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 September 30, 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 000-54697
 
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  ¨
Smaller reporting company  x
 
 
(do not check if smaller reporting company)
 
  
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 November 8, 2013, the issuer had 192,108,289 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.
12
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
21
Item 4.
Controls and Procedures.
21
 
PART II - Other Information
 
Item 1.
Legal Proceedings.
21
Item 1A.
Risk Factors.
21
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
21
Item 3.
Defaults Upon Senior Securities.
21
Item 4.
Mine Safety Disclosure.
21
Item 5.
Other Information.
21
Item 6.
Exhibits.
22
SIGNATURES
23 
 
 
 
PART I
 
Item 1.    Financial Statements. 
   
INDEX TO FINANCIAL STATEMENTS
 
 
Page
Balance Sheets as of September 30, 2013 (Unaudited) and December 31, 2012 (Audited)
F-2
 
 
Statements of Operations for the three and nine months ended September 30, 2013 and 2012 and period from inception (January 1, 2001) to September 30, 2013 (Unaudited)
F-3
 
 
Statements of Changes in Stockholders' Deficiency for period from inception (January 1, 2001) to September 30, 2013 (Unaudited)
F-4
 
 
Statements of Cash Flows for the nine months ended September 30, 2013 and 2012 and period from inception (January 1, 2001) to September 30, 2013 (Unaudited) 
F-5
 
 
Notes to Financial Statements, September 30, 2013 (Unaudited) 
1
 
 
 
3DIcon CORPORATION 
(A Development Stage Company)
BALANCE SHEETS
September 30, 2013 and December 31, 2012
 
 
 
September 30,
 
December 31,
 
 
 
2013
 
2012
 
 
 
(Unaudited)
 
(Audited)
 
Assets
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
Cash
 
$
18,360
 
$
1,350
 
Prepaid expenses
 
 
25,922
 
 
12,610
 
 
 
 
 
 
 
 
 
Accounts receivable
 
 
-
 
 
78,428
 
Total current assets
 
 
44,282
 
 
92,388
 
 
 
 
 
 
 
 
 
Net property and equipment
 
 
-
 
 
4,280
 
 
 
 
 
 
 
 
 
Deferred debt costs
 
 
7,500
 
 
-
 
Deposits-other
 
 
2,315
 
 
2,315
 
Total Assets
 
$
54,097
 
$
98,983
 
 
 
 
 
 
 
 
 
Liabilities and Stockholders' Deficiency
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current maturities of convertible notes and debentures payable
 
$
516,980
 
$
660,840
 
Warrant exercise advances
 
 
181,451
 
 
1
 
Accounts payable
 
 
178,248
 
 
324,473
 
 
 
 
 
 
 
 
 
Accrued salaries
 
 
8,240
 
 
10,958
 
 
 
 
 
 
 
 
 
Accrued interest on debentures
 
 
16,075
 
 
12,246
 
Total current liabilities
 
 
900,994
 
 
1,008,518
 
 
 
 
 
 
 
 
 
Convertible debentures payable
 
 
70,225
 
 
73,665
 
 
 
 
 
 
 
 
 
Long term debt
 
 
70,225
 
 
73,665
 
 
 
 
 
 
 
 
 
Total Liabilities
 
 
971,219
 
 
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; 141,128,835 and 45,934,839 shares issued and outstanding at September 30, 2013 and December 31, 2012, respectively
 
 
28,226
 
 
9,187
 
 
 
 
 
 
 
 
 
Additional paid-in capital
 
 
18,242,707
 
 
17,044,786
 
Deficit accumulated during development stage
 
 
(19,673,704)
 
 
(18,522,822)
 
Total Stockholders' Deficiency
 
 
(1,402,771)
 
 
(1,468,849)
 
Total Liabilities and Stockholders' Deficiency
 
$
54,097
 
$
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 and Nine Months Ended September 30, 2013 and 2012 and Period
From Inception (January 1, 2001) to September 30, 2013
(Unaudited)
 
 
 
Three Months
 
Three Months
 
Nine Months
 
Nine Months
 
 
 
 
 
Ended
 
Ended
 
Ended
 
Ended
 
Inception to
 
 
 
