10-Q/A

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Amendment No. 1 to 

FORM 10-Q

 (Mark One)

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

For the quarterly period ended June 30, 2012

OR

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

For the transition period from ____________ to _____________

Commission file number: 000-52337

BALQON CORPORATION

(Exact name of registrant as specified in its charter)

Nevada (State or other jurisdiction of incorporation or organization)	33-0989901 (I.R.S. Employer Identification No.)
1420 240th Street, Harbor City, California 90710 (Address of principal executive offices)	90710 (Zip Code)

Registrant’s telephone number, including area code: (310) 326-3056

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   x No   o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes   x No   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 (do not check if Smaller Reporting Company)   o	Smaller Reporting Company   x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   o No   x

The number of shares outstanding of the Registrant’s common stock, $0.001 par value, as of August 15, 2012, was 36,891,530.

DOCUMENTS INCORPORATED BY REFERENCE

None

EXPLANATORY NOTE

This Amendment No. 1 to the Quarterly Report on Form 10-Q is being filed solely to furnish the Interactive Data files as Exhibit 101, in accordance with Rule 405 of Regulation S-T. No other changes have been made to the Form 10-Q, as originally filed on August 20, 2012.

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Item 6. Exhibits

101.INS*	XBRL Instance Document
101.SCH*	XBRL Schema Document
101.CAL*	XBRL Calculation Linkbase Document
101.DEF*	XBRL Definition Linkbase Document
101.LAB*	XBRL Label Linkbase Document
101.PRE*	XBRL Presentation Linkbase Document

* Pursuant to Rule 406T of Regulation S-T, the interactive data files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	BALQON CORPORATION
Date September 13, 2012	By:	/s/ Balwinder Samra
		Balwinder Samra
		President and Chief Executive Officer (principal executive officer)

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4. ADVANCES FROM SHAREHOLDERS (Details Narrative) (USD $)	6 Months Ended	12 Months Ended
	Jun. 30, 2012	Dec. 31, 2011
Advances from shareholders	$ 5,018	$ 500,000
Warrants to acquire shares of the Companys common stock		7,812,500
Common stock exercise price		$ 0.64
Expiry period	5 years
Expiration date of warrants		Dec. 30, 2015
Exercise price reduced	$ 0.40
Common stock shares issued	36,891,530	35,641,530
Cost to induce conversion	$ 225,000
Additional shares issued	468,750

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8. SHAREHOLDERS EQUITY (Details) (USD $)	6 Months Ended
	Jun. 30, 2012
Shareholders Equity Details
Beginning Balance	1,416,695
Granted
Exercised
Expired	(1,416,695)
Ending Balance
Weighted Average Exercise Price
Beginning Balance	$ 2.5
Granted
Exercised
Expired	$ 2.5
Ending Balance

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1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Details)	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Loss Per Share
Weighted average shares outstanding	36,891,530	35,474,574	36,266,530	35,357,614
Common stock equivalents:
Options exercisable into common shares				1,416,695
Warrants exercisable into common shares			12,078,160	13,256,220
Notes payable convertible into common shares			6,814,583	3,900,758
Total, common stock equivalents			18,892,743	18,573,673

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7. INCOME TAXES (Details Narrative) (USD $)	Jun. 30, 2012
Income Tax Disclosure [Abstract]
Federal and state net operating loss carryforwards	$ 24,000,000
Federal carryforward expiry year	2028
state carryforward expiry year	2018

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2. PROPERTY AND EQUIPMENT (Details Narrative) (USD $)	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
Property, Plant and Equipment [Abstract]
Depreciation and amortization expense on property and equipment	$ 16,314	$ 314,044

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3. LOAN PAYABLE - BRIDGE BANK

6 Months Ended

Jun. 30, 2012

Notes to Financial Statements

3. LOAN PAYABLE - BRIDGE BANK

On February 25, 2009, the Company executed a Business Financing Agreement, dated February 18, 2009, with Bridge Bank, National Association (the “Lender”) (the “Initial Agreement”).  The Initial Agreement has been amended by Business Financing Modification Agreements dated effective February 26, 2009 and August 4, 2009, respectively (the “Modification Agreements,” and together with the Initial Agreement the “Credit Agreement”).  The Credit Agreement provides the Company with an accounts receivable based credit facility in the aggregate amount of up to $2,000,000 (the “Credit Facility”).  At June 30, 2012, there was $36,250 outstanding under the terms of the Credit Facility which was overdrawn by $8,157 as of that date. The Company subsequently paid this over-drawn amount of $8,157 to the Lender. At December 31, 2011, $233,231 was outstanding and $66,601 was available under the terms of the Credit Facility.

The Credit Facility is formula-based and generally provides that the outstanding borrowings may not exceed an aggregate of 80% of eligible accounts receivable. The Company must immediately pay any advance made under the Credit Facility within 90 days of the earlier of (i) the invoice date of the receivable that substantiated the advance or (ii) the date on which the advance was made.  The Credit Facility is secured by a continuing first priority security interest in all the Company’s personal property (subject to customary exceptions).  Interest on the Credit Facility is payable monthly, at the per annum prime rate as published by the Lender plus two percentage points, subject to a minimum rate of 6.0% per annum (6% at June 30, 2012).  The Credit Agreement may be terminated at any time by either party to the Credit Agreement.

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8. SHAREHOLDERS' EQUITY (Details Narrative) (USD $)	Jun. 30, 2012	Dec. 31, 2011	Mar. 31, 2012 SOL [Member]	Mar. 31, 2012 Amendment And Exchange Agreements Holder [Member]
Share issued	36,891,530	35,641,530	1,250,000	975,000
Warrants exercise price			$ 0.4	$ 0.4
Warrants Conversion amount			$ 500,000
Convertible note issued				891,500
Interest rate on note				10.00%
Warrants Expiration date				Mar. 31, 2015
Warrants exercised to purchase share			1,250,000
Shares purchased			7,812,500
Outstanding unsecured loan into common stock			500,000
Revised warrant exercise price			$ 0.40
Total value of the adjustment of warrant			$ 446,809

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5. CONVERTIBLE PROMISSORY NOTES (Details 1) (USD $)	6 Months Ended
	Jun. 30, 2012
ConvertibleNotesPayableMember
Interest payment due	$ 19,375
Interest payment due date	Jan. 01, 2012
ConvertibleNotesPayable1Member
Interest payment due	73,538
Interest payment due date	Apr. 01, 2012
ConvertibleNotesPayable2Member
Interest payment due	$ 75,038
Interest payment due date	Jul. 01, 2012

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5. CONVERTIBLE PROMISSORY NOTES (Details) (USD $)	Jun. 30, 2012	Dec. 31, 2011
Debt Instrument [Line Items]
Convertible notes payable	$ 3,361,500	$ 3,021,500
Less: note discount	(995,720)	(724,840)
Convertible notes payable, net of note discount	2,365,780	2,296,660
Less: current portion of subordinated unsecured notes	(2,365,780)	(1,483,168)
Convertible notes payable, net of note discount and current portion		813,492
SubordinatedUnsecuredConvertibleNotesPayableOneMember
Debt Instrument [Line Items]
Convertible notes payable	25,000	916,500
SubordinatedUnsecuredConvertibleNotesPayableTwoMember
Debt Instrument [Line Items]
Convertible notes payable	891,500
SubordinatedUnsecuredConvertibleNotesPayableThreeMember
Debt Instrument [Line Items]
Convertible notes payable	340,000
SubordinatedUnsecuredConvertibleNotesPayableFourMember
Debt Instrument [Line Items]
Convertible notes payable	1,330,000	1,330,000
SubordinatedUnsecuredConvertibleNotesPayableFiveMember
Debt Instrument [Line Items]
Convertible notes payable	$ 775,000	$ 775,000

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9. RELATED PARTY TRANSACTIONS (Details Narrative) (USD $)	6 Months Ended
	Jun. 30, 2012	Dec. 31, 2011
Accounts receivable	$ 198,067
Accounts payable	564,770	330,840
Distribution Agreement With SOL [Member]
Battery units valued	1,401,600	1,915,200
Battery Cost	$ 513,600	$ 113,680

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6. DERIVATIVE LIABILITY (Details) (USD $)	Jun. 30, 2012	Dec. 31, 2011	Dec. 31, 2008
Risk-free interest rate	0.19%	0.09%	0.19%
Expected volatility	98.93%	98.40%	98.14%
Expected life (in years)	9 months	9 months	1 year
Expected dividend yield	0.00%	0.00%	0.00%
Conversion feature	$ 803,742	$ 263,984	$ 649,463
Warrants	454,484	412,300	316,816
Total Fair Value	$ 1,258,226	$ 676,284	$ 966,279
WarrantMember
Risk-free interest rate		0.54%	0.51%
Expected volatility		105.00%	98.14%
Expected life (in years)		3 years 9 months	3 years
Expected dividend yield	0.00%	0.00%	0.00%
WarrantMember | MinimumMember
Risk-free interest rate	0.39%
Expected volatility	79.30%
Expected life (in years)	2 years 9 months
WarrantMember | MaximumMember
Risk-free interest rate	0.45%
Expected volatility	87.00%
Expected life (in years)	3 years 3 months

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7. INCOME TAXES (Details) (USD $)	Jun. 30, 2012	Dec. 31, 2011
Income Taxes Details
Net operating loss carryforward	$ 9,700,000	$ 8,000,000
Valuation allowance	(9,700,000)	(8,000,000)
Net deferred income tax asset

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2. PROPERTY AND EQUIPMENT

6 Months Ended

Jun. 30, 2012

Property, Plant and Equipment [Abstract]

PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

	June 30 2012 (Unaudited)			December 31, 2011
Computer equipment and software	$	121,680		$	121,680
Office furniture		35,300			35,300
Equipment		35,941			35,941
Leasehold improvements		21,711			21,711
Total property and equipment, cost		214,632			214,632
Less: accumulated depreciation and amortization		(172,017	)		(155,703	)
Property and equipment, net	$	42,615		$	58,929

Depreciation and amortization expense on property and equipment for the six months ended June 30, 2012 and 2011 was $16,314 and $314,044, respectively.

