ASSET PURCHASE AGREEMENT

EXHIBIT 10.18

ASSET PURCHASE AGREEMENT

providing for the purchase of certain assets of

ELECTRIC MOTORSPORTS, LLC,

an Ohio limited liability company,

and

Robert Gruenwald

(“Sellers”)

by

BALQON CORPORATION,

a California corporation

(“Buyer”)

ASSET PURCHASE AGREEMENT

          THIS ASSET PURCHASE AGREEMENT, dated as of September 9, 2008 (this “Agreement” ), is made between (i) BALQON CORPORATION, INC., a California corporation ( “Buyer” ), on the one hand, and (ii) ELECTRIC MOTORSPORTS, LLC, an Ohio limited liability company (“EMS”), and Robert Gruenwald, an individual and sole member of EMS (“Gruenwald” and, together with EMS, “Sellers” and each, a “Seller”). with reference to the following facts.

RECITALS

                  A. Sellers are engaged in the business of manufacturing and selling, electric vehicle components including motor controllers, chargers, converters, and motors worldwide (the “Business” ).

                  B. Gruenwald owns all of the issued and outstanding membership interests of EMS.

                  C. EMS and Gruenwald have designed an electronic controller for Balqon (the “Controller”).

                  D. Buyer desires to purchase from Sellers, and Sellers desire to sell to Buyer, substantially all of the assets of EMS and all of Gruenwald’s right, title and interest in any and all intellectual property relating to the Business on the terms and subject to the conditions set forth in this Agreement.

AGREEMENT

          The parties agree as follows:

ARTICLE 1. PURCHASE AND SALE OF ASSETS

            1.1 Agreement to Purchase and Sell Assets. On the terms and subject to the conditions of this Agreement, Buyer shall purchase and acquire from Sellers, and Sellers shall sell, convey, assign, transfer, and deliver to Buyer, (i) all of the assets and property of EMS, including but not limited to all of Intellectual Property Rights held by EMS as of the Closing (as defined in Section 2.1 below), except for the assets, if any, specifically described on the attached Exhibit 1.1 (the “Excluded Assets” ), and (ii) all of Gruenwald’s right, title and interest in all of any Intellectual Property Rights relating in any way whatsoever to the Business. As used herein, “ Intellectual Property Rights ” shall mean all (i) patents, patent applications, patent disclosures and inventions, (ii) trademarks, service marks, trade dress, trade names, logos and corporate names and registrations and applications for registration thereof together with all of the goodwill associated therewith, (iii) copyrights (registered and unregistered) and copyrightable works and registrations and applications for registration thereof, (iv) software, data, data bases and documentation thereof, (v) trade secrets and other confidential information (including, without limitation, ideas, formulas, compositions, inventions (whether patentable or unpatentable and whether or not reduced to practice), know-how, manufacturing and production processes and techniques, research and development information, drawings, specifications, designs, plans, proposals, technical data, financial and marketing plans, supplier lists and information [and customer lists and information], (vi) other intellectual property rights and (vii) copies and tangible embodiments thereof (in whatever form or medium). The assets and property to be purchased by Buyer (collectively, the “Purchased Assets” ) shall include, without limitation, the following:

Sellers shall transfer the Purchased Assets to Buyer free and clear of all claims, liens, mortgages, pledges, security interests, encumbrances, charges, obligations, assignments, leases, and any other restrictions of any kind (“ Encumbrances ”), except for restrictions solely arising from and relating to the Assumed Liabilities (defined below)

            1.2 Purchase Price. As consideration for the Purchased Assets and the other covenants (including the covenants not to compete) of Sellers in this Agreement (the “Purchase Price” ), Buyer shall pay to Sellers the sum of Three hundred and fifty thousand ($350,000) (the “Cash Purchase Price” ), of which $250,000 shall be paid at the Closing (defined below), and $100,000 (“Holdback”) subject to any adjustments as provided herein, paid in form of promissory note to be delivered at the Closing and payable within six months following the date of the Closing (the “Closing Date”) with interest on the unpaid principal balance from the Closing Date, until paid, at the Prime Rate published by the Wall Street Journal .

