Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. T3 Motion, Inc. (1434589) 10-Q published on Nov 19, 2013 at 4:21 pm
Reporting Period: Sep 29, 2013
On November 27, 2012, the Company entered into Securities Purchase Agreements with twelve Accredited Investors (the “Debenture Holders”), including William J. Tsumpes, who subsequently became the Company’s Director, Chief Executive Officer and interim Chief Financial Officer, as described in Form 10-K for the year ended December 31, 2012 filed on April 16, 2013. In November 2012, the Company sold 4,353,250 Debenture units (the “November 2012 Debentures”) consisting of one share of common stock, ten five year warrants with an exercise price of $0.10 per warrant and $1.00 of Senior Convertible Debt convertible at the holder’s option into shares of the Company’s common stock at a conversion price of $0.10 per share in exchange for gross cash proceeds of $2,875,000, the conversion of $1,240,750 of existing notes payable, and for $237,500 of financing fees in lieu of cash. The Company recorded a $4,353,250 debt discount on the November 27, 2012 issuance date. The Company recorded an additional debt discount of $500,000 for the March 2013 and June 2013 tranches described below. On August 13, 2013 the Company obtained signed extensions from holders of $4,273,250 of the $4,396,750 of senior convertible debentures outstanding at August 13, 2013 which were issued in 2012 and 2013. The extensions provide for an extension of the due date from November 27, 2013 until November 26, 2014. All other terms of the senior convertible debentures remain unchanged and the conversion price remains at $0.10 per share. One holder of $123,500 in principal had declared the debentures in default and provided notice of such default to the Company. The Company disputed that a default existed based upon its contention that it had received the required consent of the requisite number of senior convertible debentures to ensure that no default thereunder had occurred. In a private transaction on September 17, 2013, the holder of the $123,500 in principal that declared the debentures in default sold their debenture to one of the other Debenture Holders who agreed to the extension of the debentures. Due to the sale of the note to another Debenture Holder, the declared default has been cured since the Debenture Holder who purchased the debenture in a private transaction agreed to the extension of the term of the debenture. The Company recorded amortization of $717,600 and $2,924,883 related to the debt discount on interest expense in the accompanying statements of operations for the three and nine months ended September 30, 2013 and will amortize the remaining $1,236,267 to interest expense ratably through the revised maturity date of November 26, 2014.
On August 13, 2013, the Company obtained signed extensions from holders of $4,273,250 of the $4,396,750 of senior convertible debentures outstanding at August 13, 2013 which were issued in 2012 and 2013. The extensions provide for an extension of the due date from November 27, 2013 until November 26, 2014. All other terms of the senior convertible debentures remain unchanged and the conversion price remains at $0.10 per share. The Company did not record any additional debt discount as a result of the modification. Since the modification only impacts the extension of the conversion feature of the Convertible Debentures, and the Company currently accounts for this conversion feature as a derivative liability, any fair value change will be incorporated in the quarterly adjustment to the fair value of the conversion feature of the Convertible Debentures. The remaining $123,500 of senior convertible debentures outstanding at August 13, 2013, was sold by Hudson Bay in a private transaction to an existing Debenture Holder in September 2013. The maturity date of this debenture was extended to November 26, 2014 upon the completion of the private transaction.
The Company’s new management made significant operational changes to reduce cost of sales per unit sold, improve margins on accessories, and improve efficiency on service costs of revenues and thereby improve gross margin beginning in March 2013. These efforts began to be reflected in the financial results in the June 2013 quarter and can be seen in the results for the nine months ended September 30, 2013. For the nine month period, gross profit increased $160,448 to $747,227 or 22.7% of revenues for the nine months ended September 30, 2013 compared to gross profit of $586,779 or 15.7% of net revenues for the same period of 2012. For the three month period, the gross margin percentage in 2013 was negatively impacted by low unit shipments and a resultant much higher average cost per unit for production labor and overhead charges. The Company expects this higher cost per unit to be reduced in future quarters as unit shipments increase and as cost savings on raw materials and lower cost outsourced labor phase in.
To a lesser extent, decreases in the expected volatility or in the remaining life of the derivative liability would decrease the value of the derivative liability and result in other income and increases in those variables would result in an increase in the value of the derivative liability and result in other (expense) recorded on the statement of operations. The Company does not expect any change to the dividend yield and does not expect changes in the risk-free interest rate to have a material impact on the value of any derivative liabilities. Although the Company does not expect to decrease the exercise price of the warrants or the conversion price of the convertible debentures, if the Company were to be required to make a change to the exercise price of the warrants or the conversion price of the convertible debentures, the Company would expect this to result in a material change to the value of the derivative liabilities.
Until August 2013, our common stock was listed on NYSE MKT (the “Exchange”). On June 1, 2012 we received a letter from the Exchange’s Corporate Compliance department that the Company was under review for non-compliance with one of the Exchange’s continuing listing requirements, namely Section 1003 (a)(iv) of the NYSE Company Guide indicating that the Company had sustained losses which were substantial in relation to its overall operations or existing financial resources or its financial condition has become so impaired that it appears questionable, in the opinion of the Exchange, as to whether the Company will be able to continue operations and/or meet its obligations as they mature. In order to maintain its listing the Company was required to submit a plan by July 2, 2012 addressing how it intends to regain compliance with Section 1003(a)(iv) by November 20, 2012. The Company’s plan was approved in August 2012 but on October 26, 2012, the Company received a notice that it had failed to make adequate progress on the plan from NYSE MKT and that delisting proceedings would begin unless the Company appealed the notice. On November 1, 2012, the Company appealed the delisting proceedings and began the delisting hearing process. In March 2013, the NYSE MKT conducted a hearing and allowed the company to remain listed on NYSE MKT until May 15, 2013 at which time the NYSE MKT staff will review the Company’s progress on the Company’s financial projections. On July 8, 2013, the Company received a letter from the NYSE MKT stating that the Panel was denying the Company’s appeal and affirming the decision of the NYSE MKT staff to delist the Company from the NYSE MKT because of the Company’s financial impairment. As a result, the Company was delisted from NYSE MKT and is currently trading on the OTC.BB. On July 23, 2013, the Company filed notice with NYSE MKT staff requesting an appeal of the July 8, 2013 decision of the NYSE MKT’s Listing Qualifications Panel (“Panel”). The Panel conducted a hearing on September 17, 2013 to review the delisting of the Company and voted to deny the Company’s appeal.