CORETEC GROUP INC. - FORM 10-Q

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EX-32.1 - CORETEC GROUP INC.	v222658_ex32-1.htm
EX-31.1 - CORETEC GROUP INC.	v222658_ex31-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2011

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

For the transition period from __________ to __________

COMMISSION FILE NUMBER 333-143761

3DICON CORPORATION

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

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

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

(Address of principal executive offices) (Zip Code)

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

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

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

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

Large accelerated filer ¨

Accelerated filer ¨

Non-accelerated filer ¨ (do

not check if smaller reporting

company)

Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

As of May 16, 2011, the issuer had 1,126,884,410 outstanding shares of Common Stock.

TABLE OF CONTENTS

		Page
	PART I – Financial Information
Item 1.	Financial Statements.	F-1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	3
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	8
Item 4.	Controls and Procedures.	8
	PART II – Other Information
Item 1.	Legal Proceedings.	9
Item 1A.	Risk Factors.	9
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	9
Item 3.	Defaults Upon Senior Securities.	9
Item 4.	(Removed and Reserved).	9
Item 5.	Other Information.	9
Item 6.	Exhibits.	10
SIGNATURES		11

PART I

Item 1. Financial Statements.

INDEX TO FINANCIAL STATEMENTS

		Page
Balance Sheets as of March 31, 2011 (Unaudited) and December 31, 2010 (Audited)		F-2

Statements of Operations for the three months ended March 31, 2011 and 2010 and period from inception (January 1, 2001) to March 31, 2011 (Unaudited)		F-3

Statements of Changes in Stockholders' Deficiency for period from inception (January 1, 2001) to March 31, 2011 (Unaudited)		F-4

Statements of Cash Flows for the three months ended March 31, 2011 and 2010 and period from inception (January 1, 2001) to March 31, 2011 (Unaudited)		F-7

Notes to Financial Statements, March 31, 2011 (Unaudited)		F-8

F-1

3DIcon CORPORATION

(A Development Stage Company)

BALANCE SHEETS

March 31, 2011 and December 31, 2010

	March 31,			December 31,
	2011			2010
	(Unaudited)			(Audited)
Assets
Current assets:
Cash	$	850,770		$	367,101
Prepaid expenses		19,250			21,771
Accounts receivable		30,000			7,092
Total current assets		900,020			395,964

Net property and equipment		14,167			15,709
Deposits-other		2,315			2,315
Total Assets	$	916,502		$	413,988

Liabilities and Stockholders' Deficiency
Current liabilities:
Current maturities of convertible debentures payable	$	290,714		$	403,445
Warrant exercise advances		164,782			-
Accounts payable		223,520			203,590
Accrued salaries		-			501,362
Accrued interest on debentures		32,772			41,174
Total current liabilities		711,788			1,149,571

Promissory notes, 5%, due 2013		150,877			400,878
Accrued interest due 2013		3,103			4,120
Long term debt		153,980			404,998

Total Liabilities		865,768			1,554,569

Common stock subject to put rights and call right, 59,000,000 shares		485,649			485,649

Stockholders' deficiency:
Common stock $.0002 par, 1,500,000,000 shares authorized; 995,926,753 and 757,539,307 shares issued and outstanding at March 31, 2011 and December 31, 2010, respectively		199,185			151,508
Additional paid-in capital		13,823,159			12,322,913
Deficit accumulated during development stage		(14,457,259	)		(14,100,651	)
Total Stockholders' Deficiency		(434,915	)		(1,626,230	)
Total Liabilities and Stockholders' Deficiency	$	916,502		$	413,988

See notes to financial statements

F-2

3DIcon CORPORATION

(A Development Stage Company)

STATEMENTS OF OPERATIONS

Three months ended March 31, 2011 and 2010

and Period from Inception (January 1, 2001) to March 31, 2011

(unaudited)

	Three Months			Three Months
	Ended			Ended			Inception to
	March 31,			March 31,			March 31,
	2011			2010			2011
Income:
License fee	$	-		$	-		$	25,000
Grant income		30,000			10,278			161,501
Sales		3,000			-			40,797

Total income		33,000			10,278			227,298

Expenses:
Research and development		65,003			73,969			3,281,003
General and administrative		296,252			233,455			10,977,546
Interest		28,353			20,691			426,008

Total expenses		389,608			328,115			14,684,557

Net loss	$	(356,608	)	$	(317,837	)	$	(14,457,259	)

Loss per share:
Basic and diluted	$	(0.0004	)	$	(0.001	)

Weighted average shares outstanding, Basic and diluted		889,646,445			384,915,912

See notes to financial statements

F-3

3DIcon CORPORATION

(A Development Stage Company)

STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY

Period from Inception (January 1, 2001) to March 31, 2011

(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	)

See notes to financial statements

F-4

3DIcon CORPORATION

(A Development Stage Company)

STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY

Period from Inception (January 1, 2001) to March 31, 2011

(unaudited)

								Deficit
								Accumulated
					Additional			During the
	Common Stock				Paid-In			Development
	Shares		Par Value		Capital			Stage			Total

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		98,327,656		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	)

See notes to financial statements

F-5

3DIcon CORPORATION

(A Development Stage Company)

STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY

Period from Inception (January 1, 2001) to March 31, 2011

(unaudited)

									Deficit
									Accumulated
							Additional		During the
	Common Stock						Paid-In		Development
	Shares			Par Value			Capital		Stage			Total
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 exercised		54,000			10			588,589		-			588,599
Debentures converted		147,539,923			29,508			345,892		-			375,400
Stock issued for services		2,700,000			540			37,933		-			38,473
Stock issued for liabilities		90,338,612			18,068			522,209		-			540,277
Stock issued for interest		2,065,377			413			4,761		-			5,174
Escrowed shares cancelled		(4,310,466	)		(862	)		862		-			-
Net loss for the period		-			-			-		(356,608	)		(356,608	)
Balance, March 31, 2011		995,926,753		$	199,185		$	13,823,159	$	(14,457,259	)	$	(434,915	)

