UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

 

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2013

 

OR

 

¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

 

COMMISSION FILE NUMBER 333-143761

  

3DICON CORPORATION

(Exact Name of small business issuer as specified in its charter)

 

Oklahoma 73-1479206
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

 

6804 South Canton Avenue, Suite 150, Tulsa, Oklahoma 74136

(Address of principal executive offices) (Zip Code)

 

Issuer's Telephone Number: (918) 494-0505

 

Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x   No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x   No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer ¨ Accelerated filer ¨

Non-accelerated filer ¨ (do

not check if smaller reporting

company)

Smaller reporting company

x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨   No x

 

As of May 10, 2012, the issuer had 64,673,248 outstanding shares of Common Stock.

 

 
 

 

TABLE OF CONTENTS

 

    Page
  PART I - Financial Information  
Item 1. Financial Statements. F-1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 3
Item 3. Quantitative and Qualitative Disclosures About Market Risk. 9
Item 4. Controls and Procedures. 9
  PART II - Other Information  
Item 1. Legal Proceedings. 9
Item 1A. Risk Factors. 9
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 9
Item 3. Defaults Upon Senior Securities. 10
Item 4. (Removed and Reserved). 10
Item 5. Other Information. 10
Item 6. Exhibits. 10
SIGNATURES 11

 

 
 

 

PART I

 

Item 1.    Financial Statements.

 

INDEX TO FINANCIAL STATEMENTS

 

    Page
Balance Sheets as of March 31, 2013 (Unaudited) and December 31, 2012 (Audited)   F-2
     
Statements of Operations for the three months ended March 31, 2013 and 2012 and period from inception (January 1, 2001) to March 31, 2013 (Unaudited)   F-3
     
Statements of Changes in Stockholders' Deficiency for period from inception (January 1, 2001) to March 31, 2013 (Unaudited)   F-4
     
Statements of Cash Flows for the three  months ended March 31, 2013 and 2012 and  period from inception (January 1, 2001) to March 31, 2013 (Unaudited)   F-5
     
Notes to Financial Statements, March 31, 2013 (Unaudited)   F-6

 

F-1
 

 

3DIcon CORPORATION

(A Development Stage Company)

BALANCE SHEETS

March 31, 2013 and December 31, 2012

   March 31,   December 31, 
   2013   2012 
   (Unaudited)   (Audited) 
Assets          
Current assets:          
Cash  $47,885   $1,350 
Prepaid expenses   7,166    12,610 
Accounts receivable   0    78,428 
Total current assets   55,051    92,388 
           
Net property and equipment   2,739    4,280 
Deposits-other   2,315    2,315 
Total Assets  $60,105   $98,983 
           
Liabilities and Stockholders' Deficiency          
Current liabilities:          
Current maturities of convertible notes and debentures payable  $649,333   $660,840 
Warrant exercise advances   41,001    1 
Accounts payable   417,228    324,473 
Accrued salaries   12,883    10,958 
Accrued interest on debentures   13,821    12,246 
Total current liabilities   1,134,266    1,008,518 
           
Convertible debentures payable   72,115    73,665 
           
Long term debt   72,115    73,665 
           
Total Liabilities   1,206,381    1,082,183 
           
Common stock subject to put rights and call right, 1,685,714 shares   485,649    485,649 
           
Stockholders' deficiency:          
Common stock $.0002 par, 1,500,000,000 shares authorized;  53,744,679 and 45,934,839 shares issued and outstanding at March 31, 2013 and December 31, 2012, respectively   10,749    9,187 
Additional paid-in capital   17,266,491    17,044,786 
Deficit accumulated during development stage   (18,909,165)   (18,522,822)
Total Stockholders' Deficiency   (1,631,925)   (1,468,849)
Total Liabilities and Stockholders' Deficiency  $60,105   $98,983 

 

Presentation gives effect to the Reverse Stock Split, which occurred on April 27, 2012 (see note 5)

 

  See notes to financial statements        

  

F-2
 

 

3DIcon CORPORATION

(A Development Stage Company)

 

STATEMENTS OF OPERATIONS

 

Three months ended March 31, 2013 and 2012

From Inception (January 1, 2001) to March 31, 2013

(Unaudited)

 

   Three Months   Three Months     
   ended   ended   Inception to 
   March 31,   March 31,   March 31, 
   2013   2012   2013 
Income:               
License fee  $-   $-   $25,000 
Sales   1,500    -    42,297 
Grant income   -    52,649    281,492 
                
Total income   1,500    52,649    348,789 
                
Expenses:               
Research and development   103,604    133,481    4,781,279 
General and administrative   263,972    294,994    13,858,269 
Interest   20,267    1,881    618,406 
                
Total expenses   387,843    430,356    19,257,954 
                
Net loss  $(386,343)  $(377,707)  $(18,909,165)
                
Loss per share:               
Basic and diluted  $(0.008)  $(0.011)     
                
Weighted average shares outstanding, Basic and diluted   51,179,718    35,409,004      

 

Presentation gives effect to the Reverse Stock Split, which occurred on April 27, 2012 (see note 5)

 

 See notes to financial statements

 

F-3
 

 

3DIcon CORPORATION

(A Development Stage Company)

STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY

Period from Inception (January 1, 2001) to March 31, 2013

 

               Deficit     
               Accumulated     
   Common Stock   Additional   During the     
       Par   Paid-In   Development     
   Shares   Value   Capital   Stage   Total 
Balance, January 1, 2001 – as reorganized   27,723,750   $27,724   $193,488   $-   $221,212 
                          
Accrue compensation earned but unrecorded   -    -    -    (60,000)   (60,000)
Stock issued for services   2,681,310    2,681    185,450    -    188,131 
Stock issued for cash   728,500    729    72,121    -    72,850 
Net loss for the year   -    -    -    (259,221)   (259,221)
Balance, December 31, 2001   31,133,560    31,134    451,059    (319,221)   162,972 
                          
Accrue compensation earned but unrecorded   -    -    -    (60,000)   (60,000)
Stock issued for services   3,077,000    3,077    126,371    -    129,448 
Stock issued for cash   1,479,000    1,479    146,421    -    147,900 
Net loss for the year   -    -    -    (267,887)   (267,887)
Balance, December 31, 2002   35,689,560    35,690    723,851    (647,108    112,433 
                          
Accrue compensation earned but unrecorded   -    -    -    (90,000)   (90,000)
Stock issued for services   15,347,000    15,347    -    -    15,347 
Stock issued for cash   1,380,000    1,380    33,620    -    35,000 
Reverse split 1:10   (47,174,904)   -    -    -    - 
Par value $0.0001 to $0.0002   -    (51,369)   51,369    -    - 
Net loss for the year   -    -    -    (51,851)   (51,851)
Balance, December 31, 2003   5,241,656    1,048    808,840    (788,959)   20,929 
                          
Additional founders shares issued   25,000,000    5,000    (5,000)   -    - 
Stock issued for services   24,036,000    4,807    71,682    -    76,489 
Stock issued for cash   360,000    72    28,736    -    28,808 
Warrants issued to purchase common stock at $.025   -    -    18,900    -    18,900 
Warrants issued to purchase common stock at $.05   -    -    42,292    -    42,292 
Stock warrants exercised   2,100,000    420    60,580    -    61,000 
Net loss for the year   -    -    -    (617,875)   (617,875)
Balance, December 31, 2004   56,737,656    11,347    1,026,030    (1,406,834)   (369,457)
                          
Stock issued for services   5,850,000    1,170    25,201    -    26,371 
Stock issued to settle liabilities   5,000,000    1,000    99,000    -    100,000 
Stock issued for cash   1,100,000    220    72,080    -    72,300 
Warrants issued to purchase common stock at $.025   -    -    62,300    -    62,300 
Warrants issued to purchase common stock at $.05   -    -    140,400    -    140,400 
Stock warrants exercised   5,260,000    1,052    172,948    -    174,000 
Net loss for the year   -    -    -    (592,811)   (592,811)
Balance, December 31, 2005   73,947,656    14,789    1,597,959    (1,999,645    (386,897)
                          
Stock issued for services   4,700,000    940    205,597    -    206,537 
Debentures converted   3,000,000    600    149,400    -    150,000 
Stock issued for cash   200,000    40    16,160    -    16,200 
Warrants issued to purchase common stock   -    -    33,800    -    33,800 
Warrants converted to purchase common stock   16,489,000    3,297    565,203    -    568,500 
Net loss for the year   -    -    -    (1,469,888)   (1,469,888)
Balance, December 31, 2006   98,336,656    19,666    2,568,119    (3,469,533)   (881,748)
                          
Stock issued for services   817,727    164    155,262    -    155,426 
Stock issued for interest   767,026    153    38,198    -    38,351 
Stock based compensation   -    -    1,274,666    -    1,274,666 
Debentures converted   17,215,200    3,442    1,673,741    -    1,677,183 
Stock issued for cash   1,188,960    238    191,898    -    192,136 
Options exercised   222,707    45    (45)   -    - 
Warrants issued to purchase common stock   -    -    87,864    -    87,864 
Warrants converted to purchase common stock   8,585,956    1,717    462,203    -    463,920 
Net loss for the year   -    -    -    (3,928,996)   (3,928,996)
Balance, December 31, 2007   127,125,232    25,425    6,451,906    (7,398,529)   (921,198)
                          
