10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2013

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 001-35133

T3 MOTION, INC.

(Exact name of registrant as specified in its charter)

Delaware	20-4987549
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
2990 Airway Avenue, Bldg A Costa Mesa, California	92626
(Address of principal executive offices)	(Zip Code)

(714) 619-3600

(Registrant’s telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES  x    NO  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES  x    NO  ¨

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):

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	o(Do not check if a smaller reporting company)	Smaller reporting company	x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  ¨    NO  x

As of November 15, 2013, the number of shares outstanding of the registrant’s common stock, par value $0.001 per share, was 22,100,777.

T3 MOTION, INC.

INDEX TO FORM 10-Q

September 30, 2013

	Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements	3
Condensed Consolidated Balance Sheets as of September 30, 2013 (unaudited) and December 31, 2012	3
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2013 and 2012 (unaudited)	4
Condensed Consolidated Statement of Stockholders’ Deficit for the nine months ended September 30, 2013 (unaudited)	5
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2013 and 2012 (unaudited)	6
Notes to the Condensed Consolidated Financial Statements (unaudited)	8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3. Quantitative and Qualitative Disclosures About Market Risk	31
Item 4. Controls and Procedures	31
PART II. OTHER INFORMATION	32
Item 1. Legal Proceedings	32
Item 1A. Risk Factors	32
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 3. Defaults upon Senior Securities	35
Item 4. Mine Safety Disclosures	35
Item 5. Other Information	35
Item 6. Exhibits	35
Signatures	37

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

T3 MOTION, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30, 2013			December 31, 2012
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	35,228		$	1,293,136
Restricted cash		—			10,000
Accounts receivable, net		823,942			538,314
Inventories		1,218,878			1,159,441
Prepaid expenses and other current assets		398,572			679,235
Total current assets		2,476,620			3,680,126
Property and equipment, net		28,973			74,631
Total assets	$	2,505,593		$	3,754,757
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	1,161,164		$	1,162,917
Accrued expenses		429,765			713,646
Derivative liabilities		4,693,052			16,735,869
Secured line of credit		750,000			—
Current portion of notes payable, related parties		130,000			1,000,000
Current portion of senior convertible debentures, net of discount		—			405,508
Total current liabilities		7,163,981			20,017,940
Notes payable, related parties, net of current portion		1,000,000			—
Senior convertible debentures, net of discount and current portion		3,160,483			—
Total liabilities		11,324,464			20,017,940
Commitments and contingencies
Stockholders’ deficit:
Series A convertible preferred stock, $0.001 par value; 20,000,000 shares authorized; none outstanding at September 30, 2013 and December 31, 2012		—			—
Common stock, $0.001 par value; 150,000,000 shares authorized; 22,100,777 and 15,296,777 shares issued and outstanding at September 30, 2013 and December 31, 2012, respectively		22,102			15,297
Common stock subscribed but unissued		20,000			647,625
Additional paid-in capital		61,166,737			59,484,297
Accumulated deficit		(70,032,079	)		(76,414,771	)
Accumulated other comprehensive income		4,369			4,369
Total stockholders’ deficit		(8,818,871	)		(16,263,183	)
Total liabilities and stockholders’ deficit	$	2,505,593		$	3,754,757

See accompanying notes to condensed consolidated financial statements

3

T3 MOTION, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013		2012
Net revenues	$	726,148		$	884,924		$	3,285,733	$	3,746,243
Cost of net revenues		607,740			678,617			2,538,506		3,159,464
Gross profit		118,408			206,307			747,227		586,779
Operating Expenses:
Sales and marketing		132,291			472,890			603,249		1,453,056
Research and development		124,401			179,694			585,485		645,498
General and administrative		482,903			864,696			1,911,555		2,730,220
Total operating expenses		739,595			1,517,280			3,100,289		4,828,774
Loss from operations		(621,187)			(1,310,973	)		(2,353,062)		(4,241,995)
Other income (expense):
Interest income		—			7			5		817
Other income (expense), net		(2,831,709	)		(351,565	)		13,090,282		(396,717	)
Interest expense		(842,434	)		(226,007	)		(4,352,614)		(346,228	)
Total other income (expense), net		(3,674,143	)		(577,565	)		8,737,673		(742,128)
Income (loss) before provision for income tax		(4,295,330	)		(1,888,538)			6,384,611		(4,984,123	)
Provision for income tax		—			—			1,919		3,150
Net income (loss)	$	(4,295,330	)	$	(1,888,538)		$	6,382,692	$	(4,987,273	)
Weighted average number of common shares outstanding:
Basic and diluted		22,073,603			12,906,027			18,177,048		12,890,368
Net income (loss) per share:
Basic and diluted	$	(0.19	)	$	(0.15)		$	0.35	$	(0.39)

See accompanying notes to condensed consolidated financial statements

4

T3 MOTION, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT FOR THE NINE

MONTHS ENDED SEPTEMBER 30, 2013 (UNAUDITED)

	Preferred Shares		Preferred Stock Amount		Common Shares		Common Stock Amount		Common Shares Subscribed but Unissued		Common Shares Subscribed but Unissued Amount		Additional Paid-in Capital		Accumulated Deficit			Accumulated Other Comprehensive Income		Total Stockholders’ Deficit
BALANCE — December 31, 2012		—	$	—		15,296,777	$	15,297		1,962,500	$	647,625	$	59,484,297	$	(76,414,771	)	$	4,369	$	(16,263,183	)
Exercise of warrants		—		—		26,500		27		—		—		2,623		—			—		2,650
Common stock issued for conversion of senior convertible debentures		—		—		4,565,000		4,565		—		—		451,935		—			—		456,500
Common stock issued in connection with senior convertible debentures		—		—		2,212,500		2,213		(2,212,500)		(705,125)		702,912		—			—		—
Common stock subscribed in connection with senior convertible debentures		—		—		—		—		500,000		77,500		—		—			—		77,500
Reclassification of derivative liabilities to additional paid-in capital upon conversion of senior convertible debentures		—		—		—		—		—		—		136,072		—			—		136,072
Share-based compensation expense		—		—		—		—		—		—		388,898		—			—		388,898
Net income		—		—		—		—		—		—		—		6,382,692			—		6,382,692
BALANCE — September 30, 2013		—	$	—		22,100,777	$	22,102		250,000	$	20,000	$	61,166,737	$	(70,032,079	)	$	4,369	$	(8,818,871	)

See accompanying notes to condensed consolidated financial statements

5

T3 MOTION, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Nine Months Ended September 30,
	2013			2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	6,382,692		$	(4,987,273	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization		45,658			148,782
Warranty expense		51,874			73,118
Bad debt expense		3,228			—
Share-based compensation expense		388,898			548,033
Change in fair value of derivative liabilities		(13,066,130	)		(126,530	)
Amortization of debt discounts and deferred financing fees		3,489,752			226,077
Estimated fair value of derivative liabilities in excess of face value of the senior convertible debentures, net of imputed interest		736,885			—
Incremental cost related to modification of warrants		—			498,686
Change in operating assets and liabilities:
Restricted cash		10,000			—
Accounts receivable		(288,856	)		(22,431	)
Inventories		(59,437	)		15,368
Prepaid expenses and other current assets		17,386			(8,222	)
Accounts payable and accrued expenses		(337,508	)		820,633
Net cash used in operating activities		(2,625,558	)		(2,813,759	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings on related party bridge loan		150,000			—
Repayments of related party bridge loan		(20,000	)		—
Proceeds from notes payable		—			735,000
Payment of financing fees		—			(4,013	)
Net borrowings on secured line of credit		735,000			—
Proceeds from senior convertible debentures		500,000			—
Proceeds from exercise of common stock warrants		2,650			—
Net cash provided by financing activities		1,367,650			730,987
NET DECREASE IN CASH AND CASH EQUIVALENTS		(1,257,908	)		(2,082,772	)
CASH AND CASH EQUIVALENTS — beginning of period		1,293,136			2,184,939
CASH AND CASH EQUIVALENTS — end of period	$	35,228		$	102,167

See accompanying notes to condensed consolidated financial statements

6

T3 MOTION, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) —Continued

	Nine Months Ended September 30,
	2013		2012
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	109,315	$	101,997
Income taxes	$	1,919	$	3,150
Supplemental disclosure of non cash investing and financing activities:
Deferred financing fees deducted from proceeds of borrowings on secured line of credit	$	15,000	$	—
Accrued financing fees payable in common stock	$	—	$	26,250
Deferred financing fees included in prepaid expenses	$	—	$	15,000
Common stock subscribed but unissued in connection with senior convertible debenture offering recorded as a debt discount	$	20,000	$	—
Debt discount and derivative liabilities related to embedded conversion feature and warrants recorded upon issuance of debt and warrants	$	—	$	386,585
Common stock issued in connection with senior convertible debenture offering recorded as a debt discount	$	57,500	$	—
Debt discount related to estimated fair value of warrants and conversion features issued in connection with senior convertible debentures	$	372,500	$	—
Issuance of common stock upon conversion of senior convertible debentures	$	456,500	$	—
Reclassification of conversion feature derivative liabilities upon conversion of senior convertible debentures	$	136,072	$	—

See accompanying notes to condensed consolidated financial statements

7

T3 MOTION, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1 — DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

T3 Motion, Inc. was incorporated on March 16, 2006, under the laws of the state of Delaware. T3 Motion, Inc. and its wholly-owned subsidiaries, R3 Motion, Inc. and T3 Motion, Ltd. (U.K.) (collectively, the “Company”, “we”, “us”, or “our”), develop and manufacture personal mobility vehicles powered by electric motors. The Company’s initial product, the T3 Series, is an electric, three-wheel stand-up vehicle (“ESV”) that is targeted to the law enforcement and private security markets. Substantially all of the Company’s revenues to date have been derived from sales of the T3 Series ESVs and related accessories and service.

Interim Unaudited Condensed Consolidated Financial Statements

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the Securities and Exchange Commission (the “SEC”) regulations for interim financial information. The principles for condensed interim financial information do not require the inclusion of all of the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. Therefore, these financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2012. The condensed consolidated financial statements included herein are unaudited; however, in the opinion of management, they contain all normal recurring adjustments necessary for a fair presentation of the consolidated results for the interim periods. The results of operations for the nine months ended September 30, 2013 are not necessarily indicative of the results that may be expected in any other period or for the entire fiscal year.

The Company has evaluated subsequent events through the filing date of this quarterly report on Form 10-Q, and determined that no subsequent events have occurred that would require recognition in the condensed consolidated financial statements or disclosure in the notes hereto other than as disclosed in the accompanying notes.

Certain amounts in the accompanying condensed consolidated financial statements have been reclassified to conform to the current period presentation.

Going Concern

The Company’s condensed consolidated financial statements have been prepared using the accrual method of accounting in accordance with 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 September 30, 2013, the Company had cash and cash equivalents of $35,228, an accumulated deficit of $(70,032,079) and used cash in operations of $(2,625,558) for the nine months ended September 30, 2013. These factors raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time. These condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

We expect to continue to incur substantial additional operating losses from costs related to the continuation of product and technology development and administrative activities. We believe that our cash on hand at September 30, 2013 of approximately $35,000, collections from the sale of our products, the savings from of our cost reduction strategy for material, production and service costs, and the proceeds from recent debt issuances, and borrowing availability on our line of credit are sufficient to sustain our planned operations into the fourth quarter of 2013; however, we cannot assure you of this and we may require additional debt or equity financing in the future to maintain operations.

In 2012, the Company implemented several strategies designed to reduce the costs of conducting its business. In addition, the Company intends to pursue raising additional debt or equity financing to fund its operating plans. The Company cannot make any assurances that management’s cost reduction strategies will be effective or that any additional financing will be completed on a timely basis, on acceptable terms or at all. If the Company is unable to complete a debt or equity offering on acceptable terms, or otherwise obtain sufficient financing when and if needed, it may be required to reduce, defer or discontinue one or all of its product development programs. Management’s inability to successfully implement its cost reduction strategies or to complete any other financing will adversely impact the Company’s ability to continue as a going concern.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of T3 Motion, Inc. and its wholly owned subsidiaries, R3 Motion, Inc. and T3 Motion, Ltd. (U.K.). All significant inter-company accounts and transactions are eliminated in consolidation.

8

Use of Estimates

The preparation of condensed 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 condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include, but are not limited to: collectability of receivables, recoverability of long-lived assets, realizability of inventories, warranty accruals, valuation of share-based transactions, valuation of derivative liabilities and valuation of deferred tax assets. We base our 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.

Concentrations of Credit Risk

Cash and Cash Equivalents

The Company maintains its cash accounts at financial institutions for which the Federal Deposit Insurance Corporation (“FDIC”) provides basic deposit coverage with limits up to $250,000 per owner. From time to time, balances in our cash accounts may 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 September 30, 2013, the Company had no 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 previous credit card processing agreement with a financial institution, the Company was required to maintain a security deposit as collateral. The amount of the deposit as of September 30, 2013 and December 31, 2012 was $0 and $10,000, respectively.

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 management’s 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. As of September 30, 2013 and December 31, 2012, the Company had an allowance for doubtful accounts of $50,310 and $111,800, respectively. Although the Company expects to collect amounts due, actual collections may differ from the estimated amounts.

As of September 30, 2013, two customers accounted for approximately 21% of total accounts receivable and as of December 31, 2012, two customers accounted for approximately 31% of total accounts receivable. One customer accounted for approximately 11% and no single customer accounted for more than 10% of net revenues for the three and nine months ended September 30, 2013 respectively.  One customer accounted for approximately 10% and no single customer accounted for more than 10% of net revenues for the three and nine months ended September 30, 2012 respectively.

Accounts Payable

As of September 30, 2013 and December 31, 2012, no vendor accounted for more than 10% of total accounts payable. Three vendors accounted for approximately 40% and no vendors accounted for more than 10% of inventory purchases for the three months ended September 30, 2013 and 2012, respectively.  Two vendors accounted for approximately 25% and no single vendor accounted for more than 10% of inventory purchases for the nine months ended September 30, 2013 and 2012, 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.

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued expenses, senior convertible debentures, related party notes payable, a secured line of credit and derivative liabilities. The carrying value for all such instruments except the 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 our related party notes payable due to the related party nature and instruments similar to the notes payable could not be found. The Company’s derivative liabilities are recorded at fair value (see Note 8).

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 Company’s 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. The Company’s cash equivalents consist of short-term investments in money market funds which are carried at fair value, and are classified as Level 1 assets.

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.

If the inputs used to measure fair value fall in different levels of the fair value hierarchy, a financial security’s hierarchy level is based upon the lowest level of input that is significant to the fair value measurement.

The Company’s derivative liabilities consist of price protection features for embedded conversion features on debt and warrants which are carried at fair value, and are classified as Level 3 liabilities. The Company uses the Black-Scholes-Merton option pricing model to determine the fair value of these instruments (see Note 8).

Beneficial Conversion Features, Detachable Warrants and Debt Discounts

The Company has issued convertible debentures with detachable warrants and common shares as incentives to induce investors to purchase low or non-interest bearing debt securities.

Convertible Features: The embedded conversion features of convertible debentures not considered to be derivative instruments 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 embedded conversion features of convertible debentures that are classified as derivative liabilities are recorded at fair value as a discount from the face amount of the respective debt instrument.

Warrants: The detachable warrants issued with the convertible debentures were classified as derivative liabilities and recorded at fair value as a discount from the face amount of the respective debt instrument.

Common Stock incentive: The fair value of the common stock issued, valued as of the date of issuance, was recorded as a discount from the face amount of the respective debt instrument.

Imputed interest: For debt instruments issued with below market or no interest component, the Company imputes a market rate of interest over the term of the debt instrument and records the imputed interest as a discount from the face amount of the respective debt instrument.

The Company issued debt instruments where the calculated discount exceeded the face amount of the respective debt instruments. The Company reduced the calculated discount to the face amount of the debt instruments issued and recorded interest expense for the difference of fair value over the face amount of the debt. The expense was recorded to interest expense for debt issued for cash and to loss on debt extinguishment for debt issued in exchange for previously held debt.

The Company amortizes the discounts using the straight-line method which approximates 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, title to product has passed or services provided, the sales price is fixed or determinable and collectability of any resulting receivable is reasonably assured.

For all revenues, the Company uses a binding purchase order or equivalent contract document 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. The Company assesses whether the sales price is fixed or determinable based on the payment terms associated with the transaction and whether the sales price is subject to refund. The Company offers a standard product warranty to its customers for defects in materials and workmanship for a period of one year or 2,500 miles, whichever comes first (see Note 10) with an optional purchased extended warranty. The Company typically has no other post-shipment obligations. The Company assesses collectability based on the creditworthiness of the customer as determined by evaluations and the customer’s payment history.

10

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.

The Company does not enter into contracts that require fixed pricing beyond the term of the purchase order. All sales via reseller agreements are accompanied by a purchase order.

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 in exchange for exclusive rights to those geographic regions. Under the terms of the agreements, the distributor takes ownership of the vehicles upon delivery and the Company deems the items sold at delivery to the distributor. The Company does not allow returns of unsold items for either direct sales or products sold through resellers or distributors.

Share-Based Compensation

The Company maintains a stock option plan (see Note 9) and records expenses attributable to the stock option plan. The Company values each option award using the Black-Scholes-Merton option pricing model and amortizes the related expense generally on a straight-line basis over the requisite service (vesting) period for the entire award.

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 consultant or vendor’s performance is complete. In the case of equity instruments issued to consultants, the expense for 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 grantor’s 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 a prepaid expense in its condensed consolidated balance sheets.

Income Taxes

We account for income taxes under the provisions of the accounting standards. Under the accounting standards, deferred tax assets and liabilities are recognized for the expected 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.

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. We recognize any uncertain income tax positions on income tax returns at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. As of September 30, 2013 and December 31, 2012, there were no unrecognized tax benefits included in the condensed consolidated balance sheets that would, if recognized, affect the effective tax rate. Our policy is to recognize interest and/or penalties related to income tax matters in income tax expense. We had no accrual for interest or penalties on our condensed consolidated balance sheets at September 30, 2013 and December 31, 2012 and have not recognized interest and/or penalties in the condensed consolidated statements of operations for the three and nine months ended September 30, 2013 and 2012.

We are subject to taxation in the U.S. and various state and foreign jurisdictions. Our tax years for 2008 through 2012 are subject to examination by the taxing authorities. With few exceptions, we are no longer subject to U.S., state, local, and foreign examination by taxing authorities for tax years ending before 2008.

We do not foresee material changes to our gross uncertain income tax position liability within the next twelve months.

Net Income (Loss) Per Share

Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares assumed to be outstanding during the period of computation. Diluted net income (loss) per share is computed similar to basic net income (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 to purchase approximately 101.1 million and 14.1 million shares of common stock were outstanding at September 30, 2013 and 2012, respectively, but were excluded from the computation of diluted net income (loss) per share.

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The Company’s basic net income (loss) per share (“EPS”) amounts have been computed based on the weighted-average number of shares of common stock outstanding for the period. Diluted EPS reflects the potential dilution, using the treasury stock method and as-if-converted method for convertible debt, which could occur if all potentially dilutive securities were exercised. As the Company had a net loss for the three months ended September 30, 2013 and for the three and nine months ended September 30, 2012, no potentially dilutive securities were included in the calculation of diluted net income (loss) per share as their impact would have been anti-dilutive. In addition, although the Company had net income in the nine month period ended September 30, 2013, there are no common stock equivalents to be included as dilutive securities as any such common stock equivalents would be considered anti-dilutive due to the fact the Company would have to reduce net income by gains of $13,040,613 for the nine months ended September 30, 2013 related to the derivative liability associated with the senior convertible debentures and warrants which would result in a net loss rather than net income, resulting in the common stock equivalents being anti-dilutive.

The following presents the basic and diluted net income (loss) per share for the three and nine months ended September 30, 2013 and 2012:

	Three Months Ended September 30,							Nine Months Ended September 30,
	2013				2012			2013		2012
	(unaudited)							(unaudited)
Net income (loss)		$	(4,295,330	)	$	(1,888,538	)	$	6,382,692	$	(4,987,273	)
Weighted average number of common shares outstanding:
Basic and diluted			22,073,603			12,906,027			18,177,048		12,890,368
Net income (loss) per share:
Basic and diluted		$	(0.19	)	$	(0.15	)	$	0.35	$	(0.39	)

Business Segments

The Company has one reportable business segment due to the fact that the Company derives its revenue primarily from one product. The revenue from domestic sales and international sales are shown below:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
	(unaudited)						(unaudited)
T3 Series domestic		$	568,215		$	882,481		$	2,520,616		$	3,014,932
T3 Series international			157,933			2,443			765,117			731,311
Total		$	726,148		$	884,924		$	3,285,733		$	3,746,243

NOTE 2 — INVENTORIES

Inventories consist of the following:

	September 30, 2013		December 31, 2012
	(unaudited)
Raw materials	$	1,055,975	$	869,099
Work-in-process		80,908		256,161
Finished goods		81,995		34,181
	$	1,218,878	$	1,159,441

NOTE 3 — PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consist of the following:

	September 30, 2013		December 31, 2012
	(unaudited)
Prepaid inventory	$	171,918	$	184,117
Deferred financing costs		99,407		362,684
Prepaid expenses and other current assets		127,247		132,434
	$	398,572	$	679,235

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NOTE 4— ACCRUED EXPENSES

Accrued expenses consist of the following:

	September 30, 2013		December 31, 2012
	(unaudited)
Accrued compensation	$	53,734	$	217,838
Deferred revenues and customer deposits		199,112		274,519
Accrued warranty reserve		45,713		104,106
Other accrued expenses		131,206		117,183
	$	429,765	$	713,646

NOTE 5 — RELATED PARTY NOTES PAYABLE

Related party notes payable consists of the following:

	September 30, 2013			December 31, 2012
	(unaudited)
Note payable to Alfonso and Mercy Cordero, 10% interest, due December 31, 2014.	$	1,000,000		$	1,000,000
Working capital loan payable to William Tsumpes, Chief Executive Officer	130,000			—
		1,130,000			1,000,000
Less current portion		(130,000	)		(1,000,000	)
	$	1,000,000		$	—

Alfonso Cordero and Mercy Cordero Note

On January 14, 2011, the Company issued a 10% unsecured promissory note (the “Note”) to Alfonso G. Cordero and Mercy B. Cordero, Trustees of the Cordero Charitable Remainder Trust (the “Noteholder”) for amounts previously loaned to the Company in October 2010 in the principal amount of $1,000,000. At the date of issuance, Mr. Cordero controlled more than 5% of the Company’s then outstanding common stock. The Note was dated effective as of September 30, 2010. Monthly interest payments of $8,333 are due on the first day of each calendar month until the maturity date of December 31, 2014. The Company recorded interest expense of $25,000 and $75,000 for each of the three and nine month periods ended September 30, 2013 and 2012, respectively, and had accrued interest of $25,000 and $8,333 as of September 30, 2013 and December 31, 2012 respectively.

The Company may prepay the Note in full, but not in part, and is precluded from doing so under the terms of the Senior Convertible Debentures so long as any principal of the Senior Convertible Debentures is outstanding, without approval from the debenture holders. The Company would 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 and the applicable default interest rate increases to the lesser of 15% or the maximum rate allowed by law. Although the Company was not current on the required monthly interest payments as of September 30, 2013, as of the date of this filing, the Company has paid the accrued interest outstanding as of September 30, 2013. The Noteholder has not provided the Company with a notice of default under the Note agreement for the delinquent payments of monthly accrued interest. Therefore, the Company is in compliance with all terms of the Note as of the date of this filing.On August 8, 2013, the Company and the Noteholder agreed to extend the maturity date of the Note to December 31, 2014.

Tsumpes working capital loan

During the nine months ended September 30, 2013, the Company borrowed $150,000 on an unsecured non-interest bearing working capital loan from William Tsumpes, the Company’s Chief Executive Officer.  The Company may prepay the loan in full but is precluded from doing so under the terms of the Senior Convertible Debentures so long as any principal of the Senior Convertible Debentures is outstanding, without approval from the debenture holders. During the nine months ended September 30, 2013, the Company repaid $20,000 of the working capital loan.  The loan has no default provisions and there is no stated term for the loan.  The loan was used to provide additional working capital and is to be repaid in full upon the successful recapitalization of the Company.

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NOTE 6 — SECURED LINE OF CREDIT

On March 21, 2013, the Company entered into a loan and security agreement (the “Revolver Loan”) with Alpha Capital Anstalt and Brio Capital Master Fund, Ltd. (the “Lenders”). Pursuant to the terms and subject to the conditions set forth in the loan agreement, the Lenders provided a senior secured line of credit to the Company of up to $750,000 with a one year term and which was increased to $1,000,000 on October 26, 2013 (see Note 12). The Revolver Loan is subject to borrowing base criteria and limitations and is not to exceed the combination of 80% of eligible customer receivables, 65% of eligible finished goods inventory, and 50% of eligible raw materials inventory. The Revolver Loan has a 1% annual fee, or $7,500, paid in advance, a monthly administration fee of the lesser of 0.5% of the balance outstanding or $2,500, and bears interest at 7.25% per annum on the outstanding balance. Interest is payable monthly in arrears with minimum interest of $1,500 per month. On March 24, 2013, the Company made an initial draw of $187,500 and received cash proceeds of $172,500; net of $15,000 of initial financing costs and fees. The Company made additional cash draws, net of repayments, of $562,500 during the nine months ended September 30, 2013.  This Revolver Loan is secured by all assets of the Company and is due on March 21, 2014. The Company may prepay the Revolver Loan at any time until the maturity date by paying all accrued interest and fees, principal, and a cash payment of 1% of the maximum amount, or $7,500 as a prepayment fee.

