Item 1. Financial
Statements.
3DIcon CORPORATION
BALANCE SHEETS
June 30, 2016 and December 31, 2015
(unaudited)
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
14,083
|
|
|
$
|
11,121
|
|
Prepaid expenses
|
|
|
7,847
|
|
|
|
21,321
|
|
Total current assets
|
|
|
21,930
|
|
|
|
32,442
|
|
|
|
|
|
|
|
|
|
|
Deposits-other
|
|
|
2,315
|
|
|
|
2,315
|
|
Total Assets
|
|
$
|
24,245
|
|
|
$
|
34,757
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Deficiency
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Current maturities of convertible notes and debentures payable
|
|
$
|
89,466
|
|
|
$
|
183,402
|
|
Warrant exercise advances
|
|
|
-
|
|
|
|
55
|
|
Accounts payable
|
|
|
368,936
|
|
|
|
823,695
|
|
Accrued salaries
|
|
|
89,299
|
|
|
|
317,134
|
|
Accrued interest on debentures
|
|
|
16,058
|
|
|
|
49,262
|
|
Total current liabilities
|
|
|
563,759
|
|
|
|
1,373,548
|
|
|
|
|
|
|
|
|
|
|
Long term debt:
|
|
|
|
|
|
|
|
|
Term loan
|
|
|
75,000
|
|
|
|
-
|
|
Total Liabilities
|
|
|
638,759
|
|
|
|
1,373,548
|
|
|
|
|
|
|
|
|
|
|
Stockholders' deficiency:
|
|
|
|
|
|
|
|
|
Preferred stock, Series A convertible, $0.0002 par value, 500,000 shares authorized; 345,000 shares issued and outstanding at June 30, 2016 and December 31, 2015
|
|
|
69
|
|
|
|
69
|
|
Preferred stock, Series B convertible, $0.0002 par value, 2,000,000 shares authorized; 1,609,464 and -0- shares issued and outstanding at June 30, 2016 and December 31, 2015, respectively
|
|
|
322
|
|
|
|
-
|
|
Common stock $0.0002 par, 1,500,000,000 shares authorized; 1,481,754,533 and 1,370,953,255 shares issued and outstanding at June 30, 2016 and December 31, 2015, respectively
|
|
|
296,351
|
|
|
|
274,191
|
|
Additional paid-in capital
|
|
|
21,694,060
|
|
|
|
20,545,939
|
|
Accumulated deficit
|
|
|
(22,605,316
|
)
|
|
|
(22,158,990
|
)
|
Total Stockholders' Deficiency
|
|
|
(614,514
|
)
|
|
|
(1,338,791
|
)
|
Total Liabilities and Stockholders' Deficiency
|
|
$
|
24,245
|
|
|
$
|
34,757
|
|
See notes to financial statements
3DIcon CORPORATION
STATEMENTS OF OPERATIONS
Three and Six Months Ended June 30, 2016
and 2015
(unaudited)
|
|
Three Months
|
|
|
Three Months
|
|
|
Six Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30, 2016
|
|
|
June 30, 2015
|
|
|
June 30, 2016
|
|
|
June 30, 2015
|
|
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant income
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
5,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
2,305
|
|
|
|
2,329
|
|
|
|
4,930
|
|
|
|
45,238
|
|
General and administrative
|
|
|
210,918
|
|
|
|
213,636
|
|
|
|
438,327
|
|
|
|
472,483
|
|
Interest
|
|
|
2,005
|
|
|
|
17,125
|
|
|
|
3,069
|
|
|
|
25,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
215,228
|
|
|
|
233,090
|
|
|
|
446,326
|
|
|
|
543,469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(215,228
|
)
|
|
$
|
(233,090
|
)
|
|
$
|
(446,326
|
)
|
|
$
|
(538,347
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.000
|
)
|
|
$
|
(0.000
|
)
|
|
$
|
(0.000
|
)
|
|
$
|
(0.001
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, basic and diluted
|
|
|
1,385,469,040
|
|
|
|
796,607,687
|
|
|
|
1,390,428,810
|
|
|
|
687,732,896
|
|
See notes to financial statements
3DIcon CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS’
DEFICIENCY
Six Months Ended June 30, 2016
(unaudited)
|
|
Series
A Preferred Stock
|
|
|
Series
B Preferred Stock
|
|
|
Common
Stock
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
|
Par
|
|
|
|
|
|
Par
|
|
|
|
|
|
Par
|
|
|
Paid-In
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Value
|
|
|
Shares
|
|
|
Value
|
|
|
Shares
|
|
|
Value
|
|
|
Capital
|
|
|
Deficit
|
|
|
Total
|
|
Balance December 31, 2015
|
|
|
345,000
|
|
|
$
|
69
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
1,370,953,255
|
|
|
$
|
274,191
|
|
|
$
|
20,545,939
|
|
|
$
|
(22,158,990
|
)
|
|
$
|
(1,338,791
|
)
|
Warrants and options exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
77
|
|
|
|
-
|
|
|
|
29,430
|
|
|
|
-
|
|
|
|
29,430
|
|
Debentures converted
|
|
|
-
|
|
|
|
-
|
|
|
|
172,421
|
|
|
|
35
|
|
|
|
92,809,800
|
|
|
|
18,562
|
|
|
|
100,680
|
|
|
|
-
|
|
|
|
119,277
|
|
Stock issued for liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
1,361,919
|
|
|
|
272
|
|
|
|
13,445,946
|
|
|
|
2,689
|
|
|
|
960,225
|
|
|
|
-
|
|
|
|
963,186
|
|
Stock issued for services
|
|
|
-
|
|
|
|
-
|
|
|
|
16,862
|
|
|
|
3
|
|
|
|
4,545,455
|
|
|
|
909
|
|
|
|
17,588
|
|
|
|
-
|
|
|
|
18,500
|
|
Stock issued for accrued interest
|
|
|
-
|
|
|
|
-
|
|
|
|
58,262
|
|
|
|
12
|
|
|
|
-
|
|
|
|
-
|
|
|
|
40,198
|
|
|
|
-
|
|
|
|
40,210
|
|
Net loss for the period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(446,326
|
)
|
|
|
(446,326
|
)
|
Balance June 30, 2016
|
|
|
345,000
|
|
|
$
|
69
|
|
|
|
1,609,464
|
|
|
$
|
322
|
|
|
|
1,481,754,533
|
|
|
$
|
296,351
|
|
|
$
|
21,694,060
|
|
|
$
|
(22,605,316
|
)
|
|
$
|
(614,514
|
)
|
See notes to financial statements
3DIcon CORPORATION
STATEMENTS OF CASH FLOWS
Six Months ended June 30, 2016 and 2015
(unaudited)
Cash Flows from Operating Activities
|
|
2016
|
|
|
2015
|
|
Net loss
|
|
$
|
(446,326
|
)
|
|
$
|
(538,347
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Stock issued for services
|
|
|
18,500
|
|
|
|
47,500
|
|
Amortization of debt issuance costs
|
|
|
-
|
|
|
|
26,314
|
|
|
|
|
|
|
|
|
|
|
Change in:
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
|
13,474
|
|
|
|
9,268
|
|
Accounts payable and accrued liabilities
|
|
|
287,598
|
|
|
|
273,233
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(126,754
|
)
|
|
|
(182,032
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
Proceeds from stock and warrant sales, exercise of warrants and warrant exercise advances
|
|
|
14,716
|
|
|
|
49,050
|
|
Proceeds from issuance of debentures, notes and options
|
|
|
115,000
|
|
|
|
99,000
|
|
Net cash provided by financing activities
|
|
|
129,716
|
|
|
|
148,050
|
|
|
|
|
|
|
|
|
|
|
Net change in cash
|
|
|
2,962
|
|
|
|
(33,982
|
)
|
Cash, beginning of period
|
|
|
11,121
|
|
|
|
34,485
|
|
|
|
|
|
|
|
|
|
|
Cash, end of period
|
|
$
|
14,083
|
|
|
$
|
503
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
600
|
|
|
$
|
687
|
|
Non-Cash Investing and Financing Activities
|
|
|
|
|
|
|
|
|
Conversion of debentures to common stock (net)
|
|
$
|
119,277
|
|
|
$
|
214,970
|
|
Stock issued to satisfy accrued interest and other liabilities
|
|
$
|
1,003,396
|
|
|
$
|
75,000
|
|
Exercise of warrants to satisfy other liabilities
|
|
$
|
14,659
|
|
|
$
|
-
|
|
See notes to financial statements
3DIcon CORPORATION
NOTES TO FINANCIAL STATEMENTS
June 30, 2016
(unaudited)
Note 1 – Uncertainties and Use of Estimates
Basis of Presentation
The accompanying financial statements of 3DIcon
Corporation (the “Company”) have been prepared without audit pursuant to the rules and regulations of the Securities
and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in the financial statements
prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted
pursuant to such rules and regulations. The Company believes that the disclosures made are adequate to make the information presented
not misleading. These financial statements should be read in conjunction with the Company's year-end audited financial statements
and related footnotes included in the previously filed 10-K. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the financial position of the Company as of June 30, 2016, and the statements
of its operations for the three and six months ended June 30, 2016 and 2015, and cash flows for the six months ended June 30, 2016
and 2015. The results of operations for interim periods may not be indicative of the results which may be realized for the full
year.
Use of Estimates
The preparation of financial statements in
conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect
the reported amounts of assets, liabilities, revenues, expenses and the disclosure of contingent assets and liabilities. Actual
results could differ from the estimates and assumptions used.
