UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
  Washington, D.C. 20549
 
Form 10-Q
 
(Mark One)
 
x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2008

OR
 
o 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
 
Check 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 o

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 o
Accelerated filer o
Non-accelerated filer o (do not
check if smaller reporting
company)
Smaller reporting company  x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
 
As of November 13, 2008, the issuer had 151,639,453 outstanding shares of Common Stock.


TABLE OF CONTENTS

 
 
Page
 
PART I
 
Item 1.
Financial Statements
4
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
16
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
23
Item 4T
Controls and Procedures
23
 
PART II
  
Item 1.
Legal Proceedings
24
Item 1A.
Risk Factors
24
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
25
Item 3.
Defaults Upon Senior Securities
25
Item 4.
Submission of Matters to a Vote of Security Holders
25
Item 5.
Other Information
25
Item 6.
Exhibits
25
SIGNATURES
26


PART I

ITEM 1. FINANCIAL STATEMENTS.

INDEX TO FINANCIAL STATEMENTS

 
Page
Balance Sheets as of September 30, 2008 (Unaudited) and December 31, 2007 (Audited)
4
 
 
Statements of Operations for the three and nine months ended September 30, 2008 and 2007 and for period from inception (January 1, 2001) to September 30, 2008 (Unaudited)
5
 
 
Statements of Changes in Stockholders' Deficiency for period from inception (January 1, 2001) to September 30, 2008 (Unaudited)
6
 
 
Statements of Cash Flows for the nine months ended September, 2008 and 2007 and the period from inception (January 1, 2001) to September 30, 2008 (Unaudited)
7
 
 
Notes to Financial Statements, September 30, 2008 (Unaudited)
8

3

3DIcon CORPORATION
(A Development Stage Company)
BALANCE SHEETS

September 30, 2008 and December 31, 2007

   
September 30,
2008
(Unaudited)
  
December 31,
2007
(Audited)
  
Assets
              
Current assets:
              
Cash
  
$
123,186
  
$
705,519
  
Accounts receivable
    
3,500
    
-
  
Prepaid insurance
    
24,727
    
15,944
  
 
              
Total current assets
    
151,413
    
721,463
  
 
              
Property and equipment, net
    
28,022
    
11,832
  
 
              
Debt issue costs, net
    
67,046
    
97,249
  
Deposit-other
    
2,315
    
-
  
 
              
Total assets
  
$
248,796
  
$
830,544
  
 
              
Liabilities and Stockholders' Deficiency
              
Current liabilities:
              
Current maturities of convertible debentures payable
  
$
590,000
  
$
700,000
  
Accounts payable
    
1,007,778
    
484,513
  
Accrued salaries
    
36,976
    
-
  
Accrued interest on debentures
    
8,845
    
8,854
  
 
              
Total current liabilities
    
1,643,599
    
1,193,367
  
 
              
Convertible debentures payable, less current maturities
    
676,979
    
558,375
  
 
              
Total liabilities
    
2,320,578
    
1,751,742
  
 
              
Stockholders' deficiency:
              
Common stock; $.0002 par, 250,000,000 shares authorized and 145,496,328 and 127,125,232 shares issued and outstanding at September 30, 2008 and December 31, 2007, respectively
    
29,099
    
25,425
  
Additional paid-in capital
    
8,143,073
    
6,451,906
  
Deficit accumulated during development stage
    
(10,243,954
)
  
(7,398,529
)
 
              
Total stockholders' deficiency
    
(2,071,782
)
  
(921,198
)
 
              
Total liabilities and stockholders' deficiency
  
$
248,796
  
$
830,544
  

See Notes to financial statements

4

3DIcon CORPORATION
(A Development Stage Company)

STATEMENTS OF OPERATIONS

Three and Nine months ended September 30, 2008 and 2007 and period
from inception (January 1, 2001) to September 30, 2008
(Unaudited)

   
Three Months
Ended
September 30,
2008
  
Three Months
Ended
September 30,
2007
  
Nine Months
Ended
September 30,
2008
  
Nine Months
Ended
September 30,
2007
  
Inception to
September 30,
2008
  
                       
Income:
                            
 
  