The Company recorded the initial financing costs and fees of $15,000 as deferred financing fees and is amortizing the deferred financing fees to interest expense over the term of the Revolver Loan. For the three and nine months ended September 30, 2013, the Company recorded amortization of $3,750 and $7,911 respectively, related to the deferred financing fees to interest expense, and recorded $16,713 and $50,981 in interest expense and fees for the three and nine months ended September 30, 2013, respectively.

NOTE 7 — SENIOR CONVERTIBLE DEBENTURES

Senior convertible debentures consist of:

	September 30, 2013			December 31, 2012
	(unaudited)
Senior Convertible Debentures, no stated interest, due November 26, 2014	$	4,396,750		$	4,353,250
Discount on Senior Convertible Debentures		(1,236,267	)		(3,947,742	)
		3,160,483			405,508
Less current portion		—			(405,508	)
Senior Convertible Debentures	$	3,160,483		$	0

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.

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Deferred Financing Fees

The Company incurred financing fees on the November 2012 Debentures of $399,939. No additional financing fees were incurred for the March 2013 or June 2013 tranches described below. For the three and nine months ended September 30, 2013, the Company amortized $54,991 and $244,383 respectively, of the November 2012 Debenture financing fees to interest expense in the accompanying consolidated statements of operations and will amortize the remaining $93,993 to interest expense through the revised maturity date of November 26, 2014.

Waiver on Debt Covenants and Provisions

On March 4, 2013, the Company received a waiver from the existing Debenture Holders which allowed for the Company to sell up to $646,750 of additional Senior Convertible Debt in one or more tranches. On March 4, 2013, the Company issued $250,000 of additional Senior Convertible Debentures and on June 5, 2013 the Company issued $250,000 of additional Senior Convertible Debentures as described below. The Company may issue up to $146,750 of additional Senior Convertible Debt without additional approval.

On March 4, 2013, the Company received a waiver from the existing Debenture Holders which allowed for the Company to enter into the secured revolving line of credit. See Note 6.

On August 5, 2013, Hudson Bay Capital Master Fund (“Hudson Bay” or the “Investor”), sent the Company a notice of default stating that the Company violated the terms of their November 2012 Debentures totaling $123,500 which provides that the Company may not amend the November 2012 Debenture without prior written consent of the Investor unless the November 2012 Debenture specifically states otherwise. The notice of default letter was in relation to the Company entering into the secured revolving line of credit. As described in Section 9(k) of the November 2012 Debentures, the November 2012 Debentures are secured by all assets of the Company and its subsidiaries and the Company is not permitted under the terms of the November 2012 Debentures to require any holder of the November 2012 Debentures to subordinate his or her November 2012 Debentures without the express written consent of such holder of November 2012 Debentures.

The Company strongly disagreed with the basis for the notice, disputed that it was in default under the November 2012 Debenture, and contended that it operated within the terms of said agreements by first obtaining the written waiver and approval of the majority of more than 51% of the November 2012 Debenture holders to enter in to the secured revolving line of credit, which was what the November 2012 Debentures expressly required.  Due to Hudson Bay entering into a private transaction with another Debenture Holder which resulted in the sale of the debenture from Hudson Bay to an existing Debenture Holder, the notice of default has been cured, (see below).

Modification of Convertible Debt

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.

March 2013 and June 2013 Senior Convertible Debentures

On March 4, 2013, the Company entered into Securities Purchase Agreements (“March 2013 Debentures”) with two accredited investors (the “March 2013 Debenture Holders”). In connection with the March 2013 Debentures, the Company and the March 2013 Debenture Holders also entered into identical agreements as the November 2012 Debentures including a Secured Convertible Debenture Agreement (the “2013 Debentures”), a Warrant Agreement (“March 2013 Warrant”), and a Security Agreement. Under these agreements, the March 2013 Debenture Holders provided an additional senior secured convertible loan to the Company in the aggregate principal amount of $250,000 due November 27, 2013 and received 250,000 Debenture Units.

On June 5, 2013, the Company entered into Securities Purchase Agreements (“June 2013 Debentures”) with two accredited investors (the “June 2013 Debenture Holders”). In connection with the June 2013 Debentures, the Company and the June 2013 Debenture Holders also entered into identical agreements as the November 2012 Debentures including a Secured Convertible Debenture Agreement (the “2013 Debentures”), a Warrant Agreement (“June 2013 Warrant”), and a Security Agreement. Under these agreements, the June 2013 Debenture Holders provided an additional senior secured convertible loan to the Company in the aggregate principal amount of $250,000 due November 27, 2013 and received 250,000 Debenture Units.

Each Debenture Unit consists of: i) one share of unregistered Common Stock of the Company, ii) one Senior Convertible Debenture convertible into Common Stock of the Company at an initial conversion price of $0.10 per share, and iii) ten warrants with a 5 year life, expiring March 4, 2018 and June 5, 2018, each exercisable into one share of Common Stock of the Company at an initial exercise price of $0.10 per share. During the nine months ended September 30, 2013, the Company received gross cash proceeds of $500,000 including $250,000 on March 4, 2013 and $250,000 on the June 5, 2013 closing dates. No additional costs or fees were incurred for the March 2013 or June 2013 Debentures. The initial conversion price of the 2013 Debentures and the exercise prices of the March 2013 and June 2013 Warrants are subject to “full-ratchet” antidilution provisions which would require a reset of the exercise price and conversion price if the Company issues additional equity securities below the then effective exercise or conversion price for the March 2013 Warrants, June 2013 Warrants or 2013 Debentures. The Company is accounting for the anti-dilution features included in the 2013 Debentures, the June 2013 Warrants and the March 2013 Warrants as derivative liabilities (see Note 8).

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The March 2013 and June 2013 Debenture Holders also received the right, but not the obligation, to participate in a future financing of the Company at identical terms in equal amounts to their participation in the March 2013 and June 2013 Debentures participation levels. Pursuant to the terms of the Security Agreements, the 2013 Debentures are secured by all assets of the Company. On August 13, 2013, the maturity date of the March 2013 Debentures and June 2013 Debentures was extended to November 26, 2014.

Common Stock Issued and Issuable

At the date of the closing of the November 2012 Debenture offering and the March 2013 Debenture offering, the Company was limited by the regulations of the Securities and Exchange Commission to the issuance of no more than 19.99% of the then issued and outstanding common shares without shareholder approval. In November 2012, the Company received irrevocable voting proxies from shareholders representing 58% of the issued and outstanding shares, and a Definitive Information Statement noticing all shareholders of the actions taken was filed with the Securities and Exchange Commission on May 15, 2013.   On June 6, 2013, the Company issued all common stock remaining issuable as of December 31, 2012 and the common stock issuable on March 31, 2013 for the March 2013 Debentures.  The Company had not issued the common stock issuable for the June 5, 2013 Debentures as of September 30, 2013.  As of September 30, 2013, the Company has recorded Common Stock Subscribed but Unissued of $20,000 for 250,000 shares issuable for the June 5, 2013 Debentures.  The common stock issued on June 6, 2013 for the March 2013 Debentures and the common stock issuable is restricted for trading under Rule 144 until September 4, 2013 and December 5, 2013 for each 250,000 share issuance for the March 4, 2013 and June 5, 2013 Debentures, respectively. The Company recorded the fair value of the 250,000 shares of the Company’s common stock issued or issuable on the March 4, 2013 and June 5, 2013 closing dates as a discount of $57,500 and $20,000, respectively, to the Senior Convertible Debentures issued or issuable on each respective date.

Embedded Conversion Feature

The March 2013 and June 2013 Debentures were issued with an embedded conversion feature whereby the Debenture Holders can exchange their Debentures at any time until their due date for shares of the Company’s common stock at an exchange price initially set as $0.10 per share, subject to adjustment for antidilution provisions. The Company reviewed the underlying agreements and has concluded that these instruments do not qualify for exception from derivative accounting as they are not considered to be indexed to the Company’s own stock. Accordingly, the Company accounted for these instruments as derivative liabilities. The Company valued the conversion feature of the March 2013 Debentures as a one year call option to purchase 2,500,000 shares of the Company’s Common Stock with an initial fair value of $372,722 as described in Note 8 below. The initial value was recorded as a debt discount to the March 2013 Debentures limited to the face value of the March 2013 Debentures with the excess fair value recorded as interest expense (see Limitation on Debt Discount below). The Company valued the conversion feature of the June 2013 Debentures as a one year call option to purchase 2,500,000 shares of the Company’s Common Stock with an initial fair value of $59,498 as described in Note 8 below. The initial value was recorded as a debt discount to the June 2013 Debentures limited to the face value of the June 2013 Debentures with the excess fair value recorded as interest expense (see Limitation on Debt Discount below).

Warrants issued

The March 2013 and June 2013 Debentures were issued with warrants to purchase shares of common stock whereby the Debenture Holders can exercise their warrants at any time until March 4, 2018 and June 5, 2018 for the March 2013 and June 2013 Warrants, respectively, at exercise prices initially set as $0.10 per share, subject to adjustment for antidilution provisions. The Company reviewed the underlying agreements and has concluded that these instruments do not qualify for exception from derivative accounting as they are not considered to be indexed to the Company’s own stock. Accordingly, the Company accounted for these instruments as derivative liabilities. The Company valued the March 2013 Warrants to purchase 2,500,000 shares of the Company’s Common Stock with an initial fair value of $543,851 as described in Note 8. The initial fair value was recorded as a debt discount to the March 2013 Debentures limited to the face value of the March 2013 Debentures with the excess fair value recorded as interest expense (see Limitation on Debt Discount below).  The Company valued the June 2013 Warrants to purchase 2,500,000 shares of the Company’s Common Stock with an initial fair value of $183,314 as described in Note 8. The initial fair value was recorded as a debt discount to the June 2013 Debentures limited to the face value of the June 2013 Debentures with the excess fair value recorded as interest expense (see Limitation on Debt Discount below).

Imputed Interest

The March 2013 and June 2013 Debentures were issued without a cash interest component. Based on a review of existing debt securities, the Company believed an appropriate discount should be recorded and imputed a 10% interest value, or $50,000 for the total $500,000 of  the March and June 2013 Debentures, which was recorded to debt discount on the transaction date and offset to interest expense in the accompanying condensed consolidated statements of operations.

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Limitation on Debt Discount

The combined fair value of the Common Stock Issuable of $57,500, the fair value of the embedded conversion feature of $372,722, the fair value of the March 2013 Warrants of $543,851, and the imputed interest discount of $25,000 exceeded the $250,000 face value of the March 2013 Debentures by $749,073. The Company recorded a debt discount of $250,000 on the transaction date and expensed the excess fair value to interest expense. The allocation of the imputed interest on the March 2013 Debentures of $25,000 was netted with the $749,073 excess fair value in interest expense. The discount of $250,000 is being amortized to interest expense over the term of the March 2013 Debentures.

The combined fair value of the Common Stock Issuable of $20,000, the fair value of the embedded conversion feature of $59,498, the fair value of the June 2013 Warrants of $183,314, and the imputed interest discount of $25,000 exceeded the $250,000 face value of the June 2013 Debentures by $37,812. The Company recorded a debt discount of $250,000 on the transaction date and expensed the excess fair value to interest expense. The allocation of the imputed interest on the June 2013 Debentures of $25,000 was netted with the $37,812 excess fair value in interest expense. The discount of $250,000 is being amortized to interest expense over the term of the June 2013 Debentures.

Convertible Debt Conversions

During the three and nine months ended September 30, 2013, investors converted $50,000 and $456,500, respectively, of senior convertible debentures respectively, originally issued on November 27, 2012 into 500,000 and 4,565,000 shares, respectively, of the Company’s common stock at a conversion price of $0.10 per share.  The Company recorded interest expense on the conversion during the three and nine months ended September 30, 2013 of $19,866 and $312,575, respectively, representing an accelerated recognition of a pro rata portion of the unamortized debt discount and deferred financing fees associated with the debentures.  The Company recorded common stock and additional paid-in capital of $51,429 and $592,572 on the conversions for the three and nine months ended September 30, 2013, respectively, consisting of the value of the debt converted of $50,000 and $456,500 for the three and nine months ended September 30, 2013, respectively, and $1,429 and $136,072 for the reclassification of the fair value of the embedded conversion feature derivative liabilities to additional paid-in capital on the date of conversion for the three and nine months ended September 30, 2013, respectively.

NOTE 8— DERIVATIVE LIABILITIES

The Company applies the accounting standard that provides guidance for determining whether an equity-linked financial instrument, or embedded feature, is indexed to an entity’s 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 entity’s own common stock. From time to time, the Company issues common stock purchase warrants, preferred stock, and convertible debt which may provide for nonstandard anti-dilution provisions or embedded conversion features which reset with future issuances of common stock or common stock equivalents. The Company has determined that these provisions and features are derivative instruments.

The outstanding 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:

	September 30, 2013
	(unaudited)
Annual dividend yield		-
Expected life (years)	0.40	-	5.00
Risk-free interest rate	0.09	-	1.39%
Expected volatility	126%	-	168%

Expected volatility is based primarily on historical volatility of the Company, using daily pricing observations, and the Company’s peer group, using daily pricing observations. Historical volatility was computed 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 and embedded conversion features.

The Company currently has no reason to believe future volatility over the expected remaining life of these warrants or embedded conversion features is likely to differ materially from historical volatility. The expected life is based on the remaining term of the warrants or embedded conversion features. The risk-free interest rate is based on one-year to five year U.S. Treasury securities consistent with the remaining term of the instrument.

On March 4, 2013, the Company issued warrants to purchase 2,500,000 shares of the Company’s common stock and debentures convertible into 2,500,000 shares of the Company’s common stock to additional investors as described in Note 7. Both the warrants issued and the embedded conversion feature in the debentures had certain anti-dilution protection provisions. The Company valued the warrants on the date of issuance using a market value of $0.23 per share, an exercise price of $0.10 per warrant and a 5 year term for a fair value of $543,851 and valued the embedded conversion feature as a 268 day option to purchase 2,500,000 shares at an exercise price of $0.10 per share with a market value of $0.23 per share for a fair value of $372,722. The Company reviewed the underlying agreements and has concluded that these instruments do not qualify for exception from derivative accounting as they are not considered to be indexed to the Company’s own stock. Accordingly, the Company accounts for these instruments as derivative liabilities. The additional warrants and embedded conversion features were on terms identical to the Senior Convertible Debentures.

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On June 5, 2013, the Company issued warrants to purchase 2,500,000 shares of the Company’s common stock and debentures convertible into 2,500,000 shares of the Company’s common stock to additional investors as described in Note 7. Both the warrants issued and the embedded conversion feature in the debentures had certain anti-dilution protection provisions. The Company valued the warrants on the date of issuance using a market value of $0.08 per share, an exercise price of $0.10 per warrant and a 5 year term for a fair value of $183,314 and valued the embedded conversion feature as a 175 day option to purchase 2,500,000 shares at an exercise price of $0.10 per share with a market value of $0.08 per share for a fair value of $59,498. The Company reviewed the underlying agreements and has concluded that these instruments do not qualify for exception from derivative accounting as they are not considered to be indexed to the Company’s own stock. Accordingly, the Company accounts for these instruments as derivative liabilities. The additional warrants and embedded conversion features were on terms identical to the Senior Convertible Debentures.

The dilutive issuances for the March 2013 and June 2013 Debenture offerings resulted in an exercise price reduction of the Ki Nam Warrants to $0.63 per share and for the Immersive Warrants to $0.43 per share. These two warrant series are marked to market at each reporting period and any gain or loss associated with the repricing is recorded as a change in fair value of the derivative liabilities.

The following table presents the Company’s warrants and embedded conversion options measured at fair value on a recurring basis:

	# of Shares Convertible/ Exercisable at September 30, 2013		Level 3 Carrying Value September 30, 2013			Level 3 Carrying Value December 31, 2012
			(unaudited)
Ki Nam warrants, exercise price of $0.63/share; expire in 2014		27,478	$	2		$	518
Immersive warrants, exercise price of $0.43/share; expire in 2015		198,764		3,576			28,579
2012 Debentures convertible at $0.10 per share, expire November 2014		38,967,500		1,442,311			6,801,728
2012 November warrants, exercise price of $0.10 per share, expire in November 2017		43,532,500		2,741,666			9,905,044
March 2013 Debentures convertible at $0.10 per share, expire November 2014		2,500,000		92,533			—
2013 March warrants, exercise price of $0.10 per share, expire in March 2018		2,500,000		159,391			—
June 2013 Debentures convertible at $0.10 per share, expire November 2014		2,500,000		92,533			—
2013 June warrants, exercise price of $0.10 per share, expire in June 2018		2,500,000		161,040			—
Total		92,726,242	$	4,693,052		$	16,735,869
Change in fair value			$	(13,066,130	)

During the three and nine months ended September 30, 2013, the Company recorded other income (expense) of ($2,893,344) and $13,066,130, respectively, and during the three and nine months ended September 30, 2012, the Company recorded other income of $171,862 and $126,530, respectively, related to the change in fair value of the warrants and embedded conversion features and is included in other income (expense), net in the accompanying condensed consolidated statements of operations.

The following table provides a reconciliation of the beginning and ending balances for our liabilities measured at fair value using Level 3 inputs for the nine months ended September 30, 2013 and 2012:

	2013			2012
Balance at January 1,	$	16,735,869		$	45,450
Issuance of warrants and embedded conversion features		1,159,385			386,585
Reclassification to additional paid-in capital upon debt conversion		(136,072	)		—
Change in fair value		(13,066,130	)		(126,530	)
Balance at September 30,	$	4,693,052		$	305,505

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NOTE 9 — EQUITY

Common Stock Issuable – Debt Incentive

As an inducement to enter into the March 2013 and June 2013 Debentures, the investors were offered one share of the Company’s common stock for every dollar invested. The June 2013 financing of $250,000 of additional Senior Convertible Debentures requires the issuance of an additional 250,000 shares of the Company’s common stock under the terms of the transaction.

As of September 30, 2013, the Company has recorded Common Stock Subscribed but Unissued of $20,000 for 250,000 shares of the Company’s common stock valued at $0.08 per share, the closing market price on June 5, 2013.  The 250,000 shares of the Company’s Common Stock is restricted for trading under Rule 144 until December 5, 2013.

Common Stock Issued – Debt Incentive

As of March 31, 2013, the Company had 2,212,500 shares of the Company’s common stock issuable after the completion of the regulatory filings comprised of 1,962,500 shares issuable as of November 27, 2012 valued at $647,625 and 250,000 shares issuable for the March 2013 Debentures valued at $57,500, or $0.23 per share, the closing market price on March 4, 2013. The Company recorded the value of the Company’s common stock issuable for the March 2013 Debentures as a component of debt discount as described in Note 7. The 2,212,500 shares of the Company’s Common Stock were issued on June 6, 2013 and is restricted for trading under Rule 144 until May 27, 2013 and September 4, 2013 for the 1,962,500 shares and 250,000 shares, respectively.

Common Stock Issued –Warrant exercise

During the period ended September 30, 2013, Series I warrants to purchase 26,500 shares of the Company’s Common Stock were exercised for cash proceeds of $2,650. The Series I warrants were issued in conjunction with the Company’s May 2011 public offering and were repriced in November 2012 to an exercise price of $0.10 per warrant.

Common Stock Issued –Debt Conversions

During the period ended September 30, 2013, investors converted $456,500 of senior convertible debentures, originally issued on November 27, 2012 into 4,565,000 shares of the Company’s common stock at a conversion price per share of $0.10.  The Company recorded interest expense on the conversion of $312,575 representing an accelerated recognition of a pro rata portion of the unamortized debt discount and deferred financing fees associated with the debentures.  The Company recorded common stock and additional paid-in capital of $592,572 on the conversions consisting of the value of the debt converted of $456,500 and $136,072 for the reclassification of the fair value of the embedded conversion feature derivative liabilities to additional paid-in capital on the date of conversion.

Stock Option/Stock Issuance Plan

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 Company’s common stock may be granted to employees, nonemployee members of the Company’s 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 745,000 shares of the Company’s 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 Stock Option/Stock Issuance Plan (the “2010 Plan”); no further options or awards may be granted under the 2007 Plan.

During 2010, the Company adopted the 2010 Plan, under which stock awards or options to acquire shares of the Company’s common stock may be granted to employees, nonemployee members of the Company’s board of directors, consultants or other independent advisors who provide services to the Company. The 2010 Plan is administered by the Company’s board of directors. In December 2012, the Company’s shareholders approved an increase of the shares available under the 2010 Plan to 18,150,000. Options granted under the 2010 Plan generally vest 25% per year over four years and expire 10 years from the date of grant.

The following table sets forth the share-based compensation expense for stock options (unaudited):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Share based compensation expense — cost of net revenues	$	986	$	7,966	$	16,005	$	24,275
Share based compensation expense — sales and marketing		1,777		31,247		27,553		101,423
Share based compensation expense — research and development		6,496		25,607		75,395		78,946
Share based compensation expense — general and administrative		57,247		111,165		269,945		343,389
Total share based compensation expense	$	66,506	$	175,985	$	388,898	$	548,033

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A summary of common stock option activity under the 2007 Plan and the 2010 Plan for the nine months ended September 30, 2013 is presented below (unaudited):

	Number of Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life		Aggregate Intrinsic Value
Options outstanding — January 1, 2013		10,119,518		$	0.72
Options granted		125,000			0.16
Options exercised		—			—
Options forfeited		(8,074,493	)		0.47
Options cancelled		—			—
Total options outstanding — September 30, 2013		2,170,025		$	1.90		7.18	$	—
Options exercisable — September 30, 2013		1,784,069		$	2.12		6.98	$	—
Options vested and expected to vest — September 30, 2013		2,104,924		$	1.90		7.18	$	—
Options available for grant under the 2010 Plan at September 30, 2013		16,308,375

The following table summarizes information about stock options outstanding and exercisable at September 30, 2013 (unaudited):

					Options Outstanding				Options Exercisable
					Weighted Average Remaining		Weighted Average				Weighted Average
Exercise			Number of		Contractual		Exercise		Number of		Exercise
Prices			Shares		Life		Price		Shares		Price
$0.16	-	$0.25		450,000		4.86	$	0.22		292,813	$	0.21
$0.26	-	$0.50		825,004		8.87	$	0.33		825,004	$	0.33
$0.51	-	$1.00		425,000		8.92	$	0.68		237,500	$	0.65
$1.01	-	$5.00		271,221		7.15	$	4.50		229,952	$	4.56
$5.01	-	11.30		198,800		4.45	$	11.30		198,800	$	11.30
				2,170,025		7.18	$	1.90		1,784,069	$	2.12

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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 combination of historical volatility of the Company’s common stock and the underlying common stock of its peer group, and other factors such as implied volatility of traded options of a comparable peer group. The expected life assumptions for all periods were derived from a review of annual historical employee exercise behavior of option grants with similar vesting periods of a comparable peer group. The risk-free rate used to calculate the fair value is based on the expected term of the option. In all cases, the risk-free rate is based on the U.S. Treasury yield bond curve in effect at the time of grant.  

The assumptions used to calculate the fair value of options and warrants granted are evaluated and revised, as necessary, to reflect market conditions and experience. On April 26, 2013, the Company issued options to purchase 25,000 shares of common stock of the Company at an exercise price of $0.16 per share to each of the five members of the Company’s board of directors for a total grant of options to purchase 125,000 shares of the Company’s common stock.  The Company valued each option to purchase one share of the Company’s common stock at $0.1474 using the Black-Scholes-Merton option pricing model with a volatility of 157%, an expected term of 2.5 years, a risk free rate of 0.68%, and a market value on the grant date of $0.16 per share.  The options vested at the grant date.

At September 30, 2013, the amount of unearned share-based compensation currently estimated to be expensed related to unvested common stock options is approximately $0.3 million. The weighted-average period over which the unearned share-based compensation is expected to be recognized is approximately 2.3 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 share-based compensation expense. Future share-based compensation expense and unearned share-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 Company’s common stock to investors, note holders and to non-employees for services rendered or to be rendered in the future. During the nine months ended September 30, 2013, the Company issued 5,000,000 warrants to the March 2013 and June 2013 Debenture Holders. The Company valued the warrants issued at $543,851 and $183,314, respectively, on the date of issuance. See Notes 7 and 8. During the nine months ended September 30, 2013, the Company issued 26,500 shares of the Company’s common stock for the exercise of Series I warrants for cash proceeds of $2,650.

The following table provides a reconciliation of the warrants issued and exercised for the nine months ended September 30, 2013:

	Number of Shares			Weighted- Average Exercise Price
Warrants outstanding — January 1, 2013		54,680,086		$	0.46
Warrants issued		5,000,000			0.10
Warrants exercised		(26,500	)		0.10
Warrants expired		(4,954,557	)		3.03
Total warrants outstanding — September 30, 2013		54,699,029		$	0.19

The warrants outstanding at September 30, 2013 had a weighted average remaining term of 4.00 years and had an aggregate intrinsic value of $0. 