Recent Accounting Pronouncements
The following is a summary of recent accounting
pronouncements that are relevant to the Company:
In February 2016, the FASB issued ASU No. 2016-02,
Leases
(Topic 842)
intended to increase transparency and comparability among companies by requiring most leases to be included
on the balance sheet and by expanding disclosure requirements. This is effective for public business entities for fiscal years
beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted for all
public business entities and all nonpublic business entities upon issuance. The Company is currently evaluating the impact that
this new guidance may have on its results of operations, cash flows, financial position and disclosures.
In April 2015, the FASB issued ASU 2015-03,
Interest – Imputation of Interest (Subtopic 835-30), Simplifying the Presentation of Debt Issuance Costs
. The amendments
in ASU 2015-03 require that debt issuance costs related to a recognized debt liability be presented on the balance sheet as a direct
deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance
for debt issuance costs are not affected by this update. The provisions of ASU 2015-03 are effective for financial statements issued
for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The guidance in this ASU is
to be applied on a retrospective basis. The adoption of this standard did not have a material impact on the Company’s financial
position and results of operations.
The FASB has issued ASU 2014-09,
Revenue
from Contracts with Customers
. This ASU supersedes the revenue recognition requirements in FASB ASC 605 - Revenue Recognition
and most industry-specific guidance throughout the Codification. The standard requires that an entity recognizes revenue to depict
the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects
to be entitled in exchange for those goods or services. On July 9, 2015, the FASB deferred the effective date of ASU No. 2014-09
from annual periods beginning after December 15, 2016 to annual periods beginning after December 15, 2017. This ASU should be applied
retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the
ASU recognized at the date of initial application. The adoption of this standard is not expected to have a material impact on the
Company’s financial position and results of operations.
The FASB has issued ASU 2014-12,
Compensation
- Stock Compensation
(ASC Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance
Target Could Be Achieved after the Requisite Service Period.
This ASU requires that a performance target that affects vesting,
and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance
target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation
cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent
the compensation cost attributable to the period(s) for which the requisite service has already been rendered. The amendments in
this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. The
adoption of this standard did not have a material impact on the Company's financial position and results of operations.
Uncertainties
The accompanying financial statements have
been prepared on a going concern basis. The Company is in the development stage and has insufficient revenue and capital commitments
to fund the development of its planned product and to pay operating expenses.
The Company has realized a cumulative
net loss of $22,605,316 for the period from inception (January 1, 2001) to June 30, 2016, and a net loss of $446,326 and $538,347
for the six months ended June 30, 2016 and 2015, respectively.
The ability of the Company to continue as a
going concern depends on the successful completion of the Company's capital raising efforts to fund the development of its planned
products. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue
as a going concern.
Given the reduced
reliance on federal funding discussed in Note 2, the Company is committed to exploring possible acquisitions, partnerships, or
other strategic transactions involving direct or indirect funding for the Company. Accordingly, the Company formed a committee
comprised of Mark Willner, Chairman of the Company’s Business Advisory Board, Doug Freitag and Victor Keen to lead in this
effort.
On
May 31, 2016 the Company entered into a Share Exchange Agreement (the “Share Exchange Agreement”) with Coretec Industries,
LLC, a North Dakota limited liability company (“Coretec”), and four Coretec members (the “Members”), which
Members hold all outstanding membership interests in Coretec (see Note 8).
Additionally, under the terms of the Golden
State 4.75% Convertible Debenture due on December 31, 2016, Golden State is obligated to submit conversion notices in an amount
such that Golden State receives 1% of the outstanding shares of the Company every calendar quarter for a period of one year. In
connection with each conversion, Golden State is expected to simultaneously exercise a percentage of warrants equal to the percentage
of the principal being converted. The warrants are exercisable at $381.50 per share. The number of warrants exercisable is subject
to certain beneficial ownership limitations contained in the 4.75% Convertible Debenture (“the Beneficial Ownership Limitations”).
The Beneficial Ownership Limitations prevent Golden State from converting on the 4.75% Convertible Debenture or exercising warrants
if such conversion or exercise would cause Golden State’s holdings to exceed 9.99% of the Company’s issued and outstanding
common stock. Subject to the Beneficial Ownership Limitations and provided that Golden State is able to sell the shares under
Rule 144, Golden State is required to convert $85.71 of the 4.75% Convertible Debenture and exercise 857 warrants per month. Based
upon the current stock price, the issued and outstanding shares as of June 30, 2016 and ignoring the impact of the Beneficial
Ownership Limitations, the Company may receive up to $327,000 per month in funding for the duration of the debenture from Golden
State as a result of warrant exercises. However, due to the Beneficial Ownership Limitations, the Company received $14,716 in
advances from Golden State during the six months ended June 30, 2016. Such advances are recorded within warrant exercise advances
on the balance sheets when received.
The Company is in discussions with Golden State
Equity Investors to modify the normal means by which we access funds. This would provide the Company with greater flexibility and
control over the issuance of shares and not further limit our access to operating and growth capital.
Joint Development Agreement with Schott
Defense
As part of our federal funding strategy we
intend to effectively compete by forming interdisciplinary teams with potential strategic partners (large and small), academic
and commercial laboratories, and systems integrators providing integrated data visualization solutions. The first of these
partnerships was reached in March 2014 when the Company signed a JDA with Schott, a federally focused subsidiary of Schott North
America. Schott is a world-class multi-billion dollar company with significant experience and success in partnering with
federal agencies for development projects. In addition, Schott is one of the world’s leaders in developing specialty
glass for many applications, including display technology. This partnership, coupled with the expertise of Doug Freitag,
should facilitate the Company’s federal funding strategy and our ability to create the unique materials required to advance
the CSpace technology. In December of 2015 Schott AG closed the development office, Schott Defense, in Washington, D.C. It is unclear
how this may impact the JDA going forward.
Additionally, the Company is continuing to
pursue financing through private offering of debt or common stock.
Note 2 – OCAST Grant
In July 2013, the Company was awarded a
two year grant from OCAST. This matching grant commenced September 1, 2013. The Company received $5,122 in funding during the
six-month period ended June 30, 2015 resulting in a total of $119,766 being received since the commencement of the grant. The
funds were being used to support the development of the Company’s first Product Platform, which will be the basis for a family
of products based on the Company’s CSpace® volumetric 3D display technology.
The grant was cancelled in March 2015 upon
the resignation of Dr. Hakki Refai, the principal investigator under the grant.
Note 3 – Debentures and Notes Payable
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Senior Convertible Debentures
|
|
|
|
|
|
|
|
|
9% Promissory note due November 2016
|
|
$
|
25,341
|
|
|
$
|
-
|
|
14% Term loan due June 2018
|
|
|
75,000
|
|
|
|
-
|
|
10% Convertible debenture to directors converted March 2016
|
|
|
-
|
|
|
|
30,000
|
|
10% Convertible debenture converted March 2016
|
|
|
-
|
|
|
|
29,007
|
|
4.75% Convertible debenture due December 2016
|
|
|
64,125
|
|
|
|
64,395
|
|
10% Convertible bridge note to director converted March 2016
|
|
|
-
|
|
|
|
60,000
|
|
Total Debentures Payable
|
|
|
139,125
|
|
|
|
183,402
|
|
Less current maturities
|
|
|
64,125
|
|
|
|
183,402
|
|
Long-term debt
|
|
$
|
75,000
|
|
|
$
|
-
|
|
9% Promissory note due November 2016
On April 26, 2016 the Company signed a
9% Promissory Note with Golden State Equity Investors, Inc. (“Golden State”) in the amount of $40,000. Interest is
due monthly in the amount of $300. Golden State advanced the $40,000 on the note and on June 16, 2016 applied $14,659 to fund
the exercise of warrants under the terms of the 4.75% Convertible debenture (described below) held by Golden State, leaving $25,341
outstanding on the 9% Promissory note.
14% Term loan due June 2018
On April, 18, 2016 the Company entered
into a Loan Agreement (the “Agreement”) whereby Carlton James North Dakota Limited ("CJNDL”) agreed to
provide the Company a loan facility of up to $100,000. Under the terms of the Agreement the Company shall pay interest on the
outstanding unpaid balance at the rate of 1.167% per month. The interest is due quarterly and the principal is due June 29, 2018.
CJNDL has advanced $75,000 on the loan. CJNDL is a party to the Shares Exchange Agreement discussed in Note 8.
10% Convertible Debentures to Directors
converted March 30, 2016
On June 24, 2013, the Company issued to
Victor Keen and Martin Keating, Directors of the Company, (“Directors”) 10% convertible debentures in a principal amount
of $15,000 each, due June 26, 2014 and subsequently extended to June 30, 2016. The Directors may elect to convert all or any portion
of the outstanding principal amount of the debentures at an exercise price of $0.01 per share. Provided that the debentures are
paid in full on or before the maturity date, no interest shall accrue on the unpaid balance of the principal amount. In the event
that the debentures are not paid in full on or before the maturity date, interest shall accrue on the unpaid outstanding balance
of the principal amount of the debentures from June 26, 2013, until paid, at the fixed rate of ten percent (10%) per annum. Accordingly,
interest was being accrued under the terms of the debenture. On March 24, 2016, the Company issued to Mr. Keen and Mr. Keating
1,193,582 and 19,266 shares of its newly designated Series B Preferred, respectively, in accordance with Securities Purchase Agreements
dated December 11, 2015, pursuant to which, as a result of the issuance of the Series B Preferred, all amounts owed under these
convertible debenture were deemed satisfied, exchanged and converted.
