UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington, D.C. 20549




Form
10-K




(Mark
One)




x ANNUAL REPORT UNDER SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934


FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2008




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
________________________________





3DICON
CORPORATION


(Name of
small business issuer in its charter)




OKLAHOMA
                
                73-1479206(State
      or other jurisdiction of
                
                (I.R.S.
      Employerincorporation
      or organization)
                
                Identification
      No.)





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


(Address
of principal executive offices) (Zip Code)





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




Securities
registered under Section 12(b) of the Exchange Act: None.




Securities
registered under Section 12(g) of the Exchange Act: None




Indicate
by check mark is the issuer is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act


Yes o   No x





Indicate
by check if the issuer is not required to file reports pursuant to Section 13 or
15(d) of the Exchange Act.


Yes o   No x




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 o




Indicate
by check if no disclosure of delinquent filers in response to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein and will not
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-K.  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 the definitions of “large accelerated filer”,
“accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.


Large
      accelerated filer o
            Accelerated
      filer oNon-accelerated
      filer o
            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











State
issuer's revenues for its most recent fiscal year: $42,900




The
aggregate market value of the voting and non-voting common equity held by
non-affiliates, computed by reference to the average bid and asked price of such
common equity as of June 30,  2008 was $7,723,618.




As of
March 31, 2009, the issuer had 175,505,294 outstanding shares of Common
Stock.




DOCUMENTS
INCORPORATED BY REFERENCE: NONE





2





TABLE OF
CONTENTS





PagePART
      IItem
      1.
                          Business
                          
                          1Item
      1A.
                          Risk
      Factors
                          
                          8Item
      1B.
                          Unresolved
      Staff Comments
                          
                          13Item
      2.
                          Properties
                          
                          13Item
      3.
                          Legal
      Proceedings
                          
                          13Item
      4.
                          Submission
      of Matters to a Vote of Security Holders
                          
                          13PART
      IIItem
      5.
                          Market
      for Common Equity, Related Stockholder Matters and Issuer Purchases of
      Equity Securities
                          
                          13Item
      6.
                          Selected
      Financial Data
                          
                          14Item
      7.
                          Management's
      Discussion and Analysis of Financial Condition and Results of
      Operation
                          
                          15Item
      7A.
                          Quantitative
      and Qualitative Disclosures About Market Risk
                          
                          21Item
      8.
                          Financial
      Statements and Supplementary Data
                          
                          21Item
      9.
                          Changes
      In and Disagreements with Accountants on Accountingand
      Financial Disclosure
                          
                          21Item
      9A.
                          Controls
      and Procedures
                          
                          21Item
      9B.
                          Other
      Information
                          
                          22PART
      IIIItem
      10.
                          Directors,
      Executive Officers, Promoters and Control Persons;
                          
                          22Item
      11.
                          Executive
      Compensation
                          
                          26Item
      12.
                          Security
      Ownership of Certain Beneficial Owners and Managementand
      Related Stockholder Matters
                          
                          27Item
      13.
                          Certain
      Relationship and Related Transactions, and Director
      Independence
                          
                          28Item
      14.
                          Principal
      Accountant Fees and Services
                          
                          29Item
      15.
                          Exhibits
                          
                          29SIGNATURES
                          
                          31





3





PART I





ITEM
1. BUSINESS.





Corporate
History





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





In April
2004, we engaged the University to Oklahoma to conduct a pilot study to
determine the opportunity and feasibility for the creation of volumetric 3
dimensional communication systems.





On July
15, 2005, we entered into a Sponsored Research Agreement with the University
(Phase II), which expired on January 14, 2007. Under this agreement, the
University conducted a research project entitled "Investigation of 3-Dimensional
Display Technologies".





On
February 23, 2007, we entered into a sponsored research agreement with the
University of Oklahoma (Phase III) which expires on March 31, 2010. Under this
agreement, the University will conduct a research project entitled
“3-Dimensional Display Development”.





In the
fourth quarter of 2007 we announced the release of our first product, “Pixel
Precision”. This is a companion software application to the DMD Discovery TM line
of products manufactured by Texas Instruments®.




The
Oklahoma Center for the Advancement of Science and Technology (“OCAST”) 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, has a start date of January 1, 2009.  The
award is for a maximum of $149,940 for 2009 and the remainder for
2010.  Funding beyond 2009 is contingent upon satisfactory performance
evaluation and the availability of funds.





General
Overview





We are a
development stage company. Our mission is to pursue, develop and market
full-color, 360-degree holographic or volumetric 3-D technology. Through a
Sponsored Research Agreement with the University of Oklahoma, we have obtained
the exclusive world-wide marketing rights to certain 3D display technologies
under development by the University. The development to date has resulted in the
University filing seven provisional patents; six of the seven provisional
patents have been combined and converted to four utility patents. At this time,
we do not own any intellectual property rights in holographic technologies, and,
apart from the Sponsored Research Agreement with the University of Oklahoma,
have no contracts or agreements pending to acquire such rights or any other
interest in such rights. We plan to market the technology and the intellectual
property developed by the University of Oklahoma by targeting various
industries, such as retail, manufacturing, entertainment, medical, healthcare,
transportation, homeland security and the military.





Overview
of Development of 3D Technology





Holography
as a means of wavefront, or 3D image, reconstruction was first introduced by
Dennis Gabor in 1948 when he developed a process for recording the amplitude and
phase of an optical wavefront. The word “holography” is derived from the Greek
words holos (whole) and
graphein (to write),
and Gabor coined the term “hologram” to refer to a “total recording.” The
widespread practice of holography took off in the early 1960s with the invention
of the laser. Since that time, holography has been used in a variety of
applications, many in routine commercial use today. Digital holography refers to
the use of digital computers to create holograms, sometimes referred to as computer-generated holograms.
Upon undertaking this investigation into the use of digital holography as a
viable technology for 3D imaging and visualization, we found that holography is
often the starting point for technologists seeking to realize practical
commercial systems, but in practice, many solutions involve other approaches
such as stereoscopic and swept-volume techniques.





4




A team of
researchers led by Harold Garner at the University of  Texas Southwestern
Medical School at Dallas is working on a HoloTV project to develop
technology that can deliver 3D moving images for applications in medical
imaging, “heads up” displays, video games, and air traffic control display.
Current development efforts involve the use of the Digital Micromirror Device
from Texas Instruments, as well as eight-layer liquid-crystal screen. The DMD
focuses image points on various locations throughout the screen to produce 3D
images.





Stereoscopic
techniques are being investigated as a means of achieving 3D imaging and
display. A recent paper by Jang and Javidi describes a technique called 3D
projection integral imaging to create 3D orthoscopic virtual images. The
technique employs a micro-convex-mirror array to convert inputs from 2D image
sensors to 3D images with a viewing angle of over 60 o and has
been successfully demonstrated in the laboratory. Another paper by Choi et al reports on the
construction of a novel full-color autostereoscopic 3D display system using
scaling constraints and phase quantization leveling to reduce the color
dispersion and the phase difference. The system employs
color-dispersion-compensated (CDC) synthetic phase holograms (SPHs) to create 3D
images and video frames that don’t require the use of special glasses for
viewing. While both of these technical approaches have been successfully
demonstrated in a laboratory environment, neither easily lends itself to the
kind of embodiment envisioned by 3DIcon.





Sato
et al report identifies
space projection method
for producing 3D images using DMDs. This method uses a volumetric screen of
water particles upon which color 3D images can be projected using the
combination of a white light laser, variable color filter, and DMD. The authors
report that this so-called electro-holographic display is capable of producing
color 3D images with a large viewing angle. We believe that this approach has
merit, but also presents barriers to commercial implementation, particularly
from a cost and size perspective.





Pursuant
to the Sponsored Research Agreement, a portfolio of 3D Display Technologies is
being developed in using the following approaches:





·
            I –
      Swept Volume Displays (we have successfully achieved the initial
      demonstration and proof of technology for this
  approach)


·
            II
      – Static Volumetric Displays (Under
Glass)


·
            III
      – Stacked Volume Displays- We also have investigated the technologies for
      developing innovative Stacked Volumetric Displays. We are currently in the
      process of evaluating the commercialization potential of such
      technologies.


·
            IV
      – Free Space Volumetric Displays: Our ultimate goal is to develop Free
      Space Volumetric Displays. Our future plans include the possible use of
      magnetic nano particles to achieve this among
  others.





The Swept
Volume Display is designed to be a 3D display system showing a volumetric image
generated from an electronic medium. A proof-of-concept demonstration has been
achieved by the researchers around September 2007. The Swept Volume Display
R&D is now entering into the subsequent second stage of improvement and
development. Initial target markets for swept volume displays would include
retail, advertising industry and large venue applications.





The
Static Volume Display technology will employ DMDs using infra-red lasers to
produce 3D images in advanced transparent nanotechnology materials, thereby
enabling the creation, transmission and display of high resolution 3D images
within a volume space, surrounded by glass or transparent screen. The Free Space
technology will build upon the Static Volume technology so as to eliminate the
need for an enclosed vessel, thereby enabling the creation, transmission and
display of high resolution 3D images in free space utilizing a portable system.
The initial investigation for the Static Volume system commenced in 2007. There
is currently no estimated prototype/demonstration date for this
technology.





5




University
of Oklahoma - Sponsored Research Agreement





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 (University), which expired October 19, 2004. We have 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. The purpose of the pilot study was 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;


·
            Recommendations
      for product research and development
directions.





On July
15, 2005, we entered into a Sponsored Research Agreement with the University,
which expired on January 14, 2007. Under this agreement, the University
conducted a research project entitled "Investigation of 3-Dimensional Display
Technologies" 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:





·
            To
      produce patentable and/or copyrightable intellectual
    property;


·
            To
      produce proof-of-concept technology that demonstrates the viability of the
      intellectual property;


·
            To
      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;


·
            Investigate
      software interface issues with other image capture
      technologies.





The final
payment of $226,792, due on July 15, 2006, was not paid. On November 1, 2006 the
Sponsored Research Agreement 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, 2005 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 sponsored research agreement with the
University of Oklahoma (Phase III) which expires on March 31, 2010. Under this
agreement, the University will conduct a research project entitled
“3-Dimensional Display Development”. We will 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 includes 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 will 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 does not provide for any
additional payments, the remaining balance would be $290,000, which OU agreed to
accept 4,264,707 shares of the 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 have 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.





6





During
the years ended December 31, 2008 and 2007, we charged operations $953,802 and
$1,020,888, respectively pursuant to the SRA.  At December 31, 2008,
we owed the University $198,365 in aggregate monthly payments and $741,131 on
the arrearages under the revised payment terms.





We own
all worldwide rights to commercial and government usage of the intellectual
property being developed by the University of Oklahoma. The University of
Oklahoma has applied for the following patents with the U.S. Patent and
Trademark Office:





Description of Provisional Patent Application
      as
                  Filed
                
                Description of Utility Patent Application Filing
      (Combined)
                
                Date of FilingSwept
      Volume Display
                
                Swept
      Volume Display
                
                September
      2006Colorful
      Translation Light Surface 3D Display
                
                Light
      Surface Display for
                
                April
      2007Colorful
      Translation 3D Volumetric Display
                
                Rendering
      Three-Dimensional3D
      Light Surface Display
                
                Image
      (Combined)Volumetric
      Liquid Crystal Display
                
                Volumetric
      Liquid Crystal Display
                
                April
      2007for
      Rendering Three-DimensionalImage
      (Combined)Computer
      System Interaction with DMD
                
                Computer
      System Interaction with DMD
                
                January
      2008Virtual
      Moving Screen for Rendering Three Dimensional Image
                
                Utility
      Patent Application to be filed
                
                January
      2008
                  (Provisional)





Marketing
and Product Development





We
produced our first product “Pixel Precision” in 2007. The product has been made
commercially available through a sales and distribution arrangement with Digital
Light Innovations that was signed March 6, 2008. This product is a result of our
research efforts involving the use of Digital Micromirror Device (“DMD”). The
product is targeted at the application development market involving the use of
DMDs, specifically the DMD-DiscoveryTM line from Texas InstrumentsTM.





We do not
have any products, services or technologies in the area of 3 Dimensional
Displays as yet. We envision the sale of co-produced products with partners in
various industry verticals, the licensing of University-owned technology, or a
combination thereof.





We have
identified the following potential markets and uses for the technology being
developed by the University of Oklahoma:





·
            Digital
      Displays: Large Format, Retail
Advertising;


·
            Air
      Traffic Systems, Traffic Planning; Town
  Planning;


·
            Pharmaceutical
      and Bio-Medical Research;


·
            Homeland
      Defense and Security;


·
            Architectural
      plans and virtual structures;


·
            Interactive
      entertainment;


·
            Geo-Spatial
      Applications;


·
            Casino
      Gaming; and


·
            Military
      Applications.





7


Competition


There are
numerous technologies which are under development to enable the display of 3D
images. The following is a summary of research being conducted and products
under development in the 3D display system marketplace of which we are currently
aware:





·
            Lightspace
      DepthCubeTM from LightSpace Technologies,
Inc.


·
            Felix
      3D Displays


·
            Perspecta
      Spatial 3D Display from Actuality
Systems


·
            3D
      Technology Laboratories





Employees





We had
four full-time employees as of December 31, 2008, Martin Keating, Chief
Executive Officer, Vivek Bhaman, President and Chief Operating Officer, Dr.
Hakki Refai, Chief Technology Officer (From October 2008), and Ms. Judith
Keating, Company secretary and Director of Investor Relations.  None
of our employees are covered by a collective bargaining agreement.  We
consider relations with our employees to be good.





ITEM
1A. RISK FACTORS.





Risks Relating to Our
Business:





We
have a limited operating history, as well as a history of operating
losses.




We have a
limited operating history. We cannot assure you that we can achieve revenue or
sustain revenue growth or profitability in the future. We have a cumulative net
loss of $11,010,079 for the period from inception (January 1, 2001) to December
31, 2008.   Our operations are subject to the risks and competition
inherent in the establishment of a business enterprise. Unanticipated problems,
expenses, and delays are frequently encountered in establishing a new business
and marketing and developing products. These include, but are not limited to,
competition, the need to develop customers and market expertise, market
conditions, sales, marketing and governmental regulation. Our failure to meet
any of these conditions would have a materially adverse effect upon us and may
force us to reduce or curtail our operations. Revenues and profits, if any, will
depend upon various factors. We may not achieve our business objectives and the
failure to achieve such goals would have an adverse impact on our
business.





