As
filed with the Securities and Exchange Commission on March ___, 2011
Registration
Statement No. 333-171163
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
Amendment No. 2
to
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
T3 MOTION, INC.
(Name of Registrant in Its Charter)
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Delaware
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3690
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20-4987549 |
(State or other jurisdiction of
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(Primary Standard Industrial
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(I.R.S. Employer |
incorporation or organization)
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Classification Code Number)
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Identification No.) |
T3 Motion, Inc.
2990 Airway Avenue, Building A
Costa Mesa, CA 92626
(714) 619-3600
(Address and telephone number of principal executive offices and principal place of business)
Ki Nam,
Chief Executive Officer
T3 Motion, Inc.
2990 Airway Avenue, Building A
Costa Mesa, CA 92626
(714) 619-3600
(Name, address and telephone number of Agent for Service)
Copy to:
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Kevin K. Leung, Esq.
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Joseph Smith |
Ryan S. Hong, Esq.
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Robert Charron |
LKP Global Law, LLP
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Weinstein Smith LLP |
1901 Avenue of the Stars, Suite 480
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420 Lexington Avenue, Suite 2620 |
Los Angeles, California 90067
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New York, NY 10170 |
Tel (424) 239-1890
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Tel: (212) 616-3007 |
Fax (424) 239-1882
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Fax: (212) 401-4741 |
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Approximate
date of commencement of proposed sale to the public: As soon as practical after the effective
date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. þ
If this form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement for the same
offering. o
If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities
Act, check the following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities
Act, check the following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. 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):
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company þ |
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(Do not check if a smaller reporting company) |
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CALCULATION OF REGISTRATION FEE
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Proposed Maximum |
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Proposed Maximum |
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Amount of |
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Title of Each Class of |
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Amount to be |
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Offering |
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Aggregate |
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Registration |
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Securities to be Registered |
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Registered |
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Price per Share |
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Offering Price(1) |
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Fee |
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Units, each consisting of one share of Common Stock, $0.001 par
value, and one Class H Warrant and one Class I Warrant (2) |
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2,875,000 |
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$3.50 |
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$10,062,500 |
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$1,168.26(3) |
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Shares
of Common Stock included as part of the Units |
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2,875,000 |
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(4) |
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Class H Warrants included as part of the Units (5) |
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2,875,000 |
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(4) |
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Class I Warrants included as part of the Units (5) |
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2,875,000 |
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(4) |
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Shares of Common Stock underlying the Class H Warrants included in
the Units (5) |
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2,875,000 |
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$3.00 |
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$8,625,000 |
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$1,001.36 |
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Shares of Common Stock underlying the Class I Warrants included in
the Units (5) |
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2,875,000 |
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$5.25 |
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$15,093,750 |
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$1,752.38 |
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Representatives
Unit Purchase Option |
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1 |
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$3.50 |
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$100.00 |
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$0.02 |
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Units underlying the Representatives Unit Purchase Option
(Underwriters Units) |
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125,000 |
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$3.85 |
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$481,250 |
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$55.87 |
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Shares of Common Stock included as part of the Underwriters Units |
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125,000 |
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(4) |
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Class H Warrants included as part of the Underwriters Units (5) |
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125,000 |
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(4) |
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Shares of Common Stock underlying the Class H Warrants included in
the Underwriters Units (5) |
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125,000 |
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$3.00 |
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$375,000 |
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$43.54 |
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Class I Warrants included as part of the Underwriters Units (5) |
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125,000 |
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(4) |
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Shares of Common Stock underlying the Class I Warrants included in
the Underwriters Units (5) |
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125,000 |
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$5.25 |
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$656,250 |
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$76.19 |
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Total
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$35,293,850 |
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$4,097.62(3) |
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(1) |
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Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended (the Securities Act). |
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(2) |
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Includes 375,000
Units which may be issued pursuant to the exercise of a 45-day option granted by the registrant to the underwriters to cover over-allotments, if any. |
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(3) |
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The Registrant previously paid $427 of this fee for the first
$6.0 million of Units with the initial filing of this Registration
Statement in December 2010 and paid $371.52 with the filing of
Amendment No. 1 to this Registration Statement in January 2011. The
Registrant is submitting $3,299.10 with this filing. |
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(4) |
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No separate registration fee required pursuant to Rule 457(g) under the Securities Act. |
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(5) |
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Pursuant to Rule 416 under the Securities Act, this registration statement shall be deemed to cover such additional securities
as may be issued to prevent dilution resulting from stock splits, stock dividends or similar transactions as a result
of the anti-dilution provisions contained in the Class H warrants and Class I warrants (i) to be offered or issued in
connection with any provision of any securities purported to be registered hereby to be offered pursuant to terms which provide for a change in the amount of securities
being offered or issued to prevent dilution resulting from stock splits, stock dividends, or similar transactions and (ii) of the same class as the securities covered by
this registration statement issued or issuable prior to completion of the distribution of the securities covered by this registration statement as a result of a split of,
or a stock dividend on, the registered securities. |
The Registrant hereby amends this Registration Statement on such date or dates as may be
necessary to delay its effective date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting pursuant to Section 8(a),
may determine.
THIS INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE
SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT
TO COMPLETION, DATED March ___, 2011
PRELIMINARY PROSPECTUS
T3 Motion, Inc.
2,500,000 Units
We
are offering 2,500,000 units of our securities, each unit consisting of one share
of our common stock, one Class H warrant and one Class I warrant. Each Class H warrant entitles
the holder to purchase one share of our common stock at an exercise
price of $3.00, and will expire on
[NINE MONTH ANNIVERSARY OF THE PROSPECTUS]. The Class H warrants cannot be exercised until three
months after issuance. Each Class I warrant entitles the holder to purchase one share of our
common stock at an exercise price of $5.25, and will expire on [FIVE-YEAR ANNIVERSARY OF THE PROSPECTUS]. The
Class I warrants cannot be exercised until three months after issuance.
The initial public offering price for the units offered hereby is estimated to be between $3.00
and $4.00 per unit. Concurrently with the pricing of
this offering, we will effect a one-for-10
reverse stock split. The assumed public offering price per unit, assuming a mid point price, is $3.50. After the
completion of
reverse stock split and this offering,
the market price of our common stock may be different from its current price.
The shares of common stock and warrants will trade only as a part of a unit for three months
following the closing of this offering unless earlier separate trading is authorized by the
representative of the underwriters. If the representative authorizes
earlier trading, we will issue a press release announcing the date that
separate trading will begin. We may redeem the Class H warrants at our sole election, in whole and
not in part, if, and only if, the reported last sale price of the common stock equals or exceeds
$____ per share for any 20 consecutive trading days within a 30 trading day period ending on the
third business day prior to the 30-day notice of redemption to warrant holders at a price of $0.01
per warrant, but only after the Class H Warrants have been separated from the units. The Class I
warrants are not redeemable.
Our
common stock is quoted on the OTC Bulletin Board under the symbol TMMM. The last sale price of our
common stock on March ____, 2011 was $___ per share (assuming a one-for-10 reverse stock split). We have applied to have the common stock,
units, Class H warrants and Class I warrants listed on the NYSE Amex under the symbols
TTTM,TTTM.U,TTTM.Z and
TTTM.W
on or promptly after the date of this prospectus.
Our common stock and warrants are more fully described in the section of this prospectus
titled Description of Securities.
There
is presently no public market for our units, the Class H warrants
or the Class I warrants, and we do
not expect there to be any active market for any of such securities.
Certain
of our existing stockholders, including each of our directors and
officers and certain
holders of more than 5% of the outstanding shares of our common stock, have entered into customary
lock-up agreements in favor of the
representative of the underwriters pursuant to which such parties have agreed not to sell any
shares of our common stock for six months after the primary offering is completed.
We will bear the expenses of registration and all selling and other expenses, including all
underwriting discounts or commissions, incurred in connection with this offering.
THESE ARE SPECULATIVE SECURITIES. INVESTMENT IN OUR SECURITIES INVOLVES A HIGH DEGREE OF
RISK. YOU SHOULD PURCHASE THESE SECURITIES ONLY IF YOU CAN AFFORD A COMPLETE LOSS OF YOUR
INVESTMENT. SEE RISK FACTORS BEGINNING AT PAGE 10.
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or passed upon the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal offense.
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Underwriting Discounts |
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Proceeds to |
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Price to Public |
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and Commissions (1) |
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T3 Motion, Inc. |
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Per Unit |
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Total |
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(1) |
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This amount does not include (a) a non-accountable expense allowance in the amount of 2.5% of
the gross proceeds of this offering, or
$____ ($____ per unit) payable to the underwriters or (b) accountable expenses of up to $150,000 to reimburse the underwriters for their legal fees and road show expenses.
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Delivery of the units will be made on or about , 2011. We have granted the underwriters a
45-day option to purchase up to 375,000 additional units at the public offering price per unit solely to cover over-allotments, if any.
In
connection with this offering, we have also agreed to sell to the
underwriters a unit purchase option to
purchase up to an additional
____ units, equal to
5.0% of the units sold in this offering excluding over-allotment units,
at an aggregate purchase price of
$100. If the underwriters exercise this unit purchase option, each unit
may be purchased for $____ per unit
(110.0% of the public offering price of the units sold in the
offering).
CHARDAN CAPITAL MARKETS, LLC
The date of this prospectus is , 2011
T3 MOTION
T3 Series electric VEHICLE |
Table of Contents
The following table of contents has been designed to help you find important information
contained in this prospectus. We encourage you to read the entire prospectus carefully.
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10 |
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76 |
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77 |
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F-1 |
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EX-23.1 |
You should rely only on the information contained in this prospectus to make your investment
decision. We have not authorized anyone to provide you with
information different from or in addition to that contained in this
prospectus. This prospectus
may be used only where it is legal to sell these securities. You should not assume that the
information in this prospectus is accurate as of any date other than the date on the front page of
this prospectus. The information contained in this document is
accurate only as of the date of
this document.
Neither
we nor the underwriters have done anything that would permit this
offering or the possession or distribution of this prospectus in any
jurisdiction where action for that purpose is required, other than in
the United States. Persons outside the United States who come into
possession of this prospectus must inform themselves about, and
observe any restrictions relating to, the offering of the securities
and the distribution of this prospectus outside the United States.
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PROSPECTUS SUMMARY
The
following is only a summary. You should read the entire prospectus carefully, including the
section entitled Risk Factors and our consolidated financial
statements and the related notes before investing in any of our
securities. In this
prospectus, unless the context otherwise indicates, the use of the terms
T3 Motion, the Company,
we, us and our collectively refers
to T3 Motion, Inc. and its wholly-owned subsidiary, T3 Motion, Ltd. In
addition, T3®, and T3
Motion® are U.S. registered trademarks of T3 Motion. Other service marks, trademarks and
trade names referred to in this prospectus are the property of their respective owners.
Reverse Stock Split and AMEX Listing
Prior
to the closing of this offering, we plan to complete a one-for-10
reverse stock split of our common stock, (the
reverse stock split), which is intended to allow us to meet the minimum share price
requirement of the NYSE Amex, LLC, (the AMEX). Although
we have applied to list our common stock, units and Class H
and Class I warrants on AMEX, such listing will be conditioned upon,
among other things, completion of the
reverse stock split and the approval of AMEX.
We
received stockholder approval at our 2010 annual meeting of stockholders held on June 30, 2010
authorizing our board of directors to effect the reverse stock split so long as it was related to our
AMEX application.
Except
where otherwise indicated
and except in our consolidated financial statements, all information regarding share amounts
of common stock
and
prices
per share of common stock
assume the consummation of the one-for-10 reverse stock split to be effected prior to the closing of this offering.
Our Company
T3 Motion designs, manufactures and markets personal mobility vehicles powered by electric
motors. Our initial product is the T3 Series, which is a three wheel, electric stand-up vehicle
(ESV) powered by a quiet, zero-gas emission electric motor that is designed specifically for
public and private security personnel. Substantially all of our revenues to date have been derived
from sales and maintenance of the T3 Series ESVs and related accessories.
The T3 Series has received recognition for its iconic design, including the Innovation
Award for Best Vehicle at the 2007 International Association of Chiefs of Police (IACP)
Convention and the Spark Award in the Vehicle Mobility category at the 2007 International Spark
Design Awards. The T3 Series has been featured on television and print media being deployed by professionals in law enforcement and
the private security industry due to its innovative design and convenient access. The elevated
nine inch raised platform provides the officer with a command presence, allowing
the public to be aware of the officers presence, while providing the officer with a better vantage
point to evaluate any situation. By using a T3 Series ESV, an officer can effectively patrol a
larger area than on foot or riding a bicycle, and enables the officer to safely and quickly
maneuver in crowded pedestrian areas or other areas where cars and other standard modes of
transportation cannot access easily, if at all. The T3 Series also improves the officers approachability with the
public as a result of its design and open platform that allow the officer to interact
with pedestrians more easily than by patrolling by automobile,
motorcycle, or horseback.
We were incorporated in Delaware in 2006 and introduced our first T3 Series vehicles in early
2007. We currently sell our products in the U.S. directly and through distributors, and also
market our T3i Series ESV (the international version of our T3 Series) in the Middle East, Mexico, Canada,
Asia, South Africa, South America and Europe. Our net revenues for the years ended December 31, 2010, 2009, 2008 and 2007 were approximately $4.7 million, $4.6
million, $7.6 million and $1.8 million, respectively, and our net losses for the same periods were
approximately $(8.3 million), $(6.7 million), $(12.3 million) and $(8.6 million), respectively.
Our accumulated deficit as of December 31, 2010, 2009 and 2008 was approximately
$(45.1 million), $(33.1 million) and $(24.4 million), respectively. At December 31,
2010, the
Company had a working capital deficit of $(15.1 million) and a
cash and cash equivalents balance (including restricted cash) of $133,861. The report
of the Companys independent registered public accounting firm that accompanies the Companys audited consolidated financial statements
for the years ended December 31, 2010 and 2009 contains a going concern qualification in
which the independent registered public accounting firm expressed substantial doubt about the Companys ability to continue as a going
concern. Management believes that its cash from operations, together with the net proceeds of this
offering, should be sufficient to allow
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the Company to continue as a going concern through at least December 31, 2011; however,
the Company cannot assure you of this and may require additional
debt or equity financing in the future to maintain operations.
The
Company also anticipates that it will pursue raising additional debt or equity financing to fund its new
product development and expansion plans. We cannot assure you that such financing will be
available on a timely basis, on acceptable terms or at all.
Our Products and Services
T3 Series ESV
The T3 Series is a three-wheel, front wheel drive, stand-up, electric personal mobility
vehicle with a zero-gas emission electric motor. The T3 Series has hydraulic disk brakes on both
rear wheels that are matched with 17-inch low profile motorcycle tires for long tread wear and
demanding performance. The vehicle is equipped with an LCD control panel display and utilizes high
intensity LED lighting for its vertically adjustable headlights and taillights. It also features
emergency lights, as well as a siren on the law enforcement model. The T3 Series enables the
operator to respond rapidly to calls with low physical exertion. The
nine-inch elevated riding platform
allows 360 degrees visibility, while the ergonomic riding position reduces fatigue. The T3 Series
zero degree turning radius makes it highly maneuverable. The T3 Series comes standard with a
lockable storage compartment for equipment and supplies.
The T3 Series has replaceable power modules that allow continuous vehicle operation without
downtime required for recharging. The T3 Series also offers a variety of battery technology options in
its power modules. The power modules and charger can be sold separately from the vehicle to serve
as replacement parts.
T3i Series ESV
We leveraged the modularity of the T3 Series vehicle to enter the international market with
the T3i Series, which is a version of the professional T3 Series designed to comply with various
international compliance standards. The T3i Series features integrated LED headlights, brake
lights, running lights, and emergency lights.
CT Series Micro Car
The CT Series Micro Car is a
low speed four-wheel electric car. The CT Series offers a variety of
battery technology options with varying range options. The CT Series
has lighting, siren and PA system options and is
manufactured by CT&T Co., Ltd., a Korean electric vehicle
manufacturer (CT&T). The CT Series is considered both a low
speed vehicle and a neighborhood electric
vehicle. Pursuant to our distribution agreement with CT&T, dated
November 24, 2008, we have the exclusive license to market and
sell the CT Series Micro Car in
North America for all law enforcement, government and military markets and in all of the United
States for government, law enforcement and security markets. The initial term of the distribution
agreement expires in November 2011, but this agreement automatically renews for additional one-year periods
unless it is terminated by either party by providing written notice to the other party at least 90
days prior to the end of any term.
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We plan to leverage the branding of the T3 Series to market the
CT Series Micro Car using our existing sales channels in the law enforcement and private security
sectors.
Electric/Hybrid Vehicle
The
Electric/Hybrid Vehicle is our newest product that is currently in
development. The Electric/Hybrid
Vehicle is a plug-in hybrid vehicle that is expected to be introduced in late 2011. The
proprietary rear-wheel design features a patent-pending, single wide stance wheel with two high
performance rear tires sharing the one rear wheel. Due to its three-wheel design, the Electric/Hybrid Vehicle
is classified as a motorcycle.
Growth Strategies
Our mission is to become the leader in clean energy, personal, professional mobility electric
stand-up vehicles, and to provide products that are economical, functional, safe,
dependable and meet the needs of the professional end user. We plan to pursue the following growth
strategies in pursuit of our mission:
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Capitalize on broader private security opportunities. Our initial focus on the law
enforcement market has increased the demand for the T3 Series and T3i
Series ESV from other security markets,
which may hold equal, if not greater, potential for our products. We plan to focus our marketing
efforts to pursue the sale of our products into private security markets, which could include
corporate campuses, manufacturing facilities, government facilities,
military bases, shopping malls, airports and events/promotions. |
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Increase our branding in law enforcement. We intend to continue to build on our
reputation within the law enforcement community and plan to pursue additional branding activities
in this regard. We believe that maintaining a strong brand within the law enforcement community
will facilitate our expansion into other private security markets. |
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Pursue international expansion. We believe the international markets represent a
significant opportunity to expand our current sales. We plan to continue to expand our presence in
our existing international markets, and to pursue adding new distributors to increase our sales in
Asia and Europe. |
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Expand the T3 Series product line to address broader markets. We believe the
modularity of our sub-systems may be used to configure additional vehicles that address the
personal transportation and personal mobility requirements in existing and new markets. We plan to
evaluate the expansion of our product line to leverage our technologies for additional commercial
markets such as for delivery services, property management, utility and maintenance providers, in
addition to any other private venue requiring security. |
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Leverage our brand into the consumer market. As we gain additional brand name
recognition, we plan to leverage our brand to enter the consumer market for personal
transportation. We are currently working on the development of the Electric/Hybrid Vehicle to address
the consumer markets. We plan to evaluate the expansion of our product line for other consumer
applications. |
Risks
Related to Purchasing Our Securities
The securities offered hereby involve a high degree of risk. See Risk Factors beginning on
page 10 and the other information included in this prospectus for a discussion of the factors you
should carefully consider before deciding to purchase any of our securities.
Corporate Information
Our
corporate offices are located at 2990 Airway Avenue, Building A, Costa Mesa, California 92626
and our telephone number is (714) 619-3600. Our website is www.T3motion.com. You should not
consider the information contained on, or accessible through, our website to be part of this
prospectus or in deciding whether to purchase our securities.
4
THE OFFERING
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Securities offered
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2,500,000 units at the assumed
public offering price of $3.50 per unit (plus an additional 375,000 units if
the underwriters exercise their over-allotment option). Each unit consists of the following:
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one share of our common stock;
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one Class H warrant; and
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one Class I warrant.
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The shares of common stock, the Class H warrants and the Class I warrants will trade only as a
part of a unit for three months following the date of this prospectus
unless earlier separate trading is authorized by the
representative of the underwriters. If the representative authorizes earlier trading, we will issue a press release announcing
the date that separate trading will begin. |
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Common stock |
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Number of shares outstanding
before this offering(1)
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5,065,846 shares |
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Number of shares outstanding
after this offering(1)(2)
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11,918,635 shares |
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Warrants |
|
|
|
|
|
Number of new warrants
outstanding after this
offering
|
|
2,500,000 Class H warrants
2,500,000 Class I warrants |
|
|
|
Exercisability
|
|
Each Class H warrant and Class I warrant is
exercisable for one share of common stock. |
|
|
|
Exercise price
|
|
Class H warrant $3.00 per share
Class I warrant $5.25 per share |
|
|
|
Exercise period
|
|
Class H warrants become
exercisable on the three month anniversary of
the date of this prospectus. Class H warrants
will expire at 5:00 p.m., Eastern time,
on the nine month anniversary of the date of
this prospectus. |
|
|
|
|
|
Class I warrants become exercisable
on the three month anniversary of the date of this prospectus.
Class I warrants will expire at 5:00 p.m., Eastern time, on
the five-year anniversary of the date of this
prospectus. |
____________________________
(footnotes
on following page)
5
(footnotes
from prior page)
|
|
|
(1) |
|
All
share information in this prospectus gives effect to the one-for-10
reverse stock split of our common stock, which is anticipated to be
effected prior to the closing of this offering. |
|
(2) |
|
The number of shares of common stock to be outstanding after this offering assumes a public
offering price of $3.50 per unit and gives effect to (a) the
conversion of 11,502,563 shares of our
outstanding Series A convertible preferred stock upon completion
of this offering into 2,662,072 shares of our common stock at a
conversion rate of 0.2314 shares of our common stock for each share of
preferred stock;
(b) the conversion of the outstanding $1,921,000 loan (including
advances from January 1, 2011 through March 16, 2011 of $800,000)
plus accrued interest of $58,051 (including
accrued interest of $34,295 from January 1, 2011 through March 16,
2011) from Ki Nam, the
Companys Chief Executive Officer, into
565,443 shares of our common stock upon completion
of this offering; and (c) the conversion of
$3.5 million of the outstanding secured convertible debentures (the Vision
Debentures) plus accrued interest of $438,459
(including accrued interest of $87,500 from January 1, 2011 through March 16, 2011)
held by Vision Opportunity Master Fund, Ltd. and Vision Capital Advantage Fund
(collectively, Vision) into 1,125,274 shares of our common stock upon completion of this
offering. |
|
|
|
The number of shares of common stock to be outstanding after the offering excludes
the following as of February 28, 2011: |
|
|
|
974,090 shares of common stock issuable upon the exercise of outstanding options issued
pursuant to our 2007 Stock Option/Stock Issuance Plan and our 2010 Stock Option/Stock
Issuance Plan; |
|
|
|
|
47,050 shares of common stock reserved for issuance under our 2010 Stock Option/Stock
Issuance Plan; |
|
|
|
|
565,443 Class H and Class I warrants to be issued to Ki Nam upon conversion of debt; |
|
|
|
|
1,125,274 Class H and Class I warrants to be issued to Vision upon the conversion of the Vision Debentures; |
|
|
|
|
1,069,614 shares of common stock
issuable upon exercise of outstanding warrants; and |
|
|
|
|
64,935 shares of common stock issuable upon conversion of the secured promissory note
payable to Immersive Media Corp. |
Except as otherwise indicated, all information in this prospectus assumes:
|
|
no exercise of any of our outstanding options or warrants; |
|
|
|
no exercise of any of the Class H warrants or the Class I warrants issued in this
offering; |
|
|
|
no exercise of the underwriters over-allotment option; |
|
|
|
no exercise of the underwriters unit purchase option; and |
|
|
|
no conversion of the secured promissory note payable to Immersive Media
Corp. |
6
|
|
|
Redemption
|
|
Class H Warrants: |
|
|
|
We may redeem the outstanding Class H
warrants (including any Class H warrants issued upon
exercise of the unit purchase option to be
granted to the representative of the
underwriters): |
|
|
|
|
|
in whole and not in part; |
|
|
|
|
|
at a price of $0.01 at any time after the
warrants become exercisable; |
|
|
|
|
|
upon a minimum on 30 days prior written
notice of redemption; and |
|
|
|
|
|
if, and only if, the reported last sale
price of our common stock equals or exceeds
$6.00 per share (200% of the warrant exercise price) for any 20 consecutive
trading days within a 30 trading day period
ending on the third business day prior to
the 30-day notice of redemption to warrant
holders. |
|
|
|
|
|
Class I Warrants: |
|
|
|
|
|
Class I warrants are not redeemable. |
|
|
|
|
|
|
Use of Proceeds
|
|
We anticipate that we will use the net proceeds of this offering to repay
outstanding indebtness, the balance of a settlement obligation and for general working capital purposes, which
may include increased spending for research and development, sales and marketing and the hiring of additional personnel. |
|
|
|
OTC Bulletin Board symbol for
our common stock
|
|
TMMM.OB |
|
|
|
Proposed
AMEX symbols for our: |
|
Common Stock |
TTTM |
|
Units |
TTTM.U |
|
Class H warrants |
TTTM.Z |
|
Class I warrants |
TTTM.W |
|
7
Summary Consolidated Financial Information
The summary consolidated financial information set forth below is derived from our consolidated
financial statements. The consolidated statement of operations data for the years ended December
31, 2010 and 2009 are derived from our audited consolidated financial statements included elsewhere
in this prospectus. The consolidated statement of operations data for the years ended December 31,
2008 and 2007 are derived from our audited consolidated financial statements not included in this
prospectus. The selected consolidated balance sheet data as of December 31, 2010 and 2009 are
derived from our audited consolidated financial statements included elsewhere in this prospectus.
The selected consolidated balance sheet data as of December 31, 2008 is derived from our audited
consolidated financial statements not included in this prospectus. This information should be read in conjunction with our consolidated
financial statements, the notes thereto, and with
Managements Discussion and Analysis of Financial
Condition and Results of Operations.
Historical results are not necessarily indicative of the results that may be expected
for any future period. The summary financial information is not intended to replace our
consolidated financial statements and accompanying notes thereto.
Consolidated Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years
Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$ |
4,682,908 |
|
|
$ |
4,644,022 |
|
|
$ |
7,589,265 |
|
|
$ |
1,822,269 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit (loss)
|
|
|
170,411 |
|
|
|
(344,096 |
) |
|
|
(1,703,611 |
) |
|
|
(2,106,256 |
) |
Total operating expenses
|
|
|
7,009,514 |
|
|
|
8,449,934 |
|
|
|
9,917,111 |
|
|
|
6,422,705 |
|
Loss from operations
|
|
|
(6,839,103 |
) |
|
|
(8,794,030 |
) |
|
|
(11,620,722 |
) |
|
|
(8,528,961 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(8,327,887 |
) |
|
$ |
(6,698,893 |
) |
|
$ |
(12,297,797 |
) |
|
$ |
(8,577,232 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
8
Selected Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma (1) |
|
Pro Forma as Adjusted (1) (2) |
|
|
2010 |
|
2009 |
|
2008 |
|
2010 |
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited) |
|
(unaudited) |
Cash and cash
equivalents, including restricted cash |
|
$ |
133,861 |
|
|
$ |
2,580,798 |
|
|
$ |
1,682,741 |
|
|
$ |
133,861 |
|
|
$ |
7,011,643 |
|
Total assets |
|
|
3,579,916 |
|
|
|
6,059,321 |
|
|
|
7,904,188 |
|
|
|
3,579,916 |
|
|
|
10,457,698 |
|
Total liabilities |
|
|
19,259,648 |
|
|
|
15,703,734 |
|
|
|
7,188,313 |
|
|
|
5,409,067 |
|
|
|
4,164,478 |
|
Total stockholders
equity (deficit) |
|
|
(15,679,732 |
) |
|
|
(9,644,413 |
) |
|
|
715,875 |
|
|
|
(1,829,151 |
) |
|
|
6,293,221 |
|
|
|
|
(1) |
|
Gives effect on a pro forma basis to the following (assuming a public offering price of
$3.50 per unit): (a) the conversion of 11,502,563 shares of our outstanding Series A convertible preferred stock
upon completion of this offering into 2,647,343
shares of our common stock based on a conversion rate of 0.2302;
(b) the conversion of the
outstanding $1,121,000 loan plus accrued interest of $23,756 from Ki Nam, the Companys Chief Executive Officer, into
327,073 shares of our common
stock upon completion of this offering; (c) the conversion of $3.5 million
of the Vision Debentures plus accrued interest of $350,959 into
1,100,274 shares of our common stock upon
completion of this offering; (d) a one-for-10 reverse
stock split of our common stock; and (e) the reclassification of the derivative
liabilities (related to anti-dilution features eliminated by the
conversion of the Vision Debentures and Series A convertible
preferred stock and amendment of the Class G warrants) to additional paid-in capital upon completion of this
offering, and the accretion of the remaining preferred stock discount
related to the anti-dilution feature. |
|
(2) |
|
As adjusted to give effect to the pro forma adjustments in (1)
above, and (a) the receipt of the
estimated proceeds from the sale of 2,500,000 units offered hereby at
an assumed public offering price of $3.50 per unit, after deducting
underwriting discounts and commissions, and estimated offering expenses payable by us, as
described in Underwriting; (b) the payment of
our remaining settlement obligation of $243,468 to
Preproduction Plastics, Inc. at closing of this offering;
(c) the repayment of $1.0 million at the closing of this
offering to Immersive Media Corp. pursuant to its secured promissory note (the Immersive
Note) plus accrued interest of $110,000;
(d) the conversion of $87,500 of additional accrued interest on the
Vision Debentures (from January 1, 2011 through March 16, 2011) by Vision into
25,000 shares of our common stock upon
completion of this offering;
(e) receipt of additional loan proceeds of $800,000 from Ki Nam
plus $34,295 of additional accrued interest from January 1, 2011 through March 16, 2011;
(f) the conversion of $834,295 of additional loan proceeds and
accrued interest into 238,370 shares of our common stock upon completion of this offering;
and (g) the adjustment of the preferred stock conversion rate to
common stock, as a result of the transactions in (d) and (f) above,
from 0.2302 to 0.2314 resulting in 14,729 additional shares of
common stock upon conversion.
See Use of Proceeds.
|
Going Concern and Cash Requirements
The
Companys consolidated financial statements have been prepared using the accrual method of
accounting in accordance with accounting principles generally accepted in the United States of
America (GAAP) and have been prepared on a going concern basis, which contemplates the
realization of assets and the settlement of liabilities in the normal course of business. The
Company has sustained operating losses since its inception (March 16, 2006) and has used
substantial amounts of working capital in its operations. Further, at
December 31, 2010, the
Company had an accumulated deficit of $(45,120,210), a working
capital deficit of $(15,057,791) and cash and cash equivalents
(including restricted cash) of $133,861. Additionally, the Company
used cash in operations of $(5,185,067) during the year ended December 31, 2010. These factors raise substantial doubt about the Companys ability to
continue as a going concern. Management believes that its cash from operations, together with the
net proceeds of this offering, should be sufficient to allow the
Company to continue as a going concern through at least December 31,
2011; however,
the Company cannot assure you of this and may require additional debt
or equity financing in the future to maintain operations.
The Company also anticipates that it will pursue raising
additional debt or equity financing to fund its new product
development and expansion plans. We cannot assure you that such
financing will be available on a timely basis, on acceptable terms or
at all.
9
RISK FACTORS
You should carefully consider the risks described below before making an investment decision.
Our business could be harmed by any of these risks. The trading price of our common stock could
decline due to any of these risks, and you may lose all or part of your investment. In assessing
these risks, you should also refer to the other information contained in this prospectus, including
our consolidated financial statements and related notes.
Risks Related to Our Company and Our Industry
We have a history of losses and we expect to continue to have additional net losses in the
near future, which could cause the value of our securities to decline
and may even cause our business to fail.
We
have generated net losses since our inception (March 16, 2006). Our net losses for the
years ended December 31, 2010, 2009, 2008 and 2007 were approximately $(8.3 million),
$(6.7 million), $(12.3 million) and $(8.6 million), respectively. A large portion of our expenses
are fixed, and accordingly, we will need to significantly increase our sales in order to achieve
profitability. We anticipate that we will continue to generate losses in the near future, and the
rate at which we will incur losses could continue or even increase in future periods from current
levels as a result of any of the following:
|
|
|
|
We may be unable to increase sales sufficiently to recognize economies of scale; |
|
|
|
|
|
|
We may be unable to successfully expand into other private security markets or achieve
broad brand recognition for our products; |
|
|
|
|
|
|
We may be unable to reduce our costs or experience unanticipated costs or expenses in
connection with our current development, marketing and manufacturing plans; |
|
|
|
|
|
|
We may encounter technological challenges in connection with the development,
introduction or manufacturing of enhancements to our existing vehicles or in the addition
of new products; and |
|
|
|
|
|
|
We may be unable to obtain sufficient components or materials used in our products due
to capital constraints, which could adversely effect our sales, our reputation and
credibility. |
|
To
date, we have financed our operations primarily through equity and
debt financing. Because we anticipate additional net losses in the
near future, we believe we will likely require additional financings
subsequent to this offering. Our
ability to arrange future financing from third parties will depend upon our perceived performance
and market conditions. Our inability to raise additional working capital on a timely basis, on
acceptable terms or at all would negatively impact our business and operations, which could cause
the price of our common stock to decline. It could also lead to the
reduction or suspension of our operations and ultimately force us to
go out of business.
If we are unable to continue as a going concern, our securities will have little or no value.
The
report of our independent registered public accounting firm that accompanies our
audited consolidated financial statements for
the years ended December 31, 2010 and 2009 contains a going concern qualification in which
such firm expressed substantial doubt about our ability to continue as a going concern. In
addition to our history of losses, our accumulated deficit as of December
31, 2010 and 2009 was approximately $(45.1 million) and $
(33.1 million),
respectively. At December 31, 2010, we had a working capital deficit
of $(15.1 million) and cash and cash equivalents (including restricted cash) of $133,861.
While
management plans to continue to implement a cost reduction strategy
and is seeking to increase our cash flow from operations, we cannot assure you that
we will be successful in this regard.
10
Since inception,
we have used cash in excess of operating
revenues. Until management achieves its cost reduction strategy
and is able to generate significantly higher sales
to realize the benefits of the strategy, and
significantly increase our cash flow from operations, we will require additional capital to meet our working capital
requirements, achieve our expansion plans and fund our research and
development. We plan to continue to raise additional equity or debt
financing to meet our working
capital requirements, including the use of the proceeds from this offering.
If we fail
as a going concern, our shares of common stock will hold little or no
value.
Our business depends substantially on the continuing efforts of our executive officers, and our
ability to maintain a skilled labor force, and our business may be severely disrupted if we lose
their services.
Our future success depends substantially on the continued services of our executive officers,
especially Ki Nam, our Chief Executive Officer and the Chairman of our Board of Directors, who has
significantly contributed to the design and manufacturing of
substantially all of our products and Kelly Anderson, our Chief
Financial Officer. We
do not maintain key man life insurance on any of our executive officers. If one or more of our
executive officers are unable or unwilling to continue in their present positions, we may not be
able to replace them readily, if at all. Therefore, our business may be severely disrupted, and we
may incur additional expenses to recruit and retain new officers. In addition, if any of our
executives joins a competitor or forms a competing company, we may lose some of our customers.
Our future growth is dependent upon the publics willingness to accept electric vehicles.
Our future growth is largely dependent upon the adoption by the public of, and we are subject
to an elevated risk of any reduced demand for, alternative fuel vehicles in general and electric
vehicles in particular. If the market for electric vehicles does not develop as we expect or
develops more slowly than we expect, our business, prospects, financial condition and operating
results will be harmed. The market for electric vehicles is relatively new, rapidly evolving,
characterized by rapidly changing technologies, price competition, additional competitors, evolving
government regulation and industry standards, frequent new vehicle announcements and changing
consumer demands and behaviors. Factors that may influence the adoption of electric vehicles,
include:
|
|
|
|
perceptions about electric vehicle quality, safety (in particular with respect to
lithium-ion battery packs), design, performance and cost, especially if adverse events or
accidents occur that are linked to the quality or safety of electric vehicles; |
|
|
|
|
|
|
perceptions about vehicle safety in general, and in particular safety issues that may
be attributed to the use of advanced technology; |
|
|
|
|
|
|
the range over which electric vehicles may be driven on a single battery charge; |
|
|
|
|
|
|
the decline of an electric vehicles range resulting from deterioration over time in
the batterys ability to hold a charge; |
|
|
|
|
|
|
improvements in the fuel economy of the internal combustion engine; |
|
|
|
|
|
|
volatility in the cost of oil and gasoline; |
|
|
|
|
|
|
access to charging stations, standardization of electric vehicle charging systems and
consumers perceptions about convenience and cost to charge an electric vehicle; |
|
|
|
|
|
|
concerns that extreme temperatures, cold or hot, could reduce the performance of the
electric vehicle or life of the batteries included in such vehicles; |
|
|
|
|
|
|
the availability of tax and other governmental incentives to purchase and operate
electric vehicles or future regulation requiring increased use of nonpolluting vehicles;
and |
|
|
|
|
|
|
macroeconomic factors. |
|
Additionally, we may become subject to regulations that may require us to alter the design of
our vehicles, which could negatively impact the publics interest in our vehicles or increase the
cost to manufacture such vehicles. The influence of any of the factors described above may cause
current or potential customers not to purchase our electric vehicles, which would materially
adversely affect our business, operating results, financial condition and prospects.
We may become subject to product liability claims, which could harm our financial condition and
liquidity if we are not able to successfully defend or insure against such claims.
The motor vehicle industry in general has historically been subject to a large number of
product liability claims in recent years due to the nature of personal injuries that can result
from accidents or malfunctions. We face an inherent risk of exposure to claims in the event people
fail to use our vehicles for their intended purposes or if owners fail to use or care for them
properly. These accidents can also occur as a result of user error or inadequate training, through no fault of the manufacturer of the vehicle. A successful product
liability claim against us could require us to pay a substantial monetary award. We maintain
product liability insurance for all our vehicles with annual limits
of approximately $2.0 million
on a claims made basis, but we cannot assure that our insurance will be sufficient to cover all
potential product liability claims. Any lawsuit seeking significant monetary damages either in
excess of our coverage, or outside of our coverage, may have a
material adverse effect on our business
and financial condition. We may not be able to secure additional product liability insurance
coverage on commercially acceptable terms or at reasonable costs when needed, particularly if we do
face liability for our products and are forced to make a claim under our policy. In addition, a
product liability claim could generate substantial negative publicity about our vehicles and
business, and inhibit or prevent commercialization of other future
vehicles, which would have a
material adverse effect on our brand, business, prospects, financial condition and operating results.
While our products are tested for quality, our products nevertheless may fail to
meet customer expectations from time-to-time. Also, not all defects are immediately detectible.
Failures could result from faulty design or problems in manufacturing. In either case, we could
incur significant costs to repair and/or replace defective products under warranty. Liability
claims could require us to spend significant time and money in litigation and pay significant
damages. As a result, any of these claims, whether or not valid or successfully prosecuted, could
have a substantial, adverse effect on our business and financial results. In addition, although we
currently have product liability insurance, the amount of damages awarded against us in such a
lawsuit may exceed the policy limits of such insurance. Further, in some cases, product redesigns
and/or rework may be required to correct a defect and such occurrences could adversely impact
future business with affected customers. Our business, financial condition, results of operations
and liquidity could be materially and adversely affected by any unexpected significant warranty
costs.
If our suppliers fail to consistently provide high quality parts and components or fail to
comply with applicable laws and regulations, our brand image could be harmed due to negative
publicity.
We rely on independent suppliers to source most of our T3 Series products and to conduct most
of the manufacturing process for our products. We have to rely on our suppliers to continue to
provide the highest quality electric vehicles and operate with integrity. Because we do not control
the operations of our suppliers, we cannot guarantee their compliance with ethical business
practices, such as environmental responsibility, fair wage practices, and compliance with child
labor laws, among others. A lack of demonstrated compliance could lead us to seek alternative
suppliers, which could increase our costs and result in delayed delivery of our products, product
shortages or other disruptions of our operations.
If our suppliers do not comply with laws or fail to control the quality of products supplied,
it could result in negative publicity for us and diminish our brand.
If the purchasers of our vehicles customize our vehicles or change the charging infrastructure with
aftermarket products, the vehicle may not operate properly, which could adversely impact our
reputation and harm our business.
Purchasers of our vehicles may seek to modify their existing vehicles, which could adversely
impact the performance of the vehicles and could compromise vehicle safety systems. Also, if
customers customize their vehicles with after-market parts or change the charging infrastructure,
such parts may compromise driver safety. We have not tested, nor do we endorse such changes or
parts. Such unauthorized modifications could reduce the safety of our vehicles and any injuries
resulting from such modifications could result in adverse publicity, which would negatively affect
our brand and harm our business, prospects, financial condition and operating results.
Adverse conditions in the global economy and disruption in financial markets could impair our
revenues.
As widely reported, financial markets in the United States, Europe, the Middle East, Latin
America and Asia have been experiencing extreme disruption in recent months, including, among other
things, extreme volatility in security prices, severely diminished liquidity and credit
availability, rating downgrades of certain investments and declining valuations of others. These
conditions have already impaired our ability to access credit markets and finance operations. There
can be no assurance that there will not be a further deterioration in financial markets and
confidence in major economies. We have been, and may continue to be,
impacted by these economic developments, both domestically and
globally. We believe that the current tightening of credit in
financial markets has adversely affected the ability of our customers
and suppliers to obtain financing for significant purchases and
operations, and could result in a decrease in orders for our products
and services. Similarly, the downturn has resulted in budgetary
constraints and delays in government funding, which we believe has
also adversely affected the ability of certain law enforcement
agencies and police departments to fund additional capital
equipment purchases. These economic conditions may negatively impact
us as some of our customers defer purchasing decisions, thereby
lengthening our sales cycles. Our customers ability to pay for
our products and services may also be impaired, which may lead to an
increase in our allowance for doubtful accounts and write-offs of
accounts receivable. Our revenues in fiscal year 2010 were relatively
flat as compared to 2009. Net revenues in 2009 decreased $2.9 million
from 2008 due in part to many of the foregoing factors,
which factors may continue to affect our revenues and operating results
in future periods.
Our markets are highly competitive, and if we are unable to compete effectively,
or demonstrate a perceived advantage for our products over
traditional means of transportation, our business
will be
adversely affected.
We
compete with other manufacturers of electric vehicles, as well as other
traditional modes of transportation, such as bicycles, cars and
motorcycles.
The industries in which we operate include competitors who are larger, better financed and
better known than we are and may compete more effectively than we can. In order to stay competitive
in our industry, we must keep pace with changing technologies and customer preferences. If we are
unable to differentiate our products from those of our competitors, our revenues may decline. In
addition, our competitors have established relationships among themselves or with third parties to
increase their ability to address customer needs. As a result, new competitors or alliances among
competitors may emerge and compete more effectively than we can.
Our failure to further refine our technology and develop and introduce new personal mobility
products could render our products uncompetitive or obsolete, and reduce our sales and market
share.
The personal mobility industry is characterized by rapid increases in the diversity and
complexity of technologies, products and services. We will need to invest significant financial
resources in research and development to keep pace with technological advances in the personal
mobility industry, evolving industry standards and changing customer requirements. However,
research and development activities are inherently uncertain, and we might
11
encounter practical difficulties in commercializing our research results
or gaining broad market acceptance for our products. Our significant
expenditures on research and development may not reap corresponding benefits. A variety of
competing personal mobility technologies that other companies may develop could prove to be more
cost-effective and have better performance than our products. Therefore, our development efforts
may be rendered obsolete by the technological advances of others. Our failure to further refine our
technology and develop and introduce new personal mobility products could render our products
uncompetitive or obsolete, and result in a decline in our market share and revenue.
We face risks associated with the marketing, distribution and sale of our personal mobility
products internationally, and if we are unable to effectively manage these risks, they could
impair our ability to expand our business abroad.
We have expanded our marketing, distribution, and sales efforts
to include the Middle East, Canada, Mexico, South Africa, South
America and Europe.
As a result, we are exposed to a number of risks, including:
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fluctuations in currency exchange rates; |
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difficulty in engaging and retaining distributors who are knowledgeable about and, can
function effectively in, overseas markets; |
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increased costs associated with maintaining marketing efforts in various countries; |
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difficulty and cost relating to compliance with the different commercial and legal
requirements of the overseas markets in which we offer our products;
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inability to obtain, maintain or enforce intellectual
property rights. |
12
Our prospects for sales growth and profitability will be adversely affected if we have product
replacement issues, or if we otherwise fail to maintain product quality and product performance at
an acceptable cost.
We will be able to expand our net sales and to achieve, sustain and enhance profitable
operations only if we succeed in maintaining the quality and performance of our products. If we
should not be able to produce high-quality products at standard manufacturing rates and yields,
unit costs may be higher. In recent periods, we have occasionally had to replace components of
existing products. For instance, we are voluntarily replacing external chargers due to the fact that
the chargers could fail over time. This may adversely affect our reputation with potential
customers. We have increased our warranty reserve accordingly. Because the establishment of
reserves is an inherently uncertain process involving estimates of the number of future claims and
the cost to settle claims, our ultimate losses may exceed our warranty reserve. Future increases to
the warranty reserve would have an adverse effect on our profitability in the periods in which we
make such increases. Additional product replacement issues could materially affect our business as
it could increase cost of sales as a result of increased warranty service costs, reduce customer
confidence on our products, reduce sales revenue, or increase product liability claims.
The failure to achieve acceptable manufacturing yields could adversely affect our business.
We may have difficulty achieving acceptable yields in the manufacture of our products which
could lead to higher costs, a loss of customers or delay in market acceptance of our products.
Slight impurities or defects can cause significant difficulties, particularly in connection with
the production of a new product, the adoption of a new manufacturing process or any expansion of
our manufacturing capacity and related transitions. Yields below our target levels can negatively
impact our gross profit.
From time to time we engage in related party transactions. There are no assurances that these
transactions are fair to our company.
From time to time we enter into transactions with related parties which include the purchase
from or sale to of products and services from related parties, and advancing these related parties
significant sums as prepayments for future goods or services and for working capital requirements,
among other transactions, including advances from related parties. Our Audit Committee is responsible for reviewing
our related party transactions. Notwithstanding
these policies, we cannot assure you that in every instance the terms of the transactions with
these various related parties are on terms as fair as we might receive from or extend to third
parties. In addition, related party transactions in general have a higher potential for conflicts
of interest than third-party transactions, could result in significant losses to our company and
may impair investor confidence, which could adversely affect our business and our stock price.
We are dependent on a few single sourced third party manufacturers. Any interruption in our
relationships with these parties may adversely affect our business.
Most components used in our products are purchased from outside sources. Certain components
are purchased from single sourced suppliers. These single source suppliers provide components used
on our products and include domestic suppliers such as American Made, Performance Composites,
Imperial Electric and Santa Fe Mold. These suppliers provide the frame, fiberglass body, electric
motor, and various small plastic parts, respectively. The failure of any such supplier to meet its
commitment on schedule could have a material adverse effect on our business, operating results,
financial condition or prospects. If a sole-source supplier were to go out of business or otherwise become
unable to meet its supply commitments, the process of locating and qualifying alternate sources
could require up to several months, during which time our production could be delayed. Such delays
could have a material adverse effect on our business, operating
results, financial condition or prospects. For instance, our revenues for the
six months ended December 31, 2010 were adversely affected by
vendor supply issues, which we believe was due to reduced vendor staffing and
their inability to respond to our orders coupled with our inadequate cash flow
which resulted in certain vendors requiring
terms to be cash in advance.
Our dependence on third party suppliers for key components of our devices could delay shipment
of our products and reduce our sales.
We depend on certain domestic and foreign suppliers for the delivery of components used in the
assembly of our products. Our reliance on third-party suppliers creates risks related to our
potential inability to obtain an adequate
13
supply of components or subassemblies and reduced control over pricing and timing of delivery
of components and sub-assemblies. Specifically, we depend on suppliers of batteries and battery
components and other miscellaneous customer parts for our products. We also do not have long-term
agreements with any of our suppliers and there is no guarantee that supply will not be interrupted.
Any interruption of supply for any material components of our products could significantly delay
the shipment of our products and have a material adverse effect on our revenues, profitability and
financial condition.
Many of our customers have fluctuating budgets, which may cause substantial fluctuations in our
results of operations.
Customers for our products include, and may include in the future, federal, state, municipal,
foreign and military, law enforcement and other governmental agencies. Government tax revenues and
budgetary constraints, which fluctuate from time to time, can affect budgetary allocations for
these customers. Many domestic and foreign government agencies have in the past experienced budget
deficits that have led to decreased spending in defense, law enforcement and other military and
security areas. Our results of operations may be subject to substantial period-to-period
fluctuations because of these and other factors affecting military, law enforcement and other
governmental spending. A reduction of funding for federal, state, municipal, foreign and other
governmental agencies could have a material adverse effect on sales of our products and our
business, financial condition, results of operations and liquidity.
