will be deemed to be equal to the closing selling price per share of our common stock at the close of regular hours trading on the OTC Bulletin Board on that date, as the price is reported by the Financial Industry Regulatory Authority. If there is no closing selling price for our common stock on the date in question, the fair market value will be the closing selling price on the last preceding date for which a quotation exists.  In the absence of an established market for our common stock or if the plan administrator determines in good faith that our common stock is too thinly traded for fair market value to be determined in the manner described above, the fair market value per share of our common stock will be determined in good faith by the plan administrator.

Discretionary Grant Program

The plan administrator has complete discretion under the Discretionary Grant Program to determine which eligible individuals are to receive equity awards under that program, the time or times when those equity awards are to be made, the number of shares subject to each award, the time or times when each equity award is to vest and become exercisable, the maximum term for which the equity award is to remain outstanding and the status of any granted option as either an incentive stock option or a non-statutory option under the federal tax laws.

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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 generally accepted accounting principles in the United States, or GAAP, which will exclude from the calculation of those performance goals one or more of the following: certain charges related to acquisitions, stock-based compensation, employer payroll tax expense on certain stock option exercises, settlement costs, restructuring costs, gains or losses on strategic investments, non-operating gains, certain other non-cash charges, valuation allowance on deferred tax assets, and the related income tax effects, purchases of property and equipment, and any extraordinary non-recurring items as described in Accounting Principles Board Opinion No. 30 or its successor, provided that those adjustments are in conformity with those reported by us on a non-GAAP basis. In addition, performance goals may be based upon the attainment of specified levels of our performance under one or more of the measures described above relative to the performance of other entities and may also be based on the performance of any of our business groups or divisions thereof or any parent or subsidiary. Performance goals may include a minimum threshold level of performance below which no award will be earned, levels of performance at which specified portions of an award will be earned, and a maximum level of performance at which an award will be fully earned. The Compensation Committee may provide that, if the actual level of attainment for any performance objective is between two specified levels, the amount of the award attributable to that performance objective shall be interpolated on a straight-line basis.

The plan administrator will have the discretionary authority at any time to accelerate the vesting of any and all shares of restricted stock or other unvested shares outstanding under the Stock Issuance Program. However, no vesting requirements tied to the attainment of performance objectives may be waived with respect to shares that were intended at the time of issuance to qualify as performance-based compensation under Internal Revenue Code Section 162(m), except in the event of certain involuntary terminations or changes in control or ownership.

Outstanding restricted stock units or other stock-based awards under the Stock Issuance Program will automatically terminate, and no shares of common stock will actually be issued in satisfaction of those awards, if the performance goals or service requirements established for those awards are not attained. The plan administrator, however, will have the discretionary authority to issue shares of common stock in satisfaction of one or more outstanding restricted stock units or other stock-based awards as to which the designated performance goals or service requirements are not attained. However, no vesting requirements tied to the attainment of performance objectives may be waived with respect to awards that were intended at the time of issuance to qualify as performance-based compensation under Internal Revenue Code Section 162(m), except in the event of certain involuntary terminations or changes in control or ownership.

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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.

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.

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A participant will have certain stockholder rights with respect to shares of common stock issued to the participant under the Stock Issuance Program, whether or not the participant’s interest in those shares is vested. Accordingly, the participant will have the right to vote the shares and to receive any regular cash dividends paid on the shares, but will not have the right to transfer the shares prior to vesting. A participant will not have any stockholder rights with respect to the shares of common stock subject to restricted stock units or other stock-based awards until the awards vest and the shares of common stock are actually issued. However, dividend-equivalent units may be paid or credited, either in cash or in actual or phantom shares of common stock, on outstanding restricted stock units or other stock-based awards, subject to terms and conditions the plan administrator deems appropriate.

Changes in Capitalization. If any change is made to the outstanding shares of common stock by reason of any recapitalization, stock dividend, stock split, combination of shares, exchange of shares or other change in corporate structure effected without our receipt of consideration, appropriate adjustments will be made to (i) the maximum number and/or class of securities issuable under the 2008 Plan, (ii) the maximum number and/or class of securities for which any one person may be granted equity awards under the 2008 Plan per calendar year, (iii) the number and/or class of securities and the exercise price or base price per share in effect under each outstanding option or stock appreciation right, and (iv) the number and/or class of securities subject to each outstanding restricted stock unit or other stock-based award under the 2008 Plan and the cash consideration, if any, payable per share. All adjustments will be designed to preclude any dilution or enlargement of benefits under the 2008 Plan and the outstanding equity awards thereunder.

Special Tax Election. Subject to applicable laws, rules and regulations, the plan administrator may permit any or all holders of equity awards to utilize any or all of the following methods to satisfy all or part of the federal and state income and employment withholding taxes to which they may become subject in connection with the issuance, exercise or vesting of those equity awards:

Stock Withholding: The election to have us withhold, from the shares otherwise issuable upon the issuance, exercise or vesting of an equity award, a portion of those shares with an aggregate fair market value equal to the percentage of the withholding taxes (not to exceed 100%) designated by the holder and make a cash payment equal to the fair market value directly to the appropriate taxing authorities on the individual’s behalf.

Stock Delivery: The election to deliver to us certain shares of common stock previously acquired by the holder (other than in connection with the issuance, exercise or vesting that triggered the withholding taxes) with an aggregate fair market value equal to the percentage of the withholding taxes (not to exceed 100%) designated by the holder.

Sale and Remittance: The election to deliver to us, to the extent the award is issued or exercised for vested shares, through a special sale and remittance procedure pursuant to which the optionee or participant will concurrently provide irrevocable instructions to a brokerage firm to effect the immediate sale of the purchased or issued shares and remit to us, out of the sale proceeds available on the settlement date, sufficient funds to cover the withholding taxes we are required to withhold by reason of the issuance, exercise or vesting.

Amendment, Suspension and Termination

Our board of directors may suspend or terminate the 2008 Plan at any time.  Our board of directors may amend or modify the 2008 Plan, subject to any required stockholder approval. Once Stockholder approval is obtained for the establishment of the 2008 Plan, Stockholder approval will be required for any amendment that materially increases the number of shares available for issuance under the 2008 Plan, materially expands the class of individuals eligible to receive equity awards under the 2008 Plan, materially increases the benefits accruing to optionees and other participants under the 2008 Plan or materially reduces the price at which shares of common stock may be issued or purchased under the 2008 Plan, materially extends the term of the 2008 Plan, expands the types of awards available for issuance under the 2008 Plan, or as to which stockholder approval is required by applicable laws, rules or regulations.

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Unless sooner terminated by our board, the 2008 Plan will terminate on the earliest to occur of: (i) October 24, 2018; (ii) the date on which all shares available for issuance under the 2008 Plan have been issued as fully-vested shares; and (iii) the termination of all outstanding equity awards in connection with certain changes in control or ownership.

Federal Income Tax Consequences

The following discussion summarizes income tax consequences of the 2008 Plan under current federal income tax law and is intended for general information only. In addition, the tax consequences described below are subject to the limitations of Internal Revenue Code Section 162(m), as discussed in further detail below. Other federal taxes and foreign, state and local income taxes are not discussed, and may vary depending upon individual circumstances and from locality to locality.

Option Grants. Options granted under the 2008 Plan may be either incentive stock options, which satisfy the requirements of Internal Revenue Code Section 422, or non-statutory stock options, which are not intended to meet those requirements. The federal income tax treatment for the two types of options differs as follows:

Incentive Stock Options. No taxable income is recognized by the optionee at the time of the option grant, and, if there is no disqualifying disposition at the time of exercise, no taxable income is recognized for regular tax purposes at the time the option is exercised, although taxable income may arise at that time for alternative minimum tax purposes equal to the excess of the fair market value of the purchased shares at the time over the exercise price paid for those shares.

The optionee will recognize taxable income in the year in which the purchased shares are sold or otherwise made the subject of certain dispositions. For federal tax purposes, dispositions are divided into two categories: qualifying and disqualifying. A qualifying disposition occurs if the sale or other disposition is made more than two years after the date the option for the shares involved in the sale or disposition was granted and more than one year after the date the option was exercised for those shares. If either of these two requirements is not satisfied, a disqualifying disposition will result.

Upon a qualifying disposition, the optionee will recognize long-term capital gain in an amount equal to the excess of the amount realized upon the sale or other disposition of the purchased shares over the exercise price paid for the shares. If there is a disqualifying disposition of the shares, the excess of the fair market value of those shares on the exercise date over the exercise price paid for the shares will be taxable as ordinary income to the optionee. Any additional gain or any loss recognized upon the disposition will be taxable as a capital gain or capital loss.

If the optionee makes a disqualifying disposition of the purchased shares, we will be entitled to an income tax deduction, for our taxable year in which the disposition occurs, equal to the excess of the fair market value of the shares on the option exercise date over the exercise price paid for the shares. If the optionee makes a qualifying disposition, we will not be entitled to any income tax deduction.

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Non-Statutory Stock Options. No taxable income is recognized by an optionee upon the grant of a non-statutory option. The optionee will, in general, recognize ordinary income, in the year in which the option is exercised, equal to the excess of the fair market value of the purchased shares on the exercise date over the exercise price paid for the shares, and we will be required to collect certain withholding taxes applicable to the income from the optionee.

We will be entitled to an income tax deduction equal to the amount of any ordinary income recognized by the optionee with respect to an exercised non-statutory option. The deduction will in general be allowed for our taxable year in which the ordinary income is recognized by the optionee.

If the shares acquired upon exercise of the non-statutory option are unvested and subject to repurchase in the event of the optionee’s cessation of service prior to vesting in those shares, the optionee will not recognize any taxable income at the time of exercise but will have to report as ordinary income, as and when our repurchase right lapses, an amount equal to the excess of the fair market value of the shares on the date the repurchase right lapses over the exercise price paid for the shares. The optionee may elect under Internal Revenue Code Section 83(b) to include as ordinary income in the year of exercise of the option an amount equal to the excess of the fair market value of the purchased shares on the exercise date over the exercise price paid for the shares. If a timely Internal Revenue Code Section 83(b) election is made, the optionee will not recognize any additional income as and when the repurchase right lapses.

Stock Appreciation Rights. No taxable income is recognized upon receipt of a stock appreciation right. The holder will recognize ordinary income in the year in which the stock appreciation right is exercised, in an amount equal to the excess of the fair market value of the underlying shares of common stock on the exercise date over the base price in effect for the exercised right, and we will be required to collect certain withholding taxes applicable to the income from the holder.

We will be entitled to an income tax deduction equal to the amount of any ordinary income recognized by the holder in connection with the exercise of a stock appreciation right. The deduction will in general be allowed for our taxable year in which the ordinary income is recognized by the holder.

Direct Stock Issuances.Stock granted under the 2008 Plan may include issuances such as unrestricted stock grants, restricted stock grants and restricted stock units. The federal income tax treatment for such stock issuances are as follows:

Unrestricted Stock Grants. The holder will recognize ordinary income in the year in which shares are actually issued to the holder. The amount of that income will be equal to the fair market value of the shares on the date of issuance, and we will be required to collect certain withholding taxes applicable to the income from the holder.

We will be entitled to an income tax deduction equal to the amount of ordinary income recognized by the holder at the time the shares are issued. The deduction will in general be allowed for our taxable year in which the ordinary income is recognized by the holder.

Restricted Stock Grants. No taxable income is recognized upon receipt of stock that qualifies as performance-based compensation unless the recipient elects to have the value of the stock (without consideration of any effect of the vesting conditions) included in income on the date of receipt. The recipient may elect under Internal Revenue Code Section 83(b) to include as ordinary income in the year the shares are actually issued an amount equal to the fair market value of the shares. If a timely Internal Revenue Code Section 83(b) election is made, the holder will not recognize any additional income when the vesting conditions lapse and will not be entitled to a deduction in the event the stock is forfeited as a result of failure to vest.

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If the holder does not file an election under Internal Revenue Code Section 83(b), he will not recognize income until the shares vest. At that time, the holder will recognize ordinary income in an amount equal to the fair market value of the shares on the date the shares vest. We will be required to collect certain withholding taxes applicable to the income of the holder at that time.

We will be entitled to an income tax deduction equal to the amount of ordinary income recognized by the holder at the time the shares are issued, if the holder elects to file an election under Internal Revenue Code Section 83(b), or we will be entitled to an income tax deduction at the time the vesting conditions occur, if the holder does not elect to file an election under Internal Revenue Code Section 83(b).

Restricted Stock Units. No taxable income is recognized upon receipt of a restricted stock unit award. The holder will recognize ordinary income in the year in which the shares subject to that unit are actually issued to the holder. The amount of that income will be equal to the fair market value of the shares on the date of issuance, and we will be required to collect certain withholding taxes applicable to the income from the holder.

We will be entitled to an income tax deduction equal to the amount of ordinary income recognized by the holder at the time the shares are issued. The deduction will in general be allowed for our taxable year in which the ordinary income is recognized by the holder.

Internal Revenue Code Section 409A.  It is the intention of Balqon Corporation that no option or stock appreciation right granted under the 2008 Plan will be “deferred compensation” that is subject to Internal Revenue Code Section 409A.

Deductibility of Executive Compensation

We anticipate that any compensation deemed paid by us in connection with disqualifying dispositions of incentive stock option shares or the exercise of non-statutory stock options or stock appreciation rights with exercise prices or base prices equal to or greater than the fair market value of the underlying shares on the grant date will qualify as performance-based compensation for purposes of Internal Revenue Code Section 162(m) and will not have to be taken into account for purposes of the $1.0 million limitation per covered individual on the deductibility of the compensation paid to certain executive officers, provided that the grants are approved by a committee of at least two independent directors.  Accordingly, all compensation deemed paid with respect to those options or stock appreciation rights should remain deductible without limitation under Internal Revenue Code Section 162(m). However, any compensation deemed paid by us in connection with shares issued under the Stock Issuance Program will be subject to the $1.0 million limitation on deductibility per covered individual, except to the extent the vesting of those shares is based solely on one or more of the performance milestones specified above in the summary of the terms of the Stock Issuance Program.

Accounting Treatment

Pursuant to the accounting standards established by SFAS No. 123(R), “Share-Based Payment,” we are required to recognize all share-based payments, including grants of stock options, restricted stock units and employee stock purchase rights, in our financial statements effective January 1, 2006. Accordingly, stock options that are granted to our employees and non-employee board members will have to be valued at fair value as of the grant date under an appropriate valuation formula, and that value will have to be charged as stock-based compensation expense against our reported GAAP earnings over the designated vesting period of the award. Similar option expensing will be required for any unvested options outstanding on January 1, 2006, with the grant date fair value of those unvested options to be expensed against our reported earnings over the remaining vesting period. For shares issuable upon the vesting of restricted stock units awarded under the 2008 Plan, we will be required to expense over the vesting period a compensation cost equal to the fair market value of the underlying shares on the date of the award. If any other shares are unvested at the time of their direct issuance, the fair market value of those shares at that time will be charged to our reported earnings ratably over the vesting period. This accounting treatment for restricted stock units and direct stock issuances will be applicable whether vesting is tied to service periods or performance goals. The issuance of a fully-vested stock bonus will result in an immediate charge to our earnings equal to the fair market value of the bonus shares on the issuance date.

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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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Outstanding Equity Awards At Fiscal Year-End – 2008

The following table sets forth information about outstanding equity awards held by our named executive officers as of December 31, 2008.

Option Awards
Name	Number of Securities Underlying Unexercised Options (#) Exercisable (1)		Option Exercise Price ($)		Option Expiration Date
Balwinder Samra		1,388,917	$	1.50	6/30/2010
		1,388,917	$	2.00	6/30/2011
		1,388,917	$	2.50	6/30/2012
Robert Miranda		—		—		—
K. John Shukur		—		—		—

(1) All options represented  in this table were granted in June 2008 in consideration of services provided to Balqon California and vested immediately upon grant.  In connection with the Merger Transaction, all outstanding options to purchase shares of Balqon California’s common stock were converted into options to purchase shares of our common stock.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The following table sets forth information with respect to the beneficial ownership of our voting stock as of March 27, 2009, the date of the table, by:

·   each person known by us to beneficially own more than 5% of the outstanding shares any class of our voting stock;

·   each of our directors;

·   each of our current executive officers identified at the beginning of the “Management” section of this report;

·   our former executive officer, K. John Shukur; and

·   all of our current directors and executive officers as a group.

Beneficial ownership is determined in accordance with the rules of the SEC, and includes voting or investment power with respect to the securities.  To our knowledge, except as indicated by footnote, and subject to community property laws where applicable, the persons named in the table below have sole voting and investment power with respect to all shares of voting stock shown as beneficially owned by them.  Except as indicated by footnote, all shares of common stock underlying derivative securities, if any, that are currently exercisable or convertible or are scheduled to become exercisable or convertible for or into shares of common stock within 60 days after the date of the table are deemed to be outstanding for the purpose of calculating the percentage ownership of each listed person or group but are not deemed to be outstanding as to any other person or group.  Percentage of beneficial ownership of our common stock is based on 25,518,348shares of common stock outstanding as of the date of the table.

The address of each of the following stockholders, unless otherwise indicated below, is c/o Balqon Corporation, 1701 E. Edinger, Unit E­3, Santa Ana, California  92705.  The address for K. John Shukur is 1184 Rutland Road, Suite 2, Newport Beach, California 92660.  The address for Marlin Financial Group, Inc. is 9812 Falls Road, Suite 114-198, Potomac, Maryland 20854.  Messrs. Balwinder Samra, Miranda, Velasquez and Gruenwald are executive officers of Balqon Corporation.  Messrs. Balwinder Samra, Velasquez and Amarpal Samra are directors of Balqon Corporation.  Amarpal Samra is the brother of Balwinder Samra.

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Name of Beneficial Owner	Title of Class	Amount and Nature of Beneficial Ownership	Percent of Class
Balwinder Samra	Common	21,166,661(1)	71.30%
Robert Miranda	Common	100,000	*
Henry Velasquez	Common	416,674(2)	1.63%
Robert Gruenwald	Common	250,000	*
Amarpal Singh Samra	Common	1,562,532(3)	6.05%
Marlin Financial Group, Inc.	Common	3,045,905(4)	11.59%
K. John Shukur	Common	110,000(5)	*
All directors and executive officers as a group (5 persons)	Common	23,495,867(6)	78.11%

* Less than 1%.

(1) Includes 4,166,751 shares of common stock underlying options.  Does not include the shares held by Marlin Financial Group, Inc. over which Mr. Samra has indirect control pursuant to a contractual relationship that can be waived.

(2) Includes 83,334 shares of common stock underlying options.

(3) Includes 312,507 shares of common stock underlying options.

(4) Includes 754,180 shares of common stock underlying warrants.  Based exclusively on the Form 4s filed by Marlin Financial Group, Inc. on January 23, 2009 and October 31, 2008, and the Form 3 filed by Marlin Financial Group, Inc. on October 28, 2008.  Includes 754,180shares of common stock underlying warrants.Mark Levin has the power to vote and dispose of the shares beneficially held by Marlin Financial Group, Inc. as its president.  Mark Levin has the power to vote and dispose of the shares beneficially held by Marlin Financial Group, Inc. as its president.  Pursuant to a contractual agreement between Marlin Financial Group, Inc. and Balqon California, which agreement may be waived, until June 4, 2011, Marlin Financial Group, Inc. can only dispose of that number of securities such that the securities sold by Marlin Financial Group, Inc. through the date of such disposition as a percentage of the securities held by Marlin Financial Group, Inc. on June 4, 2008 is less than the percentage of the securities held by Balwinder Samra on June 4, 2008 which Mr. Samra has disposed of as of the date of the proposed disposition by Marlin Financial Group, Inc.

(5) Includes 30,000 shares of common stock underlying warrants.

(6) Includes 4,562,592 shares of common stock underlying options.

Equity Compensation Plan Information

The following table gives information about our common stock that may be issued upon the exercise of options, warrants and rights under all of our existing equity compensation plans as of December 31, 2008.

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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 above under Item 1-Executive Compensation —2008 Stock Incentive Plan” and in Note 8 to our consolidated financial statements for the year ended December 31, 2008.

(2) Represents shares of common stock available for issuance under options that may be issued under our 2008 Plan.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

Director Independence

On an annual basis, each of our directors and executive officers is obligated to complete a director and officer questionnaire that requires disclosure of any transactions with Balqon Corporation in which a director or executive officer, or any member of his or her immediate family, have a direct or indirect material interest.  Following completion of these questionnaires, the board of directors, with the assistance of the Nominating and Corporate Governance Committee, makes an annual determination as to the independence of each director using the current standards for “independence” established by the SEC and NASDAQ Market Place Rules, additional criteria set forth in our corporate governance guidelines and consideration of any other material relationship a director may have with Balqon Corporation.

In October 2008, our board of directors determined that none of the directors are independent under these standards.  In addition, K. John Shukur, who served on our board of directors during the fiscal year ended December 31, 2008, was not independent under these standards.  Our board of directors intends to appoint at least two persons who qualify as “independent” under the current NASDAQ Marketplace Rules to our board of directors in the near future.

Policy Regarding Related Party Transactions

We recognize that related party transactions present a heightened risk of conflicts of interest and in connection with this offering, have adopted a policy to which all related party transactions shall be subject.  Pursuant to the policy, the Audit Committee of our board of directors will review the relevant facts and circumstances of all related party transactions, including, but not limited to, whether the transaction is on terms comparable to those that could be obtained in arm’s-length dealings with an unrelated third party and the extent of the related party’s interest in the transaction.  Pursuant to the policy, no director may participate in any approval of a related party transaction to which he or she is a related party.

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The Audit Committee will then, in its sole discretion, either approve or disapprove the transaction.  If advance Audit Committee approval of a transaction is not feasible, the transaction may be preliminarily entered into by management, subject to ratification of the transaction by the Audit Committee at the Audit Committee’s next regularly scheduled meeting.  If at that meeting the Audit Committee does not ratify the transaction, management shall make all reasonable efforts to cancel or annul such transaction.

Certain types of transactions, which would otherwise require individual review, have been preapproved by the Audit Committee.  These types of transactions include, for example, (i) compensation to an officer or director where such compensation is required to be disclosed in our proxy statement, (ii) transactions where the interest of the related party arises only by way of a directorship or minority stake in another organization that is a party to the transaction and (iii) transactions involving competitive bids or fixed rates.

Merger Transaction

Pursuant to the  Merger Transaction we issued to the shareholders of Balqon Californiaan aggregate of 23,908,348 shares of our common stock upon conversion of the same number of shares of Balqon California’scommon stock.  The 1:1 exchange ratio was determined by arms-length negotiations between Balqon Corporation (formerly, BMR Solutions, Inc.) and Balqon California and was not based on any particular valuation or other financial data with respect to either company or a comparison of comparable companies or transactions.  We did not issue any shares of our common stock to our then existing shareholders at the time of the closing of the Merger Transaction, except for shares issued to those shareholders who at that time were also shareholders of Balqon California.

In addition to the 23,908,348 shares common stock we issued to the shareholders of Balqon California, the holders of warrants to acquire an aggregate of 2,614,180 shares of common stock of Balqon California were deemed to hold warrants to acquire an equal number of shares of our common stock upon completion of the Merger Transaction.  In connection with the Merger Transaction, we also issued under our 2008 Stock Incentive Plan, or 2008 Plan, options to purchase an aggregate of 4,562,592 shares of our common stock to certain of our directors and employees who held options to purchase an equal number of shares of Balqon California’s common stock immediately prior to the completion of the Merger Transaction.

In connection with the consummation of the Merger Transaction, we cancelled 6,377,500 shares of our issued and outstanding common stock held by John Shukur, Mark Andre, Marla Andre, Ryan Neely, Brian Mirrotto, Eric Peterson, Peggy Hancock and James L. Mirrotto such that concurrent with the closing of the Merger Transaction we had approximately 1,400,000 shares of common stock issued and outstanding.  The shares were cancelled as a result of our agreement with Balqon California to have 1,400,000 shares of common stock outstanding at the closing of the Merger Transaction.

At the closing of the Merger Transaction five of shareholders who held shares of our common stock immediately prior to the closing of the Merger Transaction, Anderson Hinsch, Thomas Chen, Ryan Neely, Michael Muellerleile and Jeffrey M. Hoss, were issued 565,123 shares of our common stock upon conversion of the same number of shares of Balqon California’scommon stock that they held immediately prior to the closing of the Merger Transaction.  At the closing of the Merger Transaction, we also issued to these five shareholders warrants to purchase an aggregate of 550,000 shares of our common stock upon conversion of warrants to purchase shares the same number of shares of Balqon California that they held immediately prior to the closing of the Merger Transaction.  Immediately prior to the closing of the Merger Transaction, these five shareholders held an aggregate of 325,000 shares of our common stock and warrants to purchase an aggregate of 144,598 shares of our common stock.  As of March 27, 2009, these five shareholders hold an aggregate of 890,291 shares of our common stock comprised of (i) the 325,000 shares of our common stock they held immediately prior to the closing of the Merger Transaction and (ii) the 565,123 shares of our common stock they were issued in connection with the Merger Transaction.  As of March 27, 2009, these five shareholders also hold warrants to purchase an aggregate of 644,598 shares of our common stock, comprised of (i) warrants to purchase an aggregate of 144,598 shares of our common stock they held immediately prior to the closing of the Merger Transaction and (ii) warrants to purchase an aggregate of 550,000 shares of our common stock that they were issued in connection with the Merger Transaction.

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In connection with the Merger Transaction we issued to (i) Balwinder Samra, our President and Chief Executive Officer, 16,999,910 shares of our common stock upon conversion of the same number of shares of common stock of Balqon Californiaheld by Mr. Samra and options to purchase 4,166,751 shares of common stock upon conversion of options to purchase the same number of shares of common stock of Balqon California held by Mr. Samra; (ii) Robert Miranda, our Chief Financial Officer, 100,000 shares of our common stock upon conversion of the same number of shares of common stock of Balqon Californiaheld by Mr. Miranda; (iii) Henry Velasquez, our Vice President Engineering and a director of our company, 333,340 shares of our common stock upon conversion of the same number of shares of common stock of Balqon Californiaheld by Mr. Velasquez and options to purchase 83,334 shares of common stock upon conversion of options to purchase the same number of shares of common stock of Balqon California held by Mr. Velasquez; (iv) Robert Gruenwald, our Vice President Research and Development 250,000 shares of our common stock upon conversion of the same number of shares of common stock of Balqon Californiaheld by Mr. Gruenwald; and (v) Amarpal Singh Samra, a director of our company, 1,250,025 shares of our common stock upon conversion of the same number of shares of common stock of Balqon Californiaheld by Mr. Samra and options to purchase 312,507 shares of common stock upon conversion of options to purchase the same number of shares of common stock of Balqon California held by Mr. Samra.  As a result of the Merger Transaction each of Mr. Balwinder Samra and Mr. Amarpal Samra became the beneficial owners of more than 5% of our common stock.  The options issues to Messrs. Balwinder Samra, Amarpal Samra, and Henry Velasquez were issued under our 2008 Plan.  One-third of these options have an exercise price of $1.50 per share and expire on June 30, 2010, one-third of these options have an exercise price of $2.00 per share and expire on June 30, 2011, and one-third of these options have an exercise price of $2.50 per share and expire on June 30, 2012.

In connection with the Merger Transaction we also issued to Marlin Financial Group, Inc. 2,916,725 shares of our common stock upon conversion of the same number of shares of common stock of Balqon Californiaheld by Marlin Financial Group, Inc. and warrants to purchase 729,180 shares of our common stock upon the conversion of warrants to purchase shares the same number shares of common stock of Balqon Corporation.  One-third of the warrants have an exercise price of $1.50 per share and expires on June 30, 2010, one-third of the warrants have an exercise price of $2.00 per share and expires on June 30, 2011, and one-third of the warrants have an exercise price of $2.50 per share and expires on June 30, 2012.  As a result of the Merger Transaction, Marlin Financial Group, Inc. became the beneficial owner of more than 5% of our common stock.

Employment, Compensation and Consulting Agreements

We are or have been a party to compensation arrangements with our directors.  See “—Compen­sation of Directors.”  On October 24, 2008, we entered into an executive employment agreement with each of Balwinder Samra and Henry Velasquez.  See “—Compensation of Executive Officers —Employment Agreements” for a description of Mr. Samra’s executive employment agreement.  On March 27, 2009, we entered into an executive employment agreement with Robert Gruenwald to be effective on October 24, 2008.

Employment Agreement, dated October 24, 2008, between the Company and Henry Velasquez

On October 24, 2008, we entered into an executive employment agreement with Mr. Henry Velasquez.  Under the terms of the executive employment agreement, Mr. Velasquez has agreed to serve as our Vice President Engineering on an at-will basis.  The employment agreement has an effective date of October 24, 2008.

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The agreement provides for an initial base salary of $150,000 per year with an increase to $175,000 per year after the second and third anniversary of the effective date of the employment agreement, respectively, and paid vacation of at least four weeks per year.  Mr. Velasquez is eligible to receive salary increases and annual cash incentive bonuses at the discretion of our Compensation Committee.  Mr. Velasquez is also eligible to participate in benefit and incentive programs we may offer. We have agreed to maintain in effect a directors’ and officers’ liability insurance policy with a minimum limit of liability of $3 million and that we would enter into an indemnification agreement with Mr. Velasquez upon terms mutually acceptable to us and Mr. Velasquez.

The agreement contains non-competition provisions that prohibit Mr. Velasquez from engaging or participating in a competitive business or soliciting our customer or employees during his employment with us and for two years afterward. The agreement also contains provisions that restrict disclosure by Mr. Velasquez of our confidential information and assign ownership to us of inventions related to our business that are created by him during his employment and for two years afterward.

We may terminate the agreement at any time, with or without due cause. “Due cause” includes any intentional misapplication of our funds or other material assets, or any other act of dishonesty injurious to us, or conviction of a felony or a crime involving moral turpitude. “Due cause” also includes abuse of controlled substances or alcohol and breach, nonperformance or nonobservance of any of the terms of the agreement, provided that Mr. Velasquez fails to satisfactorily remedy the performance problem following 30 days’ written notice.

Mr. Velasquez may terminate the agreement at any time, with or without good reason. However, termination for good reason must occur within 90 days of the occurrence of an event constituting good reason, and Mr. Velasquez must furnish us with written notice of the event within 30 days after the initial existence of the event and provide us with at least a 30-day cure period. “Good reason” includes: a material diminution in his authority, duties, responsibilities, titles or offices; a purported reduction in Mr. Velasquez’s base salary amounting to a material diminution in his salary to an amount less than the greater of $150,000 or 10% below the base salary in effect at the time of the reduction; our failure to timely cure or diligently initiate a cure of any material breach within 30 days after Mr. Velasquez gives us written notice of the breach.

If we terminate Mr. Velasquez’s employment for due cause or due to Mr. Velasquez’s breach of his employment agreement by refusing to continue his employment, or if Mr. Velasquez a terminates his employment without good reason, then all compensation and benefits for Mr. Velasquez will cease, other than amounts under retirement and benefit plans and programs that were earned and vested by the date of termination, pro rata annual salary through the date of termination, any stock options that were vested as of the date of termination, and accrued vacation as required by California law.

If Mr. Velasquez becomes incapacitated, we may terminate his employment under the agreement upon 30 days’ prior written notice.  Upon Mr. Velasquez’s death, the agreement terminates immediately. If Mr. Velasquez’s employment terminates due to his incapacity or death, Mr. Velasquez or his estate or legal representative will be entitled to receive benefits under our retirement and benefits plans and programs that were earned and vested at the date of termination, a prorated incentive bonus for the fiscal year in which incapacity or death occurred (to the extent he would otherwise be eligible), and a lump sum cash payment in an amount equal to one year of his then current annual salary.

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If Mr. Velasquez’s employment terminates for good reason or other than as a result of due cause, incapacity, death or retirement, Mr. Velasquez will be entitled to his salary through the end of the month in which termination occurs plus credit for accrued vacation, and a prorated incentive bonus, if eligible, for the fiscal year during which termination occurred. In addition, under those circumstances, if Mr. Velasquez enters into a separation and release agreement with us, then he will be entitled to receive (i) a severance payment equal to two times his then current annual salary, (ii) all medical insurance benefits to which he was entitled immediately prior to the date of termination for a period of eighteen months or the date that Mr. Velasquez’s continued participation in our medical insurance plan was not possible under the plan, whichever was earlier, and (iii) a lump-sum cash payment equal to eighteen times the estimated monthly COBRA premiums at the time of termination (taking into account all known or anticipated premium increases) to be used by Mr. Velasquez to maintain his medical insurance coverage for an additional eighteen months.  If our medical insurance plan does not allow Mr. Velasquez’s continued participation, then we will be required to pay to Mr. Velasquez, in monthly installments, the monthly premium or premiums for COBRA coverage, covering the eighteen month period described in clause (ii) in the preceding sentence.

Employment Agreement, dated effective October 24, 2008, between the Company and Robert Gruenwald

On March 27, 2009, we entered into an executive employment agreement with Mr. Robert Gruenwald.  Under the terms of the executive employment agreement, Mr. Gruenwald has agreed to serve as our Vice President Research and Development on an at-will basis.  The employment agreement has an effective date of October 24, 2008.

The agreement provides for an initial base salary of $150,000 per year with an increase to $175,000 and $200,000 per year after the second and third anniversary of the effective date of the employment agreement, respectively, and paid vacation of at least four weeks per year.  Mr. Gruenwald is eligible to receive salary increases and annual cash incentive bonuses at the discretion of our Compensation Committee.  Mr. Gruenwald is also eligible to participate in benefit and incentive programs we may offer. We have agreed to maintain in effect a directors’ and officers’ liability insurance policy with a minimum limit of liability of $3 million and that we would enter into an indemnification agreement with Mr. Gruenwald upon terms mutually acceptable to us and Mr. Gruenwald.

The agreement contains non-competition provisions that prohibit Mr. Gruenwald from engaging or participating in a competitive business or soliciting our customer or employees during his employment with us and for two years afterward. The agreement also contains provisions that restrict disclosure by Mr. Gruenwald of our confidential information and assign ownership to us of inventions related to our business that are created by him during his employment and for two years afterward.

We may terminate the agreement at any time, with or without due cause. “Due cause” includes any intentional misapplication of our funds or other material assets, or any other act of dishonesty injurious to us, or conviction of a felony or a crime involving moral turpitude. “Due cause” also includes abuse of controlled substances or alcohol and breach, nonperformance or nonobservance of any of the terms of the agreement, provided that Mr. Gruenwald fails to satisfactorily remedy the performance problem following 30 days’ written notice.

Mr. Gruenwald may terminate the agreement at any time, with or without good reason. However, termination for good reason must occur within 90 days of the occurrence of an event constituting good reason, and Mr. Gruenwald must furnish us with written notice of the event within 30 days after the initial existence of the event and provide us with at least a 30-day cure period. “Good reason” includes: a material diminution in his authority, duties, responsibilities, titles or offices; a purported reduction in Mr. Gruenwald’s base salary amounting to a material diminution in his salary to an amount less than the greater of $150,000 or 10% below the base salary in effect at the time of the reduction; our failure to timely cure or diligently initiate a cure of any material breach within 30 days after Mr. Gruenwald gives us written notice of the breach.

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If we terminate Mr. Gruenwald’s employment for due cause or due to Mr. Gruenwald’s breach of his employment agreement by refusing to continue his employment, or if Mr. Gruenwald a terminates his employment without good reason, then all compensation and benefits for Mr. Gruenwald will cease, other than amounts under retirement and benefit plans and programs that were earned and vested by the date of termination, pro rata annual salary through the date of termination, any stock options that were vested as of the date of termination, and accrued vacation as required by California law.

If Mr. Gruenwald becomes incapacitated, we may terminate his employment under the agreement upon 30 days’ prior written notice.  Upon Mr. Gruenwald’s death, the agreement terminates immediately. If Mr. Gruenwald’s employment terminates due to his incapacity or death, Mr. Gruenwald or his estate or legal representative will be entitled to receive benefits under our retirement and benefits plans and programs that were earned and vested at the date of termination, a prorated incentive bonus for the fiscal year in which incapacity or death occurred (to the extent he would otherwise be eligible), and a lump sum cash payment in an amount equal to one year of his then current annual salary.

If Mr. Gruenwald’s employment terminates for good reason or other than as a result of due cause, incapacity, death or retirement, Mr. Gruenwald will be entitled to his salary through the end of the month in which termination occurs plus credit for accrued vacation, and a prorated incentive bonus, if eligible, for the fiscal year during which termination occurred. In addition, under those circumstances, if Mr. Gruenwald enters into a separation and release agreement with us, then he will be entitled to receive (i) a severance payment equal to two times his then current annual salary, (ii) all medical insurance benefits to which he was entitled immediately prior to the date of termination for a period of eighteen months or the date that Mr. Gruenwald’s continued participation in our medical insurance plan was not possible under the plan, whichever was earlier, and (iii) a lump-sum cash payment equal to eighteen times the estimated monthly COBRA premiums at the time of termination (taking into account all known or anticipated premium increases) to be used by Mr. Gruenwald to maintain his medical insurance coverage for an additional eighteen months.  If our medical insurance plan does not allow Mr. Gruenwald’s continued participation, then we will be required to pay to Mr. Gruenwald, in monthly installments, the monthly premium or premiums for COBRA coverage, covering the eighteen month period described in clause (ii) in the preceding sentence.

Indemnification Agreements

On October 24, 2008, we entered into an indemnification agreement with each of our directors and executive officers other than Mr. Gruenwald.  We entered into an indemnification agreement with Mr. Gruenwald on March 27, 2009.  The indemnification agreements and our articles of incorporation and bylaws require us to indemnify our directors and officers to the fullest extent permitted by Nevadalaw.

Balqon Corporation’s Transactions Prior to the Consummation of the Merger Transaction

From August 2006 to November 9, 2006, Mark Andre, our former director and executive officer, provided approximately 1,000 square feet of office space to us in exchange for $1,400 per month on a month to month basis.  Effective November 10, 2006, this amount was increased to $1,500 per month. We paid $1,400 per month directly to Mr. Andre’s landlord on this arrangement, with $560 per month treated as rent expense and the remaining $840 per month charged to compensation. The rent expense of $560 per month is the estimated fair value of the facilities provided. Effective November 10, 2006, the rent and compensation on this arrangement was increased to $600 and $900 per month, respectively.

Mark Andre, our former director and executive officer, is the brother in law of John Danna, an owner of one of our major customers prior to the Merger Transaction.

72

Balqon California’s Transactions Prior to the Consummation of the Merger Transaction

During the fiscal years ended December 31, 2006 and 2007, Balwinder Samra loaned $943 and $56,477, respectively, to Balqon California to fund its operations.  Between January 1, 2008 and September 30, 2008, Mr. Samra loaned an additional $1,957to Balqon California to help fund its operations.  These loans were recorded as “Advances from Shareholder” on Balqon California’s financial statements.  As of September 30, 2008, Mr. Samra was owed a total of $47,877as a result of these loans.

Between January 1, 2008 and September 30, 2008, Miranda & Associates, a professional accountancy corporation wholly-owned by Robert Miranda, our chief financial officer, was paid a total of $38,000 in consulting fees in consideration of accounting and advisory services. As of September 30, 2008, Miranda & Associates was owed $19,875for accounting and advisory services rendered.

In June 2008, Balqon California issued 332,910 shares of common stock and options to purchase 4,166,751 shares of common stock to Balwinder Samra in consideration of services rendered.

In June 2008, Balqon California issued 333,340 shares of common stock and options to purchase 83,344 shares of common stock to Henry Velasquez in consideration of engineering and design consulting services rendered.

In June 2008, Balqon California issued 1,250,025 shares of common stock and options to purchase 312,507 shares of common stock to Amarpal Samra in consideration of business strategy consulting services rendered.

In June 2008, Balqon California issued 100,000 shares of common stock to Robert Miranda, its current Chief Financial Officer, in consideration of business strategy consulting services rendered.

In June 2008, Balqon California issued 250,000 shares of common stock to Robert Gruenwald in consideration of services provided.

In June 2008, Balqon California issued 2,916,725 shares of common stock and warrants to purchase 729,180 shares of common stock to Marlin Financial in consideration of business strategy and financial advisory services rendered and to be rendered.

On September 9, 2008, Balqon California entered into a Asset and Purchase Agreement with EMS, and its sole member, Robert Gruenwald, to acquire certain of the assets of EMS, including all intellectual property assets for an aggregate purchase price of $350,000 of which $250,000 was paid in cash at closing and $100,000 was paid in the form of a promissory note issued to EMS.  The promissory note issued to EMS bares an interest rate of 5% per annum payable at maturity.  All amounts due and payable under the promissory note became due and payable on March 9, 2009.  As of March 27, 2009, $100,000 in principal remains outstanding under the promissory note issued to EMS.  During the fiscal year ended December 31, 2008, we did not make any payments of principal or interest due under the promissory note to EMS.

On June 24, 2008, we issued a promissory note in the amount of $25,875 to Marlin Financial Group, Inc.  The promissory note issued to Marlin Financial Group, Inc. bares an interest rate of 6% per annum payable at maturity and became due and payable on December 6, 2008.  As of March 27, 2009, $875 in principal remains outstanding under the promissory note issued to Marlin Financial Group, Inc.  During the fiscal year ended December 31, 2008, we paid $25,000 in principal and did not make any interest payments due under the promissory note to Marlin Financial Group, Inc.

73

December 2008 Private Placement

In connection with the private placement transaction consummated on December 22, 2008, we issued to Marlin Financial Group, Inc. 25,000 shares of our common stock and warrants to purchase 25,000 shares of our common stock at an exercise price of $1.50.

Fees Paid to Miranda & Associates

Between September 30, 2008 and December 31, 2008, Miranda & Associates, a professional accountancy corporation wholly-owned by Robert Miranda, our chief financial officer, was paid a total of $196,980 in consulting fees in consideration of accounting and advisory services. As of December  31, 2008, Miranda & Associates was owed $12,500 for accounting and advisory services rendered.

Item 14. Principal Accounting Fees and Services.

Weinberg & Company, P.A.

The following table presents the aggregate fees billed to us for professional audit services rendered by Weinberg & Company, P.A., or Weinberg, for the year ended December 31, 2008. We appointed Weinberg as our independent registered public accounting firm on October 24, 2008.

	2008
Audit Fees	$	28,873
Audit-Related Fees		18,242
Tax Fees		—
All Other Fees		—
Total	$	47,115

Audit Fees.  Consist of amounts billed for professional services rendered for the audit of our annual consolidated financial statements included in our Annual Report on Form 10-K, and reviews of our interim consolidated financial statements included in our Quarterly Report on Forms 10-Q and our Registration Statement on Form S-1, including amendments thereto.

Audit-Related Fees.  Audit-Related Fees consist of fees billed for professional services that are reasonably related to the performance of the audit or review of our consolidated financial statements but are not reported under “Audit Fees.”

Tax Fees.  Tax Fees consist of fees for professional services for tax compliance activities, including the preparation of federal and state tax returns and related compliance matters.

All Other Fees.  Consists of amounts billed for services other than those noted above.

Our Audit Committee has determined that all non-audit services provided by Weinberg are and were compatible with maintaining Weinberg’s audit independence.

Our Audit Committee is responsible for approving all audit, audit-related, tax and other services.  The Audit Committee pre-approves all auditing services and permitted non-audit services, including all fees and terms to be performed for us by our independent registered public accounting firm at the beginning of the fiscal year.  Non-audit services are reviewed and pre-approved by project at the beginning of the fiscal year.  Any additional non-audit services contemplated by us after the beginning of the fiscal year are submitted to the Audit Committee chairman for pre-approval prior to engaging the independent auditor for such services.  These interim pre-approvals are reviewed with the full Audit Committee at its next meeting for ratification.  During 2008, all services performed by Weinberg were pre-approved by our Audit Committee in accordance with these policies and applicable SEC regulations.

74

PART IV

Item 15. Exhibits and Financial Statement Schedules.

(a)(1)  Financial Statements.

Reference is made to the financial statements listed on and attached following the Index to Financial Statements contained at page F-1 of this report.

(a)(2) and (c) Financial Statement Schedules.

Not applicable.

(a)(3) and (b) Exhibits.

Exhibit Number	Description
2.1	Agreement and Plan of Merger, dated September 15, 2008, among the Registrant, Balqon California and a newly-created, wholly-owned subsidiary of the Registrant, Balqon Acquisition Corp. (1)
2.2	Amendment No. 1 to Agreement and Plan of Merger, dated October 15, 2008, among the Registrant, Balqon California and a newly-created, wholly-owned subsidiary of the Registrant, Balqon Acquisition Corp. (2)
3.1	Articles of Incorporation of the Registrant (3)
3.2	Bylaws of the Registrant (3)
4.1	Article Thirteenth of the Articles of Incorporation of the Registrant (contained in Exhibit 3.1 to this Registration Statement) (3)
4.2	Sections 2 and 6 of the Bylaws of the Registrant (contained in Exhibit 3.2 to this Registration Statement) (3)
4.3	Form of Warrants issued by Balqon California to certain security holders to purchase an aggregate of 500,000 shares of commons stock (4)(##)
4.4	Form of Warrants issued by Balqon California to certain security holders to purchase an aggregate of 810,000 shares of common stock (4)(##)
4.5	Form of Warrants issued by Balqon California to certain security holders to purchase an aggregate of 575,000 shares of common stock (4)(##)
4.6	Form of Warrant to purchase common stock issued by Balqon California to Marlin Financial Group, Inc. (one-third of these warrants are exercisable at an exercise price of $1.50 per share until June 30, 2010, one-third of these warrants are exercisable at an exercise price of $2.00 per share until June 30, 2011, and one-third of these warrants are exercisable at an exercise price of $2.50 per share until June 30, 2012) (4)

4.7	Form of Warrants issued by the Registrant to certain security holders to purchase an aggregate of 184,598 shares of common stock (one-third of these warrants are exercisable at an exercise price of $1.50 per share until October 24, 2009, one-third of these warrants are exercisable at an exercise price of $2.00 per share until October 24, 2010, and one-third of these warrants are exercisable at an exercise price of $2.50 per share until October 24, 2011) (4)(##)
4.8	Form of Warrants issued by the Registrant to certain security holders to purchase an aggregate of 210,000 shares of common stock (5)
4.9	Form of Warrants issued by the Registrant to certain security holders to purchase an aggregate of 50,000 shares of common stock (*)
10.1	Balqon Corporation 2008 Stock Incentive Plan (4)(#)
10.2	Form of Stock Option Agreement under 2008 Stock Incentive Plan (4)(#)
10.3	Form of Indemnification Agreement for officers and directors (4)(#)
10.4	Employment Agreement, dated October 24, 2008, by and between Balwinder Samra and the Registrant (4)(#)
10.5	Employment Agreement, dated October 24, 2008, by and between Henry Velasquez and the Registrant (4)(#)
10.6	Amendment and Restated Registration Rights Agreement, dated September 15, 2008, by and between Balqon California and certain security holders (*)(##)
10.7	Registration Rights Agreement, dated September 15, 2008, by and between Balqon California and certain security holders (*)(##)
10.8	Registration Rights Agreement, dated October 24, 2008, by and between Balqon California and certain security holders (4)(##)
10.9	Registration Rights Agreement dated October 24, 2008, by and between the Registrant and certain security holders (which agreement relates to the registration rights of the stockholders holding 1,400,000 shares of our common stock immediately prior to the Merger Transaction) (4)(##)
10.10	Purchase Agreement, dated June 26, 2008, between the City of Los Angeles and Balqon California (4)(##)
10.11	Purchase and Service Agreement, dated May 15, 2008, between the South Coast Air Quality Management District and Balqon California (*)(##)
10.12	Lease Agreement for 1420 240th Street, Harbor City, California 90710, between Allan D. and Gloria G. Singer, Trustees for the U.D.T. Trust dated June 6, 1984 and Balqon California dated June 17, 2008 (4)(##)
10.13	Lease agreement, dated May 21, 2007, by and between 1701 E. Edinger, LLC, and Balqon California (4)(##)
10.14	First Modification to Lease, dated June 18, 2008, by and between 1701 E. Edinger, LLC, and Balqon California (4)(##)

75

Exhibit Number Description

10.15	Registration Rights Agreement, dated December 22, 2008, by and between the Registrant and certain security holders (5)
10.16	Business Financing Agreement, dated February 18, 2009, between Bridge Bank, National Association and the Company (6)
10.17	Business Financing Modification Agreement, dated February 26, 2009, between Bridge Bank, National Association and the Company (7)
10.18	Asset Purchase Agreement, dated September 9, 2008, by and between Electric Motor Sports, LLC and Balqon California (*)
10.19	Promissory Note, dated September 9, 2009, in the amount of $100,000, issued to Electric Motor Sports, LLC (*)
10.20	Employment Agreement, dated October 24, 2008, by and between Robert Gruenwald and the Registrant (*)(#)
10.21	Agreement, dated May 2007, by and between the South Coast Air Quality Management District and Balqon California (*)
10.22	Stock and Warrant Purchase Agreement, dated August 28, 2008, by and between Marlin Financial Group, Inc. and Balqon California (*)
10.23	Amendment to Stock and Warrant Purchase Agreement, dated March 30, 2009, by and between Marlin Financial Group, Inc. and Balqon California (*)
10.24	Form of 10% Unsecured Subordinated Convertible Promissory Notes issued in March 2009, in the aggregate principal amount of $50,000, which are convertible into an aggregate of 50,000 shares of our common stock (*)
14.1	Code of Ethics (4)
14.2	Code of Ethics for Chief Executive Officer and Senior Financial Officers (4)
31.1	Certification of Principal Executive Officer required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (*)
31.2	Certification of Principal Financial Officer required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (*)
32.1	Certification of Chief Executive Officer and Chief Executive Officer Pursuant to 18 U.S.C. Section 350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (*)
99.1	Consent of John Kinross-Kennedy (*)
99.2	Consent of John Kinross-Kennedy (*)

(#)         Management contract or compensatory plan, contract or arrangement.

(##) The rights and obligations of Balqon California under this agreement were assumed by the registrant in connection with the Merger Transaction.

(*)         Filed herewith.

(1) Filed as an exhibit to the Registrant’s current report on Form 8-K with the Securities and Exchange Commission filed on September 19, 2008.

(2) Filed as an exhibit to the Registrant’s current report on Form 8-K with the Securities and Exchange Commission filed on October 21, 2008.

(3) Filed as an exhibit to the Registrant’s Registration Statement on Form SB-2 filed with the Securities and Exchange Commission on September 19, 2006.

(4) Filed as an exhibit to the Registrant’s current report on Form 8-K filed with the Securities and Exchange Commission on October 30, 2008.

(5) Filed as an exhibit to the Registrant’s Registration Statement on Form S-1 filed with the Securities and Exchange Commission on December 23, 2008.

(6) Filed as an exhibit to the Registrant’s Current Report on Form 8-K with the Securities and Exchange Commission filed on March 3, 2009.

(7) Filed as an exhibit to the Registrant’s Current Report on Form 8-K with the Securities and Exchange Commission filed on March 3, 2009.

76

BALQON CORPORATION

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets as of December 31, 2008 and 2007	F-3
Consolidated Statements of Operations for the Years Ended December 31, 2008 and 2007	F-4
Consolidated Statement of Shareholder’s Equity (Deficiency) for the Years Ended December 31, 2008 and 2007	F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 2008 and 2007	F-6
Notes to Consolidated Financial Statements for the Years Ended December 31, 2008 and 2007	F-7

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholder of

Balqon Corporation

Santa Ana, California

We have audited the accompanying consolidated balance sheets of Balqon Corporation and Subsidiary (the Company) as of December 31, 2008 and 2007, and the related consolidated statements of operations, changes in shareholder’s equity (deficiency), and cash flows for the years then ended.  These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2008 and 2007, and the consolidated results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States.

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern.  The Company has experienced recurring losses since inception and has an accumulated deficit. This condition raises substantial doubt regarding the Company’s ability to continue as a going concern.  Management’s plans in regard to these matters are described in Note 1 to the consolidated financial statements.  The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

/s/ Weinberg & Company, P.A.

Weinberg & Company, P.A.

Los Angeles, California

March 23, 2009

F-2

BALQON CORPORATION

CONSOLIDATED BALANCE SHEETS

	December 31, 2008			December 31, 2007
ASSETS
Current assets
Cash and cash equivalents	$	355,615		$	34
Accounts receivable		—			35,000
Inventories		1,159,601			—
Prepaid expenses		43,020			—
Total current assets		1,558,236			35,034
Property and equipment, net		89,393			21,047
Other assets:
Deposits		33,641			19,241
Intangible production costs, net		171,385			—
Goodwill		166,500			—
Total assets	$	2,019,155		$	75,322
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIENCY)
Current liabilities
Accounts payable and accrued expenses	$	1,225,806		$	29,212
Notes payable to related parties		100,875			—
Advances from shareholder		34,877			57,420
Billings in excess of costs and estimated earnings
on uncompleted contracts		2,604			71,264
Total current liabilities		1,364,162			157,896
SHAREHOLDERS’ EQUITY (DEFICIENCY)
Common stock, $0.001 par value, 100,000,000 shares authorized,
25,518,348 and 16,667,000 shares issued and outstanding		25,518			5,000
Additional paid in capital		2,122,869			—
Accumulated deficit		(1,493,395	)		(87,574	)
Total shareholders’ equity (deficiency)		654,993			(82,574	)
Total liabilities and shareholders’ equity (deficiency)	$	2,019,155		$	75,322

The accompanying notes are an integral part of these consolidated financial statements.