A list of the warrants outstanding as of September 30, 2013 is included in the table below:

Warrant Series	Issue Date	Warrants Outstanding & Exercisable		Exercise Price					Expiration Date
Class E Warrants	2/23/09		27,478	$	0.63	(3),	(6),	(7)	2/23/2014
Class G Warrants — $5.00	Various		826,373	$	5.00	(4),	(5)		2014-2015
Class G Warrants — $7.00	Various		5,000	$	7.00	(4),	(5)		8/25/2015
Immersive Warrant 1	3/31/10		94,764	$	0.43	(6),	(7)		3/31/2015
Immersive Warrant 2	4/30/10		104,000	$	0.43	(6),	(7)		4/30/2015
Class I Warrants	5/19/11		4,916,057	$	0.10	(1),	(2)		5/13/2016
2011 Share Purchase Warrants	5/19/11		142,857	$	4.38				5/13/2016
Class J Warrants	6/28/11		50,000	$	3.50				4/25/2016
November 2012 Warrants	11/27/12		43,532,500	$	0.10	(6)			11/27/2017
March 2013 Warrants	3/4/13		2,500,000	$	0.10	(6)			3/4/2018
June 2013 Warrants	6/5/13		2,500,000	$	0.10	(6)			6/5/2018
Total			54,699,029

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(1)	Of these warrants, 4,275,128 represent warrants eligible for a vote to approve any future financing round where the contemplated issuance price is below the exercise price of the Class I warrants. A 2/3rds vote of the combined eligible outstanding Class I Warrants is required to approve such a transaction.
(2)	Of these warrants, 1,138,885 were issued to Vision Capital and 632,243 were issued to Ki Nam, former Chairman of the Board of Directors. Each has beneficial ownership in excess of 10% of the common stock of the Company.
(3)	Warrants were issued to Ki Nam, former Chairman of the Board of Directors and significant owner of the Company.
(4)	Of these warrants, 195,373 were issued to Ki Nam.
(5)	Warrants’ expiration dates range from December 29, 2014 to August 25, 2015.
(6)	Warrants are accounted for as derivative liabilities, see Note 8.
(7)	Warrants were repriced on March 4, 2013 and June 5, 2013.

NOTE 10 — COMMITMENTS AND CONTINGENCIES

Lease Commitments

On April 17, 2013, the Company signed an amendment to the lease of its primary office space in Costa Mesa, CA, formerly leased on a month-to-month basis.  The amendment includes a revised lease term of one year, effective to February 28, 2013 with a revised expiration date of February 28, 2014 and a reduction of minimum base rent to $12,500 per month.  The amendment requires payment of formerly past due rents of $46,000 at a rate of bi-weekly payments of $5,750 beginning May 1, 2013 until paid in full.

Warranties

The Company’s 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 from the date of the sale or 2,500 miles. 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.

The following table presents the changes in the product warranty accrual for the nine months ended September 30 (unaudited):

	2013			2012
Beginning balance, January 1,	$	104,106		$	123,692
Charged to cost of revenues		51,874			73,118
Usage		(110,267	)		(57,983	)
Ending balance, September 30,	$	45,713		$	138,827

Litigation

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 Company’s rights, including intellectual property rights as well as claims relating to employment and the safety or efficacy of the Company’s 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 of the Company. Additionally, any such claims, whether or not successful, could damage the Company’s reputation and business. Management believes the outcome of currently pending claims and lawsuits will not likely have a material effect on the Company’s consolidated operations or financial position.

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 Company’s officers under which the Company may be required to indemnify such person for liabilities arising out of their employment relationship. In connection with the November 2012, March 2013, and June 2013 Securities Purchase Agreements, we have indemnified the Debenture Holders from any and all losses relating to the breach of any of the representations, warranties, covenants or agreements made by the Company or any action instituted against the Debenture Holders as defined in the November 2012, March 2013, and June 2013 Securities Purchase Agreements. 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 condensed consolidated balance sheets.  

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NOTE 11 — RELATED PARTY TRANSACTIONS

The following reflects the activity of the related party transactions for the respective periods.

Significant Ownership By Management

Mr. Nam, currently Chief Executive Officer of R3 Motion, Inc., a wholly-owned subsidiary of the Company, current director of the Company and former Chief Executive Officer and Chairman of the Board of Directors, together with his children, owns 15.6% of the outstanding shares of the Company’s common stock.

Related Party Notes Payable — see Note 5

Senior Convertible Debentures

On November 27, 2012, T-Energy, a company controlled by William Tsumpes, purchased $100,000 of our November 2012 Debentures. At the time of the investment, Mr. Tsumpes was not affiliated with the Company. On December 31, 2012, Mr. Tsumpes was elected as a Director of the Company. On February 24, 2013, Mr. Tsumpes was appointed as the Chief Executive Officer and interim Chief Financial Officer of the Company.

NOTE 12 — SUBSEQUENT EVENTS

On October 26, 2013 the Company and the lenders of the Senior Secured Line of Credit described in Note 6 agreed to increase the available borrowings under the line of credit to $1,000,000.

On October 31, 2013, the Company appointed Mr. Chris Spencer as an independent member of the Board of Directors.  Mr. Spencer shall also serve as the audit committee chair.

In October 2013, the Company borrowed $15,000 on a short-term unsecured non-interest bearing working capital loan from William Tsumpes, the Company’s Chief Executive Officer. In November 2013, the Company repaid the $15,000 working capital loan. The loan was used to provide additional short term working capital.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This quarterly report on Form 10-Q contains certain statements that may be deemed to be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts, included in this report are forward-looking statements. When used in this report, the words “may,”“will,”“should,”“would,”“anticipate,”“estimate,”“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, 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 Company’s facilities, adverse results of lawsuits against the Company and currency exchange rates. Forward-looking statements are based on assumptions and assessments made by the Company’s 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 report 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. Management undertakes no obligation to update any forward-looking statements. This cautionary statement is applicable to all 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 SEC, including our Annual Report on Form 10-K for the year ended December 31, 2012.

Overview

T3 Motion, Inc. was incorporated on March 16, 2006 under the laws of the state of Delaware. T3 Motion and its wholly-owned subsidiaries, R3 Motion, Inc. and T3 Motion, Ltd. (U.K.) (collectively, the “Company,”“we,”“us,” or “our”) develop and manufacture personal mobility vehicles powered by electric motors. The Company’s 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 Company’s revenues to date have been derived from sales of the T3 Series ESVs and related accessories.

Going Concern

The Company expects to continue to incur substantial additional operating losses from costs related to the continuation of product and technology development and administrative activities. The Company believes that its cash on hand at September 30, 2013, together with the borrowing availability on its secured line of credit, collections from the sale of its products, and the continued implementation of its cost reduction strategies for material, production and service are sufficient to sustain its planned operations into the fourth quarter of 2013, and the Company will require additional debt or equity financing in the future to maintain operations.

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The Company intends to pursue raising additional debt or equity financing to fund its new product development and operating plans. The Company cannot make any assurances that management’s cost reduction strategies will be effective or that any additional financing will be completed on a timely basis, on acceptable terms or at all. If the Company is unable to complete a debt or equity offering on acceptable terms, or otherwise obtain sufficient financing when and if needed, it may be required to reduce, defer or discontinue one or all of its product development programs. Management’s inability to successfully implement its cost reduction strategies or to complete any other financing will adversely impact the Company’s ability to continue as a going concern.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of our financial condition and results of operations are based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these 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.

A summary of these policies can be found in the Management’s Discussion and Analysis section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 or as updated in Note 1 to the condensed consolidated financial statements included elsewhere herein.

Business activity for the nine months ended September 30, 2013

Recent Financings

On March 4, 2013, the Company agreed to a waiver with the 2012 Debenture Holders allowing up to an additional $646,750 in additional debentures to be issued to additional investors on the same terms as the November 27, 2012 debentures including warrants, conversion features, investment rights, and common stock issuable. On March 4, 2013, the Company issued an additional $250,000 of convertible debentures due November 27, 2013 along with 250,000 shares of common stock issued on June 5, 2013 and 2,500,000 warrants at an exercise price of $0.10 per warrant. The $250,000 in convertible debt is convertible into common stock of the Company at $0.10 per share.

On June 5, 2013, the Company issued an additional $250,000 of convertible debentures due November 27, 2013 along with 250,000 shares of common stock issuable but unissued as of September 30, 2013 and 2,500,000 warrants at an exercise price of $0.10 per warrant. The $250,000 in convertible debt is convertible into common stock of the Company at $0.10 per share.

Both the warrants and conversion features are subject to “full ratchet” antidilution protection and are accounted for as derivative liabilities. See Notes 7 and 8 to the condensed consolidated financial statements included elsewhere herein.

On March 21, 2013, the Company entered into a loan and security agreement with Alpha Capital Anstalt and Brio Capital Master Fund, Ltd., both of whom were investors in the 2012 Debenture offering. Pursuant to the terms and subject to the conditions set forth in the loan agreement, the lenders provided a senior secured line of credit to the Company of up to $750,000 (the “Loan Facility”) with a one year term. The Loan Facility is subject to borrowing base criteria and limitations and is not to exceed the combination of 80% of eligible customer receivables, 65% of eligible finished goods inventory, and 50% of eligible raw materials inventory. Pursuant to the terms of the loan agreement, the Loan Facility is secured by all assets of the Company. The Loan Facility has a 1% annual fee, or $7,500, paid in advance, a monthly administration fee of the lesser of 0.5% of the balance outstanding or $2,500, and bears interest at 7.25% per annum on the outstanding balance, payable monthly in arrears. On March 24, 2013, the Company made an initial draw of $187,500 and received cash of $172,500; net of $15,000 of initial financing costs and fees. During the nine months ended September 30, 2013, the Company made additional net draws of $562,500.  On October 24, 2013, the Company and the lenders agreed to expand the senior secured line of credit to $1,000,000. See also Note 6 in the accompanying condensed consolidated financial statements.

On June 1, 2013, the Company entered into a Purchase Agreement with Alpha Capital Anstalt (the “Investor”) dated May 23, 2013. The Investor had previously purchased $1,000,000 of the Company’s senior convertible debentures on November 27, 2013 and purchased $175,000 of the Company’s senior convertible debentures on March 4, 2013 and $175,000 of the Company’s senior convertible debentures on June 5, 2013. Under the Purchase Agreement, at the sole discretion of the Company, the Company may sell, and the Investor shall be obligated to purchase up to $10,000,000 of the Company’s common stock in the future. Prior to any sales of common stock, the Company shall file a registration statement with the Securities and Exchange Commission and apply for listing of the additional shares with NYSE MKT, LLC.

After any registration statement relating to the Purchase Agreement common shares is declared effective, the Company may, at its sole option, with notice to the Investor, sell up to 100,000 shares of its common stock per day with a $250,000 daily maximum value at the lower of either i) the lowest sales price on the purchase date or ii) the arithmetic average of the three lowest closing prices on the twelve business days preceding the sale and subject to a minimum sales price of $0.05 per share. Alternatively, with no notice, the Company may sell up to 200,000 shares of its common stock at the lower of 85% of a) 93% of the daily volume weighted average price or b) the daily closing price. To date, the Company has not filed a registration statement for the transaction and has not issued any shares to the Investor for this transaction. Further, the Company is currently not listed on NYSE MKT, LLC.

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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.

Business Operations

The business operations results for the three and nine months ended September 30, 2013 showed continued progress towards the Company’s profitability goals.

The Company reported a net (loss) of ($4,295,330), or ($0.19) per basic and diluted share for the three months ended September 30, 2013 and net income of $6,382,692 or $0.35 per basic and diluted share for the nine months ended September 30, 2013.  The net (loss) for the three month period ended September 30, 2013 is the combination of ($621,187) operating losses and ($3,674,143) of other expenses.  The net income for the nine month period ended September 30, 2013 is the combination of operating losses of ($2,353,062) and $8,737,673 of other income, as described in further detail below.

Operating Losses:

The Company continued to make progress towards its goal of operating income. The movement towards profitability is the result of improvements in sales channels, product mixes, and sales and marketing strategy accompanied by aggressive cost containment and control in operating expenses and costs of sales.  For the three months ended September 30, 2013, the loss from operations decreased by $689,786 from ($1,310,973) in 2012 to ($621,187) in 2013.  For the nine months ended September 30, 2013, the loss from operations decreased $1,888,933 from a loss of ($4,241,995) in 2012 to a loss of ($2,353,062) in 2013.  The decrease for both the three and nine month periods were driven primarily by a significant decrease in operating expenses of $777,685 and $1,728,485, respectively, offset by a gross margin decrease of $87,899 and a gross margin increase of $160,448 for the three and nine months, respectively.

Revenues for the quarter ended September 30, 2013 decreased to $726,148 on 42 units shipped compared to $884,924 for the quarter ended September 30, 2012 on 62 units shipped.  Revenues for the nine months ended September 30, 2013 decreased to $3,285,733 on 275 units shipped compared to $3,746,243 million on 294 units shipped during the nine months ended September 30, 2012 and which is reflective of our increased sales to lower price per unit distribution channel and for our initial sales of the lower priced T3 Vision series.

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.

During the September 2013 quarter, the Company continued its efforts begun in March 2013 and implemented cost-savings measures with a goal to reduce expenses paid or payable in cash by 30% from the December 2012 quarter levels. These cuts were begun shortly after the hiring of William Tsumpes as Chief Executive Officer in late February 2013 as described below. Operating expenses for the quarter ended September 30, 2013 decreased to $739,595 including non-cash charges of $66,506 related to stock compensation expenses.  For the quarter ended September 30, 2012, operating expenses were $1,517,280 including non-cash stock compensation charges of $175,985 and for the quarter ended December 31, 2012 operating expenses were $1,940,956 including non-cash stock compensation charges of $301,442. Excluding non-cash stock compensation, the quarterly operating expenses for the September 2013 quarter represents a 58.9% decrease from the equivalent December 2012 quarter expenses.  The Company has identified additional cost savings measures which are expected to be offset in future quarters by additional investment in development and marketing efforts.

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Our sales and marketing team focused on the initial marketing push for the T3 Vision product and to revisions of the go-to-market strategy begun in 2012 which resulted in a new distribution channel. In addition, our renewed international focus resulted in our first substantial international sales to new distributors. In March and April 2013, we restructured our sales and marketing team to better align the sales compensation with Company goals and we added a much needed marketing team which we expect will result in improved market penetration and reach.

Our product development and marketing teams focused on the rollout of our next T3 product, the T3 Vision product line and we successfully shipped the first two commercial units of this new product line at the end of March 2013. The T3 Vision is based on the T3 Series, with key configuration and design changes to meet consumers’ needs on a redesigned T3 Series platform. The T3 Vision is expected to have a top speed of 12 mph and a range of up to 20 miles on a single charge, and incorporates customizable colors and graphics, as well as optional accessories. Through the sales of the T3 Vision product line, we expect to benefit from manufacturing efficiencies due to higher volume production of the core T3 Series building block components and technology. We believe the T3 Vision will have a reduced price point allowing it to be marketed to a larger audience including consumers, light industrial applications, and recreation and touring businesses.

Sales Backlog:

We refer to our sales pipeline in terms of backlog and revenues. Backlog consists of contracts with customers that represent agreements to purchase T3 units over specified periods of time. Based on a review of revenues and sales orders in 2012, and for revenues for 2013 year-to-date, new management has revised its policy for determining backlog for the year ended December 31, 2012 and for future reporting periods.

For 2013, we define “backlog” as orders from customers that are evidenced by a signed purchase order or equivalent purchase document, with agreed upon prices, shipment within 90 days, and for which payment is reasonably assured. Our backlog at November 18, 2013 was approximately $0.7 million representing 78 T3 units that are expected to ship within 90 days and for which payment is reasonably assured.  We are very encouraged by our recent orders booked. Our Q4 shipments to date are roughly 200% of the volumes shipped by the equivalent point in the prior quarter and we expect to see improved revenues into the next fiscal year.

Other income (expense) and valuation of derivative liabilities:

The Company’s net income is impacted by financial results recorded in the statement of operations as other income (expense).  Two recurring types of transactions related to the Company’s convertible debentures result in additional interest expense from amortization of the recorded debt discount and mark to market gains and losses related to the conversion feature of the convertible debentures and the warrants issued with the convertible debentures, both of which are accounted for as derivative liabilities and which are marked to market for each reporting period.

Other income (expense) for the quarter ended September 30, 2013 was ($3,674,143) resulting from ($842,434) of interest expense related to the amortization of the discount to the senior convertible debentures and deferred financing fees issued in November 2012, March 2013, and June 2013 and interest charged on the line of credit entered into in March 2013 in addition to ($2,831,709) of other expense related to losses on mark-to-market derivative liabilities. Expense for the September 2012 quarter of ($577,565) was the result of interest expense on the convertible bridge notes payable and mark to market losses from derivative liabilities related to convertible bridge notes which were converted into convertible debentures in November 2012.

Other income for the nine months ended September 30, 2013 was $8,737,673 resulting from the net effect of ($4,352,614) of interest expense related to the estimated fair value of derivative liabilities in excess of face value of the senior convertible debentures, imputed interest on debentures issued in March and June 2013, the amortization of the debt discount and deferred financing fees issued in November 2012, March 2013, and June 2013 and interest charged on the line of credit entered into in March 2013 offset by $13,090,282 of other income related to gains on mark-to-market derivative liabilities. Expense for the nine months ended September 30, 2012 of ($742,128) was the result of interest expense on notes payable and mark to market derivative related losses from derivative liabilities.

The key input variables used to value the November 2013, March 2013 and June 2013 convertible debt and warrants derivative securities were:

	December 31, 2012			June 30, 2013			September 30, 2013
				(unaudited)			(unaudited)
Annual dividend yield		—			—			—
Exercise or conversion price	$	0.10		$	0.10		$	0.10
Closing market price	$	0.24		$	0.04		$	0.07
Risk-free interest rate – conversion feature		0.16	%		0.09	%		0.10	%
Expected volatility – conversion feature		108	%		142	%		157	%
Remaining life in years– conversion feature		0.90			0.40			1.15
Risk-free interest rate – warrants		0.72	%		1.41	%		1.39	%
Expected volatility – warrants		156	%		156	%		168	%
Wtd Avg remaining life in years - warrants		4.91			4.45			4.20

The change in the value of the derivative liabilities for the three and nine months ended September 30, 2013 is described in Note 8 in the accompanying condensed consolidated financial statements.

The life of the conversion feature was extended by one year on August 13, 2013 as the result of the extension of the maturity of the convertible debentures as described in Note 7 in the accompanying financial statements.

The primary change of the fair value of the derivative liabilities for the three and nine months ended September 30, 2013 which resulted in other income (expense) is the change in the closing market price on each valuation date.  As the market price increases, the value of the derivative liabilities increases and results in additional other (expense) recorded on the statement of operations as happened for the three months ended September 30, 2013.  Conversely, if the closing market price decreases, the value of the derivative liabilities decreases and which would result in other income recorded on the statement of operations as happened between December 31, 2012 and September 30, 2013.

  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.

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Management and Director Changes

On February 21, 2013, Rod Keller Jr. resigned as Chief Executive Officer of the Company to pursue other interests and resigned as a director of the Company on March 27, 2013. On February 22, 2013, the Company’s Board of Directors appointed William Tsumpes as Chief Executive Officer and interim Chief Financial Officer. Mr. Tsumpes was elected to the Company’s Board of Directors in December 2012. Mr. Tsumpes will serve as Chief Executive Officer and interim Chief Financial Officer of the Company.

On March 27, 2013, Messrs. Rod Keller and Robert Thomson each notified the Company that they would be resigning from the board of directors of the Company as of March 27, 2013. Mr. Thomson formerly served as chairperson of the compensation committee. Mr. Keller formerly resigned as the Company’s Chief Executive Officer on February 21, 2013. Messrs. Keller and Thomson had no disagreements with the Company on any matter relating to the Company’s operations, policies or practices that resulted in their decision to tender their resignations. Each resigned in order to remove themselves as directors so that the Company would regain compliance with the March 21, 2013 NYSE MKT, LLC notification as described below.

On July 10, 2013, Mr. Bruce Nelson notified the Company that he was resigning, effective immediately, from the Company’s board of directors and from his position as Chairman of the Company’s audit committee. Mr. Nelson stated that his resignation was not the result of any disagreement with the Company on any matter relating to its operation and that his departure was necessary in order to permit him the ability to pursue other business interests.

Mr. Nelson served as the Company’s “audit committee financial expert” as defined by the SEC’s rules, and as an independent director as defined by the SEC’s rules and by the NYSE MKT rules.

On October 31, 2013, the Company appointed Mr. Chris Spencer as a member of the board of directors of the Company.  Mr. Spencer is an “audit committee financial expert” as defined by the SEC’s rules, and as an independent director as defined by the SEC’s rules and will serve as the chairman of the audit committee.

NYSE MKT Notifications

On June 1, 2012, the Company was notified by NYSE MKT, LLC (“NYSE MKT”, or the “Exchange”) that its review of the Company’s publicly-available information indicated that the Company was not in compliance with Section 1003(a)(i) of the NYSE MKT Company Guide (the “Company Guide”) in that it has sustained losses which are so substantial in relation to its overall operations or its existing financial resources, or its financial condition has become so impaired that it appears questionable, in the opinion of the Exchange, as to whether it will be able to continue operations and/or meet its obligations as they mature. The Company has therefore become subject to the procedures and requirements of Section 1009 of the Company Guide.

In order to maintain its NYSE MKT listing, the Company submitted a plan to NYSE MKT on July 2, 2012 addressing how it intends to regain compliance with Section 1003(a)(iv) of the Company Guide by November 20, 2012 (the “Plan”). On August 10, 2012, the Exchange notified the Company that it accepted the Company’s plan of compliance and granted the Company an extension until November 20, 2012 to regain compliance with the continued listing standards.

On October 26, 2012, the Company received notice from the NYSE MKT indicating that the Company failed to make progress consistent with the plan and is not in compliance with certain of the NYSE MKT continued listing standards. Specifically, the letter from the Exchange stated that the Company is not in compliance with Section 1003(a)(iv) in that it has sustained losses which are so substantial in relation to its overall operations or its 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. The Company was further notified that, unless an appeal was filed by November 2, 2012 that the NYSE MKT would initiate delisting proceedings. The Company informed the Exchange of its intention to pursue the right of appeal and request a hearing pursuant to Sections 1203 and 1009(d) of the Company Guide. In the event that the Company's appeal is unsuccessful, the Company expects that its common stock will trade on OTC.BB no later than any official delisting from the Exchange. Until the Company is deemed to be in compliance with the listing standards, the Company will be subject to periodic review by Exchange staff during the extension period. Failure to make progress consistent with the plan or to regain compliance with the continued listing standards by the end of the extension period could result in the Company being delisted from the Exchange.

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On March 4, 2013, the NYSE MKT conducted a hearing regarding the Company’s delisting procedures. On March 15, 2013, NYSE MKT notified the Company that it had elected to defer action until at least May 15, 2013. At that time, NYSE MKT staff will review the Company’s financial results at which time it will discuss and consider further action or dismissal of the proceedings. On March 25, 2013, the Company was notified by the NYSE MKT indicating that the Company was not in compliance with certain of the Exchange’s continued listing standards as set forth in Section 801(h) of the NYSE MKT Company Guide. Specifically, the appointment of one of the Company’s previously independent directors, Mr. William Tsumpes, as Chief Executive Officer and Interim Chief Financial Officer of T3 Motion, resulted in greater than 50% of the directors on the Company’s board lacking independence (only three of seven directors were independent). The notice stated that the Company had until the earlier of the next annual meeting or one year to resolve the issue. In order to fully resolve the Section 801(h) issue, the Company accepted the resignations of two directors, Mr. Rod Keller and Mr. Rob Thomson, effective March 27, 2013 to ensure the Company’s compliance with Section 801(h) of the Company Guide. The resignations of Messrs. Keller and Thomson reduces the number of directors to five and results in three directors out of five maintaining independent status as of March 28, 2013 thereby resolving the March 21, 2013 Section 801(h) compliance notice. On April 12, 2013, the Company received formal notification dated April 5, 2013 from NYSE MKT that the Section 801(h) delinquency, regarding independent directors, was resolved.

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.  Among the reasons given for this decision, was the determination that the Company did not meet benchmarks that the Company stated it was planning to meet at the hearing. Additionally, the Panel noted that the Company has approximately $5.3 million in short term debt falling due in November and December of 2013 and that the Company does not presently have the ability to pay that debt when due if called upon to do so. Although holders have the ability to convert their debt, the Panel noted that there is no guarantee that this debt will be converted before it becomes due. 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.

Results of Operations

The following table sets forth the results of our operations for the three and nine months ended September 30, 2013 and 2012 (unaudited):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Net revenues	$	726,148		$	884,924		$	3,285,733		$	3,746,243
Cost of net revenues		607,740			678,617			2,538,506			3,159,464
Gross profit		118,408			206,307			747,227			586,779
Operating Expenses:
Sales and marketing		132,291			472,890			603,249			1,453,056
Research and development		124,401			179,694			585,485			645,498
General and administrative		482,903			864,696			1,911,555			2,730,220
Total operating expenses		739,595			1,517,280			3,100,289			4,828,774
Loss from operations		(621,187	)		(1,310,973	)		(2,353,062	)		(4,241,995	)
Other income (expense):
Interest income		—			7			5			817
Other income (expense), net		(2,831,709	)		(351,565	)		13,090,282			(396,717)
Interest expense		(842,434	)		(226,007	)		(4,352,614	)		(346,228	)
Total other income (expense), net		(3,674,143	)		(577,565	)		8,737,673			(742,128	)
Income (loss) before provision for income tax		(4,295,330	)		(1,888,538	)		6,384,611			(4,984,123	)
Provision for income tax		—			—			1,919			3,150
Net income (loss)	$	(4,295,330	)	$	(1,888,538	)	$	6,382,692		$	(4,987,273	)

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Net revenues. Net revenues are primarily from sales of the T3 Series, T3 iSeries, power modules, chargers, related accessories and service for T3 units out of warranty. Net revenues decreased $158,776, or 17.9%, to $726,148 for the three months ended September 30, 2013 compared to the same period of the prior year. The decrease was due to lower unit sales of the T3 series from 62 units shipped in the September 2012 quarter to 42 units shipped in the 2013 quarter.