Currently,
our only significant asset is our Sponsored Research Agreement with the
University of Oklahoma, and our ability to accomplish our business plan relies
entirely on the ability of the University of Oklahoma to successfully develop
marketable 3D communications and display technologies.





Our only
significant asset at the present time is our Sponsored Research Agreement with
the University of Oklahoma. If the University of Oklahoma is not successful in
developing 3D display/communications technologies that we have envisioned in our
business plan, our ability to generate revenues from marketing of the
technologies and/or product or products on which our business plan is based will
be severely impacted, which could threaten the very existence of the
Company.





Even if
the University of Oklahoma is successful in developing 3D communications and
display system technologies, because of the revolutionary nature of such a
product (i.e., no similar product currently exists, and there are numerous
unknowns relating to the product, such as manufacturing costs and operational
costs), there can be no assurance that our marketing plans for the product will
be successful.





Therefore,
the fact that our success depends almost entirely on the efforts of others to
develop technologically challenging new technologies that will be in a form
readily licensable and/or marketable and acceptable to a given market, and our
ability to then successfully market such technologies, makes an investment in
the Company much more risky than a comparable investment in other companies that
may have a broad range of existing, proven products and/or
technologies.




8




We may not be able to
compete successfully.





Although
the volumetric 3D imaging and display technology that the University of Oklahoma
is attempting to develop is new, and although at present we are aware of only a
limited number of companies that have publicly disclosed their attempts to
develop similar technology, we anticipate a number of companies are or will
attempt to develop technologies/products that compete or will compete with our
technologies. Further, even if we are the first to market with a technology of
this type, and even if the technology is protected by patents or otherwise,
because of the vast market and communications potential of such a product, we
anticipate the market will be flooded by a variety of competitors (including
traditional communications companies), many of which will offer a range of
products in areas other than those in which we compete, which may make such
competitors more attractive to prospective customers. In addition, many if not
all of our competitors and potential competitors will initially be larger and
have greater financial resources than we do. Some of the companies with which we
may now be in competition, or with which we may compete in the future, have or
may have more extensive research, marketing and manufacturing capabilities and
significantly greater technical and personnel resources than we do, even given
our relationship to the University of Oklahoma, and may be better positioned to
continue to improve their technology in order to compete in an evolving
industry. Further, technology in this industry may evolve rapidly once an
initially successful product is introduced, making timely product innovations
and use of new technologies essential to our success in the marketplace. The
introduction by our competitors of products with improved technologies or
features may render any product we initially market obsolete and unmarketable.
If we do not have available to us products that respond to industry changes in a
timely manner, or if our products do not perform well, our business and
financial condition will be adversely affected.





The
technologies being developed may not gain market acceptance.





The
products that the University of Oklahoma is currently developing utilize new
technologies. As with any new technologies, in order for us to be successful,
these technologies must gain market acceptance. Since the technologies that we
anticipate introducing to the marketplace will exploit or encroach upon markets
that presently utilize or are serviced by products from competing technologies,
meaningful commercial markets may not develop for our technologies.





In
addition,the
development efforts of the University of Oklahoma on the 3D technology are
subject to unanticipated delays, expenses or technical or other problems, as
well as the possible insufficiency of funding to complete development. Our
success will depend upon the ultimate products and technologies meeting
acceptable cost and performance criteria, and upon their timely introduction
into the marketplace. The proposed products and technologies may never be
successfully developed, and even if developed, they may not satisfactorily
perform the functions for which they are designed. Additionally, these may not
meet applicable price or performance objectives. Unanticipated technical or
other problems may occur which would result in increased costs or material
delays in their development or commercialization.




If
we are unable to successfully retain existing management and recruit qualified
personnel having experience in our business, we may not be able to continue our
operations.




Our
success depends to a significant extent upon the continued services of Martin
Keating, our Chairman and Chief Executive Officer, and James N. Welsh, our
Interim Chief Operating Officer and Interim Treasurer. Our success also depends
on our ability to attract and retain other key executive officers.





Our
auditors have expressed substantial doubt about our ability to continue as a
going concern.  If we do not continue as a going concern, investors
will lose their entire investment.





In their
report dated April 15, 2009, our auditors have expressed substantial doubt about
our about our ability to continue as a going concern. These concerns arise from
the fact that we are a development stage organization with insufficient revenues
to fund development and operating expenses. If we are unable to continue as a
going concern, you could lose your entire investment in us.





We
will need significant additional capital, which we may be unable to
obtain.





Our
capital requirements in connection with our development activities and
transition to commercial operations have been and will continue to be
significant. We will require approximately $2.5 million additional funds over
the next two years to continue research, development and testing of our
technologies, to obtain intellectual property protection relating to our
technologies when appropriate, and to improve and market our technologies. There
can be no assurance that financing will be available in amounts or on terms
acceptable to us, if at all.





9





Risks
Relating to Our Current Financing Arrangements:





There
are a large number of shares underlying our convertible debentures, and warrants
that may be available for future sale and the sale of these shares may depress
the market price of our common stock.





As
of March 31, 2009, we had approximately 175,505,294 shares of common stock
issued and outstanding and convertible debentures outstanding that may be
converted into an estimated 614,771,829 shares of common stock at current market
prices. The number of shares of common stock issuable upon conversion of the
outstanding convertible debentures may increase if the market price of our stock
declines. We also have outstanding warrants issued to Golden State Equity
Investors, Inc. f/k/a Golden Gate Investors (“Golden State”) to purchase 962,939
shares of common stock at an exercise price of $10.90. The sale of the shares
underlying the convertible debentures and warrants may adversely affect the
market price of our common stock.





Our
obligation to issue shares upon conversion of our convertible debentures is
essentially limitless.





The conversion price of our
convertible debentures is continuously adjustable, which could require
us toissue a
substantially greater number of shares, which will cause dilution to our
existing stockholders.








The
following is an example of the amount of shares of our common stock that are
issuable, upon conversion of our 4.75% $100,000 convertible debentures
(excluding accrued interest) issued to Golden State on November 3, 2006, based
on the remaining principal balance of $96,678 and market prices 25%, 50% and 75%
below the market price as of March 27, 2009 of $0.026.





% Below
                          Market
                        
                        Price Per
                          Share
                        
                        
                        Effective
                          Conversion
                          Price
                        
                        
                        Number
                          of Shares
                          Issuable(1)
                        
                        
                        % of
                          Outstanding
                          Stock25%
                        
                        $
                        0.01925
                        
                        
                        $
                        0.01540
                        
                        
                        
                        689,590,363
                        
                        
                        
                        433
                        %50%
                        
                        $
                        0.01283
                        
                        
                        $
                        0.01026
                        
                        
                        
                        1,035,541,992
                        
                        
                        
                        650
                        %75%
                        
                        $
                        0.00642
                        
                        
                        $
                        0.00513
                        
                        
                        
                        2,072,050,764
                        
                        
                        
                        1,300
                        %





(1)
Shares issuable excludes 966,780 shares underlying the remaining warrants
exercisable at $10.90 per share and cash proceeds of $10,537,902





The
following is an example of the amount of shares of our common stock that are
issuable, upon conversion of our 9 3⁄4% $700,000 convertible debentures (excluding
accrued interest) issued to Golden State on June 8, 2007, based on the remaining
principal balance of $364,000 and market prices 25%, 50% and 75% below the
market price as of March 27, 2009 of $0.026.





Effective
                      
                      Number
                      
                      % of% Below
                      
                      Price Per
                      
                      
                      Conversion
                      
                      of Shares
                      
                      OutstandingMarket
                      
                      Share
                      
                      
                      Price
                      
                      Issuable
                      
                      Stock25%
                      
                      $
                      0.01925
                      
                      
                      $
                      0.01386
                      
                      
                      
                      26,269,449
                      
                      
                      
                      16
                      %50%
                      
                      $
                      0.01283
                      
                      
                      $
                      0.00924
                      
                      
                      
                      39,404,174
                      
                      
                      
                      25
                      %75%
                      
                      $
                      0.00642
                      
                      
                      $
                      0.00462
                      
                      
                      
                      78,808,348
                      
                      
                      
                      50
                      %





The
following is an example of the amount of shares of our common stock that are
issuable, upon conversion of the $1.25 million convertible debenture issued to
Golden State on January 15, 2008 (the “Second Debenture”) (excluding accrued
interest), based on the principal balance of $578,601 and market prices 25%, 50%
and 75% below the market price as of March 27, 2009 of $0.026.




10





Effective
                      
                      Number
                      
                      %
      of%
      Below
                      
                      Price
      Per
                      
                      
                      Conversion
                      
                      of
      Shares
                      
                      OutstandingMarket
                      
                      Share
                      
                      
                      Price
                      
                      Issuable
                      
                      Stock25%
                      
                      $
                      0.01925
                      
                      
                      $
                      0.01732
                      
                      
                      
                      33,405,577
                      
                      
                      
                      21
                      %50%
                      
                      $
                      0.01283
                      
                      
                      $
                      0.01155
                      
                      
                      
                      50,108,366
                      
                      
                      
                      32
                      %75%
                      
                      $
                      0.00642
                      
                      
                      $
                      0.00577
                      
                      
                      
                      100,216,732
                      
                      
                      
                      64
                      %





As
illustrated, the number of shares of common stock issuable upon conversion of
our convertible debentures will increase if the market price of our stock
declines, which will cause dilution to our existing stockholders.





The continuously adjustable
conversion price feature of our convertible debentures mayencourage investors to make short
sales in our common stock, which could have a depressive effect on the price of
our common stock.





So long
as the market price of our stock is below $4.00, the issuance of shares in
connection with the conversion of the $100,000 convertible debenture results in
the issuance of shares at an effective 20% discount to the trading price of the
common stock prior to the conversion. So long as the market price of our stock
is below $2.00 the issuance of shares in connection with the conversion of the
Second Debenture results in the issuance of shares at an effective 10% discount
to the trading price of the common stock prior to the conversion. The
significant downward pressure on the price of the common stock as the selling
stockholder converts and sells material amounts of common stock could encourage
short sales by investors. This could place further downward pressure on the
price of the common stock. The selling stockholder could sell common stock into
the market in anticipation of covering the short sale by converting their
securities, which could cause the further downward pressure on the stock price.
In addition, not only the sale of shares issued upon conversion or exercise of
debentures and warrants, but also the mere perception that these sales could
occur, may adversely affect the market price of the common stock.





The
issuance of shares upon conversion of the convertible debentures and exercise of
outstanding warrants may cause immediate and substantial dilution to our
existing stockholders.





The
issuance of shares upon conversion of our convertible debentures and exercise of
warrants may result in substantial dilution to the interests of other
stockholders since the selling stockholder may ultimately convert and sell the
full amount issuable on conversion. Although Golden State may not convert its
convertible debentures and/or exercise their warrants if such conversion or
exercise would cause it to own more than 9.9% of our outstanding common stock,
this restriction does not prevent the selling stockholder from converting and
selling some of their holdings and then converting the rest of their holdings.
In this way, assuming the market price remains at a level acceptable to the
selling stockholder, the selling stockholder could continue on a
“conversion-sell-conversion” trend while never holding more than 9.99% of our
common stock. Further, under the convertible debentures there is theoretically
no upper limit on the number of shares that may be issued, which will have the
effect of further diluting the proportionate equity interest and voting power of
holders of our common stock.





If
we are unable to issue shares of common stock upon conversion of the convertible
debenture as a result of our inability to increase our authorized shares of
common stock or as a result of any other reason, we are required to pay
penalties to Golden State, redeem the convertible debenture at 130% and/or
compensate Golden State for any buy-in that it is required to make.




If we are
unable to issue shares of common stock upon conversion of the convertible
debenture as a result of our inability to increase our authorized shares of
common stock or as a result of any other reason, we are required
to:




·
            pay
      late payments to Golden State for late issuance of common stock upon
      conversion of the convertible debenture, in the amount of $100 per
      business day after the delivery date for each $10,000 of convertible
      debenture principal amount being converted or
  redeemed;


·
            in
      the event we are prohibited from issuing common stock, or fail to timely
      deliver common stock on a delivery date, or upon the occurrence of an
      event of default, then at the election of Golden State, we must pay to
      Golden State a sum of money determined by multiplying up to the
      outstanding principal amount of the convertible debenture designated by
      Golden State by 130%, together with accrued but unpaid interest thereon;
      and





11





·
            if
      ten days after the date we are required to deliver common stock to Golden
      State pursuant to a conversion, Golden State purchases (in an open market
      transaction or otherwise) shares of common stock to deliver in
      satisfaction of a sale by Golden State of the common stock which it
      anticipated receiving upon such conversion (a "Buy-In"), then we are
      required to pay in cash to Golden State the amount by which its total
      purchase price (including brokerage commissions, if any) for the shares of
      common stock so purchased exceeds the aggregate principal and/or interest
      amount of the convertible debenture for which such conversion was not
      timely honored, together with interest thereon at a rate of 15% per annum,
      accruing until such amount and any accrued interest thereon is paid in
      full.





In the
event that we are required to pay penalties to Golden State or redeem the
convertible debentures held by Golden State, we may be required to curtail or
cease our operations.





Risks
Relating to Our Common Stock:




Fluctuations
in our operating results and announcements and developments concerning our
business affect our stock price.




Our
quarterly operating results, the number of stockholders desiring to sell their
shares, changes in general economic conditions and the financial markets, the
execution of new contracts and the completion of existing agreements and other
developments affecting us, could cause the market price of our common stock to
fluctuate substantially.





Our
common stock is subject to the "Penny Stock" rules of the SEC and the trading
market in our securities is limited, which makes transactions in our stock
cumbersome and may reduce the value of an investment in our stock.





The
Securities and Exchange Commission has adopted Rule 15g-9 which establishes the
definition of a "penny stock," for the purposes relevant to us, as any equity
security that has a market price of less than $5.00 per share or with an
exercise price of less than $5.00 per share, subject to certain exceptions. For
any transaction involving a penny stock, unless exempt, the rules
require:





·
            that
      a broker or dealer approve a person's account for transactions in penny
      stocks; and


·
            the
      broker or dealer receives from the investor a written agreement to the
      transaction, setting forth the identity and quantity of the penny stock to
      be purchased.