See notes to financial statements

F-6

3DIcon CORPORATION

(A Development Stage Company)

STATEMENTS OF CASH FLOWS

Three months ended March 31, 2011 and 2010

and Period from Inception (January 1, 2001) to March 31, 2011

(unaudited)

	Three Months			Three Months			Inception to
	Ended March 31,			Ended March 31,			March 31,
	2011			2010			2011
Cash Flows from Operating Activities
Net loss	$	(356,608	)	$	(317,837	)	$	(14,407,259	)
Adjustments to reconcile net loss to net cash used in operating activities:
Options issued for services		-			-			2,346,978
Stock issued for services		38,473			72,050			1,921,263
Stock issued for interest		17,842			-			116,563
Book value of assets retired		-			-			5,861
Amortization of debt issuance costs		-			10,039			170,414
Depreciation		1,542			1,541			22,503
Change in:
Impairment of assets		-			-			292,202
Prepaid expenses and other assets		(20,387	)		(21,577	)		(299,965	)
Accounts payable and accrued liabilities		52,807			142,925			1,946,685

Net cash used in operating activities		(266,331	)		(112,859	)		(7,884,755	)

Cash Flows from Investing Activities
Purchase of office furniture and equipment		-			-			(42,531	)
Net cash used in investing activities		-			-			(42,531	)

Cash Flows from Financing Activities
Proceeds from stock and warrant sales, exercise of warrants and warrant exercise advances		750,000			150,000			4,468,455
Proceeds from issuance of debentures and notes		-			-			4,309,591

Net cash provided by financing activities		750,000			150,000			8,778,046

Net increase in cash		483,669			37,141			850,760
Cash, beginning of period		367,101			1,118			10

Cash, end of year	$	850,770		$	38,259		$	850,770

Supplemental Disclosures
Non-Cash Investing and Financing Activities
Conversion of debentures to common stock (net)	$	375,400		$	230,709		$	3,929,534
Cash paid for interest	$	31,581		$	-		$	293,735
Stock issued to satisfy payables	$	540,277		$	-		$	1,953,435
Debenture issued to satisfy payable	$	-		$	-		$	125,909
Stock issued subject to put rights and call right to satisfy payables	$	-		$	-		$	485,649

See notes to financial statements

F-7

3DIcon CORPORATION

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

Three months ended March 31, 2011 and 2010

(Unaudited)

Note 1 – Uncertainties and Use of Estimates

Basis of Presentation

The accompanying financial statements of 3DIcon Corporation (the “Company”) have been prepared without audit pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. The Company believes that the disclosures made are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the Company's year-end audited financial statements and related footnotes included in the previously filed 10-K. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position of the Company as of March 31, 2011, and the statements of its operations for the three months ended March 31, 2011 and 2010, and the period from inception (January 1, 2001) to March 31, 2011, and cash flows for the three-month periods ended March 31, 2011 and 2010, and the period from inception (January 1, 2001) to March 31, 2011, 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 $14,457,259 for the period from inception (January 1, 2001) to March 31, 2011, and a net loss of $356,608 and $317,837 for the three months ended March 31, 2011 and 2010, respectively.

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

F-8

Management plans to fund the future operations of the Company with existing cash, grants and investor funding. Under the terms of the Golden State debentures, as further described in Note 4, Golden State may advance an additional $378,787. The additional advance would be available if the Company filed a registration statement; however, the Company does not plan to file such registration statement. In addition, pursuant to the 4.75% Convertible Debenture due in November 2011, 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. In connection with each conversion, Golden State is expected to exercise warrants equal to ten times the amount of principal converted. The warrants are exercisable at $10.90 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, Golden State is required to convert $3,000 of the 4.75% Convertible Debenture and exercise 30,000 warrants per month. Based upon our current stock price, our issued and outstanding shares as of March 31, 2011 and ignoring the impact of the Beneficial Ownership Limitations, the Company may receive up to $981,000 in funding from Golden State as a result of warrant exercises during the remainder of the year ended December 31, 2011.

The Company was approved for a matching grant from Oklahoma Center for the Advancement of Science and Technology (“OCAST”) on November 19, 2008 in the amount of approximately $300,000. There remains $138,499 of grant funds to be provided during 2011. (see Note 3)

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

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

On April 20, 2004, we entered into a Sponsored Research Agreement entitled "Investigation of Emerging Digital Holography Technologies" ("Phase I") with the University of Oklahoma (the “University” or “OU”), which expired October 19, 2004. We paid the University $14,116 pursuant to this agreement. The purpose of this agreement was to conduct a pilot study to investigate digital holography as a candidate technology for the development of three-dimensional ("3D") imaging and visualization systems and to investigate the current state-of-the-art research and development activities taking place in the field of digital holography, particularly emerging technologies. The scope of work for the study encompassed the following tasks:

Literature review to determine key leading edge research in relevant areas;

Review of related commercial products to identify technological approaches and potential competitors and/or partners;

Preliminary patent review; and

Recommendations for product research and development directions.

On July 15, 2005, we entered into a Sponsored Research Agreement (“Phase II”) 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" and the Company agreed to pay the University $453,584 at various dates from November 10, 2005 through July 15, 2006 to cover the costs of the research. The goals for this research were as follows:

Produce patentable and/or copyrightable intellectual property;

Produce proof-of-concept technology that demonstrates the viability of the intellectual property;

Assess opportunities for manufacturing technological products in Oklahoma;

Investigate magnetic nanospheres (“MNs”) for use as a projection media;

Develop a control platform to actively distribute MNs in an unbounded volumetric space;

Investigate the doping of MNs with fluorescent materials for light emission at different wavelengths, i.e., develop fluorescent MNs ("FMNs");

Evaluate other display medium technologies for potential strategic partnerships;

Evaluate the most appropriate (from a cost-to-benefit standpoint) solid-state light sources for projection applications;

Develop software for displaying ideal 3D images; and

Investigate software interface issues with other image capture technologies.

