##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended June 30, 2010
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Transition Period From  To
 Commission File Number 333-150888
 T3 MOTION, INC.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    20-4987549(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)2990 Airway Avenue, Suite A
    
    92626Costa Mesa, California
    
    (Zip Code)(Address of principal executive offices)
 (714) 619-3600
(Registrants telephone number, including area code)
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ




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##### 



T3 MOTION, INC.  INDEX TO FORM 10-Q  June 30, 2010
 PagePART I. FINANCIAL INFORMATION
    
    
    3Item 1. Financial Statements
    
    
    3Condensed Consolidated Balance Sheets as of June 30, 2010 (unaudited) and December 31, 2009
    
    
    3Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2010 and 2009 (unaudited)
    
    
    4Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2010 and 2009 (unaudited)
    
    
    5Notes to the Condensed Consolidated Financial Statements (unaudited)
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    20Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    29Item 4T. Controls and Procedures
    
    
    29PART II. OTHER INFORMATION
    
    
    32Item 1. Legal Proceedings
    
    
    32Item 1A. Risk Factors
    
    
    32Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    32Item 3. Defaults upon Senior Securities
    
    
    32Item 5. Other Information
    
    
    32Item 6. Exhibits
    
    
    34Signatures
    
    
    35EX-10.1EX-31.1EX-31.2EX-32.1EX-32.2
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 T3 MOTION, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 June 30,
    
    
    December 31,2010
    
    
    2009(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    122,145
    
    
    $
    2,580,798Restricted cash
    
    
    10,000
    
    
    
    Accounts receivable, net of reserves of $37,000 and $37,000, respectively
    
    
    851,773
    
    
    
    747,661Related party receivable
    
    
    37,964
    
    
    
    35,658Inventories
    
    
    1,419,228
    
    
    
    1,169,216Prepaid expenses and other current assets
    
    
    359,588
    
    
    
    161,997Total current assets
    
    
    2,800,698
    
    
    
    4,695,330Property and equipment, net
    
    
    716,998
    
    
    
    868,343Deposits
    
    
    934,409
    
    
    
    495,648Total assets
    
    $
    4,452,105
    
    
    $
    6,059,321LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilities:Accounts payable
    
    $
    1,169,863
    
    
    $
    872,783Accrued expenses
    
    
    1,458,127
    
    
    
    1,064,707Related party payables
    
    
    50,000
    
    
    
    104,931Derivative liabilities
    
    
    10,799,797
    
    
    
    11,824,476Related party notes payable, net of debt discount
    
    
    2,704,256
    
    
    
    1,836,837Total liabilities
    
    
    16,182,043
    
    
    
    15,703,734Stockholders deficit:Preferred stock, $0.001 par value; 100,000,000 shares authorized; 11,502,563
and 12,347,563 shares issued and outstanding, respectively
    
    
    11,503
    
    
    
    12,348Common stock, $0.001 par value; 150,000,000 shares authorized; 48,538,462
and 44,663,462 shares issued and outstanding, respectively
    
    
    48,539
    
    
    
    44,664Additional paid-in capital
    
    
    26,668,762
    
    
    
    23,356,724Accumulated deficit
    
    
    (38,463,291
    )
    
    
    (33,062,174
    )Accumulated other comprehensive income
    
    
    4,549
    
    
    
    4,025Total stockholders deficit
    
    
    (11,729,938
    )
    
    
    (9,644,413
    )Total liabilities and stockholders deficit
    
    $
    4,452,105
    
    
    $
    6,059,321
 See accompanying notes to condensed consolidated financial statements
 3




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T3 MOTION, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
 COMPREHENSIVE (LOSS) INCOME (UNAUDITED)
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net revenues
    
    $
    1,428,532
    
    
    $
    1,037,930
    
    
    $
    2,577,958
    
    
    $
    2,242,967Cost of net revenues
    
    
    1,221,824
    
    
    
    1,255,747
    
    
    
    2,349,273
    
    
    
    2,722,014Gross profit (loss)
    
    
    206,708
    
    
    
    (217,817
    )
    
    
    228,685
    
    
    
