Item 1. Financial
Statements.
INDEX TO FINANCIAL STATEMENTS
3DIcon CORPORATION
BALANCE SHEETS
March 31, 2016 and December 31, 2015
(unaudited)
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,435
|
|
|
$
|
11,121
|
|
Prepaid expenses
|
|
|
12,507
|
|
|
|
21,321
|
|
Total current assets
|
|
|
13,942
|
|
|
|
32,442
|
|
|
|
|
|
|
|
|
|
|
Deposits-other
|
|
|
2,315
|
|
|
|
2,315
|
|
Total Assets
|
|
$
|
16,257
|
|
|
$
|
34,757
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Deficiency
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Current maturities of convertible notes and debentures payable
|
|
$
|
64,395
|
|
|
$
|
183,402
|
|
Warrant exercise advances
|
|
|
55
|
|
|
|
55
|
|
Accounts payable
|
|
|
311,457
|
|
|
|
823,695
|
|
Accrued salaries
|
|
|
64,153
|
|
|
|
317,134
|
|
Accrued interest on debentures
|
|
|
15,285
|
|
|
|
49,262
|
|
Total current liabilities
|
|
|
455,345
|
|
|
|
1,373,548
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
455,345
|
|
|
|
1,373,548
|
|
|
|
|
|
|
|
|
|
|
Stockholders' deficiency:
|
|
|
|
|
|
|
|
|
Preferred stock, Series A convertible, $0.0002 par value, 500,000 shares authorized; 345,000 shares issued and outstanding at March 31, 2016 and December 31, 2015
|
|
|
69
|
|
|
|
69
|
|
Preferred stock, Series B convertible, $0.0002 par value, 2,000,000 shares authorized; 1,592,602 and -0- shares issued and outstanding at March 31, 2016 and December 31, 2015, respectively
|
|
|
319
|
|
|
|
-
|
|
Common stock $0.0002 par, 1,500,000,000 shares authorized; 1,384,399,201 and 1,370,953,255 shares issued and outstanding at March 31, 2016 and December 31, 2015, respectively
|
|
|
276,880
|
|
|
|
274,191
|
|
Additional paid-in capital
|
|
|
21,665,334
|
|
|
|
20,545,939
|
|
Accumulated deficit
|
|
|
(22,381,690
|
)
|
|
|
(22,158,990
|
)
|
Total Stockholders' Deficiency
|
|
|
(439,088
|
)
|
|
|
(1,338,791
|
)
|
Total Liabilities and Stockholders' Deficiency
|
|
$
|
16,257
|
|
|
$
|
34,757
|
|
See notes to financial statements
3DIcon CORPORATION
STATEMENTS OF
OPERATIONS
Three Months Ended
March 31, 2016 and 2015
(unaudited)
|
|
2016
|
|
|
2015
|
|
Income:
|
|
|
|
|
|
|
Grant income
|
|
$
|
-
|
|
|
$
|
5,122
|
|
|
|
|
|
|
|
|
|
|
Total income
|
|
|
-
|
|
|
|
5,122
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
2,625
|
|
|
|
42,909
|
|
General and administrative
|
|
|
219,011
|
|
|
|
258,846
|
|
Interest
|
|
|
1,064
|
|
|
|
8,624
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
222,700
|
|
|
|
310,379
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(222,700
|
)
|
|
$
|
(305,257
|
)
|
|
|
|
|
|
|
|
|
|
Loss per share:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.0002
|
)
|
|
$
|
(0.0005
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, basic and diluted
|
|
|
1,379,418,506
|
|
|
|
577,648,385
|
|
See notes to financial statements
3DIcon CORPORATION
STATEMENT OF
CHANGES IN STOCKHOLDERS' DEFICIENCY
Three Months Ended
March 31, 2016
(unaudited)
|
|
Series A Preferred Stock
|
|
|
Series
B Preferred Stock
|
|
|
Common Stock
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
|
Par
|
|
|
|
|
|
Par
|
|
|
|
|
|
Par
|
|
|
Paid-In
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Value
|
|
|
Shares
|
|
|
Value
|
|
|
Shares
|
|
|
Value
|
|
|
Capital
|
|
|
Deficit
|
|
|
Total
|
|
Balance December 31, 2015
|
|
|
345,000
|
|
|
$
|
69
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
1,370,953,255
|
|
|
$
|
274,191
|
|
|
$
|
20,545,939
|
|
|
$
|
(22,158,990
|
)
|
|
$
|
(1,338,791
|
)
|
Debentures converted
|
|
|
-
|
|
|
|
-
|
|
|
|
172,421
|
|
|
|
35
|
|
|
|
-
|
|
|
|
-
|
|
|
|
118,972
|
|
|
|
-
|
|
|
|
119,007
|
|
Stock issued for liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
1,361,919
|
|
|
|
272
|
|
|
|
13,445,946
|
|
|
|
2,689
|
|
|
|
960,225
|
|
|
|
-
|
|
|
|
963,186
|
|
Stock issued for accrued interest
|
|
|
-
|
|
|
|
-
|
|
|
|
58,262
|
|
|
|
12
|
|
|
|
-
|
|
|
|
-
|
|
|
|
40,198
|
|
|
|
-
|
|
|
|
40,210
|
|
Net loss for the period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(222,700
|
)
|
|
|
(222,700
|
)
|
Balance March 31, 2016
|
|
|
345,000
|
|
|
$
|
69
|
|
|
|
1,592,602
|
|
|
$
|
319
|
|
|
|
1,384,399,201
|
|
|
$
|
276,880
|
|
|
$
|
21,665,334
|
|
|
$
|
(22,381,690
|
)
|
|
$
|
(439,088
|
)
|
See notes to financial statements
3DIcon CORPORATION
STATEMENTS OF CASH FLOWS
Three Months ended March 31,
2016 and 2015
(unaudited)
Cash Flows from Operating Activities
|
|
2016
|
|
|
2015
|
|
Net loss
|
|
$
|
(222,700
|
)
|
|
$
|
(305,257
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Stock issued for services
|
|
|
-
|
|
|
|
22,500
|
|
Amortization of debt issuance costs
|
|
|
-
|
|
|
|
(1,499
|
)
|
|
|
|
|
|
|
|
|
|
Change in:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
-
|
|
|
|
(5,122
|
)
|
Prepaid expenses and other assets
|
|
|
8,814
|
|
|
|
7,274
|
|
Accounts payable and accrued liabilities
|
|
|
204,200
|
|
|
|
118,666
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(9,686
|
)
|
|
|
(163,438
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
Proceeds from stock and warrant sales, exercise of warrants and warrant exercise advances
|
|
|
-
|
|
|
|
32,700
|
|
Proceeds from issuance of debentures, notes and options
|
|
|
-
|
|
|
|
99,000
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
-
|
|
|
|
131,700
|
|
|
|
|
|
|
|
|
|
|
Net change in cash
|
|
|
(9,686
|
)
|
|
|
(31,738
|
)
|
Cash, beginning of period
|
|
|
11,121
|
|
|
|
34,485
|
|
|
|
|
|
|
|
|
|
|
Cash, end of period
|
|
$
|
1,435
|
|
|
$
|
2,747
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
-
|
|
|
$
|
283
|
|
Non-Cash Investing and Financing Activities
|
|
|
|
|
|
|
|
|
Conversion of debentures to common stock (net)
|
|
$
|
119,007
|
|
|
$
|
109,701
|
|
Stock issued to satisfy accrued interest and other liabilities
|
|
$
|
1,003,396
|
|
|
$
|
37,500
|
|
See notes to financial statements
3DIcon CORPORATION
NOTES TO FINANCIAL STATEMENTS
March 31, 2016
(unaudited)
Note 1 – Uncertainties and Use of
Estimates
Basis of Presentation
The accompanying financial statements of
3DIcon Corporation (the “Company”) have been prepared without audit pursuant to the rules and regulations of the Securities
and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in the financial statements
prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted
pursuant to such rules and regulations. The Company believes that the disclosures made are adequate to make the information presented
not misleading. These financial statements should be read in conjunction with the Company's year-end audited financial statements
and related footnotes included in the previously filed 10-K. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the financial position of the Company as of March 31, 2016, and the statements
of its operations for the three months ended March 31, 2016 and 2015, and cash flows for the three months ended March 31, 2016
and 2015. The results of operations for interim periods may not be indicative of the results which may be realized for the full
year.
Use of Estimates
The preparation of financial statements
in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect
the reported amounts of assets, liabilities, revenues, expenses and the disclosure of contingent assets and liabilities. Actual
results could differ from the estimates and assumptions used.