In order
to approve a person's account for transactions in penny stocks, the broker or
dealer must:





·
            obtain
      financial information and investment experience objectives of the person;
      and


·
            make
      a reasonable determination that the transactions in penny stocks are
      suitable for that person and the person has sufficient knowledge and
      experience in financial matters to be capable of evaluating the risks of
      transactions in penny stocks.





The
broker or dealer must also deliver, prior to any transaction in a penny stock, a
disclosure schedule prescribed by the Commission relating to the penny stock
market, which, in highlight form:





·
            sets
      forth the basis on which the broker or dealer made the suitability
      determination; and


·
            that
      the broker or dealer received a signed, written agreement from the
      investor prior to the transaction.





Generally,
brokers may be less willing to execute transactions in securities subject to the
"penny stock" rules. This may make it more difficult for investors to dispose of
our common stock and cause a decline in the market value of our
stock.





Disclosure
also has to be made about the risks of investing in penny stocks in both public
offerings and in secondary trading and about the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and the rights and remedies available to an investor in cases of
fraud in penny stock transactions. Finally, monthly statements have to be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks.





12





ITEM
1B. UNRESOLVED STAFF COMMENTS.





N/A





ITEM
2. PROPERTIES.





Our
executive offices are located at 6804 South Canton Avenue, Suite 150, Tulsa,
Oklahoma 74136. The lease has a term of thirty-six (36) months, which began on
June 1, 2008.  We currently pay rent and related costs of
approximately $2,255 per month.





ITEM
3. 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
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.




None





PART
II





ITEM 5. MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.





Our
common stock is quoted on the OTC Bulletin Board under the symbol
"TDCP".





For the
periods indicated, the following table sets forth the high and low bid prices
per share of common stock. These prices represent inter-dealer quotations
without retail markup, markdown, or commission and may not necessarily represent
actual transactions (1).





High
                          
                          
                          LowFirst
      Quarter ended March 31, 2009
                          
                          $
                          0.05
                          
                          
                          
                          0.02





$
                              0.32
                              
                              
                              $
                              0.04Year
      Ended December 31, 2008
                              
                              High
                              
                              
                              LowFirst
      Quarter ended March 31, 2008
                              
                              $
                              0.32
                              
                              
                              $
                              0.20Second
      Quarter ended June 30, 2008
                              
                              $
                              0.24
                              
                              
                              $
                              0.08Third
      Quarter ended September 30, 2008
                              
                              $
                              0.18
                              
                              
                              $
                              0.05Fourth
      Quarter ended December 31, 2008
                              
                              $
                              0.15
                              
                              
                              $
                              0.04




Year
      Ended December 31, 2007
                    
                    High
                    
                    
                    LowFirst
      Quarter ended March 31, 2007
                    
                    $
                    0.70
                    
                    
                    $
                    0.39Second
      Quarter ended June 30, 2007
                    
                    $
                    0.72
                    
                    
                    $
                    0.32Third
      Quarter ended September 30, 2007 (1)
                    
                    $
                    1.05
                    
                    
                    $
                    0.31Fourth
      Quarter ended December 31, 2007
                    
                    $
                    0.59
                    
                    
                    $
                    0.28





(1)
            The
      Company’s Shares were traded on the Pink Sheets until July 25, 2007 and
      began trading on the OTC Bulletin Board
  thereafter.




13





Holders





As of
March 31, 2009 we had approximately 392 active holders of our common stock. The
number of active record holders was determined from the records of our transfer
agent and does not include beneficial owners of common stock whose shares are
held in the names of various security brokers, dealers, and registered clearing
agencies. Our transfer agent is Continental Stock Transfer & Trust Company,
17 Battery Place, New York, NY 10004.





Dividends




We have
not declared any dividends to date. We have no present intention of paying any
cash dividends on our common stock in the foreseeable future, as we intend to
use earnings, if any, to generate growth. The payment of dividends, if any, in
the future, rests within the discretion of our Board of Directors and will
depend, among other things, upon our earnings, capital requirements and our
financial condition, as well as other relevant factors. There are no
restrictions in our Certificate of Incorporation or By-laws that restrict us
from declaring dividends.





Equity
Compensation Plan Information





The
following table sets forth the information indicated with respect to our
compensation plans under which our common stock is authorized for
issuance.




Plan category
                                
                                Number of
                                  securities
                                  to be issued
                                  upon
                                  exercise of
                                  outstanding
                                  options,
                                  warrants and
                                  rights
                                
                                
                                Weighted average
                                  exercise price of
                                  outstanding options,
                                  warrants and
                                  rights
                                
                                
                                Number of
                                  securities
                                  remaining
                                  available for
                                  future issuance
                                  under equity
                                  compensation
                                  plans (excluding
                                  securities
                                  reflected in
                                  column (a)(a)
                                
                                
                                (b)
                                
                                
                                (c)Equity
      compensation plans approved by security holders
                                
                                
                                8,000,000
                                
                                
                                $
                                0.64
                                
                                
                                
                                3,191,027Equity
      compensation plans not approved by security holders27,000,000
                                
                                
                                
                                
                                
                                
                                
                                27,000,000Total
                                
                                
                                35,000,000
                                
                                
                                $
                                0.64
                                
                                
                                
                                30,191,027




Recent
Sales of Unregistered Securities





During
the fiscal year ended December 31, 2008, we issued the below securities without
registration under the Securities Act of 1933, as amended (the "Securities
Act").





Pursuant
to a Subscription Agreement dated October 1, 2008, the we sold 515,677 shares of
our common stock at a per share price equal to 80% of the average closing price
during the five (5) days prior to the signing ($.048 per share) and warrants to
purchase 257,839 shares of our common stock at a price of $.20 per share from
October 1, 2008  through August 31, 2009, or $.25 per share from
September 30, 2009 through August 31, 2010 to one accredited individual. We
received $25,000 in cash from the sale.  The warrants terminate August
31, 2010.





ITEM
6. SELECTED FINANCIAL DATA





N/A





14





ITEM
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION.





Forward
–Looking Statements




The
information in this annual report contains forward-looking statements. All
statements other than statements of historical fact made in this annual report
are forward looking. In particular, the statements herein regarding industry
prospects and future results of operations or financial position are
forward-looking statements. 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 the
consolidated 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 o
volumetric imaging and display technology, specifically in the areas identified
by the initial in-depth investigation conducted by the University of Oklahoma
(OU or 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 the
University of Oklahoma, to which 3DIcon will have exclusive world-wide
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 the University of Oklahoma, to
which 3DIcon has exclusive rights and engage in product research and development
both directly related to the display as well as by-product
technologies.





Current
Activities and Operations




Currently
the Company is pursuing the research and development of volumetric 3-D display
technology through the Sponsored Research Agreement (“SRA”) with the University
of Oklahoma (“OU”). 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 CSpaceTM, 3DIcon has produced the first non-mechanical, 360-degree,
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).





15





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 CSpaceTM
technology.





We have
also released a software product called Pixel PrecisionTM. The current version of
the software is 1.0. 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 PrecisionTM
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 FilingSwept
      Volume Display
                    
                    Swept
      Volume Display
                    
                    September
      2006Colorful
      Translation Light Surface 3D Display
                    
                    Light
      Surface Display for
                    
                    April
      2007Colorful
      Translation 3D Volumetric Display
                    
                    Rendering
      Three-Dimensional3D
      Light Surface Display
                    
                    Image
      (Combined)Volumetric
      Liquid Crystal Display
                    
                    Volumetric
      Liquid Crystal Display
                    
                    April
      2007for
      Rendering Three-DimensionalImage
      (Combined)Computer
      System Interaction with DMD
                    
                    Computer
      System Interaction with DMD
                    
                    January
      2008Virtual
      Moving Screen for Rendering Three Dimensional Image
                    
                    Utility
      Patent Application to be filed
                    
                    January
      2008
                      (Provisional)Optically
      Controlled Light Emitting...and System for Optically Written 2D and 3D
      Displays
                    
                    Utility
      Patent Application to be filed
                    
                    April
      2008
                      (Provisional)





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.





Our
research and development objectives for the 2009 calendar year are as follows.
The work will mainly be done by researchers, faculty and selected graduate or
doctoral level students at the University of Oklahoma with oversight by 3DIcon
personnel:





I. Static
Volumetric Display (CSpaceTM)





·
            Continue
      work on development of blue and red up-conversion
    materials.


·
            Synthesize
      near-transparent projection media suitable for dispersion of display
      materials.


·
            Investigate
      the use of additional technologies for development of image space that
      enhance the commercialization of the technology. Dr. Hakki Refai has begun
      collaboration with parties outside of OU to explore alternate material
      development strategies.





16




·
            Demonstrate
      improvements in optical properties for transparent projection materials.
      Static Volumetric Display and
Nano-materials




II.
By-Product Technologies





·
            Continue
      to generate revenue from Pixel PrecisionTM the DMD Control Software for DMD
      Application development markets


·
            Develop
      next generation of Pixel PrecisionTM software for controlling multiple DMDs
      as well as for controlling the next generation of the DMD-DiscoveryTM
      series


·
            Release
      Pixel PrecisionTM for the Discovery 4000 series (D4000). This will be done
      after TI/DLi develop and provide the API for
  D4000.





III. New
3D Technologies





·
            Continue
      to pursue new 3D opportunities across a broad technological spectrum, with
      the ultimate goal of the creation of a “free space” 3D display (i.e., one
      without a visible containment
vessel).





RESULTS
OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2008 COMPARED TO THE YEAR ENDED
DECEMBER 31, 2007





Revenue





We have
launched our first software product PixelPrecisionTM. We appointed Digital Light
Innovations for the sales and distribution of this product in March
2008.





We have
earned income of $17,900 before commissions and costs from the sales of
PixelPrecisionTM for the year ended December 31, 2008.





The cost
of sales for Pixel PrecisionTM of $8,435 includes commissions payable to the
exclusive distributor DLi. 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.





We expect
sales of Pixel PrecisionTM 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 & Administrative, R&D, Interest
Payments) but do not expect the revenue generated in 2009 to cover the operating
expenses.





Research
and Development Expenses





The
research and development expenses were $953,802 for the year ended December 31,
2008 as compared to $1,020,888 for the year ended December 31,
2007.  The decrease was a result of modifications to the
SRA.





General
and Administrative Expenses





Our
general and administrative expenses were $2,569,922 for the year ended December
31, 2008 as compared to $2,819,525 for the year ended December 31,
2007.   The decrease is due primarily to the decrease in the
number of options issued to Directors and consultants for services.





Interest
Expense





Interest
expense for the year ended December 31, 2008 was $122,291 as compared to $88,583
for the year ended December 31, 2007. The increase in interest expense resulted
from increase in the amounts outstanding on our convertible debentures during
the periods.




17





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 Sponsored Research Agreement with
      the University of Oklahoma. This includes development of an initial
      demonstrable prototype and a second prototype for static volume
      technology


·
            Acceleration
      of R&D 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 PrecisionTM
      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, 2008, 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 $48,400 at December 31, 2008.


We had
negative working capital of $1,642,297 at December 31, 2008.





During
the year ended December 31, 2008, we used $1,906,163 of cash for operating
activities, a decrease of $548,413 or 22% compared to the year ended December
31, 2007. The decrease in the use of cash for operating activities was a result
of the increase in accounts payable of $619,162 and the decrease in net loss of
$317,446.





Cash used
in investing activities during the year ended December 31, 2008 was $25,363, an
increase of $16,607 compared to the year ended December 31, 2007.  The
increase was a result of purchasing office furniture and equipment for the
leased office space.





Cash
provided by financing activities during the year ended December 31, 2008 was
$1,274,407, a decrease of $1,692,013 or 57% compared to the year ended December
31, 2007.  The decrease was the result of the decreased debenture
funding, stock sales and warrant sales in 2008.





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 the 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. As a result of our stock price being
around the 52 week low mark and trending downward, our ability to raise cash is
restricted.





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 the year ended December 31, 2008, we received $297,145 in
funding from Golden State as a result of the 4.75% Convertible Debenture
warrants exercised.





The
Company has been unable to meet it's monthly payment obligations under the
Sponsored Research Agreement (“SRA”) and received notification that they were in
default.  A new payment schedule has been
negotiated.   Failure of the Company to meet its payment
obligations under the new payment schedule could result in the termination of
the SRA, termination of the related projects, and termination of any outstanding
license agreements under the SRA.





18





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 includes 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 will 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 does not provide for any additional
payments, the remaining balance would be $290,000,  for 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 has 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.





In
addition, the management has put forward a proposal to the Board to reduce
operating expenses further through temporary salary cuts, partial payments to
consultants using stock and reduction in day-to-day expenses. We anticipate that
this, along with other measures, will reduce our current cash flow burn rate
from $267,000 per month to approximately of $180,000 to $195,000 per
month.





We also
intend to raise additional funds as permitted by the terms of Golden State
financing, to help with the short term capital needs.





Off
Balance Sheet Arrangements




3DIcon
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





Statement
of Accounting Standards No. 2, “Accounting for Research and Development Costs,”
requires that all research and development costs be expensed as incurred. Until
we have developed a commercial product, all costs incurred in connection with
the Sponsored Research Agreement with the University of Oklahoma, as well as all
other research and development costs incurred, will be expensed. 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. Statement of
Financial Accounting Standards No. 123 “Accounting for Stock Based
Compensation” and No. 123(R), “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.





19





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 year ended December 31, 2008.  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 the
occasions.





Subsequent
to December 31, 2008, Golden State converted $111,500 of the 9.75% convertible
debenture into 4,855,767 shares of common stock at prices ranging from $0.018 to
$0.029 per share, converted $1,080 of the 4.75% convertible debenture into
5,598,495 shares of common stock at $0.0002 per share and exercised 10,800
warrants at $10.90 per share for $117,720 under the terms of the securities
purchase agreements.





Common
stock and paid in capital





Concordia
was issued 1,413,986 shares of common stock in payment of $31,500 for January
and February services under the consulting agreement.  Additionally
common shares totaling 1,802,977 were issued to vendors in payment of $25,275
for services.





