As filed
with the Securities and Exchange Commission on May 3,
2011
Registration
Statement
No. 333-171163
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Amendment No. 7
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
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(State or other jurisdiction
of
incorporation or organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification No.)
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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
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Ryan S. Hong, Esq.
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Robert Charron
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LKP Global Law, LLP
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Weinstein Smith LLP
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1901 Avenue of the Stars, Suite 480
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420 Lexington Avenue, Suite 2620
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Los Angeles, California 90067
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New York, NY 10170
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Tel
(424) 239-1890
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Tel: (212) 616-3007
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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,
$0.001 par value, and one Class H Warrant and one
Class I Warrant(2)
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3,285,714
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$
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3.50
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$
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11,500,000
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$
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1,335.15
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(3)
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Shares of Common Stock included as part of the Units
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3,285,714
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(4)
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Class H Warrants included as part of the Units(5)
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3,285,714
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(4)
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Class I Warrants included as part of the Units(5)
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3,285,714
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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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3,285,714
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$
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3.00
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$
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9,857,143
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$
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1,144.42
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Shares of Common Stock underlying the Class I Warrants
included in the Units(5)
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3,285,714
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$
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3.50
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$
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11,500,000
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$
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1,335.15
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Representatives Share Purchase Warrant
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1
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$
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3.50
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$
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100.00
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$
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0.02
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Shares of Common Stock underlying the Representatives
Share Purchase Warrant (Underwriters Warrant)
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142,857
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$
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4.375
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$
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625,000
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$
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72.57
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Total
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$
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33,482,243
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$
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3,887.31
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(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 428,571 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
$427.80 of this fee for the first $6.0 million of Units
with the initial filing of this Registration Statement in
December 2010, paid $371.52 with the filing of Amendment
No. 1 to this Registration Statement in January 2011, paid
$3,029.50 with the filing of Amendment No. 2 to this
Registration Statement in March 2011, paid $585.37 with the
filing of Amendment No. 3 to this Registration Statement on
April 6, 2011, and paid $268.83 with the filing of
Amendment No. 4 to this Registration Statement on
April 8, 2011.
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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.
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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.
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SUBJECT TO COMPLETION, DATED
May 3, 2011
PRELIMINARY PROSPECTUS
T3 Motion, Inc.
2,857,143 Units
We are offering 2,857,143 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 the TWO-YEAR 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
$3.50, and will expire on the 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.
We plan to enter into agreements with investors that purchase
$500,000 or more of our units, and insiders converting their
debt into substantially identical units in a private placement
concurrent with this prospectus, that grant them approval rights
to certain change of control transactions unless we redeem their
warrants. Such agreements will also grant them approval rights,
subject to certain exceptions, to financings at a per share
purchase price below the exercise price of their warrants unless
we pay these investors certain amounts in cash.
Our common stock is quoted on the OTC Bulletin Board under
the symbol TMMM. The last sale price of our common
stock on April 29, 2011 was $4.00 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 certain
directors and officers and certain holders of more than 5% of
the outstanding shares of our common stock, have entered into
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 11.
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 428,571 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 share purchase warrant to purchase up to an
additional 142,857 shares of common stock, equal to 5.0% of
the number of shares of common stock included in the units sold
in this offering excluding over-allotment units, at an aggregate
purchase price of $100. If the underwriters exercise this share
purchase warrant, each share may be purchased for
$ per unit (125.0% of the public
offering price of the units sold in the offering).
CHARDAN CAPITAL MARKETS,
LLC
The date of this prospectus
is ,
2011
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.
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.
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.
In connection with the AMEX listing, Vision Opportunity Master
Fund, Ltd. and Vision Capital Advantage Fund (collectively
Vision); and Ki Nam, our Chief Executive Officer,
have agreed to convert their $3.5 million and
$2.1 million debentures plus accrued interest,
respectively, into 1,133,608 and 629,045 unregistered Units.
Because the Units, and the Shares, Warrants and Warrant Shares
underlying these Units are not registered, we intend to file a
registration statement registering such securities within seven
days of the closing of this Offering. Further, Vision and
Mr. Nam have also agreed to convert their 9,370,698 and
976,865 shares of Series A Convertible Preferred Stock,
respectively, into 2,326,898 and 242,572 shares of common
stock, respectively. These shares of common stock will also be
registered.
Contractual
Arrangements with Major Investors and Certain Insiders
We intend to enter into agreements directly with certain
investors that purchase $500,000 or more of our units, as well
as certain insiders converting into substantially identical
units in a private placement concurrent with this prospectus
(collectively, the $500,000 Investors). Such
agreements will restrict us from being acquired for all cash,
through a going private transaction, or for stock of an issuer
that is not listed on a national securities exchange unless
(i) we obtain prior written consent from $500,000 Investors
(and permitted assigns) that initially acquired at least 67% of
all Class H and Class I warrants initially acquired by
$500,000 Investors (67% Eligible Warrant Interest
Investors) or (ii) we agree to redeem the warrants
then held by
non-consenting
$500,000 Investors for a cash amount determined by a
Black-Scholes option pricing formula. These agreements will also
restrict us from issuing equity securities (subject to certain
exceptions) with a per share purchase price below the exercise
price of the Class H or Class I Investors warrants unless
(i) we obtain the prior written consent from at least 67%
Eligible Warrant Interest or (ii) we pay in cash, for each
Class H or Class I warrant share held by any such
non-consenting
investor, the difference between (x) the applicable
Class H warrant or Class I warrant exercise price and
(y) the purchase price per share in such financing. These
agreements terminate with respect to any $500,000 Investor upon
the earlier of when the Class H and I warrants have
terminated or at such time that such investor no longer holds
Class H or Class I warrants. Any $500,000 Investor may
assign its rights under these agreements in whole, but not in
part, to a purchaser of its Class H warrants or
Class I warrants. We will not enter into such agreements
with investors purchasing less than $500,000 of our units, and
therefore, such investors will neither be entitled to redemption
rights upon certain change of control transactions nor be
entitled to any payment for subsequent issuances at a per share
purchase price below the applicable warrant exercise price.
1
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 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.
Recent
Financial Results
We have not yet completed preparation of consolidated financial
statements for the quarter ended March 31, 2011, but based
on preliminary data available to us for the three months ended
March 31, 2011, we expect to report net revenues ranging
from $0.9 million to $1.1 million, compared to
$1.1 million for the quarter ended March 31, 2010.
Backlog as of March 31, 2011 was approximately
$3.0 million, compared to $0.8 million for the quarter
ended March 31, 2010.
Our actual performance for the three month period ended
March 31, 2011 may differ materially from our
expectations. Additionally, during the preparation of our
consolidated financial statements for the quarter ended
March 31, 2011, we may identify items that would require us
to make adjustments, which may be material, to the estimates
described above. This preliminary financial data has been
prepared by and is the responsibility of our management. KMJ
Corbin & Company LLP has not audited, reviewed,
compiled or performed any procedures with respect to this
preliminary financial data, and accordingly, KMJ
Corbin & Company LLP does not express an opinion or
any other form of assurance with respect thereto. For a
discussion of the risks that may cause our results of operations
to differ from our expectations, see Risk Factors
elsewhere in this prospectus.
2
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.
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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3
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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 |
|
2,857,143 units at the assumed public offering price of
$3.50 per unit (plus an additional 428,571 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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12,541,917 shares |
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Number of new warrants outstanding after this offering |
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4,619,796 Class H warrants(3)
4,619,796 Class I warrants(4) |
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Exercisability |
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Each Class H warrant and Class I warrant is
exercisable for one share of common stock. |
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Exercise price |
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Class H warrant $3.00 per share |
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Class I warrant $3.50 per share |
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Exercise period |
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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
two-year anniversary of the date of this prospectus. |
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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. |
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(1) |
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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. |
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(2) |
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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 2,856,275 shares of our common stock at a conversion
rate of 0.2483 shares of our common stock for each share of
preferred stock; (b) the conversion of the outstanding
$2,121,000 loan (including advances from January 1, 2011
through April 30, 2011 of $1,000,000) plus accrued interest
of $80,657 (including accrued interest of $56,901 from
January 1, 2011 through April 30, 2011) from Ki
Nam, the Companys Chief Executive Officer, into
629,045 units of our securities upon completion of this
offering; and (c) the conversion of $3.5 million of
the outstanding secured |
5
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convertible debentures (the Vision Debentures) plus
accrued interest of $467,627 (including accrued interest of
$116,668 from January 1, 2011 through April 30,
2011) held by Vision Opportunity Master Fund, Ltd. and
Vision Capital Advantage Fund (collectively, Vision)
into 1,133,608 units of our securities upon completion of
this offering. |
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(3) |
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The number of Class H warrants includes 1,133,608
Class H warrants issued to Vision upon conversion of the
Vision Debentures and 629,045 Class H warrants issued to Ki
Nam upon conversion of debt. |
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(4) |
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The number of Class I warrants includes 1,133,608
Class I warrants issued to Vision upon conversion of the
Vision Debentures and 629,045 Class I warrants issued to Ki
Nam upon conversion of debt. |
The number of shares of common stock to be outstanding after the
offering excludes the following as of April 30, 2011:
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966,350 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;
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42,050 shares of common stock reserved for issuance under
our 2010 Stock Option/Stock Issuance Plan;
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629,045 Class H and 629,045 Class I warrants to be
issued to Ki Nam upon conversion of debt;
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1,133,608 Class H and 1,133,608 Class I warrants to be
issued to Vision upon the conversion of the Vision Debentures;
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1,069,614 shares of common stock issuable upon exercise of
outstanding warrants; and
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64,935 shares of common stock issuable upon conversion of
the secured promissory note payable to Immersive Media Corp.
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Except as otherwise indicated, all information in this
prospectus assumes:
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no exercise of any of our outstanding options or warrants;
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no exercise of any of the Class H warrants or the
Class I warrants issued in this offering;
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no exercise of the underwriters over-allotment option;
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no exercise of the underwriters share purchase
warrant; and
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no conversion of the secured promissory note payable to
Immersive Media Corp.
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6
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Redemption |
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Class H Warrants: |
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We may redeem the outstanding Class H warrants: |
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in whole and not in part;
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at a price of $0.01 at any time after the warrants
become exercisable;
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upon a minimum on 30 days prior written
notice of redemption; and
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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.
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We must redeem the outstanding Class H warrants held
only by each
non-consenting
$500,000 Investor: |
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if we are acquired for all cash, through a going
private transaction, or for stock of an issuer that is not
listed on a national securities exchange;
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we have not obtained consent from at least 67%
Eligible Warrant Interest Investors; and
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at a price for such warrants determined by a
Black-Scholes option value formula based on the closing date of
the change of control transaction.
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Class I warrants are not redeemable at our option. |
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We must redeem the outstanding Class I warrants held
only by each
non-consenting
$500,000 Investor: |
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if we are acquired for all cash, through a going
private transaction, or for stock of an issuer that is not
listed on a national securities exchange;
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we have not obtained consent from at least 67%
Eligible Warrant Interest Investors; and
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at a price determined by a Black-Scholes option
value formula based on the closing date of the change of control
transaction.
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Contractual Arrangements with Major Investors and Certain
Insiders |
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We intend to enter into agreements directly with the
$500,000 Investors. We will not enter into such agreements
with investors purchasing less than $500,000 of our units, and
therefore, such investors will neither be entitled to redemption
rights upon certain change of control transactions nor be
entitled to any cash payment for subsequent issuances at a per
share purchase price below the applicable exercise price. |
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Restrictions on Change of Control |
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These agreements will restrict us from engaging in certain
change of control transactions unless (i) we obtain prior
written consent from at least 67% Eligible Warrant Interest
Investors or (ii) we agree to redeem the warrants held by
any
non-consenting
$500,000 Investor for a cash amount determined by a
Black-Scholes formula calculation. |
7
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Restrictions on Dilutive Issuances |
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These agreements will also restrict us from selling equity
securities with a per share purchase price below the exercise
price of the Class H or Class I warrants (subject to
certain exceptions) unless (i) we obtain prior written
consent from at least 67% Eligible Warrant Interest Investors or
(ii) we pay in cash, for each Class H or Class I
warrant held by any
non-consenting
$500,000 Investor, the difference between (x) the
applicable Class H or Class I warrant exercise price
and (y) the purchase price per share in such financing. |
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Assignment |
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The $500,000 Investors may assign their rights under these
agreements in whole, but not in part, to a purchaser of their
Class H or Class I warrants. |
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Termination |
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These agreements terminate upon the earlier of the expiration of
the Class I warrant or at such time that such investor no
longer holds Class H or Class I warrants. |
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Use of Proceeds |
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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. |
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OTC Bulletin Board symbol for our common stock |
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TMMM.OB |
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Proposed AMEX symbols for our: |
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Common Stock |
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TTTM |
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Units |
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TTTM.U |
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Class H warrants |
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TTTM.Z |
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Class I warrants |
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TTTM.W |
8
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. The
unaudited pro forma and pro forma as adjusted consolidated
balance sheet data as of December 31, 2010 is derived from
our audited consolidated financial statements included elsewhere
in this prospectus. This information should be read in
conjunction with Unaudited Pro Forma Consolidated
Financial Information in this prospectus, as well as 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:
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Years Ended December 31,
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2010
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2009
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2008
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2007
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Net revenues
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$
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4,682,908
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$
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4,644,022
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$
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7,589,265
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$
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1,822,269
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Gross profit (loss)
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170,411
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(344,096
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)
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(1,703,611
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)
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(2,106,256
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)
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Total operating expenses
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7,009,514
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8,449,934
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9,917,111
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6,422,705
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Loss from operations
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(6,839,103
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)
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(8,794,030
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)
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(11,620,722
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)
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(8,528,961
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)
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Net loss
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$
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(8,327,887
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)
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$
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(6,698,893
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)
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$
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(12,297,797
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)
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$
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(8,577,232
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)
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Selected
Consolidated Balance Sheet Data:
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December 31,
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Pro Forma as
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Pro Forma
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Adjusted
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2010
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2009
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2008
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2010(1)(2)
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2010(1)(2)(3)
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(Unaudited)
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(Unaudited)
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Cash and cash equivalents, including restricted cash
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$
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133,861
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$
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2,580,798
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$
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1,682,741
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$
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133,861
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$
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8,277,060
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Total assets
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3,579,916
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|
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6,059,321
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|
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7,904,188
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3,579,916
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|
|
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11,723,115
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Total liabilities
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19,259,648
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|
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15,703,734
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|
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7,188,313
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5,409,067
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4,164,478
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Total stockholders equity (deficit)
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|
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(15,679,732
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)
|
|
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(9,644,413
|
)
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|
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715,875
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|
|
|
(1,829,151
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)
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|
|
7,558,637
|
|
|
|
|
(1) |
|
The detailed discussion on the unaudited pro forma and unaudited
pro forma, as adjusted, consolidated financial information can
be found in Unaudited Pro Forma Consolidated Financial
Information beginning on page 24 of this prospectus.