Our resources may be insufficient to manage the demands imposed by our growth.
We have rapidly expanded our operations, and this growth has placed significant demands on our
management, administrative, operating and financial resources. The continued growth of our customer
base and the geographic markets served can be expected to continue to place a significant strain on
our resources. In addition, we cannot easily identify and hire personnel qualified both in the
provision and marketing of our products. Our future performance and profitability will depend in
large part on our ability to attract and retain additional management and other key personnel, and
our ability to implement successful enhancements to our management, marketing and sales team and
technology personnel.
14
Our success is dependent on protecting our intellectual property rights.
We rely on a combination of patent, copyright, trademark and trade secret protections to
protect our proprietary technology. Our success will, in part, depend on our ability to obtain
trademarks and patents. We license one patent and hold three trademarks registered with the United
States Patent and Trademark Office and have five patent applications
filed. We cannot assure you that these trademarks and patents will not
be challenged, invalidated, or circumvented, or that the rights granted under those registrations
will provide competitive advantages to us.
We also rely on trade secrets and new technologies to maintain our competitive position, but
we cannot be certain that others will not gain access to these trade secrets. Others may
independently develop substantially equivalent proprietary information and techniques or otherwise
gain access to our trade secrets.
We may be exposed to liability for infringing intellectual property rights of other companies.
Our success will, in part, depend on our ability to operate without infringing on the
proprietary rights of others. Although we have conducted searches and are not aware of any patents
and trademarks which our products or their use might infringe, we cannot be certain that
infringement has not or will not occur. We could incur substantial costs, in addition to the great
amount of time lost, in defending any patent or trademark infringement suits or in asserting any
patent or trademark rights, in a suit with another party.
Our officers and directors own a substantial portion of our outstanding common stock, which will
enable them to influence many significant corporate actions and in certain circumstances may
prevent a change in control that would otherwise be beneficial to our shareholders.
Our
directors and executive officers controlled at least 68.9% of our outstanding shares of common stock
that are entitled to vote on all corporate actions
as of December 31, 2010
(63.6% after giving effect to this
offering). In particular, our controlling stockholder,
Chairman and Chief Executive Officer, Ki Nam, together with his
children, owns 57.2% of the
outstanding shares of common stock (30.9% after giving effect to this
offering) and the Vision Parties own 11.8% of the outstanding shares of common stock
(32.7% after giving effect to this offering). The Vision Parties and Mr. Nam could have a substantial impact on matters requiring the vote of the
shareholders, including the election of our directors and most of our corporate actions. This
control could delay, defer, or prevent others from initiating a potential merger, takeover, or
other change in our control, even if these actions would benefit our shareholders and us. This
control could adversely affect the voting and other rights of our other shareholders and could
depress the market price of our common stock.
Risks Relating Ownership of Our Securities
If a significant public market for our common stock develops, we expect to experience volatility in the price
of our common stock. This may result in substantial losses to investors if they are unable to sell
their shares at or above their purchase price.
If a significant public market for our common stock develops, we expect the market price of
our common stock to fluctuate substantially for the foreseeable
future, primarily due to a number of factors,
including:
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our status as a company with a limited operating history and limited revenues to date,
which may make risk-averse investors more inclined to sell their shares on the market more
quickly and at greater discounts than would be the case with the shares of a seasoned issuer
in the event of negative news or lack of progress; |
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announcements of technological innovations or new products by us or our competitors; |
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the timing and development of our products; |
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general and industry-specific economic conditions; |
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actual or anticipated fluctuations in our operating results; |
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liquidity;
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actions by our stockholders;
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changes in our cash flow from operations or earning estimates;
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changes in market valuations of similar companies;
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our capital commitments; and |
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the loss of any of our key management personnel. |
In addition, the financial markets have experienced extreme price and volume fluctuations. The
market prices of the securities of technology companies, particularly companies like ours without
consistent revenues and earnings, have been highly volatile and may continue to be highly volatile
in the future, some of which may be unrelated to the operating performance of particular companies.
The sale or attempted sale of a large amount of common stock into the market may also have a
significant impact on the trading price of our common stock. Many of these factors are beyond our
control and may decrease the market price of our common stock, regardless of our operating
performance. In the past, securities class action litigation has often been brought against
companies that experience volatility in the market price of their securities. Whether or not
meritorious, litigation brought against us could result in substantial costs, divert managements
attention and resources and harm our financial condition and results of operations.
We do not anticipate paying any cash dividends in the foreseeable future, which may reduce your
return on an investment in our common stock.
We plan to use all of our earnings; to the extent we have earnings, to fund our operations. We
do not plan to pay any cash dividends in the foreseeable future. We cannot guarantee that we will,
at any time, generate sufficient surplus cash that would be available for distribution as a
dividend to the holders of our common stock. Therefore, any return on your investment would derive
from an increase in the price of our stock, which may or may not occur.
Substantial future sales of our common stock in the public market may depress our stock price.
As
of December 31, 2010, 5,065,846 shares of common stock, 11,502,563 shares of preferred
stock (which convert into 2,662,072 shares of common stock upon closing of this offering
assuming a public offering price of $3.50 per unit), and warrants for the purchase of
1,030,137, 12,000 and 27,477 shares of common stock at an exercise
price of $7.00, $15.40 and
$16.50 per share, respectively, are outstanding.
In addition, we intend to file a registration statement on Form S-8 under the Securities Act
of 1933, as amended, to register approximately 1,021,140 shares of our common stock underlying
options granted or to be granted to our officers, directors, employees and consultants. These
shares, if issued in accordance with these plans, will be eligible for immediate sale in the public
market, subject to volume limitations. As of December 31, 2010, there
were 649,090 options
outstanding, of which 324,837 were vested.
If our stockholders sell substantial amounts of common stock in the public market, or the
market perceives that such sales may occur, the market price of our common stock could fall. The
sale of a large number of shares could impair our ability to raise needed capital by depressing the
price at which we could sell our common stock.
We may raise additional capital through a securities offering that could dilute your ownership
interest and voting rights.
Our certificate of incorporation currently authorizes our board of directors to issue up to
150,000,000 shares of common stock and 20,000,000 shares of preferred
stock. After the conversion of all of our Series A
convertible
preferred stock our board of directors will be entitled to issue up to
20,000,000 additional shares of preferred stock with rights, preferences and privileges that are
senior to our common stock. The power of the board of directors to
issue additional securities is generally not subject to stockholder
approval.
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We require substantial working capital to fund our business. If we raise additional funds
through the issuance of equity, equity-related or convertible debt securities, these securities may
have rights, preferences or privileges senior to those of the holders of our common stock. The
issuance of additional common stock or securities convertible into common stock by our board of
directors will also have the effect of diluting the proportionate equity interest and voting power
of holders of our common stock.
Our incorporation documents and Delaware law may inhibit a takeover that stockholders consider
favorable and could also limit the market price of your stock, which may inhibit an attempt by our
stockholders to change our direction or management.
Our certificate of incorporation and bylaws contain provisions that could delay or
prevent a change in control of our company. Some of these provisions:
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authorize our board of directors to determine the rights, preferences, privileges and
restrictions granted to, or imposed upon, the preferred stock and to fix the number of
shares constituting any series and the designation of such series without further action by
our stockholders; |
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prohibit stockholders
holding less than 25% of the outstanding voting shares
from calling special meetings; and |
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establish advance notice requirements for submitting nominations for election to the
board of directors and for proposing matters that can be acted upon by stockholders at a
meeting. |
In addition, we are governed by the provisions of Section 203 of Delaware General Corporate
Law. These provisions may prohibit large stockholders, in particular those owning 15% or more of
our outstanding voting stock, from merging or combining with us, which may prevent or frustrate any
attempt by our stockholders to change our management or the direction in which we are heading.
These and other provisions in our amended and restated certificate of incorporation and bylaws and
under Delaware law could reduce the price that investors might be willing to pay for shares of our
common stock in the future and result in the market price being lower than it would be without
these provisions.
The market for our stock is subject to rules relating to low-priced stock (Penny Stock) which may
limit our ability to raise capital.
Our
common stock is currently listed for trading on the OTC Bulletin Board Market and is
subject to the penny stock rules adopted pursuant to
Section 15(g) of the Securities Exchange Act of 1934, as amended (the
Exchange Act). In
general, the penny stock rules apply to companies not listed on a national stock exchange whose
common stock trades at less than $5.00 per share or which have tangible net worth of less than
$5,000,000 ($2,000,000 if the company has been operating for three or more years). Such rules
require, among other things, that brokers who trade penny stock on behalf of persons other than
established customers complete certain documentation, make suitability inquiries of investors and
provide investors with certain information concerning trading in the security, including a risk
disclosure document, quote information, brokers commission information and rights and remedies
available to investors in penny stocks. Many brokers have decided not to trade penny stock
because of the requirements of the penny stock rules, and as a result, the number of broker-dealers
willing to act as market makers in such securities is limited.
Despite
the fact that we intend for our common stock to be listed on the AMEX prior to or
simultaneous with the completion of this offering, we cannot assure you that our common stock may not
still be deemed as penny stock. The penny stock rules, therefore, may have an adverse impact
on the market for our common stock and may affect our ability to raise additional capital if we
decide to do so.
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Management will have substantial discretion over the use of the proceeds of this Offering and may
not choose to use them effectively.
We plan to use the proceeds from this Offering as set forth in the section entitled Use of
Proceeds. Our management will have significant flexibility in applying the net proceeds of this Offering and may
apply the proceeds in ways in which you do not agree. The failure of our management to apply these
funds effectively could materially harm our business.
The
market price for our common stock may be particularly volatile given our status as a
relatively unknown company with a small and thinly traded public float, limited operating history
and lack of profits which could lead to wide fluctuations in our
share price. The price at which
you purchase the shares underlying the units may not be indicative of the price of the common
stock that will prevail in the trading market. You may be unable to sell your shares at or above
your purchase price, which may result in substantial losses to you.
In addition, the market price of our common stock could be subject to wide fluctuations in
response to:
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quarterly variations in our revenues and operating expenses; |
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announcements of new products or services by us; |
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fluctuations in interest rates; |
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significant sales of our common stock; |
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the operating and stock price performance of other companies that investors may deem
comparable to us; and |
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news reports relating to trends in our markets or general economic conditions. |
The stock markets in general and the market prices for penny stock companies in particular,
have experienced volatility that often has been unrelated to the operating performance of such
companies. These broad market and industry fluctuations may adversely affect the price of our
stock, regardless of our operating performance.
Following the effectiveness of our registration statement and listing of our securities on the
AMEX, our shares of common stock may be thinly traded, so you may be unable to sell at or near
ask prices or at all if you need to sell your shares to raise money or otherwise desire to
liquidate your shares.
We cannot predict the extent to which an active public market for our common stock will
develop or be sustained. We have applied for listing on the AMEX, but cannot assure you that
this listing or listing on any other exchange will ever occur. Even if our shares are listed on
such exchange, we cannot assure that you will obtain sufficient liquidity in your holdings of our
common stock.
Our common shares are currently traded on the OTC Bulletin Board where they have historically
been sporadically or thinly-traded, meaning that the number of persons interested in purchasing
our common shares at or near bid prices at any given time may be relatively small or non-existent.
This situation may be attributable to a number of factors, including the fact that we are a
small company which is relatively unknown to stock analysts, stock brokers, institutional investors
and others in the investment community that generate or influence sales volume, and that even if we
came to the attention of such persons, they tend to be risk averse and would be reluctant to follow
an unproven company such as ours or purchase or recommend the purchase of our shares until such
time as we became more seasoned and viable. As a consequence, there may be periods of several days,
weeks or months when trading activity in our shares is minimal or non-existent, as compared to a
seasoned issuer which has a large and steady volume of trading activity that will generally support
18
continuous sales without an adverse effect on share price. We cannot give you any assurance
that a broader or more active public trading market for our common stock will develop or be
sustained, or that current trading levels will be sustained or not diminish.
There
is no guarantee that our securities will be listed on AMEX.
We have applied for the listing of our common stock on AMEX. Prior to
the closing of this offering, and subject to the reverse stock split and final approval of AMEX,
we believe that we will satisfy the listing requirements and expect that our common stock will
continue to be listed on AMEX. Such listing, however, is not guaranteed. If the application is
not approved, the shares of our common stock will continue to be traded on the OTC Bulletin Board.
Even if such listing is approved, we cannot assure you any broker
will be interested in trading shares of our common stock. Further, if we do not meet AMEX continued listing requirements, our
common stock could be delisted. Therefore, it may be difficult to sell your shares of common
stock if you desire to need to sell them. Our underwriters are not obligated to make a market in
our securities, and even after making a market, can discontinue market making at any time without
notice. Neither we nor the underwriters can provide any assurance
that an active or liquid
trading market in our securities will develop or, if developed, that the market will continue.
Our liquidity of our common stock and market capitalization could be adversely affected by
the reverse stock split.
Our stockholders have approved the reverse stock split so that we can meet the minimum share
price requirements of AMEX. If consummated by our board of directors, the reverse stock split may
be viewed negatively by the market and, consequently, can lead to a decrease in our price per
share and overall market capitalization. If the per share market price does not increase proportionately as a result
of the reverse stock split, then our value as measured by our market capitalization will be
reduced, perhaps significantly.
Our operating results may fluctuate significantly, and these fluctuations may cause our common
stock price to fall.
Our quarterly operating results may fluctuate significantly in the future due to a variety of
factors that could affect our revenues or our expenses in any particular quarter. You should not
rely on quarter-to-quarter comparisons of our results of operations as an indication of future
performance. Factors that may affect our quarterly results include:
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market acceptance of our products and those of our competitors; |
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our ability to attract and retain key personnel; |
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development of new designs and technologies; and |
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our ability to manage our anticipated growth and expansion. |
Shares eligible for future sale may adversely affect the market.
From time to time after the date of this prospectus, certain of our
stockholders may be eligible to sell all or some of their shares of our common stock by means of
ordinary brokerage transactions in the open market pursuant to Rule 144, promulgated under the
Securities Act, subject to certain limitations. In general, pursuant to amended Rule 144,
non-affiliate stockholders may sell freely after six months subject only to the current public
information requirement (which disappears after one year). There are no shares of our common stock
held by non-affiliates that will become 144 eligible within three months after the date of this prospectus.
Affiliates may sell after six months subject to the Rule 144 volume, manner of sale (for equity securities), current public information and notice requirements. Any substantial sale of our Common Stock pursuant to Rule 144 may have a material adverse
effect on the market price of our Common Stock.
Certain prior investors who purchased our securities, consisting of convertible notes, preferred
stock, common stock and warrants to purchase common stock, from December 2007 through March 2010,
have anti-dilution rights with respect to their shares of our common stock (including shares
underlying warrants). If future issuances of our common stock trigger these anti-dilution rights,
holders of our common stock would have their investments diluted.
Certain
security holders who purchased our units consisting of shares of our preferred stock,
common stock and warrants to purchase shares of our common stock have anti-dilution rights, and in
particular, price-based anti-dilution rights. Except for certain exceptions such as issuances
relating to employee stock option exercises, in the event that we sell common stock for less than
$5.00 per share or issue securities convertible into or exercisable for common stock at a
conversion price or exercise price less than $5.00 per share (a Dilutive Issuance), then we are
required to issue a number of additional shares of common stock to
each unit purchaser of our preferred stock, without
additional consideration. In addition, our convertible note with Immersive converts into our common stock at $15.40 per share.
In the event we sell common stock for lower than $15.40 per share,
our conversion price will be reduced in accordance with Dilutive Issuance calculations. The number of
additional shares to be issued will be equal to the product
of the purchasers subscription amount multiplied by a fraction, the numerator of which is the
number of shares of common stock sold and issued at the closing of such Dilutive Issuance plus the
number of shares which the aggregate offering price of the total number of shares of common stock
sold and issued at the closing of such Dilutive Issuance would
purchase at $5.00 per share, and the
denominator of which is the number of shares of common stock issued and outstanding on the date of
such Dilutive Issuance plus the number of additional shares of common stock sold and issued at the
closing of such Dilutive Issuance.
In the event we issue warrants to purchase our common
stock below $7.00 per share, our Class G warrant holders will be allowed to reset the price
of their warrants (for the first year after the issuance, the price will be reset to the price of the
new issuance and for issuances after the
12th month and before the 24th month, the price will be reset
in accordance with Dilutive Issuance calculations). We are anticipating to
obtain agreements to convert all of our outstanding preferred stock
and amendments to our warrants that remove price-based, anti-dilution
provisions. We are not expecting to receive any amendment to our Immersive note or Class G warrants held by Immersive. We cannot assure you that we will be successful. In the event that we are not successful, other holders of
our common stock, including purchases of units in this
offering, would be diluted to a greater
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extent than they would be if the anti-dilution provision were not triggered. Certain holders of the convertible note will convert such notes into common shares and warrants upon
the close of this offering.
We are responsible for the indemnification of our officers and directors, which could result in
substantial expenditures.
Our Bylaws provide for the indemnification of our directors, officers, employees, and agents,
under certain circumstances, against attorneys fees and other expenses incurred by them in any
litigation to which they become a party arising from their association with or activities on behalf
of our company. This indemnification policy could result in substantial expenditures, which we may
be unable to recoup.
You will incur immediate and substantial dilution in the net tangible book value of the units you
purchase, which could adversely affect the market price of our common stock.
This offering will result in a significant immediate dilution in net tangible book value to new
investors purchasing
units in this offering. Accordingly, the investors will bear a great deal of the financial risk
associated with our business, while effective control will remain with the principal stockholders.
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Cautionary Language Regarding
Forward-Looking Statements and Industry Data
This
Prospectus contains forward-looking statements that are
based on current information and expectations, and involve risks and uncertainties, many of which are beyond the
Companys control. The Companys actual results could differ materially and adversely from those
anticipated in such forward-looking statements as a result of certain
factors, including those factors, in the Risk Factors section and elsewhere in
this prospectus,
among other factors.
All
statements, other than statements of historical facts, included in
this prospectus regarding
the Companys growth strategy, expansion and development plans, future operations, financial position, estimated revenue or losses,
projected costs, prospects and plans and objectives of management are forward-looking statements.
When used in this prospectus, the words will,
may, should, could, believe, anticipate, intend,
estimate, expect, project, plan and similar expressions are intended to identify
forward-looking statements, although not all forward-looking statements contain such identifying
words. All forward-looking statements speak only as of the date of
this prospectus. The Company
undertakes no obligation to update any forward-looking statements or other information contained
herein, unless otherwise required by law. Potential investors should not place undue reliance on these forward-looking statements.
The Company cannot guarantee future results or that its plans, intentions or expectations will be achieved. The Company
discloses important factors that could cause the Companys actual results to differ materially from
its expectations under Risk Factors and elsewhere in this
prospectus. These cautionary statements
qualify all forward-looking statements attributable to the Company or persons acting on its behalf.
See Risk Factors for a more detailed discussion of uncertainties and risks that may have an
impact on future results.
The market data included in this prospectus concerning our business and markets, is estimated
and based on data available from independent market research firms, industry trade associations or
other publicly available information.
21
USE OF PROCEEDS
We
estimate that the net proceeds from the sale of the 2,500,000 units by
us in the offering, after
deducting estimated underwriting discounts and commissions and estimated offering expenses payable
by us, will be $7.4 million, assuming a public offering price of $3.50 per unit. A $1.00 increase (decrease) in the assumed public offering price of the units would
increase
(decrease) the net proceeds to us from this offering by
approximately $2.2 million, after deducting estimated
underwriting discounts and commissions and estimated offering expenses, assuming that the number of
units offered by us, as set forth on the cover page of this prospectus, remains the same. We may
also increase or decrease the number of units we are offering. An
increase of 250,000 in the number
of units offered by us in this offering would increase the net
proceeds to us by $0.8 million.
Similarly, a decrease of 250,000 units in the number of units offered by us would decrease the net
proceeds to us by $0.8 million. If the underwriters over-allotment option is exercised in full, we
estimate that we will receive net proceeds of $8.6 million, after deducting estimated
underwriting discounts and commissions and estimated offering expenses.
We intend to use approximately $1.1 million of the proceeds to repay the outstanding
indebtedness to Immersive Media Corp. (Immersive) under
that certain secured promissory note including accrued interest of $110,000,
which currently bears interest at the rate of 15% per annum, and matures on March 31, 2011.
In addition, we plan to use approximately
$244,000 of the proceeds of this offering to pay the balance due to Preproduction Plastics, Inc.
under that certain settlement agreement dated July 2010.
We plan to use the balance of the proceeds from this offering for general working capital
purposes, which may include additional research and development projects for new products and
enhancements to existing products, expanding our sales and marketing
activities, as well as hiring
additional personnel. We may also use a portion of our net proceeds to acquire and invest in
complementary products, technologies or businesses; however, we currently have no agreements or
commitments to complete any such transaction and are not involved in negotiations to do so. Pending these uses, we intend to invest our net proceeds from this offering primarily in
short-term, investment accounts or short-term, investment grade, interest-bearing instruments.
As of the date of this prospectus, we cannot specify with certainty all of the particular uses
for the net proceeds to be received upon the completion of this offering. The amount and timing of
our expenditures will depend on several factors, including cash flows from our operations, the
status of our development projects, the availability of alternate funding and the anticipated
growth of our business. Accordingly, our management will have broad discretion in the application
of the net proceeds and investors will be relying on the judgment of our management regarding the
application of the proceeds from this offering. We reserve the right to change the use of these
proceeds as a result of certain contingencies such as the results of our commercialization and
development efforts, competitive developments, opportunities to acquire products, technologies or
businesses and other factors.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock. We currently intend to
retain all future earnings for the operation and expansion of our business and, therefore, we do
not anticipate declaring or paying cash dividends in the foreseeable future. In addition, we are
subject to several covenants under our debt arrangements that place restrictions
on our ability to pay dividends. Other than such restrictions, the payment of dividends will be at the discretion of our Board of
Directors and will depend on our results of operations, capital requirements, financial condition,
prospects, contractual arrangements, any limitations on payment of dividends present in our current
and future debt agreements, and other factors that our Board of Directors may deem relevant.
22
CAPITALIZATION
The
following table sets forth our capitalization as of December 31, 2010:
|
|
|
|
on an actual basis (after giving effect to a one-for-10
reverse stock split
of our common stock
to be effected at the time of pricing the offering
and prior to closing); |
|
|
|
|
on a pro forma basis after giving effect to the following
(assuming a public offering price of $3.50 per unit and the one-for-10
reverse stock split to be effected at the time of the pricing of the
offering and prior to closing): |
|
|
|
the conversion of 11,502,563 of the outstanding Series A convertible preferred stock upon
completion of this offering into 2,647,343 shares of our common stock; |
|
|
|
|
|
the reclassification of the derivative liabilities (related
to anti-dilution features associated with the conversion of the
Vision Debentures, Series A convertible preferred stock and Class G
warrants) to additional paid-in capital upon completion of this
offering, and the accretion of the remaining preferred stock discount related to the anti-dilution feature; |
|
|
|
|
|
the conversion of the outstanding $1,121,000 loan plus
accrued interest of $23,756 from Ki Nam, the
Companys Chief Executive Officer, into 327,073 shares of our common stock upon completion of
this offering; and |
|
|
|
|
the conversion of $3.5 million plus accrued interest of
$350,959 of the Vision Debentures into 1,100,274 shares of our common stock upon completion of this offering. |
|
|
|
on a pro forma as adjusted basis to also give effect to the pro forma conversions
described above and |
|
|
|
the receipt of the estimated proceeds from the sale of 2,500,000 units
offered hereby at an assumed public offering price of $3.50 per unit, after
deducting underwriting discounts and commissions, and estimated offering expenses
payable by us, as described in Underwriting; |
|
|
|
|
the conversion of $87,500 of additional accrued interest on
the Vision Debentures (from January 1, 2011 through March 16, 2011) by
Vision into 25,000 shares of our common stock upon completion of this offering; |
|
|
|
|
the receipt of additional loan proceeds of $800,000 from Ki
Nam plus $34,295 of additional accrued interest from January 1, 2011 through March 16, 2011; |
|
|
|
|
the conversion of $834,295 of additional loan proceeds and
accrued interest into 238,370 shares of our common stock upon
completion of this offering; |
|
|
|
|
the payment of approximately $244,000 at the closing of this offering
to Preproduction Plastics, Inc. pursuant to the settlement agreement dated July
2010; |
|
|
|
|
the repayment of approximately $1.0 million at the closing of this
offering to Immersive Media Corp. pursuant to its secured promissory
note plus accrued interest of $110,000; and |
|
|
|
|
the adjustment of the preferred stock conversion rate to
common stock, as a result of the transactions that took place from
January 1, 2011 through March 16, 2011, from 0.2302 to 0.2314
resulting in 14,729 additional shares of common stock upon conversion. |
The pro forma as adjusted information discussed below is illustrative only and will be
adjusted based on the actual public offering price and terms of this offering determined at
pricing.
You should read this table together with Summary Consolidated Financial Information, Managements Discussion and Analysis of
Financial Condition and Results of Operations and our consolidated financial statements
and the related notes appearing elsewhere in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
Pro Forma |
|
|
|
Actual |
|
|
Pro Forma (1) |
|
|
As Adjusted (1) |
|
Cash and cash equivalents |
|
$ |
123,861 |
|
|
$ |
123,861 |
|
|
$ |
7,000,643 |
|
Restricted cash |
|
|
10,000 |
|
|
|
10,000 |
|
|
|
10,000 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
133,861 |
|
|
$ |
133,861 |
|
|
$ |
7,010,643 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note payable |
|
$ |
243,468 |
|
|
$ |
243,468 |
|
|
$ |
|
|
Derivative
liabilities |
|
|
9,633,105 |
|
|
|
778,239 |
|
|
|
778,239 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related
party notes payable, net of debt discount |
|
|
6,512,121 |
|
|
|
1,891,121 |
|
|
|
1,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A
convertible preferred stock, $0.001 par
value, 20,000,000 shares authorized, 11,502,563
issued and outstanding, actual; no shares issued and
outstanding, pro forma and pro forma as adjusted |
|
|
11,503 |
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value,
150,000,000 shares authorized, 5,065,846 shares issued and
outstanding, actual; 9,140,536 shares issued and outstanding, pro
forma; 11,918,635 shares issued and outstanding, pro forma as adjusted |
|
|
5,066 |
|
|
|
9,141 |
|
|
|
11,919 |
|
Additional
paid-in capital |
|
|
29,419,540 |
|
|
|
47,540,618 |
|
|
|
55,890,886 |
|
Accumulated deficit |
|
|
(45,120,210 |
) |
|
|
(49,383,279 |
) |
|
|
(49,613,953 |
) |
Accumulated other comprehensive income |
|
|
4,369 |
|
|
|
4,369 |
|
|
|
4,369 |
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity (deficit) |
|
|
(15,679,732 |
) |
|
|
(1,829,151 |
) |
|
|
6,293,221 |
|
|
|
|
|
|
|
|
|
|
|
Total capitalization |
|
$ |
708,962 |
|
|
$ |
1,083,677 |
|
|
$ |
8,071,460 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
A $1.00 increase (decrease) in the assumed offering
price of $3.50 per
unit would increase (decrease) by approximately $2.2 million each of
pro forma as adjusted paid-in capital, total stockholders
equity (deficit) and
total capitalization, assuming that the number of units offered by us,
as set forth on the cover page of this prospectus, remains the same
and after deducting the underwriting discounts and commissions payable
to the underwriters and the estimated offering expenses payable by us. |
The
foregoing table assumes no exercise by the underwriters of their
over-allotment option or the unit purchase option, and no exercise of
any other outstanding options or warrants. For additional information
about our capital structure, see Description of Capital Stock.
23
DILUTION
If you invest in our units, your equity interest will be diluted to the extent of the difference between
the amount per unit paid by purchasers of units in this public offering and the pro forma as
adjusted net tangible book value per share of common stock immediately after completion of this
offering. As of December 31, 2010, the Company had a net tangible book
deficit of $(15,679,732) or
$(3.10) per share of common stock after the effect of the one-for-10
reverse stock split. Net tangible book
value represents the total tangible
assets of the Company, less all liabilities, divided by the number of shares of common
stock outstanding.
Our pro forma net tangible book deficit as of
December 31, 2010 in the amount of $(1,829,151), or
$(0.20) per share, was based on 9,140,536 shares of our common stock outstanding as of December 31,
2010, after giving effect to:
|
|
|
the conversion of 11,502,563 of our outstanding Series A convertible preferred stock upon
completion of this offering into 2,647,343 shares of our common stock (assuming a public offering
price of $3.50 per unit in this offering); |
|
|
|
|
|
the conversion of the outstanding $1,121,000 loan plus
accrued interest of $23,756 from Ki Nam, the Companys Chief Executive Officer, into
327,073 shares of our common stock upon completion of this offering; |
|
|
|
|
|
the conversion of $3.5 million of the outstanding Vision
Debentures plus accrued interest of $350,959
into 1,100,274 shares of our common stock upon completion of this
offering; and |
|
|
|
|
|
|
|
the reclassification of the derivative liabilities (related to anti-dilution features
associated with the conversion of the Vision Debentures, Series A convertible preferred
stock and Class G warrants) to additional paid-in capital upon completion of this
offering, and the accretion of the remaining preferred stock discount
related to the anti-dilution feature. |
|
Our pro forma as adjusted
net tangible book value per share as of December 31, 2010 in the
amount of $6,293,221, or $0.53 per share, was
based on 11,918,635 shares of our common stock outstanding as of December 31, 2010, after giving effect to:
|
|
|
the receipt of the estimated proceeds from the sale of 2,500,000 units offered hereby at an assumed public offering price of
$3.50 per unit, after deducting underwriting discounts and
commissions, and estimated offering expenses payable by us, as described in Underwriting; |
|
|
|
|
the conversion of $87,500 of additional accrued interest on the Vision Debentures (from January 1, 2011 through March 16, 2011) by Vision into 25,000 shares of our common stock upon completion of this offering; |
|
|
|
|
the receipt of additional loan proceeds of $800,000 from Ki Nam plus $34,295 of additional accrued interest from January 1, 2011 through March 16, 2011; |
|
|
|
|
the conversion of $834,295 of additional loan proceeds and accrued interest into 238,370 shares of our common stock upon completion of this offering; |
|
|
|
|
the payment of approximately $244,000 at the closing of this offering to Preproduction Plastics, Inc. pursuant to the settlement agreement dated July 2010; |
|
|
|
|
the repayment of approximately $1.0 million at the closing of this offering to Immersive Media Corp. pursuant to its secured promissory note plus accrued interest of $110,000; and |
|
|
|
|
the adjustment of the preferred stock conversion rate to
common stock, as a result of the transactions that took place from
January 1, 2011 through March 16, 2011, from 0.2302 to 0.2314 resulting in 14,729 additional shares of common stock upon conversion. |
This amount represents an
immediate increase in net tangible book value of $0.73 per share to the current
stockholders of the Company and an immediate decrease in net tangible book value of
$2.97
per share to new investors purchasing shares in this offering as illustrated in the
following table:
|
|
|
|
|
|
|
|
Assumed public offering price per unit |
|
|
|
|
|
$3.50 |
|
Pro forma
net tangible book deficit per share
at December 31, 2010 |
|
$ |
(0.20 |
) |
|
|
|
Increase in net tangible book value per share to existing
stockholders attributable to new investors (after deduction
of the estimated underwriting discount and other offering
expenses to be paid by Company) |
|
|
0.73 |
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma
as adjusted net tangible book value per share after the offering |
|
|
|
|
|
0.53 |
|
|
|
|
|
|
|
|
|
Decreased value per share to new investors (determined by
taking the adjusted net tangible book value after the
offering and deducting the amount of cash paid by a new
investor for a share of common stock) |
|
|
|
|
|
$2.97 |
|
Each
$1.00 increase (decrease) in the assumed public offering price
of $3.50 per
unit, would increase (decrease) our pro forma as adjusted net tangible book value by
approximately
$2.2 million, or approximately $0.19 per share, and the pro forma dilution
per share to investors in this offering by approximately $3.31
per share, assuming that
the number of units offered by us, as set forth on the cover page of this prospectus, remains the
same and after deducting estimated underwriting discounts and commissions and estimated offering
expenses payable by us. We may also increase or decrease the number of shares we are offering. An
increase of 250,000 in the number of units offered by us, would result in a pro forma as adjusted
net tangible book value of approximately $7.1 million, or $0.58 per share, and the pro forma
dilution per share to investors in this offering would be $2.92 per share. Similarly, a decrease
of 250,000 shares in the number of shares offered by us, would result in an pro forma as adjusted
net tangible book value of approximately $5.5 million, or $0.47 per share, and the pro forma
dilution per share to investors in this offering would be $3.03 per share. The pro forma as
adjusted information discussed above is illustrative only and will be adjusted based on the actual
public offering price and other terms of this offering determined at pricing.
If the underwriters over-allotment option is
exercised in full, the pro forma as adjusted net
tangible book value per share after this offering would be
$0.61 per share, the increase in pro
forma as adjusted net tangible book value per share to existing stockholders would be
$0.81 per
share and the dilution to new investors purchasing shares in this
offering would be $2.69 per
share.
The following table sets forth, on a pro forma basis as
of December 31, 2010, the
number of shares of common stock purchased from the Company, the total consideration paid
and the average price per share paid by the existing stockholders and by the new
investors, assuming in the case of new investors a public offering price of
$3.50 per unit,
before deductions of the underwriting and other offering expenses and
the application of the net proceeds of this offering:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consideration |
|
|
Average |
|
|
|
Shares Purchased |
|
|
Amount |
|
|
Price |
|
|
|
Number |
|
|
Percent |
|
|
Amount |
|
|
Percent |
|
|
Per Share |
|
Existing
stockholders |
|
|
9,418,635 |
|
|
|
79.0 |
% |
|
$ |
40,760,483 |
|
|
|
82.3 |
% |
|
$ |
4.33 |
|
New investors |
|
|
2,500,000 |
|
|
|
21.0 |
% |
|
|
8,750,000 |
|
|
|
17.7 |
% |
|
$ |
3.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
11,918,635 |
|
|
|
100.00 |
% |
|
$ |
49,510,483 |
|
|
|
100.00 |
% |
|
$ |
4.15 |
|
The foregoing table does not include the impact of the exercise of the underwriters
over-allotment option or the unit purchase option.
If the underwriters exercise their over-allotment option in full, our existing stockholders would
own 76.6% and our new investors would own 23.4% of the total
number of shares of our common
stock outstanding after this offering.
The table above excludes the following shares:
974,090 shares of common stock issuable upon the exercise of outstanding options issued
pursuant to our 2007 Stock Option/Stock Issuance Plan and our 2010 Stock Option/Stock Issuance
Plan;
47,050 shares of common stock reserved for issuance under our 2010 Stock Option/Stock
Issuance Plan;
1,069,614 shares of common stock issuable upon exercise of all warrants outstanding as of
December 31, 2010;
565,443 Class H and Class I warrants to be issued to Ki Nam upon conversion of debt;
1,125,274 Class H and Class I warrants to be issued to Vision upon the
conversion of the Vision Debentures, plus accrued interest through March 16, 2011; and
64,935 shares of common stock issuable upon conversion of the secured promissory note
payable to Immersive Media Corp.
To the extent that any of these options or warrants are exercised, new options are issued
under our 2010 Plan or we issue additional shares of common stock in the future, there will be
further dilution to investors participating in this offering.
24
PRICE RANGE OF COMMON STOCK
Market Information
Our common stock has been listed on the OTC Bulletin Board under the symbol TMMM since December 6, 2009.
Prior to December 6, 2009, there was no public market for our common stock. The following table
sets forth the range of high and low sales prices per share (assuming the one-for-10 reverse stock split) as reported on OTC Bulletin Board for the periods
indicated.
|
|
|
|
|
|
|
High Low |
|
2010 |
|
|
|
|
Fourth Quarter |
|
$ |
7.00 $3.00 |
Third Quarter |
|
$ |
10.10 $2.70 |
Second Quarter |
|
$ |
10.00 $2.50 |
First Quarter |
|
$ |
20.00 $8.90 |
|
|
|
|
|
2009 |
|
|
|
|
Fourth Quarter (from December 6, 2009) |
|
$ |
20.00 $12.50 |
25
DESCRIPTION OF BUSINESS
Overview
T3 Motion designs, manufactures and markets personal mobility vehicles powered by electric
motors. Our initial product is the T3 Series, which is a three wheel, electric stand-up vehicle
(ESV) powered by a quiet, zero-gas emission electric motor that is designed specifically for
public and private security personnel. Substantially all of our revenues to date have been derived
from sales of the T3 Series ESVs and related accessories.
The T3 Series has received recognition for its iconic design, including the Innovation
Award for Best Vehicle at the 2007 International Association of Chiefs of Police (IACP)
Convention and the Spark Award in the Vehicle Mobility category at the 2007 International Spark
Design Awards. The T3 Series has been featured on television and print media being deployed by professionals in law enforcement and
the private security industry due to its innovative design and convenient access. The elevated
nine inch raised platform provides the officer with a command presence, allowing
the public to be aware of the officers presence, while providing the officer with a better vantage
point to evaluate any situation. By using a T3 Series ESV, an officer can effectively patrol a
larger area than on foot or riding a bicycle, and enables the officer to safely and quickly
maneuver in crowded pedestrian areas or other areas where cars and other standard modes of
transportation cannot access easily, if at all. The T3 Series also improves the officers approachability with the
public as a result of its design and open platform that allow the officer to interact
with pedestrians more easily than is possible while patrolling by automobile, motorcycle or horseback.
We were incorporated in Delaware in 2006 and introduced our first T3 Series vehicles in early
2007. We currently sell our products in the U.S. directly and through distributors, and also
market our T3i Series ESV (the international version of our T3 Series) in the Middle East, Mexico, Canada,
Asia, South Africa, South America and Europe.
26
Market and Industry Overview
Personal transportation vehicles in the United States have become a necessity with law enforcement and
government agencies, university campuses, airports, shopping malls, events/promotions,
military/government, and industrial areas.
Personal transportation vehicles provide officers improved response times to
areas that were previously unavailable to automated transportation. The
security market has experienced a growing need for rapid response along with
the need to control costs.
Similar needs exist in the international market.
Adding to the substantial market for security in the post-9/11 world, increasing awareness of
global warming is creating a rapidly growing market for clean technologies. As a zero-gas emissions
electric vehicle, the T3 Series is positioned to take advantage of this trend.
In
the U.S., the increase in homeland security spending since 9/11 has been substantial. The
Department of Homeland Security Grant Program has awarded $1.7 billion to municipalities
for equipment acquisition and emergency preparedness in 2009. We have an opportunity to capture a
portion of this market created by police department purchases of police cars, associated upgrades,
bicycles and other security equipment purchased with funds from the U.S. Department of Homeland
Security (DHS).
Below is the list of specific markets that we believe will continue to experience growth and
we intend to serve.
Law
Enforcement. As police and sheriffs departments nationwide
continue to search for cost-effective patrol solutions,
T3 Motion will continue to provide solutions to this market. According to the
U.S. Bureau of Justice, as of 2007, there were
1,017,984 full-time state and local law
enforcement personnel. This is a decrease of 5.5% from 2004.
College
and University Campuses. According to the U.S. Department of
Education 2007-2008, there were more than
4,200 higher education institutions in the United States.
High
Schools. According to the National Center for Educational
Statistics, in 2008, there are
over 20,620 public high schools in the U.S. According to the 2004 National School Resource Officers
Survey, school crimes, violence and safety offenses remain significant issues affecting our
education system.
Military and Government Agencies. According to the Department of Defense, there were
approximately 5,300 military bases and/or military warehouses globally in 2007, which includes
Army, Navy, Air Force, USMC and WHS institutions. The Department of Defense also managed over
577,000 physical plants worldwide located on over 32 million acres in the U.S. and 39 foreign
countries as of 2007. At least 1,000 are believed to be bases and or military installations, of
which 823 are located worldwide that the U.S. operates or controls. With total military personnel
deployed in the U.S. and U.S. overseas territories estimated to be over 1.4 million as of 2007,
the need to provide security and other activities, including the need to move people within large
areas is significant. The T3 Series is currently patrolling high-profile government facilities and
military bases such as Andrews Air Force Base and the Smithsonian Institution.
Airports.
According to the U.S. Department of Transportation, in 2008 there
were 19,930
airports in the U.S. Of these, there were 5,202 public use airports,
14,451 private use airports and
550 certified airports (Certified airports serve air-carriers operations with aircraft seating more
than 30 passengers).
Port Security. In the post-9/11 era, according to DHS, February 2006 press release, funding
for port security has increased more than 700%. DHS spent over $1.6 billion in 2005 for port
security. Additionally, in 2009, an additional $150 million of
funding was approved by the DHS.
Private Security Companies. According to the National Association of Security Companies
(NASCO) 2006 Private Security Fact Sheet, private security contracting is an approximately $13
billion industry in the U.S. with 11,000 to 15,000 companies employing 1.2 million contract
security officers. Contract security officers are increasingly protecting military bases and
installations across the country and around the world, and are required to be first responders to
any incident. The Presidents National Strategy for Homeland
Security estimates that these
27
private security officers protect 85% of the countrys infrastructure, which, according to the
NASCO, makes private security companies a top funding priority for the federal government.
Manufacturing and Industrial Firms. According to the 2007 U.S. Census Bureau report there are
293,919 manufacturing establishments in the U.S. that have more than
13.3 million employees.
Shopping Malls and Parking Patrol. According to the CoStar National Research Bureau Shopping
Center Database and Statistical Model 2005, there are approximately 48,000 shopping malls in the
U.S. covering more than six billion square feet of space. The malls are patrolled by private
security companies. In addition to malls, there are numerous parking structures throughout the U.S.
that are regularly patrolled.
We believe we have the opportunity to provide a unique security solution for these markets. The T3 Series and the T3i Series meet the patrol needs of officers with the added benefit of reducing costs of operation. The T3 Series and T3i Series cost less than 10 cents a day to charge and allow the officer to patrol
a larger area than if they were walking.
Our Operations
Our principal executive offices and operations facility is located in Costa Mesa,
California. Our main corporate headquarters facility located at 2990
Airway Avenue, Building A is a leased 34,000 square foot facility that is home to the executive staff and sales staff and is
our main operational and manufacturing location. The facility is equipped with multiple production
lines capable of producing up to 750 T3 vehicles per month. Located directly across the street at
2975 Airway is our 14,000 square feet warehouse and R&D center that is fully equipped with all of
the necessary machines and equipment needed to design and build development products.
Our manufacturing activities largely consist of
final assembly, testing and quality assurance. We manufacture our T3 Series at our headquarters. Our raw materials are sourced from
various suppliers, both domestic and international. Currently, our electronics and wire harness
assembly manufacturing, embedded digital processing application development and electronics
hardware and software development occur at our headquarters and operations center. Final assembly,
testing, warehousing, quality control and shipping take place at our U.S. operations center.
Our sales
and marketing operations are
located at our headquarters. We
have agreements with numerous distributors and manufacturing representative companies
giving the distributors and manufacturers representatives the exclusive rights to sell the T3 Series
and CT Micro Car in specified geographic regions. Each agreement has a 30 day cancellation clause.
The T3 Motion, Inc. Product Line
T3
Series and T3i Series ESVs
The T3 Series and the T3i Series
(the version with the headset, power modules and batteries designed
for international use and compliance with international standards) are a three-wheel, front wheel drive, stand-up, electric personal mobility
vehicles with a zero-gas emission electric motor. They have hydraulic disk brakes on both
rear wheels that are matched with 17-inch low profile motorcycle tires for long treadwear and
demanding performance. The vehicles are equipped with an LCD control panel display and utilizes high
intensity LED lighting for its vertically adjustable headlights and taillights. It also features
emergency lights, as well as a siren on the law enforcement model. The T3 Series and T3i Series enable the
operator to respond rapidly to calls with low physical exertion. The nine-inch elevated riding platform
allows 360 degrees visibility while the ergonomic riding position reduces fatigue.
The zero degree turning radius makes it highly
28
maneuverable. The T3 Series and T3i Series come standard with a lockable storage compartment for equipment
and supplies.
Power Modules
The T3 Series and T3i Series have replaceable power modules that allow continuous vehicle operation
without downtime required for charging. The T3 Series and T3i Series offer a variety of battery technology options in its
power modules. The power modules and charger can be sold separately as replacement parts.
Accessories
Each T3 Series and T3i Series have the following accessory options:
Each T3 Series and T3i Series features reversible rear tires which enables customers to determine
whether to set up their T3 or T3i Series in a wide stance (36 wide) or a narrow stance (32 wide),
depending on their needs.
The side-mount External Storage Pack allows the operator to carry additional items on
the vehicle. The front-mount external storage case enables the T3 Series and T3i Series to distribute
parcels, documents, and cargo in indoor and outdoor narrow space environments.
The Sun Shade provides the operator protection from elements like the sun or
rain.
The front and rear turn indicator system is available for international
deployments and domestic up-fitting opportunities.
The on-board video camera system and digital video recorder is available for
patrol tracking and incident response data.
Additional accessories include an external shotgun mount, a fitted vehicle cover, a parcel
delivery trailer, and a multi-function trailer option.
We plan to continue to design and field test accessories as demand or needs arise.
29
Camera System
We offer multiple CCTV and camera systems including the 360-IP DN Camera, a stand-alone
360-degree camera and DVR, the Motiontrak, black-box in car video and
data recording system integrated with Google maps and the TVS-4050WK, a fully wireless IP four-camera system targeted at
facilities, warehouse, business districts, and campuses. They also offer the option of GPS positioning, real-time
surveillance or DVR recording options.
CT Series Micro Car
The CT Micro Car, is a low-speed four-wheel electric car. Leveraging the market
and brand of the T3 Series, we intend to market the CT Series using
our existing sales channels in the law enforcement and private security, sectors. The CT Series offers a variety of battery technology options with varying range options. The CT Series has lighting, siren and PA system options.
Our exclusive distribution agreement with manufacturing partner,
CT&T dated
November 24, 2008, provides us with the exclusive territories of North
America for all law enforcement, government, military and security
markets and the exclusive markets of all U.S. government
law-enforcement and security markets. The initial term of the
distribution agreement expires in November 2011, but automatically
renews for additional one year terms unless we or CT&T give 90 days written notice prior to the end of any term.
Electric/Hybrid Vehicle
The Electric/Hybrid Vehicle is the newest product in development. The Electric/Hybrid
Vehicle is a plug-in hybrid. The proprietary rear-wheel design
features a patent-pending single, wide-stance wheel with two
high-performance tires sharing one rear wheel. Due to its
three-wheel design, the Electric/Hybrid Vehicle is classified as a motorcycle. The Electric/Hybrid Vehicle is expected to be released for the market in late 2011.
Future Products
We plan to introduce a series of product variants based on the initial T3 Series, the T3i Series and CT Series
vehicles and the modularity of the sub-systems we have created. While
both the initial T3 Series, T3i Series and the CT Series vehicles are targeted at law enforcement, security and enterprise markets, we
intend to expand our base of T3 Series, T3i Series and CT Series vehicle variants by utilizing the modularity
of the sub-systems to configure vehicles for specific market uses such as delivery services,
personnel transport and personal mobility. As with all new development and products, we cannot
guarantee that the products will make it to market and if they are released to market, whether they
will be successful.
30
Revenue from Products
The
following table presents the sales of our products, identified both by revenue amount and
percentage of total revenues, for the years ended December 31, 2010 and 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
Percentage |
|
|
|
|
|
|
Percentage |
|
|
|
Net |
|
|
of Net |
|
|
Net |
|
|
of Net |
|
Product |
|
Revenues |
|
|
Revenues |
|
|
Revenues |
|
|
Revenues |
|
T3 Series Domestic |
|
$ |
3,842,030 |
|
|
|
82.0 |
% |
|
$ |
3,654,290 |
|
|
|
78.7 |
% |
T3 Series International |
|
|
840,878 |
|
|
|
18.0 |
|
|
|
963,911 |
|
|
|
20.8 |
|
CT Series Domestic |
|
|
|
|
|
|
|
|
|
|
25,821 |
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,682,908 |
|
|
|
100.00 |
% |
|
$ |
4,644,022 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and Development
We
emphasize on product research and development (R&D).