President’s resignation and interim
President appointed





On
February 3, 2009, Vivek Bhaman resigned as President, Chief Operating Officer
and Treasurer of 3DIcon Corporation effective March 3, 2009.  Mr.
Bhaman was due an aggregate of $41,667 compensation for January and February
2009 under the terms of the April 29, 2007 Employment
Agreement.  Additionally he is due $41,667 under the terms of the
October 12, 2008 Amended Employment Agreement which increased his annual
compensation to $300,000 from $250,000.  Under the terms of the
contract, the Company elected to defer the $50,000 increase until April 30, 2009
and pay the increased compensation in registered common stock discounted at 25%
to the market price.  Mr. Bhaman was issued 1,851,852 registered
common shares at $0.0225 per share for the $41,667 deferred
compensation.  The Company has been unable to pay Mr. Bhaman for the
remaining $41,667 compensation under his original Employment
Contract.  Additionally under the terms of the employment agreements,
Mr. Bhaman has vested 1,425,000 options to purchase shares at common stock of
the Company at prices ranging from $0.055 to $1.00 per share that expire at
various dated through October 12, 2018.  In connection with his
resignation, the Company agreed to waive certain provisions of Mr. Bhaman's
employment agreement which prevented him from continuing to serve as a Director
of the Company following the termination of his employment. Accordingly, Mr.
Bhaman continues to serve as a Director of the Company.





On
February 9, 2009, the Board of Directors of the Company appointed James N. Welsh
to serve as the Company’s Interim Chief Operating Officer and Treasurer. His
appointment was effective as of March 1, 2009.





REOFFER
PROSPECTUS 2,851,852 SHARES OF COMMON STOCK




The March
2009 reoffer prospectus relates to the sale of 2,851,852 shares of our common
stock, $.0002 par value per share, that may be offered and resold from time to
time by certain eligible participants and existing selling shareholders
identified in the prospectus for their own account issuable upon exercise of
currently outstanding stock options which have been issued pursuant to the
unanimous written consent of our Board of Directors and pursuant to the
employment agreement of one of our officers. It is anticipated that the selling
shareholders will offer common shares for sale at prevailing prices on the OTC
Bulletin Board on the date of sale. We will receive no part of the proceeds from
sales made under this reoffer prospectus. The selling shareholders will bear all
sales commissions and similar expenses. Any other expenses incurred by us in
connection with the registration and offering and not borne by the selling
shareholders will be borne by us.




The
shares of common stock will be issued pursuant to awards granted by the
unanimous written consent of our Board of Directors and pursuant to the
employment agreement of certain officers and will be "control securities"
under the Securities Act before their sale under this reoffer prospectus. This
reoffer prospectus has been prepared for the purposes of registering the common
shares under the Securities Act to allow for future sales by selling
shareholders on a continuous or delayed basis to the public without
restriction.





20




ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.





N/A





ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.





All
financial information required by this Item is attached hereto at the end of
this report beginning on page F-1 and is hereby incorporated by
reference.





ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.





On
January 7, 2009, Tullius Taylor Sartain & Sartain LLP, the prior independent
registered public accounting firm of the “Company, and Hogan & Slovacek,
P.C. merged their operations to become HoganTaylor LLP
(“HoganTaylor”).  The respective employees, partners and shareholders
of the merged firms have become employees and partners of HoganTaylor which will
continue the practices of each of the merged firms.  Consequently,
HoganTaylor has assumed the role of the independent registered public accounting
firm of the Company, subject to the approval or ratification of the Company’s
audit committee.





As this
is a combination of the two existing accounting firms and their respective
practices, there was no resignation of the predecessor firm.  Also, as
this is a newly created firm, there have been no pre-engagement consultations or
contacts with HoganTaylor.





The
reports of Tullius Taylor Sartain & Sartain LLP regarding the Company’s
financial statements for the fiscal years ended December 31, 2007 and 2006 did
not contain any adverse opinion or disclaimer of opinion and were not qualified
or modified as to uncertainty, audit scope or accounting principles, except that
their opinion on the Company’s financial statements for both fiscal years
contained a paragraph emphasizing uncertainty regarding the Company’s ability to
continue as a “going concern”.  During the years ended December 31,
2007 and 2006, and during the period from December 31, 2007 through January 7,
2009, there were no disagreements with Tullius Taylor Sartain & Sartain LLP
on any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedures, which disagreements, if not resolved
to the satisfaction of Tullius Taylor Sartain & Sartain LLP would have
caused it to make reference to such disagreement in its report.





ITEM
9A. CONTROLS AND PROCEDURES.




Management’s
Report on Internal Control over Financial Reporting




Evaluation of Disclosure Controls
and Procedures. Under the supervision and with the participation of our
management, including our President, Chief Financial Officer and Secretary, 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 President, Chief
Financial Officer and Secretary 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.





21





Management’s Annual Report on
Internal Control over Financial Reporting. Our management is responsible
for establishing and maintaining adequate internal control over financial
reporting (as defined in Rule 13a-15(f) under the Exchange Act).  Our
internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes of accounting
principles generally accepted in the United States.





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Therefore, even those systems determined to be
effective can provide only reasonable assurance of achieving their control
objectives.





Our
management evaluated the effectiveness of our internal control over financial
reporting as of December 31, 2008.  In making this assessment, our
management used the Committee of Sponsoring Organization of the Treadway
Commission (“COSO”) framework, an integrated framework for the evaluation of
internal controls issued by the Committee of Sponsoring Organizations of the
Treadway Commission.  Based on this evaluation, our management
concluded that, as of December 31, 2008, our internal control over financial
reporting was effective.





This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial
reporting.  Management's  report was not subject to
attestation by our registered  public accounting firm pursuant to
temporary rules of the SEC  that permit the company to
provide  only  management's report in this annual
report.





Changes.  During
the most recent quarter ended December 31, 2008, 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.





ITEM
9B. OTHER INFORMATION.




None.





PART III





ITEM 10. DIRECTORS, EXECUTIVE
OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE
EXCHANGE ACT.





EXECUTIVE
OFFICERS, DIRECTORS AND KEY EMPLOYEES




The
following table sets forth the names and ages of the members of our Board of
Directors and our executive officers and the positions held by each. There are
no family relationships among any of our Directors and Executive
Officers.





Name
                    
                    Age
                    
                    PositionMartin
      Keating
                    
                    66
                    
                    Chief
      Executive Officer, Acting Chief Financial
      Officer and  DirectorJames
      N. Welsh
                    
                    66
                    
                    President,
      Chief Operating Officer and TreasurerDr.
      Hakki Refai
                    
                    
                    
                    Chief
      Technology OfficerVivek
      Bhaman
                    
                    41
                    
                    DirectorLawrence
      Field
                    
                    48
                    
                    DirectorJohn
      O’Connor
                    
                    53
                    
                    DirectorVictor
      F. Keen
                    
                    66
                    
                    Director




Martin
Keating – Chief Executive Officer and Director





Martin
Keating has been Chief Executive Officer and a director of 3DIcon since 1998.
Previously, Mr. Keating organized and managed private placement limited
partnerships, ranging from real estate development to motion picture financing.
Mr. Keating was also general counsel and director of investor relations for CIS
Technologies, then a NASDAQ company. Mr. Keating is an attorney licensed to
practice law in Oklahoma and Texas.




22





James N. Welsh – President, Chief
Operating Officer and Treasurer


James N.
Welsh was appointed as President, Chief Operating Officer and as Treasurer in
March 2009.  He is the founder and principal of Welsh &
Associates, a consulting firm which provides financial and management consulting
services.  He also served as the interim president of TriCord
Hurricane Holdings, Inc. until March 31, 2009.    In
addition, Mr. Welsh served as Chief Financial Officer of Global Safety Labs,
Inc. from January, 2007 through August, 2007.  He also served as the
Chief Financial Officer of American Container Net, Inc. from October, 2003
through August, 2005.




Hakki Refai-Chief Technology Officer


Hakki
Refai was appointed as the Company’s Chief Technology Officer on July 28,
2008.  His employment with the Company commenced on a full-time basis
on October 1, 2008.  Prior to joining the Company, Dr. Refai served as
the co-principal investigator for the Static Volume / CSpace technologies being
developed under the Sponsored Research Agreement with the University of
Oklahoma.  Dr. Refai is the lead inventor of the CSpace technology and
the creator of the Company’s first product, Pixel PrecisionTM.  He
authored the patent applications for the Static Volume Displays, Virtual Moving
Screen Displays and Interaction of Micro-Mirror Device with Computer
System.  Dr. Refai received his BS degree in electrical engineering in
1992 from Aleppo University in Syria and his MS and PhD degrees in electrical
and computer engineering in 2002 and 2005, respectively, from the University of
Oklahoma.




Vivek
Bhaman - Director





Vivek
Bhaman served as the President and Chief Operating Officer of 3DIcon from May
2007 through March 3, 2009. He currently serves as a director of the
Company.  He has held leadership positions in
VeriFone/Hewlett-Packard, and with global media giants Omnicom Group and the
Interpublic Group. His experience includes consumer and business technologies
such as cell phones and secure e-commerce transaction systems for VeriFone/HP,
where he was responsible for launching and managing the Asia-Pacific operations
of the Electronic Commerce division. His involvement extended from development
to marketing/sales. Prior to joining 3DIcon, Mr. Bhaman successfully led the
startup and marketing operations for an enterprise-software technology company,
including its acquisition of marquee customers Walt Disney, Southern California
Edison, and Freeman Group. Mr. Bhaman holds a Bachelors Degree in Engineering
and an MBA with specializations in Marketing and Finance.





Lawrence
Field - Director





Mr.
Lawrence Field was appointed to the Board of Directors of 3DIcon Corporation in
October 2007. Mr. Field is the cofounder and managing director of Regent Private
Capital LLC, an investment management firm that invests globally through offices
in New York City and Tulsa. Prior to co-founding Regent Private Capital LLC, Mr.
Field was vice president of Capital Advisors, Inc., an investment management
firm. Mr. Field holds a B.S. degree from the University of Texas at
Austin.





John
O’ Connor - Director





John
O’Connor has been a director of 3DIcon since October 2006. Since 1981, Mr.
O’Connor has practiced law in Oklahoma, concentrating in the areas of corporate
and commercial law. Mr. O’Connor served as President of the law firm of Newton,
O’Connor, Turner & Ketchum from 2001 to 2005 and has served as its Chairman
from 2001 to present.





Victor
F. Keen F. Director





Mr.
Victor F. Keen was appointed to the Board of Directors of 3DIcon Corporation in
November 2007. Until March 1, 2007, Mr. Keen served as the chair of the Tax
Practice Group at Duane Morris. He is currently of counsel to the firm. Mr. Keen
has served on the board of directors of Research Frontiers, Inc. (“Research
Frontiers”) for over 10 years. He has been chair of the compensation committee
of Research Frontiers for the last 5 years.





Audit
Committee





On
February 25, 2008, the Board of Directors created an Audit Committee comprising
Mr. Lawrence Field (Chair) and Mr. Victor Keen.





Compensation
Committee





On
February 25, 2008, the Board of Directors created a Compensation Committee
comprising Mr. Victor Keen (Chair) and Mr. Lawrence Field.





Nomination
and Corporate Governance Committee





On
February 25, 2008, the Board of Directors created Nominations and Corporate
Governance Committee comprising Mr. Victor Keen (Chair) and Mr. Lawrence
Field.





23





Code
of Ethics





We have
not adopted a Code of Ethics and Business Conduct for Officers, Directors and
Employees that applies to all of our officers, directors and
employees.





Director
Compensation





On April
27, 2007, the Company granted its three Directors 1,500,000 options exercisable
at $.40 per share.  The options were valued at $431,276 and were
charged to operations in 2007.





The
estimated fair market 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 124.4% is based on the historical volatility of our
stock. The risk-free interest rate of 3.0% is based on the U.S. Treasury
Constant Maturity rates as of the grant date. The expected life of the option of
two years is based on historical exercise behavior and expected future
experience.





On
February 25, 2008, the Company agreed to compensate its non-employee Board
members with options to purchase registered stock of the corporation equaling
the value of $100,000 for each of the three non-employee Board members; using
standard evaluation methods.  The Board granted options to purchase an
aggregate of 2,061,540 shares to its three non-employee Board members; the
exercise price for each option is $0.24 per share. The options expire at the end
of ten years. The $300,000 compensation is for services on the Board during all
or part of the calendar year 2008 and is deemed fully vested on the date of the
grant. Operations were charged with $300,000 for the year ended December 31,
2008.





The
estimated fair market 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 71.33% 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 3.0% 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.





On
October 12, 2008, the Company agreed to compensate its Director John O’Connor
with 500,000 additional options to purchase stock of the corporation at $0.055
per share. The options expire at the end of ten years. The compensation is for
services on the Board during all or part of the calendar year 2008 and is deemed
fully vested on the date of the grant. Operations were charged with $25,391 for
the year ended December 31, 2008.





The
estimated fair market 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 125.20% 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 2.0% 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.





24





Employment Agreement





On April
29, 2007, Vivek Bhaman and the Company entered into an employment agreement (the
“Bhaman Agreement”) pursuant to which Mr. Bhaman agreed to serve as the
Company’s President and Chief Operating Officer. The Bhaman Agreement contains
the following terms:





·
            base salary of
      $250,000;


·
            bonus for calendar year 2007
      equal to 25% of the base salary, payable on or before March 15, 2008 (the
      “Payment Date”) if the Company books revenue of $500,000 for calendar year
      2007 and Bhaman is an employee of the Company on the Payment
      Date;


·
            bonus beyond calendar year 2007
      shall be in the discretion of the Board of
    Directors;


·
            participation in employee benefit
      plans and programs of the Company;
and


·
            reimbursement of reasonable
      expenses





The term
of the Bhaman Agreement is one year commencing on May 1, 2007 and will
automatically extend for successive one-year periods unless otherwise terminated
by Bhaman or the Company upon 30 days notice.