    (479,047
    )Operating expenses:Sales and marketing
    
    
    442,603
    
    
    
    450,750
    
    
    
    870,257
    
    
    
    997,154Research and development
    
    
    431,961
    
    
    
    297,413
    
    
    
    752,467
    
    
    
    598,861General and administrative
    
    
    887,571
    
    
    
    1,098,666
    
    
    
    1,916,984
    
    
    
    2,340,186Total operating expenses
    
    
    1,762,135
    
    
    
    1,846,829
    
    
    
    3,539,708
    
    
    
    3,936,201Loss from operations
    
    
    (1,555,427
    )
    
    
    (2,064,646
    )
    
    
    (3,311,023
    )
    
    
    (4,415,248
    )Other income (expense):Interest income
    
    
    324
    
    
    
    870
    
    
    
    1,227
    
    
    
    2,485Other income, net
    
    
    1,120,226
    
    
    
    4,063,128
    
    
    
    1,875,781
    
    
    
    4,228,937Interest expense
    
    
    (1,011,310
    )
    
    
    (674,058
    )
    
    
    (1,693,111
    )
    
    
    (1,186,670
    )Total other income, net
    
    
    109,240
    
    
    
    3,389,940
    
    
    
    183,897
    
    
    
    3,044,752Income (loss) before provision for income tax
    
    
    (1,446,187
    )
    
    
    1,325,294
    
    
    
    (3,127,126
    )
    
    
    (1,370,496
    )Provision for income tax
    
    
    
    
    
    
    
    
    
    
    800
    
    
    
    800Net income (loss)
    
    
    (1,446,187
    )
    
    
    1,325,294
    
    
    
    (3,127,926
    )
    
    
    (1,371,296
    )Deemed dividend to preferred stockholders
    
    
    (600,309
    )
    
    
    
    
    
    
    (2,273,191
    )
    
    
    Net income (loss) attributable to common stockholders
    
    $
    (2,046,496
    )
    
    $
    1,325,294
    
    
    $
    (5,401,117
    )
    
    $
    (1,371,296
    )Other comprehensive income (loss):Foreign currency translation income (loss)
    
    
    319
    
    
    
    13,909
    
    
    
    524
    
    
    
    (6,032
    )Comprehensive income (loss)
    
    $
    (1,445,868
    )
    
    $
    1,339,203
    
    
    $
    (3,127,402
    )
    
    $
    (1,377,328
    )Net income (loss) attributable to common stockholders
per share:Basic
    
    $
    (0.04
    )
    
    $
    0.03
    
    
    $
    (0.12
    )
    
    $
    (0.03
    )Diluted
    
    $
    (0.04
    )
    
    $
    0.02
    
    
    $
    (0.12
    )
    
    $
    (0.03
    )Weighted average number of common shares
outstanding:Basic
    
    
    48,538,462
    
    
    
    44,563,460
    
    
    
    46,804,344
    
    
    
    44,332,547Diluted
    
    
    48,538,462
    
    
    
    48,096,464
    
    
    
    46,804,344
    
    
    
    44,332,547
 See accompanying notes to condensed consolidated financial statements
 4




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T3 MOTION, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 Six Months Ended June 30,2010
    
    
    2009CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (3,127,926
    )
    
    $
    (1,371,296
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    183,640
    
    
    
    182,343Warranty expense
    
    
    49,134
    
    
    
    67,955Stock compensation expense
    
    
    416,272
    
    
    
    836,305Change in fair value of derivative liabilities
    
    
    (1,867,179
    )
    
    
    (4,228,937
    )Investor relations expense
    
    
    
    
    
    
    80,000Amortization of debt discounts
    
    
    1,430,524
    
    
    
    930,878Change in operating assets and liabilities:Accounts and other receivables, net
    
    
    (104,112
    )
    
    
    679,729Inventories
    
    
    (250,012
    )
    
    
    323,220Prepaid expenses and other current assets
    
    
    (197,591
    )
    
    
    285,264Deposits
    
    
    31,838
    
    
    
    (3,922
    )Purchase of certificate of deposit
    
    
    (10,000
    )
    
    
    Accounts payable and accrued expenses
    
    
    170,767
    
    
    