For the years ended December 31, 2010 and 2009, we spent
$1,602,961 and $1,395,309, respectively, on R&D for development
of products such as the CT-Series, the Electric/Hybrid Vehicle and to ensure that the T3
Series and T3i Series personal mobility
vehicles are properly designed to be more effective and useful
tools for the public safety
and private security market. In addition, we will continue to refine and optimize all aspects of
the vehicle design to maintain the high standards of vehicle performance, cost effectiveness and to
continue to meet the needs of our customers.
Growth Strategies
Our mission is to become the leader in clean energy, personal, professional mobility electric
stand-up vehicles, and to continue providing products that are economical, functional, safe,
dependable and meet the needs of the professional end user. We plan to pursue the following growth
strategies in pursuit of our mission:
Capitalize on broader private security opportunities. Our initial focus on the law
enforcement market has increased the demand for the T3 Series and T3i
Series ESV from other security markets,
which may hold equal, if not greater, potential for our products. We plan to focus our marketing
efforts to pursue the sale of our products into private security markets, which could include
corporate campuses, manufacturing facilities, government facilities,
military bases, shopping malls,
airports and events/promotions.
Increase our branding in law enforcement. We intend to continue to build on our
reputation within the law enforcement community and plan to pursue additional branding activities
in this regard. We believe that maintaining a strong brand within the law enforcement community
will facilitate our expansion into other private security markets.
Pursue international expansion. We believe the international markets represent a
significant opportunity to expand our current sales. We plan to continue to expand our presence in
our existing international markets, and to pursue adding new distributors to increase our sales in
Asia and Europe.
Expand the T3 Series product line to address broader markets. We believe the
modularity of our sub-systems may be used to configure additional vehicles that address the
personal transportation and personal mobility requirements in existing and new markets. We plan to
evaluate the expansion of our product line to leverage our technologies for additional commercial
markets such as for delivery services, property management, utility and maintenance providers, in
addition to any other private venue requiring security.
Leverage our brand into the consumer market. As we gain additional brand name
recognition, we plan to leverage our brand to enter the consumer market for personal
transportation. We are currently working on the development of the Electric/Hybrid Vehicle to address
the consumer markets and plan to evaluate the expansion of our product line for other consumer
applications.
31
Marketing and Distribution
We market and sell our products through our direct sales force located at our
headquarters in Costa Mesa, California. We have agreements with
numerous domestic and international distributors and manufacturers representatives, adding
substantially to our direct sales force. We plan to continue to expand our international sales by engaging additional distributors in new and existing markets, particularly in Asia and Europe.
Our standard distribution agreements provide for the right to distribute our vehicle and accessories within defined geographic
locations and defined markets. Our distribution agreements allow the distributor to
purchase our products at set prices, however, generally there is no requirement that the distributors meet a minimum
order quantity. Our distribution agreements usually can be cancelled
by either party upon 30 days prior written notice.
We value our customer input as we are a customer-driven company.
We generally follow a fundamental approach using the following core customer interests:
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|
|
We evaluate the available budget from the customer, building the value of the product rather than
price. |
|
|
|
|
Return on Investment (ROI). Our products have demonstrated
significant operational savings over gas powered
vehicles and allow the end user greater mobility and work efficiencies. |
|
|
|
|
We strive to maintain a manufacturing process that generally holds lead times to
approximately a 4 to 6 week timeframe. |
|
|
|
|
We have an in-field swappable power system that enables our clients to operate vehicles without
downtime for charging. The sustainable engineering and design was specifically tailored for the
professional end user in law enforcement and private security. |
|
|
|
|
Our vehicle has demonstrated that the iconic look and command presence has a crime deterrent ability. |
|
|
|
|
The T3 Series and T3i Series ESVs allow the user greater
mobility to maneuver through crowds and tight areas than other
vehicles such as motorcycles,
effectively increasing the patrol area and granting the user job efficiencies. |
32
Sources and Availability of Raw Materials; Principal Suppliers
Currently, over 70% of our T3 Series suppliers are local suppliers who provide products and
services to low volume early stage development companies. As the vehicle design has become stable
and sales volumes have increased, we have begun our transition to incorporate a global supply chain.
We have made significant progress in establishing relationships with suppliers who service volume
production stage companies. In addition, we plan to invest in production tooling that will
yield consistent high quality and lower cost parts designed to our specifications. We plan to
implement our multi-source supply chain strategy in working directly with established factories
within the automotive and motorcycle industry. The supply chain could include materials sourcing and
subassembly operations from sources in China, South Korea and Mexico. These components will be
shipped to our operations facility in Costa Mesa, California for final assembly, test, inspection,
and shipments to our customers. We plan to continue to expand this multiple source supplier base to
allow us to utilize both current U.S. based suppliers and newly acquired global suppliers to reduce
the risks of our existing single sourced components and reduce product costs.
We do not manufacture the CT Micro Car. Fully-built versions are delivered to us from the
developer and manufacturer, CT&T, a Korean electric car manufacturer. We outfit the CT Micro Car with our power management and battery technologies.
Operating and Manufacturing Strategy
Our management and engineering teams have experience working with off-shore
manufacturers and believe there are advantages of partnering
with reputable off-shore suppliers to access reliable manufacturing
practices at lower labor cost. Our staff continuously
seeks out new qualified suppliers and we evaluate suppliers for the maximum benefit that can be
realized. We generally seek suppliers and manufacturers with a well established history of supplying quality products within
their respective industries, a trained and experienced technical work force, state of the art facilities and
knowledge of all aspects of supply chain management, operational execution, global logistics and
reverse logistics.
Competition
We
currently compete with other providers of personal
mobility vehicle including, without limitation, Segway,
California Motors-Ride Vehicles and Gorilla Vehicles, but also
compete with other forms of transportation such
as bicycles, horses and standard police cars.
Some of our competitors are larger than we are and may have significantly greater name
recognition and financial, sales and marketing, technical, manufacturing and other resources. These
competitors may also be able to respond rapidly to new or emerging technologies and changes in
customer requirements or devote greater resources to the development, promotion and sale of their
products. Our competitors may enter our existing or future markets with products that may provide
additional features or that may be introduced earlier than our products.
We attempt to differentiate ourselves from our competitors by working to provide superior
customer service and developing products with appealing functions targeted to our core markets of
professional end users in law enforcement, private security, and government.
33
Intellectual Properties and Licenses
The following table describes the intellectual property owned by the Company:
|
|
|
|
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|
|
Type |
|
Name |
|
Issued by |
|
Description |
Trademark
|
|
|
|
United State Patent and
Trademark Office
|
|
Logo, brand name used on
our products |
Trademark
|
|
|
|
United State Patent and
Trademark Office
|
|
Logo, brand name used on
our products |
Trademark
|
|
ENABLING
PERSONAL
MOBILITY
|
|
United State Patent and
Trademark Office
|
|
Logo, brand name used on
our products |
We also have a patent license agreement from Evolutionary Electric Vehicles to us granting a
perpetual, fully paid, transferable exclusive license to make, have made, use, improve and sell an
over 10 Horsepower Brushless DC Motor for Traction (US Patent #4,882,524) with respect to products
in the world. This patent covers a motor technology that we plan on fully developing and using in
our products. Currently, we do not use the motors covered by this patent; however, this patented
technology will be utilized in future motors that we intend to use on future products. It is still
too early in the developmental phase to determine when the motor technology and products will be
available for the market.
On March 21, 2008, we filed a United States Patent Application for Batteries and Battery
Monitoring and Charging System. The intellectual property covered in this multi-claim patent is our
proprietary power management system that is currently used on all T3 Series products.
On September 17, 2008, we filed a United States Patent Application for the Battery
Powered Vehicle Control Systems and Methods. The intellectual property covered in this multi-claim
patent is our proprietary control system that is currently used on all T3 Series products.
On July 27, 2009, we filed a United States Patent Application for Dual Tires on a Single
Wheel (Provisional). The intellectual property covered in this patent offers enhanced stability,
reduces rolling and aerodynamic resistance and increases rider safety.
34
On September 30, 2009, we filed a United States Patent Application for Vehicle Hood,
Fenders, and Bumper (Design). Our unique design showcases custom built parts that are task specific
and visually appealing.
On December 7, 2009, we filed a United States Patent Application for Rechargeable Battery
Systems and Methods (Provisional). The claim covers a battery charging management system that we
will deploy in our electric
CT-Series and GT3 vehicle in the future. While utilizing modular technology was already used
in the T3 Series vehicle , this new battery and charger system will provide more efficiency and no
downtime.
We cannot
assure you that any patents will be issued, or even if issued, that they will provide adequate protection for the
Companys intellectual property.
Government Approvals and Regulation
On September 17, 2008, T3 Motion completed and passed its third party lab testing to obtain
its CE certification for the T3i Series product, battery, and charging system. CE is the governing
regulatory body and standard for electrical products meant to be exported to the European Union,
Africa, Australia, the Middle East and other foreign countries.
|
|
|
|
The T3i Series product has passed EMC testing for EN6100-6-1 and EN61000-6-3. |
|
|
|
|
|
Batteries and chargers were found to be technically compliant with the
EN55022, EN61000-3-2, EN61000-3-3, and EN55024 requirements. |
|
|
|
|
In 2009, the Electric Vehicle 3-Wheel and Charger has passed EMC testing
for EN60950-1:2006 (Information Technology Equipment Safety Standards) as
well as EN6100-6-1 and EN61000-6-3 (European Standards). |
On July 28, 2009, we received our GSA license number, GS-07F-0403V.
Customers
Our
marketing focus includes customers that have large areas to patrol such as law
enforcement, airports, hospitals, universities, security companies,
property management companies, shopping malls or large corporate
campuses. One customer and no single customer accounted for more than 10% of our
net revenues for the
years ended December 31, 2010 and 2009, respectively.
Principal Executive Offices
Our
principal executive office is located at 2990 Airway Avenue, Building A, Costa Mesa,
California 92626 and our telephone number is (714) 619-3600. Our website is
www.T3motion.com. You should not consider the information contained on, or accessible through, our website to be
part of this prospectus or in deciding whether to purchase our securities.
LEGAL PROCEEDINGS
With the exception of the following, we know of no material, existing or pending legal proceedings
against us, nor are we involved as a plaintiff in any material proceeding or pending litigation. We
are also unaware of any proceedings in which any of our directors, officers, or affiliates, or any
registered or beneficial holder of more than 5% of our voting securities, or any associate of such
persons, is an adverse party or has a material interest adverse to our Company.
Preproduction Plastics, Inc. v. T3 Motion., Inc. Ki Nam and Jason Kim (Orange
County Superior Court Case No. 30.2009-00125358): On June 30, 2009, Preproduction Plastics, Inc.
(Plaintiff) filed suit in Orange County Superior Court, alleging causes of actions against T3
Motion, Inc., Ki Nam, the Companys CEO, and Jason Kim, the Companys former COO (collectively the
Defendants) for breach of contract, conspiracy, fraud and common counts, arising out of a
purchase order allegedly executed between Plaintiff and the Company. On August 24, 2009,
Defendants filed a Demurrer to the Complaint. Prior to the hearing on the Demurrer, Plaintiff
filed a First Amended Complaint against Defendants for breach of contract, fraud and common
counts, seeking compensatory damages of $470,599, attorneys fees, punitive damages, interest and
costs. On October 27, 2009, Defendants filed a Demurrer, challenging various causes of action in
the First Amended Complaint. The Court denied the Demurrer on December 4, 2009. On December 21,
2009, Defendants filed an answer to the First Amended Complaint, and trial was set for July 30,
2010. On or about July 29, 2010, the case was settled in its entirety. The Company agreed to pay
compensatory damages, attorneys fees and costs totaling $493,468, through monthly payments of
$50,000, with 6% interest accruing from the date of the settlement. Periodic payments are expected
to be made through May 2011. The first payment of $50,000 was made on August 3, 2010
and subsequent
principal payments totaling $200,000 were made by the Company
through December 31, 2010.
The Company recorded the entire settlement amount of $493,468 as a note
payable, $470,599 as a deposit on fixed assets and the remaining $22,869 as a charge to legal
expense. At December 31, 2010, the remaining settlement amount of $243,468 is recorded as a note
payable in the accompanying consolidated balance sheet.
The Company has recorded accrued interest of $4,126 at December 31,
2010.
Commencing January 1, 2011, the Company has failed to make the scheduled
payments required by the July 29, 2010 settlement agreement and stipulation for entry of judgment. The
Plaintiff has filed a motion for entry of judgment pursuant to the terms of the July 29, 2010 settlement agreement, and stipulation for entry
of judgment, which if granted, would cause the acceleration of all amounts owed under the settlement agreement. The parties have requested that this
motion be heard on April 21, 2011.
35
MANAGEMENT
The following table sets forth the names and ages of all of our directors and executive
officers as of December 31, 2010. Also provided herein are a brief description of the business
experience during the past five years of each director, executive officer and significant employee during the past five years
and an indication of directorships held by each director in other companies subject to the
reporting requirements under the Federal securities laws. All of the directors will serve until the
next annual meeting of stockholders and until their successors are elected and qualified, or until
their earlier death, retirement, resignation or removal.
|
|
|
|
|
Name |
|
Age |
|
Positions Held: |
Ki Nam |
|
51 |
|
Chief Executive Officer and Chairman |
Kelly J. Anderson |
|
43 |
|
Executive Vice President, Chief
Financial Officer and President |
Noel Chewrobrier |
|
46 |
|
Vice President International Sales |
Dave Fusco |
|
60 |
|
Vice President Domestic Sales |
David Snowden |
|
66 |
|
Director |
Steven Healy |
|
50 |
|
Director |
Mary S. Schott |
|
50 |
|
Director |
Rob Thomson |
|
34 |
|
Director |
Biographical Information
Ki Nam, Chief Executive Officer has served as Chief Executive Officer of T3 Motion since March
16, 2006. Mr. Nam founded Paradigm Wireless Company in 1999, a supplier of quality wireless
equipment to the telecom industry, and Aircept founded in 2000, a leading developer, manufacturer,
and service provider in the Global Positioning System (GPS) marketplace. In 2001, Mr. Nam founded
Evolutionary Electric Vehicles (EEV) to provide high performance motor-controller packages to the
emerging hybrid and electric vehicle market. Prior to founding his
own companies, Mr. Nam co-founded Powerwave Technologies, Inc., a publicly-held company, where he held the position of
Executive Vice President, Business Development. We believe Mr. Nam is qualified to serve as a director as a result of his insight,
detailed understanding of electric vehicles and our technologies, and information
related to the Companys strategy, operations, and business. As founder of T3 Motion,
his vision and know-how have been instrumental in the development of our products
and business. His prior experience as the Chief Executive Officer of EEV and his
experience at Powerwave
Technologies, Inc.
also have afforded him with strong leadership skills and a
broad technology background.
Kelly J. Anderson, has been the President since April 2010 and Executive Vice President, Chief
Financial Officer since March 2008 and
served as a director of the Company
from January 2009 until January 2010.
From 2006 until 2008, Ms. Anderson was Vice President at Experian, a leading credit report agency. From 2004 until
2006, Ms. Anderson was Chief Accounting Officer for TripleNet Properties, G REIT, Inc., T REIT,
Inc., NNN 2002 Value Fund, LLC, and Chief Financial
36
Officer of NNN 2003 Value Fund, LLC and A REIT,
Inc., all of which were real estate investment funds managed by TripleNet Properties. From 1996 to
2004, Ms. Anderson held senior financial positions with The
First American Corp., a Fortune 500 title insurance company.
Noel Chewrobrier has been Vice President of International sales, since 2007. Over the past 15
years Noel has held various senior executive sales management positions at various technology
companies located in the UK and in the U.S., at the following
companies: Tecan UK and USA (Executive Vice President from 1995 to 2004, and
President from 2004 to 2007); Homark Ltd. (Global Sales Manager from 1989 to 1995); and Fast Moving
Consumer Goods (Sales and Marketing Regional Manager from 1986 to 1995).
David Fusco, was named Vice President, Domestic Sales, on October 1, 2010. Over the past 25
years David has held senior executive sales management positions at Texas Instruments, Compaq
Computer, and Hewlett-Packard. From
2006 to October 2010, David founded Andal Holdings, LLC, and provided sales and management consulting
services to a variety of companies. David holds a B.S. degree from Miami University
in Oxford, OH.
David
Snowden, has served as a director of the Company since 2007, Mr. Snowden has been the Chief of Police of Beverly Hills for the past seven
years. He has over 40 years of professional experience including holding positions as Chief of
Police for Beverly Hills (current), Costa Mesa (1986-2003), and Baldwin Park (1980-1986). Chief
Snowden has held numerous Presidential positions including Police Chiefs Department of the League
of Cities (1993), Orange County Chiefs and Sheriffs Association (1990) and was Chairman of the
Airbourne Law Enforcement. Chief Snowden was inducted to the Costa Mesa Hall of Fame in 2003
and was voted top 103 most influential persons on the Orange Coast
for 12 years. We believe Mr. Snowden is suited to serve as a director of T3 Motion due to his deep experience in
and understanding of the law enforcement industry, and his contacts within that industry. Mr.
Snowdens experience and background with police departments and municipalities has enabled the
Board and the Company to better understand the needs and interests of some of our primary clients.
Steven
Healy, has served as a director of the Company since 2007, Mr. Healy has been the Director of Public Safety at Princeton University since
2003, and was the President of the International Association of Campus Law Enforcement
Administrators (IACLEA) until June 2007. He has served as a member of the IACLEA Government
Relations Committee for the past 10 years and is active with issues regarding the Clery Act. Chief
Healy was recently appointed by the governor of New Jersey to serve on the states Campus Security
Task Force. Prior to his position at Princeton University, Mr. Healy was the Chief of Police at
Wellesley College in Wellesley, MA. He also served as Director of Operations at the Department of
Public Safety at Syracuse University. During his tenure at Wellesley College, Chief Healy was the
IACLEA North Atlantic Regional Director and President of the Massachusetts Association of Campus
Law Enforcement Administrators. We believe Mr. Healy is suited to serve as a director of T3 Motion due to his experience in private
security markets, and in particular with campus security issues, as well as his understanding of
law enforcement, in general.
Mary S. Schott, has served as a director of the Company since 2009, has over 25 years experience in the accounting finance functions
with extensive experience in finance and accounting compliance and systems including Sox
applications. Ms. Schott has been the Chief Financial Officer of San Manuel Band of Serrano Mission
Indians since 2008. A CPA and MBA, Ms. Schott served as Chief Accounting Officer of First American
Title Insurance Company, a division of First American Corporation for three years and
held various finance and accounting functions for the previous 17 years at First American. Ms.
Schott was the President and Treasurer of the First American Credit
Union for eight years. We believe Ms. Schott is qualified to serve as a director due to her experience as a Chief
Financial Officer of a public company and as a CPA and MBA, as well as her ability to understand any
technical financial issues that may be raised by our independent registered public accounting firm from time to time. Ms.
Schott has extensive knowledge and background relating to accounting and financial reporting rules
and regulations, as well as internal controls and business processes.
Rob
Thomson, has served as a director of the Company since 2010, Mr. Thomson has been a Director at Vision Capital Advisors, LLC since 2007, a New York
based private equity manager, where he oversees the firms growth equity investments in consumer
retail, industrials, and homeland defense and security companies. Vision Capital Advisors LLC is
the manager of two funds that hold debt and equity securities of the Registrant Vision
Opportunity Master Fund, Ltd. and Vision Capital Advantage Funds LP. At Vision, Mr. Thomson manages
investment opportunities for the funds and works closely with its portfolio companies in executing
their growth plans. He currently sits on the Board of Directors for Juma Technology Corp., a
converged network integrator and software developer based in New York that trades on the OTC
Bulletin Board and Microblend Technologies, Inc., a private company that is a
developer of automatic paint creation systems for retailers. From 2005 to 2007, Mr. Thomson was the
Managing Director of The Arkin Group, LLC in charge of operations, financial management and growth
strategies for this international business intelligence firm. Mr. Thomson has an MBA from the
Harvard Business School and a B.A. degree from Haverford College. He has studied Chinese language and
history at Nankai University in China and Tunghai University in Taiwan. Mr. Thomson is also a term
member at the Council on Foreign Relations. We believe Mr. Thomson is qualified to serve on our board as a result of his broad experience
advising other emerging growth companies and experience with other companies in our target markets.
Mr. Thomson also has a deep understanding of capital markets, mergers and acquisitions, business
restructuring, business development, as well as fundraising and investment strategies.
37
Code of Conduct and Ethics
We
plan to adopt a Code of Conduct and Ethics prior to the completion of this
offering that will apply to all directors, officers, and employees, including our Chief Executive Officer and Chief Financial
Officer, and members of the board of directors.
Material Changes to the Procedures by which Security Holders May Recommend Nominees to the Board of
Directors
There
have been no material changes to the procedures by which security
holders may recommend nominees to the Board of Directors.
Director Independence
Upon the closing of this offering, we plan to list our common stock, units, Class H warrants and
Class I warrants on the AMEX. Under the rules of the AMEX, independent directors must comprise
a majority of a listed companys board of directors within a specified period of the closing of its
initial listing in the AMEX. In addition, the rules of AMEX require that, subject to specified
exceptions, each member of a listed companys audit, compensation, and nominating and corporate
governance committees be independent. Audit committee members must also satisfy the independence
criteria set forth in Rule 10A-3 under the Exchange Act. The Board
has concluded that Ms. Schott, Mr. Snowden and Mr. Healy each qualify as
independent directors under both the listing
standards of the AMEX and Rule 10A-3 under the Exchange Act.
Board Committees
Our Board has an audit committee, a compensation committee and a nominating committee, each of which has the composition and the responsibilities described
below.
Audit Committee. Our audit committee oversees our corporate accounting and
financial reporting process and assists the Board in monitoring our financial systems and our legal
and regulatory compliance. Our audit committee is authorized to, among other things, to assist the
Boards oversight of the following:
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|
|
the integrity of our financial statements; |
|
|
|
|
our compliance with legal and regulatory requirements; |
|
|
|
|
the qualification and independence of our independent auditors; and |
|
|
|
|
the performance of the Companys auditor qualifications and the work of our
independent auditors. |
Our audit committee currently consists of Mary Schott (Chairperson) and Dave Snowden.
Compensation Committee. Our compensation committee oversees, and makes
recommendations to the Board regarding the annual salaries and other compensation of the Companys
executive officers, the Companys general employee compensation and the Companys other
compensation policies and practices. The compensation committee is also responsible for
administering the Companys 2007 Plan and 2010 Plan. Our compensation committee currently consists
of Mary Schott (Chairperson) and Steven Healy.
Nominating Committee. Our nominating committee
assists the Board in reviewing and
recommending nominees for election as directors, as well as establishing procedures to address
stockholder proposals and the structure of the board and its committees. The members of our nominating committee are Dave Snowden (Chairman) and Steven Healy. Our board of directors may from
time to time establish other committees.
Director Compensation
The Company pays each of its outside directors a $20,000 cash retainer for the directors
participation on the Board and its committees. The Board pays no additional fees for attending
meetings or telephone conferences. The following table sets forth information concerning
compensation paid or accrued for services rendered to us by members of our board of directors for
2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned or |
|
|
|
|
|
|
|
|
|
Paid in Cash ($) |
|
|
Option Awards($)(1) |
|
|
Total ($) |
|
Ki Nam(2) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Steven Healy |
|
|
20,000 |
|
|
|
18,390 |
|
|
|
38,390 |
|
David Snowden |
|
|
20,000 |
|
|
|
18,390 |
|
|
|
38,390 |
|
Mary S. Schott |
|
|
20,000 |
|
|
|
18,390 |
|
|
|
38,390 |
|
Robert Thomson |
|
|
|
(3) |
|
|
18,390 |
(4) |
|
|
18,390 |
|
|
|
|
(1) |
|
Amounts represent the aggregate grant date fair value of the stock or option award calculated
in accordance with Financial Accounting Standards Board (FASB) Accounting Standards
Codification (ASC) Topic 718, Stock Compensation, as amended, without regard to estimated
forfeitures, or, with respect to re-priced options. See Note 11 of the notes to our audited consolidated
financial statements for a discussion of valuation assumptions made in determining the grant
date fair value and compensation expense of our stock options. |
|
(2) |
|
Mr. Nam does not receive compensation for serving as a
director of the Company. His compensation for serving as an officer
of the Company is reflected in the table titled Summary Compensation Table. |
|
(3) |
|
Mr. Thomson has waived his annual cash retainer Board fee for 2010. |
|
(4) |
|
Such options will be assigned to Vision Capital Advisors or
its affiliates. |
38
Executive Compensation
The following summary compensation table indicates the cash and non-cash compensation earned
during the years ended December 31, 2010 and 2009 by our Chief Executive Officer (principal
executive officer), (i) our Chief Financial Officer (principal accounting
officer), (ii) our two
most highly compensated executive officers other than our CEO and CFO who were serving as executive
officers at the end of our last completed fiscal year, whose total compensation exceeded $100,000
in 2010, and (iii) up to two additional individuals for whom disclosure would
have been provided but for the fact that the individual was not serving as an executive officer at
the end of our last completed fiscal year, whose total compensation exceeded $100,000 during such
fiscal year ends.
Executive Compensation Summary Compensation Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock |
|
Option |
|
All Other |
|
|
|
|
|
|
|
|
Salary |
|
Bonus |
|
Awards |
|
Awards |
|
Compensation |
|
Total |
Name and Principal Position |
|
Year |
|
($)(1) |
|
($) |
|
($) |
|
($)(1) |
|
($)(2) |
|
($) |
Ki Nam, |
|
|
2010 |
|
|
$ |
190,000 |
|
|
|
|
|
|
|
|
|
|
$ |
114,900 |
|
|
|
|
|
|
$ |
304,900 |
|
Chief Executive Officer |
|
|
2009 |
|
|
|
150,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150,000 |
|
and Chairman(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kelly J. Anderson, |
|
|
2010 |
|
|
|
187,962 |
|
|
|
|
|
|
|
|
|
|
|
229,800 |
|
|
|
|
|
|
$ |
417,762 |
|
Executive Vice President,
President and |
|
|
2009 |
|
|
|
175,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
175,000 |
|
Chief Financial Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
|
|
|
|
(1) |
|
The amounts shown in this column represent the dollar amount recognized for financial
statement reporting purposes for the years ended December 31, 2010
and 2009 with respect to stock options granted, as determined
pursuant to the accounting standards. The
option awards fair values for 2010 was $0.38 per share. There were no grant awards during 2009. |
(2) |
|
Pursuant to Mr. Nams employment agreement, his annual salary is $190,000, commencing January 1, 2010. Mr. Nam has elected
to defer payment of his increase until the completion of the
Companys next round of financing, which may include this offering. |
|
Employment Agreements
Ki Nam
The Company entered into a written employment agreement with Mr. Ki Nam on August 13, 2010 in
which it agreed to employ Mr. Nam during the term hereof as its Chief Executive Officer. The initial term of Mr. Nams
employment expires on December 30, 2011, but the agreement automatically renews,
annually, upon the terms and conditions set forth in this agreement unless terminated by either party by giving
written notice 60 days prior to the expiration of the then term.
For the period of one year commencing on January 1, 2010, the Company shall pay Mr. Nam a base
salary of $190,000 per annum. During his employment and any renewal or extension period thereafter,
Mr. Nam shall be entitled to receive, on March 15 of each calendar year, an annual bonus based
upon an approved budget by the Companys board of directors and/or its compensation committee.
If the Board determines that the Company does not have sufficient cash available to make the above
described cash obligations, the Board may, in its discretion, make such payments in stock, but at
no time shall the cash payment due under the cash obligation fall below one third of the payment
obligation. Mr. Nam shall be eligible to participate in any compensation plan or program (401(k)
plan and stock option plan) maintained by the Company in which other executives or employees of the
Company participate, on similar terms. The Company shall provide to Mr. Nam and his family, during
the employment with coverage under all employee medical, dental and vision benefit programs, plans
or practices adopted by the Company and made available to all employees of the Company. Mr. Nam
shall be entitled to four weeks paid vacation in each calendar year (but no more than ten
consecutive business days at any given time).
The Company may terminate Mr. Nams employment at any time for any reason. If Mr. Nams employment
is terminated by the Company other than for Cause (as defined in such agreement), Mr. Nam shall
receive a severance payment equal to twelve months base salary and twelve months
benefits, and any earned and/or accrued bonus, as in effect immediately prior to such termination,
payable in accordance with the ordinary payroll practices of the Company, but not less frequently
than semi-monthly following such termination of employment.
In the event that Mr. Nams employment is terminated (i) by the Company for Cause; (ii) by Mr. Nam
on a voluntary basis; (iii) as a result of Mr. Nams permanent disability; or (iv) by Mr. Nams
death, he or his estate shall only be entitled to receive base salary and bonuses already earned
and accrued through the last day of his employment.
40
In the event of termination by Mr. Nams death or permanent disability, all such benefits
identified under the employment agreement shall be maintained and in effect for twelve (12)
additional months by the Company. Any and all such unvested benefits (i.e. 401(k), restricted stock
or stock options) shall immediately vest.
If Mr. Nams employment with the Company is terminated by the Company (other than upon the
expiration of the Employment terms, for Cause, or by reason of disability, or upon Mr. Nams death)
at any time within ninety (90) days before, or within twelve (12) months after, a Change in Control
of the Company (as defined in such agreement), or if Mr. Nams employment with the Company is
terminated by him for good reason (as defined in such agreement) within six (6) months after a
Change in Control, or if Mr. Nams employment with the Company is terminated by Mr. Nam for any
reason, including without Good Reason, during the period commencing six (6) months after a Change
in Control and ending twelve (12) months after a Change in Control, then the Company shall pay to
Mr. Nam: (i) any accrued, unpaid base salary payable as in effect on the date of termination, (ii)
any unreimbursed business expenses and (iii) a severance benefit, in a lump sum cash payment, in an
amount equal to: (A) Mr. Nams annual rate of base salary, as in effect as of the date of
termination, plus Mr. Nams target bonus for the fiscal year of the Company in which the
date of termination occurs.
In the event Mr. Nam is entitled to the severance benefits, each stock option exercisable for
shares of Company common stock granted under the Companys stock incentive plan that is held by
Mr. Nam, if then outstanding, shall become immediately vested and exercisable with respect to all of
the shares of Company common stock subject thereto on the date of termination and shall be
exercisable in accordance with the provisions of the Companys stock
incentive plan and option agreement pursuant to which such option was granted. In addition, in the
event Mr. Nam is entitled to severance benefits, a restricted stock award and restricted shares of
the Company common stock granted under the Companys stock incentive plan that is held by Mr. Nam
that is subject to a forfeiture, reacquisition or repurchase option held by the Company shall
become fully vested, nonforfeitable and no longer subject to reacquisition or repurchase by the
Company or other restrictions on the date of termination.
Mr. Nam shall not, without the prior written consent of the Company, use or make accessible to any
other person, any confidential information pertaining to the business or affairs of the Company,
except (i) while employed by the Company, in the business of and for the benefit of the Company, or
(ii) when required to do so by applicable law.
Mr.
Nam has also agreed for the
two years following his termination of employment, he and his affiliates will not
directly or indirectly, through any others person, (i) employ, solicit or induce any individual who
is, or was at any time during the one (1) year period prior to the termination date, an employee or
consultant of the Company, (ii) cause such individual to terminate or refrain from renewing or
extending his or his employment by or consulting relationship with the Company, or (iii) cause such
individual to become employed by or enter into a consulting relationship with the Company and its
affiliates or any other individual, person or entity.
Mr.
Nam and his affiliates also shall not solicit, persuade or induce any customer to terminate, reduce
or refrain from renewing or extending its contractual or other relationship with the Company in
regard to the purchase of products or services, performed, manufactured, marketed or sold by the
Company or any other person. Mr. Nam and his affiliates shall not solicit, persuade or induce any
supplier to terminate, reduce or refrain from renewing or extending his, his or its contractual or
other relationship with the Company. During the term of his
employment, Mr. Nam shall not
engage or assist others to engage in a competing business.
Kelly Anderson
The
Company entered into a written employment agreement with Kelly
Anderson, on April 17, 2010. The term of this agreement continues
until December 30, 2011 but it automatically renews for an additional
one year period unless either the Company or Ms. Anderson give the
other party written notice of at least 60 days prior to the
expiration of the then term. Pursuant to this agreement, Ms.
Andersons base salary for the first year of the agreement is
$190,000 per year, and she is eligible to receive an annual bonus
based upon an approved budget and other requirements as established
from time to time by the Companys Board of Directors and/or its
Compensation Committee. If the Board determines that the Company does
not have sufficient cash available to make the foregoing cash
obligations, the Board may, in its discretion, make such payments in
stock, but at no time shall the cash payment due under the cash
obligation fall below one third of the foregoing payment obligation
to Ms. Anderson.
While the
Company may terminate Ms. Andersons employment at any time for any
reason, if Company terminates her employment for other than for Cause
(as defined in such agreement), she shall receive (a) a severance
payment equal to six (6) months of her then Base Salary; (b)
continuation of her insurance benefits for six (6) months following
her termination; and (c) any earned and/or accrued bonus, as in
effect immediately prior to such termination, payable in accordance
with the ordinary payroll practices of the Company, but not less
frequently than semi-monthly following such termination of employment.
41
In the
event (i) the Company terminates Ms. Andersons employment for Cause
(as defined in the agreement), (ii) she voluntarily resigns from the
Company; or (iii) her termination is as a result of her Permanent
Disability (as defined in the agreement);or (iv) her termination is
due to her death, then Ms. Anderson or her estate shall only be
entitled to receive any base salary or bonus earned and accrued
through the date of her termination of employment.employment. Notwithstanding the
foregoing, in the event her termination is due to her death or
Permanent Disability, [her salary and benefits] will also continue
for six months after her termination, and any of her unvested
benefits (i.e. 401(k), restricted stock or stock options) shall
immediately vest upon her termination.
If (a) Ms.
Anderson's employment with the Company is terminated by the Company
(other than upon the expiration of her employment term under the
agreements, for Cause, or by reason of a Permanent Disability, or
upon Executive's death)at any time within ninety (90) days before, or
within twelve (12) months after, a Change in Control (as defined in
the agreement), or (b) if she resigns for Good Reason (as defined in
the agreement) within six (6) months after a Change in Control, or
(c) her employment with the Company is terminated by Ms. Anderson for
any reason, including without Good Reason, during the period
commencing six (6) months after a Change in Control and ending twelve
(12) months after a Change in Control, then the Company shall be
required to pay to Ms. Anderson the following benefits: (i) any
accrued, unpaid base salary payable as in effect on her termination
date; (ii) any unreimbursed business expenses; and (iii) a severance
benefit, in a lump sum cash payment, in an amount equal to: (i) her
annual base salary then in effect, plus her Target Bonus (as defined
in the agreement) for the fiscal year of the Company during which her
termination occurs.
In the
event Ms. Anderson is entitled to the severance benefits under her
employment agreement, all of her outstanding stock options granted
under the Companys stock incentive plan shall immediately vest and
become exercisable and any restricted stock award and restricted
shares of the Company common stock granted to Ms. Anderson under the
Companys stock incentive plan that is subject to a forfeiture,
reacquisition or repurchase option held by the Company shall become
fully vested, nonforfeitable and no longer subject to reacquisition
or repurchase by the Company or other restrictions as of her
termination date.
42
Following
her termination of employment, Ms. Anderson shall continue to be
subject to certain confidentiality obligations and is also
subject to certain nonsolicitation obligations contained in the
agreement for two years following her termination concerning certain
of the Companys current and prior employees and consultants.
Other than
such arrangements described above, we have no other formal employment
agreements with any of our executive officers, nor any compensatory
plans or arrangements resulting from the resignation, retirement or
any other termination of any of our executive officers, from a
change-in-control, or from a change in any executive officers
responsibilities following a change-in-control.
The
following table summarizes the amount of our executive officers equity-based compensation
outstanding at the fiscal year ended December 31, 2010 and 2009:
43
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards |
|
Stock Awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive |
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
Plan Awards: |
|
|
|
|
|
|
|
|
|
|
Incentive Plan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive |
|
Market or |
|
|
|
|
|
|
|
|
|
|
Awards: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Market |
|
Plan Awards: |
|
Payout Value |
|
|
Number of |
|
Number of |
|
Number of |
|
|
|
|
|
|
|
|
|
Number |
|
Value of |
|
Number of |
|
of Unearned |
|
|
Securities |
|
Securities |
|
Securities |
|
|
|
|
|
|
|
|
|
of Shares |
|
Shares or |
|
Unearned |
|
Shares, Units |
|
|
Underlying |
|
Underlying |
|
Underlying |
|
|
|
|
|
|
|
|
|
or Units of |
|
Units of |
|
Shares, Units |
|
or Other |
|
|
Unexercised |
|
Unexercised |
|
Unexercised |
|
Option |
|
Option |
|
Stock that |
|
Stock that |
|
or Other |
|
Rights that |
|
|
Options (#) |
|
Options (#) |
|
Unearned |
|
Exercise |
|
Expiration |
|
Have Not |
|
Have Not |
|
Rights that |
|
Have Not |
Name |
|
Exercisable |
|
Unexercisable |
|
Options (#) |
|
Price ($) |
|
Date |
|
Vested (#) |
|
Vested ($) |
|
Have Not Vested (#) |
|
Vested ($) |
Ki Nam |
|
|
|
|
|
|
|
|
|
|
30,000 |
|
|
$ |
5.00 |
|
|
|
7/21/2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000 |
|
|
|
|
|
|
|
|
|
|
|
7.70 |
|
|
|
12/10/2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kelly J. Anderson |
|
|
|
|
|
|
|
|
|
|
60,000 |
|
|
|
5.00 |
|
|
|
7/21/2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,750 |
|
|
|
|
|
|
|
6,250 |
|
|
|
6.00 |
|
|
|
3/17/2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,417 |
|
|
|
|
|
|
|
9,583 |
|
|
|
5.00 |
|
|
|
11/13/2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Exercises and Stock Vested
The following table sets forth certain information regarding exercises of stock options and
stock vested held by the Named Executive Officers during the year ended December 31, 2010:
Option Exercises and Stock Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards |
|
Stock Awards |
|
|
Number of Shares |
|
|
|
|
|
Number of Shares |
|
|
|
|
Acquired |
|
Value Realized |
|
Acquired |
|
Value Realized |
|
|
on Exercise |
|
on Exercise |
|
on Vesting |
|
on Vesting |
Name |
|
(#) |
|
($) |
|
(#) |
|
($) |
Ki Nam |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
Kelly J. Anderson |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as to each person who is known to us to be the
beneficial owner of more than 5% of our outstanding common stock and
Series A Convertible Preferred Stock and
as to the security and percentage ownership of each executive officer and director of the Company
and all officers and directors of the Company as a group as of
February 28, 2011.
We have determined beneficial ownership in accordance with the rules of the Securities and
Exchange Commission. Except as otherwise indicated, we believe that the beneficial owners listed
below, based on the information furnished by these owners, have sole investment and voting power
with respect to the securities indicated as beneficially owned by them, subject to applicable
community property laws.
Unless otherwise indicated, the address of each beneficial owner listed below is 2990 Airway
Ave., Building A., Costa Mesa, California 92626.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior to the Offering |
|
After the Offering |
|
|
|
|
|
|
|
|
|
|
Number of |
|
Percentage of |
|
Number of |
|
Percentage of |
|
|
Number of |
|
Percent of |
|
Shares of |
|
Shares of |
|
Shares of |
|
Shares of |
|
|
Shares of |
|
Shares of |
|
Series A |
|
Series A |
|
Common |
|
Common |
|
|
Common Stock |
|
Common Stock |
|
Preferred Stock |
|
Preferred Stock |
|
Stock |
|
Stock |
|
|
Beneficially |
|
Beneficially |
|
Beneficially |
|
Beneficially |
|
Beneficially |
|
Beneficially |
Name of Beneficial Owner and Address |
|
Owned(1) |
|
Owned(1)(2) |
|
Owned |
|
Owned(13) |
|
Owned(2) |
|
Owned |
Executive Officers and/or Directors: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ki Nam |
|
|
3,323,746 |
|
|
|
59.5 |
%(3) |
|
|
976,865 |
|
|
|
8.5 |
% |
|
|
5,050,781 |
|
|
|
37.8 |
%(16) |
Kelly Anderson |
|
|
25,833 |
|
|
|
* |
(4) |
|
|
|
|
|
|
|
|
|
|
25,833 |
|
|
|
* |
|
David Snowden |
|
|
10,000 |
|
|
|
* |
(5) |
|
|
|
|
|
|
|
|
|
|
10,000 |
|
|
|
* |
|
Steven Healy |
|
|
10,000 |
|
|
|
* |
(6) |
|
|
|
|
|
|
|
|
|
|
10,000 |
|
|
|
* |
|
Mary S. Schott |
|
|
10,000 |
|
|
|
* |
(7) |
|
|
|
|
|
|
|
|
|
|
10,000 |
|
|
|
* |
|
Robert Thomson |
|
|
3,877,500 |
|
|
|
46.5 |
%(8) |
|
|
12,870,698 |
|
|
|
85.8 |
%(14) |
|
|
6,147,871 |
|
|
|
43.4 |
%(17) |
5% Stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Immersive Media Corp. |
|
|
447,334 |
|
|
|
8.4 |
%(9) |
|
|
|
|
|
|
|
|
|
|
382,399 |
|
|
|
3.2 |
%(18) |
Vision Opportunity Master Fund, Ltd. |
|
|
3,405,117 |
|
|
|
42.8 |
%(10) |
|
|
10,951,765 |
|
|
|
73.0 |
% |
|
|
5,615,169 |
|
|
|
39.6 |
%(19) |
Total Force International Limited |
|
|
800,000 |
|
|
|
14.6 |
%(11) |
|
|
|
|
|
|
|
|
|
|
800,000 |
|
|
|
6.5 |
%(22) |
Vision Capital Advantage Fund |
|
|
472,384 |
|
|
|
8.7 |
%(15) |
|
|
1,918,933 |
|
|
|
16.7 |
% |
|
|
532,701 |
|
|
|
4.5 |
%(21) |
All Executive Officers and Directors as
a Group (7 persons) |
|
|
7,257,080 |
|
|
|
81.4 |
%(12) |
|
|
13,847,563 |
|
|
|
92.3 |
% |
|
|
11,254,485 |
|
|
|
71.8 |
%(20) |
|
|
|
* |
|
Holders hold less than 1%. |
|
(1) |
|
Under Rule 13d-3, a beneficial owner of a security includes any person who, directly or
indirectly, through any contract, arrangement, understanding, relationship, or otherwise has
or shares: (i) voting power, which includes the power to vote, or to direct the voting of
shares; and (ii) investment power, which includes the power to dispose or direct the
disposition of shares. Certain shares may be deemed to be beneficially owned by more than
one person (if, for example, persons share the power to vote or the power to dispose of the
shares). In addition, shares are deemed to be beneficially owned by a person if the person
has the right to acquire the shares (for example, upon exercise of an option) within 60 days
of the date as of which the information is provided. In computing the percentage ownership
of any person, the amount of shares outstanding is deemed to include the amount of shares
beneficially owned by such person (and only such person) by reason of these acquisition
rights. As a result, the percentage of outstanding shares of any person |
45
|
|
|
|
|
as shown in this
table does not necessarily reflect the persons actual ownership or voting power with
respect to the number of shares of common stock actually outstanding. |
|
(2) |
|
As of February 28, 2011, there were 5,065,846 shares of
common stock issued and outstanding; after giving effect to this
offering, there will be 11,254,485 shares of common stock issued and
outstanding; |
|
(3) |
|
This number includes 2,715,523 shares of common stock, 195,373 shares of common stock, as
converted from preferred stock, warrants to purchase 222,850 shares of common stock held by The Nam Family
Trust Dated 02/17/07, Ki Nam and Yeong Hee Nam as Trustees. This
number also includes 90,000 shares of common stock held by Justin Nam, who is the son of this stockholder.
Further, this number does not include 90,000 shares of common stock held by Michelle Nam,
who is the daughter of this stockholder. This amount includes 100,000 shares subject to an option
to purchase common stock. Thus, the percentage of common stock beneficially owned by Mr. Nam
is based on a total of 5,584,069 shares of common stock. |
|
(4) |
|
This number includes options to purchase 25,833 shares of common stock held by Ms.
Anderson. Thus, the percentage of common stock beneficially owned by Ms. Anderson is based
on a total of 5,091,679 shares of common stock. |
|
(5) |
|
This number includes options to purchase 10,000 shares of common stock held by Mr. Snowden.
Thus the percentage of common stock beneficially owned by Mr. Snowden is based on a total of
5,075,846 shares of common stock. |
|
(6) |
|
This number includes options to purchase 10,000 shares of common stock held by Mr. Healy.
Thus the percentage of common stock beneficially owned by Mr. Healy is based on a total of
5,075,846 shares of common stock. |
|
(7) |
|
This number includes options to purchase 10,000 shares of common stock held by Ms. Schott.
Thus the percentage of common stock beneficially owned by Ms. Schott is based on a total of
5,075,846 shares of common stock. |
|
(8) |
|
Robert Thomson has been designated by Vision Opportunity Master Fund, Ltd. to our board of
directors. The reported securities are owned directly by Vision Opportunity Master Fund,
Ltd. (VOMF) and its affiliate Vision Capital Advantage Fund, L.P. (VCAF), and together
with VOMF, the Vision Entities), and Mr. Thomson has no direct interest in these shares.
VOMF and VCAF are the direct owners of the subject securities. VCAF GP, LLC (the General
Partner) serves as general partner of VCAF; the Managing Member of the General Partner is
Adam Benowitz. Vision Capital Advisors, LLC (the Investment Manager) serves as investment
manager to VOMF and VCAF. Adam Benowitz is the Managing Member of the Investment Manager.
Robert Thomson currently serves as VOMFs and VCAFs
representative on our board of
directors; VOMF and VCAF may be deemed a director by virtue of their right to appoint a
director. The 598,360 shares listed represent the 509,764 and 88,597 common shares
held by VOMF and VCAF, respectively, as well as (all figures given in the aggregate) (a) the
options to purchase up to 5,000 shares of our common stock, (b) the
10% Convertible Promissory Notes (the Notes) currently
convertible into 700,000 shares
of our common stock and 700,000 warrants, (c) the 7,451,765 Series A convertible preferred stock
convertible into 1,490,353 shares of our common stock held by VOMF, (d) the
1,918,933 Series A convertible preferred stock convertible into
383,787 shares of our common stock held by VCAF. The Notes and the Series A
convertible preferred stock owned by VOMF and VCAF are subject to a beneficial ownership
limitation such that at no time may VOMF or VCAF convert all or a portion of such securities
if the number of shares of common stock to be issued pursuant to such conversion would
exceed, when aggregated with all other shares of common stock owned by VOMF, VCAF and its
affiliates at such time, the number of shares of common stock which would result in VOMF,
VCAF and its affiliates beneficially owning (as determined in accordance with Section 13(d)
of the Exchange Act and the rules thereunder) more than 9.99% of all of our common stock
outstanding at such time (the Beneficial Ownership Limitation); provided,
however, that upon VOMF or VCAF provide us with sixty-one (61) days notice (the
Waiver Notice) that VOMF or VCAF would like to waive the Beneficial Ownership Limitation
with regard to any or all shares of common stock issuable upon conversion of such
securities. VOMF, VCAF, the Investment Manager, the General Partner, Mr. Benowitz and Mr.
Thomson and any affiliate (the Vision Entities) disclaims beneficial ownership of all
securities reported herein, except to the extent of their pecuniary interest therein, if
any, and this report shall not be deemed an admission that such Vision Entities are the
beneficial owner of the shares for purposes of Section 16 of the Exchange Act or for any
other purpose. Mr. Thomson disclaims beneficial ownership of all securities reported herein.
Thus, the percentage of common stock beneficially owned by Robert Thomson is based on a
total of 8,344,986 shares of common stock. The principal business office of VCAF is 20
West 55th Street, 5th Floor, New York, New York 10019. The principal
business office of VOMF is Vision |
46
|
|
|
|
|
Opportunity Master Fund, Ltd. c/o Ogier Fiduciary Services
(Cayman) Limited, 89 Nexus Way, Camana Bay, Grand Cayman, Cayman Islands KY1-9007. |
|
(9) |
|
This number includes warrants to purchase 198,764 shares of common stock held by Immersive
Media Corp. and 64,935 shares of common stock upon conversion of the convertible note. Thus, the percentage of common stock
beneficially owned by Immersive Media Corp. is based on a total of
5,329,545 shares of
common stock. The address for Immersive Media Corp. is Immersive Media Corp. is 224 15th
Avenue SW, Calgary, AB T2R 0P7 Canada. The person exercising voting
or dispositive control of shares held by Immersive Media Corp. is David Anderson. |
|
(10) |
|
Vision Opportunity Master Fund, Ltd. (the VOMF) and Vision Capital Advantage Fund, L.P.