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7. INCOME TAXES (Details 1)	6 Months Ended	12 Months Ended
	Jun. 30, 2012	Dec. 31, 2011
RECONCILIATION OF THE EFFECTIVE INCOME TAX RATE
Tax expense at the U.S. statutory income tax	(34.00%)	(34.00%)
State tax net of federal tax benefit	(5.80%)	(5.80%)
Increase in the valuation allowance	39.80%	39.80%
Effective tax rate	0.00%	0.00%

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5. CONVERTIBLE PROMISSORY NOTES (Details Narrative) (USD $)	3 Months Ended	12 Months Ended
	Mar. 31, 2012	Dec. 31, 2011	Jun. 30, 2012
Principal amount of notes converted to shares	$ 75,000	$ 68,500
Number of shares for converted notes		68,500
Principal outstanding under the notes	916,500
Amendment and Exchange Agreements with holders of amount	891,500
Quarterly interest due on its convertible promissory no			167,950
Common stock, shares		117,186
ThirtyFourAccreditedInvestors [Member]
Unamortized balance of the note discount			622,072
ThreeAccreditedInvestors [Member]
Unamortized balance of the note discount			184,999
SevenAccreditedInvestors [Member]
Unamortized balance of the note discount		362,645	93,634
TwentySixAccreditedInvestors [Member]
Principal outstanding under the notes		775,000	775,000
Total discount			995,720
Amortization of loan discount			$ 804,539

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CONDENSED BALANCE SHEETS (USD $)	Jun. 30, 2012	Dec. 31, 2011
Statement of Financial Position [Abstract]
Cash and cash equivalents	$ 300	$ 32,663
Accounts receivable, trade, net of allowance for doubtful accounts of $1,233 and $1,233, respectively	143,017	507,246
Accounts receivable, related entities, net of allowance for doubtful accounts of $198,067 and $178,484, respectively		302,082
Inventories	984,046	1,065,595
Prepaid expenses	63,817	55,010
Total current assets	1,191,180	1,962,596
Inventory held by customer pending lease	739,000	739,000
Property, plant & equipment, net	42,615	58,929
Deposits	14,400	14,400
Goodwill and Trade secrets, net of accumulated amortization of $186,965 and $186,965, respectively	166,500	166,500
Total assets	2,153,695	2,941,425
Bank overdraft	42,588	11,785
Payroll taxes payable	203,439
Accounts payable and accrued expenses	2,193,455	1,546,059
Accounts payable to related parties	564,770	330,840
Customer deposits	745,073	1,417,388
Loan payable, Bridge Bank	36,250	233,231
Advances from shareholders	5,018	505,018
Derivative liability	1,258,226	676,284
Convertible promissory notes, net of discount	2,365,780	1,483,168
Total current liabilities	7,414,599	6,203,773
Convertible notes payable, net of discount		813,492
Common stock, $0.001 par value, 100,000,000 shares authorized, 36,891,530 and 35,641,530 shares issued and outstanding on June 30, 2012 and December 31, 2011, respectively	36,891	35,641
Additional paid in capital	19,596,423	18,283,624
Accumulated deficit	(24,894,218)	(22,395,105)
Total shareholders' deficiency	(5,260,904)	(4,075,840)
Total liabilities and shareholders' deficiency	$ 2,153,695	$ 2,941,425

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10. INVENTORY HELD BY CUSTOMER (Details Narrative) (USD $)	Jun. 30, 2012	Dec. 31, 2011
Inventory Disclosure [Abstract]
Cost of inventory	$ 739,000	$ 739,000

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CONDENSED STATEMENTS OF CASH FLOWS (USD $)	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
Cash flows from operating activities:
Net loss	$ (2,499,113)	$ (3,672,112)
Depreciation and amortization	16,314	314,044
Cost to induce conversion of warrants	671,809
Change in fair value of derivative liability	(384,337)	98,258
Amortization of debt discount	804,539	822,739
Fair value of common stock contributed by shareholder to settle company debts	33,100
Changes in operating assets and liabilities:
Accounts receivable	36,311	(499,048)
Inventories	81,549	(862,398)
Prepaid expenses	(8,807)	(327,099)
Payroll taxes payable	203,439
Accounts payable and accrued expenses	881,326	(30,838)
Customer advances	(42,315)
Net cash used in operating activities	(206,185)	(4,156,454)
Cash flows from investing activities:
Acquisition of property and equipment		(30,409)
Net cash used in investing activities		(30,409)
Cash flows from financing activities:
Bank overdraft	30,803
Proceeds from issuance of common stock upon exercise of warrants		132,666
Payment of loan payable to bank	(196,981)
Proceeds from issuance of convertible notes	340,000
Net cash provided by financing activities	173,822	132,666
Decrease in cash and cash equivalents	(32,363)	(4,054,197)
Cash and cash equivalents, beginning of period	32,663	4,407,273
Cash and cash equivalents, end of period	300	353,076
Supplemental Cash Flow Information:
Income taxes paid
Interest paid	55,663	178,400
Conversion of notes payable to common stock	500,000	297,250
Fair value of derivative liability related to conversion feature and warrants issued in connection with exchange of notes payable	829,429
Fair value of derivative liability related to conversion feature and warrants issued in connection with secured subordinated notes payable	136,850
Offset of customer advance to accounts receivable	630,000
Fair value of warrants issues with convertible notes	$ 109,140

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8. SHAREHOLDERS EQUITY (Details 2) (USD $)	Jun. 30, 2012
Warrants Outstanding
Number of Shares Underlying Warrants	12,078,160
Warrants Exercisable
Number of Shares	12,078,160
ExercisePricePointFourMember | WarrantMember
Warrants Outstanding
Number of Shares Underlying Warrants	7,877,500
Weighted Average Exercise Price	0.4
Weighted Average Remaining Contractual Life (in years)	2 years 9 months 18 days
Warrants Exercisable
Number of Shares	7,877,500
Weighted Average Exercise Price	0.4
ExercisePricePointFiveMember | WarrantMember
Warrants Outstanding
Number of Shares Underlying Warrants	1,782,660
Weighted Average Exercise Price	0.5
Weighted Average Remaining Contractual Life (in years)	2 months 12 days
Warrants Exercisable
Number of Shares	1,782,660
Weighted Average Exercise Price	0.5
ExercisePricePointFourOneMember | WarrantMember
Warrants Outstanding
Number of Shares Underlying Warrants	868,000
Weighted Average Exercise Price	0.4
Weighted Average Remaining Contractual Life (in years)	3 years 2 months 12 days
Warrants Exercisable
Number of Shares	868,000
Weighted Average Exercise Price	0.4
ExercisePricePointSixFourMember | WarrantMember
Warrants Outstanding
Number of Shares Underlying Warrants	1,500,000
Weighted Average Exercise Price	0.64
Weighted Average Remaining Contractual Life (in years)	3 years 6 months
Warrants Exercisable
Number of Shares	1,500,000
Weighted Average Exercise Price	0.64
ExercisePricePointOneMember | WarrantMember
Warrants Outstanding
Number of Shares Underlying Warrants	50,000
Weighted Average Exercise Price	1
Weighted Average Remaining Contractual Life (in years)	1 year 3 months 18 days
Warrants Exercisable
Number of Shares	50,000
Weighted Average Exercise Price	1

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6. DERIVATIVE LIABILITY (Tables)

6 Months Ended

Jun. 30, 2012

Derivative Liability Tables

DERIVATIVE LIABILITY

The derivative liabilities were valued using Monte Carlo simulation model with the following assumptions:

	June 30, 2012			At Date of Issuance			December 31, 2011
Conversion feature:
Risk-free interest rate		0.19	%		0.19	%		0.09	%
Expected volatility		98.93	%		98.14	%		98.40	%
Expected life (in years)	0.75 years			1.0 year			.75 years
Expected dividend yield		0			0			0
Warrants:
Risk-free interest rate		0.39% - 0.45	%		0.51	%		0.54	%
Expected volatility		79.3%-87.0	%		98.14	%		105.30	%
Expected life (in years)	2.75 – 3.25 years			3.0 years			3.75 years
Expected dividend yield		0			0			0
Fair Value:
Conversion feature		803,742			649,463			263,984
Warrants		454,484			316,816			412,300
	$	1,258,226		$	966,279		$	676,284

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1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Dec. 31, 2011
Net loss			2,499,113
Working capital deficit	6,223,418		6,223,418
Shareholders deficiency	(5,260,904)		(5,260,904)		(4,075,840)
Unpaid payroll taxes	203,439		203,439
Interest due on convertible notes payable			167,950
Inventories	1,401,600		1,401,600		739,000
Impairment loss	0		0		935,583
One Customer [Member]
Total revenues percentage	66.25%	48.00%	54.98%	39.00%
Accounts receivable	64.79%		64.79%
AnotherCustomer [Member]
Accounts receivable	13.70%		13.70%
TradeCustomer [Member]
Accounts receivable					30.00%
Vendor [Member]
Costs of revenue	64.69%	37.00%	58.32%	32.00%
Accounts payable	30.33%		30.33%		30.00%
VendorOne [Member]
Accounts payable	21.82%		21.82%		26.00%
VendorTwo [Member]
Accounts payable	11.50%		11.50%		9.00%

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8. SHAREHOLDERS EQUITY (Tables)

6 Months Ended

Jun. 30, 2012

Shareholders Equity Tables

SHAREHOLDERS EQUITY

Stock Options

At June 30, 2012, options shares outstanding were as follows:	Shares			Weighted Average Exercise Price
Balance at January 1, 2012		1,416,695		$	2.50
Granted		—			—
Exercised		—			—
Expired		(1,416,695	)	$	2.50
Balance at June 30, 2012		—			—