September 30, 2013
 
September 30, 2012
 
September 30, 2013
 
September 30, 2012
 
September 30, 2013
 
Income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
License fee
 
$
-
 
$
-
 
$
-
 
$
-
 
$
25,000
 
Sales
 
 
-
 
 
-
 
 
1,500
 
 
-
 
 
42,297
 
Grant income
 
 
-
 
 
-
 
 
-
 
 
63,669
 
 
281,492
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total income
 
 
-
 
 
-
 
 
1,500
 
 
63,669
 
 
348,789
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Research and development
 
 
90,035
 
 
127,759
 
 
280,796
 
 
414,149
 
 
4,958,471
 
General and administrative
 
 
227,111
 
 
502,468
 
 
811,964
 
 
1,120,660
 
 
14,406,261
 
Interest
 
 
6,239
 
 
35,887
 
 
59,622
 
 
40,597
 
 
657,761
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total expenses
 
 
323,385
 
 
666,114
 
 
1,152,382
 
 
1,575,406
 
 
20,022,493
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss
 
$
(323,385)
 
$
(666,114)
 
$
(1,150,882)
 
$
(1,511,737)
 
$
(19,673,704)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loss per share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic and diluted
 
$
(0.003)
 
$
(0.016)
 
$
(0.016)
 
$
(0.040)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted average shares outstanding, Basic and diluted
 
 
103,714,220
 
 
41,459,140
 
 
73,495,248
 
 
37,991,154
 
 
 
 
 
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 September 30, 2013
 (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
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
 
 
983
 
 
1
 
 
374,959
 
 
-
 
 
374,960
 
Debentures converted
 
 
81,588,787
 
 
16,318
 
 
473,832
 
 
-
 
 
490,150
 
Stock issued for services
 
 
12,505,475
 
 
2,501
 
 
217,849
 
 
-
 
 
220,350
 
Stock issued for liabilities
 
 
1,098,751
 
 
219
 
 
31,281
 
 
-
 
 
31,500
 
Options issued for cash
 
 
-
 
 
-
 
 
100,000
 
 
-
 
 
100,000
 
Net loss for the period
 
 
-
 
 
-
 
 
-
 
 
(1,150,882)
 
 
(1,150,882)
 
Balance September 30, 2013
 
 
141,128,835
 
$
28,226
 
$
18,242,707
 
$
(19,673,704)
 
$
(1,402,771)
 
 
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
Nine months ended September 30, 2013 and 2012
and Period from Inception (January 1, 2001) to September 30, 2013
(unaudited)
 
 
 
Nine Months
 
Nine Months
 
Inception to
 
 
 
Ended September 30,
 
Ended September 30,
 
September 30,
 
 
 
2013
 
2012
 
2013
 
Cash Flows from Operating Activities
 
 
 
 
 
 
 
 
 
 
Net loss
 
$
(1,150,882)
 
$
(1,511,737)
 
$
(19,673,704)
 
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
 
 
 
 
 
 
 
Options issued for services
 
 
-
 
 
325,780
 
 
2,986,618
 
Stock issued for services
 
 
220,350
 
 
230,350
 
 
2,704,445
 
Stock issued for interest
 
 
-
 
 
2,047
 
 
143,719
 
Book value of assets retired
 
 
-
 
 
-
 
 
6,529
 
Amortization of debt issuance costs
 
 
35,219
 
 
27,169
 
 
284,466
 
Depreciation
 
 
4,280
 
 
4,147
 
 
37,000
 
Impairment of assets
 
 
-
 
 
-
 
 
292,202
 
Change in:
 
 
 
 
 
 
 
 
 
 
Accounts receivable
 
 
13,028
 
 
3,971
 
 
-
 
Prepaid expenses and other assets
 
 
(13,312)
 
 
3,930
 
 
(276,637)
 
Accounts payable and accrued liabilities
 
 
84,017
 
 
(131,917)
 
 
2,592,774
 
 
 
 
 
 
 
 
 
 
 
 
Net cash used in operating activities
 
 
(807,300)
 
 
(1,046,260)
 
 
(10,902,588)
 
 
 
 
 
 
 
 
 
 
 
 
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
 
 
621,810
 
 
688,831
 
 
5,999,376
 
 
 
 
 
 
 
 
 
 
 
 
Proceeds from issuance of debentures, notes and options
 
 
202,500
 
 
375,300
 
 
4,965,091
 
 
 
 
 
 
 
 
 
 
 
 
Net cash provided by financing activities
 
 
824,310
 
 
1,064,131
 
 
10,964,467
 
 
 