(VCAF) are the direct owners of the subject securities. VCAF GP, LLC (the General
Partner) serves as general partner of VCAF; the Managing Member of the General Partner is
Adam Benowitz. Vision Capital Advisors, LLC (the Investment Manager) serves as investment
manager to VOMF and VCAF. Adam Benowitz is the Managing Member of the Investment Manager.
Robert Thomson currently serves as VOMFs and VCAFs
representative on our board of
directors; VOMF and VCAF may be deemed a director by virtue of their right to appoint a
director. The 598,360 shares listed represent the 509,764 and 88,597 common shares
held by VOMF and VCAF, respectively, as well as (all figures given in the aggregate) (a) the
options to purchase up to 5,000 shares of our common stock, (b) the
10% convertible promissory notes (the Notes) currently convertible into 700,000 shares
of our common stock and 700,000 warrants, (c) the 7,451,765 Series A convertible preferred stock
convertible into 1,490,353 shares of our common stock held by VOMF, (d) the
1,918,933 Series A convertible preferred stock convertible into
383,787 shares of our common stock held by VCAF. The Notes, and the Series A
convertible preferred stock owned by VOMF and VCAF are subject to a beneficial ownership
limitation such that at no time may VOMF or VCAF convert all or a portion of such securities
if the number of shares of common stock to be issued pursuant to such conversion would
exceed, when aggregated with all other shares of common stock owned by VOMF, VCAF and its
affiliates at such time, the number of shares of common stock which would result in VOMF,
VCAF and its affiliates beneficially owning (as determined in accordance with Section 13(d)
of the Exchange Act and the rules thereunder) more than 9.99% of all
of our common stock outstanding at such time (the Beneficial Ownership Limitation); provided,
however, that upon VOMF or VCAF provide us with sixty-one (61) days notice (the
Waiver Notice) that VOMF or VCAF would like to waive the Beneficial Ownership Limitation
with regard to any or all shares of common stock issuable upon conversion of such
securities. VOMF, VCAF, the Investment Manager, the General Partner, Mr. Benowitz and Mr.
Thomson and any affiliate (the Vision Entities) disclaims beneficial ownership of all
securities reported herein, except to the extent of their pecuniary interest therein, if
any, and this report shall not be deemed an admission that such Vision Entities are the
beneficial owner of the shares for purposes of Section 16 of the Exchange Act or for any
other purpose. Thus, the percentage of common stock beneficially owned by Vision Opportunity
Master Fund is based on a total of 7,961,199 shares of common stock. |
|
(11) |
|
This number includes 400,000 shares of common stock, and warrants to
purchase 400,000 shares of common stock held by Total Force International Limited. Thus,
the percentage of common stock beneficially owned by Total Force International Limited is
based on a total of 5,465,846 shares of common stock. The address for Total Force
International Limited is Rm 1604 West Tower, Shun Tak Center, Hong Kong. The person exercising voting or dispositive control of shares held by Total Force International Limited is Sam Lee. |
|
(12) |
|
This number includes 3,403,883 shares of common stock,
2,069,513 shares of common stock as
converted from preferred stock, warrants to purchase
222,850 shares of common stock, the Notes
currently convertible into 700,000 shares of our common stock and
warrants to purchase 700,000 shares of common stock and options to purchase
160,833 shares of common stock held by the executive officers and directors. Thus, the
percentage of common stock beneficially owned by the executive officers and directors is
based on a total of 8,919,042 shares of common stock. |
|
(13) |
|
As of February 28, 2011, there were 11,502,563 shares of
Series A convertible preferred stock outstanding. The Company
anticipates that all Series A preferred stock will be converted into
common stock after the offering. |
|
(14) |
|
The reported shares of Series A convertible preferred stock are owned directly by the Vision
Entities; such shares are convertible at any time, at the
holders election, into 1,874,140
shares of our common stock (the quotient of the liquidation
preference amount of $7.00 per
share divided by the current conversion price of $3.50 per share times the number of shares
of Series A convertible preferred stock. The Notes convert into
3,500,000 shares of our preferred stock. The Vision Entities may not acquire shares of common stock
upon conversion of the convertible preferred stock to the extent that, upon conversion, the
number of shares of common stock beneficially owned by the Vision Entities and its
affiliates would exceed 4.99% of the issued and outstanding shares of our common stock;
provided, that this restriction on conversion can be waived at any time by the funds on 61
days notice. Mr. Thomson disclaims beneficial ownership of all securities reported herein. |
47
|
|
|
(15) |
|
The reported securities are owned directly by VCAF include, 88,597 common shares, as well
as (all figures given in the aggregate) the 1,918,933 Series A convertible preferred stock
convertible into 383,787 shares of our common stock. The Series A convertible preferred stock are subject to a beneficial ownership limitation such that VCAF may not convert or
exercise such securities to the extent that the conversion or exercise would cause VCAF
common stock holdings to exceed 4.99% of our total common shares outstanding, provided that
this restriction on conversion can be waived at any time by the funds on 61 days notice.
Thus, the percentage of common stock beneficially owned by VCAF is based on a total of
5,449,633 shares of common stock. |
|
(16) |
|
This number includes 2,715,523 shares of common stock,
226,079 shares of common stock, as converted from preferred stock,
warrants to purchase 1,353,736 shares of common stock and unsecured
promissory note plus accrued interest (through March 16, 2011) converted
into 565,443 shares of common stock, in accordance
with purchase terms in this prospectus held by The Nam Family Trust Dated 02/17/07, Ki Nam and Yeong Hee Nam
as Trustees. This number also includes 90,000 shares of common stock held by Justin Nam, who is the son of this
stockholder. Further, this number does not include 90,000 shares of common stock held by Michelle Nam, who is
the daughter of this stockholder. This amount includes 100,000 shares subject to an option to purchase common stock. Thus,
the percentage of common stock beneficially owned by Mr. Nam is based
on a total of 13,372,371 shares of common
stock.
|
|
(17) |
|
Robert Thomson has been designated by VOMF to our board of directors. The reported securities are owned
directly by VOMF and its affiliate VCAF, and Mr. Thomson has no direct interest in these shares. VOMF and
VCAF are the direct owners of the subject securities. The General Partner serves as general partner of VCAF; the
Managing Member of the General Partner is Adam Benowitz. The Investment Manager serves as investment
manager to VOMF and VCAF. Adam Benowitz is the Managing Member of the Investment Manager. Robert
Thomson currently serves as VOMFs and VCAFs
representative on our board of directors; VOMF and
VCAF may be deemed a director by virtue of their right to appoint a director. The 598,360 shares listed represent
the 509,764 and 88,597 common shares held by VOMF and VCAF, respectively, as well as (all figures given in the
aggregate) (a) the options to purchase up to 5,000 shares of our common stock, (b) the 10% Convertible
Promissory Notes (the Notes) plus accrued interest
(through March 16, 2011)
currently convertible into 1,125,274 shares of our
common stock and warrants to purchase 2,250,548 shares of common stock, in accordance with terms in this
prospectus, (c) the 7,451,765 Series A convertible preferred stock
convertible into 1,724,584 shares of our
common stock held by VOMF, (d) the 1,918,933 Series A convertible preferred stock convertible into 444,104
shares of our common stock held by VCAF. The Notes and the Series A convertible preferred stock owned
by VOMF and VCAF are subject to a beneficial ownership limitation such that at no time may VOMF or VCAF
convert all or a portion of such securities if the number of shares of common stock to be issued pursuant to such
conversion would exceed, when aggregated with all other shares of common stock owned by VOMF, VCAF and its
affiliates at such time, the number of shares of common stock which would result in VOMF, VCAF and its affiliates
beneficially owning (as determined in accordance with Section 13(d) of the Exchange Act and the rules thereunder)
more than 9.99% of all of our common stock outstanding at such time (the Beneficial Ownership
Limitation); provided, however, that upon VOMF or VCAF
providing us with sixty-one (61) days notice
(the Waiver Notice) that VOMF or VCAF would like to waive the Beneficial Ownership Limitation with regard to
any or all shares of common stock issuable upon conversion of such securities. VOMF, VCAF, the Investment
Manager, the General Partner, Mr. Benowitz and Mr. Thomson and any affiliate (the Vision Entities) disclaims
beneficial ownership of all securities reported herein, except to the extent of their pecuniary interest therein, if any,
and this report shall not be deemed an admission that such Vision Entities are the beneficial owner of the shares for
purposes of Section 16 of the Exchange Act or for any other purpose. Mr. Thomson disclaims beneficial ownership
of all securities reported herein. Thus, the percentage of common stock beneficially owned by Robert Thomson is
based on a total of 14,174,183 shares of common stock.
|
|
(18) |
|
This number includes 183,635 shares of common stock, warrants to purchase 198,764 shares of common stock held by Immersive Media Corp.
Thus, the percentage of common stock beneficially owned by Immersive Media Corp. is based on a total of
12,117,399 shares of common stock.
|
|
(19) |
|
The reported securities are owned directly by VOMF include 509,764 common shares, as well as (all figures
given in the aggregate) (a) the options to purchase up to 5,000 shares of the Issuers common stock, (b) the Notes
plus accrued interest (through March 16, 2011) currently convertible
into 1,125,274 shares of our common stock and warrants to
purchase 2,250,548 shares of common stock, in accordance with terms in this prospectus, (c) the 7,451,765 Series A
convertible preferred stock convertible into 1,724,584 shares of our common stock.
The Notes, and the Series A convertible preferred stock
are subject to a beneficial ownership limitation such that at no time may VOMF convert all or a portion of
such securities if the number of shares of common stock to be issued pursuant to such conversion would exceed,
when aggregated with all other shares of common stock owned by VOMF, VCAF and its affiliates at such time, the
number of shares of common stock which would result in VOMF, VCAF and its affiliates beneficially owning (as
determined in accordance with Section 13(d) of the Exchange Act and the rules thereunder) more than the Beneficial
Ownership Limitation; provided, however, that upon VOMF or VCAF
providing us with sixty-one (61) days
notice (the Waiver Notice) that VOMF or VCAF would like to waive the Beneficial Ownership Limitation with
regard to any or all shares of Common Stock issuable upon conversion of such securities. The Vision Entities
disclaims beneficial ownership of all securities reported herein, except to the extent of their pecuniary interest
therein, if any, and this report shall not be deemed an admission that such Vision Entities are the beneficial owner of
the shares for purposes of Section 16 of the Exchange Act or for any other purpose. Thus, the percentage of common
stock beneficially owned by Vision Opportunity Master Fund is based
on a total of 14,174,183 shares of common
stock. |
|
(20) |
|
This number includes 3,403,883 shares of common stock,
2,394,767 shares of common stock as converted, from preferred stock, warrants to purchase 222,850 shares of
common stock, the Notes currently convertible into 1,690,717 shares of our common stock, and warrants to
purchase 3,381,434 shares of common stock in accordance with terms in this prospectus and options to purchase
160,833 shares of common stock held by the executive officers and directors. Thus, the percentage of common stock
beneficially owned by the executive officers and directors is based
on a total of 15,683,752 shares of common
stock.
|
|
(21) |
|
The reported securities are owned directly by VCAF include, 88,597 common shares, as well as (all figures
given in the aggregate) the 1,918,933 Series A convertible preferred
stock convertible into 444,104 shares of our
common stock. The Series A convertible preferred stock are subject to a beneficial ownership limitation such that
VCAF may not convert or exercise such securities to the extent that the conversion or exercise would cause VCAF
common stock holdings to exceed 4.99% of our total common shares outstanding, provided that this restriction on
conversion can be waived at any time by the funds on 61 days notice. Thus, the percentage of common stock
beneficially owned by VCAF is based on a total of 11,918,635 shares of common stock. |
|
(22) |
|
This number includes 400,000 shares of common stock and
warrants to purchase 400,000 shares of common stock held by Total
Force International Limited. Thus the percentage of common stock
beneficially owned by Total Force is based on a total of 12,318,635
shares of common stock. |
48
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth, as of December 31, 2010, certain information related to our
compensation plans under which shares of our common stock are authorized for issuance.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities |
|
|
|
|
|
|
|
Weighted-Average |
|
|
Remaining Available |
|
|
|
|
|
|
|
Exercise Price of |
|
|
for Future Issuance |
|
|
|
Number of Securities to be |
|
|
Outstanding |
|
|
Under Equity |
|
|
|
Issued Upon Exercise of |
|
|
Options, |
|
|
Compensation Plans |
|
|
|
Outstanding Options, |
|
|
Warrants and |
|
|
(Excluding Securities |
|
|
|
Warrants and Rights |
|
|
Rights |
|
|
Reflected in Column (a)) |
|
Plan Category |
|
(a) |
|
|
(b) |
|
|
(c) |
|
Equity
compensation plans
approved by
stockholders |
|
|
649,090 |
|
|
$ |
5.70 |
|
|
|
372,050 |
|
Equity compensation
plans not approved
by stockholders |
|
|
1,069,614 |
|
|
$ |
7.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,718,704 |
|
|
|
|
|
|
|
372,050 |
|
2007 Stock Option/Stock Issuance Plan
The 2007 Stock Option/Stock Issuance Plan (the 2007 Plan) became effective on August 2007, the
effective
date the Board of Directors of T3 Motion approved the 2007 Plan. The maximum number of shares of
common stock that may be issued over the term of the 2007 Plan is 745,000 shares.
Awards under the 2007 Plan may be granted to any of the T3 Motions employees, non-employee
directors of
T3 Motion or any of its parents or subsidiaries, and consultants and other independent advisors who
provide services to T3 Motion or any of its parents or subsidiaries. Awards may consist of stock
options (both incentive stock options and non-statutory stock options) and stock awards. An
incentive stock option may be granted under the 2007 Plan only to a person who, at the time of
the grant, is an employee of T3 Motion or a parent or subsidiary of T3 Motion.
The 2007 Plan was administered by T3 Motions Board of Directors, with full power to
authorize the
issuance of shares of the T3 Motions common stock and to grant options to purchase shares of T3
Motions common stock. The administrator has the power to determine the terms of the awards,
including the exercise price, the number of shares subject to each award, and the exercisability of
the awards. Any or all administrative functions, however, may be delegated by the Board to a
committee of the Board.
The 2007 Plan provides that in the event of a merger of T3 Motion with or into another
corporation or of a
change in control of T3 Motion, including the sale of all or substantially all of T3 Motions
assets, and certain other events, the Board of Directors may, in its discretion, provide for the
assumption or substitution of, or adjustment to, each outstanding award and accelerate the vesting
of options.
The 2007 Plan will terminate on the earlier of (i) May 15,
2017, or (ii) the date on which all
745,000 shares
49
available for issuance under the 2007 Plan is issued, or (iii) the termination of all
outstanding options in connection with a merger with or into another corporation or a change in
control of T3 Motion. No further options may be granted under the 2007 Plan. As of December 31,
2010, there were outstanding options to purchase 366,140 shares of our common stock under the
2007 Plan.
The Board of Directors may generally amend or terminate the 2007 Plan as determined to be
advisable. No such amendment or modification, however, may adversely affect the rights and
obligations with respect to options or unvested stock issuances at the time outstanding under the
2007 Plan unless the optionee or the participant consents to such amendment or modification. Also,
certain amendments may require shareholder approval pursuant to applicable laws and regulations.
2010 Stock Option/Stock Issuance Plan
The 2010 Stock Option/Stock Issuance Plan (the 2010 Plan) became effective in January 2010,
and was approved by the Companys stockholders in June 2010. The maximum number of shares of common
stock that may be issued over the term of the 2010 Plan is 650,000 shares.
Awards under the 2010 Plan may be granted to any of the employees and non-employee directors
of the Company or any of its parents or subsidiaries, as well as any consultants and other
independent advisors who provide services to the Company or any of its parents or subsidiaries.
Awards may consist of stock options (both incentive stock options and non-statutory stock options)
and stock awards. An incentive stock option may be granted under the 2010 Plan only to a person
who, at the time of the grant, is an employee of the Company or its parent or subsidiary.
The 2010 Plan is administered by the Companys Board of Directors; however, the Board may
delegate such authority to a committee (Committee) appointed by the Board. The plan administrator
may authorize the issuance of shares of the common stock and to grant options to purchase shares of
common stock. The plan administrator has the power to determine the terms of the awards, including
the exercise price, the number of shares subject to each award, and the exercisability of the
awards.
The 2010 Plan provides that in the event of a merger of the Company with or into another
corporation or of a change in control of the Company, including the sale of all or substantially
all of the Companys assets, and certain other events, the Board of Directors may, in its
discretion, provide for the assumption or substitution of, or adjustment to, each outstanding award
and accelerate the vesting of options.
The 2010 Plan will terminate on the earlier of (i) January 26, 2020, (ii) the date on which
all 650,000 shares available for issuance under the Option Plan is issued, or (iii) the termination
of all outstanding options in connection with a merger with or into another corporation or a
change in control of the Company.
The Board of Directors may generally amend or terminate the 2010 Plan as determined to be
advisable. No such amendment or modification, however, may adversely affect the rights and
obligations with respect to options or unvested stock issuances at the time outstanding under the
2010 Plan unless the optionee or the participant consents to such amendment or modification. Also,
certain amendments may require stockholder approval pursuant to applicable laws and regulations.
As
of December 31, 2010, there were outstanding options to purchase
282,950 shares of our
common stock under the 2010 Plan.
Warrants
From time to time, we issue warrants to purchase shares of the Companys common stock to
investors, note holders and to non-employees for services rendered or to be rendered in the future.
Such warrants are issued outside of the 2010 Plan and the 2007 Plan.
50
Transactions with Related Parties
The following reflects the related party transactions
that exceeds the lesser of (i) $120,000 or (ii) one percent of the
average of our total assets at year end for the last two completed
fiscal years.
Accounts Receivable
As of December 31, 2010 and 2009, the Company has receivables of $35,722 and $28,902,
respectively, due from Graphion Technology USA LLC (Graphion) related to consulting services
rendered and/or fixed assets sold to Graphion. During 2010, the Company sold fixed assets to
Graphion for a purchase price of $6,820, and there was no gain or loss recorded on the sale of the
fixed assets. Graphion is wholly owned by Mr. Nam, the Companys Chief Executive Officer. The
amounts due are non-interest bearing and are due upon demand.
As of December 31, 2010 and 2009, there were outstanding related party receivables of $0 and
$6,756, respectively, which primarily relate to receivables due from Mr. Nam, which represents the
rental obligation of Mr. Nam for his month-to-month lease of excess warehouse space at the
Companys facility in Costa Mesa, CA.
51
Fixed Assets
On
December 20, 2010, the Company purchased a vehicle from
Mr. Nam for $7,000 cash to be used for
sales and service. The purchase price was $7,000 and was determined to be the estimated fair value
of the vehicle at the time of the purchase.
Related Party Payables
From time to time, the Company purchases batteries and outsources research and development
from Graphion. During the years ended December 31, 2010 and 2009, the Company purchased $151,973 of
research and development services, and $622,589 of parts, respectively, from Graphion and had an outstanding
accounts payable balance of $51,973 and $104,931 owed to Graphion at December 31, 2010 and 2009,
respectively.
Accrued Salary
As of December 31, 2010, the Company owed Mr. Nam $40,000 of salary pursuant to his
employment agreement which is included in accrued expenses. Mr. Nam has elected to defer
payment of this amount until the next round of funding is received by the Company.
Intangible Assets
On March 31, 2008, the Company entered into a purchase agreement with Immersive, one of the
Companys stockholders, for a GeoImmersive License Agreement,
pursuant to which Immersive granted
the Company the right to resell
data in the Immersive mapping database. The Company paid Immersive $1,000,000 for the license.
On March 16, 2009, the Company revised the terms of the agreement to revise the start of the
two year license to begin upon the completion and approval of the post-production data. The
revision includes automatic one-year renewals unless either party cancels within 60 days of the end of the contract. Upon the execution of the revision, the
Company ceased amortizing the license and tested annually for impairment until the post-production
of the data is complete. At December 31, 2009, management performed its annual review to assess
potential impairment and deemed the intangible asset to be fully impaired, as management decided to
allocate the resources required to map the data elsewhere. As a result, the remaining value of
$625,000 was fully amortized as of December 31, 2009.
Notes Payable
Immersive Note
On December 31, 2007, the Company issued a 12% secured promissory note in the principal amount
of $2,000,000 to Immersive. On March
31, 2008, the Company repaid $1,000,000 of the principal amount. The note was originally due
December 31, 2008 and
was subsequently amended so that it
is secured by all of the Companys assets.
In connection with the issuance of the promissory note, the Company issued a warrant to
Immersive for the purchase of 69,764 shares of the Companys common stock at an exercise price of
$10.80 per share. The warrants are immediately exercisable. The Company recorded a debt discount of
$485,897 related to the fair value of the warrants, which was calculated using the Black-Scholes
Merton option pricing model. The debt discount was amortized to interest expense over the original
term of the promissory note.
First Amendment to Immersive Note
On December 19, 2008, the Company amended the terms of the promissory note with Immersive to,
among other things, extend the maturity date of the outstanding balance of $1,000,000 from December
31, 2008 to March 31, 2010 and give Immersive the option to convert the promissory note during the
pendency and prior to the closing of an equity offering into units of the Companys securities at
an original conversion price of $16.50 per unit. Each unit consists of one share of the Companys
common stock and a warrant to purchase a share of the Companys
common stock at $20.00 per share. In
the event the Company issues common stock or common stock equivalents for cash consideration in a
subsequent financing at an effective price per share less than the original conversion price, the
conversion price will reset. The amended terms of the note resulted in terms that were
substantially different from the terms of the original note. As a result, the modification was
treated as an extinguishment of debt during the year ended December 31, 2008. There was no gain or
loss recognized in connection with the extinguishment. At the date of the amendment, the Company
did not record the value of the conversion feature as the conversion option is contingent on a
future event.
52
In
December 2009, the Company issued 2,000,000 shares of its Series A convertible preferred
stock (Preferred Stock) in connection with an equity offering. As a result of the
December 2009 equity offering, the Company recorded the estimated fair value of the conversion
feature of $1,802 as a debt discount and amortized such amount to interest expense through the
maturity of the note on March 31, 2010. The Company recorded the corresponding amount as a
derivative liability and any change in fair value of the conversion feature was recorded through
earnings.
As consideration for extending the terms of the promissory note in December 2008, the Company
agreed to issue warrants to Immersive for the purchase of up to 25,000 shares of the Companys
common stock at an exercise price of $20.00 per share, subject to adjustment. For every three months
that the promissory note is outstanding, the Company issued Immersive a warrant to purchase 5,000
shares of the Companys common stock. During the year ended December 31, 2009, the Company issued
warrants to Immersive to purchase 20,000 shares of the Companys common stock. The Company
recorded a debt discount of $139,778 based on the estimated fair value of the warrants issued
during the year ended December 31, 2009. As a result of the December 2009 equity offering, the
exercise price of the warrants was adjusted to $5.00 per share. During the year ended December 31, 2010, the Company issued the remaining
5,000 warrants under the note. The Company recorded an additional debt discount of $15,274 based
on the estimated fair value of the 5,000 warrants issued during the year ended December 31, 2010.
During the years ended December 31, 2010 and 2009, the Company amortized $56,539 and $99,043,
respectively, of the debt discounts to interest expense. As of March 31, 2010, prior to the second
amendment to the Immersive note (see below), the debt discounts were fully amortized to interest
expense.
Second Amendment to Immersive Note
On March 31, 2010, Immersive agreed to extend the note to April 30, 2010. As consideration for
extending the note, the Company agreed to exchange Immersives Class A warrants to purchase up to
69,764 shares of the Companys common stock at an exercise price
of $10.80 per share and its Class
D warrants to purchase up to 25,000 shares of the Companys common stock at an adjusted exercise
price of $7.00 per share, for Class G warrants to purchase up to
69,764 shares and 25,000 shares
of the Companys common stock, respectively, each with an
exercise price of $7.00 per share. The
Company recorded a debt discount and derivative liability of $1,898 based on the incremental
increase in the estimated fair value of the re-pricing of the 25,000 warrants. The Company
recorded an additional debt discount and derivative liability in the amount of $216,811 based on
the estimated fair value of the 69,764 warrants issued. The total debt discount was amortized in
April 2010. The amended terms did not result in terms that were substantially different from the
terms of the original note. Therefore, there was no extinguishment of debt
as a result of the second amendment.
The note and accrued interest were not repaid in full by April 30, 2010. As a result, per the
agreement, the maturity date was extended to March 31, 2011 and the Company issued Class G warrants
to purchase up to 104,000 shares of the Companys common stock
at an exercise price of $7.00 per
share. The interest rate which compounds annually, was also amended to 15.0%. The Company recorded
interest expense of $140,000 and $120,000, related to the stated rate of interest during the years
ended December 31, 2010 and 2009, respectively, and had accrued interest of $110,000 and $0 at
December 31, 2010 and 2009, respectively. The terms of the Class G warrants issued to Immersive
are substantially similar to prior Class G warrants issued by the Company. The Company recorded a
debt discount of $329,120 related to the fair value of the warrants issued. Amortization of this
debt discount was $220,241 for the year ended December 31, 2010, resulting in an unamortized debt
discount balance of $108,879 at December 31, 2010.
Vision Opportunity Master Fund, Ltd. Bridge Financing
December 30, 2008 10% Convertible Debenture
On December 30, 2008, the Company sold $2.2 million in debentures and issued Class D
warrants through a private placement to Vision Opportunity Master Fund, Ltd. (Vision) pursuant to
a Securities Purchase Agreement. In connection with this financing, the Company recorded a debt
discount of $607,819 related to the BCF of the debenture and a debt discount of $607,819 related to
the relative fair value of the Class D warrants. The debt discount for the Class D warrants was
calculated using the Black-Scholes-Merton option pricing model. The BCF and warrants were amortized
to interest expense over the one-year life of the note. As a result of the adoption of a new
accounting pronouncement on January 1, 2009, the Company recorded an additional debt discount of
$859,955 which was amortized through maturity of the debentures.
On December 30, 2009, pursuant to the Exchange Agreement (see below), the Company issued
to Vision and Vision Capital Advantage Fund, L.P. (VCAF and, together with Vision, the Vision
Parties), shares of Preferred Stock in exchange for the delivery and cancellation of these
debentures and accrued interest.
May 28, 2009 10% Convertible Debenture
On May 28, 2009, the Company issued to Vision, 10% Debentures with an aggregate principal
value of $600,000. Additionally, Vision received Class E common stock purchase warrants, (Class E
Warrants) to purchase up to an aggregate 30,000 shares of the Companys common stock at an
exercise price of $12.00 per share. In connection with this financing, the Company recorded a debt
discount of $291,327 related to the conversion feature of the debenture and a debt discount of
$201,222 related to the estimated fair value of the Class E Warrants. The debt discount for the
Class E Warrants was calculated using the Black-Scholes-Merton option pricing model. The conversion
feature and warrants were amortized to interest expense through the date of exchange of these
debentures (see below). As noted below, these 10% Debentures were cancelled in connection with the
December 30, 2009 financing with Vision. Additionally, the Class E Warrants were exchanged for
shares of Preferred Stock in connection with the December 30, 2009 financing with Vision (see
below).
December 30, 2009 10% Convertible Debenture
On December 30, 2009, the Company sold $3,500,000 in debentures and warrants to Vision through
a private placement pursuant to a Securities Purchase Agreement (the Purchase Agreement). The
Company issued to Vision, 10% secured convertible debentures (Debentures), with an aggregate
principal value of $3,500,000.
The Debentures accrue interest on the unpaid principal balance at a rate equal to 10% per
annum. The maturity date of the Debentures was December 30, 2010 (see below). At any time after the
240th calendar day following the issue date, the Debentures are convertible into units
of Company securities at a conversion price of $10.00 per unit, subject to adjustment. Each unit
consists of one share of the Companys Preferred Stock and a warrant to purchase one share of the
common stock. As a result of the 240th day passing, the Company recorded an additional
debt discount and corresponding derivative liability in the amount of $275,676 during the year
ended December 31, 2010. The Company may redeem the Debentures in whole or part at any time after June 30, 2010 for cash in an amount equal to
120% of the principal amount plus accrued and unpaid interest and certain other amounts due in
respect of the Debenture. Interest on the Debentures is payable in cash on the maturity date or, if
sooner, upon conversion or redemption of the Debentures. In the event of default under the terms of
the Debentures, the interest rate increases to 15% per annum. The Company recorded interest expense
of $350,000 and $959, related to the stated rate of interest, for the years ended December 31, 2010
and 2009, respectively, and had accrued interest of $350,959 and $959 as of December 31, 2010 and
2009, respectively.
The Purchase Agreement provides that during the 18 months following December 30, 2009, if the
Company or its wholly owned subsidiary, T3 Motion, Ltd., a company incorporated under the laws of
the United Kingdom (the Subsidiary), issue common stock, common stock equivalents for cash
consideration, indebtedness, or a combination of such securities in a subsequent financing (the
Subsequent Financing), Vision may participate in such Subsequent Financing in up to an amount
equal to Visions then percentage ownership of the Companys common stock.
53
The Purchase Agreement also provides that from December 30, 2009 to the date that the
Debentures are no longer outstanding, if the Company effects a Subsequent Financing, Vision may
elect, in its sole discretion, to exchange some or all of the Debentures then held by Vision for
any securities issued in a Subsequent Financing on a $1.00 for $1.00 basis (the Exchange);
provided, however, that the securities issued in a Subsequent Financing will be irrevocably
convertible, exercisable, exchangeable, or resettable (or any other similar feature) based on the
price equal to the lesser of (i) the conversion price, exercise price, exchange price, or reset
price (or such similar price) in such Subsequent Financing and (ii)
$10.00 per share of common
stock. Vision is obligated to elect the Exchange on a $0.90 per $1.00 basis (not a $1.00 for $1.00
basis) if certain conditions regarding the Subsequent Financing and other matters are met.
Also pursuant to the Purchase Agreement, Vision received Class G common stock purchase
warrants (the Class G Warrants). Pursuant to the terms of
the Class G Warrants, Vision is entitled to purchase
up to an aggregate of 350,000 shares of the Companys common
stock at an exercise price of $7.00
per share, subject to adjustment. The Class G Warrants have a term of five years after the issue date of
December 30, 2009.
The Subsidiary entered into a subsidiary guarantee (Subsidiary Guarantee) for Visions
benefit to guarantee to Vision T3 Motions obligations due under the Debentures. T3 Motion and the
Subsidiary also entered into a security agreement (Security Agreement) with Vision, under which
it and the Subsidiary granted to Vision a security interest in certain of our and the Subsidiarys
property to secure the prompt payment, performance, and discharge in full of all obligations under
the Debentures and the Subsidiary Guarantee.
December 30, 2009 Exchange Agreement
On
December 30, 2009, the Company also entered into a securities exchange agreement (the
Exchange Agreement) with the Vision Parties. Pursuant to the Exchange Agreement, the Company
issued to the Vision Parties an aggregate of 9,370,698 shares of Preferred Stock. 3,055,000 shares
of Preferred Stock were issued in exchange for the delivery and cancellation of 10% Secured
Convertible Debentures previously issued by the Company to the Vision Parties in the principal
amount of $2,200,000 (issued December 30, 2008) and $600,000 (issued May 28, 2009) plus accrued
interest of $255,000 (in conjunction with the issuance of Preferred Stock, the Company issued Class
F warrants to purchase 611,000 shares of common stock at $7.00 per share); 2,263,750 shares of
Preferred Stock were issued in exchange for the delivery and cancellation of all Class A, B, C, D,
E and F warrants (which were exercisable for an aggregate of 1,097,277 shares) previously issued by the Company to the Vision
Parties valued at $1,155,390, (the Company recorded a gain of $45,835 related to the exchange of
the warrants for Preferred Stock); and 4,051,948 shares of Preferred Stock were issued to satisfy
the Companys obligation to issue equity to the Vision Parties pursuant to a securities purchase
agreement dated March 24, 2008 and amended on May 28, 2009.
Under the
Exchange Agreement, Ki Nam, the Chief Executive Officer and Chairman of the board of
directors of the Company, also agreed to convert a promissory note plus the accrued interest,
previously issued to him by the Company into 976,865 shares of Preferred Stock and Class G Warrants
to purchase up to 195,373 shares of common stock (which warrants have the same terms as the Class
G Warrants issued to Vision pursuant to the Purchase Agreement).
The
Company, Mr. Nam and the Vision Parties also entered into a stockholders agreement,
whereby Mr. Nam agreed to vote, in the election of members of the Companys board of directors, all
of his voting shares of the Company in favor of (i) two nominees of the Vision Parties so long as
their ownership of common stock of the Company is 22% or more or (ii) one nominee of the Vision
Parties so long as their ownership of common stock of the Company is 12% or more.
Amendment of December 30, 2009 10% Convertible Debenture
On December 31, 2010, the Company and The Vision Parties amended the Debenture to extend the
maturity date from December 31, 2010 to March 31, 2011. All other provisions of the Debenture
remained unchanged. The amended terms of the Debenture did not result in terms that were
substantially different from the terms of the original Debenture, therefore there was no
extinguishment of debt.
December 31, 2010 Exchange Agreement
On
December 31, 2010, the Company entered into a securities exchange agreement with Vision
pursuant to which the Company exchanged 350,000 Class G Warrants
into 210,000 shares of the
Companys common stock. On the date of the exchange, the warrants were classified as derivative
liabilities and had an estimated fair value of $1,208,478 and the shares of the Companys common
stock were valued at the fair market price of $4.00 per share for a total value of $840,000,
resulting in a gain on the transaction of $368,478, which was recorded in other income.
54
Debt Discounts and Amortization
The debt discount recorded on the December 30, 2009 Debentures was allocated between the
warrants and conversion feature in the amount of $1,077,652 and $1,549,481, respectively. In
addition, the Company recorded an additional debt discount during the year ended December 31, 2010
of $275,676 (see above). The debt discounts were amortized through the original maturity of the
Debentures of December 30, 2010. During the years ended December 31, 2010 and 2009, the Company
amortized $2,897,574 and $5,235, respectively, of the debt discounts to interest expense.
During the year ended December 31, 2009, the Company amortized $2,565,906 of interest expense
related to debt discounts on different notes to Vision that were ultimately exchanged for shares of
the Companys Preferred Stock on December 30, 2009 (see above).
Ki Nam Note
2010 Note
On February 24, 2011, the Company entered into a loan agreement with Ki Nam, its chairman and
CEO, for previous advances to the Company. The agreement allows Mr. Nam to advance up to $2.5
million for operating requirements. The note bears interest at 10% per annum. The note is due on
March 31, 2012 and allows for an automatic one year extension. During the year ended December 31,
2010, Mr. Nam advanced $1,511,000 to the Company to be used for operating requirements. During
October 2010, the Company repaid $390,000 of the advances, leaving a balance of $1,121,000 outstanding
as of December 31, 2010. The Company recorded interest expense of $23,756 for the year ended
December 31, 2010 and had accrued interest of $23,756 as of December 31, 2010.
Since December 31, 2010, the Company has borrowed an additional
$800,000 under this note.
2009 Note
On March 30, 2009, the Company entered into a loan agreement with Ki Nam, its chairman and
CEO, whereby, Mr. Nam agreed to advance the Company up to $1,000,000, including $498,528 that had
already been advanced by Mr. Nam for operating capital requirements through December 31, 2008. The
line of credit was to remain open until the Company raised $10.0 million in equity. The note bore
interest at 10% per annum. In the event the Company received (i) $10,000,000 or more in private
placement financing or (ii) $15,000,000 or more in equity financing at any time after the date of
the loan, the note was to become immediately due and payable.
In connection with the loan agreement, the Company agreed to issue warrants to Mr. Nam for the
purchase of up to 30,303 shares of the Companys common stock, $0.001 par value per share, at an
exercise price of $20.00 per share, subject to adjustment. The total number of warrants to be issued
was dependent on the final amount of the loan. During the year ended December 31, 2009, the Company
was advanced $414,963, including accrued interest, under the loan agreement. During the year ended
December 31, 2009, 27,477 warrants were issued to Mr. Nam pursuant to the terms of the loan
agreement. The Company recorded a debt discount of $246,228 related to the estimated fair value of
warrants, which was to be amortized as interest expense over the term of the loan agreement. The
loan was convertible during the pendency of any current open equity
financing round at $16.50 per
share, subject to adjustment. Upon conversion, Mr. Nam was to receive additional warrants for the purchase of up
to 60,606 shares of the Companys common stock at $20.00 per share.
In December 2009, the Company issued 2,000,000 shares of its Preferred Stock in connection
with an equity offering. As a result of the December 2009 equity offering, the
Company recorded the estimated fair value of the conversion feature of $443 as a debt discount,
which was to be amortized to interest expense over the remaining term of the loan agreement. The
Company recorded the corresponding amount as a derivative liability and any change in fair value of
the conversion feature was to be recorded through earnings at each reporting date. The change in
fair value of the conversion feature was not significant for the period ended December 31, 2009.
On December 30, 2009, the Company entered into a Securities Exchange Agreement (the Exchange
Agreement) with Mr. Nam. Under the Exchange Agreement, Mr. Nam agreed to convert the balance of
the promissory note, including accrued interest, of $976,865 into 976,865 shares of the Companys
Preferred Stock and warrants to purchase up to 195,373 shares of the Companys common stock,
exercisable at $7.00 per share, subject to adjustment. The ability for Mr. Nam to receive
additional warrants for up to 60,606 shares of common stock was cancelled.
In connection with the Exchange Agreement, the Company agreed to convert Mr. Nams outstanding
debt balance of $976,865 at $5.00 per share, which was below the adjusted conversion price pursuant
to the terms of the loan agreement. Pursuant to the conversion terms of the loan agreement, Mr. Nam
would have received only 31,310 shares of stock. As a result, the Company issued Mr. Nam 663,767
additional shares of the Companys Preferred Stock in connection with his debt conversion.
As a result of the Exchange Agreement, the entire debt discount amounting to $246,671 was
amortized to interest expense. In addition, as the Company issued shares to Mr. Nam in excess of
the number of shares pursuant to the terms of the loan agreement, the Company recorded the fair
value of the 663,767 additional shares of Preferred Stock issued as a loss on debt extinguishment. The amount recorded
of $663,767 was included in other expense in the accompanying consolidated statement of operations
for the year ended December 31, 2009.
55
Lock-Up Agreement
In connection with the Vision financing, Ki Nam, our Chief Executive Officer and Chairman of
the board of directors of the Company, agreed not to transfer, sell, assign, pledge, hypothecate,
give, create a security interest in or lien on, place in trust (voting trust or otherwise), or in
any other way encumber or dispose of, directly or indirectly and whether or not voluntarily,
without express prior written consent of Vision, any of our common stock equivalents of the Company
until August 27, 2010; provided, however, that commencing on August 27, 2010, he may sell up to
1/24th of the shares of common stock of the Company in each calendar month through February 28,
2011.
Alfonso Cordero and Mercy Cordero Note
On January 14, 2011, the Company delivered a 10% unsecured promissory note (the Note) in the
principal amount of $1,000,000 that matures on October 1, 2013 to Alfonso G. Cordero and Mercy B.
Cordero, Trustees of the Cordero Charitable Remainder Trust (Noteholder) for amounts previously
loaned to the Company in October 2010. The Note was dated as of September 30, 2010. Interest
payments of $8,333 are due on the first day of each calendar month commencing November 1, 2010 and
continuing each month thereafter. The Noteholder has agreed to waive payment obligations from
November 1, 2010 through April 15, 2011. The Company recorded interest expense and accrued interest
of $24,777 as of and for the year ended December 31, 2010.
The Company may prepay the Note, but must prepay in full only. The Company will be in default
under the Note upon: (1) failure to timely make payments due
under the Note; and (2) failure to perform other
agreements under the Note within 10 days of request from the Noteholder. Upon such event of
default, the Noteholder may declare the Note immediately due and payable. The applicable interest
rate will be upon default will be increased to 15% or the maximum
rate allowed by law. The Noteholder has waived any and all defaults
under the Note at December 31, 2010 and through April 15, 2011.
56
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of
our results of operations for the years ended December 31, 2010
and 2009 and financial condition as of December 31, 2010 and 2009, should be read in conjunction with our consolidated financial statements and the notes
to
those consolidated financial statements that are included elsewhere
in this prospectus. All statements, other than statements of historical facts, included in this prospectus are
forward-looking statements. When used in this prospectus, the words may, will, should, would,
anticipate, estimate, possible, expect, plan, project, continuing, ongoing,
could, believe, predict, potential, intend, and similar expressions are intended to
identify forward-looking statements. Forward-looking statements are subject to risks and
uncertainties that could cause actual results to differ materially from those projected. These
risks and uncertainties include, but are not limited to, availability of additional equity or debt
financing, changes in sales or industry trends, competition, retention of senior management and
other key personnel, availability of materials or components, ability to make continued product
innovations, casualty or work stoppages at the Companys facilities, adverse results of lawsuits against the Company and currency
exchange rates. Forward-looking statements are based on assumptions and assessments made by the
Companys management in light of their experience and their perception of historical trends,
current conditions, expected future developments and other factors they believe to be appropriate.
Readers of this prospectus are cautioned not to place undue reliance on these forward-looking
statements, as there can be no assurance that these forward-looking statements will prove to be
accurate and speak only as of the date hereof. Management undertakes no obligation to publically
release any revisions to these forward-looking statements that may reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events. This cautionary
statement is applicable to all forward-looking statements contained in this prospectus.
Overview
T3 Motion, Inc. was incorporated on March 16, 2006, under the laws of the state of Delaware.
T3 Motion and its wholly-owned subsidiary, T3 Motion, Ltd. (collectively, the Company, we,
our), develop and manufacture personal mobility vehicles powered by electric motors. The
Companys initial product, the T3 Series ESV, is an electric, three-wheel stand-up
vehicle that is
directly targeted to the law enforcement and private security markets. Substantially all of the
Companys revenues to date have been derived from sales of
the T3 Series ESVs and related
accessories.
The Company has entered into a distribution agreement with CT&T pursuant to which the
Company
has the exclusive right to market and sell the CT
Series Micro Car, which is a low speed,
four-wheel electric car, in the U.S. to the government, law enforcement and security markets
. The
Company is also currently developing the Electric/Hybrid Vehicle, which is a plug-in hybrid vehicle
that
features a single, wide-stance wheel with two high-performance tires sharing one rear wheel. The
Company anticipates introducing the Electric/Hybrid Vehicle in late 2011.
Going Concern
The
Companys consolidated financial statements have been prepared using the accrual method of
accounting in accordance with accounting principles generally accepted in the United States of
America (GAAP) and have been prepared on a going concern basis, which contemplates the
realization of assets and the settlement of liabilities in the normal course of business. The
Company has sustained operating losses since its inception (March 16, 2006) and has used
substantial amounts of working capital in its operations. Further, at
December 31, 2010, the
Company had an accumulated deficit of $(45,120,210), a working
capital deficit of $(15,057,791) and cash and cash equivalents
(including restricted cash) of $133,861. Additionally, the Company
used cash in operations of $(5,185,067) during the year ended December 31, 2010. These factors raise substantial doubt about the Companys ability to
continue as a going concern. Management believes that its cash from operations, together with the
net proceeds of this offering, should be sufficient to allow the
Company to continue as a going concern through at least December 31,
2011; however, the Company cannot assure you of this and may require
additional debt or equity financing in the future to maintain
operations. The Company also anticipates that it will pursue raising
additional debt or equity financing to fund its new product
development and expansion plans. We cannot assure you that such
financing will be available on a timely basis, on acceptable terms or
at all.
Critical Accounting Policies and Estimates
Our managements discussion and analysis of our financial condition and results of operations
are based on our consolidated financial statements, which have been prepared in accordance with
GAAP. The preparation of these consolidated financial statements requires us to make estimates and
assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities at the date of
the financial statements as well as the reported net sales and expenses during the reporting
periods. On an ongoing basis, we evaluate our estimates and assumptions. We base our estimates on
historical experience and on various other factors that we believe are reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying value of
assets and liabilities that are not readily apparent from other sources. Actual results may differ
from these estimates under different assumptions or conditions.
While our significant accounting policies are more fully described in Note 2 to our
consolidated financial statements, we believe that the following accounting policies are the most
critical to aid you in fully understanding and evaluating this management discussion and analysis:
Concentrations of Credit Risk
Cash and Cash Equivalents
The Company maintains its non-interest bearing transactional cash accounts at financial
institutions for which the Federal Deposit Insurance Corporation (FDIC) provides unlimited
insurance coverage. For interest bearing cash
57
accounts, from time to time, balances exceed the
amount insured by the FDIC. The Company has not experienced any losses in such accounts and
believes it is not exposed to any significant credit risk related to these deposits. At December
31, 2010, the Company did not have cash deposits in excess of the FDIC limit.
The Company considers cash equivalents to be all short-term investments
that have an initial
maturity of 90 days or less
and are not restricted. The Company invests its cash in short-term
money market accounts.
Restricted Cash
Under a credit card processing agreement with a financial institution, the Company is
required to maintain a security deposit as collateral. The amount of the deposit is at the
discretion of the financial institution and as of December 31, 2010 was $10,000.
Accounts Receivable
The Company performs periodic evaluations of its customers and maintains allowances for
potential credit losses as deemed necessary. The Company generally does not require collateral to secure
accounts receivable. The Company estimates credit losses based on managements evaluation of
historical bad debts, customer concentrations, customer credit-worthiness, current economic trends
and changes in customer payment patterns when evaluating the adequacy
of its allowance for doubtful
accounts. At December 31, 2010 and 2009, the Company has an allowance for doubtful accounts of
$50,000 and $37,000, respectively. Although the Company expects to collect amounts due, actual collections
may differ from the estimated amounts.
As of December 31, 2010 and 2009, two customers
accounted for approximately 51% and 36% of
total accounts receivable, respectively. One customer and no single customer accounted for more
than 10% of net revenues for the years ended December 31, 2010 and 2009, respectively.
Accounts Payable
As of December 31, 2010 and 2009, no single vendor
and one vendor accounted for more than 10%
of total accounts payable, respectively. Two vendors and no single vendor each accounted for more
than 10% of purchases for the years ended December 31, 2010 and 2009, respectively.
Inventories
Inventories, which consist of raw materials, finished goods and work-in-process, are stated at
the lower of cost or net realizable value, with cost being determined by the average-cost method,
which approximates the first-in, first-out method. At each balance sheet date, we evaluate our
ending inventories for excess quantities and obsolescence. This evaluation primarily includes an
analysis of forecasted demand in relation to the inventory on hand, among consideration of other factors. Based upon the evaluation, provisions are made to reduce
excess or obsolete inventories to their estimated net realizable values. Once established,
write-downs are considered permanent adjustments to the cost basis of the respective inventories.
Property and Equipment
Property and equipment are stated at cost, and are being depreciated using the straight-line
method over the estimated useful lives of the related assets, ranging from three to five years.
Leasehold improvements are recorded at cost and amortized on a straight-line basis over the shorter
of their estimated lives or the remaining lease term. Significant renewals and betterments are
capitalized. Maintenance and repairs that do not improve or extend the lives of the respective
assets are expensed. At the time property and equipment are retired or otherwise disposed of, the
cost and related accumulated depreciation accounts are relieved of the applicable amounts. Gains or
losses from retirements or sales are reflected in the consolidated statement of operations.
Deposits
Deposits primarily consist of amounts incurred or paid in advance of the receipt of fixed
assets.
58
Impairment of Long-Lived Assets
We account for our long-lived assets in accordance with the accounting standards which require
that long-lived assets be reviewed for impairment whenever events or changes in circumstances
indicate that the historical cost carrying value of an asset may no longer be appropriate. We
assess recoverability of the carrying value of an asset by estimating the future net cash flows
expected to result from the asset, including eventual disposition. If the future net cash flows are
less than the carrying value of the asset, an impairment loss is recorded equal to the difference
between the assets carrying value and fair value or disposable value. As of December 31, 2009, we
performed an annual review of our identified intangible asset related to the GeoImmersive license
agreement to assess potential impairment. At December 31, 2009, management deemed the intangible
asset to be fully impaired, as management has decided to allocate the resources required to map the
data elsewhere. As a result, the remaining value of $625,000 was fully amortized as of December 31,
2009. As of December 31, 2010 and 2009, we do not believe there has been any other impairment of
our long-lived assets. There can be no assurance, however, that market conditions will not change
or demand for our products will continue, which could result in impairment of long-lived assets in
the future.