The unaudited pro forma and unaudited pro forma, as adjusted,
consolidated financial information should be read in conjunction
with Managements Discussion and Analysis of
Financial Condition and Results of Operations and our
consolidated financial statements and related notes thereto
included elsewhere in this prospectus. The unaudited pro forma
consolidated financial information is for informational purposes
only and is not intended to represent or be indicative of the
consolidated financial position that we would have reported had
this offering been completed on the dates indicated and should
not be taken as representative of our future consolidated
financial position. |
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(2) |
|
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 2,837,925 shares of our common stock
based on a conversion rate of 0.2467; (b) the |
9
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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 units of our securities
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 units of our securities 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. |
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(3) |
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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 2,857,143 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 $163,333;
(d) the conversion of $116,668 of additional accrued
interest on the Vision Debentures (from January 1, 2011
through April 30, 2011) by Vision into
33,334 units of our securities upon completion of this
offering; (e) receipt of additional loan proceeds of
$1,000,000 from Ki Nam plus $56,901 of additional accrued
interest from January 1, 2011 through April 30, 2011;
(f) the conversion of $1,056,901 of additional loan
proceeds and accrued interest into 301,972 units of our
securities 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 0.2467 to 0.2483 resulting in 18,350
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.
10
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:
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We may be unable to increase sales sufficiently to recognize
economies of scale;
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|
We may be unable to successfully expand into other private
security markets or achieve broad brand recognition for our
products;
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|
We may be unable to reduce our costs or experience unanticipated
costs or expenses in connection with our current development,
marketing and manufacturing plans;
|
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|
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
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|
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 as well as the
ability to obtain the consent from at least our 67% Eligible
Warrant Interest Investors. 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.
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
11
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:
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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;
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perceptions about vehicle safety in general, and in particular
safety issues that may be attributed to the use of advanced
technology;
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the range over which electric vehicles may be driven on a single
battery charge;
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the decline of an electric vehicles range resulting from
deterioration over time in the batterys ability to hold a
charge;
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improvements in the fuel economy of the internal combustion
engine;
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volatility in the cost of oil and gasoline;
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access to charging stations, standardization of electric vehicle
charging systems and consumers perceptions about
convenience and cost to charge an electric vehicle;
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concerns that extreme temperatures, cold or hot, could reduce
the performance of the electric vehicle or life of the batteries
included in such vehicles;
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the availability of tax and other governmental incentives to
purchase and operate electric vehicles or future regulation
requiring increased use of nonpolluting vehicles; and
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macroeconomic factors.
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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.
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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.
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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 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.
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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; and
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inability to obtain, maintain or enforce intellectual property
rights.
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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.
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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 and three months ended
March 31, 2011 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 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.
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
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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 April 29, 2011 (62.4%
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 (30.0% after giving effect to
this offering) and the Vision Parties own 11.8% of the
outstanding shares of common stock (32.4% after giving effect to
this offering). The Vision Parties and Mr. Nam are among
the $500,000 Investors being granted certain contractual rights
regarding dilutive financings and certain change of control
transactions, and together with their common stock holdings,
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.
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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 April 30, 2011, 5,065,846 shares of common
stock, 11,502,563 shares of preferred stock (which convert
into 2,837,925 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 1,016,317 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
April 30, 2011, there were 966,350 options outstanding, of
which 328,839 were vested.
We also intend to enter into a registration rights agreement
with the Vision Entities and Ki Nam and register all shares of
our common stock underlying the Vision Entities and
Mr. Nams convertible debt and warrants and certain
other shareholders. We intend to register (i) approximately
1,133,608 shares of common stock that will be issued to the
Vision Entities and approximately 629,045 shares of common
stock issued to Mr. Nam upon conversion of their respective
debt at the closing of this offering, (ii) approximately
3.5 million shares of common stock underlying warrants
issued to the Vision Entities and Mr. Nam, and
(iii) up to 286,805 shares of common stock underlying
Series A preferred stock held by certain other shareholders.
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
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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.
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.
Furthermore, these financings may require the consent of a
supermajority in interest of $500,000 Investors. Investors of
less than $500,000 of our units will not have such consent
rights. If we are unable to obtain such consent, we may be
unable to obtain such financing and our ability to operate our
business will be adversely affected.
We will not require such consent if we agree to pay the $500,000
Investors cash amounts based on the difference between the
applicable warrant exercise price and the per share purchase
price. However, subsequent investors may be unwilling to invest
in our company since their proceeds must be diverted to
addressing these contingent commitments. In addition, the net
proceeds provided to our company following such contingent cash
payments may cause the subsequent financing to be highly
dilutive to our stockholders.
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.
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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
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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.
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.
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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
20
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 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.
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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.
21
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 holder 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 have obtained agreements to convert
substantially all of our outstanding preferred stock and
obtained amendments to 815,373 of 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. Certain holders of our convertible
notes 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.
22
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.
USE OF
PROCEEDS
We estimate that the net proceeds from the sale of the
2,857,143 units by us in the offering, after deducting
estimated underwriting discounts and commissions and estimated
offering expenses payable by us, will be $8.6 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 $2.6 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
$9.9 million, after deducting estimated underwriting
discounts and commissions and estimated offering expenses.
We intend to use approximately $1.2 million of the proceeds
to repay the outstanding indebtedness to Immersive Media Corp.
(Immersive) under that certain secured promissory
note including accrued interest of $163,333, which currently
bears interest at the rate of 19% per annum, and matures on
May 20, 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.
23
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.
24
CAPITALIZATION
The following table sets forth our capitalization as of
December 31, 2010:
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on an actual basis (after giving effect to a
one-for-10
reverse stock split of our common stock to be effected after the
effectiveness of the registration statement and prior to closing
of the offering);
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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):
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the conversion of 11,502,563 of the outstanding Series A
convertible preferred stock upon completion of this offering
into 2,837,925 shares of our common stock;
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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;
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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 units of our securities
upon completion of this offering; and
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the conversion of $3.5 million plus accrued interest of
$350,959 of the Vision Debentures into 1,100,274 units of
our securities upon completion of this offering.
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on a pro forma as adjusted basis to give effect to the pro forma
transactions described above and
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the receipt of the estimated proceeds from the sale of
2,857,143 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;
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the conversion of $116,668 of additional accrued interest on the
Vision Debentures (from January 1, 2011 through
April 30, 2011) by Vision into 33,334 units of
our securities upon completion of this offering;
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the receipt of additional loan proceeds of $1,000,000 from Ki
Nam plus $56,901 of additional accrued interest from
January 1, 2011 through April 30, 2011;
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the conversion of $1,056,901 of additional loan proceeds and
accrued interest into 301,972 units of our equity upon
completion of this offering;
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the payment of approximately $244,000 at the closing of this
offering to Preproduction Plastics, Inc. pursuant to the
settlement agreement dated July 2010;
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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
$163,333; and
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the adjustment of the preferred stock conversion rate to common
stock, as a result of the transactions that took place from
January 1, 2011 through April 30, 2011, from 0.2467 to
0.2483 resulting in 18,350 additional shares of common stock
upon conversion.
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The pro forma as adjusted information discussed below is
illustrative only and will be adjusted based on the actual
public offering price and terms of this offering determined at
pricing.
You should read this table together with Unaudited Pro
Forma Consolidated Financial Information, Summary
Consolidated Financial Information,
Managements Discussion and Analysis of Financial
Condition
25
and Results of Operations and our consolidated financial
statements and the related notes, appearing elsewhere in this
prospectus.
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As of December 31, 2010
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Pro Forma
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Actual
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Pro Forma(1)
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As Adjusted(1)
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Cash and cash equivalents
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$
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123,861
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$
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123,861
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$
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8,267,060
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Restricted cash
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10,000
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10,000
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10,000
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Total
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$
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133,861
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$
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133,861
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$
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8,277,060
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Note payable
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$
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243,468
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$
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243,468
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$
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Derivative liabilities
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9,633,105
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778,239
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778,239
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Related party notes payable, net of debt discount
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6,512,121
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1,891,121
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1,000,000
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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
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11,503
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Common stock, $0.001 par value, 150,000,000 shares
authorized, 5,065,846 shares issued and outstanding,
actual; 9,331,118 shares issued and outstanding, pro forma;
12,541,917 shares issued and outstanding, pro forma as
adjusted
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5,066
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9,331
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12,542
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Additional paid-in capital
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29,419,540
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47,540,428
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57,260,786
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Accumulated deficit
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(45,120,210
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)
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(49,383,279
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)
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(49,719,060
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)
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Accumulated other comprehensive income
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4,369
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4,369
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4,369
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Total stockholders equity (deficit)
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(15,679,732
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)
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(1,829,151
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)
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7,558,637
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Total capitalization
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$
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708,962
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$
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1,083,677
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$
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9,336,876
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(1) |
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A $1.00 increase (decrease) in the assumed offering price of
$3.50 per unit would increase (decrease) by approximately
$2.6 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 share purchase warrant, and no
exercise of any other outstanding options or warrants. For
additional information about our capital structure, see
Description of Capital Stock.
26
UNAUDITED
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial
information sets forth our unaudited pro forma and unaudited pro
forma, as adjusted, and historical consolidated balance sheets
as of December 31, 2010, and our unaudited pro forma
consolidated loss per share for the year ended December 31,
2010. The historical consolidated financial information as of
and for the year ended December 31, 2010 is derived from
our audited consolidated financial statements included elsewhere
in this prospectus.
We have filed this registration statement on
Form S-1
in connection with a proposed public offering of units of our
securities. If the offering contemplated by this prospectus is
consummated, we will effect a
one-for-10
reverse stock split of our common stock after the effectiveness
of the registration statement and prior to the closing of the
offering. The unaudited pro forma and unaudited pro forma, as
adjusted, consolidated balance sheets 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 pro forma presentation purposes, we have assumed that the
proposed offering will close by May 31, 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 pro
forma presentation purposes, we have 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 (the midpoint of the offering range set forth on the
cover page of this prospectus).
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 2,837,925 shares of our common stock,
based on a conversion ratio of 0.2467 shares of our common
stock for each share of Series A convertible preferred
stock, which is expected to occur upon the closing of the
offering. The derivative liability related to the anti-dilution
feature for the holders of all of the outstanding shares of
Series A convertible preferred stock will be reclassified
to additional paid-in capital upon the conversion of the
11,502,563 outstanding shares of Series A convertible
preferred stock. In addition, the unaudited pro forma
consolidated balance sheet as of December 31, 2010,
reflects the impact of the accretion of the remaining preferred
stock discount 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 the Vision Debentures plus
accrued interest of $350,959 into 1,100,274 units of our
securities, and the conversion of $1,121,000 of principal amount
of the related party loan from Ki Nam, our Chief Executive
Officer, plus accrued interest of $23,756 into
327,073 units of our securities, upon the closing of the
offering. A unit of our securities consists of one share of our
common stock, one Class H warrant to purchase a share of
our common stock at $3.00 per share, and one Class I
warrant to purchase a share of our common stock at $3.50 per
share. In addition, the derivative liability related to the
anti-dilution provision of the conversion feature on the Vision
Debentures will be reclassified to additional paid-in capital
upon conversion.