Stock issued for cash   515,677    103    24,897    -    25,000 
Warrants exercised   1,347,261    269    362,425    -    362,694 
Stock based compensation   -    -    654,199    -    654,199 
Debentures converted   15,257,163    3,052    962,257    -    965,309 
Options exercised and escrowed shares   8,671,460    1,734    (1734)   -    - 
Stocks issued for service   4,598,973    920    312,880    -    313,800 
Net loss for the year   -    -    -    (3,611,550)   (3,611,550)
Balance, December 31, 2008   157,515,766    31,503    8,766,830    (11,010,079)   (2,211,746)
                          
Stock issued for cash   20,607,841    4,122    197,878    -    202,000 
Warrants exercised   35,100    7    382,583    -    382,590 
Debentures converted   77,451,141    15,490    467,514    -    483,004 
Stocks issued for service   68,506,130    13,701    524,653    -    538,354 
Stock issued for accounts payable   11,264,706    2,253    321,409    -    323,662 
Stock issued for interest   8,310,128    1,662    41,647    -    43,309 
Warrants issued for accounts payable   -    -    13,505    -    13,505 
Net loss for the year   -    -    -    (1,566,835)   (1,566,835)
Balance, December 31, 2009   343,690,812    68,738    10,716,019    (12,576,914    (1,792,157)
                          
Stock issued for cash   5,714,286    1,143    8,857    -    10,000 
Warrants exercised   47,523    9    517,991    -    518,000 
Debentures converted   255,650,977    51,130    228,061    -    279,191 
Stock issued for services   97,684,416    19,538    213,348    -    232,886 
Stock issued for liabilities   48,657,897    9,732    204,682    -    214,414 
Stock issued for interest   6,093,396    1,218    15,843    -    17,061 
Stock based compensation   -    -    418,112    -    418,112 
Net loss for the year   -    -    -    (1,523,737)   (1,523,737)
Balance, December 31, 2010   757,539,307    151,508    12,322,913    (14,100,651)   (1,626,230)
                          
Warrants and options exercised   12,308,915    2,462    754,378    -    756,840 
Debentures converted   252,267,600    50,453    653,093    -    703,546 
Stock issued for services   30,072,595    6,015    349,190    -    355,205 
Stock issued for liabilities   97,530,393    19,506    536,521    -    556,027 
Stock issued for interest   7,094,511    1,419    41,533    -    42,952 
Escrowed shares cancelled   (4,310,446)   (862)   862    -    - 
Stock based compensation   -    -    285,600    -    285,600 
Retrospective adjustment for the 1:35 reverse common stock split on April 27, 2012   (1,119,574,221)   (223,915)   223,915           
Net loss for the period   -    -    -    (2,320,469)   (2,320,469)
Balance, December 31, 2011   32,928,654    6,586    15,168,005    (16,421,120)   (1,246,529)
                          
Warrants and options exercised   2,285    1    871,051    -    871,052 
Debentures converted   9,884,674    1,976    37,803    -    39,779 
Stock issued for interest   1,076    1    2,046    -    2,047 
Stock issued for services   2,248,640    450    245,650    -    246,100 
Stock issued for liabilities   869,510    173    366,191    -    366,364 
Stock based compensation   -    -    354,040    -    354,040 
Net loss for the period   -    -    -    (2,101,702)   (2,101,702)
Balance, December 31, 2012   45,934,839    9,187    17,044,786    (18,522,822)   (1,468,849)
                          
Warrants and options exercised   443    1    168,949    -    168,950 
Debentures converted   7,809,397    1,561    52,756    -    54,317 
Net loss for the period   -    -    -    (386,343)   (386,343)
Balance March 31, 2013   53,744,679   $10,749   $17,266,491   $(18,909,165)  $(1,631,925)

 

Presentation gives effect to the Reverse Stock Split, which occurred on April 27, 2012 (see note 5)

 

 See notes to financial statements

 

F-4
 

 

3DIcon CORPORATION

(A Development Stage Company)

STATEMENTS OF CASH FLOWS

Three months ended March 31, 2013 and 2012

and Period from Inception (January 1, 2001) to March 31, 2013

(Unaudited)

 

           Inception to 
           March 31, 
   2013   2012   2013 
Cash Flows from Operating Activities               
Net loss  $(386,343)  $(377,707)  $(18,909,165)
Adjustments to reconcile net loss to net cash used in operating activities:               
Options issued for services   -    34,840    2,986,618 
Stock issued for services   -    42,100    2,484,095 
Stock issued for interest   -    -    143,719 
Book value of assets retired   -    -    6,529 
Amortization of debt issuance costs   16,260    -    265,507 
Depreciation   1,541    1,382    34,261 
Impairment of assets   -    -    292,202 
                
Change in:               
Accounts receivable   13,028    (23,816)   - 
Prepaid expenses and other assets   5,444    (16,075)   (257,881)
Accounts payable and accrued liabilities   96,255    38,116    2,605,012 
                
Net cash used in operating activities   (253,815)   (301,160)   (10,349,103)
                
Cash Flows from Investing Activities               
Purchase of office furniture and equipment   -    -    (43,529)
Net cash used in investing activities   -    -    (43,529)
                
Cash Flows from Financing Activities               
Proceeds from stock and warrant sales, exercise of warrants and warrant exercise advances   209,950    364,780    5,487,516 
Proceeds from issuance of debentures and notes   90,400    -    4,952,991 
                
Net cash provided by financing activities   300,350    364,780    10,440,507 
                
Net change in cash   46,535    63,620    47,875 
Cash, beginning of period   1,350    17,666    10 
                
Cash, end of period  $47,885   $81,286   $47,885 
                
Supplemental Disclosures               
Non-Cash Investing and Financing Activities               
Conversion of debentures to common stock (net)  $54,317   $1,663   $4,351,777 
Cash paid for interest  $2,432   $-   $306,128 
Stock issued to satisfy payables  $-   $36,764   $2,353,617 
Debenture issued to satisfy payable  $-   $-   $154,916 
Stock issued subject to put rights and call right to satisfy payables  $-   $-   $485,649 

 

See notes to financial statements

 

F-5
 

 

3DIcon CORPORATION

(A Development Stage Company)

 

NOTES TO FINANCIAL STATEMENTS

(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, 2013, and the statements of its operations for the three-months ended March 31, 2013 and 2012, and the period from inception (January 1, 2001) to March 31, 2013, and cash flows for the three-month periods ended March 31, 2013 and 2012, and the period from inception (January 1, 2001) to March 31, 2013, have been included. The results of operations for interim periods may not be indicative of the results which may be realized for the full year.

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and the disclosure of contingent assets and liabilities. Actual results could differ from the estimates and assumptions used.

 

F-6
 

 

Revenue Recognition

 

Revenues from software license fees are accounted for in accordance with Accounting Standards Codification (“ASC”) 985-605, “Software Revenue Recognition”.  The Company recognizes revenue when (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred or services have been rendered; (iii) the sales price is fixed or determinable; and (iv) collectability is reasonably assured.

 

Grant revenue is recognized when earned.

 

Recent Accounting Pronouncements

 

Based on management's assessment no new accounting standards, if adopted, would have a material impact on the accompanying financial statements.

 

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 $18,909,165 for the period from inception (January 1, 2001) to March 31, 2013, and a net loss of $386,343 and $377,707 for the three-months ended March 31, 2013 and 2012, respectively.

 

The ability of the Company to continue as a going concern during the next year depends on the successful completion of the Company's capital raising efforts to fund the development of its planned products.  The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

Management plans to fund the future operations of the Company with existing cash, grants and investor funding. Pursuant to the 4.75% Convertible Debenture due in December 2014, beginning in November 2007, 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 or until the Debenture is converted in full.  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 our current stock price, our issued and outstanding shares as of March 31, 2013 and ignoring the impact of the Beneficial Ownership Limitations, the Company may receive up to $327,000 per month in funding from Golden State as a result of warrant exercises during the three-months ended March 31, 2013, the Company received $209,950 in funding under the terms of the 4.75% Convertible Debenture (see Note 4).

 

Additionally, the Company is continuing to pursue financing through private offerings of debt or common stock.

 

Registration Statement on Form S-1

 

Pursuant to a Registration Statement on Form S-1 and the prospectus therein, filed on July 3, 2012, and amendment thereto, the Registration Statement was declared effective on February 13, 2013.