Fair Value of Financial Instruments
The Companys financial instruments consist of cash and cash equivalents, restricted cash,
accounts receivable, related party receivables, accounts payable, accrued expenses, related party
payables, note payable, related party notes payable and derivative liabilities. The carrying value
for all such instruments except related party notes payable and derivative liabilities approximates
fair value due to the short-term nature of the instruments. The Company cannot determine the fair
value of its related party notes payable due to the related party
nature and because instruments similar to
the notes payable could not be found. The Companys derivative liabilities are recorded at fair
value.
The Company determines the fair value of its financial instruments based on a three-level
hierarchy for fair value measurements under which these assets and liabilities must be grouped,
based on significant levels of observable or unobservable inputs. Observable inputs reflect market
data obtained from independent sources, while unobservable inputs reflect the Companys market
assumptions. This hierarchy requires the use of observable market data when available. These two
types of inputs have created the following fair-value hierarchy:
Level 1 Valuations based on unadjusted quoted market prices in active markets for
identical securities. Currently, the Company does not have any items classified as Level 1.
Level 2 Valuations based on observable inputs (other than Level 1 prices), such as quoted
prices for similar assets at the measurement date; quoted prices in markets that are not active;
or other inputs that are observable, either directly or indirectly. Currently the Company does
not have any items classified as Level 2.
Level 3 Valuations based on inputs that are unobservable and significant to the overall
fair value measurement, and involve management judgment. The Company used the
Black-Scholes-Merton option pricing model to determine the fair value of the financial
instruments.
If the inputs used to measure fair value fall in different levels of the fair value hierarchy,
a financial securitys hierarchy level is based upon the lowest level of input that is significant
to the fair value measurement.
Beneficial Conversion Features and Debt Discounts
The convertible features of convertible debentures provide for a rate of conversion that is
below market value. Such feature is normally characterized as a beneficial conversion feature
(BCF). The relative fair values of the BCF were recorded as discounts from the face amount of the
respective debt instrument. The Company amortized the discount using the effective interest method
through maturity of such instruments.
59
Revenue Recognition
We recognize revenues in accordance with the accounting standards. Under the accounting
standards, we recognize revenues when there is persuasive evidence of an arrangement, product
delivery and acceptance have occurred, the sales price is fixed or determinable and collectibility
of the resulting receivable is reasonably assured.
For all sales, we use a binding purchase order as evidence of an arrangement. We ship
either
FOB shipping point or destination terms. Shipping documents are used to verify delivery and
customer acceptance. For FOB destination, we record revenue when proof of delivery is confirmed by
the shipping company. We assess whether the sales price is fixed or determinable based on the
payment terms associated with the transaction and whether the sales price is subject to refund. We
offer a standard product warranty to our customers for defects in materials and workmanship for a
period of one year or 2,500 miles, whichever comes first, and have no other post-shipment
obligations. We assess collectibility based on the creditworthiness of the customer as determined
by evaluations and the customers payment history.
All amounts billed to customers related to shipping and handling are classified as net
revenues, while all costs incurred by us for shipping and handling are classified as cost of net
revenues.
We do not enter into contracts that require fixed pricing beyond the term of the purchase
order. All sales via distributor agreements are accompanied by a purchase order. Further, we do not
allow returns of unsold items.
We have executed various distribution agreements whereby the distributors agreed to purchase
T3 Series packages (one T3 Series, two power modules, and one charger per package). The terms of
the agreements require minimum re-order amounts for the vehicles to be sold through the
distributors in specified geographic regions. Under the terms of the agreements, the distributor
takes ownership of the vehicles and we deem the items sold at delivery to the distributor.
Share-Based Compensation
We maintain a stock option plan and record expenses attributable to our stock option plan. We
elected to amortize share-based compensation for awards granted on or after March 16, 2006 (date of
inception) on a straight-line basis over the requisite service (vesting) period for the entire
award.
We account for equity instruments issued to consultants and vendors in exchange for goods and
services in accordance with the accounting standards. The measurement date for the fair value of
the equity instruments issued is determined at the earlier of (i) the date at which a commitment
for performance by the consultant or vendor is reached or (ii) the date at which the consultants
or vendors performance is complete. In the case of equity instruments issued to consultants, the
fair value of the equity instrument is recognized over the term of the consulting agreement.
In accordance with the accounting standards, an asset acquired in exchange for the issuance of
fully vested, non-forfeitable equity instruments should not be presented or classified as an offset
to equity on the grantors balance sheet once the equity instrument is granted for accounting
purposes. Accordingly, we record the fair value of the fully vested, non-forfeitable common stock
issued for future consulting services as prepaid expense in our consolidated balance sheet.
Income Taxes
We account for income taxes under the provisions of the accounting standards. Under the
accounting standard, deferred tax assets and liabilities are recognized for future tax benefits or
consequences attributable to temporary differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered or settled. A valuation allowance
is provided for significant deferred tax assets when it is more likely than not, that such asset
will not be realized through future operations.
60
Derivative Liabilities
Effective January 1, 2009, the Company adopted the accounting standard that
provides guidance
for determining whether an equity-linked financial instrument, or embedded feature, is indexed to
an entitys own stock. The standard applies to any freestanding financial instruments or embedded
features that have the characteristics of a derivative, and to any freestanding financial
instruments that are potentially settled in an entitys own common stock.
As
a result of the adoption of the accounting standard, 456,277 of the Company
s issued and
outstanding common stock purchase warrants and embedded conversion features previously treated as
equity pursuant to the derivative treatment exemption were no longer afforded equity treatment.
These warrants had exercise prices ranging from $10.80 to $20.00 and expire between December 2012 and
December 2014. Effective January 1, 2009, the Company reclassified the fair value of these common
stock purchase warrants and embedded conversion features, all of which have exercise price reset
features and price protection clauses, from equity to liability status as if these warrants and
conversion features were treated as derivative liabilities since their date of original issuance
ranging from March 2008 through December 2008.
On January 1, 2009, the Company reclassified from additional paid-in capital,
as a cumulative
effect adjustment, approximately $4.0 million to a derivative liability to recognize the fair value
of such warrants and embedded conversion features, at the original issuance date and reclassified
from retained earnings, as a cumulative effect adjustment, approximately $2.0 million to recognize
the change in the fair value from original issuance through December 31, 2008, and recorded
additional debt discounts of approximately $0.9 million related to the fair value of warrants
issued with related party notes outstanding at December 31, 2008.
During
2010 and 2009, the Company issued 104,000 and 992,850 of additional warrants,
respectively, related to convertible debt and during 2009 recorded liabilities related to
conversion options. During 2010, the Company exchanged 69,764 of Class A warrants
and
25,000 of Class B warrants for 94,764 Class G warrants. The Company also recorded an
additional derivative liability of $275,676 related to the Vision Debentures during the year ended
December 31, 2010. The Company estimated the fair value of the warrants and conversion
options at the dates of issuance and recorded a debt discount and corresponding derivative
liability of $838,779 and $3,510,751 during 2010 and 2009, respectively. The debt discount will be
amortized over the remaining life of the related debt. The change in fair value of the derivative
liability will be recorded through earnings at each reporting date.
During
2010 and 2009, the Company issued additional warrants of 231,000 and 595,373,
respectively, related to preferred stock. The Company estimated the fair value of the
warrants of $716,236 and $1,740,578, respectively, at the dates of issuance and recorded a discount
on the issuance of the equity and a corresponding derivative liability. The discount will be
recorded as a deemed dividend with a reduction to retained earnings. The change in fair value of
the derivative will be recorded through earnings at each reporting date.
During 2010 and 2009, the Company recorded a discount on the issuance of preferred stock and a
corresponding derivative liability of $685,124 and $7,314,273, respectively, related to the
anti-dilution provision of the preferred stock issued. The discount will be recorded as a deemed
dividend with a reduction to retained earnings during the 24-month period that the anti-dilution
provision is outstanding. The change in fair value of the derivative liabilities will be recorded
through earnings at each reporting date.
During 2010 and 2009, the amortization of the discounts related to the preferred stock
anti-dilution provision and warrants issued was $3,730,150 and $6,116, respectively, which was
recorded as a deemed dividend.
During the years ended December 31, 2010 and 2009, the Company exchanged 350,000 warrants
for 210,000 shares of common stock and 1,097,277 warrants for 2,263,750 shares of preferred
stock, respectively, pursuant to the Exchange Agreement. As a result of these
exchanges, the Company exchanged warrants with a fair value of $1,208,478 and $1,201,225 during
2010 and 2009, respectively, for shares of common stock valued at $840,000 and Preferred Stock
valued at $1,155,390, resulting in gains on the exchanges of $368,478
and $45,835 during the years ended December 31, 2010 and 2009, respectively.
61
During 2009, in connection with the conversion of the Vision Debentures and Mr. Nams note
payable, the Company reclassified the fair value of the derivative liability related
to the conversion feature of $208,857 to additional paid-in capital.
On
March 22, 2010, one of the Companys preferred stockholders exercised their option to
convert their 2,000,000 Preferred Stock into 400,000 shares of common stock. As a
result of the conversion, the Company reclassified the balance of the derivative liability of
$1,121,965 to additional paid-in capital and the balance of the discount of $1,099,742 as a deemed
dividend.
As of December 31, 2010, the unamortized discount related to the conversion feature of the
Preferred Stock was $4,263,068.
The common stock purchase warrants were not issued with the intent of effectively hedging any
future cash flow, fair value of any asset, liability or any net investment in a foreign operation.
The warrants do not qualify for hedge accounting, and as such, all future changes in the fair value
of these warrants will be recognized currently in earnings until such time as the warrants are
exercised or expire. These common stock purchase warrants do not trade in an active securities
market, and as such, the Company estimates the fair value of these warrants and embedded conversion
features using the Black-Scholes-Merton option pricing.
During the years ended December 31, 2010 and 2009, the Company recorded other income of
$2,101,067 and $6,184,151, respectively, related to the change in fair value of the warrants and
embedded conversion options and is included in other income, net in the accompanying consolidated
statements of operations.
Loss Per Share
Basic loss per share is computed by dividing net loss attributable to common stockholders by
the weighted average number of common shares assumed to be outstanding during the period of
computation. Diluted earnings per share is computed similar to basic loss per share except that the
denominator is increased to include the number of additional common shares that would have been
outstanding if the potential shares had been issued and if the additional common shares were
dilutive. Options, warrants and shares associated with the conversion of debt and preferred stock
to purchase approximately 5.5 million and 5.1 million shares of common stock were outstanding at
December 31, 2010 and 2009, respectively, but were excluded from the computation of
diluted
earnings per share due to the anti-dilutive effect on net loss per share.
Research and Development
We expense research and development costs as incurred.
Advertising
Advertising expenses are charged against operations when incurred.
Advertising expenses for
the years ended December 31, 2010 and 2009 were $12,709 and $4,226, respectively, and are included
in sales and marketing expenses in the accompanying consolidated statements of
operations.
Commitments and Contingencies
Preproduction Plastics, Inc. v. T3 Motion., Inc. Ki Nam and Jason Kim (Orange County Superior
Court Case No. 30.2009-00125358): On June 30, 2009, Preproduction Plastics, Inc. (Plaintiff)
filed suit in Orange County Superior Court, alleging causes of actions against T3 Motion, Inc., Ki
Nam, the Companys CEO, and Jason Kim, the Companys former COO (collectively the Defendants)
for breach of contract, conspiracy, fraud and common counts, arising out of a purchase order
allegedly executed between Plaintiff and the Company. On August 24, 2009, Defendants filed a
Demurrer to the Complaint. Prior to the hearing on the Demurrer, Plaintiff filed a First Amended
Complaint against Defendants for breach of contract, fraud and common counts, seeking compensatory
damages of $470,599, attorneys fees, punitive damages, interest and costs. On October 27, 2009,
Defendants filed a Demurrer, challenging various causes of action in the First Amended Complaint.
The Court denied the Demurrer on December 4, 2009. On December 21, 2009, Defendants filed an
answer to the First Amended Complaint, and
62
trial was set for July 30, 2010. On or about July 29,
2010, the case was settled in its entirety. The Company agreed to pay compensatory damages,
attorneys fees and costs totaling $493,468, through monthly payments of $50,000, with 6% interest
accruing from the date of the settlement. Periodic payments are expected to be made through May
2011. The first payment of $50,000 was made on August 3, 2010
and subsequent principal payments totaling
$200,000 were made by the Company through December 31, 2010. The Company recorded the entire settlement amount of $493,468 as a note payable, $470,599 as
a deposit on fixed assets and the remaining $22,869 as a charge to legal expense. At December 31,
2010, the remaining settlement amount of $243,468 is recorded as a note payable in the
accompanying consolidated balance sheet. The Company has recorded
accrued interest of $4,126 at December 31, 2010.
Commencing January 1, 2011, the Company has failed to make the scheduled
payments required by the July 29, 2010 settlement agreement and stipulation for entry of judgment. The
Plaintiff has filed a motion for entry of judgment pursuant to the terms of the July 29, 2010 settlement agreement and stipulation for entry
of judgment, which if granted, would cause the acceleration of all amounts owed under the settlement agreement. The parties have requested that this
motion be heard on April 21, 2011.
In the ordinary course of business, the Company may face various claims brought by third
parties in addition to the claim described above and may from time to time, make claims or take
legal actions to assert the Companys rights, including intellectual property rights as well as
claims relating to employment and the safety or efficacy of the Companys products. Any of these
claims could subject us to costly litigation and, while the Company generally believes that it has
adequate insurance to cover many different types of liabilities, the insurance carriers may deny
coverage or the policy limits may be inadequate to fully satisfy any damage awards or settlements.
If this were to happen, the payment of such awards could have a material adverse effect on the
consolidated operations, cash flows and financial position. Additionally, any such claims, whether
or not successful, could damage the Companys reputation and business. Management believes the
outcome of currently pending claims and lawsuits will not likely have a material effect on the
consolidated operations or financial position.
Recent Accounting Pronouncements
In January 2010, the FASB issued guidance that
expands the interim and annual disclosure requirements of fair value measurements, including the
information about movement of assets between Level 1 and 2 of the three-tier fair value hierarchy
established under its fair value measurement guidance. This guidance also requires separate
disclosure for purchases, sales, issuances and settlements in the reconciliation for fair value
measurements using significant unobservable inputs using Level 3 methodologies. Except for the
detailed disclosure in the Level 3 reconciliation, which is effective for the fiscal years
beginning after December 15, 2010, we adopted the relevant provisions of this guidance effective
January 1, 2010, which did not have a material impact on our consolidated financial statements.
Business Segments
The Company currently only has one reportable business segment due to the fact that the
Company derives its revenue primarily from one product. The CT Micro Car is not included in a
separate business segment due to nominal net revenues during the
years ended December 31, 2010 and 2009. The
net revenues from domestic and international sales are shown below:
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended |
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Net revenues: |
|
|
|
|
|
|
|
|
T3 Series domestic |
|
$ |
3,842,030 |
|
|
$ |
3,654,290 |
|
T3 Series international |
|
|
840,878 |
|
|
|
963,911 |
|
CT Series domestic |
|
|
|
|
|
|
25,821 |
|
|
|
|
|
|
|
|
Total net revenues |
|
$ |
4,682,908 |
|
|
$ |
4,644,022 |
|
|
|
|
|
|
|
|
Recent Events
Our
Chief Executive Officer, Ki Nam
advanced $800,000 to the Company in accordance with his loan agreement as follows:
January 7, 2011 - $75,000
January 25, 2011 - $50,000
February 9, 2011 - $45,000
February 25, 2011 - $30,000
February 28, 2011 - $100,000
March 10, 2011 - $25,000
March 11, 2011 - $475,000
63
Results of Operations
The following table sets forth the results of our operations for the years ended December 31,
2010
and 2009:
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
Net revenues |
|
$ |
4,682,908 |
|
|
$ |
4,644,022 |
|
Cost of net revenues |
|
|
4,512,497 |
|
|
|
4,988,118 |
|
|
|
|
|
|
|
|
Gross profit (loss) |
|
|
170,411 |
|
|
|
(344,096 |
) |
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
Sales and marketing |
|
|
1,826,736 |
|
|
|
1,927,824 |
|
Research and development |
|
|
1,602,961 |
|
|
|
1,395,309 |
|
General and administrative |
|
|
3,579,817 |
|
|
|
5,126,801 |
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
7,009,514 |
|
|
|
8,449,934 |
|
|
|
|
|
|
|
|
Loss from operations |
|
|
(6,839,103 |
) |
|
|
(8,794,030 |
) |
|
|
|
|
|
|
|
Other income (expense), net: |
|
|
|
|
|
|
|
|
Interest income |
|
|
1,321 |
|
|
|
2,510 |
|
Other income, net |
|
|
2,487,310 |
|
|
|
5,565,869 |
|
Interest expense |
|
|
(3,976,615 |
) |
|
|
(3,472,442 |
) |
|
|
|
|
|
|
|
Total other income (expense), net |
|
|
(1,487,984 |
) |
|
|
2,095,937 |
|
|
|
|
|
|
|
|
Loss before provision for income taxes |
|
|
(8,327,087 |
) |
|
|
(6,698,093 |
) |
Provision for income tax |
|
|
800 |
|
|
|
800 |
|
|
|
|
|
|
|
|
Net loss |
|
|
(8,327,887 |
) |
|
|
(6,698,893 |
) |
Deemed divided to preferred stockholders |
|
|
(3,730,149 |
) |
|
|
(6,116 |
) |
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders |
|
$ |
(12,058,036 |
) |
|
$ |
(6,705,009 |
) |
|
|
|
|
|
|
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
Foreign currency translation income (loss) |
|
|
344 |
|
|
|
(632 |
) |
|
|
|
|
|
|
|
Comprehensive loss |
|
$ |
(8,327,543 |
) |
|
$ |
(6,699,525 |
) |
|
|
|
|
|
|
|
Net loss attributable to common stockholders per share: |
|
|
|
|
|
|
|
|
Basic and diluted |
|
$ |
(2.53 |
) |
|
$ |
(1.51 |
) |
|
|
|
|
|
|
|
Weighted average number of common shares outstanding: |
|
|
|
|
|
|
|
|
Basic and diluted |
|
|
4,768,799 |
|
|
|
4,444,504 |
|
|
|
|
|
|
|
|
Net Revenues. Net revenues are primarily from sales of the T3 Series, T3i
Series, power
modules, chargers, related accessories and service. Net revenues increased $38,886, or 0.8%, to
$4,682,908 for the year ended December 31,
2010, compared to the same period of the prior year. The
increase was primarily due the expansion into new markets, increase in orders placed
due to the
slight economic recovery, achieving a higher average selling price per unit and an increase in
service and parts revenue. These increases were offset in part by certain of our customers
deferring purchasing decisions, thereby lengthening our sales cycles,
as well as vendor supply issues
resulting in orders placed by customers not being shipped during the last half
of the year coupled
with our short supply of cash to adequately purchase parts in a
timely and cost-effective manner to
meet our orders. The delays in our parts due to our increased vendor lead times along with our
inadequate cash position, has resulted in an increased backlog. To date, we have not experienced
cancelled orders. We anticipate that the proceeds from the offering
will reduce our delays and also allow us to place orders with our vendors in accordance with their current lead
times, therefore should return our lead times back to our standard
of approximately 4-6 weeks.
Our backlog at
December 31, 2010 was approximately $2.2 million.
Cost
of net revenues. Cost of net revenues primarily consisted of materials, labor to produce
vehicles and accessories, warranty and service costs and applicable overhead allocations. Cost of
net revenues decreased $(475,621), or (9.5%), to $4,512,497 for the
year ended December 31, 2010,
compared to the prior year. This
64
decrease in cost of revenues is attributable to managements cost reduction strategy and lower
warranty cost experience due to increase in product reliability. The decrease was offset in part
by increased shipping costs due to our cash position and the inability to purchase product at the
appropriate lead times to prevent overnight or air freight charges, thereby increasing our costs.
The decrease in cost of revenues was also offset by the addition of
$65,000 to inventory reserve for the year ended December
31, 2010.
Gross profit (loss). During 2010, management has continued to source lower product costs,
increase production efficiencies and experienced lower warranty costs, offset in part by cash
constraints resulting in increased shipping costs, inventory reserve and vendor supply issues,
resulting in gross profit of $170,411, compared to a gross loss of $(344,096) for the prior year. Management has and will continue to evaluate the processes and materials to reduce
the costs of revenue over the next year. Gross profit (loss) margin was 3.6%
and (7.4%),
respectively, for the years ended December 31,
2010 and 2009.
Sales and marketing. Sales and marketing decreased by $(101,088), or (5.2%), to
$1,826,736 for the year ended December 31,
2010, compared to the prior year. The
decrease in sales and marketing expense is attributable to a reduction in salaries and commissions
due to restructuring of commission plans and decreases in trade show and travel expenses.
Research
and development. Research and development costs generally consist
of development expenses
such as salaries, consultant fees, cost of supplies and materials for samples and prototypes, as
well as outside services costs. Research and development expense increased by $207,652, or 14.9%,
to $1,602,961 for the year ended December 31,
2010, compared to the prior year.
The increase was primarily attributable to the costs associated to build
the electric/hybrid vehicle
prototype.
General and administrative. General and administrative expenses decreased $(1,546,984),
or (30.2%), to $3,579,817, for the year ended
December 31, 2010 compared to the
prior year. The decrease was primarily due to decreases in salaries, legal expenses, stock
compensation expenses and accounting compliance costs.
Other income (expense),net. Other income (expense
), net decreased $(3,583,921) to
($1,487,984) for the year ended December 31,
2010 primarily due to the change in the fair value of
the derivative liabilities and the amortization of debt discount when compared to the prior year.
Deemed dividend. During 2010, as a result of the issuance of Series A convertible
preferred stock, we recorded a deemed dividend related to the amortization of discounts on the
preferred stock of $3,730,149
for the year ended December 31, 2010 compared to $6,116 for the prior year.
Net loss attributable to common stockholders. Net loss attributable to common stockholders
for the year ended December 31, 2010, was $(12,058,036), or
$(2.53)
per basic and diluted share
compared to $(6,705,009), or $(1.51) per basic and diluted share, for the prior
year.
LIQUIDITY AND CAPITAL RESOURCES
Our principal capital requirements are to fund our working capital requirements, invest in
research and development and capital equipment, to make debt service payments and the continued
costs of public company filing requirements. We have historically funded our operations through
debt and equity financings, raising $3,666,000 and $6,493,905 in 2010 and 2009, respectively. We
will continue to raise equity and/or secure additional debt to meet our working capital
requirements. For the year ended December 31, 2010, our independent registered public accounting
firm noted in its report that we have incurred losses from operations and have an accumulated
deficit and working capital deficit of approximately $(45.1) million and $(15.1) million,
respectively, as of December 31, 2010, which raises substantial doubt about our ability to continue
as a going concern.
Management believes that cash from operations, together with the net proceeds of this
offering, should be sufficient to allow the Company to continue as a going concern through at least
December 31, 2011; however, the Company cannot assure you of
this and may require additional debt or equity financing in the
future to maintain operations. The Company also anticipates that it will pursue raising additional debt or
equity financing to fund its new product development and expansion plans. We cannot assure you
that such financing will be available on a timely basis, or acceptable terms or at all.
65
During 2010, the Company has obtained
equity financing from third
parties of approximately $1.2 million, received proceeds from
related-party loans of approximately
$2.5 million and refinanced the outstanding balance of the $1.0 million related to the note to
Immersive Media Corp. (Immersive). The board of directors has allowed for Ki Nam,
the Companys CEO and chairman of the board to loan the Company up to $2.5 million and additional
stockholders to loan the Company up to $1.0 million. In light of these plans, management is
confident in the Companys ability to continue as a going concern. These consolidated financial
statements do not include any adjustments that might result from the outcome of this uncertainty.
Until management achieves our cost reduction strategy and is able to generate sales to realize
the benefits of the strategy and sufficiently increases cash flow from operations, we will require
additional capital to meet our working capital requirements, debt service, research and
development, capital requirements and compliance requirements We will continue to raise additional
equity and/or financing to meet our working capital requirements.
Our principal sources of liquidity are cash and receivables. As of December 31, 2010, cash and
cash equivalents (including restricted cash) were $133,861, or 3.7%, of total assets compared
to
$2,580,798, or 42.6% of total assets as of December 31, 2009. The decrease in cash and cash
equivalents was primarily attributable to net cash used in operating activities.
Cash Flows
For the Years Ended December 31, 2010 and 2009
Net cash flows used in operating activities for the years ended December 31, 2010 and 2009
were $(5,185,067), and $(5,356,937), respectively. For the year ended December 31,
2010, cash flows
used in operating activities related primarily to the net loss of $(8,327,887), offset by net
non-cash reconciling items of $2,245,845. Further contributing to the decrease were increases in
prepaid expenses and other current assets, restricted cash and related party payables of $(89,470),
$(10,000) and $(52,958), respectively. Net cash flows used were offset in part by decreases in
accounts receivable, inventories, and deposits and increases in accounts payable of
$139,400, $104,670, $31,888, and $773,445, respectively.
For the year ended December 31, 2009, cash flows used in operating activities related
primarily to the net loss of $(6,698,893), offset by net non-cash reconciling items of $295,988 and
a decrease in accounts payable of $(719,720)
. Net cash flows used were offset in part by decreases
in accounts receivable, inventories, prepaid expenses and other
current assets of $689,343, $645,254, and
$450,798,
respectively.
Net cash used in investing activities was $(48,214) and $(38,450) for the years ended
December
31, 2010 and 2009, respectively. For the year ended December 31, 2010,
cash flows used in investing
activities related primarily to purchases of property and equipment of $(62,469). For the year
ended December 31, 2009, cash flows used in investing activities related primarily to purchases of
property and equipment of $(36,040).
Net
cash provided by financing activities was $2,776,000 and $6,294,076 for the years
ended
December 31, 2010 and 2009, respectively. For the year ended December 31, 2010,
cash flows provided
by financing activities related primarily to proceeds received from related party notes of
$2,511,000, proceeds from the sale of stock of $1,155,000, offset in part by repayment of notes
payable, rescission of common stock and repayment of
loans/advances from related parties of
$250,000, $250,000 and $390,000, respectively.
For the year ended December 31, 2009, cash flows provided by financing activities related
primarily to proceeds received from related party notes of $4,514,963, proceeds from the sale of
stock of $1,978,942, offset in part by repayment of notes payable of $199,829
.
Off-Balance Sheet Arrangements
We have not entered into any other financial guarantees or other commitments to guarantee the
payment obligations of any third parties. We have not entered into any derivative contracts that
are indexed to our shares and classified as stockholders equity that are not reflected in our
financial statements. Furthermore, we do not have any
66
retained or contingent interest in assets transferred to an unconsolidated entity that serves
as credit, liquidity or market risk support to such entity. We do not have any variable interest in
any unconsolidated entity that provides financing, liquidity, market risk or credit support to us
or engages in leasing, hedging or research and development services with us.
Warrants
From time to time, we issue warrants to purchase shares of the Companys common stock to
investors, note holders and to non-employee consultants for services rendered or to be rendered in
the future. Warrants issued in conjunction with equity, are recorded to equity as exercised.
The following table summarizes the warrants issued and outstanding as of December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants Outstanding & Exercisable |
|
Exercise Price |
|
Expiration |
|
|
|
12,000 |
|
|
$ |
15.40 |
|
|
|
3/31/2013 |
|
|
|
|
27,477 |
|
|
$ |
16.50 |
|
|
|
12/29/2014 |
|
|
|
|
195,373 |
|
|
$ |
7.00 |
|
|
|
12/29/2014 |
|
|
|
|
400,000 |
|
|
$ |
7.00 |
|
|
|
12/30/2014 |
|
|
|
|
160,000 |
|
|
$ |
7.00 |
|
|
|
2/2/2015 |
|
|
|
|
94,764 |
|
|
$ |
7.00 |
|
|
|
3/31/2015 |
|
|
|
|
71,000 |
|
|
$ |
7.00 |
|
|
|
3/22/2015 |
|
|
|
|
104,000 |
|
|
$ |
7.00 |
|
|
|
4/30/2015 |
|
|
|
|
5,000 |
|
|
$ |
7.00 |
|
|
|
8/25/2015 |
|
The exercise price and the number of shares issuable upon exercise of the warrants will be
adjusted upon the occurrence of certain events, including reclassifications, reorganizations or
combinations of the common stock. At all times that the warrants are outstanding, we will authorize
and reserve at least that number of shares of common stock equal to the number of shares of common
stock issuable upon exercise of all outstanding warrants.
Contractual Obligations
We have certain fixed contractual obligations and commitments that include future estimated
payments. Changes in our business needs, cancellation provisions, changing interest rates, and
other factors may result in actual payments differing from the estimates. We cannot provide
certainty regarding the timing and amounts of payments. We have presented below a summary of the
most significant assumptions used in our determination of amounts presented in the tables, in order
to assist in the review of this information within the context of our financial position, results
of operations, and cash flows.
The following table summarizes our contractual obligations as of December 31, 2010, and the
effect these obligations are expected to have on our liquidity and cash flows in future periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than |
|
|
|
|
Contractual Obligation |
|
Total |
|
|
1 Year |
|
|
1-3 Years |
|
Related party notes payable |
|
$ |
6,621,000 |
|
|
$ |
4,500,000 |
|
|
$ |
2,121,000 |
|
Note payable |
|
|
243,468 |
|
|
|
243,468 |
|
|
|
|
|
Operating lease |
|
|
514,000 |
|
|
|
305,000 |
|
|
|
209,000 |
|
|
|
|
|
|
|
|
|
|
|
Total Contractual Obligations |
|
$ |
7,378,468 |
|
|
$ |
5,048,468 |
|
|
$ |
2,330,000 |
|
|
|
|
|
|
|
|
|
|
|
67
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not use derivative financial instruments in our investment portfolio and have no foreign
exchange contracts. Financial instruments consist of cash and cash equivalents, trade accounts
receivable, related-party receivables, accounts payable, accrued liabilities and related-party
payables. We consider investments in highly liquid instruments purchased with a remaining maturity
of 90 days or less at the date of purchase to be cash equivalents.
Interest Rates. Exposure to market risk for changes in interest rates relates primarily
to short-term investments and short-term obligations; thus, fluctuations in interest rates would
not have a material impact on the fair value of these securities. At December 31, 2010 and 2009, we
have $133,861 and $2,580,798, respectively, in cash and cash equivalents. A hypothetical 0.5%
increase or decrease in interest rates would not have a material impact on earnings or loss, or the
fair market value or cash flows of these instruments.
Related Party Transactions
For a description of our related party transactions see the section of this Prospectus
entitled Certain Relationships and Related Transactions.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
There were no changes in or disagreements with our accountants on accounting and financial
disclosure during the last three fiscal years or the interim period from January 1, 2011 through
the date of this prospectus.
DESCRIPTION OF PROPERTY
Offices and Facilities
Our main office and manufacturing facility is located in Costa Mesa, California. The table
below provides a general description of our properties:
|
|
|
|
|
|
|
|
|
|
Location |
|
Principal Activities |
|
Area (Sq. Meters) |
|
Lease Expiration Date |
2990 Airway Ave., Costa |
|
Main office and manufacturing facility |
|
|
33,520 |
|
|
August 31, 2012 |
Mesa,
California 92626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2975 Airway Ave., Costa Mesa, California 92626
|
|
Research and development, warehouse,
and service facility
|
|
|
14,000 |
|
|
December 31, 2010(1) |
|
|
|
|
|
(1) |
|
While the original term of this lease expired in December
2010, the Company is currently leasing this facility on a month-to-month basis. |
|
68
The Company leases two facilities in Costa Mesa, California under non-cancelable operating
lease agreements that expired in 2010 but were extended on a month-to-month basis and will expire
in 2012. These leases require monthly lease payments of approximately $9,000 and $25,000 per month.
Lease expense for the facilities was approximately $384,000 and $448,000 for the years
ended
December 31, 2010 and 2009, respectively.
Future minimum annual payments under these non-cancelable operating leases are as follows:
|
|
|
|
|
Years |
|
|
|
Ending |
|
|
|
December 31, |
|
Total |
|
2011 |
|
|
305,000 |
|
2012 |
|
|
209,000 |
|
|
|
|
|
|
|
$ |
514,000 |
|
|
|
|
|
DESCRIPTION OF SECURITIES
Equity Securities
On November 11, 2009, the Company filed an amendment to its certificate of incorporation that
increased its authorized number of shares of capital stock to 170,000,000, including 150,000,000
shares of common stock and 20,000,000 shares of preferred stock.
Preferred Stock
On August 25, 2009, the Companys Board of Directors authorized 20,000,000 shares of preferred
stock. On November 11, 2009, the Company filed a Certificate of Designation of its Series A
convertible preferred stock (Series A Preferred). Except as otherwise provided in the Series A Certificate or by law,
each holder of shares of Series A Preferred shall have no voting rights. As long as any shares of
Series A Preferred are outstanding, however, the Company shall not, without the affirmative vote of
the holders of a majority of the then outstanding shares of the Series A Preferred, (a) alter or
change adversely the powers, preferences, or rights given to the Series A Preferred or alter or
amend the Series A Certificate, (b) authorize or create any class of stock ranking as to dividends,
redemption or distribution of assets upon a liquidation senior to or otherwise pari passu with the
Series A Preferred, (c) amend its certificate of incorporation or other charter documents in any
manner that adversely affects any rights of the holders of Series A Preferred, (d) increase the
number of authorized shares of Series A Preferred, or (e) enter into any agreement with respect to
any of the foregoing.
Each share of Series A Preferred is convertible at any time and from time to time after the issue
date at the holders option into shares of the Companys common stock (subject to beneficial
ownership limitations as set forth in Section 6(c) of the Series A Certificate) determined by
dividing the Stated Value of such share of Series A Preferred by the Conversion Price (each as
defined below).
69
Each share of Series A Preferred shall have a Stated Value equal to $0.50. The Conversion Price
for the Series A Preferred shall equal $5.00, subject to adjustment as provided in the Series A
Certificate.
Holders of our Series A Preferred are restricted from converting their shares of Series A Preferred
to common stock if the number of shares of Common Stock to be issued pursuant to such conversion
would cause the number of shares of common stock beneficially owned by such holder, together with
its affiliates, at such time to exceed 9.99% of the then issued and outstanding shares of Common
Stock; provided, however, that such holder may waive this limitation upon 61 days notice to the
Company. The Company has not received any such notice.
However, the Company expects to remove this provision from the
Certificate of Incorporation prior to the closing of this offering. There are no redemption rights.
The Conversion Price shall be proportionately reduced for a stock dividend, stock split,
subdivision, combination or similar arrangements. The Conversion Price will also be reduced for any
sale of common stock (or options, warrants or convertible debt or other derivative securities) at a
purchase price per share less than the Conversion Price, subject to certain excepted issuances. The
Conversion Price will be reduced to such purchase price if such issuance occurs within the first 12
months of the original issuance date. The Conversion Price will be reduced to a price derived using
a weighted-average formula if the issuance occurs after the first 12 months but before the 24 month
anniversary of the original issuance date.
If, at any time while the Series A Preferred is outstanding, (A) the Company effects any merger or
consolidation of the Company with or into another person, (B) the Company effects any sale of all
or substantially all of its assets in one transaction or a series of related transactions, (C) any
tender offer or exchange offer (whether by the Company or another person) is completed pursuant to
which holders of common stock are permitted to tender or exchange their shares for other
securities, cash or property, or (D) the Company effects any reclassification of the common stock
or any compulsory share exchange pursuant to which the common stock is effectively converted into
or exchanged for other securities, cash or property (in any such case, a Fundamental
Transaction), then, upon any subsequent conversion of Series A Preferred, the holders shall have
the right to receive, for each Conversion Share (as defined in Section 1 of the Series A
Certificate) that would have been issuable upon such conversion immediately prior to the occurrence
of such Fundamental Transaction, the same kind and amount of securities, cash or property as it
would have been entitled to receive upon the occurrence of such Fundamental Transaction if it had
been, immediately prior to such Fundamental Transaction, the holder of one share of common stock
As of
December 31, 2010, there were issued and outstanding,
11,502,563 shares of Series A Preferred stock.
Our board of directors is authorized by our Certificate of Incorporation to establish classes
or series of preferred stock and fix the designation, powers, preferences and rights of the shares
of each such class or series and the qualifications, limitations or restrictions thereof without
any further vote or action by our stockholders. Any shares of preferred stock so issued would have
priority over our common stock with respect to dividend or liquidation rights. Any future issuance
of preferred stock may have the effect of delaying, deferring or preventing a change in our control
without further action by our stockholders and may adversely affect the voting and other rights of
the holders of our common stock. At present we have no plans to issue any additional shares of
preferred stock or to adopt any new series, preferences or other classification of preferred stock.
The issuance of shares of preferred stock, or the issuance of rights to purchase such
shares, could be used to discourage an unsolicited acquisition proposal. For instance, the issuance
of a series of preferred stock might impede a business combination by including class voting rights
that would enable a holder to block such a transaction. In addition, under certain circumstances,
the issuance of preferred stock could adversely affect the voting power of holders of our common
stock. Although our board of directors is required to make any determination to issue preferred
stock based on its judgment as to the best interests of our stockholders, our board could act in a
manner that would discourage an acquisition attempt or other transaction that some, or a majority,
of our stockholders might believe to be in their best interests or in which such stockholders might
receive a premium for their stock over the then market price of such stock. Our board presently
does not intend to seek stockholder approval prior to the issuance of currently authorized stock,
unless otherwise required by law or applicable stock exchange rules.
Common Stock
70
As of December 31, 2010, there were issued and outstanding,
5,065,846 shares of common
stock. The holders of common stock are entitled to one vote per share on all matters to be voted
upon by the stockholders. The holders of common stock are entitled to receive any dividends that
may be declared from time to time by the Board of Directors out of funds legally available for that
purpose. The declaration of any future cash dividend will be at the discretion of the Companys
Board of Directors and will depend upon the Companys earnings, if any, capital requirements and
financial position, general economic conditions, and other pertinent conditions. In the event of
our liquidation, dissolution or winding up, the holders of common stock are entitled to share in
all assets remaining after payment of liabilities.
The holders of common stock do not have cumulative voting rights, which mean that the holders
of more than fifty percent of the shares of common stock voting for election of directors may elect
all the directors if they choose to do so. In this event, the holders of the remaining shares
aggregating less than fifty percent will not be able to elect directors. The common stock has no
preemptive or conversion rights or other subscription rights.
Dividend Policy
We have not declared or paid any cash dividends and do not intend to pay any cash
dividends in the foreseeable future. We intend to retain any future earnings for use in the
operation and expansion of our business. Any future decision to pay cash dividends on common stock
will be at the discretion of our board of directors and will depend upon our financial condition,
results of operation, capital requirements and other factors our board of directors may deem
relevant. Holders of common stock are entitled to dividends if, as and when declared by the Board
out of the funds legally available therefor. It is our present intention to retain earnings, if
any, for use in our business. The payment of cash dividends on the common stock included in the
units is unlikely in the foreseeable future.
Class H Warrants
Each Class H warrant entitles the holder to purchase one share of our common stock at a
price of $3.00 per share, subject to adjustment as discussed below, at any time. The Class H
warrants will expire on at 5:00 p.m., New York City time. The Class H warrants are
redeemable. The Class H warrants can not be exercised until three months after issuance.
The Class H warrants will be issued in registered form under a warrant agreement between
, as warrant agent, and us. You should review a copy of the warrant agreement, which has
been filed as an exhibit to the registration statement of which this prospectus is a part, for a
complete description of the terms and conditions applicable to the Class H warrants.
The exercise price and number of shares of common stock issuable on exercise of the Class
H warrants may be adjusted in certain circumstances including in the event of a stock dividend, or
our recapitalization, reorganization, merger or consolidation. However, the Class H warrants will
not be adjusted for issuances of common stock, preferred stock or other securities at a price below
their respective exercise prices.
The Class H warrants may be exercised upon surrender of the warrant certificate on or
prior to the expiration date at the offices of the warrant agent, with the exercise form on the
reverse side of the warrant certificate completed and executed as indicated, accompanied by full
payment of the exercise price, by certified check payable to us, for the number of Class H warrants
being exercised. The Class H warrantholders do not have the rights or privileges of holders of
common stock and any voting rights until they exercise their Class H warrants and receive shares of
common stock. After the issuance of shares of common stock upon exercise of the Class H warrants,
each holder will be entitled to one vote for each share held of record on all matters to be voted
on by stockholders.
If at the time of exercise of a Class H warrant, no prospectus relating to the common stock issuable upon
exercise of the Class H warrants is current and the common stock has not been registered or qualified or
deemed to be exempt under the securities laws of the state of residence of the holder of the Class H
warrants, the Class H Warrants will instead only be exercisable on a net or cashless basis. We will use
our reasonable efforts to maintain a current prospectus relating to common stock issuable upon exercise
of the Class H warrants until the expiration of the Class H warrants. However, we cannot assure you that
we will be able to do so.
71
We may redeem the outstanding Class H warrants
(including any Class H warrants issued upon exercise of the underwriters over-allotment option and the unit purchase option to be granted to the representative of the underwriters):
(a) in whole or not in part, (b) at a price of $0.01 at any time after the warrants become exercisable, (c) upon a minimum 30 days
prior written notice of redemption, and (d) if and only if, the
reported last sale price of our common stock equals or exceeds $6.00 per
share for any 20 consecutive trading days within a 30 trading day period ending on the third business day prior to the 30-day notice of
redemption to warrant holders.
No fractional shares will be issued upon exercise of the Class H warrants. However, we
will pay to the Class H warrantholder, in lieu of the issuance of any fractional share that is
otherwise issuable to the Class H warrantholder, an amount in cash based on the market value of the
common stock on the last trading day prior to the exercise date.
Class I Warrants
Each Class I warrant entitles the holder to purchase one share of our common stock at a
price of $5.25 per share, subject to adjustment as discussed below. The Class I warrants can not be exercised until three months after issuance. The Class I warrants will expire on
at 5:00 p.m., New York City time.
The Class I warrants will be issued in registered form under a warrant agreement between
, as warrant agent, and us. You should review a copy of the warrant agreement, which has
been filed as an exhibit to the registration statement of which this prospectus is a part, for a
complete description of the terms and conditions applicable to the Class I warrants.
The exercise price and number of shares of common stock issuable on exercise of the Class
I warrants may be adjusted in certain circumstances including in the event of a stock dividend, or
our recapitalization, reorganization, merger or consolidation. However, the Class I warrants will
not be adjusted for issuances of common stock, preferred stock or other securities at a price below
their respective exercise prices.
The Class I warrants may be exercised upon surrender of the warrant certificate on or
prior to the expiration date at the offices of the warrant agent, with the exercise form on the
reverse side of the warrant certificate completed and executed as indicated, accompanied by full
payment of the exercise price, by certified check payable to us, for the number of Class I warrants
being exercised. The Class I warrantholders do not have the rights or privileges of holders of
common stock and any voting rights until they exercise their Class I warrants and receive shares of
common stock. After the issuance of shares of common stock upon exercise of the Class I warrants,
each holder will be entitled to one vote for each share held of record on all matters to be voted
on by stockholders.
If at the time of exercise of a Class I warrant, no prospectus relating to the common stock issuable upon
exercise of the Class I warrants is current and the common stock has not been registered or qualified or
deemed to be exempt under the securities laws of the state of residence of the holder of the Class I
warrants, the Class I Warrants will instead only be exercisable on a
net or cashless basis. We will use
our reasonable efforts to maintain a current prospectus relating to common stock issuable upon exercise
of the Class I warrants until the expiration of the Class I warrants. However, we cannot assure you that we
will be able to do so.
If we are acquired in an all cash transaction, go private, or are acquired by another company
for shares of the other company, and the shares of such other company are not listed on a national
securities exchange, the holders of the Class I warrants will have the right, until 30 days after the
completion of such transaction, to require the company or our successor, to purchase the Class I warrants
for cash, in an amount equal to the fair value of such Class I warrants as determined by the Black Scholes
option pricing formula.
No fractional shares will be issued upon exercise of the Class I warrants. However, we
will pay to the Class I warrantholder, in lieu of the issuance of any fractional share that is
otherwise issuable to the Class I warrantholder, an amount in cash based on the market value of the
common stock on the last trading day prior to the exercise date.
Unit Purchase Option
We have agreed to sell to the underwriters unit purchase option to purchase up to a
total of 125,000 units at a
per-unit price of (110% of the unit price sold in the offering). For a more complete description of the unit purchase option,
including the terms of the units underlying the option, see the section entitled Underwriting.
72
Other Warrants
As of December 31, 2010, there were outstanding warrants to purchase 12,000 shares of our
common stock at an exercise price of $15.40 per share. The warrants are immediately exercisable. The
warrants expire on March 31, 2013. There were 24,477 warrants exercisable at the exercise price of
$16.50 per share that expire through December 29, 2014. There
were 195,373 warrants exercisable
at the exercise price of $7.00 per share that expire on
December 29, 2014. There were 400,000
warrants exercisable at the exercise price of $7.00 per share that expire on December 30, 2014.
There were 160,000 warrants exercisable at the exercise price of
$7.00 per share that expire on
February 2, 2015. There were 94,764 warrants exercisable at the exercise price of $7.00 per
share that expire on March 31, 2015. There were 71,000 warrants exercisable at the exercise
price of $7.00 per share that expire on March 22, 2015. There
were 104,000 warrants exercisable
at the exercise price of $7.00 per share that expire on April 30, 2015.
There were 5,000 warrants exercisable at the exercise price of $7.00 per share that expire on August 25, 2015.
The exercise price and the number of shares issuable upon exercise of the warrants will be
adjusted upon the occurrence of certain events, including reclassifications, reorganizations or
combinations of the common stock. At all times that the warrants are outstanding, we will authorize
and reserve at least that number of shares of common stock equal to the number of shares of common
stock issuable upon exercise of all outstanding warrants.
73
UNDERWRITING AND PLAN OF DISTRIBUTION
We and Chardan Capital Markets, LLC, the representative of the underwriters, have entered into
an underwriting agreement with respect to the units being offered. Subject to certain conditions,
the underwriters are committed to purchase all of the units offered hereby, other than those units
covered by the over-allotment option described below.
We have also agreed to pay the underwriters a non-accountable expense allowance equal to 2.5% of
the aggregate offering price of the units; and have provided the representative of the underwriters
with a $30,000 advance to be applied against such non-accountable allowance. In the event this
offering does not close, the representative shall only be permitted to retain such amount of such
advance as is permitted by FINRA Rule 5110(f)(2)(D). We have also agreed to reimburse the
underwriters actual legal fees up to a maximum of $125,000 and road show expenses up to a maximum
of $25,000.
|
|
|
|
|
Number of |
Underwriters |
|
Units |
Chardan Capital Markets, LLC |
|
2,500,000 |
Units sold by the underwriters to the public will initially be offered at the public
offering price set forth on the cover of this prospectus. Any units sold by the underwriters to
securities dealers may be sold at a discount of up to $ per unit from the public offering
price. If all the units are not sold at the public offering price, the underwriters may change the
offering price and the other selling terms, which will be reflected in a supplement to this prospectus.
We have granted to the underwriters an over-allotment option to purchase up
to an additional 375,000 units from us at the same price to the public, less underwriting discounts.
The underwriters may exercise this option any time during the 45-day period after the date of this
prospectus, but only to cover over-allotments, if any.