 
 
 
 
 
 
 
 
 
Net increase in cash
 
 
17,010
 
 
17,871
 
 
18,350
 
Cash, beginning of period
 
 
1,350
 
 
17,666
 
 
10
 
Cash, end of period
 
$
18,360
 
$
35,537
 
$
18,360
 
 
 
 
 
 
 
 
 
 
 
 
Supplemental Disclosures
 
 
 
 
 
 
 
 
 
 
Non-Cash Investing and Financing Activities
 
 
 
 
 
 
 
 
 
 
Conversion of debentures to common stock (net)
 
$
490,150
 
$
38,259
 
$
4,787,610
 
Cash paid for interest
 
$
17,832
 
$
1,838
 
$
321,528
 
Stock issued to satisfy payables
 
$
31,500
 
$
366,364
 
$
2,385,117
 
Debenture issued to satisfy payable
 
$
197,631
 
$
-
 
$
352,547
 
Stock issued subject to put rights and call right to satisfy payables
 
$
-
 
$
-
 
$
485,649
 
 
Presentation gives effect to the Reverse Stock Split, which occurred on April 27, 2012 (see note 5)
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 September 30, 2013, and the statements of its operations for the three and nine months ended September 30, 2013 and 2012, and the period from inception (January 1, 2001) to September 30, 2013, and cash flows for the nine-month periods ended September 30, 2013 and 2012, and the period from inception (January 1, 2001) to September 30, 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.
 
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 $19,673,704 for the period from inception (January 1, 2001) to September 30, 2013, and a net loss of $1,150,882 and $1,511,737 for the nine-months ended September 30, 2013 and 2012, respectively. 
 
 
1

 
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 September 30, 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 nine-months ended September 30, 2013, the Company received $621,810 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.

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 30, 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 30, 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”.
 
 
2

 
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.

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 was for a maximum of $149,940 for 2009 and the remainder for 2011. 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 earned $-0- and $63,669 from the grant during the nine-month periods ended September 30, 2013 and 2012, respectively and $281,492 from inception to date. 
 
During the nine-month periods ended September 30, 2013 and 2012, the Company charged operations $-0- and $12,071, respectively, pursuant to the direct costs incurred and for the use of the OU lab facilities in regard to the OCAST grant.
 
On July 2, 2013, the Company issued a press release announcing that the Company was awarded a $300,000 grant in this year’s Oklahoma Applied Research Support competition sponsored by the Oklahoma Center for the Advancement of Science and Technology. The Company explained that the grant money will be used to support the development of the Company’s first Product Platform, which will be the basis for a family of products based on the Company’s CSpace® volumetric 3D display technology.

Note 4 – Debentures and Notes Payable
 
Debentures payable consist of the following:
 
 
 
September 30,
2013
 
December 31,
2012
 
Senior Convertible Debentures:
 
 
 
 
 
 
 
10% Convertible debentures to Directors due June 2014
 
$
30,000
 
$
-
 
10% Convertible debenture due November 2013
 
 
29,007
 
 
29,007
 
4.75% Convertible debenture due December 2014
 
 
70,225
 
 
73,665
 
5.0% Convertible notes due 2013 (net of $12,792 and $6,167 OID)
 
 
109,228
 
 
168,833
 
15% Convertible bridge notes due 2014
 
 
158,987
 
 
403,000
 
 
 
 
 
 
 
 
 
Settlement Agreement 3(a)(10)
 
 
129,758
 
 
-
 
15% Convertible bridge note to Director due December 2013
 
 
60,000
 
 
60,000
 
Total Debentures
 
 
587,205
 
 
734,505
 
Less - Current Maturities
 
 
(516,980)
 
 
(660,840)
 
 
 
 
 
 
 
 
 
Long-term Debentures
 
$
70,225
 
$
73,665
 
 
 
3

 
Director Debenture
 
On June 24, 2013, the Company issued to Victor Keen and Martin Keating, Directors of the Company, (“Directors”) 10% convertible debentures in a principal amount of $15,000 each, due June 26, 2014. The Directors may elect to convert all or any portion of the outstanding principal amount of the debentures at an exercise price of $0.01 per share. Provided that the debentures are paid in full or on before the maturity date, no interest shall accrue on the unpaid balance of the principal amount. In the event that the debentures are not paid in full on or before the maturity date, interest shall accrue on the unpaid outstanding balance of the principal amount of the debentures from June 26, 2013, until paid, at the fixed rate of ten percent (10%) per annum.
 