Recent Accounting Pronouncements
The following is a summary of recent accounting
pronouncements that are relevant to the Company:
In February 2016, the FASB issued ASU No.
2016-02,
Leases (Topic 842)
intended to increase transparency and comparability among companies by requiring most
leases to be included on the balance sheet and by expanding disclosure requirements. This is effective for public business entities
for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted
for all public business entities and all nonpublic business entities upon issuance. The Company is currently evaluating the impact
that this new guidance may have on its results of operations, cash flows, financial position and disclosures.
In April 2015, the FASB issued ASU 2015-03,
Interest – Imputation of Interest (Subtopic 835-30), Simplifying the Presentation of Debt Issuance Costs
. The amendments
in ASU 2015-03 require that debt issuance costs related to a recognized debt liability be presented on the balance sheet as a
direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement
guidance for debt issuance costs are not affected by this update. The provisions of ASU 2015-03 are effective for financial statements
issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The guidance in this
ASU is to be applied on a retrospective basis. Early adoption is permitted. The adoption of this standard did not have a material
impact on the Company’s financial position and results of operations.
The FASB has issued ASU 2014-09,
Revenue
from Contracts with Customers
. This ASU supersedes the revenue recognition requirements in FASB ASC 605 - Revenue Recognition
and most industry-specific guidance throughout the Codification. The standard requires that an entity recognizes revenue to depict
the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects
to be entitled in exchange for those goods or services. On July 9, 2015, the FASB deferred the effective date of ASU No. 2014-09
from annual periods beginning after December 15, 2016 to annual periods beginning after December 15, 2017. This ASU should be applied
retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the
ASU recognized at the date of initial application. The adoption of this standard is not expected to have a material impact on the
Company’s financial position and results of operations.
The FASB has issued ASU 2014-12,
Compensation
- Stock Compensation
(ASC Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance
Target Could Be Achieved after the Requisite Service Period.
This ASU requires that a performance target that affects vesting,
and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance
target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation
cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent
the compensation cost attributable to the period(s) for which the requisite service has already been rendered. The amendments in
this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier
adoption is permitted. The adoption of this standard did not have a material impact on the Company's financial position and results
of operations.
Uncertainties
The accompanying financial statements have
been prepared on a going concern basis. The Company is in the development stage and has insufficient revenue and capital commitments
to fund the development of its planned product and to pay operating expenses.
The Company has realized a cumulative
net loss of $22,381,690 for the period from inception (January 1, 2001) to March 31, 2016, and a net loss of $222,700 and $305,257
for the three months ended March 31, 2016 and 2015, respectively.
The ability of the Company to continue
as a going concern depends on the successful completion of the Company's capital raising efforts to fund the development of its
planned products. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue
as a going concern.
Given the reduced
reliance on federal funding discussed in Note 2, the Company is committed to exploring possible acquisitions, partnerships, or
other strategic transactions involving direct or indirect funding for the Company. Accordingly, the Company formed a committee
comprised of Mark Willner, Chairman of the Company’s Business Advisory Board, Doug Freitag and Victor Keen to lead in this
effort. Currently the Company is in conversations
with several companies involving a possible affiliation or other strategic transaction.
Additionally, under the terms of the Golden
State 4.75% Convertible Debenture due on December 31, 2016, Golden State is obligated to submit conversion notices in an amount
such that Golden State receives 1% of the outstanding shares of the Company every calendar quarter for a period of one year. In
connection with each conversion, Golden State is expected to simultaneously exercise a percentage of warrants equal to the percentage
of the principal being converted. The warrants are exercisable at $381.50 per share. The number of warrants exercisable is subject
to certain beneficial ownership limitations contained in the 4.75% Convertible Debenture (“the Beneficial Ownership Limitations”).
The Beneficial Ownership Limitations prevent Golden State from converting on the 4.75% Convertible Debenture or exercising warrants
if such conversion or exercise would cause Golden State’s holdings to exceed 9.99% of the Company’s issued and outstanding
common stock. Subject to the Beneficial Ownership Limitations and provided that Golden State is able to sell the shares under Rule
144, Golden State is required to convert $85.71 of the 4.75% Convertible Debenture and exercise 857 warrants per month. Based upon
the current stock price, the issued and outstanding shares as of March 31, 2016 and ignoring the impact of the Beneficial Ownership
Limitations, the Company may receive up to $327,000 per month in funding for the duration of the debenture from Golden State as
a result of warrant exercises. However, due to the Beneficial Ownership Limitations, the Company did not receive any advances from
Golden State during the three months ended March 31, 2016. Such advances are recorded within warrant exercise advances on the balance
sheets when received.
The Company is in discussions with Golden
State Equity Investors to modify the normal means by which we access funds. This would provide the Company with greater flexibility
and control over the issuance of shares and not further limit our access to operating and growth capital.
Joint Development Agreement with Schott
Defense
As part of our federal funding strategy
we intend to effectively compete by forming interdisciplinary teams with potential strategic partners (large and small), academic
and commercial laboratories, and systems integrators providing integrated data visualization solutions. The first of these
partnerships was reached in March 2014 when the Company signed a JDA with Schott, a federally focused subsidiary of Schott North
America. Schott is a world-class multi-billion dollar company with significant experience and success in partnering with
federal agencies for development projects. In addition, Schott is one of the world’s leaders in developing specialty
glass for many applications, including display technology. This partnership, coupled with the expertise of Doug Freitag,
should facilitate the Company’s federal funding strategy and our ability to create the unique materials required to advance
the CSpace technology. In December of 2015 Schott AG closed the development office, Schott Defense, in Washington, D.C. It is unclear
how this may impact the JDA going forward.
Additionally, the Company is continuing
to pursue financing through private offering of debt or common stock.
Note 2 – OCAST Grant
In July
2013, the Company was awarded a two year grant from OCAST. This was the second $300,000 grant received from OCAST. The first grant
was completed in August 2012. This matching grant was for a total of $300,000 and commenced September 1, 2013. The Company received
$5,122 in funding during the three-month period ended March 31, 2015. The funds were being used to support the development of the
Company’s first Product Platform, which will be the basis for a family of products based on the Company’s CSpace®
volumetric 3D display technology.
The grant was cancelled in March 2015 upon
the resignation of Dr. Hakki Refai, the principal investigator under the grant.
Note 3 – Debentures and Notes Payable
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Senior Convertible Debentures
|
|
|
|
|
|
|
|
|
10% Convertible debenture to directors due June 2016
|
|
$
|
-
|
|
|
$
|
30,000
|
|
10% Convertible debenture due June 2016
|
|
|
-
|
|
|
|
29,007
|
|
4.75% Convertible debenture due December 2016
|
|
|
64,395
|
|
|
|
64,395
|
|
10% Convertible bridge note to director due June 2016
|
|
|
-
|
|
|
|
60,000
|
|
Total Debentures Payable
|
|
$
|
64,395
|
|
|
$
|
183,402
|
|
10% Convertible Debentures to Directors
due June 30, 2016
On June 24, 2013, the Company issued to Victor Keen and Martin Keating, Directors of the Company, (“Directors”)
10% convertible debentures in a principal amount of $15,000 each, due June 26, 2014 and subsequently extended to June 30, 2016.
The Directors may elect to convert all or any portion of the outstanding principal amount of the debentures at an exercise price
of $0.01 per share. Provided that the debentures are paid in full on or before the maturity date, no interest shall accrue on the
unpaid balance of the principal amount. In the event that the debentures are not paid in full on or before the maturity date, interest
shall accrue on the unpaid outstanding balance of the principal amount of the debentures from June 26, 2013, until paid, at the
fixed rate of ten percent (10%) per annum. Accordingly, interest was being accrued under the terms of the debenture.
On
March 24, 2016, the Company issued to Mr. Keen and Mr. Keating 1,193,582 and 19,266 shares of its newly designated Series B Preferred,
respectively, in accordance with Securities Purchase Agreements dated December 11, 2015, pursuant to which, as a result of the
issuance of the Series B Preferred, all amounts owed under these convertible debenture were deemed satisfied, exchanged and converted.
10% Convertible Debenture due Newton,
O'Connor, Turner & Ketchum, due June 30, 2016
On December 20, 2012, the Company issued to Newton, O'Connor, Turner & Ketchum (“NOTK”)
a 10% convertible debenture in a principal amount of $29,007, initially due September 30, 2013 and extended to June 30, 2016. NOTK
may elect to convert all or any portion of the outstanding principal amount of the debenture at an exercise price of $0.02534 per
share. The Company was indebted to NOTK for legal services performed for the Company and reimbursement of expenses in rendition
of those services for the period ended December 31, 2012. The debenture was issued in settlement of the indebtedness.