Prior to the closing of the offering, we anticipate entering
into agreements with holders of Class G warrants for the
purchase of 826,373 shares of the Companys common
stock, whereby the holders will waive the anti-dilution
provisions in the warrant agreements which allow the exercise
prices of the warrants to reset to the price of any new
issuances of common stock or common stock equivalents, and such
holders will fix the exercise prices of the Class G
warrants. The unaudited pro forma consolidated balance sheet as
of December 31, 2010 reflects the impact of the
reclassification of the derivative liabilities to additional
paid-in capital as a result of fixing the exercise prices.
The unaudited pro forma, as adjusted, consolidated balance sheet
as of December 31, 2010 gives effect to the receipt of the
estimated proceeds from the sale of 2,857,143 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.
27
During the period January 1, 2011 through March 31,
2011, we received additional loan advances from Ki Nam, our
Chief Executive Officer, in the amount of $1,000,000. In
addition, since all advances from Mr. Nam have not been
repaid as of April 30, 2011, we accrued additional interest
expense of $56,901 on the all outstanding advances from
Mr. Nam for the period January 1, 2011 through
April 30, 2011. The unaudited pro forma, as adjusted,
consolidated balance sheet as of December 31, 2010,
reflects the receipt of these additional loan proceeds and the
accrual of the additional interest expense. Upon the closing of
this offering, Mr. Nam will convert all outstanding
advances and related accrued interest into units of our
securities. The unaudited pro forma, as adjusted, consolidated
balance sheet as of December 31, 2010, reflects the
conversion of the additional advances received of $1,000,000 and
additional accrued interest of $56,901 for the period
January 1, 2011 through April 30, 2011, into
301,972 units of our securities upon closing of this
offering.
During the period January 1, 2011 through April 30,
2011, we accrued additional interest expense on the Vision
Debentures amounting to $116,668. Upon closing of this offering,
Vision will convert its loan balance and related accrued
interest into units of our securities. The unaudited pro forma,
as adjusted, consolidated balance sheet as of December 31,
2010, reflects the conversion of the additional accrued interest
of $116,668 for the period January 1, 2011 through
April 30, 2011, into 33,334 units of our securities
upon closing of this offering.
The unaudited pro forma, as adjusted, consolidated balance sheet
as of December 31, 2010, also reflects the application of
$243,468 of the net proceeds from this offering to repay
indebtedness owed to Preproduction Plastics, Inc. pursuant to
the settlement agreement dated July 2010. The unaudited pro
forma, as adjusted, consolidated balance sheet as of
December 31, 2010, also reflects the repayment of
$1,000,000 of principal and $163,333 of accrued interest
(including $53,333 of interest accrued for the period
January 1, 2011 through April 30, 2011) owed to
Immersive Media Corp. upon the closing of this offering.
As noted above, we received additional loan proceeds and accrued
additional interest expense during the period January 1,
2011 through April 30, 2011. These amounts will be
converted to units of our securities upon completion of this
offering. As a result of these transactions and the resulting
dilutive issuances, we were required to adjust the
weighted-average conversion price of the Series A
convertible preferred stock. The unaudited pro forma, as
adjusted, consolidated balance sheet as of December 31,
2010, reflects an adjustment of the Series A convertible
preferred stock conversion ratio to common stock from 0.2467 to
0.2483 shares of our common stock for each share of our
Series A convertible preferred stock, resulting in the
issuance of 18,350 additional shares of common stock upon
conversion at the closing of this offering.
The unaudited pro forma adjustments are based on available
information and certain assumptions that we believe are
reasonable. Presentation of the unaudited pro forma financial
information is prepared in conformity with Article 11 of
Regulations S-X.
The unaudited pro forma consolidated financial information
should be read in conjunction with Managements
Discussion and Analysis of Financial Condition and Results of
Operations and our consolidated financial statements and
related notes thereto included elsewhere in this prospectus. The
unaudited pro forma consolidated financial information is for
informational purposes only and is not intended to represent or
be indicative of the consolidated financial position or
consolidated loss per share that we would have reported had this
offering been completed on the dates indicated and should not be
taken as representative of our future consolidated financial
position or consolidated loss per share.
The
estimates and assumptions used in preparation of the pro forma
financial information may be materially different from our
actual experience in connection with this offering. For
additional information on the pro forma adjustments, see
Notes to Unaudited Pro Forma Consolidated Financial
Information in this prospectus.
28
Unaudited
Pro Forma Consolidated Balance Sheet
As of
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma, as
|
|
|
|
Historical
|
|
|
Adjustments
|
|
|
Pro Forma
|
|
|
Adjustments
|
|
|
adjusted
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
123,861
|
|
|
$
|
|
|
|
$
|
123,861
|
|
|
$
|
8,550,000
|
(9)
|
|
$
|
8,267,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000,000
|
(11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(243,468
|
)(13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,163,333
|
)(14)
|
|
|
|
|
Restricted cash
|
|
|
10,000
|
|
|
|
|
|
|
|
10,000
|
|
|
|
|
|
|
|
10,000
|
|
Accounts receivable, net
|
|
|
595,261
|
|
|
|
|
|
|
|
595,261
|
|
|
|
|
|
|
|
595,261
|
|
Related party receivables
|
|
|
35,722
|
|
|
|
|
|
|
|
35,722
|
|
|
|
|
|
|
|
35,722
|
|
Inventories
|
|
|
1,064,546
|
|
|
|
|
|
|
|
1,064,546
|
|
|
|
|
|
|
|
1,064,546
|
|
Prepaid expenses and other current assets
|
|
|
251,467
|
|
|
|
|
|
|
|
251,467
|
|
|
|
|
|
|
|
251,467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
2,080,857
|
|
|
|
|
|
|
|
2,080,857
|
|
|
|
8,143,199
|
|
|
|
10,224,056
|
|
Property and equipment, net
|
|
|
564,700
|
|
|
|
|
|
|
|
564,700
|
|
|
|
|
|
|
|
564,700
|
|
Deposits
|
|
|
934,359
|
|
|
|
|
|
|
|
934,359
|
|
|
|
|
|
|
|
934,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,579,916
|
|
|
$
|
|
|
|
$
|
3,579,916
|
|
|
$
|
8,143,199
|
|
|
$
|
11,723,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,335,761
|
|
|
$
|
|
|
|
$
|
1,335,761
|
|
|
|
|
|
|
|
1,335,761
|
|
Accrued expenses
|
|
|
1,483,220
|
|
|
|
(23,756
|
)(5)
|
|
|
1,108,505
|
|
|
|
(163,333
|
)(14)
|
|
|
998,505
|
|
|
|
|
|
|
|
|
(350,959
|
)(6)
|
|
|
|
|
|
|
56,901
|
(11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(56,901
|
)(12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53,333
|
(14)
|
|
|
|
|
Related party payables
|
|
|
51,973
|
|
|
|
|
|
|
|
51,973
|
|
|
|
|
|
|
|
51,973
|
|
Note payable
|
|
|
243,468
|
|
|
|
|
|
|
|
243,468
|
|
|
|
(243,468
|
)(13)
|
|
|
|
|
Derivative liabilities
|
|
|
9,633,105
|
|
|
|
(4,966,126
|
)(3)
|
|
|
778,239
|
|
|
|
|
|
|
|
778,239
|
|
|
|
|
|
|
|
|
(1,025,831
|
)(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,862,909
|
)(8)
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party notes payable, net of debt discounts
|
|
|
4,391,121
|
|
|
|
(3,500,000
|
)(6)
|
|
|
891,121
|
|
|
|
(1,000,000
|
)(14)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
108,879
|
(14)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
17,138,648
|
|
|
|
(12,729,581
|
)
|
|
|
4,409,067
|
|
|
|
(1,244,589
|
)
|
|
|
3,164,478
|
|
Long-term liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party notes payable
|
|
|
2,121,000
|
|
|
|
(1,121,000
|
)(5)
|
|
|
1,000,000
|
|
|
|
1,000,000
|
(11)
|
|
|
1,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,000,000
|
)(12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
19,259,648
|
|
|
|
(13,850,581
|
)
|
|
|
5,409,067
|
|
|
|
(1,244,589
|
)
|
|
|
4,164,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity (deficit):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A convertible preferred stock, $0.001 par value;
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000,000 shares authorized; 11,502,563 shares issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and outstanding, historical; no shares issued and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
outstanding , pro forma and pro forma as adjusted
|
|
|
11,503
|
|
|
|
(11,503
|
)(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value; 150,000,000 shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
authorized, 5,065,846 shares issued and outstanding,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
historical; 9,331,118 shares issued and outstanding,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
pro forma; 12,541,917 shares issued and outstanding,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma, as
|
|
|
|
Historical
|
|
|
Adjustments
|
|
|
Pro Forma
|
|
|
Adjustments
|
|
|
adjusted
|
|
|
pro forma as adjusted
|
|
|
50,659
|
|
|
|
(45,593
|
)(1)
|
|
|
9,331
|
|
|
|
2,857
|
(9)
|
|
|
12,542
|
|
|
|
|
|
|
|
|
2,838
|
(2)
|
|
|
|
|
|
|
33
|
(10)
|
|
|
|
|
|
|
|
|
|
|
|
327
|
(5)
|
|
|
|
|
|
|
302
|
(12)
|
|
|
|
|
|
|
|
|
|
|
|
1,100
|
(6)
|
|
|
|
|
|
|
19
|
(15)
|
|
|
|
|
Additional paid-in capital
|
|
|
29,373,947
|
|
|
|
45,593
|
(1)
|
|
|
47,540,428
|
|
|
|
8,547,143
|
(9)
|
|
|
57,260,786
|
|
|
|
|
|
|
|
|
8,665
|
(2)
|
|
|
|
|
|
|
116,635
|
(10)
|
|
|
|
|
|
|
|
|
|
|
|
4,966,126
|
(3)
|
|
|
|
|
|
|
1,056,599
|
(12)
|
|
|
|
|
|
|
|
|
|
|
|
4,263,069
|
(4)
|
|
|
|
|
|
|
(19
|
)(15)
|
|
|
|
|
|
|
|
|
|
|
|
1,144,429
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,849,859
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,025,831
|
(7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,862,909
|
(8)
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated deficit
|
|
|
(45,120,210
|
)
|
|
|
(4,263,069
|
)(4)
|
|
|
(49,383,279
|
)
|
|
|
(116,668
|
)(10)
|
|
|
(49,719,060
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(56,901
|
)(11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(108,879
|
)(14)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(53,333
|
)(14)
|
|
|
|
|
Accumulated other comprehensive income
|
|
|
4,369
|
|
|
|
|
|
|
|
4,369
|
|
|
|
|
|
|
|
4,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity (deficit)
|
|
|
(15,679,732
|
)
|
|
|
13,850,581
|
|
|
|
(1,829,151
|
)
|
|
|
9,387,788
|
|
|
|
7,558,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
3,579,916
|
|
|
$
|
|
|
|
$
|
3,579,916
|
|
|
$
|
8,143,199
|
|
|
$
|
11,685,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of this unaudited
pro forma consolidated financial information.
30
The unaudited pro forma consolidated loss per share, basic and
diluted, for the year ended December 31, 2010 is as follows:
|
|
|
|
|
Numerator:
|
|
|
|
|
Historical net loss attributable to common stockholders
|
|
$
|
(12,058,036
|
)
|
Pro forma adjustments:
|
|
|
|
|
Deemed dividend to preferred stockholders
|
|
|
3,730,149
|
(16)
|
Change in the fair value of preferred stock anti-dilution
derivative liability
|
|
|
(1,911,306
|
)(17)
|
Interest expense on related party convertible notes
|
|
|
373,756
|
(18)
|
Change in fair value of convertible notes anti-dilution
derivative liability
|
|
|
(787,766
|
)(19)
|
Change in fair value of Class G warrants
anti-dilution derivative liability
|
|
|
403,892
|
(20)
|
Amortization of debt discount on related party notes payable
|
|
|
2,897,574
|
(21)
|
|
|
|
|
|
Net loss used to compute pro forma net loss per share, basic and
diluted
|
|
$
|
(7,351,737
|
)
|
|
|
|
|
|
Historical 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
|
|
|
4,265,272
|
(22)
|
|
|
|
|
|
Shares used in computing pro forma loss per share, basic and
diluted
|
|
|
9,034,251
|
|
|
|
|
|
|
Pro forma loss per share, basic and diluted
|
|
$
|
(0.81
|
)
|
|
|
|
|
|
The accompanying notes are an integral part of this unaudited
pro forma consolidated financial information.