            1.3 Assumed Liabilities. At the Closing, in addition to Buyer’s obligations under Section 1.2 above, Buyer shall assume and agree to pay, perform, and discharge, when due, only the following liabilities and obligations of Seller (collectively, the “Assumed Liabilities” ):

Except for the Assumed Liabilities, Buyer shall not assume or be obligated to pay, perform, or discharge any liability, obligation, debt, charge, or expense of either of the Sellers of any kind, description, or character, whether accrued, absolute, contingent, or otherwise, or whether or not disclosed to Buyer in this Agreement, the Disclosure Schedule (defined below), or otherwise (collectively, the “Excluded Liabilities” ). Without limiting the generality of the foregoing, and notwithstanding anything to the contrary contained in this Agreement, except for the Assumed Liabilities, Buyer shall not assume or be obligated to pay, perform, or discharge any liability, obligation, debt, charge, or expense of either of the Sellers even if imposed upon Buyer as a successor to EMS, with respect to any action, suit, proceeding, or claim arising out of or relating to any event occurring, or with respect to any cause of action arising, before or after the Closing Date, whether or not asserted before or after the Closing Date, including but not limited to any liability, obligation, debt, charge, or expense related to taxes, environmental matters, agreements with sales representatives, employee benefits, obligations or policies, judgments, product warranty claims, product liability claims, and contractual claims.   Buyer shall likewise not assume or be obligated to pay, perform, or discharge any liability, obligation, debt, charge, or expense of Gruenwald.

            1.4 Limited License. Notwithstanding the transfer of the Intellectual Property noted herein, Buyer grants to Sellers a limited license to use the Intellectual Property, for a period not to exceed six (6) months after the Closing Date and subject to the revocation of such license for any reason in the sole discretion of the Buyer, for the limited purpose of completing all orders and contracts entered into prior to the Closing Date and listed on Exhibit 1.4.

            1.5 Allocation of Purchase Price. The Purchase Price and the Assumed Liabilities (to the extent the assumption thereof would be considered an amount realized for tax purposes) shall be allocated among the Purchased Assets and Seller’s other covenants set forth in this Agreement, as set forth on attached Exhibit 1.5 (which Exhibit 1.5 shall be mutually agreed upon prior to Closing). The allocation set forth on Exhibit 1.5 shall be conclusive and binding on Buyer, EMS, and Gruenwald for all purposes, including, but not limited to, reporting and disclosure requirements under the Internal Revenue Code of 1986, as amended (the “ Code ”), and any other state, local, or foreign tax authority.

ARTICLE 2. CLOSING

            2.1 Place and Date of Closing. The purchase and sale contemplated by this Agreement (the “Closing” ) shall take place, on or before September 1, 2008, or at any other place, time, and date mutually agreed upon by Buyer and Sellers. The Closing shall be deemed to be effective upon the close of business on the Closing Date.

            2.2 Deliveries at Closing.

ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF SELLERS

     EMS and Gruenwald, jointly and severally, represent and warrant to Buyer as follows:

     3.1 Disclosure Schedule. Attached to this Agreement are numbered schedules (collectively, the “Disclosure Schedule” ) corresponding to the sections and subsections of this Article. Each individual schedule in the Disclosure Schedule contains exceptions to the specifically identified section and subsection contained in this Article and sets forth each exception in reasonable detail, with attached documentation as necessary to reasonably explain the exception. Any exception to the representations and warranties contained in a section or subsection of this Article is described in a separate schedule of the Disclosure Schedule that specifically identifies the applicable section or subsection of this Article. The Disclosure Schedule is complete and accurate in all respects. Sellers have provided Buyer with true and complete copies of all documents referenced in the Disclosure Schedule. Sellers are responsible for including all schedules of the Disclosure Schedule.

     3.2 Seller’s Organization and Good Standing. EMS is a limited liability company duly organized, validly existing, and in good standing under the laws of the State of Ohio. Except as set forth on Schedule 3.2 of the Disclosure Schedule, neither the character of the properties owned, leased, or used by Seller, nor the nature of the business transacted by Seller on or before the Closing Date, require the licensing or qualification of Seller in any other jurisdiction. Gruenwald owns one hundred percent (100%) of the issued and outstanding membership interests of EMS, free and clear of any and all liens, claims, encumbrances, or rights of third parties whatsoever. EMS has no membership interests, economic interests or other securities other than those owned by Gruenwald, and there are no outstanding subscriptions, options, rights, warrants, calls, or other agreements or commitments obligating EMS or Gruenwald to sell or issue any membership or other equity interests or other securities of EMS or any securities convertible into any membership or other equity interests of EMS, nor are there any voting trusts or any other agreements or understandings with respect to the voting of such membership or other equity interests of EMS or securities of EMS held by Gruenwald or anyone else.

