Item 1. Financial
Statements.
INDEX TO FINANCIAL STATEMENTS
|
|
Page
|
Balance Sheets as of June 30, 2014 (Unaudited) and December 31, 2013
|
|
F-2
|
|
|
|
Statements of Operations for the three and six months ended June 30, 2014 and 2013 and period from inception (January 1, 2001) to June 30, 2014 (Unaudited)
|
|
F-3
|
|
|
|
Statements of Changes in Stockholders' Deficiency for period from inception (January 1, 2001) to June 30, 2014 (Unaudited)
|
|
F-4
|
|
|
|
Statements of Cash Flows for the six months ended June 30, 2014 and 2013 and period from inception (January 1, 2001) to June 30, 2014 (Unaudited)
|
|
F-5
|
|
|
|
Notes to Financial Statements, June 30, 2014 (Unaudited)
|
|
F-6
|
3DIcon CORPORATION
(A Development Stage Company)
BALANCE SHEETS
June 30, 2014 and December 31, 2013
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
(Unaudited)
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
10,357
|
|
|
$
|
70,769
|
|
Prepaid expenses
|
|
|
16,591
|
|
|
|
13,919
|
|
Total current assets
|
|
|
26,948
|
|
|
|
84,688
|
|
|
|
|
|
|
|
|
|
|
Deferred debt costs, net
|
|
|
-
|
|
|
|
25,455
|
|
Deposits-other
|
|
|
2,315
|
|
|
|
2,315
|
|
Total Assets
|
|
$
|
29,263
|
|
|
$
|
112,458
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Deficiency
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Current maturities of convertible notes and debentures payable
|
|
$
|
474,293
|
|
|
$
|
612,744
|
|
Warrant exercise advances
|
|
|
47,881
|
|
|
|
185,671
|
|
Accounts payable
|
|
|
289,987
|
|
|
|
140,410
|
|
Accrued salaries
|
|
|
83,228
|
|
|
|
1,713
|
|
Accrued interest on debentures
|
|
|
25,847
|
|
|
|
22,751
|
|
Total current liabilities
|
|
|
921,236
|
|
|
|
963,289
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
921,236
|
|
|
|
963,289
|
|
|
|
|
|
|
|
|
|
|
Common stock subject to put rights and call right, 1,685,714 shares
|
|
|
485,649
|
|
|
|
485,649
|
|
|
|
|
|
|
|
|
|
|
Stockholders' deficiency:
|
|
|
|
|
|
|
|
|
Preferred stock, Series A convertible, $0.0002 par value, 500,000 shares authorized; 385,000 and 195,000 shares issued and outstanding at June 30, 2014 and December 31, 2013, respectively
|
|
|
77
|
|
|
|
39
|
|
Common stock $0.0002 par, 1,500,000,000 shares authorized; 372,214,006 and 248,191,444 shares issued and outstanding at June 30, 2014 and December 31, 2013, respectively
|
|
|
74,443
|
|
|
|
49,638
|
|
Additional paid-in capital
|
|
|
19,249,218
|
|
|
|
18,618,714
|
|
Deficit accumulated during development stage
|
|
|
(20,701,360
|
)
|
|
|
(20,004,871
|
)
|
Total Stockholders' Deficiency
|
|
|
(1,377,622
|
)
|
|
|
(1,336,480
|
)
|
Total Liabilities and Stockholders' Deficiency
|
|
$
|
29,263
|
|
|
$
|
112,458
|
|
See notes to financial statements
3DIcon CORPORATION
(A Development Stage Company)
STATEMENTS OF OPERATIONS
Three and Six Months Ended June 30,
2014 and 2013 and
Period from Inception (January 1, 2001)
to June 30, 2014
(unaudited)
|
|
Three Months
|
|
|
Three Months
|
|
|
Six Months
|
|
|
Six Months
|
|
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Inception to
|
|
|
|
June 30, 2014
|
|
|
June 30, 2013
|
|
|
June 30, 2014
|
|
|
June 30, 2013
|
|
|
June 30, 2014
|
|
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License fee
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
25,000
|
|
Sales
|
|
|
-
|
|
|
|
-
|
|
|
|
10,000
|
|
|
|
1,500
|
|
|
|
55,297
|
|
Grant income
|
|
|
18,000
|
|
|
|
-
|
|
|
|
46,748
|
|
|
|
-
|
|
|
|
372,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income
|
|
|
18,000
|
|
|
|
-
|
|
|
|
56,748
|
|
|
|
1,500
|
|
|
|
452,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
33,195
|
|
|
|
86,837
|
|
|
|
93,531
|
|
|
|
190,442
|
|
|
|
5,144,190
|
|
General and administrative
|
|
|
238,409
|
|
|
|
320,880
|
|
|
|
616,518
|
|
|
|
584,852
|
|
|
|
15,287,921
|
|
Interest
|
|
|
20,382
|
|
|
|
33,116
|
|
|
|
43,188
|
|
|
|
53,383
|
|
|
|
721,682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
291,986
|
|
|
|
440,833
|
|
|
|
753,237
|
|
|
|
828,677
|
|
|
|
21,153,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(273,986
|
)
|
|
$
|
(440,833
|
)
|
|
$
|
(696,489
|
)
|
|
$
|
(827,177
|
)
|
|
$
|
(20,701,360
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.001
|
)
|
|
$
|
(0.007
|
)
|
|
$
|
(0.002
|
)
|
|
$
|
(0.014
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, Basic and diluted
|
|
|
356,716,660
|
|
|
|
65,014,503
|
|
|
|
321,910,863
|
|
|
|
58,135,328
|
|
|
|
|
|
See notes to financial statements
3DIcon CORPORATION
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS'
DEFICIENCY
Period from Inception (January 1, 2001)
to June 30, 2014
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Preferred
Stock
|
|
|
Common Stock
|
|
|
Additional
|
|
|
During the
|
|
|
|
|
|
|
|
|
|
Par
|
|
|
|
|
|
Par
|
|
|
Paid-In
|
|
|
Development
|
|
|
|
|
|
|
Shares
|
|
|
Value
|
|
|
Shares
|
|
|
Value
|
|
|
Capital
|
|
|
Stage
|
|
|
Total
|
|
Balance, January 1, 2001 – as reorganized
|
|
|
-
|
|
|
|
-
|
|
|
|
27,723,750
|
|
|
$
|
27,724
|
|
|
$
|
193,488
|
|
|
$
|
-
|
|
|
$
|
221,212
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrue compensation earned but unrecorded
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(60,000
|
)
|
|
|
(60,000
|
)
|
Stock issued for services
|
|
|
-
|
|
|
|
-
|
|
|
|
2,681,310
|
|
|
|
2,681
|
|
|
|
185,450
|
|
|
|
-
|
|
|
|
188,131
|
|
Stock issued for cash
|
|
|
-
|
|
|
|
-
|
|
|
|
728,500
|
|
|
|
729
|
|
|
|
72,121
|
|
|
|
-
|
|
|
|
72,850
|
|
Net loss for the year
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(259,221
|
)
|
|
|
(259,221
|
)
|
Balance, December 31, 2001
|
|
|
-
|
|
|
|
-
|
|
|
|
31,133,560
|
|
|
|
31,134
|
|
|
|
451,059
|
|
|
|
(319,221
|
)
|
|
|
162,972
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrue compensation earned but unrecorded
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(60,000
|
)
|
|
|
(60,000
|
)
|
Stock issued for services
|
|
|
-
|
|
|
|
-
|
|
|
|
3,077,000
|
|
|
|
3,077
|
|
|
|
126,371
|
|
|
|
-
|
|
|
|
129,448
|
|
Stock issued for cash
|
|
|
-
|
|
|
|
-
|
|
|
|
1,479,000
|
|
|
|
1,479
|
|
|
|
146,421
|
|
|
|
-
|
|
|
|
147,900
|
|
Net loss for the year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(267,887
|
)
|
|
|
(267,887
|
)
|
Balance, December 31, 2002
|
|
|
-
|
|
|
|
-
|
|
|
|
35,689,560
|
|
|
|
35,690
|
|
|
|
723,851
|
|
|
|
(647,108
|
)
|
|
|
112,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrue compensation earned but unrecorded
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(90,000
|
)
|
|
|
(90,000
|
)
|
Stock issued for services
|
|
|
-
|
|
|
|
-
|
|
|
|
15,347,000
|
|
|
|
15,347
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15,347
|
|
Stock issued for cash
|
|
|
-
|
|
|
|
-
|
|
|
|
1,380,000
|
|
|
|
1,380
|
|
|
|
33,620
|
|
|
|
-
|
|
|
|
35,000
|
|
Reverse split 1:10
|
|
|
-
|
|
|
|
-
|
|
|
|
(47,174,904
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Par value $0.0001 to $0.0002
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(51,369
|
)
|
|
|
51,369
|
|
|
|
-
|
|
|
|
-
|
|
Net loss for the year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(51,851
|
)
|
|
|
(51,851
|
)
|
Balance, December 31, 2003
|
|
|
-
|
|
|
|
-
|
|
|
|
5,241,656
|
|
|
|
1,048
|
|
|
|
808,840
|
|
|
|
(788,959
|
)
|
|
|
20,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional founders shares issued
|
|
|
-
|
|
|
|
-
|
|
|
|
25,000,000
|
|
|
|
5,000
|
|
|
|
(5,000
|
)
|
|
|
-
|
|
|
|
-
|
|
Stock issued for services
|
|
|
-
|
|
|
|
-
|
|
|
|
24,036,000
|
|
|
|
4,807
|
|
|
|
71,682
|
|
|
|
-
|
|
|
|
76,489
|
|
Stock issued for cash
|
|
|
-
|
|
|
|
-
|
|
|
|
360,000
|
|
|
|
72
|