F-3

BALQON CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

	Years Ended December 31,
	2008			2007
REVENUES
Contract revenue earned	$	128,660		$	382,736
Sale of parts		75,000			—
Total revenues		203,660			382,736
COSTS OF REVENUES
Contract costs		69,078			280,263
Costs of parts		68,975			—
Total cost of revenues		138,053			280,263
Gross profit		65,607			102,473
OPERATING EXPENSES
General and administrative		956,328			182,035
Research & development		44,023			—
Reverse merger expenses		414,384			—
Depreciation and amortization		29,836			3,182
Total operating expenses		1,444,571			185,217
Loss from operations		(1,378,964	)		(82,744	)
Interest expense		(26,857	)		—
NET LOSS	$	(1,405,821	)	$	(82,744	)
Net loss per share – basic and diluted	$	(0.07	)	$	(0.00	)
Weighted average shares outstanding, basic and diluted		20,206,507			16,667,000

The accompanying notes are an integral part of these consolidated financial statements.

F-4

BALQON CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIENCY)

FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2008

	Common Stock, $0.001 par value				Additional Paid in			Accumulated
	Number		Amount		Capital			Deficit			Total
Balance, January 1, 2007		16,667,000	$	5,000	$	—		$	(4,830	)	$	170
Net loss		—		—		—			(82,744	)		(82,744	)
Balance, December 31, 2007		16,667,000		5,000		—			(87,574	)		(82,574	)
Fair value of 5,333,000 shares granted for services		5,333,000		5,333		72,263			—			77,596
Fair value of 184,598 warrants granted for services		—		—		23,906			—			23,906
Effect of reverse merger transaction		1,400,000		13,067		(13,067	)		—			—
Shares issued for cash		785,000		785		707,753			—			708,538
Shares issued upon conversion of convertible notes		1,333,348		1,333		1,332,015			—			1,333,348
Net loss		—		—		—			(1,405,821	)		(1,405,821	)
Balance, December 31, 2008		25,518,348	$	25,518	$	2,122,869		$	(1,493,395	)	$	654,993

The accompanying notes are an integral part of these consolidated financial statements.

F-5

BALQON CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Years Ended December 31,
	2008			2007
Cash flow from operating activities:
Net loss	$	(1,405,821	)	$	(82,744	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization		29,836			3,182
Fair value of common stock granted for services		77,596			—
Fair value of warrants granted for services		23,906			—
Changes in operating assets and liabilities
Accounts receivable		35,000			(35,000	)
Inventories		(1,159,601	)		—
Prepaid expenses		(43,020	)		—
Deposits		(14,400	)		(19,241	)
Accounts payable and accrued expense		1,196,595			28,412
Billings in excess of costs and estimated earnings on
uncompleted contracts		(68,660	)		71,264
Net cash used in operating activities		(1,328,569	)		(34,127	)
Cash flows from investing activities:
Acquisition of furniture, equipment and software		(82,603	)		(22,316	)
Acquisition of EMS		(253,465	)		—
Net cash used in investing activities		(336,068	)		(22,316	)
Cash flows from financing activities:
Proceeds from notes payable, related parties		25,875			—
Payment of notes payable, related parties		(25,000	)
Proceeds from  issuance of convertible notes, net		1,333,348			—
Proceeds from sale of common stock		708,538
Advances from shareholder		(22,543	)		56,477
Net cash provided by financing activities		2,020,218			56,477
Increase in cash and cash equivalents		355,581			34
Cash and cash equivalents, beginning of year		34			—
Cash and cash equivalents, end of year	$	355,615		$	34
Supplemental cash flow information
Interest Paid	$	26,857		$	—
Income taxes Paid	$	—		$	—
Supplemental non cash financing and investing activities
Note payable issued in connection with acquisition of EMS	$	100,000		$	—

The accompanying notes are an integral part of these consolidated financial statements.

F-6

BALQON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

NOTE 1 – NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

The Company

Balqon Corporation (the “Company”) was incorporated on April 21, 2005 as a California corporation and commenced business operations in 2006. The Company is involved in research, development and commercialization of technologies for heavy-duty electric vehicles used in off-highway applications.

On July 11, 2008, the Company signed a term sheet in which the Company agreed to merge with BMR Solutions, Inc., a Nevada corporation (“BMR”).  On October 24, 2008, the Company completed the merger with BMR.  Pursuant to the merger agreement, the issued and outstanding common shares of the Company were exchanged on a one-for-one basis for common shares of BMR.  After the merger was completed, Balqon’s shareholders own approximately 94% of the outstanding shares of common stock of BMR and the original shareholders of BMR own approximately 6% of the outstanding shares of common stock of BMR, not including warrants.  The transaction was accounted for as a reverse merger (recapitalization) with Balqon deemed to be the accounting acquirer and BMR deemed to be the legal acquirer.  The financial statements presented herein are those of the accounting acquirer given the effect of the issuance of 1,400,000 shares of common stock upon completion of the transaction and reflecting the net liabilities assumed of BMR of $40,365 as a cost of the reverse merger.  The Company incurred additional costs of $374,019 in connection with the reverse merger that are reflected as costs in the accompanying December 31, 2008 statement of operations.

Going Concern

For the year ended December 31, 2008, the Company had a net loss of $1,405,821 and utilized cash of $1,328,569 in operations, and had an accumulated deficit of $1,493,395 at December 31, 2008.  These matters raise substantial doubt about the Company’s ability to continue as a going concern.  The consolidated financial statements do not include any adjustments that might result from this uncertainty.  The Company intends to raise funds to finance operations until the Company achieves profitable operations. The Company’s capital requirements for the next 12 months, as they relate to the production of its products will continue to be significant.  If adequate funds are not available to satisfy either medium or long-term capital requirements, the Company’s operations and liquidity could be materially adversely affected and the Company could be forced to cut back its operations.

Principles of Consolidation

The consolidated financial statements include the accounts of Balqon Corporation and its wholly-owned subsidiary. Inter-company accounts and transactions have been eliminated.

F-7

BALQON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

NOTE 1 – NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (continued)

Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.  Material estimates relate to the recognition of contract revenues and estimated costs to complete contracts in process, and recoverability of reported amounts of long-lived assets.  Actual results may differ from those estimates.

Revenues

Contract Revenue and Cost Recognition on Prototype Vehicle

In accounting for the development contract with the South Coast Air Quality Management District (“AQMD”) of our prototype vehicle, the Company follows the provisions of the AICPA’s Statement of Position 81-1, “Accounting for Performance of Construction-Type and Certain Production-Type Contracts.”  The Company recognizes revenues using the percentage-of-completion method of accounting by relating contract costs incurred to date to the total estimated costs at completion.  This method is used because management considers costs to be the best available measure of progress on its contracts.  Contract losses are provided for in their entirety in the period that they become known, without regard to the percentage-of-completion.  We also recognize as revenues costs associated with claims and unapproved change orders to the extent it is probable that such claims and change orders will result in additional contract revenue, and the amount of such additional revenue can be reliably estimated.

Contract costs include all direct material and labor costs.  The liability “billings in excess of costs and estimated earnings on uncompleted contracts” represents billings in excess of revenues earned.

Sales of Production Units Revenue

The Company recognizes revenue from sales of production units when there is persuasive evidence that an arrangement exists, delivery of the product has occurred and title has passed, the selling price is both fixed and determinable, and collectibility is reasonably assured, all of which generally occurs upon shipment of the Company’s product or delivery of the product to the destination specified by the customer.

Sales of Parts Revenue

The Company recognizes revenue from sales of parts when there is persuasive evidence that an arrangement exists, delivery of the product has occurred and title has passed, the selling price is both fixed and determinable, and collectibility is reasonably assured, all of which generally occurs upon shipment of the Company’s product or delivery of the product to the destination specified by the customer.

Cash and Cash Equivalents

The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents.

Accounts Receivable

Trade receivables are recorded at net realizable value consisting of the carrying amount less an allowance for uncollectible accounts, as needed.

The Company uses the allowance method to account for uncollectible trade receivable balances. Under the allowance method, if needed, an estimate of uncollectible customer balances is made based upon specific account balances that are considered uncollectible. Factors used to establish an allowance include

F-8

BALQON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

NOTE 1 – NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (continued)

the credit quality and payment history of the customer.  At December 31, 2008 and December 31, 2007, there was no allowance for doubtful accounts.

Inventories

Inventories consist of raw materials to be used for assembly and are stated at the lower of cost or market. Cost is determined principally on a first-in-first-out average cost basis

Property and Equipment

Property and equipment are stated at cost. The cost of property and equipment is depreciated on the straight-line method over the following estimated useful lives:

Computer equipment and software	3 years
Furniture	3 years
Machinery	3 years

Leasehold improvements are amortized using the straight-line method over the shorter of the estimated useful life of the asset or the lease term.

Long-lived Assets

The Company accounts for the impairment and disposition of long-lived assets in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”  In accordance with SFAS No. 144, long-lived assets to be held are reviewed for events or changes in circumstances that indicate that their carrying value may not be recoverable. The Company periodically reviews the carrying value of long-lived assets to determine whether or not impairment to such value has occurred.  Based on management’s assessments, no impairments were recorded during the years ended December 31, 2008 and 2007.

Income Taxes

The Company accounts for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes.” Under SFAS No. 109, income taxes are recognized for the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets are recognized for the future tax consequences of transactions that have been recognized in the Company’s financial statements or tax returns. A valuation allowance is provided when it is more likely than not that some portion or the entire deferred tax asset will not be realized.

F-9

BALQON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

NOTE 1 – NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (continued)

Loss Per Share

Basic loss per share has been computed using the weighted average number of common shares outstanding and issuable during the period. The computation of basic loss per share includes the 1,400,000 shares issued in connection with the reverse merger since October 24, 2008, the date of the merger (see Note 1).  Diluted loss per share is computed based on the weighted average number of common shares and all common equivalent shares outstanding during the period in which they are dilutive. Common equivalent shares consist of shares issuable upon the exercise of stock options or warrants. As of December 31, 2008 common stock equivalents composed of options exercisable into 4,562,592 shares of the Company’s common stock and warrants exercisable into 3,008,778 shares of the Company’s common stock. For the years ended December 31, 2008 and 2007, common equivalent shares have been excluded from the calculation of loss per share as their effect is anti-dilutive.

Stock-Based Compensation

The Company periodically issues stock purchase options to employees and non-employees in non-capital raising transactions for services rendered, for financing costs and on a merit basis. Stock purchase options issued to nonemployees are issued as warrants with the warrants sharing the same vesting and exercise attributes of the company’s stock purchase options issued to employees.

The Company accounts for stock option and warrant grants issued and vesting to employees using SFAS No. 123® “Share-Based Payment” effective January 1, 2006, for all share-based payments granted based on the requirements of SFAS No. 123R for all awards granted to employees.

The Company accounts for stock option and warrant grants issued and vesting to non-employees in accordance with Emerging Issues Task Force (“EITF”) Issue No. 96-18 “Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services” and EITF Issue No. 00-18 “Accounting Recognition for Certain Transactions involving Equity Instruments Granted to Other Than Employees” whereas the value of the stock compensation is based upon the measurement date as determined at either (i) the date at which a performance commitment is reached, or (ii) at the date at which the necessary performance to earn the equity instruments is complete.

Financial Assets and Liabilities Measured at Fair Value

Effective January 1, 2008, the Company adopted SFAS No. 157, “Fair Value Measurements.” This Statement defines fair value for certain financial and nonfinancial assets and liabilities that are recorded at fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This guidance applies to other accounting pronouncements that require or permit fair value measurements. On February 12, 2008, the Financial Accounting Standards Board (“FASB”) finalized FASB Staff Position (“FSP”) No. 157-2, Effective Date of FASB Statement No. 157. This FSP delays the effective date of SFAS No. 157 for nonfinancial assets and liabilities to fiscal years beginning after November 15, 2008 and interim periods within those fiscal years, except for those items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The adoption of SFAS No. 157 had no effect on the Company’s consolidated financial position or results of operations.

F-10

BALQON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

NOTE 1 – NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (continued)

Concentrations

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash and unsecured accounts receivable.

The Company maintains cash balances at one bank. At times, the amount on deposit exceeds the federally insured limits. Management believes that the financial institution that holds the Company’s cash is financially sound and, accordingly, minimal credit risk exists.

For the years ended December 31, 2008 and 2007, contract revenue earned was from one development contract with the AQMD.  For the year ended December 31, 2008, sale of parts were to one customer.

For the year ended December 31, 2007, 35%, 31% and 13%, respectively, of contract costs incurred were to three vendors.  At December 31, 2007, accounts payable to one of these vendors represented 95% of total accounts payable.

For the year ended December 31, 2008, 39%, 14% and 10%, respectively, of costs of revenue were to three vendors.  At December 31, 2008, accounts payable to the largest vendor represented 30% of total accounts payable balances. Accounts payable to other two largest vendors represented 52% and 13%, respectively, of total accounts payable at December 31, 2008.

Research and Development Costs

The Company accounts for research and development costs in accordance with SFAS No. 2, “Accounting for Research and Development Costs.” In accordance with SFAS No. 2 research and development costs are expensed as incurred.

Registration Payment Arrangements

The Company accounts for registration payment arrangements under FSP EITF Issue No. 00-19-2, “Accounting for Registration Payment Arrangements.” FSP EITF Issue No. 00-19-2 specifies that the contingent obligation to make future payments under a registration payment arrangement should be separately recognized and measured in accordance with SFAS No. 5, “Accounting for Contingencies.”  The Company has not made any provision for registration payment arrangements at December 31, 2008 or 2007 as it believes none will be payable.

Recent Accounting Pronouncements

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations,” which establishes accounting principles and disclosure requirements for all transactions in which a company obtains control over another business.  SFAS No. 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 22, 2008. Earlier adoption is prohibited.

F-11

BALQON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

NOTE 1 – NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (continued)

Recent Accounting Pronouncements (continued)

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51.” SFAS No. 160 establishes accounting and reporting standards that require that the ownership interests in subsidiaries held by parties other than the parent be clearly identified, labeled, and presented in the consolidated statement of financial position within equity, but separate from the parent’s equity; the amount of consolidated net income attributable to the parent and to the noncontrolling interest be clearly identified and presented on the face of the consolidated statement of income; and changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary be accounted for consistently. SFAS No. 160 also requires that any retained noncontrolling equity investment in the former subsidiary be initially measured at fair value when a subsidiary is deconsolidated. SFAS No. 160 also sets forth the disclosure requirements to identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS No. 160 applies to all entities that prepare consolidated financial statements, except not-for-profit organizations, but will affect only those entities that have an outstanding noncontrolling interest in one or more subsidiaries or that deconsolidate a subsidiary. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 22, 2008. Earlier adoption is prohibited. SFAS No. 160 must be applied prospectively as of the beginning of the fiscal year in which it is initially applied, except for the presentation and disclosure requirements. The presentation and disclosure requirements are applied retrospectively for all periods presented.

In March 2008, the FASB issued SFAS No. 161,“Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133,” to improve financial reporting of derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance and cash flows. SFAS No. 161 applies to fiscal years and interim periods beginning after November 15, 2008.

The Company does not believe that the adoption of the above recent pronouncements will have a material effect on the Company’s consolidated results of operations, financial position, or cash flows.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC did not or are not believed by management to have a material impact on the Company’s present or future consolidated financial statements.

NOTE 2 – COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS

In May 2007, the Company entered into a $527,000 contract with the AQMD to develop a prototype zero-emissions short-range heavy-duty all-electric truck used for hauling fully loaded 40-foot cargo containers around the Port of Los Angeles.  At December 31, 2008, the contract was estimated to be approximately 98% complete.

F-12

BALQON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

NOTE 2 – COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS (continued)

The asset, “costs in excess of billings and estimated earnings on uncompleted contracts” and the liability, “billings in excess of costs and estimated earnings on uncompleted contracts,” represents costs incurred or billings in excess of revenue recognized at December 31, 2008 and 2007 as follows:

	December 31, 2008			December 31, 2007
Costs incurred on uncompleted contracts	$	349,341		$	280,263
Estimated earnings		162,055			102,473
		511,396			382,736
Less, billings to date		514,000			454,000
	$	(2,604	)	$	(71,264	)
Included in accompanying consolidated balance sheets under the following captions:
Billings in excess of costs and estimated earnings on uncompleted contracts	$	2,604		$	71,264

NOTE 3 - PROPERTY AND EQUIPMENT

Property and equipment are comprised as follows:

	December 31, 2008			December 31, 2007
Computer equipment and software	$	52,390		$	9,052
Office furniture		26,725			9,172
Machinery		6,395			6,395
Leasehold improvements		21,711			—
Total property and equipment, cost		107,221			24,619
Less: accumulated depreciation		(17,828	)		(3,572	)
Property and equipment, net	$	89,393		$	21,047

Depreciation expense for the years ended December 31, 2008 and 2007 was $14,256 and $3,182, respectively.

NOTE 4 – BUSINESS ACQUISITION

On September 9, 2008, the Company acquired certain assets of Electric Motor Sports, LLC (“EMS”), an Ohio limited liability company that was owned by Mr. Robert Gruenwald.  The assets acquired included goodwill and intellectual properties used in the development and manufacture of flux vector inverters.

Prior to the acquisition of  the EMS assets, EMS was a supplier of flux vector inverters that were used to develop the Company’s first electric vehicle prototype, the Nautilus E30. EMS had been in the business of developing, manufacturing and selling flux vector inverters since 1997. The Company also was contracting with EMS to provide engineering design services that were delivered by EMS’ sole member, Robert Gruenwald.

F-13

BALQON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

NOTE 4 – BUSINESS ACQUISITION (continued)

The results of operations of EMS are included in the consolidated financial statements of Balqon Corporation for the period of September 9, 2008 through December 31, 2008. During this period the Company did not engage in the business of selling flux vector inverters. The expenses of EMS during the period since the acquisition are primarily the salary and related benefits of the Company’s Vice President Research and Development, Mr. Robert Gruenwald.

The purchase price of the assets was $350,000, of which $250,000 was paid in cash and the Company issued an unsecured promissory note for the balance of $100,000 is due in two installments of $50,000 each on April 10, 2009 and May 10, 2009 (see Note 5).  The $350,000 purchase price, together with legal costs of $3,465 incurred in connection with this asset purchase, resulted in a total purchase price of the EMS assets of $353,465. The Company engaged an independent valuation firm to assist management in the allocation of the purchase price of the assets.  Based on management’s assessment, including the utilization of the results of the independent valuation report, the Company allocated the purchase price to the following assets as of the acquisition date as follows:

Intellectual property assets	$	186,965
Goodwill		166,500
Total	$	353,465

The amounts of intangible assets and accumulated amortization for the year ended December 31, 2008 and December 31, 2007 are as follows:

	December 31, 2008			December 31, 2007
Amortized intangible assets:
Intellectual property assets	$	186,965		$	—
Accumulated amortization		(15,580	)		—
Totals	$	171,385		$	—

The intangible production assets are being amortized over a three year period under the straight-line method.  Amortization expense for the period September 9 through December 31, 2008 was $15,580. Amortization expense over the remaining amortization period is estimated to be as follows:

Year Ending December 31,
2009	$	62,322
2010		62,322
2011		46,741

F-14

BALQON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

NOTE 4 – BUSINESS ACQUISITION (continued)

Pro-forma statements of operations for the current and prior periods, as though the business acquisition had been completed as of the beginning of the earliest period presented are as follows:

	2008 (Unaudited)			2007 (Unaudited)
Revenues	$	332,596		$	494,585
Cost of  revenues		240,135			337,954
Gross profit		92,461			156,631
Operating expenses		1,451,419			233,710
Other income (expense)		(26,857	)		—
Net income (loss)	$	(1,385,815	)	$	(77,079	)
Net loss per share – basic and diluted	$	(0.07	)	$	(0.00	)

NOTE 5 – NOTES PAYABLE TO RELATED PARTIES

Notes payable consists of the following at:

	December 31, 2008		December 31, 2007
Note payable to a shareholder, unsecured, interest at 6% per annum payable at maturity, due December 6, 2008	$	875	$	—
Note payable to a shareholder, issued in connection with the acquisition of EMS (see Note 4), unsecured, interest at the prime rate (5% at December 31, 2008) per annum, payable at maturity, due in two principal installments; $50,000 on April 10, 2009 and $51,000 on May 10, 2009, plus accrued interest		100,000		—
Total notes payable	$	100,875	$	—

NOTE 6 – INCOME TAXES

At December 31, 2008, the Company had available Federal and state net operating loss carryforwards to reduce future taxable income. The amounts available were approximately $1,500,000 for Federal and for state purposes. The Federal carryforward expires in 2027 and the state carryforward expires in 2017. Given the Company’s history of net operating losses, management has determined that it is more likely than not the Company will be able to realize the tax benefit of the carryforwards.

Accordingly, the Company has not recognized a deferred tax asset for this benefit. Upon the attainment of taxable income by the Company, management will assess the likelihood of realizing the tax benefit associated with the use of the carryforwards and will recognize a deferred tax asset at that time.

F-15

BALQON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

NOTE 6 – INCOME TAXES (continued)

SFAS No. 109 requires that a valuation allowance be established when it is more likely than not that all or a portion of deferred tax assets will not be realized.

Significant components of the Company’s deferred income tax assets are as follows:

	December31, 2008			December31, 2007
Deferred income tax asset:
Net operating loss carryforward	$	1,478,692		$	83,230
Valuation allowance		(1,478,692	)		(83,230	)
Net deferred income tax asset	$	—		$	—

Reconciliation of the effective income tax rate to the U.S. statutory rate is as follows:

	Year Ended December 31,
	2008			2007
Tax expense at the U.S. statutory income tax		(34.00	)%		(34.00	)%
Increase in the valuation allowance		34.00	%		34.00	%
Effective tax rate		—	%		—	%

Effective January 1, 2007, the Company adopted Financial Accounting Standards Board Interpretation No. 48,“Accounting for Uncertainty in Income Taxes (“FIN 48”)—an interpretation of FASB Statement No. 109, Accounting for Income Taxes.” The Interpretation addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under FIN 48, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. FIN 48 also provides guidance on derecognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. At the date of adoption, and as of December 31, 2008, the Company does not have a liability for unrecognized tax benefits.

NOTE 7 – SHAREHOLDERS’ EQUITY

The Company was capitalized on April 21, 2005 when it issued 16,667,000 shares of no par common stock for $5,000 to its founding shareholder.

On June 4, 2008, the Board of Directors of the Company approved a 16,667:1 stock split of the Company’s no par common stock. All share amounts in the accompanying consolidated financial statements are presented as if the stock split occurred at the beginning of the period presented.

F-16

BALQON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

NOTE 7 – SHAREHOLDERS’ EQUITY (continued)

Shares Issued For Services

On June 4, 2008, the Company issued 4,500,090 shares of common stock to consultants for services rendered. The shares were valued at $65,476. Included in the 4,500,090 shares of common stock granted to consultants on June 4, 2008, are 1,250,025 shares of common stock, valued at $18,189, that were granted to the brother of the founding shareholder. On August 28, 2008, the Company issued 500,000 shares of common stock valued at $7,275 to three consultants for services rendered. Also on August 28, 2008, the Company issued 332,910 shares of common stock valued at $4,844 to its Chief Executive Officer and founding shareholder.

The Company was private on the date the shares discussed above were granted and there was no readily available market quotations for the Company’s shares of common stock.  As such, the shares granted prior to the reverse merger transaction were valued by management with the assistance of an independent valuation firm. The valuation determined by management based upon the valuation information resulted in a value of $0.015 per share, which amount was the basis of the compensation expense recorded on the issuance of the shares.

Shares Issued For Cash

During 2008, the Company raised aggregate net proceeds of $708,538 (after closing costs) through the issuance of 785,000 shares of its common stock.  The shares were sold in units that allowed the investor to acquire one share of common stock and 1 warrant to acquire one share of common stock at a price of $1 per unit as follows:

On October 24, 2008, immediately preceding the closing of the merger with Balqon Corporation (formerly BMR) (see Note 1), Balqon California raised an aggregate of $575,000 through the issuance of 575,000 shares of common stock at $1.00 per share to six accredited investors (the “October Private Placement”). In connection with this offering, Balqon California also issued three-year warrants to purchase an aggregate of 575,000 shares of common stock at an exercise price of $1.50 per share (the “October Warrants”).

On December 22, 2008, Balqon Corporation (formerly BMR) the Company raised an aggregate of $210,000 through the issuance of 210,000 shares of common stock at $1.00 per share to ten accredited investors (the “December Private Placement”). In connection with this offering, Balqon Corporation (formerly BMR) also issued three-year warrants to purchase an aggregate of 210,000 shares of common stock at an exercise price of $1.50 per share (the “December Warrants”).

F-17

BALQON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

NOTE 7 – SHAREHOLDERS’ EQUITY (continued)

Shares Issued Upon Conversion Of Convertible Notes

During July and September 2008, the Company raised an aggregate of $1,310,000 through the issuance to accredited investors of senior secured convertible promissory notes (the “July Private Placement” and the “September Private Placement”). The notes were due January 2, 2009, bore interest at a rate of 10% per annum that was due at maturity, and were secured by substantially all of the assets of the Company.  The notes were convertible into shares of common stock of the Company at a conversion price of $1.00 per share.  In connection with the placement, the Company also issued warrants to acquire 1,310,000 shares of common stock at an exercise price of $1.50 per share. The Company determined the fair value of the warrants and the conversion features were di minimis at the date of issuance (see Note 8).

 On October 24, 2008, the notes issued in the July and September Private Placements, including accrued interest thereon, were converted into an aggregate of 1,333,348 shares of common stock of the Company.

NOTE 8 – STOCK OPTIONS AND WARRANTS

Stock Options

At December 31, 2008, options shares outstanding are as follows:

	Shares		Weighted Average Exercise Price
Balance at January 1, 2008		—		—
Granted		4,562,592	$	2.00
Exercised		—		—
Cancelled		—		—
Balance at December 31, 2008		4,562,592	$	2.00

On June 4, 2008, the Company granted options to purchase 4,562,592 shares of common stock at $1.50 to $2.50 per share to an employee and two consultants. The options vested immediately on the date granted, and expire between June 30, 2010 and June 30, 2012.  The Company determined that the fair value of the options issued was di minimis as calculated by a Black-Scholes option pricing model using as assumptions an expected life of 3 years, an industry volatility of 58.43%, a risk free interest rate of 2.42%, and no expected dividend yield. Because the Company was private on the date the options were granted and there was no readily available market quotations for the Company’s shares of common stock, the fair value of the options granted were valued using a fair value of $0.015 per share, which is based on a valuation performed by management prior to the reverse merger transaction with the assistance of an independent valuation firm.

On October 24, 2008, immediately preceding the consummation of the merger with Balqon California (see Note 1), Balqon Corporation (formerly BMR) adopted the 2008 Stock Incentive Plan (“2008 Plan”). Initially, 7,500,000 shares of common stock are authorized for issuance under the 2008 Plan.

F-18

BALQON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

NOTE 8 – STOCK OPTIONS AND WARRANTS (continued)

Stock Options (continued)

The following table summarizes information about stock options outstanding and exercisable as of December 31, 2008:

	Options Outstanding			Options Exercisable
Range of Exercise Prices	Number of Shares Underlying Options	Weighted Average Exercise Price	Weighted Average Remaining Contractual Life (in years)	Number of Shares	Weighted Average Exercise Price
$1.50	1,520,864	$1.50	1.0	1,520,864	$1.50
$2.00	1,520,864	$2.00	2.0	1,520,864	$2.00
$2.50	1,520,864	$2.50	3.0	1,520,864	$2.50
	4,562,592			4,562,592

At December 31, 2008, the aggregate intrinsic value of the 4,562,592 options outstanding and exercisable was zero.  At December 31, 2008, all options were vested and there were no unvested options outstanding.

Warrants

At December 31, 2008, warrants shares outstanding are as follows:

	Shares		Weighted Average Exercise Price
Balance at January 1, 2008		—		—
Granted		3,008,778	$	1.50
Exercised		—		—
Cancelled		—		—
Balance at December 31, 2008		3,008,778	$	1.50

F-19

BALQON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

NOTE 8 – STOCK OPTIONS AND WARRANTS (continued)

Warrants (continued)

On June 4, 2008, the Company granted a warrant to purchase 729,180 shares of the Company’s common stock at an exercise price of $1.50 to $2.50 per share to a consultant (the “Marlin Warrants”). The Company determined that the fair value of the warrants issued to this consultant was di minimis as calculated by a Black-Scholes option pricing model using as assumptions an expected life of 3 years, an industry volatility of 58.43%, a risk free interest rate of 2.42%, and no expected dividend yield. Because the Company was private on the date the options were granted and there was no readily available market quotations for the Company’s shares of common stock, the fair value of the options granted were valued using a fair value of $0.015 per share, which is based on a valuation performed by management prior to the reverse merger transaction with the assistance of an independent valuation firm.

On September 15, 2008, the Company issued warrants to purchase 1,310,000 shares of the Company’s common stock at an exercise price of $1.50 per share in connection with the issuance of convertible promissory notes entered into with investors on July 11, 2008 and September 15, 2008.  The Company determined that the fair value of the warrants was di minimis as calculated by a Black-Scholes option pricing model using as assumptions an expected life of 3 years, an industry volatility of 58.43%, a risk free interest rate of 2.42%, and no expected dividend yield. Because the Company was private on the date the warrants were granted and there was no readily available market quotations for the Company’s shares of common stock, the fair value of the warrants granted were valued using a fair value of $0.015 per share, which is based on a valuation performed by management prior to the reverse merger transaction with the assistance of an independent valuation firm.

On October 24, 2008, immediately preceding the closing of the merger (see Note 1), Balqon Corporation (formerly BMR) issued warrants (the “BMR Warrants”) to purchase an aggregate of 184,598 shares of common stock. One-third of the BMR Warrants have an exercise price of $1.50 per share and expire on October 24, 2009, one-third of the BMR Warrants have an exercise price of $2.00 per share and expire on October 24, 2010, and one-third of the BMR Warrants have an exercise price of $2.50 per share and expire on October 24, 2011. The Company determined that the fair value of the warrants was $23,906 as calculated by a Black-Scholes option pricing model using as assumptions a market price of the stock of $1.00 per share based upon sales of securities around the same date, an expected life of 3 years, an industry volatility of 58.43%, a risk free interest rate of 2.42%, and no expected dividend yield.

During 2008, the Company sold units to acquire one share of common stock and one warrant to acquire a share of common stock at a price of $1 per unit. In connection with the sale of these units, on October 24, 2008, the Company issued three-year warrants to purchase 575,000 shares of the Company’s common stock at an exercise price of $1.50 per share in connection with the issuance of 575,000 common shares to six accredited investors.  On December 22, 2008, the Company issued three-year warrants to purchase an aggregate of 210,000 shares of common stock at an exercise price of $1.50 per share.  The Company did not allocate a value to these warrants since the amount would be an allocation between paid in capital of the common stock and warrants, and have no effect on the overall paid in capital.

F-20

BALQON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

NOTE 8 – STOCK OPTIONS AND WARRANTS (continued)

Warrants (continued)

The Company did not allocate any value to these warrants are such value would have no effect on recorded additional paid in capital.

The following table summarizes information about stock warrants outstanding and exercisable as of December 31, 2008:

	Warrants Outstanding			Warrants Exercisable
Range of Exercise Prices	Number of Shares Underlying Warrants	Weighted Average Exercise Price	Weighted Average Remaining Contractual Life (in years)	Number of Shares	Weighted Average Exercise Price
$1.50	2,399,594	$1.50	2.8	2,399,594	$1.50
$2.00	304,592	$2.00	2.0	304,592	$2.00
$2.50	304,592	$2.50	3.0	304,592	$2.50
	3,008,778			3,008,778

At December 31, 2008, the aggregate intrinsic value of the warrants outstanding and exercisable was zero

NOTE 9 – COMMITMENTS AND CONTINGENCIES

Contract

On June 25, 2008, the Company entered into an agreement with the City of Los Angeles to manufacture and deliver 20 electric yard hostlers, 5 short-haul electric drayage trucks, and associated equipment including chargers, batteries and controllers for a total of $5,383,750. In September 2008, the Company began work on the first units it intends to produce and expects to deliver all the vehicles and associated equipment to the City of Los Angelesin 2009.  The Company will recognize revenues from the sale of these vehicles and associated equipment at the time that delivery of product has occurred and title has transferred.

The Company agreed to move its research and production facilities to the City of Los Angeles and also agreed to pay the City of Los Angeles a royalty fee of $1,000 per electric vehicle it sells to a purchaser other than the City of Los Angeles or the AQMD.

On May 14, 2008, the Company entered into an agreement with the AQMD to manufacture and deliver one  electric yard hostler and associated equipment including batteries, battery chargers , and equipment maintenance services for a total of $300,000. The Company will recognize revenues from the sale of this vehicle and associated equipment at the time that delivery of the product has occurred and title has transferred.

F-21

BALQON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

NOTE 9 – COMMITMENTS AND CONTINGENCIES (continued)

Employment Contracts   

On October 24, 2008, the Company signed an at will employment agreement with its CEO. The employment agreement is effective October 24, 2008 and provides for, among other items, the CEO to receive compensation of $250,000 per year with an increase to $300,000 per year after the second anniversary of the effective date of the employment agreement.

On October 24, 2008, the Company signed an at will employment agreement with its Vice President Engineering. The employment agreement is effective October 24, 2008 and provides for, among other items, the Vice President Engineering to receive compensation of $150,000 per year with an increase to $175,000 per year after the second anniversary of the effective date of the agreement.

On March 27, 2009, the Company signed an at will employment agreement with its Vice President Research and Development. The employment agreement is effective October 24, 2008 and provides for, among other items, the Vice President Research and Development to receive compensation of $150,000 per year with an increase to $175,000 and $200,000 per year after the second and third anniversary, respectively, of the effective date of the agreement.

Leases

The Company leases its research and development facilities located in Santa Ana, California under a lease that expires on May 31, 2009. The lease has a current monthly payment of $3,206. On July18, 2008, the Company entered into a three-year lease of a manufacturing facility located in Harbor City, California that expires on July 31, 2011. The lease has a base monthly rent of $10,540.

Rent expense for the years ended December 31, 2008 and 2007 was $98,008 and $25,787, respectively.

The following is a schedule by years of future minimum rental payments required under the non-cancelable operating leases described above as of December 31, 2008:

Years ending December 31:
2009	$	96,833
2010		139,440
2011		122,880
2012		71,680
Thereafter		—

F-22

BALQON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

NOTE 9 – COMMITMENTS AND CONTINGENCIES (continued)

Registration Rights Agreements

In connection with the July Private Placement, September Private Placement and October Private Placement, Balqon California entered into certain registration rights agreements (collectively, the “Balqon California Registration Rights Agreements”). In connection with the December Private Placement, Balqon Corporation (formerly BMR) entered into certain registration rights agreements (collectively, the “Balqon Corporation Registration Rights Agreements”). Under the Balqon California Registration Rights Agreements and the Balqon Corporation Registration Rights Agreements, Balqon Corporation (formerly BMR) is obligated to register for resale an aggregate of up to 3,793,348 shares of common stock, of which an aggregate of 1,885,000 shares of common stock underly the July Warrants, September Warrants, October Warrants and December Warrants. Immediately preceding the consummation of the merger with Balqon California, Balqon Corporation (formerly BMR) also entered into a registration rights agreement (the “BMR Registration Rights Agreement”) with its stockholders to register for resale an aggregate of up to 1,400,000 shares of BMR’s common stock and with the holders of the BMR Warrants to register for resale an aggregate of 184,598 shares of common stock underlying the BMR Warrants.

Under the Balqon California Registration Rights Agreements, Balqon Corporation Registration Rights Agreements and the BMR Registration Rights Agreement, Balqon Corporation (formerly BMR)  filed a registration statement with the SEC on December 23, 2008, registering for resale all shares of common stock covered by the Balqon Registration Rights Agreements, Balqon Corporation Registration Rights Agreements and BMR Registration Rights Agreement.

NOTE 10 - SUBSEQUENT EVENTS

Bank Financing Agreement

On February 25, 2009, the Company executed a Business Financing Agreement, dated February 18, 2009, with Bridge Bank, National Association (the “Lender”) (the “Initial Agreement”). On February 27, 2009, the Company executed a Business Financing Modification Agreement, dated February 26, 2009, which modified the Initial Agreement (the “Modification Agreement,” and together with the Initial Agreement, the “Credit Agreement”). The Credit Agreement provides the Company with an accounts receivable based credit facility in the aggregate amount of up to $5,000,000 (the “Credit Facility”). Under the terms of the Credit Agreement, the Company may not borrow in excess of $500,000 unless and until the Company receives an executed term sheet with respect to an equity financing of at least $2,500,000 on terms and conditions acceptable to the Lender.

The Credit Facility is formula-based and generally provides that the outstanding borrowings under the Credit Facility may not exceed an aggregate of 80% of eligible accounts receivable. The Company must immediately pay any advance made under the Credit Facility within 90 days of the earlier of (i) the invoice date of the receivable that substantiated the advance or (ii) the date on which the advance was made.

F-23

BALQON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

NOTE 10 - SUBSEQUENT EVENTS (continued)

Bank Financing Agreement (continued)

Interest on the Credit Facility is payable monthly. The interest rate is variable and is adjusted monthly based on the per annum prime rate as published by the Lender plus two percentage points, subject to a minimum rate of 6.0% per annum.

In the event of a default and continuation of a default, the Lender may accelerate the payment of the principal balance requiring the Company to pay the entire indebtedness outstanding on that date. Upon the occurrence and during the continuation of an event of default, the interest rate applicable to the outstanding balance borrowed under the Credit Facility will be increased by five percentage points above the per annum interest rate that would otherwise be applicable.

The Credit Facility is secured by a continuing first priority security interest in all the Company’s personal property (subject to customary exceptions). The Credit Agreement may be terminated at any time by either party to the Credit Agreement. If the Company terminates the Credit Agreement prior to February 18, 2010, the Company will owe a termination fee equal to 1.00% of the dollar amount resulting from dividing the credit limit then in effect under the Credit Agreement by 80% (or such greater or lesser percentage as the Lender may establish from time to time).

Sale of 10% Unsecured Subordinated Convertible Promissory Notes

In March 2009, the Company entered into agreements with three accredited investors for the sale by the Company of an aggregate of $50,000 of 10% Unsecured Subordinated Convertible Promissory Notes which are convertible into an aggregate of 50,000 shares of the Company’s common stock at a conversion price of $1.00 per share of common stock, subject to adjustment.  Additionally, the Company  issued three-year warrants to purchase an aggregate of 50,000 shares of the Company’s common stock at an exercise price of $1.50 per share.

F-24

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 31st day of March, 2009.

BALQON CORPORATION
By:	/s/ BALWINDER SAMRA
	Balwinder Samra, Chairman of the Board, President and Chief Executive Officer (principal executive officer)

.

By:	/s/ ROBERT MIRANDA
	Robert Miranda, Chief Financial Officer (principal financial officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Name	Title	Date
/s/ BALWINDER SAMRA	President, Chief Executive Officer and	March 31, 2009
Balwinder Samra	Director (principal executive officer)
/s/ ROBERT MIRANDA	Chief Financial Officer (principal financial	March 31, 2009
Robert Miranda	officer and principal accounting officer)
/s/ HENRY VELASQUEZ	Director	March 31, 2009
Henry Velasquez
/s/ AMARPAL SINGH SAMRA	Director	March 31, 2009
Amarpal Singh Samra

77

BALQON CORPORATION

EXHIBITS ATTACHED TO THIS REPORT

Exhibit Number	Description
4.9	Form of Warrants issued by the Registrant to certain security holders to purchase an aggregate of 50,000 shares of common stock
10.6	Amendment and Restated Registration Rights Agreement, dated September 15, 2008, by and between Balqon California and certain security holders
10.7	Registration Rights Agreement, dated September 15, 2008, by and between Balqon California and certain security holders
10.11	Purchase and Service Agreement, dated May 15, 2008, between the South Coast Air Quality Management District and Balqon California
10.18	Asset Purchase Agreement, dated September 9, 2008, by and between Electric Motor Sports, LLC and Balqon California
10.19	Promissory Note, dated September 9, 2009, in the amount of $100,000, issued to Electric Motor Sports, LLC
10.20	Employment Agreement, dated October 24, 2008, by and between Robert Gruenwald and the Registrant
10.21	Agreement, dated May 2007, by and between the South Coast Air Quality Management District and Balqon California
10.22	Stock and Warrant Purchase Agreement, dated August 28, 2008, by and between Marlin Financial Group, Inc. and Balqon California
10.23	Amendment to Stock and Warrant Purchase Agreement, dated March 30, 2009, by and between Marlin Financial Group, Inc. and Balqon California
10.24	Form of 10% Unsecured Subordinated Convertible Promissory Notes issued in March 2009, in the aggregate principal amount of $50,000, which are convertible into an aggregate of 50,000 shares of our common stock
31.1	Certification of Principal Executive Officer required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Principal Financial Officer required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer and Chief Executive Officer Pursuant to 18 U.S.C. Section 350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.1	Consent of John Kinross-Kennedy
99.2	Consent of John Kinross-Kennedy

78

EX-4.9

EX-10.6

EXHIBIT 10.6

AMENDED AND RESTATED

REGISTRATION RIGHTS AGREEMENT

This Amended and Restated Registration Rights Agreement (this “Agreement”) is made and entered into as of __________, 2008, among Balqon Corporation, a California corporation (the “Company”), and the purchasers signatory hereto (each such purchaser is a “Purchaser” and collectively, the “Purchasers”).

The parties entered into a Registration Rights Agreement dated July 11, 2008, pursuant to the Senior Secured Convertible Promissory Notes, dated July 11, 2008, as amended on __________, 2008, between the Company and the Purchasers (the “Notes”).

The Company and the Purchasers hereby agree as follows:

1.             Definitions.  Capitalized terms used and not otherwise defined herein that are defined in the Notes shall have the meanings given such terms in the Notes.  As used in this Agreement, the following terms shall have the following meanings:

“Advice” shall have the meaning set forth in Section 6(d).

“Effectiveness Period” shall have the meaning set forth in Section 2(a).

“Filing Date” means, with respect to the Registration Statement required hereunder, the 60th calendar day following the effectiveness of the Merger.

“Holder” or “Holders” means the holder or holders, as the case may be, from time to time of Registrable Securities.

“Indemnified Party” shall have the meaning set forth in Section 5(c).

“Indemnifying Party” shall have the meaning set forth in Section 5(c).

“Losses” shall have the meaning set forth in Section 5(a).

“Plan of Distribution” shall have the meaning set forth in Section 2(a).

“Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened.

“Prospectus” means the prospectus included in a Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by a Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus.

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“Registrable Securities” means all of (i) the Shares issuable pursuant to the Notes, (ii) the shares of Common Stock issuable upon exercise of the Warrants to purchase Company Common Stock issued in connection with the Notes (the “Warrants”), and (iii) any shares of Common Stock issued or issuable upon any stock split, dividend or other distribution, recapitalization or similar event with respect to the foregoing.

“Registration Statement” means the registration statements required to be filed hereunder, including (in each case) the Prospectus, amendments and supplements to such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement.

“Rule 415” means Rule 415 promulgated by the Commission pursuant to the Securities Act, as such rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such rule.

“Rule 424” means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such rule.

“Selling Shareholder Questionnaire” shall have the meaning set forth in Section 3(a).

2.             Shelf Registration.

(a)           On or prior to the Filing Date, the Company shall prepare and file with the Commission a Registration Statement covering the resale of 100% of the Registrable Securities for an offering to be made on a continuous basis pursuant to Rule 415; provided, however, that if the SEC takes the position that the offering of some or all of the Registrable Securities is not eligible to be made on a delayed on continuous basis under the provisions of Rule 415, the Company shall amend the Registration Statement prior to its effectiveness to remove from the Registration Statement such portion of the Registrable Securities (the “Cut-back Shares”) and/or agree to such restrictions and limitations on the registration and resale of the Registrable Securities as the SEC may require to assure the Company’s compliance with the requirements of Rule 415 (collectively the “SEC Restrictions”).  Any Cut-back shall be allocated to the Holders of Registrable Securities on a pro rata basis, unless the SEC Restrictions require otherwise.  In the event there are holders of securities other than the Registrable Securities who are entitled to registration rights (“Other Shares”), the securities that are entitled to be included in the registration shall first be allocated to the Holders of Registrable Securities, and thereafter to the holders of the Other Shares, subject to such allocation priorities as are set forth in the registration rights agreements for such Other Shares.  Such Registration Statement shall contain (unless otherwise directed by the Holders of a majority of the Registrable Securities included in such Registration Statement) the “Plan of Distribution” section substantially in the form attached hereto as Annex A, with such changes as are reasonably required to respond to the actual plan of distribution or any comments to such section by the Commission and to comply with then applicable securities laws.  Subject to the terms of this Agreement, the Company shall use its commercially reasonable efforts to cause such Registration Statement to be declared effective under the Securities Act as promptly as possible after the filing thereof, and shall use its commercially reasonable efforts to keep such Registration Statement continuously effective under the Securities Act until the earlier of (A) the date that is two years after the date on which all the Shares are issued to the Holders, (B) the date on which there ceases to be outstanding any Registrable Securities, and (C) the date on which the Company receives an opinion from its legal counsel to the effect that all Registrable Securities can be freely traded without the continued effectiveness of a Registration Statement (the “Effectiveness Period”).

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(b)           The parties hereto agree that the Company will not be required to use a Registration Statement for any registration in which securities of the Company are sold to an underwriter for reoffering to the public, and the Company will in no event be required to cooperate with or pay for any such underwritten offering.

3.            Registration Procedures

In connection with the Company’s registration obligations hereunder, the Company shall:

(a)           Not less than three trading days prior to the filing of each Registration Statement or any related Prospectus or any amendment or supplement thereto (including any document that would be incorporated or deemed to be incorporated therein by reference), the Company shall, (i) furnish to each Holder copies of the “Principal and Selling Stockholders” and “Plan of Distribution” sections of such Registration Statement or other documents proposed to be filed, if such sections have been revised since the previous filing of such Registration Statement or any amendment or supplement thereto, which documents (other than those incorporated or deemed to be incorporated by reference) will be subject to the review of such Holders, and (ii) cause its officers and directors, counsel and independent certified public accountants to respond to such inquiries as shall be necessary, in the reasonable opinion of respective counsel, to conduct a reasonable investigation within the meaning of the Securities Act.  The Company shall not file a Registration Statement or any such Prospectus or any amendments or supplements thereto to which the Holders of a majority of the Registrable Securities included in such Registration Statement shall reasonably object in good faith, provided that, the Company is notified of such objection in writing no later than two trading days after the Holders have been so furnished copies of such documents.  In order to be included in such registration, each Holder agrees to furnish to the Company a completed Questionnaire in the form attached to this Agreement as Annex B (a “Selling Securityholder Questionnaire”) not less than ten days after written request therefore has been made by the Company.  Any Holder who fails to timely forward to the Company the completed Questionnaire shall be excluded from the registration.

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(b)           (i) Prepare and file with the Commission such amendments, including post-effective amendments, to a Registration Statement and the Prospectus used in connection therewith as may be necessary to keep a Registration Statement continuously effective as to the applicable Registrable Securities for the Effectiveness Period and prepare and file with the Commission such additional Registration Statements in order to register for resale under the Securities Act all of the Registrable Securities; (ii) cause the related Prospectus to be amended or supplemented by any required Prospectus supplement (subject to the terms of this Agreement), and as so supplemented or amended to be filed pursuant to Rule 424; (iii) respond as promptly as reasonably possible to any comments received from the Commission with respect to a Registration Statement or any amendment thereto and, upon written request by any Holder of at least 25% of the Registrable Securities included in such Registration Statement, as promptly as reasonably possible provide such Holders with true and complete copies of all material written correspondence from and to the Commission relating to a Registration Statement; and (iv) comply in all material respects with the provisions of the Securities Act and the Exchange Act with respect to the disposition of all Registrable Securities covered by a Registration Statement during the applicable period in accordance (subject to the terms of this Agreement) with the intended methods of disposition by the Holders thereof set forth in such Registration Statement as so amended or in such Prospectus as so supplemented.

(c)           Use its commercially reasonable efforts to notify the Holders (which notice shall, pursuant to clauses (ii) through (vi) hereof, be accompanied by an instruction to suspend the use of the Prospectus until the requisite changes have been made) as promptly as reasonably possible and (if requested by any Holder of at least 25% of the Registrable Securities included in a Registration Statement) confirm such notice in writing (i)(A) when a Prospectus or any Prospectus supplement or post-effective amendment to a Registration Statement has been filed; (B) when the Commission notifies the Company whether there will be a “review” of such Registration Statement and whenever the Commission comments in writing on such Registration Statement; and (C) with respect to a Registration Statement or any post-effective amendment, when the same has become effective; (ii) of any request by the Commission or any other federal or state governmental authority for amendments or supplements to a Registration Statement or Prospectus or for additional information; (iii) of the issuance by the Commission or any other federal or state governmental authority of any stop order suspending the effectiveness of a Registration Statement covering any or all of the Registrable Securities or the initiation of any Proceedings for that purpose; (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose; (v) of the occurrence of any event or passage of time that makes the financial statements included in a Registration Statement ineligible for inclusion therein or any statement made in a Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to a Registration Statement, Prospectus or other documents so that, in the case of a Registration Statement or the Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; and (vi) the occurrence or existence of any pending corporate development with respect to the Company that the Company believes may be material and that, in the determination of the Company, makes it not in the best interest of the Company to allow continued availability of a Registration Statement or Prospectus; provided that any and all of such information shall be kept confidential by each Holder until such information otherwise becomes public, unless disclosure by a Holder is required by law; provided, further, notwithstanding each Holder’s agreement to keep such information confidential, the Holders make no acknowledgement that any such information is material, non-public information.

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(d)           Use its commercially reasonable efforts to avoid the issuance of, or, if issued, obtain the withdrawal of (i) any order suspending the effectiveness of a Registration Statement, or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, at the earliest practicable moment.

(e)           Furnish to each Holder, without charge, to the extent requested in writing by such Holder, at least one conformed copy of each such Registration Statement and each amendment thereto, including financial statements and schedules, all documents incorporated or deemed to be incorporated therein by reference, and all exhibits to such Registration Statement (including those previously furnished or incorporated by reference) promptly after the filing of such documents with the Commission.

(f)           Promptly deliver to each Holder, without charge, as many copies of the Prospectus or Prospectuses (including each form of prospectus) and each amendment or supplement thereto as such Holder may reasonably request in writing in connection with resales by such Holder.  Subject to the terms of this Agreement, the Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the Holders in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto, except after the giving on any notice pursuant to Section 3(c).

(g)           Prior to any resale of Registrable Securities by a Holder, use its commercially reasonable efforts to register or qualify or cooperate with the selling Holders in connection with the registration or qualification (or exemption from the registration or qualification) of such Registrable Securities for the resale by the Holder under the securities or Blue Sky laws of such jurisdictions within the United States as any Holder reasonably requests in writing, to keep each registration or qualification (or exemption therefrom) effective during the Effectiveness Period and to do any and all other acts or things reasonably necessary to enable the disposition in such jurisdictions of the Registrable Securities covered by each Registration Statement; provided, that the Company shall not be required to qualify generally to do business in any jurisdiction where it is not then so qualified, subject the Company to any material tax in any such jurisdiction where it is not then so subject or file a general consent to service of process in any such jurisdiction.

5

(h)           If requested by a selling Holder, cooperate with such Holder to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be delivered to a transferee pursuant to a Registration Statement, which certificates shall be free, to the extent permitted by applicable law, of all restrictive legends, and to enable such Registrable Securities to be in such denominations and registered in such names as any such Holder may request.

(i)           Upon the occurrence of any event contemplated by this Section 3, as promptly as reasonably possible under the circumstances taking into account the Company’s good faith assessment of any adverse consequences to the Company and its stockholders of the premature disclosure of such event, prepare a supplement or amendment, including a post-effective amendment, to a Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, neither a Registration Statement nor such Prospectus will contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.  If the Company notifies the Holders in accordance with clauses (ii) through (vi) of Section 3(c) above to suspend the use of any Prospectus until the requisite changes to such Prospectus have been made, then the Holders shall suspend use of such Prospectus.  The Company will use its commercially reasonable efforts to ensure that the use of the Prospectus may be resumed as promptly as is practicable.  The Company shall be entitled to exercise its right under this Section 3(i) to suspend the availability of a Registration Statement and Prospectus for a period not to exceed 40 trading days (which need not be consecutive days) in any 12 month period.

(j)           Comply with all applicable rules and regulations of the Commission until the end of the Effectiveness Period.

(k)           The Company may require each selling Holder to furnish to the Company a certified statement as to the number of shares of Common Stock beneficially owned by such Holder and, the person who has voting and dispositive control over the such shares.  The Company shall have no obligation to keep a Prospectus usable or to give notice that a Prospectus is not usable by a particular Holder, and the Company will have no liability for, to the extent such Prospectus is not usable by such Holder because current information with respect to such Holder is not included therein because such Holder has not provided information to the Company in accordance with Section 3(a) or this Section 3(k).