Net revenues decreased $460,510 or 12.3% to $3,285,733 for the nine months ended September 30, 2013 compared to the same period of the prior year.  The decrease was primarily due to lower priced unit sales to distributors in 2013 compared to 2012 where most of the sales were to higher priced direct sales and lower units shipped.  Units shipped for the T3 series decreased from 294 units shipped in the nine months ended September 30, 2012 quarter to 275 units shipped in the nine months ended September 30, 2013.

Cost of net revenues. Cost of net revenues consisted of materials, labor to produce vehicles and accessories, warranty and service costs, and applicable overhead allocations.  Cost of net revenues decreased $70,877 or 10.4% to $607,740 for the three months ended September 30, 2013 and decreased $620,958 or 19.7% to $2,538,506 for the nine months ended September 30, 2013.  The decrease is due to 32% and 6.5% lower unit shipments for the three and nine months, respectively, with additional per unit materials cost reductions of approximately 15% for the three and nine months.  The three month period ended September 30, 2013 had higher per unit costs for labor and overhead costs due to the low number of units shipped as compared to 2012.

Gross profit. Gross profit decreased $87,899 to $118,408, or 16.3% of revenues for the three months ended September 30, 2013, compared to gross profit of $206,307 or 23.3% of revenues for the same period of 2012. 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 revenues for the same period of 2012.  The reduction in gross margin percentage for the three month period was due to lower materials costs offset by higher per unit costs for labor and overhead costs due to the low number of units shipped as compared to 2012.  Gross margin improvement in gross margin percentage for the nine month period was due to increased efficiencies, cost savings measures, and an increase in the mix of higher margin service and accessories revenue.

Operating expenses. Operating expenses decreased $777,685, or 51.3%, to $739,595 for the three months ended September 30, 2013 compared to $1,517,280 for the same period in 2012. Operating expenses decreased $1,728,485 or 35.8% to $3,100,289 for the nine months ended September 30, 2013 compared to $4,828,774 for the same period in 2012.  The decrease was due to significantly lower headcount related costs, overhead, R&D consultant costs, stock compensation expenses, and tradeshow costs resulting from the Company’s cost reduction measures.

Sales and marketing. Sales and marketing expenses include salaries, consultant fees, commissions, trade show costs, advertising, and travel costs associated with selling and marketing our T3 Series vehicles, support, and services. Sales and marketing expenses decreased by $340,599, or 72.0%, to $132,291 for the three months ended September 30, 2013 and decreased by $849,807 or 58.5% to $603,249 for the nine months ended September 30, 2013 compared to the same periods in 2012.  The decrease in sales and marketing expenses during the three and nine months ended September 30, 2013 from the similar period in 2012 was primarily due to decreased headcount, related stock compensation and a reduction in variable marketing including tradeshows costs and advertising resulting from the Company’s cost reduction measures.

Research and development. Research and development costs include development expenses such as salaries, consultant fees, cost of supplies and materials for samples and prototypes, as well as outside services costs associated with research and development on new vehicles and enhancements to our existing vehicles. Research and development expense decreased by $55,293, or 30.8%, to $124,401 for the three months ended September 30, 2013 and decreased by $60,013 or 9.3% for the nine months ended September 30, 2013 compared to the same periods of 2012. Research and development cost decreases due to the reduction in headcount and materials that supported the development costs related to the R3 and T3 Vision versions in 2012 which did not recur in 2013.

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General and administrative. General and administrative expenses include executive compensation, corporate overhead, legal, accounting, and SEC related compliance expenses and costs related to management and general overhead of the Company. General and administrative expenses decreased by $381,793, or 44.2%, to $482,903, for the three months ended September 30, 2013 and decreased $818,665 or 30.0% to $1,911,555 for the nine months ended September 30, 2013 compared to the same periods of 2012. The decrease during the three and nine months ended September 30, 2013 was due to substantial expense reductions including the elimination of executive positions, reduction of executive salaries and stock compensation, lower staff level headcount costs, lower accounting and SEC compliance costs, and lower overhead costs.

Other income (expense), net. Other income (expense) for the quarter ended September 30, 2013 was ($3,674,143) resulting from ($842,434) of interest expense related to the amortization of the discount to the senior convertible debentures and deferred financing fees issued in November 2012, March 2013, and June 2013 and interest charged on the line of credit entered into in March 2013 in addition to ($2,831,709) of other expense related to losses on mark-to-market derivative liabilities. Expense for the September 2012 quarter of ($577,565) was the result of interest expense on convertible bridge notes payable and mark to market losses from derivative liabilities.

Other income for the nine months ended September 30, 2013 was $8,737,673 resulting from the net effect of ($4,352,614) of interest expense related to the estimated fair value of derivative liabilities in excess of face value of the senior convertible debentures, imputed interest on debentures issued in March and June 2013, the amortization of the debt discount and deferred financing fees issued in November 2012, March 2013, and June 2013 and interest charged on the line of credit entered into in March 2013 offset by $13,090,282 of other income related to gains on mark-to-market derivative liabilities. Expense for the nine months ended September 30, 2012 of ($742,128) was the result of interest expense on notes payable and mark to market derivative related losses from derivative liabilities.

Provision for income taxes.  The Company recorded a provision for income taxes of $0 and $1,919 for the three and nine months ended September 30, 2013 respectively and $0 and $3,150 for the three and nine months ended September 30, 2012 reflecting minimum tax liabilities.

Net income (loss). Net loss for the three months ended September 30, 2013 was ($4,295,330) or ($0.19), per basic and diluted share compared to a loss of ($1,888,538), or ($0.15), per basic and diluted share, for the same period of the prior year.

Net income for the nine months ended September 30, 2013 was $6,382,692 or $0.35, per basic and diluted share compared to a loss of ($4,987,273), or ($0.39), per basic and diluted share, for the same period of 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.

For the year ended December 31, 2012, our independent registered public accounting firm noted in its report that we have incurred losses from operations and have an accumulated deficit of approximately $(76.4) million, a net loss of approximately ($21.5) million and we used cash in operations of approximately ($4.4) million which raises substantial doubt about our ability to continue as a going concern. The Company has incurred significant operating losses and has used substantial amounts of working capital in its operations since its inception (March 16, 2006). The Company has an accumulated deficit of $(70.0) million as of September 30, 2013, had net income of $6.4 million due primarily to gains due to the reduction of fair value of derivative liabilities and used cash in operations of $(2.6) million for the nine months ended September 30, 2013. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

The Company expects to continue to incur substantial additional operating losses from costs related to the continuation of sales and marketing, product and technology development and administrative activities. The Company believes that its cash on hand at September 30, 2013, together with the availability on its secured line of credit, the revenues from the sale of its products, and the continued implementation of its cost reduction strategy for material, production and service costs, is sufficient to sustain its planned operations into the fourth quarter of 2013; however, the Company cannot assure you of this and will require additional debt or equity financing in the future to maintain operations.

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 management’s cost reduction strategies will be effective or that any additional financing will be completed on a timely basis, on acceptable terms or at all. Management’s inability to successfully implement its cost reduction strategies or to complete any other financing will adversely impact the Company’s ability to continue as a going concern.

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In light of these plans, management is confident in the Company’s ability to continue as a going concern. These condensed 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 intend to raise additional equity and/or debt financing to meet our working capital requirements.

Our principal sources of liquidity are cash, receivables and our secured line of credit. As of September 30, 2013, cash and cash equivalents were $35,228, or 1.4% of total assets, compared to $1,293,136, or 34.4% of total assets, as of December 31, 2012.

Cash Flows

For the nine months ended September 30, 2013 and 2012

Net cash used in operating activities for the nine months ended September 30, 2013 and 2012 was ($2,625,558) and ($2,813,759), respectively. Net cash flows used were primarily due to net income of $6,382,692 reduced by net non-cash reconciling items of $(8,349,835) and cash used by net working capital changes of ($658,415).

Net cash flows for the nine months ended September 30, 2012 used were primarily due to a net loss of ($4,987,273) offset by net non-cash reconciling items of approximately $1.4 million and cash provided by net working capital changes of approximately $805,000.

There was no cash used in or provided by investing activities for the nine months ended September 30, 2013 and 2012.

Net cash provided by financing activities of $1,367,650 for the nine months ended September 30, 2013 was primarily related to borrowings on the line of credit, related party borrowings and the issuance of additional senior convertible debentures, net of financing costs, and warrant exercises for cash.

Net cash provided by financing activities for the nine months ended September 30, 2012 consisted primarily of $735,000 in cash received for notes payable.

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 stockholder’s equity that are not reflected in our condensed consolidated 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.  

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Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

Not Applicable

Item 4. Controls and Procedures.

Disclosure Controls and Procedures

Regulations under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) require public companies to maintain “disclosure controls and procedures,” which are defined to mean a company’s controls and other procedures that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Exchange Act s recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.

We conducted an evaluation, with the participation of our Chief Executive Officer and interim Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of September 30, 2013, to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities Exchange Commission’s rules and forms, including to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our Chief Executive Officer and interim Chief Financial Officer has concluded that as of September 30, 2013, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses described below.

In light of the material weaknesses described below, we performed additional analysis and other procedures to ensure our financial statements were prepared in accordance with generally accepted accounting principles. Accordingly, we believe that the financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.

A material weakness is a control deficiency (within the meaning of the Public Company Accounting Oversight Board (“PCAOB”) Auditing Standard No. 5) or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. Management has identified the following four material weaknesses which have caused management to conclude that, as of September 30, 2013, our disclosure controls and procedures were not effective at the reasonable assurance level:

1. We do not have written documentation of our internal control policies and procedures. Management evaluated the impact of our failure to have written documentation of our internal controls and procedures on our assessment of our disclosure controls and procedures and has concluded that the control deficiency represents a material control weakness.

2. We do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Management evaluated the impact of our failure to have segregation of duties on our assessment of our disclosure controls and procedures and has concluded that the control deficiency represents a material control weakness.

3. We did not maintain sufficient accounting resources with adequate training in the application of GAAP commensurate with our financial reporting requirements and the complexity of our operations and financing transactions, specifically related to the accounting and reporting of debt, equity, and derivative liabilities. Management evaluated the impact of this lack of sufficient technical accounting resources and has concluded that the control deficiency that resulted represented a material weakness.

4. Due to our small size, our internal controls structure relies, in part, on the ability of senior management to review day-to-day operations and activities so as to identify potential sources of material misstatements, errors, and omissions and as an important component of preventative controls. During 2012 and continuing into the first nine months of 2013, the Company experienced significant turnover at the senior management level including the Chief Executive and Chief Financial Officers. Management evaluated the impact of this turnover on our controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.

5. We did not have adequate Information Technology Controls (ITCs) or Information Technology General Controls (ITGCs). ITCs are policies and procedures that relate to many applications and support the effective functioning of application controls by helping to ensure the continued proper operation of information systems. The Company does not have IT policies and procedures documented.

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ITGCs include four basic information (IT) areas relevant to internal control over financial reporting: program development, program changes, computer operations, and access to programs and data. A material weakness existed related to our information technology general controls, including ineffective controls relating to access to programs and data including (1) user administration, (2) application and system configurations, and (3) periodic user access validation.

Remediation of Material Weaknesses . To address these material weaknesses, management performed additional analyses and other procedures to ensure that the consolidated financial statements included herein fairly present, in all material respects, our consolidated financial position, results of operations and cash flows for the periods presented.

We are attempting to remediate the material weaknesses in our disclosure controls and procedures and internal controls over financial reporting identified above by refining our internal procedures (see below).

We have initiated the following corrective actions, which management believes are reasonably likely to materially affect our financial reporting as they are designed to remediate the material weaknesses as described above:

• We are in the process of further enhancing our internal finance and accounting organizational structure and we have retained consultants with the necessary technical expertise.

• We are in the process of further enhancing the supervisory procedures to 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. We expect to document our internal control structure in greater detail in 2013.

• We have outsourced our IT function which will allow us to document and enhance our ITCs and ITGCs.

• We have hired a new Chief Executive Officer in February 2013 and we retained the services of our former Chief Financial Officer as a consultant to assist us in the preparation of financial statements and to ensure a smooth operational and financial reporting transition.

We do not expect to have fully remediated these material weaknesses until management has implemented additional internal controls and procedures, tested those internal controls and found them to have been remediated. We expect to complete this process later in fiscal 2013.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

There were no material changes from the legal proceedings previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2012, as filed with the SEC on April 16, 2013.

Item 1A. Risk Factors

There were no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2012, as filed with the SEC on April 16, 2013, except for the following risk factors:

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 for all fiscal years since our inception (March 16, 2006). Our net income for the nine months ended September 30, 2013 was approximately $6.4 million and which included a $13.1 million gain resulting from revaluations of our derivative liabilities and are not indicative of operating income.  Such gains are not sustainable to provide for future net income. Our net losses for the years ended December 31, 2012, 2011, 2010, 2009, and 2008 were approximately $(21.5 million) $(5.5 million), $(8.3 million), $(6.7 million), and $(12.3 million), respectively. A large portion of our expenses are fixed, and accordingly, we will need to significantly increase our sales in order to achieve profitability. We anticipate that we will continue to generate losses in the near future, and the rate at which we will incur losses could continue or even increase in future periods from current levels as a result of any of the following:

• we may be unable to increase sales sufficiently to recognize economies of scale;

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• we may be unable to successfully expand into other private security markets or achieve broad brand recognition for our products;

• we may be unable to reduce our costs or experience unanticipated costs or expenses in connection with our current development, marketing and manufacturing plans;

• we may encounter technological challenges in connection with the development, introduction or manufacturing of enhancements to our existing vehicles or in the addition of new products; and

• we may be unable to obtain sufficient components or materials used in our products due to capital constraints, which could adversely affect 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 will require additional financings in 2013. 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% in interest of certain major investors that acquired our Class H and I warrants in connection with our May 2011 public offering. 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, 2012 and 2011 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 September 30, 2013, December 31, 2012, and 2011 was approximately $(70.0 million), $(76.4 million), and $(54.9 million), respectively. At September 30, 2013 and December 31, 2012, we had cash and cash equivalents (including restricted cash) of $35,228 and $1,303,136, respectively.

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 may require additional capital to meet our working capital requirements, achieve our expansion plans and fund our research and development. We plan to continue to raise additional equity or debt financing to meet our working capital requirements. If we fail as a going concern, our shares of common stock will hold little or no value.

We rely on a small number of senior executives to manage the Company. We have recently hired new senior management who have a limited history with the Company. New management may be limited in their effectiveness, may be inefficient, or may miss opportunities or problems due to their inexperience with the Company. We may need to replace one or both of our new executives. The new management may implement new strategies or plans that result in additional losses or loss of shareholder value.

On April 2, 2012, the Company’s Founder, Chairman of the Board of Directors, and Chief Executive Officer resigned as Chief Executive Officer and assumed the role of Chief Technology Officer. Concurrently, the Company appointed Rod Keller, Jr. as Chief Executive Officer and Domonic J. Carney as Chief Financial Officer. On October 26, 2012, Mr. Carney resigned as Chief Financial Officer and no replacement has since been identified. On February 26, 2013, Mr. Keller resigned as Chief Executive Officer and was replaced by William Tsumpes as Chief Executive Officer and interim Chief Financial Officer. If Mr. Tsumpes is unable to properly perform his duties as Chief Executive Officer and interim Chief Financial Officer, the Company’s competitive advantages may be negatively impacted, additional costs may be incurred, and additional time spent recruiting replacement or additional executives may need to be hired. This may result in costly time delays for the implementation of sales growth strategies, delays in cost reduction measures or delays in future product launches. Any of these events could increase our operating losses and require additional capital which may be dilutive to investors. We do not maintain key man life insurance on any of our executive officers. If one or more of our executive officers is unable or unwilling to continue in their present positions, 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 which may impact our financial results.

Risks Relating to Ownership of Our Securities

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 and we have received regulatory approval to increase our authorized number of common shares to 250,000,000 shares. After the conversion of all of our Series A convertible preferred stock our board of directors will be entitled to issue up to 20,000,000 additional shares of preferred stock with rights, preferences and privileges that are senior to our common stock. The power of the board of directors to issue additional securities is generally not subject to stockholder approval.

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.

33

Furthermore, these financings may require the consent of a supermajority in interest of certain major purchasers of our recent Class H and I warrants. 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.

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 directionor 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:

• 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;

• prohibit stockholders holding less than 25% of the outstanding voting shares from calling special meetings; and

• establish advance notice requirements for submitting nominations for election to the board of directors and for proposing matters that can be acted upon by stockholders at a meeting.

In addition, we are governed by the provisions of Section 203 of Delaware General Corporate Law. These provisions may prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us, which may prevent or frustrate any attempt by our stockholders to change our management or the direction in which we are heading. These and other provisions in our amended and restated certificate of incorporation and bylaws and under Delaware law could reduce the price that investors might be willing to pay for shares of our common stock in the future and result in the market price being lower than it would be without these provisions.

Furthermore, certain mergers where stockholders may receive cash or non-publicly traded securities require the consent of a supermajority in interest of certain major purchasers of our recent Class H and I warrants. If we are unable to obtain such consent, we may be unable to obtain consummate mergers or sales of our company that may be favorable to stockholders. Such provisions could also deter potential buyers from initiating an offer.

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. Our common stock was de-listed by the NYSE MKT on July 6, 2013 and was affirmed on appeal, therefore we cannot assure that you will obtain sufficient liquidity in your holdings of our common stock which is now listed on Nasdaq OTC.BB.

This situation may be attributable to a number of factors, including the fact that we are a small company which is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk averse and would be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our shares until such time as we became more seasoned and viable. As a consequence, there may be periods of several days, weeks or months when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support 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.

Our securities were de-listed from our primary exchange and are currently listed on Nasdaq OTC.BB.  If we cannot successfully get our securities listed on another national exchange, our securities may not have a readily available market and your ability to sell your stockholdings may be impaired

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.

We cannot provide any assurance that an active or liquid trading market in our securities will develop or, if developed, that the market will continue. The Company intends to work towards listing on another exchange but we currently have no firm plans to list on NYSE MKT or another similar exchange.  As such, your securities may not have a readily available market and you may have a limited ability to sell your shareholdings, if at all.

34

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None

Item 3. Defaults Upon Senior Securities.

None

Item 4. Mine Safety Disclosures

None

Item 5. Other Information.

None

Item 6. Exhibits.

The exhibits listed on the Exhibit Index are provided as part of this report.

INDEX TO EXHIBITS

Exhibit Number		Description
	3.1	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)
	10.112	Loan and Security Agreement between T3 Motion Inc. and Alpha Capital Anstalt and Brio Capital Master Fund Ltd. dated March 21, 2013 (4)
	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
	32.2	Section 906 Certificate of Chief Financial Officer
	101.INS**	XBRL Instance Document
	101.SCH**	XBRL Taxonomy Extension Schema Document
	101.CAL**	XBRL Taxonomy Extension Calculation Linkbase Document
	101.DEF**	XBRL Taxonomy Extension Definition Linkbase
	101.LAB**	XBRL Taxonomy Extension Label Linkbase Document
	101.PRE**	XBRL Taxonomy Extension Presentation Linkbase Document

35

__________________

**	XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.
(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.
(4)	Filed with the Company’s Current Report on Form 8-K filed on March 28, 2013.

36

SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: November 19, 2013	T3 MOTION, INC.
	By:	/s/ William Tsumpes
		William Tsumpes
		Chief Executive Officer and interim Chief Financial Officer

37

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, William Tsumpes, certify that:

1. I have reviewed this quarterly report on Form 10-Q of T3 Motion, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its condensed consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of the annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal controls over financial reporting.

5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: November 19, 2013	By:	/s/ William Tsumpes
		William Tsumpes Chief Executive Officer (Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, William Tsumpes, certify that:

1. I have reviewed this quarterly report on Form 10-Q of T3 Motion, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its condensed consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of the annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal controls over financial reporting.

5. I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: November 19, 2013	By:	/s/ William Tsumpes
		William Tsumpes
		Chief Executive Officer (Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of T3 Motion, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, William Tsumpes, Chief Executive Officer and interim Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 19, 2013	By:	/s/ William Tsumpes
		William Tsumpes Chief Executive Officer (Principal Executive Officer)

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of T3 Motion, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, William Tsumpes, Chief Executive Officer and interim Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 19, 2013	By:	/s/ William Tsumpes
		William Tsumpes
		Chief Executive Officer
		(Principal Financial Officer)

XML

NOTE 11 - RELATED PARTY TRANSACTIONS

9 Months Ended

Sep. 30, 2013

Related Party Transactions [Abstract]

Related Party Transactions Disclosure [Text Block]

NOTE 11 — RELATED PARTY TRANSACTIONS

The following reflects the activity of the related party transactions for the respective periods.

Significant Ownership By Management

Mr. Nam, currently Chief Executive Officer of R3 Motion, Inc., a wholly-owned subsidiary of the Company, current director of the Company and former Chief Executive Officer and Chairman of the Board of Directors, together with his children, owns 15.6% of the outstanding shares of the Company’s common stock.

Related Party Notes Payable — see Note 5

Senior Convertible Debentures

On November 27, 2012, T-Energy, a company controlled by William Tsumpes, purchased $100,000 of our November 2012 Debentures. At the time of the investment, Mr. Tsumpes was not affiliated with the Company. On December 31, 2012, Mr. Tsumpes was elected as a Director of the Company. On February 24, 2013, Mr. Tsumpes was appointed as the Chief Executive Officer and interim Chief Financial Officer of the Company.

XML

NOTE 11 - RELATED PARTY TRANSACTIONS (Details) (USD $)	12 Months Ended
	Dec. 27, 2012 William Tsumpes [Member]	Sep. 30, 2013 Chief Executive Officer [Member]
NOTE 11 - RELATED PARTY TRANSACTIONS (Details) [Line Items]
Equity Method Investment, Ownership Percentage		15.60%
Proceeds From Convertible Debt Related Party (in Dollars)	$ 100,000

XML

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Net revenues	$ 726,148	$ 884,924	$ 3,285,733	$ 3,746,243
Cost of net revenues	607,740	678,617	2,538,506	3,159,464
Gross profit	118,408	206,307	747,227	586,779
Operating Expenses:
Sales and marketing	132,291	472,890	603,249	1,453,056
Research and development	124,401	179,694	585,485	645,498
General and administrative	482,903	864,696	1,911,555	2,730,220
Total operating expenses	739,595	1,517,280	3,100,289	4,828,774
Loss from operations	(621,187)	(1,310,973)	(2,353,062)	(4,241,995)
Other income (expense):
Interest income		7	5	817
Other income (expense), net	(2,831,709)	(351,565)	13,090,282	(396,717)
Interest expense	(842,434)	(226,007)	(4,352,614)	(346,228)
Total other income (expense), net	(3,674,143)	(577,565)	8,737,673	(742,128)
Income (loss) before provision for income tax	(4,295,330)	(1,888,538)	6,384,611	(4,984,123)
Provision for income tax			1,919	3,150
Net income (loss)	$ (4,295,330)	$ (1,888,538)	$ 6,382,692	$ (4,987,273)
Weighted average number of common shares outstanding:
Basic and diluted (in Shares)	22,073,603	12,906,027	18,177,048	12,890,368
Net income (loss) per share:
Basic and diluted (in Dollars per share)	$ (0.19)	$ (0.15)	$ 0.35	$ (0.39)

XML

NOTE 4 - ACCRUED EXPENSES

9 Months Ended

Sep. 30, 2013

Payables and Accruals [Abstract]

Accounts Payable and Accrued Liabilities Disclosure [Text Block]

NOTE 4— ACCRUED EXPENSES

Accrued expenses consist of the following:

	September 30, 2013		December 31, 2012
	(unaudited)
Accrued compensation	$	53,734	$	217,838
Deferred revenues and customer deposits		199,112		274,519
Accrued warranty reserve		45,713		104,106
Other accrued expenses		131,206		117,183
	$	429,765	$	713,646

XML

NOTE 5 - RELATED PARTY NOTES PAYABLE (Tables)

9 Months Ended

Sep. 30, 2013

Related Party Notes Payable [Abstract]

Schedule of Related Party Transactions [Table Text Block]

	September 30, 2013			December 31, 2012
	(unaudited)
Note payable to Alfonso and Mercy Cordero, 10% interest, due December 31, 2014.	$	1,000,000		$	1,000,000
Working capital loan payable to William Tsumpes, Chief Executive Officer	130,000			—
		1,130,000			1,000,000
Less current portion		(130,000	)		(1,000,000	)
	$	1,000,000		$	—

XML

NOTE 12 - SUBSEQUENT EVENTS

9 Months Ended

Sep. 30, 2013

Subsequent Events [Abstract]

Subsequent Events [Text Block]

NOTE 12 — SUBSEQUENT EVENTS

On October 26, 2013 the Company and the lenders of the Senior Secured Line of Credit described in Note 6 agreed to increase the available borrowings under the line of credit to $1,000,000.

On October 31, 2013, the Company appointed Mr. Chris Spencer as an independent member of the Board of Directors.  Mr. Spencer shall also serve as the audit committee chair.

In October 2013, the Company borrowed $15,000 on a short-term unsecured non-interest bearing working capital loan from William Tsumpes, the Company’s Chief Executive Officer. In November 2013, the Company repaid the $15,000 working capital loan. The loan was used to provide additional short term working capital.