    (30,005
    )Related party payables
    
    
    (104,931
    )
    
    
    Net cash used in operating activities
    
    
    (3,379,576
    )
    
    
    (2,248,466
    )CASH FLOWS FROM INVESTING ACTIVITIES:Loans/advances to related parties
    
    
    (20,216
    )
    
    
    Purchases of property and equipment
    
    
    (32,295
    )
    
    
    (1,578
    )Repayment of loans/advances to related parties
    
    
    17,910
    
    
    
    4,346Net cash (used in) provided by investing activities
    
    
    (34,601
    )
    
    
    2,768CASH FLOWS FROM FINANCING ACTIVITIES:Loans/advances from related parties
    
    
    50,000
    
    
    
    Recission of common stock
    
    
    (250,000
    )
    
    
    Proceeds from the sale of preferred stock, net of issuance costs
    
    
    1,155,000
    
    
    
    Proceeds from related party note receivable
    
    
    
    
    
    
    698,000Net cash provided by financing activities
    
    
    955,000
    
    
    
    698,000Effect of exchange rate on cash
    
    
    524
    
    
    
    (6,032
    )NET DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (2,458,653
    )
    
    
    (1,553,730
    )CASH AND CASH EQUIVALENTS  beginning of period
    
    
    2,580,798
    
    
    
    1,682,741CASH AND CASH EQUIVALENTS  end of period
    
    $
    122,145
    
    
    $
    129,011SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid during the period for:Interest
    
    $
    39,118
    
    
    $
    10,941Income taxes
    
    $
    800
    
    
    $
    800Supplemental disclosure of non cash activities:Issuance of common stock for related party payables
    
    $
    
    
    
    $
    1,536,206Conversion of related party payable to related party note payable
    
    $
    
    
    
    $
    498,528Conversion of accounts payable to note payable
    
    $
    
    
    
    $
    199,829Cumulative effect to retained earnings due to adoption of accounting standard
    
    $
    
    
    
    $
    1,981,338Cumulative effect to additional paid-in capital due to adoption of accounting standard
    
    $
    
    
    
    $
    4,013,085Cumulative effect to debt discount due to adoption of accounting standard
    
    $
    
    
    
    $
    859,955Conversion option of preferred stock and warrants issued with preferred stock recorded as
derivative liabilities
    
    $
    1,401,360
    
    
    $
    Reclassification of derivative liability to equity due to conversion of preferred stock to common
stock
    
    $
    1,121,965
    
    
    $
    Debt discount and warrant liabiltiy recorded upon issuance of warrants
    
    $
    563,103
    
    
    $
    807,523Amortization of preferred stock discount related to conversion feature and warrants
    
    $
    2,273,191
    
    
    $
    Conversion of preferred stock to common stock
    
    $
    4,000
    
    
    $
    Deposits for equipment
    
    $
    470,599
    
    
    $
    
 See accompanying notes to condensed consolidated financial statements
 5




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##### Table of Contents



T3 MOTION, INC.
 
 NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 NOTE 1  DESCRIPTION OF BUSINESS
  Interim Unaudited Condensed Consolidated Financial Statements
   Going Concern
   6




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Reclassifications
  Use of Estimates
  Cash and Cash Equivalents
  Restricted Cash
  Concentrations of Credit Risk
   Fair Value of Financial Instruments
  7




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Revenue Recognition
      Share- Based Compensation
    8




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Beneficial Conversion Features and Debt Discounts
  Business Segments
  For the Three Months Ended June 30,
    
    
    For the Six Months Ended June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(unaudited)
    
    
    (unaudited)Net revenues:T3 Domestic
    
    $
    1,313,011
    
    
    $
    918,217
    
    
    $
    2,379,590
    
    
    $
    1,593,246T3 International
    
    
    115,521
    
    
    
    119,713
    
    
    
    177,218
    
    
    
    649,721CT Domestic
    
    
    
    
    
    
    
    
    
    
    21,150
    
    
    