|
|
|
28,736
|
|
|
|
-
|
|
|
|
28,808
|
|
Warrants issued to purchase common stock at $.025
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
18,900
|
|
|
|
-
|
|
|
|
18,900
|
|
Warrants issued to purchase common stock at $.05
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
42,292
|
|
|
|
-
|
|
|
|
42,292
|
|
Stock warrants exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
2,100,000
|
|
|
|
420
|
|
|
|
60,580
|
|
|
|
-
|
|
|
|
61,000
|
|
Net loss for the year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(617,875
|
)
|
|
|
(617,875
|
)
|
Balance, December 31, 2004
|
|
|
-
|
|
|
|
-
|
|
|
|
56,737,656
|
|
|
|
11,347
|
|
|
|
1,026,030
|
|
|
|
(1,406,834
|
)
|
|
|
(369,457
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued for services
|
|
|
-
|
|
|
|
-
|
|
|
|
5,850,000
|
|
|
|
1,170
|
|
|
|
25,201
|
|
|
|
-
|
|
|
|
26,371
|
|
Stock issued to settle liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
5,000,000
|
|
|
|
1,000
|
|
|
|
99,000
|
|
|
|
-
|
|
|
|
100,000
|
|
Stock issued for cash
|
|
|
-
|
|
|
|
-
|
|
|
|
1,100,000
|
|
|
|
220
|
|
|
|
72,080
|
|
|
|
-
|
|
|
|
72,300
|
|
Warrants issued to purchase common stock at $.025
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
62,300
|
|
|
|
-
|
|
|
|
62,300
|
|
Warrants issued to purchase common stock at $.05
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
140,400
|
|
|
|
-
|
|
|
|
140,400
|
|
Stock warrants exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
5,260,000
|
|
|
|
1,052
|
|
|
|
172,948
|
|
|
|
-
|
|
|
|
174,000
|
|
Net loss for the year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(592,811
|
)
|
|
|
(592,811
|
)
|
Balance, December 31, 2005
|
|
|
-
|
|
|
|
-
|
|
|
|
73,947,656
|
|
|
|
14,789
|
|
|
|
1,597,959
|
|
|
|
(1,999,645
|
)
|
|
|
(386,897
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued for services
|
|
|
-
|
|
|
|
-
|
|
|
|
4,700,000
|
|
|
|
940
|
|
|
|
205,597
|
|
|
|
-
|
|
|
|
206,537
|
|
Debentures converted
|
|
|
-
|
|
|
|
-
|
|
|
|
3,000,000
|
|
|
|
600
|
|
|
|
149,400
|
|
|
|
-
|
|
|
|
150,000
|
|
Stock issued for cash
|
|
|
-
|
|
|
|
-
|
|
|
|
200,000
|
|
|
|
40
|
|
|
|
16,160
|
|
|
|
-
|
|
|
|
16,200
|
|
Warrants issued to purchase common stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
33,800
|
|
|
|
-
|
|
|
|
33,800
|
|
Warrants converted to purchase common stock
|
|
|
-
|
|
|
|
-
|
|
|
|
16,489,000
|
|
|
|
3,297
|
|
|
|
565,203
|
|
|
|
-
|
|
|
|
568,500
|
|
Net loss for the year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,469,888
|
)
|
|
|
(1,469,888
|
)
|
Balance, December 31, 2006
|
|
|
-
|
|
|
|
-
|
|
|
|
98,336,656
|
|
|
|
19,666
|
|
|
|
2,568,119
|
|
|
|
(3,469,533
|
)
|
|
|
(881,748
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued for services
|
|
|
-
|
|
|
|
-
|
|
|
|
817,727
|
|
|
|
164
|
|
|
|
155,262
|
|
|
|
-
|
|
|
|
155,426
|
|
Stock issued for interest
|
|
|
-
|
|
|
|
-
|
|
|
|
767,026
|
|
|
|
153
|
|
|
|
38,198
|
|
|
|
-
|
|
|
|
38,351
|
|
Stock based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,274,666
|
|
|
|
-
|
|
|
|
1,274,666
|
|
Debentures converted
|
|
|
-
|
|
|
|
-
|
|
|
|
17,215,200
|
|
|
|
3,442
|
|
|
|
1,673,741
|
|
|
|
-
|
|
|
|
1,677,183
|
|
Stock issued for cash
|
|
|
-
|
|
|
|
-
|
|
|
|
1,188,960
|
|
|
|
238
|
|
|
|
191,898
|
|
|
|
-
|
|
|
|
192,136
|
|
Options exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
222,707
|
|
|
|
45
|
|
|
|
(45
|
)
|
|
|
-
|
|
|
|
-
|
|
Warrants issued to purchase common stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
87,864
|
|
|
|
-
|
|
|
|
87,864
|
|
Warrants converted to purchase common stock
|
|
|
-
|
|
|
|
-
|
|
|
|
8,585,956
|
|
|
|
1,717
|
|
|
|
462,203
|
|
|
|
-
|
|
|
|
463,920
|
|
Net loss for the year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,928,996
|
)
|
|
|
(3,928,996
|
)
|
Balance, December 31, 2007
|
|
|
-
|
|
|
|
-
|
|
|
|
127,125,232
|
|
|
|
25,425
|
|
|
|
6,451,906
|
|
|
|
(7,398,529
|
)
|
|
|
(921,198
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued for cash
|
|
|
-
|
|
|
|
-
|
|
|
|
515,677
|
|
|
|
103
|
|
|
|
24,897
|
|
|
|
-
|
|
|
|
25,000
|
|
Warrants exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
1,347,261
|
|
|
|
269
|
|
|
|
362,425
|
|
|
|
-
|
|
|
|
362,694
|
|
Stock based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
654,199
|
|
|
|
-
|
|
|
|
654,199
|
|
Debentures converted
|
|
|
-
|
|
|
|
-
|
|
|
|
15,257,163
|
|
|
|
3,052
|
|
|
|
962,257
|
|
|
|
-
|
|
|
|
965,309
|
|
Options exercised and escrowed shares
|
|
|
-
|
|
|
|
-
|
|
|
|
8,671,460
|
|
|
|
1,734
|
|
|
|
(1,734
|
)
|
|
|
-
|
|
|
|
-
|
|
Stocks issued for service
|
|
|
-
|
|
|
|
-
|
|
|
|
4,598,973
|
|
|
|
920
|
|
|
|
312,880
|
|
|
|
-
|
|
|
|
313,800
|
|
Net loss for the year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,611,550
|
)
|
|
|
(3,611,550
|
)
|
Balance, December 31, 2008
|
|
|
-
|
|
|
|
-
|
|
|
|
157,515,766
|
|
|
|
31,503
|
|
|
|
8,766,830
|
|
|
|
(11,010,079
|
)
|
|
|
(2,211,746
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued for cash
|
|
|
-
|
|
|
|
-
|
|
|
|
20,607,841
|
|
|
|
4,122
|
|
|
|
197,878
|
|
|
|
-
|
|
|
|
202,000
|
|
Warrants exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
35,100
|
|
|
|
7
|
|
|
|
382,583
|
|
|
|
-
|
|
|
|
382,590
|
|
Debentures converted
|
|
|
-
|
|
|
|
-
|
|
|
|
77,451,141
|
|
|
|
15,490
|
|
|
|
467,514
|
|
|
|
-
|
|
|
|
483,004
|
|
Stocks issued for service
|
|
|
-
|
|
|
|
-
|
|
|
|
68,506,130
|
|
|
|
13,701
|
|
|
|
524,653
|
|
|
|
-
|
|
|
|
538,354
|
|
Stock issued for accounts payable
|
|
|
-
|
|
|
|
-
|
|
|
|
11,264,706
|
|
|
|
2,253
|
|
|
|
321,409
|
|
|
|
-
|
|
|
|
323,662
|
|
Stock issued for interest
|
|
|
-
|
|
|
|
-
|
|
|
|
8,310,128
|
|
|
|
1,662
|
|
|
|
41,647
|
|
|
|
-
|
|
|
|
43,309
|
|
Warrants issued for accounts payable
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13,505
|
|
|
|
-
|
|
|
|
13,505
|
|
Net loss for the year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,566,835
|
)
|
|
|
(1,566,835
|
)
|
Balance, December 31, 2009
|
|
|
-
|
|
|
|
-
|
|
|
|
343,690,812
|
|
|
|
68,738
|
|
|
|
10,716,019
|
|
|
|
(12,576,914
|
)
|
|
|
(1,792,157
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued for cash
|
|
|
-
|
|
|
|
-
|
|
|
|
5,714,286
|
|
|
|
1,143
|
|
|
|
8,857
|
|
|
|
-
|
|
|
|
10,000
|
|
Warrants exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
47,523
|
|
|
|
9
|
|
|
|
517,991
|
|
|
|
-
|
|
|
|
518,000
|
|
Debentures converted
|
|
|
-
|
|
|
|
-
|
|
|
|
255,650,977
|
|
|
|
51,130
|
|
|
|
228,061
|
|
|
|
-
|
|
|
|
279,191
|
|
Stock issued for services
|
|
|
-
|
|
|
|
-
|
|
|
|
97,684,416
|
|
|
|
19,538
|
|
|
|
213,348
|
|
|
|
-
|
|
|
|
232,886
|
|
Stock issued for liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
48,657,897
|
|
|
|
9,732
|
|
|
|
204,682
|
|
|
|
-
|
|
|
|
214,414
|
|
Stock issued for interest
|
|
|
-
|
|
|
|
-
|
|
|
|
6,093,396
|
|
|
|
1,218
|
|
|
|
15,843
|
|
|
|
-
|
|
|
|
17,061
|
|
Stock based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
418,112
|
|
|
|
-
|
|
|
|
418,112
|
|
Net loss for the year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,523,737
|
)
|
|
|
(1,523,737
|
)
|
Balance, December 31, 2010
|
|
|
-
|
|
|
|
-
|
|
|
|
757,539,307
|
|
|
|
151,508
|
|
|
|
12,322,913
|
|
|
|
(14,100,651
|
)
|
|
|
(1,626,230
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants and options exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
12,308,915
|
|
|
|
2,462
|
|
|
|
754,378
|
|
|
|
-
|
|
|
|
756,840
|
|
Debentures converted
|
|
|
-
|
|
|
|
-
|
|
|
|
252,267,600
|
|
|
|
50,453
|
|
|
|
653,093
|
|
|
|
-
|
|
|
|
703,546
|
|
Stock issued for services
|
|
|
-
|
|
|
|
-
