Just reading the relatively small amount of information available for 3D Eye Solutions, Inc. (PINKSHEETS: TDEY) is enough to make any investor worry yet shares in the company, which provides 3D content conversion services and hardware integration for the 3D stereo and auto-stereo media industry have spiked on Tuesday, jumping to an astounding 0.0449 after closing last Friday at a paltry 0.0080. The massive leap can be attributed to a promotional campaign that has sent trading volume past the 4 million mark less than two hours into the day but already shares have pulled back and are currently moving around the 0.020 level, still a nice gain from last Friday but it should be an indicator as to where these shares are headed.
Aside from generating no total income during their third quarter ended September 30, 2011, this according to their most recent financial filing, TDEY appears to be in a chaotic state. A split with their founder and former CEO Michael Gibilisco back in March remains an issue that defines how the company moves forward. While Gibilisco is gone TDEY still owes the former CEO a considerable amount of money. Making matters worse for TDEY is the fact that Gibilisco is the owner of the company’s trademarks and technology patents.
The two sides managed to sign a ten-year license agreement back in March which will allow them to market and sell the 3D conversion technology yet, as noted in a recently filed report, TDEY “faces a potential conflict of interest with its former CEO and founder.” A “potential conflict of interest” sounds optimistic given the situation.
Problems with Gibilisco aren’t the only issues that TDEY is dealing with, back in April the New York Islanders Hockey Club filed suit for $30,000 pursuant to a contract signed to place 3D Eye Solutions 3D screens in the Nassau Coliseum. Of course TDEY believes the suit is “baseless and intends to defend the allegations” while counter-suing the Islanders for $95,000.
Additionally, one of TDEY’s largest shareholders and “a major contributor to 3D Eye Solutions in terms of infrastructure and management,” Big Apple Consulting USA, Inc., are part of a complaint filed by the SEC alleging “possible violations of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, all in connection with the filing of false press releases and other activities of a former client of Big Apple, starting in November 2005 through March 19, 2007.”
No surprise to anybody Big Apple has said the allegations are unfounded and denied any liability for the alleged violations. Nothing may come of this but it’s never a good thing for a company when the SEC is investigating a major shareholder for violations.
A split with their founder, a lawsuit and a potential problem with a major shareholder is bad enough but on top of all this TDEY has $817 in cash as of their last quarterly filing, that’s not a lot of money when you’re trying to bring a new technology to market.
TDEY has an answer for this problem; they are “currently focused on generating ad revenues and gaining additional valuable real estate for its 3D Auto-stereo signs.” Based on the fact that TDEY hasn’t issued any press releases detailing concrete deals it would be safe to say this “focus” has been slow in taking shape.
Despite these problems TDEY remains confident, informing investors that they have “found multiple gaps in the services and technology that are being currently provided for the auto-stereoscopic format. Many of the Company’s competitors are specialized in just one aspect of a complete system, or they are offering only partial integration solutions. 3D Eye Solutions will separate itself by providing full turn-key technology to a wide array of market segments.”
This has led them to better define their business model which will revolve around filling the following market niches that are currently not being satisfied: “Real-time 2D to 3D image processing; Integration of existing devices; Creating software tools for conversion (software components and plug-ins); and Integrating and converting hardware in the auto-stereoscopic market.
It should be noted that TDEY has three employees, one of which is full-time, making this business model difficult to achieve. It should also be noted, according to their filings, that TDEY’s current Chairman of the Board, Dominic Crain, is being compensated $175,000 annually. That sounds a bit excessive for a company that has no income.
There are a host of issues that could hold TDEY back while there are few, if any, advantages that they possess that would make them a risk worth taking. While the advancement of 3D technology and its growth in the media industry is obviously expanding that certainly doesn’t mean any company that claims to have a competitive advantage in niche markets is going to benefit.