Newton, O'Connor, Turner & Ketchum 10% Convertible Debenture
 
On December 20, 2012, the Company issued to Newton, O'Connor, Turner & Ketchum (“NOTK”) a 10% convertible debenture in a principal amount of $29,007, initially due September 30, 2013 and extended to November 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 December 31, 2014
 
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 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 2013, Golden State converted $3,440 of the $100,000 debenture into 18,466,089 post-split shares of common stock, exercised warrants to purchase 983 post-split shares of common stock at $381.50 per share based on the formula in the convertible debenture. Additionally Golden State advanced $621,810 against future exercises of warrants of which $374,960 was applied to the exercise of warrants leaving $181,451 of unapplied advances at September 30, 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.
 
 
4

 
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 $75,000 and earned $6,000 OID during 2012. During 2013, JMJ advanced an additional $80,000 on the note and earned $22,645 OID. Additionally, JMJ converted $86,625 of the note into 6,057,305 shares of common stock at an average of $0.0143 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. 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 #1 on 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 #1 within 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. During 2012, JMJ advanced $75,000 on Note #2 and earned $8,000 OID. During 2013, JMJ converted $88,200 of the note into 6,747,619 shares of common stock at an average of $0.0037 per share based on the formula in the note. 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. 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. 
 
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. 
 
15% Convertible Bridge Notes
 
On August 24, 2012, August 28, 2012 and September 11, 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 11, 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. 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”).
 
 
5

   
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.  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. 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. In April 2013, the GCA Bridge Note was assigned to a successor in interest and the Company executed an amendment to the GCA Bridge Note in order to extend the maturity until July 22, 2014 and reduce the conversion price to the greater of (x) the par value of the Common Stock, or (y) 60% of the lowest closing bid price, as reported by Bloomberg, L.P., for the 10 trading days prior to the date the conversion of all or part of its principal and interest are requested.
 
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. On 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.
 
On July 30, 2013 (the “Amendment Date”), the Company entered into a second amendment agreement (the “Second Keen Amendment”) with Victor Keen, a Director on the Board of Directors of the Company, to amend the Keen Bridge note. 
 
Pursuant to the Second Keen Amendment, Mr. Keen agreed to extend the maturity of the Note from May 15, 2013 to August 31, 2013 (the “New Maturity Date”) and to waive, if any, existing or prior defaults under the Keen Bridge Note or the Keen SPA and the Company agreed to (i) amend the conversion provision to allow for conversions based on a conversion price calculated on the Amendment Date or the New Maturity Date; and (ii) to include an interest rate equal to 10% per annum, payable on the New Maturity Date, as amended, which accrual shall commence on December 10, 2012.
 
On September 30, 2013 (the “Amendment Date”), the Company entered into a third amendment agreement (the “Third Keen Amendment”) with Victor Keen, a Director on the Board of Directors of the Company, to amend the Keen Bridge note.
 
Pursuant to the Third Keen Amendment, Mr. Keen agreed to extend the maturity of the Note from August 31, 2013 to December 31, 2013 (the “New Maturity Date”) and to waive, if any, existing or prior defaults under the Keen Bridge Note or the Keen SPA.
 
 
6

 
Settlement Agreement
 
On July 26, 2013, the Circuit Court in the 12th Judicial Circuit in and for Sarasota County, Florida (the “Court”), entered an Order Granting Approval of Settlement Agreement (the “Order”) approving, among other things, the fairness of the terms and conditions of an exchange pursuant to Section 3(a)(10) of the Securities Act of 1933, as amended, in accordance with a Settlement Agreement (the “Settlement Agreement”) between the Company and IBC Funds, LLC, a Nevada limited liability company (“IBC”), in the matter entitled IBC Funds, LLC v. 3DIcon Corporation, Case No. 2013 CA 5705 NC (the “Action”). IBC commenced the Action against the Company on July 19, 2013 to recover an aggregate of $197,631 of past-due accounts payable of the Company, which IBC had purchased from certain vendors of the Company pursuant to the terms of separate claim purchase agreements between IBC and each of such vendors (the “Assigned Accounts”), plus fees and costs (the “Claim”). The Assigned Accounts relate to certain research, technical, development, accounting and legal services.  The Order provides for the full and final settlement of the Claim and the Action. The Settlement Agreement became effective and binding upon the Company and IBC upon execution of the Order by the Court on July 26, 2013.
 