Revenue
  
$
7,000
  
$
-
  
$
17,900
  
$
-
  
$
17,900
  
Cost of Goods Sold
    
3,500
    
-
    
8,435
    
-
    
8,435
  
Gross Profit
    
3,500
    
-
    
9,465
    
-
    
9,465
  
Expenses:
                                
Research and development
    
184,453
    
300,000
    
761,132
    
720,888
    
2,270,891
  
General and administrative
    
475,923
    
441,874
    
2,000,530
    
1,713,483
    
7,770,199
  
Interest
    
28,853
    
33,290
    
93,228
    
69,796
    
212,329
  
                                 
Total expenses
    
689,229
    
775,164
    
2,854,890
    
2,504,167
    
10,253,419
  
                                 
Net loss
  
$
( 685,729
)
$
( 775,164
)
$
(2,845,425
)
$
(2,504,167
)
$
(10,243,954
)
                                 
Loss per share:
                                
Basic and diluted
  
$
( .005
)
$
( .007
)
$
(.020
)
$
(.023
)
      
                                 
Weighted average shares outstanding, basic and diluted
    
141,994,607
    
116,688,048
    
139,495,180
    
108,011,614
        

See Notes to financial statements

5

3DIcon Corporation
(A Development Stage Company)

STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIENCY

From inception (January 1, 2001) to September 30, 2008
(Unaudited)
           
Deficit
      
               
Accumulated
      
   
Common Stock
  
Additional
  
During the
      
   
Shares
  
Par
Value
  
Paid-In 
Capital
  
Development
Stage
  
Total
  
Balance, January 1, 2001 – as reorganized
    
27,723,750
  
$
27,724
  
$
193,488
  
$
-
  
$
221,212
  
                                 
Adjustment to accrue compensation earned but not recorded
   
-
    
-
    
-
    
(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
  
                                 
Adjustment to record compensation earned but not recorded
   
-
    
-
    
-
    
(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
  
                                 
Adjustment to record compensation earned but not recorded
    
-
    
-
    
-
    
(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
)


               
Deficit
      
               
Accumulated
      
   
Common
  
Stock
  
Additional
  
During the
      
   
Shares
  
Par Value
  
Paid-In
Capital
  
Development
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
  
Options issued for services
    
-
    
-
    
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 services
    
2,743,072
    
549
    
242,252
    
-
    
242,801
  
                                 
Options issued for services
    
-
    
-
    
536,588
    
-
    
536,588
  
Debentures converted
    
5,626,303
    
1,125
    
736,483
    
-
    
737,608
  
Options exercised and shares issued to escrow
    
8,671,460
    
1,734
    
(1,734
)
  
-
    
-
  
                                 
Warrants converted to purchase common stock
   
1,330,261
    
266
    
177,578
    
-
    
177,844
  
Net loss for the period
    
-
    
-
    
-
    
(2,845,425
)
  
(2,845,425
)
Balance, September 30, 2008
    
145,496,328
  
$
29,099
  
$
8,143,073
  
$
(10,243,954
)
$
(2,071,782
)

See Notes to financial statements

6

3DIcon Corporation
(A Development Stage Company)

STATEMENTS OF CASH FLOWS

Nine months ended September 30, 2008 and 2007 and period
From inception (January 1, 2001) to September 30, 2008
(Unaudited)

   
Nine Months
Ended
September 30,
2008
  
Nine Months
Ended
September 30,
2007
  
Inception to
September 30,
2008
  
Cash Flows from Operating Activities
                    
Net loss
  
$
(2,845,425
)
$
(2,504,167
)
$
(10,243,954
)
Adjustments to reconcile net loss to net cash used in operating activities:
                    
Options issued for services
    
536,588
    
634,125
    
1,811,254
  
Stock issued for services
    
242,801
    
-
    
1,040,550
  
Stock issued for interest
    
-
    
38,352
    
38,352
  
Depreciation
    
4,036
    
1,074
    
6,122
  
Accounts receivable
    
(3,500
)
  
-
    
(3,500
)
Amortization of deferred debenture cost
    
30,203
    
39,267
    
91,881
  
Asset impairments
    
-
    
-
    
292,202
  
Change in:
                    
Prepaid expenses and other assets
    
(11,098
)
  
(8,196
)
  