     3.3 Enforceability. EMS and Gruenwald, respectively, have full capacity, power, and authority to enter into this Agreement and to carry out the transactions contemplated by this Agreement, and this Agreement is binding upon EMS and Gruenwald and is enforceable against EMS and Gruenwald in accordance with the terms of this Agreement.

     3.4 No Conflict with Other Instruments or Proceedings. The execution and delivery of this Agreement and the consummation of the transactions contemplated by this Agreement will not (a) result in the breach of any of the terms or conditions of, or constitute a default under, the articles of organization or operating agreement or any charter document, contract, agreement, lease, commitment, indenture, mortgage, pledge, note, bond, license, or other instrument or obligation to which EMS or Gruenwald is now a party or by which EMS or Gruenwald or any of the properties or assets of EMS or Gruenwald may be bound or affected; (b) violate any law, rule, or regulation of any administrative agency or governmental body or any order, writ, injunction, or decree of any court, administrative agency, or governmental body; (c) result in the imposition of any lien or encumbrance on any of the Purchased Assets; (d) give rise to any right of first refusal or similar right to any third party with respect to any interest in any of the Purchased Assets; All consents, approvals, or authorizations of, or declarations, filings, or registrations with, any third parties or governmental or regulatory authorities required under any document or instrument listed in clause (a) in the immediately preceding sentence in connection with the execution, delivery, and performance of this Agreement and the consummation of the transactions contemplated by this Agreement have been obtained or made.

     3.5 Compliance with Laws and Other Regulations. Except as set forth on Schedule 3.5, neither of the Sellers are subject to, nor have either of the Sellers been threatened with, any fine, penalty, liability, or disability as the result of a failure to comply with any requirement of federal, state, local, or foreign law, rule, or regulation (including those relating to the environment, employment of labor, or occupational health and safety) or any requirement of any governmental body or agency having jurisdiction over either of the Sellers, the conduct of the Business, the use of assets of EMS or properties or any premises occupied by EMS. EMS is in compliance in all material respects with all of those laws, rules, regulations, and other requirements. There are no outstanding work orders relating to the Purchased Assets from or required by any police or fire department, sanitation, health, or factory authorities or from any federal, state, local, or foreign authority or any matters under discussion with any of those departments or authorities relating to work orders.

     3.6 Financial Statements. Seller’s financial statements as of and for the years ended December 31, 2007 and December 31, 2006, and the internal financial statements for the six (6) months ended June 30, 2008 (the “ Financial Statements ”), have previously been provided to Buyer and are attached as Schedule 3.6 of the Disclosure Schedule. The Financial Statements, including the notes to the Financial Statements, if any, are true, correct, and complete in all material respects, are in accordance with books and records of EMS, accurately and fairly reflect EMS’s transactions, assets, and liabilities, and present fairly the financial position and condition of EMS as of the respective dates indicated and the results of operations and changes in cash flows for the respective periods then ended, except as otherwise indicated on Schedule 3.6 of the Disclosure Schedule.   In this Agreement, the balance sheet of EMS as of June 30th, 2008, is referred to as the “Balance Sheet,” and June 30th, 2008, is referred to as the “Balance Sheet Date.”

     3.7 Absence of Undisclosed Liabilities. Except for liabilities expressly reserved on the Balance Sheet or disclosed on Schedule 3.7 , EMS does not have any debts, liabilities, or obligations of any nature, whether accrued, absolute, contingent, or otherwise, and whether due or to become due, including, guarantees, liabilities, or obligations on account of taxes, other governmental charges, duties, penalties, interest, or fines, and, there is no basis for the assertion against EMS of any debt, liability, or obligation.

     3.8 Absence of Certain Changes or Events. From January 1, 2008, up to and including the present date (the “Interim Period” ), EMS has conducted the Business in the ordinary and usual course and has maintained the records and books of account relating to the Business in a manner that fairly and accurately reflects the transactions, assets, and liabilities of EMS, except as set forth in Schedule 3.8 and, during the Interim Period, there has been no material adverse change in the condition of the Business, financial or otherwise, or in any of the Purchased Assets except as disclosed on Schedule 3.8. In particular, and without limiting the foregoing, during the Interim Period, Seller has not with respect to the Business: (a) subjected any of the Purchased Assets to any claim, lien, mortgage, security interest, encumbrance, charge, or other restriction; (b) sold, transferred, or otherwise disposed of any of the Purchased Assets except in the ordinary and usual course of business; (c) disposed of or permitted a lapse of any license, permit, patent, trademark, trade name, or copyright; (d) disposed of, licensed or disclosed to any person any trade secret, formula, process, or know-how; (e) purchased or placed a purchase order for inventory, supplies, or any other items, or entered into any other agreement or transaction other than in the ordinary and usual course of business; (f) suffered any material loss of or damage to physical property or other assets, whether or not covered by insurance; (g) paid or incurred any obligation to make any distributions with respect to any membership interests of EMS; or (h) violated any federal, state, local, or foreign law, statute, ordinance, regulation, or order.