F-9

The final payment of $226,792, due on July 15, 2006, was not paid. On November 1, 2006 the SRA was modified to provide $125,259 additional funding, extend the term of the agreement through March 31, 2007, and revise the payment schedule to combine the July 15, 2006 remaining balance due of $226,792 with the additional funding into a revised payment schedule. Under the terms of the agreement, we agreed to pay the combined remaining obligation of $352,051 in four equal monthly installments of $88,013 beginning on December 31, 2006 through March 31, 2007.

On February 23, 2007, we entered into a SRA with the University ("Phase III") which expired on March 31, 2010. Under this agreement, the University conducted a research project entitled "3-Dimensional Display Development". We agreed to pay the University $3,468,595 in monthly installments ranging from $92,263 to $112,777 beginning on April 30, 2007 and ending on March 31, 2010.

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 we 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 were 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 leaving a remaining balance after the base payments of $290,000. In addition to the monthly base payments, we 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 our 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. We 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 occurs after September 30, 2009.

On February 19, 2010, OU agreed to modify the repayment plan to retire the remaining arrearages outstanding 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 first quarterly payment was due to the University on April 30, 2010. These repayment terms were to remain in effect until the outstanding debt was retired.

On December 1, 2010, the Company entered into an agreement (the "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 shares ("OU 3DIcon Equity") of the Company's common stock (the "Shares"). 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 as follows:

OU Put Right - If, at any time during the one-year period beginning on the second anniversary of the Effective Date (the "OU Put 1 Period"), the sum of: (a) the value [stock price times number of shares] of the OU 3DIcon Equity held by OU at such time, plus (b) the proceeds (if any) of prior sales by OU of the OU 3DIcon Equity is less than $100,000, OU shall have the right to put (require 3DIcon or, at 3DIcon's option, another buyer, to redeem or purchase) one tenth (1/10) of the shares described herein for $50,000 plus 7% thereon annually from the Effective Date, less the amount (if any) of proceeds from the sale by OU of OU 3DIcon Equity (the "OU Put 1 Right"). If at any time during the one-year period beginning on the third anniversary of the Effective Date (the "OU Put 2 Period"), the sum of: (a) the value [stock price times number of shares] of the OU 3DIcon Equity held by OU at such time, plus (b) the proceeds (if any) of prior sales by OU of the OU 3DIcon Equity, including those put according to OU Put 1 Right and if such put occurred, is less than $970,000, OU shall have the right to put (require 3DIcon or, at 3DIcon's option, another buyer, to redeem) the shares for $485,000 plus 7% thereon annually from the Effective Date, less the amount (if any) of proceeds from the sale by OU of OU 3DIcon Equity (the "OU Put 2 Right"). The OU Put 2 right will be exercisable at any time during the OU Put 2 Period in which the trading price for 3DIcon stock has remained at or less than a trading price such that the sum of the amounts specified in clauses (a) and (b) above is exceeded by $970,000 less the proceeds of sales (if any) by OU of OU 3DIcon Equity for (i) ten consecutive trading days or (ii) twenty of thirty consecutive trading days. If OU puts the stock to 3DIcon as outlined above and OU does not receive the amount due within a 90-day period following a notification period, 3DIcon would be in default under any and all of the OU-3DIcon Agreements.

F-10

3DIcon Call Right - At any time during the one-year period following the third anniversary of the Effective Date, 3DIcon shall have the right to call (require OU to sell to 3DIcon) the OU 3DIcon Equity then held by OU for an amount equal to $970,000 less the amount (if any) of the proceeds of prior sales by OU of the OU 3DIcon Equity (the "3DIcon Call Right"). Provided, however, OU shall not be required to pay 3DIcon any amounts it receives as a result of prior sales of the 3DIcon Equity. In the event that 3DIcon elects to exercise the 3DIcon Call Right, 3DIcon will provide OU's Norman Campus Vice-President for Research, General Counsel, and Vice-President for Technology Development with a one hundred twenty day written notice of such intent. Any sales by OU of OU 3DIcon Equity shares during such one hundred twenty day period will not be subject to the 3DIcon Call Right.

The Company has presented the shares outside of stockholders’ deficiency in the mezzanine section of the balance sheets, as the Agreement includes put rights, which are 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.

During the three-month periods ended March 31, 2011 and 2010, the Company charged operations $8,456 and $14,141, respectively, pursuant to the SRA.

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 $299,932, had a start date of January 1, 2009. The Company received approval for our no cost extension request for the first year of the contract. With the new modification, the first year ended on August 31, 2010. The award is for a maximum of $149,940 for 2009 and the remainder for 2010. The Company earned $30,000 and $10,278 from the grant during the periods ended March 31, 2011 and 2010, and $161,501 inception to date. The Company received approval for our no cost extension request for the second year of the contract. With the new modification, the second year ends on August 31, 2011.