(l)           Notwithstanding any provision of this Agreement to the contrary, it shall not be a breach or violation of any obligation of the Company hereunder if the Company fails to take any action otherwise required hereunder because, in its reasonable determination, such action would require the Company to disclose material, non-public information that the Company has a bona fidebusiness or legal reason for not disclosing regardless of whether the Company caused such material, non-public information to exist.

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4.            Registration Expenses.  All fees and expenses incident to the performance of or compliance with this Agreement by the Company shall be borne by the Company whether or not any Registrable Securities are sold pursuant to a Registration Statement.  The fees and expenses referred to in the foregoing sentence shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses (A) with respect to filings required to be made with the trading market on which the Common Stock is then listed for trading, and (B) in compliance with applicable state securities or Blue Sky laws reasonably agreed to by the Company in writing (including without limitation, fees and disbursements of counsel for the Company in connection with Blue Sky qualifications or exemptions of the Registrable Securities and determination of the eligibility of the Registrable Securities for investment under the laws of such jurisdictions as requested in writing by the Holders), (ii) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities and of printing prospectuses if the printing of prospectuses is reasonably requested by the Holders of a majority of the Registrable Securities included in a Registration Statement), (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Company, (v) Securities Act liability insurance, if the Company so desires such insurance, and (vi) fees and expenses of all other Persons retained by the Company in connection with the consummation of the transactions contemplated by this Agreement.  In addition, the Company shall be responsible for all of its internal expenses incurred in connection with the consummation of the transactions contemplated by this Agreement (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit and the fees and expenses incurred in connection with the listing of the Registrable Securities on any trading market as required hereunder.  In no event shall the Company be responsible for any broker or similar commissions or, except to the extent provided for in the Transaction Documents, any legal fees or other costs of the Holders.

5.             Indemnification

(a)           Indemnification by the Company.  The Company shall, notwithstanding any termination of this Agreement, indemnify and hold harmless each Holder, the officers, directors, agents, brokers (including brokers who offer and sell Registrable Securities as principal as a result of a pledge or any failure to perform under a margin call of Common Stock), investment advisors and employees of each of them, each Person who controls any such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, agents and employees of each such controlling Person, to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, reasonable attorneys’ fees) and expenses (collectively, “Losses”), as incurred, arising out of or relating to any untrue or alleged untrue statement of a material fact contained in a Registration Statement, any Prospectus or any form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or form of prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading, except to the extent, but only to the extent, that (i) such untrue statements or omissions are based solely upon information regarding such Holder furnished in writing to the Company by such Holder expressly for use therein, or to the extent that such information relates to such Holder or such Holder’s proposed method of distribution of Registrable Securities and was reviewed and expressly approved or was not objected to in writing by such Holder expressly for use in a Registration Statement, such Prospectus or such form of Prospectus or in any amendment or supplement thereto (it being understood that each Holder has expressly approved Annex A hereto for this purpose) or (ii) in the case of an occurrence of an event of the type specified in Section 3(c)(ii)-(vi), the use by such Holder of an outdated or defective Prospectus after the Company has notified such Holder in writing that the Prospectus is outdated or defective and prior to the receipt by such Holder of the Advice contemplated in Section 6(d).  The Company shall notify the Holders promptly of the institution, threat or assertion of any Proceeding arising from or in connection with the transactions contemplated by this Agreement of which the Company is aware.

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(b)           Indemnification by Holders.  Each Holder shall, severally and not jointly, indemnify and hold harmless each other Holder, the Company, its directors, officers, agents and employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, agents or employees of such controlling Persons, to the fullest extent permitted by applicable law, from and against all Losses, as incurred, to the extent arising out of or based solely upon: (x) such Holder’s failure to comply with the prospectus delivery requirements of the Securities Act, or (y) in the case of an occurrence of an event of the type specified in Section 3(c)(ii)-(vi), the use by such Holder of an outdated or defective Prospectus after the Company has notified such Holder in writing that the Prospectus is outdated or  defective and prior to the receipt by such Holder of the Advice contemplated in Section 6(d) or (z) any untrue or alleged untrue statement of a material fact contained in any Registration Statement, any Prospectus, or any form of prospectus, or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading (i) to the extent, but only to the extent, that such untrue statement or omission is contained in any information so furnished in writing by such Holder to the Company specifically for inclusion in such Registration Statement or such Prospectus or (ii) to the extent that such untrue statements or omissions are based solely upon information regarding such Holder furnished in writing to the Company by such Holder expressly for use therein, or to the extent that such information relates to such Holder or such Holder’s proposed method of distribution of Registrable Securities and was reviewed and expressly approved or was not objected to in writing by such Holder expressly for use in a Registration Statement (it being understood that each Holder has expressly approved Annex A hereto for this purpose), such Prospectus or such form of Prospectus or in any amendment or supplement thereto.  In no event shall the liability of any selling Holder hereunder be greater in amount than the dollar amount of the net proceeds received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation.

(c)           Conduct of Indemnification Proceedings. If any Proceeding shall be brought or asserted against any Person entitled to indemnity hereunder (an “Indemnified Party”), such Indemnified Party shall promptly notify the Person from whom indemnity is sought (the “Indemnifying Party”) in writing, and the Indemnifying Party shall have the right to assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all fees and expenses incurred in connection with defense thereof; provided, that the failure of any Indemnified Party to give such notice shall not relieve the Indemnifying Party of its obligations or liabilities pursuant to this Agreement, except (and only) to the extent that it shall be finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review) that such failure shall have prejudiced the Indemnifying Party.

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An Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless:  (1) the Indemnifying Party has agreed in writing to pay such fees and expenses; (2) the Indemnifying Party shall have failed promptly to assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3) the named parties to any such Proceeding (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party, and such Indemnified Party shall reasonably believe that a material conflict of interest is likely to exist if the same counsel were to represent such Indemnified Party and the Indemnifying Party (in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense thereof and the reasonable fees and expenses of one separate counsel shall be at the expense of the Indemnifying Party).  The Indemnifying Party shall not be liable for any settlement of any such Proceeding effected without its written consent, which consent shall not be unreasonably withheld.  No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending Proceeding in respect of which any Indemnified Party is a party, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding.

Subject to the terms of this Agreement, all reasonable fees and expenses of the Indemnified Party (including reasonable fees and expenses to the extent incurred in connection with investigating or preparing to defend such Proceeding in a manner not inconsistent with this Section) shall be paid to the Indemnified Party, as incurred, within ten trading days following written notice thereof to the Indemnifying Party; provided, that the Indemnified Party shall promptly reimburse the Indemnifying Party for that portion of such fees and expenses applicable to such actions for which such Indemnified Party is not entitled to indemnification hereunder, determined based upon the relative faults of the parties.

(d)           Contribution.  If the indemnification under Section 5(a) or 5(b) is unavailable to an Indemnified Party or insufficient to hold an Indemnified Party harmless for any Losses, then each Indemnifying Party shall contribute to the amount paid or payable by such Indemnified Party, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and Indemnified Party in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken or made by, or relates to information supplied by, such Indemnifying Party or Indemnified Party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission.  The amount paid or payable by a party as a result of any Losses shall be deemed to include, subject to the limitations set forth in this Agreement, any reasonable attorneys’ or other reasonable fees or expenses incurred by such party in connection with any Proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in this Section was available to such party in accordance with its terms.

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The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 5(d) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph.  Notwithstanding the provisions of this Section 5(d), no Holder shall be required to contribute, in the aggregate, any amount in excess of the amount by which the proceeds actually received by such Holder from the sale of the Registrable Securities subject to the Proceeding exceeds the amount of any damages that such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission, except in the case of fraud by such Holder.

The indemnity and contribution agreements contained in this Section are in addition to any liability that the Indemnifying Parties may have to the Indemnified Parties.

6.             Miscellaneous

(a)           Remedies.  In the event of a breach by the Company or by a Holder, of any of their obligations under this Agreement, each Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement, including recovery of damages, will be entitled to specific performance of its rights under this Agreement.  The Company and each Holder agree that monetary damages would not provide adequate compensation for any losses incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate.

(b)           No Piggyback on Registrations.  Except as set forth on Schedule 6(b) attached hereto, neither the Company nor any of its security holders (other than the Holders in such capacity pursuant hereto) may include securities of the Company in the initial Registration Statement other than the Registrable Securities.

(c)           Compliance.  Each Holder covenants and agrees that it will comply with the prospectus delivery requirements of the Securities Act as applicable to it in connection with sales of Registrable Securities pursuant to a Registration Statement.

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(d)           Discontinued Disposition.  Each Holder agrees by its acquisition of such Registrable Securities that, upon receipt of a notice from the Company of the occurrence of any event of the kind described in Section 3(c), such Holder will forthwith discontinue disposition of such Registrable Securities under a Registration Statement until such Holder’s receipt of the copies of the supplemented Prospectus and/or amended Registration Statement or until it is advised in writing (the “Advice”) by the Company that the use of the applicable Prospectus may be resumed, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus or Registration Statement.  The Company will use its commercially reasonable efforts to ensure that the use of the Prospectus may be resumed as promptly as it practicable.  The Company agrees and acknowledges that any periods during which the Holder is required to discontinue the disposition of the Registrable Securities hereunder shall be subject to the provisions of Section 2(b).

(e)           Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the same shall be in writing and signed by the Company and the Holders of a majority of the then outstanding Registrable Securities.  Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders and that does not directly or indirectly affect the rights of other Holders may be given by Holders of all of the Registrable Securities to which such waiver or consent relates; provided, however, that the provisions of this sentence may not be amended, modified, or supplemented except in accordance with the provisions of the immediately preceding sentence.

(f)           Notices. All notices and other communications required or permitted to be provided to a party hereunder shall be in writing and shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile (provided the sender receives a machine-generated confirmation of successful transmission) or e-mail prior to 5:00 p.m. (Los Angeles, California time) on a business day, (ii) the next business day after the date of transmission, if such notice or communication is delivered via facsimile or e-mail on a day that is not a business day or later than 4:59 p.m. (Los Angeles, California time) on any business day, (iii) the business day following the date of mailing, if sent overnight by an overnight courier service nationally recognized in the United States, or (iv) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications for a party shall be as set forth on the signature pages to the Notes or such other address as may be designated in writing hereafter, in the same manner, by such party.

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(g)           Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties and shall inure to the benefit of each Holder.  The Company may not assign its rights or obligations hereunder without the prior written consent of all of the Holders of the then-outstanding Registrable Securities except in the case of a merger (or similar transaction) in which case the surviving entity shall succeed to the rights and obligations of the Company.  Each Holder may assign their respective rights hereunder in the manner and to the Persons as permitted under the Notes, provided however that at least $100,000 of Registrable Securities are assigned to an assignee who seeks to assert registration rights under this agreement.

(h)           No Inconsistent Agreements.  Except as set forth in Schedule 6(h), neither the Company nor any of its subsidiaries has entered, as of the date hereof, nor shall the Company or any of its subsidiaries, during the period beginning on or after the date of this Agreement and ending at the end of the Effectiveness Period, enter into any agreement with respect to its securities, that would have the effect of impairing the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof.  Except as set forth on Schedule 6(h), neither the Company nor any of its subsidiaries has previously entered into any agreement granting any registration rights with respect to any of its securities to any Person that have not been satisfied in full.

(i)           Execution and Counterparts.  This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement.  In the event that any signature is delivered by facsimile transmission, such signature shall create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature were the original thereof.

(j)           Governing Law.  All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be determined with the provisions of the Notes.

(k)           Cumulative Remedies.  The remedies provided herein are cumulative and not exclusive of any remedies provided by law.

(l)           Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction.  It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

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(m)           Headings.  The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

(n)           Independent Nature of Holders’ Obligations and Rights.  The obligations of each Holder hereunder are several and not joint with the obligations of any other Holder hereunder, and no Holder shall be responsible in any way for the performance of the obligations of any other Holder hereunder.  Nothing contained herein or in any other agreement or document delivered at any closing, and no action taken by any Holder pursuant hereto or thereto, shall be deemed to constitute the Holders as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Holders are in any way acting in concert with respect to such obligations or the transactions contemplated by this Agreement.  Each Holder shall be entitled to protect and enforce its rights, including without limitation the rights arising out of this Agreement, and it shall not be necessary for any other Holder to be joined as an additional party in any Proceeding for such purpose.

*************************

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IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above.

BALQON CORPORATION
By:	/s/ Balwinder Samra
	Name: B. Samra
	Title:  President

[SIGNATURE PAGE OF HOLDERS FOLLOWS]

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[SIGNATURE PAGE OF HOLDERS]

Name of Holder: __________________________

Signature of Authorized Signatory of Holder: __________________________

Name of Authorized Signatory: _________________________

Title of Authorized Signatory: __________________________

[SIGNATURE PAGES CONTINUE]

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ANNEX A

Plan of Distribution

We are registering the shares of common stock on behalf of the selling stockholders. A “selling stockholder” is a person named on page ___ and also includes any donee, pledgee, transferee, assignee, distributee or other successor-in-interest selling shares received after the date of this prospectus from a selling stockholder as a gift, pledge, partnership or limited liability company distribution or other non-sale related transfer.  The selling stockholders may offer their shares of common stock at prevailing market prices, at prices related to the prevailing market prices, at negotiated prices or at fixed prices or in competitively bid transactions.  Each selling stockholder reserves the right to accept or reject, in whole or in part, any proposed purchase of shares, whether the purchase is to be made directly or through agents.

The selling stockholders may offer their shares of common stock at various times in one or more of the following transactions:

· in ordinary brokers’ transactions and transactions in which the broker solicits purchasers;

· purchases by a broker-dealer for its account pursuant to this prospectus;

· in transactions involving cross or block trades;

· in transactions “at the market” to or through market makers in the common stock or into an existing market for the common stock;

· in other ways not involving market makers or established trading markets, including direct sales of the shares to purchasers or sales of the shares effected through agents;

· through transactions in options, swaps or other derivatives which may or may not be listed on an exchange;

· in privately negotiated transactions;

· in transactions to cover short sales;

· in underwritten transactions; or

· in a combination of any of the foregoing transactions.

The selling stockholders also may sell all or a portion of their shares in open market transactions in accordance with Rule 144 under the Securities Act provided that they meet the criteria and conform to the requirements of that rule.

From time to time, one or more of the selling stockholders may pledge or grant a security interest in some or all of the shares owned by them.  If the selling stockholders default in performance of their secured obligations, the pledges or secured parties may offer and sell the shares from time to time by this prospectus.  The selling stockholders also may transfer and donate shares in other circumstances.  The number of shares beneficially owned by selling stockholders will decrease as and when the selling stockholders transfer or donate their shares or default in performing obligations secured by their shares.  The plan of distribution for the shares offered and sold under this prospectus will otherwise remain unchanged, except that the transferees, donees, pledges, other secured parties or other successors-in-interest will be selling stockholders for purposes of this prospectus.

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The selling stockholders may sell short the common stock.  The selling stockholders may deliver this prospectus in connection with such short sales and use the shares offered by this prospectus to cover such short sales.

The selling stockholders may enter into hedging transactions with broker-dealers in connection with distributions of the shares or otherwise.  In such transactions, the broker-dealers may engage in short sales of the shares in the course of hedging the positions they assume with the selling stockholder, including positions assumed in connection with distributions of the shares by such broker-dealers.  A selling stockholder also may enter into option or transactions with broker-dealers that involve the delivery of shares to the broker-dealers, who may then resell or otherwise transfer such shares.  In addition, a selling stockholder may loan or pledge shares to a broker-dealer, which may sell the loaned shares or, upon a default by the selling stockholder of the secured obligation, may sell or otherwise transfer the pledged shares.

We have advised the selling stockholders that during such times as they may be engaged in a distribution of the shares, they are required to comply with Regulation M under the Securities Exchange Act. With some exceptions, Regulation M prohibits any selling stockholder, any affiliated purchasers and other persons who participate in such a distribution from bidding for or purchasing, or attempting to induce any person to bid for or purchase, any security which is the subject of the distribution until the entire distribution is complete.

The selling stockholders may use broker-dealers to sell their shares of common stock.  If this occurs, broker-dealers will either receive discounts or commission from the selling stockholders, or they will receive commissions from the purchasers of shares of common stock for whom they acted as agents.  These brokers may act as dealers by purchasing any and all of the shares covered by this prospectus either as agents for others or as principals for their own accounts and reselling these securities under the prospectus.

The selling stockholders and any broker-dealers or other persons acting on behalf of parties that participate in the distribution of the shares may be considered underwriters under the Securities Act.  As such, any commissions or profits they receive on the resale of the shares may be considered underwriting discounts and commissions under the Securities Act.  Neither we nor any selling stockholders can presently estimate the amount of such compensation.

As of the date of this prospectus, we are not aware of any agreement, arrangement or understanding between any broker or dealer and any of the selling stockholders with respect to the offer or sale of the shares under this prospectus. If we become aware of any agreement, arrangement or understanding, to the extent required under the Securities Act, we will file a supplemental prospectus to disclose:

· the name of any the broker-dealers;

· the number of shares involved;

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· the price at which the shares are to be sold;

· the number of shares involved;

· the price at which the shares are to be sold;

· the commissions paid or discounts or concessions allowed to broker-dealers, where applicable;

· that the broker-dealers did not conduct any investigation to verify the information set out in this prospectus, as supplemented; and

· other facts material to the transaction.

In addition, when we are notified by a selling stockholder that a donee, pledgee, transferee, assignee, distributee or other successor-in-interest intends to sell more than 500 shares of common stock, we will file a supplement to this prospectus.

Certain of the agreements with the selling stockholders contain reciprocal indemnification provisions between us and the selling stockholders to indemnify each other against certain liabilities, including liabilities under the Securities Act, which may be based upon, among other things, any untrue statement or alleged untrue statement of a material fact or any omission or alleged omission of a material fact.

We have agreed to pay substantially all of the expenses incidental to the registration, offering and sale to the public of the shares of common stock covered by this prospectus, other than commissions, fees and discounts of underwriters, brokers, dealers and agents, if any.

It is possible that a significant number of shares could be sold at the same time.  Such sales, or the perception that such sales could occur, may adversely affect prevailing market prices for the common stock.

This offering by any selling stockholder will terminate on the date on which the selling stockholder has sold all of such selling stockholder’s shares.

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Schedule 6(b)

Schedule 6(h)

The Company has entered into the following agreements concerning the registration of securities:

1.           Registration Rights Agreement dated July 11, 2008, by and among Balqon and Anderson Hirsch, Tom Chen, Ryan Nelly and Michael Muellerleile, as amended by the Amended and Restated Registration Rights Agreement between the parties dated September, 2008.

2.           The Registration Rights Agreement dated September, 2008 for the shares of common stock and warrants issuable pursuant to the Convertible Promissory Note financing (the “Bridge Financing”).

3.           The Company intends to offer registration rights to investors pursuant to the terms of a private placement (”Private Placement”) of up to 3,000,000 Shares of Company Common Stock and Warrants to purchase up to 3,000,000 Shares of Company Common Stock.

EX-10.7

EXHIBIT 10.7

REGISTRATION RIGHTS AGREEMENT

This Registration Rights Agreement (this “Agreement”) is made and entered into as of __________, 2008, among Balqon Corporation, a California corporation (the “Company”), and the purchasers signatory hereto (each such purchaser is a “Purchaser” and collectively, the “Purchasers”).

This Agreement is made pursuant to the Convertible Promissory Notes, dated as of the date hereof between the Company and the Purchasers (the “Notes”).

The Company and the Purchasers hereby agree as follows:

1.             Definitions.  Capitalized terms used and not otherwise defined herein that are defined in the Notes shall have the meanings given such terms in the Notes.  As used in this Agreement, the following terms shall have the following meanings:

“Advice” shall have the meaning set forth in Section 6(d).

“Cut-back” and “Cut-back Shares” shall have the meanings set forth in Section 2(a).

“Effectiveness Period” shall have the meaning set forth in Section 2(a).

 “Filing Date” means, with respect to the Registration Statement required hereunder, the 60th calendar day following the effectiveness of the Merger.

“Holder” or “Holders” means the holder or holders, as the case may be, from time to time of Registrable Securities.

“Indemnified Party” shall have the meaning set forth in Section 5(c).

“Indemnifying Party” shall have the meaning set forth in Section 5(c).

“Losses” shall have the meaning set forth in Section 5(a).

“Plan of Distribution” shall have the meaning set forth in Section 2(a).

“Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened.

“Prospectus” means the prospectus included in a Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by a Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus.

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“Registrable Securities” means all of (i) the Shares issuable pursuant to the Notes, (ii) the shares of Common Stock issuable upon exercise of the Warrants to purchase Company Common Stock issued in connection with the Notes (the “Warrants”), and (iii) any shares of Common Stock issued or issuable upon any stock split, dividend or other distribution, recapitalization or similar event with respect to the foregoing.

“Registration Statement” means the registration statements required to be filed hereunder, including (in each case) the Prospectus, amendments and supplements to such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement.

“Rule 415” means Rule 415 promulgated by the Commission pursuant to the Securities Act, as such rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such rule.

“Rule 424” means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such rule.

“Selling Shareholder Questionnaire” shall have the meaning set forth in Section 3(a).

2.             Shelf Registration.

(a)           On or prior to the Filing Date, the Company shall prepare and file with the Commission a Registration Statement covering the resale of 100% of the Registrable Securities for an offering to be made on a continuous basis pursuant to Rule 415; provided, however, that if the SEC takes the position that the offering of some or all of the Registrable Securities is not eligible to be made on a delayed or continuous basis under the provisions of Rule 415, the Company shall amend the Registration Statement prior to its effectiveness to remove from the Registration Statement such portion of the Registrable Securities (the “Cut-back Shares”) and/or agree to such restrictions and limitations on the registration and resale of the Registrable Securities as the SEC may require to assure the Company’s compliance with the requirements of Rule 415 (collectively, the “SEC Restrictions”). Any cut-back (“Cut-back”) of the Registrable Securities pursuant to this Section 2(a) shall be subject to the priority of registration for the Registrable Securities covered by that certain Registration Rights Agreement dated July 11, 2008, as amended (the “Priority Shares”), and any cut-backs shall be allocated to the Holders of Registrable Securities on a pro rata basis, unless the SEC Restrictions require otherwise.  In the event there are holders of securities, other than the Registrable Securities and the Priority Shares, who are entitled to registration rights (“Other Shares”), the securities that are entitled to be included in the registration shall first be allocated to the holders of Priority Shares, next to the Holders of Registrable Securities and thereafter to the holders of Other Shares, subject to such allocation priorities as set forth in the registration rights agreements for such Other Shares.  Such Registration Statement shall contain the “Plan of Distribution” section substantially in the form attached hereto as Annex A, with such changes as are reasonably required to respond to the actual plan of distribution or any comments to such section by the Commission and to comply with then applicable securities laws.  Subject to the terms of this Agreement, the Company shall use its commercially reasonable efforts to cause such Registration Statement to be declared effective under the Securities Act as promptly as possible after the filing thereof, and shall use its commercially reasonable efforts to keep such Registration Statement continuously effective under the Securities Act until the earlier of (A) the date that is two years after the date on which all the Shares are issued to the Holders, (B) the date on which there ceases to be outstanding any Registrable Securities, and (C) the date on which the Company receives an opinion from its legal counsel to the effect that all Registrable Securities can be freely traded without the continued effectiveness of a Registration Statement (the “Effectiveness Period”).

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(b)           The parties hereto agree that the Company will not be required to use a Registration Statement for any registration in which securities of the Company are sold to an underwriter for reoffering to the public, and the Company will in no event be required to cooperate with or pay for any such underwritten offering.

3.             Registration Procedures

In connection with the Company’s registration obligations hereunder, the Company shall:

(a)           Not less than three trading days prior to the filing of each Registration Statement or any related Prospectus or any amendment or supplement thereto (including any document that would be incorporated or deemed to be incorporated therein by reference), the Company shall, (i) furnish to each Holder copies of the “Principal and Selling Stockholders” and “Plan of Distribution” sections of such Registration Statement or other documents proposed to be filed, if such sections have been revised since the previous filing of such Registration Statement or any amendment or supplement thereto, which documents (other than those incorporated or deemed to be incorporated by reference) will be subject to the review of such Holders, and (ii) cause its officers and directors, counsel and independent certified public accountants to respond to such inquiries as shall be necessary, in the reasonable opinion of respective counsel, to conduct a reasonable investigation within the meaning of the Securities Act.  The Company shall not file a Registration Statement or any such Prospectus or any amendments or supplements thereto to which the Holders of a majority of the Registrable Securities included in such Registration Statement shall reasonably object in good faith, provided that, the Company is notified of such objection in writing no later than two trading days after the Holders have been so furnished copies of such documents.  In order to be included in such registration, each Holder agrees to furnish to the Company a completed Questionnaire substantially in the form attached to this Agreement as Annex B (a “Selling Securityholder Questionnaire”) not less than ten days after written request therefore has been made by the Company.  Any Holder who fails to timely forward to the Company the completed Questionnaire shall be excluded from the registration.

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(b)           (i) Prepare and file with the Commission such amendments, including post-effective amendments, to a Registration Statement and the Prospectus used in connection therewith as may be necessary to keep a Registration Statement continuously effective as to the applicable Registrable Securities for the Effectiveness Period and prepare and file with the Commission such additional Registration Statements in order to register for resale under the Securities Act all of the Registrable Securities; (ii) cause the related Prospectus to be amended or supplemented by any required Prospectus supplement (subject to the terms of this Agreement), and as so supplemented or amended to be filed pursuant to Rule 424; (iii) respond as promptly as reasonably possible to any comments received from the Commission with respect to a Registration Statement or any amendment thereto and, upon written request by any Holder of at least 25% of the Registrable Securities included in such Registration Statement, as promptly as reasonably possible provide such Holders with true and complete copies of all material written correspondence from and to the Commission relating to a Registration Statement; and (iv) comply in all material respects with the provisions of the Securities Act and the Exchange Act with respect to the disposition of all Registrable Securities covered by a Registration Statement during the applicable period in accordance (subject to the terms of this Agreement) with the intended methods of disposition by the Holders thereof set forth in such Registration Statement as so amended or in such Prospectus as so supplemented.

(c)           Use its commercially reasonable efforts to notify the Holders (which notice shall, pursuant to clauses (ii) through (vi) hereof, be accompanied by an instruction to suspend the use of the Prospectus until the requisite changes have been made) as promptly as reasonably possible and (if requested by any Holder of at least 25% of the Registrable Securities included in a Registration Statement) confirm such notice in writing (i)(A) when a Prospectus or any Prospectus supplement or post-effective amendment to a Registration Statement has been filed; (B) when the Commission notifies the Company whether there will be a “review” of such Registration Statement and whenever the Commission comments in writing on such Registration Statement; and (C) with respect to a Registration Statement or any post-effective amendment, when the same has become effective; (ii) of any request by the Commission or any other federal or state governmental authority for amendments or supplements to a Registration Statement or Prospectus or for additional information; (iii) of the issuance by the Commission or any other federal or state governmental authority of any stop order suspending the effectiveness of a Registration Statement covering any or all of the Registrable Securities or the initiation of any Proceedings for that purpose; (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose; (v) of the occurrence of any event or passage of time that makes the financial statements included in a Registration Statement ineligible for inclusion therein or any statement made in a Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to a Registration Statement, Prospectus or other documents so that, in the case of a Registration Statement or the Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; and (vi) the occurrence or existence of any pending corporate development with respect to the Company that the Company believes may be material and that, in the determination of the Company, makes it not in the best interest of the Company to allow continued availability of a Registration Statement or Prospectus; provided that any and all of such information shall be kept confidential by each Holder until such information otherwise becomes public, unless disclosure by a Holder is required by law; provided, further, notwithstanding each Holder’s agreement to keep such information confidential, the Holders make no acknowledgement that any such information is material, non-public information.

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(d)           Use its commercially reasonable efforts to avoid the issuance of, or, if issued, obtain the withdrawal of (i) any order suspending the effectiveness of a Registration Statement, or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, at the earliest practicable moment.

(e)           Furnish to each Holder, without charge, to the extent requested in writing by such Holder, at least one conformed copy of each such Registration Statement and each amendment thereto, including financial statements and schedules, all documents incorporated or deemed to be incorporated therein by reference, and all exhibits to such Registration Statement (including those previously furnished or incorporated by reference) promptly after the filing of such documents with the Commission.

(f)           Promptly deliver to each Holder, without charge, as many copies of the Prospectus or Prospectuses (including each form of prospectus) and each amendment or supplement thereto as such Holder may reasonably request in writing in connection with resales by such Holder.  Subject to the terms of this Agreement, the Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the Holders in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto, except after the giving on any notice pursuant to Section 3(c).

(g)           Prior to any resale of Registrable Securities by a Holder, use its commercially reasonable efforts to register or qualify or cooperate with the selling Holders in connection with the registration or qualification (or exemption from the registration or qualification) of such Registrable Securities for the resale by the Holder under the securities or Blue Sky laws of such jurisdictions within the United States as any Holder reasonably requests in writing, to keep each registration or qualification (or exemption therefrom) effective during the Effectiveness Period and to do any and all other acts or things reasonably necessary to enable the disposition in such jurisdictions of the Registrable Securities covered by each Registration Statement; provided, that the Company shall not be required to qualify generally to do business in any jurisdiction where it is not then so qualified, subject the Company to any material tax in any such jurisdiction where it is not then so subject or file a general consent to service of process in any such jurisdiction.

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(h)           If requested by a selling Holder, cooperate with such Holder to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be delivered to a transferee pursuant to a Registration Statement, which certificates shall be free, to the extent permitted by applicable law, of all restrictive legends, and to enable such Registrable Securities to be in such denominations and registered in such names as any such Holder may request.

(i)           Upon the occurrence of any event contemplated by this Section 3, as promptly as reasonably possible under the circumstances taking into account the Company’s good faith assessment of any adverse consequences to the Company and its stockholders of the premature disclosure of such event, prepare a supplement or amendment, including a post-effective amendment, to a Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, neither a Registration Statement nor such Prospectus will contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.  If the Company notifies the Holders in accordance with clauses (ii) through (vi) of Section 3(c) above to suspend the use of any Prospectus until the requisite changes to such Prospectus have been made, then the Holders shall suspend use of such Prospectus.  The Company will use its commercially reasonable efforts to ensure that the use of the Prospectus may be resumed as promptly as is practicable.  The Company shall be entitled to exercise its right under this Section 3(i) to suspend the availability of a Registration Statement and Prospectus for a period not to exceed 40 trading days (which need not be consecutive days) in any 12 month period.

(j)           Comply with all applicable rules and regulations of the Commission until the end of the Effectiveness Period.

(k)           The Company may require each selling Holder to furnish to the Company a certified statement as to the number of shares of Common Stock beneficially owned by such Holder and the person who has voting and dispositive control over the such shares.  The Company shall have no obligation to keep a Prospectus usable or to give notice that a Prospectus is not usable by a particular Holder, and the Company will have no liability for, to the extent such Prospectus is not usable by such Holder because current information with respect to such Holder is not included therein because such Holder has not provided information to the Company in accordance with Section 3(a) or this Section 3(k).

(l)           Notwithstanding any provision of this Agreement to the contrary, it shall not be a breach or violation of any obligation of the Company hereunder if the Company fails to take any action otherwise required hereunder because, in its reasonable determination, such action would require the Company to disclose material, non-public information that the Company has a bona fidebusiness or legal reason for not disclosing regardless of whether the Company caused such material, non-public information to exist.

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4.             Registration Expenses.  All fees and expenses incident to the performance of or compliance with this Agreement by the Company shall be borne by the Company whether or not any Registrable Securities are sold pursuant to a Registration Statement.  The fees and expenses referred to in the foregoing sentence shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses (A) with respect to filings required to be made with the trading market on which the Common Stock is then listed for trading, and (B) in compliance with applicable state securities or Blue Sky laws reasonably agreed to by the Company in writing (including without limitation, fees and disbursements of counsel for the Company in connection with Blue Sky qualifications or exemptions of the Registrable Securities and determination of the eligibility of the Registrable Securities for investment under the laws of such jurisdictions as requested in writing by the Holders), (ii) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities and of printing prospectuses if the printing of prospectuses is reasonably requested by the Holders of a majority of the Registrable Securities included in a Registration Statement), (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Company, (v) Securities Act liability insurance, if the Company so desires such insurance, and (vi) fees and expenses of all other Persons retained by the Company in connection with the consummation of the transactions contemplated by this Agreement.  In addition, the Company shall be responsible for all of its internal expenses incurred in connection with the consummation of the transactions contemplated by this Agreement (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit and the fees and expenses incurred in connection with the listing of the Registrable Securities on any trading market as required hereunder.  In no event shall the Company be responsible for any broker or similar commissions or, except to the extent provided for in the Transaction Documents, any legal fees or other costs of the Holders.

5.             Indemnification

(a)           Indemnification by the Company.  The Company shall, notwithstanding any termination of this Agreement, indemnify and hold harmless each Holder, the officers, directors, agents, brokers (including brokers who offer and sell Registrable Securities as principal as a result of a pledge or any failure to perform under a margin call of Common Stock), investment advisors and employees of each of them, each Person who controls any such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, agents and employees of each such controlling Person, to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, reasonable attorneys’ fees) and expenses (collectively, “Losses”), as incurred, arising out of or relating to any untrue or alleged untrue statement of a material fact contained in a Registration Statement, any Prospectus or any form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or form of prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading, except to the extent, but only to the extent, that (i) such untrue statements or omissions are based solely upon information regarding such Holder furnished in writing to the Company by such Holder expressly for use therein, or to the extent that such information relates to such Holder or such Holder’s proposed method of distribution of Registrable Securities and was reviewed and expressly approved or was not objected to in writing by such Holder expressly for use in a Registration Statement, such Prospectus or such form of Prospectus or in any amendment or supplement thereto (it being understood that each Holder has expressly approved Annex A hereto for this purpose) or (ii) in the case of an occurrence of an event of the type specified in Section 3(c)(ii)-(vi), the use by such Holder of an outdated or defective Prospectus after the Company has notified such Holder in writing that the Prospectus is outdated or defective and prior to the receipt by such Holder of the Advice contemplated in Section 6(d).  The Company shall notify the Holders promptly of the institution, threat or assertion of any Proceeding arising from or in connection with the transactions contemplated by this Agreement of which the Company is aware.

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(b)           Indemnification by Holders.  Each Holder shall, severally and not jointly, indemnify and hold harmless each other Holder, the Company, its directors, officers, agents and employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, agents or employees of such controlling Persons, to the fullest extent permitted by applicable law, from and against all Losses, as incurred, to the extent arising out of or based solely upon: (x) such Holder’s failure to comply with the prospectus delivery requirements of the Securities Act, or (y) in the case of an occurrence of an event of the type specified in Section 3(c)(ii)-(vi), the use by such Holder of an outdated or defective Prospectus after the Company has notified such Holder in writing that the Prospectus is outdated or  defective and prior to the receipt by such Holder of the Advice contemplated in Section 6(d) or (z) any untrue or alleged untrue statement of a material fact contained in any Registration Statement, any Prospectus, or any form of prospectus, or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading (i) to the extent, but only to the extent, that such untrue statement or omission is contained in any information so furnished in writing by such Holder to the Company specifically for inclusion in such Registration Statement or such Prospectus or (ii) to the extent that such untrue statements or omissions are based solely upon information regarding such Holder furnished in writing to the Company by such Holder expressly for use therein, or to the extent that such information relates to such Holder or such Holder’s proposed method of distribution of Registrable Securities and was reviewed and expressly approved or was not objected to in writing by such Holder expressly for use in a Registration Statement (it being understood that each Holder has expressly approved Annex A hereto for this purpose), such Prospectus or such form of Prospectus or in any amendment or supplement thereto.  In no event shall the liability of any selling Holder hereunder be greater in amount than the dollar amount of the net proceeds received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation.

(c)           Conduct of Indemnification Proceedings. If any Proceeding shall be brought or asserted against any Person entitled to indemnity hereunder (an “Indemnified Party”), such Indemnified Party shall promptly notify the Person from whom indemnity is sought (the “Indemnifying Party”) in writing, and the Indemnifying Party shall have the right to assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all fees and expenses incurred in connection with defense thereof; provided, that the failure of any Indemnified Party to give such notice shall not relieve the Indemnifying Party of its obligations or liabilities pursuant to this Agreement, except (and only) to the extent that it shall be finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review) that such failure shall have prejudiced the Indemnifying Party.

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An Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless:  (1) the Indemnifying Party has agreed in writing to pay such fees and expenses; (2) the Indemnifying Party shall have failed promptly to assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3) the named parties to any such Proceeding (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party, and such Indemnified Party shall reasonably believe that a material conflict of interest is likely to exist if the same counsel were to represent such Indemnified Party and the Indemnifying Party (in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense thereof and the reasonable fees and expenses of one separate counsel shall be at the expense of the Indemnifying Party).  The Indemnifying Party shall not be liable for any settlement of any such Proceeding effected without its written consent, which consent shall not be unreasonably withheld.  No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending Proceeding in respect of which any Indemnified Party is a party, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding.

Subject to the terms of this Agreement, all reasonable fees and expenses of the Indemnified Party (including reasonable fees and expenses to the extent incurred in connection with investigating or preparing to defend such Proceeding in a manner not inconsistent with this Section) shall be paid to the Indemnified Party, as incurred, within ten trading days following written notice thereof to the Indemnifying Party; provided, that the Indemnified Party shall promptly reimburse the Indemnifying Party for that portion of such fees and expenses applicable to such actions for which such Indemnified Party is not entitled to indemnification hereunder, determined based upon the relative faults of the parties.

(d)           Contribution.  If the indemnification under Section 5(a) or 5(b) is unavailable to an Indemnified Party or insufficient to hold an Indemnified Party harmless for any Losses, then each Indemnifying Party shall contribute to the amount paid or payable by such Indemnified Party, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and Indemnified Party in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken or made by, or relates to information supplied by, such Indemnifying Party or Indemnified Party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission.  The amount paid or payable by a party as a result of any Losses shall be deemed to include, subject to the limitations set forth in this Agreement, any reasonable attorneys’ or other reasonable fees or expenses incurred by such party in connection with any Proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in this Section was available to such party in accordance with its terms.

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The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 5(d) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph.  Notwithstanding the provisions of this Section 5(d), no Holder shall be required to contribute, in the aggregate, any amount in excess of the amount by which the proceeds actually received by such Holder from the sale of the Registrable Securities subject to the Proceeding exceeds the amount of any damages that such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission, except in the case of fraud by such Holder.

The indemnity and contribution agreements contained in this Section are in addition to any liability that the Indemnifying Parties may have to the Indemnified Parties.

6.             Miscellaneous

(a)           Remedies.  In the event of a breach by the Company or by a Holder, of any of their obligations under this Agreement, each Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement, including recovery of damages, will be entitled to specific performance of its rights under this Agreement.  The Company and each Holder agree that monetary damages would not provide adequate compensation for any losses incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate.

(b)           No Piggyback on Registrations.  Except as set forth in Schedule 6(b) attached hereto, and subject to the cut-back provisions of Section 2(a), neither the Company nor any of its security holders may include securities of the Company in the initial Registration Statement other than the Priority Shares, the Registrable Securities and the Other Shares.

(c)           Compliance.  Each Holder covenants and agrees that it will comply with the prospectus delivery requirements of the Securities Act as applicable to it in connection with sales of Registrable Securities pursuant to a Registration Statement.

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(d)           Discontinued Disposition.  Each Holder agrees by its acquisition of such Registrable Securities that, upon receipt of a notice from the Company of the occurrence of any event of the kind described in Section 3(c), such Holder will forthwith discontinue disposition of such Registrable Securities under a Registration Statement until such Holder’s receipt of the copies of the supplemented Prospectus and/or amended Registration Statement or until it is advised in writing (the “Advice”) by the Company that the use of the applicable Prospectus may be resumed, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus or Registration Statement.  The Company will use its commercially reasonable efforts to ensure that the use of the Prospectus may be resumed as promptly as it practicable.  The Company agrees and acknowledges that any periods during which the Holder is required to discontinue the disposition of the Registrable Securities hereunder shall be subject to the provisions of Section 2(b).

(e)           Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the same shall be in writing and signed by the Company and the Holders of a majority of the then outstanding Registrable Securities.  Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders and that does not directly or indirectly affect the rights of other Holders may be given by Holders of all of the Registrable Securities to which such waiver or consent relates; provided, however, that the provisions of this sentence may not be amended, modified, or supplemented except in accordance with the provisions of the immediately preceding sentence.

(f)           Notices. All notices and other communications required or permitted to be provided to a party hereunder shall be in writing and shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile (provided the sender receives a machine-generated confirmation of successful transmission) or e-mail prior to 5:00 p.m. (Los Angeles, California time) on a business day, (ii) the next business day after the date of transmission, if such notice or communication is delivered via facsimile or e-mail on a day that is not a business day or later than 4:59 p.m. (Los Angeles, California time) on any business day, (iii) the business day following the date of mailing, if sent overnight by an overnight courier service nationally recognized in the United States, or (iv) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications for a party shall be as set forth on the signature pages to the Notes or such other address as may be designated in writing hereafter, in the same manner, by such party.

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(g)           Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties and shall inure to the benefit of each Holder.  The Company may not assign its rights or obligations hereunder without the prior written consent of all of the Holders of the then-outstanding Registrable Securities except in the case of a merger (or similar transaction) in which case the surviving entity shall succeed to the rights and obligations of the Company.  Each Holder may assign their respective rights hereunder in the manner and to the Persons as permitted under the Notes, provided however that at least $100,000 of Registrable Securities are assigned to an assignee who seeks to assert registration rights under this agreement.

(h)           No Inconsistent Agreements.  Except as set forth in Schedule 6(h), neither the Company nor any of its subsidiaries has entered, as of the date hereof, nor shall the Company or any of its subsidiaries, during the period beginning on or after the date of this Agreement and ending at the end of the Effectiveness Period, enter into any agreement with respect to its securities, that would have the effect of impairing the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof.  Except as set forth in Schedule 6(h), neither the Company nor any of its subsidiaries has previously entered into any agreement granting any registration rights with respect to any of its securities to any Person that have not been satisfied in full.

(i)           Execution and Counterparts.  This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement.  In the event that any signature is delivered by facsimile transmission, such signature shall create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature were the original thereof.

(j)           Governing Law.  All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be determined with the provisions of the Notes.

(k)           Cumulative Remedies.  The remedies provided herein are cumulative and not exclusive of any remedies provided by law.

(l)           Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction.  It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

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(m)           Headings.  The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

(n)           Independent Nature of Holders’ Obligations and Rights.  The obligations of each Holder hereunder are several and not joint with the obligations of any other Holder hereunder, and no Holder shall be responsible in any way for the performance of the obligations of any other Holder hereunder.  Nothing contained herein or in any other agreement or document delivered at any closing, and no action taken by any Holder pursuant hereto or thereto, shall be deemed to constitute the Holders as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Holders are in any way acting in concert with respect to such obligations or the transactions contemplated by this Agreement.  Each Holder shall be entitled to protect and enforce its rights, including without limitation the rights arising out of this Agreement, and it shall not be necessary for any other Holder to be joined as an additional party in any Proceeding for such purpose.

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IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above.

BALQON CORPORATION
By:	/s/ Balwinder Samra
	Name: B. Samra Title:  President

[SIGNATURE PAGE OF HOLDERS FOLLOWS]

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[SIGNATURE PAGE OF HOLDERS]

Name of Holder: __________________________

Signature of Authorized Signatory of Holder: __________________________

Name of Authorized Signatory: _________________________

Title of Authorized Signatory: __________________________

[SIGNATURE PAGES CONTINUE]

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ANNEX A

Plan of Distribution

We are registering the shares of common stock on behalf of the selling stockholders. A “selling stockholder” is a person named on page ___ and also includes any donee, pledgee, transferee, assignee, distributee or other successor-in-interest selling shares received after the date of this prospectus from a selling stockholder as a gift, pledge, partnership or limited liability company distribution or other non-sale related transfer.  The selling stockholders may offer their shares of common stock at prevailing market prices, at prices related to the prevailing market prices, at negotiated prices or at fixed prices or in competitively bid transactions.  Each selling stockholder reserves the right to accept or reject, in whole or in part, any proposed purchase of shares, whether the purchase is to be made directly or through agents.

The selling stockholders may offer their shares of common stock at various times in one or more of the following transactions:

· in ordinary brokers’ transactions and transactions in which the broker solicits purchasers;

· purchases by a broker-dealer for its account pursuant to this prospectus;

· in transactions involving cross or block trades;

· in transactions “at the market” to or through market makers in the common stock or into an existing market for the common stock;

· in other ways not involving market makers or established trading markets, including direct sales of the shares to purchasers or sales of the shares effected through agents;

· in privately negotiated transactions;

· in underwritten transactions; or

· in a combination of any of the foregoing transactions.

The selling stockholders also may sell all or a portion of their shares in open market transactions in accordance with Rule 144 under the Securities Act provided that they meet the criteria and conform to the requirements of that rule.

From time to time, one or more of the selling stockholders may pledge or grant a security interest in some or all of the shares owned by them.  If the selling stockholders default in performance of their secured obligations, the pledges or secured parties may offer and sell the shares from time to time by this prospectus.  The selling stockholders also may transfer and donate shares in other circumstances.  The number of shares beneficially owned by selling stockholders will decrease as and when the selling stockholders transfer or donate their shares or default in performing obligations secured by their shares.  The plan of distribution for the shares offered and sold under this prospectus will otherwise remain unchanged, except that the transferees, donees, pledges, other secured parties or other successors-in-interest will be selling stockholders for purposes of this prospectus.

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We have advised the selling stockholders that during such times as they may be engaged in a distribution of the shares, they are required to comply with Regulation M under the Securities Exchange Act. With some exceptions, Regulation M prohibits any selling stockholder, any affiliated purchasers and other persons who participate in such a distribution from bidding for or purchasing, or attempting to induce any person to bid for or purchase, any security which is the subject of the distribution until the entire distribution is complete.

The selling stockholders may use broker-dealers to sell their shares of common stock.  If this occurs, broker-dealers will either receive discounts or commission from the selling stockholders, or they will receive commissions from the purchasers of shares of common stock for whom they acted as agents.  These brokers may act as dealers by purchasing any and all of the shares covered by this prospectus either as agents for others or as principals for their own accounts and reselling these securities under the prospectus.

The selling stockholders and any broker-dealers or other persons acting on behalf of parties that participate in the distribution of the shares may be considered underwriters under the Securities Act.  As such, any commissions or profits they receive on the resale of the shares may be considered underwriting discounts and commissions under the Securities Act.  Neither we nor any selling stockholders can presently estimate the amount of such compensation.

As of the date of this prospectus, we are not aware of any agreement, arrangement or understanding between any broker or dealer and any of the selling stockholders with respect to the offer or sale of the shares under this prospectus. If we become aware of any agreement, arrangement or understanding, to the extent required under the Securities Act, we will file a supplemental prospectus to disclose:

· the name of any the broker-dealers;

· the number of shares involved;

· the price at which the shares are to be sold;

· the number of shares involved;

· the price at which the shares are to be sold;

· the commissions paid or discounts or concessions allowed to broker-dealers, where applicable;

· that the broker-dealers did not conduct any investigation to verify the information set out in this prospectus, as supplemented; and

· other facts material to the transaction.

In addition, when we are notified by a selling stockholder that a donee, pledgee, transferee, assignee, distributee or other successor-in-interest intends to sell more than 500 shares of common stock, we will file a supplement to this prospectus.

Certain of the agreements with the selling stockholders contain reciprocal indemnification provisions between us and the selling stockholders to indemnify each other against certain liabilities, including liabilities under the Securities Act, which may be based upon, among other things, any untrue statement or alleged untrue statement of a material fact or any omission or alleged omission of a material fact.

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We have agreed to pay substantially all of the expenses incidental to the registration, offering and sale to the public of the shares of common stock covered by this prospectus, other than commissions, fees and discounts of underwriters, brokers, dealers and agents, if any.

It is possible that a significant number of shares could be sold at the same time.  Such sales, or the perception that such sales could occur, may adversely affect prevailing market prices for the common stock.

This offering by any selling stockholder will terminate on the date on which the selling stockholder has sold all of such selling stockholder’s shares.

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Schedule 6(b)

Schedule 6(h)

The Company has entered into the following agreements concerning the registration of securities:

1.           Registration Rights Agreement dated July 11, 2008, by and among Balqon and Anderson Hirsch, Tom Chen, Ryan Nelly and Michael Muellerleile, as amended by the Amended and Restated Registration Rights Agreement between the parties dated September, 2008.

2.           The Registration Rights Agreement dated September, 2008 for the shares of common stock and warrants issuable pursuant to the Convertible Promissory Note financing (the “Bridge Financing”).

3.           The Company intends to offer registration rights to investors pursuant to the terms of a private placement (”Private Placement”) of up to 3,000,000 Shares of Company Common Stock and Warrants to purchase up to 3,000,000 Shares of Company Common Stock.

EX-10.11

EXHIBIT 10.11

South Coast Air Quality Management District Contract No. 08294  Standard

This Contract consists of 18 pages.

1.	PARTIES - The parties to this Contract are the South Coast Air Quality Management District (referred to here as “AQMD”) whose address is 21865 Copley Drive, Diamond Bar, California 91765-4178, and Balqon Corporation (referred to here as “CONTRACTOR”) whose address is 1701 East Edinger Avenue, Unit E-3, Santa Ana, California 92705.
2.	RECITALS

A.	AQMD is the local agency with primary responsibility for regulating stationary source air pollution in the South Coast Air Basin in the State of California. AQMD is authorized to enter into this Contract under California Health and Safety Code Section 40489. AQMD desires to contract with CONTRACTOR for services described in Attachment 1 - Statement of Work, attached here and made a part here by this reference. CONTRACTOR warrants that it is well-qualified and has the experience to provide such services on the terms set forth here.
B.	CONTRACTOR is authorized to do business in the State of California and attests that it is in good tax standing with the California Franchise Tax Board.
C.	All parties to this Contract have had the opportunity to have this Contract reviewed by their attorney.
.
D.	CONTRACTOR agrees to obtain the required licenses, permits, and all other appropriate legal authorizations from all applicable federal, state and local jurisdictions and pay all applicable fees.

3. PERFORMANCE REQUIREMENTS

A.	CONTRACTOR warrants that it holds all necessary and required licenses and permits to provide these services. CONTRACTOR further agrees to immediately notify AQMD in writing of any change in its licensing status.
B.	CONTRACTOR shall submit reports to AQMD as outlined in Attachment 1 - Statement of Work. All reports shall be submitted in an environmentally friendly format: recycled paper; stapled, not bound; black and white, double-sided print; and no three-ring, spiral, or plastic binders or cardstock covers. AQMD reserves the right to review, comment, and request changes to any report produced as a result of this Contract.
C.	CONTRACTOR shall perform all tasks set forth in Attachment 1 - Statement of Work, and shall not engage, during the term of this Contract, in any performance of work that is in direct or indirect conflict with duties and responsibilities set forth in Attachment 1 - Statement of Work.
D.	CONTRACTOR shall be responsible for exercising the degree of skill and care customarily required by accepted professional practices and procedures subject to AQMD’s final approval which AQMD will not unreasonably withhold. Any costs incurred due to the failure to meet the foregoing standards, or otherwise defective services which require re-performance, as directed by AQMD, shall be the responsibility of CONTRACTOR. CONTRACTOR’S failure to achieve the performance goals and objectives stated in Attachment 1- Statement of Work, is not a basis for requesting re-performance unless work conducted by CONTRACTOR is deemed by AQMD to have failed the foregoing standards of performance.

E. CONTRACTOR shall ensure, through its contracts with any subcontractor(s) that employees and agents performing under this Contract shall abide by the requirements set forth in this clause.

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4.	TERM - The term of this Contract is from the date of execution by both parties to May 31, 2010, unless further extended by amendment of this Contract in writing. No work shall commence until this Contract is fully executed by all parties.
5.	TERMINATION

A.	In the event any party fails to comply with any term or condition of this Contract, or fails to provide services in the manner agreed upon by the parties, including, but not limited to, the requirements of Attachment 1 - Statement of Work, this failure shall constitute a breach of this Contract. The non-breaching party shall notify the breaching party that it must cure this breach or provide written notification of its intention to terminate this contract. Notification shall be provided in the manner set forth in Clause 10. The non-breaching party reserves all rights under law and equity to enforce this contract and recover damages.
B.	AQMD reserves the right to terminate this Contract, in whole or in part, without cause, upon thirty (30) days’ written notice. Once such notice has been given, CONTRACTOR shall, except as and to the extent or directed otherwise by AQMD, discontinue any Work being performed under this Contract and cancel any of CONTRACTOR’S orders for materials, facilities, and supplies in connection with such Work, and shall use its best efforts to procure termination of existing subcontracts upon terms satisfactory to AQMD. Thereafter, CONTRACTOR shall perform only such services as may be necessary to preserve and protect any Work already in progress and to dispose of any property as requested by AQMD.
C.	CONTRACTOR shall be paid in accordance with this Contract for all Work performed before the effective date of termination under Clause 5.B. Before expiration of the thirty (30) days’ written notice, CONTRACTOR shall promptly deliver to AQMD all copies of documents and other Information and data prepared or developed by CONTRACTOR under this Contract with the exception of a record copy of such materials, which may be retained by CONTRACTOR.