On
March 24, 2016, the Company issued to NOTK 50,149 shares of its newly designated Series B Preferred in accordance with a Securities
Purchase Agreement dated December 11, 2015, pursuant to which, as a result of the issuance of the Series B Preferred, all amounts
owed under the 10% convertible debenture were deemed satisfied, exchanged and converted.
4.75% Convertible Debenture due December
31, 2016
On November 3, 2006, the Company
issued to Golden State a 4.75% convertible debenture in a principal amount of $100,000, due December 31, 2014, subsequently extended
to December 31, 2016 and warrants to buy 28,571 shares of the common stock at an exercise price of $381.50 per share. In connection
with each conversion, Golden State is expected to simultaneously exercise a percentage of warrants equal to the percentage of the
principal being converted. During the three months ended March 31, 2016, Golden State did not convert any of the $100,000 debenture
into shares of common stock, or exercise warrants to purchase shares of common stock.
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 pre-split price is below $0.70, the Company shall have the right to
prepay that portion of the debenture that Golden State elected to convert, plus any accrued and unpaid interest, at 135% of such
amount.
10% Convertible
Bridge Note due June 30, 2016
On September 11, 2012, the Company
issued and sold to Victor F. Keen, a Director and an accredited investor a Convertible Bridge Note (the “Keen Bridge Note”)
in the principal amount of $60,000. The sale of the Keen Bridge Note in the principal of $60,000 included a $10,000 OID. The Keen
Bridge Note matured 90 days from the date of issuance and, other than the OID, the Keen Bridge Note did not carry interest. However,
in the event the Keen Bridge Note is not paid on maturity, all past due amounts will accrue interest at 15% per annum. Upon maturity,
the holders may elect to convert any or all of any portion of outstanding principal. On March 8, 2016, Mr. Keen agreed to
extend the maturity of the Note from December 31, 2015 to June 30, 2016 and to waive, if any, existing or prior defaults under
the Keen Bridge Note or the Keen SPA. On March 24, 2016, the Company issued to Mr. Keen 1,193,582 shares of its newly designated
Series B Preferred in accordance with Securities Purchase Agreements dated December 11, 2015, pursuant to which, as a result of
the issuance of the Series B Preferred, all amounts owed under this convertible debenture were deemed satisfied, exchanged and
converted.
Note 4 – Common Stock and Paid-In
Capital
Warrants Issued
As of March 31,
2016, NOTK has warrants outstanding to purchase 125,098 shares of common stock at a price of $3.15 per share that expire on September
30, 2016 and warrants to purchase 96,024 shares of common stock at a price of $3.15 per share that expire on September 1, 2016.
Golden State has warrants outstanding to purchase 18,395 shares of common stock at a price of $381.50 per share which expire December
31, 2016. Global Capital has warrants outstanding to purchase 300,000 shares of common stock at a price of $0.0032 per shares which
expire on March 31, 2019. Additionally from the Series A preferred stock issuance, there are 6,000,000 warrants outstanding to
purchase common shares at $0.0055 per share which expire December 31, 2017 and 13,250,000 warrants outstanding that were issued
to Victor Keen, the CEO and Director of the Company, which expire on January 17, 2018.
Common stock and options issued for
services and liabilities
During the three months ended March 31,
2016, shares of common stock totaling 13,445,946 were issued to consultants for previous services provided to the Company for which
the accounts payable liability was reduced by $17,000.
The terms of the Series A Convertible Preferred
Stock Series B Convertible Preferred Stock and Warrants are as follows:
Series A Convertible Preferred Sto
ck
A total of 500,000 shares of Series A
Convertible Preferred Stock (the “Series A Preferred Stock”) have been authorized for issuance under the
Certificate of Designation of Preferences, Rights and Limitation of Series A Convertible Preferred Stock of 3DIcon
Corporation (the “Certificate of Designation”), which Certificate of Designation was filed with the Secretary of
State of the State of Oklahoma on December 11, 2013. The shares of Series A Preferred Stock have a par value of $0.0002 per
share and a stated value of $1.00 per share (the “Stated Value”), and shall receive a dividend of 6% of their
Stated Value per annum payable or upon conversion or redemption of Series A Preferred at the option of the Corporation. We
have not paid any cash or stock dividends to the holders of our Series A Preferred. As of March 31, 2016 dividends in arrears
totaled approximately $48,000. Under the Certificate of Designation, the holders of the Series A Preferred Stock have the following
rights, preferences and privileges:
The Series A Preferred Stock may, at the
option of the Investor, be converted at any time after the first anniversary of the issuance of the Series A Preferred Stock or
from time to time thereafter into 50,000,000 shares of Common Stock that Such Investor is entitled to in proportion to the 500,000
shares of Series A Preferred so designated in the Certificate of Designation.
The Series A Preferred Stock will automatically
be converted into Common Stock anytime the 5 day average VWAP of the Company’s Common Stock prior to such conversion is equal
to $0.05 or more. Such mandatory conversion would be converted by the same method described above for discretionary conversions.
Except as otherwise required by law, the
holders of shares of Series A Preferred Stock shall not have voting rights or powers.
In the event of any (i) liquidation, dissolution
or winding up of the Company, whether voluntary or involuntary, or ii) sale, merger, consolidation, reorganization or other transaction
that results in a change of control of the Company, each holder of a share of Series A Preferred shall be entitled to receive,
subject to prior preferences and other rights of any class or series of stock of the Company senior to the Series A Preferred,
but prior and in preference to any distribution of any of the assets or surplus funds of the Company to holders of Common Stock,
or any other class or series of stock of the Company junior to the Series A Preferred, an amount equal to the Stated Value plus
accrued and unpaid dividends (as adjusted for any stock dividends, combinations or splits with respect to such shares) (the “Preference
Amount”). After such payment has been made to the holders of Series A Preferred of the full Preference Amount to which such
holders shall be entitled, the remaining net assets of the Company available for distribution, if any, shall be distributed pro
rata among the holders of Common Stock. In the event the funds or assets legally available for distribution to the holders of Series
A Preferred are insufficient to pay the Preference Amount, then all funds or assets available for distribution to the holders of
capital stock shall be paid to the holders of Series A Preferred pro rata based on the full Preference Amount to which they are
entitled.
The Company may not declare, pay or set
aside any dividends on shares of any class or series of capital stock of the Company (other than dividends on shares of Common
Stock payable in shares of Common Stock) unless the holders of the Series A Preferred Stock shall first receive, or simultaneously
receive, a dividend on each outstanding share of Series A Preferred in an amount equal to the dividend per share that such holders
would have received had they converted their shares of Series A Preferred into shares of Common Stock immediately prior to the
record date for the declaration of the Common Stock dividend in an amount equal to the average VWAP during the 5 trading days prior
to the date such dividend is due.
Series
B Convertible Preferred Stock
On March 22, 2016, 3DIcon Corporation,
filed with the Secretary of State of the State of Oklahoma a Certificate of
Designation (the “Certificate of Designation”), setting for the Preferences, Rights and Limitation of the Company’s Series B Convertible Preferred Stock (the “Series
B Preferred”). The Two Million (2,000,000) shares of Series B Preferred designated under the Certificate of Designation have
a stated value of $1.00 per share (the “Stated Value”). Under the Certificate of Designation, the holders of the Series
B Preferred have the following rights, preferences and privileges:
The holders of Series B Preferred are not
entitled to receive dividends but have voting rights equal to the number of shares of the Company’s Common
Stock into which their Series B Preferred can be converted, whether or not the shares are available for issuance.
At the option of the holder, Series B Preferred
may be converted in whole or in part, from time to time, into One Thousand Nine Hundred Fourteen (1,914) shares of Common Stock.
The Series B Preferred Stock will automatically be converted into Common Stock if (i) at anytime the 5 day average VWAP of the
Company’s Common Stock prior to such automatic conversion is equal to $0.10 or more; or (ii) the Company enters into a transaction
for which the Company enters into a share exchange agreement or agreement and plan of merger, which agreement is executed within
ninety (90) days after the date of the Certificate of Designation and pursuant to which the Company thereafter becomes a consolidated
company with another entity, and the Company issues equity securities of the Company. Such automatic conversion would be converted
by the same method described above for discretionary conversions.
