Taking the Back Door to Going Public

A young "green" truck company eschews both an IPO and venture-capital funding to keep control of its future by lining up private accredited investors.

A small company offering a promising new technology needs financing to jump-start the drive toward financial success. Should it seek venture-capital funds? Make an initial public offering?

Balqon Corp. (pronounced bal-con), which makes electric-powered trucks used to unload freight containers from ships, didn’t like either of those typical options. The company’s founder had previous experience with ceding control of a new venture to VC investors that soured him on the idea. And the cost of doing an IPO, which can amount to several million dollars in auditing and attorneys’ fees, was more than the small, young firm could handle.

The company did, though, go public last October. The less-common path used was a reverse merger, which involved purchasing an existing shell company that was already public, merging Balqon into the shell, and changing the combined company’s name to Balqon. That process cost about half a million dollars, Bob Miranda, Balqon’s finance chief, told CFO.com yesterday at the CFO Rising West conference in Las Vegas.

Since then, $3.2 million has been lined up from private accredited investors, while company management has retained control of more than 70% of the 25 million outstanding shares. A total of about 6 million shares have been registered for public trading on the OTC Bulletin Board.

Almost a third of the private investment — $1 million — consists essentially of loans to the company in exchange for future rights to convert the loans into stock. Thirty-four investors purchased unsecured subordinated notes convertible into an aggregate of 1 million shares of common stock at a conversion price of $1 per share. At press time, Balqon shares were trading at $1.95.

“Going public by working with private investors has allowed management to control the strategic direction of the company,” said Miranda. “We’re making use of that freedom in how we’re developing our business and our product lines.”

Balqon, with a market capitalization just under $50 million — including the management equity — has only recently begun to take in more than a trickle of revenue. Its top-line for the first half of 2008 was about $2.3 million, up from just $202,000 for the same period last year. The company is not yet profitable, losing $1.4 million in the first half, though that was down from a $5.3 million deficit in 2008.

Almost all of the revenue is coming from a contract to provide 25 electric-powered freight trucks to the Port of Los Angeles. So far 10 have been delivered, with price tags of about $200,000 each. That’s significantly more than comparably sized diesel-powered trucks cost, but Miranda said straight price comparisons miss a key point; that is, electric vehicles are powered by batteries that are continually recharged at a relatively low cost, while diesel trucks must be replenished with expensive fuel. Consider that since the useful life of diesel freight trucks runs about five years, by buying an electric truck the owner effectively is getting at least five years’ worth of fuel in the deal, contended Miranda.

The trucks bought by the Port of Los Angeles are being used as demonstration vehicles: shippers and truck lines doing business at the port can rent one of the trucks to test out its capabilities before deciding whether to make a purchase. All 10 of the trucks at the port are currently being used by potential customers. “Having these trucks operating and demonstrating that they work well, are fuel-efficient, and reduce emissions gives us the opportunity to convince fleet operators that they are a viable alternative to diesel trucks,” added Miranda.


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