Pursuant to the terms of the Settlement Agreement approved by the Order, on July 26, 2013, the Company issued 650,000 shares of Common Stock as a settlement fee and agreed to issue, in one or more tranches as necessary, that number of shares equal to $197,631 upon conversion to Common Stock at a conversion rate equal to 65% of the lowest closing bid price of the Common Stock during the ten trading days prior to the date the conversion is requested by IBC minus $0.002.  During 2013, IBC converted $67,873 of the note into 16,000,000 shares of common stock at an average of $0.0042 per share based on the formula in the note.

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.
 
Warrants issued
 
As of September 30, 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 20,062 shares of common stock at a price of $381.50 per share which expire December 31, 2014.
 
 
7

 
Common stock and options issued for services and liabilities
 
During the nine-month periods ended September 30, 2013 and 2012, shares of common stock totaling 12,505,475 and 1,848,691, respectively were issued for consulting services for which the Company recognized $220,350 and $230,350 of expense, respectively. Additionally, during the period ending September 30, 2013 and 2012, shares totaling 1,098,751 and 869,510, respectively were issued to consultants for previous services provided to the Company for which the accounts payable liability was reduced by $31,500 and $366,364, respectively. 
 
Employment Agreement - On March 19, 2012 the Company announced that Sidney Aroesty would resign as CEO and join the Board of Directors. Effective April 15, 2013, Mr. Aroesty resigned as a member of the Board of Directors.
 
Employment Agreement - 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. (see Note 10)
 
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 Dr. Melnik began serving as the Company’s Senior Technical Advisor, effective immediately. Under the terms of the Employment Agreement, Dr. 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 Dr. 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 Dr. 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, Dr. 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.
 
 
8

 
The Employment Agreement may be terminated with or without reason by either the Company or Dr. 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.
 
On April 11, 2013, the Company completed the sale of two options, each 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 stock 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 for a period of five years. 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 were $100,000.
 
The following summary reflects warrant and option activity for the nine-month period ended September 30, 2013:
 
 
 
Attached 
Warrants
 
Golden State 
Warrants
 
Options
 
 
 
 
 
 
 
 
 
 
 
 
Outstanding December 31, 2012
 
 
221,122
 
 
21,045
 
 
3,045,989
 
Granted/purchased
 
 
-
 
 
-
 
 
20,000,000
 
Exercised
 
 
-
 
 
(983)
 
 
-
 
Cancelled
 
 
-
 
 
-
 
 
-
 
 
 
 
 
 
 
 
 
 
 
 
Outstanding September 30, 2013
 
 
221,122
 
 
20,062
 
 
23,045,989
 
 
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) post-split shares.  The shares are included in a registration statement filed January 14, 2011. Post-split shares totaling -0- and 940,126 were issued from the 2011 EIP during 2013 and 2012 respectively, for services rendered and to satisfy accounts payable to the Company. 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 -0- and 1,172,514 were issued from the 2012 EIP during 2013 and 2012 respectively, for services rendered and to satisfy accounts payable to the Company. There are currently 1,072,536 shares available for issuance under the 2012 EIP.
 
In June 2013, the Company established the 3DIcon Corporation 2013 Equity Incentive Plan (the "2013 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 2013 EIP shall not exceed twenty million (20,000,000) post-split shares.  The shares are included in a registration statement filed June 10, 2013. Post-split shares totaling 11,849,225 were issued from the 2013 EIP during 2013 for services rendered. There are currently 8,150,755 shares available for issuance under the 2013 EIP.
 
 
9

 
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
 
$
6,000
 
2014
 
 
23,000
 
2015
 
 
13,000
 
Total
 
$
42,000
 

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 September 30, 2013 and September 30, 2012, the Company incurred legal fees to Newton, O’Connor, Turner & Ketchum in the amount of $18,595 and $17,068, 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  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. 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.
 
 
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Note 10 – Subsequent Events
    
Common stock issued for services and liabilities
 
Subsequent to September 30, 2013, shares of common stock totaling 2,485,542 were issued for consulting services for which the Company recognized $30,000 of expense. 
 
Subsequent to September 30, 2013, shares of common stock totaling 14,460,000were issued for $6,265in connection with the Settlement Agreement and the liabilities contained there under.
 