10% Convertible Debenture due Newton,
O'Connor, Turner & Ketchum, converted March 30, 2016
On December 20, 2012, the Company issued
to Newton, O'Connor, Turner & Ketchum (“NOTK”) a 10% convertible debenture in a principal amount of $29,007, initially
due September 30, 2013 and extended to June 30, 2016. NOTK may elect to convert all or any portion of the outstanding principal
amount of the debenture at an exercise price of $0.02534 per share. The Company was indebted to NOTK for legal services performed
for the Company and reimbursement of expenses in rendition of those services for the period ended December 31, 2012. The debenture
was issued in settlement of the indebtedness. On March 24, 2016, the Company issued to NOTK 50,149 shares of its newly designated
Series B Preferred in accordance with a Securities Purchase Agreement dated December 11, 2015, pursuant to which, as a result of
the issuance of the Series B Preferred, all amounts owed under the 10% convertible debenture were deemed satisfied, exchanged and
converted.
4.75% Convertible Debenture due December
31, 2016
On November 3, 2006, the Company issued
to Golden State a 4.75% convertible debenture in a principal amount of $100,000, due December 31, 2014, subsequently extended to
December 31, 2016 and warrants to buy 28,571 shares of the common stock at an exercise price of $381.50 per share. In connection
with each conversion, Golden State is expected to simultaneously exercise a percentage of warrants equal to the percentage of the
principal being converted. During the six months ended June 30, 2016, Golden State converted $270 of the $100,000 debenture into
92,809,800 shares of common stock and exercised warrants to purchase 77 shares of common stock at $381.50 per share based on the
formula in the convertible debenture. Additionally Golden State advanced $14,716 against future exercises of warrants of which
$14,771 was applied to the exercise of warrants leaving $-0- of unapplied advances at June 30, 2016.
The conversion price for the 4.75% $100,000
convertible debenture is the lesser of (i) $4.00 or (ii) 80% of the average of the five lowest volume weighted average prices (“VWAP”)
during the twenty (20) trading days prior to the conversion. If Golden State elects to convert a portion of the debenture and,
on the day that the election is made, the volume weighted average pre-split price is below $0.70, the Company shall have the right
to prepay that portion of the debenture that Golden State elected to convert, plus any accrued and unpaid interest, at 135% of
such amount.
10% Convertible Bridge
Note converted March 30, 2016
On September 11, 2012, the Company issued and
sold to Victor F. Keen, a Director and an accredited investor a Convertible Bridge Note (the “Keen Bridge Note”) in
the principal amount of $60,000. The sale of the Keen Bridge Note in the principal of $60,000 included a $10,000 OID. The Keen
Bridge Note matured 90 days from the date of issuance and, other than the OID, the Keen Bridge Note did not carry interest. However,
in the event the Keen Bridge Note is not paid on maturity, all past due amounts will accrue interest at 15% per annum. Upon maturity,
the holders may elect to convert any or all of any portion of outstanding principal. On March 8, 2016, Mr. Keen agreed to
extend the maturity of the Note from December 31, 2015 to June 30, 2016 and to waive, if any, existing or prior defaults under
the Keen Bridge Note or the Keen SPA. On March 24, 2016, the Company issued to Mr. Keen 1,193,582 shares of its newly designated
Series B Preferred in accordance with Securities Purchase Agreements dated December 11, 2015, pursuant to which, as a result of
the issuance of the Series B Preferred, all amounts owed under this convertible debenture were deemed satisfied, exchanged and
converted.
Note 4 – Common Stock and Paid-In
Capital
Warrants Issued
As of June 30,
2016, NOTK has warrants outstanding to purchase 125,098 shares of common stock at a price of $3.15 per share that expire on September
30, 2016 and warrants to purchase 96,024 shares of common stock at a price of $3.15 per share that expire on September 1, 2016.
Golden State has warrants outstanding to purchase 18,318 shares of common stock at a price of $381.50 per share which expire December
31, 2016. Global Capital has warrants outstanding to purchase 300,000 shares of common stock at a price of $0.0032 per shares
which expire on March 31, 2019. Additionally, from the Series A preferred stock issuance, there are 6,000,000 warrants outstanding
to purchase common shares at $0.0055 per share which expire December 31, 2017 and 13,250,000 warrants outstanding that were issued
to Victor Keen, the CEO and Director of the Company, which expire on January 17, 2018.
Common stock and options issued for services
and liabilities
During the six months ended June 30, 2016,
shares of common stock totaling 13,445,946 were issued to consultants for previous services provided to the Company for which the
accounts payable liability was reduced by $17,000.
Additionally, shares of common stock totaling 4,545,455 were issued
to consultants for current services for which an expense was recorded in the amount of $750.
The terms of the Series A Convertible Preferred
Stock, Series B Convertible Preferred Stock and Warrants are as follows:
Series A Convertible Preferred Sto
ck
A total of 500,000 shares of Series A Convertible
Preferred Stock (the “Series A Preferred Stock”) have been authorized for issuance under the Certificate of Designation
of Preferences, Rights and Limitation of Series A Convertible Preferred Stock of 3DIcon Corporation (the “Certificate of
Designation”), which Certificate of Designation was filed with the Secretary of State of the State of Oklahoma on December
11, 2013. The shares of Series A Preferred Stock have a par value of $0.0002 per share and a stated value of $1.00 per share (the
“Stated Value”), and shall receive a dividend of 6% of their Stated Value per annum payable or upon conversion or redemption
of Series A Preferred at the option of the Corporation. We have not paid any cash or stock dividends to the holders of our Series
A Preferred. As of June 30, 2016 dividends in arrears totaled approximately $60,000. Under the Certificate of Designation, the
holders of the Series A Preferred Stock have the following rights, preferences and privileges:
The Series A Preferred Stock may, at the option
of the Investor, be converted at any time after the first anniversary of the issuance of the Series A Preferred Stock or from time
to time thereafter into 50,000,000 shares of Common Stock that Such Investor is entitled to in proportion to the 500,000 shares
of Series A Preferred so designated in the Certificate of Designation.
The Series A Preferred Stock will automatically
be converted into Common Stock anytime the 5 day average VWAP of the Company’s Common Stock prior to such conversion is equal
to $0.05 or more. Such mandatory conversion would be converted by the same method described above for discretionary conversions.
Except as otherwise required by law, the holders
of shares of Series A Preferred Stock shall not have voting rights or powers.
In the event of any (i) liquidation, dissolution
or winding up of the Company, whether voluntary or involuntary, or ii) sale, merger, consolidation, reorganization or other transaction
that results in a change of control of the Company, each holder of a share of Series A Preferred shall be entitled to receive,
subject to prior preferences and other rights of any class or series of stock of the Company senior to the Series A Preferred,
but prior and in preference to any distribution of any of the assets or surplus funds of the Company to holders of Common Stock,
or any other class or series of stock of the Company junior to the Series A Preferred, an amount equal to the Stated Value plus
accrued and unpaid dividends (as adjusted for any stock dividends, combinations or splits with respect to such shares) (the “Preference
Amount”). After such payment has been made to the holders of Series A Preferred of the full Preference Amount to which such
holders shall be entitled, the remaining net assets of the Company available for distribution, if any, shall be distributed pro
rata among the holders of Common Stock. In the event the funds or assets legally available for distribution to the holders of Series
A Preferred are insufficient to pay the Preference Amount, then all funds or assets available for distribution to the holders of
capital stock shall be paid to the holders of Series A Preferred pro rata based on the full Preference Amount to which they are
entitled.
The Company may not declare, pay or set aside
any dividends on shares of any class or series of capital stock of the Company (other than dividends on shares of Common Stock
payable in shares of Common Stock) unless the holders of the Series A Preferred Stock shall first receive, or simultaneously receive,
a dividend on each outstanding share of Series A Preferred in an amount equal to the dividend per share that such holders would
have received had they converted their shares of Series A Preferred into shares of Common Stock immediately prior to the record
date for the declaration of the Common Stock dividend in an amount equal to the average VWAP during the 5 trading days prior to
the date such dividend is due.
Series B Convertible Preferred Stock
On March 22, 2016, 3DIcon Corporation, filed
with the Secretary of State of the State of Oklahoma a Certificate of Designation (the “Certificate of Designation”),
setting for the Preferences, Rights and Limitation of the Company’s Series B Convertible Preferred Stock (the “Series
B Preferred”). The Two Million (2,000,000) shares of Series B Preferred designated under the Certificate of Designation have
a stated value of $1.00 per share (the “Stated Value”). Under the Certificate of Designation, the holders of the Series
B Preferred have the following rights, preferences and privileges:
The holders of Series B Preferred are not entitled
to receive dividends but have voting rights equal to the number of shares of the Company’s Common Stock into which their
Series B Preferred can be converted, whether or not the shares are available for issuance.
At the option of the holder, Series B Preferred
may be converted in whole or in part, from time to time, into One Thousand Nine Hundred Fourteen (1,914) shares of Common Stock.
The Series B Preferred Stock will automatically be converted into Common Stock if (i) at anytime the 5 day average VWAP of the
Company’s Common Stock prior to such automatic conversion is equal to $0.10 or more; or (ii) the Company enters into a transaction
for which the Company enters into a share exchange agreement or agreement and plan of merger, which agreement is executed within
ninety (90) days after the date of the Certificate of Designation and pursuant to which the Company thereafter becomes a consolidated
company with another entity, and the Company issues equity securities of the Company. Such automatic conversion would be converted
by the same method described above for discretionary conversions.
In the event of any i) liquidation, dissolution
or winding up of the Company, whether voluntary or involuntary, or ii) sale, merger, consolidation, reorganization or other transaction
that results in a change of control of the Company, each holder of a share of Series B Preferred shall be entitled to receive,
subject to prior preferences and other rights of any class or series of stock of the Company senior to the Series B Preferred,
but prior and in preference to any distribution of any of the assets or surplus funds of the Company to holders of Common Stock,
or any other class or series of stock of the Company junior to the Series B Preferred, an amount equal to the Stated Value (as
adjusted for any stock dividends, combinations or splits with respect to such shares) (the “Preference Amount”). After
such payment has been made to the holders of Series B Preferred of the full Preference Amount to which such holders shall be entitled,
the remaining net assets of the Company available for distribution, if any, shall be distributed pro rata among the holders of
Common Stock. In the event the funds or assets legally available for distribution to the holders of Series B Preferred are insufficient
to pay the Preference Amount, then all funds or assets available for distribution to the holders of capital stock shall be paid
to the holders of Series B Preferred pro rata based on the full Preference Amount to which they are entitled.