XML

NOTE 9 - EQUITY (Details) - Summary of Stock Options Outstanding and Exercisable	9 Months Ended
	Sep. 30, 2013 USD ($)	Sep. 30, 2013 Stock Options One [Member] USD ($)	Sep. 30, 2013 Stock Options One [Member] AFN	Sep. 30, 2013 Stock Options Two [Member] USD ($)	Sep. 30, 2013 Stock Options Two [Member] AFN	Sep. 30, 2013 Stock Options Three [Member] USD ($)	Sep. 30, 2013 Stock Options Three [Member] AFN	Sep. 30, 2013 Stock Options Four [Member] USD ($)	Sep. 30, 2013 Stock Options Four [Member] AFN	Sep. 30, 2013 Stock Options Five [Member] USD ($)	Sep. 30, 2013 Stock Options Five [Member] AFN
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Options Outstanding, Exercise Prices, Upper Range Limit		$ 0.16		$ 0.26		$ 0.51		$ 1.01		$ 5.01
Options Outstanding, Exercise Prices, Lower Range Limit (in Afghanis per share)			0.25		0.50		1.00		5.00		11.30
Options Outstanding - Number of Shares (in Shares)	2,170,025	450,000	450,000	825,004	825,004	425,000	425,000	271,221	271,221	198,800	198,800
Options Outstanding - Weighted Average Remaining Contractual Life	7 years 65 days	4 years 313 days	4 years 313 days	8 years 317 days	8 years 317 days	8 years 335 days	8 years 335 days	7 years 54 days	7 years 54 days	4 years 164 days	4 years 164 days
Options Outstanding - Weighted Average Exercise Price	$ 1.90	$ 0.22		$ 0.33		$ 0.68		$ 4.50		$ 11.30
Options Exercisable - Number of Shares (in Shares)	1,784,069	292,813	292,813	825,004	825,004	237,500	237,500	229,952	229,952	198,800	198,800
Options Exercisable - Weighted Average Exercise Price	$ 2.12	$ 0.21		$ 0.33		$ 0.65		$ 4.56		$ 11.30

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NOTE 9 - EQUITY (Tables)

9 Months Ended

Sep. 30, 2013

Stockholders' Equity Note [Abstract]

Schedule of Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Table Text Block]

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Share based compensation expense — cost of net revenues	$	986	$	7,966	$	16,005	$	24,275
Share based compensation expense — sales and marketing		1,777		31,247		27,553		101,423
Share based compensation expense — research and development		6,496		25,607		75,395		78,946
Share based compensation expense — general and administrative		57,247		111,165		269,945		343,389
Total share based compensation expense	$	66,506	$	175,985	$	388,898	$	548,033

Schedule of Share-based Compensation, Stock Options, Activity [Table Text Block]

	Number of Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life		Aggregate Intrinsic Value
Options outstanding — January 1, 2013		10,119,518		$	0.72
Options granted		125,000			0.16
Options exercised		—			—
Options forfeited		(8,074,493	)		0.47
Options cancelled		—			—
Total options outstanding — September 30, 2013		2,170,025		$	1.90		7.18	$	—
Options exercisable — September 30, 2013		1,784,069		$	2.12		6.98	$	—
Options vested and expected to vest — September 30, 2013		2,104,924		$	1.90		7.18	$	—
Options available for grant under the 2010 Plan at September 30, 2013		16,308,375

Schedule of Share-based Compensation, Shares Authorized under Stock Option Plans, by Exercise Price Range [Table Text Block]

					Options Outstanding				Options Exercisable
					Weighted Average Remaining		Weighted Average				Weighted Average
Exercise			Number of		Contractual		Exercise		Number of		Exercise
Prices			Shares		Life		Price		Shares		Price
$0.16	-	$0.25		450,000		4.86	$	0.22		292,813	$	0.21
$0.26	-	$0.50		825,004		8.87	$	0.33		825,004	$	0.33
$0.51	-	$1.00		425,000		8.92	$	0.68		237,500	$	0.65
$1.01	-	$5.00		271,221		7.15	$	4.50		229,952	$	4.56
$5.01	-	11.30		198,800		4.45	$	11.30		198,800	$	11.30
				2,170,025		7.18	$	1.90		1,784,069	$	2.12

	Number of Shares			Weighted- Average Exercise Price
Warrants outstanding — January 1, 2013		54,680,086		$	0.46
Warrants issued		5,000,000			0.10
Warrants exercised		(26,500	)		0.10
Warrants expired		(4,954,557	)		3.03
Total warrants outstanding — September 30, 2013		54,699,029		$	0.19

Schedule of Stockholders' Equity Note, Warrants or Rights [Table Text Block]

Warrant Series	Issue Date	Warrants Outstanding & Exercisable		Exercise Price					Expiration Date
Class E Warrants	2/23/09		27,478	$	0.63	(3),	(6),	(7)	2/23/2014
Class G Warrants — $5.00	Various		826,373	$	5.00	(4),	(5)		2014-2015
Class G Warrants — $7.00	Various		5,000	$	7.00	(4),	(5)		8/25/2015
Immersive Warrant 1	3/31/10		94,764	$	0.43	(6),	(7)		3/31/2015
Immersive Warrant 2	4/30/10		104,000	$	0.43	(6),	(7)		4/30/2015
Class I Warrants	5/19/11		4,916,057	$	0.10	(1),	(2)		5/13/2016
2011 Share Purchase Warrants	5/19/11		142,857	$	4.38				5/13/2016
Class J Warrants	6/28/11		50,000	$	3.50				4/25/2016
November 2012 Warrants	11/27/12		43,532,500	$	0.10	(6)			11/27/2017
March 2013 Warrants	3/4/13		2,500,000	$	0.10	(6)			3/4/2018
June 2013 Warrants	6/5/13		2,500,000	$	0.10	(6)			6/5/2018
Total			54,699,029

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NOTE 8 - DERIVATIVE LIABILITIES (Tables)

9 Months Ended

Sep. 30, 2013

Disclosure Text Block [Abstract]

Schedule of Derivative Liabilities at Fair Value [Table Text Block]

	September 30, 2013
	(unaudited)
Annual dividend yield		-
Expected life (years)	0.40	-	5.00
Risk-free interest rate	0.09	-	1.39%
Expected volatility	126%	-	168%

Schedule of Derivatives Instruments Statements of Financial Performance and Financial Position, Location [Table Text Block]

	# of Shares Convertible/ Exercisable at September 30, 2013		Level 3 Carrying Value September 30, 2013			Level 3 Carrying Value December 31, 2012
			(unaudited)
Ki Nam warrants, exercise price of $0.63/share; expire in 2014		27,478	$	2		$	518
Immersive warrants, exercise price of $0.43/share; expire in 2015		198,764		3,576			28,579
2012 Debentures convertible at $0.10 per share, expire November 2014		38,967,500		1,442,311			6,801,728
2012 November warrants, exercise price of $0.10 per share, expire in November 2017		43,532,500		2,741,666			9,905,044
March 2013 Debentures convertible at $0.10 per share, expire November 2014		2,500,000		92,533			—
2013 March warrants, exercise price of $0.10 per share, expire in March 2018		2,500,000		159,391			—
June 2013 Debentures convertible at $0.10 per share, expire November 2014		2,500,000		92,533			—
2013 June warrants, exercise price of $0.10 per share, expire in June 2018		2,500,000		161,040			—
Total		92,726,242	$	4,693,052		$	16,735,869
Change in fair value			$	(13,066,130	)

Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Table Text Block]

	2013			2012
Balance at January 1,	$	16,735,869		$	45,450
Issuance of warrants and embedded conversion features		1,159,385			386,585
Reclassification to additional paid-in capital upon debt conversion		(136,072	)		—
Change in fair value		(13,066,130	)		(126,530	)
Balance at September 30,	$	4,693,052		$	305,505

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NOTE 9 - EQUITY (Details) - Share-based Compensation Expenses, Stock Options (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Share based compensation expense	$ 66,506	$ 175,985	$ 388,898	$ 548,033
Cost Of Net Revenues [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Share based compensation expense	986	7,966	16,005	24,275
Selling and Marketing Expense [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Share based compensation expense	1,777	31,247	27,553	101,423
Research and Development Expense [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Share based compensation expense	6,496	25,607	75,395	78,946
General and Administrative Expense [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Share based compensation expense	$ 57,247	$ 111,165	$ 269,945	$ 343,389

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NOTE 5 - RELATED PARTY NOTES PAYABLE (Details) (USD $)	9 Months Ended			9 Months Ended	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2013 Cordeo [Member]	Jan. 14, 2011 Cordeo [Member]	Sep. 30, 2013 Tsumpes [Member]	Sep. 30, 2013 Alfonsa and Mercy Cordero 10 Percent [Member]	Sep. 30, 2012 Alfonsa and Mercy Cordero 10 Percent [Member]	Sep. 30, 2013 Alfonsa and Mercy Cordero 10 Percent [Member]	Sep. 30, 2012 Alfonsa and Mercy Cordero 10 Percent [Member]	Dec. 31, 2012 Alfonsa and Mercy Cordero 10 Percent [Member]	Jan. 14, 2011 October 2010 Notes [Member]
NOTE 5 - RELATED PARTY NOTES PAYABLE (Details) [Line Items]
Debt Instrument, Interest Rate at Period End					10.00%		10.00%
Debt Instrument, Face Amount										$ 1,000,000
Equity Method Investment, Ownership Percentage			5.00%
Debt Instrument, Periodic Payment, Interest		8,333
Interest Expense, Debt					25,000	25,000	75,000	75,000
Interest Payable					25,000		25,000		8,333
Proceeds from Related Party Debt	150,000			150,000
Repayments of Related Party Debt	$ 20,000			$ 20,000

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NOTE 8 - DERIVATIVE LIABILITIES (Details) (USD $)	0 Months Ended		3 Months Ended	9 Months Ended	0 Months Ended						3 Months Ended	9 Months Ended	0 Months Ended
	Jun. 05, 2013	Mar. 04, 2013	Sep. 30, 2013	Sep. 30, 2013	Mar. 04, 2013 Employee Stock Option [Member] Issue One [Member]	Jun. 05, 2013 Employee Stock Option [Member] Issue Two [Member]	Jun. 05, 2013 Warrant [Member] Issue One [Member]	Mar. 04, 2013 Warrant [Member] Immersive Warrants [Member]	Jun. 05, 2013 Warrant [Member] Issue Two [Member]	Jun. 05, 2013 Employee Stock Option [Member] Issue Two [Member]	Sep. 30, 2012 Warrants and Embedded Conversion Features [Member]	Sep. 30, 2012 Warrants and Embedded Conversion Features [Member]	Jun. 05, 2013 Ki Nam Warrants [Member]	Jun. 05, 2013 Immersive Warrants [Member]
NOTE 8 - DERIVATIVE LIABILITIES (Details) [Line Items]
Warrants Issued During Period Number Of Warrants (in Shares)					2,500,000
Warrants To Purchase Common Stock (in Shares)					2,500,000	2,500,000
Closing Market Price (in Dollars per share)			$ 0.08	$ 0.08	$ 0.23				$ 0.08
Share Exercise Price (in Shares)					0.10				0.10
Warrants Expiry Period		5 years					5 years		175 years
Fair Value Of Equity Securities	$ 20,000	$ 57,500			$ 372,722			$ 543,851	$ 183,314	$ 59,498
Class of Warrant or Right, Number of Securities Called by Warrants or Rights (in Shares)						2,500,000
Warrants Exercise Price (in Dollars per share)						$ 0.08			$ 0.10				$ 0.63	$ 0.43
Options To Purchase Common Stock (in Shares)									2,500,000
Modification Of Conversion Feature			(13,066,130)	2,893,344
Income Expense On Change In Fair Value Of Derivatives											$ (171,862)	$ 126,530

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NOTE 9 - EQUITY (Details) - Reconciliation of Warrants Issued and Exercised (USD $)	9 Months Ended
	Sep. 30, 2013
Reconciliation of Warrants Issued and Exercised [Abstract]
Warrants outstanding — January 1, 2013	54,680,086
Warrants outstanding — January 1, 2013 (in Dollars per share)	$ 0.46
Warrants issued	5,000,000
Warrants issued (in Dollars per share)	$ 0.10
Warrants exercised	(26,500)
Warrants exercised (in Dollars per share)	$ 0.10
Warrants expired	(4,954,557)
Warrants expired (in Dollars per share)	$ 3.03
Total warrants outstanding — September 30, 2013	54,699,029
Total warrants outstanding — September 30, 2013 (in Dollars per share)	$ 0.19

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NOTE 2 - INVENTORIES (Details) - Inventories (USD $)	Sep. 30, 2013	Dec. 31, 2012
Inventories [Abstract]
Raw materials	$ 1,055,975	$ 869,099
Work-in-process	80,908	256,161
Finished goods	81,995	34,181
	$ 1,218,878	$ 1,159,441

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NOTE 8 - DERIVATIVE LIABILITIES (Details) - Warrants and Embedded Conversion Options at Fair Value (Parentheticals) (USD $)	Sep. 30, 2013	Dec. 31, 2012
NOTE 8 - DERIVATIVE LIABILITIES (Details) - Warrants and Embedded Conversion Options at Fair Value (Parentheticals) [Line Items]
Conversion price (in Dollars per share)	$ 0.10
Ki Nam Warrants [Member]
NOTE 8 - DERIVATIVE LIABILITIES (Details) - Warrants and Embedded Conversion Options at Fair Value (Parentheticals) [Line Items]
Exercise price (in Dollars per Item)	0.63	0.63
Immersive Warrants [Member]
NOTE 8 - DERIVATIVE LIABILITIES (Details) - Warrants and Embedded Conversion Options at Fair Value (Parentheticals) [Line Items]
Exercise price (in Dollars per Item)	0.43	0.43
Convertibe Debentures 2012 [Member]
NOTE 8 - DERIVATIVE LIABILITIES (Details) - Warrants and Embedded Conversion Options at Fair Value (Parentheticals) [Line Items]
Conversion price (in Dollars per share)	$ 0.10	$ 0.10
Warants November 2012 [Member]
NOTE 8 - DERIVATIVE LIABILITIES (Details) - Warrants and Embedded Conversion Options at Fair Value (Parentheticals) [Line Items]
Exercise price (in Dollars per Item)	0.10	0.10
Convertible Debentures March 2013 [Member]
NOTE 8 - DERIVATIVE LIABILITIES (Details) - Warrants and Embedded Conversion Options at Fair Value (Parentheticals) [Line Items]
Conversion price (in Dollars per share)	$ 0.10	$ 0.10
Warrants March 2013 [Member]
NOTE 8 - DERIVATIVE LIABILITIES (Details) - Warrants and Embedded Conversion Options at Fair Value (Parentheticals) [Line Items]
Exercise price (in Dollars per Item)	0.10	0.10
Convertible Debentures June 2013 [Member]
NOTE 8 - DERIVATIVE LIABILITIES (Details) - Warrants and Embedded Conversion Options at Fair Value (Parentheticals) [Line Items]
Conversion price (in Dollars per share)	$ 0.10	$ 0.10
Warrants June 2013 [Member]
NOTE 8 - DERIVATIVE LIABILITIES (Details) - Warrants and Embedded Conversion Options at Fair Value (Parentheticals) [Line Items]
Exercise price (in Dollars per Item)	0.10	0.10

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NOTE 7 - SENIOR CONVERTIBLE DEBENTURES (Tables)

9 Months Ended

Sep. 30, 2013

Debt Disclosure [Abstract]

Schedule of Long-term Debt Instruments [Table Text Block]

	September 30, 2013			December 31, 2012
	(unaudited)
Senior Convertible Debentures, no stated interest, due November 26, 2014	$	4,396,750		$	4,353,250
Discount on Senior Convertible Debentures		(1,236,267	)		(3,947,742	)
		3,160,483			405,508
Less current portion		—			(405,508	)
Senior Convertible Debentures	$	3,160,483		$	0

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (USD $)	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$ 6,382,692	$ (4,987,273)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization	45,658	148,782
Warranty expense	51,874	73,118
Bad debt expense	3,228
Share-based compensation expense	388,898	548,033
Change in fair value of derivative liabilities	(13,066,130)	(126,530)
Amortization of debt discounts and deferred financing fees	3,489,752	226,077
Estimated fair value of derivative liabilities in excess of face value of the senior convertible debentures, net of imputed interest	736,885
Incremental cost related to modification of warrants		498,686
Change in operating assets and liabilities:
Restricted cash	10,000
Accounts receivable	(288,856)	(22,431)
Inventories	(59,437)	15,368
Prepaid expenses and other current assets	17,386	(8,222)
Accounts payable and accrued expenses	(337,508)	820,633
Net cash used in operating activities	(2,625,558)	(2,813,759)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings on related party bridge loan	150,000
Repayments of related party bridge loan	(20,000)
Proceeds from notes payable		735,000
Payment of financing fees		(4,013)
Net borrowings on secured line of credit	735,000
Proceeds from senior convertible debentures	500,000
Proceeds from exercise of common stock warrants	2,650
Net cash provided by financing activities	1,367,650	730,987
NET DECREASE IN CASH AND CASH EQUIVALENTS	(1,257,908)	(2,082,772)
CASH AND CASH EQUIVALENTS — beginning of period	1,293,136	2,184,939
CASH AND CASH EQUIVALENTS — end of period	35,228	102,167
Cash paid during the period for:
Interest	109,315	101,997
Income taxes	1,919	3,150
Supplemental disclosure of non cash investing and financing activities:
Deferred financing fees deducted from proceeds of borrowings on secured line of credit	15,000
Accrued financing fees payable in common stock		26,250
Deferred financing fees included in prepaid expenses		15,000
Common stock subscribed but unissued in connection with senior convertible debenture offering recorded as a debt discount	20,000
Debt discount and derivative liabilities related to embedded conversion feature and warrants recorded upon issuance of debt and warrants		386,585
Common stock issued in connection with senior convertible debenture offering recorded as a debt discount	57,500
Debt discount related to estimated fair value of warrants and conversion features issued in connection with senior convertible debentures	372,500
Issuance of common stock upon conversion of senior convertible debentures	456,500
Reclassification of conversion feature derivative liabilities upon conversion of senior convertible debentures	$ 136,072

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NOTE 2 - INVENTORIES

9 Months Ended

Sep. 30, 2013

Inventory Disclosure [Abstract]

Inventory Disclosure [Text Block]

NOTE 2 — INVENTORIES

Inventories consist of the following:

	September 30, 2013		December 31, 2012
	(unaudited)
Raw materials	$	1,055,975	$	869,099
Work-in-process		80,908		256,161
Finished goods		81,995		34,181
	$	1,218,878	$	1,159,441

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NOTE 5 - RELATED PARTY NOTES PAYABLE

9 Months Ended

Sep. 30, 2013

Related Party Notes Payable [Abstract]

Related Party Notes Payable [Text Block]

NOTE 5 — RELATED PARTY NOTES PAYABLE

Related party notes payable consists of the following:

	September 30, 2013			December 31, 2012
	(unaudited)
Note payable to Alfonso and Mercy Cordero, 10% interest, due December 31, 2014.	$	1,000,000		$	1,000,000
Working capital loan payable to William Tsumpes, Chief Executive Officer	130,000			—
		1,130,000			1,000,000
Less current portion		(130,000	)		(1,000,000	)
	$	1,000,000		$	—

Alfonso Cordero and Mercy Cordero Note

On January 14, 2011, the Company issued a 10% unsecured promissory note (the “Note”) to Alfonso G. Cordero and Mercy B. Cordero, Trustees of the Cordero Charitable Remainder Trust (the “Noteholder”) for amounts previously loaned to the Company in October 2010 in the principal amount of $1,000,000. At the date of issuance, Mr. Cordero controlled more than 5% of the Company’s then outstanding common stock. The Note was dated effective as of September 30, 2010. Monthly interest payments of $8,333 are due on the first day of each calendar month until the maturity date of December 31, 2014. The Company recorded interest expense of $25,000 and $75,000 for each of the three and nine month periods ended September 30, 2013 and 2012, respectively, and had accrued interest of $25,000 and $8,333 as of September 30, 2013 and December 31, 2012 respectively.

The Company may prepay the Note in full, but not in part, and is precluded from doing so under the terms of the Senior Convertible Debentures so long as any principal of the Senior Convertible Debentures is outstanding, without approval from the debenture holders. The Company would 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 and the applicable default interest rate increases to the lesser of 15% or the maximum rate allowed by law. Although the Company was not current on the required monthly interest payments as of September 30, 2013, as of the date of this filing, the Company has paid the accrued interest outstanding as of September 30, 2013. The Noteholder has not provided the Company with a notice of default under the Note agreement for the delinquent payments of monthly accrued interest. Therefore, the Company is in compliance with all terms of the Note as of the date of this filing.On August 8, 2013, the Company and the Noteholder agreed to extend the maturity date of the Note to December 31, 2014.

Tsumpes working capital loan

During the nine months ended September 30, 2013, the Company borrowed $150,000 on an unsecured non-interest bearing working capital loan from William Tsumpes, the Company’s Chief Executive Officer.  The Company may prepay the loan in full but is precluded from doing so under the terms of the Senior Convertible Debentures so long as any principal of the Senior Convertible Debentures is outstanding, without approval from the debenture holders. During the nine months ended September 30, 2013, the Company repaid $20,000 of the working capital loan.  The loan has no default provisions and there is no stated term for the loan.  The loan was used to provide additional working capital and is to be repaid in full upon the successful recapitalization of the Company.

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NOTE 3 - PREPAID EXPENSES AND OTHER CURRENT ASSETS

9 Months Ended

Sep. 30, 2013

Disclosure Text Block Supplement [Abstract]

Other Current Assets [Text Block]

NOTE 3 — PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consist of the following:

	September 30, 2013		December 31, 2012
	(unaudited)
Prepaid inventory	$	171,918	$	184,117
Deferred financing costs		99,407		362,684
Prepaid expenses and other current assets		127,247		132,434
	$	398,572	$	679,235

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NOTE 8 - DERIVATIVE LIABILITIES (Details) - Derivative at Fair Value	9 Months Ended
	Sep. 30, 2013
Minimum [Member]
NOTE 8 - DERIVATIVE LIABILITIES (Details) - Derivative at Fair Value [Line Items]
Expected life (years)	146 days
Risk-free interest rate	0.09%
Expected volatility	126.00%
Maximum [Member]
NOTE 8 - DERIVATIVE LIABILITIES (Details) - Derivative at Fair Value [Line Items]
Expected life (years)	5 years
Risk-free interest rate	1.39%
Expected volatility	168.00%

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NOTE 10 - COMMITMENTS AND CONTINGENCIES (Tables)

9 Months Ended

Sep. 30, 2013

Commitments and Contingencies Disclosure [Abstract]

Schedule of Product Warranty Liability [Table Text Block]

	2013			2012
Beginning balance, January 1,	$	104,106		$	123,692
Charged to cost of revenues		51,874			73,118
Usage		(110,267	)		(57,983	)
Ending balance, September 30,	$	45,713		$	138,827

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NOTE 3 - PREPAID EXPENSES AND OTHER CURRENT ASSETS (Details) - Prepaid Expenses and Other Current Assets (USD $)	Sep. 30, 2013	Dec. 31, 2012
Prepaid Expenses and Other Current Assets [Abstract]
Prepaid inventory	$ 171,918	$ 184,117
Deferred financing costs	99,407	362,684
Prepaid expenses and other current assets	127,247	132,434
	$ 398,572	$ 679,235

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NOTE 6 - SECURED LINE OF CREDIT (Details) (USD $)	3 Months Ended	9 Months Ended	10 Months Ended	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2013	Oct. 26, 2013 Eligible Customer Receivables [Member] Revolver Loan [Member]	Sep. 30, 2013 Revolver Loan [Member]	Mar. 31, 2013 Revolver Loan [Member]	Sep. 30, 2013 Revolver Loan [Member]	Oct. 26, 2013 Revolver Loan [Member]
NOTE 6 - SECURED LINE OF CREDIT (Details) [Line Items]
Line of Credit Facility, Maximum Borrowing Capacity				$ 750,000		$ 750,000	$ 1,000,000
Debt Instrument, Term		1 year
Line Of Credit Facility Borrowing Base Percentage			65.00%
Line Of Credit Prepayment Percentage				1.00%		1.00%
Line Of Credit Prepayment Amount				7,500		7,500
Line Of Credit Facility Administration Fee Percentage						2500.00%
Line Of Credit Facility Administration Fee						0.0725
Line Of Credit Facility Interest Payable In Arrears						1,500
Proceeds From Lines Of Credit Gross					187,500
Reclassification Of Conversion Feature Derivative Liabilities Due To Conversion Of Senior Convertible Debentures	1,429	136,072			172,500
Deferred Finance Costs, Net					15,000
Additional Proceeds From Lines Of Credit Net Of Repayments				562,500
Amortization of Debt Discount (Premium)				3,750		7,911
Interest Expense, Debt				$ 16,713		$ 50,981

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NOTE 9 - EQUITY (Details) - Warrants Outstanding (USD $)	9 Months Ended
	Sep. 30, 2013
Class of Warrant or Right [Line Items]
Warrants Outstanding & Exercisable (in Dollars)	$ 54,699,029
Class E Warrants [Member]
Class of Warrant or Right [Line Items]
Issue Date	Dec. 31, 2008
Warrants Outstanding & Exercisable (in Dollars)	27,478
Exercise Price	$ 0.63	[1],[2],[3]
Expiration Date	Feb. 23, 2014
Class G Warrants Issue One [Member]
Class of Warrant or Right [Line Items]
Warrants Outstanding & Exercisable (in Dollars)	826,373
Exercise Price	$ 5.00	[4],[5]
Expiration Date	Dec. 31, 2015
Class G Warrants Issue Two [Member]
Class of Warrant or Right [Line Items]
Warrants Outstanding & Exercisable (in Dollars)	5,000
Exercise Price	$ 7.00	[4],[5]
Expiration Date	Aug. 25, 2015
Immersive Warrants One [Member]
Class of Warrant or Right [Line Items]
Issue Date	Dec. 31, 2008
Warrants Outstanding & Exercisable (in Dollars)	94,764
Exercise Price	$ 0.43	[2],[3]
Expiration Date	Mar. 31, 2015
Immersive Warrants Two [Member]
Class of Warrant or Right [Line Items]
Issue Date	Dec. 31, 2008
Warrants Outstanding & Exercisable (in Dollars)	104,000
Exercise Price	$ 0.43	[2],[3]
Expiration Date	Apr. 30, 2015
Class I Warrant [Member]
Class of Warrant or Right [Line Items]
Issue Date	Dec. 31, 2008
Warrants Outstanding & Exercisable (in Dollars)	4,916,057
Exercise Price	$ 0.10	[6],[7]
Expiration Date	May 13, 2016
Share Purchase Warrants 2011 [Member]
Class of Warrant or Right [Line Items]
Issue Date	Dec. 31, 2008
Warrants Outstanding & Exercisable (in Dollars)	142,857
Exercise Price	$ 4.38
Expiration Date	May 13, 2016
Class J Warrants [Member]
Class of Warrant or Right [Line Items]
Issue Date	Dec. 31, 2008
Warrants Outstanding & Exercisable (in Dollars)	50,000
Exercise Price	$ 3.50
Expiration Date	Apr. 25, 2016
November 2012 Warrants [Member]
Class of Warrant or Right [Line Items]
Issue Date	Dec. 31, 2008
Warrants Outstanding & Exercisable (in Dollars)	43,532,500
Exercise Price	$ 0.10	[2]
Expiration Date	Nov. 27, 2017
March 2013 Warrants [Member]
Class of Warrant or Right [Line Items]
Issue Date	Dec. 31, 2008
Warrants Outstanding & Exercisable (in Dollars)	2,500,000
Exercise Price	$ 0.10	[2]
Expiration Date	Mar. 04, 2018
June 2013 Debentures [Member]
Class of Warrant or Right [Line Items]
Issue Date	Dec. 31, 2008
Warrants Outstanding & Exercisable (in Dollars)	$ 2,500,000
Exercise Price	$ 0.10	[2]
Expiration Date	Jun. 05, 2018

[1] Warrants were repriced on March 4, 2013 and June 5, 2013.