Subsequent to September 30, 2013, shares of common stock totaling 14,400,000 were issued to JMJ upon conversion of $21,600 in principal of outstanding convertible promissory notes of the Company.
 
Subsequent to September 30, 2013, shares of common stock totaling 5,688,155 were issued upon a $150 conversion of the Golden Gate debenture with the exercise of 43 warrants at $381.50 per share for $16,350. Golden Gate also advanced $50,000 for future exercise of warrants under the terms of the securities purchase agreements.
 
New Debenture Issued
 
On October 1, 2013 (the “Date of Issuance”), 3DIcon Corporation issued and sold to an accredited investor a Senior Convertible Note (the “Senior Note”) in the principal amount of $205,000 and a warrant to purchase 300,000 shares of the Company’s common stock at an exercise price equal to 110% of the closing bid price on September 30, 2013 (the “October 2013 Warrant”). The Senior Note included a $30,750 original issue discount. Accordingly, the Company received $174,250 gross proceeds from which the Company paid legal and documentation fees of $22,500 and placement agent fees of $15,682.
 
The Senior Note matures on July 1, 2014 and does not carry interest. However, in the event the Senior Note is not paid on maturity, all past due amounts will accrue interest at 15% per annum. At any time subsequent to six months following the Date of Issuance, the Senior Note holder may elect to convert all or any portion of the outstanding principal amount of the Senior Note into 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 the Date of Issuance or 80% of the average VWAP during the 5 days prior to the date the holder delivers a conversion notice to the Company.
 
The estimated fair value of the warrants for common stock issued of $2,130 was determined using the Black-Scholes option pricing model. The expected dividend yield of zero is based on the average annual dividend yield as of the issue date. Expected volatility of 173.64% is based on the historical volatility of our stock. The risk-free interest rate of 1.39% is based on the U.S. Treasury Constant Maturity rate for five years as of the issue date. The expected life of five years of the warrant is based on historical exercise behavior and expected future experience.
 
The October 2013 Warrant is exercisable at any time on or after March 31, 2014 and on or prior to the close of business on March 31, 2019. At the election of the October 2013 Warrant holder, the October 2013 Warrant may be exercised using a cashless exercise method.
 
The Senior Note and October 2013 Warrant were offered and sold to an accredited investor in a private placement transaction made in reliance upon exemptions from registration pursuant to Section 4(2) under the Securities Act of 1933.
 
Change in Management
 
 On November 1, 2013, Mark Willner resigned as Chief Executive Officer of 3DIcon Corporation in order to allow Victor F. Keen to take over in his place as the Company’s newly appointed Interim Chief Executive Officer.
   
Mr. Willner’s resignation was not a result of any dispute with the Company. Furthermore, Mr. Willner will assume a strategic consulting role with the Company, focusing his efforts on the commercialization of and business development of the Company’s patented 3D display technology, CSpace®.
 
Mr. Keen, formerly Co-Chairman of the Company’s Board of Directors, will remain a member of the Board while John M. O’Connor, also a former Co-Chairman, was newly elected as the sole Chairman of the Board. Mr. Keen has been a member of the Board since November 2007.
 
 
11

 
 
 
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. Accordingly, the first year ended on August 31, 2010.  The award was for a maximum of $149,940 for 2009 and the remainder for 2011. The Company received approval for a no cost extension request for the second year of the contract, extending the second year to August 31, 2012. 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 December 31, 2012. The Company applied for and received the remaining $13,029 of grant funds in 2013 that were earned through the end of the grant period, August 31, 2012.
 
 
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In July 2013, the Company won first place in the Oklahoma Center for the Advancement of Science and Technology’s Oklahoma Applied Research Support competition, securing $300,000 in grant funding. The Company intends to use the funds provided by the grant to support the development of its First Product Platform, which will be the basis of a family of products leveraging the Company’s CSpace® volumetric 3D display technology.
 
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 eight provisional patents; five of the eight provisional patents have been combined and converted to five utility patents. Under the Sponsored Research Agreement, the Company has obtained the exclusive worldwide marketing rights to these 3D display technologies.
 
