Quarterly report pursuant to Section 13 or 15(d)

Share Exchange Agreement

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Share Exchange Agreement
9 Months Ended
Sep. 30, 2016
Share Exchange Agreement [Abstract]  
Share Exchange Agreement
Note 2 – Share Exchange Agreement
 
On May 31, 2016, 3DIcon 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 3DIcon in exchange for 3DIcon’s issuance of an aggregate 4,760,872 shares of 3DIcon’s Series B Convertible Preferred Stock to the Members.
 
Upon the closing of the Share Exchange Agreement on September 30, 2016 (the “Closing Date”), considering any preferred stock on an “as converted” basis, approximately 65% of 3DIcon’s issued and outstanding common stock is now owned by the former Coretec Members. The remaining 35% is held by 3DIcon’s prior stockholders. Upon the closing of the Share Exchange Agreement, two of the former 3DIcon 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 3DIcon common stock will be 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 3DIcon prior to the reverse acquisition, is 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 3DIcon a representation letter attesting to each of the Members’ or their designees’ status as an “accredited investor;” (ii) Coretec’s delivery to 3DIcon 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 3DIcon 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 3DIcon 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 3DIcon of the required Coretec audited and unaudited consolidated financial statements; and (vi) delivery by 3DIcon 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. The total fees agreed to for the entire engagement total $100,000. As of September 30, 2016, the law firm had completed approximately 75% of the engagement and the Company has expensed $75,000. The Company is obligated to fund the remaining $25,000 as the agreed upon tasks are completed. 
 
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 $12,000 and $98,000 for related transaction costs for the three and nine months ended September 30, 2016, which are included in general and administrative expenses in the accompanying consolidated condensed statements of operations.
 
The following unaudited pro forma results for the three and nine month periods ended September 30, 2016 and 2015 summarizes the consolidated results of operations of the Company, assuming the reverse acquisition had occurred on January 1, 2015 and after giving effect to the reverse acquisition adjustments, including amortization of tangible and intangible assets acquired in the transaction:
 
 
 
Three Months Ended
 
 
 
September 30, 2016
 
September 30, 2015
 
Net revenues
 
$
-
 
$
-
 
Net loss
 
$
(404,014)
 
$
(277,003)
 
 
 
 
Nine Months Ended
 
 
 
September 30, 2016
 
September 30, 2015
 
Net revenues
 
$
-
 
$
5,122
 
Net loss
 
$
(1,048,340)
 
$
(886,577)