     3.9 Customers and Suppliers. During the Interim Period, there has not been any material adverse change in any business relationship EMS has with any of the ten (10) largest customers of the Business or the ten (10) largest suppliers of the Business nor could EMS or Gruenwald reasonably anticipate an adverse change as a result of the transactions contemplated by this Agreement. Schedule 3.9 of the Disclosure Schedule sets forth: (i) the names of the ten (10) largest customers of the Business and the ten (10) largest suppliers of the Business, along with aggregate amount of sales or purchases with each such customer or supplier for the twelve (12) months ending June 30, 2008; (ii) the aggregate dollar value of all accepted and unfilled orders for the sale of products by EMS with respect to the Business (including all agreements with respect to presold inventory); and (iii) all contracts and commitments for the purchase of products and supplies by EMS with respect to the Business. Except as disclosed on Schedule 3.9, there are no claims against EMS or Gruenwald with respect to the Business, or notices of any returns of merchandise, by reason of alleged overshipments, defective merchandise, or otherwise.

     3.10 Taxes. Schedule 3.10 of the Disclosure Schedule contains a list of states, territories, and jurisdictions to which any Tax has been claimed to be, or is, properly payable by EMS. For purposes of this Agreement, “Tax” means (a) any net income, alternative or add-on minimum tax, gross income, gross receipts, sales, use, ad valorem, value added, transfer, franchise, profits, license, withholding, payroll, employment, excise, severance, stamp, occupation, premium, property, environmental or windfall profits tax, custom, duty or other tax, governmental fee or other like assessment or charge of any kind whatsoever, together with any interest or penalty, addition to tax or additional amount, imposed by any governmental authority responsible for the imposition of any tax (domestic or foreign), (b) liability of EMS for the payment of any amounts of the type described in clause (a) as a result of EMS being a member of an affiliated, consolidated, combined or unitary group or being a party to any agreement or arrangement whereby liability of EMS for payment of those amounts was determined or taken into account with reference to the liability of any other person for any period, and (c) liability of EMS with respect to the payment of any amounts of the type described in clauses (a) or (b) as a result of any express or implied obligation to indemnify any other person. Sellers have filed all federal, state, local, and foreign Tax returns that Sellers have been or are required by law to file and those returns are complete, accurate, and correct in all respects. Sellers have paid all Taxes and assessments due and payable by Sellers. Sellers have withheld and paid over all federal, state, local, and foreign withholdings required by law. All current and deferred Tax liabilities of EMS as of the Balance Sheet Date have been set forth in the Balance Sheet. EMS has not signed any extension with any taxing authority concerning any Tax liability and no disputed Tax matters exist for any prior periods. EMS has not received notice of the existence of any fact that would constitute grounds for the assessment of any further Tax with respect to any periods that have not been audited by the Internal Revenue Service or any state, local, or foreign Tax authority, and neither Seller has knowledge of the existence of any such fact.

     3.11 Intellectual Property. Schedule 3.11 of the Disclosure Schedule specifically describes all intellectual property owned or used by EMS. Sellers own the entire right, title, and interest in and to the Intellectual Property, including but not limited to the Controller, free and clear of all claims, liens, licenses, sublicenses, charges, or encumbrances. The Intellectual Property constitutes all of the intellectual property used by EMS in the Business and all of the intellectual property necessary for the operation of the Business. To the knowledge of the Sellers, there is no infringement or unlawful use by any person or entity of any Intellectual Property. To the knowledge of Sellers, EMS has not infringed or unlawfully used the patents, service marks, trade names, trademarks, logos, copyrights, or other proprietary rights of any other person or entity. EMS has proprietary rights in the trade name, trademark, and service mark in that EMS has registered the name “ELECTRIC MOTORSPORTS, LLC” with the Ohio Secretary of State and has made no other action other than the conduct of its business to protect such marks (and all variations of that name), however, any rights accruing to EMS due to its actions remain part of this agreement. None of the Intellectual Property is subject to any pending nor, to the knowledge of either Seller, any threatened claim or challenge, and, to the knowledge of either Seller, there is no valid basis for asserting any claim or challenge. EMS does not require any license or other proprietary right to operate the Business or to man