6. INSURANCE

A.	CONTRACTOR shall furnish evidence to AQMD of workers’ compensation insurance for each of its employees, in accordance with either California or other states’ applicable statutory requirements prior to commencement of any work on this Contract.
B.	CONTRACTOR shall furnish evidence to AQMD of general liability insurance with a limit of at least $1,000,000 per occurrence, and $2,000,000 in a general aggregate prior to delivery of vehicle included in this Contract. AQMD shall be named as an additional insured on any such liability policy, and thirty (30) days written notice prior to cancellation of any such insurance shall be given by CONTRACTOR to AQMD.
C.	CONTRACTOR shall furnish evidence to AQMD of automobile liability insurance with limits of at least $100,000 per person and $300,000 per accident for bodily injuries, and $50,000 in property damage, or $1,000,000 combined single limit for bodily injury or property damage, prior to commencement of any work on this Contract.
D.	If CONTRACTOR fails to maintain the required insurance coverage set forth above, AQMD reserves the right either to purchase such additional insurance and to deduct the cost thereof from any payments owed to CONTRACTOR or terminate this Contract for breach.

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E.	All insurance certificates should be mailed to: AQMD Risk Management, 21865 Copley Drive, Diamond Bar, CA 91765-4178. The AQMD Contract Number must be included on the face of the certificate.
F.	CONTRACTOR must provide updates on the insurance coverage throughout the term of the Contract to ensure that there is no break in coverage during the period of contract performance. Failure to provide evidence of current coverage shall be grounds for termination for breach of Contract.

7.

INDEMNIFICATION - CONTRACTOR agrees to hold harmless, indemnify, and defend AQMD, its officers, employees, agents, representatives, and successors-in-interest against any and all loss, damage, cost, or expenses which AQMD, its officers, employees, agents, representatives, and successors-in-interest may incur or be required to pay by reason of any injury or property damage caused or incurred by CONTRACTOR, its employees, subcontractors, or agents as a result of the performance of this Contract.

8.

PAYMENT

A.	AQMD shall pay CONTRACTOR a not-to-exceed fixed price amount of Three Hundred Thousand Dollars ($300,000) for work performed under this Contract in accordance with Attachment 2 - Payment Schedule, attached here and included here by reference. Payment shall be made by AQMD to CONTRACTOR within thirty (30) days after approval by AQMD of an invoice prepared and furnished by CONTRACTOR showing services performed and referencing tasks and deliverables as shown in Attachment 1 - Statement of Work, and the amount of charge claimed. Each invoice must be prepared in duplicate, on company letterhead, and list AQMD’s Contract number, period covered by invoice, and CONTRACTOR’S social security number or Employer Identification Number and submitted to: South Coast Air Quality Management District, Attn: Naveen Berry.
B.	AQMD reserves the right to disallow charges when the invoiced services are not performed satisfactorily in AQMD sole judgment.
C.	Upon AQMD Governing Board approval, CONTRACTOR shall have first right of refusal to purchase the Electric Yard Hostler at fair market value through the AQMD surplused equipment process.

9.	RIGHT TO PUBLISH REPORT AND DOCUMENTS - Title and full ownership rights to any documents or reports developed under this Contract, as contained in Task 3 of the Statement of Work, shall at all times remain with AQMD.
	A.	Rights of Technical Data - AQMD shall have the unlimited right to use technical data, including material designated as a trade secret, resulting from the performance of services by CONTRACTOR under this Contract. AQMD agrees to not disseminate proprietary technical data outside the AQMD without CONTRACTOR’S written consent. CONTRACTOR shall have the right to use technical data for its own benefit.
	B.	Copyright - CONTRACTOR agrees to grant AQMD a royalty-free, nonexclusive, irrevocable license to produce, translate, publish, use, and dispose of all copyrightable material.
10.	NOTICES - Any notices from either party to the other shall be given in writing to the attention of the persons listed below, or to other such addresses or addressees as may hereafter be designated in writing for notices by either party to the other. Notice shall be given by certified, express, or registered mail, return receipt requested, and shall be effective as of the date of receipt indicated on the return receipt card.

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AQMD:	South Coast Air Quality Management District 21865 Copley Drive Diamond Bar, CA 91765-4178 Attn: Naveen Berry
CONTRACTOR:	Balqon Corporation 1701 East Edinger Avenue, Unit E-3 Santa Ana, California 92705 Attn: B. Samra

11.	EMPLOYEES OF CONTRACTOR
	A.	CONTRACTOR, its officers, employees, agents, representatives or subcontractors shall in no sense be considered employees or agents of AQMD, nor shall CONTRACTOR, its officers, employees, agents, representatives or subcontractors be entitled to or eligible to participate in any benefits, privileges, or plans, given or extended by AQMD to its employees.
	B.	AQMD requires CONTRACTOR to be in compliance with all state and federal laws and regulations with respect to CONTRACTOR’S employees throughout the term of this Contract, including state minimum wage laws and OSHA requirements.
12.	CONFIDENTIALITY - It is expressly understood and agreed that AQMD may designate in a conspicuous manner the information which CONTRACTOR obtains from AQMD as confidential. CONTRACTOR agrees to:
.	A	Observe complete confidentiality with respect to such information, including without limitation, agreeing not to disclose or otherwise permit access to such information by any other person or entity in any manner whatsoever, except that such disclosure or access shall be permitted to employees or subcontractors of CONTRACTOR requiring access in fulfillment of the services provided under this Contract.
	B.	Ensure that CONTRACTOR’S officers, employees, agents, representatives, and independent contractors are informed of the confidential nature of such information and to assure by agreement or otherwise that they are prohibited from copying or revealing, for any purpose whatsoever, the contents of such information or any part thereof, or from taking any action otherwise prohibited under this clause.
	C.	Not use such information or any part thereof in the performance of services to others or for the benefit of others in any form whatsoever whether gratuitously or for valuable consideration, except as permitted under this Contract.
	D.	Notify AQMD promptly and in writing of the circumstances surrounding any possession, use, or knowledge of such information or any part thereof by any person or entity other than those authorized by this clause.
	E.	Take at CONTRACTOR expense, but at AQMD’s option and in any event under AQMD’s control, any legal action necessary to prevent unauthorized use of such information by any third party or entity which has gained access to such information at least in part due to the fault of CONTRACTOR.

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	F.	Take any and all other actions necessary or desirable to assure such continued confidentiality and protection of such information.
	G.	Prevent access to such information by any person or entity not authorized under this Contract.
	H.	Establish specific procedures in order to fulfill the obligations of this clause.
	I.	Notwithstanding the above, nothing herein is intended to abrogate or modify the provisions of Government Code Section 6250 et.seq. (Public Records Act).
13.	PUBLICATION
	A.	AQMD shall have the right of prior written approval of any document which shall be disseminated to the public by CONTRACTOR in which CONTRACTOR utilized information obtained from AQMD in connection with performance under this Contract.
	B.	Information, data, documents, or reports developed by CONTRACTOR for AQMD, pursuant to this Contract, shall be part of AQMD public record unless otherwise indicated. CONTRACTOR may use or publish, at its own expense, such information provided to AQMD. The following acknowledgment of support and disclaimer must appear in each publication of materials, whether copyrighted or not, based upon or developed under this Contract.

This report was prepared as a result of work sponsored, paid for, in whole or in part, by the South Coast Air Quality Management District (AQMD). The opinions, findings, conclusions, and recommendations are those of the author and do not necessarily represent the views of AQMD. AQMD, its officers, employees, contractors, and subcontractors make no warranty, expressed or implied, and assume no legal liability for the information in this report. AQMD has not approved or disapproved this report, nor has AQMD passed upon the accuracy or adequacy of the information contained herein.

	C.	CONTRACTOR shall Inform its officers, employees, and subcontractors involved in the performance of this Contract of the restrictions contained herein and require compliance with the above.
14.	NON-DISCRIMINATION - In the performance of this Contract, CONTRACTOR shall not discriminate in recruiting, hiring, promotion, demotion, or termination practices on the basis of race, religious creed, color, national origin, ancestry, sex, age, or physical or mental disability and shall comply with the provisions of the California Fair Employment & Housing Act (Government Code Section 12900 et seq.), the Federal Civil Rights Act of 1964 (P.L. 88-352) and all amendments thereto, Executive Order No. 11246 (30 Federal Register 12319), and all administrative rules and regulations issued pursuant to said Acts and Order. CONTRACTOR shall likewise require each subcontractor to comply with this clause and shall include in each such subcontract language similar to this clause.
15.	SOLICITATION OF EMPLOYEES - CONTRACTOR expressly agrees that CONTRACTOR shall not, during the term of this Contract, nor for a period of six months after termination, solicit for employment, whether as an employee or independent contractor, any person who is or has been employed by AQMD during the term of this Contract without the consent of AQMD.

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16.	PROPERTY AND SECURITY - Without limiting CONTRACTOR obligations with regard to security, CONTRACTOR shall comply with all the rules and regulations established by AQMD for access to and activity in and around AQMD premises.
17.	ASSIGNMENT - The lights granted hereby may not be assigned, sold, licensed, or otherwise transferred by either party without the prior written consent of the other, and any attempt by either party to do so shall be void upon inception.
18.	NON-EFFECT OF WAIVER - The failure of CONTRACTOR or AQMD to insist upon the performance of any or all of the terms, covenants, or conditions of this Contract, or failure to exercise any rights or remedies hereunder, shall not be construed as a waiver or relinquishment of the future performance of any such terms, covenants, or conditions, or of the future exercise of such rights or remedies, unless otherwise provided for herein.
19.	ATTORNEYS’ FEES - In the event any action is filed in connection with the enforcement or interpretation of this Contract, each party shall bear its own attorneys’ fees and costs.
20.	FORCE MAJEURE - Neither AQMD nor CONTRACTOR shall be liable or deemed to be in default for any delay or failure in performance under this Contract or interruption of services resulting, directly or indirectly, from acts of God, civil or military authority, acts of public enemy, war, strikes, labor disputes, shortages of suitable parts, materials, labor or transportation, or any similar cause beyond the reasonable control of AQMD or CONTRACTOR.
21.	SEVERABILITY - In the event that any one or more of the provisions contained in this Contract shall for any reason be held to be unenforceable in any respect by a court of competent jurisdiction, such holding shall not affect any other provisions of this Contract, and the Contract shall then be construed as if such unenforceable provisions are not a part hereof.
22.	HEADINGS - Headings on the clauses of this Contract are for convenience and reference only, and the words contained therein shall in no way be held to explain, modify, amplify, or aid in the interpretation, construction, or meaning of the provisions of this Contract.
23.	DUPLICATE EXECUTION - This Contract is executed in duplicate. Each signed copy shall have the force and effect of an original.
24.	GOVERNING LAW - This Contract shall be construed and interpreted and the legal relations created thereby shall be determined in accordance with the laws of the State of California. Venue for resolution of any disputes under this Contract shall be Los Angeles County, California.
25.	ROYALTY FEE
	A.	In partial consideration of AQMD’s issuance of this Contract, and its inducement for future sales of Yard Hostlers and Electric Trucks (defined as United States Department of Transportation Class 8 heavy duty trucks with Gross Vehicle Weights equal to or greater than 33,000 pounds) for general commercial sates and use (“Electric Vehicles”), following the effective date of this Contract, CONTRACTOR (which for purposes of this Paragraph 25 shall include any successor by sale or merger to CONTRACTOR and any assignee or licensee of its technology for Electric Vehicles) shall pay to AQMD a royalty fee of One Thousand Dollars ($1,000) per Electric Vehicle sold or leased by CONTRACTOR (“Royalty Fee”) to a purchaser or lessee other than the AQMD and the City of Los Angeles. Within sixty (60) days after the end of each 12 month period from the date of execution of this CONTRACT, CONTRACTOR shall submit to AQMD a written statement identifying each sale or lease of an Electric Vehicle during the previous calendar year, the purchaser/lessee and status of payment or lease. For purposes of this clause, “sale” shall mean an agreement to purchase with or without payment being made therefore and “lease” shall mean an agreement to lease with or without payment being made therefore. AQMD may audit such written statements upon ten (10) days’ written notice to CONTRACTOR.

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	B.	The amount of the Royalty Fee shall, at the end of each five (5) year period after CONTRACTOR’S delivery of the Electric Trucks possessing specifications and features in accordance with Attachment 1 - Statement of Work and approved in writing by AQMD (the “First Production Date”), be adjusted up or down based on the inflation or deflation rate for that five-year period, as measured by the change in the Producer Price Index during that five-year period. The Producer Price Index shall mean and refer to that table in the Producer Price Index published by the United States Department of Labor, Bureau of Labor Statistics (Index 2007 = 100). If such index is discontinued, then any successor Producer Price Index of the United States Bureau of Labor Statistics, or successor agency thereto, shall be used, and if there is no successor Producer Price Index, the parties shall designate a substitute index or formula. In addition, AQMD agrees to meet and confer with CONTRACTOR at the end of each such five-year period regarding whether downward adjustments to the Royalty Fee are warranted in light of circumstances at the time if the Royalty Fee is at a level that makes the sale of Electric Vehicles or the license of electric vehicle technology by CONTRACTOR not commercially feasible.
	C.	CONTRACTOR shall use its best efforts to market Electric Vehicles itself or through third parties retained by or on its behalf or to make the technology available through licensees through the end of the aforementioned royalty period. It is the intent of the AQMD and CONTRACTOR that commercially feasible Electric Vehicles be available for use in Southern California.
	D.	This Agreement is intended to be interpreted in a commercially reasonable way so as to (i) enhance the availability of commercially feasible Electric Vehicles in Southern California, (ii) facilitate profitable business opportunities for CONTRACTOR, and (iii) continue royalty income to AQMD.
	E.	AQMD and CONTRACTOR expressly agree that this clause and the rights and obligations comprising such provision, including but not limited to CONTRACTOR’s obligations to pay Royalty Fees to AQMD, including Paragraph 25B, above, shall survive the expiration of this Agreement and that CONTRACTOR shall have a continuing obligation to pay such Royalty Fees.
26.	CITIZENSHIP AND ALIEN STATUS
	A.	CONTRACTOR warrants that it fully complies with all laws regarding the employment of aliens and others, and that its employees performing services hereunder meet the citizenship or alien status requirements contained in federal and state statutes and regulations including, but not limited to, the immigration Reform and Control Act of 1986 (P.L. 99-603). CONTRACTOR shall obtain from all covered employees performing services hereunder all verification and other documentation of employees’ eligibility status required by federal statutes and regulations as they currently exist and as they may be hereafter amended. CONTRACTOR shall have a continuing obligation to verify and document the continuing employment authorization and authorized alien status of employees performing services under this Contract to insure continued compliance with all federal statutes and regulations.

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	B.	Notwithstanding paragraph A above, CONTRACTOR, in the performance of this Contract, shall not discriminate against any person in violation of 8 USC Section 1324b.
	C.	CONTRACTOR shall retain such documentation for all covered employees for the period described by law. CONTRACTOR shall indemnify, defend, and hold harmless AQMD, its officers and employees from employer sanctions and other liability which may be assessed against CONTRACTOR or AQMD, or both in connection with any alleged violation of federal statutes or regulations pertaining to the eligibility for employment of persons performing services under this Contract.
27.	APPROVAL OF SUBCONTRACT
	A.	If CONTRACTOR intends to subcontract a portion of the work under this Contract, written approval of the terms of the proposed subcontract(s) shall be obtained from AQMD’s Executive Officer or designee prior to execution of the subcontract. No subcontract charges will be reimbursed unless such approval has been obtained.
	B.	Any material changes to the subcontract(s) that affect the scope of work, deliverable schedule, and/or cost schedule shall also require the written approval of the Executive Officer or designee prior to execution.
	C.	The sole purpose of AQMD’s review is to insure that AQMD’s contract rights have not been diminished in the subcontractor agreement. AQMD shall not supervise, direct, or have control over, or be responsible for, subcontractor’s means, methods, techniques, work  sequences or procedures or for the safety precautions and programs incident thereto, or for any failure of subcontractor to comply with any local, state, or federal laws, or rules or regulations.
28.	ENTIRE CONTRACT - This Contract represents the entire agreement between the parties hereto related to CONTRACTOR providing services to AQMD and there are no understandings, representations, or warranties of any kind except as expressly set forth herein. No waiver, alteration, or modification of any of the provisions herein shall be binding on any party unless in writing and signed by the party against whom enforcement of such waiver, alteration, or modification is sought.

[The Remainder of this Page is Intentionally Left Blank]

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IN WITNESS WHEREOF, the parties to this Contract have caused this Contract to be duly executed on their behalf by their authorized representatives.

SOUTH COAST AIR QUALITY MANAGEMENT DISTRICT		BALQON CORPORATION
By:		By:
		Name:	BALWINDER SAHRA
	Dr. William A. Burke, Chairman, Governing Board	Title:	PRESIDENT/CEO
Date:	5/15/08	Date:	MAY 14TH, 2008
ATTEST:
Saundra McDaniel, Clerk of the Board
By:
APPROVED AS TO FORM:
Kurt R. Wiese, District Counsel
By:
// Standard Boilerplate
Last Updated: 5 September 2006

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ATTACHMENT 1

STATEMENT OF WORK FOR

BALQON CORPORATION

YARD HOSTLER

In December 2006, the Governing Board awarded a contract to co-sponsor with POLA the development and demonstration of an electric tow tractor for container movement within and around the Port. Based on the original scope of work, an on-road truck chassis with a longer wheelbase was developed and is currently undergoing rigorous testing. Testing completed to date clearly shows that the vehicle is able to tow up to 68,000 pounds and is capable of achieving 35 mph top speed. On-road testing has not yet been initiated, since an experimental permit has not yet been issued by the Department of Transportation. However, as anticipated by staff, the design of the tow tractor, with consideration for the electric components, is well suited for a yard hostler application, but will require a shorter wheelbase. Testing completed to date has verified that the performance capabilities exceed the typical duty-cycle requirements of a yard hostler, but in-use testing is required to determine the effect of operation and recharge cycles on battery life.

This project is to purchase an electric yard hostler that can replace existing diesel trucks to transport containers within marine terminals and other off-port warehousing applications. The vehicle will be used to establish a “loaner” program to allow multiple terminal operators to test the vehicle in anticipation of a purchase. The proposed hostler is expected to have fast-charging, a maximum speed of 35 mph, and a range of 40 miles per charge. The design of the hostler will provide sufficient torque and power required to tow up to a 60,000 lb cargo container. The design goals are well in excess of typical yard hostlers that have an average use of less than 15 miles per day and a top speed of less than 20 miles per hour. The proposal includes installation of a fast charger that can be moved to numerous sites, as well as maintenance for the electric hostler. The purchase of the electric yard hostler to initiate a demonstration/“loaner” program will enable additional cargo handling entities to experience an electric yard hostler in actual operation. These include other terminal locations within the two ports as well as off-port warehousing operations. Such a “loaner” program will provide owner/operators with “hands-on” exposure to a fully functional electric yard hostler, as well as the recharging protocol prior to any purchase. Specifically, fleet operators will gain experience regarding the performance of electric yard hostler in terms of drivability, range, fuel and maintenance cost savings, and overall comfort as compared to corresponding diesel yard hostlers. Each participant in the demonstration program could have use of the electric yard hostler for a 30- to 45-day period.

The following tasks will be completed during the 24 month project:

1.	Delivery of a Completed Electric Yard Hostler	Duration 180 Days
	CONTRACTOR will provide a fully operation yard hostler, known as Balqon’s Nautilus E-20 Model, which has the following specifications:

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Max Speed	30 Miles
Turning Radius	21 Feet
Braking	Air Brakes
Gradeability	10% No Load
Tow Capacity	60,000 lbs
Range	30 miles between charges
Battery	Lead Acid - Deep Cycle traction; 140 Kwhr	5 Year Warranty; Forced Air Cooling; Single Point Battery Watering System; Additional Replacement Battery Pack
Charger	Off Board - 80 KW; 4 Port; Max Port Output-100 amps	Includes Power Station Stand and Charging Cables
Charge Time	6-8 Hours	1 Hour Fast Charge - 60% Capacity
Controller	240 KW AC Traction; 230 VAC output; 336 VDC Input	Liquid Cooled; Remote Data Acquisition
Motor	230 VAC; 100 hp continuous duty traction
Drive Assembly	Dual Planetary Reduction; 70,000 lbs terminal rating; Split Brake Automatic, 4 speed, electronically controlled heavy duty transmission couple to electric motor	Dual Rear Wheel; 275/70R22.5 LRJ Tires

	The vehicle shall have a 2 year warranty on the vehicle and accessories, and a 5 year prorated warranty on the batteries, including the replacement battery. Upon receipt of a fully operation yard hostler, AQMD will take title and ownership of the yard hostler.
2.	Maintenance & Charger Installation	Duration 24 months

CONTRACTOR shall provide maintenance/service that includes all preventative maintenance, including labor and material for a 24 month period after delivery of the vehicle. CONTRACTOR shall also conduct charger removal and installation for a minimum of 5 times at different demonstration sites. CONTRACTOR shall not be responsible for bringing appropriate utilities sufficient to operate the fast charger at the demonstration sites.

3. Data Collection and Reporting

CONTRACTOR shall collect information on the yard hostler, including use (hours of usage and mileage daily, weekly and monthly; usage of replacement battery pack) charging (time and frequency, including opportunity charges) and maintenance/service (including regular maintenance of battery and other components, service calls and repairs, and log of upgrades/software changes to optimize operation). These reports should be submitted on a monthly basis for the term of the contract, as required by AQMD.

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DELIVERABLES

1. Updates

CONTRACTOR shall update AQMD Project Officer by voice or email weekly or as desired. Additionally, CONTRACTOR should schedule on a quarterly basis, face-to-face meetings of the project partners.

2. Progress Reports

CONTRACTOR shall provide progress reports, to AQMD for review, comment, and approval. Two stapled copies of each progress reports due by the 10th of each reporting period and once a year, a 2 page summary report noted in item (5) below. CONTRACTOR shall submit one copy of each progress report to AQMD’s Project Officer and one copy to AQMD’s Contracts Administrator - Technology Advancement in conjunction with the invoice for the same period if applicable. Each progress report shall include, but not be limited to, the following:

a)	Reference to AQMD contract number, title of project and reporting time period, and the following subheadings and description thereof.
b)	Description of work completed during the reporting period, including a discussion of problems encountered and how those problems were resolved; and other relevant activities.
c)	When available, color photographs of the yard hostler in operation and any results that can be better transmitted photographically.

3. Draft Report

Three stapled copies of draft final report shall be submitted for review, comment, and approval by the date specified in Attachment 2 - Payment Schedule. CONTRACTOR shall submit three copies of the draft final report to AQMD’s Program Officer, as well as an electronic copy in Microsoft Word format. This document shall be considered in the public domain, in conformance with the California Public Records Act (Government Code Section 6250 et seq.). Any trade secret information may be submitted to AQMD in a separate report in which the trade secret information is specifically identified. AQMD agrees to treat such trade secret information in accordance with its Public Records Act guidelines relating to trade secret information. AQMD shall complete its review of the draft final report within two months of its receipt from CONTRACTOR, through CONTRACTOR’S representative. The draft final report shall include, but not be limited to, the following:

a)	Reference to AQMD contract number, title of project and project period.
b)	Project background and objectives.
c)	An executive summary up to three pages in length to include:

• a short, definitive statement of the problem/project;

• objective of the project, including emission control objectives or goals;

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	•	reference to AQMD Rules if applicable;
	•	subject of the project including the technology;
	•	conclusions (potential emissions impact, cost implications, and other implications);
	•	recommendations (design changes/optimization, other applications of the technology, and commercialization paths); and acknowledgment of all project sponsors.
d)	A detailed description of the scope of work. A copy of the statement of work should be attached as an Appendix.
e)	Analysis of data from testing and measurement of emissions, performance, durability, etc. should be in the main body of the report. The graphical presentation of the data analysis, particularly bar graphs, is recommended. The actual data and the testing protocols used should be attached as Appendices.
f)	Each Task proposed in the Statement of Work should have its own chapter. Findings or results of each task should be discussed in these chapters, and should include the following:

• Discussion of actions completed

• Discussion of risks and corrective actions

• Task Performance

g)	Problems - A discussion of significant problems encountered during the contract and how they were resolved. If a problem is not resolved within 30 days and the converted vehicle is removed, a detailed explanation of issues and their subsequent resolution shall be included in the reports. If a problem was not resolved, the report shall contain an explanation of the technology’s shortcomings and the specific needs for technology advancement. Furthermore, CONTRACTOR shall specifically discuss the condition of the batteries, and overall utility of the vehicle by terminal operators.
h)	Results - A discussion of the expected project results versus what was actually achieved.
i)	Costs - A comparison and discussion of expected versus actual AQMD contract costs.
j)	Copies of news releases, media and technical articles on the project.
k)	Discussion of commercial feasibility of the technology including a (quantitative) cost comparison of the proposed technology with competing technologies. Key cost elements need to be identified
l)	Recommendations, including design and engineering requirements for the yard hostler to be further optimized.

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4. Final Report

CONTRACTOR shall submit three stapled originals as well as an electronic copy in Microsoft Word format of the final report incorporating AQMD’s comments, no later than the date specified in Attachment 2-Payment Schedule. This document shall be considered in the public domain, in conformance with the California Public Records Act (Government Code Section 6250 et seq.). Any trade secret information may be submitted to AQMD in a separate report in which the trade secret information is specifically identified. AQMD agrees to treat trade secret information in accordance with its Public Records Act guidelines relating to trade secret information.

5. Two-Page Project Synopsis

CONTRACTOR shall submit a 2-page project synopsis, along with the final report. Attachment 3 to this contract provides the format and content to be used for this synopsis. In addition to a hard copy, CONTRACTOR shall provide the synopsis in an electronic version, using Microsoft WORD. All color photographs and images shall be embedded within the synopsis AND provided separately in digital format, such as .ppt, .tif. or .jpg, on a CD or sent electronically.

6. Photo Documentation

CONTRACTOR shall provide to the AQMD a set of color photographs, documenting the entire project.

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ATTACHMENT 2

PAYMENT SCHEDULE FOR

BALQON CORPORATION

YARD HOSTLER

The total amount of AQMD funding for this project shall not exceed $300,000.

	TASK	Scheduled Completion Date (From Contract Execution)		AQMD ($)
0.0	Contract Execution	0
1.0	Deliver	180 Days		280,000
	- Fully Operational Yard Hostler
	- Replacement Battery Pack
	- Fast Charger
2.0	Maintenance & Charger Installations	24 Months		15,000
3.0	Data Collection and Reporting, including			5,000
	- Draft Final Report	22 Months
	- Final Report	24 Months
	- 2-Page Project Synopsis	24 Months
	TOTAL		$	300,000

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Attachment 3

AQMD Contract # Date of Publication (as month year)

Project Title

Contractor

Prime contractor and significant subcontractors.

Cosponsors

List cosponsors from highest contributor to lowest.

Project Officer

AQMD project manager name.

Background

This section is a brief introduction describing the need for the technology and/or clean fuel, as defined by rules and regulations / mandates of AQMD, ARB, EPA, DOE, etc. If applicable, describe other relevant factors, such as economic issues, energy savings, etc.

Project Objective

This section should briefly describe the project objectives as originally stated in the Board (or EO) letter. If the objective evolved significantly during the contracting procedure, it should be noted how and why.

Technology Description

This section describes the general principles of operation and emissions control approach of the technology and/or clean fuel involved in the project.

If applicable, discuss how the principle of operation differs from other, currently available equipment. This includes describing what the “advancement” actually is over currently available technologies.

Status

This section describes the status or progress of the project. If the project was completed, provide the date of completion and note that the final report is on file with complete technical details of the project. Describe major project events, such as the development / testing / delivery of hardware (if applicable). If the project was terminated or ended prematurely you still need to file this report. Regardless of how it ended, per SB 199 you must describe any unanticipated problems that were encountered during the project, and how they were (or were not) resolved. If “fatal” problems were encountered, this section will be the heart of the report, since it would be unlikely that major benefits or emissions reductions were realized in a terminated project.

Picture of technology that has been supported with AQMD/Technology Advancement cosponsorship, if applicable. The picture, preferably a photograph, should clearly illustrate the technology. The size of the image should be about 3x3 to fit this two column format. The picture of the technology should be positioned on the front page

Results

This section summarizes all available emissions results and key performance characteristics. Performance is meant in the broadest terms, including (as applicable) emissions, energy efficiency, operation and maintenance requirements, overall environmental impacts, and performance tradeoffs. The primary emphasis of this section is the presentation of project data.

Performance results should be summarized using clear, graphical depictions whenever possible:

Graph or table summarizing key performance characteristics. Graphs are preferred over tables when possible. Graphical data presented should show the most representative data of the project‘s/technology’s performance. One graph would be preferred, but no more than two data presentations in this document

Measured performance is to be compared with the objectives/goals set for the project. Comparisons should focus on targeted emissions reductions and/or other key performance goals (e.g. range for electric vehicles).

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There should also be a brief discussion of performance tradeoffs. That is, did achieving one performance characteristic goal, such as missions, compromise another performance characteristic, such as efficiency.

Benefits

This section crystallizes the above-noted performance characteristics into project benefits, e.g., reduced emissions, increased efficiency, reduced global warming gases, or other environmental benefits. The potential emissions inventory impact of this technology applied in the South Coast Air Basin must be estimated based on performance results of this project and some estimate of market penetration (concisely State assumptions).

It clearly describes how those actual benefits compare with the benefits that were anticipated at the project’s start. Be as detailed as possible, including discussion of overall environmental impacts and benefits. Address the question of whether the technology may reduce an air pollutant while improving (or worsening) problems with water pollution, solid waste, global warming, toxic emissions, etc.

Project Costs

This brief section describes the actual costs of the program (AQMD’s funding contribution as well as the overall cost sharing) and how they compare with the originally projected costs of the project as stated in the Board (or EO) letter. Cost information can be presented graphically, in a table, or in paragraph form. This section does not address cost effectiveness or cost of commercialization.

Commercialization and Applications

This section describes the anticipated or potential applications of the demonstrated technology and/or clean fuel. If applicable, discuss follow on projects to further improve the technology. If available or applicable, discuss expected costs of control and cost-effectiveness in the context of currently available technologies. Cost data should be noted as estimates or projections, especially since TA projects are often “first of a kind.”

Prospects for commercialization should include a discussion of the potential size of the target or primary market, and if there is another market segment or application that could use the technology. Discussion of the commercial status of the technology should address questions such as: (1) how close to a commercial product is it; (2) what work remains to bring it to market; (3) when could it be made commercially available and competitive; and (4) what barriers remain before the technology can be commercialized.

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EX-10.18

EXHIBIT 10.18

ASSET PURCHASE AGREEMENT

providing for the purchase of certain assets of

ELECTRIC MOTORSPORTS, LLC,

an Ohio limited liability company,

and

Robert Gruenwald

(“Sellers”)

by

BALQON CORPORATION,

a California corporation

(“Buyer”)

ASSET PURCHASE AGREEMENT

          THIS ASSET PURCHASE AGREEMENT, dated as of September 9, 2008 (this “Agreement”), is made between (i) BALQON CORPORATION, INC., a California corporation (“Buyer”), on the one hand, and (ii) ELECTRIC MOTORSPORTS, LLC, an Ohio limited liability company (“EMS”), and Robert Gruenwald, an individual and sole member of EMS (“Gruenwald” and, together with EMS, “Sellers” and each, a “Seller”). with reference to the following facts.

RECITALS

             A. Sellers are engaged in the business of manufacturing and selling, electric vehicle components including motor controllers, chargers, converters, and motors worldwide (the “Business”).

             B. Gruenwald owns all of the issued and outstanding membership interests of EMS.

             C. EMS and Gruenwald have designed an electronic controller for Balqon (the “Controller”).

             D. Buyer desires to purchase from Sellers, and Sellers desire to sell to Buyer, substantially all of the assets of EMS and all of Gruenwald’s right, title and interest in any and all intellectual property relating to the Business on the terms and subject to the conditions set forth in this Agreement.

AGREEMENT

          The parties agree as follows:

ARTICLE 1. PURCHASE AND SALE OF ASSETS

            1.1 Agreement to Purchase and Sell Assets. On the terms and subject to the conditions of this Agreement, Buyer shall purchase and acquire from Sellers, and Sellers shall sell, convey, assign, transfer, and deliver to Buyer, (i) all of the assets and property of EMS, including but not limited to all of Intellectual Property Rights held by EMS as of the Closing (as defined in Section 2.1 below), except for the assets, if any, specifically described on the attached Exhibit 1.1 (the “Excluded Assets”), and (ii) all of Gruenwald’s right, title and interest in all of any Intellectual Property Rights relating in any way whatsoever to the Business. As used herein, “Intellectual Property Rights” shall mean all (i) patents, patent applications, patent disclosures and inventions, (ii) trademarks, service marks, trade dress, trade names, logos and corporate names and registrations and applications for registration thereof together with all of the goodwill associated therewith, (iii) copyrights (registered and unregistered) and copyrightable works and registrations and applications for registration thereof, (iv) software, data, data bases and documentation thereof, (v) trade secrets and other confidential information (including, without limitation, ideas, formulas, compositions, inventions (whether patentable or unpatentable and whether or not reduced to practice), know-how, manufacturing and production processes and techniques, research and development information, drawings, specifications, designs, plans, proposals, technical data, financial and marketing plans, supplier lists and information [and customer lists and information], (vi) other intellectual property rights and (vii) copies and tangible embodiments thereof (in whatever form or medium). The assets and property to be purchased by Buyer (collectively, the “Purchased Assets”) shall include, without limitation, the following:

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          (a) Intellectual Property. All of the right, title, benefit, and interest in and to (i) all Intellectual Property Rights of EMS (including, without limitation, any right to use any trade name such as “ELECTRIC MOTORSPORTS” and all derivations thereof), and other intellectual property rights, presently owned, possessed, or used by EMS, and (ii) all right, title, benefit and interest in and to all Intellectual Property Rights owned, possessed or used by Gruenwald in connection with the operation of the Business. Such Intellectual Property Rights of EMS and Gruenwald purchased hereby include but are not limited to, those listed on Exhibit 1.1(c). Collectively, the Intellectual Property Rights of EMS and Gruenwald purchased by Buyer hereunder shall be referred to as the “Intellectual Property”.

          (b) Records. All records, customer and supplier lists, product information, product drawings, production documentation, material specifications, equipment lists, formulae, specifications, drawings, plans, reports, data, notes, correspondence, contracts, labels, catalogues, website, software, brochures, art work, photographs, advertising materials, marketing and production literature, files, and other records and documents concerning the Business in the possession or control of either of the Sellers, including but not limited to any books of account, ledgers, and other financial records, but excluding the company records and minute books of EMS (collectively, the records to be delivered hereunder are hereinafter referred to as the “Business Information”).

          (c) Permits and Licenses. To the extent transferable and subject to obtaining any necessary third-party consents, all permits, licenses, franchises, and approvals relating to or maintained as part of the Business.

          (f) Manufacturer Warranties. To the extent transferable, all of the product and service warranties of manufacturers with respect to products purchased, sold, distributed, or serviced with respect to the Business on or before the Closing Date (the “Manufacturers Warranties”).

          (g) Intangible Property Rights. All of the choses in action, claims, causes, or rights of action and intangible property rights held by either of the Sellers arising from or concerning the Business, including but not limited to rights arising under any manufacturer’s warranties and, to the extent transferable, restrictive covenants, confidentiality obligations, and similar obligations of all present and former members, managers, officers, and employees of either of the Sellers relating to or concerning the Business.

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Sellers shall transfer the Purchased Assets to Buyer free and clear of all claims, liens, mortgages, pledges, security interests, encumbrances, charges, obligations, assignments, leases, and any other restrictions of any kind (“Encumbrances”), except for restrictions solely arising from and relating to the Assumed Liabilities (defined below)

            1.2 Purchase Price. As consideration for the Purchased Assets and the other covenants (including the covenants not to compete) of Sellers in this Agreement (the “Purchase Price”), Buyer shall pay to Sellers the sum of Three hundred and fifty thousand ($350,000) (the “Cash Purchase Price”), of which $250,000 shall be paid at the Closing (defined below), and $100,000 (“Holdback”) subject to any adjustments as provided herein, paid in form of promissory note to be delivered at the Closing and payable within six months following the date of the Closing (the “Closing Date”) with interest on the unpaid principal balance from the Closing Date, until paid, at the Prime Rate published by the Wall Street Journal.

            1.3 Assumed Liabilities. At the Closing, in addition to Buyer’s obligations under Section 1.2 above, Buyer shall assume and agree to pay, perform, and discharge, when due, only the following liabilities and obligations of Seller (collectively, the “Assumed Liabilities”):

 (a) Contract Liabilities. The liabilities and obligations of EMS arising after the Closing Date with respect to the contracts, agreements, and commitments specifically listed on the attached Exhibit 1.3(a) (the “Assumed Contracts”).

 (b) Warranty Liabilities. The liabilities and obligations arising after the Closing Date with respect to any claim under warranty issued by EMS for product sold by EMS before the Closing Date, up to an aggregate maximum of Twenty five Thousand Dollars ($25,000.00), net of any costs recovered or recouped by Buyer in connection with warranty matters. Warranty liability in excess of Twenty five Thousand Dollars ($25,000.00) shall be the sole responsibility of and paid by the Sellers.

Except for the Assumed Liabilities, Buyer shall not assume or be obligated to pay, perform, or discharge any liability, obligation, debt, charge, or expense of either of the Sellers of any kind, description, or character, whether accrued, absolute, contingent, or otherwise, or whether or not disclosed to Buyer in this Agreement, the Disclosure Schedule (defined below), or otherwise (collectively, the “Excluded Liabilities”). Without limiting the generality of the foregoing, and notwithstanding anything to the contrary contained in this Agreement, except for the Assumed Liabilities, Buyer shall not assume or be obligated to pay, perform, or discharge any liability, obligation, debt, charge, or expense of either of the Sellers even if imposed upon Buyer as a successor to EMS, with respect to any action, suit, proceeding, or claim arising out of or relating to any event occurring, or with respect to any cause of action arising, before or after the Closing Date, whether or not asserted before or after the Closing Date, including but not limited to any liability, obligation, debt, charge, or expense related to taxes, environmental matters, agreements with sales representatives, employee benefits, obligations or policies, judgments, product warranty claims, product liability claims, and contractual claims.   Buyer shall likewise not assume or be obligated to pay, perform, or discharge any liability, obligation, debt, charge, or expense of Gruenwald.

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            1.4 Limited License. Notwithstanding the transfer of the Intellectual Property noted herein, Buyer grants to Sellers a limited license to use the Intellectual Property, for a period not to exceed six (6) months after the Closing Date and subject to the revocation of such license for any reason in the sole discretion of the Buyer, for the limited purpose of completing all orders and contracts entered into prior to the Closing Date and listed on Exhibit 1.4.

            1.5 Allocation of Purchase Price. The Purchase Price and the Assumed Liabilities (to the extent the assumption thereof would be considered an amount realized for tax purposes) shall be allocated among the Purchased Assets and Seller’s other covenants set forth in this Agreement, as set forth on attached Exhibit 1.5 (which Exhibit 1.5 shall be mutually agreed upon prior to Closing). The allocation set forth on Exhibit 1.5 shall be conclusive and binding on Buyer, EMS, and Gruenwald for all purposes, including, but not limited to, reporting and disclosure requirements under the Internal Revenue Code of 1986, as amended (the “Code”), and any other state, local, or foreign tax authority.

ARTICLE 2. CLOSING

            2.1 Place and Date of Closing. The purchase and sale contemplated by this Agreement (the “Closing”) shall take place, on or before September 1, 2008, or at any other place, time, and date mutually agreed upon by Buyer and Sellers. The Closing shall be deemed to be effective upon the close of business on the Closing Date.

            2.2 Deliveries at Closing.

   (a) Buyer’s Deliveries. At the Closing, Buyer shall execute and/or deliver, or cause to be executed and/or delivered: (i) Two hundred and fifty thousand Dollars ($250,000.00) in immediately available funds; (ii) Promissory Note attached hereto as Exhibit 1.2; (vi) the Employment Agreement (as defined in Section 5.9 below); and (vii) any and all other agreements, certificates, instruments, and other documents required of Buyer under this Agreement.

   (b) Seller’s and the Shareholders’ Deliveries. At the Closing, EMA and Gruenwald, as the case may be, shall execute and deliver, or cause to be executed and delivered: (i) bills of sale, endorsements, assignments, and other instruments of conveyance, reasonably acceptable to Buyer, that shall be sufficient to transfer title to the Purchased Assets to Buyer; (ii) the Employment Agreement executed by Bob Gruenwald; (iv) certified copies of resolutions of the members of EMS or similar documentation reasonably acceptable to Buyer, authorizing the consummation of the transactions contemplated by this Agreement; (v) a good standing certificate for Seller from the State of Ohio, as of a date no more than thirty (30) days before the Closing Date; (vi) copies of all documents evidencing other necessary action and governmental approvals, if any, with respect to this Agreement and the transactions contemplated by this Agreement that Buyer reasonably requests; (vii) documents necessary for Seller to abandon use of the name “ELECTRIC MOTOR SPORTS of Ohio”; (viii) all records and other documents included in the Purchased Assets; and (ix) any and all other agreements, certificates, instruments, and other documents required of Seller under this Agreement.

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  (c) Further Actions. Buyer and each of the Sellers shall take all further actions and execute and deliver any additional agreements, certificates, instruments, and other documents on or after the Closing as Buyer shall deem reasonably necessary to effectuate the transactions contemplated by this Agreement.

ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF SELLERS

 EMS and Gruenwald, jointly and severally, represent and warrant to Buyer as follows:

 3.1 Disclosure Schedule. Attached to this Agreement are numbered schedules (collectively, the “Disclosure Schedule”) corresponding to the sections and subsections of this Article. Each individual schedule in the Disclosure Schedule contains exceptions to the specifically identified section and subsection contained in this Article and sets forth each exception in reasonable detail, with attached documentation as necessary to reasonably explain the exception. Any exception to the representations and warranties contained in a section or subsection of this Article is described in a separate schedule of the Disclosure Schedule that specifically identifies the applicable section or subsection of this Article. The Disclosure Schedule is complete and accurate in all respects. Sellers have provided Buyer with true and complete copies of all documents referenced in the Disclosure Schedule. Sellers are responsible for including all schedules of the Disclosure Schedule.

 3.2 Seller’s Organization and Good Standing. EMS is a limited liability company duly organized, validly existing, and in good standing under the laws of the State of Ohio. Except as set forth on Schedule 3.2 of the Disclosure Schedule, neither the character of the properties owned, leased, or used by Seller, nor the nature of the business transacted by Seller on or before the Closing Date, require the licensing or qualification of Seller in any other jurisdiction. Gruenwald owns one hundred percent (100%) of the issued and outstanding membership interests of EMS, free and clear of any and all liens, claims, encumbrances, or rights of third parties whatsoever. EMS has no membership interests, economic interests or other securities other than those owned by Gruenwald, and there are no outstanding subscriptions, options, rights, warrants, calls, or other agreements or commitments obligating EMS or Gruenwald to sell or issue any membership or other equity interests or other securities of EMS or any securities convertible into any membership or other equity interests of EMS, nor are there any voting trusts or any other agreements or understandings with respect to the voting of such membership or other equity interests of EMS or securities of EMS held by Gruenwald or anyone else.

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 3.3 Enforceability. EMS and Gruenwald, respectively, have full capacity, power, and authority to enter into this Agreement and to carry out the transactions contemplated by this Agreement, and this Agreement is binding upon EMS and Gruenwald and is enforceable against EMS and Gruenwald in accordance with the terms of this Agreement.

 3.4 No Conflict with Other Instruments or Proceedings. The execution and delivery of this Agreement and the consummation of the transactions contemplated by this Agreement will not (a) result in the breach of any of the terms or conditions of, or constitute a default under, the articles of organization or operating agreement or any charter document, contract, agreement, lease, commitment, indenture, mortgage, pledge, note, bond, license, or other instrument or obligation to which EMS or Gruenwald is now a party or by which EMS or Gruenwald or any of the properties or assets of EMS or Gruenwald may be bound or affected; (b) violate any law, rule, or regulation of any administrative agency or governmental body or any order, writ, injunction, or decree of any court, administrative agency, or governmental body; (c) result in the imposition of any lien or encumbrance on any of the Purchased Assets; (d) give rise to any right of first refusal or similar right to any third party with respect to any interest in any of the Purchased Assets; All consents, approvals, or authorizations of, or declarations, filings, or registrations with, any third parties or governmental or regulatory authorities required under any document or instrument listed in clause (a) in the immediately preceding sentence in connection with the execution, delivery, and performance of this Agreement and the consummation of the transactions contemplated by this Agreement have been obtained or made.

 3.5 Compliance with Laws and Other Regulations. Except as set forth on Schedule 3.5, neither of the Sellers are subject to, nor have either of the Sellers been threatened with, any fine, penalty, liability, or disability as the result of a failure to comply with any requirement of federal, state, local, or foreign law, rule, or regulation (including those relating to the environment, employment of labor, or occupational health and safety) or any requirement of any governmental body or agency having jurisdiction over either of the Sellers, the conduct of the Business, the use of assets of EMS or properties or any premises occupied by EMS. EMS is in compliance in all material respects with all of those laws, rules, regulations, and other requirements. There are no outstanding work orders relating to the Purchased Assets from or required by any police or fire department, sanitation, health, or factory authorities or from any federal, state, local, or foreign authority or any matters under discussion with any of those departments or authorities relating to work orders.

 3.6 Financial Statements. Seller’s financial statements as of and for the years ended December 31, 2007 and December 31, 2006, and the internal financial statements for the six (6) months ended June 30, 2008 (the “Financial Statements”), have previously been provided to Buyer and are attached as Schedule 3.6 of the Disclosure Schedule. The Financial Statements, including the notes to the Financial Statements, if any, are true, correct, and complete in all material respects, are in accordance with books and records of EMS, accurately and fairly reflect EMS’s transactions, assets, and liabilities, and present fairly the financial position and condition of EMS as of the respective dates indicated and the results of operations and changes in cash flows for the respective periods then ended, except as otherwise indicated on Schedule 3.6 of the Disclosure Schedule.   In this Agreement, the balance sheet of EMS as of June 30th, 2008, is referred to as the “Balance Sheet,” and June 30th, 2008, is referred to as the “Balance Sheet Date.”

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 3.7 Absence of Undisclosed Liabilities. Except for liabilities expressly reserved on the Balance Sheet or disclosed on Schedule 3.7, EMS does not have any debts, liabilities, or obligations of any nature, whether accrued, absolute, contingent, or otherwise, and whether due or to become due, including, guarantees, liabilities, or obligations on account of taxes, other governmental charges, duties, penalties, interest, or fines, and, there is no basis for the assertion against EMS of any debt, liability, or obligation.

 3.8 Absence of Certain Changes or Events. From January 1, 2008, up to and including the present date (the “Interim Period”), EMS has conducted the Business in the ordinary and usual course and has maintained the records and books of account relating to the Business in a manner that fairly and accurately reflects the transactions, assets, and liabilities of EMS, except as set forth in Schedule 3.8 and, during the Interim Period, there has been no material adverse change in the condition of the Business, financial or otherwise, or in any of the Purchased Assets except as disclosed on Schedule 3.8. In particular, and without limiting the foregoing, during the Interim Period, Seller has not with respect to the Business: (a) subjected any of the Purchased Assets to any claim, lien, mortgage, security interest, encumbrance, charge, or other restriction; (b) sold, transferred, or otherwise disposed of any of the Purchased Assets except in the ordinary and usual course of business; (c) disposed of or permitted a lapse of any license, permit, patent, trademark, trade name, or copyright; (d) disposed of, licensed or disclosed to any person any trade secret, formula, process, or know-how; (e) purchased or placed a purchase order for inventory, supplies, or any other items, or entered into any other agreement or transaction other than in the ordinary and usual course of business; (f) suffered any material loss of or damage to physical property or other assets, whether or not covered by insurance; (g) paid or incurred any obligation to make any distributions with respect to any membership interests of EMS; or (h) violated any federal, state, local, or foreign law, statute, ordinance, regulation, or order.

 3.9 Customers and Suppliers. During the Interim Period, there has not been any material adverse change in any business relationship EMS has with any of the ten (10) largest customers of the Business or the ten (10) largest suppliers of the Business nor could EMS or Gruenwald reasonably anticipate an adverse change as a result of the transactions contemplated by this Agreement. Schedule 3.9 of the Disclosure Schedule sets forth: (i) the names of the ten (10) largest customers of the Business and the ten (10) largest suppliers of the Business, along with aggregate amount of sales or purchases with each such customer or supplier for the twelve (12) months ending June 30, 2008; (ii) the aggregate dollar value of all accepted and unfilled orders for the sale of products by EMS with respect to the Business (including all agreements with respect to presold inventory); and (iii) all contracts and commitments for the purchase of products and supplies by EMS with respect to the Business. Except as disclosed on Schedule 3.9, there are no claims against EMS or Gruenwald with respect to the Business, or notices of any returns of merchandise, by reason of alleged overshipments, defective merchandise, or otherwise.

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 3.10 Taxes. Schedule 3.10 of the Disclosure Schedule contains a list of states, territories, and jurisdictions to which any Tax has been claimed to be, or is, properly payable by EMS. For purposes of this Agreement, “Tax” means (a) any net income, alternative or add-on minimum tax, gross income, gross receipts, sales, use, ad valorem, value added, transfer, franchise, profits, license, withholding, payroll, employment, excise, severance, stamp, occupation, premium, property, environmental or windfall profits tax, custom, duty or other tax, governmental fee or other like assessment or charge of any kind whatsoever, together with any interest or penalty, addition to tax or additional amount, imposed by any governmental authority responsible for the imposition of any tax (domestic or foreign), (b) liability of EMS for the payment of any amounts of the type described in clause (a) as a result of EMS being a member of an affiliated, consolidated, combined or unitary group or being a party to any agreement or arrangement whereby liability of EMS for payment of those amounts was determined or taken into account with reference to the liability of any other person for any period, and (c) liability of EMS with respect to the payment of any amounts of the type described in clauses (a) or (b) as a result of any express or implied obligation to indemnify any other person. Sellers have filed all federal, state, local, and foreign Tax returns that Sellers have been or are required by law to file and those returns are complete, accurate, and correct in all respects. Sellers have paid all Taxes and assessments due and payable by Sellers. Sellers have withheld and paid over all federal, state, local, and foreign withholdings required by law. All current and deferred Tax liabilities of EMS as of the Balance Sheet Date have been set forth in the Balance Sheet. EMS has not signed any extension with any taxing authority concerning any Tax liability and no disputed Tax matters exist for any prior periods. EMS has not received notice of the existence of any fact that would constitute grounds for the assessment of any further Tax with respect to any periods that have not been audited by the Internal Revenue Service or any state, local, or foreign Tax authority, and neither Seller has knowledge of the existence of any such fact.

 3.11 Intellectual Property. Schedule 3.11 of the Disclosure Schedule specifically describes all intellectual property owned or used by EMS. Sellers own the entire right, title, and interest in and to the Intellectual Property, including but not limited to the Controller, free and clear of all claims, liens, licenses, sublicenses, charges, or encumbrances. The Intellectual Property constitutes all of the intellectual property used by EMS in the Business and all of the intellectual property necessary for the operation of the Business. To the knowledge of the Sellers, there is no infringement or unlawful use by any person or entity of any Intellectual Property. To the knowledge of Sellers, EMS has not infringed or unlawfully used the patents, service marks, trade names, trademarks, logos, copyrights, or other proprietary rights of any other person or entity. EMS has proprietary rights in the trade name, trademark, and service mark in that EMS has registered the name “ELECTRIC MOTORSPORTS, LLC” with the Ohio Secretary of State and has made no other action other than the conduct of its business to protect such marks (and all variations of that name), however, any rights accruing to EMS due to its actions remain part of this agreement. None of the Intellectual Property is subject to any pending nor, to the knowledge of either Seller, any threatened claim or challenge, and, to the knowledge of either Seller, there is no valid basis for asserting any claim or challenge. EMS does not require any license or other proprietary right to operate the Business or to manufacture or sell Seller’s products other than normal rights granted by manufacturers in connection with the sale of those manufacturers’ products. EMS does not require any license or other proprietary right to manufacture or sell the Controller.  None of the Intellectual Property Rights owned or used by

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EMS is subject to any outstanding order, judgment decree, stipulation, or agreement restricting the use of any of the Intellectual Property Rights. Upon the consummation of the transactions contemplated herein, Buyer shall hold all of the rights, title and interests to all of the intellectual property necessary to manufacture and sell the Controller. Upon the consummation of the transactions contemplated herein, Buyer shall hold all of the intellectual property necessary to conduct the Business as the Business is currently being conducted.

 3.12 Contracts. Except as set forth in detail in Schedule 3.12 of the Disclosure Schedule, EMS is not a party to: (a) any lease, installment purchase agreement, or other contract with respect to any real or personal property; (b) any joint venture, distributor, dealer, sales, advertising, agency, manufacturer’s representative, sales representative, sales agent, franchise, license, or similar contract or commitment; (c) any contract or agreement for the purchase of any commodity, material, or piece of equipment for an aggregate purchase price of more than [One Thousand Dollars ($1,000)]; (d) any contract or agreement that, by its terms, does not terminate or may not be terminated without penalty upon no more than thirty (30) days’ notice; (e) any loan agreement, security agreement, mortgage, indenture, promissory note, conditional sales agreement, or other similar agreement or arrangement; (f) any written or oral consulting or employment contract; (g) any contract out of the ordinary and usual course of business; (h) any contract that if completed in accordance with its terms would result in a loss to or payment by EMS in excess of [One Thousand Dollars ($1,000)]; (i) any contract of guaranty or indemnification; or (j) any contract purporting to limit the freedom of EMS to compete in any line of business in any geographical area. EMS has not given any power of attorney to any person, firm, or corporation for any purpose whatsoever. No person, firm, or corporation has any written or oral agreement, option, understanding, or commitment, or any right or privilege capable of becoming an agreement, for the purchase from any Seller of any of the Purchased Assets.