Warrants

At June 30, 2012, warrants shares outstanding were as follows:	Shares			Weighted Average Exercise Price
Balance at January 1, 2012		13,256,220		$	0.82
Granted and Exchanged		9,127,500		$	0.40
Exercised		(1,250,000	)	$	0.40
Exchanged		(7,812,500	)	$	1.50
Expired		(1,243,060	)	$	0.74
Balance at June 30, 2012		12,078,160		$	0.54

STOCK WARRANTS OUTSTANDING AND EXERCISABLE

The following table summarizes information about stock warrants outstanding and exercisable as of June 30, 2012:

		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
$	0.40		7,877,500	$	0.40		2.8		7,877,500	$	0.40
$	0.50		1,782,660	$	0.50		0.2		1,782,660	$	0.50
$	0.40		868,000	$	0.40		3.2		868,000	$	0.40
$	0.64		1,500,000	$	0.64		3.5		1,500,000	$	0.64
$	1.00		50,000	$	1.00		1.3		50,000	$	1.00
			12,078,160						12,078,160

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1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Jun. 30, 2012

Accounting Policies [Abstract]

NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

The Company

Balqon Corporation, a California corporation (“Balqon California”), was incorporated on April 21, 2005 and commenced business operations in 2006.  On October 24, 2008, Balqon California completed a merger with BMR Solutions, Inc., a Nevada corporation (“BMR”), with BMR being the survivor of the merger.  Upon the closing, BMR changed its name to Balqon Corporation (the “Company”).  The Company develops and manufactures electric drive systems, charging systems and lithium battery systems for electric vehicles, industrial equipment and renewable energy storage devices.  The Company also designs and assembles electric powered yard tractors, short haul drayage tractors and inner city Class 7 and 8 delivery trucks utilizing its proprietary drive system technologies.

Basis of Presentation of Unaudited Financial Information

The unaudited financial statements of the Company for the three and six months ended June 30, 2012 and 2011 have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Regulation S-K for scaled disclosures for smaller reporting companies.  Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements.  However, such information reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of management, necessary for the fair presentation of the Company’s financial position and results of operations. Results shown for interim periods are not necessarily indicative of the results to be obtained for a full fiscal year.

The balance sheet information as of December 31, 2011 was derived from the audited financial statements included in the Company’s financial statements as of and for the years ended December 31, 2011 and 2010 contained in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on April 16, 2012. These financial statements should be read in conjunction with that report.

Going Concern

The accompanying condensed financial statements have been prepared under the assumption that the Company will continue as a going concern. Such assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business. For the six months ended June 30, 2012, the Company recorded a net loss of $2,499,113.  As of June 30, 2012, the Company had a working capital deficit of $6,223,418 and a shareholders’ deficiency of $5,260,904.  In addition, the Company has not paid $203,439 in payroll taxes and $167,950 of interest due on convertible notes payable. Pursuant to the terms of the notes, the non-payment of interest by the Company constitutes an event of default and, as a result, the holders of the notes may accelerate payment of all amounts outstanding under the notes by giving written notice to the Company and thereby requiring that the Company immediately pay up to an aggregate of $3,361,500 in principal plus all accrued and unpaid interest.  If the holders of the notes were to declare the notes due and payable, the Company presently does not have the ability to pay these notes.

These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. As a result, the Company’s independent registered public accounting firm, in its report on the Company’s 2011 financial statements, has raised substantial doubt about the Company’s ability to continue as a going concern. The condensed financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.  The Company has been, and currently is, working towards identifying and obtaining new sources of financing. No assurances can be given that the Company will be successful in obtaining additional financing in the future.  

Any future financing that the Company may obtain may cause significant dilution to existing stockholders. Any debt financing or other financing of securities senior to common stock that the Company is able to obtain will likely include financial and other covenants that will restrict the Company’s flexibility. At a minimum, the Company expects these covenants to include restrictions on its ability to pay dividends on its common stock. Any failure to comply with these covenants would have a material adverse effect on the Company’s business, prospects, financial condition, results of operations and cash flows.

In addition, the Company’s senior secured convertible debentures issued between July and December 2010 contain covenants that include restrictions on its ability to pay dividends on its common stock.

The Company has $1,330,000 in principal of its 10% Unsecured Convertible Promissory Notes outstanding that are maturing on September 1, 2012.  The Company intends to negotiate extensions of these notes until March 31, 2013.  If the Company is unable to negotiate extensions of these notes, the Company does not expect to be able to pay these obligations as they come due.  If the Company does not successfully renegotiate the debt and it is unable to pay the debt when it comes due, the Company will be in default on this debt.

If adequate funds are not available, the Company may be required to delay, scale back or eliminate portions of its operations and product and service development efforts or to obtain funds through arrangements with strategic partners or others that may require the Company to relinquish rights to certain of its 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 the Company’s proprietary technology and other important assets and could also adversely affect its ability to fund the Company’s continued operations and its product and service development efforts.

Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.  Material estimates relate to the recognition of contract revenues and estimated costs to complete, recoverability of reported amounts of long-lived assets, and assumptions made in valuing derivative instruments and equity instruments issued for compensation.  Actual results may differ from those estimates.

Revenues

Sales of Production Units and Parts

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

The Company determines whether delivery has occurred based on when title transfers and the risks and rewards of ownership have transferred to the buyer, which usually occurs when the Company places the products with the buyer’s carrier.  The Company regularly reviews its customers’ financial positions to ensure that collectability is reasonably assured.  Except for warranties, the Company has no post-sales obligations.

Inventories

Inventories consist mainly of raw materials and are stated at the lower of cost or market. Cost is determined principally on a first-in-first-out average cost basis.  Recorded inventories at June 30, 2012 do not include approximately $1,401,600 of batteries and other items held on consignment from Seven One Battery Company, an affiliate of the Company’s Chairman of the Board. (See Note 9.)

Goodwill and Intangible Assets

Management performs impairment tests of goodwill and indefinite-lived intangible assets whenever an event occurs or circumstances change that indicate impairment has more likely than not occurred. Also, management performs impairment testing of goodwill and indefinite-lived intangible assets at least annually.

The Company reviews intangible assets subject to amortization at least annually to determine if any adverse conditions exist or a change in circumstances has occurred that would indicate impairment or a change in the remaining useful life.  If the carrying value of an asset exceeds its undiscounted cash flows, the Company writes down the carrying value of the intangible asset to its fair value in the period identified.  If the carrying value of assets is determined not to be recoverable, the Company records an impairment loss equal to the excess of the carrying value over the fair value of the assets.

The Company’s estimate of fair value is based on the best information available, in the absence of quoted market prices.  The Company generally calculates fair value as the present value of estimated future cash flows that the Company expects to generate from the asset using a discounted cash flow income approach as described above.  If the estimate of an intangible asset’s remaining useful life is changed, the Company amortizes the remaining carrying value of the intangible asset prospectively over the revised remaining useful life.

During the years ended December 31, 2011 and December 31, 2010, the Company determined that there were no indicators of impairment of its recorded goodwill.  During the year ended December 31, 2011, the Company determined that the value of its intangible asset related to the Distribution Agreement was impaired (See Note 9 for a description of the Distribution Agreement). Accordingly, the Company recorded an impairment loss of $935,583 that for the unamortized value of the Distribution Agreement as of December 31, 2011.  There were no indicators of further impairments as of June 30, 2012.

Loss Per Share

Basic loss per share has been computed using the weighted average number of common shares outstanding and issuable during the period.  Diluted loss per share is computed based on the weighted average number of common shares and all common equivalent shares outstanding during the period in which they are dilutive.  Common equivalent shares consist of shares issuable upon the exercise of stock options, warrants or other convertible securities such as convertible notes.  For the six months ended June 30, 2012 and year ended December 31, 2011, common stock equivalent shares have been excluded from the calculation of loss per share as their effect is anti-dilutive.

The following table summarizes the weighted average shares and common stock equivalents outstanding as of June 30, 2012 and December 31, 2011:

	June 30, 2012		December 31, 2011
Weighted average shares outstanding		36,266,530		35,525,621
Common stock equivalents:
Options exercisable into common shares		—		1,416,695
Warrants exercisable into common shares		12,078,160		13,256,220
Notes payable convertible into common shares		6,814,583		3,900,758
Total, common stock equivalents		18,892,743		18,573,673

Financial Assets and Liabilities Measured at Fair Value

The Company uses various inputs in determining the fair value of its investments and measures these assets on a recurring basis.  Financial assets recorded at fair value in the condensed balance sheets are categorized by the level of objectivity associated with the inputs used to measure their fair value.

Authoritative guidance provided by the Financial Accounting Standards Board (“FASB”) defines the following levels directly related to the amount of subjectivity associated with the inputs to fair valuation of these financial assets:

Level 1 Quoted prices in active markets for identical assets or liabilities.

Level 2 Inputs, other than the quoted prices in active markets, that is observable either directly or indirectly.

Level 3 Unobservable inputs based on the Company’s assumptions.

The following table presents certain investments and liabilities of the Company’s financial assets measured and recorded at fair value on the Company’s condensed balance sheets on a recurring basis and their level within the fair value hierarchy as of June 30, 2012.

	Level 1		Level 2		Level 3		Total
Fair value of Derivative Liability	$	—	$	—	$	1,258,226	$	1,258,226

Derivative Financial Instruments

The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments, the Company uses the Monte Carlo simulation model using the Black Scholes Merton option pricing model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period.  Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

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 six months ended June 30, 2012, 54.98% of total revenues were from one customer.  For the three months ended June 30, 2012, 66.25 % of total revenues were from one customer.   For the six months ended June 30, 2011, 39% of total revenues were from one customer.  For the three months ended June 30, 2011, 48% of total revenue were from one customer.  At June 30, 2012, 64.79% of accounts receivable were from one customer while 13.70% of accounts receivable were from another customer.

At December 31, 2011, 30% of accounts receivable were from one trade customer.