In the event of any i) liquidation, dissolution
or winding up of the Company, whether voluntary or involuntary, or ii) sale, merger, consolidation, reorganization or other transaction
that results in a change of control of the Company, each holder of a share of Series B Preferred shall be entitled to receive,
subject to prior preferences and other rights of any class or series of stock of the Company senior to the Series B Preferred,
but prior and in preference to any distribution of any of the assets or surplus funds of the Company to holders of Common Stock,
or any other class or series of stock of the Company junior to the Series B Preferred, an amount equal to the Stated Value (as
adjusted for any stock dividends, combinations or splits with respect to such shares) (the “Preference Amount”). After
such payment has been made to the holders of Series B Preferred of the full Preference Amount to which such holders shall be entitled,
the remaining net assets of the Company available for distribution, if any, shall be distributed pro rata among the holders of
Common Stock. In the event the funds or assets legally available for distribution to the holders of Series B Preferred are insufficient
to pay the Preference Amount, then all funds or assets available for distribution to the holders of capital stock shall be paid
to the holders of Series B Preferred pro rata based on the full Preference Amount to which they are entitled.
The Company issued an aggregate of 1,592,602
shares of the Company’s Series B Preferred during the three months
ended March 31, 2016 in connection with Securities Purchase Agreements (the “Securities Purchase Agreements”) dated
December 11, 2015. Pursuant the Securities Purchase Agreements, the Company had agreed to issue, and on March 24, 2016 issued,
to certain officers, directors, consultants and service providers (collectively, “Recipients”) and the Recipients had
agreed to accept, and on March 24, 2016 received, shares of Series B Preferred in consideration for the satisfaction, in lieu of
cash payment, of an aggregate of $1,105,403 owed by the Company to the Recipients. Among the Recipients were
(i) Victor F. Keen, the Company’s Chief Executive Officer, who received 1,193,582 shares of Series B Preferred in satisfaction
of $685,355 owed to him under certain notes, in connection with certain advances he provided to the Company and for services he
provided to the Company; (ii) Ronald W. Robinson, the Company’s Chief Financial Officer, who received 85,771 shares of Series
B Preferred in satisfaction of $90,291 owed to him for services he provided to the Company; (iii) Martin Keating, a Director of
the Company, who received 19,266 shares of Series B Preferred in satisfaction of $20,281 owed to him under certain notes and for
services he provided to the Company; and (iv) Newton, O'Connor, Turner & Ketchum, PC, a law firm of which John O’Connor,
a Director of the Company, is a partner, that received 50,149 shares of Series B Preferred in satisfaction of $52,791 owed to it
for services provided to the Company.
Warrants
Each Unit under the
Securities Purchase Agreement consists of Warrants entitling the Investor to purchase fifty (50) shares of Common Stock for
each share of Series A Preferred purchased by such Investor in the Private Placement, at an initial exercise price per share
of $0.0055. The exercise price and number of shares of Common Stock issuable under the Warrants are subject to adjustments
for stock dividends, splits, combinations and similar events. On or after the first anniversary of the issuance of the
Warrants and prior to close of business on fourth anniversary of the issuance of the Warrants, the Warrants may be exercised
at any time upon the election of the holder, provided however, that an Investor may at any given time convert only up to that
number of shares of Common Stock so that, upon conversion, the aggregate beneficial ownership of the Company’s Common
Stock (calculated pursuant to Rule 13d-3 of the Securities Exchange Act of 1934, as amended) of such Investor and all persons
affiliated with such Investor, is not more than 4.99% of the Company’s Common Stock then outstanding (subject to
adjustment up to 9.99% at the Investor’s discretion upon 61 days’ prior notice).
The following summary reflects warrant
and option activity for the three-month period ended March 31, 2016:
|
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Attached
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Golden State
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|
|
|
|
|
|
Warrants
|
|
|
Warrants
|
|
|
Options
|
|
Outstanding December 31, 2015
|
|
|
19,771,122
|
|
|
|
18,395
|
|
|
|
23,030,274
|
|
Granted/purchased
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding March 31, 2016
|
|
|
19,771,122
|
|
|
|
18,395
|
|
|
|
23,030,274
|
|
Stock options are valued at the date of
award, which does not precede the approval date, and compensation cost is recognized in the period the options are granted. Stock
options generally become exercisable on the date of grant and expire based on the terms of each grant.
The estimated fair value of options for
common stock granted was determined using the Black-Scholes option pricing model. The expected dividend yield is based on the average
annual dividend yield as of the grant date. Expected volatility is based on the historical volatility of our stock. The risk-free
interest rate is based on the U.S. Treasury Constant Maturity rates as of the grant date. The expected life of the option is based
on historical exercise behavior and expected future experience.
Note 5 – Incentive Stock Plan
In March 2014, the Company established
the 3DIcon Corporation 2014 Equity Incentive Plan (the “2014 EIP”). The total number of shares of stock which may be
purchased or granted directly by options, stock awards or restricted stock purchase offers, or purchased indirectly through exercise
of options granted under the 2014 EIP shall not exceed fifty million (50,000,000) shares. The shares are included in a registration
statement filed March 2014. Shares were not issued from the 2014 EIP during the three months ended March 31, 2016. Shares totaling
6,793,478 were issued from the 2014 EIP during the three months ended March 31, 2015 for services rendered. As of March 31, 2016,
there were 750,103 shares available for issuance under the 2014 EIP.
In March 2015, the Company established
the 3DIcon Corporation 2015 Equity Incentive Plan (the “2015 EIP”). The total number of shares of stock which may
be purchased or granted directly by options, stock awards or restricted stock purchase offers, or purchased indirectly through
exercise of options granted under the 2015 EIP shall not exceed eighty-five million (85,000,000) shares. The shares are included
in a registration statement filed March, 2015. Shares totaling 8,445,946 and 40,119,185 were issued from the 2015 EIP during the
three months periods ended March 31, 2016 and 2015, respectively for legal and consulting services rendered. There are 13,133,645
shares available for issuance under the 2015 EIP as of December 31, 2015
.
Note 6 – Office Lease
The Company had an Office Lease that expired
on July 31, 2015. An amendment to the Office Lease was signed on July 2, 2015. Under the terms of the amendment the lease is extended
for thirty-six months and will expire on July 31, 2018. The minimum future lease payments to be paid under the term of the three-year
non-cancellable amended lease total $55,000 and are payable as follows:
2016
|
|
$
|
17,000
|
|
2017
|
|
|
24,000
|
|
2018
|
|
|
14,000
|
|
total
|
|
$
|
55,000
|
|
Note 7 – 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 three months ending March 31, 2016 and 2015, the Company
incurred legal fees to Newton, O’Connor, Turner & Ketchum in the amount of $-0-, and $1,238, respectively. Additionally,
Newton, O’Connor, Turner & Ketchum held a convertible debenture (see Note 4 to the financial statements) totaling $29,007
which was included in debentures payable at December 31, 2015. The convertible debenture was retired in accordance with the SPA
described in Note 4 to the financial statements.
Mr. Victor F. Keen, Chief Executive Officer
of the Company, has entered into several advancement transactions, whereby Mr. Keen provided funds to the Company. Specifically,
Mr. Keen advanced the Company $145,000 in October 2015 and $103,000 in July, August, and September 2015. In addition, Mr. Keen
had previously advanced the Company $34,000 in November 2014. The total amount of these advancements by Mr. Keen to the Company,
as of December 31, 2015, was $282,000 and was included in accounts payable. The Company was also indebted to Mr. Keen for
his accrued salary from January 1, 2014 through December 31, 2015 totaling $300,000 and was included in accrued salaries. Additionally,
Mr. Keen held two convertible debentures (see Note 4 to the financial statements) totaling $75,000 which were included in debentures
payable. The advances, convertible debentures and accrued salary were retired in accordance with the SPA described in Note
5 to the financial statements.
During the three months ended March 31,
2016, Mr. Keen advanced $50,000 to the Company which is included in accounts payable. The Company is also indebted to Mr. Keen
for his accrued salary from January 1, 2016 through March 31, 2016 totaling $37,500 and is included in accrued salaries.
Note 8 – Subsequent Events
Loan Agreements
On April, 16, 2016 the Company entered
into a Loan Agreement (the “Agreement”) whereby the lender agreed to provide the Company a loan facility of up to $100,000.
Under the terms of the Agreement the Company shall pay interest on the outstanding unpaid balance at the rate of 1.167% per month.
The interest is due quarterly and the principal is due June 29, 2018. The lender has advanced $50,000 on the loan.
On April 26, 2016 the Company entered
into a 9% promissory note with Golden State in the amount of $40,000. Under the terms of the note, interest is payable
monthly and the note is due November 1, 2016.
Item 2.
Management's Discussion and Analysis
of Financial Condition and Results of Operations.
