Annual report pursuant to Section 13 and 15(d)

Note 2 - Share Exchange Agreement

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Note 2 - Share Exchange Agreement
12 Months Ended
Dec. 31, 2017
Notes to Financial Statements  
Share Exchange Agreement Disclosure [Text Block]
Note
2
– Share Exchange Agreement
 
On
May 31, 2016,
the Group entered into a Share Exchange Agreement with Coretec and its Members, which Members held all outstanding membership interests in Coretec. Pursuant to the Share Exchange Agreement, the Members agreed to sell all their membership interests in Coretec to the Group in exchange for the Group’s issuance of an aggregate
4,760,872
shares of the Group’s Series B Convertible Preferred Stock to the Members.
 
Upon the
September 30, 2016
closing of the Share Exchange Agreement, considering any preferred stock on an “as converted” basis, approximately
65%
of the Group’s issued and outstanding common stock was owned by the former Coretec Members. The remaining
35%
was held by the Group’s prior stockholders. Upon the closing of the Share Exchange Agreement,
two
of the former Group’s directors resigned and
three
new directors associated with Coretec were nominated and elected, giving control of the board of directors to the former Coretec Members. The
65%
holders of the Group’s common stock on an as converted basis were unable to sell that stock for a period of
one
year under the terms of a lock-up agreement reached between the parties. Victor Keen, the largest shareholder of the Group prior to the reverse acquisition, was also a participant in the lock-up agreement. 
 
Consummation of the Exchange was subject to customary conditions, including without limitation, (i) Coretec
’s delivery to the Group a representation letter attesting to each of the Members’ or their designees’ status as an “accredited investor;” (ii) Coretec’s delivery to the Group a letter agreement executed by each of the Members or their designees, if any, agreeing to automatically convert the shares of Series B Preferred issued to them pursuant to the Share Exchange Agreement upon the occurrence of certain events; (iii) Coretec’s delivery to the Group a lock up agreement executed by each of the Members or their designees, if any, in the form attached to the Share Exchange Agreement; (iv) Coretec’s delivery to the Group a license agreement between Coretec and North Dakota State University allowing Coretec to license certain intellectual property concerning cyclohexasilane or other silicon-based materials; (v) the delivery to the Group of the required Coretec audited and unaudited financial statements; and (vi) delivery by the Group and Coretec all required consents to consummate all transactions contemplated by the Share Exchange Agreement.
 
The
Company engaged a law firm to prepare the necessary documents for the Share Exchange Agreement, including resolutions of the entities authorizing the closing, preparation and filing of Form
14F,
and filing of the Form
8K.
As of
December 31, 2016,
the law firm had completed the engagement and the Company has expensed
$100,000,
$75,000
of which was recognized in the financial statements of
3DIcon
prior to the
September 30, 2016
Share Exchange Agreement.
 
The
Company has a complex equity structure which includes
two
series of preferred stock, common stock, warrants and options.  The acquisition date fair value of the consideration transferred was calculated as follows:
 
Company enterprise value
  $
1,378,026
 
         
Less: interest bearing debt
   
(493,958
)
         
Company equity value
  $
884,068
 
 
The fair value of the assets acquired and liabilities assumed at the closing date were based on management estimates, except for the patents which were valued by an independent valuation expert. Based upon the preliminary purchase price allocation, the following table summarizes the estimated provisional fair value of the assets acquired and liabilities assumed at the date of acquisition:
 
Cash
  $
75,687
 
Prepaid expenses
   
46,513
 
Due from related party
   
52,019
 
Patents
   
1,400,000
 
Deposits
   
2,315
 
Total assets acquired at fair value
   
1,576,534
 
         
Accounts payable and accrued expenses
   
364,508
 
Notes payable
   
89,465
 
Notes payable - related party
   
404,493
 
Total liabilities assumed
   
858,466
 
Total identifiable net assets
   
718,068
 
Goodwill
   
166,000
 
Total preliminary purchase consideration
  $
884,068
 
 
The purchase price exceeded the fair value of the net assets acquired by approximately
$166,000,
which was recorded as goodwill.
 
In connection with the reverse acquisition, the
Company incurred approximately
$110,000
for related transaction costs for the year ended
December 31, 2016,
which are included in general and administrative expenses in the accompanying consolidated statements of operations.
 
The following unaudited pro forma results for the year ended
December 31, 2016
summarizes the consolidated results of operations of the
Company, assuming the reverse acquisition had occurred on
January 1, 2016
and after giving effect to the reverse acquisition adjustments, including amortization of tangible and intangible assets acquired in the transaction:
 
   
For
the Year Ended
December 31, 2016
 
Net revenues
  $
-
 
Net loss
  $
(1,464,491
)