For the six months ended June 30, 2012, 58.32% of costs of revenue were to one vendor.  For the six months ended June 30, 2011, 32% of costs of revenue were to one vendor.  For the three months ended June 30, 21012, 64.69% of costs of revenue were to one vendor.  For the three months ended June 30, 2011, 37% of costs of revenue were to one vendor.  

At June 30, 2012, accounts payable to the largest vendor represented 30.33% of total accounts payable balances. Accounts payable to other two largest vendors represented 21.82% and 11.50% respectively, of total accounts payable at June 30, 2012. At December 31, 2011, accounts payable to the largest vendor represented 30% of total accounts payable balances. Accounts payable to other two largest vendors represented 26% and 9%, respectively, of total accounts payable at December 31, 2011.

Recent Accounting Pronouncements

In May 2011, the FASB issued Accounting Standards Update (ASU) No. 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs”.  ASU No. 2011-4 does not require additional fair value measurements and is not intended to establish valuation standards or affect valuation practices outside of financial reporting.  The ASU is effective for interim and annual periods beginning after December 15, 2011. The Company adopted ASU No. 2011-04 effective January 1, 2012. The updated guidance affects the Company’s fair value disclosures, but will not affect the Company’s results of operations, financial condition or liquidity.

In June 2011, the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income”.  The ASU eliminates the option to present the components of other comprehensive income as part of the statement of changes in shareholders’ equity, and instead requires consecutive presentation of the statement of net income and other comprehensive income either in a continuous statement of comprehensive income or in two separate but consecutive statements.  ASU No. 2011-5 is effective for interim and annual periods beginning after December 15, 2011.  The Company adopted ASU 2011-05 effective January 1, 2012 and it did not affect the Company’s results of operations, financial condition or liquidity.

In September 2011, the FASB issued

ASU

2011-08, “Testing Goodwill for Impairment”, an update to existing guidance on the assessment of goodwill impairment.  This update simplifies the assessment of goodwill for impairment by allowing companies to consider qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount before performing the two step impairment review process.  It also amends the examples of events or circumstances that would be considered in a goodwill impairment evaluation.  

Recent Accounting Pronouncements (continued)

The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011.  The Company adopted ASU 2011-08 effective January 1, 2012.  The adoption of this new accounting guidance will not have a significant effect on the Company’s goodwill impairment assessments in the future.

In December 2011, the FASB issued ASU No. 2011-11, “Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities.” This ASU requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. ASU No. 2011-11 will be applied retrospectively and is effective for annual and interim reporting periods beginning on or after January 1, 2013.  The Company does not expect adoption of this standard to have a material impact on its results of operations, financial condition, or liquidity.

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

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CONDENSED BALANCE SHEETS (Parenthetical) (USD $)	Jun. 30, 2012	Dec. 31, 2011
Current assets
Accounts receivable, trade allowance	$ 1,233	$ 1,233
Accounts receivable, related entities allowance	198,067	178,484
Goodwill and Trade secrets accumulated amortization	$ 186,965	$ 186,965
Shareholders' Deficiency
Common stock, par value	$ 0.001	$ 0.001
Common stock, authorized	100,000,000	100,000,000
Common stock, issued	36,891,530	35,641,530
Common stock, outstanding	36,891,530	35,641,530

XML

11. SUBSEQUENT EVENTS

6 Months Ended

Jun. 30, 2012

Subsequent Events [Abstract]

SUBSEQUENT EVENTS

Purchase and Representation Agreement

On July 9, 2012, the Company entered into a Purchase and Representation Agreement (the “Lego Agreement”) with Lego Battery Sales, LLC (“Lego”). The terms of the Lego Agreement call for the sale by the Company to Lego of 1,000 batteries (700 Ahr, Model #WBQ-LYP700AHA) for an aggregate sales price of $350,000.

The Lego Agreement further requires that the Company serve as Lego’s exclusive sales agent and representative to market and resell the batteries on behalf of Lego. The sales prices of the batteries must be at a minimum sales price of $490 per battery.  In consideration for its services as sales agent and representative, the Company shall earn a sales commission equal to the excess of the sales price of each battery above the minimum sale price.

The Lego Agreement is secured by a pledge of 2,450,000 shares of common stock owned individually by the Company’s president; Mr. Balwinder Samra. If the minimum consideration of $490,000 for the sale of the 1,000 batteries is not achieved, Lego may foreclose on these pledged shares. The term of the Lego Agreement is for six months and may be extended by mutual consent of the parties.

XML

Document and Entity Information	6 Months Ended
	Jun. 30, 2012	Aug. 15, 2012
Document And Entity Information
Entity Registrant Name	BALQON CORP.
Entity Central Index Key	0001169440
Document Type	10-Q
Document Period End Date	Jun. 30, 2012
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		36,891,530
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2012

XML

1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Policies)

6 Months Ended

Jun. 30, 2012

Nature Of Business And Significant Accounting Policies Policies

Basis of Presentation of Unaudited Financial Information

The unaudited financial statements of the Company for the three and six months ended June 30, 2012 and 2011 have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Regulation S-K for scaled disclosures for smaller reporting companies.  Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements.  However, such information reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of management, necessary for the fair presentation of the Company’s financial position and results of operations. Results shown for interim periods are not necessarily indicative of the results to be obtained for a full fiscal year.  The balance sheet information as of December 31, 2011 was derived from the audited financial statements included in the Company’s financial statements as of and for the years ended December 31, 2011 and 2010 contained in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on April 16, 2012. These financial statements should be read in conjunction with that report.

Going Concern

The accompanying condensed financial statements have been prepared under the assumption that the Company will continue as a going concern. Such assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business. For the six months ended June 30, 2012, the Company recorded a net loss of $2,499,113.  As of June 30, 2012, the Company had a working capital deficit of $6,223,418 and a shareholders’ deficiency of $5,260,904.  In addition, the Company has not paid $203,439 in payroll taxes and $167,950 of interest due on convertible notes payable. Pursuant to the terms of the notes, the non-payment of interest by the Company constitutes an event of default and, as a result, the holders of the notes may accelerate payment of all amounts outstanding under the notes by giving written notice to the Company and thereby requiring that the Company immediately pay up to an aggregate of $3,361,500 in principal plus all accrued and unpaid interest.  If the holders of the notes were to declare the notes due and payable, the Company presently does not have the ability to pay these notes.

These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. As a result, the Company’s independent registered public accounting firm, in its report on the Company’s 2011 financial statements, has raised substantial doubt about the Company’s ability to continue as a going concern. The condensed financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.  The Company has been, and currently is, working towards identifying and obtaining new sources of financing. No assurances can be given that the Company will be successful in obtaining additional financing in the future.  

Any future financing that the Company may obtain may cause significant dilution to existing stockholders. Any debt financing or other financing of securities senior to common stock that the Company is able to obtain will likely include financial and other covenants that will restrict the Company’s flexibility. At a minimum, the Company expects these covenants to include restrictions on its ability to pay dividends on its common stock. Any failure to comply with these covenants would have a material adverse effect on the Company’s business, prospects, financial condition, results of operations and cash flows.

In addition, the Company’s senior secured convertible debentures issued between July and December 2010 contain covenants that include restrictions on its ability to pay dividends on its common stock.

The Company has $1,330,000 in principal of its 10% Unsecured Convertible Promissory Notes outstanding that are maturing on September 1, 2012.  The Company intends to negotiate extensions of these notes until March 31, 2013.  If the Company is unable to negotiate extensions of these notes, the Company does not expect to be able to pay these obligations as they come due.  If the Company does not successfully renegotiate the debt and it is unable to pay the debt when it comes due, the Company will be in default on this debt.

If adequate funds are not available, the Company may be required to delay, scale back or eliminate portions of its operations and product and service development efforts or to obtain funds through arrangements with strategic partners or others that may require the Company to relinquish rights to certain of its 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 the Company’s proprietary technology and other important assets and could also adversely affect its ability to fund the Company’s continued operations and its product and service development efforts.

Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.  Material estimates relate to the recognition of contract revenues and estimated costs to complete, recoverability of reported amounts of long-lived assets, and assumptions made in valuing derivative instruments and equity instruments issued for compensation.  Actual results may differ from those estimates.

Revenues

Sales of Production Units and Parts

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

The Company determines whether delivery has occurred based on when title transfers and the risks and rewards of ownership have transferred to the buyer, which usually occurs when the Company places the products with the buyer’s carrier.  The Company regularly reviews its customers’ financial positions to ensure that collectability is reasonably assured.  Except for warranties, the Company has no post-sales obligations. 

Inventories

Inventories consist mainly of raw materials and are stated at the lower of cost or market. Cost is determined principally on a first-in-first-out average cost basis.  Recorded inventories at June 30, 2012 do not include approximately $1,401,600 of batteries and other items held on consignment from Seven One Battery Company, an affiliate of the Company’s Chairman of the Board. (See Note 9.)

Goodwill and Intangible Assets

Management performs impairment tests of goodwill and indefinite-lived intangible assets whenever an event occurs or circumstances change that indicate impairment has more likely than not occurred. Also, management performs impairment testing of goodwill and indefinite-lived intangible assets at least annually.

The Company reviews intangible assets subject to amortization at least annually to determine if any adverse conditions exist or a change in circumstances has occurred that would indicate impairment or a change in the remaining useful life.  If the carrying value of an asset exceeds its undiscounted cash flows, the Company writes down the carrying value of the intangible asset to its fair value in the period identified.  If the carrying value of assets is determined not to be recoverable, the Company records an impairment loss equal to the excess of the carrying value over the fair value of the assets.

The Company’s estimate of fair value is based on the best information available, in the absence of quoted market prices.  The Company generally calculates fair value as the present value of estimated future cash flows that the Company expects to generate from the asset using a discounted cash flow income approach as described above.  If the estimate of an intangible asset’s remaining useful life is changed, the Company amortizes the remaining carrying value of the intangible asset prospectively over the revised remaining useful life.