Note 4 – Debentures Payable

Debentures payable consist of the following:

	March 31, 2011			December 31, 2010
Senior Convertible Debentures:
6.25% Debenture due 2011	$	81,789		$	189,120
4.75% Debenture due 2011		83,016			88,416
13.0% Debenture due 2011		100,703			100,703
13.0% Debenture due 2011		25,206			25,206
Total Debentures		290,714			403,445
Less - Current Maturities		(290,714	)		(403,445	)
Long-term Debentures	$	-		$	-

F-11

6.25% Convertible Debenture due December 31, 2011

On November 21, 2007, the Company issued and sold a convertible note in the principal amount of $1,250,000 (the “Debenture”) to Golden State Equity Investors, Inc. f/k/a Golden Gate Investors (“Golden Gate”). Pursuant to the terms of the Debenture, Golden State may, at its election, convert all or a part of the Debenture into shares of the Company's common stock at a conversion rate equal to the lesser of (i) $2.00 or (ii) 90% of the average of the five lowest volume weighted average prices during the twenty trading days prior to Golden State's election to convert, subject to adjustment as provided in the Debenture. In addition, pursuant to the terms of the Debenture, the Company agreed to file a registration statement covering the shares of common stock issuable upon conversion or redemption of the Debenture. The Company filed a registration statement covering the shares to be issued upon conversion of the Debenture. Included in the registration statement were 4.25 million shares issuable on the Debenture based on 2007 market prices and assuming full conversion of the convertible debenture. The registration statement became effective on January 4, 2008.

Golden State advanced $125,000 on the $1.25 million Debenture on November 9, 2007 and $746,213 in January 2008 at which time the Company placed 7,961,783 shares of common stock in escrow to be released as debentures are converted. As of September 30, 2010, Golden State has funded an aggregate of $871,213 on the Debenture. Golden State will be obligated to fund the Company for the remaining $378,787 in principal on the Debenture upon the effectiveness of a registration statement underlying the remaining unfunded principal balance on the Debenture. At this time, the Company has not filed a registration statement. At various dates during 2009, $115,043, of the Debenture was converted into 12,124,828 shares of common stock at prices ranging from $0.007 to $0.01 based on the formula in the convertible debenture. At various dates during 2010, $274,438 of the Debenture was converted into 93,196,578 shares of common stock at prices ranging from $0.0027 to $0.004 based on the formula in the convertible debenture. Shares totaling 6,093,396 were issued in payment of $17,062 of accrued interest during 2010. At various dates during 2011, $120,000 of the Debenture was converted into 9,124,055 shares of common stock at prices ranging from $0.006 to $0.017 based on the formula in the convertible debenture. Additionally $12,669 of accrued interest due through March 15, 2011 was added to the debenture balance during the three-months period ended March 31, 2011. The 4,310,449 shares remaining in escrow and reported as outstanding at December 31, 2010 were cancelled in the first quarter of 2011.

The conversion price for the $1.25 million Debenture is the lesser of (i) $2.00 or (ii) 90% 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 price is below $0.75, 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.

In addition to standard default provisions concerning timeliness of payments, delivery and notifications, the Second Debenture will be in default if the common stock of the Company trades at a price per share of $0.21 or lower, regardless of whether the trading price subsequently is higher than $0.21 per share. The trading price was at $0.21 or lower on several occasions during and subsequent to the period ended March 31, 2011. On each of the occasions Golden State, by separate letter agreements, agreed that the occasions did not constitute a default and thereby waived the default provision for those occasions only. (see Note 10 - Subsequent Events)

4.75% Convertible Debenture due November 3, 2011

On November 3, 2006, the Company also issued to Golden State a 4.75% convertible debenture in a principal amount of $100,000, due 2011, and warrants to buy 1,000,000 shares of the common stock at an exercise price of $10.90 per share. Under the terms of the debenture, warrants are exercised in an amount equal to ten times the dollar amount of the debenture conversion. During 2009, Golden State converted $3,510 of the $100,000 debenture into 35,622,803 shares of common stock, exercised warrants to purchase 35,100 shares of common stock at $10.90 per share and the Company received $382,590 from the exercise of the warrants. During 2009, Golden State advanced $240,000 against future exercises of warrants and applied $4,181 of accrued interest due on the debenture to the advance account of which $336,170 was applied to the exercise of warrants leaving $48,511 of unapplied advances at December 31, 2009. During 2010, Golden State converted $4,752 of the $100,000 debenture into 162,454,399 shares of common stock, exercised warrants to purchase 47,523 shares of common stock at $10.90 per share and advanced $251,489 against future exercises of warrants of which $300,000 was applied to the exercise of warrants leaving $-0- of unapplied advances at December 31, 2010. During 2011, Golden State converted $5,400 of the $100,000 debenture into 38,615,468 shares of common stock, exercised warrants to purchase 54,000 shares of common stock at $10.90 per share and applied $3,382 of accrued interest and advanced $750,000 against future exercises of warrants of which $588,589 was applied to the exercise of warrants leaving $164,782 of unapplied advances at March 31, 2011.

The conversion price for the 4.75% $100,000 convertible debenture is the lesser of (i) $4.00 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 price is below $0.75, the Company shall have the right to prepay that portion of the debenture that Golden State elected to convert, plus any accrued and unpaid interest, at 135% of such amount.

F-12

Newton, O'Connor, Turner & Ketchum 10% Convertible Debentures

On May 22, 2009, the Company issued to Newton, O'Connor, Turner & Ketchum, a professional corporation ("NOTK") and the legal counsel to the Company through 2008, a 10% convertible debenture in a principal amount of $100,703, due September 30, 2009, and warrants to purchase 4,378,394 shares of the common stock at an exercise price of $0.09 per share through September 30, 2010 and an exercise price of $0.18 per share through September 30, 2014. 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, 2008. The debenture and the warrants were issued in settlement of the indebtedness. The debentures and warrants were recorded at their pro rata fair values in relation to the proceeds received. The warrants were valued at $13,504. The difference between the pro rata fair value and face value of the debenture was charged to operations in 2009. The interest rate on the debenture increased to 13% during 2009 due to the Company not making payments when due.

The estimated fair value of the warrants was determined using the Black-Scholes option pricing model. The expected dividend yield of $-0- is based on the average annual dividend yield as of the grant date. Expected volatility of 160.73% 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 2.23% is based on the U.S. Treasury Constant Maturity rates as of the grant date. The expected life of the warrant of two years is based on historical exercise behavior and expected future experience.