 3.13 Employee Relations. EMS is not a party to any written or oral, express or implied, contract, agreement, or arrangement with any of EMS’s present or former members, managers, officers, employees, or consultants with respect to length, duration, or conditions of employment (or the termination of employment), salaries, bonuses, percentage compensation, deferred compensation, health insurance, any other form of remuneration, or with respect to any other subject matter whatsoever. There is no pending, threatened, or existing but unasserted claim against EMS for violation of any contract, agreement, or arrangement described above, nor, is there any factual basis upon which a claim could be asserted.

 3.14 Litigation. Except as disclosed on Schedule 3.14 of the Disclosure Schedule, there is no suit, action, proceeding (legal, administrative, or otherwise), claim, investigation, or inquiry (by an administrative agency, governmental body, or otherwise) pending or, to the knowledge of either Seller, threatened by, against, or otherwise affecting EMS or the Business, or any of the properties, assets, or business prospects of EMS or the Business, or the transactions contemplated by this Agreement, at law or in equity, or before or by any federal, state, municipal, or other governmental department, commission, board, agency, instrumentality, arbitration tribunal, or other authority, domestic or foreign, or to which EMS or the Business is or may become a party, and there is no factual basis upon which any suit, action, proceeding, claim, investigation, or inquiry could be asserted or based.  There is no outstanding judgment, order, writ, injunction, or decree of any court, administrative agency, governmental body, or arbitration tribunal against or affecting EMS or the Business or any of the properties, assets, or business prospects of EMS or the Business.

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 3.15 Product Liabilities and Warranties. Except as listed in Schedule 3.15 of the Disclosure Schedule, neither Seller has made any express nor implied warranties applicable to products sold or leased by EMS. There is no action, suit, proceeding, or claim pending or, to the knowledge of either Seller, threatened against EMS or the Business under any express or implied warranty covering any products sold or leased by the EMS or the Business, and there is no basis upon which any such claim could be made. There have been no product liability claims covering any products sold or leased by EMS or the Business asserted against either Seller or the Business for the period commencing five years preceding the Closing.

 3.16 Insurance. Schedule 3.16 of the Disclosure Schedule contains a list of all policies of liability, crime, fidelity, life, fire, product liability, workers’ compensation, health, director and officer liability, and all other forms of insurance that EMS owns or hold, including for each policy the name of the insurer, the amount of coverage, the type of insurance, the policy number, the renewal or expiration date, and all pending claims under that policy. The policies of insurance set forth on Schedule 3.16 of the Disclosure Schedule (or other policies providing substantially similar insurance coverage) have been in effect for the dates set forth on Schedule 3.16 for each. To the knowledge of either Seller, there is no threatened termination of, or premium increase with respect to, any of those policies. The present insurance coverage for EMS and the Business shall remain in effect until the Closing Date. There is no claim by or on behalf of either Seller or the Business pending under any of those policies or bonds as to which coverage has been questioned, denied, or disputed by the underwriters of those policies or bonds.

 3.17 Permits and Licenses. All material permits, licenses, orders, and approvals necessary for EMS to carry on the Business as presently conducted (collectively, the “Permits”) are identified in Schedule 3.17 of the Disclosure Schedule and the Permits are in full force and effect and have been complied with by EMS. All fees and charges incident to the Permits have been fully paid and are current, and, to the knowledge of the Sellers, no suspension or cancellation of any of the Permits has been threatened or could reasonably be expected to result by reason of the transactions contemplated by this Agreement.

 3.18 Brokers. Neither Seller has retained or employed any broker, finder, investment banker, or other person, or taken any action, or entered into any agreement or understanding that would give any broker, finder, investment banker, or other person any valid claim against Buyer, the Business or either Seller for a commission, brokerage fee, or other compensation.

 3.19 Accuracy of Statements. No representation or warranty made by either Seller in this Agreement, or any information, statement, certificate, or schedule furnished, or to be furnished, to Buyer pursuant to this Agreement, or in connection with the transactions con­templated by this Agreement, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements not misleading.

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ARTICLE 4. BUYER’S REPRESENTATIONS AND WARRANTIES

 Buyer represents and warrants to the Sellers as follows:

 4.1 Buyer’s Organization and Good Standing. Buyer is a corporation duly organized, validly existing, and in good standing under the laws of the State of California.

 4.2 Enforceability. Buyer has full capacity, power, and authority to enter into this Agreement and to carry out the transactions contemplated by this Agreement, and this Agreement is binding upon Buyer and is enforceable against Buyer in accordance with the terms of this Agreement, except to the extent that enforceability may be limited by applicable bankruptcy, insolvency, or similar laws and subject to generally equitable principles (regardless of whether enforcement is sought at law or in equity).

 4.3 No Conflict with Other Instruments or Proceedings. The execution and delivery of this Agreement and the consummation of the transactions contemplated by this Agreement will not (a) result in the breach of any of the terms or conditions of, or constitute a default under, Buyer’s articles of incorporation or bylaws or any contract, agreement, lease, commitment, indenture, mortgage, pledge, note, bond, license, or other instrument or obligation to which Buyer is now a party or by which Buyer may be bound or affected or (b) violate any law, rule, or regulation of any administrative agency or governmental body or any order, writ, injunction, or decree of any court, administrative agency, or governmental body. All consents, approvals, or authorizations of, or declarations, filings, or registrations with, any third parties or governmental or regulatory authorities required of Buyer in connection with the execution, delivery, and performance of this Agreement and the consummation of the transactions contemplated by this Agreement have been obtained or made.

 4.4 Brokers. Buyer has not retained or employed any broker, finder, investment banker, or other person, or taken any action, or entered into any agreement or understanding that would give any broker, finder, investment banker, or other person any valid claim against Buyer or either Seller for a commission, brokerage fee, or other compensation.

ARTICLE 5. COVENANTS

 5.1 Employees. At Closing, it is expected that EMS will terminate the employment of all of its employees, effective as of the Closing Date.

 5.2 Maintenance of Records; Cooperation with Preparation of Financial Statements. Buyer shall, for a period of three years following Closing, physically maintain possession of and safeguard Sellers’ books and records of the Business without cost to either Seller and provide reasonable access to such books and records upon reasonable advance notice by Gruenwald.

 5.3 Satisfaction of Warranty Claims. Seller shall handle all warranty claims with respect to product sold by EMS prior to Closing in the same manner and in accordance with the customary and usual practices utilized by EMS prior to Closing, and provide such repairs and/or issue such refunds as may be required by the Warranty listed in Schedule 3.15 in accordance with or better than the customary and usual business practices of EMS; provided, however, that nothing in this Section 5.3 shall be deemed to be a waiver of any breach by the Sellers of the representation in Section 3.15 hereof or any other rights Buyer may have under this Agreement.

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 5.4 Further Assurances. Buyer and each of the Sellers shall execute and deliver all documents and take all further actions as may be reasonably required or desirable to carry out the provisions of this Agreement and the transactions contemplated by this Agreement at or after the Closing. Upon the terms and subject to the conditions of this Agreement, Buyer and each of the Sellers shall take all actions and do, or cause to be done, all other things necessary, proper, or advisable to consummate and make effective as promptly as practicable the transactions contemplated by this Agreement and obtain in a timely manner all necessary waivers, consents, and approvals, and to effect all necessary registrations and filings.

 5.5 Payment of Indebtedness by Related Persons. Except as expressly provided in this Agreement, Sellers will cause all indebtedness owed to either Seller by any related person to be paid in full at or before the Closing.

 5.6 Use of Name. After the Closing Date, neither Seller nor any affiliate of either Seller shall use the name “ELECTRIC MOTORSPORTS” (the “Name”), or any other trade name, trademark, logo, or service mark included in the Purchased Assets. In addition, Sellers shall cooperate with Buyer and take all actions necessary to affect a smooth transfer of the Name to Buyer so that there will be no recording gap between Buyer and Sellers with respect to the Name.

 5.7 Covenant Not to Compete. For a period of one (1) year after the Closing Date, neither EMS nor Bob Gruenwald shall in any manner, directly or indirectly, on behalf of, as an agent of, or in conjunction with, any other person, firm, or corporation, or as a partner of any partnership, a member or manager of any limited liability company, or as a shareholder of any corporation, own, manage, acquire, operate, control, or participate in the ownership, management, operation, or control of, or have any financial interest in any person, firm, business, corporation, or other organization that is engaged in the Business or competes with the Business, within each county and/or similar political division or subdivision, of each state in the United States. Buyer shall be entitled (without limitation of any other remedy) to specific enforcement and/or injunctive relief with respect to any breach or threatened breach of these covenants. The parties intend these covenants to be enforced to the maximum extent possible.

 5.8 Employment Agreement. At the Closing, Buyer and Bob Gruenwald shall enter into an employment agreement (“Employment Agreement”) in the form attached hereto as Exhibit 5.8. It is understood that the Employment Agreement will contain a covenant not to compete similar to that set forth in Section 5.7 above, however, Bob Gruenwald will receive additional compensation under the Employment Agreement for the covenant not to compete, which covenant shall be deemed to have been given in connection with the transactions contemplated by this Agreement.

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ARTICLE 6. INDEMNIFICATION

 6.1 Indemnity. Each of the Sellers shall, jointly and severally, defend, indemnify, and hold harmless Buyer and Buyer’s affiliates, and their respective directors, officers, employees, shareholders, representatives, and agents (collectively, the “Buyer Indemnified Parties”), against and with respect to any and all loss, cost, damage, assessment, administrative fine or penalty, decrease in value, liability, obligation, claim, expense (including professional fees and similar expenses), or deficiency (collectively, the “Indemnified Losses”) from, resulting by reason of, or arising in connection with: (a) any and all liabilities of any Seller, or any successor in interest of any Seller, of any nature, whether accrued, absolute, contingent, or otherwise (including without limitation any Tax, severance or pension benefits, workers’ compensation claims, and environmental liabilities), other than the Assumed Liabilities; (b) any inaccuracy, misrepresentation, breach, or nonperformance of any representation, warranty, covenant, undertaking, condition, or agreement made or to be performed by any Seller pursuant to this Agreement or any document delivered to Buyer in connection with this Agreement or the consummation of the transactions contemplated by this Agreement, regardless of whether the inaccuracy, misrepresentation, breach, or omission was deliberate, reckless, negligent, innocent, or unintentional; (c) any pollution or threat to human health or the environment that, since December 13, 1990, is related in any way to the management, use, control, ownership or operation of the Purchased Assets or the Business by any Seller, including all on-site and off-site activities involving Hazardous Material, and that occurred, existed, or arose out of conditions or circumstances that occurred or existed, or was caused, in whole or in part, on or before the Closing Date, whether or not the pollution or threat to human health or the environment is described in the Disclosure Schedule or is known to any Seller or Buyer; and (d) any use of the Purchased Assets and the conduct of the Business by any Seller on or before the Closing Date, including without limitation any environmental related matters arising from actions, inactions, or events occurring on or before Closing Date, except the Assumed Liabilities. The parties hereto acknowledge and agree that the rights of Buyer herein are rights to defense as well as indemnification and that Sellers are jointly and severally obligated hereunder to provide such defense and indemnification.

 6.2 Indemnified Losses Broadly Defined. The Indemnified Losses shall include without limitation Indemnified Losses related to actual or alleged (a) violations of law, (b) products liability, (c) environmental liabilities, (d) Tax payment obligations, (e) breach or nonperformance or failure to timely perform under contracts (oral or written), leases, or warranties, (f) claims by present or former employees or applicants for employment, and (g) claims in connection with labor unions or collective bargaining arrangements. The Indemnified Losses shall also include but not be limited to any decrease in the value of the Purchased Assets related to any breach of the representations and warranties of any Seller. The right to indemnification, payment for Indemnified Losses, or other remedy based on the representations, warranties, covenants, and obligations of any Seller shall not be affected by any investigation conducted with respect to, or any knowledge acquired (or capable of being acquired) by any person at any time, whether before or after the date of this Agreement or the Closing Date, with respect to the accuracy or inaccuracy of, or compliance with, any representation, warranty, covenant, or obligation. The waiver of any condition based on the accuracy of any representation or warranty, or on the performance of, or compliance with, any covenant or obligation, will not affect the right to indemnification, payment of Indemnified Losses, or any other remedy based on those representations, warranties, covenants, and obligations.

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 6.3 Indemnification Period. The right of the Buyer Indemnified Parties to seek indemnification under this Article shall survive (“Indemnity Period”): (a) indefinitely with respect to representations, warranties, covenants, and agreements relating to: (i) title to the Purchased Assets, including but not limited to the right and title to the Intellectual Property Rights; (ii) the right of Sellers to convey and transfer the Purchased Assets to Buyer free and clear of any and all Encumbrances; and (iii) the enforceability of this Agreement or any covenant not to compete; (b) for the period set forth in Section 7.3 with respect to all claims other than the claims described in clause (a). For purposes of the preceding sentence, a claim shall be deemed made upon the earlier of: (x) the filing of a Demand for Arbitration with respect to the matter underlying the claim; or (y) receipt by either of a written notice of claim setting forth the amount of the claim (if known by Buyer) and a general description of the facts underlying the claim. The parties hereto waive the applicable statutes of limitation with respect to the claims referenced in clause (a) of the first sentence of this Section 6.3.

 6.4 Third-Party Claims.

(a) Notice of Third-Party Claims. If any action, suit, or proceeding (including claims by federal, state, local, or foreign tax authorities) shall be threatened or commenced against any of the Buyer Indemnified Parties in respect of which any of the Buyer Indemnified Parties may demand indemnification under this Agreement, Buyer shall notify Sellers to that effect with reasonable promptness after receiving written notice of the action, suit, or proceeding, and Sellers shall to defend against the action, suit, or proceeding, at Sellers’ sole expense, subject to the limitations set forth below.

(b) Defense of Claims. Sellers shall notify Buyer that shall defend Buyer against the action, suit or proceeding with reasonable promptness. Buyer shall have the right to employ Buyer’s own counsel and participate in the defense of the case, but the fees and expenses of Buyer’s counsel shall be at the expense of Buyer, unless (i) the employment of Buyer’s counsel at the expense of Seller shall have been authorized in writing by either Seller in connection with the defense of the action, suit, or proceeding; (ii) either Seller shall have decided not to defend against the action, suit, or proceeding; or (iii) Buyer shall have reasonably concluded that (A) Buyer’s interests could only be adequately protected by Buyer’s direct participation in or defense of the action, suit, or pro­ceeding, or (B)the action, suit, or proceeding involves to a significant extent matters beyond the scope of the indemnity agreement contained in this Article. In any case described in clause (iii) of the preceding sentence, Sellers shall not have the right to direct the defense of the action, suit, or proceeding on behalf of Buyer, and that portion of the fees and expenses reasonably related to matters covered by the indemnity agreement contained in this Article shall be borne by Sellers. Buyer may not compromise or settle a claim that is subject to indemnification by Sellers without the written consent of either Seller, which consent shall not be unreasonably withheld, conditioned, or delayed.

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(c) Conduct of Defense. Any party granted the right to direct the defense of a claim pursuant to this Article shall: (i) keep the other parties to this Agreement fully informed of the action, suit, or proceeding at all stages of the matter, whether or not represented; (ii) promptly submit to the other parties copies of all pleadings, responsive pleadings, motions, and other similar legal documents and papers received in connection with the action, suit, or proceeding; (iii) permit the other parties to this Agreement and their counsel, to the extent practicable, to confer on the conduct of the defense of the action, suit, or proceeding; and (iv) to the extent practicable, permit the other parties to this Agreement and their counsel an opportunity to review all legal papers to be submitted before the submission. Subject to an appropriate confidentiality agreement, the parties shall make avail­able to each other and each other’s counsel and accountants all of the books and records relating to the action, suit, or proceeding, and each party shall render to the other any assistance as may be reasonably required in order to ensure the proper and adequate defense of the action, suit, or proceeding.

 6.5 Claims by Buyer. Buyer shall notify Sellers in writing with reasonable prompt­ness after the discovery of any claim upon which Buyer will demand indemnification from Sellers under this Agreement. To the extent possible, the notice shall describe in reasonable detail the basis for the claim, include, where commercially practicable, an itemized accounting of the claim, and provide a good faith estimate of the amount of the Indemnified Loss. Within fifteen (15) days after receipt of the notice, Sellers shall either reimburse Buyer for the amount of the claim (or acknowledge Buyer’s right of offset) or notify Buyer of Sellers’ intent to dispute the claim. The foregoing notwithstanding, if Buyer would otherwise be entitled to indemnification under this Agreement but for Buyer’s failure timely to deliver a notice, Buyer shall nevertheless be entitled to be indemnified under this Article unless either Seller can establish that either Seller has been materially prejudiced by any time elapsed or by any intervening payment, settlement, or other disposition of the claim.

 6.6 Offset. The Buyer Indemnified Parties may, as one of their remedies in the event of any breach of this Agreement by either Seller or to effect indemnification against Sellers under this Article, withhold sums payable to either Seller pursuant to this Agreement, or otherwise, to the extent of any claim asserted by the Buyer Indemnified Parties, and unless otherwise agreed to by the parties, Buyer shall be required to place such disputed amounts into an escrow account while such disagreement is arbitrated in accordance with Section 7.18 of this Agreement. The claims of the Buyer Indemnified Parties shall not, however, be limited to the payment amounts required by the agreements referenced above and the Buyer Indemnified Parties shall have the right to recover directly from Sellers the amount of any claims.

 6.7 Limitation on Indemnification. Notwithstanding anything to the contrary contained in Section 1.4 or this Article 6, neither Seller shall have any obligation to indemnify the Buyer Indemnified Parties with respect to any matter described in Section 6.1 until the Buyer Indemnified Parties have suffered aggregate Indemnified Losses in excess of Twenty-five Thousand Dollars ($25,000) (the “Basket”) (at which point, Sellers will be obligated to indemnify the Buyer Indemnified Parties from and against all Indemnified Losses relating back to the first dollar). Once the Basket has been exceeded, Sellers shall be obligated to indemnify the Buyer Indemnified Parties, provided, however, that the Basket shall not apply to any Indemnified Losses resulting from (y) fraud or the intentional actions or omissions of any Seller or (z) the breach of any representation or warranty (or any portion of any representation or warranty) with respect to the quality of title to any of the Purchased Assets. In any case, the Sellers’ indemnification under Section 6.1 shall not exceed Six Hundred Thousand Dollars ($600,000.00).

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 6.8 Remedies Cumulative. The remedies provided in this Article are cumulative and shall not prevent the assertion by the Buyer Indemnified Parties of any other rights or the seeking of any other remedies against either Seller.

ARTICLE 7. GENERAL

 7.1 Ordinary and Usual Course; Knowledge. As used in this Agreement, the phrases (a) “ordinary and usual course,” “ordinary and usual course of business,” “ordinary course of business,” and similar phrases mean activity that is performed (i) in accordance with the customary business practices and usages of trade prevailing in the industry or industries in which EMS operates, and (ii) in accordance with the historical and customary practices of EMS with respect to the activity, and (b) “to the knowledge of Sellers” or “to Sellers’ knowledge” means the actual knowledge of Gruenwald or any key employee of EMS after reasonable investigation.

 7.2 Risk of Loss. The risk of loss or destruction of, or damage to, the Purchased Assets (a “Loss”) shall be on Sellers at all times on or before the Closing Date. Sellers shall take all reasonable steps consistent with the normal business practices of EMS to repair, replace, and restore the Purchased Assets as soon as possible after any Loss. All insurance proceeds received by either Seller with respect to any Loss shall be applied to replacement, restoration, or repair, or if not so applied before the Closing Date, shall be remitted to Buyer promptly after receipt. Any obligation of Sellers to repair, replace, and restore the Purchased Assets shall terminate on the Closing Date or, if earlier, upon the termination of this Agreement. Notwithstanding any other provision of this Section, Sellers shall be entitled to retain any insurance proceeds to the extent either Seller has previously expended amounts to repair, replace, or restore a Loss to the Purchased Assets on or before the Closing Date; provided, however, that any insurance proceeds in excess of such expended amounts shall be delivered to Buyer to the extent provided above.

 7.3 Survival   of Representations,  Warranties,  Covenants,   and   Indemnities.Subject to the limitations of the Indemnity Period described above, all representations, warranties, covenants, and indemnities made by any party to this Agreement shall survive the Closing for a period of two (2) years. No investigation by Buyer shall in any way affect Buyer’s right to rely on the representations, warranties, and covenants of Sellers set forth in this Agreement or any document related to this Agreement.

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 7.4 Confidentiality. Unless otherwise required by law, the parties to this Agreement shall not make any disclosure of the existence or terms of this Agreement or the transactions contemplated by this Agreement without the prior written consent of the other party or parties, except that each party may disclose the transactions contemplated by this Agreement to that party’s professional advisers, to that party’s institutional lenders, and to that party’s management employees, to the extent that any of those persons or entities needs to know of the transactions in connection with the person’s or entity’s relationship with the disclosing party. Notwithstanding the foregoing, Buyer may provide this Agreement, any agreements or documents related to the transactions contemplated herein and any additional information to any investors, lenders, or prospective investors or lenders and their respective advisors.

 7.5 Assignment and Benefits. Neither Seller may assign or transfer this Agreement, either directly or indirectly, by merger, liquidation, consolidation, sale of stock, change of control, operation of law, or other means, without the prior written consent of all parties to this Agreement. Any assignment of the obligations of this Agreement by any Seller shall not release the assignor or any guarantor from the duty to perform that person’s obligations under this Agreement. This Agreement shall be binding upon, inure to the benefit of, and be enforceable by and against the respective successors and permitted assigns of each of the parties to this Agreement.

 7.6 Notices. All notices, requests, demands, and other communications under this Agreement shall be in writing and shall be deemed to have been duly given when delivered, sent by facsimile, or sent by express delivery service with charges prepaid and receipt requested, or, if those services are not reasonably available, mailed (postage prepaid) by certified mail with return receipt requested:

To Buyer at:	Balqon Corporation
	1701 E. Edinger Unit E-3
	Santa Ana, CA 92705 Attn: President Fax: ______________
With a copy to:	Hallstrom, Klein & Ward, LLP
	15615 Alton Parkway Suite 175 Irvine, CA 92618 Attn: Richard Christesen, Esq. Fax: (949) 450-1588
To Sellers at:	Bob Gruenwald
	Electric Motorsports, LLC 2072 Greenpine Drive Cincinnati, Ohio 45231
With a copy to:	Fredric J. Robbins, Esq.
	Robbins, Kelly, Patterson and Tucker 7 W. Seventh Street, Suite 1400 Cincinnati, Ohio 45202 Fax: 513-721-5001

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Any party may change that party’s address by prior written notice to the other parties.

 7.7 Expenses. Each party to this Agreement shall pay that party’s respective expenses, costs, and fees (including professional fees) incurred in connection with the negotiation, preparation, execution, and delivery of this Agreement and the consummation of the transactions contemplated by this Agreement. Sellers shall pay for the cost of any conveyance, transfer, excise, storage, sales, use, recording, or similar taxes or fees, if any, arising out of the sale, transfer, conveyance, or assignment of the Purchased Assets or the Business to Buyer.

 7.8 Entire Agreement. This Agreement, and the exhibits and schedules (including the Disclosure Schedule) to this Agreement (which are incorporated in this Agreement by reference), and the agreements referred to in this Agreement, contain the entire agreement and understanding of the parties and supersede all prior agreements, negotiations, arrangements, and understandings relating to the subject matter of this Agreement.

 7.9 Amendments and Waivers. This Agreement may be amended, modified, superseded, or canceled, and any of the terms, covenants, representations, warranties, or conditions of this Agreement may be waived, only by a written instrument signed by each of Buyer and Gruenwald or, in the case of a waiver, by or on behalf of the party waiving compliance. The failure of any party at any time to require performance of any provision in this Agreement shall not affect the right of that party at a later time to enforce that or any other provision. No waiver by any party of any condition, or of any breach of any term, covenant, representation, or warranty contained in this Agreement, in any one or more instances, shall be deemed to be a further or continuing waiver of any condition or of any breach of any other term, covenant, representation, or warranty.

 7.10 No Third-Party Beneficiaries. Except as otherwise expressly provided herein, the provisions of this Agreement are solely between and for the benefit of the respective parties to this Agreement, and do not inure to the benefit of, or confer rights upon, any third party, including any employee of Buyer or EMS.

 7.11 Severability. Except as otherwise specifically provided in this Agreement, this Agreement shall be interpreted in all respects as if any invalid or unenforceable provision or portion of any provision were omitted from this Agreement to the extent of such invalidity or to the extent necessary to make such provision enforceable. All provisions of this Agreement shall be enforced to the full extent permitted by law.

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 7.12 Headings. The headings of the sections and subsections of this Agreement have been inserted for convenience of reference only and shall not restrict or modify any of the terms or provisions of this Agreement.

 7.13 Governing Law. This Agreement shall be governed by, and interpreted and enforced in accordance with, the laws of the State of California, as applied to contracts made and to be performed in that state, without regard to conflicts of law principles.

 7.14 Construction. The language used in this Agreement shall be deemed to be the language chosen by the parties to express their mutual intent, and no rule of strict construction shall be applied against any party by virtue of having drafted this Agreement or any provision hereof. Unless otherwise expressly provided, the words “include” and “including” (and variations of those words) whenever used in this Agreement shall not limit the preceding words or terms but shall be understood to mean “include but are not limited to” or “including without limitation” (and similar meanings). The parties intend that each representation, warranty, and covenant contained in this Agreement shall have independent significance. If any party has breached any representation, warranty, or covenant contained in this Agreement in any respect, the fact that there exists another representation, warranty, or covenant relating to the same subject matter (regardless of the relative levels of specificity) which the party has not breached shall not detract from or mitigate the fact that the party is in breach of the first representation, warranty, or covenant.

 7.15 Guaranty by Gruenwald. By joining in this Agreement, Gruenwald guarantee to Buyer the full and prompt payment and performance (not just collection) by EMS of all of EMS’ covenants and obligations under this Agreement and any ancillary agreements. If RMS does not perform a covenant or obligation under this Agreement or any ancillary agreement, Gruenwald shall promptly perform the covenant or obligation. This guaranty of Gruenwald is an absolute, irrevocable, primary, continuing, unconditional, and unlimited guaranty of performance and payment, and is not a guaranty of collection. This guaranty shall remain in full force and effect (and shall remain in effect notwithstanding any amendment to this Agreement) until all of Sellers’ obligations have been paid, observed, performed, or discharged in full. Gruenwald has full capacity, power, and authority to enter into this Agreement and to carry out the covenants and agreements specifically made by Gruenwald in this Agreement, and this Agreement is binding on Gruenwald and enforceable against Gruenwald in accordance with the terms of this Agreement.

 7.16 Attorneys’ Fees. In the event of litigation between the parties pertaining to this Agreement, the prevailing party shall be entitled to reasonable attorneys’ fees in addition to all costs of suit.

 7.17 Independent Representation. Sellers acknowledge that Buyer has been represented in this transaction by Richard Christesen attorney of Hallstrom, Klein & Ward, LLP (“Firm”), and Robert Miranda, CPA of Miranda & Associates (the “Accountants”). Sellers acknowledge that the Firm, Mr. Christesen and the Accountants do not represent the Sellers , that neither of the Sellers are relying upon the advice of the Firm or Mr. Christesen or the Accountants, and that the Sellers have been advised to seek the advice of independent attorneys and accountants to represent them in connection with this matter.]

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 7.18 Arbitration. Any dispute arise between the parties with respect to any provisions of this Agreement or the breach thereof, including any representations, warranties, covenants or obligations contained herein, or any ancillary agreements, any disputes with respect to the interpretation of any of the terms contained in this Agreement, or the arbitrability of any such dispute shall be submitted to final and binding arbitration before JAMS, or its successor, pursuant to JAMS Streamlined Arbitration Rules and Procedures then in effect. Either Seller or Buyer may commence the arbitration process called for in this Agreement by filing a written demand for arbitration (a “Demand for Arbitration”) with JAMS, in Los Angeles, California, with a copy sent concurrently to the other party. The arbitration will be conducted in Los Angeles, California, before one arbitrator. The parties will cooperate with JAMS and with one another in selecting an arbitrator from JAMS’ panel of neutrals, and in scheduling the arbitration proceedings. The parties covenant that they will participate in the arbitration in good faith, and that Buyer and Sellers will share equally in its costs. The prevailing party or parties in such arbitration, as determined by the arbitrator, shall be entitled to reasonable attorneys’ fees. The arbitrator shall have the same powers as those of a judge of the Superior Court of the State of California, shall be bound by the statutes and case law of the State of California, and shall render a decision as would a judge of a Superior Court of the State of California. If proper notice of any hearing has been given, the arbitrator will have full power to proceed to take evidence and to perform any other acts necessary to arbitrate the matter in the absence of any party who fails to appear. EACH PARTY HERETO WAIVES THE RIGHT TO A JURY TRIAL TO THE FULLEST EXTENT POSSIBLE UNDER APPLICABLE LAW.

 7.19 Counterparts; Signatures. This Agreement may be signed in one or more counterparts, each of which shall be deemed to be an original, and all of such counterparts shall together constitute one complete document. A signature sent by fax or other electronic means shall be as effective as an original signature.

[BALANCE OF PAGE LEFT BLANK]

[SIGNATURES ON NEXT PAGE]

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IN WITNESS WHEREOF, this Agreement is executed at Los Angeles, California, as of the date first above written.

SELLER:		BUYER:
ELECTRIC MOTORSPORTS, LLC.		BALQON CORPORATION
By:		By:
	Bob Gruenwald, [Member/Manager]		President
		By
			Secretary or CFO
GRUENWALD
BOB GRUENWALD

LIST OF EXHIBITS

Exhibit No.	Subject
1.1	Excluded Assets
1.1(a)	Intellectual Property
1.2	Form of Share Purchase Agreement
1.3(a)	Assumed Contacts
1.4	Existing Backlog
2.2	Form of Promissory Note
5.8	Form of Employment Agreement

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IN WITNESS WHEREOF, this Agreement is executed at Los Angeles, California, as of the date first above written.

SELLER:		BUYER:
ELECTRIC MOTORSPORTS, LLC.		BALQON CORPORATION
By		By
	Bob Gruenwald, [Member/Manager]		President
		By
			Secretary or CFO
BOB GRUENWALD
BOB GRUENWALD

LIST OF EXHIBITS

Exhibit No.	Subject
1.1	Excluded Assets
1.1(a)	Intellectual Property
1.2	Form of Share Purchase Agreement
1.3(a)	Assumed Contacts
1.4	Existing Backlog
2.2	Form of Promissory Note
5.8	Form of Employment Agreement

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EX-10.19

EXHIBIT 10.19

BALQON CORPORATION

PROMISSORY NOTE

$100,000	Santa Ana, California
	Dated as of September 9, 2008

           Balqon Corporation, a California corporation (the “Company”), for value received, hereby promises to pay to ELECTRIC MOTORSPORTS, LLC or its registered assigns (“Holder”), the sum of One Hundred Thousand Dollars ($ 100,000) on the terms and conditions set forth hereinafter. Payment for all amounts due hereunder shall be made by mail to the registered address of Holder.

           This Note has been issued to Holder in connection with an asset purchase agreement (the “APA”), pursuant to which the Company is purchasing the assets of ELECTRIC MOTORSPORTS, LLC. This Note is the note referenced therein and is subject to the provisions of that agreement, including, without limitation, the provisions related to holdback rights in the APA.

 The following is a statement of the rights of Holder of this Promissory Note (the “Note”) and the conditions to which this Note is subject, and to which Holder hereof, by the acceptance of this Note, agrees:

1. Maturity; Partial Prepayment. The principal hereof and any unpaid accrued interest hereon, as set forth below, shall be due and payable on the earlier to occur of: (i) Six Months (“Maturity Date”); and (iii) when declared due and payable by Holder upon the occurrence of an Event of Default (as defined below).

2. Interest. The Company shall pay interest at the rate of the lower of (i) the Prime Rate published in the Wall Street Journal on the date closest to the date of this Note; or (ii) the maximum allowable rate under applicable laws (such rate, the “Interest Rate”) on the principal of this Note outstanding during the period beginning on the date of this Note and ending on the date that the principal amount of this Note is repaid in full. Interest shall be calculated on the basis of a 360-day year for the actual number of days elapsed. Interest accruing on this Note shall be due and payable at the Maturity Date or upon the occurrence of an Event of Default. The Company shall pay the interest due on this Note by delivering to Holder cash equal to the outstanding principal amount of the Note plus any due and unpaid interest. If there occurs an acceleration or prepayment of the Note prior to the Maturity Date in accordance with the terms hereof, all interest due and payable at such time on the principal amount due shall be paid in full. All payments hereunder are to be applied first to reasonable costs and fees referred to herein, second to the payment of accrued interest, and the remaining balance to the payment of principal.

3. Events of Default. If any of the events specified in this Section 3 shall occur (herein individually referred to as an “Event of Default”), Holder may, so long as such condition exists, declare the entire principal and unpaid accrued interest hereon immediately due and payable, by notice in writing to the Company:

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               (a) Default in the payment of the principal or unpaid accrued interest of this Note when due and payable after written notice and an opportunity to cure such breach; or

               (b) The institution by the Company of proceedings to be adjudicated as bankrupt or insolvent, or the consent by it to institution of bankruptcy or insolvency proceedings against it or the filing by it of a petition or answer or consent seeking reorganization or release under the Federal Bankruptcy Act, or any other applicable Federal or state law, or the consent by it to the filing of any such petition or the appointment of a receiver, liquidator, assignee, trustee or other similar official of the Company, or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the taking of corporate action by the Company in furtherance of any such action; or

               (c) If, within sixty (60) calendar days after the commencement of an action against the Company, without the consent or acquiescence of the Company (and service of process in connection therewith on the Company) seeking any bankruptcy, insolvency, reorganization, liquidation, dissolution or similar relief under any present or future statute, law or regulation, such action shall not have been resolved in favor of the Company or all orders or proceedings thereunder affecting the operations or the business of the Company stayed, or if the stay of any such order or proceeding shall thereafter be set aside, or if, within sixty (60) calendar days after the appointment without the consent or acquiescence of the Company of any trustee, receiver or liquidator of the Company or of all or any substantial part of the properties of the Company, such appointment shall not have been vacated; or

           4. Holder’s Rights Upon Event of Default. Upon the occurrence and continuance of any Event of Default, Holder in his sole and absolute discretion shall have the right to declare all unpaid interest and principal immediately due and payable and exercise all other legal rights in connection therewith.

           5. Prepayment. Upon five (5) calendar days’ prior written notice to Holder, the Company may at any time prepay in whole or in part, the principal sum, plus accrued interest to date of such prepayment, of this Note; provided that, after the date of such notice and prior to the proposed prepayment date, Holder may elect to convert such amounts into Common Stock securities of the Company at the Conversion Price.

           6. Representations and Warranties. The Company hereby represents and warrants:

               (a) Due Organization and Qualification. The Company is an entity duly incorporated or otherwise organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization (as applicable), with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. The Company is in no violation or default of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter documents. The Company is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could not have or reasonably be expected to result in (i) a material adverse effect on the legality, validity or enforceability of this Note, or (ii) a material adverse effect on the results of operations, assets, business, prospects or condition (financial or otherwise) of the Company, (any of (i) or (ii), a “Material Adverse Effect”) and to the Company’s knowledge no proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.

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               (b) Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by the Note and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of the Note by the Company and the consummation by it of the transactions contemplated thereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company, its board of directors or its shareholders in connection therewith. The Note has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the terms hereof and thereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally and (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies.

               (c) No Conflicts. The execution, delivery and performance of the Note by the Company, the issuance and sale of the Note and the consummation by the Company of the other transactions contemplated hereby and thereby do not and will not (i) conflict with or violate any provision of the Company’s articles of incorporation, bylaws or other organizational or charter documents, or (ii) conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company is bound or affected.

               (d) Litigation. There is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an “Action”) which (i) adversely affects or challenges the legality, validity or enforceability of the Note or (ii) could, if there were an unfavorable decision, have or reasonably be expected to result in a Material Adverse Effect. Neither the Company, nor any director or officer thereof, is or has been the subject of any Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty.

           7. Successors and Assigns; Assignment. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto. Nothing in this Note, express or implied, is intended to confer upon any party, other than the parties hereto and their successors and assigns, any rights, remedies, obligations or liabilities under or by reason of this Note, except as expressly provided herein. The Company may not assign this Note or any of the rights or obligations referenced herein without the prior written consent of Holder.

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           8. Waiver and Amendment. Any provision of this Note may be amended, waived or modified upon the written consent of the Company and Holder.

           9. Waiver of Notice.   The Company hereby waives notice, presentment, demand, protest and notice of dishonor.

           10. Treatment of Note. To the extent permitted by generally accepted accounting principles, the Company will treat, account and report the Note as debt and not equity for accounting purposes and with respect to any returns filed with Federal, state or local tax authorities.

           11. Notices. Any notice, request or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given if personally delivered or if sent by nationally recognized courier service or mailed by registered or certified mail, postage prepaid, to the respective addresses of the parties as set forth on the signature page hereof or if sent by facsimile to the respective facsimile numbers of the parties set forth on the signature page hereof. Any party hereto may by notice so given change its address for future notice hereunder. Notice shall conclusively be deemed to have been given and received when personally delivered or three (3) business days after deposited in the mail or one business day after sent by courier or upon confirmation of facsimile delivery in the manner set forth above.

           12. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California, excluding that body of law relating to conflict of laws.

           13. Heading; References. All headings used herein are used for convenience only and shall not be used to construe or interpret this Note. Except as otherwise indicated, all references herein to Sections refer to Sections hereof.

(signature page follows)

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 IN WITNESS WHEREOF, the Company has caused this Note to be issued as of date first written above.

BALQON CORPORATION,
a California corporation
By:	/s/ Balwinder Samra
	Balwinder Samra, President

Name of Holder:	ELECTRIC MOTORSPORTS, LLC
Address:	2072 Greenpine Drive Cincinnati, Ohio 45231 Attn: Bob Gruenwald
Telephone:	(513)851-3748
Facsimile:	(775)201-1362

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EX-10.20

EXHIBIT 10.20

EXECUTIVE EMPLOYMENT AGREEMENT

THIS EXECUTIVE EMPLOYMENT AGREEMENT (the “Agreement”) dated effective as of October 24, 2008 (“Effective Date”), is made and entered into by and between BALQON CORPORATION, a Nevadacorporation (“Employer”), and ROBERT GRUENWALD (“Executive”).

R E C I T A L S

Employer desires that Executive enter into an employment relationship with Employer in order to provide the necessary leadership and senior management skills that are important to the success of Employer. Employer believes that obtaining Executive’s services as an employee of Employer and the benefits of his business experience are of material importance to Employer and Employer’s stockholders.

NOW, THEREFORE, in consideration of Executive’s employment by Employer and the mutual promises and covenants contained herein, the receipt and sufficiency of which is hereby acknowledged, Employer and Executive intend by this Agreement to specify the terms and conditions of Executive’s employment relationship with Employer.

1.           General Duties of Employer and Executive.

(a)               Employer agrees to employ Executive and Executive agrees to accept employment by Employer and to serve Employer in an executive capacity upon the terms and conditions set forth herein. Employer hereby employs Executive as Vice President Research and Development as of the Effective Date, reporting to the President of Employer (the “President”).  Executive’s duties and responsibilities shall be those normally assumed by the Vice President Research and Development of a publicly-owned company similarly situated to Employer, as well as such other or additional duties, as may from time-to-time be assigned to Executive by the President. Such other or additional duties shall be consistent with the senior executive functions set forth above.

(b)               While employed hereunder, Executive shall use his best efforts to obey the lawful directions of the Board of Directors of Employer (the “Board”). Executive shall also use his best efforts to promote the interests of Employer and to maintain and to promote the reputation of Employer. While employed hereunder, Executive shall devote his full business time, efforts, skills and attention to the affairs of Employer and faithfully perform his duties and responsibilities hereunder.

(c)               While this Agreement is in effect, Executive may from time to time engage in any activities that do not compete directly with Employer, provided that such activities do not interfere with his performance of his duties. Executive shall be permitted to (i) invest his personal assets as a passive investor in such form or manner as Executive may choose in his discretion, (ii) participate in various charitable efforts, and (iii) serve as a member of the Board of Directors of other corporations which are not competitors of Employer.

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2.               Compensation and Benefits.

(a)               As compensation for his services to Employer, Employer shall pay to Executive an annual base salary of $150,000, payable in equal semimonthly payments in accordance with Employer’s regular payroll policy for salaried employees (the “Salary”). The Compensation Committee of the Board (the “Compensation Committee”) shall perform an annual review of Executive’s Salary based on a review of Executive’s performance of his duties and Employer’s other compensation policies. The Compensation Committee may, at its sole discretion, increase (but not decrease) the Salary at any time, and from time to time; provided, however, that commencing on the second anniversary of the Effective Date, Executive’s annual base salary shall be increased to $175,000 and commencing on the third anniversary of the the Effective Date, Executive’s annual base salary shall be increased to $200,000.

(b)               In addition to the foregoing Salary, Executive shall be eligible for an annual incentive bonus (“Incentive Bonus”) commencing in 2010 with respect to fiscal 2009, based on criteria determined by the Compensation Committee, at its sole discretion.  The Incentive Bonus, if any, shall be payable in cash, following the date on which Employer’s Form 10-K for the previous fiscal year is filed with the Securities and Exchange Commission, but in no event later than the Short Term Deferral Date as defined in Section 3(a).

(c)               Upon Executive’s furnishing to Employer customary and reasonable documentary support (such as receipts or paid bills) evidencing costs and expenses incurred by him in the performance of his services and duties hereunder (including, without limitation, travel and entertainment, cellular telephone, computer and other home office expenses) and containing sufficient information to establish the amount, date, place and essential character of the expenditure, Executive shall be reimbursed for such costs and expenses in accordance with Employer’s normal expense reimbursement policy.

(d)               Executive shall be entitled to participate in the medical (including hospitalization), dental, life and disability insurance plans, to the extent offered by Employer, and in amounts consistent with Employer’s policy for other senior executive officers of Employer, with premiums for all such insurance for Executive and his dependents to be paid by Employer, subject to customary employee contributions.

(e)               Executive shall have the right to participate in any additional compensation, benefit, bonus, pension, stock option, stock purchase, 401(k) or other plan or arrangement of Employer now or hereafter existing for the benefit of other senior executive officers of Employer, to the extent offered by Employer, and in amounts consistent with the Employer’s policy.

(f)               Executive shall be entitled to vacation (but in no event less than four (4) weeks per year), holiday and other paid or unpaid leaves of absence consistent with Employer’s normal policies for other senior executive officers of Employer or as otherwise approved by the Board.  Executive shall be entitled to accrue vacation time for one (1) year.

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If Executive does not take the accrued vacation during the following year, he shall be paid for the unused vacation at his Salary rate then in effect.

(g)               Employer shall purchase and maintain in effect a directors’ and officers’ liability insurance policy with a minimum limit of liability of $3,000,000 and shall enter into an indemnification agreement with Executive upon terms and conditions mutually acceptable to Employer and Executive.

3.           Deferred Compensation.

(a)               This Agreement is not intended to provide for any deferral of compensation payable during Executive’s employment pursuant to Section 409A of the Internal Revenue Code (the “Code”) and, accordingly, any compensation paid to Executive pursuant to this Agreement during Executive’s employment is intended to be paid not later than the later of:  (i) the fifteenth (15th) day of the third (3rd) month following the Executive’s first (1st) taxable year in which such benefit is no longer subject to a substantial risk of forfeiture, and (ii) the fifteenth (15th) day of the third (3rd) month following the first (1st) taxable year of Employer in which such benefit is no longer subject to a substantial risk of forfeiture, as determined in accordance with Section 409A of the Code and any Treasury Regulations and other guidance issued thereunder.  The date determined under this subsection is referred to as the “Short-Term Deferral Date.”  Notwithstanding anything to the contrary herein, in the event that any compensation paid pursuant to this Agreement during Executive’s employment is not actually or constructively received by Executive on or before the Short-Term Deferral Date, to the extent such compensation, or any portion thereof, constitutes a deferral of compensation subject to Code Section 409A, then, subject to Section 3(b), such benefit shall be paid upon Executive’s separation from service, with respect to Employer and its affiliates within the meaning of Section 409A of the Code.

(b)               In the event that Executive is a “specified employee,” as defined in Section 409A(a)(2)(B)(i) of the Code as of the date of any separation from service with respect to Employer and its affiliates, no payment of deferred compensation subject to Code Section 409A may be made to Executive before the date that is six (6) months after the date of separation from service (or, if earlier, the date of death of the specified employee), and, in such case, any payments shall be accumulated and paid on the first date of the seventh (7th) month following separation from service; provided, however, that any payment or portion thereof which is subject to an exemption for separation pay to specified employees as provided under Treasury Regulation § 1.409A, or is subject to any other exemption provided under Treasury Regulation § 1.409A allowing for payment to a specified employee prior to the date that is six (6) months after the date of separation from service, may be paid to Executive upon separation from service.

4.           Preservation of Business; Fiduciary Responsibility.  Executive shall use his best efforts to preserve the business and organization of Employer and to preserve the business relations of Employer. So long as the Executive is employed by Employer, Executive shall observe and fulfill proper standards of fiduciary responsibility attendant upon his service and office.

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5.           No Specified Term; Employment at Will.  The employment relationship between Employer and Executive pursuant to this Agreement is not for any specific term, but may be terminated with or without cause, by Employer or by Executive, at any time and for any reason, subject to the rights and obligations of Employer and Executive as set forth in this Agreement.  Any modification to the nature of the at-will employment relationship between Employer and Executive must be made in writing, and must be signed by Executive and by Employer.

6.           Termination.  Employer or Executive may terminate Executive’s employment under this Agreement at any time, but only on the following terms:

(a)               Employer may terminate Executive’s employment under this Agreement at any time for “Due Cause” (as defined in Appendix I attached hereto and incorporated herein by this reference) upon the good faith determination by the Board that Due Cause exists for the termination of the employment relationship.

(b)               If Executive is incapacitated by accident, sickness or otherwise so as to render Executive either:  (i)  unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months; or (ii) by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months is receiving income replacement benefits for a period of not less than three (3) months under an accident and health plan covering employees of Employer; and such incapacity is confirmed by the U.S. Social Security Administration or in accordance with a disability insurance program maintained by Employer, Employer may terminate Executive’s employment under this Agreement upon giving Executive or his legal representative written notice at least thirty (30) days prior to the termination date, subject to the provisions of Section 7(b).   Notwithstanding anything expressed or implied above to the contrary, Employer will fully comply with its obligations under the Americans with Disabilities Act as well as any other applicable federal, state, or local law, regulation, or ordinance governing the protection of qualified individuals with disabilities as well as Employer’s obligation to provide reasonable accommodation thereunder.

(c)               This Agreement shall terminate immediately upon Executive’s death, subject to the provisions of Section 7(b).

(d)               Subject to the provisions of Section 7(c), Employer may terminate Executive’s employment under this Agreement at any time for any reason whatsoever, even without Due Cause, by giving a written notice of termination to Executive, in which case the employment relationship shall terminate immediately upon the giving of the notice. If Employer terminates the employment of Executive other than (i) pursuant to Section 6(a) for Due Cause, (ii) due to incapacity pursuant to Section 6(b) or due to Executive’s death pursuant to Section 6(c), or (iii) Executive’s retirement, then the action by Employer, unless consented to in writing by Executive, shall be deemed to be a constructive termination by Employer of Executive’s employment (a “Constructive Termination”), and, in that event, Executive shall be entitled to receive the compensation set forth in Section 7(c).

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(e)               Executive may terminate this Agreement at any time within ninety (90) days of the occurrence of any event comprising “Good Reason” (as defined in Appendix I attached hereto and incorporated herein by this reference); provided, however, that Executive provides Employer with written notice of the event or condition constituting Good Reason within thirty (30) days of the initial existence of such event or condition, and that Employer shall have a period of thirty (30) days to cure such event or condition and, in the event that Employer fails to cure such event or condition, Executive shall be entitled to receive the compensation set forth in Section 7(c).

7.           Effect of Termination.

(a)               If the employment relationship is terminated (i) by Employer for Due Cause pursuant to Section 6(a), (ii) by Executive breaching this Agreement by refusing to continue his employment, or (iii) by Executive without Good Reason, then all compensation and benefits shall cease as of the date of termination, other than: (A) those benefits that are provided by retirement and benefit plans and programs specifically adopted and approved by Employer for Executive that are earned and vested by the date of termination; (B) Executive’s pro rata annual Salary (as in effect as of the date of termination, payable in the manner as prescribed in the first sentence of Section 2(a) through the date of termination); (C) any stock options which have vested as of the date of termination pursuant to the terms of the agreement granting the options; and (D) accrued vacation as required by California law.

(b)               If Executive’s employment relationship is terminated due to Executive’s incapacity pursuant to Section 6(b) or due to Executive’s death pursuant to Section 6(c), Executive or Executive’s estate or legal representative, shall, subject to Section 3 of this Agreement, be entitled to (i) those benefits that are provided by retirement and benefits plans and programs specifically adopted and approved by Employer for Executive that are earned and vested at the date of termination, (ii) a prorated Incentive Bonus, payable in the manner as prescribed in the second sentence of Section 2(b) (to the extent Executive would otherwise be eligible) for the fiscal year in which incapacity or death occurs, and (iii) a lump-sum cash payment, payable within ten (10) business days of separation from service due to death or disability, but in any event, not later than the Short-Term Deferral Date, in an amount equal to one (1) year of Executive’s then current annual Salary as set forth in Section 2(a).

(c)               In the event of a termination of this Agreement as a result of Constructive Termination, or by Executive for Good Reason, then Employer shall, subject to Section 3 of this Agreement:

(i)            pay to Executive on the date of termination his Salary in effect as of the date of termination through the end of the month during which the termination occurs plus credit for any vacation earned but not taken;

(ii)            pay to Executive on the first business day following the expiration of the revocation period described in Section 7(d) (provided Executive has not tendered his revocation), but in any event, not later than the Short-Term Deferral

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Date, as severance pay an amount equal to two (2) times Executive’s then current annual Salary;

(iii)           pay to Executive  the prorated Incentive Bonus, to the extent Executive would otherwise be eligible for any, for the fiscal year during which termination occurs, payable as provided in Section 2(a);

(iv)           maintain, at Employer’s expense, in full force and effect, for Executive’s continued benefit, all medical insurance to which Executive was entitled immediately prior to the date of termination until the earliest of (i) eighteen (18) months or (ii) the date or dates that Executive’s continued participation in Employer’s medical insurance plan is not possible under the terms of the plans (the earliest of (i) and (ii) is referred to herein as the “Benefits Date”). If Employer’s medical insurance plan does not allow Executive’s continued participation in the plan, then Employer will pay to Executive, in monthly installments, from the date on which Executive’s participation in the medical insurance is prohibited until the date that is eighteen (18) months after the date of termination, an amount equal to the monthly premium or premiums for COBRA coverage with respect to Executive for the discontinued medical insurance; and

(v)           pay to Executive on the date of termination a lump-sum cash payment equal to eighteen (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 Executive to maintain Executive’s continued medical insurance coverage for an additional period of eighteen (18) months, pursuant to Cal-COBRA, following the expiration of the COBRA reimbursement payments set forth in Section 7(c)(iv).

(d)               Executive shall be entitled to the payments and benefits described in subsections 7(c)(ii) and (iv) only if Executive signs an appropriate separation agreement in a form acceptable to Employer, which includes a release of all claims against Employer to the fullest extent permitted by law, such agreement actually enters into effect following any revocation period required by law, and Executive complies fully with any continuing obligations under this Agreement.

(e)               Executive shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise, nor shall the amount of any payment provided for under this Agreement be reduced by any compensation earned by Executive as the result of employment by another Employer after the date of termination, or otherwise.

(f)               Except as expressly provided herein, the provisions of this Agreement, and any payment or benefit provided for hereunder, shall not reduce any amounts otherwise payable, or in any way diminish Executive’s existing rights, or rights which would accrue solely as a result of the passage of time, under any Employer Benefit Plan, employment agreement or other contract, plan or arrangement.

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(g)               The amount of any payment provided under this Agreement shall not be reduced by reason of any present value calculation.

(h)               Upon termination of this Agreement, compensation and benefits shall be paid to the Executive as set forth in the applicable subsection of this Section 7 and stock grants or options granted to Executive, if any, shall be governed by the provisions of all stock grant or option agreements between Employer and Executive. In the event of a termination of this Agreement by Executive for Good Reason, all other rights and benefits Executive may have under the employee and/or executive benefit plans and arrangements of Employer generally shall be determined in accordance with the terms and conditions of those plans and arrangements.