During the years ended December 31, 2011 and December 31, 2010, the Company determined that there were no indicators of impairment of its recorded goodwill.  During the year ended December 31, 2011, the Company determined that the value of its intangible asset related to the Distribution Agreement was impaired (See Note 9 for a description of the Distribution Agreement). Accordingly, the Company recorded an impairment loss of $935,583 that for the unamortized value of the Distribution Agreement as of December 31, 2011.  There were no indicators of further impairments as of June 30, 2012. 

Loss Per Share

Basic loss per share has been computed using the weighted average number of common shares outstanding and issuable during the period.  Diluted loss per share is computed based on the weighted average number of common shares and all common equivalent shares outstanding during the period in which they are dilutive.  Common equivalent shares consist of shares issuable upon the exercise of stock options, warrants or other convertible securities such as convertible notes.  For the six months ended June 30, 2012 and year ended December 31, 2011, common stock equivalent shares have been excluded from the calculation of loss per share as their effect is anti-dilutive.

Financial Assets and Liabilities Measured at Fair Value

The Company uses various inputs in determining the fair value of its investments and measures these assets on a recurring basis.  Financial assets recorded at fair value in the condensed balance sheets are categorized by the level of objectivity associated with the inputs used to measure their fair value.

Authoritative guidance provided by the Financial Accounting Standards Board (“FASB”) defines the following levels directly related to the amount of subjectivity associated with the inputs to fair valuation of these financial assets:

Level 1 Quoted prices in active markets for identical assets or liabilities.

Level 2 Inputs, other than the quoted prices in active markets, that is observable either directly or indirectly.

Level 3 Unobservable inputs based on the Company’s assumptions.

The following table presents certain investments and liabilities of the Company’s financial assets measured and recorded at fair value on the Company’s condensed balance sheets on a recurring basis and their level within the fair value hierarchy as of June 30, 2012.

Derivative Financial Instruments

The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments, the Company uses the Monte Carlo simulation model using the Black Scholes Merton option pricing model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period.  Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

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 six months ended June 30, 2012, 54.98% of total revenues were from one customer.  For the three months ended June 30, 2012, 66.25 % of total revenues were from one customer.   For the six months ended June 30, 2011, 39% of total revenues were from one customer.  For the three months ended June 30, 2011, 48% of total revenue were from one customer.  At June 30, 2012, 64.79% of accounts receivable were from one customer while 13.70% of accounts receivable were from another customer.

At December 31, 2011, 30% of accounts receivable were from one trade customer.

For the six months ended June 30, 2012, 58.32% of costs of revenue were to one vendor.  For the six months ended June 30, 2011, 32% of costs of revenue were to one vendor.  For the three months ended June 30, 21012, 64.69% of costs of revenue were to one vendor.  For the three months ended June 30, 2011, 37% of costs of revenue were to one vendor.  

At June 30, 2012, accounts payable to the largest vendor represented 30.33% of total accounts payable balances. Accounts payable to other two largest vendors represented 21.82% and 11.50% respectively, of total accounts payable at June 30, 2012. At December 31, 2011, accounts payable to the largest vendor represented 30% of total accounts payable balances. Accounts payable to other two largest vendors represented 26% and 9%, respectively, of total accounts payable at December 31, 2011.

Recent Accounting Pronouncements

In May 2011, the FASB issued Accounting Standards Update (ASU) No. 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs”.  ASU No. 2011-4 does not require additional fair value measurements and is not intended to establish valuation standards or affect valuation practices outside of financial reporting.  The ASU is effective for interim and annual periods beginning after December 15, 2011. The Company adopted ASU No. 2011-04 effective January 1, 2012. The updated guidance affects the Company’s fair value disclosures, but will not affect the Company’s results of operations, financial condition or liquidity.

In June 2011, the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income”.  The ASU eliminates the option to present the components of other comprehensive income as part of the statement of changes in shareholders’ equity, and instead requires consecutive presentation of the statement of net income and other comprehensive income either in a continuous statement of comprehensive income or in two separate but consecutive statements.  ASU No. 2011-5 is effective for interim and annual periods beginning after December 15, 2011.  The Company adopted ASU 2011-05 effective January 1, 2012 and it did not affect the Company’s results of operations, financial condition or liquidity.

In September 2011, the FASB issued ASU 2011-08, “Testing Goodwill for Impairment”, an update to existing guidance on the assessment of goodwill impairment.  This update simplifies the assessment of goodwill for impairment by allowing companies to consider qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount before performing the two step impairment review process.  It also amends the examples of events or circumstances that would be considered in a goodwill impairment evaluation.  

The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011.  The Company adopted ASU 2011-08 effective January 1, 2012.  The adoption of this new accounting guidance will not have a significant effect on the Company’s goodwill impairment assessments in the future.

In December 2011, the FASB issued ASU No. 2011-11, “Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities.” This ASU requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. ASU No. 2011-11 will be applied retrospectively and is effective for annual and interim reporting periods beginning on or after January 1, 2013.  The Company does not expect adoption of this standard to have a material impact on its results of operations, financial condition, or liquidity.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the SEC did not or are not believed by management to have a material impact on the Company’s present or future financial 

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CONDENSED STATEMENTS OF OPERATIONS (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Income Statement [Abstract]
REVENUES:	$ 953,199	$ 499,820	$ 1,148,198	$ 615,606
COSTS OF REVENUES	768,911	360,067	856,743	408,940
GROSS PROFIT	184,288	139,753	291,455	206,666
OPERATING EXPENSES
General and administrative	735,776	1,057,877	1,350,746	2,176,445
Research and development	75,064	143,613	144,269	293,724
Depreciation and amortization	8,157	147,776	16,314	314,044
Total operating expenses	818,997	1,349,266	1,511,329	2,784,213
LOSS FROM OPERATIONS	(634,709)	(1,209,513)	(1,219,874)	(2,577,547)
Change in fair value of derivative liabilities	396,749	464,847	384,337	(98,258)
Costs to induce exercise of warrants			(671,809)
Interest expense	(593,890)	(393,921)	(991,767)	(996,307)
NET LOSS	$ (831,850)	$ (1,138,587)	$ (2,499,113)	$ (3,672,112)
Net loss per share - basic and diluted (in Dollars per share)	$ (0.02)	$ (0.03)	$ (0.07)	$ (0.10)
Weighted average shares outstanding, basic and diluted (in Shares)	36,891,530	35,474,574	36,266,530	35,357,614

XML

6. DERIVATIVE LIABILITY

6 Months Ended

Jun. 30, 2012

Notes to Financial Statements

DERIVATIVE LIABILITY

In June 2008, the FASB issued authoritative guidance on determining whether an instrument (or embedded feature) is indexed to an entity’s own stock.  Under the authoritative guidance, effective January 1, 2009, instruments which do not have fixed settlement provisions are deemed to be derivative instruments.  As of June 30, 2012 the Company has two securities offerings that are subject to these provisions as follows:

The conversion feature of the Company’s Debentures, Amended Notes, related warrants, and May 2012 Notes (described in Note 5), do not have fixed settlement provisions because their conversion and exercise prices, respectively, will be lowered if the Company issues securities at lower prices in the future.  The Company was required to include the reset provisions in order to protect the holders of the Debentures, Amended Notes, and May 2012 Notes from the potential dilution associated with future financings.

In accordance with the FASB authoritative guidance, the conversion feature of the Debentures, the Amended Notes and the May 2012 Notes was separated from the host contract (i.e., the Debentures, Amended Notes and May 2012 Notes) and recognized as a derivative instrument.  Both the conversion feature of the Debentures, the Amended Notes, related warrants, and the May 2012 Notes have been characterized as derivative liabilities to be re-measured at the end of every reporting period with the change in value reported in the statement of operations.

The derivative liabilities were valued using Monte Carlo simulation model with the following assumptions:

	June 30, 2012			At Date of Issuance			December 31, 2011
Conversion feature:
Risk-free interest rate		0.19	%		0.19	%		0.09	%
Expected volatility		98.93	%		98.14	%		98.40	%
Expected life (in years)	0.75 years			1.0 year			.75 years
Expected dividend yield		0			0			0
Warrants:
Risk-free interest rate		0.39% - 0.45	%		0.51	%		0.54	%
Expected volatility		79.3%-87.0	%		98.14	%		105.30	%
Expected life (in years)	2.75 – 3.25 years			3.0 years			3.75 years
Expected dividend yield		0			0			0
Fair Value:
Conversion feature		803,742			649,463			263,984
Warrants		454,484			316,816			412,300
	$	1,258,226		$	966,279		$	676,284

The risk-free interest rate was based on rates established by the Federal Reserve Bank. The Company uses the volatility of five comparable guideline companies to estimate volatility for its common stock. The expected life of the conversion feature of the Debentures was based on the term of the Debentures and the expected life of the warrants was determined by the expiration date of the warrants. The expected dividend yield was based on the fact that the Company has not paid dividends to its common stockholders in the past and does not expect to pay dividends to its common stockholders in the future.

As of June 30, 2012 and December 31, 2011, the aggregate derivative liability of the conversion feature and the warrants was $1,258,226 and $676,284, respectively.  For the six months ended June 30, 2012, the Company recorded a change in fair value of the derivative liabilities of $384,337.