|
|
|
|
30,072,595
|
|
|
|
6,015
|
|
|
|
349,190
|
|
|
|
-
|
|
|
|
355,205
|
|
Stock issued for liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
97,530,393
|
|
|
|
19,506
|
|
|
|
536,521
|
|
|
|
-
|
|
|
|
556,027
|
|
Stock issued for interest
|
|
|
-
|
|
|
|
-
|
|
|
|
7,094,511
|
|
|
|
1,419
|
|
|
|
41,533
|
|
|
|
-
|
|
|
|
42,952
|
|
Escrowed shares cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,310,446
|
)
|
|
|
(862
|
)
|
|
|
862
|
|
|
|
-
|
|
|
|
-
|
|
Stock based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
285,600
|
|
|
|
-
|
|
|
|
285,600
|
|
Retrospective adjustment for the 1:35 reverse common stock split
on April 27, 2012
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,119,574,221
|
)
|
|
|
(223,915
|
)
|
|
|
223,915
|
|
|
|
|
|
|
|
|
|
Net loss for the period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,320,469
|
)
|
|
|
(2,320,469
|
)
|
Balance, December 31, 2011
|
|
|
-
|
|
|
|
-
|
|
|
|
32,928,654
|
|
|
|
6,586
|
|
|
|
15,168,005
|
|
|
|
(16,421,120
|
)
|
|
|
(1,246,529
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants and options exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
2,285
|
|
|
|
1
|
|
|
|
871,051
|
|
|
|
-
|
|
|
|
871,052
|
|
Debentures converted
|
|
|
-
|
|
|
|
-
|
|
|
|
9,884,674
|
|
|
|
1,976
|
|
|
|
37,803
|
|
|
|
-
|
|
|
|
39,779
|
|
Stock issued for interest
|
|
|
-
|
|
|
|
-
|
|
|
|
1,076
|
|
|
|
1
|
|
|
|
2,046
|
|
|
|
-
|
|
|
|
2,047
|
|
Stock issued for services
|
|
|
-
|
|
|
|
-
|
|
|
|
2,248,640
|
|
|
|
450
|
|
|
|
245,650
|
|
|
|
-
|
|
|
|
246,100
|
|
Stock issued for liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
869,510
|
|
|
|
173
|
|
|
|
366,191
|
|
|
|
-
|
|
|
|
366,364
|
|
Stock based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
354,040
|
|
|
|
-
|
|
|
|
354,040
|
|
Net loss for the period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,101,702
|
)
|
|
|
(2,101,702
|
)
|
Balance, December 31, 2012
|
|
|
-
|
|
|
|
-
|
|
|
|
45,934,839
|
|
|
|
9,187
|
|
|
|
17,044,786
|
|
|
|
(18,522,822
|
)
|
|
|
(1,468,849
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants and options exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
1,103
|
|
|
|
1
|
|
|
|
420,739
|
|
|
|
-
|
|
|
|
420,740
|
|
Debentures converted
|
|
|
-
|
|
|
|
-
|
|
|
|
175,264,242
|
|
|
|
35,053
|
|
|
|
533,775
|
|
|
|
-
|
|
|
|
568,828
|
|
Stock issued for services
|
|
|
-
|
|
|
|
-
|
|
|
|
25,892,479
|
|
|
|
5,178
|
|
|
|
290,172
|
|
|
|
-
|
|
|
|
295,350
|
|
Stock issued for liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
1,098,751
|
|
|
|
219
|
|
|
|
31,281
|
|
|
|
-
|
|
|
|
31,500
|
|
Preferred stock and options issued for cash
|
|
|
195,000
|
|
|
|
39
|
|
|
|
-
|
|
|
|
-
|
|
|
|
267,961
|
|
|
|
-
|
|
|
|
268,000
|
|
Warrants issued to purchase common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000
|
|
|
|
|
|
|
|
30,000
|
|
Net loss for the period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,482,049
|
)
|
|
|
(1,482,049
|
)
|
Balance December 31, 2013
|
|
|
195,000
|
|
|
|
39
|
|
|
|
248,191,414
|
|
|
|
49,638
|
|
|
|
18,618,714
|
|
|
|
(20,004,871
|
)
|
|
|
(1,336,480
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants and options exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
778
|
|
|
|
1
|
|
|
|
296,480
|
|
|
|
-
|
|
|
|
296,481
|
|
Debentures converted
|
|
|
-
|
|
|
|
-
|
|
|
|
96,218,190
|
|
|
|
19,244
|
|
|
|
67,856
|
|
|
|
-
|
|
|
|
87,100
|
|
Stock issued for services
|
|
|
-
|
|
|
|
-
|
|
|
|
24,605,571
|
|
|
|
4,921
|
|
|
|
85,579
|
|
|
|
-
|
|
|
|
90,500
|
|
Stock issued for liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
3,198,053
|
|
|
|
639
|
|
|
|
(9,373
|
)
|
|
|
-
|
|
|
|
(8,734
|
)
|
Preferred stock and options issued for cash
|
|
|
190,000
|
|
|
|
38
|
|
|
|
-
|
|
|
|
-
|
|
|
|
155,036
|
|
|
|
-
|
|
|
|
155,074
|
|
Warrants issued to purchase common stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
34,926
|
|
|
|
-
|
|
|
|
34,926
|
|
Net loss for the period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(696,489
|
)
|
|
|
(696,489
|
)
|
Balance June 30, 2014
|
|
|
385,000
|
|
|
$
|
77
|
|
|
|
372,214,006
|
|
|
$
|
74,443
|
|
|
$
|
19,249,218
|
|
|
$
|
(20,701,360
|
)
|
|
$
|
(1,377,622
|
)
|
See notes to financial statements
3DIcon CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 2014 and 2013
and Period from Inception (January 1,
2001) to June 30, 2014
(unaudited)
|
|
|
|
|
|
|
|
Inception to
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
Cash Flows from Operating Activities
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
Net loss
|
|
$
|
(696,489
|
)
|
|
$
|
(827,177
|
)
|
|
$
|
(20,701,360
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Options issued for services
|
|
|
-
|
|
|
|
-
|
|
|
|
2,986,618
|
|
Stock issued for services
|
|
|
90,500
|
|
|
|
62,550
|
|
|
|
2,869,944
|
|
Stock issued for interest
|
|
|
-
|
|
|
|
-
|
|
|
|
143,719
|
|
Book value of assets retired
|
|
|
-
|
|
|
|
-
|
|
|
|
6,529
|
|
Amortization of debt issuance costs
|
|
|
64,784
|
|
|
|
30,860
|
|
|
|
375,465
|
|
Depreciation
|
|
|
-
|
|
|
|
3,082
|
|
|
|
37,000
|
|
Impairment of assets
|
|
|
-
|
|
|
|
-
|
|
|
|
292,202
|
|
Change in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
-
|
|
|
|
13,028
|
|
|
|
|
|
Prepaid expenses and other assets
|
|
|
(2,672
|
)
|
|
|
6,057
|
|
|
|
(267,306
|
)
|
Accounts payable and accrued liabilities
|
|
|
225,454
|
|
|
|
222,885
|
|
|
|
2,780,539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(318,423
|
)
|
|
|
(488,715
|
)
|
|
|
(11,476,650
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of office furniture and equipment
|
|
|
-
|
|
|
|
-
|
|
|
|
(43,529
|
)
|
Net cash used in investing activities
|
|
|
-
|
|
|
|
-
|
|
|
|
(43,529
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from stock and warrant sales, exercise of warrants and warrant exercise advances
|
|
|
348,691
|
|
|
|
421,810
|
|
|
|
6,596,067
|
|
Proceeds from issuance of debentures, notes and options
|
|
|
25,000
|
|
|
|
185,000
|
|
|
|
5,170,659
|
|
Cash paid on debentures
|
|
|
(115,680
|
)
|
|
|
-
|
|
|
|
(236,200
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
258,011
|
|
|
|
606,810
|
|
|
|
11,530,526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash
|
|
|
(60,412
|
)
|
|
|
118,095
|
|
|
|
10,347
|
|
Cash, beginning of period
|
|
|
70,769
|
|
|
|
1,350
|
|
|
|
10
|
|
Cash, end of period
|
|
$
|
10,357
|
|
|
$
|
119,445
|
|
|
$
|
10,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Cash Investing and Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of debentures to common stock (net)
|
|
$
|
87,100
|
|
|
$
|
238,685
|
|
|
$
|
4,953,389
|
|
Cash paid for interest
|
|
$
|
763
|
|
|
$
|
18,816
|
|
|
$
|
325,604
|
|
Stock issued to satisfy payables
|
|
$
|
(8,734
|
)
|
|
$
|
31,500
|
|
|
$
|
2,376,383
|
|
Debenture issued to satisfy payable
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
352,547
|
|
Stock issued subject to put rights and call right to satisfy payables
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
485,649
|
|
See notes to financial statements
3DIcon CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
June 30, 2014
(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, 2014, and the statements of its operations for the three and six months ended June 30, 2014 and June 30, 2013,
and the period from inception (January 1, 2001) to June 30, 2014, and cash flows for the six month periods ended June 30, 2014
and 2013, and the period from inception (January 1, 2001) to June 30, 2014, have been included. 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.