    Total net revenues
    
    $
    1,428,532
    
    
    $
    1,037,930
    
    
    $
    2,577,958
    
    
    $
    2,242,967
 NOTE 2  INVENTORIES
  June 30,
    
    
    December 31,2010
    
    
    2009(unaudited)Raw materials
    
    $
    1,163,821
    
    
    $
    959,909Work-in-process
    
    
    144,685
    
    
    
    91,013Finished goods
    
    
    110,722
    
    
    
    118,294$
    1,419,228
    
    
    $
    1,169,216
 9




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##### Table of Contents



NOTE 3  PREPAID EXPENSES AND OTHER CURRENT ASSETS
  June 30,
    
    
    December 31,2010
    
    
    2009(unaudited)Prepaid inventory
    
    $
    11,149
    
    
    $
    64,744Vendor deposits
    
    
    197,107
    
    
    
    47,946Prepaid expenses and other current assets
    
    
    151,332
    
    
    
    49,307$
    359,588
    
    
    $
    161,997
 NOTE 4  RELATED PARTY NOTES PAYABLE
  June 30,
    
    
    December 31,2010
    
    
    2009(unaudited)Note payable to Immersive Media
Corp., 15% interest rate, net of
discount of $282,229 and $41,265,
respectively
    
    $
    717,771
    
    
    $
    958,735Note payable to Vision Opportunity
Master Fund, Ltd., 10% interest rate,
net of discount of $1,513,515 and
$2,621,898, respectively
    
    
    1,986,485
    
    
    
    878,102$
    2,704,256
    
    
    $
    1,836,837
 Immersive Note
      10




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Vision Opportunity Master Fund, Ltd. Bridge Financing
     11




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##### Table of Contents



Lock-Up Agreement
  NOTE 5  DERIVATIVE LIABILITIES
    12




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##### Table of Contents



June 30,2010(unaudited)Annual dividend yield
    
    
    Expected life (years)
    
    
    0.50-5Risk-free interest rate
    
    
    0.32%-1.79
    %Expected volatility
    
    
    85%-112
    %
        13




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Level 3
    
    
    Level 3Carrying Value
    
    
    Carrying ValueJune 30,
    
    
    December 31,2010
    
    
    2009(unaudited)Embedded conversion options
    
    $
    6,700,636
    
    
    $
    8,853,893Warrants
    
    
    4,099,161
    
    
    
    2,970,583$
    10,799,797
    
    
    $
    11,824,476Decrease in fair value
    
    $
    1,867,179
  Balance at January 1, 2010
    
    $
    11,824,476Issuance of warrants and conversion option
    
    
    1,964,465Reclassification to equity due to conversion of preferred stock
    
    
    (1,121,965
    )Change in fair value
    
    
    (1,867,179
    )Balance at June 30, 2010
    
    $
    10,799,797
 NOTE 6  EQUITY
 Series A Convertible Preferred Stock
     14




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Common Stock
  NOTE 7  INCOME (LOSS) PER SHARE
   15




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Three Months       Ended June 30,
    
    
    Six Months Ended June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Numerator for basic net income (loss) attributable to common
stockholders per common share:Net income (loss)
    
    $
    (1,446,187
    )
    
    $
    1,325,294
    
    
    $
    (3,127,926
    )
    
    $
    (1,371,296
    )Deemed preferred stock dividend
    
    
    (600,309
    )
    
    
    
    
    
    
    (2,273,191
    )
    
    
    Net income (loss) applicable to common stockholders
    
    
    (2,046,496
    )
    
    
    1,325,294
    
    
    
    (5,401,117
    )
    
    
    (1,371,296
    )Effect of dilutive securities:Convertible debt -interest expense
    
    
    
    
    
    
    526,534
    
    
    
    
    
    
    
    Convertible debt -change in fair value of derivative liabilities
    
    
    
    
    
    
    (878,953
    )
    
    
    
    
    
    
    Numerator for diluted net income (loss) attributable to common
stockholders per common share:
    
    $
    (2,046,496
    )
    
    $
    972,875
    
    
    $
    (5,401,117
    )
    
    $
    (1,371,296
    )Denominator for basic income (loss) attributable to common
stockholders per common share:Weighted-average shares outstanding
    
    
    48,538,462
    
    
    
    44,563,460
    
    
    