On
October 12, 2008, the Company entered into an Amendment to the Employment
Agreement of Vivek Bhaman, (the “Amendment”). Pursuant to the Amendment, Mr.
Bhaman’s base salary effective May 1, 2008 is $300,000, representing an annual
increase of $50,000. The Company has the option to defer payment of any or all
of the increase until April 30, 2009. If deferred, the Company may elect to pay
the increase in shares of the Company’s common stock at a 25% discount to the
market price of the Company’s common stock on April 30, 2009. The Bonus
provision of Mr. Bhaman’s employment agreement has been deleted. In addition,
pursuant to the amendment, Mr. Bhaman was granted an aggregate of 6,000,000
options to purchase shares of the Company’s common stock at an exercise price of
$0.055 per share with a term of 10 years comprised of (i) 1,000,000 options
vesting immediately valued at $50,782, and (ii) 5,000,000 options valued at
$253,909, vesting at a rate of 125,000 options per quarter. The vesting schedule
of the 5,000,000 options may be accelerated if the market price of the Company’s
common stock exceeds certain thresholds pursuant to the terms of the Amendment.
In addition, pursuant to the amendment, in the event that Mr. Bhaman’s
employment with the Company is terminated, he shall be entitled to severance pay
equal to his regular monthly salary for a period not to exceed 6
months.





On
February 3, 2009, Vivek Bhaman resigned as President, Chief Operating Officer
and Treasurer of 3DIcon Corporation effective March 3, 2009.  Mr.
Bhaman was due an aggregate of $41,667 compensation for January and February
2009 under the terms of the April 29, 2007 Bhaman
Agreement.  Additionally he is due $41,667 under the terms of the
October 12, 2008 Amendment which increased his annual compensation to $300,000
from $250,000.  Under the terms of the Amendment, the Company elected
to defer the $50,000 increase until April 30, 2009 and pay the increased
compensation in registered common stock discounted at 25% to the market
price.  On March 9, 2009 Mr. Bhaman was issued 1,851,852 registered
common shares at $0.0225 per share for the $41,667 deferred
compensation.  The Company has been unable to pay Mr. Bhaman for the
remaining $41,667 compensation.  Additionally under the terms of the
employment agreements, Mr. Bhaman has vested 1,425,000 options to purchase
shares of common stock of the Company at prices ranging from $0.055 to
$1.00 per share that expire at various dates through October 12,
2018.  In connection with his resignation, the Company agreed to waive
certain provisions of Mr. Bhaman's employment agreement which prevented him from
continuing to serve as a Director of the Company following the termination of
his employment. Accordingly, Mr. Bhaman continues to serve as a Director of the
Company.





On July 28, 2008 the Company entered
into an Employment Agreement with Dr. Hakki Refai (the “Employment Agreement”)
pursuant to which Dr. Refai has agreed to serve as the Chief Technology Officer
of the Company. Dr. Refai’s employment under the Employment Agreement commenced
on October 1, 2008 and will continue for a term of one year from October 1,
2008, the date on which he became a full-time employee of the Company. The term
of the Employment Agreement will automatically extend for successive one year
periods unless otherwise terminated by the parties in accordance with the terms
of the Employment Agreement. The following represents the material terms of the
Employment Agreement:





25





·
            Annual
      salary of $175,000 until the achievement of certain technical milestones
      as provided in the Employment Agreement (the “Technical Milestones”). Upon
      achievement of the Technical Milestones, the annual salary shall increase
      to $200,000;





·
            Commission
      which shall not exceed 3% of sales of the Company’s Pixel PrecisionTM and
      CSpaceTM technologies products, which commission shall not exceed $30,000
      for the 12 month period commencing on October 1, 2008 and $50,000 for the
      12 month period commencing on October 1, 2009;
  and





·
            Grant
      of 5,000,000 incentive stock options with a term of 10 years and an
      exercise price of $0.085 per share which vest as
  follows:





1.
            The
      first installment of 500,000 options, valued at $33,622, are vested and
      exercisable on October 1, 2008, the date Dr. Refai commences full-time
      employment;





2.
            3,500,000
      options, valued at $235,357, vesting in accordance with certain technical
      achievements, deliverables and milestones as provided in the Employment
      Agreement; and





3.
            1,000,000
      options vesting in accordance with certain non-technical, general
      milestones as provided in the Employment Agreement or upon severance of
      the Employment Agreement under certain conditions as provided in the
      Employment Agreement.





Prior to
Dr. Refai joining the Company on a full-time basis, he served as the
co-principal investigator for the Static Volume / CSpace technologies being
developed under the Company's Sponsored Research Agreement with the University
of Oklahoma. Dr. Refai is the lead inventor of the CSpace technology and the
creator of the Company’s first product, Pixel PrecisionTM. He authored the patent
applications for the Static Volume Displays, Virtual Moving Screen Displays and
Interaction of Micro-Mirror Device with Computer System. Dr. Refai received his
BS degree in electrical engineering in 1992 from Aleppo University in Syria and
his MS and PhD degrees in electrical and computer engineering in 2002 and 2005,
respectively, from the University of Oklahoma.





The
estimated fair market 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 95.50% 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 2.0% 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.  Operations were charged $100,867 in 2008 for the vesting
of the options cost of Mr. Refai under the terms of the Employment
Agreement.





ITEM
11. EXECUTIVE COMPENSATION.




The
following table sets forth all compensation earned in respect of our Chief
Executive Officer and those individuals who received compensation in excess of
$100,000 per year, collectively referred to as the named executive officers, for
our last three completed fiscal years.





26








SUMMARY
COMPENSATION TABLE




The
following information is furnished for the years ended December 31, 2008,
December 31, 2007 and 2006 for our principal executive officer and the two most
highly compensated officers other than our principal executive officer who was
serving as such at the end of our last completed fiscal year:


Name &
                                Principal
                                Position
                              
                              Year
                              
                              Salary
                                ($)
                              
                              
                              Bonus
                                ($)
                              
                              
                              Stock
                                Awards
                                ($)
                              
                              
                              Option
                                Awards
                                ($)
                              
                              
                              Non-Equity
                                Incentive Plan
                                Compensation ($)
                              
                              
                              Change in Pension
                                Value and Non-
                                Qualified Deferred
                                Compensation
                                Earnings
                                ($)
                              
                              
                              All Other
                                Compensation
                                ($)
                              
                              
                              Total
                                ($)Martin
      Keating
                                CEO
                              
                              2008
                              
                              
                              144,0002007
                              
                              
                              144,000
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              144,0002006
                              
                              
                              90,000
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              90,000Vivek
      Bhaman,
                                Pres.
      and COO
                              
                              2008
                              
                              
                              250,000
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              50,782
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              33,333
                              
                              
                              
                              334,1152007
                              
                              
                              166,666
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              166,666




OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR END




The
following table sets forth with respect to grants of options to purchase our
common stock to the name executive officers as of December 31, 2008


Name
                        
                        Number of
                          Securities
                          Underlying
                          Unexercised
                          Options
                          #
                          Exercisable
                        
                        
                        Number of
                          Securities
                          Underlying
                          Unexercised
                          Options
                          #
                          Un-exercisable
                        
                        
                        Equity
                          Incentive
                          Plan Awards:
                          Number of
                          Securities
                          Underlying
                          Unexercised
                          Unearned
                          Options
                          #
                        
                        
                        Option
                          Exercise
                          Price
                          $
                        
                        Option
                          Expiration
                          Date
                        
                        Number
                          of
                          Shares
                          or Units
                          of Stock
                          That
                          Have
                          Not
                          Vested
                          #
                        
                        
                        Market
                          Value
                          of
                          Shares
                          or Units
                          of Stock
                          That
                          have not
                          vested
                          $
                        
                        
                        Equity
                          Incentive
                          Plan
                          Awards: Number of
                          Unearned
                          Shares Units
                          or Other
                          Rights That
                          Have Not
                          Vested #
                        
                        
                        Equity
                          Incentive
                          Plan
                          Awards
                          Market or
                          Payout
                          Value of
                          Unearned
                          Shares Units
                          or Other
                          Rights That
                          have not
                          Vested
                          $Martin
                          Keating
                        
                        
                        500,000
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        $
                        0.40
                        
                        April 26, 2009Vivek
      Bhaman
                        
                        
                        1,425,000
                        
                        
                        
                        5,075,000
                        
                        
                        
                        
                        
                        
                        
                        (1
                        )
                        April
      30, 2010




(1) Mr.
Bhaman’s options are exercisable as follows: 100,000 at $0.80 per share, 200,000
at $1.00 per share and 1,125,000 at $0.055 per share





ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS.




SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT




The
following table provides information about shares of common stock beneficially
owned as of


March 31,
2009 by:





·
            each
    director;


·
            each officer named in the summary
      compensation table;


·
            each person owning of record or
      known by us, based on information provided to us by the persons named
      below, to own beneficially at least 5% of our common stock;
      and


·
            all directors and executive
      officers as a group.





27





Number of
                                        Shares
                                        Beneficially
                                      
                                      
                                      
                                      PercentageName of Beneficial Owner (1)
                                      
                                      Owned
                                      
                                      Class of Stock
                                      
                                      Outstanding (2)Martin
      Keating (3)
                                      
                                      
                                      42,217,474
                                      
                                      Common
                                      
                                      
                                      30.76
                                      %Victor
      F. Keen
                                      
                                      
                                      5,206,667
                                      
                                      Common
                                      
                                      
                                      3.8
                                      %Lawrence
      Field (4)
                                      
                                      
                                      3,771,660
                                      
                                      Common
                                      
                                      
                                      2.8
                                      %John
      O’Connor (5)
                                      
                                      
                                      710,000
                                      
                                      Common
                                      
                                      
                                      *Vivek
      Bhaman (6)
                                      
                                      
                                      1,425,000
                                      
                                      Common
                                      
                                      
                                      *James
      N. WelshAll
      directors and executive officers as a group (4 persons)
                                      
                                      
                                      51,636,801
                                      
                                      
                                      
                                      
                                      37.96
                                      %Golden
      State Investors, Inc.
                                      
                                      
                                      15,148,781





*           Less
than 1%





(1)
            Unless
      otherwise indicated, the address of each beneficial owner listed below is
      c/o 3DIcon Corporation, 6804 South Canton Avenue, Suite 150, Tulsa,
      Oklahoma 74136.


(2)
            Applicable
      percentage ownership is based on 175,505,294 shares of common stock
      outstanding as of March 31, 2009. Beneficial ownership is determined in
      accordance with the rules of the Securities and Exchange Commission and
      generally includes voting or investment power with respect to securities.
      Options to acquire shares of common stock that are currently exercisable
      or exercisable within 60 days of March 31 2009 are deemed to be
      beneficially owned by the person holding such securities for the purpose
      of computing the percentage of ownership of such person, but are not
      treated as outstanding for the purpose of computing the
      percentage.


(3)
            Represents (i)
      37,987,452 shares of common stock owned by Mr. Keating and (ii) 4,230,022
      shares of common stock owned by Mr. Keating’s wife, Judy Keating.


(4)
            Represents
      (i) 2,146,660 shares of common stock owned by Regent Private Capital of
      which Mr. Lawrence Field is a principal and managing director. Mr. Field
      disclaims any beneficial ownership of these shares and (ii) 1,625,000
      stock options.


(5)
            Represents
      (i) 110,000 shares of common stock owned by Mr. O’Connor and (ii) 100,000
      shares of common stock owned by the John M. and Lucia D. O’Connor
      Revocable Living Trust over which Mr. O’Connor has voting and investment
      control.


(6)
            Represents
      1,425,000 stock options.





ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.





Other
than as set forth below, during the last two fiscal years there have not been
any relationships, transactions, or proposed transactions to which 3DIcon was or
is to be a party, in which any of the directors, officers, or 5% or greater
stockholders (or any immediate family thereof) had or is to have a direct or
indirect material interest.





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.





Director
Independence





Of the
members of the Company’s board of directors, Victor F. Keen and Lawrence Field
are considered to be independent under the listing standards of the Rules
of NASDAQ set forth in the NASDAQ Manual.




28


ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
  Audit Fees


The
aggregate fees billed by our principal accountant for the audit of our annual
financial statements, review of financial statements included in the quarterly
reports and other fees that are normally provided by the accountant in
connection with statutory and regulatory filings or engagements for the fiscal
years ended December 31, 2008 and 2007 were $57,000 and $59,385.




Tax Fees


There
were no other fees billed for compliance, tax advice and tax planning, by our
principal accountant for the fiscal year ended December 31, 2008 and
2007.





All
Other Fees




There
were no other fees billed for products or services provided by our principal
accountant for the fiscal years ended December 31, 2008 and 2007.





ITEM
15. EXHIBITS.





3.1
                    
                    Certificate
      of Incorporation (1)3.2
                    
                    Bylaws
      (1)3.3
                    
                    Amended
      Certificate of Incorporation (1)3.4
                    
                    Amended
      Certificate of Incorporation (1)3.5
                    
                    Amended
      Certificate of Incorporation (1)10.1
                    
                    Securities
      Purchase Agreement (1)10.2
                    
                    Amendment
      No. 1 to Securities Purchase Agreement and Debenture
(1)10.3
                    
                    Registration
      Rights Agreement dated November 3, 2006(1)10.4
                    
                    $100,000
      convertible debenture (1)10.5
                    
                    $1.25
      million convertible debenture dated November 3, 2006
(1)10.6
                    
                    Common
      Stock Purchase Warrant (1)10.7
                    
                    Sponsored
      Research Agreement by and between 3DIcon Corporation and the Board of
      Regents of the University of Oklahoma (1)10.8
                    
                    Sponsored
      Research Agreement Modification No. 1 by and between 3DIcon Corporation
      and the Board of Regents of the University of Oklahoma
  (1)10.9
                    
                    Sponsored
      Research Agreement Modification No. 2 by and between 3DIcon Corporation
      and the Board of Regents of the University of Oklahoma
  (1)10.10
                    
                    Amendment
      No. 2 to Securities Purchase Agreement, Debentures, and Registration
      Rights Agreement (2)10.11
                    
                    Securities
      Purchase Agreement dated June 11, 2007 (2)10.12
                    
                    $700,000
      Convertible Debenture (2)10.13
                    
                    $1.25
      million convertible debenture dated November 21, 200710.14
                    
                    Registration
      Rights Agreement dated November 21, 200723.1
                    
                    Consent
      of HoganTaylor
LLP




29




31.1
                
                Certification
      by Chief Executive Officer, required by Rule 13a-14(a) or Rule 15d-14(a)
      of the Exchange Act31.2
                
                Certification
      by Chief Financial Officer, required by Rule 13a-14(a) or Rule 15d-14(a)
      of the Exchange Act32.1
                
                Certification
      by Chief Executive Officer, required by Rule 13a-14(b) or Rule 15d-14(b)
      of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the
      United States Code32.2
                
                Certification
      by Chief Financial Officer, required by Rule 13a-14(b) or Rule 15d-14(b)
      of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the
      United States Code




(1)
            
            Incorporated
      by reference to Form SB-2 as filed on December 15, 2006 (File No.
      333-139420) and subsequently withdrawn on February 5,
  2007(2)
            
            Incorporated
      by reference to Form SB-2 as filed on June 14, 2007 (File No.
      333-143761)





30





SIGNATURES




In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.