Revenue Recognition
Revenues from software license fees are
accounted for in accordance with Accounting Standards Codification (“ASC”) 985-605, “Software Revenue Recognition”. The
Company recognizes sales revenue when (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred or services
have been rendered; (iii) the sales price is fixed or determinable; and (iv) collectability is reasonably assured.
Grant revenue is recognized when earned.
Recent Accounting Pronouncements
In June 2014, the FASB issued “Development
Stage Entities – Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities
Guidance in Topic 810, Consolidation” (“ASU 2014-10”). ASU 2014-10 eliminates the concept of a development stage
entity, thereby eliminating the financial reporting distinction between development stage entities and other reporting entities.
As a result of the elimination, certain financial reporting disclosures have been eliminated as well, including the presentation
of inception-to-date information and the labeling of financial statements as those of a development stage entity. ASU 2014-10
is effective for fiscal years, and interim periods within those years, beginning after December 15, 2014. Early adoption of this
standard is permitted, and we expect to adopt for the fiscal year ending December 31, 2014. Subsequent to the adoption of ASU
2014-10, the Company will no longer present inception-to-date information in our statements of operations, cash flows, and stockholders’
equity .
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 $20,701,360 for the period from inception (January 1, 2001) to June 30, 2014, and a net loss of $696,489 and $827,177
for the six months ended June 30, 2014 and 2013, 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.
Management plans to fund the future operations
of the Company with existing cash of $10,357, grants and investor funding. Under the terms of the Golden State 4.75% Convertible
Debenture due on December 31, 2014, 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, 2014 and ignoring the impact of the Beneficial
Ownership Limitations, the Company may receive up to $327,000 per month in funding from Golden State as a result of warrant exercises.
Due to the Beneficial Ownership Limitations, the Company received $158,691 in advances from Golden State during the six-month
period ended June 30, 2014. Such advances are recorded within warrant exercise advances on the balance sheets when received.
On July 2, 2013, the Company was awarded
a $300,000 grant in the 2013 Oklahoma Applied Research Support competition sponsored by the Oklahoma Center for the Advancement
of Science and Technology (“OCAST”). The grant will be 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 (see Note 3).
Joint Development Agreement with Schott
Defense
As part of the Company’s federal
funding strategy, the Company intends 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 Joint Development Agreement with Schott Defense,
a federally focused subsidiary of Schott North America.
Additionally, the Company is continuing
to pursue financing through private offering of debt or common stock.
Note 2 – Sponsored Research Agreement
("SRA") Common Stock Subject to Put Rights and Call Right
Since April 20, 2002, the Company has
entered into a number of SRA’s with the University of Oklahoma (“OU”) as follows:
Phase I: “Pilot Study to Investigate
Digital Holography,” April 20, 2004. The Company paid OU $14,116.
Phase II: “Investigation of 3-Dimensional
Display Technologies,” April 15, 2005, as amended. The Company paid OU $528,843.
Phase III: “3-Dimensional Display
Development.” The Company made partial payment to OU by issuing 121,849 post-split equivalent shares (4,264,707 pre-split
shares) with a market price of $290,000 on October 14, 2008 and final payment on December 1, 2010 in the amount of $525,481 of
which $40,481 was in cash and 1,685,714 post-split equivalent shares (59,000,000 pre-split) of Company stock (the “Shares”).
The Shares are subject to an OU ‘put’ right and a 3Dicon ‘call’ right.
OU “Put” Rights on the Shares
First “put” period: December
1, 2012 to November 30, 2013. If the shares (held plus previously sold) are valued at less than $100,000 then OU can “put”
one-tenth of the shares for $50,000 plus accrued interest retro-active to December 1, 2012 less the value of sold shares. OU currently
holds 1,807,563 post-split shares with a market value of less than $100,000. Under the terms of put rights, the put rights could
be exercised by OU and the Company would be obligated to pay OU $50,000.
Second “put” period: December
1, 2013 to November 30, 2014. If the shares (held & previously sold) are valued at less than $970,000 than OU can “put”
the remaining shares for $485,000 plus accrued interest retro-active to December 1, 2012 less the value of shares previously sold
or redeemed during the first “put.”
3DIcon “Call” rights on the
Shares
Commencing December 1, 2012, the Company
shall have the right to “call” the shares for an amount equal to $970,000 less the amount (if any) of prior shares
by OU including amounts “put” to 3DIcon.
The Company has presented the shares outside
of deficit in the mezzanine section of the balance sheets, as the Agreement includes put rights, which are not solely within the
control of the Company.
The SRA also amended the previously existing
agreements between the Company and OU such that all intellectual property, including all inventions and or discoveries, patentable
or un-patentable, developed before July 28, 2008 by OU under the SRA is owned by OU. All intellectual property, including all
inventions and/or discoveries, patentable or un-patentable, developed jointly by the Company and OU at any time is jointly owned
by the Company and OU. 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.
Note 3 – OCAST Grant
In July 2013, the Company was awarded
a two year grant from OCAST. This is the second $300,000 grant received from OCAST. The first grant was completed in August 2012.
This matching grant is for a total of $300,000 and commenced September 1, 2013. The Company received $46,748 in funding
during the six-month period ended June 30, 2014. The funds are 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.
Note 4 – Debentures and Notes Payable
Debentures payable consist of the following:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
Senior Convertible Debentures:
|
|
|
|
|
|
|
|
|
10% Convertible debentures to Directors due December 2014
|
|
$
|
30,000
|
|
|
$
|
30,000
|
|
10% Convertible debenture due September 2014
|
|
|
29,007
|
|
|
|
29,007
|
|
4.75% Convertible debenture due December 2014
|
|
|
67,085
|
|
|
|
69,805
|
|
5.5.0% Convertible notes due December 2014 (net of $9,261and $19,115 OID)
|
|
|
83,201
|
|
|
|
123,590
|
|
15% Senior Convertible bridge notes due 2014 (net of $-0- and $23,500 OID)
|
|
|
205,000
|
|
|
|
181,500
|
|
Settlement Agreement 3(a)(10)
|
|
|
-
|
|
|
|
118,842
|
|
10% Convertible bridge note to Director due December 2014
|
|
|
60,000
|
|
|
|
60,000
|
|
Total Debentures
|
|
|
474,293
|
|
|
|
612,744
|
|
Less - Current Maturities
|
|
|
(474,293
|
)
|
|
|
(612,744
|
)
|
|
|
|
|
|
|
|
|
|
Long-term Debentures
|
|
$
|
-
|
|
|
$
|
-
|
|
10% Convertible Director Debentures
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 December 26, 2014. 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.
10% Convertible Debenture Due Newton,
O'Connor, Turner & Ketchum
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 September
30, 2014. 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.
4.75% Convertible Debenture due December
31, 2014
On November 3, 2006, the Company issued
to Golden State a 4.75% convertible debenture in a principal amount of $100,000, due in 2014, 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
2013, Golden State converted $3,860 of the $100,000 debenture into 37,651,544 shares of common stock, exercised warrants to purchase
1,103 shares of common stock at $381.50 per share based on the formula in the convertible debenture. Additionally Golden State
advanced $671,810 against future exercises of warrants of which $420,740 was applied to the exercise of warrants leaving $185,671
of unapplied advances at December 31, 2013. During 2014, Golden State converted $2,720 of the $100,000 debenture into 51,507,490
shares of common stock, exercised warrants to purchase 778 shares of common stock at $381.50 per share based on the formula in
the convertible debenture. Additionally Golden State advanced $158,690 against future exercises of warrants of which $296,480
was applied to the exercise of warrants leaving $47,881 of unapplied advances at June 30, 2014.