    46,804,344
    
    
    
    44,332,547Effect of dilutive securities:Employee stock options
    
    
    
    
    
    
    1,884,433
    
    
    
    
    
    
    
    Convertible debt
    
    
    
    
    
    
    1,648,571
    
    
    
    
    
    
    
    Denominator for diluted income (loss) attributable to common
stockholders per common share:
    
    
    48,538,462
    
    
    
    48,096,464
    
    
    
    46,804,344
    
    
    
    44,332,547Net income (loss) attributable to common stockholders per share:Basic
    
    $
    (0.04
    )
    
    $
    0.03
    
    
    $
    (0.12
    )
    
    $
    (0.03
    )Diluted
    
    $
    (0.04
    )
    
    $
    0.02
    
    
    $
    (0.12
    )
    
    $
    (0.03
    )
   NOTE 8  STOCK OPTIONS AND WARRANTS
 Equity Incentive Plan
  Stock Option/Stock Issuance Plan
  16




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##### Table of Contents



Common Stock Options
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Stock compensation expense  cost of net revenues
    
    $
    11,862
    
    
    $
    33,108
    
    
    $
    37,172
    
    
    $
    66,071Stock compensation expense  sales and marketing
    
    
    33,675
    
    
    
    91,982
    
    
    
    79,508
    
    
    
    178,438Stock compensation expense  research and development
    
    
    15,428
    
    
    
    53,003
    
    
    
    61,259
    
    
    
    104,245Stock compensation expense  general and administrative
    
    
    62,846
    
    
    
    248,469
    
    
    
    238,333
    
    
    
    487,551Total stock compensation expense
    
    $
    123,811
    
    
    $
    426,562
    
    
    $
    416,272
    
    
    $
    836,305
  Weighted-Weighted-
    
    
    AverageAverage
    
    
    Remaining
    
    
    AggregateNumber of
    
    
    Exercise
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Price
    
    
    Life
    
    
    ValueOptions outstanding  January 1, 2010
    
    
    6,033,188
    
    
    $
    0.77Options granted
    
    
    
    
    
    
    Options exercised
    
    
    
    
    
    
    Options forfeited
    
    
    (1,777,188
    )
    
    
    0.68Options cancelled
    
    
    
    
    
    
    Total options outstanding  June 30, 2010
    
    
    4,256,000
    
    
    $
    0.80
    
    
    
    7.64
    
    
    $
    Options exercisable  June 30, 2010
    
    
    3,630,873
    
    
    $
    0.75
    
    
    
    7.57
    
    
    $
    Options vested and expected to vest  June 30, 2010
    
    
    4,239,451
    
    
    $
    0.80
    
    
    
    7.64
    
    
    $
    Options available for grant under the Plan at June 30, 2010
    
    
    3,194,000
  Options Outstanding
    
    
    Options ExercisableWeighted AverageExercise
    
    
    Number of
    
    
    Remaining Contractual
    
    
    Weighted Average
    
    
    Number of
    
    
    Weighted AveragePrices
    
    
    Shares
    
    
    Life (in years)
    
    
    Exercise Price
    
    
    Shares
    
    
    Exercise Price$
    0.6000
    
    
    
    2,397,000
    
    
    
    7.47
    
    
    $
    0.60
    
    
    
    2,187,102
    
    
    $
    0.60$
    0.7700
    
    
    
    1,000,000
    
    
    
    7.45
    
    
    $
    0.77
    
    
    
    1,000,000
    
    
    $
    0.77$
    1.4000
    
    
    
    809,000
    
    
    
    8.37
    
    
    $
    1.40
    
    
    
    421,896
    
    
    $
    1.40$
    1.7000
    
    
    
    50,000
    
    
    
    8.18
    
    
    $
    1.70
    
    
    
    21,875
    
    
    $
    1.704,256,000
    
    
    
    7.64
    
    
    $
    0.80
    
    
    
    3,630,873
    
    
    $
    0.75
  17




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Warrants
  Weighted-
    
    
    Weighted-AverageExercise
    
    
    Contractual
    
    
    Aggregate IntrinsicNumber of Shares
    
    
    Price
    
    
    Life
    
    
    Value(In years)Warrants outstanding  January 1,
2010
    
    
    10,746,143
    
    
    $
    0.87
    
    
    