3DICON
      CORPORATIONDate:
      April 15, 2009
                        
                        /s/Martin
      KeatingName:
      Martin KeatingTitle:   Chief Executive Officer
                          (Principal Executive and Accounting
Officer)





In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.





SIGNATURE
                                            
                                            TITLE
                                            
                                            DATEBy:
                                            /s/
      Martin Keating
                                            
                                            Chief
      Executive Officer, Director (Principal Executive and Accounting
      Officer)
                                            
                                            April
      15, 2009Martin
      KeatingBy:
                                            /s/
      Vivek Bhaman
                                            
                                            Director
                                            
                                            April
      15, 2009Vivek
      BhamanBy:
                                            /s/
      Lawrence Field
                                            
                                            Director
                                            
                                            April
      15, 2009Lawrence
      FieldBy:
                                            /s/
      John O’ Connor
                                            
                                            Director
                                            
                                            April
      15, 2009John
      O’ConnorBy:
                                            /s/
      Victor Keen
                                            
                                            Director
                                            
                                            April
      15, 2009Victor
      F. Keen





31







3DIcon
CORPORATION


(A
Development Stage Company)





December
31, 2008 and 2007





CONTENTS





Report
      of Independent Registered Public Accounting Firm
                            F-1Balance
      Sheets as of December 31, 2008 and 2007
                            F-2Statements
      of Operations for the years ended December 31, 2008 and 2007 and period
      frominception (January 1, 2001) to December 31, 2008
                            F-3Statements
      of Changes in Stockholders’ Deficiency for period from inception (January
      1, 2001)to December 31, 2008
                            F-4Statements
      of Cash Flows for the years ended December 31, 2008 and 2007 and for
      period frominception (January 1, 2001) to December 31,
      2008
                            F-6Notes
      to Financial Statements, December 31, 2008 and 2007 and for period from
      inception(January 1, 2001) to December 31, 2008
                            F-7


32


REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
 
 
 To the Board of Directors andStockholdersof
 3DIcon Corporation
 
 We have audited the
accompanyingbalance sheets
of3DIcon Corporation (a
Development Stage Company)as ofDecember31, 2008 and 2007, andthe relatedstatements of operations,stockholders’ deficiencyand cash flows for theyearsthen ended and for the period from
inception (January 1, 2001) to December 31, 2008.These financial statements
are the responsibility of the Company’s management.  Our
responsibility is to express an opinion on these financial statements based on
our audits.  Tullius Taylor Sartain & Sartain LLP audited the
financial statements of3DIcon Corporation as of and for the
yearendedDecember 31, 2007and for the period from inception
(January 1, 2001) to December 31, 2007and merged with Hogan & Slovacek P.C. to form
HoganTaylor LLP effective
January 7, 2009.
 
 We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United
States).  Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
arefree of material
misstatement.  An auditincludes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements.  An audit also includesassessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation.  We believe that our audits provide
a reasonable basis for our opinion.
 
 In our opinion, thefinancial statements referred to above
present fairly, in all material respects,the financial position of 3DIcon
Corporation as of December31, 2008 and 2007, and the results ofits operations and itscash flows for theyearsthen ended and for the period from
inception (January 1, 2001) to December 31, 2008,in conformity with U.S. generally
accepted accounting principles.
 
 The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company is a development stage organization having insufficient
revenues and capital commitments to fund the development of its planned
products. This raises substantial doubt about the Company's ability to continue
as a going concern. Management's plan in regard to these matters is also
described in Note 1. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
 
 We were
not engaged to examine management’s assertion about the effectiveness of 3DIcon
Corporation’s internal controls over financial reporting as of December 31,
2008, included in the accompanying Management’s Report on Internal Control over
Financial Reporting and, accordingly, we do not express an opinion
thereon.
 
 
 /s/ HoganTaylor
LLP
 
 
 Tulsa, Oklahoma
 April 15,
2009
  
 F-1


3DIcon
CORPORATION


(A
Development Stage Company)





BALANCE
SHEETS





December
31, 2008 and 2007





2008
                
                
                2007AssetsCurrent
      assets:Cash
                
                $
                48,400
                
                
                $
                705,519Prepaid
      expenses
                
                
                16,113
                
                
                
                15,944Total
      current assets
                
                
                64,513
                
                
                
                721,463Net
      property and equipment
                
                
                31,537
                
                
                
                11,832Debt
      issue costs, net
                
                
                56,978
                
                
                
                97,249Deposits-other
                
                
                17,315
                
                
                
                -Total
      Assets
                
                $
                170,343
                
                
                $
                830,544Liabilities
      and Stockholders' DeficiencyCurrent
      liabilities:Current
      maturities of convertible debentures payable
                
                $
                364,000
                
                
                $
                700,000Warrant
      exercise advances
                
                
                140,500
                
                
                
                -Accounts
      payable
                
                
                1,135,887
                
                
                
                484,513Accrued
      salaries
                
                
                59,615
                
                
                
                -Accrued
      interest on debentures
                
                
                6,808
                
                
                
                8,854Total
      current liabilities
                
                
                1,706,810
                
                
                
                1,193,367Convertible
      debentures payable, less current maturities
                
                
                675,279
                
                
                
                558,375Total
      Liabilities
                
                
                2,382,089
                
                
                
                1,751,742Stockholders'
      deficiency:Common
      stock $.0002 par, 250,000,000 shares authorized; 157,515,766 and
      127,125,232 shares issued and outstanding at December 31, 2008 and 2007,
      respectively
                
                
                31,503
                
                
                
                25,425Additional
      paid-in capital
                
                
                8,766,830
                
                
                
                6,451,906Deficit
      accumulated during development stage
                
                
                (11,010,079
                )
                
                
                (7,398,529
                )Total
      stockholders' deficiency
                
                
                (2,211,746
                )
                
                
                (921,198
                )Total
      Liabilities and Stockholders' Deficiency
                
                $
                170,343
                
                
                $
                830,544





See notes
to financial statements


F-2


3DIcon
CORPORATION


(A
Development Stage Company)





STATEMENTS
OF OPERATIONS





Years
ended December 31, 2008 and 2007


and
Period from Inception (January 1, 2001) to December 31, 2008








2008
                                                
                                                
                                                2007
                                                
                                                
                                                Inception
      to
                                                  December
      31,
                                                  2008Income:License
      Fee
                                                
                                                $
                                                25,000
                                                
                                                
                                                $
                                                -
                                                
                                                
                                                $
                                                25,000Sales
                                                
                                                
                                                17,900
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                17,900Total
      income
                                                
                                                
                                                42,900
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                42,900Expenses:Research
      and development
                                                
                                                
                                                953,802
                                                
                                                
                                                
                                                1,020,888
                                                
                                                
                                                
                                                2,463,561General
      and administrative
                                                
                                                
                                                2,578,357
                                                
                                                
                                                
                                                2,819,525
                                                
                                                
                                                
                                                8,348,026Interest
                                                
                                                
                                                122,291
                                                
                                                
                                                
                                                88,583
                                                
                                                
                                                
                                                241,392Total
      expenses
                                                
                                                
                                                3,654,450
                                                
                                                
                                                
                                                3,928,996
                                                
                                                
                                                
                                                11,052,979Net
      loss
                                                
                                                $
                                                (3,611,550
                                                )
                                                
                                                $
                                                (3,928,996
                                                )
                                                
                                                $
                                                (11,010,079
                                                )Loss
      per share:Basic
      and diluted
                                                
                                                $
                                                (0.025
                                                )
                                                
                                                $
                                                (0.035
                                                )Weighted
      average shares outstanding,Basic
      and diluted
                                                
                                                
                                                142,669,496
                                                
                                                
                                                
                                                113,468,331





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 December 31, 2008





DeficitAccumulatedCommon
      Stock
                
                
                Additional
                
                
                During
      theShares
                
                
                Par
                  Value
                
                
                Paid-In
                  Capital
                
                
                Development
                  Stage
                
                
                TotalBalance,
      January 1, 2001 – as reorganized
                
                
                27,723,750
                
                
                $
                27,724
                
                
                $
                193,488
                
                
                $
                -
                
                
                $
                221,212Adjustment
      to accrue compensation earned but not recorded
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (60,000
                )
                
                
                (60,000
                )Stock
      issued for services
                
                
                2,681,310
                
                
                
                2,681
                
                
                
                185,450
                
                
                
                -
                
                
                
                188,131Stock
      issued for cash
                
                
                728,500
                
                
                
                729
                
                
                
                72,121
                
                
                
                -
                
                
                
                72,850Net
      loss for the year
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (259,221
                )
                
                
                (259,221
                )Balance,
      December 31, 2001
                
                
                31,133,560
                
                
                
                31,134
                
                
                
                451,059
                
                
                
                (319,221
                )
                
                
                162,972Adjustment
      to record compensation earned but not recorded
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (60,000
                )
                
                
                (60,000
                )Stock
      issued for services
                
                
                3,077,000
                
                
                
                3,077
                
                
                
                126,371
                
                
                
                -
                
                
                
                129,448Stock
      issued for cash
                
                
                1,479,000
                
                
                
                1,479
                
                
                
                146,421
                
                
                
                -
                
                
                
                147,900Net
      loss for the year
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (267,887
                )
                
                
                (267,887
                )Balance,
      December 31, 2002
                
                
                35,689,560
                
                
                
                35,690
                
                
                
                723,851
                
                
                
                (647,108
                )
                
                
                112,433Adjustment
      to record compensation earned but not recorded
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (90,000
                )
                
                
                (90,000
                )Stock
      issued for services
                
                
                15,347,000
                
                
                
                15,347
                
                
                
                -
                
                
                
                -
                
                
                
                15,347Stock
      issued for cash
                
                
                1,380,000
                
                
                
                1,380
                
                
                
                33,620
                
                
                
                -
                
                
                
                35,000Reverse
      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
                )
                
                
                20,929Additional
      Founders shares issued
                
                
                25,000,000
                
                
                
                5,000
                
                
                
                (5,000
                )
                
                
                -
                
                
                
                -Stock
      issued for services
                
                
                24,036,000
                
                
                
                4,807
                
                
                
                71,682
                
                
                
                -
                
                
                
                76,489Stock
      issued for cash
                
                
                360,000
                
                
                
                72
                
                
                
                28,736
                
                
                
                -
                
                
                
                28,808Warrants
      issued to purchase common stock at $.025
                
                
                -
                
                
                
                -
                
                
                
                18,900
                
                
                
                -
                
                
                
                18,900Warrants
      issued to purchase common stock at $.05
                
                
                -
                
                
                
                -
                
                
                
                42,292
                
                
                
                -
                
                
                
                42,292Stock
      warrants exercised
                
                
                2,100,000
                
                
                
                420
                
                
                
                60,580
                
                
                
                -
                
                
                
                61,000Net
      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
                
                
                
                -
                
                
                
                26,371Stock
      issued to settle liabilities
                
                
                5,000,000
                
                
                
                1,000
                
                
                
                99,000
                
                
                
                -
                
                
                
                100,000Stock
      issued for cash
                
                
                1,100,000
                
                
                
                220
                
                
                
                72,080
                
                
                
                -
                
                
                
                72,300Warrants
      issued to purchase common stock at $.025
                
                
                -
                
                
                
                -
                
                
                
                62,300
                
                
                
                -
                
                
                
                62,300Warrants
      issued to purchase common stock at $.05
                
                
                -
                
                
                
                -
                
                
                
                140,400
                
                
                
                -
                
                
                
                140,400Stock
      warrants exercised
                
                
                5,260,000
                
                
                
                1,052
                
                
                
                172,948
                
                
                
                -
                
                
                
                174,000Net
      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 December 31, 2008





DeficitAccumulatedCommon
                        
                        
                        Stock
                        
                        
                        Additional
                        
                        
                        During
      theShares
                        
                        
                        Par
      Value
                        
                        
                        Paid-In
                          Capital
                        
                        
                        Development
                          Stage
                        
                        
                        TotalStock
      issued for services
                        
                        
                        4,700,000
                        
                        
                        
                        940
                        
                        
                        
                        205,597
                        
                        
                        
                        -
                        
                        
                        
                        206,537Debentures
      converted
                        
                        
                        3,000,000
                        
                        
                        
                        600
                        
                        
                        
                        149,400
                        
                        
                        
                        -
                        
                        
                        
                        150,000Stock
      issued for cash
                        
                        
                        200,000
                        
                        
                        
                        40
                        
                        
                        
                        16,160
                        
                        
                        
                        -
                        
                        
                        
                        16,200Warrants
      issued to purchase common stock
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        33,800
                        
                        
                        
                        -
                        
                        
                        
                        33,800Warrants
      converted to purchase common stock
                        
                        
                        16,489,000
                        
                        
                        
                        3,297
                        
                        
                        
                        565,203
                        
                        
                        
                        -
                        
                        
                        
                        568,500Net
      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
                        
                        
                        
                        -
                        
                        
                        
                        155,426Stock
      issued for interest
                        
                        
                        767,026
                        
                        
                        
                        153
                        
                        
                        
                        38,198
                        
                        
                        
                        -
                        
                        
                        
                        38,351Stock
      based compensation
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        1,274,666
                        
                        
                        
                        -
                        
                        
                        
                        1,274,666Debentures
      converted
                        
                        
                        17,215,200
                        
                        
                        
                        3,442
                        
                        
                        
                        1,673,741
                        
                        
                        
                        -
                        
                        
                        