We have agreed to sell to the underwriters on a pro rata basis, an option to purchase up
to a total of 125,000 units (5% of the units sold). The units issuable upon exercise of this
option are identical to those offered by this prospectus. This option
is exercisable at $ per share
(110% of the price of the shares sold in the offering), commencing on a date which is
one year from the effective date of the registration statement and expiring five years from the
effective date of the registration statement. For a period of 180 days after the date of this prospectus, neither the unit purchase option nor
any securities (units, common stock, Class I Warrants, Class H Warrants or shares of common stock
issuable upon exercise of either class of Warrant) issued upon exercise of the unit purchase
option shall be sold, transferred, assigned, pledged, or hypothecated, or be the subject of any
hedging, short sale, derivative, put, or call transaction that would result in the effective
economic disposition of any of such securities by any person for a period of 180 days immediately
following the date of this prospectus, except the transfer of any security:
(i) by operation of law or by reason of reorganization of the Company;
(ii) to any FINRA member firm participating in the offering and the officers or partners
thereof, if all securities so transferred remain subject to this lock-up restriction for the
remainder of the time period;
(iii) if the aggregate amount of securities of the Company held by the Holder or related
person do not exceed 1% of the securities being offered;
(iv) that is beneficially owned on a pro-rata basis by all equity owners of an investment
fund, provided that no participating FINRA member firm manages or otherwise directs investments by
the fund, and participating members in the aggregate do not own more than 10% of the equity in the
fund; or
(v) the exercise or conversion of any security, if all securities received remain subject to
this lock-up restriction for the remainder of the time period
We estimate that the total fees and expenses payable by us, excluding underwriting
discounts and commissions, will be approximately $ . The following table shows the underwriting
fees to be paid to the underwriters by us in connection with this offering. These amounts are shown
assuming both no exercise and full exercise of the underwriters over-allotment option.
|
|
|
|
|
|
|
No Exercise |
|
Full Exercise |
Per share paid by us |
|
|
|
|
Total |
|
|
|
|
74
We have agreed to indemnify the underwriters against certain liabilities, including civil
liabilities under the Securities Act, or to contribute to payments that the underwriters may be
required to make in respect of those liabilities.
We and each of our directors, executive officers and
certain major stockholders have agreed to certain restrictions on the ability to sell additional shares of our
common stock for a period ending 180 days after the date of this prospectus, subject to extension
as described below. We and they have agreed not to directly or indirectly offer for sale, sell,
contract to sell, grant any option for the sale of, or otherwise issue or dispose of, any shares of
common stock, options or warrants to acquire shares of common stock, or any related security or
instrument, without the prior written consent of Chardan Capital Markets, LLC on behalf of the
underwriters, subject to certain exceptions.
To facilitate the offering, the underwriters may engage in transactions that stabilize,
maintain or otherwise affect the price of our units during and after the offering. Specifically,
the underwriters may over-allot or otherwise create a short position in the units for their own
account by selling more units than have been sold to them by us. Short sales involve the sale by
the underwriters of a greater number of units than they are required to purchase in this offering.
Covered short sales are sales made in an amount not greater than the underwriters over-allotment
option to purchase additional units in this offering. The underwriters may close out any covered
short position by either exercising their option to purchase additional units or purchasing units
in the open market. In determining the source of units to close out the covered short position, the
underwriters will consider, among other things, the price of units available for purchase in the
open market as compared to the price at which they may purchase units through the over-allotment
option. Naked short sales are sales in excess of this option. The underwriters must close out any
naked short position by purchasing units in the open market. A naked short position is more likely
to be created if the underwriters are concerned that there may be downward pressure on the price of
the units in the open market after pricing that could adversely affect investors who purchase in
this offering.
In addition, the underwriters may stabilize or maintain the price of the units by bidding
for or purchasing units in the open market and may impose penalty bids. If penalty bids are
imposed, selling concessions allowed to syndicate members or other broker dealers participating in
the offering are reclaimed if units previously distributed in the offering are repurchased, whether
in connection with stabilization transactions or otherwise. The effect of these transactions may be
to stabilize or maintain the market price of the units at a level above that which might otherwise
prevail in the open market. The imposition of a penalty bid may also effect the price of the units
or the common stock to the extent that it discourages resales of the units. The magnitude or effect
of any stabilization or other transactions is uncertain. These transactions may be effected on the
NYSE Amex or otherwise and, if commenced, may be discontinued at any time.
From time to time in the ordinary course of their respective business, certain of the
underwriters and their affiliates may in the future engage in commercial banking or investment
banking transactions with us and our affiliates, but we have no present arrangements or
understandings with any of the underwriters to do so..
INTERESTS OF NAMED EXPERTS AND COUNSEL
The consolidated financial statements for the years ended December 31, 2010 and
2009
included in this prospectus have been audited by KMJ Corbin & Company LLP, an independent
registered public accounting firm, as stated in their report (which report expresses an unqualified
opinion and includes an explanatory paragraph relating to the substantial doubt about the Companys
ability to continue as a going concern) appearing elsewhere herein and are included in reliance
upon such report given upon the authority of that firm as experts in auditing and accounting.
The validity of the securities to be sold under this prospectus will be passed upon for us by
LKP Global Law, LLP.
75
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
We
have adopted provisions in our certificate of incorporation that limit the liability of our
directors for monetary damages for breach of their fiduciary duty as directors, except for
liability that cannot be eliminated under the Delaware General Corporation Law. Delaware law
provides that directors of a company will not be personally liable for monetary damages for breach
of their fiduciary duty as directors, except for liabilities:
|
|
|
for any breach of their duty of loyalty to us or our stockholders; |
|
|
|
|
for acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; |
|
|
|
|
for unlawful payment of dividend or unlawful stock repurchase or redemption, as provided
under Section 174 of the Delaware General Corporation Law; or |
|
|
|
|
for any transaction from which the director derived an improper personal benefit. |
In addition, our bylaws provide for the indemnification of officers, directors and third
parties acting on our behalf, to the fullest extent permitted by Delaware General Corporation Law,
if our board of directors authorizes the proceeding for which such person is seeking
indemnification (other than proceedings that are brought to enforce the indemnification provisions
pursuant to the bylaws). We maintain directors and officers liability insurance.
These indemnification provisions may be sufficiently broad to permit indemnification of the
registrants executive officers and directors for liabilities (including reimbursement of expenses
incurred) arising under the Securities Act of 1933.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to our directors, officers and controlling persons pursuant to the foregoing provisions,
or otherwise, we have been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. No
pending material litigation or proceeding involving our directors, executive officers, employees or
other agents as to which indemnification is being sought exists, and we are not aware of any
pending or threatened material litigation that may result in claims for indemnification by any of
our directors or executive officers.
76
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the Securities Act with
respect to the common stock being offered in this offering. This prospectus does not contain all of
the information set forth in the registration statement and the exhibits and schedules filed as
part of the registration statement. For further information with respect to us and our common
stock, we refer you to the registration statement and the exhibits and schedules filed as a part of
the registration statement. Statements contained in this prospectus concerning the contents of any
contract or any other document are not necessarily complete. If a contract or document has been
filed as an exhibit to the registration statement, we refer you to the copy of the contract or
document that has been filed. Each statement in this prospectus relating to a contract or document
filed as an exhibit is qualified in all respects by the filed
exhibit. In addition, we file annual reports on Form 10-K, quarterly reports on
Form 10-Q, and other
information with the SEC. The reports and other
information we file with the SEC can be read and copied at the SECs Public Reference Room at 100 F. Street, N.E. Washington D.C. 20549. Copies of these materials can be obtained at prescribed
rates from the Public Reference Section of the SEC at the principal
offices of the SEC, 100 F. Street, N.E. Washington D.C. 20549. You may obtain information regarding the operation of the
public reference room by calling 1(800) SEC-0330. The SEC also maintains a website
(http://www.sec.gov) that contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC.
After
this offering, we will continue to be subject to the information and periodic reporting requirements
of the Securities Exchange Act of 1934, as amended, and we intend to file periodic reports, proxy statements
and other information with the SEC.
77
T3 MOTION, INC.
FINANCIAL INFORMATION TABLE OF CONTENTS
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Page |
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CONSOLIDATED FINANCIAL STATEMENTS |
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F-2 |
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F-3 |
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F-4 |
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F-5 |
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F-6 |
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F-8
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F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
T3 Motion, Inc.
We have audited the accompanying consolidated balance sheets of T3 Motion, Inc. and subsidiary (the
Company) as of December 31, 2010 and 2009, and the related consolidated statements of operations
and comprehensive loss, stockholders equity (deficit) and cash flows for each of the two years in
the period ended December 31, 2010. These consolidated financial statements are the responsibility
of the Companys management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are free of material
misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Companys internal control over financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of T3 Motion, Inc. and subsidiary as of
December 31, 2010 and 2009, and the results of their operations and their cash flows for each of
the two years in the period ended December 31, 2010, in conformity with accounting principles
generally accepted in the United States of America.
As discussed in Note 9 to the consolidated financial statements, effective January 1, 2009, the
Company changed the manner in which it accounts for certain financial instruments that are indexed
to its own stock due to the adoption of a new accounting standard.
The accompanying consolidated financial statements have been prepared assuming the Company will
continue as a going concern. As described in Note 1, the Company has incurred significant
operating losses and has used substantial amounts of working capital in its operations since
inception, and at December 31, 2010, has a working capital deficit of $15,057,791 and an
accumulated deficit of $45,120,210. These factors raise substantial doubt about the Companys
ability to continue as a going concern. Managements plans in regard to these matters are also
described in Note 1. The consolidated financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification of assets or the
amount and classification of liabilities that may result from the outcome of this uncertainty.
/s/ KMJ Corbin & Company LLP
Costa Mesa, California
March 18, 2011
F-2
T3 MOTION, INC.
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
Pro Forma as of |
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
(unaudited) |
|
ASSETS
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
123,861 |
|
|
$ |
2,580,798 |
|
|
$ |
123,861 |
|
Restricted cash |
|
|
10,000 |
|
|
|
|
|
|
|
10,000 |
|
Accounts
receivable, net of reserves of $50,000 and $37,000 at December 31,
2010 and 2009, respectively
|
|
|
595,261 |
|
|
|
747,661 |
|
|
|
595,261 |
|
Related party receivables |
|
|
35,722 |
|
|
|
35,658 |
|
|
|
35,722 |
|
Inventories |
|
|
1,064,546 |
|
|
|
1,169,216 |
|
|
|
1,064,546 |
|
Prepaid expenses and other current assets |
|
|
251,467 |
|
|
|
161,997 |
|
|
|
251,467 |
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
2,080,857 |
|
|
|
4,695,330 |
|
|
|
2,080,857 |
|
Property and equipment, net |
|
|
564,700 |
|
|
|
868,343 |
|
|
|
564,700 |
|
Deposits |
|
|
934,359 |
|
|
|
495,648 |
|
|
|
934,359 |
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
3,579,916 |
|
|
$ |
6,059,321 |
|
|
$ |
3,579,916 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
1,335,761 |
|
|
$ |
872,783 |
|
|
$ |
1,335,761 |
|
Accrued expenses |
|
|
1,483,220 |
|
|
|
1,064,707 |
|
|
|
1,108,505 |
|
Related party payables |
|
|
51,973 |
|
|
|
104,931 |
|
|
|
51,973 |
|
Note payable |
|
|
243,468 |
|
|
|
|
|
|
|
243,468 |
|
Derivative liabilities |
|
|
9,633,105 |
|
|
|
11,824,476 |
|
|
|
778,239 |
|
Related party notes payable, net of debt discounts |
|
|
4,391,121 |
|
|
|
1,836,837 |
|
|
|
891,121 |
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
17,138,648 |
|
|
|
15,703,734 |
|
|
|
4,409,067 |
|
Long-term liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Related party notes payable |
|
|
2,121,000 |
|
|
|
|
|
|
|
1,000,000 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
19,259,648 |
|
|
|
15,703,734 |
|
|
|
5,409,067 |
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity (deficit): |
|
|
|
|
|
|
|
|
|
|
|
|
Series A convertible preferred stock, $0.001 par value; 20,000,000
shares authorized; 11,502,563 and 12,347,563 shares issued and
outstanding at December 31, 2010 and 2009, respectively |
|
|
11,503 |
|
|
|
12,348 |
|
|
|
|
|
Common stock, $0.001 par value; 150,000,000 shares authorized;
50,658,462 and 44,663,462 shares issued and outstanding at December
31, 2010 and 2009, respectively |
|
|
50,659 |
|
|
|
44,664 |
|
|
|
9,141 |
|
Additional paid-in capital |
|
|
29,373,947 |
|
|
|
23,356,724 |
|
|
|
47,540,618 |
|
Accumulated deficit |
|
|
(45,120,210 |
) |
|
|
(33,062,174 |
) |
|
|
(49,383,279 |
) |
Accumulated other comprehensive income |
|
|
4,369 |
|
|
|
4,025 |
|
|
|
4,369 |
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity (deficit) |
|
|
(15,679,732 |
) |
|
|
(9,644,413 |
) |
|
|
(1,829,151 |
) |
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity (deficit) |
|
$ |
3,579,916 |
|
|
$ |
6,059,321 |
|
|
$ |
3,579,916 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
F-3
T3 MOTION, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
Net revenues |
|
$ |
4,682,908 |
|
|
$ |
4,644,022 |
|
Cost of net revenues |
|
|
4,512,497 |
|
|
|
4,988,118 |
|
|
|
|
|
|
|
|
Gross profit (loss) |
|
|
170,411 |
|
|
|
(344,096 |
) |
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
Sales and marketing |
|
|
1,826,736 |
|
|
|
1,927,824 |
|
Research and development |
|
|
1,602,961 |
|
|
|
1,395,309 |
|
General and administrative |
|
|
3,579,817 |
|
|
|
5,126,801 |
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
7,009,514 |
|
|
|
8,449,934 |
|
|
|
|
|
|
|
|
Loss from operations |
|
|
(6,839,103 |
) |
|
|
(8,794,030 |
) |
|
|
|
|
|
|
|
Other income (expense), net: |
|
|
|
|
|
|
|
|
Interest income |
|
|
1,321 |
|
|
|
2,510 |
|
Other income, net |
|
|
2,487,310 |
|
|
|
5,565,869 |
|
Interest expense |
|
|
(3,976,615 |
) |
|
|
(3,472,442 |
) |
|
|
|
|
|
|
|
Total other income (expense), net |
|
|
(1,487,984 |
) |
|
|
2,095,937 |
|
|
|
|
|
|
|
|
Loss before provision for income taxes |
|
|
(8,327,087 |
) |
|
|
(6,698,093 |
) |
Provision for income taxes |
|
|
800 |
|
|
|
800 |
|
|
|
|
|
|
|
|
Net loss |
|
|
(8,327,887 |
) |
|
|
(6,698,893 |
) |
Deemed dividend to preferred stockholders |
|
|
(3,730,149 |
) |
|
|
(6,116 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders |
|
$ |
(12,058,036 |
) |
|
$ |
(6,705,009 |
) |
|
|
|
|
|
|
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
Foreign currency translation income (loss) |
|
|
344 |
|
|
|
(632 |
) |
|
|
|
|
|
|
|
Comprehensive loss |
|
$ |
(8,327,543 |
) |
|
$ |
(6,699,525 |
) |
|
|
|
|
|
|
|
Net loss per share: |
|
|
|
|
|
|
|
|
Basic and diluted |
|
$ |
(0.25 |
) |
|
$ |
(0.15 |
) |
|
|
|
|
|
|
|
Weighted average number of common shares outstanding: |
|
|
|
|
|
|
|
|
Basic and diluted |
|
|
47,689,785 |
|
|
|
44,445,042 |
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
F-4
T3 MOTION, INC.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
Total |
|
|
|
|
|
|
|
Preferred |
|
|
|
|
|
|
Common |
|
|
Additional |
|
|
|
|
|
|
Comprehensive |
|
|
Stockholders |
|
|
|
Preferred |
|
|
Stock |
|
|
Common |
|
|
Stock |
|
|
Paid-in |
|
|
Accumulated |
|
|
Income |
|
|
(Deficit) |
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
(Loss) |
|
|
Equity |
|
|
Balance, January 1, 2009 |
|
|
|
|
|
$ |
|
|
|
|
43,592,428 |
|
|
$ |
43,593 |
|
|
$ |
25,043,452 |
|
|
$ |
(24,375,827 |
) |
|
$ |
4,657 |
|
|
$ |
715,875 |
|
Issuance of preferred stock for cash, net of
issuance costs of $21,058 |
|
|
2,000,000 |
|
|
|
2,000 |
|
|
|
|
|
|
|
|
|
|
|
1,976,942 |
|
|
|
|
|
|
|
|
|
|
|
1,978,942 |
|
Conversion of notes payable and accrued interest
to equity |
|
|
4,031,865 |
|
|
|
4,032 |
|
|
|
|
|
|
|
|
|
|
|
4,691,600 |
|
|
|
|
|
|
|
|
|
|
|
4,695,632 |
|
Issuance of preferred stock for anti-dilution
|
|
|
4,051,948 |
|
|
|
4,052 |
|
|
|
|
|
|
|
|
|
|
|
(4,052 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of preferred stock for exchange of
warrants |
|
|
2,263,750 |
|
|
|
2,264 |
|
|
|
|
|
|
|
|
|
|
|
1,153,126 |
|
|
|
|
|
|
|
|
|
|
|
1,155,390 |
|
Amortization of preferred stock discount related
to conversion feature and warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,116 |
|
|
|
(6,116 |
) |
|
|
|
|
|
|
|
|
Cumulative effect of change in accounting
principle |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,013,085 |
) |
|
|
(1,981,338 |
) |
|
|
|
|
|
|
(5,994,423 |
) |
Preferred stock discount related to conversion
feature and warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,054,851 |
) |
|
|
|
|
|
|
|
|
|
|
(9,054,851 |
) |
Reclassification of derivative liability to equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
208,857 |
|
|
|
|
|
|
|
|
|
|
|
208,857 |
|
Issuance of common stock for outside services |
|
|
|
|
|
|
|
|
|
|
1,071,034 |
|
|
|
1,071 |
|
|
|
1,665,135 |
|
|
|
|
|
|
|
|
|
|
|
1,666,206 |
|
Share-based compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,683,484 |
|
|
|
|
|
|
|
|
|
|
|
1,683,484 |
|
Foreign currency translation loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(632 |
) |
|
|
(632 |
) |
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,698,893 |
) |
|
|
|
|
|
|
(6,698,893 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009 |
|
|
12,347,563 |
|
|
|
12,348 |
|
|
|
44,663,462 |
|
|
|
44,664 |
|
|
|
23,356,724 |
|
|
|
(33,062,174 |
) |
|
|
4,025 |
|
|
|
(9,644,413 |
) |
Recission of common stock for cash |
|
|
|
|
|
|
|
|
|
|
(125,000 |
) |
|
|
(125 |
) |
|
|
(249,875 |
) |
|
|
|
|
|
|
|
|
|
|
(250,000 |
) |
Conversion of preferred to common stock |
|
|
(2,000,000 |
) |
|
|
(2,000 |
) |
|
|
4,000,000 |
|
|
|
4,000 |
|
|
|
(2,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of preferred stock for cash |
|
|
1,155,000 |
|
|
|
1,155 |
|
|
|
|
|
|
|
|
|
|
|
1,153,845 |
|
|
|
|
|
|
|
|
|
|
|
1,155,000 |
|
Issuance of common stock for exchange of warrants |
|
|
|
|
|
|
|
|
|
|
2,100,000 |
|
|
|
2,100 |
|
|
|
837,900 |
|
|
|
|
|
|
|
|
|
|
|
840,000 |
|
Amortization of preferred stock discount related
to conversion feature and warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,730,149 |
|
|
|
(3,730,149 |
) |
|
|
|
|
|
|
|
|
Preferred stock discount related to conversion
feature and warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,401,360 |
) |
|
|
|
|
|
|
|
|
|
|
(1,401,360 |
) |
Reclassification of derivative liability to
equity due to conversion of preferred stock to
common
stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,121,965 |
|
|
|
|
|
|
|
|
|
|
|
1,121,965 |
|
Issuance of common stock for outside services |
|
|
|
|
|
|
|
|
|
|
20,000 |
|
|
|
20 |
|
|
|
9,980 |
|
|
|
|
|
|
|
|
|
|
|
10,000 |
|
Share-based compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
816,619 |
|
|
|
|
|
|
|
|
|
|
|
816,619 |
|
Foreign currency translation loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
344 |
|
|
|
344 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,327,887 |
) |
|
|
|
|
|
|
(8,327,887 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2010 |
|
|
11,502,563 |
|
|
$ |
11,503 |
|
|
|
50,658,462 |
|
|
$ |
50,659 |
|
|
$ |
29,373,947 |
|
|
$ |
(45,120,210 |
) |
|
$ |
4,369 |
|
|
$ |
(15,679,732 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
F-5
T3 MOTION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(8,327,887 |
) |
|
$ |
(6,698,893 |
) |
Adjustments to reconcile net loss to net cash used in operating
activities: |
|
|
|
|
|
|
|
|
Bad debt expense |
|
|
13,000 |
|
|
|
10,000 |
|
Depreciation and amortization |
|
|
359,292 |
|
|
|
989,867 |
|
Warranty expense |
|
|
130,916 |
|
|
|
129,183 |
|
Share-based compensation expense |
|
|
816,619 |
|
|
|
1,683,484 |
|
Gain on exchange of warrants for common stock |
|
|
(368,478 |
) |
|
|
|
|
Gain on sale of property and equipment |
|
|
(7,500 |
) |
|
|
|
|
Loss on conversion of debt to preferred stock, net |
|
|
|
|
|
|
617,932 |
|
Change in fair value of derivative liabilities |
|
|
(2,101,067 |
) |
|
|
(6,184,151 |
) |
Investor relations expense |
|
|
10,000 |
|
|
|
130,000 |
|
Amortization of debt discounts |
|
|
3,393,063 |
|
|
|
2,919,673 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
139,400 |
|
|
|
689,343 |
|
Inventories |
|
|
104,670 |
|
|
|
645,254 |
|
Prepaid expenses and other current assets |
|
|
(89,470 |
) |
|
|
450,798 |
|
Deposits |
|
|
31,888 |
|
|
|
(3,887 |
) |
Restricted cash |
|
|
(10,000 |
) |
|
|
|
|
Accounts payable and accrued expenses |
|
|
773,445 |
|
|
|
(719,720 |
) |
Related party payables |
|
|
(52,958 |
) |
|
|
(15,818 |
) |
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(5,185,067 |
) |
|
|
(5,356,937 |
) |
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Loans/advances to related parties |
|
|
(32,741 |
) |
|
|
(6,756 |
) |
Repayment of loans/advances to related parties |
|
|
39,496 |
|
|
|
4,346 |
|
Purchases of property and equipment |
|
|
(62,469 |
) |
|
|
(36,040 |
) |
Proceeds from sale of property and equipment |
|
|
7,500 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(48,214 |
) |
|
|
(38,450 |
) |
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Proceeds from notes payable from related parties |
|
|
|
|
|
|
4,514,963 |
|
Proceeds from notes payable to related parties |
|
|
2,511,000 |
|
|
|
|
|
Recission of common stock |
|
|
(250,000 |
) |
|
|
|
|
Repayment of notes payable to related parties |
|
|
(390,000 |
) |
|
|
|
|
Repayment of note payable |
|
|
(250,000 |
) |
|
|
(199,829 |
) |
Proceeds from the sale of preferred stock, net of issuance costs |
|
|
1,155,000 |
|
|
|
1,978,942 |
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
2,776,000 |
|
|
|
6,294,076 |
|
|
|
|
|
|
|
|
Effect of exchange rates on cash |
|
|
344 |
|
|
|
(632 |
) |
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
(2,456,937 |
) |
|
|
898,057 |
|
Cash and cash equivalents, beginning of year |
|
|
2,580,798 |
|
|
|
1,682,741 |
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year |
|
$ |
123,861 |
|
|
$ |
2,580,798 |
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
|
|
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
|
Interest |
|
$ |
41,877 |
|
|
$ |
127,116 |
|
|
|
|
|
|
|
|
Income taxes |
|
$ |
800 |
|
|
$ |
800 |
|
|
|
|
|
|
|
|
F-6
T3 MOTION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
Supplemental disclosure of non-cash activities: |
|
|
|
|
|
|
|
|
Issuance of common stock for related party payables |
|
$ |
|
|
|
$ |
1,536,206 |
|
|
|
|
|
|
|
|
Conversion of related party payable to related party notes
payable |
|
$ |
|
|
|
$ |
498,528 |
|
|
|
|
|
|
|
|
Conversion of accounts payable to note payable |
|
$ |
|
|
|
$ |
199,829 |
|
|
|
|
|
|
|
|
Cumulative effect to retained earnings due to adoption of
accounting standard |
|
$ |
|
|
|
$ |
1,981,338 |
|
|
|
|
|
|
|
|
Cumulative effect to additional paid-in capital due to adoption
of accounting standard |
|
$ |
|
|
|
$ |
4,013,085 |
|
|
|
|
|
|
|
|
Cumulative effect to debt discount due to adoption of
accounting standard |
|
$ |
|
|
|
$ |
859,955 |
|
|
|
|
|
|
|
|
Conversion option of preferred stock and warrants issued with
preferred stock recorded as derivative liabilities |
|
$ |
1,401,360 |
|
|
$ |
9,054,851 |
|
|
|
|
|
|
|
|
Conversion of debt and accrued interest to equity |
|
$ |
|
|
|
$ |
4,031,865 |
|
|
|
|
|
|
|
|
Reclassification of derivative liability to equity |
|
$ |
1,121,965 |
|
|
$ |
208,857 |
|
|
|
|
|
|
|
|
Issuance of preferred stock for exchange of warrants |
|
$ |
|
|
|
$ |
1,155,390 |
|
|
|
|
|
|
|
|
Issuance of common stock for exchange of warrants |
|
$ |
840,000 |
|
|
$ |
|
|
|
|
|
|
|
|
|
Debt discount and warrant liability recorded upon issuance of
warrants |
|
$ |
838,779 |
|
|
$ |
3,510,751 |
|
|
|
|
|
|
|
|
Amortization of preferred stock discount related to conversion
feature and warrants |
|
$ |
3,730,149 |
|
|
$ |
6,116 |
|
|
|
|
|
|
|
|
Issuance of preferred stock for anti-dilution |
|
$ |
|
|
|
$ |
4,052 |
|
|
|
|
|
|
|
|
Conversion of preferred stock to common stock |
|
$ |
4,000 |
|
|
$ |
|
|
|
|
|
|
|
|
|
Deposits for equipment recorded as note payable due to
settlement agreement |
|
$ |
470,599 |
|
|
$ |
|
|
|
|
|
|
|
|
|
Sale of property and equipment to related party for
a related
party receivable |
|
$ |
6,820 |
|
|
$ |
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 2010 and 2009
NOTE 1 DESCRIPTION OF BUSINESS
Organization
T3 Motion, Inc. was incorporated on March 16, 2006, under the laws of the state of Delaware.
T3 Motion and its wholly-owned subsidiary, T3 Motion, Ltd. (collectively, the Company), develop
and manufacture personal mobility vehicles powered by electric motors. The Companys initial
product, the T3 Series, is an electric, three-wheel stand-up
vehicle (ESV) that is directly
targeted to the law enforcement and private security markets. Substantially all of the Companys
revenues to date have been derived from sales of
the T3 Series ESVs and related accessories.
The Company has entered into a distribution agreement with CT&T pursuant to which the Company
has the exclusive right to market and sell the CT Series Micro Car, which is a low speed,
four-wheel electric car, in the U.S. to the government, law enforcement and security markets. The
Company is also currently developing the Electric/Hybrid Vehicle, which is a plug-in hybrid vehicle that
features a single, wide-stance wheel with two high-performance tires sharing one rear wheel. The
Company anticipates introducing the Electric/Hybrid Vehicle in late 2011.
Going Concern
The Companys consolidated financial statements have been prepared using the accrual method of
accounting in accordance with accounting principles generally accepted in the United States of
America (GAAP) and have been prepared on a going concern basis, which contemplates the
realization of assets and the settlement of liabilities in the normal course of business. The
Company has incurred significant operating losses and has used
substantial amounts of working capital in its operations since its inception (March 16, 2006). Further, at December 31, 2010, the
Company had an accumulated deficit of $(45,120,210), a working capital deficit of $(15,057,791) and
cash and cash equivalents (including restricted cash) of $133,861. Additionally, the Company used
cash in operations of $(5,185,067) during the year ended December 31, 2010. These factors raise
substantial doubt about the Companys ability to continue as a going concern for a reasonable
period of time. Management has been and plans to continue to implement its cost reduction strategy
for material, production and service costs. Until management achieves its cost reduction strategy
and is able to generate sales to realize the benefits of the strategy, and sufficiently increases
cash flow from operations, the Company will require additional capital to meet working capital
requirements, debt service, research and development, capital requirements and compliance
requirements.
Management believes that its current sources of funds and current liquid assets will allow the
Company to continue as a going concern through at least April 30, 2011. The Company has filed a
registration statement in connection with a proposed public offering of its securities.
Management
has been implementing cost reduction strategies and believes that its cash from operations,
together with the net proceeds of that offering,
will be sufficient to allow the Company to
continue as a going concern through at least December 31, 2011. As such, these consolidated
financial statements do not include any adjustments that might result
from the outcome of this
uncertainty.
The Company anticipates that it will pursue raising additional debt or equity financing to
fund its new product development and expansion plans. The Company cannot make any assurances that
that managements cost reduction strategies will be effective or that the public offering or any
additional financing will be completed on a timely basis, on acceptable terms or at all.
Managements inability to successfully implement its cost reduction strategies or to complete its
public offering or any other financing will adversely impact the Companys ability to continue
as a going concern.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
F-8
The accompanying consolidated financial statements include the accounts of T3 Motion, Inc. and
its wholly owned subsidiary, T3 Motion Ltd. (UK) (the subsidiary). All significant inter-company
accounts and transactions are eliminated in consolidation.
Reclassifications
Certain amounts in the 2009 consolidated financial statements have been reclassified to
conform with the current year presentation.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during the reporting period.
Significant estimates include, but are not limited to: collectibility of receivables,
recoverability of long-lived assets, realizability of inventories, warranty accruals, valuation of
share-based transactions, valuation of derivative liabilities and realizability of deferred tax
assets. The Company bases its estimates on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are not readily apparent
from other sources. Actual results could differ from those estimates.
Foreign Currency Translation
The Company measures the financial statements of its foreign subsidiary using the local
currency as the functional currency. Assets and liabilities of this subsidiary are translated at
the exchange rate on the balance sheet date. Revenues, costs and expenses are translated at the
rates of exchange prevailing during the year. Translation adjustments resulting from this process
are included as a separate component in stockholders equity (deficit). Gains and losses from
foreign currency translations are included in other comprehensive income (loss). Translation gains
(losses) of $344 and $(632) were recognized during the years ended December 31, 2010
and 2009,
respectively.
Concentrations of Credit Risk
Cash and Cash Equivalents
The Company maintains its non-interest bearing transactional cash accounts at financial
institutions for which the Federal Deposit Insurance Corporation (FDIC) provides unlimited
insurance coverage. For interest bearing cash accounts, from time to time, balances exceed the
amount insured by the FDIC. The Company has not experienced any losses in such accounts and
believes it is not exposed to any significant credit risk related to these deposits. At December
31, 2010, the Company did not have cash deposits in excess of the FDIC limit.
The Company considers cash equivalents to be all short-term investments that have an initial
maturity of 90 days or less and are not restricted. The Company invests its cash in short-term
money market accounts.
Restricted Cash
Under a credit card processing agreement with a financial institution, the Company is
required to maintain a security deposit as collateral. The amount of the deposit is at the
discretion of the financial institution and as of December 31, 2010 was $10,000.
Accounts Receivable
The Company performs periodic evaluations of its customers and maintains allowances for
potential credit losses as deemed necessary. The Company generally does not require collateral to secure
accounts receivable. The Company estimates credit losses based on managements evaluation of
historical bad debts, customer concentrations, customer credit-worthiness, current economic trends
and changes in customer payment patterns when evaluating the adequacy of its
F-9
allowance for doubtful accounts. At December 31, 2010 and 2009, the Company
had an allowance for doubtful accounts of $50,000 and $37,000, respectively. Although the Company
expects to collect amounts due, actual collections may differ from the estimated amounts.
As of December 31, 2010 and 2009, two customers accounted for
approximately 51% and 36% of
total accounts receivable, respectively. One customer and no single customer accounted for more
than 10% of net revenues for the years ended December 31, 2010 and 2009, respectively.
Accounts Payable
As of December 31, 2010 and 2009, no single vendor and
one vendor accounted for more than 10%
of total accounts payable, respectively. Two vendors and no single vendor each accounted for more
than 10% of purchases for the years ended December 31, 2010 and 2009, respectively.
Inventories
Inventories, which consist of raw materials, finished goods and work-in-process, are stated at
the lower of cost or net realizable value, with cost being determined by the average-cost method,
which approximates the first-in, first-out method. At each balance sheet date, the Company
evaluates its ending inventories for excess quantities and obsolescence. This evaluation primarily
includes an analysis of forecasted demand in relation to the inventory on hand, among consideration
of other factors. Based upon the evaluation, provisions are made to reduce excess or obsolete
inventories to their estimated net realizable values. Once established, write-downs are considered
permanent adjustments to the cost basis of the respective inventories.
Property and Equipment
Property and equipment are stated at cost, and are depreciated using the straight-line method
over the estimated useful lives of the related assets, ranging from three to five years. Leasehold
improvements are recorded at cost and amortized on a straight-line basis over the shorter of their
estimated lives or the remaining lease term. Significant renewals and betterments are capitalized.
Maintenance and repairs that do not improve or extend the lives of the respective assets are
expensed. At the time property and equipment are retired or otherwise disposed of, the cost and
related accumulated depreciation accounts are relieved of the applicable amounts. Gains or losses
from retirements or sales are reflected in the consolidated statements of operations.
Deposits
Deposits primarily consist of amounts incurred or paid in advance of the receipt of fixed
assets (see Note 12).
Impairment of Long-Lived Assets
The Company accounts for its long-lived assets in accordance with the accounting standards
which require that long-lived assets be reviewed for impairment whenever events or changes in
circumstances indicate that the historical cost carrying value of an asset may no longer be
appropriate. The Company assesses recoverability of the carrying value of an asset by estimating
the future net cash flows expected to result from the asset, including eventual disposition. If the
future net cash flows are less than the carrying value of the asset, an impairment loss is recorded
equal to the difference between the assets carrying value and fair value or disposable value. As
of December 31, 2009, the Company performed an annual review of its identified intangible asset
related to the GeoImmersive license agreement to assess potential impairment. At December 31, 2009,
management deemed the intangible asset to be fully impaired, as management has decided to allocate
the resources required to map the data elsewhere. As a result, the remaining value of $625,000 was
fully amortized as of December 31, 2009. As of December 31, 2010 and 2009, the Company does not
believe there has been any other impairment of its long-lived assets. There can be no assurance,
however, that market conditions will not change or demand for the Companys products will continue, which
could result in impairment of long-lived assets in the future.
Fair Value of Financial Instruments
F-10
The Companys financial instruments consist of cash and cash equivalents, restricted cash,
accounts receivable, related party receivables, accounts payable, accrued expenses, related party
payables, note payable, related party notes payable and derivative liabilities. The carrying value
for all such instruments except related party notes payable and derivative liabilities approximates
fair value due to the short-term nature of the instruments. The Company cannot determine the fair
value of its related party notes payable due to the related party nature of such instruments and
because instruments similar to the notes payable could not be found. The Companys derivative liabilities
are recorded at fair value (see Note 9).
The Company determines the fair value of its financial instruments based on a three-level
hierarchy for fair value measurements under which these assets and liabilities must be grouped,
based on significant levels of observable or unobservable inputs. Observable inputs reflect market
data obtained from independent sources, while unobservable inputs reflect the Companys market
assumptions. This hierarchy requires the use of observable market data when available. These two
types of inputs have created the following fair-value hierarchy:
Level 1 Valuations based on unadjusted quoted market prices in active markets for
identical securities. Currently the Company does not have any items classified as Level 1.
Level 2 Valuations based on observable inputs (other than Level 1 prices), such as quoted
prices for similar assets at the measurement date; quoted prices in markets that are not active;
or other inputs that are observable, either directly or indirectly. Currently the Company does
not have any items classified as Level 2.
Level 3 Valuations based on inputs that are unobservable and significant to the overall
fair value measurement, and involve management judgment. The Company used the
Black-Scholes-Merton option pricing model to determine the fair value of the financial
instruments.
If the inputs used to measure fair value fall in different levels of the fair value hierarchy,
a financial securitys hierarchy level is based upon the lowest level of input that is significant
to the fair value measurement.
Beneficial Conversion Features and Debt Discounts
The convertible features of convertible debentures provide for a rate of conversion that is
below market value. Such feature is normally characterized as a beneficial conversion feature
(BCF). The relative fair values of the BCF were recorded as discounts from the face amount of the
respective debt instrument. The Company amortized the discount using the effective interest method
through maturity of such instruments.
Revenue Recognition
The Company recognizes revenues when there is persuasive evidence of an arrangement, product
delivery and acceptance have occurred, the sales price is fixed or determinable and collectability
of the resulting receivable is reasonably assured.
For all sales, the Company uses a binding purchase order as evidence of an arrangement. The
Company ships with either FOB Shipping Point or Destination terms. Shipping documents are used to
verify delivery and customer acceptance. For FOB Destination, the Company records revenue when
proof of delivery is confirmed by the shipping company. The Company assesses whether the sales
price is fixed or determinable based on the payment terms associated with the transaction and
whether the sales price is subject to refund. The Company offers a standard product warranty to its
customers for defects in materials and workmanship for a period of one year or 2,500 miles,
whichever comes first (see Note 12), and has no other post-shipment obligations. The Company
assesses collectibility based on the creditworthiness of the customer as determined by evaluations
and the customers payment history.
All amounts billed to customers related to shipping and handling are classified as net
revenues, while all costs incurred by the Company for shipping and handling are classified as cost
of net revenues.
F-11
The Company does not enter into contracts that require fixed pricing beyond the term of the
purchase order. All sales via distributor agreements are accompanied by a purchase order. Further,
the Company does not allow returns of unsold items.
The Company has executed various distribution agreements whereby the distributors agreed to
purchase T3 Series packages (one T3 Series, two power modules, and one charger per package). The
terms of the agreements require minimum re-order amounts for the vehicles to be sold through the
distributors in specified geographic regions. Under the terms of the agreements, the distributor
takes ownership of the vehicles and the Company deems the items sold at delivery to the
distributor.
Share-Based Compensation
The Company maintains a stock option plan (see Note 11) and records expenses attributable to
the stock option plan. The Company amortizes share-based compensation from the date of grant
on a
straight-line basis over the requisite service (vesting) period for the entire award using the
Black-Scholes-Merton option pricing model.
The Company accounts for equity instruments issued to consultants and vendors in exchange for
goods and services in accordance with the accounting standards. The measurement date for the fair
value of the equity instruments issued is determined at the earlier of (i) the date at which a
commitment for performance by the consultant or vendor is reached or (ii) the date at which the
consultants or vendors performance is complete. In the case of equity instruments issued to
consultants, the fair value of the equity instrument is recognized over the term of the consulting
agreement.
In accordance with the accounting standards, an asset acquired in exchange for the issuance of
fully vested, non-forfeitable equity instruments should not be presented or classified as an offset
to equity on the grantors balance sheet once the equity instrument is granted for accounting
purposes. Accordingly, the Company records the fair value of the fully vested, non-forfeitable
common stock issued for future consulting services as prepaid expense in its consolidated balance
sheets.
Income Taxes
The Company accounts for income taxes under the provisions of the accounting standards. Under
the accounting standards, deferred tax assets and liabilities are recognized for future tax
benefits or consequences attributable to temporary differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be recovered or settled. A valuation
allowance is provided for significant deferred tax assets when it is more likely than not that
such asset will not be realized through future operations.
Loss Per Share
Basic loss per share is computed by dividing net loss attributable to common stockholders by
the weighted average number of common shares assumed to be outstanding during the period of
computation. Diluted earnings per share is computed similar to basic loss per share except that the
denominator is increased to include the number of additional common shares that would have been
outstanding if the potential shares had been issued and if the additional common shares were
dilutive. Options, warrants and shares associated with the conversion of debt and preferred stock
to purchase approximately 54.7 million and 50.5 million shares of common stock were outstanding at
December 31, 2010 and 2009, respectively, but were excluded from the computation of diluted
earnings per share due to the anti-dilutive effect on net loss per share.
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
Net loss |
|
$ |
(8,327,887 |
) |
|
$ |
(6,698,893 |
) |
Deemed dividend to preferred stockholders |
|
|
(3,730,149 |
) |
|
|
(6,116 |
) |
|
|
|
|
|
|
|
Net loss attributable to common stockholders |
|
$ |
(12,058,036 |
) |
|
$ |
(6,705,009 |
) |
|
|
|
|
|
|
|
Weighted average number of common shares outstanding: |
|
|
|
|
|
|
|
|
F-12
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
Basic and diluted |
|
|
47,689,785 |
|
|
|
44,445,042 |
|
Net loss per share: |
|
|
|
|
|
|
|
|
Basic and diluted |
|
$ |
(0.25 |
) |
|
$ |
(0.15 |
) |
|
|
|
|
|
|
|
Research and Development
The Company expenses research and development costs as incurred.
Advertising
Advertising expenses are charged against operations when incurred. Advertising expenses for
the years ended December 31, 2010 and 2009 were $12,709 and
$4,226, respectively, and are included in sales and marketing expenses in the accompanying consolidated statements of operations.
Business Segments
The Company currently only has one reportable business segment due to the fact that the
Company derives its revenue primarily from one product. The CT Micro Car is not included in a
separate business segment due to nominal net revenues during the years ended December 31, 2010 and 2009. The
net revenues from domestic and international sales are shown below:
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Net revenues: |
|
|
|
|
|
|
|
|
T3 Series domestic |
|
$ |
3,842,030 |
|
|
$ |
3,654,290 |
|
T3 Series international |
|
|
840,878 |
|
|
|
963,911 |
|
CT Series domestic |
|
|
|
|
|
|
25,821 |
|
|
|
|
|
|
|
|
Total net revenues |
|
$ |
4,682,908 |
|
|
$ |
4,644,022 |
|
|
|
|
|
|
|
|
Unaudited Pro Forma Consolidated Balance Sheet and Pro Forma Consolidated Loss per
Share
The Company has filed a Registration Statement on Form S-1 with the U.S. Securities and Exchange
Commission in connection with a proposed public offering of shares of its common stock. If the
offering contemplated by this prospectus is consummated, the Company
will effect a one-for-10 reverse
stock split after the effectiveness of the Registration Statement and prior to the closing of the
offering. The unaudited pro forma consolidated balance sheet as of December 31, 2010 and the
unaudited pro forma consolidated loss per share for the year ended December 31, 2010 give effect to
the assumed reverse stock split.
For presentation purposes, the Company has assumed that the proposed offering will close
by April 15, 2011. Pursuant to the terms of the Series A convertible preferred stock, if the sale of common
stock or common stock equivalents had occurred within the first 12 months of the original issuance
date of the Series A convertible preferred stock at a purchase price less than the initial
conversion price, then the conversion price would have been reduced to such purchase price. If the
issuance occurs after the first 12 months but before the two-year anniversary of the original
issuance date, the conversion price will be reduced to a price derived using a weighted-average
formula. As the 12-month time period passed without any sale of common stock or common stock
equivalents since the original issuance date, for presentation purposes, the Company has used the
weighted-average formula to determine the conversion price. The weighted-average conversion price
is based on an assumed offering price of $3.50 per unit (post reverse split) (the
midpoint of the offering range set forth on the cover page of this prospectus), and results in a
conversion rate of 0.2302 shares (post reverse split) of common stock for each share of Series A convertible preferred
stock.
The unaudited pro forma consolidated balance sheet as of December 31, 2010 reflects the
conversion of 11,502,563 outstanding shares of Series A convertible preferred
stock as of that date into 2,647,343 shares (post reverse split) of the Companys common stock, which
is expected to occur upon the closing of the Companys proposed
offering. The derivative liability of $4,966,126 related to the anti-dilution feature for holders of
11,502,563 outstanding shares of Series A convertible preferred stock will be
reclassified to additional paid-in capital upon the closing of the Companys proposed offering.
In addition, the unaudited pro forma consolidated balance sheet as of December 31, 2010, reflects
the impact of the accretion of the remaining discount of $4,263,069 related to the anti-dilution
feature of the Series A convertible preferred stock upon conversion.
The unaudited pro forma consolidated balance sheet as of December 31, 2010 also reflects the
conversion of $3,500,000 of principal amount of related party convertible notes plus related
accrued interest of $350,959 into 1,100,274 shares (post reverse split) of the Companys common
stock, and the conversion of $1,121,000 of principal amount of related party notes payable plus
related accrued interest of $23,756 into 327,073 shares (post reverse split) of the Companys
common stock upon completion of the offering. In addition, the derivative liability of $1,025,831
related to the conversion feature of the $3,500,000 related party convertible notes will be
reclassified to additional paid-in capital upon conversion.
Prior to the closing of the offering, the Company anticipates entering into agreements with holders
of Class G warrants for the purchase of 826,373 shares (post reverse split) of the Companys common
stock, whereby the holders will waive the anti-dilution feature and fix the exercise price of the
warrants. The unaudited pro forma balance sheet as of December 31, 2010 reflects the impact of the
reclassification of the derivative liabilities amounting to $2,862,909 into additional paid-in
capital as a result of these agreements.
F-13
Pro forma net loss per share has been presented to give effect to the conversion of all outstanding
shares of Series A convertible preferred stock into 2,647,343 shares of the Companys common stock
(using the if-converted method) as though the conversion had occurred on January 1, 2010 or on the original dates of
issuance, and the conversion of $3,500,000 of outstanding principal of related party convertible
notes and $350,959 of related accrued interest into 1,100,274 shares of the Companys common stock,
and the conversion of $1,121,000 of related party notes payable and $23,756 of accrued interest
into 327,073 shares of the Companys common stock as though the completion of the offering
contemplated by the filing of the Companys prospectus had occurred on January 1, 2010.
In addition, the pro forma net loss per share has been presented to give effect to the one-for-10
reverse stock split which will occur immediately prior to the effectiveness of the Companys
anticipated offering. Pro forma basic and diluted loss per share for the year ended December 31,
2010 (unaudited) is as follows:
|
|
|
|
|
Numerator: |
|
|
|
|
Net loss
attributable to common stockholders |
|
$ |
(12,058,036 |
) |
Pro forma adjustments: |
|
|
|
|
Deemed dividend to preferred stockholders |
|
|
3,730,149 |
|
Change in the fair value of preferred stock
anti-dilution derivative liability |
|
|
(1,911,306 |
) |
Interest
expense on related party convertible notes |
|
|
373,756 |
|
Change in fair value of convertible notes anti-dilution derivative liability |
|
|
(787,766 |
) |
Change in fair value of Class G warrants anti-dilution derivative liability |
|
|
403,892 |
|
Amortization of debt discount on related party notes payable |
|
|
2,897,574 |
|
|
|
|
|
Net loss used to compute pro forma net loss
per common share, basic and diluted |
|
$ |
(7,351,737 |
) |
|
|
|
|
|
|
|
|
|
Weighted average shares
used in computing loss per share, basic and diluted |
|
|
4,768,979 |
|
Assumed conversion
of convertible preferred stock and related party
notes payable |
|
|
4,074,690 |
|
Shares used in computing pro forma
loss per common share, basic and diluted |
|
|
8,843,669 |
|
|
|
|
|
|
|
|
|
|
Pro forma net loss per common share, basic and
diluted |
|
$ |
(0.83 |
) |
|
|
|
|
Recent Accounting Pronouncements
In January 2010, the Financial Accounting Standards Board (the
FASB) issued guidance that
expands the interim and annual disclosure requirements of fair value measurements, including the
information about movement of assets between Level 1 and 2 of the three
-tier fair value hierarchy
established under its fair value measurement guidance. This guidance also requires separate
disclosure for purchases, sales, issuances and settlements in the reconciliation for fair value
measurements using significant unobservable inputs using Level 3 methodologies. Except for the
detailed disclosure in the Level 3 reconciliation, which is effective for the fiscal years
beginning after December 15, 2010, we adopted the relevant provisions of this guidance effective
January 1, 2010, which did not have a material impact on our consolidated financial
statements.