31
Notes to
Unaudited Pro Forma Consolidated Financial Information
|
|
|
(1) |
|
Reflects the effect of the
one-for-10
reverse stock split of our common stock to be effected after the
effectiveness of the registration statement and prior to the
closing of the offering. |
|
|
|
(2) |
|
Reflects the conversion of 11,502,563 outstanding shares of our
Series A convertible preferred stock into
2,837,925 shares of our common stock upon completion of the
offering. |
|
|
|
(3) |
|
Reflects the reclassification of the derivative liability,
related to the anti-dilution feature for holders of all of the
Series A convertible preferred stock, to additional paid-in
capital upon conversion of the 11,502,563 outstanding shares of
our Series A convertible preferred stock into shares of our
common stock, which is expected to occur upon closing of the
offering. |
|
(4) |
|
Reflects the accretion of the remaining preferred stock discount
as a deemed dividend upon conversion of all of the outstanding
Series A convertible preferred stock into shares of our
common stock, which is expected to occur upon closing of the
offering. |
|
(5) |
|
Reflects the conversion of the outstanding $1,121,000 related
party loan from Ki Nam, our Chief Executive Officer, plus
accrued interest of $23,756, into 327,073 units of our
securities upon completion of this offering. |
|
(6) |
|
Reflects the conversion of the outstanding $3,500,000 Vision
Debentures plus accrued interest of $350,959, into
1,100,274 units of our securities upon completion of this
offering. |
|
(7) |
|
Reflects the reclassification of the derivative liability,
related to the anti-dilution provision of the conversion feature
of the Vision Debentures, to additional paid-in capital upon
conversion into units of our securities, which is expected to
occur upon the closing of the offering. |
|
(8) |
|
The Company has entered into agreements with the holders of
Class G warrants and is holding them in escrow until the
completion of this offering for the purchase of
815,373 shares of the Companys common stock, whereby
the holders will waive the anti-dilution provisions in the
warrant agreements which allow the exercise prices to reset to
the price of a new issuance. In exchange, the exercise price was
reduced to $5.00 per share. The Company anticipates
receiving agreements with respect to 16,000 additional
Class G Warrants. This adjustment reflects the
reclassification of the derivative liabilities to additional
paid-in capital as a result of entering into these agreements. |
|
(9) |
|
Reflects the receipt of the estimated proceeds from the sale of
2,857,143 units offered hereby at an assumed public
offering price of $3.50 per unit, after deducting underwriting
discounts and commissions of $1,050,000 and estimated offering
expenses payable by us, as described in
Underwriting, of $400,000. |
|
|
|
(10) |
|
Reflects the accrual and subsequent conversion of $116,668 of
additional accrued interest on the Vision Debentures from
January 1, 2011 through April 30, 2011, by Vision into
33,334 units of our securities upon completion of this
offering. |
|
|
|
(11) |
|
Reflects the receipt of additional loan proceeds of $1,000,000
from Ki Nam, plus additional accrued interest of $56,901 from
January 1, 2011 through April 30, 2011. |
|
|
|
(12) |
|
Reflects the conversion of $1,056,901 of additional loan
proceeds and accrued interest into 301,972 units of our
securities upon completion of this offering. |
|
|
|
(13) |
|
Reflects the repayment of $243,468 at the closing of this
offering to Preproduction Plastics, Inc. pursuant to the
settlement agreement dated July 2010. |
|
|
|
(14) |
|
Reflects additional accrued interest of $53,333 from
January 1, 2011 through April 30, 2011 on the note to
Immersive Media Corp. and the repayment of $1,000,000 of
principal and $163,333 of accrued interest to Immersive Media
Corp. at the closing of this offering. In connection with the
payoff, we will recognize the remaining debt discount of
$108,879 as interest expense. |
|
|
|
(15) |
|
Reflects the adjustment of the preferred stock conversion rate
to common stock, as a result of the additional loan proceeds
received and interest accrued for the period from
January 1, 2011 through April 30, 2011, from |
32
|
|
|
|
|
0.2467 to 0.2483, resulting in 18,350 additional shares of
common stock issued upon conversion of the series a convertible
preferred stock at the closing of the offering. |
|
|
|
(16) |
|
Reflects the adjustment to net loss attributable to common
stockholders for the deemed dividend recorded during the year
ended December 31, 2010 related to the accretion of the
discount on the Series A convertible preferred stock. The
amount has been added back to give effect to the conversion of
all outstanding shares of Series A convertible preferred
stock into 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. |
|
(17) |
|
Reflects the adjustment to net loss attributable to common
stockholders related to the change in the fair value of the
Series A convertible preferred stock anti-dilution
conversion feature derivative liability recorded during the year
ended December 31, 2010. The amount has been adjusted to
give effect to the conversion of all outstanding shares of
Series A convertible preferred stock into 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. |
|
|
|
|
|
Fair value of derivative liability at December 31, 2009
(historical basis)
|
|
$
|
7,314,273
|
|
Add:
|
|
|
|
|
Fair value of anti-dilution conversion feature derivative
liability on date of issuance related to new issuances of
Series A convertible preferred stock during the year ended
December 31, 2010 (historical basis)
|
|
|
685,124
|
|
Less:
|
|
|
|
|
Reclassification of derivative liability to additional paid-in
capital upon conversion of Series A convertible preferred
stock to common stock (historical basis)
|
|
|
(1,121,965
|
)
|
|
|
|
|
|
Adjusted fair value of derivative liability before change in
fair value adjustment (historical basis)
|
|
|
6,877,432
|
|
Fair value of derivative liability at December 31, 2010
(historical basis)
|
|
|
4,966,126
|
|
|
|
|
|
|
Change in fair value adjustment (historical basis)
|
|
$
|
1,911,306
|
|
|
|
|
|
|
|
|
|
(18) |
|
Reflects the adjustment to net loss attributable to common
stockholders related to the interest expense of $350,000 on the
Vision Debentures and $23,756 on the note to Ki Nam recorded
during the year ended December 31, 2010. The amount has
been adjusted to give effect to the conversion of the
outstanding principal and accrued interest of the Vision
Debentures and the note to Ki Nam and accrued interest into
units of the Companys securities (using the if-converted
method) as though the conversion had occurred on January 1,
2010 or on the original date of issuance. |
|
(19) |
|
Reflects the adjustment to net loss attributable to common
stockholders related to the change in the fair value of the
Vision Debentures anti-dilution conversion feature
derivative liability recorded during the year ended
December 31, 2010. The amount has been adjusted to give
effect to the conversion of the outstanding principal and
accrued interest of the Vision Debentures into units of the
Companys equity (using the if-converted method) as though
the conversion had occurred on January 1, 2010. |
|
|
|
|
|
Fair value of derivative liability at December 31, 2009
(historical basis)
|
|
$
|
1,537,921
|
|
Add:
|
|
|
|
|
Fair value of anti-dilution conversion feature derivative
liability related to lapse of contingent conversion time period
for the Vision Debentures during the year ended
December 31, 2010 (historical basis)
|
|
|
275,676
|
|
|
|
|
|
|
Adjusted fair value of derivative liability before change in
fair value adjustment (historical basis)
|
|
|
1,813,597
|
|
Fair value of derivative liability at December 31, 2010
(historical basis)
|
|
|
1,025,831
|
|
|
|
|
|
|
Change in fair value adjustment (historical basis)
|
|
$
|
787,766
|
|
|
|
|
|
|
33
|
|
|
(20) |
|
Reflects the adjustment to net loss attributable to common
stockholders related to the change in the fair value of the
Class G warrants anti-dilution provision derivative
liability recorded during the year ended December 31, 2010.
The amount has been adjusted to give effect to the waiving of
the anti-dilution provision of the Class G warrants as
though this had occurred on January 1, 2010 or on the
original date of issuance. |
|
|
|
|
|
Fair value of derivative liability at December 31, 2009
(historical basis)
|
|
$
|
1,742,781
|
|
Add:
|
|
|
|
|
Fair value of anti-dilution provision derivative liability on
date of issuance related to warrants issued to Series A
convertible preferred stockholders during the year ended
December 31, 2010 (historical basis)
|
|
|
716,236
|
|
|
|
|
|
|
Adjusted fair value of derivative liability before change in
fair value adjustment (historical basis)
|
|
|
2,459,017
|
|
Fair value of derivative liability at December 31, 2010
(historical basis)
|
|
|
2,862,909
|
|
|
|
|
|
|
Change in fair value adjustment (historical basis)
|
|
$
|
(403,892
|
)
|
|
|
|
|
|
|
|
|
(21) |
|
Reflects the adjustment to net loss attributable to common
stockholders related to the amortization of the debt discount on
the Vision Debentures recorded during the year ended
December 31, 2010. The amount has been adjusted to give
effect to the conversion of the outstanding principal and
accrued interest of the Vision Debentures into units of the
Companys securities (using the if-converted method) as
though the conversion had occurred on January 1, 2010. |
|
|
|
|
|
Debt discount at December 31, 2009 (historical basis)
|
|
$
|
2,621,898
|
|
Add:
|
|
|
|
|
Additional debt discount recorded during the year ended
December 31, 2010 related to Vision Debentures
|
|
|
275,676
|
|
|
|
|
|
|
Adjusted debt discount before amortization (historical basis)
|
|
|
2,897,574
|
|
Debt discount at December 31, 2010 (historical basis)
|
|
|
|
|
|
|
|
|
|
Amortization of debt discount during the year ended
December 31, 2010 (historical basis)
|
|
$
|
2,897,574
|
|
|
|
|
|
|
|
|
|
(22) |
|
Reflects the assumed conversion of all outstanding shares of
Series A convertible preferred stock into
2,837,925 shares of the Companys common stock,
conversion of $3,500,000 of outstanding principal of the Vision
Debentures and $350,959 of related accrued interest into
1,100,274 units of the Companys securities and the
conversion of $1,121,000 of principal of the note to Ki Nam and
$23,756 of accrued interest into 327,073 units of the
Companys securities. |
34
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 9,331,118 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 2,837,925 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 units of our securities
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 units of our securities 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 $7,558,637, or $0.60
per share, was based on 12,541,917 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
2,857,143 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 $116,668 of additional accrued interest on the
Vision Debentures (from January 1, 2011 through
April 30, 2011) by Vision into 33,334 units of
our securities upon completion of this offering;
|
|
|
|
|
|
the receipt of additional loan proceeds of $1,000,000 from Ki
Nam plus $56,901 of additional accrued interest from
January 1, 2011 through April 30, 2011;
|
|
|
|
|
|
the conversion of $1,056,901 of additional loan proceeds and
accrued interest into 301,972 units of our securities 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
$163,333; 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 April 30, 2011, from 0.2467 to
0.2483 resulting in 18,350 additional shares of common stock
upon conversion.
|
35
This amount represents an immediate increase in net tangible
book value of $0.80 per share to the current stockholders of the
Company and an immediate decrease in net tangible book value of
$2.90 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)
|
|
|
0.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma as adjusted net tangible book value per share after
the offering
|
|
|
|
|
|
|
0.60
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
|
|
|
|
$
|
2.90
|
|
|
|
|
|
|
|
|
|
|
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 as of December 31, 2010
by approximately $2.6 million, the pro forma as adjusted
net tangible book value per share after this offering by $0.20
and the dilution in pro forma as adjusted net tangible book
value per share to new investors in this offering by $0.80 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 $8.3 million, or $0.65 per share, and the pro
forma dilution per share to investors in this offering would be
$2.85 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
$6.8 million, or $0.55 per share, and the pro forma
dilution per share to investors in this offering would be $2.95
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 $0.69 per share, the increase
in pro forma as adjusted net tangible book value per share to
existing stockholders would be $0.89 per share and the dilution
to new investors purchasing shares in this offering would be
$2.81 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
|
|
|
9,684,774
|
|
|
|
77.2
|
%
|
|
$
|
40,962,379
|
|
|
|
80.4
|
%
|
|
$
|
4.23
|
|
New investors
|
|
|
2,857,143
|
|
|
|
22.8
|
%
|
|
|
10,000,000
|
|
|
|
19.6
|
%
|
|
$
|
3.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
12,541,917
|
|
|
|
100.00
|
%
|
|
$
|
50,962,379
|
|
|
|
100.00
|
%
|
|
$
|
4.06
|
|
The foregoing table does not include the impact of the exercise
of the underwriters over-allotment option or share
purchase warrant.
If the underwriters exercise their over-allotment option in
full, our existing stockholders would own 74.7% and our new
investors would own 25.3% of the total number of shares of our
common stock outstanding after this offering.
36
The table above excludes the following shares:
|
|
|
|
|
966,350 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;
|
|
|
|
|
|
42,050 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;
|
|
|
|
|
|
629,045 Class H and 629,045 Class I warrants to be
issued to Ki Nam upon conversion of debt plus accrued interest
through April 30, 2011;
|
|
|
|
|
|
1,133,608 Class H and 1,133,608 Class I warrants to be
issued to Vision upon the conversion of the Vision Debentures,
plus accrued interest through April 30, 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.
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
|
|
|
2011
|
|
|
|
|
First Quarter
|
|
$
|
4.00 $3.00
|
|
Second Quarter (through April 29, 2011)
|
|
$
|
4.00 $3.10
|
|
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
|
|
37
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.
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.
38
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 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
39
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 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.
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,
40
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.
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.