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5. CONVERTIBLE PROMISSORY NOTES

6 Months Ended

Jun. 30, 2012

Notes to Financial Statements

CONVERTIBLE PROMISSORY NOTES

Convertible notes payable consist of the following as of June 30, 2012 and December 31, 2011:

	June 30, 2012 (Unaudited)			December 31, 2011
Subordinated unsecured convertible notes payable, interest at 10% per annum payable quarterly, due March 31, 2012, and currently in default (1)	$	25,000		$	916,500
Subordinated secured convertible notes payable, interest at 10% per annum payable quarterly, due March 31, 2013 (1)	$	891,500		$	—
Subordinated secured convertible notes payable, interest at 10% per annum payable quarterly, due March 31, 2013 (2)	$	340,000		$	—
Subordinated unsecured convertible notes payable, interest at 10% per annum payable quarterly, due September 1, 2012 (3)	$	1,330,000		$	1,330,000
Senior secured convertible notes payable, interest at 10% per annum payable quarterly, due March 31, 2013 (4)	$	775,000		$	775,000
Convertible notes payable		3,361,500			3,021,500
Less: note discount		(995,720	)		(724,840	)
Convertible notes payable, net of note discount	$	2,365,780		$	2,296,660
Less: current portion of subordinated unsecured notes		(2,365,780	)		(1,483,168	)
Convertible notes payable, net of note discount and current portion	$	—		$	813,492

(1) Between March 25, 2009 and June 19, 2009, the Company entered into agreements with 34 accredited investors for the sale by the Company of an aggregate of $1,000,000 of 10% Unsecured Subordinated Convertible Promissory Notes which are convertible into an aggregate of 1,000,000 shares of the Company’s common stock at a conversion price of $1.00 per share of common stock, subject to adjustment.  The notes were due on March 31, 2012 and are subordinated to the right to the prior payment of all Senior Indebtedness (as defined in the notes).  Additionally, the Company issued three-year warrants to purchase an aggregate of 1,000,000 shares of the Company’s common stock at an exercise price of $1.50 per share.  The conversion price of the notes and the exercise price of the warrants are only subject to adjustment based on stock splits, stock dividends, spin-offs, rights offerings, or recapitalization through a large, nonrecurring cash dividend.  During the year ended December 31, 2011, $68,500 in principal amount of these notes was converted to 68,500 shares of the Company’s common stock.  As of December 31, 2011, $916,500 in principal was outstanding under these notes.

During the three months ended March 31, 2012, the Company negotiated Amendment and Exchange Agreements with holders of $891,500 of its $916,500 of 10% unsecured notes payable that matured on March 31, 2012.  The terms of the Amendment and Exchange Agreements provide that the maturity date of these notes (the “Amended Notes”) is extended until March 31, 2013, the Amended Notes continue to pay quarterly interest at the rate of 10% and are subject to a security agreement. The Amendment and Exchange Agreements also provide that the Amended Notes are convertible into common stock of the Company at a price of $0.40 per share, subject to adjustment for a weighted average anti-dilution provision. In connection with the issuance of the Amended Notes, the Company issued three-year warrants to purchase up to 975,000 shares of common stock at an exercise price per share of $0.40.

A holder of $25,000 in principal of the Company’s 10% Unsecured Convertible Promissory Notes issued between March 25, 2009 and June 19, 2009 did not accept the Company’s offer under the Amendment and Exchange Agreements to exchange this note for an Amended Note that matures on March 31, 2013. As such, this 10% Unsecured Convertible Promissory Note matured on March 31, 2012 and is in default due to non-payment of the note by the Company.

The Amended Notes are due on March 31, 2013 (the “Maturity Date”). The Amended Notes are secured under the terms of a security agreement granting the holders of the Amended Notes a security interest in all of the Company’s personal property subject to the interests of the holders of Senior Indebtedness (as defined in the Amended Notes).  The security interest granted is subordinate to existing bank financing and the 10% Senior Secured Convertible Debentures that currently have a principal balance due of $775,000.

Each of the agreements governing the Amended Notes and warrants includes an anti-dilution provision that allows for the automatic reset of the conversion or exercise price upon any future sale of the Company’s common stock, warrants, options, convertible debt or any other equity-linked securities at an issuance, exercise or conversion price below the current conversion price of the Amended Notes or exercise price of the warrants issued with the Amended Notes. The Company considered the current FASB guidance of “Determining Whether an Instrument Indexed to an Entity’s Own Stock” which indicates that any adjustment to the fixed amount (either conversion price or number of shares) of the instrument regardless of the probability or whether or not within the issuers’ control, means the instrument is not indexed to the issuers own stock. Accordingly, the Company determined that the conversion price of the Amended Notes and the exercise price of the warrants are not a fixed amount because they are subject to fluctuation based on the occurrence of future offerings or events.  As a result, the Company determined that the conversion features and the warrants are not considered indexed to the Company’s own stock and characterized the initial fair value of these warrants as derivative liabilities upon issuance.  The Company determined the aggregate initial fair value of the warrants issued to investors to be $316,876 and the initial fair value of the embedded beneficial conversion feature of the Amended Notes to be $512,613  (an aggregate amount of $829,489).  These amounts were determined by management with the use of an independent valuation specialist using a Monte Carlo simulation model using the Black-Scholes Merton option pricing model.  As such, the Company recorded an $829,489 valuation discount upon issuance of the notes and warrants. The Company is amortizing this valuation discount to interest expense over the life of the notes.  As of June 30, 2012, the unamortized balance of the note discount was $622,072.

(2) On May 18, 2012, the Company entered into Agreements with 3 accredited investors for a sale by the Company of an aggregate of $340,000 10% Secured Subordinated Convertible Promissory Notes (the “May 2012 Notes”) which are convertible into an aggregate of  850,000 shares of the Company’s common stock at a conversion price of $0.40 per share of common stock, subject to adjustment.

The notes are due on March 31, 2013 and are subordinated to the right to the prior payment of all Senior Indebtedness (as defined in the notes).  The notes pay quarterly interest at the rate of 10% and are subject to a security agreement that secures the Notes by the Company’s assets. The security agreement is subordinate to existing bank financing and the Debentures (as defined below) that currently have a principle balance due of $775,000 and the Amended Notes that currently have a balance due of $891,500.  Additionally, the Company issued three-year warrants to purchase an aggregate of 340,000 shares of the Company’s common stock at an exercise price of $0.40 per share, subject to adjustment.

The conversion price of the May 2012 Notes are subject to full ratchet anti-dilution provisions and also subject to adjustment based on stock splits, stock dividends, spin-offs, rights offerings, or recapitalization through a large, nonrecurring cash dividend.  Each of the agreements governing the May 2012 Notes include an anti-dilution provision that allows for the automatic reset of the conversion price upon any future sale of the Company’s common stock, warrants, options, convertible debt or any other equity-linked securities at an issuance, exercise or conversion price below the current conversion price of the May 2012 Notes. The Company considered the current FASB guidance of “Determining Whether an Instrument Indexed to an Entity’s Own Stock” which indicates that any adjustment to the fixed amount (either conversion price or number of shares) of the instrument regardless of the probability or whether or not within the issuers’ control, means the instrument is not indexed to the issuers own stock. Accordingly, the Company determined that the conversion price of the May 2012 Notes are not a fixed amount because they are subject to fluctuation based on the occurrence of future offerings or events.  As a result, the Company determined that the conversion features are not considered indexed to the Company’s own stock and characterized the fair value of the conversion feature of the notes as derivative liabilities upon issuance.

The Company determined the aggregate fair value of the warrants issued to investors to be $109,140 and the initial fair value of the embedded beneficial conversion feature of the May 2012 Notes to be $136,850 (an aggregate amount of $245,990).  These amounts were determined by management with the use of an independent valuation specialist using a Monte Carlo simulation model using the Black-Scholes Merton option pricing model.  As such, the Company recorded a $245,990 valuation discount upon issuance of the notes and warrants. The Company is amortizing this valuation discount to interest expense over the life of the notes.  As of June 30, 2012, the unamortized balance of the note discount was $184,999.

(3) Between February 5, 2010 and April 12, 2010, the Company entered into agreements with seven accredited investors for the sale by the Company of an aggregate of $1,500,000 of 10% Unsecured Subordinated Convertible Promissory Notes which are convertible into an aggregate of 1,999,993 shares of the Company’s common stock at a conversion price of $0.75 per share of common stock, subject to adjustment.  Additionally, the Company issued three-year warrants to purchase an aggregate of 1,999,993 shares of the Company’s common stock at an exercise price of $0.50 per share.  In connection with the offering, the Company issued three year warrants to purchase 15,999 shares of its common stock at an exercise price of $0.50 per share to two accredited investors in consideration of finder services rendered.

The conversion price of the notes and the exercise price of the warrants are only subject to adjustment based on stock splits, stock dividends, spin-offs, rights offerings, or recapitalization through a large, nonrecurring cash dividend.  During the year ended December 31, 2011, $153,750 of the principal of the notes was converted into 204,998 shares of the Company’s common stock.  As of June 30, 2012 and December 31, 2011, $1,330,000 in principal was outstanding under these notes.  The notes are due on September 1, 2012.

The Company determined that the relative fair value of the warrants upon issuance was $731,710.  The relative fair value was determined using the methodology prescribed by current accounting guidance.  The Company determined the fair value of the beneficial conversion feature was approximately $768,290. These amounts were calculated under a Black-Scholes option pricing model using as assumptions an expected life of 3 years, an industry volatility of between 95% and 116%, a risk free interest rate of 1.47%, and no expected dividend yield.  The relative value of the warrants of $731,710 and the beneficial conversion feature of $768,290 was recorded by the Company as a loan discount of $1,500,000, which the Company is amortizing to interest expense over the life of the notes.  As of June 30, 2012 and December 31, 2011, the unamortized balance of the note discount was $93,634 and $362,645, respectively.

(4) Between July 2010 and December 2010, the Company entered into agreements with 26 accredited investors for the sale by the Company of an aggregate of $850,000 of 10% Senior Secured Convertible Debentures (the “Debentures”) which are convertible into an aggregate of 1,133,333 shares of the Company’s common stock at a conversion price of $0.75 per share, subject to adjustment.  In connection with this offering, the Company also issued to the investors warrants to purchase an aggregate of 850,000 shares of the Company’s common stock at an exercise price of $0.75 per share, subject to adjustment.  The Company also issued to its placement agent warrants to purchase 68,000 shares of the Company’s common stock at exercise price of $0.75 per share, subject to the same adjustments and terms as those warrants issued to investors.  

During the year ended December 31, 2011, $75,000 of the principal of the Debentures was converted into 117,186 shares of the Company’s common stock.  As of June 30, 2012 and December 31, 2011, $775,000 in principal was outstanding under these Debentures.  Under the adjustment provisions of the Debentures and warrants, the conversion price of the Debentures and the exercise price of the warrants has been reduced to $0.40 in connection with various dilutive issuances made during March 2012 and May 2012.