[2] Warrants' expiration dates range from December 29, 2014 to August 25, 2015.

[3] Of these warrants, 195,373 were issued to Ki Nam.

[4] Of these warrants, 4,275,128 represent warrants eligible for a vote to approve any future financing round where the contemplated issuance price is below the exercise price of the Class I warrants. A 2/3rds vote of the combined eligible outstanding Class I Warrants is required to approve such a transaction.

[5] Of these warrants, 1,138,885 were issued to Vision Capital and 632,243 were issued to Ki Nam, former Chairman of the Board of Directors. Each has beneficial ownership in excess of 10% of the common stock of the Company.

[6] Warrants were issued to Ki Nam, former Chairman of the Board of Directors and significant owner of the Company.

[7] Warrants are accounted for as derivative liabilities, see Note 8.

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NOTE 9 - EQUITY (Details) (USD $)	1 Months Ended		3 Months Ended		6 Months Ended	9 Months Ended
	Mar. 31, 2013	Nov. 27, 2012	Sep. 30, 2013	Mar. 31, 2013	Jun. 30, 2013	Sep. 30, 2013	Dec. 31, 2012
NOTE 9 - EQUITY (Details) [Line Items]
Value Of Additional Debentures						$ 500,000
Common Stock, Value, Subscriptions		647,625	20,000			20,000	647,625
Closing Market Price (in Dollars per share)			$ 0.08			$ 0.08
Number Of Common Stock Shares To Be Issued (in Shares)	250,000					2,212,500
Additional Common Stock Shares To Be Issued For Debentures (in Shares)	0.23
Number Of Common Stock Shares Restricted For Trade (in Shares)						250,000
Proceeds from Warrant Exercises						2,650
Conversion of Stock, Amount Converted						456,500
Debt Instrument, Convertible, Conversion Price (in Dollars per share)			$ 0.10			$ 0.10
Debt Conversion Interest Expenses			19,866			312,575
Adjustments To Additional Paid In Capital, Fair Value Of Debt Converted			51,429
Debt Conversion, Converted Instrument, Amount		1,240,750				456,500
Reclassification Of Embedded Conversion Feature						136,072
Share-based Compensation Arrangements by Share-based Payment Award, Options, Grants in Period, Weighted Average Exercise Price (in Dollars per share)						$ 0.16
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross (in Shares)						125,000
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Exercise Price (in Dollars per share)			$ 0.1474			$ 0.1474
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Volatility Rate						157.00%
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Term						2 years 6 months
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Risk Free Interest Rate						0.68%
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested, Weighted Average Grant Date Fair Value (in Dollars per share)						$ 0.16
Employee Service Share-based Compensation, Nonvested Awards, Compensation Not yet Recognized, Stock Options			300,000			300,000
Number Of Warrants Issued During Period (in Shares)						5,000,000
Value Of Warrants Issued During Period				543,851	183,314
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Outstanding, Weighted Average Remaining Contractual Terms					4 years
Number Of Common Stock Shares To Be Issued Pending Approval (in Shares)						0.10
June 2013 Debentures [Member]
NOTE 9 - EQUITY (Details) [Line Items]
Value Of Additional Debentures					250,000
Series I Warrant [Member]
NOTE 9 - EQUITY (Details) [Line Items]
Number Of Warrants Exercised During Period (in Shares)						26,500
Proceeds from Warrant Exercises						2,650
Common Stock And Additional Paid In Capital [Member]
NOTE 9 - EQUITY (Details) [Line Items]
Adjustments To Additional Paid In Capital, Fair Value Of Debt Converted						592,572
Class I Warrant [Member] | Ki Nam [Member]
NOTE 9 - EQUITY (Details) [Line Items]
Value Of Warrants Issued During Period						632,243
Class G Warrants [Member] | Ki Nam [Member]
NOTE 9 - EQUITY (Details) [Line Items]
Value Of Warrants Issued During Period						195,373
Vision Capital [Member]
NOTE 9 - EQUITY (Details) [Line Items]
Value Of Warrants Issued During Period						$ 1,138,885
Class I Warrant [Member]
NOTE 9 - EQUITY (Details) [Line Items]
Class of Warrant or Right, Exercise Price of Warrants or Rights (in Dollars per Item)					4,275,128

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CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Parentheticals) (USD $)	Sep. 30, 2013	Dec. 31, 2012
Series A convertible preferred stock, par value (in Dollars per share)	$ 0.001	$ 0.001
Series A convertible preferred stock, shares authorized (in Shares)	20,000,000	20,000,000
Series A convertible preferred stock, outstanding (in Shares)	0	0
Common stock, par value (in Dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized (in Shares)	250,000,000	250,000,000
Common stock, shares issued (in Shares)	22,100,777	15,296,777
Common stock, shares outstanding (in Shares)	22,100,777	15,296,777

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NOTE 8 - DERIVATIVE LIABILITIES

9 Months Ended

Sep. 30, 2013

Disclosure Text Block [Abstract]

Derivatives and Fair Value [Text Block]

NOTE 8— DERIVATIVE LIABILITIES

The Company applies the accounting standard that provides guidance for determining whether an equity-linked financial instrument, or embedded feature, is indexed to an entity’s 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 entity’s own common stock. From time to time, the Company issues common stock purchase warrants, preferred stock, and convertible debt which may provide for nonstandard anti-dilution provisions or embedded conversion features which reset with future issuances of common stock or common stock equivalents. The Company has determined that these provisions and features are derivative instruments.

The outstanding 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:

	September 30, 2013
	(unaudited)
Annual dividend yield		-
Expected life (years)	0.40	-	5.00
Risk-free interest rate	0.09	-	1.39%
Expected volatility	126%	-	168%

Expected volatility is based primarily on historical volatility of the Company, using daily pricing observations, and the Company’s peer group, using daily pricing observations. Historical volatility was computed 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 and embedded conversion features.

The Company currently has no reason to believe future volatility over the expected remaining life of these warrants or embedded conversion features is likely to differ materially from historical volatility. The expected life is based on the remaining term of the warrants or embedded conversion features. The risk-free interest rate is based on one-year to five year U.S. Treasury securities consistent with the remaining term of the instrument.

On March 4, 2013, the Company issued warrants to purchase 2,500,000 shares of the Company’s common stock and debentures convertible into 2,500,000 shares of the Company’s common stock to additional investors as described in Note 7. Both the warrants issued and the embedded conversion feature in the debentures had certain anti-dilution protection provisions. The Company valued the warrants on the date of issuance using a market value of $0.23 per share, an exercise price of $0.10 per warrant and a 5 year term for a fair value of $543,851 and valued the embedded conversion feature as a 268 day option to purchase 2,500,000 shares at an exercise price of $0.10 per share with a market value of $0.23 per share for a fair value of $372,722. The Company reviewed the underlying agreements and has concluded that these instruments do not qualify for exception from derivative accounting as they are not considered to be indexed to the Company’s own stock. Accordingly, the Company accounts for these instruments as derivative liabilities. The additional warrants and embedded conversion features were on terms identical to the Senior Convertible Debentures.

On June 5, 2013, the Company issued warrants to purchase 2,500,000 shares of the Company’s common stock and debentures convertible into 2,500,000 shares of the Company’s common stock to additional investors as described in Note 7. Both the warrants issued and the embedded conversion feature in the debentures had certain anti-dilution protection provisions. The Company valued the warrants on the date of issuance using a market value of $0.08 per share, an exercise price of $0.10 per warrant and a 5 year term for a fair value of $183,314 and valued the embedded conversion feature as a 175 day option to purchase 2,500,000 shares at an exercise price of $0.10 per share with a market value of $0.08 per share for a fair value of $59,498. The Company reviewed the underlying agreements and has concluded that these instruments do not qualify for exception from derivative accounting as they are not considered to be indexed to the Company’s own stock. Accordingly, the Company accounts for these instruments as derivative liabilities. The additional warrants and embedded conversion features were on terms identical to the Senior Convertible Debentures.

The dilutive issuances for the March 2013 and June 2013 Debenture offerings resulted in an exercise price reduction of the Ki Nam Warrants to $0.63 per share and for the Immersive Warrants to $0.43 per share. These two warrant series are marked to market at each reporting period and any gain or loss associated with the repricing is recorded as a change in fair value of the derivative liabilities.

The following table presents the Company’s warrants and embedded conversion options measured at fair value on a recurring basis:

	# of Shares Convertible/ Exercisable at September 30, 2013		Level 3 Carrying Value September 30, 2013			Level 3 Carrying Value December 31, 2012
			(unaudited)
Ki Nam warrants, exercise price of $0.63/share; expire in 2014		27,478	$	2		$	518
Immersive warrants, exercise price of $0.43/share; expire in 2015		198,764		3,576			28,579
2012 Debentures convertible at $0.10 per share, expire November 2014		38,967,500		1,442,311			6,801,728
2012 November warrants, exercise price of $0.10 per share, expire in November 2017		43,532,500		2,741,666			9,905,044
March 2013 Debentures convertible at $0.10 per share, expire November 2014		2,500,000		92,533			—
2013 March warrants, exercise price of $0.10 per share, expire in March 2018		2,500,000		159,391			—
June 2013 Debentures convertible at $0.10 per share, expire November 2014		2,500,000		92,533			—
2013 June warrants, exercise price of $0.10 per share, expire in June 2018		2,500,000		161,040			—
Total		92,726,242	$	4,693,052		$	16,735,869
Change in fair value			$	(13,066,130	)

During the three and nine months ended September 30, 2013, the Company recorded other income (expense) of ($2,893,344) and $13,066,130, respectively, and during the three and nine months ended September 30, 2012, the Company recorded other income of $171,862 and $126,530, respectively, related to the change in fair value of the warrants and embedded conversion features and is included in other income (expense), net in the accompanying condensed consolidated statements of operations.

The following table provides a reconciliation of the beginning and ending balances for our liabilities measured at fair value using Level 3 inputs for the nine months ended September 30, 2013 and 2012:

	2013			2012
Balance at January 1,	$	16,735,869		$	45,450
Issuance of warrants and embedded conversion features		1,159,385			386,585
Reclassification to additional paid-in capital upon debt conversion		(136,072	)		—
Change in fair value		(13,066,130	)		(126,530	)
Balance at September 30,	$	4,693,052		$	305,505

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CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT (UNAUDITED) (USD $)	Common Stock [Member]	Common Stock Subscription [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Income (Loss) [Member]	Total
BALANCE at Dec. 31, 2012	$ 15,297	$ 647,625	$ 59,484,297	$ (76,414,771)	$ 4,369	$ (16,263,183)
BALANCE (in Shares) at Dec. 31, 2012	15,296,777	1,962,500
Exercise of warrants	27		2,623			2,650
Exercise of warrants (in Shares)	26,500
Common stock issued for conversion of senior convertible debentures	4,565		451,935			456,500
Common stock issued for conversion of senior convertible debentures (in Shares)	4,565,000
Common stock issued in connection with senior convertible debentures	2,213	(705,125)	702,912
Common stock issued in connection with senior convertible debentures (in Shares)	2,212,500	(2,212,500)
Common stock subscribed in connection with senior convertible debentures		77,500				77,500
Common stock subscribed in connection with senior convertible debentures (in Shares)		500,000
Reclassification of derivative liabilities to additional paid-in capital upon conversion of senior convertible debentures			136,072			136,072
Share-based compensation expense			388,898			388,898
Net income				6,382,692		6,382,692
BALANCE at Sep. 30, 2013	$ 22,102	$ 20,000	$ 61,166,737	$ (70,032,079)	$ 4,369	$ (8,818,871)
BALANCE (in Shares) at Sep. 30, 2013	22,100,777	250,000

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CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (USD $)	Sep. 30, 2013	Dec. 31, 2012
Current assets:
Cash and cash equivalents	$ 35,228	$ 1,293,136
Restricted cash	0	10,000
Accounts receivable, net	823,942	538,314
Inventories	1,218,878	1,159,441
Prepaid expenses and other current assets	398,572	679,235
Total current assets	2,476,620	3,680,126
Property and equipment, net	28,973	74,631
Total assets	2,505,593	3,754,757
Current liabilities:
Accounts payable	1,161,164	1,162,917
Accrued expenses	429,765	713,646
Derivative liabilities	4,693,052	16,735,869
Secured line of credit	750,000
Current portion of notes payable, related parties	130,000	1,000,000
Current portion of senior convertible debentures, net of discount		405,508
Total current liabilities	7,163,981	20,017,940
Notes payable, related parties, net of current portion	1,000,000
Senior convertible debentures, net of discount and current portion	3,160,483
Total liabilities	11,324,464	20,017,940
Stockholders’ deficit:
Series A convertible preferred stock, $0.001 par value; 20,000,000 shares authorized; none outstanding at September 30, 2013 and December 31, 2012	0	0
Common stock, $0.001 par value; 150,000,000 shares authorized; 22,100,777 and 15,296,777 shares issued and outstanding at September 30, 2013 and December 31, 2012, respectively	22,102	15,297
Common stock subscribed but unissued	20,000	647,625
Additional paid-in capital	61,166,737	59,484,297
Accumulated deficit	(70,032,079)	(76,414,771)
Accumulated other comprehensive income	4,369	4,369
Total stockholders’ deficit	(8,818,871)	(16,263,183)
Total liabilities and stockholders’ deficit	$ 2,505,593	$ 3,754,757

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NOTE 10 - COMMITMENTS AND CONTINGENCIES (Details) (USD $)	9 Months Ended
	Sep. 30, 2013 mi
Commitments and Contingencies Disclosure [Abstract]
Share Based Payment Award Expiration Period	1 year
Lease Commitments, Reduced Monthly Minimum Base Rent Amount	$ 12,500
Lease Commitments, Past Due Rent Amount	46,000
Lease Commitments, Past Due Rent Biweekly Payment Amount	$ 5,750
Vehicle Warranty Coverage Period	1 year
Vehicle Warranty Coverage (in Miles)	2,500

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NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) (USD $) Share data in Millions, unless otherwise specified	9 Months Ended		12 Months Ended			12 Months Ended	9 Months Ended	12 Months Ended	3 Months Ended		9 Months Ended				12 Months Ended	9 Months Ended	12 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Dec. 31, 2012	Dec. 31, 2011	Sep. 30, 2013 Approximately [Member]	Dec. 31, 2012 Two Vendors [Member] Supplier Concentration Risk [Member]	Sep. 30, 2013 Customer Concentration Risk [Member] Accounts Receivable [Member]	Dec. 31, 2012 Customer Concentration Risk [Member] Accounts Receivable [Member]	Sep. 30, 2013 Customer Concentration Risk [Member] Net Revenues [Member]	Sep. 30, 2012 Customer Concentration Risk [Member] Net Revenues [Member]	Sep. 30, 2013 Customer Concentration Risk [Member] Net Revenues [Member]	Sep. 30, 2012 Customer Concentration Risk [Member] Net Revenues [Member]	Sep. 30, 2013 Supplier Concentration Risk [Member] Total Accounts Payable [Member]	Sep. 30, 2012 Supplier Concentration Risk [Member] Total Accounts Payable [Member]	Dec. 31, 2012 Supplier Concentration Risk [Member] Total Accounts Payable [Member]	Sep. 30, 2013 Supplier Concentration Risk [Member] Inventory Purchases [Member]	Dec. 31, 2012 Supplier Concentration Risk [Member] Inventory Purchases [Member]
NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) [Line Items]
Cash and Cash Equivalents, at Carrying Value (in Dollars)	$ 35,228	$ 102,167	$ 1,293,136	$ 2,184,939	$ 35,000
Retained Earnings (Accumulated Deficit) (in Dollars)	(70,032,079)		(76,414,771)
Net Cash Provided by (Used in) Operating Activities (in Dollars)	(2,625,558)	(2,813,759)
Cash, FDIC Insured Amount (in Dollars)	250,000
Restricted Cash and Cash Equivalents, Current (in Dollars)	0		10,000
Allowance for Doubtful Accounts Receivable (in Dollars)	50,310		111,800
Concentration Risk, Percentage						25.00%	21.00%	31.00%	11.00%	10.00%	10.00%	10.00%	10.00%	10.00%	40.00%	10.00%
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition																	10 years
Product Warranty Period			2500 years
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount (in Shares)		14.1	101.1
Other Operating Income (Expense), Net (in Dollars)	$ 13,040,613
Number of Reportable Segments	1

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NOTE 4 - ACCRUED EXPENSES (Tables)

9 Months Ended

Sep. 30, 2013

Payables and Accruals [Abstract]

Schedule of Accrued Liabilities [Table Text Block]

	September 30, 2013		December 31, 2012
	(unaudited)
Accrued compensation	$	53,734	$	217,838
Deferred revenues and customer deposits		199,112		274,519
Accrued warranty reserve		45,713		104,106
Other accrued expenses		131,206		117,183
	$	429,765	$	713,646

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NOTE 8 - DERIVATIVE LIABILITIES (Details) - Reconciliation of Liabilities Measured at Fair Value (USD $)	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Reconciliation of Liabilities Measured at Fair Value [Abstract]
Balance	$ 16,735,869	$ 45,450
Issuance of warrants and embedded conversion features	1,159,385	386,585
Reclassification to additional paid-in capital upon debt conversion	(136,072)
Change in fair value	(13,066,130)	(126,530)
Balance	$ 4,693,052	$ 305,505

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NOTE 12 - SUBSEQUENT EVENTS (Details) (USD $)	9 Months Ended			1 Months Ended		9 Months Ended
	Sep. 30, 2013	Dec. 31, 2012	Oct. 26, 2013 Subsequent Event [Member] Tsumpes [Member]	Nov. 30, 2013 Subsequent Event [Member]	Oct. 26, 2013 Subsequent Event [Member]	Sep. 30, 2013 Tsumpes [Member]
NOTE 12 - SUBSEQUENT EVENTS (Details) [Line Items]
Notes Payable, Related Parties	$ 1,000,000	$ 0			$ 1,000,000
Notes Payable, Related Parties, Current	130,000	1,000,000	15,000
Repayments of Related Party Debt	$ 20,000			$ 15,000		$ 20,000

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NOTE 7 - SENIOR CONVERTIBLE DEBENTURES (Details) - Senior Convertible Debentures (USD $)	Sep. 30, 2013	Aug. 13, 2013	Dec. 31, 2012
Senior Convertible Debentures [Abstract]
Senior Convertible Debentures, no stated interest, due November 26, 2014	$ 4,396,750		$ 4,353,250
Discount on Senior Convertible Debentures	(1,236,267)		(3,947,742)
	3,160,483		405,508
Less current portion			(405,508)
Senior Convertible Debentures	$ 3,160,483	$ 4,396,750	$ 0

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NOTE 5 - RELATED PARTY NOTES PAYABLE (Details) - Related Party Notes Payable (USD $)	Sep. 30, 2013	Dec. 31, 2012
Related Party Transaction [Line Items]
Notes Payable, Related Parties	$ 1,000,000
	1,130,000	1,000,000
Less current portion	(130,000)	(1,000,000)
	1,000,000	0
Alfonsa and Mercy Cordero 10 Percent [Member]
Related Party Transaction [Line Items]
Notes Payable, Related Parties	1,000,000	1,000,000
William Tsumpes [Member]
Related Party Transaction [Line Items]
Notes Payable, Related Parties	$ 130,000

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NOTE 5 - RELATED PARTY NOTES PAYABLE (Details) - Related Party Notes Payable (Parentheticals) (Alfonsa and Mercy Cordero 10 Percent [Member])	Sep. 30, 2013	Dec. 31, 2012
Alfonsa and Mercy Cordero 10 Percent [Member]
Related Party Transaction [Line Items]
Notes Payable, Related Parties, Interest Rate	10.00%	10.00%

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NOTE 7 - SENIOR CONVERTIBLE DEBENTURES

9 Months Ended

Sep. 30, 2013

Debt Disclosure [Abstract]

Debt Disclosure [Text Block]

NOTE 7 — SENIOR CONVERTIBLE DEBENTURES

Senior convertible debentures consist of:

	September 30, 2013			December 31, 2012
	(unaudited)
Senior Convertible Debentures, no stated interest, due November 26, 2014	$	4,396,750		$	4,353,250
Discount on Senior Convertible Debentures		(1,236,267	)		(3,947,742	)
		3,160,483			405,508
Less current portion		—			(405,508	)
Senior Convertible Debentures	$	3,160,483		$	0

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.

Deferred Financing Fees

The Company incurred financing fees on the November 2012 Debentures of $399,939. No additional financing fees were incurred for the March 2013 or June 2013 tranches described below. For the three and nine months ended September 30, 2013, the Company amortized $54,991 and $244,383 respectively, of the November 2012 Debenture financing fees to interest expense in the accompanying consolidated statements of operations and will amortize the remaining $93,993 to interest expense through the revised maturity date of November 26, 2014.

Waiver on Debt Covenants and Provisions

On March 4, 2013, the Company received a waiver from the existing Debenture Holders which allowed for the Company to sell up to $646,750 of additional Senior Convertible Debt in one or more tranches. On March 4, 2013, the Company issued $250,000 of additional Senior Convertible Debentures and on June 5, 2013 the Company issued $250,000 of additional Senior Convertible Debentures as described below. The Company may issue up to $146,750 of additional Senior Convertible Debt without additional approval.

On March 4, 2013, the Company received a waiver from the existing Debenture Holders which allowed for the Company to enter into the secured revolving line of credit. See Note 6.

On August 5, 2013, Hudson Bay Capital Master Fund (“Hudson Bay” or the “Investor”), sent the Company a notice of default stating that the Company violated the terms of their November 2012 Debentures totaling $123,500 which provides that the Company may not amend the November 2012 Debenture without prior written consent of the Investor unless the November 2012 Debenture specifically states otherwise. The notice of default letter was in relation to the Company entering into the secured revolving line of credit. As described in Section 9(k) of the November 2012 Debentures, the November 2012 Debentures are secured by all assets of the Company and its subsidiaries and the Company is not permitted under the terms of the November 2012 Debentures to require any holder of the November 2012 Debentures to subordinate his or her November 2012 Debentures without the express written consent of such holder of November 2012 Debentures.

The Company strongly disagreed with the basis for the notice, disputed that it was in default under the November 2012 Debenture, and contended that it operated within the terms of said agreements by first obtaining the written waiver and approval of the majority of more than 51% of the November 2012 Debenture holders to enter in to the secured revolving line of credit, which was what the November 2012 Debentures expressly required.  Due to Hudson Bay entering into a private transaction with another Debenture Holder which resulted in the sale of the debenture from Hudson Bay to an existing Debenture Holder, the notice of default has been cured, (see below).

Modification of Convertible Debt

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.

March 2013 and June 2013 Senior Convertible Debentures

On March 4, 2013, the Company entered into Securities Purchase Agreements (“March 2013 Debentures”) with two accredited investors (the “March 2013 Debenture Holders”). In connection with the March 2013 Debentures, the Company and the March 2013 Debenture Holders also entered into identical agreements as the November 2012 Debentures including a Secured Convertible Debenture Agreement (the “2013 Debentures”), a Warrant Agreement (“March 2013 Warrant”), and a Security Agreement. Under these agreements, the March 2013 Debenture Holders provided an additional senior secured convertible loan to the Company in the aggregate principal amount of $250,000 due November 27, 2013 and received 250,000 Debenture Units.

On June 5, 2013, the Company entered into Securities Purchase Agreements (“June 2013 Debentures”) with two accredited investors (the “June 2013 Debenture Holders”). In connection with the June 2013 Debentures, the Company and the June 2013 Debenture Holders also entered into identical agreements as the November 2012 Debentures including a Secured Convertible Debenture Agreement (the “2013 Debentures”), a Warrant Agreement (“June 2013 Warrant”), and a Security Agreement. Under these agreements, the June 2013 Debenture Holders provided an additional senior secured convertible loan to the Company in the aggregate principal amount of $250,000 due November 27, 2013 and received 250,000 Debenture Units.