The conversion price for the 4.75% $100,000
convertible debenture is the lesser of (i) $140; or (ii) 80% of the average of the five lowest volume weighted average prices
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 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.
5% Convertible Bridge Notes
On June 6, 2012 and August 1, 2012, the
Company issued and sold convertible promissory notes (the “5% Notes") in aggregate principal amount of $415,000 to
JMJ Financial (“JMJ”). The 5% Notes includes a $40,000 original issue discount (the “OID”) that
will be prorated based on the advances actually paid to the Company. During 2012, JMJ advanced $150,000 on the 5% Notes and earned
$14,000 OID. During 2013, JMJ advanced an additional $120,000 on the 5% Notes and earned $32,205 OID and accrued interest.
During 2013, JMJ converted $203,700 of the 5% Notes into 31,854,924 shares of common stock at an average of $0.00639 per
share based on the formula in the 5% Notes. During 2014, JMJ advanced an additional $25,000 on the 5% Notes and earned $5,975
OID and accrued interest. During 2014, JMJ converted $81,217 of the 5% Notes into 26,400,000 shares of common stock
at an average of $0.0031 per share based on the formula in the 5% Notes. In addition to the OID, the 5% Notes provides for a one-time
interest charge of 5% to be applied to the principal sum advanced. Pursuant to the terms of 5% Notes, JMJ may, at its election,
convert all or a part of the $275,000 note and the $140,000 note into shares of the Company's common stock at a conversion rate
equal to the lesser of (i) $0.15 and $0.35, respectively or (ii) 70% of the lowest trade price during the twenty-five trading
days prior to JMJ’s election to convert. If the Company repays the 5% Notes on or before ninety days from the date it was
issued, the interest rate will be zero percent. If the Company does not repay the 5% Notes on or before ninety days from the date
it was issued, a one-time interest charge of 5% shall be applied to the principal. The Company did not repay the 5% Notes within
the ninety day period and $20,750 of interest has been expensed. The principal of the 5% Notes is due one year from the date of
each of the principal amounts advanced.
The 5% Notes were subject to a Mandatory
Registration Agreement (the “Registration Agreement”) whereby no later than August 31, 2012, the Company agreed to
file, at its own expense, an amendment (the “Amendment”) to the S-1 Registration Statement (the “Registration
Statement”) the Company filed with the SEC on July 3, 2012, to include in such Amendment 4,750,000 shares of common stock
issuable under the 5% Notes. The Company agreed, thereafter, to use its best efforts to cause such Registration Statement to become
effective as soon as possible after such filing but in no event later than one hundred and twenty (120) days from the date of
the Registration Agreement. Since the Company failed to get the Registration Statement declared effective within the 120 days
of the date of the Registration Agreement, a penalty/liquidated damages of $25,000 was added to the balance of the 5% Notes.
10% Convertible
Bridge Note to Director
On January 26, 2013, the Company entered into
an amendment agreement (the “Keen Amendment”) with Victor F. Keen. The Pursuant to the Keen Amendment, Mr. Keen agreed
to extend the maturity date of the Keen Bridge Note from December 10, 2012 to April 30, 2013 and to waive any and all defaults,
default interest and Liquidated Damages then due to Mr. Keen.
On July 30, 2013,
the Company entered into a second amendment agreement (the “Second Keen Amendment”) with Victor Keen, a Director on
the Board of Directors of the Company, to amend the Keen Bridge note.
Pursuant to the Second
Keen Amendment, Mr. Keen agreed to extend the maturity of the Note from April 30, 2013 to August 31, 2013 (the “New Maturity
Date”) and to waive, if any, existing or prior defaults under the Keen Bridge Note or the Keen SPA and the Company agreed
to (i) amend the conversion provision to allow for conversions based on a conversion price calculated on the Amendment Date or
the New Maturity Date; and (ii) to include an interest rate equal to 10% per annum, payable on the New Maturity Date, as amended,
which accrual shall commence on December 10, 2012.
On September 30,
2013, the Company entered into a third amendment agreement (the “Third Keen Amendment”) with Mr. Keen. Pursuant to
the Third Keen Amendment, Mr. Keen agreed to extend the maturity of the Note from August 31, 2013 to December 31, 2013 and to waive,
if any, existing or prior defaults under the Keen Bridge Note or the Keen SPA.
On January 27, 2014,
the Company entered into a fourth amendment agreement (the “Fourth Keen Amendment”) with Mr. Keen. Pursuant to the
Fourth Keen Amendment, Mr. Keen agreed to extend the maturity of the Note from December 31, 2013 to December 31, 2014 and to waive,
if any, existing or prior defaults under the Keen Bridge Note or the Keen SPA.
15% Senior Convertible
Bridge Notes Due 2014
On October 1, 2013,
the Company issued and sold to an accredited investor a Senior Convertible Note (the “Senior Note”) in the principal
amount of $205,000 and a warrant to purchase 300,000 shares of the Company’s common stock at an exercise price equal to 110%
of the closing bid price on September 30, 2013 (the “October 2013 Warrant”). The Senior Note included a $30,750 OID.
Accordingly, the Company received $174,250 gross proceeds from which the Company paid legal and documentation fees of $22,500 and
placement agent fees of $15,682.
The Senior Note matured on July 1, 2014 and
does not carry interest. However, in the event the Senior Note is not paid on maturity, all past due amounts will accrue interest
at 15% per annum. At any time subsequent to six months following the Date of Issuance, the Senior Note holder may elect to convert
all or any portion of the outstanding principal amount of the Senior Note into 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 the Date of Issuance
or 80% of the average VWAP during the 5 days prior to the date the holder delivers a conversion notice to the Company.
The estimated fair value of the warrants for
common stock issued of $2,130 was determined using the Black-Scholes option pricing model. The expected dividend yield of zero
is based on the average annual dividend yield as of the issue date. Expected volatility of 173.64% is based on the historical volatility
of our stock. The risk-free interest rate of 1.39% is based on the U.S. Treasury Constant Maturity rate for five years as
of the issue date. The expected life of five years of the warrant is based on historical exercise behavior and expected future
experience.
The October 2013
Warrant is exercisable at any time on or after March 31, 2014 and on or prior to the close of business on March 31, 2019. At the
election of the October 2013 Warrant holder, the October 2013 Warrant may be exercised using a cashless exercise method.
Settlement Agreement
On July 26, 2013,
the Circuit Court in the 12
th
Judicial Circuit in and for Sarasota County, Florida (the “Court”),
entered an Order Granting Approval of Settlement Agreement (the “Order”) approving, among other things, the fairness
of the terms and conditions of an exchange pursuant to Section 3(a)(10) of the Securities Act of 1933, as amended, in accordance
with a settlement agreement (the “Settlement Agreement”) between the Company and IBC Funds, LLC, a Nevada limited
liability company (“IBC”), in the matter entitled
IBC Funds, LLC v. 3DIcon Corporation
, Case No. 2013
CA 5705 NC (the “Action”). IBC commenced the Action against the Company on July 19, 2013 to recover an aggregate of
$197,631 of past-due accounts payable of the Company, which IBC had purchased from certain vendors of the Company pursuant to
the terms of separate claim purchase agreements between IBC and each of such vendors (the “Assigned Accounts”), plus
fees and costs (the “Claim”). The Assigned Accounts relate to certain research, technical, development, accounting
and legal services. The Order provides for the full and final settlement of the Claim and the Action. The Settlement
Agreement became effective and binding upon the Company and IBC upon execution of the Order by the Court on July 26, 2013.
Pursuant to the
terms of the Settlement Agreement approved by the Order, on July 26, 2013, the Company issued 650,000 shares of Common Stock as
a settlement fee and agreed to issue, in one or more tranches as necessary, that number of shares equal to $197,631 upon conversion
to Common Stock at a conversion rate equal to 65% of the lowest closing bid price of the Common Stock during the ten trading days
prior to the date the conversion is requested by IBC minus $0.002. During 2013, IBC converted $78,789 of the note
into 53,720,000 shares of common stock at an average of $0.0015 per share based on the formula in the note.
On January 22, 2014
the Company entered into a Mutual Release (the “Release”) with IBC pursuant to which each party would release the other
party from any and all obligations pursuant to the Settlement Agreement.
In consideration
for the Release, IBC accepted and the Company remitted to IBC: (i) a cash payment of $190,000, (ii) an issuance of 9,000,000 shares
of the Company’s common stock, pursuant to the terms of the Settlement Agreement under the December 18, 2013 Conversion
Notice, and (iii) an issuance of 6,810,811 shares of the Company’s common stock, pursuant to the terms of the Settlement
Agreement under the January 17, 2014 Conversion Notice (together, the “Consideration”). Pursuant to the Release, IBC
agreed that the Consideration was accepted as satisfaction in full of the payments due pursuant to the Settlement Agreement.
On January 23,
2014, the Company and IBC filed a Stipulation of Dismissal with Prejudice with the Circuit Court in the 12th Judicial Circuit
in and for Sarasota County, Florida.
Note 5 – Common Stock and Paid-In
Capital
Registration Statement on Form S-1
Pursuant to a Registration Statement on
Form S-1 and the prospectus therein, filed on July 3, 2012, and amendment thereto, the Registration Statement was declared effective
on February 13, 2013.