 

 The Depository Trust Company has placed a “Chill” on Deposits of the Common Shares of the Company

 

F-7
 

 

In September 2012, The Depository Trust Company (“DTC”), a subsidiary of The Depository Trust & Clearing Corporation which provides custody and electronic clearing services in our shares enabling “book-entry” changes to ownership of the Company’s common stock, suspended post-trade settlement services on the use of the DTC electronic stock transfer system for the Company’s common stock (the “DTC Chill”). As a result, the Company’s common stock is not eligible for delivery, transfer or withdrawal through the DTC system and will not be eligible until the DTC Chill is removed.  The DTC Chill affects the liquidity of the Company’s common stock and may make it difficult to purchase or sell shares in the open market because manual trading of the Company’s common stock between accounts may involve delays associated with manual stock transactions. While the Company’s management is working with DTC to take the necessary steps to remove the DTC Chill, there can be no assurance at this time that the DTC Chill will be lifted, and if lifted, how long such process will take.

 

Note 2 – Sponsored Research Agreement ("SRA") Common Stock Subject to Put Right and Call Right

 

Since April 20, 2002, the Company has entered into a number of Sponsored Research Agreements with the University of Oklahoma (“OU”) as follows:

 

Phase I: “Pilot Study to Investigate Digital Holography”, April 20, 2004. The Company paid OU $14,116.

 

Phase II: “Investigation of 3-Dimensional Display Technologies”, April 15, 2005, as amended. The Company paid OU $528,843.

 

Phase III: “3-Dimensional Display Development”. The Company made partial payment to OU by issuing 121,848 post-split equivalent shares with a market price of $290,000 on October 14, 2008 and final payment on December 1, 2010 in the amount of $525,481 of which $40,481 was in cash and 1,685,714 post-split equivalent shares of Company stock (the “Shares”). The Shares are subject to an OU ‘put’ right and a 3DIcon ‘call’ right.

 

OU “Put” Right on the Shares

 

First “put” period: December 1, 2012 to November 31, 2013. If the Shares (held plus previously sold) are valued at less than $100,000 then OU can “put” one-tenth of the Shares for $50,000 plus accrued interest retroactive to December 1, 2012 less the value of sold shares.

 

Second “put” period: December 1, 2013 to November 31, 2014. If the Shares (held & previously sold) are valued at less than $970,000 then OU can “put” the remaining Shares for $485,000 plus accrued interest retroactive to December 1, 2012 less the value of shares previously sold or redeemed during the first “put”.

 

3DIcon “Call” Right on the Shares

 

Commencing December 1, 2012, the Company shall have the right to “call” the Shares for an amount equal to $970,000 less the amount (if any) of prior Shares by OU including amounts “put” to 3DIcon.

 

The Company has presented the Shares outside of deficit in the mezzanine section of the balance sheets, as the Agreement includes a put right, which is not solely within the control of the Company.

 

The Agreement also amended the existing agreements between the Company and OU such that all intellectual property, including all inventions and or discoveries, patentable or un-patentable, developed before July 28, 2008 by OU under the SRA is owned by OU. All intellectual property, including all inventions and/or discoveries, patentable or un-patentable, developed jointly by the Company and OU at any time is jointly owned by the Company and OU. Finally, all intellectual property developed by the Company after July 28, 2008, including all inventions and or discoveries, patentable or un-patentable, is owned by the Company.  

 

F-8
 

 

Note 3 – OCAST Grant

 

The Oklahoma Center for the Advancement of Science and Technology approved the Company’s application for funding of a matching grant titled 800 Million Voxels Volumetric Display, on November 19, 2008.  The two-year matching grant, totaling $299,984, had a start date of January 1, 2009.  The Company received approval for a no cost extension request for the first year of the contract. With the new modification, the first year ended on August 31, 2010.  The award is for a maximum of $149,940 for 2009 and the remainder for 2011.  The Company earned $-0- and $52,649 from the grant during the three-month periods ended March 31, 2013 and 2012, respectively and $281,492 from inception to date.  The Company received approval for a no cost extension request for the second year of the contract and, with the new modification, the second year ended on August 31, 2012.

 

During the three-month periods ended March 31, 2013 and 2012, the Company charged operations $-0- and $4,890, respectively, pursuant to the direct costs incurred and for the use of the OU lab facilities in regard to the OCAST grant. At March 31, 2013, the Company owed the University $-0- in direct costs.

 

Note 4 – Debentures and Notes Payable

 

Debentures payable consist of the following:

 

   March 31,
2013
   December 31,
2012
 
Senior Convertible Debentures:          
           
10% Debenture due 2013  $29,007   $29,007 
4.75% Debenture due 2014   72,115    73,665 
5.0% Notes due 2013 (net of $13,406 and $6,167 OID)   157,326    168,833 
15% Bridge notes due 2013   463,000    463,000 
Total Debentures   721,448    734,505 
Less - Current Maturities   (649,333)   (660,840)
Long-term Debentures  $72,115   $73,665 

 

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, due June 30, 2013. NOTK may elect to convert all or any portion of the outstanding principal amount of the debenture at an exercise price of $0.02534 per share. The Company was indebted to NOTK for legal services performed for the Company and reimbursement of expenses in rendition of those services for the period ended December 31, 2012. The debenture was issued in settlement of the indebtedness.

 

4.75% Convertible Debenture due November 3, 2014

 

On November 3, 2006, the Company also issued to Golden State a 4.75% convertible debenture in a principal amount of $100,000, due 2014, and warrants to buy 28,571 post-split equivalent shares of the common stock at an exercise price of $381.50 per post-split share.  In connection with each conversion, Golden State is expected to simultaneously exercise a percentage of warrants equal to the percentage of the principal being converted.  During the year ended December 31, 2012, Golden State converted $7,991 of the $100,000 debenture into 9,577,906 post-split shares of common stock, exercised warrants to purchase 2,285 post-split shares of common stock at $381.50 per share based on the formula in the convertible debenture. Additionally Golden Gate advanced $789,111 against future exercises of warrants of which $805,652 was applied to the exercise of warrants leaving $1.00 of unapplied advances at December 31, 2012. During 2012, Golden State converted $1,550 of the $100,000 debenture into 5,409,397 post-split shares of common stock, exercised warrants to purchase 443 post-split shares of common stock at $381.50 per share based on the formula in the convertible debenture. Additionally Golden Gate advanced $209,950 against future exercises of warrants of which $168,950 was applied to the exercise of warrants leaving $41,001 of unapplied advances at March 31, 2013.

 

The conversion price for the 4.75% $100,000 convertible debenture is the lesser of (i) $4.00 (pre-split) 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 $0.02, 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.

 

F-9
 

 

 5% Convertible Promissory Note #1

 

On June 6, 2012, the Company issued and sold a convertible promissory note ("Note #1") in the principal amount of $275,000 to JMJ Financial (“JMJ”). Note #1 includes a $25,000 original issue discount (the “OID”) that will be prorated based on the advances actually paid to the Company. JMJ advanced $50,000 and collected $4,000 OID during 2012. During 2013, JMJ advanced an additional $48,500 on the note and collected $23,500 OID. Additionally, JMJ converted $52,767 of the note into 2,400,000 shares of common stock at $0.022 per share based on the formula in the note. In addition to the OID, Note #1 provides for a one-time interest charge of 5% to be applied to the principal sum advanced. Pursuant to the terms of Note #1, JMJ may, at its election, convert all or a part of Note #1 into shares of the Company's common stock at a conversion rate equal to the lesser of (i) $0.35 or (ii) 70% of the lowest trade price during the twenty-five trading days prior to JMJ’s election to convert. In addition, pursuant to the terms of Note #1, the Company agreed to include on the next registration statement filed by the Company with the SEC all shares issuable upon conversion of Note #1. Failure to do so will result in liquidated damages of 25% of the outstanding principal balance of Note #1. If the Company repays Note #1 on or before ninety days from the date it was issued, the interest rate will be zero percent. If the Company does not repay Note #1on or before ninety days from the date it was issued, a one-time interest charge of 5% shall be applied to the principal sum. The company did not repay Note #1within the ninety day period and $2,500 of interest has been accrued. The principal of Note #1 is due one year from the date of each of the principal amounts advanced.

 

5% Convertible Promissory Note #2

 

On August 1, 2012, the Company issued and sold a convertible promissory note #2 (“Note #2") in the principal amount of $140,000 to JMJ. Note #2 includes a $15,000 OID that will be prorated based on the advances actually paid to the Company. JMJ advanced $100,000 on Note #2 and collected $8,000 OID. In addition to the OID, Note #2 provides for a one-time interest charge of 5% to be applied to the principal sum advanced. Pursuant to the terms of Note #2, JMJ may, at its election, convert all or a part of Note #2 into shares of the Company's common stock at a conversion rate equal to the lesser of (i) $0.15 or (ii) 70% of the lowest trade price during the twenty-five trading days prior to JMJ’s election to convert. In addition the Company agreed to include on the next registration statement filed by the Company with the SEC, all shares issuable upon conversion of Note #2. Failure to do so will result in liquidated damages of 25% of the outstanding principal balance of Note #2. If the Company repays Note #2 on or before ninety days from the date it was issued, the interest rate will be zero percent. If the Company does not repay Note #2 on or before ninety days from the date it was issued, a one-time interest charge of 5% shall be applied to the principal. The Company did not repay Note #2 within the ninety day period and $5,000 of interest has been accrued. The principal of Note #2 is due one year from the date of each of the principal amounts advanced.