    4.89Warrants granted (See Notes 4 and 6)
    
    
    4,347,639
    
    
    $
    0.70Warrants exercised
    
    
    
    
    
    
    Warrants cancelled
    
    
    (947,639
    )
    
    $
    0.93Warrants outstanding and
exercisable-June 30, 2010
    
    
    14,146,143
    
    
    $
    0.79
    
    
    
    4.61
    
    
    $
    
 NOTE 9  COMMITMENTS AND CONTINGENCIES
 Warranties
    18




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##### Table of Contents



2010
    
    
    2009Beginning balance, January 1,
    
    $
    235,898
    
    
    $
    362,469Charged to cost of revenues
    
    
    49,134
    
    
    
    67,955Usage
    
    
    (93,666
    )
    
    
    (172,887
    )Ending balance, June 30
    
    $
    191,366
    
    
    $
    257,537
 Legal Contingency
 Preproduction Plastics, Inc. v. T3 Motion., Inc. Ki Nam and Jason Kim
  Indemnities and Guarantees
  19




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##### Table of Contents



NOTE 10  RELATED PARTY TRANSACTIONS
  Accounts Receivable
   Related Party Payables
   Notes Payable  see Note 4
 NOTE 11  SUBSEQUENT EVENTS
  
  
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
  20




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##### Table of Contents



forward-looking statements contained in this report. Readers should carefully review the risks
described in other documents we file from time to time with the Securities and Exchange Commission
(SEC), including the recently filed Annual Report on Form 10-K for the year ended December 31,
2009.
 Overview
  Critical Accounting Policies and Estimates
   Going Concern
   21




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##### Table of Contents



Cash and Cash Equivalents
  Restricted Cash
  Concentrations of Credit Risk
   Fair Value of Financial Instruments
  Revenue Recognition
    22




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##### Table of Contents



Business Segments
  For the Three Months Ended June 30,
    
    
    For the Six Months Ended June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(unaudited)
    
    
    (unaudited)Net revenues:T3 Domestic
    
    $
    1,313,011
    
    
    $
    918,217
    
    
    $
    2,379,590
    
    
    $
    1,593,246T3 International
    
    
    115,521
    
    
    
    119,713
    
    
    
    177,218
    
    
    
    649,721CT Domestic
    
    
    
    
    
    
    
    
    
    
    21,150
    
    
    
    Total net revenues
    
    $
    1,428,532
    
    
    $
    1,037,930
    
    
    $
    2,577,958
    
    
    $
    2,242,967
 Derivative Liability
     23




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Income (Loss) Per Share
   Three Months Ended June 30,
    
    
    Six Months Ended June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Numerator for basic net income (loss) attributable to common
stockholders per common share:Net income (loss)
    
    $
    (1,446,187
    )
    
    $
    1,325,294
    
    
    $
    (3,127,926
    )
    
    $
    (1,371,296
    )Deemed preferred stock dividend
    
    
    (600,309
    )
    
    
    
    
    
    
    (2,273,191
    )
    
    
    Net income (loss) applicable to common stockholders
    
    
    (2,046,496
    )
    
    
    1,325,294
    
    
    
    (5,401,117
    )
    
    
    (1,371,296
    )Effect of dilutive securities:Convertible debt -interest expense
    
    
    
    
    
    
    526,534
    
    
    
    
    
    
    
    Convertible debt -change in fair value of derivative liabilities
    
    
    
    
    
    
    (878,953
    )
    
    
    
    
    
    
    Numerator for diluted net income (loss) attributable to common
stockholders per common share:
    
    $
    (2,046,496
    )
    
    $
    972,875
    
    
    $
    (5,401,117
    )
    
    $
    (1,371,296
    )Denominator for basic income (loss) attributable to common
stockholders per common share:Weighted-average shares outstanding
    
    
    48,538,462
    
    
    
    44,563,460
    
    
    
    46,804,344
    
    
    
    44,332,547Effect of dilutive securities:Employee stock options
    
    
    