Warrants Issued
As of June 30, 2014, 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 June 1, 2015. Golden State has warrants outstanding
to purchase 19,164 shares of common stock at a price of $381.50 per share which expire December 31, 2014. 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, in connection with the preferred stock issuance, there are 9,750,000 warrants outstanding to purchase common shares
at $0.0055 per share, which expire December 31, 2017, and 9,500,000 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-month period ended June
30, 2014, shares of common stock totaling 24,605,571 were issued for consulting services for which the Company recognized $90,500
of expense. Additionally, during the period ending June 30, 2014, shares totaling 7,317,073 were issued to consultants for
previous services provided to the Company for which the accounts payable liability was reduced by $15,000.
On April 11,
2013, the Company completed the sale of two options, each to purchase 10,000,000 shares of the Company’s common stock (the
“Option Agreements”) to two accredited investors. One of the accredited investors was Victor Keen, a director on the
Board of Directors of the Company. Each of the Option Agreements provide for the option to purchase up to 10,000,000 shares of
restricted common stock at a purchase price of $0.01 per share. The holders of the Option Agreements may exercise the option to
purchase common stock on a cashless basis for a period of five years. Furthermore, the holders of the Option Agreements were granted
“piggyback” registration rights for the inclusion, on a subsequent registration statement, the shares of common stock
underlying the Option Agreements. The gross proceeds to the Company for the sale of both Option Agreements were $100,000.
Private Placement
On December 9, 2013 and December 11, 2013
the Company closed on $195,000 in a private placement (the “Private Placement”) contemplated by a Securities Purchase
Agreement (the “Securities Purchase Agreement”), dated December 9, 2013, pursuant to which the Company sold 195,000
Units (as defined below) to accredited investors (each, an “Investor” and collectively, the “Investors”),
one of whom was Victor Keen, the Company’s Chief Executive Officer and a member of the board of directors of the Company.
Accordingly, at the closings, the Company issued (i) 195,000 shares of its newly designated Series A Convertible Preferred Stock
(the “Series A Preferred”), and (ii) warrants (“Warrants”) to purchase an aggregate of 9,750,000 shares
of Common Stock for gross proceed of $195,000.
On 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 has now received aggregate proceeds equal to $385,000. Such Private Placement is now closed.
Under the terms of the Securities Purchase
Agreement, the Company sold units (“Units”) consisting of: (i) one share of Series A Convertible Preferred Stock and
(ii) Warrants to purchase fifty (50) shares of Common Stock. The purchase price of each Unit was $1.00. The total purchase price
of the securities sold in the Private Placement was $385,000.
The terms of the Series A Convertible
Preferred Stock and Warrants are as follows:
Series A Convertible Preferred Stock
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 (the “Stated Value”), and shall
receive a dividend of 6% of their Stated Value per annum. 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.
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 and 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 $27,000 estimated fair value of warrants
for common stock issued in 2013 was determined using the Black-Scholes option pricing model. The expected dividend yield of $0
is based on the average annual dividend yield at the date issued. Expected volatility of 178% is based on the historical volatility
of the stock. The risk-free interest rate of 1.38% is based on the U.S. Treasury Constant Maturity rates as of the issue date.
The expected life of the warrants of four years is based on historical exercise behavior and expected future experience.
The $34,926 estimated fair value of warrants
for common stock issued in 2014 was determined using the Black-Scholes option pricing model. The expected dividend yield of $0
is based on the average annual dividend yield at the date issued. Expected volatility of 180% is based on the historical volatility
of the stock. The risk-free interest rate of 1.64% is based on the U.S. Treasury Constant Maturity rates as of the issue date.
The expected life of the warrants of four years is based on historical exercise behavior and expected future experience.
Transaction Documents Series A Convertible
Preferred Stock
The Securities Purchase Agreement, the
Warrants and Certificate of Designation contain ordinary and customary provisions for agreements of this nature, such as representations,
warranties, covenants, and indemnification obligations, as applicable. The foregoing descriptions of the Securities Purchase Agreement
and the Warrants do not purport to describe all of the terms and provisions thereof and are qualified in their entirety by reference.
The Securities Purchase Agreement and the form of Warrant are filed as Exhibits 4.1 and 10.1, respectively, to the Current Report
on Form 8-K filed on December 13, 2013.
The following summary reflects warrant and
option activity for the six-month period ended June 30, 2014:
|
|
Attached
|
|
|
Golden State
|
|
|
|
|
|
|
Warrants
|
|
|
Warrants
|
|
|
Options
|
|
Outstanding December 31, 2013
|
|
|
19,771,122
|
|
|
|
19,693
|
|
|
|
23,030,274
|
|
Granted/purchased
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding June 30, 2014
|
|
|
19,771,122
|
|
|
|
19,693
|
|
|
|
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 6 – 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) post-split shares.
The shares are included in a registration statement filed March, 2014. Post-split shares totaling 28,922,644 were issued from
the 2014 EIP during 2014 for services rendered. There are currently 21,077,356 shares available for issuance under the 2014 EIP.
Note 7 – Office Lease
The Company signed an Office Lease Agreement
(the “Lease Agreement”) on April 24, 2008. The Lease Agreement commenced on June 1, 2008 and expired June 1, 2011.
On March 8, 2011 the Lease Agreement was amended (amendment 1) to extend the expiration date to May 31, 2012. On July
24, 2012 the Lease Agreement was amended (amendment 2) to extend the expiration date to July 31, 2015. The minimum
future lease payments to be paid annually under the three-year non-cancellable amended operating lease for office space are as
follows:
2014
|
|
|
11,000
|
|
2015
|
|
|
13,000
|
|
Total
|
|
$
|
24,000
|
|
Note 8 – Related Party Transaction
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-month ending June 30, 2014 and June
30, 2013, the Company incurred legal fees to Newton, O’Connor, Turner & Ketchum in the amount of $3,278 and $14,539,
respectively.
Note 9 – Subsequent Events
Common stock issued for services and
liabilities
Subsequent to June 30, 2014, Golden State
converted $1,500 of the 4.75% convertible debenture into 25,369,615 shares of common stock at $0.00006 per share and exercised
429 warrants at $381.50 per share for $163,500, advanced $115,620 and applied $47,880 of warrant exercise advances leaving
$1 in warrant exercise advances under the terms of the securities purchase agreements.
Subsequent to June 30, 2014, JMJ converted
$15,435 of the convertible promissory note into 3,500,000 shares of common stock at $0.00441 under the terms of the securities
purchase agreements.
Subsequent to June 30, 2014, shares
of common stock totaling 3,600,000 were issued for legal services for which the Company recognized $18,000 of expense.
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
(“3DIcon,” “the Company,” “we,” “us” or “our”) 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 is January 1, 2001. We have accounted for this transition as 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 (“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 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 SRA 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 its 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®.
The Oklahoma Center
for the Advancement of Science and Technology approved the Company’s application for funding of a matching grant titled
800 Million Voxels Volumetric Display, on November 19, 2008. The two-year matching grant, totaling $299,984, had a
start date of January 1, 2009. The Company received approval for a no cost extension request for the first year of the contract.
Accordingly, the first year ended on August 31, 2010. The award was for a maximum of $149,940 for 2009 and the remainder
for 2011. The Company received approval for a no cost extension request for the second year of the contract, extending the
second year to August 31, 2012. The Company earned $63,668 and $86,323 from the grant during the years ended December 31, 2012
and 2011, respectively and $281,492 from inception to December 31, 2013. The Company applied for and received the remaining $13,029
of grant funds in 2013 that were earned through the end of the grant period, August 31, 2012.
In July 2013, the
Company won first place in the Oklahoma Center for the Advancement of Science and Technology’s Oklahoma Applied Research
Support competition, securing $300,000 in grant funding over two years. This matching grant had a start date of September 1, 2013.
The Company is using the funds provided by the grant to support the development of its First Product Platform, which will be the
basis of a family of products leveraging the Company’s CSpace® volumetric 3D display technology.
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 a 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 Sponsored Research Agreement, 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 pending 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 pending patent called “Light Surface Display for Rendering a Three-Dimensional Image,” and issued the
United States Patent No. 7,858,913. On December 13, 2011, the USPTO approved a continuation patent titled, “3D
Light Surface Display,” and issued the US patent No. 8,075,139. On August 21, 2012, the USPTO approved a continuation patent
called “3D Volumetric Display” and issued the US Patent No. 8,247,755. On July 16, 2013, the USPTO approved the pending
patent called “Computer System with Digital Micromirror Device,” and converted it to US patent No. 8,487,865.
On August 21, 2012,
the USPTO approved a continuation patent called “3D Volumetric Display” and issued the US Patent No. 8,247,755
At this time, we do
not own any intellectual property rights in these technologies, and, apart from the SRA with the University, have no contracts
or agreements pending to acquire such rights or any other interest in such rights. We plan to market the technology and the intellectual
property developed by the University and our staff by targeting various industries, such as retail, manufacturing, entertainment,
medical, healthcare, transportation, homeland security and the military. On March 12, 2014, we filed utility application called
“Holoform 3D Projection Display”. On July 31, 2013, we filed a provisional patent called “Ultra-High-Resolution
Volumetric Three-Dimensional Display”. This application provides additional configurations and protections of
our CSpace technology.