The Company issued an aggregate of 1,592,602
shares of the Company’s Series B Preferred during the six months ended June 30 2016 in connection with Securities Purchase
Agreements (the “Securities Purchase Agreements”) dated December 11, 2015. Pursuant the Securities Purchase Agreements,
the Company had agreed to issue, and on March 24, 2016 issued, to certain officers, directors, consultants and service providers
(collectively, “Recipients”) and the Recipients had agreed to accept, and on March 24, 2016 received, shares of Series
B Preferred in consideration for the satisfaction, in lieu of cash payment, of an aggregate of $1,105,403 owed by the Company
to the Recipients. Among the Recipients were (i) Victor F. Keen, the Company’s Chief Executive Officer, who received 1,193,582
shares of Series B Preferred in satisfaction of $685,355 owed to him under certain notes, in connection with certain advances
he provided to the Company and for services he provided to the Company; (ii) Ronald W. Robinson, the Company’s Chief Financial
Officer, who received 85,771 shares of Series B Preferred in satisfaction of $90,291 owed to him for services he provided to the
Company; (iii) Martin Keating, a Director of the Company, who received 19,266 shares of Series B Preferred in satisfaction of
$20,281 owed to him under certain notes and for services he provided to the Company; and (iv) Newton, O'Connor, Turner &
Ketchum, PC, a law firm of which John O’Connor, a Director of the Company, is a partner, that received 50,149 shares of
Series B Preferred in satisfaction of $52,791 owed to it for services provided to the Company. Additionally, on May 10, 2016,
shares of Series B Preferred totaling 16,862 were issued to consultants for $17,750 of services rendered in 2016.
Warrants
Each Unit under the Securities Purchase Agreement
consists of Warrants entitling the Investor to purchase fifty (50) shares of Common Stock for each share of Series A Preferred
purchased by such Investor in the Private Placement, at an initial exercise price per share of $0.0055. The exercise price and
number of shares of Common Stock issuable under the Warrants are subject to adjustments for stock dividends, splits, combinations
and similar events. On or after the first anniversary of the issuance of the Warrants and prior to close of business on fourth
anniversary of the issuance of the Warrants, the Warrants may be exercised at any time upon the election of the holder, provided
however, that an Investor may at any given time convert only up to that number of shares of Common Stock so that, upon conversion,
the aggregate beneficial ownership of the Company’s Common Stock (calculated pursuant to Rule 13d-3 of the Securities Exchange
Act of 1934, as amended) of such Investor and all persons affiliated with such Investor, is not more than 4.99% of the Company’s
Common Stock then outstanding (subject to adjustment up to 9.99% at the Investor’s discretion upon 61 days’ prior notice).
The following summary reflects warrant and
option activity for the six-month period ended June 30, 2016:
|
|
Attached
|
|
|
Golden
State
|
|
|
|
|
|
|
Warrants
|
|
|
Warrants
|
|
|
Options
|
|
Outstanding December 31, 2015
|
|
|
19,771,122
|
|
|
|
18,395
|
|
|
|
23,030,274
|
|
Granted/purchased
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
77
|
|
|
|
-
|
|
Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding June 30, 2016
|
|
|
19,771,122
|
|
|
|
18,318
|
|
|
|
23,030,274
|
|
Stock options are valued at the date of award,
which does not precede the approval date, and compensation cost is recognized in the period the options are granted. Stock options
generally become exercisable on the date of grant and expire based on the terms of each grant.
The estimated fair value of options for common
stock granted was determined using the Black-Scholes option pricing model. The expected dividend yield is based on the average
annual dividend yield as of the grant date. Expected volatility is based on the historical volatility of our stock. The risk-free
interest rate is based on the U.S. Treasury Constant Maturity rates as of the grant date. The expected life of the option is based
on historical exercise behavior and expected future experience.
Note 5 – Incentive Stock Plan
In March 2014, the Company established the
3DIcon Corporation 2014 Equity Incentive Plan (the “2014 EIP”). The total number of shares of stock which may be purchased
or granted directly by options, stock awards or restricted stock purchase offers, or purchased indirectly through exercise of options
granted under the 2014 EIP shall not exceed fifty million (50,000,000) shares. The shares are included in a registration statement
filed March 2014. Shares were not issued from the 2014 EIP during the six months ended June 30, 2016. As of June 30, 2016, there
were 750,103 shares available for issuance under the 2014 EIP.
In March 2015, the Company established the
3DIcon Corporation 2015 Equity Incentive Plan (the “2015 EIP”). The total number of shares of stock which may be purchased
or granted directly by options, stock awards or restricted stock purchase offers, or purchased indirectly through exercise of options
granted under the 2015 EIP shall not exceed eighty-five million (85,000,000) shares. The shares are included in a registration
statement filed March, 2015. Shares totaling 12,991,401 and 56,622,453 were issued from the 2015 EIP during the six months periods
ended June 30, 2016 and 2015, respectively for legal and consulting services rendered. There are 142,244 shares available for issuance
under the 2015 EIP as of June 30, 2016
.
Note 6 – Office Lease
The Company has an amended Office Lease
that will expire on July 31, 2018. The minimum future lease payments to be paid under the term of the three-year non-cancellable
amended lease are payable as follows:
2016
|
|
$
|
11,000
|
|
2017
|
|
|
24,000
|
|
2018
|
|
|
14,000
|
|
total
|
|
$
|
49,000
|
|
Note 7 – Related Party Transactions
3DIcon has engaged the law firm of Newton,
O’Connor, Turner & Ketchum as its outside corporate counsel since 2005. John O’Connor, a director of 3DIcon, is
the Chairman of Newton, O’Connor, Turner & Ketchum. During the six months ending June 30, 2016 and 2015, the Company
incurred legal fees to Newton, O’Connor, Turner & Ketchum in the amount of $160, and $1,261, respectively. Additionally,
Newton, O’Connor, Turner & Ketchum held a convertible debenture (see Note 4 to the financial statements) totaling $29,007
which was included in debentures payable at December 31, 2015. The convertible debenture was retired in accordance with the SPA
described in Note 4 to the financial statements.
Mr. Victor F. Keen, Chief Executive Officer
of the Company, has entered into several advancement transactions, whereby Mr. Keen provided funds to the Company. Specifically,
Mr. Keen advanced the Company $145,000 in October 2015 and $103,000 in July, August, and September 2015. In addition, Mr. Keen
had previously advanced the Company $34,000 in November 2014. The total amount of these advancements by Mr. Keen to the Company,
as of December 31, 2015, was $282,000 and was included in accounts payable. The Company was also indebted to Mr. Keen for
his accrued salary from January 1, 2014 through December 31, 2015 totaling $300,000 and was included in accrued salaries. Additionally,
Mr. Keen held two convertible debentures (see Note 4 to the financial statements) totaling $75,000 which were included in debentures
payable. The advances, convertible debentures and accrued salary were retired in accordance with the SPA described in Note
5 to the financial statements.
During the six months ended June 30, 2016,
Mr. Keen advanced $100,000 to the Company which is included in accounts payable. The Company is also indebted to Mr. Keen for his
accrued salary from January 1, 2016 through June 30, 2016 totaling $75,500 and is included in accrued salaries.
Note 8 –
Share Exchange Agreement
On
May 31, 2016 the Company entered into a Share Exchange Agreement (the “Share Exchange Agreement”) with Coretec Industries,
LLC, a North Dakota limited liability company (“Coretec”), and four Coretec members (the “Members”), which
Members hold all outstanding membership interests in Coretec. Pursuant to the Share Exchange Agreement, the closing of which remains
subject to the satisfaction of various closing conditions, the Members agreed to sell all their membership interests in Coretec
to the Company in exchange for the Company’s issuance of an aggregate 4,411,710 shares of the Company’s Series B Convertible
Preferred Stock to the Members (the transaction, the “Exchange”). Upon consummation of the Exchange, Coretec will
be a wholly-owned subsidiary of the Company and the Members are expected to beneficially own approximately 65% of the Company’s
common stock on a fully-diluted basis.
After the closing of the Share Exchange
Agreement, considering any preferred stock on an “as converted” basis, approximately 65% of the Company’s issued
and outstanding common stock will be owned by the Coretec Members. The remaining 35% will be held by the Company’s current
stockholders. After the closing of the Share Exchange Agreement, two of the current Company’s Directors will resign and three
new Directors associated with Coretec will be nominated and elected, giving control of the board of directories to Coretec Members.
Consummation
of the Exchange is subject to customary conditions, including without limitation, (i) the delivery to the Company by each of the
Members or their designees, if any, a representation letter attesting to their status as an “accredited investor;”
(ii) the delivery to the Company by each of the Members or their designees, if any, a letter agreement agreeing to automatically
convert the shares of Series B Preferred issued to them pursuant to the Share Exchange Agreement upon the occurrence of certain
events; (iii) the delivery to the Company by each of the Members or their designees, if any, a lock up agreement in the form attached
to the Share Exchange Agreement; (iv) Coretec’s delivery to the Company of license agreement between Coretec and North Dakota
State University allowing Coretec to license certain intellectual property concerning cyclohexasilane or other silicon-based materials;
(v) the delivery to the Company of the required audited and unaudited consolidated financial statements; and (vi) delivery by
the Company and Coretec all required consents to consummate all transactions contemplated by the Share Exchange Agreement. Of
the conditions described above, conditions (iv), (v) and (vi) have been met.