NOTE 3 INVENTORIES
Inventories consist of the following at December 31:
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Raw materials |
|
$ |
788,496 |
|
|
$ |
959,909 |
|
Work-in-process |
|
|
212,723 |
|
|
|
91,013 |
|
Finished goods |
|
|
63,327 |
|
|
|
118,294 |
|
|
|
|
|
|
$ |
1,064,546 |
|
|
$ |
1,169,216 |
|
|
|
|
|
|
|
|
NOTE 4 PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist of the following at December 31:
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Prepaid inventory |
|
$ |
148,410 |
|
|
$ |
71,370 |
|
Prepaid expenses and other current assets |
|
|
103,057 |
|
|
|
90,627 |
|
|
|
|
|
|
|
|
|
|
$ |
251,467 |
|
|
$ |
161,997 |
|
|
|
|
|
|
|
|
NOTE 5 PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31:
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Office and computer equipment |
|
$ |
316,718 |
|
|
$ |
291,874 |
|
Demonstration vehicles |
|
|
390,220 |
|
|
|
370,456 |
|
Manufacturing equipment |
|
|
952,361 |
|
|
|
1,015,320 |
|
Leasehold improvements |
|
|
108,336 |
|
|
|
108,336 |
|
|
|
|
|
|
|
|
|
|
|
1,767,635 |
|
|
|
1,785,986 |
|
Less accumulated depreciation and amortization |
|
|
(1,202,935 |
) |
|
|
(917,643 |
) |
|
|
|
|
|
|
|
|
|
$ |
564,700 |
|
|
$ |
868,343 |
|
|
|
|
|
|
|
|
F-14
Depreciation and amortization expense
consisted of the following for the years
ended December 31,:
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Cost of revenues |
|
$ |
197,799 |
|
|
$ |
200,151 |
|
Sales and marketing |
|
|
79,795 |
|
|
|
75,480 |
|
General and administrative |
|
|
81,698 |
|
|
|
89,236 |
|
|
|
|
|
|
|
|
|
|
$ |
359,292 |
|
|
$ |
364,867 |
|
|
|
|
|
|
|
|
NOTE 6 INCOME TAXES
The provision for income taxes consists of the following for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Current: |
|
|
|
|
|
|
|
|
Federal |
|
$ |
|
|
|
$ |
|
|
State |
|
|
800 |
|
|
|
800 |
|
Foreign |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
800 |
|
|
$ |
800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
Federal |
|
$ |
(2,290,997 |
) |
|
$ |
(2,580,732 |
) |
State |
|
|
(605,504 |
) |
|
|
(702,405 |
) |
Foreign |
|
|
(3,006 |
) |
|
|
(30,563 |
) |
|
|
|
|
|
|
|
|
|
|
(2,899,507 |
) |
|
|
(3,313,700 |
) |
|
|
|
|
|
|
|
Less change in valuation allowance |
|
|
2,899,507 |
|
|
|
3,313,700 |
|
|
|
|
|
|
|
|
Provision for income taxes |
|
$ |
800 |
|
|
$ |
800 |
|
|
|
|
|
|
|
|
Income taxes differ from the amounts computed by applying the federal income tax rate of
34.0%. A reconciliation of this difference is as follows at December 31:
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Taxes calculated at federal rate |
|
$ |
(2,816,761 |
) |
|
$ |
(2,277,629 |
) |
State tax, net of federal benefit |
|
|
800 |
|
|
|
528 |
|
Exclusion of certain meals and entertainment |
|
|
3,842 |
|
|
|
4,678 |
|
Foreign losses not benefitted |
|
|
3,406 |
|
|
|
34,638 |
|
Incentive stock options |
|
|
277,651 |
|
|
|
572,385 |
|
(Gain) loss on debt conversion |
|
|
(125,283 |
) |
|
|
225,686 |
|
Research credits |
|
|
(55,183 |
) |
|
|
(36,723 |
) |
Other, net |
|
|
13,915 |
|
|
|
35,575 |
|
Valuation allowance |
|
|
2,698,414 |
|
|
|
1,441,662 |
|
|
|
|
|
|
|
|
Provision for income taxes |
|
$ |
800 |
|
|
$ |
800 |
|
|
|
|
|
|
|
|
The components of the net deferred assets as of December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Accruals and reserves |
|
$ |
920,716 |
|
|
$ |
240,483 |
|
Basis difference in fixed assets |
|
|
(51,454 |
) |
|
|
(70,771 |
) |
Stock options |
|
|
21,109 |
|
|
|
21,109 |
|
Tax credits |
|
|
420,608 |
|
|
|
353,808 |
|
Net operating loss carryforward |
|
|
14,208,405 |
|
|
|
12,075,249 |
|
|
|
|
|
|
|
|
F-15
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
|
|
15,519,384 |
|
|
|
12,619,878 |
|
Valuation allowance |
|
|
(15,519,384 |
) |
|
|
(12,619,878 |
) |
|
|
|
Net deferred tax asset |
|
$ |
|
|
|
$ |
|
|
|
|
|
An allowance has been provided for by the Company which reduced the tax benefits accrued by
the Company for its net operating losses to zero, as it cannot be determined when, or if, the tax
benefits derived from these operating losses will be realized. As of December 31, 2010, the Company
has available net operating loss carryforwards of approximately $32.8 million for federal purposes
and $33.0 million for state purposes and $0.4 million for
foreign purposes, which will start to
expire beginning in 2026 for federal purposes and 2018 for California purposes and carried forward
indefinitely for foreign purposes. The Companys use of its net operating losses may be restricted
in future years due to the limitations pursuant to IRC Section 382 on changes in ownership. The
Company also has federal and state research and experimentation tax credits of approximately $0.2
million and $0.2 million, respectively, that begin to expire in 2027 for federal purposes and have
an indefinite carryforward for state purposes.
The Company accounts for income taxes under the asset and liability method, which requires the
recognition of deferred tax assets and liabilities for the expected future tax consequences of
events that have been included in the financial statements. Under this method, deferred tax assets
and liabilities are determined based on the differences between the financial statements and tax
basis of assets and liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and
liabilities is recognized in income in the period that includes the enactment date.
The Company records net deferred tax assets to the extent it believes these assets will more
likely than not be realized. In making such determination, the Company considered all available
positive and negative evidence, including scheduled reversals of deferred tax liabilities,
projected future taxable income, tax planning strategies and recent financial operations. In the
event the Company was to determine that it would be able to realize deferred income tax assets in
the future in excess of net recorded amount, the Company would make an adjustment to the valuation
allowance which would reduce the provision for income taxes. The valuation allowance increased by
$2.7 million and $1.5 million in 2010 and 2009, respectively.
The accounting guidance for uncertainty in income taxes provides that a tax benefit from an
uncertain tax position may be recognized when it is more likely than not that the position will be
sustained upon examination, including resolutions of any related appeals or litigation processes,
based on the technical merits. Income tax positions must meet a more-likely-than-not recognition
threshold at the effective date to be recognized upon the adoption of the accounting standard and
in subsequent periods. This interpretation also provides guidance on measurement, derecognition,
classification, interest and penalties, accounting in interim periods, disclosure and transition.
The adoption of the accounting standard for uncertainty in income taxes on January 1, 2008,
did not require an adjustment to the consolidated financial statements. There were no adjustments
required for the years ended December 31, 2010 and 2009.
The Company expects resolution of unrecognized tax benefits, if created, would occur while the
full valuation allowance of deferred tax assets is maintained, therefore, the Company does not
expect to have any unrecognized tax benefit, that if recognized, would affect the effective tax
rate.
The Company will recognize interest and penalties related to unrecognized tax benefits
and penalties as income tax expense. As of December 31, 2010, the Company has not recognized
liabilities for interest and penalties as the Company does not have liability for unrecognized tax
benefits.
The Company is subject to taxation in the U.S. and various states and foreign jurisdiction.
The Companys tax years for 2006 through 2009 are subject to examination by the taxing authorities.
With few exceptions, the Company is no longer subject to U.S., state, local, and foreign
examination by taxing authorities for years before 2006.
F-16
NOTE 7 NOTE PAYABLE
Note payable consisted of the following at December 31:
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Note payable to
Preproduction Plastics,
Inc., interest payable
monthly at 6% per annum,
monthly payments of
$50,000 plus interest,
due May 2011 |
|
$ |
243,468 |
|
|
$ |
|
|
|
|
|
|
|
|
|
In accordance with a settlement agreement (see Note 12), the Company agreed to pay
compensatory damages, attorneys fees and costs totaling $493,468, to Preproduction Plastics,
Inc., which is payable in monthly payments of $50,000 each, plus interest accruing at 6% per annum from the
date of the settlement. Commencing January 1, 2011, the Company has failed to make the scheduled
payments required by the July 29, 2010 settlement agreement and stipulation for entry of judgment. The
Plaintiff has filed a motion for entry of judgment pursuant to the terms of the July 29, 2010 settlement agreement and stipulation for entry
of judgment, which if granted, would cause the acceleration of all amounts owed under the settlement agreement. The parties have requested that this
motion be heard on April 21, 2011. During the year ended December 31, 2010, the Company recorded $8,587 of interest expense and had accrued interest of $4,126 at December 31, 2010.
NOTE 8 RELATED PARTY NOTES PAYABLE
Related party notes payable, net of discounts, consisted of the following at December 31:
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Note payable to Immersive Media Corp., 15% interest rate per
annum, net of discount of $108,879 and $41,265, respectively, due
March 31, 2011 |
|
$ |
891,121 |
|
|
$ |
958,735 |
|
Note payable to Vision Opportunity Master Fund, Ltd., 10% interest
rate per annum, net of discount of $0 and $2,621,898, respectively, due March 31, 2011 |
|
|
3,500,000 |
|
|
|
878,102 |
|
Note payable to Ki Nam, 10% interest rate per annum, due March 31, 2012 |
|
|
1,121,000 |
|
|
|
|
|
Note payable to Alfonso and Mercy Cordero, 10% interest rate per annum, due
October 1, 2013 |
|
|
1,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
6,512,121 |
|
|
$ |
1,836,837 |
|
Less: current portion |
|
|
(4,391,121 |
) |
|
|
(1,836,837 |
) |
|
|
|
|
|
|
|
|
|
$ |
2,121,000 |
|
|
$ |
|
|
|
|
|
|
|
|
|
The aggregate annual maturities for related party notes payable in each of the years after
December 31, 2010, are as follows:
|
|
|
|
|
Year Ending December 31, |
|
Related Party Notes Payable |
2011 |
|
$ |
4,500,000 |
|
2012 |
|
$ |
1,121,000 |
|
2013 |
|
$ |
1,000,000 |
|
Immersive Note
On December 31, 2007, the Company issued a 12% secured promissory note in the principal amount
of $2,000,000 to Immersive Media Corp. (Immersive), one of the Companys stockholders. On March
31, 2008, the Company repaid $1,000,000 of the principal amount. The note was originally due
December 31, 2008 and is secured by all of the Companys assets (see amendments
below).
In connection with the issuance of the promissory note, the Company issued a warrant to
Immersive for the purchase of 697,639 shares of the Companys common stock at an exercise price of
$1.08 per share. The warrants are immediately exercisable. The Company recorded a debt discount of
$485,897 related to the fair value of the warrants, which was calculated using the Black-Scholes
Merton option pricing model. The debt discount was amortized to interest expense over the original
term of the promissory note.
First Amendment to Immersive Note
On December 19, 2008, the Company amended the terms of the promissory note with Immersive to,
among other things, extend the maturity date of the outstanding balance of $1,000,000 from December
31, 2008 to March 31, 2010 and give Immersive the option to
convert the promissory note during the
pendency and prior to the closing of an equity offering into units of the Companys securities at
an original conversion price of $1.65 per unit. Each unit
F-17
consists of one share of the Companys common stock and a warrant to purchase a share of the
Companys common stock at $2.00 per share. In the event the Company issues common stock or common
stock equivalents for cash consideration in a subsequent financing at an effective price per share
less than the original conversion price, the conversion price will reset. The amended terms of the
note resulted in terms that were substantially different from the terms of the original note. As a
result, the modification was treated as an extinguishment of debt during the year ended December
31, 2008. There was no gain or loss recognized in connection with the extinguishment. At the date
of the amendment, the Company did not record the value of the conversion feature as the conversion
option is contingent on a future event.
In December 2009, the Company issued 2,000,000 shares of its Series A Convertible Preferred
Stock (Preferred Stock) in connection with an equity offering (see Note 10). As a result of the
December 2009 equity offering, the Company recorded the estimated fair value of the conversion
feature of $1,802 as a debt discount and amortized such amount to interest expense through the
maturity of the note on March 31, 2010.
The Company recorded the corresponding amount as a
derivative liability and any change in fair value of the conversion feature was recorded through
earnings.
As consideration for extending the terms of the promissory note in December 2008, the Company
agreed to issue warrants to Immersive for the purchase of up to 250,000 shares of the Companys
common stock at an exercise price of $2.00 per share, subject to adjustment. For every three months
that the promissory note is outstanding, the Company issued Immersive a warrant to purchase 50,000
shares of the Companys common stock. During the year ended December 31, 2009, the Company issued
warrants to Immersive to purchase 200,000 shares of the Companys common stock. The Company
recorded a debt discount of $139,778 based on the estimated fair value of the warrants issued
during the year ended December 31, 2009. As a result of the December 2009 equity offering, the
exercise price of the warrants was adjusted to $0.50 per share (see Note 9 for a discussion on
derivative liabilities). During the year ended December 31, 2010, the Company issued the remaining
50,000 warrants under the note. The Company recorded an additional debt discount of $15,274 based
on the estimated fair value of the 50,000 warrants issued during the year ended December 31, 2010.
During the years ended December 31, 2010 and 2009,
the Company amortized $56,539 and $99,043,
respectively, of the debt discounts to interest expense. As of March 31, 2010, prior to the second
amendment to the Immersive note (see below), the debt discounts were fully amortized to
interest
expense.
Second Amendment to Immersive Note
On March 31, 2010, Immersive agreed to extend the note to April 30, 2010.
As consideration for
extending the note, the Company agreed to exchange Immersives Class A warrants to purchase up to
697,639 shares of the Companys common stock at an exercise price of $1.08 per share and its Class
D warrants to purchase up to 250,000 shares of the Companys common stock at an adjusted exercise
price of $0.70 per share, for Class G warrants to purchase up to 697,639 shares and 250,000 shares
of the Companys common stock, respectively, each with an exercise price of $0.70 per share. The
Company recorded a debt discount and derivative liability of $1,898 based on the incremental
increase in the estimated fair value of the re-pricing of the 250,000 warrants. The Company
recorded an additional debt discount and derivative liability in the amount of $216,811 based on
the estimated fair value of the 697,639 warrants issued. The total debt discount was amortized in
April 2010. The amended terms did not result in terms that were substantially different from the
terms of the original note. Therefore, there was no extinguishment of debt as a result of the second amendment.
The note and accrued interest were not repaid in full by April 30, 2010. As
a result, per the agreement, the maturity date was extended to March 31, 2011 and the Company issued Class G
warrants to purchase up to 1,040,000 shares of the Companys common stock at an exercise price of $0.70 per
share. The interest rate, which compounds annually, was also amended to 15.0%. The Company recorded
interest expense of $140,000 and $120,000, related to the stated rate of interest during the years
ended December 31, 2010 and 2009, respectively, and had accrued interest of $110,000 and $0 at
December 31, 2010 and 2009, respectively. The terms of the Class G warrants issued
to Immersive
are substantially similar to prior Class G warrants issued by the Company. The Company recorded a
debt discount of $329,120 related to the fair value of the warrants issued. Amortization of this
debt discount was $220,241 for the year ended December 31, 2010, resulting in an unamortized debt
discount balance of $108,879 at December 31, 2010.
F-18
Vision Opportunity Master Fund, Ltd. Bridge Financing
December 30, 2008 10% Convertible Debenture
On December 30, 2008, the Company sold $2.2 million
in debentures and issued Class D warrants
through a private placement to Vision Opportunity Master Fund, Ltd. (Vision) pursuant to a
Securities Purchase Agreement. In connection with this financing, the Company recorded a debt
discount of $607,819 related to the BCF of the debenture and a debt discount of $607,819 related to
the relative fair value of the Class D warrants. The debt discount for the Class D warrants was
calculated using the Black-Scholes-Merton option pricing model. The BCF and warrants were amortized
to interest expense over the one-year life of the note. As a result of the adoption of a new
accounting pronouncement on January 1, 2009, the Company recorded an additional debt discount of
$859,955 which was amortized through maturity of the debentures (see Note 9).
On December 30, 2009, pursuant to the Exchange Agreement (see below), the Company issued to
Vision and Vision Capital Advantage Fund, L.P. (VCAF and, together with Vision, the Vision
Parties), shares of Preferred Stock in exchange for the delivery and cancellation of these
debentures and accrued interest.
May 28, 2009 10% Convertible Debenture
On May 28, 2009, the Company issued to Vision, 10% Debentures with an aggregate principal
value of $600,000. Additionally, Vision received Class E common stock purchase warrants, (Class E
Warrants) to purchase up to an aggregate 300,000 shares of the Companys common stock at an
exercise price of $1.20 per share. In connection with this financing, the Company recorded a debt
discount of $291,327 related to the conversion feature of the debenture and a debt discount of
$201,222 related to the estimated fair value of the Class E Warrants. The debt discount for the
Class E Warrants was calculated using the Black-Scholes-Merton option pricing model. The conversion
feature and warrants were amortized to interest expense through the date of exchange of these
debentures (see below). As noted below, these 10% Debentures were cancelled in connection with the
December 30, 2009 financing with Vision. Additionally, the Class E Warrants were exchanged for
shares of Preferred Stock in connection with the December 30, 2009 financing with Vision (see
below).
December 30, 2009 10% Convertible Debenture
On December 30, 2009, the Company sold $3,500,000 in debentures and warrants to Vision through
a private placement pursuant to a Securities Purchase Agreement (the Purchase Agreement). The
Company issued to Vision, 10% secured convertible debentures (Debentures), with an aggregate
principal value of $3,500,000.
The Debentures accrue interest on the unpaid principal balance at a rate equal to 10% per
annum. The maturity date of the Debentures was December 30, 2010 (see below). At any time after the
240th calendar day following the issue date, the Debentures are convertible into units
of Company securities at a conversion price of $1.00 per unit, subject to adjustment. Each unit
consists of one share of the Companys Preferred Stock and a warrant to purchase one share of the
common stock. As a result of the 240th day passing, the Company recorded an additional
debt discount and corresponding derivative liability in the amount of $275,676 during the year
ended December 31, 2010 (see Note 9). The Company may redeem the Debentures in whole or part at any
time after June 30, 2010 for cash in an amount equal to 120% of the principal amount plus accrued
and unpaid interest and certain other amounts due in respect of the Debenture. Interest on the
Debentures is payable in cash on the maturity date or, if sooner, upon conversion or redemption of
the Debentures. In the event of default under the terms of the Debentures, the interest rate
increases to 15% per annum. The Company recorded interest expense of $350,000 and $959, related to
the stated rate of interest, for the years ended December 31, 2010 and 2009, respectively, and had
accrued interest of $350,959 and $959 as of December 31, 2010 and 2009, respectively.
The Purchase Agreement provides that during the 18 months following December 30, 2009, if the
Company or its wholly owned subsidiary, T3 Motion, Ltd., a company incorporated under the laws of
the United Kingdom (the Subsidiary), issue common stock, common stock equivalents for cash
consideration, indebtedness, or a combination of such securities in a subsequent financing (the
Subsequent Financing), Vision may participate in
F-19
such Subsequent Financing in up to an amount equal to Visions then percentage ownership of
the Companys common stock.
The Purchase Agreement also provides that from December 30, 2009 to the date that the
Debentures are no longer outstanding, if the Company effects a Subsequent Financing, Vision may
elect, in its sole discretion, to exchange some or all of the Debentures then held by Vision for
any securities issued in a Subsequent Financing on a $1.00 for $1.00 basis (the Exchange);
provided, however, that the securities issued in a Subsequent Financing will be irrevocably
convertible, exercisable, exchangeable, or resettable (or any other similar feature) based on the
price equal to the lesser of (i) the conversion price, exercise price, exchange price, or reset
price (or such similar price) in such Subsequent Financing and (ii) $1.00 per share of common
stock. Vision is obligated to elect the Exchange on a $0.90 per $1.00 basis (not a $1.00 for $1.00
basis) if certain conditions regarding the Subsequent Financing and other matters are met.
Also pursuant to the
Purchase Agreement, Vision received Class G common stock purchase
warrants (the Class G Warrants). Pursuant to the terms of the Class G Warrants, Vision is entitled to purchase
up to an aggregate of 3,500,000 shares of the Companys common stock at an exercise price of $0.70
per share, subject to adjustment. The Class G Warrants have a term of five years after the issue date of
December 30, 2009.
The Subsidiary entered into a
subsidiary guarantee (Subsidiary Guarantee) for Visions
benefit to guarantee to Vision T3 Motions obligations due under the Debentures. T3 Motion and the
Subsidiary also entered into a security agreement (Security Agreement) with Vision, under which
it and the Subsidiary granted to Vision a security interest in certain of our and the Subsidiarys
property to secure the prompt payment, performance, and discharge in full of all obligations under
the Debentures and the Subsidiary Guarantee.
December 30, 2009 Exchange Agreement
On December 30, 2009, the
Company also entered into a securities exchange agreement (the
Exchange Agreement) with the Vision Parties. Pursuant to the Exchange Agreement, the Company
issued to the Vision Parties an aggregate of 9,370,698 shares of Preferred Stock. 3,055,000 shares
of Preferred Stock were issued in exchange for the delivery and cancellation of 10% Secured
Convertible Debentures previously issued by the Company to the Vision Parties in the principal
amount of $2,200,000 (issued December 30, 2008) and $600,000 (issued May 28, 2009) plus accrued
interest of $255,000 (in conjunction with the issuance of Preferred Stock, the Company issued Class
F warrants to purchase 6,110,000 shares of common stock at $0.70 per share); 2,263,750 shares of
Preferred Stock were issued in exchange for the delivery and cancellation of all Class A, B, C, D,
E and F warrants (which were exercisable for an aggregate of 10,972,769 shares) previously issued by the Company to the Vision
Parties valued at $1,155,390, (the Company recorded a gain of $45,835 related to the exchange of
the warrants for Preferred Stock); and 4,051,948 shares of Preferred Stock were issued to satisfy
the Companys obligation to issue equity to the Vision Parties pursuant to a securities purchase
agreement dated March 24, 2008 and amended on May 28, 2009.
Under the Exchange Agreement, Ki Nam, the Chief Executive Officer and Chairman of the board of
directors of the Company, also agreed to convert a promissory note plus the accrued interest,
previously issued to him by the Company into 976,865 shares of Preferred Stock and Class G Warrants
to purchase up to 1,953,730 shares of common stock (which warrants have the same terms as the
Class G Warrants issued to Vision pursuant to the Purchase Agreement).
The Company, Mr. Nam and the Vision Parties also entered into a stockholders agreement,
whereby Mr. Nam agreed to vote, in the election of members of the Companys board of directors, all
of his voting shares of the Company in favor of (i) two nominees of the Vision Parties so long as
their ownership of common stock of the Company is 22% or more or (ii) one nominee of The Vision
Parties so long as their ownership of common stock of the Company is 12% or more.
Amendment of December 30, 2009 10% Convertible Debenture
On December 31, 2010, the Company and the
Vision Parties amended the Debenture to extend the
maturity date from December 31, 2010 to March 31, 2011. All other provisions of
the Debenture
remained unchanged. The
F-20
amended terms of the Debenture did not result in terms that were substantially different from
the terms of the original Debenture, therefore there was no extinguishment of debt.
December 31, 2010 Exchange Agreement
On December 31, 2010, the
Company entered into a securities exchange agreement with Vision
pursuant to which the Company exchanged 3.5 million Class G Warrants for 2.1 million
shares of the
Companys common stock. On the date of the exchange, the warrants were classified as derivative
liabilities and had an estimated fair value of $1,208,478 and the shares of the Companys common
stock were valued at the fair market price of $0.40 per share for
a total value of $840,000,
resulting in a gain on the transaction
of $368,478, which was recorded in other income.
Debt Discounts and Amortization
The debt discount recorded on the December 30, 2009 Debentures was allocated between the
warrants and conversion feature in the amount of $1,077,652 and
$1,549,481, respectively. In
addition, the Company recorded an additional debt discount during the year ended December 31, 2010
of $275,676 (see above). The debt discounts were amortized through the original maturity of the
Debentures of December 30, 2010. During the years ended December 31, 2010 and
2009, the Company
amortized $2,897,574 and $5,235, respectively, of the debt discounts to interest
expense.
During the year ended December 31, 2009, the Company amortized $2,565,906 of interest expense
related to debt discounts on different notes to Vision that were ultimately exchanged for shares of
the Companys Preferred Stock on December 30, 2009 (see above).
Ki Nam Note
2010 Note
On
February 24, 2011, the Company entered into a loan agreement with Ki Nam, its chairman and
CEO, for previous advances to the Company. The agreement allows Mr. Nam
to advance up to $2.5
million for operating requirements. The note bears interest at 10% per annum. The note is due on
March 31, 2012 and allows for an automatic one year extension. During the
year ended December 31,
2010, Mr. Nam advanced $1,511,000 to the Company to be used for operating requirements. During
October 2010, the Company repaid $390,000 of the advances, leaving a balance of $1,121,000 outstanding
as of December 31, 2010. The Company recorded interest expense of $23,756 for the
year ended
December 31, 2010 and had accrued interest of $23,756 as of December 31,
2010.
2009 Note
On March 30, 2009, the Company entered into a loan agreement with Ki Nam, its chairman and
CEO, whereby, Mr. Nam agreed to advance the Company up to $1,000,000, including $498,528 that had
already been advanced by Mr. Nam for operating capital requirements through December 31, 2008. The
line of credit was to remain open until the Company raised $10.0 million in equity. The note bore
interest at 10% per annum. In the event the Company received (i) $10,000,000 or more in private
placement financing or (ii) $15,000,000 or more in equity financing at any time after the date of
the loan, the note was to become immediately due and payable.
In connection with the loan agreement, the Company agreed to issue warrants to Mr. Nam for the
purchase of up to 303,030 shares of the Companys common stock, $0.001 par value per share, at an
exercise price of $2.00 per share, subject to adjustment. The total number of warrants to be issued
was dependent on the final amount of the loan. During the year ended December 31, 2009, the Company
was advanced $414,963, including accrued interest, under the loan agreement. During the year ended
December 31, 2009, 274,774 warrants were issued to Mr. Nam pursuant to the terms of the loan
agreement. The Company recorded a debt discount of $246,228 related to the estimated fair value of
warrants, which was to be amortized as interest expense over the term of the loan agreement. The
loan was convertible during the pendency of any current open equity financing round at $1.65 per
share, subject to adjustment. Upon conversion, Mr. Nam was to receive additional warrants for the
purchase of up to 606,060 shares of the Companys common stock at $2.00 per share.
F-21
In December 2009, the Company issued 2,000,000 shares of its Preferred Stock in connection
with an equity offering (see Note 10). As a result of the December 2009 equity offering, the
Company recorded the estimated fair value of the conversion feature of $443 as a debt discount,
which was to be amortized to interest expense over the remaining term of the loan agreement. The
Company recorded the corresponding amount as a derivative liability and any change in fair value of
the conversion feature was to be recorded through earnings at each reporting date. The change in
fair value of the conversion feature was not significant for the period ended December 31, 2009.
On December 30, 2009, the Company entered into a Securities Exchange Agreement (the Exchange
Agreement) with Mr. Nam. Under the Exchange Agreement, Mr. Nam agreed to convert the balance of
the promissory note, including accrued interest, of $976,865 into 976,865 shares of the Companys
Preferred Stock and warrants to purchase up to 1,953,730 shares of the Companys common stock,
exercisable at $0.70 per share, subject to adjustment. The ability for Mr. Nam to receive
additional warrants for up to 606,060 shares of common stock was cancelled.
In connection with the Exchange Agreement, the Company agreed to convert Mr. Nams outstanding
debt balance of $976,865 at $0.50 per share, which was below the adjusted conversion price pursuant
to the terms of the loan agreement. Pursuant to the conversion terms of the loan agreement, Mr. Nam
would have received only 313,098 shares of stock. As a result, the Company issued Mr. Nam 663,767
additional shares of the Companys Preferred Stock in connection with his debt conversion.
As a result of the Exchange Agreement, the entire debt discount amounting to $246,671 was
amortized to interest expense. In addition, as the Company issued shares to Mr. Nam in excess of
the number of shares pursuant to the terms of the loan agreement, the Company recorded the fair
value of the 663,767 additional shares issued as a loss on debt extinguishment. The amount recorded
of $663,767 was included in other expense in the accompanying consolidated statement of operations
for the year ended December 31, 2009.
Lock-Up Agreement
In connection with the Vision financing, Ki Nam, our Chief Executive Officer and Chairman of
the board of directors of the Company, agreed not to transfer, sell, assign, pledge,
hypothecate,
give, create a security interest in or lien on, place in trust (voting trust or otherwise), or in
any other way encumber or dispose of, directly or indirectly and whether or not voluntarily,
without express prior written consent of Vision, any of our common stock equivalents of the Company
until August 27, 2010; provided, however, that commencing on August 27, 2010, he may sell up to
1/24th of the shares of common stock of the Company in each calendar month through February 28,
2011.
Alfonso Cordero and Mercy Cordero Note
On January 14, 2011, the Company delivered a 10% unsecured promissory note (the Note) in the
principal amount of $1,000,000 that matures on October 1, 2013 to Alfonso G. Cordero and Mercy B.
Cordero, Trustees of the Cordero Charitable Remainder Trust (Noteholder) for amounts previously
loaned to the Company in October 2010. The Note was dated as of September 30, 2010. Interest
payments of $8,333 are due on the first day of each calendar month commencing November 1, 2010 and
continuing each month thereafter. The Noteholder has agreed to waive payment obligations from
November 1, 2010 through April 15, 2011. The Company recorded interest expense and accrued interest
of $24,777 as of and for the year ended December 31, 2010.
The Company may prepay the Note, but must prepay in full only. The Company will be in default
under the Note upon: (1) failure to timely make payments due under the note; and (2) failure to perform other
agreements under the Note within 10 days of request from the Noteholder. Upon such event of
default, the Noteholder may declare the Note immediately due and payable. The applicable interest
rate will be upon default will be increased to 15% or the maximum rate allowed by law. The Noteholder
has waived any and all defaults under the Note at December 31,
2010 and through April 15, 2011.
NOTE 9 DERIVATIVE LIABILITIES
F-22
Effective January 1, 2009, the Company adopted the accounting standard that provides guidance
for determining whether an equity-linked financial instrument, or embedded feature, is indexed to
an entitys own stock. The standard applies to any freestanding financial instruments or embedded
features that have the characteristics of a derivative, and to any freestanding financial
instruments that are potentially settled in an entitys own common stock.
As a result of the adoption of the accounting standard, 4,562,769 of the Companys issued and
outstanding common stock purchase warrants and embedded conversion features previously treated as
equity pursuant to the derivative treatment exemption were no longer afforded equity treatment.
These warrants had exercise prices ranging from $1.08 to $2.00 and expire between December 2012 and
December 2014. Effective January 1, 2009, the Company reclassified the fair value of these common
stock purchase warrants and embedded conversion features, all of which have exercise price reset
features and price protection clauses, from equity to liability status as if these warrants and
conversion features were treated as derivative liabilities since their date of original issuance
ranging from March 2008 through December 2008.
On January 1, 2009, the Company reclassified from additional paid-in capital, as a cumulative
effect adjustment, approximately $4.0 million to a derivative liability to recognize the fair value
of such warrants and embedded conversion features, at the original issuance date and reclassified
from retained earnings, as a cumulative effect adjustment, approximately $2.0 million to recognize
the change in the fair value from original issuance through December 31, 2008, and recorded
additional debt discounts of approximately $0.9 million related to the fair value of warrants
issued with related party notes outstanding at December 31, 2008.
During 2010 and 2009, the Company issued 1,040,000 and 9,928,504 of additional warrants
,
respectively, related to convertible debt and during 2009 recorded liabilities related to
conversion options (see Note 8). During 2010, the Company exchanged 697,639 of Class A warrants and
250,000 of Class B warrants for 947,639 Class G warrants (see Note 8). The Company also recorded an
additional derivative liability of $275,676 related to the Vision Debentures during the year ended
December 31, 2010 (see Note 8). The Company estimated the fair value of the warrants and conversion
options at the dates of issuance and recorded a debt discount and corresponding derivative
liability of $838,779 and $3,510,751 during 2010 and 2009,
respectively. The debt discount will be amortized over the
remaining life of the related debt. The change in fair value of the derivative liability will be
recorded through earnings at each reporting date.
During 2010 and 2009, the Company issued additional warrants of 2,310,000 and 5,953,730,
respectively, related to Preferred Stock (see Note 10). The Company estimated the fair value of the
warrants of $716,236 and $1,740,578, respectively, at the dates of issuance and recorded a discount
on the issuance of the equity and a corresponding derivative liability. The discount will be
recorded as a deemed dividend with a reduction to retained earnings. The change in fair value of
the derivative will be recorded through earnings at each reporting date.
During 2010 and 2009, the Company recorded a discount on the issuance of Preferred Stock and
a
corresponding derivative liability of $685,124 and $7,314,273, respectively, related to the
anti-dilution provision of the Preferred Stock issued. The discount will be recorded as a deemed
dividend with a reduction to retained earnings during the 24-month period that the anti-dilution
provision is outstanding. The change in fair value of the derivative liabilities will be recorded
through earnings at each reporting date.
During 2010 and 2009, the amortization of the discounts related to the Preferred Stock
anti-dilution provision and warrants issued was $3,730,150 and $6,116, respectively, which was
recorded as a deemed dividend.
During the years ended December 31, 2010 and 2009, the Company
exchanged 3,500,000 warrants for
2,100,000 shares of common stock and 10,972,769 warrants to 2,263,750 shares of Preferred Stock,
respectively, pursuant to the Exchange Agreement (see Note 10). As a
result of these exchanges, the
Company exchanged warrants with a fair value of $1,208,478 and $1,201,225 during 2010 and 2009,
respectively, for shares of common stock valued at $840,000 and Preferred Stock valued at
$1,155,390, resulting in gains on the exchanges of $368,478 and $45,835
during the years ended December 31, 2010 and 2009, respectively.
F-23
During 2009, in connection with the conversion of the
Vision Parties and Mr. Nams notes
payable (see Note 8), the Company reclassified the fair value of the
derivative liability related
to the conversion feature of $208,857 to additional paid-in capital.
On March 22, 2010, one of the Companys preferred shareholders exercised their option to
convert their 2,000,000 preferred shares into 4,000,000 shares of common stock (see Note 10). As a
result of the conversion, the Company reclassified the balance of the derivative liability of
$1,121,965 to additional paid-in capital and the balance of the discount of $1,099,742 as a deemed
dividend.
As of December 31, 2010, the unamortized discount
related to the conversion feature of the
Preferred Stock was $4,263,068.
The common stock purchase warrants were not issued with the intent of effectively hedging any
future cash flow, fair value of any asset, liability or any net investment in a foreign operation.
The warrants do not qualify for hedge accounting, and as such, all future changes in the fair value
of these warrants will be recognized currently in earnings until such time as the warrants are
exercised or expire. These common stock purchase warrants do not trade in an active securities
market, and as such, the Company estimates the fair value of these warrants and embedded conversion
features using the Black-Scholes-Merton option pricing model using the following assumptions as of
December 31,:
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
2009 |
|
|
|
|
|
|
|
|
|
Annual dividend yield |
|
|
|
|
|
|
|
|
Expected life (years) |
|
|
0.25-5 |
|
|
|
0.25-5.00 |
|
Risk-free interest rate |
|
|
0.12%-2.55 |
% |
|
|
0.40%-2.69 |
% |
Expected volatility |
|
|
79%-162 |
% |
|
|
84%-159 |
% |
Expected volatility is based primarily on historical volatility of the Company and the
Companys peer group. Historical volatility was computed using daily pricing observations for
recent periods that correspond to the expected term. The Company believes this method produces an
estimate that is representative of its expectations of future volatility over the expected term of
these warrants.
The Company currently has no reason to believe future volatility over the expected remaining
life of these warrants is likely to differ materially from historical volatility. The expected life
is based on the remaining term of the warrants. The risk-free interest rate is based on one-year to
five-year U.S. Treasury securities.
During the years ended December 31, 2010 and
2009, the Company recorded other income of
$2,101,067 and $6,184,151, respectively, related to the change in fair value of the warrants and
embedded conversion options and is included in other income, net in the accompanying consolidated
statements of operations.
The following table presents the Company
s warrants and embedded conversion options measured
at fair value on a recurring basis as of December 31:
|
|
|
|
|
|
|
|
|
|
|
Level 3 Carrying Value |
|
|
|
2010 |
|
|
2009 |
|
Embedded conversion options |
|
$ |
5,991,957 |
|
|
$ |
8,853,893 |
|
Warrants |
|
|
3,641,148 |
|
|
|
2,970,583 |
|
|
|
|
|
|
|
|
|
|
$ |
9,633,105 |
|
|
$ |
11,824,476 |
|
|
|
|
|
|
|
|
Decrease in fair value |
|
$ |
2,101,067 |
|
|
$ |
6,184,151 |
|
|
|
|
|
|
|
|
F-24
The following table provides a reconciliation of the beginning and ending balances for the
Companys liabilities measured at fair value using Level 3 inputs for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
Balance at December 31, |
|
$ |
11,824,476 |
|
|
$ |
|
|
Cumulative effect of adoption |
|
|
|
|
|
|
6,853,108 |
|
Issuance of warrants and conversion option |
|
|
2,240,139 |
|
|
|
12,565,601 |
|
Conversion of debt |
|
|
|
|
|
|
(1,410,082 |
) |
Conversion of preferred stock to common stock |
|
|
(1,121,965 |
) |
|
|
|
|
Exchange of warrants for common stock |
|
|
(1,208,478 |
) |
|
|
|
|
Change in fair value |
|
|
(2,101,067 |
) |
|
|
(6,184,151 |
) |
|
|
|
|
|
|
|
Balance at December 31, |
|
$ |
9,633,105 |
|
|
$ |
11,824,476 |
|
|
|
|
|
|
|
|
NOTE 10 EQUITY
Series A Convertible Preferred Stock
The Companys board of
directors has authorized 20,000,000 shares of Series A Convertible Preferred Stock
(Preferred Stock). Except as otherwise provided in the Certificate of Designation which created the
Series A Preferred Stock (the Series A Certificate) or by law, each holder of shares of Preferred Stock
shall have no voting rights. As long as any shares of Preferred Stock are outstanding, however, the
Company shall not, without the affirmative vote of the holders of a majority of the then
outstanding shares of the Preferred Stock, (a) alter or change adversely the powers, preferences, or
rights given to the Preferred Stock or alter or amend the Series A Certificate, (b) authorize or create
any class of stock ranking as to dividends, redemption or distribution of assets upon a liquidation
senior to or otherwise pari passu with the Preferred Stock, (c) amend its certificate of incorporation or
other charter documents in any manner that adversely affects any rights of the holders of
Preferred Stock, (d) increase the number of authorized shares of the Preferred Stock, or (e) enter into any
agreement with respect to any of the foregoing.
Each share of Preferred Stock is convertible at any time and from time to time after the issue date
at the holders option into two shares of the Companys common stock (subject to beneficial
ownership limitations (as defined below).
Holders of our Preferred Stock are restricted from converting their shares of Preferred Stock to common
stock if the number of shares of common stock to be issued pursuant to such conversion would cause
the number of shares of common stock beneficially owned by such holder, together with its
affiliates, at such time to exceed 4.99% of the then issued and outstanding shares of common stock;
provided, however, that such holder may waive this limitation upon 61 days notice to the Company.
The Company has not received any such notice. There are no redemption rights.
The Conversion Price shall be proportionately reduced for a stock dividend, stock split,
subdivision, combination or similar arrangements. The Conversion Price will also be reduced for any
sale of common stock (or options, warrants or convertible debt or other derivative securities) at a
purchase price per share less than the Conversion Price, subject to certain excepted issuances. The
Conversion Price will be reduced to such purchase price if such issuance occurs within the first 12
months of the original issuance date. The Conversion Price will be reduced to a price derived using
a weighted-average formula if the issuance occurs after the first 12 months but before the 24 month
anniversary of the original issuance date.
If, at any time while the Preferred Stock is outstanding, (A) the Company effects any merger or
consolidation of the Company with or into another person, (B) the Company effects any sale of all
or substantially all of its assets in one transaction or a series of related transactions, (C) any
tender offer or exchange offer (whether by the Company or another person) is completed pursuant to
which holders of common stock are permitted to tender or exchange their shares for other
securities, cash or property, or (D) the Company effects any reclassification of the common stock
or any compulsory share exchange pursuant to which the common stock is effectively converted into
or exchanged for other securities, cash or property (each of the foregoing, a Fundamental
Transaction), then, upon any subsequent conversion of Preferred Stock, the holders shall have the right
to receive, for each Conversion Share (as defined in Section 1 of the Series A Certificate) that
would have been issuable upon such conversion immediately prior to the occurrence of such
Fundamental Transaction, the same kind and amount of securities, cash or property as it would
F-25
have been entitled to receive upon the occurrence of such Fundamental Transaction if it had
been, immediately prior to such Fundamental Transaction, the holder of one share of common stock.
In September 2009, the Company offered up to 15,000,000 shares of Preferred Stock, at a purchase
price of $1.00 per share, or up to an aggregate purchase price of $15,000,000, on a best efforts
basis to selected qualified investors (the Offering). The minimum offering was $6,000,000. The
proceeds of this Offering were delivered to the Company at multiple closings. During the years
ended December 31, 2010 and 2009, the Company raised $1,155,000 and $1,978,942 (net of
issuance costs), respectively, and issued 1,155,000 shares and 2,000,000 shares of Preferred Stock, respectively.
In connection with the financing, the Company granted warrants to purchase 2,310,000 shares and
4,000,000 shares of common stock, respectively, at an exercise price of $0.70 per share. The
warrants are exercisable for five years. The Company used the proceeds for working capital
requirements.
On December 30, 2009, the Company entered into an Exchange Agreement with Mr. Nam. Under the
Exchange Agreement, Mr. Nam agreed to convert a promissory note plus the accrued interest,
previously issued to him by the Company, of $976,865, into 976,865 shares of Preferred and warrants
to purchase up to 1,953,730 shares of common stock (See Note 8).
On December 30, 2009, the Company entered into an Exchange Agreement with Vision. Pursuant to
the Exchange Agreement, the Company issued to the Vision Parties an aggregate of 9,370,698 shares
of Preferred Stock (See Note 8).
On March 22, 2010,
one of the Companys holders of Preferred Stock exercised their option to
convert their 2,000,000 shares of Preferred Stock into 4,000,000 shares of common stock.
Common Stock
On July 21, 2010, the
Company issued 20,000 shares of its common stock for investor relations
services and recorded expense of $10,000.
On November 6, 2009, the
Company issued 100,000 shares of its common stock for investor
relations services and recorded expense of $50,000.
Pursuant to the consulting agreement dated September 17, 2008, the Company authorized to issue
up to 160,000 shares of common stock at $2.00 per share, to Investor Relations Group (IRG) for investor
relationship services to be rendered from September 17, 2008 through September 17, 2009. The shares
vested 1/12th each month. The consulting agreement could be cancelled with a 30 day cancellation
notice by either party. On June 6, 2009, the Company terminated the agreement with IRG. During the
year ended December 31, 2009, 40,000 shares of common stock were issued under the consulting
agreement and the fair value of the shares issued and earned of $80,000 was recorded and expensed.
On February 20, 2009, the
Company entered into a settlement agreement with Mr. Albert Lin, the CEO
of Sooner Capital, principal of Maddog and a Director of Immersive Media Corp., whereby Mr. Lin
released the Company from its obligations to issue certain securities upon the occurrence of
certain events, under an agreement dated December 30, 2007, in exchange for the Company issuing
931,034 shares of common stock at $1.65 per share totaling $1,536,206, for investor relations
services performed for the Company. The Company recorded the value of the shares in related party payables at
December 31, 2008. The Company issued the shares on February 20, 2009.
In September 2008, the Company sold to
Piedmont Select Equity Fund (Piedmont) 125,000 shares
of the Companys common stock at $2.00 per share for an aggregate price of $250,000. In December
2008, the Company entered into a rescission agreement with Piedmont in which it agreed to rescind Piedmonts
stock purchase so long as affiliates of Piedmont purchased at least
$250,000 of the Companys equity
securities. In March 2010, two investors affiliated with Piedmont purchased an aggregate of 250,000
shares of the Companys Preferred Stock at a purchase price of $1.00 per share and were issued Class G Warrants
to purchase 500,000 shares of Companys common stock at $0.70 per share. Concurrent with the closing of such
offering, the Company rescinded the purchase of the
125,000 shares of common stock Piedmont.
F-26
delivered the stock certificate for 125,000 shares to the Company and the Company
returned the
original purchase price of $250,000 to Piedmont.
NOTE 11 STOCK OPTIONS AND WARRANTS
Stock Option/Stock Issuance Plans
On August 15, 2007 the Company adopted the 2007
Stock Option/Stock Issuance Plan (the 2007
Plan), under which stock awards or options to acquire shares of the Companys common stock may be
granted to employees, nonemployee members of the Companys board
of directors, consultants or
other independent advisors who provide services to the Company. The 2007 Plan is administered by
the board of directors. The 2007 Plan permits the
issuance of up to 7,450,000 shares of the
Companys common stock. Options granted under the
2007 Plan generally vest 25% per year over four years and
expire 10 years from the date of
grant. The 2007 Plan was terminated with respect to
the issuance of new options or awards upon the adoption of the 2010
Plan (see below); no further options
or awards may be granted under the 2007 Plan.
During 2010, the Company adopted the 2010 Stock Option/Stock
Issuance Plan (the 2010 Plan),
under which stock awards or options to acquire shares of the Companys common stock may be granted
to employees, nonemployee members of the Companys board of directors, consultants or other
independent advisors who provide services to the Company. The 2010 Plan is administered by the
Companys board of directors. The 2010 Plan permits the issuance of up to
6,500,000 shares of the
Companys common stock. Options granted under the 2010 Plan generally vest 25% per year over four
years and expire 10 years from the date of grant.
In July 2010, the exercise prices of certain outstanding employee stock options previously
granted under the 2007 Plan were amended by the Companys board of directors to have an exercise
price of $0.50 per share. The amendments did not change the vesting schedules or any of the other
terms of the respective stock options. As a result of the repricing of the options affected by the
amendments, the Company will recognize a non-cash charge of $68,578 for the incremental change in
fair value of the repriced options. Of the $68,578, the Company recorded $37,087 as share-based
compensation for the year ended December 31, 2010 for the previously vested options. The remainder
of the balance, $31,491, related to the unvested options will be amortized over the remaining
vesting period of the related options. This repricing affected 24 employees who held 859,000 stock
options in July 2010.