                        1,677,183Stock
      issued for cash
                        
                        
                        1,188,960
                        
                        
                        
                        238
                        
                        
                        
                        191,898
                        
                        
                        
                        -
                        
                        
                        
                        192,136Options
      exercised
                        
                        
                        222,707
                        
                        
                        
                        45
                        
                        
                        
                        (45
                        )
                        
                        
                        -
                        
                        
                        
                        -Warrants
      issued to purchase common stock
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        87,864
                        
                        
                        
                        -
                        
                        
                        
                        87,864Warrants
      converted to purchase common stock
                        
                        
                        8,585,956
                        
                        
                        
                        1,717
                        
                        
                        
                        462,203
                        
                        
                        
                        -
                        
                        
                        
                        463,920Net
      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
                        
                        
                        
                        -
                        
                        
                        
                        25,000Warrants
      exercised
                        
                        
                        1,347,261
                        
                        
                        
                        269
                        
                        
                        
                        362,425
                        
                        
                        
                        -
                        
                        
                        
                        362,694Stock
      based compensation
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        654,199
                        
                        
                        
                        -
                        
                        
                        
                        654,199Debentures
      converted
                        
                        
                        15,257,163
                        
                        
                        
                        3,052
                        
                        
                        
                        962,257
                        
                        
                        
                        -
                        
                        
                        
                        965,309Options
      exercised and escrowed shares
                        
                        
                        8,671,460
                        
                        
                        
                        1,734
                        
                        
                        
                        (1,734
                        )
                        
                        
                        -
                        
                        
                        
                        -Stocks
      issued for service
                        
                        
                        4,598,973
                        
                        
                        
                        920
                        
                        
                        
                        312,880
                        
                        
                        
                        -
                        
                        
                        
                        313,800Net
      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
                        )





See notes
to financial statements


F-5


3DIcon
CORPORATION


(A
Development Stage Company)





STATEMENTS
OF CASH FLOWS





Years
ended December 31, 2008 and 2007


and
Period from Inception (January 1, 2001) to December 31, 2008





2008
                  
                  
                  2007
                  
                  
                  Inception to
                    December 31,
                    2008Cash
      Flows from Operating ActivitiesNet
      loss
                  
                  $
                  (3,611,550
                  )
                  
                  $
                  (3,928,996
                  )
                  
                  $
                  (11,010,079
                  )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Options
      issued for services
                  
                  
                  654,199
                  
                  
                  
                  1,274,666
                  
                  
                  
                  1,928,865Stock
      issued for services
                  
                  
                  313,800
                  
                  
                  
                  155,426
                  
                  
                  
                  1,111,550Stock
      issued for interest
                  
                  
                  -
                  
                  
                  
                  38,351
                  
                  
                  
                  38,351Amoritization
      of debt issuance costs
                  
                  
                  5,658
                  
                  
                  
                  1,734
                  
                  
                  
                  7,744Change
      in:Impairment
      of assets
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  292,202Prepaid
      expenses and other assets
                  
                  
                  17,484
                  
                  
                  
                  (144,748
                  )
                  
                  
                  (266,828
                  )Accounts
      payable and accrued liabilities
                  
                  
                  708,943
                  
                  
                  
                  89,781
                  
                  
                  
                  1,231,308Net
      cash used in operating activities
                  
                  
                  (1,906,163
                  )
                  
                  
                  (2,454,576
                  )
                  
                  
                  (6,567,406
                  )Cash
      Flows from Investing ActivitiesPurchase
      of office furniture and equipment
                  
                  
                  (25,363
                  )
                  
                  
                  (8,756
                  )
                  
                  
                  (39,281
                  )Net
      cash used in investing activities
                  
                  
                  (25,363
                  )
                  
                  
                  (8,756
                  )
                  
                  
                  (39,281
                  )Cash
      Flows from Financing ActivitiesProceeds
      from stock and warrant sales, exercise of warrants and warrant exercise
      advances
                  
                  
                  528,194
                  
                  
                  
                  743,920
                  
                  
                  
                  2,746,364Proceeds
      from issuance of debentures
                  
                  
                  746,213
                  
                  
                  
                  2,222,500
                  
                  
                  
                  3,908,713Net
      cash provided by financing activities
                  
                  
                  1,274,407
                  
                  
                  
                  2,966,420
                  
                  
                  
                  6,655,077Net
      increase (decrease) in cash
                  
                  
                  (657,119
                  )
                  
                  
                  503,088
                  
                  
                  
                  48,390Cash,
      beginning of period
                  
                  
                  705,519
                  
                  
                  
                  202,431
                  
                  
                  
                  10Cash,
      end of year
                  
                  $
                  48,400
                  
                  
                  $
                  705,519
                  
                  
                  $
                  48,400Supplemental DisclosuresNon-Cash
      Investing and Financing ActivitiesConversion
      of debentures to common stock (net)
                  
                  $
                  965,309
                  
                  
                  $
                  1,667,183
                  
                  
                  $
                  2,792,491Cash
      paid for interest
                  
                  $
                  124,336
                  
                  
                  $
                  52,535
                  
                  
                  $
                  232,326





See notes
to financial statements


F-6





3DIcon
CORPORATION


(A
Development Stage Company)





NOTES TO
FINANCIAL STATEMENTS





Years
ended December 31, 2008 and 2007


and
period from Inception (January 1, 2001) to December 31, 2008





Note
1 – Organization and Operations





Organization





3DIcon
Corporation (the “Company”) was incorporated on August 11, 1995, under the laws
of the State of Oklahoma as First Keating Corporation.  The articles
of incorporation were amended August 1, 2003 to change the name to 3DIcon
Corporation.  The initial focus of First Keating Corporation was to
market and distribute books written by its founder, Martin
Keating.  During 2001, First Keating Corporation began to focus on the
development of 360-degree holographic technology.  The effective date
of this transition is January 1, 2001, and the financial information presented
is from that date through the current period.  The Company has
accounted for this transition as reorganization and accordingly, restated its
capital accounts as of January 1, 2001.  From January 1, 2001, the
Company's primary activity has been the raising of capital in order to pursue
its goal of becoming a significant participant in the formation and
commercialization of interactive, optical holography for the communications and
entertainment industries.





The
mission of the Company is to pursue, develop and market full-color, 360-degree
person-to-person holographic technology.  Its primary focus is to
invest and participate in the commercialization of optical holographic
technologies now planned and/or under development, particularly those employing
derivative broadband, satellite-based systems.  At this time, the
Company owns no intellectual property rights in holographic technologies and has
no contracts or agreements pending to acquire such rights.





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. 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 4).  A revised payment schedule
was agreed to in October 2008.  Failure of the Company to meet its
revised payment obligations could result in the termination or the SRA and any
outstanding license agreements under the SRA.  The Company has
realized a cumulative net loss of $11,010,079for the period from
inception (January 1, 2001) to December 31, 2008, and a net loss of $3,611,550
and $3,928,996 for the years ended December 31, 2008 and 2007,
respectively.  .





See notes
to financial statements


F-7





Note
1 – Organization and Operations (continued)





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
$48,400, grants and investor funding. 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%
ofthe Company’sissued 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 December 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 subsequent to December
31, 2008.




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 to be
provided during 2009 and 2010.  (See note 10)





See notes
to financial statements


F-8





Note
1 – Organization and Operations (continued)





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





Note
2 – Summary of Significant Accounting Policies





Research
and development





Research
and development costs, including payments made to the University of Oklahoma
pursuant to the SRA, are expensed as incurred. (Note 4)





Stock-based
compensation





The
Company accounts for stock-based compensation arrangements for employees in
accordance with Statement of
Financial Accounting Standards (SFAS) No. 123(R), Share-Based
Payments.The Company recognizes expenses for employee
services received in exchange for stock based compensation on the grant-date
fair value of the shares awarded.  The Company accounts for stock
issued to non-employees in accordance with the provisions of SFAS No. 123, Accounting for Stock-Based
Compensation, and the related Emerging Issues Task Force (EITF)
Consensuses.





Income
taxes





The
Company accounts for income taxes in accordance with Statement of Financial Accounting
Standards (SFAS) No. 109, Accounting for Income Taxes.  SFAS No. 109 requires the
recognition of deferred tax assets and liabilities for the estimated future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases.  In addition,  SFAS No. 109 requires the
recognition of future tax benefits, such as net operating loss carry forwards,
to the extent that realization of such benefits is more likely than
not.  The amount of deferred tax liabilities or assets is calculated
using tax rates in effect for the year in which those temporary differences are
expected to be recovered or settled.  The effect on deferred tax
assets and liabilities of a change in tax rate is recognized in income in the
period that includes the enactment date. Valuation allowances are established
when necessary to reduce deferred tax assets to the amounts more likely than not
to be realized.




Net
income (loss) per common share




The
Company computes net income (loss) per share in accordance with SFAS No. 128, Earnings per Share and SEC Staff Accounting Bulletin No. 98
(“SAB 98”).  Under the provisions of SFAS No. 128 and SAB 98, basic net income
(loss) per common share is based on the weighted-average outstanding common
shares.  Diluted net income (loss) per common share is based on the
weighted-average outstanding shares adjusted for the dilutive effect of warrants
to purchase common stock and convertible debentures.  Due to the
Company’s losses, such potentially dilutive securities are anti-dilutive for all
periods presented.  The weighted average number
of  potentially dilutive shares are 21,930,644 and 10,935,382 for the
years ended December 31, 2008 and 2007, respectively.





See notes
to financial statements


F-9





Note
2 – Summary of Significant Accounting Policies (continued)





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.





Debt issue costs





The Company defers and amortizes the
legal and filing fees associated with long-term debt that is
issued.  These costs are primarily related to the convertible
debentures, the majority of which have a three year term.  The
amortization is charged to operations over the three year term and then adjusted
quarterly for debenture conversions to common stock.





Fair value of financial
instruments





The
following methods and assumptions were used to estimate the fair value of each
class of financial instrument held by the Company:





Current assets and current
liabilities – The carrying value approximates fair value due to the short
maturity of these items.


Debentures payable – The fair
value of the Company's debentures payable has been estimated by the Company
based upon the liability’s characteristics, including interest
rate.  The carrying value approximates fair value.





Note
3 – Recent Accounting Pronouncements





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





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.





See notes
to financial statements


F-10





Note 3 –
Recent Accounting Pronouncements (continued)




In
September 2006, the FASB issued Statement No. 157, "Fair Value
Measurements" ("SFAS 157"). SFAS 157 defines fair value, establishes a
framework and gives guidance regarding the methods used for measuring fair
value, and expands disclosures about fair value measurements. In February 2008,
the FASB released FASB Staff Position, (FSP) SFAS 157-2—Effective Date of
FASB Statement No. 157, which delays the effective date of SFAS 157
for all non-financial assets and non-financial liabilities, except those that
are recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually) to fiscal years beginning after
November 15, 2008. We adopted SFAS 157
as it applies to financial assets and liabilities as of January 1, 2008.
The implementation of SFAS 157, as it relates to financial assets and
liabilities did not have a material impact on our financial position, results of
operations and cash flows.




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 began January 1, 2008. The adoption of
SFAS 159 did not have a material effect on the financial
statements.





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. The adoption of this
statement will not have a material effect on the Company’s financial
statements.





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





See notes
to financial statements


F-11





Note 3 –
Recent Accounting Pronouncements (continued)





Principles. The adoption of
this statement did have a material effect on the Company’s financial
statements.





Note
4 – 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, and extended 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.





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 includes
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 will 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 does 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 has 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.





During
the years ended December 31, 2008 and 2007, the Company charged operations
$953,802 and $1,020,888, respectively, pursuant to the SRA.  At
December 31, 2008, the Company owed the University $198,365 in aggregate monthly
payments and $741,131 on the arrearages under the revised payment
terms.





See notes
to financial statements


F-12





Note
5 – Consulting Agreements





Concordia
Financial Group





The
Company signed an Independent Consultant Agreement with Concordia Financial
Group (“Concordia”) on August 7, 2007 to memorialize an oral agreement for
consultant services that





Concordia
has performed since November 16, 2005, and continued through October 31, 2007
when it was terminated. Under the terms of the agreement Concordia assisted the
Company by reviewing and evaluating the Company’s plans, personnel, board
composition, technology, development of business models, building financial
models for projections, developing materials to describe the Company, developing
capital sources and assisting and advising the Company in its financial
negotiations with capital sources. Concordia also advised with respect to
effective registration of offerings of Company securities and listing of the
Company on the OTC Bulletin Board, the management team, the Company’s
development of near and long-term budgets, marketing strategies and plans, and
assisted in presentations related to the above services. The Company paid
Concordia $74,460 in 2007. As additional consideration for business strategy
consulting services, the Company granted Concordia options to purchase 5 million
shares of Company stock with an exercise price of $0.05 per
share.  The options were valued at $843,390 and were charged to
operations in 2007.  The estimated fair market value of the options
was determined by 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 147.83% is based on the historical
volatility of our stock. The risk-free interest rate of 3.0% is based on the
U.S. Treasury Constant Maturity rates as of the grant date. The expected
life of the option of two years is based on historical exercise behavior and
expected future experience.  (See Note 7)





The
Company entered into a new one year Independent Consulting Agreement with
Concordia effective November 1, 2007.  Under the new agreement
Concordia will serve as liaison to Golden Gate Investors, Inc. and provide
business strategy services similar to those provided under the previous
agreement.  Concordia will be paid a monthly fee of
$15,750.  Concordia, at its option, may take up to 100% of this
monthly fee in registered stock at 50% discount to market; and the Company, at
its option, may pay up to 50% of Concordia’s monthly invoice in registered
stock, at 50% discount to market, provided that the payment of stock is made
within ten (10) days of receipt of invoice and further provided that the stock
trades above $.30 per share at any time during the last business day of the
month.   Market is defined as the five day average of closing
prices immediately proceeding the last business day of the calendar month in
which the invoiced services were rendered.  Additionally, 3DIcon paid
Concordia approximately $40,540 for services during the period November 1, 2007
to December 31, 2007 under the new one year agreement. During the year ended
December 31, 2008, Concordia was paid $204,750.  Under terms of the
agreement, the services continue under a month to month basis.