On March 1, 2010, Newton, O'Connor, Turner & Ketchum agreed to extend the September 30, 2009 due date of their 13% debenture to March 31, 2010, in consideration for one million (1,000,000) shares of common stock. The shares, which are restricted under SEC Section 144, were valued at 50% of the average of the previous five day closing price on March 1, 2010, which was $0.002 per share totaling $4,140.

On June 1, 2010, Newton, O'Connor, Turner & Ketchum agreed to extend the March 31, 2010 due date of their 13% debenture to September 30, 2010 in consideration for one million five hundred thousand (1,500,000) shares of common stock and a reduction in the exercise price of the warrants. The revised price at which the warrant may be exercised shall be $0.045 per share for exercises made during the period between the date of grant and the second anniversary of the revised maturity date, and $0.09 per share for exercises made during the forty-eight month period between the second anniversary of the revised maturity date and the sixth anniversary of the maturity date. The shares, which are restricted under SEC Section 144, were valued at 50% of the average of the previous five day closing price on June 1, 2010, which was $0.004 per share totaling $6,210.

On March 31, 2011, Newton, O'Connor, Turner & Ketchum agreed to extend the September 30, 2010 due date of their 13% debenture to April 30, 2011 in consideration for two hundred thousand (200,000) shares of common stock and an extension of the exercise dates of the warrants. The revised dates at which the warrant may be exercised shall be $0.045 per share for exercises made during the period between the date of grant and the second anniversary of the revised maturity date, and $0.09 per share for exercises made during the forty-eight month period between the second anniversary of the revised maturity date and the sixth anniversary of the revised maturity date. The shares, which are restricted under SEC Section 144, were valued at 50% of the average of the previous five day closing price on March 31, 2011, which was $0.07 per share totaling $14,048.

On June 2, 2010, the Company issued to NOTK a second 10% convertible debenture in a principal amount of $25,206, due September 30, 2010, and warrants to purchase 3,360,847 shares of the common stock at an exercise price of $0.045 per share through September 30, 2012 and an exercise price of $0.09 per share through September 30, 2016. 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, 2009. The debenture and the warrants were issued in settlement of the indebtedness. The interest rate on the debenture increased to 13% during 2009 due to the Company not making payments when due.

Note 5 – Convertible Promissory Notes 5%, Due 2013

In October 2010, the Company issued 5% Convertible Promissory Notes (the “Notes”) to six persons, in the aggregate, totaling $400,877. The Notes mature three years from the date issued. The Notes automatically convert to common stock of the Company at $0.034 per share (the "Fixed Conversion Price") prior to March 15, 2011, upon the merger or consolidation of the Company with or into another person, the Company effects any sale of all or substantially all of its assets, any tender or exchange offer of the Company's common stock, or the Company effectively converts into or exchanges the Company's common stock for other securities, cash or property. Additionally, after March 15, 2011, at the option of the holder, the Notes are convertible into common stock of the Company at a price per share of $0.0025 (75% of the "Fixed Conversion Price"). Interest on the Notes accrue from the original issue date at 5% annually, is payable upon maturity or conversion of the Notes and such interest may be converted in whole or part to shares of common stock at the effective conversion price.

F-13

During 2011, four individuals converted $250,000 of the $400,877 Notes and accrued interest of $5,174 into 101,865,777 shares of common stock at $0.0025 per share leaving $150,877 of outstanding promissory Notes at March 31, 2011. The shares are restricted under SEC Section 144.

Note 6 – Common Stock and Paid-In Capital

On November 19, 2010 the Board of Directors of the Company authorized an amendment to the Company's Certificate of Incorporation in order to (i) increase the authorized shares of the Company's common stock from 750,000,000 shares, par value $0.0002 to 1,500,000,000 shares, par value $0.0002, (ii) effect a reverse split of the Company's common stock in a ratio in the range between 1 for 10 and 1 for 25, as will be selected by the Company's Board of Directors (the "Reverse Split"), and (ii) create a series of "blank check" preferred stock consisting of 25,000,000 shares, par value $0.0002. If the Board of Directors elects to implement the Reverse Split at one of the approved ratios, it is authorized to do so until June 1, 2011.

Warrants issued

Pursuant to Subscription Agreements entered into during March and April 2009, the Company sold 999,999 shares of the Company's common stock at a per share price of $0.03 per share and warrants to purchase 500,000 shares of its common stock at a price of $0.10 per share from closing for a period of twelve months; $0.15 per share for the second subsequent twelve months; or $0.20 per share for the subsequent twelve months to three accredited individuals. The Company received $30,000 in cash from the sale. The 500,000 warrants are valued at $6,579 and the 999,999 shares are valued at $23,421. The warrants terminate three years from date of issue in 2012.

The estimated fair value of the warrants was determined using the Black-Scholes option pricing model. The expected dividend yield of $-0- is based on the average annual dividend yield as of the grant date. Expected volatility of 178% 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 1.38% 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.

Pursuant to Subscription Agreements entered into during October and November 2009, the Company sold 1,666,666 shares of the Company's common stock at a per share price of $0.03 per share and warrants to purchase 16,666,666 shares of its common stock at a price of $0.10 per share from closing for a period of twelve months; $0.25 per share for the second subsequent twelve months and; $0.50 per share for the third subsequent twelve months to two accredited individuals. The Company received $50,000 in cash from the sale. The 16,666,666 warrants are valued at $35,225 and the 1,666,666 shares are valued at $14,775. The warrants terminate three years from date of issue in 2012.

The estimated fair value of the options was determined using the Black-Scholes option pricing model. The expected dividend yield of $-0- is based on the average annual dividend yield as of the grant date. Expected volatility of 178% 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 1.38% 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.