 

The Notes are subject to a Mandatory Registration Agreement (the “Agreement”) whereby no later than August 31, 2012, the Company agreed to file, at its own expense, an amendment to the S-1 Registration Statement the Company filed with the SEC on July 3, 2012, to include in such Registration Statement 4,750,000 shares of common stock issuable under the Notes, (Note #1 and Note #2) as set forth below. The Company will thereafter use its best efforts to cause such Registration Statement to become effective as soon as possible after such filing but in no event later than one hundred and twenty (120) days from August 1, 2012, the date of the Agreement. Failure to have the Registration Statement declared effective within 120 days of the date of the Agreement will result in a penalty/liquidated damages of $25,000. Any such penalties/liquidated damages will be added to the balance of either the Note #1 or the Note #2 at the Holder’s discretion (under the Holder’s and the Company’s expectation that those penalties/liquidated damages will tack back to the date of such Note for purposes of Rule 144).

 

The registration was not declared effective within the 120 day period as specified in the Agreement and $25,000 was added to the principal of Note #2.

 

F-10
 

 

 15% Convertible Bridge Notes

 

On August 24, 2012, August 28, 2012 and September 11, 2012, the Company issued and sold to accredited investors Convertible Bridge Notes (the “Bridge Notes”) in the aggregate principal amount of $438,000. The note sold on September 10, 2012 was purchased by Victor Keen, a director of the Company. The Notes included a $73,000 original issue discount. Accordingly, the Company received $365,000 gross proceeds from which the Company paid legal fees and placement agent fees totaling $77,700.

 

The Bridge Notes mature 90 days from their date of issuance and, other than the original issue discount, the Bridge Notes do not carry interest. However, in the event the Bridge Notes are not paid on maturity, all past due amounts will accrue interest at 15% per annum. Upon maturity of the Bridge Notes, the holders of the Bridge Notes may elect to convert all or any portion of the outstanding principal amount of the Bridge Notes into (i) the securities to be sold pursuant to the Registration Statement on Form S-1 and the prospectus therein, filed on July 3, 2012, or amendment thereto at the offering price of such offering; (ii) or shares of the Company’s 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 Bridge Notes, (b) the maturity date of the Bridge Notes, or (c) the first closing date of the securities sold pursuant to the Registration Statement.

 

In the event that the Registration Statement is not declared effective 90 days from the date of the issuance of the Bridge Notes (the “Required Effective Date”), the Company agreed to register the common stock of the Company into which the Bridge Notes are convertible. The Company agreed to bear the cost of such registration. Furthermore, if the Registration Statement is not declared effective by the Required Effective Date and the Bridge Notes are not paid in full by the Company, the Company will incur liquidated damages equal to 2% of the outstanding principal for each 30 day period after the Required Effective Date the Registration Statement is not declared effective, which amount will be increase to 3% per 30 days in the event that the Registration Statement is not declared effective within 120 days.

 

On January 26, 2013, the Company entered into two amendment agreements (the “Amendment Agreements”) with two accredited investors, the holders of certain Convertible Bridge Notes (the “Bridge Notes”) in principal amounts of $78,000 and $60,000, which Bridge Notes were issued by the Company on August 28, 2012 and September 10, 2012, respectively. Victor Keen, a director on the Company’s Board of Directors, is a holder of the $60,000 Bridge Note.

 

On or about November 26, 2012 and December 10, 2012, the Bridge Note reached their maturity dates, on which dates all past due amounts of the Bridge Notes began accruing interest at 15% per annum. Furthermore, because the shares of the Company’s common stock into which the Bridge Notes are convertible were not registered under an effective registration statement (the “Registration Statement”), the holders were entitled to liquidated damages equal to 2% of the outstanding principal for each 30 day period the Registration Statement is not declared effective after the maturity of the Bridge Notes (the “Liquidated Damages”).

 

Pursuant to the Amendments, the holders agreed to extend the maturity of the Bridge Note to April 30, 2013 and waive any and all defaults, default interest and Liquidated Damages then due to each of the holders. Upon maturity, George Widener converted the entire balance of his $78,000 Bridge Note into 2,025,974 shares of common stock. Victor Keen extended the maturity of his Bridge Note to May 31, 2013.

 

Note 5 – Common Stock and Paid-In Capital

 

Reverse Stock Split

 

The Board of Directors, subject to the approval of the shareholders of the Company, authorized an amendment to the Company's Certificate of Incorporation in order to effect a reverse split of the Company's common stock in a ratio in the range between 1 for 15 and 1 for 35, as will be selected by the Company's Board of Directors (the "Reverse Split").  On October 15, 2011, the Company held an annual meeting of stockholders, at which annual meeting the stockholders approved the Reverse Split and approved the filing of an Amended Certificate of Incorporation to effect the Reverse Split at the discretion of the Board of Directors. On April 27, 2012 the Company filed an Amended Certificate of Incorporation to effect a 1-for-35 reverse split of the Company’s common stock. The reverse stock split was announced by Financial Industry Regulatory Authority on April 26, 2012 and became effective on April 27, 2012. On April 27, 2012, the effective date, every 35 shares of the Company’s issued and outstanding common stocks were combined into one share of common stock. The Company did not issue any fractional shares in connection with the reverse stock split. Stockholders of record who otherwise would have been entitled to receive fractional shares were entitled to, upon surrender to the Company’s transfer agent of certificates representing such shares, cash in lieu thereof.

 

F-11
 

 

Warrants issued

 

 As of March 31, 2013, there are warrants outstanding to purchase 125,098 shares of common stock at a price of $3.15 per share that expire on May 22, 2014 and, warrants to purchase 96,024 shares of common stock at a price of $3.15 per share that expire on June 1, 2015. Additionally, Golden State has warrants outstanding to purchase 20,602 shares of common stock at a price of $381.50 per share which expire December 31, 2014.

 

Common stock and options issued for services and liabilities

 

During the three-month period ended March 31, 2012, shares of common stock totaling 212,504 were issued for consulting services for which the Company recognized $42,100 of expense.  Additionally, during the period ending March 31, 2012, shares totaling 91,817 were issued to consultants for previous services provided to the Company for which the accounts payable liability was reduced by $36,764. 

 

Employment Agreement - On March 19, 2012 the Company announced that Sidney Aroesty would resign as CEO and join the Board of Directors.

 

On March 13, 2012, the Company entered into a one (1) year Agreement for At-Will Employment with Assignment of Inventions (“Employment Agreement”) with Mark Willner, pursuant to which Mr. Willner began serving as the Company’s Chief Executive Officer, effective immediately. Under the terms of the Employment Agreement, Mr. Willner is entitled to an annual base salary of $180,000, and, at the discretion of the Company’s Board of Directors, performance-based bonuses and/or salary increases. Pursuant to the Employment Agreement, the Company granted Mr. Willner five-year stock options to purchase 57,143 shares at a price equal to the average price of the five day period prior to March 19, 2012 which was $0.35 (the “Strike Price”). Furthermore, since Mr. Willner remained employed by the Company at the end of each quarter ending June 30, 2012, September 30, 2012 and December 31, 2012, he received additional stock options to purchase 28,571.5 shares at the Strike Price. In addition, since the Company achieved certain quarterly business objectives, Mr. Willner received, at the end of each such quarterly period, a further grant of stock options to purchase 28,571.5 shares at the Strike Price. The estimated fair value of each of the 57,143 block of options, valued at $18,840, was determined using the Black-Scholes option pricing model and was charged to operations in March 2012, June 2012, September 2012 and December 2012. The expected dividend yield of $-0- is based on the average annual dividend yield as of the grant date. Expected volatility of 163% is based on the historical volatility of the stock since July 25, 2007, the day the Company began trading on the Over-The-Counter Bulletin Board. The risk-free interest rate of 1.87% is based on the U.S. Treasury Constant Maturity rates as of the grant date. The expected life of the option of five years is based on historical exercise behavior and expected future experience.

 

The Employment Agreement may be terminated with or without reason by either the Company or Mr. Willner and at any time, upon sixty (60) days written notice. The terms of the Employment Agreement will remain effective for one (1) year and will automatically renew, subject to the same termination rights. Upon termination, the Company will pay any base pay, bonus and benefits that have been earned and are due as of the date of the termination.