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|
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Year Ended December 31,
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2010
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2009
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Percentage
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Percentage
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Net
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of Net
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Net
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of Net
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Product
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Revenues
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Revenues
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Revenues
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Revenues
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T3 Series Domestic
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$
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3,842,030
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|
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82.0
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%
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$
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3,654,290
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78.7
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%
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T3 Series International
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840,878
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18.0
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963,911
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20.8
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CT Series Domestic
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25,821
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0.5
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|
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|
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|
|
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$
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4,682,908
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|
|
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100.00
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%
|
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$
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4,644,022
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|
|
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100.0
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%
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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:
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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
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41
|
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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 and plan to evaluate the expansion of our
product line for other consumer applications.
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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.
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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.
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We strive to maintain a manufacturing process that generally
holds lead times to approximately a 4 to 6 week timeframe.
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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.
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Our vehicle has demonstrated that the iconic look and command
presence has a crime deterrent ability.
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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.
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42
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.
43
Intellectual
Properties and Licenses
The following table describes the intellectual property owned by
the Company:
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Type
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Name
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Issued by
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Description
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Trademark
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United State Patent and Trademark Office
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Logo, brand name used on our products
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Trademark
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United State Patent and Trademark Office
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Logo, brand name used on our products
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Trademark
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ENABLING PERSONAL MOBILITY
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United State Patent and Trademark Office
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Logo, brand name used on our products
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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.
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.
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The T3i Series product has passed EMC testing for EN6100-6-1 and
EN61000-6-3.
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Batteries and chargers were found to be technically compliant
with the EN55022, EN61000-3-2, EN61000-3-3, and EN55024
requirements.
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44
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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).
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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 then 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. While the motion has been pending, the Company has
made principal payments totalling $150,000. This motion is now
scheduled to be heard on June 16, 2011.
45
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.
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Name
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Age
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Positions Held:
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Ki Nam
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51
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Chief Executive Officer and Chairman
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Kelly J. Anderson
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43
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Executive Vice President, Chief Financial
Officer and President
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Noel Chewrobrier
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46
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Vice President International Sales
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Dave Fusco
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60
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Vice President Domestic Sales
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David Snowden
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66
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Director
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Steven Healy
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50
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Director
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Mary S. Schott
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50
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Director
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Rob Thomson
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34
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Director
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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 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.
46
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.
47
Code of
Conduct and Ethics
We have adopted a Code of Conduct and Ethics that applies to all
directors, officers, and employees, including our Chief
Executive Officer and Chief Financial Officer, and members of
the board of directors. Our Code of Conduct and Ethics will be
available on our website at www.t3motion.com. A copy of our code
of conduct and ethics will also be provided to any person
without charge, upon written request sent to us at our offices
located at 2990 Airway Avenue, Building A, Costa Mesa,
California 92626.
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;
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our compliance with legal and regulatory requirements;
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the qualification and independence of our independent
auditors; and
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the performance of the Companys auditor qualifications and
the work of our independent auditors.
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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 $20,000 cash
retainer for the directors participation on the Board and
its committees. The Board pays no additional fees for attending
meetings or telephone conferences. The
48
following table sets forth information concerning compensation
paid or accrued for services rendered to us by members of our
board of directors for 2010.
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Fees Earned or
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Option
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Paid in Cash ($)
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Awards ($)(1)
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Total ($)
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Ki Nam(2)
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$
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$
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$
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Steven Healy
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20,000
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18,390
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38,390
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David Snowden
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20,000
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18,390
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38,390
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Mary S. Schott
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20,000
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18,390
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38,390
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Robert Thomson
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(3)
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18,390
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(4)
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18,390
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(1) |
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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. |
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(2) |
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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. |
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(3) |
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Mr. Thomson has waived his annual cash retainer Board fee
for 2010. |
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(4) |
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Such options will be assigned to Vision Capital Advisors or its
affiliates. |
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 $100,000 during such fiscal year
ends.
Executive
Compensation Summary Compensation
Table
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Stock
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Option
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All Other
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Salary
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Bonus
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Awards
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Awards
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Compensation
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Total
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Name and Principal Position
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Year
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($)(1)
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($)
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($)
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($)(1)
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($)(2)
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($)
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Ki Nam,
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2010
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$
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190,000
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$
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114,900
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$
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304,900
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Chief Executive Officer
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2009
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150,000
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150,000
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and Chairman(2)
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Kelly J. Anderson,
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2010
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187,962
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229,800
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$
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417,762
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Executive Vice President,
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2009
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175,000
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175,000
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President and
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Chief Financial Officer
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(1) |
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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. |
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(2) |
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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. |
49
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. 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
50
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.
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. 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. Andersons 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 Executives
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
51
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.
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:
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END
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Option Awards
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Stock Awards
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Equity
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Equity
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Incentive
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Incentive
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Plan Awards:
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Plan Awards:
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Market or
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Market
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Number of
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Payout Value
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Number of
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Number of
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Number of
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Value of
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Unearned
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of Unearned
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Securities
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Securities
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Shares
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Shares or
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Shares, Units
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Shares, Units
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Underlying
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Underlying
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or Units of
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Units of
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or Other
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or Other
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Unexercised
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Unexercised
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Option
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Option
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Stock that
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Stock that
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Rights that
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Rights that
|
|
|
Options (#)
|
|
Options (#)
|
|
Exercise
|
|
Expiration
|
|
Have Not
|
|
Have Not
|
|
Have Not
|
|
Have Not
|
Name
|
|
Exercisable
|
|
Unexercisable
|
|
Price ($)
|
|
Date
|
|
Vested (#)
|
|
Vested ($)
|
|
Vested (#)
|
|
Vested ($)
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52
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 April 30,
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
|
%
|
|
|
5,258,079
|
|
|
|
37.2
|
%(16)
|
Kelly Anderson
|
|
|
27,500
|
|
|
|
*
|
(4)
|
|
|
|
|
|
|
|
|
|
|
27,500
|
|
|
|
*
|
|
David Snowden
|
|
|
10,000
|
|
|
|
*
|
(5)
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
|
*
|
|
Steven Healy
|
|
|
10,000
|
|
|
|
*
|
(6)
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
|
*
|
|
Mary S. Schott
|
|
|
10,000
|
|
|
|
*
|
(7)
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
|
*
|
|
Robert Thomson
|
|
|
603,360
|
|
|
|
11.9
|
%(8)
|
|
|
12,870,698
|
|
|
|
85.8
|
%(14)
|
|
|
6,331,082
|
|
|
|
42.7
|
%(17)
|
5% Stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Immersive Media Corp.
|
|
|
447,334
|
|
|
|
8.4
|
%(9)
|
|
|
|
|
|
|
|
|
|
|
382,399
|
|
|
|
3.0
|
%(18)
|
Vision Opportunity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Master Fund, Ltd.
|
|
|
514,764
|
|
|
|
10.2
|
%(10)
|
|
|
10,951,765
|
|
|
|
73.0
|
%
|
|
|
5,765,982
|
|
|
|
38.9
|
%(19)
|
Total Force
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Limited
|
|
|
800,000
|
|
|
|
14.6
|
%(11)
|
|
|
|
|
|
|
|
|
|
|
800,000
|
|
|
|
6.2
|
%(22)
|
Vision Capital Advantage Fund
|
|
|
261,409
|
|
|
|
4.9
|
%(15)
|
|
|
1,918,933
|
|
|
|
16.7
|
%
|
|
|
565,099
|
|
|
|
4.5
|
%(21)
|
All Executive Officers and Directors as a Group (7 persons)
|
|
|
3,984,606
|
|
|
|
70.6
|
%(12)
|
|
|
13,847,563
|
|
|
|
92.3
|
%
|
|
|
11,646,661
|
|
|
|
70.8
|
%(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 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 April 30, 2011, there were 5,065,846 shares of
common stock issued and outstanding; after giving effect to this
offering, there will be 12,541,917 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 |
53
|
|
|
|
|
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 27,500 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 5,093,346 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) the options to purchase up
to 5,000 shares of our common stock. This number excludes
(a) the 10% Convertible Promissory Notes (the
Notes) currently convertible into
700,000 shares of our common stock and 700,000 warrants,
(b) the 7,451,765 Series A convertible preferred stock
convertible into 1,490,353 shares of our common stock held
by VOMF, (c) 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 4.99% 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. The Company and Vision Entities intend to amend the
Notes and the preferred stock certificate of designation to
remove the Beneficial Ownership Limitation immediately prior to
the closing of this offering. 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 5,070,846 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 Opportunity Master Fund, Ltd. |
54
|
|
|
|
|
c/o Ogier
Fiduciary Services (Cayman) Limited, 89 Nexus Way, Camana Bay,
Grand Cayman, Cayman Islands KY1-9007. |
|
|
|
(9) |
|
This number includes 183,635 shares of common stock,
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) the options to
purchase up to 5,000 shares of our common stock. This
number excludes (a) the 10% convertible promissory notes
(the Notes) currently convertible into
700,000 shares of our common stock and 700,000 warrants,
(b) the 7,451,765 Series A convertible preferred stock
convertible into 1,490,353 shares of our common stock held
by VOMF, and (c) the 1,918,933 Series A convertible
preferred stock convertible into 383,787 shares of our
common stock held by VCAF due to beneficial ownership
limitations. 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 4.99% 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. The Company and Vision Entities intend to amend the
Notes and the preferred stock certificate of designation to
remove the Beneficial Ownership Limitation immediately prior to
the closing of this offering. 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 5,070,846 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,
195,373 shares of common stock as converted from preferred
stock, warrants to purchase 222,850 shares of common stock,
and options to purchase 162,500 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 5,646,569 shares of common
stock. |
|
|
|
(13) |
|
As of April 30, 2011, there were 11,502,563 shares of
Series A convertible preferred stock outstanding. The
Company anticipates that all Series A convertible preferred
stock will be converted into common stock after the offering. |
55
|
|
|
(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. |
|
(15) |
|
The reported securities are owned directly by VCAF include,
88,597 common shares, as well as (all figures given in the
aggregate) the 917,965 Series A convertible preferred stock
convertible into 172,812 shares of our common stock which
are convertible within 60 days. It does not include the
remaining preferred stock which are not convertible within
60 days because of the Beneficial Ownership Limitation. 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. The Company and Vision Entities
intend to amend the Notes and the preferred stock certificate of
designation to remove the Beneficial Ownership Limitation
immediately prior to the closing of this offering. Thus, the
percentage of common stock beneficially owned by VCAF is based
on a total of 5,238,658 shares of common stock. |
|
|
|
(16) |
|
This number includes 2,715,523 shares of common stock,
242,572 shares of common stock, as converted from preferred
stock, warrants to purchase 1,480,940 shares of common
stock and unsecured promissory note plus accrued interest
(through April 30, 2011) converted into
629,045 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
14,122,856 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 April 30,
2011) currently convertible into 1,133,608 shares of
our common stock and warrants to purchase 2,267,215 shares
of common stock, in accordance with terms in this prospectus,
(c) the 7,451,765 Series A convertible preferred stock
convertible into 1,850,395 shares of our common stock held
by VOMF, (d) the 1,918,933 Series A convertible
preferred stock convertible into 476,503 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 4.99% 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 |
56
|
|
|
|
|
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 Company and Vision Entities
intend to amend the Notes and the preferred stock certificate of
designation to remove the Beneficial Ownership Limitation
immediately prior to the closing of this offering. 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 14,814,132 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 12,740,680 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 Companys common stock,
(b) the Notes plus accrued interest (through April 30,
2011) currently convertible into 1,133,608 shares of
our common stock and warrants to purchase 2,267,215 shares
of common stock, in accordance with terms in this prospectus,
(c) the 7,451,765 Series A convertible preferred stock
convertible into 1,850,395 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
Company and Vision Entities intend to amend the Notes and the
preferred stock certificate of designation to remove the
Beneficial Ownership Limitation immediately prior to the closing
of this offering. 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
14,814,132 shares of common stock. |
|
|
|
(20) |
|
This number includes 3,403,883 shares of common stock,
2,569,470 shares of common stock as converted from
preferred stock, warrants to purchase 222,850 shares of
common stock, the Notes currently convertible into
1,762,653 shares of our common stock, and warrants to
purchase 3,525,305 shares of common stock in accordance
with terms in this prospectus and options to purchase
162,500 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 16,452,572 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 476,503 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. The Company and Vision Entities
intend to amend the Notes and the preferred stock certificate of
designation to remove the Beneficial Ownership Limitation
immediately prior to the closing of this offering. Thus, the
percentage of common stock beneficially owned by VCAF is based
on a total of 12,541,917 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
12,941,917 shares of common stock. |
57
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
|
|
|
|
|
|
|
|
|
|
Remaining Available
|
|
|
|
|
|
|
|
|
|
for Future Issuance
|
|
|
|
Number of Securities to be
|
|
|
Weighted-Average
|
|
|
Under Equity
|
|
|
|
Issued Upon Exercise of
|
|
|
Exercise Price of
|
|
|
Compensation Plans
|
|
|
|
Outstanding Options,
|
|
|
Outstanding Options,
|
|
|
(Excluding Securities
|
|
|
|
Warrants and Rights
|
|
|
Warrants and 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 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.
58
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.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
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.
59
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 $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
60
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.
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
61
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.