As of March 31, 2011, there are warrants outstanding to purchase, 500,000 shares of common stock at a price of $0.20 per share that expire on various dates in March and April 2012, warrants to purchase 16,666,666 shares of its common stock at a price of $0.10 per share through 2012 at $0.25 per share through 2011 and $0.50 per share through 2012, warrants to purchase 4,378,394 shares of common stock at a price of $0.045 per share through April 30, 2012 and $0.09 per share that expire on April 30, 2016 and, warrants to purchase 3,360,847 shares of common stock at a price of $0.045 per share through June 1, 2011 and $0.09 per share that expire on June 1, 2015. Additionally, Golden State has warrants outstanding to purchase 830,160 shares of common stock at a price of $10.90 per share which expire December 31, 2011.

F-14

Common stock and options issued for services and liabilities

The law firm of Newton, O’Connor, Turner & Ketchum was issued shares totaling 200,000 on March 31, 2011, in consideration of extending the due date of the 13% convertible debenture due September 30, 2010 to April 30, 2011.

During the three-month periods ended March 31, 2011 and 2010, shares of common stock totaling 2,500,000 and 25,849,318, respectively were issued for consulting services for which the Company recognized $24,425 and $72,050 of expense, respectively. Additionally, during the period ending March 31, 2011 and 2010, shares totaling 33,338,612 and 21,452,387, respectively were issued to consultant for previous services provided to the Company for which the accounts payable liability was reduced by $79,871 and $98,709, respectively. Shares totaling 57,000,000, which are restricted under SEC Section 144, were issued in January and February 2011 in payment of accrued salaries and payroll taxes totaling $460,405 due Martin Keating, Chairman of the Board of Directors, Hakki Refai, Chief Technology Officer and Judith Keating the Secretary of the Company.

The following summary reflects warrant and option activity for the period ended March 31, 2011:

	Attached Warrants		Golden State Warrants			Options

Outstanding December 31, 2010		24,905,908		884,160			71,065,995
Granted		-		-			-
Exercised		-		(54,000	)		-
Cancelled		-		-			-

Outstanding March 31, 2011		24,905,908		830,160			71,065,995

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 7 – Incentive Stock Plan

In February 2010 the Company established the 3DIcon Corporation 2010 Incentive Stock Plan (the "2010 Plan"). 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 2010 Plan shall not exceed seventy-five million (75,000,000) shares. The shares are included in a registration statement filed February 26, 2010. Shares totaling 71,910,973 were issued from the 2010 Plan during the period ended December 31, 2010 for services rendered and to satisfy accounts payable to the Company. Shares totaling 3,089,027 were issued from the 2010 Plan during the period ended March 31, 2011 for services rendered and to satisfy accounts payable to the Company. There are no shares available for issuance under the 2010 Plan.

In June 2010 the Company established the 3DIcon Corporation 2010 Equity Incentive Stock Plan (the "2010 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 2010 EIP shall not exceed sixty million (60,000,000) shares. The shares are included in a registration statement filed June 24, 2010. Shares totaling 58,509,328 were issued from the 2010 EIP during the period ended December 31, 2010 for services rendered and to satisfy accounts payable to the Company. Shares totaling 1,490,672 were issued from the 2010 EIP during the period ended March 31, 2011 for services rendered and to satisfy accounts payable to the Company. There are no shares available for issuance under the 2010 EIP.

In January 2011 the Company established the 3DIcon Corporation 2011 Equity Incentive Stock Plan (the "2011 EIP"). The total number of shares of stock which may be purchased or granted directly by options, stock awards or restricted stock purchase offers, or purchased indirectly through exercise of options granted under the 2011 EIP shall not exceed one hundred million (100,000,000) shares. The shares are included in a registration statement filed January 14, 2011. Shares totaling 35,008,913 were issued from the 2011 EIP during the period ended March 31, 2011 for services rendered and to satisfy accounts payable to the Company. There are currently 64,991,087 shares available for issuance under the 2011 EIP.

F-15

Note 8 – 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 expires June 1, 2011. On March 8, 2011 the Lease Agreement was amended to extend the expiration date to May 31, 2012. At March 31, 2011, minimum future lease payments to be paid annually under the non-cancellable operating lease for office space are as follows:

2011	$	20,832
2012	$	11,573
Total	$	32,405

Note 9 – Related Party Transaction

3DIcon has engaged the law firm of Newton, O’Connor, Turner & Ketchum as its outside corporate counsel since 2005. John O’Connor, a director of 3DIcon, is the Chairman of Newton, O’Connor, Turner & Ketchum. During the periods ended March 31, 2011 and 2010, the Company incurred legal fees to Newton, O’Connor, Turner & Ketchum in the amount of $29,461 and $3,565 respectively.

Note 10 – Subsequent Events

Debentures payable

In accordance with the terms of the Second Debenture an event of default occurs if the common stock of the Company trades at a price per share of $0.21 or lower. The trading price was at $0.21 or lower on several occasions during the period ended March 31, 2011 and subsequent to March 31, 2011. On each of the occasions Golden State, by letter agreements, agreed that the occasions did not constitute a default and thereby waived the default provision for the occasions.

Newton, O'Connor, Turner & Ketchum 13% convertible debenture due March 31, 2011

On April 30, 2011, Newton, O'Connor, Turner & Ketchum agreed to convert their 13% convertible debentures and accrued interest, which totaled in the aggregate $159,842 into 18,972,186 common shares of the Company’s common stock, at an average price per share of $0.008, under the terms of the convertible debentures. The shares are restricted under SEC Section 144.

5% Convertible Promissory Note

On May 5, 2011, the remaining note holders converted their 5% Promissory Notes and accrued interest, which totaled in the aggregate $154,723 into 61,765,876 common shares of the Company’s common stock at $0.0025 per shares, under the terms of the promissory notes. The shares are restricted under SEC Section 144.

Common stock issued for services and liabilities

Subsequent to March 31, 2011 shares of common stock totaling 3,000,000 were issued for consulting services for which the Company recognized $72,765 of expense. Additionally, shares totaling 7,191,781 were issued to consultant for previous services provided to the Company for which the accounts payable liability was reduced by $15,750.