 

Employment Agreement - On March 16, 2012, the Company entered into a one (1) year Agreement for At-Will Employment with Assignment of Inventions (“Employment Agreement”) with George Melnik, pursuant to which Mr. Melnik began serving as the Company’s Senior Technical Advisor, effective immediately. Under the terms of the Employment Agreement, Mr. Melnik is entitled to an annual base salary of $144,000, and, at the discretion of the Company’s Board of Directors, performance-based bonuses and/or salary increases. Pursuant to the Employment Agreement, the Company granted Mr. Melnik five-year stock options to purchase 28,571 shares at a price equal to the average price of the five day period prior to March 16, 2012 which was $0.35 (the “Strike Price”). Furthermore, since Mr. Melnik remained employed by the Company at the end of each quarter ending June 30, 2012, September 30, 2012 and December 31, 2012, he received additional stock options to purchase 28,571 shares at the Strike Price. In addition, since the Company achieved certain quarterly business objectives, Mr. Melnik received, at the end of each such quarterly period, a further grant of stock options to purchase 28,571 shares at the Strike Price. The estimated fair value of each of the 28,571 block of options, valued at $9,420, was determined using the Black-Scholes option pricing model and was charged to operations in March 2012, June 2012, September 2012 and December 2012. The expected dividend yield of $-0- is based on the average annual dividend yield as of the grant date. Expected volatility of 163% is based on the historical volatility of the stock since July 25, 2007, the day the Company began trading on the Over-The-Counter Bulletin Board. The risk-free interest rate of 1.87% is based on the U.S. Treasury Constant Maturity rates as of the grant date. The expected life of the option of five years is based on historical exercise behavior and expected future experience.

 

F-12
 

 

The Employment Agreement may be terminated with or without reason by either the Company or Mr. Melnik and at any time, upon sixty (60) days written notice. The terms of the Employment Agreement will remain effective for one (1) year and will automatically renew, subject to the same termination rights. Upon termination, the Company will pay any base pay, bonus and benefits that have been earned and are due as of the date of the termination.

 

Employment Agreement - On January 28, 2013, the Board of Directors of the Company appointed Ronald Robinson to serve as the Company’s Chief Financial Officer. Accordingly, the Company decided not to renew its agreement with Christopher T. Dunstan pursuant to which Mr. Dunstan served as the Company’s Interim Chief Financial Officer. The Company’s appointment of Mr. Robinson and decision not to renew its agreement with Mr. Dunstan was not as a result of any disagreement between the Company and Mr. Dunstan.

 

The following summary reflects warrant and option activity for the three-month period ended March 31, 2013:

 

   Attached
Warrants
   Golden State
Warrants
   Options 
             
Outstanding December 31, 2012   221,122    21,045    3,045,989 
Granted   -    -    - 
Exercised   -    (443)   - 
Cancelled   -    -    - 
                
Outstanding March 31,2013   221,122    20,602    3,045,989 

 

Stock options are valued at the date of award, which does not precede the approval date, and compensation cost is recognized in the period the options are granted. Stock options generally become exercisable on the date of grant and expire based on the terms of each grant.

 

The estimated fair value of options for common stock granted was determined using the Black-Scholes option pricing model. The expected dividend yield is based on the average annual dividend yield as of the grant date. Expected volatility is based on the historical volatility of our stock. The risk-free interest rate is based on the U.S. Treasury Constant Maturity rates as of the grant date. The expected life of the option is based on historical exercise behavior and expected future experience.

 

Note 6 – Incentive Stock Plan

 

In January 2011, the Company established the 3DIcon Corporation 2011 Equity Incentive Stock Plan (the "2011 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 2011 EIP shall not exceed one hundred million (100,000,000) shares.  The shares are included in a registration statement filed January 14, 2011. There are currently 44,673 shares available for issuance under the 2011 EIP.

 

In April 2012, the Company established the 3DIcon Corporation 2012 Equity Incentive Plan (the "2012 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 2012 EIP shall not exceed five million (5,000,000) post-split shares.  The shares are included in a registration statement filed May 3, 2012. Post-split shares totaling 399,949 were issued from the 2012 EIP for services rendered and to satisfy accounts payable to the Company. There are currently 2,827,537 shares available for issuance under the 2012 EIP.

 

F-13
 

 

Note 7 – Office Lease

 

 The Company signed an Office Lease Agreement (the “Lease Agreement”) on April 24, 2008. The Lease Agreement commenced on June 1, 2008 and expired June 1, 2011. On March 8, 2011 the Lease Agreement was amended (amendment 1) to extend the expiration date to May 31, 2012.  On July 24, 2012 the Lease Agreement was amended (amendment 2) to extend the expiration date to July 31, 2015.   The minimum future lease payments to be paid annually under the three-year non-cancellable amended operating lease for office space are as follows:

  

2013   17,000 
2014   23,000 
2015   13,000 
      
Total  $53,000 

 

Note 8 – Related Party Transaction

 

3DIcon has engaged the law firm of Newton, O’Connor, Turner & Ketchum as its outside corporate counsel since 2005. John O’Connor, a director of 3DIcon, is the Chairman of Newton, O’Connor, Turner & Ketchum.   During the periods ended March 31, 2013 and 2012, the Company incurred legal fees to Newton, O’Connor, Turner & Ketchum in the amount of $8,203 and $1,479, respectively.

 

Note 9 – Dimension Technologies Inc. - Non-Binding Letter of Intent

 

As previously disclosed in the Company’s Current Report on Form 8-K, filed with the SEC on July 19, 2012, on July 13, 2012, 3DIcon Corporation executed a non-binding letter of intent (the “Letter of Intent”) outlining the principal terms and conditions to acquire Dimension Technologies Inc., a privately held New York corporation (“DTI”). DTI is a developer of glasses-free flat screen 3D display technologies and products that are 2D/3D switchable. Founded in 1986, DTI’s intellectual property portfolio includes 10 patents that have been granted in multiple countries. The Letter of Intent is not binding on either party and there is no assurance that the parties will reach a definitive agreement, and if they do, there is no assurance that the conditions there under will be met to consummate the acquisition. Furthermore, if the acquisition is consummated, there is no assurance that the anticipated effects of the transaction will be realized.

 

 In a letter to the shareholders of the Company, issued on February 20, 2013, the Company’s Chief Executive Officer, Mark Willner, provided an update on the progress the Company is making in its continued efforts to improve the performance of its CSpace technology and to seek out potential acquisitions that would allow the Company to enter the glasses-free flat screen 3D space. As previously reported, the Company entered into a non-binding letter of intent with Dimension Technologies Inc. (“DTI”) that would allow such entry into this segment of the industry. The letter to shareholders explains that the Company and DTI mutually agreed not to renew the non-binding letter of intent after a determination was made that DTI’s technology does not fit the specifics of the Company’s business model. At this time, the Company does not have any definitive agreement in place and no assurances can be made the Company will be able to consummate a transaction that would allow such entry into the glasses-free flat screen 3D space.

 

Note 10 – Subsequent Events

 

Debentures payable

 

Subsequent to March 31, 2013, Golden State converted $540 of the 4.75% convertible debenture into 3,559,422 shares of common stock at $0.0005 per share, exercised 154 warrants at $381.50 per share and advanced $18,530 for exercise of the warrants under the terms of the securities purchase agreements.

 

Subsequent to March 31, 2013, JMJ converted $33,858 of the 5% convertible note into 3,657,305 shares of common stock at $0.009 per share.

 

F-14
 

 

Subsequent to March 31, 2013, George Widener converted the entire $78,000 Widener Bridge Note into 2,025,974 shares of common stock and Victor Keen extended the Keen Bridge Note to May 31, 2013.

 

On April 15, 2013, the Company completed the sale of two options to purchase 10,000,000 shares of the Company’s common stock (the “Option Agreements”) to two accredited investors. One of the accredited investors was Victor Keen, a director on the Board of Directors of the Company. Each of the Option Agreements provide for the option to purchase up to 10,000,000 shares of restricted common at a purchase price of $0.01 per share. The holders of the Option Agreements may exercise the option to purchase common stock on a cashless basis. Furthermore, the holders of the Option Agreements were granted “piggyback” registration rights for the inclusion, on a subsequent registration statement, the shares of common stock underlying the Option Agreements. The gross proceeds to the Company for the sale of both Option Agreements was $100,000.The foregoing information is a summary of each of the Option Agreements, is not complete, and is qualified in its entirety by reference to the full text of the Option Agreements, a form of which is attached as an exhibit to this Quarterly Report on Form 10-Q. Readers should review those agreements for a complete understanding of the terms and conditions associated with this transaction. In connection with these securities issuances, the Company relied upon the exemption from securities registration afforded by Section 4(2) of the Securities Act of 1933, as amended.  No advertising or general solicitation was employed in offering any securities.

 

F-15
 

 

Item 2.   Management's Discussion and Analysis of Financial Condition and Results of Operations.

 

Forward-Looking Statements

 

The information in this report contains forward-looking statements. All statements other than statements of historical fact made in this report are forward looking. In particular, the statements herein regarding industry prospects and future results of operations or financial position are forward-looking statements. These forward-looking statements can be identified by the use of words such as “believes,” “estimates,” “could,” “possibly,” “probably,” anticipates,” “projects,” “expects,” “may,” “will,” or “should” or other variations or similar words. No assurances can be given that the future results anticipated by the forward-looking statements will be achieved. Forward-looking statements reflect management’s current expectations and are inherently uncertain. Our actual results may differ significantly from management’s expectations.

 

The following discussion and analysis should be read in conjunction with our financial statements, included herewith. This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment of our management.