(62,340
)
Accounts payable and accrued liabilities
    
560,232
    
129,050
    
1,082,599
  
                     
Net cash used in operating activities
    
(1,486,163
)
  
(1,670,495
)
  
(5,946,834
)
                     
Cash Flows from Investing Activities
                    
Purchase of office furniture and equipment
    
(20,226
)
  
(7,567
)
  
(34,142
)
                     
Cash Flows from Financing Activities
                    
Proceeds from stock and warrant sales and exercise of warrants
    
177,844
    
548,500
    
2,396,014
  
Increase in deferred debenture cost
    
-
    
(87,673
)
  
(200,572
)
Proceeds from issuance of debentures
    
746,212
    
1,646,250
    
3,908,710
  
                     
Net cash provided by financing activities
    
924,056
    
2,107,077
    
6,104,152
  
                     
Net increase (decrease) in cash
    
(582,333
)
  
429,015
    
123,176
  
Cash, beginning of period
    
705,519
    
202,431
    
10
  
                     
Cash, end of period
  
$
123,186
  
$
631,446
  
$
123,186
  
Supplemental Disclosures
                    
Cash paid for interest
  
$
93,237
  
$
69,796
  
$
201,227
  
Non-Cash Investing and Financing Activities
                    
Conversion of debentures to common stock
  
$
737,608
  
$
1,138,743
  
$
2,564,791
  

See Notes to financial statements

7

3DIcon Corporation
(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

Nine months ended September 30, 2008 and 2007 and period
From inception (January 1, 2001) to September 30, 2008
(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 10KSB. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position of the Company as of September 30, 2008, and the statements of its operations for the three and nine months ended September 30, 2008 and 2007 and the period from inception (January 1, 2001) to September 30, 2008, and cash flows for the nine-month periods ended September 30, 2008 and 2007, and the period from inception (January 1, 2001) to September 30, 2008, 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 and Cost of Goods Sold

Revenues from software license fees are accounted for in accordance with American Institute of Certified Public Accountants (AICPA) Statement of Position (SOP) 97-2, “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.

The cost of sales for software license fees includes commissions payable to the exclusive distributor. This is an outright obligation and not a license. We have no other significant cost of sales. Shared marketing support costs are charged to operations when incurred.

Uncertainties

The accompanying financial statements have been prepared on a going concern basis. The Company is in the development stage and has no significant source of revenue to fund the development of its planned product or to pay operating expenses. This has resulted in the Company realizing a cumulative net loss of $10,243,954 for the period from inception (January 1, 2001) to September 30, 2008.

8

Note 1 - Uncertainties and Use of Estimates (continued)

Additionally, the Company has been unable to meet its monthly payment obligations and is therefore in default of the Sponsored Research Agreement (“SRA”) (see note 3). A new payment schedule has been agreed to (see note 8). Failure of the Company to meet its revised payment obligations could result in the termination of the SRA or any outstanding license agreements under the SRA.

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

Management plans to fund the future operations of the Company with existing cash of $123,186. Under the terms of the Golden Gate debentures, Golden Gate 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 2011, beginning in November 2007, Golden Gate is obligated to submit conversion notices in an amount such that Golden Gate receives 1% of the outstanding shares of the Company every calendar quarter for a period of one year.  In connection with each conversion, Golden Gate is expected to exercise warrants equal to 10 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% Debenture and the warrants (the Beneficial Ownership Limitations”). The Beneficial Ownership Limitations prevent Golden Gate from converting on the 4.75% Debenture or exercising warrants if such conversion or exercise would cause Golden Gate’s holdings to exceed 9.99% of our issued and outstanding common stock. Subject to the Beneficial Ownership Limitations, Golden Gate 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 October 31, 2008 and ignoring the impact of the Beneficial Ownership Limitations, we may receive up to $981,000 in funding from Golden Gate as a result of warrant exercises from October 1, 2008 through December 31, 2008.  Additionally, the Company is continuing to pursue additional financing through private offering of debt or common stock.