F-16

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:

The Company is engaged in the development of 360° volumetric imaging and display technology, specifically in the areas identified by the initial in-depth investigation conducted by the University. The identified areas are two major complementary areas of technology that comprise the spectrum of the solution and application (1) a means of recording 3D objects as digital holographic data elements (capture); and (2) a means of reconstructing and displaying the 3D images (display).

Based on the investigation as well as review of existing patents and technologies, it was concluded that the area of 3-D image capture and recording had multiple solutions and technologies that adequately served the market. Therefore our primary area of focus is to develop products and intellectual property in the reconstruction and display of 3D images where we see the most opportunity. We aim to establish strategic partnerships with the assignees or license holders of existing 3D recording technologies as well as integrate our technologies with existing solutions.

The existing products reviewed can generally be broken down into two broad categories: stereoscopic - those that use flat-panels to implement 3D displays on 2D screens, and those that implement volumetric 3D displays. The flat-panel approaches, as previously noted, do not support 3DIcon's planned embodiment of the technology. However, the application space of volumetric 3D displays supports the Company vision and appears to offer major opportunities for further technology development and creation of intellectual property through our staff and the University, to which 3DIcon will have exclusive rights.

The research team at OU has been working to integrate open source image capture applications as well as to establish 3D image capture systems.

We continue to build intellectual property through our staff and the University, to which the Company has exclusive rights and engage in product research and development both directly related to the display as well as by-product technologies.

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 $299,932, had a start date of January 1, 2009. The Company received approval for our no cost extension request for the first year of the contract. With the first modification, the first year ended on August 31, 2010. The award was for a maximum of $149,940 for 2009 and the remainder for 2010. The Company earned $30,000 and $10,278 from the grant during the periods ended March 31, 2011 and 2010, and $161,501 from inception to date. The Company received approval for our no cost extension request for the second year of the contract. With the new modification, the second year ends on August 31, 2011.

Current Activities and Operations

The Company is pursuing the research and development of volumetric 3-D display technology through the SRA with the University and with Dr. Hakki Refai, the former chief researcher at the University, who joined the Company as our Chief Technology Officer in October 2008. Our efforts are focused on multiple technological approaches, two of which are being further developed into proof-of-concept demonstration systems.

Static Volume Display Technology: Also known as CSpace®™, the Company has produced the first non-mechanical, multi-view, high-resolution volumetric display. A prototype was demonstrated during September 2008, when a 3D image was created within a proprietary volumetric media (also called projection space or image matrix). This technology incorporates existing and rapidly evolving image projection technologies, such as DLP®/DMD technology from Texas Instruments, allowing 3DIcon to pursue full-color, full-motion 3D visualization, in harmony with 3DIcon's vision for product development.

Swept Volume Display Technology: Additional work on this particular approach has been deferred indefinitely because of the success and initial superiority of the CSpace®™ technology.

We have also released a software product called Pixel Precision™. The current version of the software is 2.0 that was released on February 12, 2009 to expand its capabilities and provide new compatibility with Texas Instrument's newly released DLP® Discovery 4000 kits. We plan to continue to pursue this market and provide versions and variations of this software. The plans include enhancements to the functionality as well as variants to address additional opportunities.

We have signed a sales and distribution agreement with Digital Light Innovations (“DLi”) for the sales, marketing and first level support of the Pixel Precision™ software. Through DLi and its sub-distributors the software will be marketed in the United States as well as in Europe and Asia.

Progress on Research and Development Activities

The research team at OU filed two new patent applications in the first quarter of 2008 and converted one from a provisional to a utility filing.

Under the aegis of the SRA, the University has filed the following patent applications. The utility patents have been converted and consolidated from the previously filed provisional applications.

Description of Provisional Patent Application as Filed	Description of Utility Patent Application Filing (Combined)	Date of Filing	Granted U.S. Patent	European Pending Patent- Date of Filing	Japanese Pending Patent-Date of Filing
Swept Volume Display	Swept Volume Display	Filed by OU in September 2006

Colorful Translation Light Surface 3D Display Colorful Translation 3D Volumetric Display 3D Light Surface Display	Light Surface Display for Rendering Three-Dimensional Image (Combined)	Filed by OU in April 2007	December 28, 2010	April 2007	April 2007

Volumetric Liquid Crystal Display	Volumetric Liquid Crystal Display for Rendering Three-Dimensional Image (Combined)	Filed by OU in April 2007	May 2009

Computer System Interaction with DMD	Computer System Interaction with DMD	Filed by OU in January 2008

Virtual Moving Screen for Rendering Three Dimensional Image	Virtual moving screen for rendering a three-dimensional image	Filed by OU in January 2008

Optically Controlled Light Emitting and System for Optically Written 2D and 3D Displays	Utility Patent Application to be filed	Filed by 3DIcon in April 2008

Further, we are taking steps to explore areas that may be related to assist in the protection of intellectual property assets. In addition, we have begun the process of applying for trademarks related to our 3D technologies.

The primary objective for 2011 is to develop, produce, and gain FDA approval of a prototype CSpace single-color video display, in the form of a dome or alternately-shaped transparent enclosure not less than 8” in diameter, which can be viewed without operational safety controls (e.g., goggles), in moderately-bright room lighting, uniformly over 360° and from the top. The prototype display will satisfy the requirements of ISO 9241-303 for single-color direct-view displays. The associated research and development objectives for the 2011 calendar year are as follows. The work will mainly be done by the Company and professional consultants:

I. Static Volumetric Display (“CSpace®™”)

Continue work on development of up-conversion materials.

Synthesize non-toxic, non-flammable liquid media suitable for dispersion of display materials.

Develop optical metrology laboratory at OU for testing display materials and components.

Develop optical, thermal, and packaging designs for the prototype.