The
Company has engaged a law firm to prepare the necessary documents for the Share Exchange Agreement, including resolutions of the
entities authorizing the closing, preparation and filing of form 14F, and filing of the Form 8K. The total fees agreed to for
the entire engagement total $100,000. The law firm has completed approximately 50% of the engagement and the company has advanced
$50,000 toward the total. The Company is obligated to fund the remaining $50,000 as the agreed upon tasks are completed.
The
closing of the Shares Exchange Agreement is expected to occur near the end of September 2016.
The
Share Exchange Agreement contains certain termination rights for the Company, Coretec and the Members.
Note 9 –
Subsequent Events
Accrued salary
to Victor Keen, CEO
Subsequent to June 30, 2016, the Company issued
Mr. Victor Keen 152,386 shares of Series B Convertible Stock in consideration of the indebtedness to Mr. Keen for his accrued salary
from January 1, 2016 through July 31, 2016 totaling $87,500 of which $75,000 was included in accrued salariesat June 30, 2016.
Stock issued for
prior services
Subsequent to June
30, 2016, shares of
Series B Convertible Stock
totaling 35,623 were issued for 2016 consulting
services for which the Company reduced accounts payable by $37,500
Item 2.
Management's
Discussion and Analysis of Financial Condition and Results of Operations
.
Forward-Looking Statements
The information in this
report contains forward-looking statements. All statements other than statements of historical fact made in this report are forward
looking. In particular, the statements herein regarding industry prospects and future results of operations or financial position
are forward-looking statements. These forward-looking statements can be identified by the use of words such as “believes,”
“estimates,” “could,” “possibly,” “probably,” anticipates,” “projects,”
“expects,” “may,” “will,” or “should” or other variations or similar words. No
assurances can be given that the future results anticipated by the forward-looking statements will be achieved. Forward-looking
statements reflect management’s current expectations and are inherently uncertain. Our actual results may differ significantly
from management’s expectations.
The following discussion
and analysis should be read in conjunction with our financial statements, included herewith. This discussion should not be construed
to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will
necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment
of our management.
Plan of Operation
Background:
3DIcon Corporation was
incorporated on August 11, 1995, under the laws of the State of Oklahoma as First Keating Corporation. Our articles of incorporation
were amended August 1, 2003 to change the name to 3DIcon Corporation. The initial focus of First Keating Corporation was to market
and distribute books written by its founder, Martin Keating. During 2001, First Keating Corporation began to focus on the development
of 360-degree holographic technology. The effective date of this transition was January 1, 2001. We accounted for this transition
as a reorganization and accordingly, restated its capital accounts as of January 1, 2001. At the inception on January 1, 2001,
our primary activity was the raising of capital in order to pursue its goal of becoming a significant participant in the formation
and commercialization of interactive, optical holography for the communications and entertainment industries.
In April 2004, we engaged
the University of Oklahoma (the “University” or “OU”) to conduct a pilot study to determine the opportunity
and feasibility for the creation of volumetric three dimensional display systems.
On July 15, 2005, we entered
into a Sponsored Research Agreement (“SRA”) with the University, which expired on January 14, 2007. Under this agreement,
the University conducted a research project entitled "Investigation of 3-Dimensional Display Technologies".
On February 23, 2007,
we entered into an SRA with the University, which expired on March 31, 2010. Under this agreement, the University conducted a
research project entitled "3-Dimensional Display Development".
In the fourth quarter
of 2007 we announced the release of our first product, "Pixel Precision". On February 12, 2009, version 2.0 of Pixel
Precision was released to expand capabilities and provide new compatibility with Texas Instrument's newly released DLP® Discovery
4000 kits. This is a companion software application to the DMD Discovery line of products manufactured by Texas Instruments®.
Further development of this product was ended in 2015.
In July 2013, the Company
was awarded a two year grant from OCAST. This was the second $300,000 grant received from OCAST. The first grant was completed
in August 2012. This matching grant was for a total of $300,000 and commenced September 1, 2013. The Company received $5,122 in
funding during the year ended December 31, 2015. The funds were being used to support the development of the Company’s first
Product Platform, which will be the basis for a family of products based on the Company’s CSpace® volumetric 3D display
technology.
The grant was cancelled
in March 2015 upon the resignation of Dr. Hakki Refai, the principal investigator under the grant.
Overview of Business
3DIcon is a small public
company that is further developing a patented volumetric 3D display technology that was developed by and with the University under
an SRA. The development to date has resulted in multiple new technologies, two working laboratory prototypes (Lab Proto 1 and
Lab Proto 2), and eight provisional patents; five of the eight provisional patents have been combined and converted to five utility
patents. Under the SRA, the Company has obtained the exclusive worldwide marketing rights to these 3D display technologies.
On May 26, 2009, the United
States Patent and Trademark Office ("USPTO") approved the patent called "Volumetric Liquid Crystal Display"
for rendering a three-dimensional image and converted it to US patent No. 7,537,345. On December 28, 2010, USPTO approved the
patent called “Light Surface Display for Rendering a Three-Dimensional Image,” and issued the United States Patent
No. 7,858,913. On August 21, 2012, the USPTO approved a continuation patent called “3D Volumetric Display”
and issued the US Patent No. 8,247,755. These patents describe the foundation of what we are calling our CSpace® technology
(“CSpace”).
Volumetric
The Company plans to commercialize
the CSpace volumetric 3D technology through a combination of government funded research and development contracts, joint development
agreements with industry partners and technology licensing agreements with companies like Raytheon, Boeing, Lockheed Martin, Siemens,
and General Electric for high value applications in military planning, cyber data analysis, battlespace visualization, oil and
gas exploration and medical imaging. Although we do not have any definitive agreements in place that provide for such funding,
we believe that the Federal Government would be interested in entering into funded arrangements based on past and existing discussions
our management have had with Federal Government Program Managers. Likewise, we believe that Industry would be interested in entering
into joint development agreements that could ultimately lead to licensing agreements. For example, Raytheon, Boeing and Schott
Defense have provided letters of support for government grants that we have applied for, indicating their interest in working
with us on the specific project if the grant were to be awarded. We have no formal agreements or commitments from Boeing or Raytheon
beyond these initial discussions. We have had similar interactions with a number of companies, such as Lockheed, Honeywell, General
Electric, Florida Institute of Human and Machine Cognition (IHMC), Cleveland Clinic, ShuffleMaster, etc. regarding our CSpace
technology.
The above commercialization
plan depends on our ability to convince potential customers (Government and Industry) that products based on our technology will
meet their requirements and that the technical risk in developing products based on our technology will be acceptable to these
potential customers. We are targeting high value applications that typically require products to be customized to the customer’s
application. Since we understand the capabilities and limitations of CSpace better than potential customers, it is not unusual
for this type of customer to ask the technology developer (in this case 3DIcon) to do most or part of the product development
for or with the customer in exchange for funding by the customer. In 2016, we plan to continue to solicit the Federal Government
and Industry to enter into customer-funded development contracts to develop our technology for or with those customers. Our goal
is to generate sufficient funding from such arrangements that would meet or exceed the incremental costs of developing product
prototypes for or with customers. If we are successful in completing the initial product prototypes on a timely basis, it is possible
that the Company could generate licensing revenues from our CSpace technology beginning in the fourth quarter of 2017. The Company
believes that it has an experienced display industry and management team with a proven track record of successfully commercializing
multiple display technologies to move our CSpace technology strategy forward.
In March of 2012, the
Company implemented a new evolutionary, step-by-step commercialization strategy for the CSpace volumetric display technology.
Under this strategy we are developing multiple staged prototypes with successively higher performance (brightness, resolution,
and image size). Lab Proto 2 is a working prototype with significant improvements over Lab Proto 1 and was completed in October
2012. Our technical team increased the image size of Lab Proto 2 by a factor of eight (8x) and the brightness of the image by
a factor of five (5x). Taken together with the 50 times higher brightness already achieved, Lab Proto 2 is 250 times (250x) brighter
than Lab Proto 1. Because of the larger image size and the much higher brightness, we achieved much higher effective
resolution as well. Lab Proto 3, while not complete, is already 80 times brighter than Lab Proto 2 and more than 2,000 times
brighter than Lab Proto 1. Most of the engineering work (optics, electronics and software) is complete, and the focus is
now on the image space materials.
The goals for Lab Proto
3 are to develop a lower cost and more scalable image chamber material (specialty glass), to enhance imagine brightness by ten
(10x) by utilizing a new scanning system, and to use that new material to construct an even larger image chamber than was demonstrated
for Lab Proto 2. Part of our Joint Development Agreement (“JDA”) with Schott Defense (“Schott”)
and our efforts to secure federal funding are aimed at accelerating the process of securing a scalable material for CSpace’s
image space.
Delays have been incurred
in the efforts to seek the best possible solution to the material required for the image space. Our federal funding strategy
and JDA with Schott are specifically targeted at securing this material, though they have failed to provide the necessary capital
to date.
We believe that Lab Proto
3 will enable the Company to credibly engage with potential customers and secure customer funded development contracts to develop
even larger and higher resolution product prototypes. If we are successful in securing customer funded development contracts,
we anticipate the development of various product prototypes, the first of which we have been calling the Trade Show Prototype.