Since March of 2012,
the Company has been exploring the possibility of developing and marketing glasses-free flat screen 3D displays based on next
generation glasses-free flat screen 3D display technology acquired or licensed from another company. This acquired technology
and any resultant display products would be in addition to and complementary with our internally developed CSpace glasses-free
volumetric 3D display technology. Recently, the Company has met with multiple glasses-free flat screen 3D display companies, is
in discussion with several of these companies about a potential acquisition or partnership, and is engaged in non-binding discussions
to acquire one of these companies. Currently, we do not have any agreements in place that would allow such entry into the flat
screen segment of the glasses-free 3D display industry and no assurances can be made, if an acquisition or partnership is consummated,
that the Company could successfully bring to market such technology.
Progress on Research and Development
Activities
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.
Intellectual Property History, Status
& Rights
On May 26, 2009,
the 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 December 13, 2011, USPTO approved a continuation patent
called “3D Light Surface Display,” and issued the US Patent No. 8,075,139. On August 21, 2012, the USPTO approved
a continuation patent called “3D Volumetric Display” and issued the US Patent No. 8,247,755. 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 seven provisional patents; six of the seven provisional
patents have been combined and converted to four utility patents.
Patents
United States (Issued)
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“Computer
System with Digital Micromirror Device,” United State Patent 8,487,865. July 16, 2013.
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“3D Volumetric
Display,” United State Patent 8,247,755. August 21, 2012.
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“3D Light Surface
Display,” United State Patent 8,075,139. December 13, 2011.
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“Light Surface
Display for Rendering a Three-Dimensional Image,” United State Patent 7,858,913. December, 28, 2010.
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“Volumetric
liquid crystal display for rendering a three-dimensional image,” United States Patent 7,537,345. May 26, 2009.
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United States, (Provisional Application
and Pending)
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“Ultra
High-Resolution Volumetric Three-Dimensional Display,” (US patent application serial No. 61859145). Filed by 3DIcon
Corporation on July 31, 2013.
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“Holoform 3D
Projection Display,” (US patent application serial No. 14/204,889). Filed by 3DIcon Corporation on March 12, 2014.
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European, 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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Japanese, pending
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“Light Surface
Display for Rendering a Three-Dimensional Image.” Filed 2007.
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RESULTS OF OPERATIONS FOR THE THREE
MONTHS ENDED JUNE 30, 2014 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2013
Revenue
The Company completed
the first OCAST grant in August 2012 and did not have any earnings from the first OCAST grant during the three month periods ended
June 30, 2014 or June 30, 2013. The second two year matching grant, for a total of $300,000 had a start date of September 1, 2013.
We earned $18,000 from OCAST during the three month period ending June 30, 2014.
In January 2008 we
launched our first software product Pixel Precision. We appointed Digital Light Innovations for the sales and distribution of
this product in March 2008. We did not have income from the sales of Pixel Precision for the three-month periods ended June 30,
2014 and June 30, 2013.
We expect sales of
Pixel Precision to the installed and active user base of the earlier D1100 and D3000 systems in the near term and as companion
product sales to D4000 systems. We expect that the revenue from this product to contribute to the operating expenses (general
and administrative, research and development, interest) but do not expect the revenue generated in 2014 to cover the operating
expenses.
Research and Development Expenses
The research and
development expenses were $33,195 for the three months ended June 30, 2014, as compared to $86,837 for the three months ended
June 30, 2013. The decrease was a result of the decrease in cost for engaging outside research and development consultants
of approximately $47,000, a decrease in travel and lodging costs of $3,800, and a decrease in of approximately $2,300 in patent
fees.
General and Administrative Expenses
Our general and administrative
expenses were $238,409 for the three months ended June 30, 2014, as compared to $320,880 for the three months ended June 30, 2013. The
net decrease is due primarily to a decrease in filing fees of $5,600 for the S-8 filed in 2013, and a decrease of $114,600 of legal
fees paid in 2013 regarding the DTC chill matter offset by an increase in fees paid to the public relations firm of $30,000, an
increase of $7,600 for the shareholders’ briefing held in June 2014,
Interest Expense
Interest expense for
the three months ended June 30, 2014 was $20, 332 as compared to $33,116 for the three months ended June 30, 2013. The
decrease was primarily a result of a decrease extension fees paid on our convertible notes and bridge notes in 2013 of $15,000
and an increase in OID amortization of $2,500.
RESULTS OF OPERATIONS FOR THE SIX MONTHS
ENDED JUNE 30, 2014 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2013
Revenue
The Company completed
the first OCAST grant in August 2012 and did not have grant income for the six months ended June 30, 2013. We earned $46,748 in
grant funding from the second OCAST grant during the six months ended June 30, 2014.
In January 2008 we
launched our first software product Pixel Precision. We appointed Digital Light Innovations for the sales and distribution of
this product in March 2008. We have earned income of $10,000 and $1,500 before commissions and costs from the sales of Pixel Precision
for the six-months ended June 30, 2014 and June 30, 2013, respectively.
We expect sales of
Pixel Precision to the installed and active user base of the earlier D1100 and D3000 systems in the near term and as companion
product sales to D4000 systems. We expect that the revenue from this product to contribute to the operating expenses (general
and administrative, research and development, interest) but do not expect the revenue generated in 2013 to cover the operating
expenses.
Research and Development Expenses
The research and
development expenses were $93,531 for the six months ended June 30, 2014, as compared to $190,442 for the six months ended June
30, 2013. The net decrease was a result of the decrease in cost for engaging outside research and development consultants
of approximately $60,800, a decrease in patent cost of $2,250, a decrease in lab equipment and supplies purchased of $21,900 and
a decrease in travel and lodging cost of $12,000.
General and Administrative Expenses
Our general and administrative
expenses were $616,518 for the six months ended June 30, 2014, as compared to $584,852 for the six months ended June 30, 2013. The
net increase is due primarily to a $69,500 increase in fees to outside consultants engaged to pursue federal grant funding, an
increase of $74,300 in fess regarding the 3 a 10 settlement paid in 2014, an increase of $17,800 in consultation fess, a decreases
in accounting fees of $3,600, a decrease in filing fees of $3,600, and a decrease in legal fees of $110,700 regarding the DTC matter
from 2013.
Interest Expense
Interest expense
for the six months ended June 30, 2014 was $43,188 as compared to $53,383 for the six months ended June 30, 2013. The
net decrease was a result of an increase in the amount of OID amortized of $8,500 and a decrease of $3,250 in interest costs on
our bridge notes and the decrease of extension fees of $15,000.
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 our SRA with the University. This includes 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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Development,
support and operational costs related to Pixel Precision software.
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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, 2013, 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
$10,357 at June 30, 2014.
We had negative working
capital of $894,288 at June 30, 2014.
During the six-months
ended June 30, 2014, we used $318,423 of cash for operating activities, a decrease of $170,292 or 35% compared to the six-months
ended June 30, 2013. The decrease in the use of cash for operating activities was a result of the increase in accounts payable
of $149,600, an increase in accrued salaries of $81,500 and an increase of $$28,000 in stock issued for services and an increase
in amortization of debt cost of $34,000, a decrease in accounts receivable of $13,000 and a decrease in the net loss of $131,000.
There was no cash
used in investing activities during the six-months ended June 30, 2014 or for the six-months ended June 30, 2013.
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.
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 December 26, 2014. 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.
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 extended to June 30, 2014. 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.
4.75% Convertible Debenture due December
31, 2014
On November 3, 2006,
the Company issued to Golden State a 4.75% convertible debenture in a principal amount of $100,000, due in 2014, 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 year ended December 31, 2012, Golden State converted $7,991 of the $100,000 debenture into 9,577,906 post-split shares of
common stock, exercised warrants to purchase 2,285 post-split shares of common stock at $381.50 per share based on the formula
in the convertible debenture. Additionally Golden Gate advanced $789,111 against future exercises of warrants of which $805,652
was applied to the exercise of warrants leaving $1.00 of unapplied advances at December 31, 2012. During 2013, Golden State converted
$3,860 of the $100,000 debenture into 37,651,544 shares of common stock, exercised warrants to purchase 1,103 shares of common
stock at $381.50 per share based on the formula in the convertible debenture. Additionally Golden State advanced $671,810 against
future exercises of warrants of which $420,740 was applied to the exercise of warrants leaving $185,671 of unapplied advances
at December 31, 2013. During 2014, Golden State converted $2,720 of the $100,000 debenture into 51,507,490 shares of common stock,
exercised warrants to purchase 778 shares of common stock at $381.50 per share based on the formula in the convertible debenture.
Additionally Golden State advanced $158,690 against future exercises of warrants of which $296,480 was applied to the exercise
of warrants leaving $47,881 of unapplied advances at June 30, 2014.
The conversion price
for the 4.75% $100,000 convertible debenture is the lesser of (i) $140 or (ii) 80% of the average of the five lowest volume weighted
average prices 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 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.
5% Convertible Bridge Notes
On June 6, 2012 and
August 1, 2012, the Company issued and sold convertible promissory notes (the “5% Notes") in aggregate principal amount
of $415,000 to JMJ Financial (“JMJ”). The 5% Notes includes a $40,000 original issue discount (the “OID”)
that will be prorated based on the advances actually paid to the Company. During 2012, JMJ advanced $150,000 on the 5% Notes and
earned $14,000 OID. During 2013, JMJ advanced an additional $120,000 on the 5% Notes and earned $32,205 OID and accrued interest.