Third
Amendment to Immersive Note
On March 31, 2011, Immersive agreed to extend the note to
April 30, 2011. As consideration for extending the note,
the Company agreed to increase the interest rate to 19% per
annum compounded annually commencing on April 1, 2011.
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
62
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.
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
63
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.
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).
Warrant
Repricing
The Company intends to negotiate with the Class G Warrant
holders, including the Vision Entities, to reduce the exercise
price of their warrants from $7.00 per share to $5.00 per share.
In exchange for such lower exercise price, the warrant holders
will agree to remove price-based, anti-dilution protection from
their warrants. The Company expects to enter into these
arrangements on or prior to the closing of the Offering.
Debt and
Preferred Stock Conversion; Registration Rights
The Company is negotiating with the Vision Entities to have
their $3.5 million convertible notes plus accrued interest,
converted into shares of common stock and Class H and
Class I warrants. The Company also anticipates that Vision
Entities will convert all their Series A convertible
preferred stock into common stock prior to the closing. The
Company plans to enter into a registration rights agreement with
the Vision Entities to register the shares underlying the
convertible notes plus shares underlying the Class H and I
warrants. The Vision Entities other shares of common
stock, including shares underlying currently outstanding
Series A convertible preferred stock and underlying
Class G warrants will not be registered.
Debenture
Amendment and Conversion Agreement
On March 31, 2011, the Company entered into a Debenture
Amendment and Conversion Agreement (the Debenture
Agreement) with Vision to further amend the
10% Senior Secured Convertible Debenture issued to Vision
in a private placement (Debenture) on
December 30, 2009. The Agreement was the second amendment
to the Debenture, following the first amendment on
December 31, 2010 to extend the maturity date from
December 31, 2010 to March 31, 2011.
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Under the Debenture Agreement, the maturity date of the
Debenture was further extended from March 31, 2011 to
June 30, 2011. In addition, the conversion provisions of
the Debenture were deleted in their entirety and restated.
According to the amended conversion provisions, at the closing
of the offering pursuant to this prospectus the Company will
issue to Vision, units, each comprised of one share of the
Companys common stock, par value $0.001 per share, one
warrant substantially identical to the Class H Warrants and
one warrant substantially identical to the Class I
Warrants, in consideration for the cancellation of $3,500,000
principal amount of the Debenture and accrued interest thereon.
The number of units will equal the total amount of principal and
interest accrued through the date of the closing divided by the
conversion price; provided, however, that the Company will pay
cash in lieu of any factional units that would otherwise be
issuable upon the conversion.
The conversion is conditioned on, among other things, the
execution of a registration rights agreement between the parties
in which the Company would agree to register Visions units
and securities underlying the Units and that the public offering
contemplated by this prospectus shall have been declared
effective and that such Units shall be trading on the NYSE Amex,
LLC.
On May 2, 2011 the parties amended and restated the
Debenture Agreement to provide an additional condition to the
conversion, that Vision will be entitled to enter into a
contractual arrangement with the Company regarding dilutive
financings and certain change of control transactions as a
$500,000 Investor.
Ki
Nam Note
2011
Note
In April 2011, Ki Nam, our Chairman and Chief Executive Officer,
advanced $300,000 to the Company in exchange for debt securities
to be negotiated with the Company (2011 Note). We
proposed to Mr. Nam the 2011 Note would accrue interest at
12% per annum and would mature in one year. Interest payments
would be due monthly but would not commence until after the
closing of this offering. We also proposed granting
300,000 five-year
warrants to purchase common stock at $5.00 per share, or if the
offering closes, then the exercise price of the Class I
warrants. Mr. Nam is considering these proposals currently.
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 (2010 Note). 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 $1,000,000 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
65
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.
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.
Debt and
Preferred Stock Conversion; Registration Rights;
The Company is negotiating with Mr. Nam to have his (or his
affiliated trusts) $2.125 million in principal under
the 2010 Note plus accrued interest, converted into shares
of common stock and Class H and Class I warrants. The
terms of the conversion will likely be substantially similar to
the terms of Visions convertible debentures. The Company
also anticipates that Mr. Nam will convert all his (or his
affiliated trusts) preferred stock into common stock prior
to the closing. The Company also anticipates that Mr. Nam
will convert all his Series A convertible preferred stock
into common stock prior to the closing. The Company plans to
enter into a registration rights agreement with Mr. Nam to
register the shares underlying the convertible notes plus shares
underlying the Class H and I warrants. All other shares of
common stock held by Mr. Nam or his affiliated trust,
including shares underlying currently outstanding Series A
convertible preferred stock and underlying Class G warrants
will not be registered.
66
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 is in negotiations to
obtain additional waivers and anticipates the receipt of such
waivers. 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.
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.
67
Recent
Financial Results
We have not yet completed preparation of consolidated financial
statements for the quarter ended March 31, 2011, but based
on preliminary data available to us for the three months ended
March 31, 2011, we expect to report net revenues ranging
from $0.9 million to $1.1 million, compared to
$1.1 million for the quarter ended March 31, 2010.
Backlog as of March 31, 2011 was approximately
$3.0 million, compared to $0.8 million for the quarter
ended March 31, 2010.
Our actual performance for the three month period ended
March 31, 2011 may differ materially from our
expectations. Additionally, during the preparation of our
consolidated financial statements for the quarter ended
March 31, 2011, we may identify items that would require us
to make adjustments, which may be material, to the estimates
described above. This preliminary financial data has been
prepared by and is the responsibility of our management. KMJ
Corbin & Company LLP has not audited, reviewed,
compiled or performed any procedures with respect to this
preliminary financial data, and accordingly, KMJ
Corbin & Company LLP does not express an opinion or
any other form of assurance with respect thereto. For a
discussion of the risks that may cause our results of operations
to differ from our expectations, see Risk Factors
elsewhere in this prospectus.
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
68
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 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.
69
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.
70
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.
71
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 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 $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.
72
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 trial was
set for July 30, 2010. On or about July 29, 2010, the
case was settled in its entirety. The Company agreed to
73
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 then 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. While the motion is pending, the Company has made
principal payments totalling $150,000. This motion is now
scheduled to be heard on June 16, 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
|
|
|
|
|
|
|
|
|
|
|
74
Recent
Events
Our Chief Executive Officer, Ki Nam advanced $1,000,000 to the
Company in accordance with the 2010 Note 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
March 23, 2011 - $200,000
Mr. Nam also advanced $300,000 to the Company in accordance with
the 2011 Note to be agreed upon as follows:
April 6, 2011 - $100,000
April 18, 2011 - $100,000
April 26, 2011 - $100,000
Vision
Debentures and Immersive Note Extensions
On March 31, 2011, the Company entered into a Debenture
Amendment and Conversion Agreement (the Debenture
Amendment) with Vision to further amend the Vision
Debentures. Under the Debenture Agreement, the maturity date of
the Vision Debentures was extended from March 31, 2011 to
June 30, 2011. In addition, the conversion provisions of
the Vision Debentures were deleted in their entirety and
restated. According to the amended conversion provisions, at the
closing, the Company will issue to the Lender units, each of
which comprised of one share of the Companys common stock,
one warrant at least substantially identical to the Class H
Warrants and one warrant at least substantially identical to the
Class I Warrants, in consideration for the cancellation of
$3,500,000 principal amount of the Vision Debentures and accrued
interest thereon. The number of units will equal the total
amount of principal and interest accrued through the date of the
closing divided by the conversion price; provided, however, that
the Company will pay cash in lieu of any factional units that
would otherwise be issuable upon the conversion of the Vision
Debentures.
The foregoing conversion is conditioned on, among other things,
upon the following: (i) the execution of a registration
rights agreement between the parties in which the Company would
agree to register the Units and securities underlying the Units,
(ii) that the registration statement of which this
prospectus is a part is declared effective for at least
$10 million in Units, and (iii) such Units shall be
trading on AMEX.
The Company also amended the Immersive Note to extend the
maturity date until April 30, 2011 and on April 29,
2011, further extended the note until May 20, 2011. The
accrued interest rate under the note was increased to 19% per
annum compounded annually commencing April 1, 2011.
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
|
|
|
|
|
|
|
|
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
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 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.
76
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.
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.
77
Alfonso
Cordero and Mercy Cordero Note Waiver of Default
Pursuant to the terms of the Alfonso Cordero and Mercy Cordero
Note, we are required to make monthly interest payments of
$8,333 commencing on November 1, 2010 and continuing each
month thereafter through maturity. As of December 31, 2010,
we have not made the requirement monthly interest payments.
Pursuant to the terms of the note, the Noteholder had the option
to call the note in default due to the requirement that we make
the required monthly interest payments. The Noteholder has not
notified us that they intend to call their default option. On
March 8, 2011, we received a waiver from the noteholder
which waived the monthly interest payment obligations as of
December 31, 2010 and through April 15, 2011. We
believe that we will meet the terms of the interest payment
obligations upon completion of this offering.
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 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.
78
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
79
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
Mesa, California 92626
|
|
Main office and manufacturing facility
|
|
|
33,520
|
|
|
August 31, 2012
|
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. |
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.
80
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(d) of the Series A Certificate; provided
however these limitations will be deleted immediately prior to
the closing of this offering) determined by dividing the Stated
Value of such share of Series A Preferred by the Conversion
Price (each as defined below).
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
81
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
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.
Warrants
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 Securities Transfer
Corporation, 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
82
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.
We may redeem the outstanding Class H warrants: (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 $3.50 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 Securities Transfer
Corporation, 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
registration statement relating to the common stock issuable
upon exercise of the Class I warrants is effective 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 an effective registration statement 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.
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.
83
Contractual
Arrangements relating to Class H and Class I
Warrants
We intend to enter into certain agreements with certain
purchasers of at least $500,000 of units as well as certain
insiders converting their debt into units in a private placement
concurrent with this prospectus (collectively, $500,000
Investors), which relate to Class H and Class I
warrants. Under these agreements and subject to certain
exceptions, we may not sell or issue any common stock or common
stock equivalents at a per share price lower than the exercise
price of the Class H or Class I warrants unless
(i) we obtain prior written consent from such $500,000
Investors (and permitted assigns) that initially acquired at
least 67% of all Class H and Class I warrants
originally acquired by the $500,000 Investors (67%
Eligible Warrant Interest Investors) or (ii) we pay
in cash, for each Class H or Class I warrant share
held by such
non-consenting
investor, the difference between (x) the applicable
Class H or Class I warrant exercise price and
(y) the purchase price per share in such financing.
These agreements also restrict us from engaging in certain types
of change of control transactions in which our common stock is
exchanged for all cash or non-publicly traded securities unless
(i) we obtain prior written consent from at least 67%
Eligible Warrant Interest Investors or (ii) we agree to
redeem such
non-consenting
investors warrants for a cash amount determined by a
Black-Scholes formula calculation.
An agreement terminates with respect to any $500,000 Investor
upon the earlier of the date that Class H and Class I
warrants are no longer outstanding or at such time that such
investor no longer holds Class H or Class I warrants.
These agreements will only be executed with $500,000 Investors.
We will not enter into such agreements with investors purchasing
less than $500,000 of our units, and therefore, such investors
will neither be entitled to redemption rights if we engage in
change of control transactions where our stockholders receive
cash or non-publicly traded common stock nor cash payment for
subsequent financings or equity issuances where the per share
purchase price is below the applicable exercise price of their
warrants.
Share
Purchase Warrant
We have agreed to sell to the underwriters a share purchase
warrant to purchase up to a total of 142,857 shares of
common stock at an exercise price per share of
$ (125% of the of the public
offering price of the units sold in the offering). For a more
complete description of the share purchase warrant, including
the terms of the units underlying the option, see the section
entitled Underwriting.
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.
84
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
|
|
|
2,857,143
|
|
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 428,571 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,
a share purchase warrant to purchase up to a total of
142,857 shares of common stock (5% of the shares of common
stock included in the units sold in this offering, excluding the
underwriters over-allotment units) at an aggregate
purchase price of $100. This share purchase warrant is
exercisable at $ per share (125% of
the price of the units 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 effective date of the registration
statement of which this prospectus is a part, neither the share
purchase warrant nor any shares of common stock issuable upon
exercise of the share purchase warrant 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 effective date of the
registration statement of which this prospectus is a part,
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
85
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
|
|
|
|
|
|
|
|
|
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 Ki Nam and the Vision Entities 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. In particular,
approximately 1.125 million shares of common stock to be
issued upon conversion of Visions $3.5 million
debenture and shares underlying Visions 1.125 million
Class H and Class I warrants will not be subject to
the lock-up.
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.
86
The validity of the securities to be sold under this prospectus
will be passed upon for us by LKP Global Law, LLP.
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.
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.