It is likely that in exchange for funding of the TradeShow Prototype, our initial customer will require an exclusive license to
the technology in a particular field of use (e.g. medical imaging). The Company believes that any such exclusive license will
be based on a set period of time during product and/or market development and based on performance thereafter. Failure by the
customer to meet agreed upon performance criteria would most likely result in the license becoming non-exclusive. Any such exclusive
license agreement would preclude the Company from working with other customers in that field of use during the period of the exclusive
license. The Company does not believe that this strategy for funding the Tradeshow Prototype will significantly impact the revenue
potential of the technology given the number of potential applications (fields of use). If successfully developed, the Trade Show
Prototype, which is illustrated as an artist concept in Figure 3 below, will be fully packaged and portable so that it can be
used for trade shows and on-site customer demonstrations. We believe that the Trade Show Prototype will enable the Company to
market and secure licensing agreements with large government contractors and large medical or industrial products companies.
Federal Funding Strategy
As funding has increased
for the 3D field, the Company has implemented a federal funding strategy to augment its other capital raising efforts. In
December 2013, the Company secured the services of Doug Freitag, an expert in identifying and obtaining government grants of the
type we are seeking. As a result of feedback from various Federal Government Program Managers, the strategy now places increased
emphasis on a growing need for new technologies to visualize cyber data, military planning, medical imaging data, data collected
when screening for contraband and validation of 3D engineering designs prior to manufacturing by 3D printing. The strategy also
places greater emphasis on Small Business Innovation Research Grants where funding continues to grow, competition is limited to
other small businesses, 3DIcon can more easily be the project leader, and the cycle for awards from the date of submission can
be much faster. Larger contracts will still be considered but include other partners and may require one of more partners to lead
the projects if awarded. A pre-proposal titled “Glasses-Free 3D Volumetric Display for to Enhance Mission Analysis”
was submitted to the Defense Intelligence Agency on November 26, 2014. A proposal titled “3D Volumetric Display of Neurological
Data Provided by MRI Imaging” was submitted to the National institute of Health on December 5, 2014 and is under review.
A proposal titled “Transforming Cyber Data into Human-Centered 3D Visualizations” was submitted to the Air Force on
February 25, 2015. A pre-proposal titled “Glasses-Free 3D Volumetric Visualization of Critical Data to Enhance Decision
Making” was submitted to the DOD Combating Terrorism Technical Support Office on March 20, 2015. These submissions have
failed to produce funding necessary to accelerate the development process, though the Company will continue to pursue federal
funding on a selective basis.
Joint Development Agreement with Schott
Defense
As part of our federal
funding strategy we intend to effectively compete by forming interdisciplinary teams with potential strategic partners (large
and small), academic and commercial laboratories, and systems integrators providing integrated data visualization solutions.
The first of these partnerships was reached in March 2014 when the Company signed a JDA with Schott, a federally focused subsidiary
of Schott North America. Schott is a world-class multi-billion dollar company with significant experience and success in
partnering with federal agencies for development projects. In addition, Schott is one of the world’s leaders in developing
specialty glass for many applications, including display technology. This partnership, coupled with the expertise of Doug
Freitag, should facilitate the Company’s federal funding strategy and our ability to create the unique materials required
to advance the CSpace technology. In December of 2015 Schott AG closed the development office, Schott Defense, in Washington,
D.C. It is unclear how this may impact the JDA going forward.
Commercialization Strategy & Target
Applications
The Company plans to commercialize
the CSpace volumetric 3D technology through customer funded research and development contracts and technology licensing agreements
with companies like Boeing, Lockheed Martin, Siemens, and General Electric for high value applications like air traffic control,
design visualization, and medical imaging. The Company plans to develop products for contract engineering and with joint development
customers. At this time the Company does not have any commercialized products and does not plan to develop its own products based
on the CSpace technology due to the high value / low volume nature of the best-fit initial applications for this technology. These
applications include but are not limited to the following:
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Healthcare (diagnostics, surgical planning, training, telemedicine, biosurveillance);
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Cyber Security Data Visualization;
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Military (operational planning, training, modeling and simulation, battlespace awareness,
damage assessment, autonomous piloting);
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Physical Security (passenger, luggage & cargo screening);
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Mining, Oil & Gas Exploration; or
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Meteorological and Oceanographic data visualization.
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In order to simplify
internal development efforts on CSpace, software to control the initial laboratory prototype was created and later productized
as "Pixel Precision" in 2007.
Competition
Based on our market research
and competitive analysis to date, we have concluded that the CSpace volumetric technology is unique and advantaged versus other
3D technologies in that it can deliver both 1) a true 360 degree viewing experience for multiple simultaneous users, and 2) high
image quality, high reliability and large image size. Rear projection 3D displays such as those from Zecotek, Setred, and EuroLCDs
(formerly LC Tech LightSpace) do not provide a 360 degree viewing experience and are typically limited to one or two users. While
rotating displays (also called swept volume) such as Perspecta from Optics For Hire (formerly Actuality, now licensed), Xigen
(research only), Ray Modeler from Sony (research only), Felix 3D (research only), and the USC light field display (research only)
do provide a true 360 degree viewing experience, they cannot deliver a large image, high image quality and reliability because
the entire display is rotating at high speed. Early proof of concept work done on infrared active phosphor displays by 3D Display
Laboratories proved to not be scalable due to limited phosphor persistence and vector scanning limitations. While holographic
and light field displays show promise, they do not deliver a true 360 degree viewing experience and cost effective multiple user
systems do not appear feasible due to current and expected pixel density, data bandwidth and compute power limitations.
History of 3D Technology Research and Development
at the University of Oklahoma
Beginning in 2007 the
University, under an SRA with 3DIcon, undertook the development of the following three high potential 3D display technologies.
The results of each project are summarized below.
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I - Swept Volume Displays - We have successfully achieved the initial demonstration and proof
of technology for this approach.
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II - Static Volumetric Displays - This technology was ranked by the University as the best
for further development.
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III - Stacked Volume Displays - We also have investigated the technologies for developing
innovative Stacked Volumetric Displays.
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The Swept Volume Display
is designed to be a 3D display system showing a volumetric image generated from an electronic medium. A proof-of-concept demonstration
was achieved by the researchers around September 2007. The Swept Volume Display R&D entered into the subsequent second
stage of improvement and development in 2008. Additional work on this particular approach has been deferred indefinitely because
of the success and initial superiority of the CSpace technology.
Our implementation of
a Static Volume Display (CSpace®) employs one or more Digital Micro-Mirror Devices (DMDs) and infra-red lasers to produce
3D images in advanced transparent nanotechnology materials, thereby enabling the creation, transmission and display of high resolution
3D images within a volume space, surrounded by glass or transparent screen. The initial investigation for the Static Volume system
commenced in 2007. In September 2008, we built a laboratory prototype Static Volume Display using the CSpace technology and demonstrated
the creation of true 3D images within a specified image space. New developments for eliminating the distortion occurred by the
divergence of the constructed 3D image were presented at the SPIE Europe Security & Defense conference in Berlin, Germany
in August 2009. Improvements for the optical systems utilized by CSpace with the latest achieved resolution were published in
October 2009 in IEEE/OSA Journal of Display Technology titled "Static Volumetric Three-Dimensional Display" and can
be found for a moderate fee at
http://www.opticsinfobase.org
. On February 15, 2010, at the SPIE Medical Imaging conference,
we presented the latest software developments that allow reading Digital Imaging and Communication In Medicine ("DICOM")
formats whether scanned by ultrasound devices, magnetic resonance imaging ("MRI"), or computed tomography ("CT")
scanners. With this new software architecture, Static Volume 3D displays based on the CSpace technology would have the capability
of displaying medical images.
On April 14, 2010, at
the OSA Digital Holography and Three-Dimensional Imaging conference in Miami, FL, we presented an increase in brightness of the
constructed 3D images. On September 23, 2010, at the SPIE Europe Security & Defense conference in Toulouse, France,
we presented new implementations to reduce flicker of the 3D Images constructed by CSpace display. In November 2010,
we published a new method of rendering 3D Images using a rotational-slicing technique at the Journal of the Society for Information
Display and can be found for a moderate fee at
http://onlinelibrary.wiley.com/doi/10.1889/JSID18.11.873/abstract
. In December
2010, we published the utilization of new materials for CSpace image space at the Journal of the Society for Information Display
and can be found for a moderate fee at
http://onlinelibrary.wiley.com/doi/10.1889/JSID18.12.1065/abstract
. In April 2011,
New Developments That Allow CSpace To Perfectly Fit Applications Such As Air Traffic Control was published in the IEEE/OSA Journal
of Display Technology and can be found for a moderate fee at
http://www.opticsinfobase.org/jdt/abstract.cfm?uri=jdt-7-4-186
.
On April 25, 2011, we presented a new paper called “Multi-layer overlay display,” at the SPIE Defense & Security
Conference in Orlando, FL. On May 17, 2013, we presented a new paper called ”CSpace High-Resolution Volumetric 3D Display,”
at the SPIE Defense & Security in Baltimore, Maryland. On September 26, 2014 we were interviewed for an article on medical
imaging by Medical Device Daily and can be found at
http://www.medicaldevicedaily.com/servlet/com.accumedia.web.Dispatcher?next=mdd_currentIssue&issueId=23719&prodID=4&month=09&year=2014
.
On December 18, 2014, we co-authored a new publication called “Scalable Upconversion Medium for Static Volumetric Display”
in the Journal of Display Technology and can be found for a moderate fee at
http://ieeexplore.ieee.org/xpl/articleDetails.jsp?reload=true&arnumber=6987226
.
On March 1, 2015 we published an overview on the applications for 3D Volumetric Displays in NASA Tech Briefs and can be found
at
http://www.techbriefs.com/component/content/article/27-ntb/features/application-briefs/21710
. On February 27, 2015 we
were interviewed for a Q/A article on 3D imaging by Medical Design Technology that can be found at
http://www.mdtmag.com/blogs/2015/02/true-3d-imagesglasses-free
.