Forward-Looking Statements
The information in
this report contains forward-looking statements. All statements other than statements of historical fact made in this report are
forward looking. In particular, the statements herein regarding industry prospects and future results of operations or financial
position are forward-looking statements. These forward-looking statements can be identified by the use of words such as “believes,”
“estimates,” “could,” “possibly,” “probably,” anticipates,” “projects,”
“expects,” “may,” “will,” or “should” or other variations or similar words. No
assurances can be given that the future results anticipated by the forward-looking statements will be achieved. Forward-looking
statements reflect management’s current expectations and are inherently uncertain. Our actual results may differ significantly
from management’s expectations.
The following discussion
and analysis should be read in conjunction with our financial statements, included herewith. This discussion should not be construed
to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will
necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment
of our management.
Plan of Operation
Background:
3DIcon Corporation
was incorporated on August 11, 1995, under the laws of the State of Oklahoma as First Keating Corporation. Our articles of incorporation
were amended August 1, 2003 to change the name to 3DIcon Corporation. The initial focus of First Keating Corporation was to market
and distribute books written by its founder, Martin Keating. During 2001, First Keating Corporation began to focus on the development
of 360-degree holographic technology. The effective date of this transition was January 1, 2001. We accounted for this transition
as reorganization and accordingly, restated its capital accounts as of January 1, 2001. At the inception on January 1, 2001, our
primary activity was the raising of capital in order to pursue its goal of becoming a significant participant in the formation
and commercialization of interactive, optical holography for the communications and entertainment industries.
In April 2004, we engaged
the University of Oklahoma (the “University” or “OU”) to conduct a pilot study to determine the opportunity
and feasibility for the creation of volumetric three dimensional display systems.
On July 15, 2005, we
entered into a Sponsored Research Agreement (“SRA”) with the University, which expired on January 14, 2007. Under this
agreement, the University conducted a research project entitled "Investigation of 3-Dimensional Display Technologies".
On February 23, 2007,
we entered into an SRA with the University, which expired on March 31, 2010. Under this agreement, the University conducted a research
project entitled "3-Dimensional Display Development".
In the fourth quarter
of 2007 we announced the release of our first product, "Pixel Precision". On February 12, 2009, version 2.0 of Pixel
Precision was released to expand capabilities and provide new compatibility with Texas Instrument's newly released DLP® Discovery
4000 kits. This is a companion software application to the DMD Discovery line of products manufactured by Texas Instruments®.
Further development of this product was ended in 2015.
In July 2013, the Company
was awarded a two year grant from OCAST. This was the second $300,000 grant received from OCAST. The first grant was completed
in August 2012. This matching grant was for a total of $300,000 and commenced September 1, 2013. The Company received $5,122 in
funding during the three-month period ended March 31, 2015. The funds were being used to support the development of the Company’s
first Product Platform, which will be the basis for a family of products based on the Company’s CSpace® volumetric 3D
display technology.
The grant was cancelled
in March 2015 upon the resignation of Dr. Hakki Refai, the principal investigator under the grant.
Overview of Business
3DIcon is a small public
company that is further developing a patented volumetric 3D display technology that was developed by and with the University under
an SRA. The development to date has resulted in multiple new technologies, two working laboratory prototypes (Lab Proto 1 and Lab
Proto 2), and eight provisional patents; five of the eight provisional patents have been combined and converted to five utility
patents. Under the SRA, the Company has obtained the exclusive worldwide marketing rights to these 3D display technologies.
On May 26, 2009, the
United States Patent and Trademark Office ("USPTO") approved the patent called "Volumetric Liquid Crystal Display"
for rendering a three-dimensional image and converted it to US patent No. 7,537,345. On December 28, 2010, USPTO approved the patent
called “Light Surface Display for Rendering a Three-Dimensional Image,” and issued the United States Patent No. 7,858,913. On
August 21, 2012, the USPTO approved a continuation patent called “3D Volumetric Display” and issued the US Patent No.
8,247,755. These patents describe the foundation of what we are calling our CSpace® technology (“CSpace”).
Volumetric
The Company plans to
commercialize the CSpace volumetric 3D technology through a combination of government funded research and development contracts,
joint development agreements with industry partners and technology licensing agreements with companies like Raytheon, Boeing, Lockheed
Martin, Siemens, and General Electric for high value applications in military planning, cyber data analysis, battlespace visualization,
oil and gas exploration and medical imaging. Although we do not have any definitive agreements in place that provide for such funding,
we believe that the Federal Government would be interested in entering into funded arrangements based on past and existing discussions
our management have had with Federal Government Program Managers. Likewise, we believe that Industry would be interested in entering
into joint development agreements that could ultimately lead to licensing agreements. For example, Raytheon, Boeing and Schott
Defense have provided letters of support for government grants that we have applied for, indicating their interest in working with
us on the specific project if the grant were to be awarded. We have no formal agreements or commitments from Boeing or Raytheon
beyond these initial discussions. We have had similar interactions with a number of companies, such as Lockheed, Honeywell, General
Electric, Florida Institute of Human and Machine Cognition (IHMC), Cleveland Clinic, ShuffleMaster, etc. regarding our CSpace technology.
The above commercialization
plan depends on our ability to convince potential customers (Government and Industry) that products based on our technology will
meet their requirements and that the technical risk in developing products based on our technology will be acceptable to these
potential customers. We are targeting high value applications that typically require products to be customized to the customer’s
application. Since we understand the capabilities and limitations of CSpace better than potential customers, it is not unusual
for this type of customer to ask the technology developer (in this case 3DIcon) to do most or part of the product development for
or with the customer in exchange for funding by the customer. In 2016, we plan to continue to solicit the Federal Government and
Industry to enter into customer-funded development contracts to develop our technology for or with those customers. Our goal is
to generate sufficient funding from such arrangements that would meet or exceed the incremental costs of developing product prototypes
for or with customers. If we are successful in completing the initial product prototypes on a timely basis, it is possible that
the Company could generate licensing revenues from our CSpace technology beginning in the fourth quarter of 2017. The Company believes
that it has an experienced display industry and management team with a proven track record of successfully commercializing multiple
display technologies to move our CSpace technology strategy forward.
In March of 2012, the
Company implemented a new evolutionary, step-by-step commercialization strategy for the CSpace volumetric display technology. Under
this strategy we are developing multiple staged prototypes with successively higher performance (brightness, resolution, and image
size). Lab Proto 2 is a working prototype with significant improvements over Lab Proto 1 and was completed in October 2012. Our
technical team increased the image size of Lab Proto 2 by a factor of eight (8x) and the brightness of the image by a factor of
five (5x). Taken together with the 50 times higher brightness already achieved, Lab Proto 2 is 250 times (250x) brighter than Lab
Proto 1. Because of the larger image size and the much higher brightness, we achieved much higher effective resolution
as well. Lab Proto 3, while not complete, is already 80 times brighter than Lab Proto 2 and more than 2,000 times brighter
than Lab Proto 1. Most of the engineering work (optics, electronics and software) is complete, and the focus is now on the
image space materials.
The goals for Lab Proto
3 are to develop a lower cost and more scalable image chamber material (specialty glass), to enhance imagine brightness by ten
(10x) by utilizing a new scanning system, and to use that new material to construct an even larger image chamber than was demonstrated
for Lab Proto 2. Part of our Joint Development Agreement (“JDA”) with Schott Defense (“Schott”) and
our efforts to secure federal funding are aimed at accelerating the process of securing a scalable material for CSpace’s
image space.
Delays have been incurred
in the efforts to seek the best possible solution to the material required for the image space. Our federal funding strategy
and JDA with Schott are specifically targeted at securing this material, though they have failed to provide the necessary capital
to date.
We believe that Lab
Proto 3 will enable the Company to credibly engage with potential customers and secure customer funded development contracts to
develop even larger and higher resolution product prototypes. If we are successful in securing customer funded development contracts,
we anticipate the development of various product prototypes, the first of which we have been calling the Trade Show Prototype.
It is likely that in exchange for funding of the TradeShow Prototype, our initial customer will require an exclusive license to
the technology in a particular field of use (e.g. medical imaging). The Company believes that any such exclusive license will be
based on a set period of time during product and/or market development and based on performance thereafter. Failure by the customer
to meet agreed upon performance criteria would most likely result in the license becoming non-exclusive. Any such exclusive license
agreement would preclude the Company from working with other customers in that field of use during the period of the exclusive
license. The Company does not believe that this strategy for funding the Tradeshow Prototype will significantly impact the revenue
potential of the technology given the number of potential applications (fields of use). If successfully developed, the Trade Show
Prototype will be fully packaged and portable so that it can be used
for trade shows and on-site customer demonstrations. We believe that the Trade Show Prototype will enable the Company to market
and secure licensing agreements with large government contractors and large medical or industrial products companies.