The Debentures are due on September 30, 2012, or at the Company’s sole discretion, on March 31, 2013 (the “Maturity Date”) or such date as this Debenture is required or permitted to be repaid as provided in the agreement.  The Debentures are secured under the terms of a security agreement granting the holders of the Debentures a security interest in all of the Company’s personal property.  Each of the agreements governing the Debentures and warrants includes an anti-dilution provision that allows for the automatic reset of the conversion or exercise price upon any future sale of common stock instruments at or below the current conversion price or exercise price. The Company considered the current FASB guidance of “Determining Whether an Instrument Indexed to an Entity’s Own Stock” which indicates that any adjustment to the fixed amount (either conversion price or number of shares) of the instrument regardless of the probability or whether or not within the issuers’ control, means the instrument is not indexed to the issuers own stock. Accordingly, the Company determined that the conversion price of the Debentures and the exercise price of the warrants are not a fixed amount because they are subject to fluctuation based on the occurrence of future offerings or events.

As a result, the Company determined that the conversion features and the warrants are not considered indexed to the Company’s own stock and characterized the fair value of these warrants as derivative liabilities upon issuance.

The Company determined the aggregate fair value of the warrants issued to investors and its placement agent to be $511,399 and the initial fair value of the embedded beneficial conversion feature of the Debentures to be $504,440 (an aggregate amount of $1,015,839).  These amounts were determined by management with the use of an independent valuation specialist using a Monte Carlo simulation model using the Black-Scholes Merton option pricing model.  In accordance with current accounting guidelines, the excess of $165,839 of derivative liability created over the face amount of the Debentures was considered to be a cost of the private placement.  In addition, the Company also incurred another $193,500 of closing costs (consisting of $93,500 of placement agent fees and $100,000 of legal fees directly related to the offering).  As such, the Company recorded an $850,000 valuation discount upon issuance, and in 2010, recognized private placement costs of $358,339 for financial reporting purposes.  The aggregate fair value of the derivative liabilities as of June 30, 2012 and December 31, 2011 was $536,347 and $676,284, respectively. (See Note 6). As of June 30, 2012, the Company has amortized $754,986 of the valuation discount, and the remaining unamortized valuation discount of $95,014 as of June 30, 2012 has been offset against the face amount of the Debentures for financial statement purposes.

As of June 30, 2012, the total discount of $995,720 is offset against the balance of the notes and Debentures for financial statement presentation. During the six months ended June 30, 2012, amortization of loan discount was $804,539.

As of June 30, 2012, the Company has not paid $167,950 of the quarterly interest due on its convertible promissory notes in the following amounts:

Interest payments due on January 1, 2012	$	19,375
Interest payments due on April 1, 2012		73,538
Interest payments due on July 1, 2012		75,038

Pursuant to the terms of the notes, the non-payment of interest by the Company constitutes an event of default and, as a result, the holders of the notes may accelerate payment of all amounts outstanding under the notes by giving written notice to the Company and thereby requiring that the Company immediately pay up to an aggregate of $3,361,500 in principal plus all accrued and unpaid interest.  If the holders of the notes were to declare the notes due and payable, the Company presently does not have the ability to pay these notes.

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7. INCOME TAXES (Tables)

6 Months Ended

Jun. 30, 2012

Income Taxes Tables

INCOME TAXES

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

	June 30, 2012 (Unaudited)			December 31, 2011
Deferred income tax asset:
Net operating loss carryforward	$	9,700,000		$	8,000,000
Valuation allowance		(9,700,000	)		(8,000,000	)
Net deferred income tax asset	$	—		$	—

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

	June 30, 2012 (Unaudited)			December 31, 2011
Tax expense at the U.S. statutory income tax		(34.0	)%		(34.0	)%
State tax net of federal tax benefit		(5.8	)%		(5.8	)%
Increase in the valuation allowance		39.8	%		39.8	%
Effective tax rate		—	%		—	%

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1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Tables)

6 Months Ended

Jun. 30, 2012

Nature Of Business And Significant Accounting Policies Tables

Loss Per Share

The following table summarizes the weighted average shares and common stock equivalents outstanding as of June 30, 2012 and December 31, 2011:

	June 30, 2012		December 31, 2011
Weighted average shares outstanding		36,266,530		35,525,621
Common stock equivalents:
Options exercisable into common shares		—		1,416,695
Warrants exercisable into common shares		12,078,160		13,256,220
Notes payable convertible into common shares		6,814,583		3,900,758
Total, common stock equivalents		18,892,743		18,573,673

Financial Assets and Liabilities Measured at Fair Value

	Level 1		Level 2		Level 3		Total
Fair value of Derivative Liability	$	—	$	—	$	1,258,226	$	1,258,226

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9. RELATED PARTY TRANSACTIONS

6 Months Ended

Jun. 30, 2012

Related Party Transactions [Abstract]

RELATED PARTY TRANSACTIONS

During the six months ended June 30, 2012, the Company had no sales to related parties. As of June 30, 2012, the Company had accounts receivable of $198,067 from related parties which is fully reserved.

As of June 30, 2012 and December 31, 2011, the Company had trade accounts payable to related parties of $564,770 and $330,840, respectively.  The related parties are suppliers of the Company related by common ownership to the Company’s Chairman.

On December 14, 2010, the Company entered into a Distribution Agreement with SOL (the “Distribution Agreement”).  Under the Distribution Agreement, SOL has granted the Company the right to distribute lithium iron phosphate batteries and high voltage charging systems manufactured by Seven One Battery Company (the “Products”) on an exclusive basis in the United States.  The Company’s Chairman of the Board, Winston Chung, is the chief executive officer of SOL.  In January 2011, based on the terms of the Distribution Agreement, the Company received battery units valued at $2,629,800 on a consignment basis.  As of June 30, 2012 and December 31, 2011, the Company held battery units valued at $1,401,600 and $1,915,200 respectively held on a consignment basis, which amounts are not included in recorded inventories.

During the six month periods ended June 30, 2012 and December 31,2011, battery cost were $513,600 and $113,680, respectively.

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7. INCOME TAXES

6 Months Ended

Jun. 30, 2012

Income Tax Disclosure [Abstract]

INCOME TAXES

At June 30, 2012, the Company had available federal and state net operating loss carryforwards to reduce future taxable income. The amounts available were approximately $24,000,000 for federal and for state purposes. The Federal carryforward expires in 2028 and the state carryforward expires in 2018. Given the Company’s history of net operating losses, management has determined that it is more likely than not the Company will be able to realize the tax benefit of the carryforwards.

Accordingly, the Company has not recognized a deferred tax asset for this benefit. Upon the attainment of taxable income by the Company, management will assess the likelihood of realizing the tax benefit associated with the use of the carryforwards and will recognize a deferred tax asset at that time.  Current standards require that a valuation allowance be established when it is more likely than not that all or a portion of deferred tax assets will not be realized.

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

	June 30, 2012 (Unaudited)			December 31, 2011
Deferred income tax asset:
Net operating loss carryforward	$	9,700,000		$	8,000,000
Valuation allowance		(9,700,000	)		(8,000,000	)
Net deferred income tax asset	$	—		$	—

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

	June 30, 2012 (Unaudited)			December 31, 2011
Tax expense at the U.S. statutory income tax		(34.0	)%		(34.0	)%
State tax net of federal tax benefit		(5.8	)%		(5.8	)%
Increase in the valuation allowance		39.8	%		39.8	%
Effective tax rate		—	%		—	%

The Company adopted authoritative guidance which addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under the current accounting guidelines, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Current accounting guidelines also provide guidance on derecognition, classification, interest and penalties on income taxes, accounting in interim periods and require increased disclosures. At the date of adoption, and as of June 30, 2012 and December 31, 2011, the Company does not have a liability for unrecognized tax benefits.

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8. SHAREHOLDERS' EQUITY

6 Months Ended

Jun. 30, 2012

Equity [Abstract]

8. SHAREHOLDERS' EQUITY

Shares Issued Upon Exercise of Warrants

On March 31, 2012, the Company issued 1,250,000 shares of its common stock to SOL, an affiliate of the Company’s Chairman, in consideration of the exercise of warrants at an exercise price of $0.40 upon the conversion of $500,000 of an unsecured loan made by the Chairman to the Company during October 2011.

Stock Options

At June 30, 2012, options shares outstanding were as follows:	Shares			Weighted Average Exercise Price
Balance at January 1, 2012		1,416,695		$	2.50
Granted		—			—
Exercised		—			—
Expired		(1,416,695	)	$	2.50
Balance at June 30, 2012		—			—

Warrants

At June 30, 2012, warrants shares outstanding were as follows:	Shares			Weighted Average Exercise Price
Balance at January 1, 2012		13,256,220		$	0.82
Granted and Exchanged		9,127,500		$	0.40
Exercised		(1,250,000	)	$	0.40
Exchanged		(7,812,500	)	$	1.50
Expired		(1,243,060	)	$	0.74
Balance at June 30, 2012		12,078,160		$	0.54

During the three months ended March 31, 2012, the Company negotiated Amendment and Exchange Agreements with holders of $891,500 of the Company’s 10% Unsecured Convertible Notes that matured on March 31, 2012.  In connection with these Amendment and Exchange Agreements, the Company is issuing new warrants that will enable the warrant holders to purchase up to 975,000 shares of the Company’s common stock at an exercise price per share of $0.40. These warrants will have a contractual life of three years and expire on March 31, 2015.

Effective March 31, 2012, the Company’s Chairman exercised 1,250,000 underlying a warrant to purchase 7,812,500 shares held by Seven One Limited (“SOL”), a company related to the Chairman by common ownership. These warrants were previously exercisable at $0.64 per share, however, in consideration of the Chairman converting $500,000 of an outstanding unsecured loan into common stock, the Company agreed to re-price these warrants at an exercise price of $0.40.  The warrant representing the remaining shares will expire on the original expiration date of December 14, 2015. The total value of the adjustment of the exercise price of these warrants was $446,809 and was reflected as a cost to induce conversion during the six month period ended June 30, 2012.