87
T3
MOTION, INC.
|
|
|
|
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|
Page
|
|
CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
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|
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|
|
F-8
|
|
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma Stockholders
|
|
|
|
|
|
|
|
|
|
Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
as of
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
123,861
|
|
|
$
|
2,580,798
|
|
|
|
|
|
Restricted cash
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net of reserves of $50,000 and $37,000 at
December 31, 2010 and 2009, respectively
|
|
|
595,261
|
|
|
|
747,661
|
|
|
|
|
|
Related party receivables
|
|
|
35,722
|
|
|
|
35,658
|
|
|
|
|
|
Inventories
|
|
|
1,064,546
|
|
|
|
1,169,216
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
251,467
|
|
|
|
161,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
2,080,857
|
|
|
|
4,695,330
|
|
|
|
|
|
Property and equipment, net
|
|
|
564,700
|
|
|
|
868,343
|
|
|
|
|
|
Deposits
|
|
|
934,359
|
|
|
|
495,648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,579,916
|
|
|
$
|
6,059,321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,335,761
|
|
|
$
|
872,783
|
|
|
|
|
|
Accrued expenses
|
|
|
1,483,220
|
|
|
|
1,064,707
|
|
|
|
|
|
Related party payables
|
|
|
51,973
|
|
|
|
104,931
|
|
|
|
|
|
Note payable
|
|
|
243,468
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
|
9,633,105
|
|
|
|
11,824,476
|
|
|
|
|
|
Related party notes payable, net of debt discounts
|
|
|
4,391,121
|
|
|
|
1,836,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
17,138,648
|
|
|
|
15,703,734
|
|
|
|
|
|
Long-term liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party notes payable
|
|
|
2,121,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
19,259,648
|
|
|
|
15,703,734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
$
|
11,503
|
|
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
|
|
|
|
5,066
|
|
Additional paid-in capital
|
|
|
29,373,947
|
|
|
|
23,356,724
|
|
|
|
29,419,540
|
|
Accumulated deficit
|
|
|
(45,120,210
|
)
|
|
|
(33,062,174
|
)
|
|
|
(45,120,210
|
)
|
Accumulated other comprehensive income
|
|
|
4,369
|
|
|
|
4,025
|
|
|
|
4,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity (deficit)
|
|
|
(15,679,732
|
)
|
|
|
(9,644,413
|
)
|
|
|
(15,679,732
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity (deficit)
|
|
$
|
3,579,916
|
|
|
$
|
6,059,321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements
F-3
T3
MOTION, INC.
|
|
|
|
|
|
|
|
|
|
|
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
F-6
T3
MOTION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
41,877
|
|
|
$
|
127,116
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
800
|
|
|
$
|
800
|
|
|
|
|
|
|
|
|
|
|
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
T3
MOTION, INC.
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.
F-8
T3
MOTION, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
NOTE 2
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
|
Principles
of Consolidation
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.
F-9
T3
MOTION, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 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
F-10
T3
MOTION, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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
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
F-11
T3
MOTION, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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.
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
F-12
T3
MOTION, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Stockholders Equity (Deficit)
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 units of its
securities. If the offering contemplated by this prospectus is
consummated, and the Company raises sufficient equity to meet
the listing requirements of the
F-13
T3
MOTION, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NYSE Amex, LLC, the Company will effect a
one-for-10
reverse stock split of its common stock after the effectiveness
of the registration statement and prior to the closing of the
offering. The Companys management believes that there is a
high likelihood that the reverse stock split will be effected.
The unaudited pro forma consolidated balance sheet as of
December 31, 2010 gives effect to the assumed reverse stock
split.
Since the one-for-10 reverse stock split is to be effected after
the effectiveness of the registration statement, the historical
share information included in the accompanying consolidated
financial statements and notes hereto do not assume the reverse
stock split, and accordingly, have not been adjusted.
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.
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
T3
MOTION, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
F-15
T3
MOTION, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
F-16
T3
MOTION, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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.
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
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
F-17
T3
MOTION, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The aggregate annual maturities for related party notes payable
in each of the years after December 31, 2010, are as
follows:
|
|
|
|
|
|
|
Related Party
|
Year Ending December 31,
|
|
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 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
F-18
T3
MOTION, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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.
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.
F-19
T3
MOTION, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 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
F-20
T3
MOTION, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 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.
F-21
T3
MOTION, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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.
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.
F-22
T3
MOTION, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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
|
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
F-23
T3
MOTION, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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-24
T3
MOTION, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 Companys 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-25
T3
MOTION, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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
|
|
|
|
|
|
|
|
|
|
|
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
F-26
T3
MOTION, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 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.
F-27
T3
MOTION, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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. 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
|
|
|
|
|
|
|
|
|
|
|
F-28
T3
MOTION, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Remaining
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
Number of
|
|
|
Contractual
|
|
|
Exercise
|
|
|
Number of
|
|
|
Exercise
|
|
Exercise Prices
|
|
Shares
|
|
|
Life
|
|
|
Price
|
|
|
Shares
|
|
|
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.
F-29
T3
MOTION, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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
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-
|
|
|
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Weighted-Average
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
Contractual 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.
F-30
T3
MOTION, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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
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,
F-31
T3
MOTION, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 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.
F-32
T3
MOTION, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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
|
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-33
T3 MOTION, INC.
2,857,143 Units
COMMON STOCK AND WARRANTS TO
PURCHASE COMMON STOCK
PROSPECTUS
,
2011
PART II
Item 13. Other
Expenses of Issuance and Distribution.
Set forth below is an itemized statement of all expenses, all of
which we will pay, in connection with the registration of the
common stock offered hereby. All amounts are estimates except
the SEC, NYSE Amex and FINRA fees.
|
|
|
|
|
|
|
Amount
|
|
|
SEC registration fee
|
|
$
|
4,683.02
|
|
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
|
|
|
1,614.60
|
|
|
|
|
|
|
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
II-1
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
II-2
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.
|
|
|
|
|
|
1
|
.1
|
|
Form of Underwriting Agreement*
|
|
3
|
.1
|
|
Amended and Restated Certificate of Incorporation, as filed with
the Delaware Secretary of State on March 15, 2006(1)
|
|
3
|
.2
|
|
Bylaws adopted April 1, 2006(1)
|
|
3
|
.3
|
|
Amendment to Bylaws, dated January 16, 2009(5)
|
|
3
|
.4
|
|
Amendment to Certificate of Incorporation dated
November 12, 2009(9)
|
|
3
|
.5
|
|
Certificate of Designation of Preferences, Rights and
Limitations of Series A convertible preferred stock dated
November 12, 2009(9)
|
|
3
|
.6
|
|
Form of Certificate of Amendment to Certificate of Designation
of Preferences, Rights and Limitations of Series A
convertible preferred stock*
|
|
4
|
.1
|
|
Form of Class H Warrant**
|
|
4
|
.2
|
|
Form of Class I Warrant**
|
|
4
|
.3
|
|
Form of Share Purchase Warrant**
|
|
4
|
.4
|
|
Form of Warrant Agency Agreement between T3 Motion,
Inc. and Securities Transfer Corporation**
|
|
4
|
.5
|
|
Form of Unit Certificate**
|
|
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(1)
|
|
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 in the original principal amount of
$2,000,000(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
|
|
Geoimmersive Image Data & Software Licensing Agreement
between the Company and Immersive Media dated July 9,
2008(2)
|
II-3
|
|
|
|
|
|
10
|
.18
|
|
Amendment to Promissory Note issued by the Company in favor of
Immersive Media dated as of December 19, 2008(3)
|
|
10
|
.19
|
|
Securities Purchase Agreement between the Company and Vision
Opportunity Master Fund (Vision), dated
December 30, 2008(4)
|
|
10
|
.20
|
|
Form of 10% Secured Convertible Debenture due December 30,
2008(4)
|
|
10
|
.21
|
|
Subsidiary Guarantee, dated December 30, 2008(4)
|
|
10
|
.22
|
|
Security Agreement, dated December 30, 2008 between the
Company and the holders of the Companys 10% Secured
Convertible Debentures(4)
|
|
10
|
.23
|
|
Form of
Lock-up
Agreement, dated December 30, 2008(4)
|
|
10
|
.24
|
|
Director Offer Letter to Mary S. Schott from the Company, dated
January 16, 2009(5)
|
|
10
|
.25
|
|
Distribution Agreement, dated November 24, 2008 by and
between the Company and CT&T(7)
|
|
10
|
.26
|
|
Settlement Agreement dated as of February 20, 2009 by and
between the Company on the one hand, and Sooner Cap, Albert Lin
and Maddog Executive Services on the other(7)
|
|
10
|
.27
|
|
Distribution Agreement dated as of March 20, 2009 by and
between the Company and Spear International, Ltd.(6)
|
|
10
|
.28
|
|
Amendment to GeoImmersive Image Data and Software License
Agreement by and between the Company and Immersive Media dated
as of March 16, 2009.(7)
|
|
10
|
.29
|
|
Securities Purchase Agreement dated as of February 23, 2009
by and between the Company and Ki Nam(7)
|
|
10
|
.30
|
|
10% Convertible Note issued by the Company to Ki Nam in the
original principal amount of up to $1,000,000(7)
|
|
10
|
.31
|
|
Series E Common Stock Purchase Warrant issued to Ki Nam(7)
|
|
10
|
.32
|
|
Amendment to Debenture, Warrant and Securities Purchase
Agreement between the Company and Vision(7)
|
|
10
|
.33
|
|
Securities Purchase Agreement dated as of May 28, 2009
between the Company and Vision(8)
|
|
10
|
.34
|
|
Form of 10% Secured Convertible Debenture issued by the Company
to Vision, dated May 28, 2009(8)
|
|
10
|
.35
|
|
Form of Series E Common Stock Purchase Warrant dated
May 28, 2009(8)
|
|
10
|
.36
|
|
Subsidiary Guarantee dated as of May 28, 2009(8)
|
|
10
|
.37
|
|
Security Agreement between the Company and Vision dated as of
May 28, 2009(8)
|
|
10
|
.38
|
|
Securities Purchase Agreement dated as of December 30,
2009, between the Company and Vision(10)
|
|
10
|
.39
|
|
Form of 10% Secured Convertible Debenture issued to Vision dated
December 30, 2009(10)
|
|
10
|
.40
|
|
Form of Series G Common Stock Purchase Warrant issued by
the Company, dated as of December 30, 2009(10)
|
|
10
|
.41
|
|
Subsidiary Guarantee dated as of December 30, 2009, by T3
Motion, Ltd.(10)
|
|
10
|
.42
|
|
Security Agreement dated as of December 30, 2009, among the
Company, T3 Motion, Ltd. and Vision(10)
|
|
10
|
.43
|
|
Securities Exchange Agreement dated as of December 30,
2009, among the Company, Vision and Vision Capital Advantage
Fund, L.P. (VCAF)(10)
|
|
10
|
.44
|
|
Lock-Up
Agreement dated as of December 30, 2009 between the Company
and Ki Nam(10)
|
|
10
|
.45
|
|
Stockholders Agreement dated as of December 30, 2009, among
the Company, Ki Nam, Vision and VCAF(10)
|
|
10
|
.46
|
|
Amendment No. 2 dated as of March 31, 2010 to
Immersive Media Promissory Note(11)
|
|
10
|
.47
|
|
Employment Agreement between the Company and Kelly Anderson
effective January 1, 2010 (Portions of the exhibit have
been omitted pursuant to the request for confidential
treatment)(11)
|
|
10
|
.48
|
|
2010 Stock Option/Stock Issuance Plan(12)
|
|
10
|
.49
|
|
Settlement Agreement dated as of July 29, 2010 and executed
on August 3, 2010 by and among the Company, Ki Nam, Jason
Kim and Preproduction Plastics, Inc.(13)
|
|
10
|
.50
|
|
Employment Agreement by and between the Registrant and Ki Nam
dated August 13, 2010 (Portions of the exhibit have been
omitted pursuant to a request for confidential treatment)(14)
|
|
10
|
.51
|
|
Amendment No. 1 to 10% Senior Secured Convertible
Debenture dated as of December 31, 2010 between the Company
and Vision(15)
|
|
10
|
.52
|
|
Securities Exchange Agreement dated as of December 31, 2010
between the Company and Vision(15)
|
|
10
|
.53
|
|
Unsecured Promissory Note dated September 30, 2010 in the
principal amount of $1,000,000 issued by the Company to Alfonso
G. Cordero and Mercy B. Cordero, Trustees of the Cordero
Remainder Trust(16)
|
|
10
|
.54
|
|
10% Promissory Note dated as of February 24, 2011 in the
original principal amount of up to $2,500,000 issued to Ki
Nam(17)
|
II-4
|
|
|
|
|
|
10
|
.55
|
|
(Intentionally omitted)
|
|
10
|
.56
|
|
Form of Stock Option Agreement for use with the 2007 Stock
Option/Stock Issuance Plan(18)
|
|
10
|
.57
|
|
Form of Stock Option Agreement for use with the 2010 Stock
Option/Stock Issuance Plan(18)
|
|
10
|
.58
|
|
Form of Preferred Stock Waiver and Conversion Agreement by and
among T3 Motion, Inc., Vision Opportunity Master Fund Ltd.,
Vision Capital Advantage Fund L.P. and Ki Nam**
|
|
10
|
.59
|
|
Form of Registration Rights Agreement*
|
|
10
|
.60
|
|
Form of Lock-up Agreement*
|
|
10
|
.61
|
|
Restated Debenture Amendment and Conversion Agreement dated
March 31, 2011 by and between the Registrant and Vision
Opportunity Master Fund, Ltd.**
|
|
10
|
.62
|
|
Amendment No. 3 to Promissory Note issued to Immersive
Media Corp. dated as of March 30, 2011*
|
|
10
|
.63
|
|
Form of Amendment to Series G Common Stock Purchase Warrant*
|
|
10
|
.64
|
|
Form of Negative Covenant Agreement to be entered into by the
Registrant and holders of at least $500,000 of units**
|
|
14
|
.1
|
|
Code of Conduct and Ethics*
|
|
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 (included on signature page to the
Registration Statement filed on December 15, 2010)
|
|
|
|
* |
|
Previously filed with this Registration Statement |
|
** |
|
Filed herewith |
|
(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, filed on
March 31, 2009. |
|
(8) |
|
Filed with the Companys Current Report on
Form 8-K
filed on June 5, 2009. |
|
(9) |
|
Filed with the Companys Quarterly Report on
Form 10-Q
for the quarter ended September 30, 2009 and filed on
November 16, 2009. |
|
(10) |
|
Filed with the Companys Current Report on
Form 8-K
filed on January 6, 2010. |
|
(11) |
|
Filed with the Companys Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2010, filed on May 17,
2010. |
|
(12) |
|
Filed with the Companys Current Report on
Form 8-K
filed on July 7, 2010. |
|
(13) |
|
Filed with the Companys Current Report on
Form 8-K
filed on August 9, 2010. |
|
(14) |
|
Filed with the Companys Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2010, filed on
August 16, 2010. |
|
(15) |
|
Filed with the Companys Current Report on
Form 8-K
filed on January 6, 2011. |
|
(16) |
|
Filed with the Companys Current Report on
Form 8-K
filed on January 21, 2011. |
|
(17) |
|
Filed with the Companys Current Report on
Form 8-K
filed on March 1, 2011. |
|
(18) |
|
Filed with the Companys Annual Report on Form 10-K
for the year ended December 31, 2010, filed on
March 31, 2011. |
II-5
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:
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-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 7 to the
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 May 3, 2011.
