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.

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 26 ^th , 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.

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 US patents:

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

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2013 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2012

Revenue

The Company completed the OCAST grant in August 2012. However, we did receive the remaining OCAST grant earnings during the three months ended June 30, 2013 for grant funding approved through August 2012. We earned $11,020 from the OCAST grant during the three months ended June 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 ended June 30, 2013 and June 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 $86,837 for the three months ended June 30, 2013, as compared to $152,908 for the three months ended June 30, 2012.  The net decrease was a result of the decrease in cost for engaging outside research and development consultants of approximately $18,890, travel of $5,387, patents of $10,845, options issued of $18,840, and the purchase of approximately $12,393 of R & D equipment.

General and Administrative Expenses

Our general and administrative expenses were $320,880 for the three months ended June 30, 2013, as compared to $323,198 for the three months ended June 30, 2012.  The net decrease is due primarily to a $59,387 increase in legal fees regarding the DTC chill in 2013, a decrease of $18,840 in options issued to the new CEO in 2012, a decrease in accounting fees of $17,500 a decrease in filing fees of $11,109, a decrease in various administrative expenses of $8,000 and a $3,352 decrease due to the completion of management consultant contracted in early 2012.

Interest Expense

Interest expense for the three months ended June 30, 2013 was $33,116 as compared to $2,830 for the three months ended June 30, 2012.  The net increase was a result of an increase in the amounts outstanding on our JMJ convertible notes, bridge notes, OID amortization of $14,600, extension fee of $15,000 and a decrease in interest costs on our 4.75% Convertible Debenture.

RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2013 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2012

Revenue

The Company completed the OCAST grant in August 2012. However, we did receive the remaining OCAST grant earnings during the six months ended June 30, 2013 for grant funding approved through August 2012. We earned $63,668 from the OCAST grant during the six months ended June 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 six-months ended June 30, 2013 and June 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 $190,442 for the six months ended June 30, 2013, as compared to $286,389 for the six months ended June 30, 2012.  The net decrease was a result of the decrease in cost for engaging outside research and development consultants of approximately $66,671, patents $11,865, and options issued for $18,840.

General and Administrative Expenses

Our general and administrative expenses were $584,852 for the six months ended June 30, 2013, as compared to $618,192 for the six months ended June 30, 2012.  The net decrease is due primarily to a $76,800 increase in legal fees regarding the DTC chill in 2013, a decrease of $37,680 in options issued to the new CEO in 2012, decreases in accounting fees of $14,094, outside consultants of $4,250, payroll taxes of $5,966, insurance of $3,956, filing fees of $7,170, and rent of $2,800.

Interest Expense

Interest expense for the six months ended June 30, 2013 was $53,383 as compared to $4,710 for the six months ended June 30, 2012.  The net increase was a result of an increase in the amounts outstanding on our convertible notes, bridge notes, $30,860 OID amortized on our new notes, an extension fee of $15,000 and a decrease of $1,352 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:

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 $119,445 at June 30, 2013.

We had negative working capital of $1,000,770 at June 30, 2013.

During the six months ended June 30, 2013, we used $488,715 of cash for operating activities, a decrease of $182,021 or 27% compared to the six months ended June 30, 2012. The decrease in the use of cash for operating activities was a result of the increase in accounts payable.

There was no cash used in investing activities during the six months ended June 30, 2013 or for the six months ended June 30, 2012.

Cash provided by financing activities during the six months ended June 30, 2012 was $606,810, a decrease of $78,021 or 11% compared to the six months ended June 30, 2012.  The decrease was the result of warrant exercise advances from Golden State under the terms of our 4.75% convertible debenture.

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 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 $2,840of the $100,000 debenture into 13,423,644post-split shares of common stock, exercised warrants to purchase 811post-split shares of common stock at $381.50 per share based on the formula in the convertible debenture. Additionally Golden Gate advanced $421,810against future exercises of warrants of which $309,560was applied to the exercise of warrants leaving $46,851of unapplied advances at June 30, 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. 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.

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.

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.

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 September 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.

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. Subsequent to April 15, 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. 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 August 31, 2013.

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.

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

GCASIF Convertible Bridge Note

On July 22, 2013, the Company entered into a third amendment agreement (the “Third Amendment”) with CP US Income Group LLC (“CPUS”), the successor in interest of GCA Strategic Investment Fund Limited to that certain Convertible Bridge Note in principal amount of $300,000 and due November 26, 2012, as amended on December 21, 2012 to increase the principal amount to $325,000 and on May 28, 2013 to extend the maturity date to August 1, 2013 (the “Assigned Note”) and that certain Securities Purchase Agreement dated as of August 24, 2012, as amended on December 21, 2012 and May 28, 2013 (the “Assigned SPA”).

Pursuant to the Amendment, CPUS agreed to extend the maturity of the Assigned Note from August 1, 2013 to July 22, 2014 and to waive, if any, existing or prior defaults under the Assigned Note or Assigned SPA and the Company agreed to (i) amend the conversion price of the Assigned Note 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 CPUS requests conversion of all or part of the Assigned Note; and (ii) agreed to file a prospectus supplement to the Form 424B3 filed by the Company on February 15, 2013 in order to identify CPUS as a Selling Stockholder in place of GCASIF.

Keen Convertible Bridge Note

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 that certain Convertible Bridge Note in principal amount of $60,000 and due December 10, 2012, as amended by that certain Amendment to Securities Purchase Agreement dated as of January 23, 2013, extending the maturity date to April 30, 2013, and by letter agreement dated May 1, 2013, extending the maturity date to May 15, 2013 and that certain Securities Purchase Agreement dated as of September 10, 2012, as amended on January 23, 2013 (the “Keen SPA”).

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.

Settlement Agreement

On July 26, 2013, the Circuit Court in the 12 ^th  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 $197,630.64 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 $197,630.64 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.

Common stock issued for services and liabilities

Subsequent to June 30, 2013, shares of common stock totaling 5,160,599 were issued for consulting services for which the Company recognized $108,300 of expense. 

Subsequent to June 30, 2013, shares of common stock totaling 4,000,000 were issued in connection with the Settlement Agreement and the liabilities contained thereunder.

Subsequent to June 30, 2013, shares of common stock totaling 9,439,419 were issued upon conversion of $106,696 in principal of outstanding convertible promissory notes of the Company.

Subsequent to June 30, 2013, shares of common stock totaling 86 were issued upon exercise of 86 warrants at $381.50 per share for $32,700 and advanced $100,000 for future exercise of warrants under the terms of the securities purchase agreements.