Each Debenture Unit consists of: i) one share of unregistered Common Stock of the Company, ii) one Senior Convertible Debenture convertible into Common Stock of the Company at an initial conversion price of $0.10 per share, and iii) ten warrants with a 5 year life, expiring March 4, 2018 and June 5, 2018, each exercisable into one share of Common Stock of the Company at an initial exercise price of $0.10 per share. During the nine months ended September 30, 2013, the Company received gross cash proceeds of $500,000 including $250,000 on March 4, 2013 and $250,000 on the June 5, 2013 closing dates. No additional costs or fees were incurred for the March 2013 or June 2013 Debentures. The initial conversion price of the 2013 Debentures and the exercise prices of the March 2013 and June 2013 Warrants are subject to “full-ratchet” antidilution provisions which would require a reset of the exercise price and conversion price if the Company issues additional equity securities below the then effective exercise or conversion price for the March 2013 Warrants, June 2013 Warrants or 2013 Debentures. The Company is accounting for the anti-dilution features included in the 2013 Debentures, the June 2013 Warrants and the March 2013 Warrants as derivative liabilities (see Note 8).

The March 2013 and June 2013 Debenture Holders also received the right, but not the obligation, to participate in a future financing of the Company at identical terms in equal amounts to their participation in the March 2013 and June 2013 Debentures participation levels. Pursuant to the terms of the Security Agreements, the 2013 Debentures are secured by all assets of the Company. On August 13, 2013, the maturity date of the March 2013 Debentures and June 2013 Debentures was extended to November 26, 2014.

Common Stock Issued and Issuable

At the date of the closing of the November 2012 Debenture offering and the March 2013 Debenture offering, the Company was limited by the regulations of the Securities and Exchange Commission to the issuance of no more than 19.99% of the then issued and outstanding common shares without shareholder approval. In November 2012, the Company received irrevocable voting proxies from shareholders representing 58% of the issued and outstanding shares, and a Definitive Information Statement noticing all shareholders of the actions taken was filed with the Securities and Exchange Commission on May 15, 2013.   On June 6, 2013, the Company issued all common stock remaining issuable as of December 31, 2012 and the common stock issuable on March 31, 2013 for the March 2013 Debentures.  The Company had not issued the common stock issuable for the June 5, 2013 Debentures as of September 30, 2013.  As of September 30, 2013, the Company has recorded Common Stock Subscribed but Unissued of $20,000 for 250,000 shares issuable for the June 5, 2013 Debentures.  The common stock issued on June 6, 2013 for the March 2013 Debentures and the common stock issuable is restricted for trading under Rule 144 until September 4, 2013 and December 5, 2013 for each 250,000 share issuance for the March 4, 2013 and June 5, 2013 Debentures, respectively. The Company recorded the fair value of the 250,000 shares of the Company’s common stock issued or issuable on the March 4, 2013 and June 5, 2013 closing dates as a discount of $57,500 and $20,000, respectively, to the Senior Convertible Debentures issued or issuable on each respective date.

Embedded Conversion Feature

The March 2013 and June 2013 Debentures were issued with an embedded conversion feature whereby the Debenture Holders can exchange their Debentures at any time until their due date for shares of the Company’s common stock at an exchange price initially set as $0.10 per share, subject to adjustment for antidilution provisions. The Company reviewed the underlying agreements and has concluded that these instruments do not qualify for exception from derivative accounting as they are not considered to be indexed to the Company’s own stock. Accordingly, the Company accounted for these instruments as derivative liabilities. The Company valued the conversion feature of the March 2013 Debentures as a one year call option to purchase 2,500,000 shares of the Company’s Common Stock with an initial fair value of $372,722 as described in Note 8 below. The initial value was recorded as a debt discount to the March 2013 Debentures limited to the face value of the March 2013 Debentures with the excess fair value recorded as interest expense (see Limitation on Debt Discount below). The Company valued the conversion feature of the June 2013 Debentures as a one year call option to purchase 2,500,000 shares of the Company’s Common Stock with an initial fair value of $59,498 as described in Note 8 below. The initial value was recorded as a debt discount to the June 2013 Debentures limited to the face value of the June 2013 Debentures with the excess fair value recorded as interest expense (see Limitation on Debt Discount below).

Warrants issued

The March 2013 and June 2013 Debentures were issued with warrants to purchase shares of common stock whereby the Debenture Holders can exercise their warrants at any time until March 4, 2018 and June 5, 2018 for the March 2013 and June 2013 Warrants, respectively, at exercise prices initially set as $0.10 per share, subject to adjustment for antidilution provisions. The Company reviewed the underlying agreements and has concluded that these instruments do not qualify for exception from derivative accounting as they are not considered to be indexed to the Company’s own stock. Accordingly, the Company accounted for these instruments as derivative liabilities. The Company valued the March 2013 Warrants to purchase 2,500,000 shares of the Company’s Common Stock with an initial fair value of $543,851 as described in Note 8. The initial fair value was recorded as a debt discount to the March 2013 Debentures limited to the face value of the March 2013 Debentures with the excess fair value recorded as interest expense (see Limitation on Debt Discount below).  The Company valued the June 2013 Warrants to purchase 2,500,000 shares of the Company’s Common Stock with an initial fair value of $183,314 as described in Note 8. The initial fair value was recorded as a debt discount to the June 2013 Debentures limited to the face value of the June 2013 Debentures with the excess fair value recorded as interest expense (see Limitation on Debt Discount below).

Imputed Interest

The March 2013 and June 2013 Debentures were issued without a cash interest component. Based on a review of existing debt securities, the Company believed an appropriate discount should be recorded and imputed a 10% interest value, or $50,000 for the total $500,000 of  the March and June 2013 Debentures, which was recorded to debt discount on the transaction date and offset to interest expense in the accompanying condensed consolidated statements of operations.

Limitation on Debt Discount

The combined fair value of the Common Stock Issuable of $57,500, the fair value of the embedded conversion feature of $372,722, the fair value of the March 2013 Warrants of $543,851, and the imputed interest discount of $25,000 exceeded the $250,000 face value of the March 2013 Debentures by $749,073. The Company recorded a debt discount of $250,000 on the transaction date and expensed the excess fair value to interest expense. The allocation of the imputed interest on the March 2013 Debentures of $25,000 was netted with the $749,073 excess fair value in interest expense. The discount of $250,000 is being amortized to interest expense over the term of the March 2013 Debentures.

The combined fair value of the Common Stock Issuable of $20,000, the fair value of the embedded conversion feature of $59,498, the fair value of the June 2013 Warrants of $183,314, and the imputed interest discount of $25,000 exceeded the $250,000 face value of the June 2013 Debentures by $37,812. The Company recorded a debt discount of $250,000 on the transaction date and expensed the excess fair value to interest expense. The allocation of the imputed interest on the June 2013 Debentures of $25,000 was netted with the $37,812 excess fair value in interest expense. The discount of $250,000 is being amortized to interest expense over the term of the June 2013 Debentures.

Convertible Debt Conversions

During the three and nine months ended September 30, 2013, investors converted $50,000 and $456,500, respectively, of senior convertible debentures respectively, originally issued on November 27, 2012 into 500,000 and 4,565,000 shares, respectively, of the Company’s common stock at a conversion price of $0.10 per share.  The Company recorded interest expense on the conversion during the three and nine months ended September 30, 2013 of $19,866 and $312,575, respectively, representing an accelerated recognition of a pro rata portion of the unamortized debt discount and deferred financing fees associated with the debentures.  The Company recorded common stock and additional paid-in capital of $51,429 and $592,572 on the conversions for the three and nine months ended September 30, 2013, respectively, consisting of the value of the debt converted of $50,000 and $456,500 for the three and nine months ended September 30, 2013, respectively, and $1,429 and $136,072 for the reclassification of the fair value of the embedded conversion feature derivative liabilities to additional paid-in capital on the date of conversion for the three and nine months ended September 30, 2013, respectively.

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NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - Earnings per Share (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Earnings per Share [Abstract]
Net income (loss) (in Dollars)	$ (4,295,330)	$ (1,888,538)	$ 6,382,692	$ (4,987,273)
Basic and diluted	22,073,603	12,906,027	18,177,048	12,890,368
Basic and diluted (in Dollars per share)	$ (0.19)	$ (0.15)	$ 0.35	$ (0.39)

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NOTE 8 - DERIVATIVE LIABILITIES (Details) - Warrants and Embedded Conversion Options at Fair Value (USD $)	9 Months Ended
	Sep. 30, 2013	Dec. 31, 2012
NOTE 8 - DERIVATIVE LIABILITIES (Details) - Warrants and Embedded Conversion Options at Fair Value [Line Items]
Number of warrants	92,726,242
Derivative liabilities	$ 4,693,052	$ 16,735,869
Change in fair value	(13,066,130)
Ki Nam Warrants [Member]
NOTE 8 - DERIVATIVE LIABILITIES (Details) - Warrants and Embedded Conversion Options at Fair Value [Line Items]
Number of warrants	27,478
Derivative liabilities	2	518
Immersive Warrants [Member]
NOTE 8 - DERIVATIVE LIABILITIES (Details) - Warrants and Embedded Conversion Options at Fair Value [Line Items]
Number of warrants	198,764
Derivative liabilities	3,576	28,579
Convertibe Debentures 2012 [Member]
NOTE 8 - DERIVATIVE LIABILITIES (Details) - Warrants and Embedded Conversion Options at Fair Value [Line Items]
Number of warrants	38,967,500
Derivative liabilities	1,442,311	6,801,728
Warants November 2012 [Member]
NOTE 8 - DERIVATIVE LIABILITIES (Details) - Warrants and Embedded Conversion Options at Fair Value [Line Items]
Number of warrants	43,532,500
Derivative liabilities	2,741,666	9,905,044
Convertible Debentures March 2013 [Member]
NOTE 8 - DERIVATIVE LIABILITIES (Details) - Warrants and Embedded Conversion Options at Fair Value [Line Items]
Number of warrants	2,500,000
Derivative liabilities	92,533
Warrants March 2013 [Member]
NOTE 8 - DERIVATIVE LIABILITIES (Details) - Warrants and Embedded Conversion Options at Fair Value [Line Items]
Number of warrants	2,500,000
Derivative liabilities	159,391
Convertible Debentures June 2013 [Member]
NOTE 8 - DERIVATIVE LIABILITIES (Details) - Warrants and Embedded Conversion Options at Fair Value [Line Items]
Number of warrants	2,500,000
Derivative liabilities	92,533
Warrants June 2013 [Member]
NOTE 8 - DERIVATIVE LIABILITIES (Details) - Warrants and Embedded Conversion Options at Fair Value [Line Items]
Number of warrants	2,500,000
Derivative liabilities	$ 161,040

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NOTE 10 - COMMITMENTS AND CONTINGENCIES

9 Months Ended

Sep. 30, 2013

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies Disclosure [Text Block]

NOTE 10 — COMMITMENTS AND CONTINGENCIES

Lease Commitments

On April 17, 2013, the Company signed an amendment to the lease of its primary office space in Costa Mesa, CA, formerly leased on a month-to-month basis.  The amendment includes a revised lease term of one year, effective to February 28, 2013 with a revised expiration date of February 28, 2014 and a reduction of minimum base rent to $12,500 per month.  The amendment requires payment of formerly past due rents of $46,000 at a rate of bi-weekly payments of $5,750 beginning May 1, 2013 until paid in full.

Warranties

The Company’s 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 from the date of the sale or 2,500 miles. 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.

The following table presents the changes in the product warranty accrual for the nine months ended September 30 (unaudited):

	2013			2012
Beginning balance, January 1,	$	104,106		$	123,692
Charged to cost of revenues		51,874			73,118
Usage		(110,267	)		(57,983	)
Ending balance, September 30,	$	45,713		$	138,827

Litigation

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 Company’s rights, including intellectual property rights as well as claims relating to employment and the safety or efficacy of the Company’s 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 of the Company. Additionally, any such claims, whether or not successful, could damage the Company’s reputation and business. Management believes the outcome of currently pending claims and lawsuits will not likely have a material effect on the Company’s consolidated operations or financial position.

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 Company’s officers under which the Company may be required to indemnify such person for liabilities arising out of their employment relationship. In connection with the November 2012, March 2013, and June 2013 Securities Purchase Agreements, we have indemnified the Debenture Holders from any and all losses relating to the breach of any of the representations, warranties, covenants or agreements made by the Company or any action instituted against the Debenture Holders as defined in the November 2012, March 2013, and June 2013 Securities Purchase Agreements. 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 condensed consolidated balance sheets.  

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NOTE 6 - SECURED LINE OF CREDIT

9 Months Ended

Sep. 30, 2013

Line Of Credit Facility [Abstract]

Line Of Credit Facility [Text Block]

NOTE 6 — SECURED LINE OF CREDIT

On March 21, 2013, the Company entered into a loan and security agreement (the “Revolver Loan”) with Alpha Capital Anstalt and Brio Capital Master Fund, Ltd. (the “Lenders”). Pursuant to the terms and subject to the conditions set forth in the loan agreement, the Lenders provided a senior secured line of credit to the Company of up to $750,000 with a one year term and which was increased to $1,000,000 on October 26, 2013 (see Note 12). The Revolver Loan is subject to borrowing base criteria and limitations and is not to exceed the combination of 80% of eligible customer receivables, 65% of eligible finished goods inventory, and 50% of eligible raw materials inventory. The Revolver Loan has a 1% annual fee, or $7,500, paid in advance, a monthly administration fee of the lesser of 0.5% of the balance outstanding or $2,500, and bears interest at 7.25% per annum on the outstanding balance. Interest is payable monthly in arrears with minimum interest of $1,500 per month. On March 24, 2013, the Company made an initial draw of $187,500 and received cash proceeds of $172,500; net of $15,000 of initial financing costs and fees. The Company made additional cash draws, net of repayments, of $562,500 during the nine months ended September 30, 2013.  This Revolver Loan is secured by all assets of the Company and is due on March 21, 2014. The Company may prepay the Revolver Loan at any time until the maturity date by paying all accrued interest and fees, principal, and a cash payment of 1% of the maximum amount, or $7,500 as a prepayment fee.

The Company recorded the initial financing costs and fees of $15,000 as deferred financing fees and is amortizing the deferred financing fees to interest expense over the term of the Revolver Loan. For the three and nine months ended September 30, 2013, the Company recorded amortization of $3,750 and $7,911 respectively, related to the deferred financing fees to interest expense, and recorded $16,713 and $50,981 in interest expense and fees for the three and nine months ended September 30, 2013, respectively.

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NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Sep. 30, 2013

Accounting Policies [Abstract]

Significant Accounting Policies [Text Block]

NOTE 1 — DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

T3 Motion, Inc. was incorporated on March 16, 2006, under the laws of the state of Delaware. T3 Motion, Inc. and its wholly-owned subsidiaries, R3 Motion, Inc. and T3 Motion, Ltd. (U.K.) (collectively, the “Company”, “we”, “us”, or “our”), develop and manufacture personal mobility vehicles powered by electric motors. The Company’s initial product, the T3 Series, is an electric, three-wheel stand-up vehicle (“ESV”) that is targeted to the law enforcement and private security markets. Substantially all of the Company’s revenues to date have been derived from sales of the T3 Series ESVs and related accessories and service.

Interim Unaudited Condensed Consolidated Financial Statements

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the Securities and Exchange Commission (the “SEC”) regulations for interim financial information. The principles for condensed interim financial information do not require the inclusion of all of the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. Therefore, these financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2012. The condensed consolidated financial statements included herein are unaudited; however, in the opinion of management, they contain all normal recurring adjustments necessary for a fair presentation of the consolidated results for the interim periods. The results of operations for the nine months ended September 30, 2013 are not necessarily indicative of the results that may be expected in any other period or for the entire fiscal year.

The Company has evaluated subsequent events through the filing date of this quarterly report on Form 10-Q, and determined that no subsequent events have occurred that would require recognition in the condensed consolidated financial statements or disclosure in the notes hereto other than as disclosed in the accompanying notes.

Certain amounts in the accompanying condensed consolidated financial statements have been reclassified to conform to the current period presentation.

Going Concern

The Company’s condensed consolidated financial statements have been prepared using the accrual method of accounting in accordance with 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 September 30, 2013, the Company had cash and cash equivalents of $35,228, an accumulated deficit of $(70,032,079) and used cash in operations of $(2,625,558) for the nine months ended September 30, 2013. These factors raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time. These condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

We expect to continue to incur substantial additional operating losses from costs related to the continuation of product and technology development and administrative activities. We believe that our cash on hand at September 30, 2013 of approximately $35,000, collections from the sale of our products, the savings from of our cost reduction strategy for material, production and service costs, and the proceeds from recent debt issuances, and borrowing availability on our line of credit are sufficient to sustain our planned operations into the fourth quarter of 2013; however, we cannot assure you of this and we may require additional debt or equity financing in the future to maintain operations.

In 2012, the Company implemented several strategies designed to reduce the costs of conducting its business. In addition, the Company intends to pursue raising additional debt or equity financing to fund its operating plans. The Company cannot make any assurances that management’s cost reduction strategies will be effective or that any additional financing will be completed on a timely basis, on acceptable terms or at all. If the Company is unable to complete a debt or equity offering on acceptable terms, or otherwise obtain sufficient financing when and if needed, it may be required to reduce, defer or discontinue one or all of its product development programs. Management’s inability to successfully implement its cost reduction strategies or to complete any other financing will adversely impact the Company’s ability to continue as a going concern.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of T3 Motion, Inc. and its wholly owned subsidiaries, R3 Motion, Inc. and T3 Motion, Ltd. (U.K.). All significant inter-company accounts and transactions are eliminated in consolidation.

Use of Estimates

The preparation of condensed 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 condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include, but are not limited to: collectability of receivables, recoverability of long-lived assets, realizability of inventories, warranty accruals, valuation of share-based transactions, valuation of derivative liabilities and valuation of deferred tax assets. We base our 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.

Concentrations of Credit Risk

Cash and Cash Equivalents

The Company maintains its cash accounts at financial institutions for which the Federal Deposit Insurance Corporation (“FDIC”) provides basic deposit coverage with limits up to $250,000 per owner. From time to time, balances in our cash accounts may 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 September 30, 2013, the Company had no 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 previous credit card processing agreement with a financial institution, the Company was required to maintain a security deposit as collateral. The amount of the deposit as of September 30, 2013 and December 31, 2012 was $0 and $10,000, respectively.

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 management’s 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. As of September 30, 2013 and December 31, 2012, the Company had an allowance for doubtful accounts of $50,310 and $111,800, respectively. Although the Company expects to collect amounts due, actual collections may differ from the estimated amounts.

As of September 30, 2013, two customers accounted for approximately 21% of total accounts receivable and as of December 31, 2012, two customers accounted for approximately 31% of total accounts receivable. One customer accounted for approximately 11% and no single customer accounted for more than 10% of net revenues for the three and nine months ended September 30, 2013 respectively.  One customer accounted for approximately 10% and no single customer accounted for more than 10% of net revenues for the three and nine months ended September 30, 2012 respectively.

Accounts Payable

As of September 30, 2013 and December 31, 2012, no vendor accounted for more than 10% of total accounts payable. Three vendors accounted for approximately 40% and no vendors accounted for more than 10% of inventory purchases for the three months ended September 30, 2013 and 2012, respectively.  Two vendors accounted for approximately 25% and no single vendor accounted for more than 10% of inventory purchases for the nine months ended September 30, 2013 and 2012, 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.

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued expenses, senior convertible debentures, related party notes payable, a secured line of credit and derivative liabilities. The carrying value for all such instruments except the 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 our related party notes payable due to the related party nature and instruments similar to the notes payable could not be found. The Company’s derivative liabilities are recorded at fair value (see Note 8).

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 Company’s 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. The Company’s cash equivalents consist of short-term investments in money market funds which are carried at fair value, and are classified as Level 1 assets.

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.

If the inputs used to measure fair value fall in different levels of the fair value hierarchy, a financial security’s hierarchy level is based upon the lowest level of input that is significant to the fair value measurement.

The Company’s derivative liabilities consist of price protection features for embedded conversion features on debt and warrants which are carried at fair value, and are classified as Level 3 liabilities. The Company uses the Black-Scholes-Merton option pricing model to determine the fair value of these instruments (see Note 8).

Beneficial Conversion Features, Detachable Warrants and Debt Discounts

The Company has issued convertible debentures with detachable warrants and common shares as incentives to induce investors to purchase low or non-interest bearing debt securities.

Convertible Features: The embedded conversion features of convertible debentures not considered to be derivative instruments 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 embedded conversion features of convertible debentures that are classified as derivative liabilities are recorded at fair value as a discount from the face amount of the respective debt instrument.

Warrants: The detachable warrants issued with the convertible debentures were classified as derivative liabilities and recorded at fair value as a discount from the face amount of the respective debt instrument.

Common Stock incentive: The fair value of the common stock issued, valued as of the date of issuance, was recorded as a discount from the face amount of the respective debt instrument.

Imputed interest: For debt instruments issued with below market or no interest component, the Company imputes a market rate of interest over the term of the debt instrument and records the imputed interest as a discount from the face amount of the respective debt instrument.

The Company issued debt instruments where the calculated discount exceeded the face amount of the respective debt instruments. The Company reduced the calculated discount to the face amount of the debt instruments issued and recorded interest expense for the difference of fair value over the face amount of the debt. The expense was recorded to interest expense for debt issued for cash and to loss on debt extinguishment for debt issued in exchange for previously held debt.

The Company amortizes the discounts using the straight-line method which approximates 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, title to product has passed or services provided, the sales price is fixed or determinable and collectability of any resulting receivable is reasonably assured.

For all revenues, the Company uses a binding purchase order or equivalent contract document 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. The Company assesses whether the sales price is fixed or determinable based on the payment terms associated with the transaction and whether the sales price is subject to refund. The Company offers a standard product warranty to its customers for defects in materials and workmanship for a period of one year or 2,500 miles, whichever comes first (see Note 10) with an optional purchased extended warranty. The Company typically has no other post-shipment obligations. The Company assesses collectability based on the creditworthiness of the customer as determined by evaluations and the customer’s 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.

The Company does not enter into contracts that require fixed pricing beyond the term of the purchase order. All sales via reseller agreements are accompanied by a purchase order.

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 in exchange for exclusive rights to those geographic regions. Under the terms of the agreements, the distributor takes ownership of the vehicles upon delivery and the Company deems the items sold at delivery to the distributor. The Company does not allow returns of unsold items for either direct sales or products sold through resellers or distributors.

Share-Based Compensation

The Company maintains a stock option plan (see Note 9) and records expenses attributable to the stock option plan. The Company values each option award using the Black-Scholes-Merton option pricing model and amortizes the related expense generally on a straight-line basis over the requisite service (vesting) period for the entire award.

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 consultant or vendor’s performance is complete. In the case of equity instruments issued to consultants, the expense for 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 grantor’s 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 a prepaid expense in its condensed consolidated balance sheets.

Income Taxes

We account for income taxes under the provisions of the accounting standards. Under the accounting standards, deferred tax assets and liabilities are recognized for the expected 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.

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. We recognize any uncertain income tax positions on income tax returns at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. As of September 30, 2013 and December 31, 2012, there were no unrecognized tax benefits included in the condensed consolidated balance sheets that would, if recognized, affect the effective tax rate. Our policy is to recognize interest and/or penalties related to income tax matters in income tax expense. We had no accrual for interest or penalties on our condensed consolidated balance sheets at September 30, 2013 and December 31, 2012 and have not recognized interest and/or penalties in the condensed consolidated statements of operations for the three and nine months ended September 30, 2013 and 2012.

We are subject to taxation in the U.S. and various state and foreign jurisdictions. Our tax years for 2008 through 2012 are subject to examination by the taxing authorities. With few exceptions, we are no longer subject to U.S., state, local, and foreign examination by taxing authorities for tax years ending before 2008.

We do not foresee material changes to our gross uncertain income tax position liability within the next twelve months.

Net Income (Loss) Per Share

Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares assumed to be outstanding during the period of computation. Diluted net income (loss) per share is computed similar to basic net income (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 to purchase approximately 101.1 million and 14.1 million shares of common stock were outstanding at September 30, 2013 and 2012, respectively, but were excluded from the computation of diluted net income (loss) per share.

The Company’s basic net income (loss) per share (“EPS”) amounts have been computed based on the weighted-average number of shares of common stock outstanding for the period. Diluted EPS reflects the potential dilution, using the treasury stock method and as-if-converted method for convertible debt, which could occur if all potentially dilutive securities were exercised. As the Company had a net loss for the three months ended September 30, 2013 and for the three and nine months ended September 30, 2012, no potentially dilutive securities were included in the calculation of diluted net income (loss) per share as their impact would have been anti-dilutive. In addition, although the Company had net income in the nine month period ended September 30, 2013, there are no common stock equivalents to be included as dilutive securities as any such common stock equivalents would be considered anti-dilutive due to the fact the Company would have to reduce net income by gains of $13,040,613 for the nine months ended September 30, 2013 related to the derivative liability associated with the senior convertible debentures and warrants which would result in a net loss rather than net income, resulting in the common stock equivalents being anti-dilutive.