T3 MOTION, INC.
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:
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Name
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Title
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Date
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/s/ Ki
Nam
Ki
Nam
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Chief Executive Officer and Chairman of the Board (Principal
Executive Officer)
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May 3, 2011
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/s/ Kelly
J. Anderson
Kelly
J. Anderson
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Chief Financial Officer, President and
Executive Vice President
(Principal Financial and
Accounting Officer)
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May 3, 2011
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*
David
Snowden
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Director
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May 3, 2011
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*
Steven
Healy
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Director
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May 3, 2011
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*
Mary
S. Schott
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Director
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May 3, 2011
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*
Robert
Thomson
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Director
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May 3, 2011
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*By:
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/s/ Kelly J. Anderson
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Kelly
J. Anderson,
Attorney-in-fact
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II-7
EXHIBIT INDEX
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1
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.1
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Form of Underwriting Agreement*
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3
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.1
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Amended and Restated Certificate of Incorporation, as filed with
the Delaware Secretary of State on March 15, 2006(1)
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3
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.2
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Bylaws adopted April 1, 2006(1)
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3
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.3
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Amendment to Bylaws, dated January 16, 2009(5)
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3
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.4
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Amendment to Certificate of Incorporation dated
November 12, 2009(9)
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3
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.5
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Certificate of Designation of Preferences, Rights and
Limitations of Series A convertible preferred stock dated
November 12, 2009(9)
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3
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.6
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Form of Certificate of Amendment to Certificate of Designation
of Preferences, Rights and Limitations of Series A
convertible preferred stock*
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4
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.1
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Form of Class H Warrant**
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4
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.2
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Form of Class I Warrant**
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4
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.3
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Form of Share Purchase Warrant**
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4
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.4
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Form of Warrant Agency Agreement between T3 Motion, Inc.
and Securities Transfer Corporation**
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4
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.5
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Form of Unit Certificate**
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5
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.1
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Opinion of LKP Global Law, LLP**
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10
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.1
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2007 Stock Option/Stock Issuance Plan(1)
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10
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.2
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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)
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10
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.3
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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)
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10
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.4
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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)
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10
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.5
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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)
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10
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.6
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Standard Sublease Agreement between Delta Motors, LLC and T3
Motion, Inc. for 2975 Airway Avenue, Costa Mesa, CA 92626, dated
November 1, 2006(1)
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10
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.7
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Form of Distribution Agreement(1)
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10
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.8
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Director Agreement between David L. Snowden and T3 Motion, Inc.,
dated February 28, 2007(1)
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10
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.9
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Director Agreement between Steven J. Healy and T3 Motion, Inc.,
dated July 1, 2007(1)
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10
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.10
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Director Indemnification Agreement between Steven J. Healy and
T3 Motion, Inc., dated July 1, 2007(1)
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10
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.11
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Securities Purchase Agreement between T3 Motion, Inc. and
Immersive Media Corp., dated December 31, 2007(1)
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10
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.12
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Promissory Note issued to Immersive Media Corp., dated
December 31, 2007 in the original principal amount of
$2,000,000(1)
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10
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.13
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Common Stock Purchase Warrant issued to Immersive Media Corp.,
dated December 31, 2007(1)
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10
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.14
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Investor Rights Agreement between T3 Motion, Inc. and Immersive
Media Corp., dated December 31, 2007(1)
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10
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.15
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Securities Purchase Agreement between T3 Motion, Inc. and
certain Purchasers, dated March 28, 2008(1)
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10
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.16
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Registration Rights Agreement between T3 Motion, Inc. and
certain Purchasers, dated March 28, 2008(1)
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10
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.17
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Geoimmersive Image Data & Software Licensing Agreement
between the Company and Immersive Media dated July 9,
2008(2)
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10
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.18
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Amendment to Promissory Note issued by the Company in favor of
Immersive Media dated as of December 19, 2008(3)
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10
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.19
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Securities Purchase Agreement between the Company and Vision
Opportunity Master Fund (Vision), dated
December 30, 2008(4)
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10
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.20
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Form of 10% Secured Convertible Debenture due December 30,
2008(4)
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10
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.21
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Subsidiary Guarantee, dated December 30, 2008(4)
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10
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.22
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Security Agreement, dated December 30, 2008 between the
Company and the holders of the Companys 10% Secured
Convertible Debentures(4)
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10
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.23
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Form of
Lock-up
Agreement, dated December 30, 2008(4)
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10
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.24
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Director Offer Letter to Mary S. Schott from the Company, dated
January 16, 2009(5)
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10
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.25
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Distribution Agreement, dated November 24, 2008 by and
between the Company and CT&T(7)
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10
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.26
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Settlement Agreement dated as of February 20, 2009 by and
between the Company on the one hand, and Sooner Cap, Albert Lin
and Maddog Executive Services on the other(7)
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10
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.27
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Distribution Agreement dated as of March 20, 2009 by and
between the Company and Spear International, Ltd.(6)
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10
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.28
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Amendment to GeoImmersive Image Data and Software License
Agreement by and between the Company and Immersive Media dated
as of March 16, 2009.(7)
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10
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.29
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Securities Purchase Agreement dated as of February 23, 2009
by and between the Company and Ki Nam(7)
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10
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.30
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10% Convertible Note issued by the Company to Ki Nam in the
original principal amount of up to $1,000,000(7)
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10
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.31
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Series E Common Stock Purchase Warrant issued to Ki Nam(7)
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10
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.32
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Amendment to Debenture, Warrant and Securities Purchase
Agreement between the Company and Vision(7)
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10
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.33
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Securities Purchase Agreement dated as of May 28, 2009
between the Company and Vision(8)
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10
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.34
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Form of 10% Secured Convertible Debenture issued by the Company
to Vision, dated May 28, 2009(8)
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10
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.35
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Form of Series E Common Stock Purchase Warrant dated
May 28, 2009(8)
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10
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.36
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Subsidiary Guarantee dated as of May 28, 2009(8)
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10
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.37
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Security Agreement between the Company and Vision dated as of
May 28, 2009(8)
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10
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.38
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Securities Purchase Agreement dated as of December 30,
2009, between the Company and Vision(10)
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10
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.39
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Form of 10% Secured Convertible Debenture issued to Vision dated
December 30, 2009(10)
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10
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.40
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Form of Series G Common Stock Purchase Warrant issued by
the Company, dated as of December 30, 2009(10)
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10
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.41
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Subsidiary Guarantee dated as of December 30, 2009, by T3
Motion, Ltd.(10)
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10
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.42
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Security Agreement dated as of December 30, 2009, among the
Company, T3 Motion, Ltd. and Vision(10)
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10
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.43
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Securities Exchange Agreement dated as of December 30,
2009, among the Company, Vision and Vision Capital Advantage
Fund, L. P. (VCAF)(10)
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10
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.44
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Lock-Up
Agreement dated as of December 30, 2009 between the Company
and Ki Nam(10)
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10
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.45
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Stockholders Agreement dated as of December 30, 2009, among
the Company, Ki Nam, Vision and VCAF(10)
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10
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.46
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Amendment No. 2 dated as of March 31, 2010 to
Immersive Media Promissory Note(11)
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10
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.47
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Employment Agreement between the Company and Kelly Anderson
effective January 1, 2010 (Portions of the exhibit have
been omitted pursuant to the request for confidential
treatment)(11)
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10
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.48
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2010 Stock Option/Stock Issuance Plan(12)
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10
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.49
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Settlement Agreement dated as of July 29, 2010 and executed
on August 3, 2010 by and among the Company, Ki Nam, Jason
Kim and Preproduction Plastics, Inc.(13)
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10
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.50
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Employment Agreement by and between the Registrant and Ki Nam
dated August 13, 2010 (Portions of the exhibit have been
omitted pursuant to a request for confidential treatment)(14)
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10
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.51
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Amendment No. 1 to 10% Senior Secured Convertible
Debenture dated as of December 31, 2010 between the Company
and Vision(15)
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10
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.52
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Securities Exchange Agreement dated as of December 31, 2010
between the Company and Vision(15)
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10
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.53
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Unsecured Promissory Note dated September 30, 2010 in the
principal amount of $1,000,000 issued by the Company to Alfonso
G. Cordero and Mercy B. Cordero, Trustees of the Cordero
Remainder Trust(16)
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10
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.54
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10% Promissory Note dated as of February 24, 2011 in the
original principal amount of up to $2,500,000 issued to Ki
Nam(17)
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10
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.55
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(Intentionally omitted)
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10
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.56
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Form of Stock Option Agreement for use with the 2007 Stock
Option/Stock Issuance Plan(18)
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10
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.57
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Form of Stock Option Agreement for use with the 2010 Stock
Option/Stock Issuance Plan(18)
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10
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.58
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Form of Preferred Stock Waiver and Conversion Agreement by and
among T3 Motion, Inc., Vision Opportunity Master Fund Ltd.,
Vision Capital Advantage Fund L.P. and Ki Nam**
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10
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.59
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Form of Registration Rights Agreement*
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10
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.60
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Form of Lock-up Agreement*
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10
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.61
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Restated Debenture Amendment and Conversion Agreement dated
March 31, 2011 by and between the Registrant and Vision
Opportunity Master Fund, Ltd.**
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10
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.62
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Amendment No. 3 to Promissory Note issued to Immersive
Media Corp. dated as of March 30, 2011*
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10
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.63
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Form of Amendment to Series G Common Stock Purchase Warrant*
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10
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.64
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Form of Negative Covenant Agreement to be entered into by the
Registrant and holders of at least $500,000 of Units.**
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14
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.1
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Code of Conduct and Ethics*
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21
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.1
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List of Subsidiaries(1)
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23
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.1
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Consent of KMJ Corbin & Company LLP**
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23
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.2
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Consent of LKP Global Law, LLP (See Exhibit 5.1)
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24
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.1
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Power of Attorney (included on signature page to the
Registration Statement filed on December 15, 2010)
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* |
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Previously filed with this Registration Statement |
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** |
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Filed herewith |
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(1) |
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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, filed on
March 31, 2009. |
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(8) |
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Filed with the Companys Current Report on
Form 8-K
filed on June 5, 2009. |
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(9) |
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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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(10) |
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Filed with the Companys Current Report on
Form 8-K
filed on January 6, 2010. |
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(11) |
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Filed with the Companys Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2010, filed on May 17,
2010. |
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(12) |
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Filed with the Companys Current Report on
Form 8-K
filed on July 7, 2010. |
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(13) |
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Filed with the Companys Current Report on
Form 8-K
filed on August 9, 2010. |
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(14) |
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Filed with the Companys Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2010, filed on
August 16, 2010. |
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(15) |
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Filed with the Companys Current Report on
Form 8-K
filed on January 6, 2011. |
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(16) |
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Filed with the Companys Current Report on
Form 8-K
filed on January 21, 2011. |
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(17) |
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Filed with the Companys Current Report on
Form 8-K
filed on March 1, 2011. |
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(18) |
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Filed with the Companys Annual Report on Form 10-K
for the year ended December 31, 2010, filed on
March 31, 2011. |