                On May 26, 2009, the United States Patent and Trademark Office ("USPTO") approved the 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. Under our agreement with the University of Oklahoma, the University filed a continuation patent application on November 19, 2010, called “3D Light Surface Display”.  This application provides additional protections of our CSpace® technology. 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 further develop and commercialize this technology and the intellectual property developed by the University. 3DIcon plans to initially target high value professional applications with products based on this technology within the government and industrial sectors including but not limited to the following: air traffic control, passenger, luggage screening, battle space visualization, underwater targeting, navigation, and exploration, simulation and training, medical imaging, oil and gas exploration, weather forecasting, and automotive and aerospace design. 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. On March 12, 2013, we filed a provisional patent application for glasses-free rear projection 3D display with a new architecture that we believe will significantly lower the cost of this type of display. This provisional patent application is called “Holoform Projection Display” and is solely owned by 3DIcon. On July 26th, 2013, we filed a provisional patent application called “Ultra High Resolution Three-Dimensional Display” for a Z-axis scanning system that significantly enhances the performance of the CSpace technology and that is solely owned by 3DIcon.
 
Since March of 2012, the Company has been exploring the possibility of developing and/or marketing glasses-free flat screen 3D displays based on next generation glasses-free flat screen 3D display technology internally developed, acquired or licensed from another company. This technology and any resultant display products would be in addition to and complementary with our internally developed CSpace glasses-free volumetric 3D display technology. In 2012, the Company met with multiple glasses-free flat screen 3D display companies, and has had discussions with several of these companies about a potential acquisition or partnership. 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.
 
 
13

 
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 eight provisional patents; five of the eight provisional patents have been combined and converted to five utility US patents, one pending European patent and one pending Japanese patent.
 
List of the issued United States patents:
 
-
”Computer System with Digital Micromirror Device,” United States Patent 8,487,865. July 16, 2013.
 
-
”3D Volumetric Display,” United States Patent 8,247,755. August 21, 2012.
 
-
”3D Light Surface Display,” United States Patent 8,075,139, December 13, 2011.
 
-
”Light Surface Display for Rendering a Three-Dimensional Image,” United States Patent 7,858,913, December, 28, 2010.
 
-
“Volumetric liquid crystal display for rendering a three-dimensional image,” United States Patent 7,537,345, May 26, 2009.
 
List of the pending patents:
 
European, pending
”Light Surface Display for Rendering a Three-Dimensional Image,” European Application Number EP07755984. Filed April 25, 2007.
 
Japanese, pending
“Light Surface Display for Rendering a Three-Dimensional Image,” Japanese Patent Application No. 2009-507766.
 
As mentioned above, 3DIcon has been aggressively working to enhance the performance of CSpace display and create new 3D display technologies. Up-to-date, we filed two provisional patents that are solely owned by 3DIcon.
 
List of filed provisional patents owned by 3DIcon
 
-
“Holoform Projection Display”, United States Provisional Patent filed on March 12, 2013.
-
“Ultra High Resolution Three-Dimensional Display” US Provisional Patent filed on July 26, 2013.
 
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2013 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2012
 
Revenue
 
The Company completed the OCAST grant in August 2012 and did not have any earnings from OCAST during the three months periods ended September 30, 2013 or September 30, 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 not earned any income from the sales of Pixel Precision for the three-months periods ended September 30, 2013 or September 30, 2012.
 
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.
 
 
14

 
Research and Development Expenses
 
The research and development expenses were $90,035 for the three months ended September 30, 2013, as compared to $127,759 for the three months ended September 30, 2012.  The net decrease was a result of the decrease in cost for engaging outside research and development consultants of approximately $5,899, a decrease in patent costs of $1,987, a decrease of supplies purchased of $6,949 and a decrease in of approximately $12,807 of research and development equipment purchased.
 
General and Administrative Expenses
 
Our general and administrative expenses were $227,111 for the three months ended September 30, 2013, as compared to $502,468 for the three months ended September 30, 2012.  The decrease is due primarily to a decrease in options issued to board members of $225,000 in 2012, a decrease of $18,840 in options issued to the new CEO in 2012, a decrease in filing fees of $12,510, a decrease in consultants fees of $16,000 and a decrease in the insurance costs of $4,416.
 
Interest Expense
 
Interest expense for the three months ended September 30, 2013 was $6,239 as compared to $35,887 for the three months ended September 30, 2012.  The decrease was a result of a decrease in the amounts outstanding on our JMJ convertible notes and bridge notes of $7,500 and OID amortization of $22,474.
 