On March 24, 2015 we made a presentation called “Glasses-Free 3D Volumetric Display for Enhanced Decision Making”
at the 2015 National Defense Industry Association Science & Engineering Technology Division Conference.
Regarding our continued
efforts to improve the performance of the CSpace technology, we completed our second-generation prototype (Lab Proto 2) in October
2012. Our goals for Lab Proto 2 were to first improve image brightness, and then to improve resolution (increase the number of
voxels or 3D pixels), and lastly to increase the size of the image. The image generated by Lab Proto 2 is approximately 250 times
(250x) brighter than our first generation prototype and can now be viewed in normal room lighting. As a result of the increased
brightness, resolution has also been improved. The estimated resolution of the second-generation prototype is approximately five
times (5x) greater than the first generation prototype. The image size of Lab Proto 2 is approximately 8 times (8x) larger than
our first generation prototype. We continue to develop a third-generation prototype (Lab Proto 3) with a larger image space, which
we believe will enable the Company to credibly engage with potential customers and secure customer funded development contracts
to develop even larger and higher resolution product prototypes, eventually leading to a trade show prototype that will be portable
and package for display at trade shows or on-site customer demonstrations.
University of Oklahoma - Sponsored Research
Agreement History
On December 1, 2010, the
Company entered into an agreement (the "Agreement") with the University of Oklahoma. The Agreement amended the existing
agreements between the Company and the University such that all intellectual property, including all inventions and or discoveries,
patentable or un-patentable, developed before July 28, 2008 by the University under the SRA is owned by the University. All intellectual
property, including all inventions and/or discoveries, patentable or un-patentable, developed jointly by the Company and the University
at any time is jointly owned by the Company and the University. Finally, all intellectual property developed by the Company after
July 28, 2008, including all inventions and or discoveries, patentable or un-patentable, is owned by the Company.
Intellectual Property History, Status &
Rights
On May 26, 2009, the United
States Patent and Trademark Office (“USPTO”) approved the pending patent called "Volumetric Liquid Crystal Display"
for rendering a three-dimensional image and converted it to US patent No. 7,537,345. On July 16, 2013, USPTO approved the pending
patent called “Computer System with Digital Micromirror Device,” and issued US patent No. 8,487,865.
CSpace Patents are as
follow: On December 28, 2010, USPTO approved the pending patent called “Light Surface Display for Rendering a Three-Dimensional
Image,” and issued the United States Patent No. 7,858,913. On August 21, 2012, the USPTO approved a continuation
patent called “3D Volumetric Display” and issued the US Patent No. 8,247,755. On December 13, 2011, USPTO approved
a continuation patent called “3D Light Surface Display,” and issued the US Patent No. 8,075,139. On July 31, 2013,
3DIcon filed provisional patent called “Ultra High-Resolution Volumetric Three-Dimensional Display,” (US patent application
serial No. 61859145).
Through a SRA with the
University, we have obtained the exclusive worldwide marketing rights to certain 3D display technologies under development by
the University. The development to date has resulted in the University filing eight provisional patents; five of the eight provisional
patents have been combined and converted to five utility US patents, one pending European patent and one pending Japanese patent.
Key Patents Exclusively Licensed to 3DIcon
from OU:
Patents Granted
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“3D Volumetric Display” - 8,247,755, August 21, 2012
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“3DLight Surface Display” - 8,075,139, December 13, 2011
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“Light Surface Display for Rendering a Three-Dimensional Image” - 7,858,913, December
28, 2010
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“Volumetric Liquid Crystal Display” - 7,537,345, May 26, 2009
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“Computer System with Digital Micromirror Device” - 8,487,865, July 16, 2013
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International Patents Granted-Japan
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“Light Surface Display for Rendering a Three-Dimensional Image” - Japanese Patent
Number 5,594,718, August 15, 2014
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International Patents Pending
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“Light Surface Display for Rendering a Three-Dimensional Image” - European Application
Number EP07755984, Filed April 25, 2007
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“Ultra High Resolution Three-Dimensional Display” - July 26, 2013
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“Holoform Projection Display” - March 12, 2013
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RESULTS OF OPERATIONS FOR THE THREE MONTHS
ENDED JUNE 30, 2016 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2015
Revenue
We did not have revenue
for the three-months periods ended June 30, 2016 and 2015.
Research and Development Expenses
The research and
development expenses were $2,305 for the three months ended June 30, 2016, as compared to $2,329 for the three months ended June
30, 2015. The decrease was a result of the decrease in activity.
General and Administrative Expenses
Our general and administrative
expenses were $210,918 for the three months ended June 30, 2016, as compared to $213,636 for the three months ended June 30, 2015. The
decrease is due to a decrease of $7,000 of legal fees incurred in 2015 regarding the amortization of debt costs, a decrease in
fees paid to the public relations firm of $35,000, a decrease of $6,000 in CFO fees, and a decrease of $5,700 in salaries and
wages. These decreases were off-set by an increase in legal fees and consulting fees of $55,000 regarding the Securities Exchange
Agreement.
Interest Expense
Interest expense for
the three months ended June 30, 2016 was $2,005 as compared to $17,125 for the three months ended June 30, 2015. The
decrease was primarily a result of $8,400 decrease in interest cost from the convertible debentures outstanding during the period
and a decrease of $7,000 of OID amortization resulting from the conversion of debentures.
RESULTS OF OPERATIONS FOR THE SIX MONTHS
ENDED JUNE 30, 2016 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2015
Revenue
The second two year matching
OCAST grant, for a total of $300,000 had a start date of September 1, 2013. We earned $-0- in grant funding from the second OCAST
grant during the six months ended June 30, 2016 compared to $5,122 during the six months ended June 30, 2015. The grant was cancelled
in March 2015 upon the resignation of Dr. Hakki Refai.
Research and Development Expenses
The research and development
expenses were $4,930 for the six months ended June 30, 2016, as compared to $45,238 for the six months ended June 30, 2015. The
decrease was a result of the decrease in cost for patent fees of approximately $3,000, a decrease of $36,000 of fees paid to Dr.
Hakki Refai, and a decrease in the travel expenses of $1,200.
General and Administrative Expenses
Our general and administrative
expenses were $438,327 for the six months ended June 30, 2016, as compared to $472,483 for the six months ended June 30, 2015. The
net decrease is due primarily to a $69,000 decrease in fees to our public relations consultants and the CFO, a decrease of $12,000
in salaries, a decrease in legal fees of $8,000 regarding the amortization of deferred cost on debentures previously issued, a
decrease of $11,000 in legal fees paid to our legal counsel, and a decrease in Blue Sky fees of $6,500. The decreases were off-set
by an increase of $5,500 in accounting fees and $55,000 in legal and consulting fees regarding the Securities Exchange Agreement
and an increase in insurance premiums of $4,000.
Interest Expense
Interest expense for
the six months ended June 30, 2016 was $3,069 as compared to $25,748 for the six months ended June 30, 2015. The decrease
was a result of a decrease in the amount of OID amortized of $17,000 and a decrease of $6,000 in interest costs on our debentures
and notes which were retired through the issuance of our Series B Preferred shares.
Financial Condition, Liquidity and Capital
Resources
Management remains focused
on controlling cash expenses. We recognize our limited cash resources and plan our expenses accordingly. We intend to leverage
stock-for-services wherever possible. The operating budget consists of the following expenses:
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Research and development expenses pursuant to the development of an initial demonstrable
prototype and a second prototype for static volume technology.
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Acceleration of research and development through increased research personnel as well as other
research agencies.
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General and administrative expenses: salaries, insurance, investor related expenses, rent,
travel, website, etc.
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Hiring executive officers for technology, operations and finance.
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Professional fees for accounting and audit; legal services for securities and financing; patent
research and protection.
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Our independent registered
public accountants, in their audit report accompanying our financial statements for the year ended December 31, 2015, expressed
substantial doubt about our ability to continue as a going concern due to our status as a development stage organization with
insufficient revenues to fund development and operating expenses.
We had net cash of $14,083
at June 30, 2016.
We had negative working
capital of $541,829 at June 30, 2016.
During the six-months
ended June 30, 2016, we used $126,754 of cash for operating activities, a decrease of $55,278 or 30% compared to the six-months
ended June 30, 2015. The decrease in the use of cash for operating activities was a result of the increase in accounts payable
of $14,365, an increase in prepaid expenses of $4,206, a decrease of $29,000 in stock issued for services, a decrease in amortization
of debt cost of $26,000, and a decrease in the net loss of $102,000.
There was no cash
used in investing activities during the six-months ended June 30, 2016 or for the six-months ended June 30, 2015.
We expect to fund
the ongoing operations through the existing financing in place (see below); through raising additional funds as permitted by the
terms of Golden State financing as well as reducing our monthly expenses.
Our ability to fund
the operations of the Company is highly dependent on the underlying stock price of the Company.
4.75% Convertible Debenture due December 31, 2016
On November 3, 2006,
the Company issued to Golden State a 4.75% convertible debenture in a principal amount of $100,000, due December 2016 as a result
of a maturity extension agreement received by the Company in March 2015, and warrants to buy 25,571 shares of the common stock
at an exercise price of $381.50 per share. In connection with each conversion, Golden State is expected to simultaneously
exercise a percentage of warrants equal to the percentage of the principal being converted. During the six months ended June 30,
2016, Golden State converted $270 of the $100,000 debenture into 92,809,800 shares of common stock and exercised warrants to purchase
77 shares of common stock at $381.50 per share based on the formula in the convertible debenture. Additionally Golden State advanced
$14,716 against future exercises of warrants of which $14,771 was applied to the exercise of warrants leaving $-0- of unapplied
advances at June 30, 2016.