    
    
    
    1,884,433
    
    
    
    
    
    
    
    Convertible debt
    
    
    
    
    
    
    1,648,571
    
    
    
    
    
    
    
    Denominator for diluted income (loss) attributable to common
stockholders per common share:
    
    
    48,538,462
    
    
    
    48,096,464
    
    
    
    46,804,344
    
    
    
    44,332,547Net income (loss) attributable to common stockholders per share:Basic
    
    $
    (0.04
    )
    
    $
    0.03
    
    
    $
    (0.12
    )
    
    $
    (0.03
    )Diluted
    
    $
    (0.04
    )
    
    $
    0.02
    
    
    $
    (0.12
    )
    
    $
    (0.03
    )
 24




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Commitments and Contingencies
  Preproduction Plastics, Inc. v. T3 Motion., Inc. Ki Nam and Jason Kim
  25




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##### Table of Contents



Result of Operations
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net revenues
    
    $
    1,428,532
    
    
    $
    1,037,930
    
    
    $
    2,577,958
    
    
    $
    2,242,967Cost of net revenues
    
    
    1,221,824
    
    
    
    1,255,747
    
    
    
    2,349,273
    
    
    
    2,722,014Gross profit (loss)
    
    
    206,708
    
    
    
    (217,817
    )
    
    
    228,685
    
    
    
    (479,047
    )Operating expenses:Sales and marketing
    
    
    442,603
    
    
    
    450,750
    
    
    
    870,257
    
    
    
    997,154Research and development
    
    
    431,961
    
    
    
    297,413
    
    
    
    752,467
    
    
    
    598,861General and administrative
    
    
    887,571
    
    
    
    1,098,666
    
    
    
    1,916,984
    
    
    
    2,340,186Total operating expenses
    
    
    1,762,135
    
    
    
    1,846,829
    
    
    
    3,539,708
    
    
    
    3,936,201Loss from operations
    
    
    (1,555,427
    )
    
    
    (2,064,646
    )
    
    
    (3,311,023
    )
    
    
    (4,415,248
    )Other income (expense):Interest income
    
    
    324
    
    
    
    870
    
    
    
    1,227
    
    
    
    2,485Other income, net
    
    
    1,120,226
    
    
    
    4,063,128
    
    
    
    1,875,781
    
    
    
    4,228,937Interest expense
    
    
    (1,011,310
    )
    
    
    (674,058
    )
    
    
    (1,693,111
    )
    
    
    (1,186,670
    )Total other income (expense), net
    
    
    109,240
    
    
    
    3,389,940
    
    
    
    183,897
    
    
    
    3,044,752Income (loss) before provision for income tax
    
    
    (1,446,187
    )
    
    
    1,325,294
    
    
    
    (3,127,126
    )
    
    
    (1,370,496
    )Provision for income tax
    
    
    
    
    
    
    
    
    
    
    800
    
    
    
    800Net income (loss)
    
    
    (1,446,187
    )
    
    
    1,325,294
    
    
    
    (3,127,926
    )
    
    
    (1,371,296
    )Deemed dividend to preferred stockholders
    
    
    (600,309
    )
    
    
    
    
    
    
    (2,273,191
    )
    
    
    Net income (loss) attributable to common stockholders
    
    $
    (2,046,496
    )
    
    $
    1,325,294
    
    
    $
    (5,401,117
    )
    
    $
    (1,371,296
    )Other comprehensive income (loss):Foreign currency translation income (loss)
    
    
    319
    
    
    
    13,909
    
    
    
    524
    
    
    
    (6,032
    )Comprehensive income (loss)
    
    $
    (1,445,868
    )
    
    $
    1,339,203
    
    
    $
    (3,127,402
    )
    
    $
    (1,377,328
    )Net income
(loss) attributable to common stockholders per share:Basic
    
    $
    (0.04
    )
    
    $
    0.03
    
    
    $
    (0.12
    )
    
    $
    ( 0.03
    )Diluted
    
    $
    (0.04
    )
    
    $
    0.02
    
    
    $
    (0.12
    )
    
    $
    (0.03
    )Weighted average number of common shares outstandingBasic
    
    
    48,538,462
    
    
    