8.           Covenants of Confidentiality, Nondisclosure and Noncompetition.

(a)               During the term of this Agreement, Employer will provide to Executive certain confidential and proprietary information owned by Employer as more fully described below. Executive acknowledges that he occupies or will occupy a position of trust and confidence with Employer, and that Employer would be irreparably damaged if Executive were to breach the covenants set forth in this Section 8(a).  Accordingly, Executive agrees that he will not, without the prior written consent of Employer, at any time during the term of this Agreement or any time thereafter, except as may be required by competent legal authority or as required by Employer to be disclosed in the course of performing Executive’s duties under this Agreement for Employer, use or disclose to any person, firm or other legal entity, any confidential records, secrets or information obtained by Executive during his employment hereunder related to Employer or any parent, subsidiary or affiliated person or entity (collectively, “Confidential Information”). Confidential Information shall include, without limitation, information about Employer’s Inventions (as defined in Section 9(a)), customer lists and product pricing, data, know-how, formulae, processes, ideas, past, current and planned product development, market studies, computer software and programs, database and network technologies, strategic planning and risk management. Executive acknowledges and agrees that all Confidential Information of Employer and/or its affiliates will be received in confidence and as a fiduciary of Employer. Executive will exercise utmost diligence to protect and guard the Confidential Information.

(b)               Executive agrees that he will not, without the express written consent of the Board, take with him upon the termination of this Agreement, any document or paper, or any photocopy or reproduction or duplication thereof, relating to any Confidential Information.

(c)               Executive agrees that he will, upon the termination of his employment, return all Employer’s property including but not limited to vehicles leased or owned by Employer, mobile telephone, fuel card, personal computer, all documents, working papers, information whether stored on computer disc or otherwise, and all other records relating to Employer and its business.  Executive agrees that he will confirm in writing that he has complied with this clause, if requested to do so by Employer, within seven (7) days of receipt of such a request.

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(d)               Executive agrees that, while Executive is employed with Employer, he will not, either directly or indirectly, have an interest in any business (whether as manager, operator, licensor, licensee, partner, 5% or greater equity holder, employee, consultant, director, advisor or otherwise) competitive with Employer or any of its business activities or solicit individuals or other entities that are customers or competitors of Employer.  Executive further agrees that, for a period of twenty-four (24) months after the date of termination of this Agreement (the “Restricted Period”), Executive shall not use Employer’s trade secrets, either directly or indirectly, to compete in any way with the business of Employer and will not solicit individuals or other entities that are customers or competitors of Employer during the six-month period immediately prior to the date of termination of this Agreement, to terminate or change their contracts or business relations with Employer. Executive also agrees that, for the Restricted Period, he will not, either directly or indirectly, solicit any employee of Employer to terminate his employment with Employer.

(e)               For purposes of this Section 8, “Employer” shall include any of its parents, subsidiaries or any other entity in which it holds a 50% or greater equity interest.

9.           Inventions.

(a)               Any and all inventions, product, discoveries, improvements, processes, formulae, manufacturing methods or techniques, designs or styles, software applications or programs (collectively, “Inventions”) made, developed or created by Executive, alone or in conjunction with others, during regular hours of work or otherwise, during the term of Executive’s employment with Employer and for a period of two years thereafter that may be directly or indirectly related to the business of, or tests being carried out by, Employer, or any of its parents, subsidiaries, shall be promptly disclosed by Executive to Employer and shall be Employer’s exclusive property. The following provisions of the California Labor Code shall supplement this Section 9(a):

SECTION 2870 OF THE CALIFORNIA LABOR CODE

Application of Provisions Providing that Employee Shall Assign or Offer to Assign Rights in Invention to Employer.

(a)           Any provision in an employment agreement which provides that an employee shall assign, or offer to assign, any of his or her rights in an invention to his or her employer shall not apply to an invention that the employee developed entirely on his or her own time without using employer’s equipment, supplies, facilities, or trade secret information except for those inventions that either:

(1)             Relate at the time of conception or reduction to practice of the invention to employer’s business, or actual or demonstrably anticipated research or development of employer; or

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(2)             Result from any work performed by the employee for employer.

(b)           To the extent a provision in an employment agreement purports to require an employee to assign an invention otherwise excluded from being required to be assigned under subdivision (a), the provision is against the public policy of this state and is unenforceable.

(b)               Executive will, upon Employer’s request and without additional compensation, execute any documents necessary or advisable in the opinion of Employer’s legal counsel to direct the issuance of patents to Employer with respect to Inventions that are to be Employer’s exclusive property under this Section 9 or to vest in Employer title to the Inventions; the expense of securing any patent, however, shall be borne by Employer.

(c)               Executive will hold for Employer’s sole benefit any Invention that is to be Employer’s exclusive property under this Section 9 for which no patent is issued.

10.           No Violation.  Executive represents that he is not bound by any Agreement with any former employer or other party that would be violated by Executive’s employment by Employer.

11.           Injunctive Relief.  Executive acknowledges that the breach, or threatened breach, by Executive of the provisions of this Agreement shall cause irreparable harm to Employer, which harm cannot be fully redressed by the payment of damages to Employer. Accordingly, Employer shall be entitled, in addition to any other right or remedy it may have at law or in equity, to seek an injunction or restraining Executive from any violation or threatened violation of this Agreement.

12.           Dispute Resolution.  Subject to Section 11, all claims, disputes and other matters in controversy (“dispute”) arising, directly or indirectly out of or related to this Agreement, or the breach thereof, whether contractual or noncontractual, and whether during the term or after the termination of this Agreement, shall be resolved exclusively according to the procedures set forth in this Section 12, and not through resort to any judicial proceedings.

(a)               Neither party shall commence an arbitration proceeding pursuant to the provisions of Section 12(b) unless that party first gives a written notice (a “Dispute Notice”) to the other party setting forth the nature of the dispute. The parties shall attempt in good faith to resolve the dispute by mediation under the American Arbitration Association Commercial Mediation Rules in effect on the date of the Dispute Notice. If the parties cannot agree on the selection of a mediator within twenty (20) days after delivery of the Dispute Notice, the mediator will be selected by the American Arbitration Association. If the dispute has not been resolved by mediation within sixty (60) days after delivery of the Dispute Notice, then the dispute shall be determined by arbitration in accordance with the provisions below.

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(b)               Any dispute that is not settled by mediation as provided in Section 12(a) shall be resolved by arbitration in Orange County, California, before a single arbitrator appointed by the American Arbitration Association or its successor. The determination of the arbitrator shall be final and absolute. The arbitrator shall be governed by the duly promulgated rules and regulations of the American Arbitration Association or its successor then in effect, and the pertinent provisions of the laws of the State of California relating to arbitration. The decision of the arbitrator may be entered as a final judgment in any court of the State of California or elsewhere. The prevailing party in any such arbitration shall also be entitled to recover reasonable attorneys’, accountants’ and experts’ fees and costs of suit in addition to any other relief awarded the prevailing party.

13.           Miscellaneous.

(a)               If any provisions contained in this Agreement is for any reason held to be totally invalid or unenforceable, such provision will be fully severable, and in lieu of such invalid or unenforceable provision there will be added automatically as part of this Agreement a provision as similar in terms as may be valid and enforceable.

(b)               All notices and other communications required or permitted hereunder or necessary or convenience in connection herewith shall be in writing and shall be deemed to have been given when mailed by registered mail or certified mail, return receipt requested or hand delivered, as follows (provided that notice of change of address shall be deemed given only when received):

If to Employer: Balqon Corporation

1701 E. Edinger, Unit E-3

Santa Ana, CA 92705

Attention: Board of Directors

If to Executive: Robert Gruenwald

or to such other names or addresses as Employer or Executive, as the case may be, shall designate by notice to the other party hereto in the manner specified in this Section 13(b).

(c)               This Agreement shall be binding upon and inure to the benefit of Employer, its successors, legal representatives and assigns, and Executive, his heirs, executors, administrators, representatives, legatees and permitted assigns. Executive agrees that his rights and obligations hereunder are personal to him and may not be assigned without the express written consent of Employer. If Executive should die while any amounts are due to him pursuant to this Agreement, all such amounts shall be paid to Executive’s devisee, legatee or other designee, or if there be no such designee, to Executive’s estate. Employer will require any successor or assign (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of Employer, by Agreement in form and substance satisfactory to Executive and his legal counsel, expressly, absolutely and unconditionally to assume and agree to perform this Agreement in the same manner and to the same extent that Employer would be required to perform each of them if no such succession or assignment had taken place. Any failure of Employer to obtain such agreement prior to the effectiveness of any such succession or assignment shall be a material breach of this Agreement and shall entitle Executive to terminate Executive’s employment for Good Reason. As used in this Agreement, “Employer” means Balqon Corporation and any successor or assign to its business and/or assets which executes and delivers the Agreement provided for in this Section or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. If at any time during the term of this Agreement Executive is employed by any company a majority of the voting securities of which is then owned by Employer, “Employer” as used in this Agreement shall in addition include that subsidiary company. In that event, Employer agrees that it shall pay or shall cause the subsidiary company to pay any amounts owed to Executive pursuant to this Agreement.

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(d)               This Agreement replaces and merges all previous agreements and discussions relating to the same or similar subject matters between Executive and Employer with respect to the subject matter of this Agreement (other than any option agreement dated prior to the Effective Date between Executive and Employer), including without limitation that certain Employment Agreement dated effective as of September 9, 2008 between Balqon Corporation, a California corporation (“Balqon California”), and Executive, which Employment Agreement was assumed by Employer upon the closing of the merger between Employer and Balqon California.This Agreement may not be modified in any respect by any verbal statement, representation or agreement made by any employee, officer, or representative of Employer or by any written agreement unless signed by an officer of Employer who is expressly authorized by Employer to execute that document.

(e)               The laws of the State of California will govern the interpretation, validity and effect of this Agreement without regard to principles of conflicts of law, the place of execution or the place for performance thereof.

(f)               Executive and Employer shall execute and deliver any and all additional instruments and agreements that may be necessary or proper to carry out the purposes of this Agreement.

(g)               The descriptive headings of the several sections of this Agreement are inserted for convenience only and do not constitute a party of this Agreement.

(h)               This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same Agreement.

(i)               Executive acknowledges that Executive has had the opportunity to read this Agreement and discuss it with advisors and legal counsel, if Executive has so chosen. Executive also acknowledges the importance of this Agreement and that Employer is relying on this Agreement in entering into an employment relationship with Executive.

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The undersigned, intending to be legally bound, have executed this Agreement effective as of the date first written above.

	BALQON CORPORATION
Date: March 27, 2009	By:	/s/ Balwinder Samra
		BALWINDER SAMRA, Chairman of the Nominating and Corporate Governance Committee

Date: March 27, 2009	By:	/s/ Robert Gruenwald
		ROBERT GRUENWALD

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APPENDIX I

Additional Definitions

For purposes of this Agreement, the following additional capitalized terms shall have the respective definitions set forth below:

Benefit Plan. The term “Benefit Plan” means any benefit plan or arrangement (including, without limitation, Employer’s profit sharing or stock option or stock incentive plans, if any, and medical, disability and life insurance plans) in which Executive is participating (or any other plans providing Executive with substantially similar benefits).

Due Cause. The term “Due Cause” means any of the following events:

(a)           any intentional misapplication by Executive of Employer’s funds or other material assets, or any other act of dishonesty injurious to Employer committed by Executive; or

(b)           Executive’s conviction of (i) a felony or (ii) a crime involving moral turpitude; or

(c)           Executive’s use or possession of any controlled substance or chronic abuse of alcoholic beverages, which use or possession the Board reasonably determines renders Executive unfit to serve in his capacity as a senior executive of Employer; or

(d)           Executive’s breach, nonperformance or nonobservance of any of the terms of this Agreement, including but not limited to Executive’s failure to adequately perform his duties or comply with the reasonable directions of the Board.

Notwithstanding anything in the foregoing subsections (c) or (d) to the contrary, Employer shall not terminate Executive under subsections (c) or (d) unless the Board first provides Executive with a written memorandum describing in detail how his performance hereunder is not satisfactory and Executive is given a reasonable period of time (not less than thirty (30) days) to remedy the unsatisfactory performance related by the Board to Executive in that memorandum. A determination of whether Executive has satisfactorily remedied the unsatisfactory performance shall be promptly made by a majority of the disinterested directors of the Board at the end of the period provided to Executive for remedy and their determination shall be final.

Good Reason. The term “Good Reason” as used in this Agreement shall mean any of the following which occur without Executive’s written consent and provided that Executive notifies Employer’s Boardin writing of the event or condition constituting “Good Reason” within thirty (30) days of the initial existence of such event or condition, that Executive intends to terminate his employment for such Good Reason, specifying the Good Reason, and Employer fails to remedy the specified event or condition within thirty (30) days after receipt of such notice:

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(a)           the material diminution in Executive’s authority, duties, or responsibilities; a material diminution in Executive’s titles or offices; any removal of Executive from or any failure to reelect Executive to any of his positions as an officer, except in connection with the termination of his employment for disability; Retirement; Executive’s death; or by Executive other than for Good Reason;

(b)           a purported reduction by Employer in Executive’s base salary amounting to a material diminution in such salary to an amount less than the greater of (i) the base salary as in effect on the date hereof or (ii) 10% below the base salary in effect at the time of the purported reduction; or

(c)           a failure by Employer to comply with any material provision resulting in a material breach by Employer of this Agreement which has not been cured within 30 days after notice of noncompliance has been given by Executive to Employer, or if the failure is not capable of being cured in that time, a cure shall not have been diligently initiated by Employer within the 30 day period;

provided, however, that any of the foregoing actions shall not be considered to be Good Reason if the action is undertaken by Employer as a termination for Due Cause.

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EX-10.21

EXHIBIT 10.21

South Coast Air Quality Management District Contract No. 07293 Standard

This Contract consists of 17 pages.

1.	PARTIES - The parties to this Contract are the South Coast Air Quality Management District (referred to here as “AQMD”) whose address is 21865 Copley Drive, Diamond Bar, California 91765-4178, and Balqon Corporation (referred to here as “CONTRACTOR”) whose address is 8 Rosewood, Aliso Viejo, CA 92656.
2.	RECITALS
	A.	AQMD is the local agency with primary responsibility for regulating stationary source air pollution in the South Coast Air Basin in the State of California. AQMD is authorized to enter into this Contract under California Health and Safety Code Section 40489. AQMD desires to contract with CONTRACTOR for services described in Attachment 1 - Statement of Work, attached here and made a part here by this reference. CONTRACTOR warrants that it is well-qualified and has the experience to provide such services on the terms set forth here.
	B.	CONTRACTOR is authorized to do business in the State of California and attests that it is in good tax standing with the California Franchise Tax Board.
	C.	All parties to this Contract have had the opportunity to have this Contract reviewed by their attorney.
	D.	CONTRACTOR agrees to obtain the required licenses, permits, and all other appropriate legal authorizations from all applicable federal, state and local jurisdictions and pay all applicable fees.
3.	PERFORMANCE REQUIREMENTS
	A.	CONTRACTOR warrants that it holds all necessary and required licenses and permits to provide these services. CONTRACTOR further agrees to immediately notify AQMD in writing of any change in its licensing status.
	B.	CONTRACTOR shall submit reports to AQMD as outlined in Attachment 1 - Statement of Work. All reports shall be submitted in an environmentally friendly format: recycled paper; stapled, not bound; black and white, double-sided print; and no three-ring, spiral, or plastic binders or cardstock covers. AQMD reserves the right to review, comment, and request changes to any report produced as a result of this Contract.
	C.	CONTRACTOR shall perform all tasks set forth in Attachment 1 - Statement of Work, and shall not engage, during the term of this Contract, in any performance of work that is in direct or indirect conflict with duties and responsibilities set forth in Attachment 1 - Statement of Work.
	D.	CONTRACTOR shall be responsible for exercising the degree of skill and care customarily required by accepted professional practices and procedures subject to AQMD’s final approval which AQMD will not unreasonably withhold. Any costs incurred due to the failure to meet the foregoing standards, or otherwise defective services which require re-performance, as directed by AQMD, shall be the responsibility of CONTRACTOR, CONTRACTOR’s failure to achieve the performance goals and objectives stated in Attachment 1- Statement of Work, is not a basis for requesting re-performance unless work conducted by CONTRACTOR is deemed by AQMD to have failed the foregoing standards of performance.
	E.	CONTRACTOR shall ensure, through its contracts with any subcontractor(s) that employees and agents performing under this Contract shall abide by the requirements set forth in this clause.

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4.	TERM - The term of this Contract is from the date of execution by both parties to May 31, 2008, unless further extended by amendment of this Contract in writing. No work shall commence until this Contract is fully executed by all parties.
5.	TERMINATION
	A.	In the event any party fails to comply with any term or condition of this Contract, or fails to provide services in the manner agreed upon by the parties, including, but not limited to, the requirements of Attachment 1 – Statement of Work, this failure shall constitute a breach of this Contract. The non-breaching party shall notify the breaching party that it must cure this breach or provide written notification of its intention to terminate this contract. Notification shall be provided in the manner set forth in Clause 10. The non-breaching party reserves all rights under law and equity to enforce this contract and recover damages.
	B.	AQMD reserves the right to terminate this Contract, in whole or in part, without cause, upon thirty (30) days’ written notice. Once such notice has been given, CONTRACTOR shall, except as and to the extent or directed otherwise by AQMD, discontinue any Work being performed under this Contract and cancel any of CONTRACTOR’s orders for materials, facilities, and supplies in connection with such Work, and shall use its best efforts to procure termination of existing subcontracts upon terms satisfactory to AQMD. Thereafter, CONTRACTOR shall perform only such services as may be necessary to preserve and protect any Work already in progress and to dispose of any property as requested by AQMD.
	C.	CONTRACTOR shall be paid in accordance with this Contract for all Work performed before the effective date of termination under Clause 5.B. Before expiration of the thirty (30) days’ written notice, CONTRACTOR shall promptly deliver to AQMD all copies of documents and other information and data prepared or developed by CONTRACTOR under this Contract with the exception of a record copy of such materials, which may be retained by CONTRACTOR.
6.	INSURANCE
	A.	CONTRACTOR shall furnish evidence to AQMD of workers’ compensation insurance for each of its employees, in accordance with either California or other states’ applicable statutory requirements prior to commencement of any work on this Contract.
	B.	CONTRACTOR shall furnish evidence to AQMD of general liability insurance with a limit of at least $1,000,000 per occurrence, and $2,000,000 in a general aggregate prior to commencement of any work on this Contract. AQMD shall be named as an additional insured on any such liability policy, and thirty (30) days written notice prior to cancellation of any such insurance shall be given by CONTRACTOR to AQMD.
	C.	CONTRACTOR shall furnish evidence to AQMD of automobile liability insurance with limits of at least $100,000 per person and $300,000 per accident for bodily injuries, and $50,000 in property damage, or $1,000,000 combined single limit for bodily injury or property damage, prior to commencement of any work on this Contract. AQMD shall be named as an additional insured on any such liability policy, and thirty (30) days written notice prior to cancellation of any such insurance shall be given by CONTRACTOR to AQMD.

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	D.	If CONTRACTOR fails to maintain the required insurance coverage set forth above, AQMD reserves the right either to purchase such additional insurance and to deduct the cost thereof from any payments owed to CONTRACTOR or terminate this Contract for breach.
	E.	All insurance certificates should be mailed to: AQMD Risk Management, 21865 Copley Drive, Diamond Bar, CA 91765-4178. The AQMD Contract Number must be included on the face of the certificate.
	F.	CONTRACTOR must provide updates on the insurance coverage throughout the term of the Contract to ensure that there is no break in coverage during the period of contract performance. Failure to provide evidence of current coverage shall be grounds for termination for breach of Contract.
7.	INDEMNIFICATION - CONTRACTOR agrees to hold harmless, indemnify, and defend AQMD, its officers, employees, agents, representatives, and successors-in-interest against any and all loss, damage, cost, or expenses which AQMD, its officers, employees, agents, representatives, and successors-in-interest may incur or be required to pay by reason of any injury or property damage caused or incurred by CONTRACTOR, its employees, subcontractors, or agents as a result of the performance of this Contract.
8.	PAYMENT
	A.	AQMD shall pay CONTRACTOR a not-to-exceed fixed price of Five Hundred Twenty Seven Thousand Dollars ($527,000) for work performed under this Contract in accordance with Attachment 2 - Payment Schedule, attached here and included here by reference. Payment shall be made by AQMD to CONTRACTOR within thirty (30) days after approval by AQMD of an invoice prepared and furnished by CONTRACTOR showing services performed and referencing tasks and deliverables as shown in Attachment 1 - statement of work, and the amount of charge claimed. Each invoice must be prepared in duplicate, on company letterhead, and list AQMD’s Contract number, period covered by invoice, and CONTRACTOR’s social security number or Employer Identification Number and submitted to: South Coast Air Quality Management District, Attn: Matt Miyasato.
	B.	AQMD reserves the right to disallow charges when the invoiced services are not performed satisfactorily in AQMD sole judgment.
9.	INTELLECTUAL PROPERTY RIGHTS - Title and full ownership rights to any software, documents, or reports developed under this Contract shall at all times remain with AQMD. Such material is agreed to be AQMD proprietary information.
	A.	Rights of Technical Data - AQMD shall have the unlimited right to use technical data, including material designated as a trade secret, resulting from the performance of services by CONTRACTOR under this Contract. CONTRACTOR shall have the right to use technical data for its own benefit.
	B.	Copyright - CONTRACTOR agrees to grant AQMD a royalty-free, nonexclusive, irrevocable license to produce, translate, publish, use, and dispose of all copyrightable material first produced or composed in the performance of this Contract.
10.	NOTICES - Any notices from either party to the other shall be given in writing to the attention of the persons listed below, or to other such addresses or addressees as may hereafter be designated in writing for notices by either party to the other. Notice shall be given by certified, express, or registered mail, return receipt requested, and shall be effective as of the date of receipt indicated on the return receipt card.

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AQMD:	South Coast Air Quality Management District
	21865 Copley Drive
	Diamond Bar, CA 91765-4178
	Attn: Matt Miyasato
CONTRACTOR:	Balqon Corporation
	8 Rosewood
	Aliso Viejo, California 92656
	Attn: B. Samra

11.	EMPLOYEES OF CONTRACTOR
	A.	AQMD reserves the right to review the resumes of any of CONTRACTOR employees, and/or any subcontractors selected to perform the work specified here and to disapprove CONTRACTOR choices. CONTRACTOR warrants that it will employ no subcontractor without written approval from AQMD. CONTRACTOR shall be responsible for the cost of regular pay to its employees, as well as cost of vacation, vacation replacements, sick leave, severance pay and pay for legal holidays.
	B.	CONTRACTOR, its officers, employees, agents, representatives or subcontractors shall in no sense be considered employees or agents of AQMD, nor shall CONTRACTOR, its officers, employees, agents, representatives or subcontractors be entitled to or eligible to participate in any benefits, privileges, or plans, given or extended by AQMD to its employees.
	C.	AQMD requires CONTRACTOR to be in compliance with all state and federal laws and regulations with respect to CONTRACTOR’s employees throughout the term of this Contract, including state minimum wage laws and OSHA requirements.
12.	CONFIDENTIALITY - It is expressly understood and agreed that AQMD may designate in a conspicuous manner the information which CONTRACTOR obtains from AQMD as confidential. CONTRACTOR agrees to:
	A.	Observe complete confidentiality with respect to such information, including without limitation, agreeing not to disclose or otherwise permit access to such information by any other person or entity in any manner whatsoever, except that such disclosure or access shall be permitted to employees or subcontractors of CONTRACTOR requiring access in fulfillment of the services provided under this Contract.
	B.	Ensure that CONTRACTOR’s officers, employees, agents, representatives, and independent contractors are informed of the confidential nature of such information and to assure by agreement or otherwise that they are prohibited from copying or revealing, for any purpose whatsoever, the contents of such information or any part thereof, or from taking any action otherwise prohibited under this clause.
	C.	Not use such information or any part thereof in the performance of services to others or for the benefit of others in any form whatsoever whether gratuitously or for valuable consideration, except as permitted under this Contract.

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	D.	Notify AQMD promptly and in writing of the circumstances surrounding any possession, use, or knowledge of such information or any part thereof by any person or entity other than those authorized by this clause.
	E.	Take at CONTRACTOR expense, but at AQMD’s option and in any event under AQMD’s control, any legal action necessary to prevent unauthorized use of such information by any third party or entity which has gained access to such information at least in part due to the fault of CONTRACTOR.
	F.	Take any and all other actions necessary or desirable to assure such continued confidentiality and protection of such information.
	G.	Prevent access to such information by any person or entity not authorized under this Contract.
	H.	Establish specific procedures in order to fulfill the obligations of this clause.
	I.	Notwithstanding the above, nothing herein is intended to abrogate or modify the provisions of Government Code Section 6250 et.seq. (Public Records Act).
13.	PUBLICATION
	A.	AQMD shall have the right of prior written approval of any document which shall be disseminated to the public by CONTRACTOR in which CONTRACTOR utilized information obtained from AQMD in connection with performance under this Contract.
	B.	Information, data, documents, or reports developed by CONTRACTOR for AQMD, pursuant to this Contract, shall be part of AQMD public record unless otherwise indicated. CONTRACTOR may use or publish, at its own expense, such information provided to AQMD. The following acknowledgment of support and disclaimer must appear in each publication of materials, whether copyrighted or not, based upon or developed under this Contract.

 “This report was prepared as a result of work sponsored, paid for, in whole or in part, by the South Coast Air Quality Management District (AQMD). The opinions, findings, conclusions, and recommendations are those of the author and do not necessarily represent the views of AQMD. AQMD, its officers, employees, contractors, and subcontractors make no warranty, expressed or implied, and assume no legal liability for the information in this report. AQMD has not approved or disapproved this report, nor has AQMD passed upon the accuracy or adequacy of the information contained herein.”

	C.	CONTRACTOR shall inform its officers, employees, and subcontractors involved in the performance of this Contract of the restrictions contained herein and require compliance with the above.
14.	NON-DISCRIMINATION - In the performance of this Contract, CONTRACTOR shall not discriminate in recruiting, hiring, promotion, demotion, or termination practices on the basis of race, religious creed, color, national origin, ancestry, sex, age, or physical or mental disability and shall comply with the provisions of the California Fair Employment & Housing Act (Government Code Section 12900 et seq.), the Federal Civil Rights Act of 1964 (P.L. 88-352) and all amendments thereto, Executive Order No. 11246 (30 Federal Register 12319), and all administrative rules and regulations issued pursuant to said Acts and Order. CONTRACTOR shall likewise require each subcontractor to comply with this clause and shall include in each such subcontract language similar to this clause.

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15.	SOLICITATION OF EMPLOYEES - CONTRACTOR expressly agrees that CONTRACTOR shall not, during the term of this Contract, nor for a period of six months after termination, solicit for employment, whether as an employee or independent contractor, any person who is or has been employed by AQMD during the term of this Contract without the consent of AQMD.
16.	PROPERTY AND SECURITY - Without limiting CONTRACTOR obligations with regard to security, CONTRACTOR shall comply with all the rules and regulations established by AQMD for access to and activity in and around AQMD premises.
17.	ASSIGNMENT - The rights granted hereby may not be assigned, sold, licensed, or otherwise transferred by either party without the prior written consent of the other, and any attempt by either party to do so shall be void upon inception.
18.	NON-EFFECT OF WAIVER - The failure of CONTRACTOR or AQMD to insist upon the performance of any or all of the terms, covenants, or conditions of this Contract, or failure to exercise any rights or remedies hereunder, shall not be construed as a waiver or relinquishment of the future performance of any such terms, covenants, or conditions, or of the future exercise of such rights or remedies, unless otherwise provided for herein.
19.	ATTORNEYS’ FEES - In the event any action is filed in connection with the enforcement or interpretation of this Contract, each party shall bear its own attorneys’ fees and costs.
20.	FORCE MAJEURE - Neither AQMD nor CONTRACTOR shall be liable or deemed to be in default for any delay or failure in performance under this Contract or interruption of services resulting, directly or indirectly, from acts of God, civil or military authority, acts of public enemy, war, strikes, labor disputes, shortages of suitable parts, materials, labor or transportation, or any similar cause beyond the reasonable control of AQMD or CONTRACTOR.
21.	SEVERABILITY - In the event that any one or more of the provisions contained in this Contract shall for any reason be held to be unenforceable in any respect by a court of competent jurisdiction, such holding shall not affect any other provisions of this Contract, and the Contract shall then be construed as if such unenforceable provisions are not a part hereof.
22.	HEADINGS - Headings on the clauses of this Contract are for convenience and reference only, and the words contained therein shall in no way be held to explain, modify, amplify, or aid in the interpretation, construction, or meaning of the provisions of this Contract.
23.	DUPLICATE EXECUTION - This Contract is executed in duplicate. Each signed copy shall have the force and effect of an original.
24.	GOVERNING LAW - This Contract shall be construed and interpreted and the legal relations created thereby shall be determined in accordance with the laws of the State of California. Venue for resolution of any disputes under this Contract shall be Los Angeles County, California.

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Contract No. 07293

Standard

25.	CITIZENSHIP AND ALIEN STATUS
	A.	CONTRACTOR warrants that it fully complies with all laws regarding the employment of aliens and others, and that its employees performing services hereunder meet the citizenship or alien status requirements contained in federal and state statutes and regulations including, but not limited to, the Immigration Reform and Control Act of 1986 (P.L. 99-603). CONTRACTOR shall obtain from all covered employees performing services hereunder all verification and other documentation of employees’ eligibility status required by federal statutes and regulations as they currently exist and as they may be hereafter amended. CONTRACTOR shall have a continuing obligation to verify and document the continuing employment authorization and authorized alien status of employees performing services under this Contract to insure continued compliance with all federal statutes and regulations.
	B.	Notwithstanding paragraph A above, CONTRACTOR, in the performance of this Contract, shall not discriminate against any person in violation of 8 USC Section 1324b.
	C.	CONTRACTOR shall retain such documentation for all covered employees for the period described by law. CONTRACTOR shall indemnify, defend, and hold harmless AQMD, its officers and employees from employer sanctions and other liability which may be assessed against CONTRACTOR or AQMD, or both in connection with any alleged violation of federal statutes or regulations pertaining to the eligibility for employment of persons performing services under this Contract.
26.	APPROVAL OF SUBCONTRACT
	A.	If CONTRACTOR intends to subcontract a portion of the work under this Contract, written approval of the terms of the proposed subcontract(s) shall be obtained from AQMD’s Executive Officer or designee prior to execution of the subcontract. No subcontract charges will be reimbursed unless such approval has been obtained.
	B.	Any material changes to the subcontract(s) that affect the scope of work, deliverable schedule, and/or cost schedule shall also require the written approval of the Executive Officer or designee prior to execution.
	C.	The sole purpose of AQMD’s review is to insure that AQMD’s contract rights have not been diminished in the subcontractor agreement. AQMD shall not supervise, direct, or have control over, or be responsible for, subcontractor’s means, methods, techniques, work sequences or procedures or for the safety precautions and programs incident thereto, or for any failure of subcontractor to comply with any local, state, or federal laws, or rules or regulations.
27.	ENTIRE CONTRACT - This Contract represents the entire agreement between the parties hereto related to CONTRACTOR providing services to AQMD and there are no understandings, representations, or warranties of any kind except as expressly set forth herein. No waiver, alteration, or modification of any of the provisions herein shall be binding on any party unless in writing and signed by the party against whom enforcement of such waiver, alteration, or modification is sought.

[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

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Contact No. 07293

Standard

IN WITNESS WHEREOF, the parties to this Contract have caused this Contract to be duly executed on their behalf by their authorized representatives.

SOUTH COAST AIR QUALITY MANAGEMENT DISTRICT		BALQON CORPORATION
By:		By:	/s/ Balwinder Samra
		Name:	Balwinder Samra
	Dr. William A. Burke, Chairman, Governing Board	Title:	Chief Executive Officer
Date:		Date:	May 2007
	ATTEST:
	Saundra McDaniel, Clerk of the Board
By:
	APPROVED AS TO FORM: Kurt R. Wiese, District Counsel
By:
	// Standard Boilerplate
	Last Updated: 5 September, 2006

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ATTACHMENT 1

STATEMENT OF WORK FOR

BALQON CORPORATION

Electric Tractor

In January 2006, the AQMD Board approved the Chairman’s Clean Port Initiative, including several action items to control criteria pollutant emissions and cancer risks from ports and port related facilities. Recognizing the unique legal authorities and expertise of the ports relating to operations on lands they control, the chairman’s initiative called for the ports to take sufficient and coordinated actions to control emissions. Subsequently, the Port of Los Angeles (POLA) and the Port of Long Beach (POLB), in conjunction with participation by AQMD, CARB and U.S. EPA, have developed the San Pedro Bay Ports Clean Air Action Plan (CAAP). The plan proposes to utilize the authorities of the ports, including powers to establish lease conditions, port rules, tariffs and incentives, to implement emission control strategies. The POLA and the AQMD have also partnered on a Joint RFP to demonstrate Class 8 LNG Trucks for port drayage, with anticipated emissions well below their diesel counterparts. However, staff has also discussed even cleaner air technologies that have a potential to further reduce emissions, especially for the over 1 million yearly short trips from marine terminals to the Intermodal Container Transfer Facility (ICTF) located in Wilmington, and nearby warehousing facilities. This project is to develop and demonstrate an electric tow tractor that can replace existing diesel trucks to transport containers from the marine terminals to nearby yards or warehouses. The proposed tractor is expected to have a fast-charging battery, an initial maximum speed of 25 mph, and a range of 40 miles per charge. As a part of the development and testing process, these initial goals may be re-evaluated based on test results. The design of the tractor will provide sufficient torque and power required to tow up to a 60,000 lb cargo container. This project will result in a demonstration of a Heavy-Duty, Zero-Emission Truck, as well as expedite the placement of advanced technologies and zero emission vehicles in South Coast, should the goals of this project be met. Furthermore, there is a potential to transfer such technology to other cargo handling equipment, including Yard Hostlers, Airport Uses, and other low-speed tow type operations, resulting in potential emission reductions beyond 2010 Standards for on-road and off-road uses.

This project includes a sole-source contract to Balqon Corporation to conduct the above items at a cost not to exceed $527,500 from the Clean Fuels Fund. Of the total project cost, $263,500 were authorized by the AQMD Board in December 2006, with the remaining funds provided by POLA through a Memorandum of Agreement with the AQMD, which was approved by the Board in January 2007, and subsequently executed in April 2007.

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The following tasks will be completed during the 12 month project:

1 Running Chassis/Cabin Assembly Duration -120 Days

CONTRACTOR will provide a running chassis with cabin assembly, as described in their technical specifications for an electric tractor, dated December 16, 2006 and November 6, 2006, the terms of which are incorporated herein and under a part hereof. CONTRACTOR will also conduct the following tasks:
1.1	Test A - Drive Train Testing
	Measure energy consumption to document measurement required for
	Dynamometer (Dyno) testing baseline
	Evaluate AMP draws and rolling resistance
1.2	Test B1 - Dyno Testing
	Conduct 200 miles static testing to check system; temperature - controller, motor, drive train
	Finalize motor, controller settings; drive line design
1.3	Test B2 - Dyno Testing
	Conduct a continuous speed test @20 mph (100% State of Charge);
	Loaded and Unloaded
	Finalize battery pack selection; readjust motor/controller setting
1.4	Test C - Field Test at POLA
	Conduct speed test; acceleration testing; grade testing @3% loaded and 16% unloaded
	Finalize controller setting; regenerative braking setting; motor cooling; controller cooling; compressor setting

2 Completed Vehicle Assembly and Delivery to POLA Duration -180 Days

2.1	CONTRACTOR shall conduct compliance review to Federal Motor Vehicle Safety Standards (FMVSS) 101-104, 106-108, 111, 115, 119, 120, 124, and 205 and conduct the following test program:
	Test D - Field Test at POLA
	Conduct Air Conditioning operation and Steering System Testing
	Speed Test; acceleration test; brake test; grade test
2.2	AQMD, CONTRACTOR and POLA will jointly design and conduct a field evaluation in real world application for a 30 day period. The goal of this testing will be to evaluate fast charging performance, battery performance and reliability, as well as include operator training.

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2.3

CONTRACTOR shall provide a report of the 30 days field application evaluation to POLA and AQMD summarizing the usage, problems, and measures taken to address the problem.

2.4

CONTRACTOR shall make the tractor available for outreach activities by AQMD and POLA will have access to further testing and demonstration of the vehicle for an additional 180 days and such requests will not be unreasonably withheld by the CONTRACTOR. Operator of the vehicle during the extended testing or outreach period shall maintain, at their own expense, the vehicle to CONTRACTOR defined maintenance requirements during operation of the vehicle.

TIME / FUNDING SCHEDULE

TASK	Scheduled Completion Date (From Contract Execution)		AQMD ($)		POLA ($)
Contract Execution		0				250,000	*
1 - Design Verification Testing		120 Days		194,000
2 - Field Testing & Reporting		6 Months		60,000		13,500
Submit Draft Final Report		7 Months		5,000
Submit Final Report & 2-Page Project Synopsis		8 Months		4,500
Total			$	263,500	$	263,500

* POLA has agreed to provide a large portion of their funding to cover the upfront costs immediately after contract execution.

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DELIVERABLES

1. Updates

CONTRACTOR shall update AQMD Project Officer by voice or email weekly or as desired. Additionally, CONTRACTOR should schedule on a quarterly basis, face-to-face meetings of the project partners.

2. Progress Reports

CONTRACTOR shall provide progress reports, as defined in Attachment 2 - Payment Schedule, to POLA and AQMD for review, comment, and approval. Two stapled copies of each quarterly progress reports due by the date included in the schedule of milestones, and once a year, a 2 page summary report noted in item (5) below. CONTRACTOR shall submit one copy of each quarterly progress report to AQMD’s Project Officer and one copy to AQMD’s Contracts Administrator - Technology Advancement in conjunction with the invoice for the same period. Each quarterly progress report shall include, but not be limited to, the following:

	a)	Reference to AQMD contract number, title of project and reporting time period, and the following subheadings and description thereof.
	b)	Description of work completed during the reporting period, including a discussion of problems encountered and how those problems were resolved; and other relevant activities.
	c)	When available, color photographs of the experimental apparatus and any results that can be better transmitted photographically.
	d)	Discussion of work planned for the next reporting period.
3.	Draft Report

Three stapled copies of draft final report shall be submitted for review, comment, and approval by the date specified In Attachment 2 - Payment Schedule. CONTRACTOR shall submit three copies of the draft final report to AQMD’s Program Officer, as well as an electronic copy in Microsoft Word format. This document shall be considered in the public domain, in conformance with the California Public Records Act (Government Code Section 6250 et seq.). Any trade secret information may be submitted to AQMD in a separate report in which the trade secret information is specifically identified. AQMD agrees to treat such trade secret information in accordance with its Public Records Act guidelines relating to trade secret information. AQMD shall complete its review of the draft final report within two months of its receipt from CONTRACTOR, through CONTRACTOR’S representative. The draft final report shall include, but not be limited to, the following:

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a)	Reference to AQMD contract number, title of project and project period.
b)	Project background and objectives.
c)	An executive summary up to three pages in length to include:
	•	a short, definitive statement of the problem/project;
	•	objective of the project, including emission control objectives or goals;
	•	reference to AQMD Rules if applicable;
	•	subject of the project including the technology;
	•	conclusions (potential emissions impact, cost implications, and other implications);
	•	recommendations (design changes/optimization, other applications of the technology, and commercialization paths); and acknowledgment of all project sponsors.
d)	A detailed description of the scope of work. A copy of the statement of work should be attached as an Appendix.
e)	Analysis of data from testing and measurement of emissions, performance, durability, etc. should be in the main body of the report. The graphical presentation of the data analysis, particularly bar graphs, is recommended. The actual data and the testing protocols used should be attached as Appendices.
f)	Each Task proposed in the Statement of Work should have its own chapter. Findings or results of each task should be discussed in these chapters, and should include the following:
	•	Discussion of actions completed
	•	Discussion of risks and corrective actions
	•	Task Performance
g)	Problems - A discussion of significant problems encountered during the contract and how they were resolved. If a problem is not resolved within 30 days and the converted vehicle is removed, a detailed explanation of issues and their subsequent resolution shall be included in the reports. If a problem was not resolved, the report shall contain an explanation of the technology’s short comings and the specific needs for technology advancement. Furthermore, the contractor shall specifically discuss any problems associated with a 25 mph operation.
h)	Results - A discussion of the expected project results versus what was actually achieved.
i)	Costs - A comparison and discussion of expected versus actual AQMD contract costs.
j)	Copies of news releases, media and technical articles on the project.

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	k)	Discussion of commercial feasibility of the technology including a (quantitative) cost comparison of the proposed technology with competing technologies. Key cost elements need to be identified.
	I)	Recommendations, including design and engineering requirements for an electric tractor to operate at up to 40 mph, as well as a plan for full CARB and DOT Certification.
4.	Final Report

CONTRACTOR shall submit three stapled originals as well as an electronic copy in Microsoft Word format of the final report incorporating AQMD’s comments, no later than the date specified in Attachment 2-Payment Schedule. This document shall be considered in the public domain, in conformance with the California Public Records Act (Government Code Section 6250 et seq.). Any trade secret information may be submitted to AQMD in a separate report in which the trade secret information is specifically identified. AQMD agrees to treat trade secret information in accordance with its Public Records Act guidelines relating to trade secret information.

5. Two-Page Project Synopsis

CONTRACTOR shall submit a 2-page project synopsis, along with the final report. Attachment 3 to this contract provides the format and content to be used for this synopsis. In addition to a hard copy, CONTRACTOR shall provide the synopsis in an electronic version, using Microsoft WORD. All color photographs and images shall be embedded within the synopsis AND provided separately in digital format, such as .ppt, .tif. or .jpg, on a CD or sent electronically.

6. Photo Documentation

CONTRACTOR shall provide to the AQMD a set of color photographs, documenting the entire development and testing.

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ATTACHMENT 2

PAYMENT SCHEDULE FOR

SALOON CORPORATION

The cost of this project to AQMD shall not exceed $263,500. Total cost of the proposed project is estimated to be $527,000, with the remainder $263,600 provided to AQMD from POLA through an agreement and used to supplement the Clean Fuel Funds. POLA has agreed to provide a large portion of their funding to cover the upfront costs immediately after contract execution.

		SCHEDULE OF PAYMENTS from contract execution
	SCHEDULE OF MILESTONES	Date		Amount ($)
1	Contract Execution		0 Days	$	250,000
2	Submit Progress Report # 1 after Completion of Task 1		120 Days	$	194,000
3	Submit Progress Report #2 after Completion of Task 2		180 Days	$	73,500
4	Submit Draft Final Report		7 Months	$	5,000
5	Submit Final Report & 2-Page Project Synopsis		8 Months	$	4,500
	Total			$	527,000

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Attachment 3

AQMD Contract # Date of Publication (as month year)

Project Title

Contractor

Prime contractor and significant subcontractors.

Cosponsors

List cosponsors from highest contributor to lowest.

Project Officer

AQMD project manager name.

Background

This section is a brief introduction describing the need for the technology and/or clean fuel, as defined by rules and regulations/mandates of AQMD, ARB, EPA, DOE, etc. If applicable, describe other relevant factors, such as economic issues, energy savings, etc.

Project Objective

This section should briefly describe the project objectives as originally stated in the Board (or EO) letter. If the objective evolved significantly during the contracting procedure, it should be noted how and why.

Technology Description

This section describes the general principles of operation and emissions control approach of the technology and/or clean fuel involved in the project.

If applicable, discuss how the principle of operation differs from other, currently available equipment. This includes describing what the “advancement” actually is over currently available technologies.

Status

This section describes the status or progress of the project. If the project was completed, provide the date of completion and note that the final report is on file with complete technical details of the project. Describe major project events, such as the development / testing / delivery of hardware (if applicable). If the project was terminated or ended prematurely you still need to file this report. Regardless of how it ended, per SB 199 you must describe any unanticipated problems that were encountered during the project, and how they were (or were not) resolved. If “fatal” problems were encountered, this section will be the heart of the report, since it would be unlikely that major benefits or emissions reductions were realized in a terminated project

Picture of technology that has been supported with AQMD/Technology Advancement cosponsorship, if applicable. The picture, preferably a photograph, should clearly illustrate the technology. The size of the image should be about 3x3 to fit this two column format. The picture of the technology should be positioned on the front page

Results

This section summarizes all available emissions results and key performance characteristics. Performance is meant in the broadest terms, including (as applicable) emissions, energy efficiency, operation and maintenance requirements, overall environmental impacts, and performance tradeoffs. The primary emphasis of this section is the presentation of project data.

Performance results should be summarized using clear, graphical depictions whenever possible:

Graph or table summarizing key performance characteristics. Graphs are preferred over tables when possible. Graphical data presented should show the most representative data of the project’s/technology’s performance. One graph would be preferred, but no more than two data presentations in this document.

Measured performance is to be compared with the objectives/goals set for the project. Comparisons should focus on targeted emissions reductions and/or other key performance goals (e.g. range for electric vehicles).

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There should also be a brief discussion of performance tradeoffs. That is, did achieving one performance characteristic goal, such as emissions, compromise another performance characteristic, such as efficiency.

Benefits

This section crystallizes the above-noted performance characteristics into project benefits, e.g., reduced emissions, increased efficiency, reduced global warming gases, or other environmental benefits. The potential emissions inventory impact of this technology applied in the South Coast Air Basin must be estimated based on performance results of this project and some estimate of market penetration (concisely state assumptions).

It clearly describes how those actual benefits compare with the benefits that were anticipated at the project’s start. Be as detailed as possible, including discussion of overall environmental impacts and benefits. Address the question of whether the technology may reduce an air pollutant while improving (or worsening) problems with water pollution, solid waste, global warming, toxic emissions, etc.

Project Costs

Tins brief section describes the actual costs of the program (AQMD’s funding contribution as well as the overall cost sharing) and how they compare with the originally projected costs of the project as stated in the Board (or EO) letter. Cost information can be presented graphically, in a table, or in paragraph form. This section does not address cost effectiveness or cost of commercialization.

Commercialization and Applications

This section describes the anticipated or potential applications of the demonstrated technology and/or clean fuel. If applicable, discuss follow on projects to further improve the technology. If available or applicable, discuss expected costs of control and cost-effectiveness in the context of currently available technologies. Cost data should be noted as estimates or projections, especially since TA projects are often “first of a kind.”

Prospects for commercialization should include a discussion of the potential size of the target or primary market, and if there is another market segment or application that could use the technology, Discussion of the commercial status of the technology should address questions such as: (1) how close to a commercial product is it; (2) what work remains to bring it to market; (3) when could it be made commercially available and competitive; and (4) what barriers remain before the technology can be commercialized.

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EX-10.22

EXHIBIT 10.22

STOCK AND WARRANT PURCHASE AGREEMENT

THIS STOCK AND WARRANT PURCHASE AGREEMENT (this “Agreement”) is made on the 28th day of August, 2008, by and among BALQON CORPORATION, a California corporation (the “Company”), and MARLIN FINANCIAL GROUP, INC. (the “Investor”).

THE PARTIES HEREBY AGREE AS FOLLOWS:

1. Purchase and Sale of Stock and Warrants

1.1 Sale and Issuance of Stock and Warrants

(a) Subject to the terms and conditions of this Agreement, the Investor agrees to purchase at the Closing, and the Company agrees to sell and issue to the Investor at the Closing, Two Million Nine Hundred Sixteen Thousand Seven Hundred Twenty-Five (2,916,725) shares (the “Issue Shares”) of the no par value common stock of the Company (the “Common Stock”).

(b) Subject to the terms and conditions of this Agreement, the Investor agrees to purchase at the Closing, and the Company agrees to sell and issue to the Investor at the Closing, warrants to purchase up to Seven Hundred Twenty-Nine Thousand One Hundred Eighty (729,180) shares of the Common Stock (the “Warrants;” collectively with the Issue Shares and the Warrant Shares, as defined in section 1.3 of the Agreement, the “Shares”) on the terms and conditions set forth in this Agreement.

(c) As consideration for the Issue Shares and the Warrants, and in exchange therefor, (i) Investor has, pursuant to an oral agreement, provided valuable services to the Company the monetary value of which the board of directors of the Company has determined to be Fifty-Five Thousand and No/100 Dollars ($55,000.00) (the “Services Purchase Price”); and (ii) Investor shall pay to the Company Eight Hundred Seventy-Five and No/100 Dollars ($875.00) (the “Cash Purchase Price;” collectively with the Services Purchase Price, the “Purchase Price”). The total aggregate value of the Purchase Price shall be Fifty-Five Thousand Eight Hundred Seventy-Five and No/100 Dollars ($55,875.00).

(d) The parties acknowledge that the appraised value of the Shares is approximately $42,438.00 and Investor agrees that upon receipt of the Shares, Investor shall be paid in full for the services rendered to the Company and referenced in section 1(c) above, and Investor shall have no further claim for any additional payment therefor.

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1.2 Closing. The purchase and sale of the Issue Shares and the Warrants shall take place at the offices of the Company at 11:00 A.M., on August__, 2008, or at such other time and place as the Company and the Investor mutually agree upon orally or in writing (which time and place are designated as the “Closing”). At the Closing, the Company shall deliver to Investor a duly executed stock certificate representing the Issue Shares and the duly executed Warrants and Investor shall deliver to the Company the Cash Purchase Price and all other documents and materials required pursuant to this Agreement. Notwithstanding any other provision of this Agreement to the contrary, in no event shall the Company be required to issue any Issue Shares or Warrants to Investor unless and until all payments and other documents and materials required to be delivered by Investor have been received by the Company and all conditions of this Agreement have been fulfilled.

1.3 Warrants and Warrant Shares. Investor may exercise its right to purchase shares of the Common Stock, pursuant to the Warrants, on the terms and conditions set forth in this section (the “Warrant Shares”).

(a) No later than one (1) year after the date of registration with the SEC of any shares of the Common Stock of the Company for sale or resale to the public (“First Termination Date”), Investor may elect to purchase, whereupon the Company shall issue, pursuant to the terms and conditions of this Agreement, up to Two Hundred Forty-Three Thousand Sixty (243,060) Warrant Shares at an exercise price of One and 50/100 Dollars ($1.50) per share (“First Exercise Price”). Investor’s right to purchase any Warrant Shares pursuant to this subsection shall expire at 5:00 P.M. Pacific Time on the First Termination Date.

(b) No later than two (2) years after the date of such registration of any shares of the Common Stock of the Company (“Second Termination Date”), Investor may elect to purchase, whereupon the Company shall issue, pursuant to the terms and conditions of this Agreement, up to Two Hundred Forty-Three Thousand Sixty (243,060) Warrant Shares at an exercise price of Two and No/100 Dollars ($2.00) per share (“Second Exercise Price”). Investor’s right to purchase any Warrant Shares pursuant to this subsection shall expire at 5:00 P.M. Pacific Time on the Second Termination Date.

(c) No later than three (3) years after the date of such registration of any shares of the Common Stock of the Company (“Third Termination Date;” collectively with the First Termination Date and the Second Termination Date, the “Termination Dates”), Investor may elect to purchase, whereupon the Company shall issue, pursuant to the terms and conditions of this Agreement, up to Two Hundred Forty-Three Thousand Sixty (243,060) Warrant Shares at an exercise price of Two and 50/100 Dollars ($2.50) per share (“Third Exercise Price;” collectively with the First Exercise Price and the Second Exercise Price, the “Exercise Price”). Investor’s right to purchase any Warrant Shares pursuant to this subsection shall expire at 5:00 P.M. Pacific Time on the Third Termination Date.

(d) Notwithstanding any other provision of this Agreement to the contrary, in no event shall Investor be permitted to purchase any Warrant Shares later than the date which is ten (10) years after the date of this Agreement, nor shall any Warrant be sold, transferred, assigned, hypothecated, pledged, or in any way alienated (each a “Transfer”) by Investor to any person and all such attempted or purported Transfers shall be null and void.

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(e) In order to exercise any right to purchase Warrant Shares, Investor shall deliver to the Company written and executed notice of Investor’s intent to exercise Investor’s right to purchase said Warrant Shares (the “Notice”). The Notice shall specify the number of Warrant Shares which Investor elects to purchase, the applicable Exercise Price per share, and the total price for all Warrant Shares which Investor intends to purchase. Unless the Notice is delivered before 5:00 P.M. Pacific Time on the applicable Termination Date, the Notice shall be null and void.

(f) If the Notice is timely delivered to the Company, the purchase and sale of the Warrant Shares shall take place at the offices of the Company at 11:00 A.M., on the day which is ten (10) business days after the timely delivery of the Notice to the Company, or at such other time and place as the Company and the Investor mutually agree upon orally or in writing (each such time and place are designated as a “Warrant Closing”). At each Warrant Closing, the Company shall deliver to Investor a duly executed stock certificate representing the Warrant Shares that Investor is purchasing and Investor shall deliver to the Company the applicable Exercise Price and all other, documents and materials required pursuant to this Agreement. Notwithstanding any other provision of this Agreement to the contrary, in no event shall the Company be required to issue any Warrant Shares to Investor unless and until (i) such issuance is in compliance with all applicable federal and state securities laws, and (ii) all payments and other documents and materials required to be delivered by Investor have been received by the Company and all conditions of this Agreement have been fulfilled.