Federal Funding Strategy
As funding has increased
for the 3D field, the Company has implemented a federal funding strategy to augment its other capital raising efforts. In
December 2013, the Company secured the services of Doug Freitag, an expert in identifying and obtaining government grants of the
type we are seeking. The initial targets for this strategy included: the Obama Administration’s multi-agency priorities of
advanced manufacturing and information technology (e.g., Big Data Research and Development Initiative with over $200 million annually);
the Department of Defense’s priorities to reduce the cost of developing, testing, and manufacturing new weapon systems, enhance
training and operation of autonomous systems and accelerate data-to-decisions; and Federal Aviation Administration’s on-going
priority to enhance air traffic control systems. As a result of feedback from various Federal Government Program Managers, the
strategy has changed and now places increased emphasis on a growing need for new technologies to visualize cyber data, military
planning, medical imaging data, data collected when screening for contraband and validation of 3D engineering designs prior to
manufacturing by 3D printing. The strategy also places greater emphasis on Small Business Innovation Research Grants where funding
continues to grow, competition is limited to other small businesses, 3DIcon can more easily be the project leader, and the cycle
for awards from the date of submission can be much faster. Larger contracts will still be considered but include other partners
and may require one of more partners to lead the projects if awarded. A pre-proposal titled “Glasses-Free 3D Volumetric Display
for to Enhance Mission Analysis” was submitted to the Defense Intelligence Agency on November 26, 2014. A proposal titled
“3D Volumetric Display of Neurological Data Provided by MRI Imaging” was submitted to the National institute of Health
on December 5, 2014 and is under review. A proposal titled “Transforming Cyber Data into Human-Centered 3D Visualizations”
was submitted to the Air Force on February 25, 2015. A pre-proposal titled “Glasses-Free 3D Volumetric Visualization of Critical
Data to Enhance Decision Making” was submitted to the DOD Combating Terrorism Technical Support Office on March 20, 2015.
These submissions, have failed to produce funding necessary to accelerate the development process, though the Company will continue
to pursue federal funding on a selective basis.
Joint Development Agreement with Schott
Defense
As part of our federal
funding strategy we intend to effectively compete by forming interdisciplinary teams with potential strategic partners (large and
small), academic and commercial laboratories, and systems integrators providing integrated data visualization solutions.
The first of these partnerships was reached in March 2014 when the Company signed a JDA with Schott, a federally focused subsidiary
of Schott North America. Schott is a world-class multi-billion dollar company with significant experience and success in
partnering with federal agencies for development projects. In addition, Schott is one of the world’s leaders in developing
specialty glass for many applications, including display technology. This partnership, coupled with the expertise of Doug
Freitag, should facilitate the Company’s federal funding strategy and our ability to create the unique materials required
to advance the CSpace technology. In December of 2015 Schott AG closed the development office, Schott Defense, in Washington, D.C.
It is unclear how this may impact the JDA going forward.
Commercialization Strategy & Target
Applications
The Company plans to
commercialize the CSpace volumetric 3D technology through customer funded research and development contracts and technology licensing
agreements with companies like Boeing, Lockheed Martin, Siemens, and General Electric for high value applications like air traffic
control, design visualization, and medical imaging. The Company plans to develop products for contract engineering and with joint
development customers. At this time the Company does not have any commercialized products and does not plan to develop its own
products based on the CSpace technology due to the high value / low volume nature of the best-fit initial applications for this
technology. These applications include but are not limited to the following:
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Healthcare (diagnostics, surgical planning, training, telemedicine, biosurveillance);
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Cyber Security Data Visualization;
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Military (operational planning, training, modeling and simulation, battlespace awareness, damage assessment, autonomous piloting);
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Physical Security (passenger, luggage & cargo screening);
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Mining, Oil & Gas Exploration; or
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Meteorological and Oceanographic data visualization.
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In order to simplify
internal development efforts on CSpace, software to control the initial laboratory prototype was created and later productized
as "Pixel Precision" in 2007.
Competition
Based on our market
research and competitive analysis to date, we have concluded that the CSpace volumetric technology is unique and advantaged versus
other 3D technologies in that it can deliver both 1) a true 360 degree viewing experience for multiple simultaneous users, and
2) high image quality, high reliability and large image size. Rear projection 3D displays such as those from Zecotek, Setred, and
EuroLCDs (formerly LC Tech LightSpace) do not provide a 360 degree viewing experience and are typically limited to one or two users.
While rotating displays (also called swept volume) such as Perspecta from Optics For Hire (formerly Actuality, now licensed), Xigen
(research only), Ray Modeler from Sony (research only), Felix 3D (research only), and the USC light field display (research only)
do provide a true 360 degree viewing experience, they cannot deliver a large image, high image quality and reliability because
the entire display is rotating at high speed. Early proof of concept work done on infrared active phosphor displays by 3D Display
Laboratories proved to not be scalable due to limited phosphor persistence and vector scanning limitations. While holographic and
light field displays show promise, they do not deliver a true 360 degree viewing experience and cost effective multiple user systems
do not appear feasible due to current and expected pixel density, data bandwidth and compute power limitations.
Flat Screen 3D Strategy
Since March of 2012,
the Company has been evaluating a number of second-generation, glasses-free flat screen 3D display technologies and the companies
that are developing these technologies with the possibility of an acquisition of such a company in mind. Our goal was
to identify a new technology that could deliver significantly better performance (3D impact and image quality) than current large
area multiple-viewer glasses-free 3D flat screen displays without compromising resolution and brightness, as do current displays. The
ideal company would also have a great technical team, a broad patent portfolio, and a credible technology roadmap to ensure that
these competitive advantages are sustainable into the future. As a result of the above evaluation process, the Company previously
entered into a non-binding Letter of Intent to acquire Dimension Technologies, Inc. (DTI)
www.dti3d.com
located in Rochester,
NY. However, that Letter of Intent has since expired. Notwithstanding the expiration of the Letter of Intent, the Company’s
interest in a potential acquisition of a small 3D flat screen display company remains. There can be no assurance that the Company
will successfully raise adequate funds for such a transaction in the future.
Currently, we do not
have any agreements in place that would allow entry into the flat screen segment of the glasses-free 3D display industry or digital
signage industry and no assurances can be made that such an agreement will ever be consummated. The Company is not actively
seeking such acquisitions in the glasses-free 3D flat screen display segment at this time.
History of 3D Technology Research and
Development at the University of Oklahoma
Beginning in 2007 the
University, under an SRA with 3DIcon, undertook the development of the following three high potential 3D display technologies.
The results of each project are summarized below.
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I - Swept Volume Displays - We have successfully achieved the initial demonstration and proof of technology for this approach.
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II - Static Volumetric Displays - This technology was ranked by the University as the best for further development.
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III - Stacked Volume Displays - We also have investigated the technologies for developing innovative Stacked Volumetric Displays.
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The Swept Volume Display
is designed to be a 3D display system showing a volumetric image generated from an electronic medium. A proof-of-concept demonstration
was achieved by the researchers around September 2007. The Swept Volume Display R&D entered into the subsequent second
stage of improvement and development in 2008. Additional work on this particular approach has been deferred indefinitely because
of the success and initial superiority of the CSpace technology.
Our implementation
of a Static Volume Display (CSpace®) employs one or more Digital Micro-Mirror Devices (DMDs) and infra-red lasers to produce
3D images in advanced transparent nanotechnology materials, thereby enabling the creation, transmission and display of high resolution
3D images within a volume space, surrounded by glass or transparent screen. The initial investigation for the Static Volume system
commenced in 2007. In September 2008, we built a laboratory prototype Static Volume Display using the CSpace technology and demonstrated
the creation of true 3D images within a specified image space. New developments for eliminating the distortion occurred by the
divergence of the constructed 3D image were presented at the SPIE Europe Security & Defense conference in Berlin, Germany in
August 2009. Improvements for the optical systems utilized by CSpace with the latest achieved resolution were published in October
2009 in IEEE/OSA Journal of Display Technology titled "Static Volumetric Three-Dimensional Display" and can be found
for a moderate fee at
http://www.opticsinfobase.org
. On February 15, 2010, at the SPIE Medical Imaging conference, we presented
the latest software developments that allow reading Digital Imaging and Communication In Medicine ("DICOM") formats whether
scanned by ultrasound devices, magnetic resonance imaging ("MRI"), or computed tomography ("CT") scanners.