 

Plan of Operation

 

Background:

 

3DIcon Corporation (“3DIcon,” “the Company,” “we,” “us” or “our”) was incorporated on August 11, 1995, under the laws of the State of Oklahoma as First Keating Corporation. Our articles of incorporation were amended August 1, 2003 to change the name to 3DIcon Corporation. The initial focus of First Keating Corporation was to market and distribute books written by its founder, Martin Keating. During 2001, First Keating Corporation began to focus on the development of 360-degree holographic technology. The effective date of this transition is January 1, 2001. We have accounted for this transition as reorganization and accordingly, restated its capital accounts as of January 1, 2001. At the inception on January 1, 2001, our primary activity was the raising of capital in order to pursue its goal of becoming a significant participant in the formation and commercialization of interactive, optical holography for the communications and entertainment industries.

 

In April 2004, we engaged the University of Oklahoma 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 with the University, which expired on January 14, 2007. Under this agreement, the University conducted a research project entitled "Investigation of 3-Dimensional Display Technologies".

 

On February 23, 2007, we entered into an SRA with the University, which SRA expired on March 31, 2010. Under this agreement, the University conducted a research project entitled "3-Dimensional Display Development".

 

In the fourth quarter of 2007 we announced the release of our first product, "Pixel Precision". On February 12, 2009, version 2.0 of Pixel Precision was released to expand its capabilities and provide new compatibility with Texas Instrument's newly released DLP® Discovery 4000 kits.  This is a companion software application to the DMD Discovery line of products manufactured by Texas Instruments®.

 

The Oklahoma Center for the Advancement of Science and Technology approved the Company’s application for funding of a matching grant titled 800 Million Voxels Volumetric Display, on November 19, 2008.  The two-year matching grant, totaling $299,984, had a start date of January 1, 2009.  The Company received approval for a no cost extension request for the first year of the contract. With the new modification, the first year ended on August 31, 2010.  The award is for a maximum of $149,940 for 2009 and the remainder for 2011.  The Company earned $63,668 and $86,323 from the grant during the years ended December 31, 2012 and 2011, respectively and $281,492 from inception to date.  The Company received approval for a no cost extension request for the second year of the contract and, with the new modification, the second year ended on August 31, 2012. The Company applied forand received the remaining $13,029 of grant funds in 2013 that were earned through the end of the grant period, August 31, 2012.

 

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 of Oklahoma (the “University” or “OU”) under a Sponsored Research Agreement. The development to date has resulted in multiple new technologies, two working laboratory prototypes (Lab Proto 1 and Lab Proto 2), and seven provisional patents; six of the seven provisional patents have been combined and converted to four utility patents. Under the Sponsored Research Agreement, the Company has obtained the exclusive worldwide marketing rights to these 3D display technologies.

 

3
 

 

On May 26, 2009, the United States Patent and Trademark Office ("USPTO") approved the pending patent called "Volumetric Liquid Crystal Display" for rendering a three-dimensional image and converted it to US patent No. 7,537,345. On December 28, 2010, USPTO approved the pending patent called “Light Surface Display for Rendering a Three-Dimensional Image,” and issued the United States Patent No. 7,858,913.  On 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 what we are calling our CSpace® technology (“CSpace”).

 

At this time, we do not own any intellectual property rights in these technologies, and, apart from the Sponsored Research Agreement with the University, have no contracts or agreements pending to acquire such rights or any other interest in such rights. We plan to market the technology and the intellectual property developed by the University and our staff by targeting various industries, such as retail, manufacturing, entertainment, medical, healthcare, transportation, homeland security and the military. On April 6, 2009, we filed a provisional patent on an emissive two-dimensional screen that is controlled and driven by a standard digital light projector or other optical input source. This provisional patent is called "Flexible/Inflexible Front/Back Projection screen or display" and owned solely by 3DIcon Corporation.   Through the current agreement with the University of Oklahoma, OU filed a continuation patent application on November 19, 2010, called “3D Light Surface Display”.  This application provides additional protections of our CSpace®™ technology.

 

Since March of 2012, the Company has been exploring the possibility of developing and marketing glasses-free flat screen 3D displays based on next generation glasses-free flat screen 3D display technology acquired or licensed from another company. This acquired technology and any resultant display products would be in addition to and complementary with our internally developed CSpace glasses-free volumetric 3D display technology. Recently, the company has met with multiple glasses-free flat screen 3D display companies, is in discussion with several of these companies about a potential acquisition or partnership, and is engaged in non-binding discussions to acquire one of these companies. Currently, we do not have any agreements in place that would allow such entry into the flat screen segment of the glasses-free 3D display industry and no assurances can be made, if an acquisition or partnership is consummated, that the Company could successfully bring to market such technology.

 

Progress on Research and Development Activities

 

Through a Sponsored Research Agreement with the University of Oklahoma, we have obtained the exclusive worldwide marketing rights to certain 3D display technologies under development by the University. The development to date has resulted in the University filing seven provisional patents; six of the seven provisional patents have been combined and converted to four utility patents.  

 

Description of

Provisional Patent

Application as Filed

 

Description of Utility

Patent Application

Filing (Combined)

  Date of Filing  

Granted

U.S. Patent

 

European

Pending

Patent-

Date of

Filing

 

Japanese

Pending

Patent-Date of

Filing

3D Volumetric Display   3D Volumetric Display   Filed by OU in November 2011    August 2012        
                     
Swept Volume Display   Swept Volume Display   Filed by OU in September 2006            
                     
Colorful Translation Light Surface 3D Display Colorful Translation 3D Volumetric Display 3D Light Surface Display   Light Surface Display for Rendering Three-Dimensional Image (Combined)   Filed by OU in April 2007    December 2010   April 2007   April 2007
                     
Volumetric Liquid Crystal Display   Volumetric Liquid Crystal Display for Rendering Three-Dimensional Image (Combined)   Filed by OU in April 2007   May 2009        
                     
Computer System Interaction with DMD   Computer System Interaction with DMD   Filed by OU in January 2008            
                     
Virtual Moving Screen for Rendering Three Dimensional Image   Virtual moving screen for rendering a three-dimensional image   Filed by OU in January 2008            
                     
Optically Controlled Light Emitting and System for Optically Written 2D and 3D Displays   Utility Patent Application to be filed   Filed by 3DIcon in April 2008            

 

4
 

 

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2013 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2012

 

Revenue

 

The Company completed the OCAST grant in August 2012; therefore, we did not have OCAST earnings for the three months ended March 31, 2013. We earned $52,649 from the OCAST grant during the three months ended March 31, 2012.

 

In January 2008 we launched our first software product Pixel Precision™. We appointed Digital Light Innovations for the sales and distribution of this product in March 2008. We have earned income of $1,500 and $-0- before commissions and costs from the sales of Pixel Precision™ for the three-months ended March 31, 2013 and March 31, 2012, respectively.

 

We expect sales of Pixel Precision™ to the installed and active user base of the earlier D1100 and D3000 systems in the near term and as companion product sales to D4000 systems. We expect that the revenue from this product to contribute to the operating expenses (general and administrative, research and development, interest) but do not expect the revenue generated in 2013 to cover the operating expenses.

 

Research and Development Expenses

 

The research and development expenses were $103,604 for the three months ended March 31, 2013, as compared to $138,481 for the three months ended March 31, 2012.  The net decrease was a result of the decrease in cost for engaging outside research and development consultants of approximately $40,000 and the purchase of approximately $10,000 R & D equipment.

 

General and Administrative Expenses

 

Our general and administrative expenses were $263,972 for the three months ended March 31, 2013, as compared to $294,994 for the three months ended March 31, 2012.  The net decrease is due primarily to a $20,000 increase in legal fees regarding the DTC chill in 2013, a decrease of $18,840 in options issued to the new CEO in 2012 and a $30,000 decrease due to the completion of management consultant contracted in early 2012.

 

Interest Expense

 

Interest expense for the three months ended March 31, 2013 was $20,267 as compared to $1,881 for the three months ended March 31, 2012.  The net increase was a result of an increase in the amounts outstanding on our JMJ convertible notes, bridge notes and a decrease in interest costs on our 4.75% Convertible Debenture.

 

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:

 

  £ Research and development expenses pursuant to our SRA with the University. This includes development of an initial demonstrable prototype and a second prototype for static volume technology.
  £ Acceleration of research and development through increased research personnel as well as other research agencies.
  £ General and administrative expenses: salaries, insurance, investor related expenses, rent, travel, website, etc.
  £ Hiring executive officers for technology, operations and finance.
  £ Development, support and operational costs related to Pixel Precision™ software.
  £ Professional fees for accounting and audit; legal services for securities and financing; patent research and protection.

 

Our independent registered public accountants, in their audit report accompanying our financial statements for the year ended December 31, 2012, 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 $47,885 at March 31, 2013.

 

We had negative working capital of $1,079,215 at March 31, 2013.

 

5
 

 

During the three months ended March 31, 2013, we used $253,815 of cash for operating activities, a decrease of $47,345 or 16% compared to the three months ended March 31, 2012. The decrease in the use of cash for operating activities was a result of the reduction in the change in accounts payable and the increase in amortization of OID from our convertible notes.