    44,563,460
    
    
    
    46,804,344
    
    
    
    44,322,547Diluted
    
    
    48,538,462
    
    
    
    48,096,466
    
    
    
    46,804,344
    
    
    
    44,322,547
 Net revenues.
 26




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##### Table of Contents



Cost of revenues.
 Gross profit (loss).
 Sales and marketing.
 Research and development.
 General and administrative.
 Other income (expense).
 Deemed dividend.
 Net income (loss) attributable to common shareholders.
 27




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
     Cash Flows
 For the six months ended June 30, 2010 and 2009
      28




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Off-Balance Sheet Arrangements
  Warrants
   Warrants Exercisable
    
    Exercise Price
    
    
    Expiration120,000
    
    $
    1.54
    
    
    
    3/31/2013274,774
    
    $
    2.00
    
    
    
    12/29/20141,953,730
    
    $
    0.70
    
    
    
    12/29/20143,500,000
    
    $
    0.70
    
    
    
    12/30/20144,000,000
    
    $
    0.90
    
    
    
    12/30/20141,600,000
    
    $
    0.70
    
    
    
    2/2/2015947,639
    
    $
    0.70
    
    
    
    3/31/2015710,000
    
    $
    0.70
    
    
    
    3/22/20151,040,000
    
    $
    0.70
    
    
    
    4/30/2015
  
 Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk.
  
 Item 4T.
    
    Controls and Procedures.
  29




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30




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##### Table of Contents



Remediation of Material Weaknesses
  Changes in Internal Control over Financial Reporting
  
    
    We are in the process of further enhancing, the supervisory procedures that will
include additional levels of analysis and quality control reviews within the accounting and
financial reporting functions.
    
    We are in the process of strengthening our internal policies and enhancing our
processes for ensuring consistent treatment and recording of reserve estimates and that
validation of our conclusions regarding significant accounting policies and their
application to our business transactions are carried out by personnel with an appropriate
level of accounting knowledge, experience and training.
  31




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
 Preproduction Plastics, Inc. v. T3 Motion., Inc. Ki Nam and Jason Kim
  
 Item 1A. Risk Factors
 Risks Related to Our Company and Our Industry
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  
 Item 3. Defaults Upon Senior Securities.
 None
 
 Item 5. Other Information.
  32




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Employment Agreement
         33




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##### Table of Contents



Item 6. Exhibits.
 INDEX TO EXHIBITS
 ExhibitNumber
    
    Description3.1
    
    Amended and Restated Certificate of Incorporation, as currently in effect(1)3.2
    
    Bylaws(1)3.3
    
    Amendment to Bylaws, dated January 16, 2009(2)3.4
    
    Amendment to Certificate of Incorporation(3)3.5
    
    Certificate of Designation of Preferences, Rights and Limitations of Series
A Convertible Preferred Stock(3)10.1
    
    Employment agreement by and between
the Registrant and Ki Nam dated August 13,
2010. (Portions of the exhibit has been omitted pursuant to the request for
confidential treatment)*31.1
    
    Section 302 Certificate of Chief Executive Officer*31.2
    
    Section 302 Certificate of Chief Financial Officer*32.1
    
    Section 906 Certificate of Chief Executive Officer*
 34




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##### Table of Contents



ExhibitNumber
    
    Description32.2
    
    Section 906 Certificate of Chief Financial Officer*
 
 *
    
    Filed herewith.(1)
    
    Filed with the Companys Registration Statement on Form S-1 filed on May 13, 2008.(2)
    
    Filed with the Companys Current Report on Form 8-K filed on January 20, 2009.(3)
    
    Filed with the Companys Quarterly Report on Form 10-Q for the quarter ended September 30,
2009 and filed on November 16, 2009. 
   Date: August 16, 2010
    T3 MOTION, INC.
(Registrant)By:
    /s/ Ki NamKi NamChairman of the Board and Chief Executive
OfficerDate: August 16, 2010
    T3 MOTION, INC.(Registrant)By:
    /s/ Kelly AndersonKelly AndersonExecutive Vice President and Chief
Financial Officer 35