	Three Months Ended September 30,							Nine Months Ended September 30,
	2013				2012			2013		2012
	(unaudited)							(unaudited)
Net income (loss)		$	(4,295,330	)	$	(1,888,538	)	$	6,382,692	$	(4,987,273	)
Weighted average number of common shares outstanding:
Basic and diluted			22,073,603			12,906,027			18,177,048		12,890,368
Net income (loss) per share:
Basic and diluted		$	(0.19	)	$	(0.15	)	$	0.35	$	(0.39	)

Business Segments

The Company has one reportable business segment due to the fact that the Company derives its revenue primarily from one product. The revenue from domestic sales and international sales are shown below:

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NOTE 10 - COMMITMENTS AND CONTINGENCIES (Details) - Product Warranty Accrual Changes (USD $)	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Product Warranty Accrual Changes [Abstract]
Beginning balance, January 1,	$ 104,106	$ 123,692
Charged to cost of revenues	51,874	73,118
Usage	(110,267)	(57,983)
Ending balance, September 30,	$ 45,713	$ 138,827

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NOTE 9 - EQUITY (Details) - Summary of Common Stock Option Activity (USD $)	9 Months Ended
	Sep. 30, 2013
NOTE 9 - EQUITY (Details) - Summary of Common Stock Option Activity [Line Items]
Options granted	125,000
Options granted (in Dollars per share)	$ 0.16
Total options outstanding — September 30, 2013	2,170,025
Total options outstanding — September 30, 2013 (in Dollars per share)	$ 1.90
Total options outstanding — September 30, 2013	7 years 65 days
Options exercisable — September 30, 2013	1,784,069
Options exercisable — September 30, 2013 (in Dollars per share)	$ 2.12
Stock Issuance Plans 2007 And 2010 [Member]
NOTE 9 - EQUITY (Details) - Summary of Common Stock Option Activity [Line Items]
Options outstanding — January 1, 2013	10,119,518
Options outstanding — January 1, 2013 (in Dollars per share)	$ 0.72
Options granted	125,000
Options granted (in Dollars per share)	$ 0.16
Options forfeited	(8,074,493)
Options forfeited (in Dollars per share)	$ 0.47
Total options outstanding — September 30, 2013	2,170,025
Total options outstanding — September 30, 2013 (in Dollars per share)	$ 1.90
Total options outstanding — September 30, 2013	7 years 65 days
Options exercisable — September 30, 2013	1,784,069
Options exercisable — September 30, 2013 (in Dollars per share)	$ 2.12
Options exercisable — September 30, 2013	6 years 357 days
Options vested and expected to vest — September 30, 2013	2,104,924
Options vested and expected to vest — September 30, 2013 (in Dollars per share)	$ 1.90
Options vested and expected to vest — September 30, 2013	7 years 65 days
Options available for grant under the 2010 Plan at September 30, 2013	16,308,375

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NOTE 4 - ACCRUED EXPENSES (Details) - Accrued Expenses (USD $)	Sep. 30, 2013	Dec. 31, 2012
Accrued Expenses [Abstract]
Accrued compensation	$ 53,734	$ 217,838
Deferred revenues and customer deposits	199,112	274,519
Accrued warranty reserve	45,713	104,106
Other accrued expenses	131,206	117,183
	$ 429,765	$ 713,646

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Accounting Policies, by Policy (Policies)

9 Months Ended

12 Months Ended

Sep. 30, 2013

Dec. 31, 2012

Accounting Policies [Abstract]

Basis of Accounting, Policy [Policy Text Block]

Interim Unaudited Condensed Consolidated Financial Statements

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the Securities and Exchange Commission (the “SEC”) regulations for interim financial information. The principles for condensed interim financial information do not require the inclusion of all of the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. Therefore, these financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2012. The condensed consolidated financial statements included herein are unaudited; however, in the opinion of management, they contain all normal recurring adjustments necessary for a fair presentation of the consolidated results for the interim periods. The results of operations for the nine months ended September 30, 2013 are not necessarily indicative of the results that may be expected in any other period or for the entire fiscal year.

The Company has evaluated subsequent events through the filing date of this quarterly report on Form 10-Q, and determined that no subsequent events have occurred that would require recognition in the condensed consolidated financial statements or disclosure in the notes hereto other than as disclosed in the accompanying notes.

Certain amounts in the accompanying condensed consolidated financial statements have been reclassified to conform to the current period presentation.

Going Concern [Policy Text Block]

Going Concern

The Company’s condensed consolidated financial statements have been prepared using the accrual method of accounting in accordance with 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 September 30, 2013, the Company had cash and cash equivalents of $35,228, an accumulated deficit of $(70,032,079) and used cash in operations of $(2,625,558) for the nine months ended September 30, 2013. These factors raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time. These condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

We expect to continue to incur substantial additional operating losses from costs related to the continuation of product and technology development and administrative activities. We believe that our cash on hand at September 30, 2013 of approximately $35,000, collections from the sale of our products, the savings from of our cost reduction strategy for material, production and service costs, and the proceeds from recent debt issuances, and borrowing availability on our line of credit are sufficient to sustain our planned operations into the fourth quarter of 2013; however, we cannot assure you of this and we may require additional debt or equity financing in the future to maintain operations.

In 2012, the Company implemented several strategies designed to reduce the costs of conducting its business. In addition, the Company intends to pursue raising additional debt or equity financing to fund its operating plans. The Company cannot make any assurances that management’s cost reduction strategies will be effective or that any additional financing will be completed on a timely basis, on acceptable terms or at all. If the Company is unable to complete a debt or equity offering on acceptable terms, or otherwise obtain sufficient financing when and if needed, it may be required to reduce, defer or discontinue one or all of its product development programs. Management’s inability to successfully implement its cost reduction strategies or to complete any other financing will adversely impact the Company’s ability to continue as a going concern.

Consolidation, Policy [Policy Text Block]

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of T3 Motion, Inc. and its wholly owned subsidiaries, R3 Motion, Inc. and T3 Motion, Ltd. (U.K.). All significant inter-company accounts and transactions are eliminated in consolidation.

Use of Estimates, Policy [Policy Text Block]

Use of Estimates

The preparation of condensed 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 condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates include, but are not limited to: collectability of receivables, recoverability of long-lived assets, realizability of inventories, warranty accruals, valuation of share-based transactions, valuation of derivative liabilities and valuation of deferred tax assets. We base our 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.

Concentration Risk, Credit Risk, Policy [Policy Text Block]

Concentrations of Credit Risk

Cash and Cash Equivalents

The Company maintains its cash accounts at financial institutions for which the Federal Deposit Insurance Corporation (“FDIC”) provides basic deposit coverage with limits up to $250,000 per owner. From time to time, balances in our cash accounts may 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 September 30, 2013, the Company had no 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 previous credit card processing agreement with a financial institution, the Company was required to maintain a security deposit as collateral. The amount of the deposit as of September 30, 2013 and December 31, 2012 was $0 and $10,000, respectively.

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 management’s 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. As of September 30, 2013 and December 31, 2012, the Company had an allowance for doubtful accounts of $50,310 and $111,800, respectively. Although the Company expects to collect amounts due, actual collections may differ from the estimated amounts.

As of September 30, 2013, two customers accounted for approximately 21% of total accounts receivable and as of December 31, 2012, two customers accounted for approximately 31% of total accounts receivable. One customer accounted for approximately 11% and no single customer accounted for more than 10% of net revenues for the three and nine months ended September 30, 2013 respectively.  One customer accounted for approximately 10% and no single customer accounted for more than 10% of net revenues for the three and nine months ended September 30, 2012 respectively.

Accounts Payable

As of September 30, 2013 and December 31, 2012, no vendor accounted for more than 10% of total accounts payable. Three vendors accounted for approximately 40% and no vendors accounted for more than 10% of inventory purchases for the three months ended September 30, 2013 and 2012, respectively.  Two vendors accounted for approximately 25% and no single vendor accounted for more than 10% of inventory purchases for the nine months ended September 30, 2013 and 2012, respectively.

Inventory, Policy [Policy Text Block]

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.

Fair Value Measurement, Policy [Policy Text Block]

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued expenses, senior convertible debentures, related party notes payable, a secured line of credit and derivative liabilities. The carrying value for all such instruments except the 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 our related party notes payable due to the related party nature and instruments similar to the notes payable could not be found. The Company’s derivative liabilities are recorded at fair value (see Note 8).

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 Company’s 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. The Company’s cash equivalents consist of short-term investments in money market funds which are carried at fair value, and are classified as Level 1 assets.

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.

If the inputs used to measure fair value fall in different levels of the fair value hierarchy, a financial security’s hierarchy level is based upon the lowest level of input that is significant to the fair value measurement.

The Company’s derivative liabilities consist of price protection features for embedded conversion features on debt and warrants which are carried at fair value, and are classified as Level 3 liabilities. The Company uses the Black-Scholes-Merton option pricing model to determine the fair value of these instruments (see Note 8).

Beneficial Conversion Features and Debt Discounts [Policy Text Block]

Beneficial Conversion Features, Detachable Warrants and Debt Discounts

The Company has issued convertible debentures with detachable warrants and common shares as incentives to induce investors to purchase low or non-interest bearing debt securities.

Convertible Features: The embedded conversion features of convertible debentures not considered to be derivative instruments 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 embedded conversion features of convertible debentures that are classified as derivative liabilities are recorded at fair value as a discount from the face amount of the respective debt instrument.

Warrants: The detachable warrants issued with the convertible debentures were classified as derivative liabilities and recorded at fair value as a discount from the face amount of the respective debt instrument.

Common Stock incentive: The fair value of the common stock issued, valued as of the date of issuance, was recorded as a discount from the face amount of the respective debt instrument.

Imputed interest: For debt instruments issued with below market or no interest component, the Company imputes a market rate of interest over the term of the debt instrument and records the imputed interest as a discount from the face amount of the respective debt instrument.

The Company issued debt instruments where the calculated discount exceeded the face amount of the respective debt instruments. The Company reduced the calculated discount to the face amount of the debt instruments issued and recorded interest expense for the difference of fair value over the face amount of the debt. The expense was recorded to interest expense for debt issued for cash and to loss on debt extinguishment for debt issued in exchange for previously held debt.

The Company amortizes the discounts using the straight-line method which approximates the effective interest method through maturity of such instruments.

Revenue Recognition, Policy [Policy Text Block]

Revenue Recognition

The Company recognizes revenues when there is persuasive evidence of an arrangement, product delivery and acceptance have occurred, title to product has passed or services provided, the sales price is fixed or determinable and collectability of any resulting receivable is reasonably assured.

For all revenues, the Company uses a binding purchase order or equivalent contract document 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. The Company assesses whether the sales price is fixed or determinable based on the payment terms associated with the transaction and whether the sales price is subject to refund. The Company offers a standard product warranty to its customers for defects in materials and workmanship for a period of one year or 2,500 miles, whichever comes first (see Note 10) with an optional purchased extended warranty. The Company typically has no other post-shipment obligations. The Company assesses collectability based on the creditworthiness of the customer as determined by evaluations and the customer’s 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.

The Company does not enter into contracts that require fixed pricing beyond the term of the purchase order. All sales via reseller agreements are accompanied by a purchase order.

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 in exchange for exclusive rights to those geographic regions. Under the terms of the agreements, the distributor takes ownership of the vehicles upon delivery and the Company deems the items sold at delivery to the distributor. The Company does not allow returns of unsold items for either direct sales or products sold through resellers or distributors.

Compensation Related Costs, Policy [Policy Text Block]

Share-Based Compensation

The Company maintains a stock option plan (see Note 9) and records expenses attributable to the stock option plan. The Company values each option award using the Black-Scholes-Merton option pricing model and amortizes the related expense generally on a straight-line basis over the requisite service (vesting) period for the entire award.

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 consultant or vendor’s performance is complete. In the case of equity instruments issued to consultants, the expense for 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 grantor’s 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 a prepaid expense in its condensed consolidated balance sheets.

Income Tax, Policy [Policy Text Block]

Income Taxes

We account for income taxes under the provisions of the accounting standards. Under the accounting standards, deferred tax assets and liabilities are recognized for the expected 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.

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. We recognize any uncertain income tax positions on income tax returns at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. As of September 30, 2013 and December 31, 2012, there were no unrecognized tax benefits included in the condensed consolidated balance sheets that would, if recognized, affect the effective tax rate. Our policy is to recognize interest and/or penalties related to income tax matters in income tax expense. We had no accrual for interest or penalties on our condensed consolidated balance sheets at September 30, 2013 and December 31, 2012 and have not recognized interest and/or penalties in the condensed consolidated statements of operations for the three and nine months ended September 30, 2013 and 2012.

We are subject to taxation in the U.S. and various state and foreign jurisdictions. Our tax years for 2008 through 2012 are subject to examination by the taxing authorities. With few exceptions, we are no longer subject to U.S., state, local, and foreign examination by taxing authorities for tax years ending before 2008.

We do not foresee material changes to our gross uncertain income tax position liability within the next twelve months.

Earnings Per Share, Policy [Policy Text Block]

Net Income (Loss) Per Share

Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares assumed to be outstanding during the period of computation. Diluted net income (loss) per share is computed similar to basic net income (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 to purchase approximately 101.1 million and 14.1 million shares of common stock were outstanding at September 30, 2013 and 2012, respectively, but were excluded from the computation of diluted net income (loss) per share.

The Company’s basic net income (loss) per share (“EPS”) amounts have been computed based on the weighted-average number of shares of common stock outstanding for the period. Diluted EPS reflects the potential dilution, using the treasury stock method and as-if-converted method for convertible debt, which could occur if all potentially dilutive securities were exercised. As the Company had a net loss for the three months ended September 30, 2013 and for the three and nine months ended September 30, 2012, no potentially dilutive securities were included in the calculation of diluted net income (loss) per share as their impact would have been anti-dilutive. In addition, although the Company had net income in the nine month period ended September 30, 2013, there are no common stock equivalents to be included as dilutive securities as any such common stock equivalents would be considered anti-dilutive due to the fact the Company would have to reduce net income by gains of $13,040,613 for the nine months ended September 30, 2013 related to the derivative liability associated with the senior convertible debentures and warrants which would result in a net loss rather than net income, resulting in the common stock equivalents being anti-dilutive.

Segment Reporting, Policy [Policy Text Block]

Business Segments

The Company has one reportable business segment due to the fact that the Company derives its revenue primarily from one product. The revenue from domestic sales and international sales are shown below:

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NOTE 9 - EQUITY

9 Months Ended

Sep. 30, 2013

Stockholders' Equity Note [Abstract]

Stockholders' Equity Note Disclosure [Text Block]

NOTE 9 — EQUITY

Common Stock Issuable – Debt Incentive

As an inducement to enter into the March 2013 and June 2013 Debentures, the investors were offered one share of the Company’s common stock for every dollar invested. The June 2013 financing of $250,000 of additional Senior Convertible Debentures requires the issuance of an additional 250,000 shares of the Company’s common stock under the terms of the transaction.

As of September 30, 2013, the Company has recorded Common Stock Subscribed but Unissued of $20,000 for 250,000 shares of the Company’s common stock valued at $0.08 per share, the closing market price on June 5, 2013.  The 250,000 shares of the Company’s Common Stock is restricted for trading under Rule 144 until December 5, 2013.

Common Stock Issued – Debt Incentive

As of March 31, 2013, the Company had 2,212,500 shares of the Company’s common stock issuable after the completion of the regulatory filings comprised of 1,962,500 shares issuable as of November 27, 2012 valued at $647,625 and 250,000 shares issuable for the March 2013 Debentures valued at $57,500, or $0.23 per share, the closing market price on March 4, 2013. The Company recorded the value of the Company’s common stock issuable for the March 2013 Debentures as a component of debt discount as described in Note 7. The 2,212,500 shares of the Company’s Common Stock were issued on June 6, 2013 and is restricted for trading under Rule 144 until May 27, 2013 and September 4, 2013 for the 1,962,500 shares and 250,000 shares, respectively.

Common Stock Issued –Warrant exercise

During the period ended September 30, 2013, Series I warrants to purchase 26,500 shares of the Company’s Common Stock were exercised for cash proceeds of $2,650. The Series I warrants were issued in conjunction with the Company’s May 2011 public offering and were repriced in November 2012 to an exercise price of $0.10 per warrant.

Common Stock Issued –Debt Conversions

During the period ended September 30, 2013, investors converted $456,500 of senior convertible debentures, originally issued on November 27, 2012 into 4,565,000 shares of the Company’s common stock at a conversion price per share of $0.10.  The Company recorded interest expense on the conversion of $312,575 representing an accelerated recognition of a pro rata portion of the unamortized debt discount and deferred financing fees associated with the debentures.  The Company recorded common stock and additional paid-in capital of $592,572 on the conversions consisting of the value of the debt converted of $456,500 and $136,072 for the reclassification of the fair value of the embedded conversion feature derivative liabilities to additional paid-in capital on the date of conversion.

Stock Option/Stock Issuance Plan

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 Company’s common stock may be granted to employees, nonemployee members of the Company’s 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 745,000 shares of the Company’s 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 Stock Option/Stock Issuance Plan (the “2010 Plan”); no further options or awards may be granted under the 2007 Plan.

During 2010, the Company adopted the 2010 Plan, under which stock awards or options to acquire shares of the Company’s common stock may be granted to employees, nonemployee members of the Company’s board of directors, consultants or other independent advisors who provide services to the Company. The 2010 Plan is administered by the Company’s board of directors. In December 2012, the Company’s shareholders approved an increase of the shares available under the 2010 Plan to 18,150,000. Options granted under the 2010 Plan generally vest 25% per year over four years and expire 10 years from the date of grant.

The following table sets forth the share-based compensation expense for stock options (unaudited):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Share based compensation expense — cost of net revenues	$	986	$	7,966	$	16,005	$	24,275
Share based compensation expense — sales and marketing		1,777		31,247		27,553		101,423
Share based compensation expense — research and development		6,496		25,607		75,395		78,946
Share based compensation expense — general and administrative		57,247		111,165		269,945		343,389
Total share based compensation expense	$	66,506	$	175,985	$	388,898	$	548,033

A summary of common stock option activity under the 2007 Plan and the 2010 Plan for the nine months ended September 30, 2013 is presented below (unaudited):

	Number of Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life		Aggregate Intrinsic Value
Options outstanding — January 1, 2013		10,119,518		$	0.72
Options granted		125,000			0.16
Options exercised		—			—
Options forfeited		(8,074,493	)		0.47
Options cancelled		—			—
Total options outstanding — September 30, 2013		2,170,025		$	1.90		7.18	$	—
Options exercisable — September 30, 2013		1,784,069		$	2.12		6.98	$	—
Options vested and expected to vest — September 30, 2013		2,104,924		$	1.90		7.18	$	—
Options available for grant under the 2010 Plan at September 30, 2013		16,308,375

The following table summarizes information about stock options outstanding and exercisable at September 30, 2013 (unaudited):

					Options Outstanding				Options Exercisable
					Weighted Average Remaining		Weighted Average				Weighted Average
Exercise			Number of		Contractual		Exercise		Number of		Exercise
Prices			Shares		Life		Price		Shares		Price
$0.16	-	$0.25		450,000		4.86	$	0.22		292,813	$	0.21
$0.26	-	$0.50		825,004		8.87	$	0.33		825,004	$	0.33
$0.51	-	$1.00		425,000		8.92	$	0.68		237,500	$	0.65
$1.01	-	$5.00		271,221		7.15	$	4.50		229,952	$	4.56
$5.01	-	11.30		198,800		4.45	$	11.30		198,800	$	11.30
				2,170,025		7.18	$	1.90		1,784,069	$	2.12

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 combination of historical volatility of the Company’s common stock and the underlying common stock of its peer group, and other factors such as implied volatility of traded options of a comparable peer group. The expected life assumptions for all periods were derived from a review of annual historical employee exercise behavior of option grants with similar vesting periods of a comparable peer group. The risk-free rate used to calculate the fair value is based on the expected term of the option. In all cases, the risk-free rate is based on the U.S. Treasury yield bond curve in effect at the time of grant.  

The assumptions used to calculate the fair value of options and warrants granted are evaluated and revised, as necessary, to reflect market conditions and experience. On April 26, 2013, the Company issued options to purchase 25,000 shares of common stock of the Company at an exercise price of $0.16 per share to each of the five members of the Company’s board of directors for a total grant of options to purchase 125,000 shares of the Company’s common stock.  The Company valued each option to purchase one share of the Company’s common stock at $0.1474 using the Black-Scholes-Merton option pricing model with a volatility of 157%, an expected term of 2.5 years, a risk free rate of 0.68%, and a market value on the grant date of $0.16 per share.  The options vested at the grant date.

At September 30, 2013, the amount of unearned share-based compensation currently estimated to be expensed related to unvested common stock options is approximately $0.3 million. The weighted-average period over which the unearned share-based compensation is expected to be recognized is approximately 2.3 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 share-based compensation expense. Future share-based compensation expense and unearned share-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 Company’s common stock to investors, note holders and to non-employees for services rendered or to be rendered in the future. During the nine months ended September 30, 2013, the Company issued 5,000,000 warrants to the March 2013 and June 2013 Debenture Holders. The Company valued the warrants issued at $543,851 and $183,314, respectively, on the date of issuance. See Notes 7 and 8. During the nine months ended September 30, 2013, the Company issued 26,500 shares of the Company’s common stock for the exercise of Series I warrants for cash proceeds of $2,650.

The following table provides a reconciliation of the warrants issued and exercised for the nine months ended September 30, 2013:

	Number of Shares			Weighted- Average Exercise Price
Warrants outstanding — January 1, 2013		54,680,086		$	0.46
Warrants issued		5,000,000			0.10
Warrants exercised		(26,500	)		0.10
Warrants expired		(4,954,557	)		3.03
Total warrants outstanding — September 30, 2013		54,699,029		$	0.19

The warrants outstanding at September 30, 2013 had a weighted average remaining term of 4.00 years and had an aggregate intrinsic value of $0. 

A list of the warrants outstanding as of September 30, 2013 is included in the table below:

Warrant Series	Issue Date	Warrants Outstanding & Exercisable		Exercise Price					Expiration Date
Class E Warrants	2/23/09		27,478	$	0.63	(3),	(6),	(7)	2/23/2014
Class G Warrants — $5.00	Various		826,373	$	5.00	(4),	(5)		2014-2015
Class G Warrants — $7.00	Various		5,000	$	7.00	(4),	(5)		8/25/2015
Immersive Warrant 1	3/31/10		94,764	$	0.43	(6),	(7)		3/31/2015
Immersive Warrant 2	4/30/10		104,000	$	0.43	(6),	(7)		4/30/2015
Class I Warrants	5/19/11		4,916,057	$	0.10	(1),	(2)		5/13/2016
2011 Share Purchase Warrants	5/19/11		142,857	$	4.38				5/13/2016
Class J Warrants	6/28/11		50,000	$	3.50				4/25/2016
November 2012 Warrants	11/27/12		43,532,500	$	0.10	(6)			11/27/2017
March 2013 Warrants	3/4/13		2,500,000	$	0.10	(6)			3/4/2018
June 2013 Warrants	6/5/13		2,500,000	$	0.10	(6)			6/5/2018
Total			54,699,029

(1)	Of these warrants, 4,275,128 represent warrants eligible for a vote to approve any future financing round where the contemplated issuance price is below the exercise price of the Class I warrants. A 2/3rds vote of the combined eligible outstanding Class I Warrants is required to approve such a transaction.
(2)	Of these warrants, 1,138,885 were issued to Vision Capital and 632,243 were issued to Ki Nam, former Chairman of the Board of Directors. Each has beneficial ownership in excess of 10% of the common stock of the Company.
(3)	Warrants were issued to Ki Nam, former Chairman of the Board of Directors and significant owner of the Company.
(4)	Of these warrants, 195,373 were issued to Ki Nam.
(5)	Warrants’ expiration dates range from December 29, 2014 to August 25, 2015.
(6)	Warrants are accounted for as derivative liabilities, see Note 8.
(7)	Warrants were repriced on March 4, 2013 and June 5, 2013.

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NOTE 3 - PREPAID EXPENSES AND OTHER CURRENT ASSETS (Tables)

6 Months Ended

Jun. 30, 2013

Disclosure Text Block Supplement [Abstract]

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Table Text Block]

	September 30, 2013		December 31, 2012
	(unaudited)
Prepaid inventory	$	171,918	$	184,117
Deferred financing costs		99,407		362,684
Prepaid expenses and other current assets		127,247		132,434
	$	398,572	$	679,235

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NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

9 Months Ended

Sep. 30, 2013

Accounting Policies [Abstract]

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	Three Months Ended September 30,							Nine Months Ended September 30,
	2013				2012			2013		2012
	(unaudited)							(unaudited)
Net income (loss)		$	(4,295,330	)	$	(1,888,538	)	$	6,382,692	$	(4,987,273	)
Weighted average number of common shares outstanding:
Basic and diluted			22,073,603			12,906,027			18,177,048		12,890,368
Net income (loss) per share:
Basic and diluted		$	(0.19	)	$	(0.15	)	$	0.35	$	(0.39	)

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Document And Entity Information	9 Months Ended
	Sep. 30, 2013	Nov. 15, 2013
Document and Entity Information [Abstract]
Entity Registrant Name	T3 Motion, Inc.
Document Type	10-Q
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		22,100,777
Amendment Flag	false
Entity Central Index Key	0001434589
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Filer Category	Smaller Reporting Company
Entity Well-known Seasoned Issuer	No
Document Period End Date	Sep. 30, 2013
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q3

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NOTE 2 - INVENTORIES (Tables)

9 Months Ended

Sep. 30, 2013

Inventory Disclosure [Abstract]

Schedule of Inventory, Current [Table Text Block]

	September 30, 2013		December 31, 2012
	(unaudited)
Raw materials	$	1,055,975	$	869,099
Work-in-process		80,908		256,161
Finished goods		81,995		34,181
	$	1,218,878	$	1,159,441