2. Representations and Warranties of the Company. The Company hereby represents and warrants to Investor that, as of the date hereof unless a different date is specified, and except as set forth on a Schedule of Exceptions (the “Schedule of Exceptions”) furnished to the Investor prior to execution hereof and attached hereto as Schedule A, which exceptions shall be deemed to be representations and warranties as if made hereunder:

2.1 Organization. Good Standing and Qualification. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of California. The Company is duly qualified to transact business and is in good standing in each jurisdiction in which the failure to so qualify would have a material adverse effect on its business or properties.

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2.2 Capitalization Common Stock. The authorized capital of the Company consists of One Hundred Million (100,000,000) shares of common stock, no par value per share, of which Sixteen Million Six Hundred Sixty-Seven Thousand (16,667,000) shares are issued and outstanding as of the date hereof.

(b) As of the date hereof, the outstanding shares of Common Stock are owned by the stockholders and in the numbers specified in Exhibit A hereto.

(c) The outstanding shares of Common Stock are all duly and validly authorized and issued, fully paid and nonassessable, and were issued in compliance with all applicable state and federal laws concerning the issuance of securities.

(d) Except as set forth in the Schedule of Exceptions attached hereto as Schedule A, there are not outstanding any options, warrants, rights (including conversion or preemptive rights) or agreements for the purchase or acquisition from the Company of any shares of its capital stock. Except as set forth herein, the Company is not a party or subject to any agreement or understanding, and, to the Company’s knowledge, there is no agreement or understanding between any persons and/or entities, which affects or relates to the voting or giving of written consents with respect to any security or by a director of the Company.

2.3 Subsidiaries. The Company does not presently own or control, directly or indirectly, any interest in any other corporation, association, or other business entity. The Company is not a participant in any joint venture, partnership, or similar arrangement.

2.4 Authorization. All corporate action on the part of the Company, its officers, directors and stockholders necessary for the authorization, execution and delivery of this Agreement and the performance of all obligations of the Company hereunder has been taken. This Agreement constitutes valid and legally binding obligations of the Company, enforceable in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, and (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies.

2.5 Valid Issuance of Common Stock. The Common Stock that is being purchased by the Investor hereunder, when issued, sold and delivered in accordance with the terms of this Agreement for the consideration expressed herein, will be duly and validly issued, fully paid and nonassessable and will be free of restrictions on transfer, other than restrictions on transfer under this Agreement and under applicable state and federal securities laws.

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2.6 Governmental Consents. No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state or local governmental authority on the part of the Company is required in connection with the issuance of the Issue Shares and Warrants, except for such filings as are required pursuant to applicable federal and state securities laws and blue sky laws, which filings will be effected within the required statutory period.

2.7 Offering. Subject in part to the truth and accuracy of the Investor’s representations set forth in Section 3 of this Agreement, the offer, sale and issuance of the Shares as contemplated by this Agreement are exempt from the registration requirements of the Securities Act of 1933, as amended (the “Act”), and the qualification or registration requirements of applicable blue sky laws. Neither the Company nor any authorized agent acting on its behalf will take any action hereafter that would cause the loss of such exemptions.

2.8 Litigation. There is no action, suit, proceeding or investigation pending, or to the Company’s knowledge, currently threatened against the Company that questions the validity of this Agreement or the right of the Company to enter into such agreement or to consummate the transactions contemplated hereby, or that might result, either individually or in the aggregate, in any material adverse changes in the business, assets or condition of the Company, financially or otherwise, or any change in the current equity ownership of the Company. The Company is not a party or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality. There is no action, suit, proceeding or investigation by the. Company currently pending or that the Company intends to initiate.

2.9 Compliance with Other Instruments. The Company is not in violation in any material respect of any provision of its articles of incorporation (the “Articles”) or bylaws (the “Bylaws”) nor, to its knowledge, in any material respect of any instrument, judgment, order, writ, decree or contract, statute, rule or regulation to which the Company is subject and a violation of which would have a material adverse effect on the condition, financial or otherwise, or operations of the Company. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby will not result in any such violation, or be in conflict with or constitute, with or without the passage of time and giving of notice, either a default under any such provision or an event that results in the creation of any lien, charge or encumbrance upon any assets of the Company or the suspension, revocation, impairment, forfeiture or nonrenewal of any material permit, license, authorization or approval applicable to the Company, its business or operations or any of its assets or properties.

2.10 Permits. The Company has all franchises, permits, licenses and any similar authority necessary for the conduct of its business as it is presently conducted, the lack of which could materially and adversely affect the business, properties or financial condition of the Company. The Company is not in default in any material respect under any of such franchises, permits, licenses or other similar authority.

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2.11 Corporate Documents Minute Books. The Articles and Bylaws of the Company are in the form previously provided to the Investor. The minute books of the Company provided to the Investor contain a complete summary of all meetings of directors and stockholders since the time of incorporation and reflect all transactions referred to in such minutes accurately in all material respects.

3. Representations, Warranties and Covenants of the Investor. The Investor represents, warrants and covenants that:

3.1 Authorization. Investor has full power and authority to enter into this Agreement and such agreement constitutes a valid and legally binding obligation, enforceable against Investor in accordance with its terms. Investor hereby represents and warrants to Company that, as of the date hereof unless a different date is specified, and except as set forth on a Schedule of Exceptions (the “Schedule of Exceptions”) furnished to the Company prior to execution hereof and attached hereto as Schedule A1, which exceptions shall be deemed to be representations and warranties as if made hereunder:

3.2 Organization, Good Standing and Qualification. The Investor is a corporation duly organized, validly existing and in good standing under the laws of the State of Maryland. The Investor is duly qualified to transact business and is in good standing in each jurisdiction in which the failure to so qualify would have a material adverse effect on its business or properties.

3.3 Purchase Entirely for Own Account. This Agreement is made with Investor in reliance upon Investor’s representation to the Company, which by Investor’s execution of this Agreement Investor hereby confirms, that the Shares to be received by Investor (the “Securities”) will be acquired for investment for Investor’s own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that Investor has no present intention of selling, granting any participation in or otherwise distributing the same. By executing this Agreement, Investor further represents that Investor does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to any of the Securities.

3.4 Disclosure of Information. Investor believes it has received all the information it considers necessary or appropriate for deciding whether to purchase the Shares. Investor further represents that it has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Shares and the business, properties, prospects and financial condition of the Company.

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3.5 Investment Experience. Investor is an investor in securities of companies in the development stage and acknowledges that it is able to fend for itself, can bear the economic risk of its investment, and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Shares.

3.6 Accredited Investor. Investor has read the definition of “accredited investor” attached to this Agreement as Exhibit B and Investor is an “accredited investor” within the meaning of Rule 501 of Regulation D of the Act, Investor has completed fully and executed Exhibit B. Investor acknowledges and agrees that the Company is relying and may rely on this and the other representations, warranties and covenants made by investor herein for compliance with federal and state securities laws.

3.7 Restricted Securities. Investor understands that the Securities it is purchasing are characterized as “restricted securities” under the federal securities laws in as much as they are being acquired from the Company in a transaction not involving a public offering, that the Securities have not been registered under the Act, and that under federal securities laws and applicable regulations such Securities may be resold without registration under the Act only in certain limited circumstances. In the absence of an effective registration statement covering the Securities or an available exemption from registration under the Act, the Securities must be held indefinitely. Inthis connection, Investor represents that it is familiar with Rule 144 of the Act and understands the resale limitations imposed thereby and by the Act, including without limitation the Rule 144 condition that current information about the Company be available to the public. Such information is not now available and the Company has no present plans to make such information available.

3.8 Further Limitations on Disposition. Without in any way limiting the representations set forth above, Investor further agrees not to make any disposition of all or any portion of the Securities unless and until the transferee has agreed in writing for the benefit of the Company to be bound by this Section 3, and:

(a) There is then in effect a registration statement under the Act covering such proposed disposition and such disposition is made in accordance with such registration statement; or

(b) (i) Investor shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, and (ii) if requested by the Company, Investor shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require registration of such shares under the Act nor result in the loss of any exemption under the Act or any applicable blue sky laws.

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(c) In no event shall Investor make any disposition or Transfer of any Issue Shares or Warrant Shares, or any right, title, or interest of Investor therein, until the date which is three (3) years after the date of this Agreement, except that Investor shall be permitted to Transfer Issue Shares or Warrant Shares acquired by Investor pursuant to this Agreement on the following conditions: (i) Investor gives five (5) business days’ prior written notice to the Company of Investor’s intent to Transfer the Issue Shares or Warrant Shares, including notice of the number of shares to be Transferred, the price or other consideration therefor, the proposed transferee, and the proposed date of the Transfer; (ii) Balwinder Samra, an officer and shareholder of the Company (“Samra”), shall have already Transferred shares of the Common Stock before Investor Transfers any of Investor’s Shares; (iii) Investor will not Transfer a greater percentage of the Shares owned by Investor than the percentage which Samra Transferred of the shares of Common Stock owned by Samra (e.g., if Samra Transfers 10% of the Common Stock owned by Samra, then Investor may Transfer up to 10%, but no more, of the Shares owned by Investor); and (iv) no Transfer by Investor of the Shares will result in the loss of any exemption from registration or qualification of the Common Stock or of any other security of the Company under the Act or any applicable blue sky laws.

3.9 Legends. It is understood that the certificates evidencing the Securities may bear one or more legends restricting the transfer thereof or indicating the existence of restrictions on such transfer including legends substantially as set forth in this Section 3.8;

(a) “These securities have not been registered or qualified under the Securities Act of 1933, as amended (the “Act”) or any applicable state securities laws. They may not be sold, offered for sale, pledged or hypothecated in the absence of a registration statement in effect with respect to the securities under such Act and qualification under applicable state securities laws or an opinion of counsel satisfactory to the Company that such registration and qualification is not required.”

(b) Any legend required by the laws of the State of California, including, without limitation, any legend required by the California Department of Corporations and Sections 417 and 418 of the California Corporations Code.

3.10 Tax Advisors. Investor has reviewed with Investor’s own tax advisors the federal, state and local tax consequences of this investment, where applicable, and the transactions contemplated by this Agreement. Investor is relying solely on such advisors and not on any statements or representations of the Company or any of its agents and understands that Investor (and not the Company) shall be responsible for Investor’s own tax liability that may arise as a result of this investment or the transactions contemplated by this Agreement.

3.11 Lock–up Agreements. Investor acknowledges that Investor may from time to time be asked to enter into a “market stand-still” or “lock-up” agreement further restricting Investor’s ability to sell or otherwise transfer the Securities. Investor hereby agrees to execute and deliver any such market stand-still, lock-up or similar agreement, provided that investor shall not be required to execute and deliver any such agreement unless Samra executes and delivers a similar agreement providing substantially the same restrictions on any sale of transfer of any shares of the Company’s stock held by Samra.

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     4. California Commissioner of Corporations.

4.1 Corporate Securities Law. THE SALE OF THE SECURITIES THAT ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE, THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.

5. Conditions of Investor’s Obligations at Closing. The obligations of Investor under subsection 1.1 (c) of this Agreement are subject to the fulfillment on or before the Closing, of each of the following conditions, the waiver of which shall not be effective unless Investor consents thereto:

5.1 Representations and Warranties. The representations and warranties of the Company contained in Section 2 shall be true on and as of the Closing, with the same effect as though such representations and warranties had been made on and as of the date of such Closing.

5.2Performance. The Company shall have performed and complied with all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before the Closing.

5.3 Qualifications. Except as otherwise stated in this Agreement, all authorizations, approvals or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Securities pursuant to this Agreement shall be duly obtained and effective as of the Closing.

5.4 Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated at the Closing and all documents incident thereto shall be reasonably satisfactory in form and substance to Investor’s counsel, and they shall have received all such counterpart original and certified or other copies of such documents as they may reasonably request.

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6. Conditions of the Company’s Obligations at Closing. The obligations of the Company to Investor under this Agreement are subject to the fulfillment on or before the Closing, or any Warrant Closing, of each of the following conditions:

6.1 Representations and Warranties. The representations and warranties of the Investor contained in Section 3 shall be true on and as of the Closing, or any Warrant Closing, with the same effect as though such representations and warranties had been made on and as of the Closing or any Warrant Closing, as applicable.

6.2 Payment of Purchase Price. The Investor shall have delivered the Cash Purchase Price specified in Section 1.1(c),

6.3 Qualifications. Except as otherwise stated in this Agreement, all authorizations, approvals or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Securities pursuant to this Agreement shall be duly obtained and effective as of the Closing or any Warrant Closing, as applicable.

7. Miscellaneous.

7.1 Survival. The warranties, representations and covenants of the Company and Investor contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement and the Closing.

7.2 Successors and Assigns. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties (including transferees of any Securities). Nothing in this Agreement, express or implied, is intended to confer upon any party, other than the parties hereto or their respective successors and assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

7.3 Governing Law. This Agreement shall be governed by and construed under the laws of the State of California as applied to agreements among California residents entered into and to be performed entirely within California.

7.4 Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

7.5 Notices. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (i) upon personal delivery to the party to be notified, (ii) when sent by confirmed telex or facsimile if sent during normal business hours of the recipient, if not, then on the next business day; (iii) five days after having been sent by registered or certified mail, return receipt requested, postage prepaid; or (iv) one day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the address as set forth on the signature page hereof or at such other address as such party may designate by ten days advance written notice to the other parties hereto.

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7.6 Finder’s Fee. Each party represents that it neither is nor will be obligated for any finders’ fee or commission in connection with this transaction. Investor agrees to indemnify and to hold harmless the Company from any liability for any commission or compensation in the nature of a finders’ fee (and the costs and expenses of defending against such liability or asserted liability) for which Investor or any of its officers, partners, employees or representatives is responsible. The Company agrees to indemnify and hold harmless Investor from any liability for any commission or compensation in the nature of a finders’ fee (and the costs and expenses of defending against such liability or asserted liability) for which the Company or any of its officers, employees or representatives is responsible.

7.7 Amendments and Waivers. Any term of this Agreement may be amended by the written consent of the parties hereto. The observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), with the consent of the party or parties entitled to enforce such observance. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any securities purchased under this Agreement at the time outstanding, each future holder of all such securities, and the Company.

7.8 Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms.

7.9 Entire Agreement. This Agreement constitutes the entire agreement among the parties and no party shall be liable or bound to any other party in any manner by any warranties, representations or covenants except as specifically set forth herein or therein.

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7.10 Waiver of Conflicts. Each party to this Agreement acknowledges that Richard Christesen, counsel for the Company, has in the past and may continue to perform legal services for the Company and/or the Investor in matters unrelated to the transactions described in this Agreement. Each party to this Agreement also acknowledges that David Culmer, also counsel for the Company, may continue to perform legal services for the Company and/or the Investor in matters unrelated to the transactions described in this Agreement. Accordingly, each party to this Agreement hereby (i) acknowledges that they have had an opportunity to ask for information relevant to this disclosure, (ii) acknowledges that Richard Christesen and David Culmer represented the Company in the transaction contemplated by this Agreement and have not represented Investor or any individual stockholder or employee of the Company in connection with such transaction, (iii) gives its informed consent to the representation by Richard Christesen and/or David Culmer of the Investor in such unrelated matters and the representation by Richard Christesen and/or David Culmer of the Company in connection with this Agreement and the transactions contemplated hereby and any unrelated matters. Investor hereby acknowledges that it has been informed that it should seek the advise of an independent attorney and has either availed itself of that right or has elected to waive that right.

7.11 Construction. Each party to this Agreement acknowledges and agrees that it has been given the opportunity to review this Agreement independently with legal counsel, and that each party to this Agreement has cooperated in the drafting of this Agreement such that any construction to be made of this Agreement shall not be made based on any rule providing for interpretation against the party who causes uncertainty to exist, or against the draftsman. Whenever the singular number is used in this Agreement and when required by the context, the same shall include the plural and vice versa, and the masculine gender shall include the feminine and neuter genders and vice versa.

7.12 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

	“Company”:
	BALQON CORPORATION, a California corporation
By:	/s/ Balwinder Samra
	Balwinder Samra
	Its: President

Address		1701 E. Edinger Ave., Unit E-3, Santa Ana, CA 92705 Facsimile: (714) 836-6343
“Investor”:
MARLIN FINANCIAL GROUP, INC,
By:	/s/ Mark Levine
	Mark Levin Its: CEO

Address	9812 Falls Road, Suite 114-198 Potomac, MD 20854
	Facsimile: 4434312508

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EX-10.23

EXHIBIT 10.23

AMENDMENT NO. 1 TO STOCK AND WARRANT PURCHASE AGREEMENT

THIS AMENDMENT TO STOCK AND WARRANT PURCHASE AGREEMENT (“Amendment”) is made as of the thirtieth day of March, 2009 by and among Balqon Corporation, a Nevada corporation (the “Company”) and Marlin Financial Group, Inc. (“Marlin”) to be effective as of June 4, 2008.

Recitals

A.           On October 24, 2008, the Company assumed the rights and obligations of Balqon Corporation, a California corporation (“Balqon California”), under that certain Stock and Warrant Purchase Agreement, dated August 28, 2008, by and between Balqon California and Marlin (the “Initial Agreement”).

B.           A review of the records of Balqon California evidences that while the Initial Agreement was memorialized on August 28, 2008, Balqon California and Marlin intended on entering into such agreement, and in fact entered into such agreement orally, on June 4, 2008.

C.           Certain terms set forth in the Initial Agreement does not evidence the intent of Balqon California and Marlin on June 4, 2008.

D.           Accordingly, the Company and Marlin desire to amend certain provisions of the Initial Agreement to accurately set forth their intentions and agreements on June 4, 2008.

Agreement

NOW THEREFORE, in consideration of the foregoing premises and the respective promises and agreements of the parties set forth herein, the parties hereto agree as follows:

1.   Definitions. Capitalized terms used herein and not otherwise defined herein shall have the respective meanings ascribed thereto in the Initial Agreement.

2.   Amendments.

2.1.   The Initial Agreement is hereby amended by deleting any reference to August 28, 2008, or August __ 2008, and replacing such reference with June 4, 2008.

2.2.   Section 1.3 to the Initial Agreement is hereby amended by deleting such section in its entirety and inserting in its place the following:

“1.3           Warrants and Warrant Shares: Investor shall be issued the Warrants in the form attached as Exhibit A such that (i) one third of the Warrants (i.e. Warrants to purchase 243,060 shares of Common Stock) shall have an exercise price of $1.50 per share and shall terminate at the close of business on the day preceding June 10, 2010, (ii) one third of the Warrants (i.e. Warrants to purchase 243,060 shares of Common Stock) shall have an exercise price of $2.00 per share and shall terminate at the close of business on the day preceding June 10, 2011, and (iii) one third of the Warrants (i.e. Warrants to purchase 243,060 shares of Common Stock) shall have an exercise price of $2.50 per share and shall terminate at the at the close of business on the day preceding June 10, 2012.”

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2.3.   Section 3.7(c) of the Initial Agreement is hereby amended by deleting subsection (iii) to Section 3.7(c) in its entirety and inserting in its place the following:

“(iii) Investor will not Transfer a greater percentage of the securities held by Investor on the date hereof than the percentage of securities Samra will have already Transferred of the total number of securities held by Samra on the date hereof.”

3.   Miscellaneous.  Except as modified and amended pursuant to this Amendment, the Initial Agreement shall remain in full force and effect.  This Amendment may be executed in one or more counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument.

[signature page follows]

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IN WITNESS WHEREOF, the parties have caused their duly authorized officers to execute this Amendment No. 1 to Warrant and Stock Purchase Agreement as of the date first above written.

The Company:	Balqon Corporation
	By:	/s/ B. Samra
		Name : B. Samra Title: Chief Executive Officer

Marlin:	MARLIN FINANCIAL GROUP, INC.
	By:	/s/ Mark Levin
		Name : Mark Levin Title: President

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EXHIBIT A

NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON THE EXERCISE OF THESE SECURITIES HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAWS.  THE SECURITIES REPRESENTED HEREBY MAY NOT BE EXERCISED, OFFERED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE ASSIGNED (EACH A “TRANSFER”) EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSFER NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (B) TO THE EXTENT THE TRANSFER DOES NOT CONSTITUTE AND WILL NOT RESULT IN A VIOLATION OF APPLICABLE FEDERAL OR STATE SECURITIES LAWS, AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT (TO THE EXTENT REQUESTED BY COUNSEL OF THE COMPANY), THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.  THE HOLDER HEREOF AGREES THAT IT WILL DELIVER, OR CAUSE TO BE DELIVERED, TO EACH PERSON TO WHOM THE SECURITIES HEREBY REPRESENTED ARE TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.  THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES.

STOCK PURCHASE WARRANT

BALQON CORPORATION

Original Issue Date: June 4, 2008

THIS CERTIFIES that, for value received, Marlin Financial Group (the “Holder”), is entitled, upon the terms and subject to the conditions hereinafter set forth, to subscribe for and purchase, from BALQON CORPORATION, a California corporation (the “Company”), at any time upon the terms and subject to the conditions set forth herein, from the Company, 243,060 shares of common stock (“Common Stock”) of the Company (the “Warrant Shares”).  The exercise price of one share of Common Stock under this Warrant shall be $1.50 (“Exercise Price”), subject to adjustment as provided herein.  If the purchase rights represented by this Warrant are not exercised before the close of business on the day preceding June 30, 2010, this Warrant shall be void.

1.           Title of Warrant.  Prior to the expiration hereof and subject to compliance with applicable laws, this Warrant and all rights hereunder are transferable, in whole or in part, at the office or agency of the Company, referred to in Section 3 hereof, by the holder hereof in person or by duly authorized attorney, upon surrender of this Warrant together with the Assignment Form annexed hereto properly endorsed.

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2.           Investment Representations.

(a)           Holder confirms that it has been given sufficient access to information regarding the Company and in connection with its decision to receive this Warrant, including any common stock issuable upon the exercise of this Warrant (collectively, the “Securities”), including the opportunity to ask questions of, and receive answers from, persons acting on behalf of Company and concerning Company’s financial affairs, prospects and condition.

(b)           Holder represents and warrants that (i) it is resident in or otherwise subject to the securities legislation of the United States, and the issuance of the Securities to Holder has occurred only in the United States; (ii) Holder, by reason of its business or financial expertise, has the capacity to protect its own interests in connection with its acquisition of the Securities; and (iii) Holder is an “accredited investor” as defined in Rule 501 of Regulation D of the Securities Act of 1933, as amended (the “Securities Act”).

(c)           Holder represents, warrants and covenants that it shall acquire the Securities for its own account and not for the account or on behalf of others, and it is doing so with the intent of retaining such Securities as an investment and without the current intent to redistribute such Securities.

(d)           Holder acknowledges that: (i) no securities commission or similar authority has reviewed or passed on the merits of the Securities; (ii) there is no government or other insurance covering such Securities; and (iii) there are risks associated with the acquisition of the Securities.

(e)           Holder acknowledges that (i) it must and shall bear the economic risk of holding the Securities, which may be for an indefinite period of time, because at the time such Securities are issued they will not have been registered under the Securities Act or any other securities law and, therefore, cannot be sold unless they are subsequently registered under applicable federal and state securities laws or an exemption from such registration is available; (ii) the Securities may not be resold or transferred on the official stock transfer records of Company without furnishing to Company an opinion of counsel reasonably acceptable to Company that such sale or transfer of the Securities will not violate the registration provisions of applicable federal and state securities laws; and (iii) certificates representing the Securities shall have endorsed on them a restrictive legend to this effect.

(f)           Holder acknowledges that Company is relying on the representations, warranties, covenants and acknowledgments in this Section 2 to ensure that the Securities can be issued in reliance on exemptions from registration requirements under United States federal and state securities laws.

3.           Exercise of Warrant.

(a)           The purchase rights represented by this Warrant are exercisable by the Holder by the surrender of this Warrant and the Notice of Exercise annexed hereto duly completed and executed on behalf of the Holder, at the office of the Company (or such other office or agency of the Company as it may designate by notice in writing to the Holder at the address of the Holder appearing on the books of the Company), upon payment in cash, certified check or wire transfer of funds, of the aggregate Exercise Price for that number of Warrant Shares then being purchased.

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(b)           This Warrant shall be deemed to have been exercised immediately prior to the close of business on the date of its surrender for exercise as provided above, and the person entitled to receive the shares of Common Stock issuable upon such exercise shall be treated for all purposes as the holder of record of such shares as of the close of business on such date.  As promptly as practicable on or after such date and in any event within ten (10) days thereafter, the Company at its expense shall issue and deliver to the person or persons entitled to receive the same a certificate or certificates for the number of shares issuable upon such exercise.  In the event that this Warrant is exercised in part, the Company at its expense will execute and deliver a new Warrant of like tenor exercisable for the number of shares for which this Warrant may then be exercised.  Each exercise hereof shall constitute the reaffirmation by the holder hereof that the representations and warranties contained in Section 2 of this Warrant true and correct in all material respects with respect to the Holder of the Warrant as of the time of such exercise.

4.           No Fractional Shares or Scrip.  No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant.  With respect to any fraction of a share called for upon the exercise of this Warrant, an amount equal to such fraction multiplied by the then current price at which each share may be purchased hereunder shall be paid in cash to the holder of this Warrant.

5.           Charges, Taxes and Expenses.  Issuance of certificates for shares of Common Stock upon the exercise of this Warrant shall be made without charge to the holder hereof for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the holder of this Warrant or in such name or names as may be directed by the holder of this Warrant; provided, however, that in the event certificates for shares of Common Stock are to be issued in a name other than the name of the holder of this Warrant, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the holder hereof; and provided further, that upon any transfer involved in the issuance or delivery of any certificates for shares of Common Stock, the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto.  The Holder of the Warrant shall be responsible for income taxes due under federal, state, or other law, if any, if any such tax is due.

6.           No Rights as Stockholders.  This Warrant does not entitle the holder hereof to any voting rights or other rights as a stockholder of the Company prior to the exercise thereof.  Nothing in this Warrant shall be construed to give any person, firm or corporation (other than the Company and the Holder of this Warrant) any legal or equitable right, remedy or claim, it being agreed that this Warrant shall be for the sole and exclusive benefit of the Company and the Holder of this Warrant.

7.           Exchange and Registry of Warrant.  This Warrant is exchangeable, upon the surrender hereof by the registered holder at the above-mentioned office or agency of the Company, for a new Warrant of like tenor and dated as of such exchange.  The Company shall maintain at the above-mentioned office or agency a registry showing the name and address of the registered holder of this Warrant.  This Warrant may be surrendered for exchange, transfer or exercise, in accordance with its terms, at such office or agency of the Company, and the Company shall be entitled to rely in all respects, prior to written notice to the contrary, upon such registry.

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8.           Loss, Theft, Destruction or Mutilation of Warrant.  Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it, and upon reimbursement to the Company of all reasonable expenses incidental thereto, and upon surrender and cancellation of this Warrant, if mutilated, the Company will make and deliver a new Warrant of like tenor and dated as of such cancellation, in lieu of this Warrant.

9.           Saturdays, Sundays, Holidays, etc.  If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday or a Sunday or shall be a legal holiday, then such action may be taken or such right may be exercised on the next succeeding day not a legal holiday.

10.           Transferability and Nonnegotiability of Warrant.  This Warrant may not be transferred or assigned in whole or in part without compliance with all applicable federal and state securities laws by the transferor and the transferee (including the delivery of investment representation letters and legal opinions reasonably satisfactory to the Company, if such are requested by the Company).  Subject to the provisions of this Warrant with respect to compliance with the Securities Act, title to this Warrant may be transferred by endorsement (by the Holder executing the Assignment Form annexed hereto) and delivery in the same manner as a negotiable instrument transferable by endorsement and delivery.

11.           Compliance With Securities Laws.

(a)           The Holder of this Warrant represents and warrants that this Warrant and the shares of Common Stock to be issued upon exercise hereof are being acquired solely for the Holder’s own account and not as a nominee for any other party, and for investment, and that the Holder will not offer, sell or otherwise dispose of this Warrant or any shares of Common Stock to be issued upon exercise hereof except under circumstances that will not result in a violation of the Securities Act or any state securities laws.  Upon exercise of this Warrant, the Holder shall, if requested by the Company, confirm in writing, in a form satisfactory to the Company, that the shares of Common Stock so purchased are being acquired solely for the Holder’s own account and not as a nominee for any other party, for investment, and not with a view toward distribution or resale.

(b)           This Warrant and all shares of Common Stock issued upon exercise hereof shall be stamped or imprinted with a legend in substantially the following form (in addition to any legend required by state securities laws):

7

NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON THE EXERCISE OF THESE SECURITIES HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAWS.  THE SECURITIES REPRESENTED HEREBY MAY NOT BE EXERCISED, OFFERED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE ASSIGNED (EACH A “TRANSFER”) EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSFER NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (B) TO THE EXTENT THE TRANSFER DOES NOT CONSTITUTE AND WILL NOT RESULT IN A VIOLATION OF APPLICABLE FEDERAL OR STATE SECURITIES LAWS, AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT (TO THE EXTENT REQUESTED BY COUNSEL OF THE COMPANY), THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.  THE HOLDER HEREOF AGREES THAT IT WILL DELIVER, OR CAUSE TO BE DELIVERED, TO EACH PERSON TO WHOM THE SECURITIES HEREBY REPRESENTED ARE TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.  THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES.

12.           Early Termination and Reclassification.

(a)           Merger, Sale of Assets, etc.  If all or any portion of this Warrant is exercised subsequent to a merger, consolidation, exchange of shares, reorganization, or other similar event (“Change in Control”) occurring after the date hereof, as a result of which shares shall be changed into cash, other property, or the same or a different number of shares of the same or another class or classes of securities of the Company or another entity, the Holder exercising this Warrant shall receive, for the exercise price, the aggregate amount of cash or other property and the aggregate number of shares and class of securities which the Holder would have received if this Warrant was exercised immediately before the Change in Control.  If an adjustment under this section would create a fractional share or a right to acquire a fractional share, the fractional share will be rounded up to, and issued as, a whole share.  If, pursuant to a Change of Control event, the shares shall be exchanged solely for cash (in such case, a “Triggering Event”), then the Company shall give the Holder written notice describing the material terms and conditions of such impending transaction not later than ten (10) days prior to the stockholders’ meeting called to approve such transaction (or such longer period if required by the General Corporation Law of the State of California), or ten (10) days prior to the closing of such transaction (or such longer period if required by the General Corporation Law of the State of California), whichever is earlier, and shall also notify the holder of this Warrant of the final approval of such transaction.

(b)           Reclassification, etc.  If the Company at any time shall, by subdivision, combination or reclassification of securities or otherwise, change any of the securities to which purchase rights under this Warrant exist into the same or a different number of securities of any class or classes, this Warrant shall thereafter be to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities which were subject to the purchase rights under this Warrant immediately prior to such subdivision, combination, reclassification or other change.  If shares of the Company’s Common Stock are subdivided or combined into a greater or smaller number of shares of Common Stock, the purchase price under this Warrant shall be proportionately reduced in case of subdivision of shares or proportionately increased in the case of combination of shares and the number of shares of Common Stock purchasable under this Warrant shall be proportionally increased in the case of a subdivision and decreased in the case of combination, in all cases by the ratio which the total number of shares of Common Stock to be outstanding immediately after such event bears to the total number of shares of Common Stock outstanding immediately prior to such event.

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(c)           Cash Distributions.  No adjustment on account of cash dividends or interest on the Company’s Common Stock or other securities purchasable hereunder will be made to the purchase price under this Warrant .

(d)           Authorized Shares.  The Company covenants that during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of Common Stock upon the exercise of any purchase rights under this Warrant.  The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of the Company’s Common Stock upon the exercise of the purchase rights under this Warrant.

13.           Miscellaneous.

(a)           Issue Date.  The provisions of this Warrant shall be construed and shall be given effect in all respect as if it had been issued and delivered by the Company on the date hereof.  This Warrant shall be binding upon any successors or assigns of the Company.  This Warrant shall constitute a contract under the laws of the State of California and for all purposes shall be construed in accordance with and governed by the laws of said state.

(b)           Restrictions.  The holder hereof acknowledges that the Common Stock acquired upon the exercise of this Warrant may have restrictions upon its resale imposed by state and federal securities laws.

(c)           Entire Agreement and Amendments.  This Warrant constitutes the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and the Holder with respect to the subject matter hereof, and may not be modified adversely to the Holder’s interest except by means of a writing signed by the Company and the Holder.

(d)           Notices.  Unless otherwise provided, any notice required or permitted under this Warrant shall be given in writing and shall be deemed effectively given as hereinafter described (i) if given by personal delivery, then such notice shall be deemed given upon such delivery, (ii) if given by telex, facsimile or e-mail, then such notice shall be deemed given upon receipt of confirmation of complete transmittal, (iii) if given by mail, then such notice shall be deemed given upon the earlier of (A) receipt of such notice by the recipient or (B) three days after such notice is deposited in first class mail, postage prepaid, and (iv) if given by an internationally recognized overnight air courier, then such notice shall be deemed given one business day after delivery to such carrier.  All notices shall be addressed as follows: if to the Holder of the Warrant, at its address as set forth in the Company’s books and records and, if to the Company, at the address as follows, or at such other address as the Holder of the Warrant, or the Company may designate by ten days’ advance written notice to the other:

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If to the Company:

Balqon Corporation

1701 E. Edinger, Unit E-3

Santa Ana, California 92705

If to Holder:

________________________________

________________________________

________________________________

(e)           Binding Agreement; Assignment.  The terms and conditions of this Warrant shall inure to the benefit of and be binding upon the respective successors and permitted assigns of the parties.  Nothing in this Warrant, express or implied, is intended to confer upon any third party any rights, remedies, obligations, or liabilities under or by reason of this Warrant.  This Warrant may not be assigned by Holder (other than to a Related Person) without the prior written consent of the Company.  “Related Person” shall mean with respect to any Holder (i) any affiliate of such person, (ii) any investment fund, investment account or investment entity whose investment manager, investment advisor or general partner, is such Holder or any affiliate of such Holder or any member, partner, officer or employee of such Holder or any affiliate of such Holder, (iii) any member or partner of any Holder specified in clause (i) or (ii) above, and (iv) any officer or employee of any person specified in clause (i), (ii) or (iii) above.

(signature page follows)

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IN WITNESS WHEREOF, BALQON CORPORATION has caused this Warrant to be executed by its officers thereunto duly authorized.

	BALQON CORPORATION
Date	By:
		Balwinder Samra, President

Name of Holder:	Marlin Financial Group
(Signature)
Address:
Telephone:
Facsimile:

11

NOTICE OF EXERCISE

To:           BALQON CORPORATION

(1)           The undersigned hereby elects to purchase ____________ shares of Common Stock  of BALQON CORPORATION pursuant to the provisions of Section 3(a) of the attached Warrant, and tenders herewith payment of the purchase price for such shares in full.

(2)           In exercising this Warrant, the undersigned hereby confirms and acknowledges that the shares of Common Stock to be issued upon exercise thereof are being acquired solely for the account of the undersigned and not as a nominee for any other party, and for investment, and that the undersigned will not offer, sell or otherwise dispose of any such shares of Common Stock except under circumstances that will not result in a violation of the Securities Act, or any applicable state securities laws.

(3)           In exercising this Warrant, the undersigned hereby affirms that the representations and warranties contained in Section 2 of this Warrant are true and correct in all material respects.

(4)           Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as specified below:

Name 

Name 

(5)           Please issue a new Warrant for the unexercised portion of the attached Warrant in the name of the undersigned or in such other name as is specified below:

	Name
(Date)	Signature

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ASSIGNMENT FORM

FOR VALUE RECEIVED, the undersigned registered owner of this Warrant hereby sells, assigns and transfers unto the Assignee named below all of the rights of the undersigned under the within Warrant, with respect to the number of shares of Common Stock set forth below:

  Name of Assignee   Address   No. of Shares

and does hereby irrevocable constitute and appoint _______________________ Attorney to make such transfer on the books of BALQON CORPORATION, maintained for the purpose, with full power of substitution in the premises.

The undersigned also represents that, by assignment hereof, the Assignee acknowledges that this Warrant and the shares of Common Stock to be issued upon exercise hereof or conversion thereof are being acquired for investment and that the Assignee will not offer, sell or otherwise dispose of this Warrant or any shares of Common Stock to be issued upon exercise hereof or conversion thereof except under circumstances which will not result in a violation of the Securities Act or any state securities laws.  Further, the Assignee has acknowledged that upon exercise of this Warrant, the Assignee shall, if requested by the Company, confirm in writing, in a form satisfactory to the Company, that the shares of Common Stock so purchased are being acquired for investment and not with a view toward distribution or resale.

Dated:

Signature of Holder

13

NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON THE EXERCISE OF THESE SECURITIES HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAWS.  THE SECURITIES REPRESENTED HEREBY MAY NOT BE EXERCISED, OFFERED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE ASSIGNED (EACH A “TRANSFER”) EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSFER NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (B) TO THE EXTENT THE TRANSFER DOES NOT CONSTITUTE AND WILL NOT RESULT IN A VIOLATION OF APPLICABLE FEDERAL OR STATE SECURITIES LAWS, AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT (TO THE EXTENT REQUESTED BY COUNSEL OF THE COMPANY), THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.  THE HOLDER HEREOF AGREES THAT IT WILL DELIVER, OR CAUSE TO BE DELIVERED, TO EACH PERSON TO WHOM THE SECURITIES HEREBY REPRESENTED ARE TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.  THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES.

STOCK PURCHASE WARRANT

BALQON CORPORATION

Original Issue Date: June 4, 2008

THIS CERTIFIES that, for value received, Marlin Financial Group (the “Holder”), is entitled, upon the terms and subject to the conditions hereinafter set forth, to subscribe for and purchase, from BALQON CORPORATION, a California corporation (the “Company”), at any time upon the terms and subject to the conditions set forth herein, from the Company, 243,060 shares of common stock (“Common Stock”) of the Company (the “Warrant Shares”).  The exercise price of one share of Common Stock under this Warrant shall be $2.00 (“Exercise Price”), subject to adjustment as provided herein.  If the purchase rights represented by this Warrant are not exercised before the close of business on the day preceding June 30, 2011, this Warrant shall be void.

1.           Title of Warrant.  Prior to the expiration hereof and subject to compliance with applicable laws, this Warrant and all rights hereunder are transferable, in whole or in part, at the office or agency of the Company, referred to in Section 3 hereof, by the holder hereof in person or by duly authorized attorney, upon surrender of this Warrant together with the Assignment Form annexed hereto properly endorsed.

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2.           Investment Representations.

(a)           Holder confirms that it has been given sufficient access to information regarding the Company and in connection with its decision to receive this Warrant, including any common stock issuable upon the exercise of this Warrant (collectively, the “Securities”), including the opportunity to ask questions of, and receive answers from, persons acting on behalf of Company and concerning Company’s financial affairs, prospects and condition.

(b)           Holder represents and warrants that (i) it is resident in or otherwise subject to the securities legislation of the United States, and the issuance of the Securities to Holder has occurred only in the United States; (ii) Holder, by reason of its business or financial expertise, has the capacity to protect its own interests in connection with its acquisition of the Securities; and (iii) Holder is an “accredited investor” as defined in Rule 501 of Regulation D of the Securities Act of 1933, as amended (the “Securities Act”).

(c)           Holder represents, warrants and covenants that it shall acquire the Securities for its own account and not for the account or on behalf of others, and it is doing so with the intent of retaining such Securities as an investment and without the current intent to redistribute such Securities.

(d)           Holder acknowledges that: (i) no securities commission or similar authority has reviewed or passed on the merits of the Securities; (ii) there is no government or other insurance covering such Securities; and (iii) there are risks associated with the acquisition of the Securities.

(e)           Holder acknowledges that (i) it must and shall bear the economic risk of holding the Securities, which may be for an indefinite period of time, because at the time such Securities are issued they will not have been registered under the Securities Act or any other securities law and, therefore, cannot be sold unless they are subsequently registered under applicable federal and state securities laws or an exemption from such registration is available; (ii) the Securities may not be resold or transferred on the official stock transfer records of Company without furnishing to Company an opinion of counsel reasonably acceptable to Company that such sale or transfer of the Securities will not violate the registration provisions of applicable federal and state securities laws; and (iii) certificates representing the Securities shall have endorsed on them a restrictive legend to this effect.

(f)           Holder acknowledges that Company is relying on the representations, warranties, covenants and acknowledgments in this Section 2 to ensure that the Securities can be issued in reliance on exemptions from registration requirements under United States federal and state securities laws.

3.           Exercise of Warrant.

(a)           The purchase rights represented by this Warrant are exercisable by the Holder by the surrender of this Warrant and the Notice of Exercise annexed hereto duly completed and executed on behalf of the Holder, at the office of the Company (or such other office or agency of the Company as it may designate by notice in writing to the Holder at the address of the Holder appearing on the books of the Company), upon payment in cash, certified check or wire transfer of funds, of the aggregate Exercise Price for that number of Warrant Shares then being purchased.

15

(b)           This Warrant shall be deemed to have been exercised immediately prior to the close of business on the date of its surrender for exercise as provided above, and the person entitled to receive the shares of Common Stock issuable upon such exercise shall be treated for all purposes as the holder of record of such shares as of the close of business on such date.  As promptly as practicable on or after such date and in any event within ten (10) days thereafter, the Company at its expense shall issue and deliver to the person or persons entitled to receive the same a certificate or certificates for the number of shares issuable upon such exercise.  In the event that this Warrant is exercised in part, the Company at its expense will execute and deliver a new Warrant of like tenor exercisable for the number of shares for which this Warrant may then be exercised.  Each exercise hereof shall constitute the reaffirmation by the holder hereof that the representations and warranties contained in Section 2 of this Warrant true and correct in all material respects with respect to the Holder of the Warrant as of the time of such exercise.

4.           No Fractional Shares or Scrip.  No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant.  With respect to any fraction of a share called for upon the exercise of this Warrant, an amount equal to such fraction multiplied by the then current price at which each share may be purchased hereunder shall be paid in cash to the holder of this Warrant.

5.           Charges, Taxes and Expenses.  Issuance of certificates for shares of Common Stock upon the exercise of this Warrant shall be made without charge to the holder hereof for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the holder of this Warrant or in such name or names as may be directed by the holder of this Warrant; provided, however, that in the event certificates for shares of Common Stock are to be issued in a name other than the name of the holder of this Warrant, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the holder hereof; and provided further, that upon any transfer involved in the issuance or delivery of any certificates for shares of Common Stock, the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto.  The Holder of the Warrant shall be responsible for income taxes due under federal, state, or other law, if any, if any such tax is due.

6.           No Rights as Stockholders.  This Warrant does not entitle the holder hereof to any voting rights or other rights as a stockholder of the Company prior to the exercise thereof.  Nothing in this Warrant shall be construed to give any person, firm or corporation (other than the Company and the Holder of this Warrant) any legal or equitable right, remedy or claim, it being agreed that this Warrant shall be for the sole and exclusive benefit of the Company and the Holder of this Warrant.

7.           Exchange and Registry of Warrant.  This Warrant is exchangeable, upon the surrender hereof by the registered holder at the above-mentioned office or agency of the Company, for a new Warrant of like tenor and dated as of such exchange.  The Company shall maintain at the above-mentioned office or agency a registry showing the name and address of the registered holder of this Warrant.  This Warrant may be surrendered for exchange, transfer or exercise, in accordance with its terms, at such office or agency of the Company, and the Company shall be entitled to rely in all respects, prior to written notice to the contrary, upon such registry.

16

8.           Loss, Theft, Destruction or Mutilation of Warrant.  Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it, and upon reimbursement to the Company of all reasonable expenses incidental thereto, and upon surrender and cancellation of this Warrant, if mutilated, the Company will make and deliver a new Warrant of like tenor and dated as of such cancellation, in lieu of this Warrant.

9.           Saturdays, Sundays, Holidays, etc.  If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday or a Sunday or shall be a legal holiday, then such action may be taken or such right may be exercised on the next succeeding day not a legal holiday.

10.           Transferability and Nonnegotiability of Warrant.  This Warrant may not be transferred or assigned in whole or in part without compliance with all applicable federal and state securities laws by the transferor and the transferee (including the delivery of investment representation letters and legal opinions reasonably satisfactory to the Company, if such are requested by the Company).  Subject to the provisions of this Warrant with respect to compliance with the Securities Act, title to this Warrant may be transferred by endorsement (by the Holder executing the Assignment Form annexed hereto) and delivery in the same manner as a negotiable instrument transferable by endorsement and delivery.

11.           Compliance With Securities Laws.

(a)           The Holder of this Warrant represents and warrants that this Warrant and the shares of Common Stock to be issued upon exercise hereof are being acquired solely for the Holder’s own account and not as a nominee for any other party, and for investment, and that the Holder will not offer, sell or otherwise dispose of this Warrant or any shares of Common Stock to be issued upon exercise hereof except under circumstances that will not result in a violation of the Securities Act or any state securities laws.  Upon exercise of this Warrant, the Holder shall, if requested by the Company, confirm in writing, in a form satisfactory to the Company, that the shares of Common Stock so purchased are being acquired solely for the Holder’s own account and not as a nominee for any other party, for investment, and not with a view toward distribution or resale.

(b)           This Warrant and all shares of Common Stock issued upon exercise hereof shall be stamped or imprinted with a legend in substantially the following form (in addition to any legend required by state securities laws):

17

NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON THE EXERCISE OF THESE SECURITIES HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAWS.  THE SECURITIES REPRESENTED HEREBY MAY NOT BE EXERCISED, OFFERED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE ASSIGNED (EACH A “TRANSFER”) EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSFER NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (B) TO THE EXTENT THE TRANSFER DOES NOT CONSTITUTE AND WILL NOT RESULT IN A VIOLATION OF APPLICABLE FEDERAL OR STATE SECURITIES LAWS, AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT (TO THE EXTENT REQUESTED BY COUNSEL OF THE COMPANY), THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.  THE HOLDER HEREOF AGREES THAT IT WILL DELIVER, OR CAUSE TO BE DELIVERED, TO EACH PERSON TO WHOM THE SECURITIES HEREBY REPRESENTED ARE TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.  THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES.

12.           Early Termination and Reclassification.

(a)           Merger, Sale of Assets, etc.  If all or any portion of this Warrant is exercised subsequent to a merger, consolidation, exchange of shares, reorganization, or other similar event (“Change in Control”) occurring after the date hereof, as a result of which shares shall be changed into cash, other property, or the same or a different number of shares of the same or another class or classes of securities of the Company or another entity, the Holder exercising this Warrant shall receive, for the exercise price, the aggregate amount of cash or other property and the aggregate number of shares and class of securities which the Holder would have received if this Warrant was exercised immediately before the Change in Control.  If an adjustment under this section would create a fractional share or a right to acquire a fractional share, the fractional share will be rounded up to, and issued as, a whole share.  If, pursuant to a Change of Control event, the shares shall be exchanged solely for cash (in such case, a “Triggering Event”), then the Company shall give the Holder written notice describing the material terms and conditions of such impending transaction not later than ten (10) days prior to the stockholders’ meeting called to approve such transaction (or such longer period if required by the General Corporation Law of the State of California), or ten (10) days prior to the closing of such transaction (or such longer period if required by the General Corporation Law of the State of California), whichever is earlier, and shall also notify the holder of this Warrant of the final approval of such transaction.

(b)           Reclassification, etc.  If the Company at any time shall, by subdivision, combination or reclassification of securities or otherwise, change any of the securities to which purchase rights under this Warrant exist into the same or a different number of securities of any class or classes, this Warrant shall thereafter be to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities which were subject to the purchase rights under this Warrant immediately prior to such subdivision, combination, reclassification or other change.  If shares of the Company’s Common Stock are subdivided or combined into a greater or smaller number of shares of Common Stock, the purchase price under this Warrant shall be proportionately reduced in case of subdivision of shares or proportionately increased in the case of combination of shares and the number of shares of Common Stock purchasable under this Warrant shall be proportionally increased in the case of a subdivision and decreased in the case of combination, in all cases by the ratio which the total number of shares of Common Stock to be outstanding immediately after such event bears to the total number of shares of Common Stock outstanding immediately prior to such event.

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(c)           Cash Distributions.  No adjustment on account of cash dividends or interest on the Company’s Common Stock or other securities purchasable hereunder will be made to the purchase price under this Warrant .

(d)           Authorized Shares.  The Company covenants that during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of Common Stock upon the exercise of any purchase rights under this Warrant.  The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of the Company’s Common Stock upon the exercise of the purchase rights under this Warrant.

13.           Miscellaneous.

(a)           Issue Date.  The provisions of this Warrant shall be construed and shall be given effect in all respect as if it had been issued and delivered by the Company on the date hereof.  This Warrant shall be binding upon any successors or assigns of the Company.  This Warrant shall constitute a contract under the laws of the State of California and for all purposes shall be construed in accordance with and governed by the laws of said state.

(b)           Restrictions.  The holder hereof acknowledges that the Common Stock acquired upon the exercise of this Warrant may have restrictions upon its resale imposed by state and federal securities laws.

(c)           Entire Agreement and Amendments.  This Warrant constitutes the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and the Holder with respect to the subject matter hereof, and may not be modified adversely to the Holder’s interest except by means of a writing signed by the Company and the Holder.

(d)           Notices.  Unless otherwise provided, any notice required or permitted under this Warrant shall be given in writing and shall be deemed effectively given as hereinafter described (i) if given by personal delivery, then such notice shall be deemed given upon such delivery, (ii) if given by telex, facsimile or e-mail, then such notice shall be deemed given upon receipt of confirmation of complete transmittal, (iii) if given by mail, then such notice shall be deemed given upon the earlier of (A) receipt of such notice by the recipient or (B) three days after such notice is deposited in first class mail, postage prepaid, and (iv) if given by an internationally recognized overnight air courier, then such notice shall be deemed given one business day after delivery to such carrier.  All notices shall be addressed as follows: if to the Holder of the Warrant, at its address as set forth in the Company’s books and records and, if to the Company, at the address as follows, or at such other address as the Holder of the Warrant, or the Company may designate by ten days’ advance written notice to the other:

19

If to the Company:

Balqon Corporation

1701 E. Edinger, Unit E-3

Santa Ana, California 92705

If to Holder:

________________________________

________________________________

________________________________

(e)           Binding Agreement; Assignment.  The terms and conditions of this Warrant shall inure to the benefit of and be binding upon the respective successors and permitted assigns of the parties.  Nothing in this Warrant, express or implied, is intended to confer upon any third party any rights, remedies, obligations, or liabilities under or by reason of this Warrant.  This Warrant may not be assigned by Holder (other than to a Related Person) without the prior written consent of the Company.  “Related Person” shall mean with respect to any Holder (i) any affiliate of such person, (ii) any investment fund, investment account or investment entity whose investment manager, investment advisor or general partner, is such Holder or any affiliate of such Holder or any member, partner, officer or employee of such Holder or any affiliate of such Holder, (iii) any member or partner of any Holder specified in clause (i) or (ii) above, and (iv) any officer or employee of any person specified in clause (i), (ii) or (iii) above.

(signature page follows)

20

IN WITNESS WHEREOF, BALQON CORPORATION has caused this Warrant to be executed by its officers thereunto duly authorized.

	BALQON CORPORATION
Date	By:
		Balwinder Samra, President

Name of Holder:	Marlin Financial Group
(Signature)
Address:
Telephone:
Facsimile:

21

NOTICE OF EXERCISE

To:           BALQON CORPORATION

(1)           The undersigned hereby elects to purchase ____________ shares of Common Stock  of BALQON CORPORATION pursuant to the provisions of Section 3(a) of the attached Warrant, and tenders herewith payment of the purchase price for such shares in full.

(2)           In exercising this Warrant, the undersigned hereby confirms and acknowledges that the shares of Common Stock to be issued upon exercise thereof are being acquired solely for the account of the undersigned and not as a nominee for any other party, and for investment, and that the undersigned will not offer, sell or otherwise dispose of any such shares of Common Stock except under circumstances that will not result in a violation of the Securities Act, or any applicable state securities laws.

(3)           In exercising this Warrant, the undersigned hereby affirms that the representations and warranties contained in Section 2 of this Warrant are true and correct in all material respects.

(4)           Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as specified below:

Name 

Name 

(5)           Please issue a new Warrant for the unexercised portion of the attached Warrant in the name of the undersigned or in such other name as is specified below:

	Name
(Date)	Signature

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ASSIGNMENT FORM

FOR VALUE RECEIVED, the undersigned registered owner of this Warrant hereby sells, assigns and transfers unto the Assignee named below all of the rights of the undersigned under the within Warrant, with respect to the number of shares of Common Stock set forth below:

  Name of Assignee   Address   No. of Shares

and does hereby irrevocable constitute and appoint _______________________ Attorney to make such transfer on the books of BALQON CORPORATION, maintained for the purpose, with full power of substitution in the premises.

The undersigned also represents that, by assignment hereof, the Assignee acknowledges that this Warrant and the shares of Common Stock to be issued upon exercise hereof or conversion thereof are being acquired for investment and that the Assignee will not offer, sell or otherwise dispose of this Warrant or any shares of Common Stock to be issued upon exercise hereof or conversion thereof except under circumstances which will not result in a violation of the Securities Act or any state securities laws.  Further, the Assignee has acknowledged that upon exercise of this Warrant, the Assignee shall, if requested by the Company, confirm in writing, in a form satisfactory to the Company, that the shares of Common Stock so purchased are being acquired for investment and not with a view toward distribution or resale.