 

There was no cash used in investing activities during the three months ended March 31, 2013 or for the three months ended March 31, 2012.

 

Cash provided by financing activities during the three months ended March 31, 2013 was $300,350, a decrease of $64,430 or 18% compared to the three months ended March 31, 2012.  The decrease was the result of warrant exercise advances under the terms of our convertible debentures and notes.

 

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.

 

On November 3, 2006, the Company issued to Golden State a 4.75% convertible debenture in a principal amount of $100,000, due 2014, and warrants to buy 1,000,000 shares of the common stock at a pre-split exercise price of $10.90 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 2011, Golden State converted $6,760 of the $100,000 debenture into 60,601,868 pre-split shares of common stock, exercised warrants to purchase 67,600 pre-split shares of common stock at $10.90 per share based on the formula in the convertible debenture. Additionally Golden State advanced $753,381 against future exercises of warrants of which $736,840 was applied to the exercise of warrants leaving $16,542 of unapplied advances at December 31, 2011. During 2012, Golden State converted $7,991 of the $100,000 debenture into 9,577,906 post-split shares of common stock, exercised warrants to purchase 2,285 post-split shares of common stock at $381.50 per share based on the formula in the convertible debenture. Additionally Golden State advanced $789,111 against future exercises of warrants of which $805,652 was applied to the exercise of warrants leaving $1.00 of unapplied advances at December 31, 2012. During 2013, Golden State converted $1,550 of the $100,000 debenture into 5,409,397 post-split shares of common stock, exercised warrants to purchase 443 post-split shares of common stock at $381.50 per share based on the formula in the convertible debenture. Additionally Golden Gate advanced $209,950 against future exercises of warrants of which $168,950 was applied to the exercise of warrants leaving $41,001 of unapplied advances at March 31, 2013.

 

The Oklahoma Center for the Advancement of Science and Technology approved the Company’s application for funding of a matching grant titled 800 Million Voxels Volumetric Display, on November 19, 2008.  The two-year matching grant, totaling $299,984, had a start date of January 1, 2009.  The Company received approval for a no cost extension request for the first year of the contract. With the new modification, the first year ended on August 31, 2010.  The award is for a maximum of $149,940 for 2009 and the remainder for 2011.  The Company earned $63,668 and $86,323 from the grant during the years ended December 31, 2012 and 2011, respectively and $281,492 from inception to date.  The Company received approval for a no cost extension request for the second year of the contract and, with the new modification, the second year ended on August 31, 2012. The Company applied and received the remaining $13,029 of grant funds in 2013 that were earned through the end of the grant period, August 31, 2012.

 

On October 31, 2008, OU agreed to revise the payment terms under the SRA from a fixed monthly payment to a reimbursable cost payment basis effective September 1, 2008. As of September 30, 2008 the Company had a remaining obligation under the previous SRA payment schedule of $2,665,818 which included monthly payments due for December 2007 through August 31, 2008 of $861,131. The $1,804,687 balance of the remaining scheduled payment obligation was cancelled. Under the terms of the revised base payments schedule, the arrearages would be paid in nine monthly base installments from October 31, 2008 to June 30, 2009 of amounts ranging from $35,000 to $101,132 leaving a remaining balance after the base payments of $290,000. In addition to the monthly base payments, the Company agreed to make additional payments on the $861,131 arrearages based on a formula of 50% of funding in excess of $120,000 plus the base monthly payment. In the event funding did not provide for any additional payments, the remaining balance would be $290,000, which OU agreed to accept 4,264,707 shares of the Company's common stock based on the October 14, 2008 market price as reported on the OTC Bulletin Board of $0.068 per share as payment on June 30, 2009. The Company had the option to repurchase the shares at $0.068 per share by September 30, 2009 or at market value, but not less than $0.068 per share, if the repurchase occurred after September 30, 2009.

 

The Company was unable to meet the revised payment schedule and on May 18, 2009 the University agreed to revise the payment terms. Under the terms of the revised base payments schedule, the arrearages scheduled to be paid in nine monthly base installments from October 31, 2008 to June 30, 2009 of amounts ranging from $35,000 to $101,132, were deferred to a monthly payment schedule of July 2009 through February 2010. On February 19, 2010, the University agreed to modify the repayment plan to retire the outstanding debt of $525,481. Under the terms of the modified repayment plan the Company agreed to make payments to the University, not less than quarterly, in an amount equal to 22.5% of any funding received by the Company. The Company complied with the agreed upon payment schedule and on December 1, 2010 the Company entered into an agreement with OU pursuant to which OU 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 59,000,000 pre-split shares of the Company's common stock. As a result of the debt conversion, OU became the holder of approximately 8% of the outstanding common stock of the Company. Pursuant to the agreement, the shares are subject to a put option allowing OU to require the Company to purchase certain of the shares upon the occurrence of certain events. In addition, the shares are subject to a call option allowing the Company to require OU to sell to the Company the shares then held by OU in accordance with the terms of the agreement.

 

6
 

 

5% Convertible Promissory Note #1

 

On June 6, 2012 (the “Effective Date”), the Company issued and sold to JMJ Financial (“JMJ”) a convertible promissory note ("Note #1"), which Note #1 allows the Company to request advances of principal up to its face amount of $275,000. Note #1 includes a $25,000 original issue discount (the “OID”) that will be prorated based on the advances actually paid to the Company. On June 6, 2012, JMJ advanced $50,000 on Note #1 and collected $4,000 OID, bringing the principal amount borrowed by the Company of Note #1 to $54,000. During 2013, JMJ advanced an additional $48,500 towards Note #1 and collected $23,500 OID. Additionally JMJ converted $52,767 of Note #1 into 2,400,000 shares of common stock at $0.022 per share based on the formula in Note #1. In addition to the OID, Note #1 provides for a one-time interest charge of 5% to be applied to the principal sum advanced. Pursuant to the terms of Note #1, JMJ may, at its election, convert all or a part of Note #1 into shares of the Company's common stock at a conversion rate equal to the lesser of (i) $0.35 or (ii) 70% of the lowest trade price during the twenty-five trading days prior to JMJ’s election to convert. In addition, pursuant to the terms of Note #1, the Company agreed to include on the next registration statement filed by the Company with the SEC all shares issuable upon conversion of Note #1. Failure to do so will result in liquidated damages of 25% of the outstanding principal balance of Note #1. If the Company repays Note #1 on or before ninety days from the Effective Date, the interest rate will be zero percent. If the Company does not repay Note #1 on or before ninety days from the Effective Date, a one-time interest charge of 5% shall be applied to the principal sum of $275,000. The principal of Note #1 is due one year from the date of each of the principal amounts advanced.

 

5% Convertible Promissory Note #2

 

On August 1, 2012 (the “Note #2 Effective Date”), the Company issued and sold to JMJ a convertible promissory note #2 ( “Note #2"), which Note #2 allows the Company to request advances of principal up to its face amount of $140,000. Note #2 includes a $15,000 original issue discount that will be prorated based on the advances actually paid to the Company. On August 1, 2012, JMJ advanced $75,000 and collected $9,000 OID, bringing the principal amount borrowed by the Company of Note #2 to $84,000. No further advances were requested by or paid to the Company. In addition to the OID, Note #2 provides for a one-time interest charge of 5% to be applied to the principal sum advanced. Pursuant to the terms of Note #2, JMJ may, at its election, convert all or a part of Note #2 into shares of the Company's common stock at a conversion rate equal to the lesser of (i) $0.15 or (ii) 70% of the lowest trade price during the twenty-five trading days prior to JMJ’s election to convert. In addition, pursuant to the terms of Note #2, the Company agreed to include on the next registration statement filed by the Company with the SEC all shares issuable upon conversion of Note #2. Failure to do so will result in liquidated damages of 25% of the outstanding principal balance of Note #2. The principal of Note #2 is due one year from the date of each of the principal amounts advanced.

 

Note #1 and Note #2 were subject to a Mandatory Registration Agreement (the “Registration Agreement”) whereby no later than August 31, 2012, the Company agreed to file, at its own expense, an amendment (the “Amendment”) to the S-1 Registration Statement (the “Registration Statement”) the Company filed with the SEC on July 3, 2012, to include in such Amendment 4,750,000 shares of common stock issuable under Note #1 and the Note #2. The Company agreed, thereafter, to use its best efforts to cause such Registration Statement to become effective as soon as possible after such filing but in no event later than one hundred and twenty (120) days from the date of the Registration Agreement. Since the Company failed to get the Registration Statement declared effective within the 120 days of the date of the Registration Agreement, a penalty/liquidated damages of $25,000 was added to the balance of Note #2. 

 

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, due June 30, 2013. 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. 

 

Convertible Bridge Notes

 

On August 24, 2012, August 28, 2012 and September 10, 2012, the Company issued and sold to three accredited investors Convertible Bridge Notes (the “Bridge Notes”) in the aggregate principal amount of $438,000. The note sold on August 24, 2012, in principal amount of $300,000, was purchased by GCA Strategic Investment Fund Limited, a Bermuda corporation ("GCASIF"). The note sold August 28, 2012, in principal amount of $78,000, was purchased by George Widener. The note sold on September 10, 2012, in principal amount of $60,000, was purchased by Victor Keen, a director of the Company.