Continue software development to enhance CSpace®™ with the capability of displaying near real time 3D images.

II. By-Product Technologies

Continue to generate revenue from Pixel Precision™ the DMD Control Software for DMD Application development markets.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2011 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2010

Revenue

The Company earned $30,000 from the OCAST grant during the three months ended March 31, 2011.

We have launched our first software product Pixel Precision™.

We have earned income of $3,000 and $-0- before commissions and costs from the sales of Pixel Precision™ for the three-months ended March 31, 2011 and March 31, 2010, 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 2011 to cover the operating expenses.

Research and Development Expenses

The research and development expenses were $65,003 for the three months ended March 31, 2011, as compared to $73,969 for the three months ended March 31, 2010. The decrease was a result of the reduction in direct costs incurred with OU under the SRA activities.

General and Administrative Expenses

Our general and administrative expenses were $296,252 for the three months ended March 31, 2011 as compared to $233,455 for the three months ended March 31, 2010. The increase is due primarily to auditing fees, consultants and transfer agency fees incurred for SEC filings.

Interest Expense

Interest expense for the three months ended March 31, 2011 was $28,353 as compared to $20,691 for the three months ended March 31, 2010. The net increase was a result of a decrease in interest expense of $6,386 due to the decrease in the amounts outstanding on our convertible debentures and an increase of $14,000 in interest costs for the extension of the Newton, O'Connor, Turner & Ketchum 13% Convertible Debentures.

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, 2010, 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 $850,770 at March 31, 2011.

We had positive working capital of $188,232 at March 31, 2011.

During the three months ended March 31, 2011, we used $266,331 of cash for operating activities, an increase of $153,472 or 136% compared to the three months ended March 31, 2010. The increase in the use of cash for operating activities was a result of the significant reduction in accounts payable and accrued salaries.

There was no cash used in investing activities during the three months ended March 31, 2011 or for the three months ended March 31, 2010.

Cash provided by financing activities during the three months ended March 31, 2011 was $750,000, an increase of $600,000 or 400% compared to the three months ended March 31, 2010. The increase 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.

Pursuant to the 4.75% Convertible Debenture due in 2011, 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. In connection with each conversion, Golden State is expected to exercise warrants equal to 10 times the amount of principal converted. The warrants are exercisable at $10.90 per share. Beginning in November 2008, Golden State is required to convert $3,000 of the 4.75% Convertible Debenture and exercise 30,000 warrants per month. During 2009, Golden State converted $3,510 of the $100,000 debenture into 35,622,803 shares of common stock, exercised warrants to purchase 35,100 shares of common stock at $10.90 per share and the Company received $382,590 from the exercise of the warrants. During 2009, Golden State advanced $240,000 against future exercises of warrants and applied $4,181 of accrued interest due on the debenture to the advance account of which $336,170 was applied to the exercise of warrants leaving $48,511 of unapplied advances at December 31, 2009. During 2010, Golden State converted $4,752 of the $100,000 debenture into 162,454,399 shares of common stock, exercised warrants to purchase 47,523 shares of common stock at $10.90 per share and advanced $251,489 against future exercises of warrants of which $300,000 was applied to the exercise of warrants leaving $-0- of unapplied advances at December 31, 2010. During 2011, Golden State converted $5,400 of the $100,000 debenture into 38,615,468 shares of common stock, exercised warrants to purchase 54,000 shares of common stock at $10.90 per share and applied $3,382 of accrued interest and advanced $750,000 against future exercises of warrants of which $588,589 was applied to the exercise of warrants leaving $164,782 of unapplied advances at March 31, 2011.

The Oklahoma Center for the Advancement of Science and Technology approved our application for funding of a matching grant titled 800 Million Voxels Volumetric Display, on November 19, 2008. The two-year matching grant, totaling $299,932, had a start date of January 1, 2009. We received approval for our no cost extension request for the first year of the contract. With the first modification, the first year ended on August 31, 2010. The award is for a maximum of $149,940 for 2009 and the remainder for 2010. The Company earned $30,000 and $10,278 from the grant during the periods ended March 31, 2011 and 2010, and $161,501 from inception to date. We received approval for our no cost extension request for the second year of the contract. With the new modification, the second year ends on August 31, 2011.

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 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.

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

Debentures payable

Newton, O'Connor, Turner & Ketchum 13% convertible debenture due March 31, 2011

5% Convertible Promissory Note

On May 5, 2011, the remaining note holders converted their 5% Promissory Notes and accrued interest, which totaled in the aggregate $154,623 into 61,765,876 common shares of the Company’s common stock at $0.0025 per shares, under the terms of the promissory notes. The shares are restricted under SEC Section 144.

Common stock issued for services and liabilities

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not Applicable.

Item 4. Controls and Procedures.

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

Changes in Internal Control Over Financial Reporting. During the most recent quarter ended March 31, 2011, there has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II

Item 1. Legal Proceedings.

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

Item 1A. Risk Factors.

Not Applicable.

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

In January and February 2011 shares totaling 57,000,000 were issued in payment of accrued salaries and payroll taxes totaling $460,405 due Martin Keating, Chairman of the Board of Directors, Hakki Refai, Chief Technology Officer and Judith Keating the Secretary of the Company.

During the first quarter of 2011, four individuals converted $250,000 of the 5% Promissory Notes and accrued interest of $5,174 into 101,865,777 shares of common stock at $0.0025 per share.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. (Removed And Reserved).

Item 5. Other Information.

None.

Item 6. Exhibits.

Exhibit Number		Description of Exhibit

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

SIGNATURES

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

	3DICON CORPORATION

	/s/ Martin Keating
May 16, 2011		Martin Keating
		Chief Executive Officer
		(Principal Executive and Accounting Officer)

CORETEC GROUP INC. - FORM 10-Q - May 16, 2011

Attached files

CORETEC GROUP INC. Reports