The following table sets forth the share-based compensation expense:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
Stock compensation expense cost of net revenues |
|
$ |
57,466 |
|
|
$ |
124,373 |
|
Stock compensation expense sales and marketing |
|
|
148,649 |
|
|
|
347,556 |
|
Stock compensation expense research and development |
|
|
125,527 |
|
|
|
202,507 |
|
Stock compensation expense general and administrative |
|
|
484,977 |
|
|
|
1,009,048 |
|
|
|
|
|
|
|
|
Total stock compensation expense |
|
$ |
816,619 |
|
|
$ |
1,683,484 |
|
|
|
|
|
|
|
|
A summary of common stock option activity under the 2007 Plan and the 2010 Plan for the year
ended December 31, 2010 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Remaining |
|
|
Aggregate |
|
|
|
Number of |
|
|
Exercise |
|
|
Contractual |
|
|
Intrinsic |
|
|
|
Shares |
|
|
Price |
|
|
Life |
|
|
Value |
|
Options outstanding January 1, 2010 |
|
|
6,033,188 |
|
|
$ |
0.64 |
|
|
|
|
|
|
|
|
|
Options granted |
|
|
2,960,500 |
|
|
|
0.50 |
|
|
|
|
|
|
|
|
|
Options exercised |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options forfeited |
|
|
(2,502,793 |
) |
|
|
0.65 |
|
|
|
|
|
|
|
|
|
Options cancelled |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total options outstanding December 31, 2010 |
|
|
6,490,895 |
|
|
$ |
0.57 |
|
|
|
8.22 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable December 31, 2010 |
|
|
3,248,371 |
|
|
$ |
0.64 |
|
|
|
7.10 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Remaining |
|
|
Aggregate |
|
|
|
Number of |
|
|
Exercise |
|
|
Contractual |
|
|
Intrinsic |
|
|
|
Shares |
|
|
Price |
|
|
Life |
|
|
Value |
|
Options vested and expected to vest December 31, 2010 |
|
|
6,352,288 |
|
|
$ |
0.57 |
|
|
|
8.18 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options available for grant under the 2010 Plan at
December 31, 2010 |
|
|
3,720,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average fair value of options granted |
|
$ |
0.38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes information about stock options outstanding and exercisable at
December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
|
Options Exercisable |
|
|
|
|
|
|
|
Weighted Average |
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining |
|
|
Average |
|
|
|
|
|
|
|
|
Exercise |
|
|
|
|
|
Contractual |
|
|
Exercise |
|
|
|
|
|
|
Weighted Average |
|
Prices |
|
Number of Shares |
|
|
Life |
|
|
Price |
|
|
Number of Shares |
|
|
Exercise Price |
|
|
|
(In years) |
|
|
|
|
|
|
|
|
|
$0.50 |
|
|
3,545,583 |
|
|
|
9.23 |
|
|
$ |
0.50 |
|
|
|
458,228 |
|
|
$ |
0.50 |
|
$0.60 |
|
|
1,945,312 |
|
|
|
7.03 |
|
|
$ |
0.60 |
|
|
|
1,790,143 |
|
|
$ |
0.60 |
|
$0.77 |
|
|
1,000,000 |
|
|
|
6.95 |
|
|
$ |
0.77 |
|
|
|
1,000,000 |
|
|
$ |
0.77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,490,895 |
|
|
|
8.20 |
|
|
$ |
0.57 |
|
|
|
3,248,371 |
|
|
$ |
0.64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summary of Assumptions and Activity
The fair value of each option award is estimated on the date of grant using the
Black-Scholes-Merton option pricing model for service and performance based awards, and a binomial
model for market based awards. The Company has only granted service based awards. In estimating
fair value, expected volatilities used by the Company were based on the historical volatility of
the underlying common stock of its peer group, and other factors such as implied volatility of
traded options of a comparable peer group. The expected life assumptions for all periods were
derived from a review of annual historical employee exercise behavior of option grants with similar
vesting periods of a comparable peer group. The risk-free rate used to calculate the fair value is
based on the expected term of the option. In all cases, the risk-free rate is based on the U.S.
Treasury yield bond curve in effect at the time of grant.
The assumptions used to calculate the fair value of options and warrants granted are evaluated
and revised, as necessary, to reflect market conditions and experience. The following table
presents details of the assumptions used to calculate the weighted-average grant date fair value of
common stock options and warrants granted by the Company, along with certain other pertinent
information:
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
2010 |
|
2009 |
Expected term (in years) |
|
|
6.1 |
|
|
|
5.5 |
|
Expected volatility |
|
|
93 |
% |
|
|
94% 100 |
% |
Risk-free interest rate |
|
|
1.8 |
% |
|
|
2.0 |
% |
Expected dividends |
|
|
|
|
|
|
|
|
Forfeiture rate |
|
|
2.8 |
% |
|
|
2.8 |
% |
Weighted-average grant date fair value per share |
|
$ |
0.38 |
|
|
$ |
1.03 |
|
Upon the exercise of common stock options, the Company issues new shares from its authorized
shares.
At December 31, 2010, the amount of unearned stock-based compensation currently estimated to
be expensed from fiscal years 2011 through 2014 related to unvested common stock options is
approximately $1.3 million. The weighted-average period over which the unearned stock-based
compensation is expected to be recognized is approximately 3.0 years. If there are any
modifications or cancellations of the underlying unvested common stock options, the Company may be
required to accelerate, increase or cancel any remaining unearned stock-based
F-28
compensation expense.
Future stock-based compensation expense and unearned stock-based compensation will increase to the
extent that the Company grants additional common stock options or other equity awards.
Warrants
From time to time, the Company issues warrants to purchase shares of the Companys common
stock to investors, noteholders and to non-employees for services rendered or to be rendered in
the future (See Notes 8 and 10). Such warrants are issued outside of any equity incentive plans of
the Company including the 2007 Plan and 2010 Plan. A summary of the warrant activity for the year
ended December 31, 2010 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
Weighted-Average |
|
|
|
|
|
|
|
|
|
|
Exercise |
|
|
Contractual |
|
|
Aggregate Intrinsic |
|
|
|
Number of Shares |
|
|
Price |
|
|
Life |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
(In years) |
|
|
|
|
|
Warrants outstanding January 1, 2010 |
|
|
10,746,143 |
|
|
$ |
0.87 |
|
|
|
|
|
|
|
|
|
Warrants granted (See Notes 8 and 10) |
|
|
4,397,639 |
|
|
|
0.70 |
|
|
|
|
|
|
|
|
|
Warrants exchanged |
|
|
(3,500,000 |
) |
|
|
0.70 |
|
|
|
|
|
|
|
|
|
Warrants cancelled (See Note 8) |
|
|
(947,639 |
) |
|
|
0.93 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants outstanding and
exercisable-December 31, 2010 |
|
|
10,696,143 |
|
|
$ |
0.73 |
|
|
|
4.07 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 12 COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases two facilities in Costa Mesa, California under non-cancelable operating
lease agreements that expired in 2010 but were extended on a month-to-month basis and will expire
in 2012. These leases require monthly lease payments of approximately $9,000 and $25,000 per month.
Lease expense for the facilities was approximately $384,000 and $448,000 for the years
ended
December 31, 2010 and 2009, respectively.
Future minimum annual payments under these non-cancelable operating leases are as follows:
|
|
|
|
|
Years |
|
|
|
Ending |
|
|
|
December 31, |
|
Total |
|
2011 |
|
|
305,000 |
|
2012 |
|
|
209,000 |
|
|
|
|
|
|
|
$ |
514,000 |
|
|
|
|
|
Indemnities and Guarantees
During the normal course of business, the Company has made certain indemnities and guarantees
under which it may be required to make payments in relation to certain transactions. These
indemnities include certain agreements with the Companys officers under which the Company may be
required to indemnify such person for liabilities arising out of their employment relationship. In
connection with its facility leases, the Company has indemnified its lessors for certain claims
arising from the use of the facilities. The duration of these indemnities and guarantees varies,
and in certain cases, is indefinite. The majority of these indemnities and guarantees do not
provide for any limitation of the maximum potential future payments the Company would be obligated
to make. Historically, the
Company has not been obligated to make significant payments for these obligations and no
liability has been recorded for these indemnities and guarantees in the accompanying consolidated
balance sheets.
Warranties
F-29
The Companys warranty policy generally provides coverage for components of the vehicle, power
modules, and charger system that the Company produces. Typically, the coverage period is the
shorter of one calendar year or 2,500 miles, from the date of sale. Provisions for estimated
expenses related to product warranties are made at the time products are sold. These estimates are
established using estimated information on the nature, frequency, and average cost of claims.
Revision to the reserves for estimated product warranties is made when necessary, based on changes
in these factors. Management actively studies trends of claims and takes action to improve vehicle
quality and minimize claims.
On June 25, 2008, the Company elected to upgrade or replace approximately 500 external
chargers (revision D or older) due to a chance that the chargers could fail over time. A failed
charger could result in degrading the life of the batteries or cause the batteries to be
permanently inoperable, or in extreme conditions result in thermal runaway of the batteries. The
charges were placed in service between January 2007 and April 2008. The Company notified customers
informing them of the need for an upgrade and began sending out new and/or upgraded chargers
(revision E) in July 2008 to replace all existing revision D or older chargers that are in the
field. The total costs of upgrading or replacing these chargers was approximately $68,000. All
returned chargers will be upgraded to revision E and resold as refurbished units. The Company has
completed the charger replacements as of December 31,
2010.
The following table presents the changes in the product warranty accrual included in accrued
expenses in the accompanying consolidated balance sheets as of and for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Beginning balance, January 1, |
|
$ |
235,898 |
|
|
$ |
362,469 |
|
Charged to cost of revenues |
|
|
130,916 |
|
|
|
129,183 |
|
Usage |
|
|
(201,173 |
) |
|
|
(255,754 |
) |
|
|
|
|
|
|
|
Ending balance, December 31 |
|
$ |
165,641 |
|
|
$ |
235,898 |
|
|
|
|
|
|
|
|
Legal Contingency
Preproduction Plastics, Inc. v. T3 Motion., Inc. Ki Nam and Jason Kim (Orange County Superior
Court Case No. 30.2009-00125358): On June 30, 2009, Preproduction Plastics, Inc. (Plaintiff)
filed suit in Orange County Superior Court, alleging causes of actions against T3 Motion, Inc., Ki
Nam, the Companys CEO, and Jason Kim, the Companys former COO (collectively the Defendants) for
breach of contract, conspiracy, fraud and common counts, arising out of a purchase order allegedly
executed between Plaintiff and the Company. On August 24, 2009, Defendants filed a Demurrer to the
Complaint. Prior to the hearing on the Demurrer, Plaintiff filed a First Amended Complaint against
Defendants for breach of contract, fraud and common counts, seeking compensatory damages of
$470,599, attorneys fees, punitive damages, interest and costs. On October 27, 2009, Defendants
filed a Demurrer, challenging various causes of action in the First Amended Complaint. The Court
denied the Demurrer on December 4, 2009. On December 21, 2009, Defendants filed an answer to the
First Amended Complaint, and trial was set for July 30, 2010. On or about July 29,
2010, the case was settled in its entirety. The Company agreed to pay compensatory damages, attorneys fees and
costs totaling $493,468, through monthly payments of $50,000, with 6% interest accruing from the
date of the settlement. Periodic payments are expected to be made through May 2011. The first
payment of $50,000 was made on August 3, 2010
and subsequent principal payments totaling $200,000 were made by the Company through December 31, 2010. Company
recorded the entire settlement amount of $493,468 as a note payable, $470,599 as a deposit on fixed
assets and the remaining $22,869 as a charge to legal expense. At December 31, 2010, the remaining
settlement amount of $243,468 is recorded as a note payable in the accompanying consolidated
balance sheet. The Company has recorded accrued interest of $4,126 at December 31, 2010.
Commencing January 1, 2011, the Company has failed to make the scheduled
payments required by the July 29, 2010 settlement agreement and stipulation for entry of judgment. The
Plaintiff has filed a motion for entry of judgment pursuant to the terms of the July 29, 2010 settlement agreement and stipulation for entry
of judgment, which if granted, would cause the acceleration of all amounts owed under the settlement agreement. The parties have requested that this
motion be heard on April 21, 2011.
In the ordinary course of business, the Company may face various claims brought by third
parties in addition to the claim described above and may, from time to time, make claims or take
legal actions to assert the Companys rights, including intellectual property rights as well as
claims relating to employment and the safety or efficacy of the Companys products. Any of these
claims could subject us to costly litigation and, while the Company generally believes that it has
adequate insurance to cover many different types of liabilities, the insurance carriers may deny
coverage or the policy limits may be inadequate to fully satisfy any damage awards or
settlements. If this were to happen, the payment of such awards could have a material adverse
effect on the consolidated operations, cash flows and financial position. Additionally, any such
claims, whether or not successful, could damage the Companys
F-30
reputation and business. Management
believes the outcome of currently pending claims and lawsuits will not likely have a material
effect on the consolidated operations or financial position.
NOTE 13 RELATED PARTY TRANSACTIONS
The following reflects the related party transactions during the years ended December 31,
2010
and 2009.
Controlling Ownership
Mr. Nam, the Companys CEO and Chairman of the Board of Directors, together with his children, owns 57.2% of the outstanding shares of the Companys common stock.
Accounts Receivable
As of December 31, 2010 and 2009, the Company
has receivables of $35,722 and $28,902,
respectively, due from Graphion Technology USA LLC (Graphion) related to consulting services
rendered and/or fixed assets sold to Graphion. During 2010, the Company sold fixed assets to
Graphion for a purchase price of $6,820, and there was no gain or loss recorded on the sale of the
fixed assets. Graphion is wholly owned by Mr. Nam. The
amounts due are non-interest bearing and are due upon demand.
As of December 31, 2010 and 2009, there
were outstanding related party receivables of $0 and
$6,756, respectively, which primarily relate to receivables due from Mr. Nam,
which represents the
rental obligation of Mr. Nam for his month-to-month lease of excess warehouse space at the
Companys facility in Costa Mesa, CA.
Fixed Assets
On December 20, 2010, the Company purchased a vehicle from Mr. Nam
for cash to be used for
sales and service. The purchase price was $7,000 and
was determined to be the estimated fair value
of the vehicle at the time of the purchase.
Related Party Payables
From time to time, the Company purchases batteries and outsources research and development
from Graphion. During the years ended December 31, 2010 and 2009, the Company purchased
$151,973 of
research and development services, and $622,589 of parts, respectively, from Graphion and had an outstanding
accounts payable balance of $51,973 and $104,931 owed to Graphion at December 31, 2010
and 2009,
respectively.
Accrued Salary
As of December 31, 2010, the Company owed Mr. Nam $40,000 of
salary pursuant to his
employment agreement which is included in accrued expenses. Mr. Nam has elected to defer
payment of this amount until the next round of funding is received by the Company.
Intangible Assets
On March 31, 2008, the Company entered into a purchase agreement with Immersive,
one of the Companys stockholders, for a GeoImmersive License Agreement, pursuant to which Immersive
granted the Company the right to resell data in the Immersive mapping database. The Company paid Immersive $1,000,000
for the license.
On March 16, 2009, the Company revised the terms of the agreement to revise
the start of the
two year license to begin upon the completion and approval of the post-production data. The
revision includes automatic one-year renewals unless either party cancels within 60 days of the end
of the contract. Upon the execution of the revision, the Company ceased amortizing the license and
tested annually for impairment until the post-production of the data is complete. At December 31,
2009, management performed its annual review to assess potential impairment and deemed the
intangible asset to be fully impaired, as management decided to allocate the resources required to
map the data elsewhere. As a result, the remaining value of $625,000 was fully amortized as of
December 31, 2009.
Notes Payable See Note 8
NOTE 14 SUBSEQUENT EVENTS
F-31
Subsequent events have been evaluated through the date that the consolidated financial
statements were issued. There are no reportable subsequent events, except as disclosed below.
Mr. Nam advanced $800,000 to
the Company in accordance with his loan agreement as follows (see Note
8):
January 7, 2011 $75,000
January 25, 2011 $50,000
February 9, 2011 $45,000
February 25, 2011 $30,000
February 28, 2011 $100,000
March 10, 2011 $25,000
March 11, 2011 $475,000
On February 4, 2011, the Companys Board of Directors approved
the grant of stock options to certain employees for the purchase of
3,250,000 shares of the Companys common stock at $0.50 per share.
F-32
T3 MOTION, INC.
2,500,000 Units
COMMON STOCK AND WARRANTS TO PURCHASE COMMON STOCK
PROSPECTUS
, 2011
PART II
Item 13. Other Expenses of Issuance and Distribution.
The following is an itemized statement of all expenses, all of which we will pay, in
connection with the registration of the common stock offered hereby:
|
|
|
|
|
|
|
Amount |
|
SEC registration fee |
|
$ |
4,097.62 |
|
NYSE Amex fee |
|
|
40,000 |
|
FINRA filing fee |
|
|
7,000 |
|
Printing fees |
|
|
50,000 |
|
Legal fees |
|
|
225,000 |
|
Accounting fees and expenses |
|
|
75,000 |
|
Miscellaneous |
|
|
2,200 |
|
|
|
|
|
Total |
|
$ |
403,297.62 |
* |
|
|
|
|
Item 14. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law authorizes a court to award, or a
corporations board of directors to grant, indemnity to officers, directors and other corporate
agents in terms sufficiently broad to permit such indemnification under certain circumstances and
subject to certain limitations.
The registrants article of incorporation includes a provision that eliminates the personal
liability of its directors for monetary damages for breach of their fiduciary duty as directors.
In addition, the registrants bylaws provide for the indemnification of officers, directors
and third parties acting on our behalf, to the fullest extent permitted by Delaware General
Corporation Law, if our board of directors authorizes the proceeding for which such person is
seeking indemnification (other than proceedings that are brought to enforce the indemnification
provisions pursuant to the bylaws). The registrant maintains director and officer liability
insurance.
These indemnification provisions may be sufficiently broad to permit indemnification of the
registrants executive officers and directors for liabilities (including reimbursement of expenses
incurred) arising under the Securities Act of 1933.
Item 15. Recent Sales of Unregistered Securities.
All
common share and per common share information assumes a one-for-10
revenue stock split of our common stock. In December 2007,
we completed an offering of our common stock to Immersive Media Corp. We issued 185,185 shares of our common stock for cash at $16.20 per share for an aggregate price
of $3,000,000. We also issued 12% promissory notes in the principal amount of $2,000,000 and
warrants to purchase 69,764 shares at $10.81 per share in exchange for $2,000,000. This January
2008 transaction (a) involved no general solicitation, and (b) involved only accredited purchasers.
Thus, we believe that the offering was exempt from registration under Regulation D, Rule 505 of
the Securities Act of 1933 (Securities Act), as amended.
In March 2008,
we completed an offering of our common stock to one shareholder. We issued
389,610 shares of our common stock and warrants to purchase 129,870, 129,870, and 129,870
shares of common stock at an exercise price of $10.80, $17.70 and $20.00 per share, respectively, for
cash at an aggregate price of $3,000,000. This March 2008 transaction (a) involved no general
solicitation, and (b) involved only accredited purchasers. Thus, we believe that the offering was
exempt from registration under Regulation D, Rule 505 of the Securities Act.
In May 2008, we
completed an offering of an aggregate of 39,964 shares of our common stock at
$16.50 per share to 41 accredited investors (the Offering) pursuant to subscription agreements for
an aggregate price of $644,554. The issuance of the securities describe above were exempt from the
registration requirements of the Securities Act under Rule 4(2) and Regulation D and the rules
thereunder, including Rule 506 insofar as: (1) the purchasers were each an accredited investor
within the meaning of Rule 501(a); (2) the transfer of the securities were restricted by us in
accordance with Rule 502(d); (3) there were no other non-accredited investors involved in the
transaction within the meaning of Rule 506(b); and (4) the offer and sale of the securities was not
effected through any general solicitation or general advertising within the meaning of Rule 502(c).
On December 30, 2008,
we sold $2.2 million in debentures and warrants through a private
placement. We issued to certain purchasers, 10% Secured Convertible Debentures (December 2008
Debentures) with an aggregate principal value of $2,200,000. The December 2008 Debentures are
currently convertible into shares of $15.40 per share. The conversion price was subject to further
adjustment upon certain events. Such purchasers also received Series D Common Stock Purchase
Warrants (the Warrants). Pursuant to the terms of Warrants, these purchasers are entitled to
purchase up to an aggregate 66,667 shares of our common stock at an exercise price of $20.00 per
share. The Warrants have a term of five years after the issue date of December 30, 2008. Each of
these purchasers represented that they were accredited investors as defined under Rule 144 of the
Securities Act. We relied upon the exemption from registration as set forth in Section 4 (2) of the
Securities Act for the issuance of these securities.
On May 28, 2009, we issued
debentures that are convertible into approximately 60,000 shares
of common stock and warrants to purchase 30,000 shares of common stock to certain investors. Each
of these investors represented that they were accredited investors as defined under Rule 144 of
the Securities Act. We relied upon the exemption from registration as set forth in Section 4 (2) of
the Securities Act for the issuance of these securities.
On December 30, 2009, we issued to a certain investor (i) debentures that are convertible into
approximately 3,500,000 shares of Series A convertible preferred stock (Preferred Stock) and
warrants to purchase 350,000 shares of common stock and (ii) warrants to purchase up to
350,000 shares of common stock in exchange for cash. In addition, we issued to another investor,
an aggregate of 9,370,698 shares of Preferred Stock. 3,055,000 shares of Preferred Stock were
issued in exchange for the delivery and cancellation of 10% Secured Convertible Debentures we
previously issued to such investor in the principal amount of $2,200,000 and $600,000 plus accrued
interest of $255,000; 2,263,750 shares of Preferred Stock were issued in exchange for the delivery
and cancellation of Series A, B, C, D, E and F warrants we previously issued to such investor; and
4,051,948 shares of Preferred Stock were issued to satisfy our obligation to issue equity to such
investor pursuant to a Securities Purchase Agreement dated on March 24, 2008, as amended on May 28,
2009. The investors represented that each was an accredited investor as defined under Rule 501 of
the Securities Act or a qualified institutional buyer as defined in Rule 144A(a) under the
Securities Act. We relied upon the exemption from registration as set forth in Section 4(2) of the
Securities Act for the issuance of these securities.
During the three months ended March 31, 2010, we raised $905,000 through an equity financing
transaction. We issued and sold 905,000 shares of preferred stock. In connection with the
financing, we granted warrants to purchase 181,006 shares of common stock, exercisable at $7.00
per share. The warrants are exercisable for five years. Each of these investors represented that
they were accredited investors as defined under Rule 144 of the Securities Act. We relied upon
the exemption from registration as set forth in Section 4 (2) of the Securities Act for the
issuance of these securities.
On March 31, 2010,
Immersive agreed to extend the note to April 30, 2010. As consideration for
extending the note, we agreed to exchange Immersives Class A warrants to purchase up to 69,764
shares of our common stock at an exercise price of $10.80 per share and its Class D warrants to
purchase up to 25,000 shares of our common stock at an exercise price of $20.00 per share, for
Class G Warrants to purchase up to 69,764 and 25,000 shares of our common stock, respectively,
each with an exercise price of $7.00 per share. The note and accrued interest were not repaid in
full by April 30, 2010. Per the agreement, the maturity date was extended to March 31, 2011 we
issued Class G Warrants to purchase up to 104,000 shares of our common stock at an exercise price
of $7.00 per share. The interest rate compounded annually was amended to 15%. The terms of the
Class G Warrants are substantially similar to prior Class G warrants we issued. The Immersive note
and accrued interest were not repaid in full by April 30, 2010. Per the agreement, the maturity
date was extended to March 31, 2011 and we issued Class G Warrants to purchase up to 104,000
shares of our common stock at an exercise price of $7.00 per share valued at $728,000. The interest
rate compounded annually was amended to 15%. The terms of the Class G Warrants are substantially
similar to prior Class G warrants we issued. The terms of the Class G Warrants are substantially
similar to prior Class G warrants we previously issued.
On December 31, 2010, we
entered into a Securities Exchange Agreement (the Exchange
Agreement) with a warrant holder pursuant to which we exchanged 350,000 Class G Warrants into
210,000 shares of our common stock. This investor represented that it was an accredited
investor as defined under Rule 144 of the Securities Act. We relied upon the exemption from
registration as set forth in Section 4 (2) of the Securities Act for the issuance of these
securities.
II-0
Item 16. Exhibits.
|
|
|
1.1
|
|
Form of Underwriting Agreement*** |
|
|
|
3.1
|
|
Amended and Restated Certificate of
Incorporation(1) |
|
|
|
3.2
|
|
Bylaws of the registrant(1) |
|
|
|
3.3 |
|
Amendment to Bylaws, dated January 16, 2009(5) |
|
|
|
|
3.4 |
|
Amendment to Certificate of Incorporation(9) |
|
|
|
|
3.5 |
|
Certificate of Designation of Preferences, Rights and Limitations of Series A convertible preferred stock(9) |
|
|
|
4.1 |
|
Form of Class H Warrant*** |
|
|
|
|
4.2 |
|
Form of Class I Warrant*** |
|
|
|
4.3 |
|
Form of Unit Purchase Option*** |
|
|
|
5.1
|
|
Opinion of LKP Global Law, LLP*** |
|
|
|
10.1
|
|
2007 Stock Option/Stock Issuance Plan(1) |
|
|
|
10.2
|
|
Standard Industrial/Commercial Multi-Tenant Lease between Land Associates Trust, E.C. Alsenz,
Trustee and T3 Motion, Inc., for 2990 Airway Avenue, Costa Mesa, CA 92626, dated February 14,
2007(1) |
|
|
|
10.3
|
|
Rent Adjustment, Standard Lease Addendum between Land Associates Trust, E.C. Alsenz, Trustee and
T3 Motion, Inc., for 2990 Airway Avenue, Costa Mesa, CA 92626, dated
February 14, 2007(1) |
|
|
|
10.4
|
|
Option to Extend, Standard Lease Addendum between Land Associates Trust, E.C. Alsenz, Trustee and
T3 Motion, Inc., for 2990 Airway Avenue, Costa Mesa, CA 92626, dated February 14, 2007(1) |
|
|
|
10.5
|
|
Addendum to the Air Standard Industrial/Commercial Multi-Tenant Lease between Land Associates
Trust, E.C. Alsenz, Trustee and T3 Motion, Inc., for 2990 Airway Avenue, Costa Mesa, CA 92626,
dated February 14, 2007(1) |
|
|
|
10.6
|
|
Standard Sublease Agreement between Delta Motors, LLC and T3 Motion, Inc. for 2975 Airway Avenue,
Costa Mesa, CA 92626, dated November 1, 2006(1) |
|
|
|
10.7
|
|
Form of Distribution Agreement(1) |
|
|
|
10.8
|
|
Director Agreement between David L. Snowden and T3 Motion, Inc., dated February 28, 2007(1) |
|
|
|
10.9
|
|
Director Agreement between Steven J. Healy and T3 Motion, Inc., dated July 1, 2007(1) |
|
|
|
10.10 |
|
Director Indemnification Agreement
between Steven J. Healy and T3 Motion, Inc., dated July 1, 2007* |
|
|
|
10.11
|
|
Securities Purchase Agreement between T3 Motion, Inc. and Immersive Media Corp., dated December
31, 2007(1) |
|
|
|
10.12
|
|
Promissory Note issued to Immersive Media Corp., dated December 31, 2007(1) |
|
|
|
10.13
|
|
Common Stock Purchase Warrant issued to Immersive Media Corp., dated December 31, 2007(1) |
|
|
|
10.14
|
|
Investor Rights Agreement between T3 Motion, Inc. and Immersive Media Corp., dated December 31,
2007(1) |
|
|
|
10.15
|
|
Securities Purchase Agreement between T3 Motion, Inc. and certain Purchasers, dated March 28, 2008(1) |
|
|
|
10.16
|
|
Registration Rights Agreement between T3 Motion, Inc. and certain Purchasers, dated March 28, 2008(1) |
|
|
|
10.17
|
|
Series A Common Stock Purchase Warrant issued to Vision Opportunity Master Fund Ltd., dated March
28, 2008(1) |
|
|
|
10.18
|
|
Series B Common Stock Purchase Warrant issued to Vision Opportunity Master Fund Ltd., dated March
28, 2008(1) |
|
|
|
10.19
|
|
Series C Common Stock Purchase Warrant issued to Vision Opportunity Master Fund Ltd., dated March
28, 2008(1) |
|
|
|
10.20
|
|
Geoimmersive Image Data &
Software Licensing Agreement dated July 9, 2008(2) |
|
|
|
10.21
|
|
Amendment to Promissory Note dated
as of December 19, 2008(3) |
|
|
|
10.22
|
|
Securities Purchase Agreement,
dated December 30, 2008(4) |
|
|
|
10.23
|
|
Form of 10% Secured Convertible
Debenture(4) |
|
|
|
10.24
|
|
Form of Series D Common Stock
Purchase Warrant(4) |
|
|
|
10.25
|
|
Subsidiary Guarantee, dated
December 30, 2008(4) |
|
|
|
10.26
|
|
Security Agreement, dated
December 30, 2008(4) |
|
|
|
10.27
|
|
Form of Lock-up Agreement, dated
December 30, 2008(4) |
|
|
|
10.28
|
|
Director Offer Letter to Mary S.
Schott from Registrant, dated January 16, 2009(5) |
|
|
|
10.29
|
|
Distribution Agreement, dated
November 24, 2008 by and between the Registrant and CT&T(7) |
|
|
|
10.30
|
|
Settlement Agreement dated as of February 20, 2009 by and between the Registrant on the one hand,
and Sooner Cap, Albert Lin and Maddog Executive Services on the
other.(7) |
|
|
|
10.31
|
|
Distribution Agreement dated as of March 20, 2009 by and between the Registrant and Spear
International, Ltd.(6) |
|
|
|
10.32
|
|
Amendment to GeoImmersive Image Data and Software License Agreement by and between the Registrant
and Immersive Media dated as of March 16, 2009.(7) |
|
|
|
10.33
|
|
Securities Purchase Agreement dated as of March 31, 2009 by and between the Registrant and Ki
Nam.(7) |
|
|
|
10.34 |
|
Form of Convertible Promissory Note granted to Ki Nam(7) |
|
|
|
10.35 |
|
Form of Warrant granted to Ki Nam(7) |
|
|
|
10.36 |
|
Amendment to Debenture, Warrant and Securities Purchase Agreement(7) |
|
|
|
10.37 |
|
Securities Purchase Agreement dated as of May 28, 2009(8) |
|
|
|
10.38 |
|
Form of 10% Secured Convertible Debenture(8) |
|
|
|
10.39 |
|
Form of Series E Common Stock Purchase Warrant(8) |
|
|
|
10.40 |
|
Subsidiary Guarantee dated as of May 28, 2009(8) |
|
|
|
10.41 |
|
Security Agreement dated as of May 28, 2009(8) |
|
|
|
10.42 |
|
Form of Amendment to Series B Common Stock Purchase Warrant(8) |
|
|
|
10.43 |
|
Form of Amendment to Series C Common Stock Purchase Warrant(8) |
|
|
|
10.44 |
|
Securities Purchase Agreement dated as of December 30, 2009, between the Company and Vision
Opportunity Master Fund, Ltd.(10) |
|
|
|
10.45 |
|
Form of 10% Secured Convertible Debenture issued December 30, 2009(10) |
|
|
|
10.46 |
|
Form of Series G Common Stock Purchase Warrant issued December 30, 2009.(10) |
|
|
|
10.47 |
|
Subsidiary Guarantee dated as of December 30, 2009, by T3 Motion, Ltd.(10) |
|
|
|
10.48 |
|
Security Agreement dated as of December 30, 2009, among the Company, T3 Motion, Ltd. and
Vision Opportunity Master Fund, Ltd.(10) |
|
|
|
10.49 |
|
Securities Exchange Agreement dated as of December 30, 2009, among the Company, Vision
Opportunity Master Fund, Ltd. and Vision Capital Advantage Fund, L.P.(10) |
|
10.50 |
|
Lock-Up Agreement dated as of December 30, 2009 between the Company and Ki Nam.(10) |
|
10.51 |
|
Stockholders Agreement dated as of December 30, 2009, among the Company, Ki Nam, Vision
Opportunity Master Fund, Ltd. and Vision Capital Advantage Fund, L.P.(10) |
|
10.52 |
|
Amendment No. 2 to Immersive Media Promissory Note(11) |
|
10.53 |
|
Employment Agreement with Kelly Anderson May 17, 2010 (Portions of the exhibit has been
omitted pursuant to the request for confidential treatment)(11) |
|
10.54 |
|
2010 Stock Option/Stock Incentive Plan(12) |
|
10.55 |
|
Settlement Agreement dated as of July 29, 2010 and executed on August 3, 2010 by and among
the Registrant and Preproduction Plastics, Inc.(13) |
|
10.56 |
|
Employment Agreement by and between the Registrant and Ki Nam dated August 13, 2010(14) |
|
10.57 |
|
Amendment No. 1 to 10% Senior Secured Convertible Debenture dated as of December 31, 2010(16) |
|
10.58 |
|
Securities Exchange Agreement dated as of December 31, 2010(16) |
|
10.59 |
|
10% Unsecured Promissory Note in the principal amount of $1,000,000 issued by the Company(17) |
|
10.60 |
|
10% Promissory Note dated as of February 24, 2011(18) |
II-1
|
|
|
21.1
|
|
List of Subsidiaries(1) |
|
|
|
23.1
|
|
Consent of KMJ Corbin & Company LLP** |
|
|
|
23.2
|
|
Consent of LKP Global Law, LLP (See Exhibit 5.1) |
|
|
|
24.1
|
|
Power of Attorney(7) |
|
|
|
** |
|
Filed herewith |
|
*** |
|
To be filed by amendment |
|
(1) |
|
Filed with the Companys Registration Statement on Form S-1 filed on May 13, 2008. |
|
(2) |
|
Filed with the Companys Amendment No. 1 to the Registration Statement on Form S-1
filed on July 14, 2008. |
|
(3) |
|
Filed with the Companys Current Report on Form 8-K filed on December 31, 2008. |
|
(4) |
|
Filed with the Companys Current Report on Form 8-K filed on January 12, 2009. |
|
(5) |
|
Filed with the Companys Current Report on Form 8-K filed on January 20, 2009. |
|
(6) |
|
Filed with the Companys Current Report on Form 8-K filed on March 26, 2009 |
|
(7) |
|
Filed with the Companys Annual Report on Form 10-K for the year ended December 31, 2008 |
|
(8) |
|
Filed with the Companys Annual Report on Form 10-K filed on March 31, 2009. |
|
(9) |
|
Filed with the Companys Current Report on Form 8-K filed on June 5, 2009. |
|
(10) |
|
Filed with the Companys Quarterly Report on Form 10-Q for the quarter ended September 30, 2009 and filed on November 16, 2009. |
|
(11) |
|
Filed with the Companys Current Report on Form 8-K filed on January 6, 2010. No employment agreements filed with these 8-K. |
|
(12) |
|
Filed with the Companys Quarterly Report on Form 10-Q filed on May 17, 2010. |
|
(13) |
|
Filed with the Companys Current Report on Form 8-K filed on July 7, 2010. |
|
(14) |
|
Filed with the Companys Current Report on Form 8-K filed on August 9, 2010. No employment agreements filed with these 8-K. |
|
(15) |
|
Filed with the Companys Quarterly Report on Form 10-Q filed on August 16, 2010. |
|
(16) |
|
Filed with the Companys Current Report on Form 8-K filed on January 6, 2011. |
|
(17) |
|
Filed with the Companys Current Report on Form 8-K filed on January 20, 2011. |
|
(18) |
|
Filed with the Companys Current Report on Form 8-K filed on March 1, 2011. |
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made, a post-effective
amendment to this registration statement to:
i. Include any prospectus required by section 10(a)(3) of the Securities Act of 1933;
ii. Reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or
in the aggregate,
represent a fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if
the total dollar value of securities offered would not exceed that which was registered) any
deviation from the low or high end of the estimated maximum offering range may be reflected in
the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than a 20% change in the maximum aggregate
offering price set forth in the Calculation of Registration Fee table in the effective
registration statement; and
iii. Include any additional or changed material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such information in the registration statement.
2. That for determining any liability under the Securities Act of
1933 each such post-effective
amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona fide offering
thereof.
3. File a post-effective amendment to remove from registration any of the securities that
remain unsold at the end of offering.
4. For determining liability of the Company under the Securities Act to any purchaser in the
initial distribution of the securities, the Company undertakes that in a primary offering of
securities of the Company pursuant to this registration statement, regardless of the underwriting
method used to sell the securities to the purchaser, if the securities are offered or sold to
such purchaser by means of any of the following communications, the Company will be a seller to
the purchaser and will be considered to offer or sell such securities to such purchaser also different from 8-K:
II-2
i. Any preliminary prospectus or prospectus of the Company relating to the offering
required to be filed pursuant to Rule 424;
ii. Any free writing prospectus relating to the offering prepared by or on behalf of the
Company or used or referred to by the Company;
iii. The portion of any other free writing prospectus relating to the offering containing
material information about the Company or its securities provided by or on behalf of the
Company; and
iv. Any other communication that is an offer in the offering made by the Company to the
purchaser.
5. For the purpose of determining any liability under the Securities Act of 1933, each
post-effective amendment that contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering thereof.
6. Insofar as indemnification for liabilities arising under the Securities Act may be
permitted to our directors, officers and controlling persons under the foregoing provisions or
otherwise, we have been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore, unenforceable. If a claim for
indemnification against such liabilities (other than our payment of expenses incurred or paid by
any of our directors, officers or controlling persons in the successful defense of any action,
suit, or proceeding) is asserted by such director, officer or controlling person in connection
with the securities being registered, we will, unless in the opinion of our counsel the matter
has been settled by a controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by us is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-3
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant has
duly caused this
Registration Statement on Form S-1 to be signed on its behalf by the
undersigned, in the City of Costa Mesa, State of California on March 18, 2011.
|
|
|
|
|
|
T3 MOTION, INC.
|
|
|
By: |
/s/ Ki Nam
|
|
|
|
Ki Nam |
|
|
|
Chief Executive Officer, Chief Financial Officer,
and Chairman of the Board |
|
|
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:
|
|
|
|
|
Name |
|
Title |
|
Date |
|
|
|
|
|
|
|
Chief Executive Officer
and Chairman of the Board (Principal Executive Officer)
|
|
March 18, 2011 |
|
|
|
|
|
/s/ Kelly J. Anderson
Kelly Anderson
|
|
Chief Financial Officer, President and Executive Vice President
(Principal Financial and Accounting Officer)
|
|
March 18, 2011 |
|
|
|
|
|
|
|
Director
|
|
March 18, 2011 |
|
|
|
|
|
|
|
Director
|
|
March 18, 2011 |
|
|
|
|
|
|
|
Director
|
|
March 18, 2011 |
|
|
|
|
|
|
|
Director
|
|
March 18, 2011 |
|
|
|
|
|
*By: |
/s/ Kelly J. Anderson
|
|
|
|
Kelly J. Anderson, Attorney-in-fact |
|
|
II-4
EXHIBIT INDEX
|
|
|
1.1
|
|
Form of Underwriting Agreement*** |
|
|
|
3.1
|
|
Amended and Restated Certificate of
Incorporation(1) |
|
|
|
3.2
|
|
Bylaws of the registrant(1) |
|
|
|
3.3 |
|
Amendment to Bylaws, dated January 16, 2009(5) |
|
|
|
|
3.4 |
|
Amendment to Certificate of Incorporation(9) |
|
|
|
|
3.5 |
|
Certificate of Designation of Preferences, Rights and Limitations of Series A convertible preferred stock(9) |
|
|
|
4.1 |
|
Form of Class H Warrant*** |
|
|
|
|
4.2 |
|
Form of Class I Warrant*** |
|
|
|
4.3 |
|
Form of Unit Purchase Option*** |
|
|
|
5.1
|
|
Opinion of LKP Global Law, LLP*** |
|
|
|
10.1
|
|
2007 Stock Option/Stock Issuance Plan(1) |
|
|
|
10.2
|
|
Standard Industrial/Commercial Multi-Tenant Lease between Land Associates Trust, E.C. Alsenz,
Trustee and T3 Motion, Inc., for 2990 Airway Avenue, Costa Mesa, CA 92626, dated February 14,
2007(1) |
|
|
|
10.3
|
|
Rent Adjustment, Standard Lease Addendum between Land Associates Trust, E.C. Alsenz, Trustee and
T3 Motion, Inc., for 2990 Airway Avenue, Costa Mesa, CA 92626, dated
February 14, 2007(1) |
|
|
|
10.4
|
|
Option to Extend, Standard Lease Addendum between Land Associates Trust, E.C. Alsenz, Trustee and
T3 Motion, Inc., for 2990 Airway Avenue, Costa Mesa, CA 92626, dated February 14, 2007(1) |
|
|
|
10.5
|
|
Addendum to the Air Standard Industrial/Commercial Multi-Tenant Lease between Land Associates
Trust, E.C. Alsenz, Trustee and T3 Motion, Inc., for 2990 Airway Avenue, Costa Mesa, CA 92626,
dated February 14, 2007(1) |
|
|
|
10.6
|
|
Standard Sublease Agreement between Delta Motors, LLC and T3 Motion, Inc. for 2975 Airway Avenue,
Costa Mesa, CA 92626, dated November 1, 2006(1) |
|
|
|
10.7
|
|
Form of Distribution Agreement(1) |
|
|
|
10.8
|
|
Director Agreement between David L. Snowden and T3 Motion, Inc., dated February 28, 2007(1) |
|
|
|
10.9
|
|
Director Agreement between Steven J. Healy and T3 Motion, Inc., dated July 1, 2007(1) |
|
|
|
10.10 |
|
Director Indemnification Agreement
between Steven J. Healy and T3 Motion, Inc., dated July 1, 2007* |
|
|
|
10.11
|
|
Securities Purchase Agreement between T3 Motion, Inc. and Immersive Media Corp., dated December
31, 2007(1) |
|
|
|
10.12
|
|
Promissory Note issued to Immersive Media Corp., dated December 31, 2007(1) |
|
|
|
10.13
|
|
Common Stock Purchase Warrant issued to Immersive Media Corp., dated December 31, 2007(1) |
|
|
|
10.14
|
|
Investor Rights Agreement between T3 Motion, Inc. and Immersive Media Corp., dated December 31,
2007(1) |
|
|
|
10.15
|
|
Securities Purchase Agreement between T3 Motion, Inc. and certain Purchasers, dated March 28, 2008(1) |
|
|
|
10.16
|
|
Registration Rights Agreement between T3 Motion, Inc. and certain Purchasers, dated March 28, 2008(1) |
|
|
|
10.17
|
|
Series A Common Stock Purchase Warrant issued to Vision Opportunity Master Fund Ltd., dated March
28, 2008(1) |
|
|
|
10.18
|
|
Series B Common Stock Purchase Warrant issued to Vision Opportunity Master Fund Ltd., dated March
28, 2008(1) |
|
|
|
10.19
|
|
Series C Common Stock Purchase Warrant issued to Vision Opportunity Master Fund Ltd., dated March
28, 2008(1) |
|
|
|
10.20
|
|
Geoimmersive Image Data &
Software Licensing Agreement dated July 9, 2008(2) |
|
|
|
10.21
|
|
Amendment to Promissory Note dated
as of December 19, 2008(3) |
|
|
|
10.22
|
|
Securities Purchase Agreement,
dated December 30, 2008(4) |
|
|
|
10.23
|
|
Form of 10% Secured Convertible
Debenture(4) |
|
|
|
10.24
|
|
Form of Series D Common Stock
Purchase Warrant(4) |
|
|
|
10.25
|
|
Subsidiary Guarantee, dated
December 30, 2008(4) |
|
|
|
10.26
|
|
Security Agreement, dated
December 30, 2008(4) |
|
|
|
10.27
|
|
Form of Lock-up Agreement, dated
December 30, 2008(4) |
|
|
|
10.28
|
|
Director Offer Letter to Mary S.
Schott from Registrant, dated January 16, 2009(5) |
|
|
|
10.29
|
|
Distribution Agreement, dated
November 24, 2008 by and between the Registrant and CT&T(7) |
|
|
|
10.30
|
|
Settlement Agreement dated as of February 20, 2009 by and between the Registrant on the one hand,
and Sooner Cap, Albert Lin and Maddog Executive Services on the
other.(7) |
|
|
|
10.31
|
|
Distribution Agreement dated as of March 20, 2009 by and between the Registrant and Spear
International, Ltd.(6) |
|
|
|
10.32
|
|
Amendment to GeoImmersive Image Data and Software License Agreement by and between the Registrant
and Immersive Media dated as of March 16, 2009.(7) |
|
|
|
10.33
|
|
Securities Purchase Agreement dated as of March 31, 2009 by and between the Registrant and Ki
Nam.(7) |
|
|
|
10.34 |
|
Form of Convertible Promissory Note granted to Ki Nam(7) |
|
|
|
10.35 |
|
Form of Warrant granted to Ki Nam(7) |
|
|
|
10.36 |
|
Amendment to Debenture, Warrant and Securities Purchase Agreement(7) |
|
|
|
10.37 |
|
Securities Purchase Agreement dated as of May 28, 2009(8) |
|
|
|
10.38 |
|
Form of 10% Secured Convertible Debenture(8) |
|
|
|
10.39 |
|
Form of Series E Common Stock Purchase Warrant(8) |
|
|
|
10.40 |
|
Subsidiary Guarantee dated as of May 28, 2009(8) |
|
|
|
10.41 |
|
Security Agreement dated as of May 28, 2009(8) |
|
|
|
10.42 |
|
Form of Amendment to Series B Common Stock Purchase Warrant(8) |
|
|
|
10.43 |
|
Form of Amendment to Series C Common Stock Purchase Warrant(8) |
|
|
|
10.44 |
|
Securities Purchase Agreement dated as of December 30, 2009, between the Company and Vision
Opportunity Master Fund, Ltd.(10) |
|
|
|
10.45 |
|
Form of 10% Secured Convertible Debenture issued December 30, 2009(10) |
|
|
|
10.46 |
|
Form of Series G Common Stock Purchase Warrant issued December 30, 2009.(10) |
|
|
|
10.47 |
|
Subsidiary Guarantee dated as of December 30, 2009, by T3 Motion, Ltd.(10) |
|
|
|
10.48 |
|
Security Agreement dated as of December 30, 2009, among the Company, T3 Motion, Ltd. and
Vision Opportunity Master Fund, Ltd.(10) |
|
|
|
10.49 |
|
Securities Exchange Agreement dated as of December 30, 2009, among the Company, Vision
Opportunity Master Fund, Ltd. and Vision Capital Advantage Fund, L.P.(10) |
|
10.50 |
|
Lock-Up Agreement dated as of December 30, 2009 between the Company and Ki Nam.(10) |
|
10.51 |
|
Stockholders Agreement dated as of December 30, 2009, among the Company, Ki Nam, Vision
Opportunity Master Fund, Ltd. and Vision Capital Advantage Fund, L.P.(10) |
|
10.52 |
|
Amendment No. 2 to Immersive Media Promissory Note(11) |
|
10.53 |
|
Employment Agreement with Kelly Anderson May 17, 2010 (Portions of the exhibit has been
omitted pursuant to the request for confidential treatment)(11) |
|
10.54 |
|
2010 Stock Option/Stock Incentive Plan(12) |
|
10.55 |
|
Settlement Agreement dated as of July 29, 2010 and executed on August 3, 2010 by and among
the Registrant and Preproduction Plastics, Inc.(13) |
|
10.56 |
|
Employment Agreement by and between the Registrant and Ki Nam dated August 13, 2010(14) |
|
10.57 |
|
Amendment No. 1 to 10% Senior Secured Convertible Debenture dated as of December 31, 2010(16) |
|
10.58 |
|
Securities Exchange Agreement dated as of December 31, 2010(16) |
|
10.59 |
|
10% Unsecured Promissory Note in the principal amount of $1,000,000 issued by the Company(17) |
|
10.60 |
|
10% Promissory Note dated as of February 24, 2011(18) |
|
|
|
21.1
|
|
List of Subsidiaries(1) |
|
|
|
23.1
|
|
Consent of KMJ Corbin & Company LLP** |
|
|
|
|
23.2
|
|
Consent of LKP Global Law, LLP (See Exhibit 5.1) |
|
|
|
|
24.1
|
|
Power of Attorney(7) |
|
|
|
** |
|
Filed herewith |
|
*** |
|
To be filed by amendment |
|
(1) |
|
Filed with the Companys Registration Statement on Form S-1 filed on May 13, 2008. |
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(2) |
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Filed with the Companys Amendment No. 1 to the Registration Statement on Form S-1
filed on July 14, 2008. |
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(3) |
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Filed with the Companys Current Report on Form 8-K filed on December 31, 2008. |
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(4) |
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Filed with the Companys Current Report on Form 8-K filed on January 12, 2009. |
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(5) |
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Filed with the Companys Current Report on Form 8-K filed on January 20, 2009. |
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(6) |
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Filed with the Companys Current Report on Form 8-K filed on March 26, 2009 |
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(7) |
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Filed with the Companys Annual Report on Form 10-K for the year ended December 31, 2008 |
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(8) |
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Filed with the Companys Annual Report on Form 10-K filed on March 31, 2009. |
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(9) |
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Filed with the Companys Current Report on Form 8-K filed on June 5, 2009. |
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(10) |
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Filed with the Companys Quarterly Report on Form 10-Q for the quarter ended September 30, 2009 and filed on November 16, 2009. |
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(11) |
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Filed with the Companys Current Report on Form 8-K filed on January 6, 2010. |
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(12) |
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Filed with the Companys Quarterly Report on Form 10-Q filed on May 17, 2010. |
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(13) |
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Filed with the Companys Current Report on Form 8-K filed on July 7, 2010. |
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(14) |
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Filed with the Companys Current Report on Form 8-K filed on August 9, 2010. |
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(15) |
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Filed with the Companys Quarterly Report on Form 10-Q filed on August 16, 2010. |
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(16) |
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Filed with the Companys Current Report on Form 8-K filed on January 6, 2011. |
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(17) |
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Filed with the Companys Current Report on Form 8-K filed on January 20, 2011. |
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(18) |
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Filed with the Companys Current Report on Form 8-K filed on March 1, 2011. |