During 2013, JMJ converted $203,700 of the 5% Notes into 31,854,924 shares of common stock at an average of $0.00639 per
share based on the formula in the 5% Notes. During 2014, JMJ advanced an additional $25,000 on the 5% Notes and earned $5,975
OID and accrued interest. During 2014, JMJ converted $81,217 of the 5% Notes into 26,400,000 shares of common stock
at an average of $0.0031 per share based on the formula in the 5% Notes. In addition to the OID, the 5% Notes provides for a one-time
interest charge of 5% to be applied to the principal sum advanced. Pursuant to the terms of 5% Notes, JMJ may, at its election,
convert all or a part of the $275,000 note and the $140,000 note into shares of the Company's common stock at a conversion rate
equal to the lesser of (i) $0.15 and $0.35, respectively or (ii) 70% of the lowest trade price during the twenty-five trading
days prior to JMJ’s election to convert. If the Company repays the 5% Notes on or before ninety days from the date it was
issued, the interest rate will be zero percent. If the Company does not repay the 5% Notes on or before ninety days from the date
it was issued, a one-time interest charge of 5% shall be applied to the principal. The Company did not repay the 5% Notes within
the ninety day period and $8,750 of interest has been accrued. The principal of the 5% Notes is due one year from the date of
each of the principal amounts advanced.
The 5% Notes were
subject to a Mandatory Registration Agreement (the “Registration Agreement”) whereby no later than August 31, 2012,
the Company agreed to file, at its own expense, an amendment (the “Amendment”) to the S-1 Registration Statement (the
“Registration Statement”) the Company filed with the SEC on July 3, 2012, to include in such Amendment 4,750,000 shares
of common stock issuable under the 5% Notes. The Company agreed, thereafter, to use its best efforts to cause such Registration
Statement to become effective as soon as possible after such filing but in no event later than one hundred and twenty (120) days
from the date of the Registration Agreement. Since the Company failed to get the Registration Statement declared effective within
the 120 days of the date of the Registration Agreement, a penalty/liquidated damages of $25,000 was added to the balance of the
5% Notes.
10% Convertible
Bridge Note to Director
On September 11, 2012,
the Company issued and sold to Victor 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 do 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 Bridge Note, or (c) the first closing
date of the securities sold pursuant an effective registration statement.
On January 26, 2013, the Company entered into
an amendment agreement (the “Keen Amendment”) with Victor F. Keen. The Pursuant to the Keen Amendment, Mr. Keen agreed
to extend the maturity date of the Keen Bridge Note from December 10, 2012 to April 30, 2013 and to waive any and all defaults,
default interest and Liquidated Damages then due to Mr. Keen.
On July 30, 2013,
the Company entered into a second amendment agreement (the “Second Keen Amendment”) with Victor Keen, a Director on
the Board of Directors of the Company, to amend the Keen Bridge note.
Pursuant to the Second
Keen Amendment, Mr. Keen agreed to extend the maturity of the Note from April 30, 2013 to August 31, 2013 (the “New Maturity
Date”) and to waive, if any, existing or prior defaults under the Keen Bridge Note or the Keen SPA and the Company agreed
to (i) amend the conversion provision to allow for conversions based on a conversion price calculated on the Amendment Date or
the New Maturity Date; and (ii) to include an interest rate equal to 10% per annum, payable on the New Maturity Date, as amended,
which accrual shall commence on December 10, 2012.
On September 30,
2013, the Company entered into a third amendment agreement (the “Third Keen Amendment”) with Mr. Keen. Pursuant to
the Third Keen Amendment, Mr. Keen agreed to extend the maturity of the Note from August 31, 2013 to December 31, 2013 and to waive,
if any, existing or prior defaults under the Keen Bridge Note or the Keen SPA.
On January 27, 2014, the Company entered into a fourth amendment agreement (the “Fourth Keen Amendment”)
with Mr. Keen. Pursuant to the Fourth Keen Amendment, Mr. Keen agreed to extend the maturity of the Note from December 31, 2013
to December 31, 2014 and to waive, if any, existing or prior defaults under the Keen Bridge Note or the Keen SPA
15% Senior Convertible
Bridge notes due 2014
On
October 1, 2013 (the “Date of Issuance”), the Company issued and sold to an accredited investor a Senior Convertible
Note (the “Senior Note”) in the principal amount of $205,000 and a warrant to purchase 300,000 shares of the Company’s
common stock at an exercise price equal to 110% of the closing bid price on September 30, 2013 (the “October 2013 Warrant”).
The Senior Note included a $30,750 original issue discount. Accordingly, the Company received $174,250 gross proceeds from which
the Company paid legal and documentation fees of $22,500 and placement agent fees of $15,682.
The Senior Note matured
on July 1, 2014 and does not carry interest. However, in the event the Senior Note is not paid on maturity, all past due amounts
will accrue interest at 15% per annum. At any time subsequent to six months following the Date of Issuance, the Senior Note holder
may elect to convert all or any portion of the outstanding principal amount of the Senior Note into shares of Common Stock at a
conversion price equal to the lesser of 100% of the VWAP, as reported for the 5 trading days prior to the Date of Issuance or 80%
of the average VWAP during the 5 days prior to the date the holder delivers a conversion notice to the Company.
The estimated fair
value of the warrants for common stock issued of $2,130 was determined using the Black-Scholes option pricing model. The expected
dividend yield of zero is based on the average annual dividend yield as of the issue date. Expected volatility of 173.64% is based
on the historical volatility of our stock. The risk-free interest rate of 1.39% is based on the U.S. Treasury Constant Maturity
rate for five years as of the issue date. The expected life of five years of the warrant is based on historical exercise behavior
and expected future experience.
The
October 2013 Warrant is exercisable at any time on or after March 31, 2014 and on or prior to the close of business on March 31,
2019. At the election of the October 2013 Warrant holder, the October 2013 Warrant may be exercised using a cashless exercise
method.
Settlement Agreement
On
July 26, 2013, the Circuit Court in the 12
th
Judicial Circuit in and for Sarasota County, Florida (the “Court”),
entered an Order Granting Approval of Settlement Agreement (the “Order”) approving, among other things, the fairness
of the terms and conditions of an exchange pursuant to Section 3(a)(10) of the Securities Act of 1933, as amended, in accordance
with a Settlement Agreement (the “Settlement Agreement”) between the Company and IBC Funds, LLC, a Nevada limited
liability company (“IBC”), in the matter entitled
IBC Funds, LLC v. 3DIcon Corporation
, Case No. 2013
CA 5705 NC (the “Action”). IBC commenced the Action against the Company on July 19, 2013 to recover an aggregate of
$197,631 of past-due accounts payable of the Company, which IBC had purchased from certain vendors of the Company pursuant to
the terms of separate claim purchase agreements between IBC and each of such vendors (the “Assigned Accounts”), plus
fees and costs (the “Claim”). The Assigned Accounts relate to certain research, technical, development, accounting
and legal services. The Order provides for the full and final settlement of the Claim and the Action. The Settlement
Agreement became effective and binding upon the Company and IBC upon execution of the Order by the Court on July 26, 2013.
Pursuant to the terms
of the Settlement Agreement approved by the Order, on July 26, 2013, the Company issued 650,000 shares of Common Stock as a settlement
fee and agreed to issue, in one or more tranches as necessary, that number of shares equal to $197,631 upon conversion to Common
Stock at a conversion rate equal to 65% of the lowest closing bid price of the Common Stock during the ten trading days prior
to the date the conversion is requested by IBC minus $0.002. During 2013, IBC converted $78,789 of the note into
53,720,000 shares of common stock at an average of $0.0015 per share based on the formula in the note.
On
January 22, 2014 the Company entered into a Mutual Release (the “Release”) with IBC pursuant to which each party would
release the other party from any and all obligations pursuant to the Settlement Agreement. In consideration for the Release, IBC
accepted and the Company remitted to IBC: (i) a cash payment of $190,000, (ii) an issuance of 9,000,000 shares of the Company’s
common stock, pursuant to the terms of the Settlement Agreement under the December 18, 2013 Conversion Notice, and (iii) an issuance
of 6,810,811 shares of the Company’s common stock, pursuant to the terms of the Settlement Agreement under the January 17,
2014 Conversion Notice (together, the “Consideration”). Pursuant to the Release, IBC agreed that the Consideration
was accepted as satisfaction in full of the payments due pursuant to the Settlement Agreement.
On
January 23, 2014, the Company and IBC filed a Stipulation of Dismissal with Prejudice with the Circuit Court in the 12th Judicial
Circuit in and for Sarasota County, Florida.
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
Common stock issued for services and
liabilities
Subsequent
to June 30, 2014, Golden State converted $1,500 of the 4.75% convertible debenture into 25,369,615 shares of common stock at $0.00006
per share and exercised 429 warrants at $381.50 per share for $163,500, advanced $115,620 and applied $47,880 of warrant
exercise advances leaving $1 in warrant exercise advances under the terms of the securities purchase agreements.
Subsequent to June 30,
2014, JMJ converted $37,485 of the convertible promissory note into 6,500,000 shares of common stock at $0.00441 under the terms
of the securities purchase agreements.
Subsequent
to June 30, 2014, shares of common stock totaling 3,600,000 were issued for legal services for which the Company recognized $18,000
of expense.