With this new software architecture, Static Volume 3D displays based on the CSpace technology would have the capability of displaying
medical images.
On April 14, 2010, at the OSA Digital Holography
and Three-Dimensional Imaging conference in Miami, FL, we presented an increase in brightness of the constructed 3D images. On
September 23, 2010, at the SPIE Europe Security & Defense conference in Toulouse, France, we presented new implementations
to reduce flicker of the 3D Images constructed by CSpace display. In November 2010, we published a new method of rendering
3D Images using a rotational-slicing technique at the Journal of the Society for Information Display and can be found for a moderate
fee at
http://onlinelibrary.wiley.com/doi/10.1889/JSID18.11.873/abstract
. In December 2010, we published the utilization
of new materials for CSpace image space at the Journal of the Society for Information Display and can be found for a moderate fee
at
http://onlinelibrary.wiley.com/doi/10.1889/JSID18.12.1065/abstract
. In April 2011, New Developments That Allow CSpace
To Perfectly Fit Applications Such As Air Traffic Control was published in the IEEE/OSA Journal of Display Technology and can be
found for a moderate fee at
http://www.opticsinfobase.org/jdt/abstract.cfm?uri=jdt-7-4-186
. On April 25, 2011, we presented
a new paper called “Multi-layer overlay display,” at the SPIE Defense & Security Conference in Orlando, FL. On
May 17, 2013, we presented a new paper called ”CSpace High-Resolution Volumetric 3D Display,” at the SPIE Defense &
Security in Baltimore, Maryland. On September 26, 2014 we were interviewed for an article on medical imaging by Medical Device
Daily and can be found at
http://www.medicaldevicedaily.com/servlet/com.accumedia.web.Dispatcher?next=mdd_currentIssue&issueId=23719&prodID=4&month=09&year=2014
.
On December 18, 2014, we co-authored a new publication called “Scalable Upconversion Medium for Static Volumetric Display”
in the Journal of Display Technology and can be found for a moderate fee at
http://ieeexplore.ieee.org/xpl/articleDetails.jsp?reload=true&arnumber=6987226
.
On March 1, 2015 we published an overview on the applications for 3D Volumetric Displays in NASA Tech Briefs and can be found at
http://www.techbriefs.com/component/content/article/27-ntb/features/application-briefs/21710
. On February 27, 2015 we were
interviewed for a Q/A article on 3D imaging by Medical Design Technology that can be found at
http://www.mdtmag.com/blogs/2015/02/true-3d-imagesglasses-free
.
On March 24, 2015 we made a presentation called “Glasses-Free 3D Volumetric Display for Enhanced Decision Making” at
the 2015 National Defense Industry Association Science & Engineering Technology Division Conference.
Regarding our continued
efforts to improve the performance of the CSpace technology, we completed our second-generation prototype (Lab Proto 2) in October
2012. Our goals for Lab Proto 2 were to first improve image brightness, and then to improve resolution (increase the number of
voxels or 3D pixels), and lastly to increase the size of the image. The image generated by Lab Proto 2 is approximately 250 times
(250x) brighter than our first generation prototype and can now be viewed in normal room lighting. As a result of the increased
brightness, resolution has also been improved. The estimated resolution of the second-generation prototype is approximately five
times (5x) greater than the first generation prototype. The image size of Lab Proto 2 is approximately 8 times (8x) larger than
our first generation prototype. We continue to develop a third-generation prototype (Lab Proto 3) with a larger image space, which
we believe will enable the Company to credibly engage with potential customers and secure customer funded development contracts
to develop even larger and higher resolution product prototypes, eventually leading to a trade show prototype that will be portable
and package for display at trade shows or on-site customer demonstrations.
University of Oklahoma - Sponsored Research
Agreement History
On December 1, 2010,
the Company entered into an agreement (the "Agreement") with the University pursuant to which the University agreed to
convert all sums due to it from the Company in connection with its SRA with the Company, which as of December 1, 2010 amounted
to approximately $485,000, into an aggregate of 1,685,714 shares of the Company's common stock (the "Shares"). As a result
of the debt conversion, the University became the holder of approximately 8% of the outstanding common stock of the Company. Pursuant
to the Agreement, the Shares were subject to a put option allowing the University to require the Company to purchase certain of
the Shares upon the occurrence of certain events. In addition, the Shares were subject to a call option allowing the Company to
require the University to sell to the Company the Shares then held by the University in accordance with the terms of the Agreement.
The put options and the call options expired on November 30, 2014 and the Shares are no longer subject to such options.
The Agreement also
amended the existing agreements between the Company and the University such that all intellectual property, including all inventions
and or discoveries, patentable or un-patentable, developed before July 28, 2008 by the University under the SRA is owned by the
University. All intellectual property, including all inventions and/or discoveries, patentable or un-patentable, developed jointly
by the Company and the University at any time is jointly owned by the Company and the University. Finally, all intellectual property
developed by the Company after July 28, 2008, including all inventions and or discoveries, patentable or un-patentable, is owned
by the Company.
Intellectual Property History, Status
& Rights
On May 26, 2009, the
United States Patent and Trademark Office (“USPTO”) approved the pending patent called "Volumetric Liquid Crystal
Display" for rendering a three-dimensional image and converted it to US patent No. 7,537,345. On July 16, 2013, USPTO approved
the pending patent called “Computer System with Digital Micromirror Device,” and issued US patent No. 8,487,865.
CSpace Patents are
as follow: On December 28, 2010, USPTO approved the pending patent called “Light Surface Display for Rendering a Three-Dimensional
Image,” and issued the United States Patent No. 7,858,913. On August 21, 2012, the USPTO approved a continuation
patent called “3D Volumetric Display” and issued the US Patent No. 8,247,755. On December 13, 2011, USPTO approved
a continuation patent called “3D Light Surface Display,” and issued the US Patent No. 8,075,139. On July 31, 2013,
3DIcon filed provisional patent called “Ultra High-Resolution Volumetric Three-Dimensional Display,” (US patent application
serial No. 61859145).
Through a SRA with
the University, we have obtained the exclusive worldwide marketing rights to certain 3D display technologies under development
by the University. The development to date has resulted in the University filing eight provisional patents; five of the eight provisional
patents have been combined and converted to five utility US patents, one pending European patent and one pending Japanese patent.
Key Patents Exclusively Licensed to 3DIcon from OU:
Patents Granted
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“3D Volumetric Display” - 8,247,755, August 21, 2012
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“3DLight Surface Display” - 8,075,139, December 13, 2011
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“Light Surface Display for Rendering a Three-Dimensional Image” - 7,858,913, December 28, 2010
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“Volumetric Liquid Crystal Display” - 7,537,345, May 26, 2009
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“Computer System with Digital Micromirror Device” - 8,487,865, July 16, 2013
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International Patents Granted
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“Light Surface Display for Rendering a Three-Dimensional Image” - Japanese Patent Number 5,594,718, August 15, 2014
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International Patents Pending
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“Light Surface Display for Rendering a Three-Dimensional Image” - European Application Number EP07755984, Filed April 25, 2007
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“Ultra High Resolution Three-Dimensional Display” - July 26, 2013
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“Holoform Projection Display” - March 12, 2013
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RESULTS OF OPERATIONS FOR THE THREE
MONTHS ENDED MARCH 31, 2016 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2015
Revenue
The Company received
$-0- and $5,122 from the OCAST grant for the three months March 31, 2016 and 2015, respectively. The OCAST grant was cancelled
in March 2015 upon the resignation of the principal investigator.
Research and Development Expenses
The research and development
expenses were $2,625 for the three months ended March 31, 2016, as compared to $42,909 for the three months ended March 31, 2015. The
decrease was a result of the decrease in cost from the resignation of Dr. Hakki Refai and the related decrease in activity.
General and Administrative Expenses
Our general and administrative
expenses were $219,011 for the three months ended March 31, 2016, as compared to $258,846 for the three months ended March 31,
2015. The decrease is due primarily to a decrease of $11,000 of legal fees incurred in 2016, a decrease in fees paid
to consultants of $22,000, a decrease in salaries incurred in 2016, a decrease of $5,500 in securities filing fees in 2016, a decrease
of $4,500 in marketing and public relations incurred in 2016 and an increase of $10,000 in accounting fees incurred in 2016.
Interest Expense
Interest expense for
the three months ended March 31, 2016 was $1,064 as compared to $8,624 for the three months ended March 31, 2015. The
decrease is a result of the retirement of debentures in 2016.
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 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, 2015, expressed
substantial doubt about our ability to continue as a going concern due to our status as a development stage organization with insufficient
revenues to fund development and operating expenses.