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2012
 
Revenue
 
The Company completed the OCAST grant in August 2012 and we received the remaining OCAST grant earnings of $63,669 during the nine months ended September 30, 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 nine-months ended September 30, 2013 and September 30, 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 $280,796 for the nine months ended September 30, 2013, as compared to $414,149 for the nine months ended September 30, 2012.  The decrease was a result of the decrease in cost for engaging outside research and development consultants of approximately $34,864, a decrease in salaries of $23,846, a decrease in patent costs of $13,533, a decrease in equipment and supplies purchased of $16,814, a decrease in the OCAST cost for the lab facility of $13,078, a decrease in travel cost of $2,700, and a decrease in the cost of options issued for $28,260.
  
General and Administrative Expenses
 
Our general and administrative expenses were $811,964 for the nine months ended September 30, 2013, as compared to $1,120,660 for the nine months ended September 30, 2012.  The net decrease is due primarily to a $74,342 increase in legal fees regarding the DTC chill matter in 2013, a decrease of $281,520 in options issued to the new CEO and the Board of Directors in 2012, a decrease in web design fees of $3,143, a decrease of outside consultants and interim CFO costs of $60,482, a decrease in payroll taxes of $7,278, a decrease in insurance of $7,080, a decrease in filing fees of $19,010, and a decrease in rent of $4,118.
 
 
15

   
Interest Expense
 
Interest expense for the nine months ended September 30, 2013 was $59,622 as compared to $40,597 for the nine months ended September 30, 2012.  The net increase was a result of an increase in the amounts of OID amortized on our notes of $8,052, an extension fee of $15,000 paid in 2013, and a decrease of $4,027 in interest costs on our notes outstanding.
 
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 $18,360 at September 30, 2013.
 
We had negative working capital of $856,712 at September 30, 2013.
 
During the nine months ended September 30, 2013, we used $807,300 of cash for operating activities, a decrease of $238,960 or 23% compared to the nine months ended September 30, 2012. The decrease in the use of cash for operating activities was a result of the decrease in accounts payable.
 
There was no cash used in investing activities during the nine months ended September 30, 2013 or for the nine months ended September 30, 2012.
 
Cash provided by financing activities during the nine months ended September 30, 2013 was $824,310, a decrease of $239,821 or 23% compared to the nine months ended September 30, 2012.  The decrease was the result of warrant exercise advances from Golden State under the terms of our 4.75% convertible debenture of $67,021 and a decrease of $172,800 in debentures issued from 2012.
 
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.
 
Director Debenture
 
On June 24, 2013, the Company issued to Victor Keen and Martin Keating, Directors of the Company, (“Directors”) 10% convertible debentures in a principal amount of $15,000 each, due June 26, 2014. The Directors may elect to convert all or any portion of the outstanding principal amount of the debentures at an exercise price of $0.01 per share. Provided that the debentures are paid in full or on before the maturity date, no interest shall accrue on the unpaid balance of the principal amount. In the event that the debentures are not paid in full on or before the maturity date, interest shall accrue on the unpaid outstanding balance of the principal amount of the debentures from June 26, 2013, until paid, at the fixed rate of ten percent (10%) per annum.
 
 
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Newton, O'Connor, Turner & Ketchum 10% Convertible Debenture
 
On December 20, 2012, the Company issued to Newton, O'Connor, Turner & Ketchum (“NOTK”) a 10% convertible debenture in a principal amount of $29,007, initially due September 30, 2013 and extended to November 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 December 31, 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 2013, Golden State converted $3,440 of the $100,000 debenture into 18,466,089 post-split shares of common stock, exercised warrants to purchase 983 post-split shares of common stock at $381.50 per share based on the formula in the convertible debenture. Additionally Golden State advanced $621,810 against future exercises of warrants of which $374,960 was applied to the exercise of warrants leaving $181,451 of unapplied advances at September 30, 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.
 
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 $75,000 and earned $6,000 OID during 2012. During 2013, JMJ advanced an additional $80,000 on the note and earned $22,645 OID. Additionally, JMJ converted $86,625 of the note into 6,057,305 shares of common stock at an average of $0.0143 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. 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 #1 on 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 #1 within 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. During 2012, JMJ advanced $75,000 on Note #2 and earned $8,000 OID. During 2013 JMJ converted $88,200 of the note into 6,747,619 shares of common stock at an average of $0.0037 per share based on the formula in the note. 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. 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.
 
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