On May 18, 2012, the Company entered into agreements with 3 accredited investors for a sale by the Company of an aggregate of $340,000 of the May 2012 Notes. In connection with these Notes, the Company is issuing new warrants that will enable the warrant holders to purchase up to 340,000 shares of the Company’s common stock at an exercise price per share of $0.40. These warrants will have a contractual life of three years and expire on March 31, 2015.

The following table summarizes information about stock warrants outstanding and exercisable as of June 30, 2012:

		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
$	0.40		7,877,500	$	0.40		2.8		7,877,500	$	0.40
$	0.50		1,782,660	$	0.50		0.2		1,782,660	$	0.50
$	0.40		868,000	$	0.40		3.2		868,000	$	0.40
$	0.64		1,500,000	$	0.64		3.5		1,500,000	$	0.64
$	1.00		50,000	$	1.00		1.3		50,000	$	1.00
			12,078,160						12,078,160

As of June 30, 2012, the aggregate intrinsic value of the warrants outstanding and exercisable was $262,365.

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10. INVENTORY HELD BY CUSTOMER

6 Months Ended

Jun. 30, 2012

Inventory Disclosure [Abstract]

INVENTORY HELD BY CUSTOMER

In November 2010, T&K Logistics, the provider of logistics services to Ford Motor Company and the manager of on-site transportation of trailers and containers at Ford Motor Company’s assembly plant in Wayne, Michigan, agreed to lease 10 of our Nautilus yard tractors for use at the assembly plant for a period of 36 months.  While we shipped five of our Nautilus XR E20s to T&K Logistics during the first six months of 2011, T&K Logistics has not accepted delivery of these units due to delays during the installation of charging systems into the tractors.  The Nautilus XR E20s that we shipped to T&K Logistics featured battery systems with double the battery energy and, therefore, double the range of our Nautilus XE20s.  Due to delays during the installation of charging systems into the tractors at T&K Logistics’ facility, we have delayed shipment of the remaining units to T&K Logistics until the tractors that have already been shipped are installed with charging systems and are accepted by T&K Logistics.  We will not begin to generate revenues under the leasing arrangement with T&K Logistics until T&K Logistics accepts the initially shipped.  As of the date of this report, all five units are operational and undergoing extended testing by the customer prior to final acceptance. We expect acceptance of the units during the fourth quarter of 2012, after which we will determine a revised shipment schedule for the remaining units. The cost of this inventory as of June 30, 2012 and December 31, 2011 is $739,000.

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8. SHAREHOLDERS EQUITY (Details 1) (USD $)	6 Months Ended			6 Months Ended
	Jun. 30, 2012	Jun. 30, 2012 WarrantMember	Dec. 31, 2011 WarrantMember	Jun. 30, 2012 WarrantMember
Class of Warrant or Right [Line Items]
Beginning Balance	1,416,695	12,078,160	13,256,220
Granted				9,127,500
Exercised				(1,250,000)
Exchanged				(7,812,500)
Expired	(1,416,695)			(1,243,060)
Ending Balance		12,078,160	13,256,220
Weighted Average Exercise Price
Beginning Balance	$ 2.5	$ 0.54	$ 0.82
Granted				$ 0.4
Exercised				$ 0.4
Exchanged				$ 1.5
Expired	$ 2.5			$ 0.74
Ending Balance		$ 0.54	$ 0.82

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5. CONVERTIBLE PROMISSORY NOTES (Tables)

6 Months Ended

Jun. 30, 2012

Convertible Promissory Notes Tables

CONVERTIBLE PROMISSORY NOTES

Convertible notes payable consist of the following as of June 30, 2012 and December 31, 2011:

	June 30, 2012 (Unaudited)			December 31, 2011
Subordinated unsecured convertible notes payable, interest at 10% per annum payable quarterly, due March 31, 2012, and currently in default (1)	$	25,000		$	916,500
Subordinated secured convertible notes payable, interest at 10% per annum payable quarterly, due March 31, 2013 (1)	$	891,500		$	—
Subordinated secured convertible notes payable, interest at 10% per annum payable quarterly, due March 31, 2013 (2)	$	340,000		$	—
Subordinated unsecured convertible notes payable, interest at 10% per annum payable quarterly, due September 1, 2012 (3)	$	1,330,000		$	1,330,000
Senior secured convertible notes payable, interest at 10% per annum payable quarterly, due March 31, 2013 (4)	$	775,000		$	775,000
Convertible notes payable		3,361,500			3,021,500
Less: note discount		(995,720	)		(724,840	)
Convertible notes payable, net of note discount	$	2,365,780		$	2,296,660
Less: current portion of subordinated unsecured notes		(2,365,780	)		(1,483,168	)
Convertible notes payable, net of note discount and current portion	$	—		$	813,492

CONVERTIBLE PROMISSORY NOTES DUE

As of June 30, 2012, the Company has not paid $167,950 of the quarterly interest due on its convertible promissory notes in the following amounts:

Interest payments due on January 1, 2012	$	19,375
Interest payments due on April 1, 2012		73,538
Interest payments due on July 1, 2012		75,038

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1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Details 1) (USD $)	Jun. 30, 2012
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value of Derivative Liability	$ 1,258,226
FairValueInputsLevel1Member
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value of Derivative Liability
FairValueInputsLevel2Member
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value of Derivative Liability
FairValueInputsLevel3Member
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value of Derivative Liability	$ 1,258,226

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6. DERIVATIVE LIABILITY (Details Narrative) (USD $)	6 Months Ended
	Jun. 30, 2012 Integer	Dec. 31, 2011
Notes to Financial Statements
Number of Securities offerings	2
Aggregate derivative liability	$ 1,258,226	$ 676,284
Change in fair value of the derivative liabilities	$ 384,337

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CONDENSED STATEMENT OF SHAREHOLDERS EQUITY (DEFICIENCY) (USD $)	Common Stock	Additional Paid-In Capital	Accumulated Deficit	Total
Beginning balance, Amount at Dec. 31, 2011	$ 35,641	$ 18,283,624	$ (22,395,105)	$ (4,075,840)
Beginning balance, Shares at Dec. 31, 2011	35,641,530
Costs to induce exercise of warrants		671,809		671,809
Common stock issued upon conversion of shareholder loan, Amount	1,250	498,750		500,000
Common stock issued upon conversion of shareholder loan, Shares	1,250,000
Fair value of warrants issued with convertible notes		109,140		109,140
Fair value of common stock transferred by shareholder to settle company debts		33,100		33,100
Net loss			(2,499,113)	(2,499,113)
Ending balance, Amount at Jun. 30, 2012	$ 36,891	$ 19,596,423	$ (24,894,218)	$ (5,260,904)
Ending balance, Shares at Jun. 30, 2012	36,891,530

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4. ADVANCES FROM SHAREHOLDERS

6 Months Ended

Jun. 30, 2012

Notes to Financial Statements

ADVANCES FROM SHAREHOLDERS

The amount of $5,018 of advances from shareholders was advanced to the Company by its President, Mr. Balwinder Samra, and is payable to Mr. Samra.  This amount due to Mr. Samra, a related party, is unsecured, non-interest bearing, and does not have defined terms of repayment.

As of December 31, 2011, Mr. Winston Chung, the Company’s Chairman of the Board, had advanced $500,000 to the Company.  The advance received were non-interest bearing, and with no other defined terms.  As of December 31, 2011, Mr. Chung also held warrants to acquire 7,812,500 shares of the Company’s common stock at an exercise price of $0.64 per share.  The Warrants were vested and have a 5-year term or an expiration date on December 30, 2015.  Effective March 31, 2012, the Company, Mr. Chung and by Seven One Limited (“SOL”), a company related to the Chairman by common ownership, entered into an agreement whereby the exercise price of certain warrants held by SOL were reduced to $0.40 per share.  SOL then elected to exercise warrants to acquire 1,250,000 shares of common stock at a price of $0.40 and the Company issued 1,250,000 shares of its common stock to SOL, in consideration of the exercise of warrants at an exercise price of $0.40 upon the conversion of $500,000 of the cancelation of the amount owed to Mr. Chung as an advance in 2011.  Due to the modification of the exercise price, the Company recognized a cost to induce conversion of $225,000 relating to the additional 468,750 shares that would have been issued under the original $0.64 per share conversion feature.

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2. PROPERTY AND EQUIPMENT (Details) (USD $)	Jun. 30, 2012	Dec. 31, 2011
Property And Equipment Details
Computer equipment and software	$ 121,680	$ 121,680
Office furniture	35,300	35,300
Equipment	35,941	35,941
Leasehold improvements	21,711	21,711
Total property and equipment, cost	214,632	214,632
Less: accumulated depreciation and amortization	(172,017)	(155,703)
Property and equipment, net	$ 42,615	$ 58,929

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3. LOAN PAYABLE - 3. BRIDGE BANK (Details Narrative) (USD $)			6 Months Ended
	Jun. 30, 2012	Dec. 31, 2011	Jun. 30, 2012 MaximumMember
Outstanding under the terms of the Credit Facility	$ 36,250	$ 233,231
Overdrawn Amount	8,157
Over-drawn amount paid	8,157
Amount available under the terms of credit facility		$ 66,601
Interest rate on credit facility			6.00%

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2. PROPERTY AND EQUIPMENT (Tables)

6 Months Ended

Jun. 30, 2012

Property And Equipment Tables

PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

	June 30 2012 (Unaudited)			December 31, 2011
Computer equipment and software	$	121,680		$	121,680
Office furniture		35,300			35,300
Equipment		35,941			35,941
Leasehold improvements		21,711			21,711
Total property and equipment, cost		214,632			214,632
Less: accumulated depreciation and amortization		(172,017	)		(155,703	)
Property and equipment, net	$	42,615		$	58,929