We had net cash of
$1,435 at March 31, 2016.
We had negative working
capital of $441,403 at March 31, 2016.
During the three months
ended March 31, 2016, we used $9,686 of cash for operating activities, a decrease of $153,752 or 94% compared to the three months
ended March 31, 2015. The decrease in the use of cash for operating activities was a result of the decrease in the net loss of
approximately $83,000 and the decrease in stock and options issued for service of approximately $22,500 and the change in accounts
payable and accrued liabilities in 2016 of approximately $86,000.
Cash used in investing
activities during the three months ended March 31, 2016 and 2015 was $-0-.
Cash provided by financing
activities during the three months ended March 31, 2016 was $-0-, a decrease of $131,700 or 100% compared to the three months ended
March 31, 2015. The decrease was the result of a decrease in funding under the terms of the convertible debentures from
Golden State and the absence of new debentures issued in 2016.
We expect to fund the
ongoing operations through the existing financing in place (see below); through raising additional funds as permitted by the terms
of Golden State financing as well as reducing our monthly expenses.
Our ability to fund
the operations of the Company is highly dependent on the underlying stock price of the Company.
4.75% Convertible Debenture
On November 3, 2006,
the Company issued to Golden State a 4.75% convertible debenture in a principal amount of $100,000, due December 2016 as a result
of a maturity extension agreement received by the Company in March 2015, and warrants to buy 25,571 shares of the common stock
at an exercise price of $381.50 per share. During the three months ended March 31, 2016, Golden State did not convert any of the
$100,000 debenture into shares of common stock or exercise warrants to purchase shares of common stock.
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 extended to June 30, 2016. The Directors may elect to convert all
or any portion of the outstanding principal amount of the debentures at an exercise price of $0.01 per share. Provided that the
debentures are paid in full on or before the maturity date, no interest shall accrue on the unpaid balance of the principal
amount. In the event that the debentures are not paid in full on or before the maturity date, interest shall accrue on the unpaid
outstanding balance of the principal amount of the debentures from June 26, 2013, until paid, at the fixed rate of ten percent
(10%) per annum. On March 24, 2016, the Company issued to Mr. Keen and Mr. Keating 1,193,582 and 19,266 shares of its newly designated
Series B Preferred, respectively, in accordance with Securities Purchase Agreements dated December 11, 2015, pursuant to which,
as a result of the issuance of the Series B Preferred, all amounts owed under these convertible debenture are deemed satisfied,
exchanged and converted.
Newton, O'Connor, Turner & Ketchum
10% Convertible Debenture
On December 20, 2012,
the Company issued to Newton, O'Connor, Turner & Ketchum (“NOTK”) a 10% convertible debenture in a principal amount
of $29,007, initially due September 30, 2013 and extended to June 30, 2016. NOTK may elect to convert all or any portion
of the outstanding principal amount of the debenture at an exercise price of $0.02534 per share. The Company was indebted to NOTK
for legal services performed for the Company and reimbursement of expenses in rendition of those services for the period ended
December 31, 2012. The debenture was issued in settlement of the indebtedness. On March 24, 2016, the Company issued to NOTK
50,149 shares of its newly designated Series B Preferred in accordance with a Securities Purchase Agreement dated December 11,
2015, pursuant to which, as a result of the issuance of the Series B Preferred, all amounts owed under the 10% convertible debenture
are deemed satisfied, exchanged and converted.
10% Convertible Bridge Note to Director
On September 11, 2012,
the Company issued and sold to Victor F. Keen, a Director and an accredited investor a Convertible Bridge Note (the “Keen
Bridge Note”) in the principal amount of $60,000. The sale of the Keen Bridge Note 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 did not carry interest. However, in the event the Keen Bridge Note is not paid on
maturity, all past due amounts will accrue interest at 15% per annum. Upon maturity of the Keen Bridge Note, the holders of the
Keen Bridge Note may elect to convert all or any portion of the outstanding principal amount of the Keen Bridge Note into (i) securities
sold pursuant to an effective registration statement at the applicable offering price; or (ii) shares of common stock at a conversion
price equal to the lesser of 100% of the Volume Weighted Average Price (VWAP), as reported for the 5 trading days prior to (a)
the date of issuance of the Keen Bridge Note, (b) the maturity date of the Keen Bridge Note, or (c) the first closing date of the
securities sold pursuant an effective registration statement.
On March 8, 2016, the
Keen Bridge Note was extended to June 30, 2016.
On March 24, 2016,
the Company issued to Mr. Keen 1,193,582 shares of its newly designated Series B Preferred in accordance with Securities Purchase
Agreements dated December 11, 2015, pursuant to which, as a result of the issuance of the Series B Preferred, all amounts owed
under this convertible debenture were deemed satisfied, exchanged and converted.
Series A Convertible Preferred Stock
January 23, 2014, the
Company sold to Victor Keen, the Company’s Chief Executive Officer and a member of the Company’s Board of Directors,
190,000 Units for a purchase price of $190,000, as part of the Private Placement (as defined therein) disclosed in the Company’s
Current Report on Form 8-K filed with the Securities and Exchange Commission on December 13, 2013. Pursuant to such Private Placement,
the Company received aggregate proceeds equal to $385,000.
Advancements by Mr. Victor Keen
Mr. Victor F. Keen,
Chief Executive Officer of the Company, has entered into several advancement transactions, whereby Mr. Keen provided funds to the
Company. Specifically, Mr. Keen advanced the Company $145,000 in October 2015 and $103,000 in July, August, and September 2015.
In addition, Mr. Keen has previously advanced the Company $34,000 in November 2014. The total amount of these advancements by Mr.
Keen to the Company, as of December 31, 2015 was $282,000 and was included in accounts payable. The Company was also indebted
to Mr. Keen for his accrued salary from January 1, 2014 through December 31, 2015 totaling $300,000 and was included in accrued
salaries. Additionally, Mr. Keen held two convertible debentures totaling $75,000 which were included in debentures payable and
discussed above. On March 24, 2016, the Company issued to Mr. Keen 1,193,582 shares of its newly designated Series B
Preferred in accordance with a Securities Purchase Agreement dated December 11, 2015, pursuant to which, as a result of the issuance
of the Series B Preferred, all amounts advanced to the Company were deemed satisfied, exchanged and converted.
Series B Convertible Preferred Stock
On March 24, 2016,
the Company issued an aggregate of 1,592,602 shares of the Company’s Series B Convertible Preferred Stock (the “Series
B Preferred”) in connection with Securities Purchase Agreements (the “Securities Purchase Agreements”) dated
December 11, 2015. Pursuant the Securities Purchase Agreements, the Company had agreed to issue, and on March 24, 2016 issued,
to certain officers, directors, consultants and service providers (collectively, “Recipients”) and the Recipients had
agreed to accept, and on March 24, 2016 received, shares of Series B Preferred in consideration for the satisfaction, in lieu of
cash payment, of an aggregate of $1,105,403 owed by the Company to the Recipients. Series B Preferred may be converted in whole
or in part, from time to time, into One Thousand Nine Hundred Fourteen (1,914) shares of Common Stock. Among the Recipients were
(i) Victor F. Keen, the Company’s Chief Executive Officer, who received 1,193,582 shares of Series B Preferred in satisfaction
of $685,355 owed to him under certain notes, in connection with certain advances he provided to the Company and for services he
provided to the Company; (ii) Ronald W. Robinson, the Company’s Chief Financial Officer, who received 85,771 shares of Series
B Preferred in satisfaction of $90,291 owed to him for services he provided to the Company; (iii) Martin Keating, a Director of
the Company, who received 19,266 shares of Series B Preferred in satisfaction of $20,2812 owed to him under certain notes and for
services he provided to the Company; and (iv) Newton, O'Connor, Turner & Ketchum, PC, a law firm of which John O’Connor,
a Director of the Company, is a partner, that received 50,149 shares of Series B Preferred in satisfaction of $52,791 owed to it
for services provided to the Company.
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
Loan Agreements
On April, 16, 2016 the Company entered into
a Loan Agreement (the “Agreement”) whereby the lender agreed to provide the Company a loan facility of up to $100,000.
Under the terms of the Agreement the Company shall pay interest on the outstanding unpaid balance at the rate of 1.167% per month.
The interest is due quarterly and the principal is due June 29, 2018. The lender has advanced $50,000 on the loan.
On April 26, 2016 the Company entered
into a 9% promissory note with Golden State in the amount of $40,000. Under the terms of the note interest is payable monthly
and the note is due November 1, 2016.