Note 2 - Recent Accounting Pronouncements

The following are summaries of recent accounting pronouncements that are relevant to the Company:

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS 157”). This Statement defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years except for certain nonfinancial assets and nonfinancial liabilities for which the effective date has been deferred by one year in accordance with FASB Staff Position (“FSP”) FAS 157-2, “Effective Date of FASB Statement No. 157” (“FSP FAS 157-2”). Also in February 2008, the FASB issued FSP FAS 157-1, “Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13” (“FSP FAS 157-1”). FSP FAS 157-1 amends SFAS No. 157, to exclude SFAS No. 13, “Accounting for Leases”, and other accounting pronouncements that address fair value measurements for purposes of lease classification or measurement under SFAS No. 13. FSP FAS 157-1 is effective with the initial adoption of SFAS 157. The adoption of SFAS 157 did not have a material effect on the financial statements.
  
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115” (“SFAS 159”). This Statement permits entities to make an irrevocable election to measure certain financial instruments and other assets and liabilities at fair value on an instrument-by-instrument basis. Unrealized gains and losses on items for which the fair value option is elected will be recognized in net earnings at each subsequent reporting date. SFAS 159 is effective for the Company’s year that begins January 1, 2008. The adoption of SFAS 159 did not have a material effect on the financial statements.
 
In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS 141R”). SFAS 141R will significantly change the accounting for business combinations in a number of areas including the treatment of contingent consideration, contingencies, acquisition costs, and restructuring costs. In addition, under SFAS 141R, changes in deferred tax asset valuation allowances and acquired income tax uncertainties in a business combination after the measurement period will affect income tax expense. SFAS 141R is effective for fiscal years beginning after December 15, 2008. The adoption of this statement is not expected to have a material effect on the Company’s financial statements.

In December 2007, FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an Amendment of ARB No. 51”. This statement amends ARB 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. This statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. We do not have such subsidiaries therefore the adoption of the provisions of SFAS No. 160 will not affect our results of operations or financial position.

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Note 2 - Recent Accounting Pronouncements (continued)
 
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities an amendment of FASB Statement No. 133. (“SFAS 161”) SFAS 161 changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedge items are accounted for under Statement 133, Accounting for Derivative Instruments and Hedging Activities, and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS 161 is intended to enhance the current disclosure framework in SFAS 133 and requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments, and disclosures about credit-risk related contingent features in derivative agreements. The provisions of SFAS 161 are effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. Management is currently assessing the potential impact that the adoption of SFAS 161 could have on our financial statements. Additional disclosures required in this FSP are applied prospectively to all intangible assets recognized as of, and subsequent to, the effective date.

In April 2008, the FASB issued Staff Position (“FSP”) No. FAS 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP FAS 142-3”). FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets.” This FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The guidance contained in this FSP for determining the useful life of a recognized intangible asset is applied prospectively to intangible assets acquired after the effective date. Additional disclosures required in this FSP are applied prospectively to all intangible assets recognized as of, and subsequent to, the effective date.

In May 2008, FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles”. This statement identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States (the GAAP hierarchy). This statement is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Presented Fairly in Conformity With Generally Accepted Accounting Principles. The adoption of this statement is not expected to have a material effect on the Company’s financial statements.

Note 3 - Sponsored Research Agreement (“SRA”)

On April 20, 2004, the Company entered into a SRA entitled "Investigation of Emerging Digital Holography Technologies" (Phase I) with the University of Oklahoma - Tulsa (“University”), which expired October 19, 2004. On July 15, 2005, the Company entered into a SRA with the University (Phase II), which expired January 14, 2007. Under this agreement the University conducted a research project entitled "Investigation of Emerging 3-Dimensional Display Technologies". The agreement was modified in November 2006 to provide additional funding, extend the term of the agreement through June 30, 2007.

On February 23, 2007 the Company entered into a SRA with the University (Phase III) which expires March 31, 2010. Under this agreement the University will conduct a research project entitled “3-Dimensional Display Development” that seeks to make significant progress in the development of 3-dimensional display technologies. The Company agreed to pay the University $3,468,595 payable in monthly installments ranging from $92,263 to $112,777 beginning April 30, 2007 and ending March 31, 2010, an aggregate commitment of $4,047,439. During the nine-month periods ended September 30, 2008 and 2007, the Company charged operations $761,132 and $720,888, respectively pursuant to the SRA. At September 30, 2008, the Company owed the University $861,131 in aggregate monthly payments under the agreement. (See Note 8 Subsequent events)

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