Dated:

Signature of Holder

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NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON THE EXERCISE OF THESE SECURITIES HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAWS.  THE SECURITIES REPRESENTED HEREBY MAY NOT BE EXERCISED, OFFERED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE ASSIGNED (EACH A “TRANSFER”) EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSFER NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (B) TO THE EXTENT THE TRANSFER DOES NOT CONSTITUTE AND WILL NOT RESULT IN A VIOLATION OF APPLICABLE FEDERAL OR STATE SECURITIES LAWS, AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT (TO THE EXTENT REQUESTED BY COUNSEL OF THE COMPANY), THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.  THE HOLDER HEREOF AGREES THAT IT WILL DELIVER, OR CAUSE TO BE DELIVERED, TO EACH PERSON TO WHOM THE SECURITIES HEREBY REPRESENTED ARE TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.  THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES.

STOCK PURCHASE WARRANT

BALQON CORPORATION

Original Issue Date: June 4, 2008

THIS CERTIFIES that, for value received, Marlin Financial Group (the “Holder”), is entitled, upon the terms and subject to the conditions hereinafter set forth, to subscribe for and purchase, from BALQON CORPORATION, a California corporation (the “Company”), at any time upon the terms and subject to the conditions set forth herein, from the Company, 243,060 shares of common stock (“Common Stock”) of the Company (the “Warrant Shares”).  The exercise price of one share of Common Stock under this Warrant shall be $2.50 (“Exercise Price”), subject to adjustment as provided herein.  If the purchase rights represented by this Warrant are not exercised before the close of business on the day preceding June 30, 2012, this Warrant shall be void.

1.           Title of Warrant.  Prior to the expiration hereof and subject to compliance with applicable laws, this Warrant and all rights hereunder are transferable, in whole or in part, at the office or agency of the Company, referred to in Section 3 hereof, by the holder hereof in person or by duly authorized attorney, upon surrender of this Warrant together with the Assignment Form annexed hereto properly endorsed.

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2.           Investment Representations.

(a)           Holder confirms that it has been given sufficient access to information regarding the Company and in connection with its decision to receive this Warrant, including any common stock issuable upon the exercise of this Warrant (collectively, the “Securities”), including the opportunity to ask questions of, and receive answers from, persons acting on behalf of Company and concerning Company’s financial affairs, prospects and condition.

(b)           Holder represents and warrants that (i) it is resident in or otherwise subject to the securities legislation of the United States, and the issuance of the Securities to Holder has occurred only in the United States; (ii) Holder, by reason of its business or financial expertise, has the capacity to protect its own interests in connection with its acquisition of the Securities; and (iii) Holder is an “accredited investor” as defined in Rule 501 of Regulation D of the Securities Act of 1933, as amended (the “Securities Act”).

(c)           Holder represents, warrants and covenants that it shall acquire the Securities for its own account and not for the account or on behalf of others, and it is doing so with the intent of retaining such Securities as an investment and without the current intent to redistribute such Securities.

(d)           Holder acknowledges that: (i) no securities commission or similar authority has reviewed or passed on the merits of the Securities; (ii) there is no government or other insurance covering such Securities; and (iii) there are risks associated with the acquisition of the Securities.

(e)           Holder acknowledges that (i) it must and shall bear the economic risk of holding the Securities, which may be for an indefinite period of time, because at the time such Securities are issued they will not have been registered under the Securities Act or any other securities law and, therefore, cannot be sold unless they are subsequently registered under applicable federal and state securities laws or an exemption from such registration is available; (ii) the Securities may not be resold or transferred on the official stock transfer records of Company without furnishing to Company an opinion of counsel reasonably acceptable to Company that such sale or transfer of the Securities will not violate the registration provisions of applicable federal and state securities laws; and (iii) certificates representing the Securities shall have endorsed on them a restrictive legend to this effect.

(f)           Holder acknowledges that Company is relying on the representations, warranties, covenants and acknowledgments in this Section 2 to ensure that the Securities can be issued in reliance on exemptions from registration requirements under United States federal and state securities laws.

3.           Exercise of Warrant.

(a)           The purchase rights represented by this Warrant are exercisable by the Holder by the surrender of this Warrant and the Notice of Exercise annexed hereto duly completed and executed on behalf of the Holder, at the office of the Company (or such other office or agency of the Company as it may designate by notice in writing to the Holder at the address of the Holder appearing on the books of the Company), upon payment in cash, certified check or wire transfer of funds, of the aggregate Exercise Price for that number of Warrant Shares then being purchased.

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(b)           This Warrant shall be deemed to have been exercised immediately prior to the close of business on the date of its surrender for exercise as provided above, and the person entitled to receive the shares of Common Stock issuable upon such exercise shall be treated for all purposes as the holder of record of such shares as of the close of business on such date.  As promptly as practicable on or after such date and in any event within ten (10) days thereafter, the Company at its expense shall issue and deliver to the person or persons entitled to receive the same a certificate or certificates for the number of shares issuable upon such exercise.  In the event that this Warrant is exercised in part, the Company at its expense will execute and deliver a new Warrant of like tenor exercisable for the number of shares for which this Warrant may then be exercised.  Each exercise hereof shall constitute the reaffirmation by the holder hereof that the representations and warranties contained in Section 2 of this Warrant true and correct in all material respects with respect to the Holder of the Warrant as of the time of such exercise.

4.           No Fractional Shares or Scrip.  No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant.  With respect to any fraction of a share called for upon the exercise of this Warrant, an amount equal to such fraction multiplied by the then current price at which each share may be purchased hereunder shall be paid in cash to the holder of this Warrant.

5.           Charges, Taxes and Expenses.  Issuance of certificates for shares of Common Stock upon the exercise of this Warrant shall be made without charge to the holder hereof for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the holder of this Warrant or in such name or names as may be directed by the holder of this Warrant; provided, however, that in the event certificates for shares of Common Stock are to be issued in a name other than the name of the holder of this Warrant, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the holder hereof; and provided further, that upon any transfer involved in the issuance or delivery of any certificates for shares of Common Stock, the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto.  The Holder of the Warrant shall be responsible for income taxes due under federal, state, or other law, if any, if any such tax is due.

6.           No Rights as Stockholders.  This Warrant does not entitle the holder hereof to any voting rights or other rights as a stockholder of the Company prior to the exercise thereof.  Nothing in this Warrant shall be construed to give any person, firm or corporation (other than the Company and the Holder of this Warrant) any legal or equitable right, remedy or claim, it being agreed that this Warrant shall be for the sole and exclusive benefit of the Company and the Holder of this Warrant.

7.           Exchange and Registry of Warrant.  This Warrant is exchangeable, upon the surrender hereof by the registered holder at the above-mentioned office or agency of the Company, for a new Warrant of like tenor and dated as of such exchange.  The Company shall maintain at the above-mentioned office or agency a registry showing the name and address of the registered holder of this Warrant.  This Warrant may be surrendered for exchange, transfer or exercise, in accordance with its terms, at such office or agency of the Company, and the Company shall be entitled to rely in all respects, prior to written notice to the contrary, upon such registry.

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8.           Loss, Theft, Destruction or Mutilation of Warrant.  Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it, and upon reimbursement to the Company of all reasonable expenses incidental thereto, and upon surrender and cancellation of this Warrant, if mutilated, the Company will make and deliver a new Warrant of like tenor and dated as of such cancellation, in lieu of this Warrant.

9.           Saturdays, Sundays, Holidays, etc.  If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday or a Sunday or shall be a legal holiday, then such action may be taken or such right may be exercised on the next succeeding day not a legal holiday.

10.           Transferability and Nonnegotiability of Warrant.  This Warrant may not be transferred or assigned in whole or in part without compliance with all applicable federal and state securities laws by the transferor and the transferee (including the delivery of investment representation letters and legal opinions reasonably satisfactory to the Company, if such are requested by the Company).  Subject to the provisions of this Warrant with respect to compliance with the Securities Act, title to this Warrant may be transferred by endorsement (by the Holder executing the Assignment Form annexed hereto) and delivery in the same manner as a negotiable instrument transferable by endorsement and delivery.

11.           Compliance With Securities Laws.

(a)           The Holder of this Warrant represents and warrants that this Warrant and the shares of Common Stock to be issued upon exercise hereof are being acquired solely for the Holder’s own account and not as a nominee for any other party, and for investment, and that the Holder will not offer, sell or otherwise dispose of this Warrant or any shares of Common Stock to be issued upon exercise hereof except under circumstances that will not result in a violation of the Securities Act or any state securities laws.  Upon exercise of this Warrant, the Holder shall, if requested by the Company, confirm in writing, in a form satisfactory to the Company, that the shares of Common Stock so purchased are being acquired solely for the Holder’s own account and not as a nominee for any other party, for investment, and not with a view toward distribution or resale.

(b)           This Warrant and all shares of Common Stock issued upon exercise hereof shall be stamped or imprinted with a legend in substantially the following form (in addition to any legend required by state securities laws):

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NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON THE EXERCISE OF THESE SECURITIES HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAWS.  THE SECURITIES REPRESENTED HEREBY MAY NOT BE EXERCISED, OFFERED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE ASSIGNED (EACH A “TRANSFER”) EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSFER NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (B) TO THE EXTENT THE TRANSFER DOES NOT CONSTITUTE AND WILL NOT RESULT IN A VIOLATION OF APPLICABLE FEDERAL OR STATE SECURITIES LAWS, AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT (TO THE EXTENT REQUESTED BY COUNSEL OF THE COMPANY), THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.  THE HOLDER HEREOF AGREES THAT IT WILL DELIVER, OR CAUSE TO BE DELIVERED, TO EACH PERSON TO WHOM THE SECURITIES HEREBY REPRESENTED ARE TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.  THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES.

12.           Early Termination and Reclassification.

(a)           Merger, Sale of Assets, etc.  If all or any portion of this Warrant is exercised subsequent to a merger, consolidation, exchange of shares, reorganization, or other similar event (“Change in Control”) occurring after the date hereof, as a result of which shares shall be changed into cash, other property, or the same or a different number of shares of the same or another class or classes of securities of the Company or another entity, the Holder exercising this Warrant shall receive, for the exercise price, the aggregate amount of cash or other property and the aggregate number of shares and class of securities which the Holder would have received if this Warrant was exercised immediately before the Change in Control.  If an adjustment under this section would create a fractional share or a right to acquire a fractional share, the fractional share will be rounded up to, and issued as, a whole share.  If, pursuant to a Change of Control event, the shares shall be exchanged solely for cash (in such case, a “Triggering Event”), then the Company shall give the Holder written notice describing the material terms and conditions of such impending transaction not later than ten (10) days prior to the stockholders’ meeting called to approve such transaction (or such longer period if required by the General Corporation Law of the State of California), or ten (10) days prior to the closing of such transaction (or such longer period if required by the General Corporation Law of the State of California), whichever is earlier, and shall also notify the holder of this Warrant of the final approval of such transaction.

(b)           Reclassification, etc.  If the Company at any time shall, by subdivision, combination or reclassification of securities or otherwise, change any of the securities to which purchase rights under this Warrant exist into the same or a different number of securities of any class or classes, this Warrant shall thereafter be to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities which were subject to the purchase rights under this Warrant immediately prior to such subdivision, combination, reclassification or other change.  If shares of the Company’s Common Stock are subdivided or combined into a greater or smaller number of shares of Common Stock, the purchase price under this Warrant shall be proportionately reduced in case of subdivision of shares or proportionately increased in the case of combination of shares and the number of shares of Common Stock purchasable under this Warrant shall be proportionally increased in the case of a subdivision and decreased in the case of combination, in all cases by the ratio which the total number of shares of Common Stock to be outstanding immediately after such event bears to the total number of shares of Common Stock outstanding immediately prior to such event.

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(c)           Cash Distributions.  No adjustment on account of cash dividends or interest on the Company’s Common Stock or other securities purchasable hereunder will be made to the purchase price under this Warrant .

(d)           Authorized Shares.  The Company covenants that during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of Common Stock upon the exercise of any purchase rights under this Warrant.  The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of the Company’s Common Stock upon the exercise of the purchase rights under this Warrant.

13.           Miscellaneous.

(a)           Issue Date.  The provisions of this Warrant shall be construed and shall be given effect in all respect as if it had been issued and delivered by the Company on the date hereof.  This Warrant shall be binding upon any successors or assigns of the Company.  This Warrant shall constitute a contract under the laws of the State of California and for all purposes shall be construed in accordance with and governed by the laws of said state.

(b)           Restrictions.  The holder hereof acknowledges that the Common Stock acquired upon the exercise of this Warrant may have restrictions upon its resale imposed by state and federal securities laws.

(c)           Entire Agreement and Amendments.  This Warrant constitutes the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and the Holder with respect to the subject matter hereof, and may not be modified adversely to the Holder’s interest except by means of a writing signed by the Company and the Holder.

(d)           Notices.  Unless otherwise provided, any notice required or permitted under this Warrant shall be given in writing and shall be deemed effectively given as hereinafter described (i) if given by personal delivery, then such notice shall be deemed given upon such delivery, (ii) if given by telex, facsimile or e-mail, then such notice shall be deemed given upon receipt of confirmation of complete transmittal, (iii) if given by mail, then such notice shall be deemed given upon the earlier of (A) receipt of such notice by the recipient or (B) three days after such notice is deposited in first class mail, postage prepaid, and (iv) if given by an internationally recognized overnight air courier, then such notice shall be deemed given one business day after delivery to such carrier.  All notices shall be addressed as follows: if to the Holder of the Warrant, at its address as set forth in the Company’s books and records and, if to the Company, at the address as follows, or at such other address as the Holder of the Warrant, or the Company may designate by ten days’ advance written notice to the other:

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If to the Company:

Balqon Corporation

1701 E. Edinger, Unit E-3

Santa Ana, California 92705

If to Holder:

________________________________

________________________________

________________________________

(e)           Binding Agreement; Assignment.  The terms and conditions of this Warrant shall inure to the benefit of and be binding upon the respective successors and permitted assigns of the parties.  Nothing in this Warrant, express or implied, is intended to confer upon any third party any rights, remedies, obligations, or liabilities under or by reason of this Warrant.  This Warrant may not be assigned by Holder (other than to a Related Person) without the prior written consent of the Company.  “Related Person” shall mean with respect to any Holder (i) any affiliate of such person, (ii) any investment fund, investment account or investment entity whose investment manager, investment advisor or general partner, is such Holder or any affiliate of such Holder or any member, partner, officer or employee of such Holder or any affiliate of such Holder, (iii) any member or partner of any Holder specified in clause (i) or (ii) above, and (iv) any officer or employee of any person specified in clause (i), (ii) or (iii) above.

(signature page follows)

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IN WITNESS WHEREOF, BALQON CORPORATION has caused this Warrant to be executed by its officers thereunto duly authorized.

	BALQON CORPORATION
Date	By:
		Balwinder Samra, President

Name of Holder:	Marlin Financial Group
(Signature)
Address:
Telephone:
Facsimile:

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NOTICE OF EXERCISE

To:           BALQON CORPORATION

(1)           The undersigned hereby elects to purchase ____________ shares of Common Stock  of BALQON CORPORATION pursuant to the provisions of Section 3(a) of the attached Warrant, and tenders herewith payment of the purchase price for such shares in full.

(2)           In exercising this Warrant, the undersigned hereby confirms and acknowledges that the shares of Common Stock to be issued upon exercise thereof are being acquired solely for the account of the undersigned and not as a nominee for any other party, and for investment, and that the undersigned will not offer, sell or otherwise dispose of any such shares of Common Stock except under circumstances that will not result in a violation of the Securities Act, or any applicable state securities laws.

(3)           In exercising this Warrant, the undersigned hereby affirms that the representations and warranties contained in Section 2 of this Warrant are true and correct in all material respects.

(4)           Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as specified below:

Name 

Name 

(5)           Please issue a new Warrant for the unexercised portion of the attached Warrant in the name of the undersigned or in such other name as is specified below:

	Name
(Date)	Signature

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ASSIGNMENT FORM

FOR VALUE RECEIVED, the undersigned registered owner of this Warrant hereby sells, assigns and transfers unto the Assignee named below all of the rights of the undersigned under the within Warrant, with respect to the number of shares of Common Stock set forth below:

  Name of Assignee   Address   No. of Shares

and does hereby irrevocable constitute and appoint _______________________ Attorney to make such transfer on the books of BALQON CORPORATION, maintained for the purpose, with full power of substitution in the premises.

The undersigned also represents that, by assignment hereof, the Assignee acknowledges that this Warrant and the shares of Common Stock to be issued upon exercise hereof or conversion thereof are being acquired for investment and that the Assignee will not offer, sell or otherwise dispose of this Warrant or any shares of Common Stock to be issued upon exercise hereof or conversion thereof except under circumstances which will not result in a violation of the Securities Act or any state securities laws.  Further, the Assignee has acknowledged that upon exercise of this Warrant, the Assignee shall, if requested by the Company, confirm in writing, in a form satisfactory to the Company, that the shares of Common Stock so purchased are being acquired for investment and not with a view toward distribution or resale.

Dated:

Signature of Holder

EX-10.24

EXHIBIT 10.24

NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON THE EXERCISE OF THESE SECURITIES HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAWS.  THE SECURITIES REPRESENTED HEREBY MAY NOT BE EXERCISED, OFFERED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE ASSIGNED (EACH A “TRANSFER”) EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSFER NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (B) TO THE EXTENT THE TRANSFER DOES NOT CONSTITUTE AND WILL NOT RESULT IN A VIOLATION OF APPLICABLE FEDERAL OR STATE SECURITIES LAWS, AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT (TO THE EXTENT REQUESTED BY COUNSEL OF THE COMPANY), THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.  THE HOLDER HEREOF AGREES THAT IT WILL DELIVER, OR CAUSE TO BE DELIVERED, TO EACH PERSON TO WHOM THE SECURITIES HEREBY REPRESENTED ARE TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.  THESE SECURITIES AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH SECURITIES.

10% UNSECURED SUBORDINATED CONVERTIBLE PROMISSORY NOTE

Note No.: __	____________, 2009
$__________	Santa Ana, California

FOR VALUE RECEIVED, BALQON CORPORATION, a Nevada corporation (“Company”), promises to pay to _____________________________________ (“Holder”), or its registered assigns, the principal sum of _________________________________________ DOLLARS ($_______), or such lesser amount as shall equal the outstanding principal amount hereof, together with interest from the date of this 10% Unsecured Subordinated Convertible Promissory Note (this “Note”) on the unpaid principal balance at a rate equal to 10% per annum, computed on the basis of the actual number of days elapsed and a year of three hundred sixty-five (365) days.  Interest on the outstanding principal balance of this Note shall be payable quarterly as described in Section 2. Subject to Section 6, all unpaid principal, together with any then unpaid and accrued interest and other amounts payable hereunder, shall be due and payable on the Note Maturity Date (as defined below). Subject to Section 6, any unpaid principal and accrued and unpaid interest on the Note Maturity Date shall be payable in cash. Upon payment in full of all principal and interest payable hereunder, this Note shall be surrendered to the Company for cancellation.

This Note is being issued pursuant to the terms and conditions contained in that certain Securities Purchase Agreement of even date herewith between the original Holder and the Company (the “Securities Purchase Agreement”) and pursuant to the terms and conditions contained in the Company’s Confidential Private Placement Memorandum dated March 23, 2009 (the “Memorandum”). This Note, together with the similar 10% Unsecured Subordinated Convertible Promissory Notes issued pursuant to the Securities Purchase Agreements and the Memorandum, are collectively referred to herein as the “Notes.”

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The following is a statement of the rights of the Holder and the conditions to which this Note is subject, and to which the Holder, by the acceptance of this Note, agrees:

1.             Certain Definitions.  For purposes of this Note, the following terms shall have the following respective meanings:

“Closing Bid Price” and “Closing Sales Price” means, for any security as of any date, the last closing bid price and last closing trade price, respectively, for such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or, if such principal market begins to operate on an extended hours basis and does not designate the closing bid price or the closing trade price, as the case may be, then the last bid price or the last trade price, respectively, of such security prior to 4:00:00 p.m., New York time, as reported by Bloomberg, or, if the foregoing do not apply, the last closing bid price or last trade price, respectively, of such security in the OTC Bulletin Board for such security as reported by Bloomberg, or, if no closing bid price or last trade price, respectively, is reported for such security by Bloomberg, the average of the bid prices, or the ask prices, respectively, of any market makers for such security as reported in the “pink sheets” by Pink OTC Markets. If the Closing Bid Price or the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Bid Price or the Closing Sale Price, as the case may be, of such security on such date shall be the fair market value as mutually determined by the Company and the Holder.  All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during the applicable calculation period.

“Common Stock” means shares of the common stock, $0.001 par value per share, of the Company.

“Conversion Shares” means the shares of Common Stock issuable upon conversion of this Note.

“Event of Default” means any of the events specified as such in Section 5.1.

“Holder” means the person or entity specified in the introductory paragraph of this Note or any transferee that is at the time the registered holder of this Note. The Holder or any transferee is an “accredited investor” as defined under U.S. federal securities laws or otherwise will qualify to allow this offering to take place as a private placement under applicable securities laws.

“Insolvency or Liquidation Proceeding” shall mean (i) any insolvency or bankruptcy case or proceeding, or any receivership, liquidation, reorganization or other similar case or proceeding, relative to the Company or to its creditors, as such, or to its assets, or (ii) any liquidation, dissolution, reorganization or winding up of the Company, whether voluntary or involuntary and whether or not involving insolvency or bankruptcy,

2

or (iii) any assignment for the benefit of creditors or any other marshaling of assets and liabilities of the Company.

“Note Maturity Date” shall mean the earlier of (i) March 31, 2012, or (ii) the date as of which the outstanding principal and accrued interest on this Note and all other payments payable hereunder are due and payable to the Holder pursuant to Section 5.2.

“Reorganization Securities” shall mean shares of stock of the Company, or its successor, as reorganized, or other securities of the Company or any other person provided for by a plan of reorganization, the payment of which is subordinated, at least to the same extent as this Note, to the payment of all Senior Indebtedness which may at the time be outstanding and the principal of which is due no earlier than the principal of this Note, provided that the rights of the holders of the Senior Indebtedness are not impaired thereby or such holders as a class shall have approved such plan of reorganization.

“Representative” shall mean the trustee, agent or other representative for holders of all or any of the Senior Indebtedness, if any, designated in the indenture, agreement or other document creating, evidencing or governing such Senior Indebtedness or pursuant to which it was issued, or otherwise duly designated by the holders of such Senior Indebtedness.

“Senior Indebtedness” shall mean the principal of and unpaid interest on all indebtedness of the Company incurred on, before or after the date of this Note (i) for money borrowed from any bank, savings and loan or other financial institution or any other person, and is evidenced by notes, bonds, debentures or other written obligations and (ii) in connection with any renewals or extensions of any indebtedness described in (i) above; provided, however, that the term shall not include (a) any lease financing arrangement involving the Company and (b) indebtedness which by the terms of the instrument creating or evidencing it is subordinated to or on a parity with this Note.

Other capitalized terms not defined in this Note have the same meaning as in the Securities Purchase Agreement.

2.             Interest.  This Note will bear interest at a rate of 10% per annum. Accrued interest on this Note shall be due and payable quarterly on the fifth (5th) day after the last business day of each calendar quarter beginning with the quarter ended June 30, 2009, with a final installment due on the Note Maturity Date, whether by acceleration, scheduled maturity or otherwise, unless such amounts are converted into Common Stock pursuant to the terms set forth herein. Subject to Section 6, any accrued interest on this Note that is due on or prior to the Note Maturity Date shall be payable in cash.

3.             Prepayment. At any time after March 31, 2010, upon fifteen (15) days prior written notice to the Holder (which notice may be sent to the Holder prior to March 31, 2010), the Company may prepay this Note in whole or in part; provided, however, that: (i) any prepayment of this Note may only be made in connection with the prepayment of all Notes issued under the Memorandum on a pro rata basis, based on the respective aggregate outstanding principal amounts of each such Note, and (ii) any such prepayment will be applied first to the payment of expenses due under this Note, second to interest accrued on this Note and third, if the amount of prepayment exceeds the amount of all such expenses and accrued interest, to the payment of principal of this Note.

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4.             Subordination.

4.1           Subordinated Notes Subordinate to Senior Indebtedness. The provisions of this Section 4 apply notwithstanding anything to the contrary contained in this Note. The Company covenants and agrees, and the Holder, by such Holder’s acceptance hereof, likewise covenants and agrees, that, to the extent and in the manner hereinafter set forth in this Section, the indebtedness represented by this Note and the payment of the principal of and interest on this Note are hereby expressly made subordinate and subject in right of the prior payment in full of all Senior Indebtedness. This Section 4 constitutes a continuing offer to all persons who become holders of, or continue to hold, Senior Indebtedness, each of whom is an obligee hereunder and is entitled to enforce such holder’s rights hereunder, subject to the provisions hereof, without any act or notice of acceptance hereof or reliance hereon.

4.2           Payment Over of Proceeds Upon Dissolution, Etc.

(a)           In the event of any Insolvency or Liquidation Proceeding, all Senior Indebtedness shall first be paid in full before the Holder is entitled to receive any direct or indirect payment or distribution of any cash, property or securities (excluding Reorganization Securities) on account of the principal of or interest on this Note.

(b)           The holders of Senior Indebtedness (or their respective Representatives) shall be entitled to receive directly, for application to the payment thereof (to the extent necessary to pay all such Senior Indebtedness in full after giving effect to any substantially concurrent payment or distribution to the holders of such Senior Indebtedness), any payment or distribution of any kind or character, whether in cash, property or securities (excluding Reorganization Securities but including any payment or distribution, except Reorganization Securities, which may be payable or deliverable by reason of the payment of any other indebtedness of the Company being subordinated to the payment of this Note) which may be payable or deliverable in respect of this Note in any such Insolvency or Liquidation Proceeding.

(c)           In the event that, notwithstanding the foregoing provisions of this Section 4.2, the Holder shall have received any payment from or distribution of assets of the Company in an Insolvency or Liquidation Proceeding or the estate created by the commencement of any such Insolvency or Liquidation Proceeding, of any kind or character in respect of this Note whether in cash, property or securities (excluding Reorganization Securities but including any payment or distribution, except Reorganization Securities, which may be payable or deliverable by reason of the payment of any other indebtedness of the Company being subordinated to the payment of this Note) before all Senior Indebtedness is paid in full, then and in such event such payment or distribution shall be received and held in trust for and shall be paid over to the holders of the Senior Indebtedness remaining unpaid (or their respective Representatives), to the extent necessary to pay all such Senior Indebtedness in full after giving effect to any substantially concurrent payment or distribution to the holders of such Senior Indebtedness, for application to the payment in full of such Senior Indebtedness.

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4.3           Default on Senior Indebtedness.

(a)           If there exists a default in the payment when due (whether at maturity or upon acceleration or mandatory repayment, or on any principal installment payment date or interest payment date, or otherwise) of any Senior Indebtedness (a “Payment Default”) and such default shall not have been cured or waived in writing by or on behalf of the requisite percentage of the holders of such Senior Indebtedness (or their Representative, if any), then any payment on account of principal of or interest on this Note which the Holder would then be entitled to receive, but for the provisions of this Section 4.3(a), shall instead be paid over to the holders of such Senior Indebtedness (or their Representative, if any) until all amounts of Senior Indebtedness then due and payable have been paid in full, prior to any direct or indirect payment by or on behalf of the Company to the holder of any principal of or interest on this Note.

(b)           The Company may not, directly or indirectly, make, and the Holder may not ask, demand, take or receive from or on behalf of the Company, any payment on account of the principal of or interest on this Note during the period (a “Deferral Period”) from the date the Company and/or the Holder receive from a holder of Senior Indebtedness a notice (a “Deferral Notice”) of:

(i)           the existence of a Payment Default; or

(ii)           the existence of any event of default (other than a Payment Default) under any agreement or instrument pursuant to which any Senior Indebtedness is issued, in each instance as now in effect or as hereafter from time to time modified or amended, without the necessity of any consent by or notice to the Holders (a “Specified Covenant Default”);

until the earlier of (i) the date such Payment Default or Specified Covenant Default is cured, waived in writing or otherwise ceases to exist and (ii) the one hundred eightieth (180th) day after receipt by the Company and/or by the holder of this Note of such Deferral Notice; provided, however, that (x) only one Deferral Notice relating to the same Payment Default or Specified Covenant Default may be given, (y) no subsequent Deferral Notice may be given with respect to any Payment Default or Specified Covenant Default existing at the time an effective Deferral Notice is given and (z) if any such Deferral Notice has been given, no subsequent Deferral Notice with respect to any number of different Payment Defaults or Specified Covenant Defaults shall be effective until the later of (1) the date such subsequent Deferral Notice is received by the Company and the holders of Subordinated Debentures and (2) the three hundred sixty-fifth (365th) day after receipt of the then most recent prior effective Deferral Notice. So long as any Senior Indebtedness is outstanding, the Holder shall give the holders of the Senior Indebtedness five (5) business days prior written notice of any proposed demand for payment or institution of proceedings with respect to this Note (which notice may be given during a Deferral Period provided that the proposed demand for payment is not to be made or the proposed proceedings are not to be instituted until the expiration of such Deferral Period).

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(c)           Upon termination of any Deferral Period the Company shall resume payments on account of the principal of and interest on this Note subject to the obligation of the Company and the Holder to pay over to the holders of Senior Indebtedness amounts otherwise payable on account of the principal of and interest on this Note pursuant to the provisions of, and in the circumstances specified in, this Section 4.

(d)           During the first one hundred twenty (120) days of any Deferral Period, payment on account of this Note may not be accelerated unless a voluntary Insolvency or Liquidation Proceeding shall be instituted by the Company or an involuntary Insolvency or Liquidation Proceeding shall be instituted against the Company and such proceeding remains undismissed for a period of sixty (60) days. So long as any Senior Indebtedness is outstanding, the Holder shall give the holders of the Senior Indebtedness five (5) business days’ prior written notice of any proposed acceleration with respect to this Note (which notice may be given during a Deferral Period provided that the proposed acceleration is not to be effective until the expiration of such Deferral Period).

(e)           In the event that, notwithstanding the foregoing provisions of this Section 4.3, any payment shall be made by or on behalf of the Company and received by the Holder at a time after the giving of a Deferral Notice and during a Deferral Period, then such payment shall be held in trust for the benefit of and shall be immediately paid over to the holders of Senior Indebtedness remaining unpaid or their respective Representatives, for application to the payment in full of all Senior Indebtedness in accordance with its terms (after giving effect to any prior or substantially concurrent payment to the holders of such Senior Indebtedness).

4.4           Subrogation to Rights of Holders of Senior Indebtedness. After all amounts payable under or in respect of Senior Indebtedness are paid in full, the Holder shall be subrogated to the extent of the payments or distributions made to the holders of, or otherwise applied to payment of, such Senior Indebtedness pursuant to the provisions of this Section 4 (equally and ratably with the holders of all indebtedness of the Company which by its express terms is subordinate and subject in right of payment to Senior Indebtedness to substantially the same extent as this Note is so subordinate and subject in right of payment and which is entitled to like rights of subrogation), to the rights of the holders of such Senior Indebtedness (or their respective Representatives) to receive payments and distributions of cash, property and securities applicable to the Senior Indebtedness until the principal of and interest on this Note shall be paid in full. For purposes of such subrogation, no payments or distributions to the holders of the Senior Indebtedness (or their respective Representatives) of any cash, property or securities to which the Holder would be entitled except for the provisions of this Section 4, and no payments over pursuant to the provisions of this Section 4 to the holders of Senior Indebtedness (or their respective Representatives) by the Company or the Holder shall, as among the Company and its creditors (other than holders of Senior Indebtedness and the Holder), be deemed to be a payment or distribution by the Company to or on account of Senior Indebtedness it being understood that the provisions of this Section 4 are solely for the purpose of defining the relative rights of the holders of Senior Indebtedness on the one hand and the Holder on the other hand.

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If any payment or distribution to which the Holder would otherwise have been entitled but for the provisions of this Section 4 shall have been applied, pursuant to the provisions of this Section 4, to the payment of all amounts payable under the Senior Indebtedness, then and in such case, the Holder shall be entitled to receive (equally and ratably with the holders of all indebtedness of the Company which by its express terms is subordinate and subject in right of payment to Senior Indebtedness to substantially the same extent as this Note is subordinate and subject in right of payment and which is entitled to like rights) from the holders of such Senior Indebtedness (or their respective Representatives) any substantially contemporaneous payments or distributions received by such holders of Senior Indebtedness (or their respective Representatives) in excess of the amount sufficient to pay in full all obligations payable under or in respect of such Senior Indebtedness.

4.5           Rights of Holders Not to Be Impaired. Nothing contained in this Section 4 or elsewhere in this Note is intended to or shall:

(a)           impair, as among the Company, its creditors other than holders or Senior Indebtedness and the Holder, the obligation of the Company, which is absolute and unconditional, to pay to the Holder the principal of and premium, if any, and interest on this Note as and when the same shall become due and payable in accordance with their terms; or

(b)           affect the relative rights against the Company of the Holder of this Note and creditors of the Company other than the holders of Senior Indebtedness; or

(c)           prevent the Holder from exercising all remedies otherwise permitted by applicable law upon default subject to the rights, if any, under this Section 4 of the holders of Senior Indebtedness to receive payments or distributions otherwise payable or deliverable to, or received by, such holder upon the exercise of any such remedy and subject to the restriction on acceleration set forth in Section 4.3(d).

4.6           Effectuation of Subordination. If the Holder does not file a proper claim or proof of debt in the form required in any Insolvency or Liquidation Proceeding prior to thirty (30) days before the expiration of the time to file such claims or proofs, then the holders of the Senior Indebtedness, or their Representatives, are hereby authorized, and shall have the right (without any duty), to file an appropriate claim for and on behalf of such holder.

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4.7           No Waiver of Subordination Provisions. No right of any present or future holder of any Senior Indebtedness, or Representative thereof, to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act by any such holder or Representative thereof, or by any noncompliance by the Company with the terms, provisions and covenants of this Note regardless of any knowledge thereof which any such holder or Representative thereof may have or be otherwise charged with.

Without in any way limiting the generality of the foregoing paragraph, the holders of Senior Indebtedness (or their Representatives, if applicable) may, at any time and from time to time, without the consent of or notice to the Holder, without incurring responsibility to the Holder and without impairing or releasing the subordination and other benefits provided in this Section 4 or the obligations hereunder of the Holder to the holders of Senior Indebtedness, do any one or more of the following all without notice to the Holder and even if any right of reimbursement or subrogation or other right or remedy of the Holder is affected, impaired or extinguished thereby:

(a)           change the manner, place or terms of payment or change or extend the time of payment of, or renew, exchange, amend or alter, the terms of any Senior Indebtedness, any security therefor or guaranty thereof or any liability of the Company or any guarantor to such holder, or any liability incurred directly or indirectly in respect thereof, or otherwise  amend, renew, exchange, modify or supplement in any manner Senior Indebtedness or any instrument evidencing or guaranteeing or securing the same or any agreement under which Senior Indebtedness is outstanding;

(b)           sell, exchange, release, surrender, realize upon, enforce or otherwise deal with in any manner and any order any property pledged, mortgaged or otherwise securing Senior Indebtedness or any liability of the Company or any guarantor to such holder, or any liability incurred directly or indirectly in respect thereof;

(c)           settle or compromise any Senior Indebtedness or any other liability of the Company or any guarantor of the Senior Indebtedness to such holder or any security therefor or any liability incurred directly or indirectly in respect thereof and apply any sums by whomsoever paid and however realized to any liability (including, without limitation, Senior Indebtedness) in any manner or order; and

(d)           fail to take or to record or otherwise perfect, for any reason or for no reason, any lien or security interest securing Senior Indebtedness by whomsoever granted, exercise or delay in or refrain from exercising any right or remedy against the Company or any security or any guarantor or any other person, elect any remedy and otherwise deal freely with the Company and any security and any guarantor of the Senior Indebtedness or any liability of the Company or any guarantor to such holder or any liability incurred directly or indirectly in respect thereof.

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4.8           Reliance on Court Orders; Evidence of Status. Upon any payment or distribution of assets of the Company referred to in Section 4.2, the Holder shall be entitled to rely upon a certificate of the receiver, trustee in bankruptcy, liquidating trustee, agent or other person making such payment or distribution delivered to the Holder for the purpose of ascertaining the persons entitled to participate in such payment or distribution, the holders of Senior Indebtedness and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Section 4.

In the absence of any such receiver, trustee in bankruptcy, liquidating trustee, agent or other person, the holder of this Note shall be entitled to rely upon a written notice by a person representing himself to be a holder of Senior Indebtedness (or a Representative on behalf of such holder) as evidence that such person is a holder of Senior Indebtedness (or is such a Representative) for any relevant purpose. In the event that any holder determines in good faith that further evidence is  required with respect to the right of any person as a holder of Senior Indebtedness (or such a Representative), as to the extent to which such person is entitled to participate in such payment or distribution, and as to other facts pertinent to the rights of such person under this Section 4, such holder may request such person to furnish evidence to the reasonable satisfaction of such holder as to the amount of Senior Indebtedness held by such person, the extent to which such person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such person under this Section 4, and if such evidence is not furnished such holder may defer (without liability to any holder of Senior Indebtedness or any Representative of such holder) any payment to such person pending judicial determination as to the right of such person to receive such payment or until such time as such holder shall be otherwise satisfied as to the right of such person to receive such payment.

4.9           Not to Prevent Events of Default. The failure to make a payment on account of the principal of or interest on this Note by reason of any provision of this Section 4 shall not be construed as preventing the occurrence of a default or an Event of Default under this Note. Except as expressly provided in Section 4.3(d), nothing in this Section 4 shall affect the rights of the Holder to accelerate the maturity of this Note in accordance with its terms.

4.10           Amendments. Without the prior written consent of the holders of the Senior Indebtedness, the Company and the Holder shall not (i) amend, supplement or otherwise modify any provision of this Section 4, (ii) accelerate the payment of the principal of or interest on this Note or (iii) if such amendment would have a material adverse effect on the holders of the Senior Indebtedness, amend, supplement or otherwise modify any other provision of this Note.

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5.             Default.

5.1           Events of Default. If any of the following events (each, an “Event of Default” and collectively, “Events of Default”) shall occur:

(a)           the Company shall default in the payment of any part of the principal of this Note;

(b)           the Company shall default in the payment of any installment of interest on this Note for more than fifteen (15) days after the same shall become due and payable;

(c)           the Company shall breach or default in the performance of any covenant or warranty of the Company in this Note, and continuance of such breach for a period of thirty (30) days after there has been given, by registered or certified mail, to the Company by the holder of this Note, a written notice specifying such breach or default and requiring it to be remedied;

(d)           a court having jurisdiction in the premises shall enter a decree or order for relief in respect of the Company in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of the Company or for any substantial part of its property, or ordering the winding-up or liquidation of its affairs, and such decree or order shall remain unstayed and in effect for a period of sixty (60) consecutive days; or

(e)           the Company shall commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, shall consent to the entry of an order for relief in an involuntary case under any such law, or shall consent to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or other similar official) of the Company or for any substantial part of its property, or shall make any general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action in furtherance of any of the foregoing;

then and in any such event the holder of this Note may at any time (unless all defaults theretofore or thereupon shall have been remedied) at its option, by written notice to the Company, declare this Note to be due and payable, whereupon the same shall forthwith mature and become due and payable without presentment, demand, protest or other notice, all of which are hereby waived.

5.2           Remedies on and Notices of Default. Subject to the provisions of Section 4, in case any one or more Events of Default shall occur, the Holder may proceed to protect and enforce the rights of such holder by a suit in equity, action at law or other appropriate proceeding, whether for the specific performance of any agreement contained in this Note, or for an injunction against a violation of any of the terms or provisions hereof or thereof, or in aid of the exercise of any power granted hereby or thereby or by law. In case of a default under this Note, the Company will pay to the Holder such further amount as shall be sufficient to cover the reasonable cost and expense of enforcement, including, without limitation, reasonable attorneys’ fees. If the Holder shall give any notice or take any other action in respect of a claimed default, the Company shall forthwith give written notice thereof to all other holders of similarly subordinated notes at the time outstanding, describing the notice or action and the nature of the claimed default. No course of dealing and no delay on the part of any holder of this Note in exercising any right shall operate as a waiver thereof or otherwise prejudice such holder’s rights or the rights of the holder of any similarly subordinated notes. No remedy conferred by this Note upon the holder shall be exclusive of any other remedy referred to herein or now or hereafter available at law, in equity, by statute or otherwise.

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6.           Conversion.

6.1           Automatic Conversion. If at any time after one hundred eighty (180) days after the issuance of this Note the Closing Bid Price or Closing Sales Price, as the case may be, of a share of the Company’s Common Stock equals or exceeds $4.50 (subject to appropriate adjustment in the event of a stock split, stock dividend, combination or similar event) for twenty (20) consecutive trading days, then the principal amount of this Note shall automatically convert into shares of Common Stock at the Conversion Price (as defined below). Accrued and unpaid interest on the date of such automatic conversion shall be paid in cash by the Company. The conversion will be deemed to have occurred as of the close of business on such twentieth (20th) consecutive trading day. The Company shall notify the Holder in writing within one (1) trading day after any automatic conversion, and will cause certificate representing the Conversion Shares to be issued within three (3) trading days after automatic conversion, and will deliver those certificates to the Holder by overnight courier immediately after receipt of the original of this Note for cancellation.

6.2           Conversion Procedure in the Event of Automatic Conversion. In the event of automatic conversion, the outstanding principal under this Note will convert automatically without any further action by the Company whether or not the Note is surrendered to the Company or its transfer agent. The Company will not be obligated to issue certificates evidencing the securities issuable upon automatic conversion of this Note unless this Note is either delivered to the Company or its transfer agent, or the Holder notifies the Company or its transfer agent that this Note has been mutilated, lost, stolen or destroyed and executes an agreement reasonably satisfactory to the Company to indemnify the Company from any loss incurred by it in connection with this Note. At its expense, the Company will, as soon as reasonably practicable thereafter, issue and deliver to the Holder a certificate for the number of shares of Common Stock to which the Holder will be entitled upon conversion (bearing such legends as are required by applicable state and federal securities laws in the opinion of counsel to the Company), together with a check payable to the Holder for any cash amounts payable as described in Section 6.1 (with respect to accrued and unpaid interest) and Section 6.5 (with respect to fractional shares).

6.3           Voluntary Conversion. The Holder may, at any time before this Note has been repaid in full, elect to convert all or any portion of the outstanding principal into shares of Common Stock at the Conversion Price.

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6.4           Conversion Procedure in the Event of Voluntary Conversion.

(a)           Each voluntary conversion of this Note shall be effected by the surrender of this Note at the principal office of the Company at any time during normal business hours, together with a written notice by the Holder stating that the Holder desires to convert the entire, or a specified increment of, principal of this Note into Common Stock. Each conversion of a Note will be deemed to have been effected as of the close of business on the date on which this Note has been surrendered and the notice has been received, and at that time, the rights of the Holder of this Note will cease and the person or persons in whose name or names any certificate or certificates for Common Stock are to be issued upon conversion will be deemed to have become the Holder or Holders of record of the shares of Common Stock represented thereby.

(b)           Within two (2) trading days after a conversion has been effected, the Company will deliver to the converting holder:

(i)           a certificate or certificates representing the number of shares of Common Stock issuable by reason of conversion in such name or names and such denomination or denominations as the converting holder has specified; and

(ii)           a replacement Note representing the principal amount of this Note delivered to the Company in connection with the conversion but which was not converted.

(c)           The issuance of certificates for Common Stock upon conversion of this Note will be made without charge to the Holder for any tax in respect thereof or other cost incurred by the Company in connection with conversion and the related issuance of Common Stock. Upon conversion of any portion of this Note, the Company will take all actions as are necessary in order to ensure that the Common Stock issuable with respect to conversion will be validly issued, fully paid and nonassessable.

(d)           The Company will not close its books against the transfer of this Note or of the shares of Common Stock issued or issuable upon conversion of this Note in any manner which interferes with the timely conversion of this Note, and will at all times reserve for issuance the maximum number of shares of Common Stock into which this Note is convertible.

6.5           Fractional Shares; Interest. No fractional shares shall be issued upon conversion of this Note. In lieu of Company issuing any fractional shares to Holder upon the conversion of this Note, Company shall pay to Holder an amount in cash equal to the product obtained by multiplying the Conversion Price applied to effect such conversion by the fraction of a share not issued pursuant to the previous sentence. Upon conversion of this Note in full or the payment of outstanding amounts specified in this Note, the Company shall be released from all its obligations and liabilities under this Note.

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6.6           Conversion Price. The initial Conversion Price shall be $1.00 per share of Common Stock. The Conversion Price shall be subject to adjustment as described in Section 7.

7.           Conversion Price Adjustments.

7.1           Adjustments for Stock Splits and Subdivisions.  In the event Company should at any time or from time to time after the date of issuance hereof fix a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock or the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock without payment of any consideration by such holders for the additional shares of Common Stock, then, as of such record date (or the date of such dividend distribution, split or subdivision if no record date is fixed), the Conversion Price shall be appropriately decreased so that the number of shares of Common Stock issuable upon conversion of this Note shall be increased in proportion to such increase of outstanding shares.

7.2           Adjustments for Reverse Stock Splits.  If the number of shares of Common Stock outstanding at any time after the date hereof is decreased by a combination of the outstanding shares of Common Stock, then, following the record date of such combination, the Conversion Price shall be appropriately increased so that the number of shares of Common Stock issuable on conversion hereof shall be decreased in proportion to such decrease in outstanding shares.

7.3           Notices of Record Date, Etc. In the event of:

(a)           Any taking by Company of a record of the holders of any class of securities of the Company for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend payable out of earned surplus at the same rate as that of the last such cash dividend theretofore paid) or other distribution or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right; or

(b)           Any capital reorganization of Company, any reclassification or recapitalization of the capital stock of Company or any transfer of all or substantially all of the assets of the Company to any other Person or any consolidation or merger involving the Company; or

(c)           Any voluntary or involuntary dissolution, liquidation or winding-up of the Company,

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the Company will mail to the Holder at least ten (10) days prior to the earliest date specified therein, a notice specifying (A) the date on which any such record is to be taken for the purpose of such dividend, distribution or right and the amount and character of such dividend, distribution or right; and (B) the date on which any such reorganization, reclassification, transfer, consolidation, merger, dissolution, liquidation or winding-up is expected to become effective and the record date for determining shareholders entitled to vote thereon.

7.4           Reservation of Stock Issuable Upon Conversion.  The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock for the purpose of effecting the conversion of this Note such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of this Note; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of the entire outstanding principal amount of this Note, without limitation of such other remedies as shall be available to the Investor of this Note, Company will use its best efforts to take such corporate action as may, in the opinion of counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes.

8.            Successors and Assigns.  Subject to the restrictions on transfer described in Sections 10 and 11, the rights and obligations of Company and the Holder shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties.

9.            Waiver and Amendment.  Any provision of this Note may be amended, waived or modified upon the written consent of Company and the holders of a majority in principal amount of the Notes.

10.           Transfer of this Note or Securities Issuable on Conversion Hereof.  With respect to any offer, sale or other disposition of this Note or securities into which such Note may be converted, the Holder will give written notice to the Company prior thereto, describing briefly the manner thereof, together with a written opinion of the Holder’s counsel, or other evidence if reasonably satisfactory to the Company, to the effect that such offer, sale or other distribution may be effected without registration or qualification (under any federal or state law then in effect). Upon receiving such written notice and reasonably satisfactory opinion, if so requested, or other evidence, the Company, as promptly as practicable, shall notify the Holder that the Holder may sell or otherwise dispose of this Note or such securities, all in accordance with the terms of the notice delivered to Company.  If a determination has been made pursuant to this Section 10 that the opinion of counsel for the Holder, or other evidence, is not reasonably satisfactory to the Company, the Company shall so notify Investor promptly after such determination has been made.  Each Note thus transferred and each certificate representing the securities thus transferred shall bear a legend as to the applicable restrictions on transferability in order to ensure compliance with the Securities Act, unless in the opinion of counsel for the Company such legend is not required in order to ensure compliance with the Securities Act.  The Company may issue stop transfer instructions to its transfer agent in connection with such restrictions.  Subject to the foregoing transfers of this Note shall be registered upon registration books maintained for such purpose by or on behalf of the Company as provided in the Securities Purchase Agreement.  Prior to presentation of this Note for registration of transfer, the Company shall treat the registered Holder hereof as the owner and the Holder of this Note for the purpose of receiving all payments of principal and interest hereon and for all other purposes whatsoever, whether or not this Note shall be overdue and the Company shall not be affected by notice to the contrary.

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11.           Assignment by the Company.  Neither this Note nor any of the rights, interests or obligations hereunder may be assigned, by operation of law or otherwise, in whole or in part, by Company without the prior written consent of Investor.

12.           Notices.  All notices, requests, demands, consents, instructions or other communications required or permitted hereunder shall in writing and faxed, mailed or delivered to each party at the respective addresses of the parties as set forth in the Securities Purchase Agreement, or at such other address or facsimile number as the Company shall have furnished to Investor in writing.  All such notices and communications shall be effective (i) when sent by Federal Express or other overnight service of recognized standing, on the business day following the deposit with such service; (ii) when mailed, by registered or certified mail, first class postage prepaid and addressed as aforesaid through the United States Postal Service, upon receipt; (iii) when delivered by hand, upon delivery; and (iv) when faxed, upon confirmation of receipt.

13.           Pari Passu Notes.  The Holder acknowledges and agrees that the payment of all or any portion of the outstanding principal amount of this Note and all interest hereon shall be pari passu in right of payment and in all other respects to the other Notes issued pursuant to the Securities Purchase Agreement or pursuant to the terms of such Notes.  In the event the Holder receives payments in excess of its pro rata share of the Company’s payments to the holders of all of the Notes, then the Holder shall hold in trust all such excess payments for the benefit of the holders of the other Notes and shall pay such amounts held in trust to such other holders upon demand by such holders.

14.           Payment.  Payment shall be made in lawful tender of the United States.

15.           Usury. In the event any interest is paid on this Note which is deemed to be in excess of the then legal maximum rate, then that portion of the interest payment representing an amount in excess of the then legal maximum rate shall be deemed a payment of principal and applied against the principal of this Note.

16.           Waivers.  The Company hereby waives notice of default, presentment or demand for payment, protest or notice of nonpayment or dishonor and all other notices or demands relative to this instrument.

17.           Governing Law.  This Note and all actions arising out of or in connection with this Note shall be governed by and construed in accordance with the laws of the State of California, without regard to the conflicts of law provisions of the State of California, or of any other state.

[signature page follows]

15

IN WITNESS WHEREOF, the Company has caused this Note to be issued as of the date first written above.

BALQON CORPORATION, a Nevada corporation
By:	/s/ Balwinder Samra
	Balwinder Samra, Chief Executive Officer

16

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER REQUIRED BY RULE 13A-14(a) OF THE

SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, AS ADOPTED PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Balwinder Samra, certify that:

1. I have reviewed this Form 10-K of Balqon Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 31, 2009

/s/ BALWINDER SAMRA

Balwinder Samra

Chief Executive Officer (principal executive officer)

EX-31.2

EXHIBIT 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

I, Robert Miranda, certify that:

1. I have reviewed this Form 10-K of Balqon Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 31, 2009

/s/ ROBERT MIRANDA       

Robert Miranda

Chief Financial Officer (principal financial officer)

EX-32

EXHIBIT 32

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

AND CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the annual report on Form 10-K of Balqon Corporation (the “Company”) for the period ended December 31, 2008 (the “Report”), the undersigned hereby certify in their capacities as Chief Executive Officer and Chief Financial Officer of the Company, respectively, pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.           the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2.           the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: March 31, 2009	By:	/s/ BALWINDER SAMRA
		Balwinder Samra Chief Executive Officer (principal executive officer)

Dated: March 31, 2009	By:	/s/ ROBERT MIRANDA
		Robert Miranda Chief Financial Officer (principal financial officer)

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signatures that appear in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-99.1

EXHIBIT 99.1

To Whom it May Concern:

I, John Kinross-Kennedy, hereby consent to the inclusion of information contained in my valuation report dated December 30, 2008, relating to a valuation of Electric Motor Sports, LLC, an Ohio Limited Liability company, in any reports filed by Balqon Corporation, a Nevada corporation (the “Company”), with the Securities and Exchange Commission, including the  Company’s Annual Report on Form 10-K for the year ended December 31, 2008 and the Company’s Registration Statement on Form S-1 (File No. 333-156446), and any amendments and/or supplements thereto.  I also hereby consent to any reference to myself under the caption "Experts" in the above-referenced filings, including the above mentioned Registration Statement.

Sincerely,

/s/ John Kinross-Kennedy

Name: John Kinross-Kennedy

Date: March 30, 2009

EX-99.2

EXHIBIT 99.2

To Whom it May Concern:

I, John Kinross-Kennedy, hereby consent to the inclusion of information contained in my valuation report dated August 16, 2008, relating to a valuation of Balqon Corporation, a California corporation, in any reports filed by Balqon Corporation, a Nevada corporation (the “Company”), with the Securities and Exchange Commission, including the  Company’s Annual Report on Form 10-K for the year ended December 31, 2008 and the Company’s Registration Statement on Form S-1 (File No. 333-156446), and any amendments and/or supplements thereto.  I also hereby consent to any reference to myself under the caption "Experts" in the above-referenced filings, including the above mentioned Registration Statement.

Sincerely,

/s/ John Kinross-Kennedy

Name: John Kinross-Kennedy

Date: March 30, 2009