 

The sale of the Bridge Notes in aggregate principal of $438,000 included a $73,000 original issue discount. Accordingly, the Company received $365,000 gross proceeds from which the Company paid legal fees of $25,000 and placement agent fees of $27,675. The Bridge Notes mature in 90 days from their date of issuance and, other than the original issue discount, the Bridge Notes do not carry interest. However, in the event the Bridge Notes are not paid on maturity, all past due amounts will accrue interest at 15% per annum. Upon maturity of the Bridge Notes, the holders of the Bridge Notes may elect to convert all or any portion of the outstanding principal amount of the Bridge Notes 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 Bridge Notes, (b) the maturity date of the Bridge Notes, or (c) the first closing date of the securities sold pursuant an effective registration statement.

 

7
 

 

On December 21, 2012, the Company entered into an amendment agreement (the “GCASIF Amendment”) with GCASIF, the holder of that certain Convertible Bridge Note (the “GCA Bridge Note”) in the principal amount of $300,000.

 

The GCA Bridge Note matured on or about November 22, 2012, on which date all past due amounts of the GCA Bridge Note began accruing interest at 15% per annum. Furthermore, on November 22, 2012, because the shares of the Company’s common stock into which the GCA Bridge Note is convertible were not registered under an effective registration statement (the “Registration Statement”), GCASIF was entitled to liquidated damages equal to 2% of the outstanding principal for each 30 day period after the November 22, 2012 the Registration Statement is not declared effective (the “Liquidated Damages”).

 

Pursuant to the GCASIF Amendment, GCASIF agreed to extend the maturity of the GCA Bridge Note from November 22, 2012 to March 21, 2013 and the Company agreed to (i) increase the principal amount of the GCA Bridge Note from $300,000 to $325,000; (ii) amend the conversion price of the GCA Bridge Note to the lesser of $0.04, or 100% of the Volume Weighted Average Price, as reported by Bloomberg, L.P., for the 5 trading days prior to the effective date of the Registration Statement; and (iii) grant additional registration rights to GCASIF from 5,172,414 shares to 8,000,000 shares of the Company’s common stock into which the GCA Bridge Note may be convertible. Furthermore, GCASIF agreed to waive any and all defaults, default interest and the Liquidated Damages due to GCASIF. In connection with the GCASIF Amendment, the Company agreed to pay GCASIF a fee of $20,000. Subsequent to March 21, 2013, GCASIF agreed to waive any defaults resulting from the non-payment of the GCA Bridge Note, so long as, GCASIF is paid in full by April 15, 2013 or GCASIF elects to convert the GCA Bridge Note into shares of the Company’s common stock on or before April 15, 2013.

 

On January 26, 2013, the Company entered into an amendment agreement (the “Widener Amendment”) with George Widener, the holder of that certain Convertible Bridge Note (the “Widener Bridge Note”) in the principal amount of $78,000 issued by the Company on August 30, 2012.

 

The Widener Bridge Note matured on or about November 26, 2012, on which date all past due amounts of the Widener Bridge Note began accruing interest at 15% per annum. Pursuant to the Widener Amendment, Mr. Widener agreed to extend the maturity date of the Widener Bridge Note from November 26, 2012 to April 30, 2013 and to waive any and all defaults, default interest and Liquidated Damages then due to Mr. Widener. Subsequent to April 30, 2013, Mr. Widener converted the entire $78,000 balance of the Widener Bridge Note into 2,025,974 shares of common stock.

 

On January 26, 2013, the Company entered into an amendment agreement (the “Keen Amendment”) with Victor F. Keen, the holder of that certain Convertible Bridge Note (the “Keen Bridge Note”) in the principal amount of $60,000 issued by the Company on September 10, 2012.

 

The Keen Bridge Note matured on or about December 10, 2012, on which date all past due amounts of the Keen Bridge Note began accruing interest at 15% per annum. Pursuant to the Keen Amendment, Mr. Keen agreed to extend the maturity date of the Keen Bridge Note from December 10, 2012 to April 30, 2013 and to waive any and all defaults, default interest and Liquidated Damages then due to Mr. Keen. Subsequent to April 30, 2013, Mr. Keen agreed to waive any defaults for non-payment of the Keen Bridge Note or failure to issue shares of our common stock upon conversion until such time as the Company has filed its first 2013 quarterly report.

 

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.

 

8
 

 

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

 

Debentures payable

 

Subsequent to March 31, 2013, Golden State converted $540 of the 4.75% convertible debenture into 3,559,422 shares of common stock at $0.00015 per share, exercised 154 warrants at $381.50 per share and advanced $18,530 for exercise of the warrants under the terms of the securities purchase agreements.

 

Subsequent to March 31, 2013, JMJ converted $33,858 of the 5% convertible note into 3,657,305 shares of common stock at $0.009 per share.

 

Subsequent to March 31, 2013, George Widener converted the entire $78,000 Widener Bridge Noteinto 2,025,974 shares of common stock and Victor Keen extended the Keen Bridge Note to May 31, 2013.

 

 

Item 3.   Quantitative and Qualitative Disclosures About Market Risk.

 

Not Applicable.

 

Item 4.   Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")) as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective such that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and (ii) accumulated and communicated to our management to allow timely decisions regarding disclosure. A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

 

Changes in Internal Control Over Financial Reporting.   During the most recent quarter ended March 31, 2012, there has been no change in our internal control over  financial  reporting  (as defined in Rule  13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected,  or is reasonably likely to materially affect, our internal control over financial reporting.

 

PART II

 

Item 1.   Legal Proceedings.

 

We are not a party to any pending legal proceeding, nor is our property the subject of a pending legal proceeding, that is not in the ordinary course of business or otherwise material to the financial condition of our business. None of our directors, officers or affiliates is involved in a proceeding adverse to our business or has a material interest adverse to our business.

 

Item 1A.Risk Factors.

 

Not Applicable.

 

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds. 

 

During three-month period ended March 31, 2013, Golden State converted $1,550 of the $100,000 debenture into 5,409,397 post-split shares of common stock, exercised warrants to purchase 443 post-split shares of common stock at $381.50 per share based on the formula in the convertible debenture. Additionally Golden Gate advanced $209,950 against future exercises of warrants of which $168,950 was applied to the exercise of warrants leaving $41,001 of unapplied advances at March 31, 2013.

 

Duringthree-month period ended March 31, 2013, JMJ advanced an additional $25,000 on Note #1and collected $23,500 OID. Additionally JMJ converted $52,767 of Note #1 into 2,400,000 shares of common stockat $0.022 per share based on the formula in Note #1.

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Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosure.

 

None.

 

Item 5. Other Information.

 

On April 15, 2013, the Company completed the sale of twooptions to purchase 10,000,000 shares of the Company’s common stock (the “Option Agreements”) to two accredited investors. One of the accredited investors was Victor Keen, a director on the Board of Directors of the Company. Each of the Option Agreements provide for the option to purchase up to 10,000,000 shares of restricted common at a purchase price of $0.01 per share. The holders of the Option Agreements may exercise the option to purchase common stock on a cashlessbasis. Furthermore, the holders of the Option Agreements were granted “piggyback” registration rights for the inclusion, on a subsequentregistration statement, the shares of common stock underlying the Option Agreements.The gross proceeds to the Company for the sale of both Option Agreements was $100,000.The foregoing information is a summary of each of the Option Agreements, is not complete, and is qualified in its entirety by reference to the full text of the Option Agreements, a form of which is attached as an exhibit to this Quarterly Report on Form 10-Q. Readers should review those agreements for a complete understanding of the terms and conditions associated with this transaction.

 

In connection with the securities issuances reported in this Item, the Company relied upon the exemption from securities registration afforded by Section 4(2) of the Securities Act of 1933, as amended.  No advertising or general solicitation was employed in offering any securities.

 

Item 6. Exhibits.

 

Exhibit

Number

  Description of Exhibit
     
10.1   Form of Option Agreements
31.1   Certifications required by Rule 13a-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2   Certifications required by Rule 13a-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1   Certification of Chief Executive Officer pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2   Certification of Principal Accounting Officer pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

101.INS**   XBRL Instance
     
101.SCH**   XBRL Taxonomy Extension Schema
     
101.CAL**   XBRL Taxonomy Extension Calculation
     
101.DEF**   XBRL Taxonomy Extension Definition
     
101.LAB**   XBRL Taxonomy Extension Labels
     
101.PRE**   XBRL Taxonomy Extension Presentation
     
**   In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2013 shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  3DICON CORPORATION
   
Date: May 15, 2013 /s/ Mark Willner
  Name: Mark Willner
  Title: Chief Executive Officer
    (Principal Executive Officer)
     
  /s/ Ronald Robinson
  Name: Ronald Robinson
  Title: Chief Financial Officer
    (Principal Financial Officer)

 

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