9% Promissory note due November 2016
On April 26, 2016 the
Company signed a 9% Promissory Note with Golden State Equity Investors, Inc. (“Golden State”) in the amount of $40,000.
Interest is due monthly in the amount of $300. Golden State advance the $40,000 on the note and on June 16, 2016 applied $14,659
to fund the exercise of warrants under the terms of the 4.75% Convertible debenture (described above) held by Golden State, leaving
$25,341 outstanding on the 9% Promissory note.
14% Term loan due June 2018
On April, 18, 2016
the Company entered into a Loan Agreement (the “Agreement”) with Carlton James North Dakota Limited (“CJNCL”)
whereby CJNDL agreed to provide the Company a loan facility of up to $100,000. Under the terms of the Agreement the Company shall
pay interest on the outstanding unpaid balance at the rate of 1.167% per month. The interest is due quarterly and the principal
is due June 29, 2018. CJNDL has advanced $75,000 on the loan. CJNDL is a party to the Share Exchange Agreement disclosed in Note
8 to the financial statements.
Director Debenture
On June 24, 2013, the
Company issued to Victor Keen and Martin Keating, Directors of the Company, (“Directors”) 10% convertible debentures
in a principal amount of $15,000 each, due June 26, 2014 and subsequently extended to June 30, 2016. The Directors may elect to
convert all or any portion of the outstanding principal amount of the debentures at an exercise price of $0.01 per share. Provided
that the debentures are paid in full on or before the maturity date, no interest shall accrue on the unpaid balance of the
principal amount. In the event that the debentures are not paid in full on or before the maturity date, interest shall accrue
on the unpaid outstanding balance of the principal amount of the debentures from June 26, 2013, until paid, at the fixed rate
of ten percent (10%) per annum. On March 24, 2016, 2016, the Company issued to Mr. Keen and Mr. Keating 1,193,582 and 19,266 shares
of its newly designated Series B Preferred, respectively, in accordance with Securities Purchase Agreements dated December 11,
2015, pursuant to which, as a result of the issuance of the Series B Preferred, all amounts owed under these convertible debenture
are deemed satisfied, exchanged and converted.
Newton, O'Connor, Turner & Ketchum
10% Convertible Debenture
On December 20, 2012,
the Company issued to Newton, O'Connor, Turner & Ketchum (“NOTK”) a 10% convertible debenture in a principal amount
of $29,007, initially due September 30, 2013 and subsequently extended to June 30, 2016. NOTK may elect to convert all or
any portion of the outstanding principal amount of the debenture at an exercise price of $0.02534 per share. The Company was indebted
to NOTK for legal services performed for the Company and reimbursement of expenses in rendition of those services for the period
ended December 31, 2012. The debenture was issued in settlement of the indebtedness. On March 24, 2016, the Company issued
to NOTK 50,149 shares of its newly designated Series B Preferred in accordance with a Securities Purchase Agreement dated December
11, 2015, pursuant to which, as a result of the issuance of the Series B Preferred, all amounts owed under the 10% convertible
debenture are deemed satisfied, exchanged and converted.
10% Convertible Bridge Note to Director
On September 11, 2012,
the Company issued and sold to Victor F. Keen, a Director and an accredited investor a Convertible Bridge Note (the “Keen
Bridge Note”) in the principal amount of $60,000. The sale of the Keen Bridge Notes in the principal of $60,000 included
a $10,000 OID. Accordingly, the Company received $50,000 gross proceeds. The Keen Bridge Note matured 90 days from the date of
issuance and, other than the OID, the Keen Bridge Note does not carry interest. However, in the event the Keen Bridge Note is
not paid on maturity, all past due amounts will accrue interest at 15% per annum. Upon maturity of the Keen Bridge Note, the holders
of the Keen Bridge Note may elect to convert all or any portion of the outstanding principal amount of the Keen Bridge Note into
(i) securities sold pursuant to an effective registration statement at the applicable offering price; or (ii) shares of common
stock at a conversion price equal to the lesser of 100% of the Volume Weighted Average Price (VWAP), as reported for the 5 trading
days prior to (a) the date of issuance of the Keen Bridge Note, (b) the maturity date of the Keen Bridge Note, or (c) the first
closing date of the securities sold pursuant an effective registration statement.
On March 8, 2016, the
Keen Bridge Note was extended to June 30, 2016.
On March 24, 2016, 2016,
the Company issued to Mr. Keen 1,193,582 shares of its newly designated Series B Preferred in accordance with Securities Purchase
Agreements dated December 11, 2015, pursuant to which, as a result of the issuance of the Series B Preferred, all amounts owed
under these convertible debenture are deemed satisfied, exchanged and converted.
Series A Convertible Preferred Stock
January 23, 2014, the
Company sold to Victor Keen, the Company’s Chief Executive Officer and a member of the Company’s Board of Directors,
190,000 Units for a purchase price of $190,000, as part of the Private Placement (as defined therein) disclosed in the Company’s
Current Report on Form 8-K filed with the Securities and Exchange Commission on December 13, 2013. Pursuant to such Private Placement,
the Company received aggregate proceeds equal to $385,000.
Advancements by Mr. Victor Keen
Mr. Victor F. Keen, Chief
Executive Officer of the Company, has entered into several advancement transactions, whereby Mr. Keen provided funds to the Company.
Specifically, Mr. Keen advanced the Company $145,000 in October 2015 and $103,000 in July, August, and September 2015. In addition,
Mr. Keen has previously advanced the Company $34,000 in November 2014. The total amount of these advancements by Mr. Keen to the
Company, as of the date of this filing, is $282,000 and is included in accounts payable. The Company is also indebted to
Mr. Keen for his accrued salary from January 1, 2014 through December 31, 2015 totaling $300,000 and is included in accrued salaries.
Additionally, Mr. Keen holds two convertible debentures totaling $75,000 which are included in debentures payable and discussed
above. On March 24, 2016, the Company issued to Mr. Keen 1,193,582 shares of its newly designated Series B Preferred
in accordance with a Securities Purchase Agreement dated December 11, 2015, pursuant to which, as a result of the issuance of
the Series B Preferred, all amounts advanced to the Company are deemed satisfied, exchanged and converted.
Series B Convertible Preferred Stock
On March 24, 2016, the
Company issued an aggregate of 1,589,010 shares of the Company’s Series B Convertible Preferred Stock (the “Series
B Preferred”) in connection with Securities Purchase Agreements (the “Securities Purchase Agreements”) dated
December 11, 2015. Pursuant the Securities Purchase Agreements, the Company had agreed to issue, and on March 24, 2016 issued,
to certain officers, directors, consultants and service providers (collectively, “Recipients”) and the Recipients
had agreed to accept, and on March 24, 2016 received, shares of Series B Preferred in consideration for the satisfaction, in lieu
of cash payment, of an aggregate of $1,105,403 owed by the Company to the Recipients. Series B Preferred may be converted in whole
or in part, from time to time, into One Thousand Nine Hundred Fourteen (1,914) shares of Common Stock. Among the Recipients were
(i) Victor F. Keen, the Company’s Chief Executive Officer, who received 1,193,582 shares of Series B Preferred in satisfaction
of $685,355 owed to him under certain notes, in connection with certain advances he provided to the Company and for services he
provided to the Company; (ii) Ronald W. Robinson, the Company’s Chief Financial Officer, who received 85,771 shares of Series
B Preferred in satisfaction of $90,291 owed to him for services he provided to the Company; (iii) Martin Keating, a Director of
the Company, who received 19,266 shares of Series B Preferred in satisfaction of $20,2812 owed to him under certain notes and
for services he provided to the Company; and (iv) Newton, O'Connor, Turner & Ketchum, PC, a law firm of which John O’Connor,
a Director of the Company, is a partner, that received 50,149 shares of Series B Preferred in satisfaction of $52,791 owed to
it for services provided to the Company. Additionally, on May 10, 2016 shares of Series B Preferred totaling 16,862 were issued
to consultants for $17,750 of services rendered in 2016.
Off Balance Sheet Arrangements
The Company does
not engage in any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial
condition, revenues, and results of operations, liquidity or capital expenditures.
Significant Accounting Policies
Research and Development Costs
The Company expenses
all research and development costs as incurred. Until we have developed a commercial product, all costs incurred in connection
with the SRA with the University, as well as all other research and development costs incurred, will be expensed as incurred.
After a commercial product has been developed, we will report costs incurred in producing products for sale as assets, but we
will continue to expense costs incurred for further product research and development activities.
Stock-Based Compensation
Since its inception 3DIcon
has used its common stock or warrants to purchase its common stock as a means of compensating our employees and consultants. Financial
Accounting Standards Board ("FASB") guidance on accounting for share based payments requires us to estimate the value
of securities used for compensation and to charge such amounts to expense over the periods benefited.
The estimated fair value
at date of grant of options for our common stock is estimated using the Black-Scholes option pricing model, as follows:
The expected dividend
yield is based on the average annual dividend yield as of the grant date. Expected volatility is based on the historical volatility
of our stock. The risk-free interest rate is based on the U.S. Treasury Constant Maturity rates as of the grant date. The expected
life of the option is based on historical exercise behavior and expected future experience.
Subsequent Events
Accrued salary to Victor Keen, CEO
Subsequent to June
30, 2016, the Company issued Mr. Victor Keen 152,386 shares of Series B Convertible Stock in consideration of the indebtedness
to Mr. Keen for his accrued salary from January 1, 2016 through July 31, 2016 totaling $87,500 of which $75,000 was included in
accrued salaries at June 30, 2016.
Stock issued for prior services
Subsequent to June
30, 2016, shares of Series B Convertible Stock totaling 35,623 were issued for 2016 consulting services for which the Company reduced
accounts payable by $37,500.