In
addition to the cash compensation, and conditioned upon terms of the agreement,
the Company granted Concordia on May 1, 2008 and October 1, 2008, the option to
purchase 250,000 shares of the Company stock, for a total of 500,000 options, at
an exercise price of the average closing price of the stock for the five trading
days prior to November 1, 2007 ($.37 per  share).  The
shares, upon exercise will be freely tradable.  The options expire on
the third anniversary of the grant dates.  The estimated fair value of
the options is $78,391 which will be recognized in the period earned under the
terms of the agreement.   (See Note 7)





See notes
to financial statements


F-13





Note
5 – Consulting Agreements (continued)





Each
grant of options to purchase shares is conditioned upon the Board’s assessment,
satisfaction and approval of Concordia’s performance to the grant
date.  There were no charges to expense in relation to the options in
2007.





Innovation
Drive, Inc.





Pursuant
to a consulting agreement effective November 1, 2007 signed with Innovation
Drive, Inc (“IDI”) the Company engaged IDI; (1) to assist in opportunities with
the federal government in R & D opportunities and eventually in sales
funding; (2) become a subcontractor to prime contractors; (3) investigate,
explore and capture multi-agency and/or multi-organizational teaming
opportunities to generate a variety of program (and funding) opportunities; and
(4) develop and distribute to targeted audiences in Washington materials to
generate brand recognition.  The Company will pay a monthly fee of
$15,000, payable $5,000 in cash and $10,000 in shares of Company stock, until
the first contract is signed and thereafter 50% cash and 50% Company
stock.  The shares issued under the agreement will be issued to Carla
R. York, CEO of IDI and discounted 25% from a twenty day moving average prior to
the invoice date.  Additionally a contract fee ranging from $20,000 to
$30,000 will be paid on contracts greater than $200,000 and a fee ranging from
$35,000 to $45,000 on contracts greater than $500,000.  The variance
in fees is based on a contract being awarded within 120 days or within 150
days.  If a contract is not awarded within 150 days, the fee is 3% of
the contract amount.  The agreement is for one year and is
automatically extended on a month-to-month basis unless terminated by either
party.  The agreement was terminated effective August 18,
2008.





LIB
Holdings, Inc





Pursuant
to a letter agreement signed October 1, 2007, LIB Holdings, Inc. (“LIB”) agreed
to provide marketing and public relation services which includes (1) assistance
with development of written and verbal company communications; (2) assistance
with the development and maintenance of relevant and current information on the
Company web site; (3) creation of media opportunities for visibility of the
Company technologies; and (4) assisting with logistics and other arrangements
for Company events.  The Company agreed to pay a monthly fee of $3,000
payable in registered shares of the company stock.  The number of
shares to be issued is based on the 20 day average of the closing price
immediately preceding the last day of the calendar month for which the fee is
due. As additional compensation LIB was issued 150,000 restricted shares of the
Company’s common stock.  The restricted shares were valued consistent
with other shares issued for services at $4,625.  The agreement
commitment period terminated October 1, 2008 and is automatically extended on a
month-to-month basis unless terminated by either party.





See notes
to financial statements


F-14





Note
5 – Consulting Agreements (continued)





Corporate
Profile LLC





Pursuant
to a letter agreement signed October 1, 2007 Corporate Profile LLC agreed to
provide investor relation services.  The Company agreed to pay a
monthly fee of $3,000.  The agreement continues on a month-to-month
basis unless terminated by either party.





Note
6 – Debentures Payable





Debentures
payable consist of the following:





December 31,
                        2008
                      
                      
                      December 31,
                        2007Senior
      Convertible Debentures:9.75% Debenture due January 31,
      2009
                      
                      $
                      364,000
                      
                      
                      $
                      700,0006.25% Debenture due
      2009
                      
                      
                      -
                      
                      
                      
                      333,9716.25% Debenture due 2010
                      
                      
                      578,601
                      
                      
                      
                      125,0004.75% Debentures due 2011
                      
                      
                      96,678
                      
                      
                      
                      99,404Total Debentures
                      
                      
                      1,039,279
                      
                      
                      
                      1,258,375Less - Current Maturities
                      
                      
                      (364,000
                      )
                      
                      
                      (700,000
                      )Long-term Debentures
                      
                      $
                      675,279
                      
                      
                      $
                      558,375





Securities
Purchase Agreement





6.25%
Convertible Debenture due 2009





The
Company entered into a Securities Purchase Agreement (“Purchase Agreement”) with
Golden Gate Investors, Inc. (“Golden Gate”) on November 3, 2006, as amended on
December 15, 2006 and February 6, 2007, for the sale of a 6.25% convertible
debenture in the principal amount of $1,250,000 (the “First Debenture”). The
Company agreed to file a registration statement with the SEC for the resale of
the common stock underlying the debenture.  The registration statement
became effective on July 3, 2007.  Under the terms of the Purchase
Agreement, Golden Gate advanced $125,000 during 2006 and converted the $125,000
debenture into 357,142 shares of common stock on July 16, 2007 at $0.35 per
share. Pursuant to the Securities Purchase Agreement, Golden Gate provided the
Company with an additional $312,500 of debenture funding upon effectiveness of
the registration statement and converted the $312,500 debenture into 892,857
shares of common stock on July 17, 2007 at $0.35 per share.  The
remaining $812,500 of the $1.25 million debenture was placed with an escrow
agent during 2007.  During the remainder of 2007, $400,000 was
released to the Company and the balance of $412,500 was released in
2008.  At various dates after the July 3, 2007 effective date of the
registration statement, $478,529 of the debenture was converted into 2,097,406
shares of common stock at prices ranging from $0.20 to $0.26 during 2007 and
during the first quarter of 2008 the remaining $333,971 of the debenture was
converted into 2,061,573 shares of common stock at prices ranging from $0.12 to
$0.20 based on the formula in the convertible debenture.





See notes
to financial statements


F-15





Note
6 – Debentures Payable (continued)





6.25%
Convertible Debenture due 2010





Pursuant
to the terms of the Purchase Agreement, on October 24, 2007, at such time as the
principal balance of the First Debenture was less than $400,000, the Company
provided Golden Gate with written notice that it desired to require Golden Gate
to purchase the second debenture.





On
November 21, 2007, the Company issued and sold a convertible note in the
principal amount of $1,250,000 to Golden Gate (the “Second
Debenture”).  Pursuant to the terms of the Second Debenture, Golden
Gate may, at its election, convert all or a part of the Second 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 Gate’s election to
convert, subject to adjustment as provided in the Second
Debenture.  In addition, pursuant to the terms of the Second
Debenture, the Company agreed to file a registration statement covering the
shares of common stock issuable upon conversion or redemption of the Second
Debenture.  The registration statement became effective on January 4,
2008.





Golden
Gate advanced $125,000 on the second $1.25 million debenture on November 9,
2007.  Additionally, Golden Gate advanced $312,500 directly to the
Company and $433,713 to an escrow account on the Second Debenture 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 December 31, 2008, Golden Gate
has funded an aggregate of $871,213 on the Second Debenture. Golden Gate will be
obligated to fund the Company for the remaining $378,787 in principal on the
Second Debenture upon the effectiveness of a registration statement underlying
the remaining unfunded principal balance on the Second Debenture. At this time,
the Company has not filed a registration statement.  Under the terms
of the Securities Purchase Agreement, the escrowed funds were advanced to the
Company during 2008. At various dates during 2008, $292,611 of the debenture was
converted into 3,651,337 shares of common stock at prices ranging from $0.05 to
$0.14 based on the formula in the convertible debenture. Shares remaining in
escrow and reported as outstanding at December 31, 2008 total
4,310,449.





Pursuant
to the terms of the second $1.25 million debenture, the Company filed a
registration statement covering the shares to be issued upon conversion of the
debenture.  The registration statement
was effective January 4, 2008.  Included in the registration statement
are 2.25 million shares issuable upon conversion of the $333,971 balance of the
First Debenture and 4.25 million shares issuable on the Second Debenture based
on current market prices and assuming full conversion of the convertible
debentures.





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 Second Debenture is secured by the pledge of 11 million
shares of common stock held by Martin Keating, the Chairman of the
Company.  In the event of default and the Company has not repaid all
outstanding principal and accrued interest, along with liquidating damages of
$250,000 within one day of default, Golden Gate shall have the right to
immediately sell the pledged shares in satisfaction of any amounts of principal
and interest owing under the Second Debenture.  (See Note -13
Subsequent events)





See notes
to financial statements


F-16





Note
6 – Debentures Payable (continued)





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 2008. On
each of the occasions Golden Gate, by separate letter agreements, agreed that
the occasions did not constitute a default and thereby waived the default
provision for those occasions only.





4.75%
Convertible Debenture due 2011





On
November 3, 2006, the Company also issued to Golden Gate 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 2007 Golden Gate converted $596 of the $100,000
debenture into 244,045 shares of common stock at $0.002 per share, exercised
warrants to purchase 5,956 shares of common stock at $10.90 per share and the
Company received $64,920 from the exercise of the
warrants.   During 2008, Golden Gate converted $2,726 of the
$100,000 debenture into 5,115,695 shares of common stock at $0.002 per share,
exercised warrants to purchase 27,261 shares of common stock at $10.90 per share
and the Company received $297,145 from the exercise of the
warrants.  During 2008 Golden State advanced $200,000 against future
exercises of warrants of which $59,500 was applied leaving $140,500 of unapplied
advances.





9.75%
Convertible due July 31, 2009





To obtain
funding for ongoing operations, the Company entered into a Bridge Financing
Agreement with Golden Gate which closed on June 11, 2007 (the “Financing
Agreement”), for the sale of a 9.75% convertible debenture in the principal
amount of $700,000. Pursuant to the Financing Agreement, the Company filed a
registration statement with the SEC within three days of closing for the resale
of the common stock underlying the $1.25 million convertible debenture, which
was issued to Golden Gate Investors on November 3, 2006.  The Company
received gross proceeds of $700,000 from the sale of the aforementioned
debenture.At various
dates during 2008, $336,000 of the debenture was converted into 8,079,895 shares
of common stock at prices ranging from $0.04 to $0.05 per common share based on
the formula in the
convertible debenture. The June 8, 2008 original due date of the 9.75%
debentures has been extended to July 31, 2009.





The
debenture may be converted, at Golden Gate’s option, in whole or in part, into
restricted shares of the Company’s common stock. The conversion price will be
$0.28 until the earlier of, the Company’s shares trading on the OTC Bulletin
Board or other trading market that the SEC recognizes as a trading market, or
January 1, 2008.  Subsequently, the conversion price is equal to 72% of the
average of the five lowest volume weighted average prices for the common
stockfor the 20
trading days prior to the conversion date. The convertible debenture matures
June 11,  2008; subject to an option held by Golden Gate to extend the
maturity for one period of six months. Interest on the convertible debenture is
payable monthly in cash.





See notes
to financial statements


F-17





Note
6 – Debentures Payable (continued)





Interest
on the 6.25% convertible debentures is payable monthly in cash or, at Golden
Gate’s option, in shares of common stock of the Company valued at the then
applicable conversion price. The initial $1.25 million convertible debenture is
convertible into the number of the shares of common stock equal to the dollar
amount of the debenture divided by the conversion price.





The
conversion price for the initial $1.25 million convertible debenture is (1)
$.35 per share until the common stock is quoted on the OTC Bulletin Board or
otherwise trading on the NASDAQ or a national securities exchange and (2)
thereafter the lesser of (i) $2.00 or, (ii) 70% of the average of the five
lowest volume weighted average prices during the twenty (20) trading days prior
to the conversion. The conversion price for the second $1.25 million convertible
debenture is (1) $.35 per share until the common stock is quoted on the OTC
Bulletin Board or otherwise listed as trading on the NASDAQ or a national
securities exchange and thereafter (2) 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. The conversion price for the $100,000
convertible debenture is $.35 per share until the earlier of January 1, 2008 or
the date the common stock is quoted on the OTC Bulletin Board or otherwise
listed as trading on the NASDAQ or a national securities exchange and
thereafter, 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 Gate 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 Gate elected to convert, plus any accrued and unpaid
interest, at 135% of such amount.





Debentures
payable-related party





Judith F.
Keating, the Secretary of the Company and the wife of Martin Keating, Chairman
and CEO of the Company, advanced the Company $272,500 for working capital during
2007. The Company issued convertible debentures for the amounts
advanced.  The debentures were converted into 2,732,750 shares of
common stock effective March 2, 2007.





Note
7 – Common Stock and Paid-In Capital





At
various dates throughout 2006, the Company sold 200,000 shares of common stock
with warrants attached for $.25 per share pursuant to an exempt
offering.  Each subscriber received one share of common stock with two
separate warrants to purchase additional shares of Rule 144 stock as
follows:  (a) ten times the number of shares within one year of the
date subscribed at $.025 per share and (b) another ten times the number of
shares within two years of the date subscribed at $.05 per share.  At
various dates throughout 2008 and 2007, the Company issued 1,320,000 and
8,580,000 shares, respectively, of its common stock pursuant to the exercise of
the warrants by non-employees.  The Company received $66,000 and
$369,000, respectively, in cash. The remaining warrants totaling 80,000 were
cancelled in 2008.





See notes
to financial statements


F-18




Note
7 – Common Stock and Paid-In Capital (continued)





Pursuant
to a Subscription Agreement dated October 12, 2007, the Company sold 1,188,960
shares of the Company’s common stock at a per share price equal to 75% of the
average closing price during the five (5) days prior to the signing ($.31 per
share) and warrants to purchase 594,482 shares of its common stock at a price of
$.40 per share from October 12, 2007 through October 11, 2008, or $.50 per share
from October 12, 2008 through October 11, 2009 to two accredited individuals.
The Company received $280,000 in cash from the sale.  The warrants
terminate October 11, 2009.





Pursuant
to a Subscription Agreement dated October 1, 2008, the Company sold 515,677
shares of the Company’s common stock at a per share price equal to 80% of the
average closing price during the five (5) days prior to the signing ($.048 per
share) and warrants to purchase 257,839 shares of its common stock at a price of
$.20 per share from October 1, 2008  through August 31, 2009, or $.25
per share from September 30, 2009 through August 31, 2010 to one accredited
individual. The Company received $25,000 in cash from the sale.  The
warrants terminate August 31, 2010.





As of
December 31, 2008, there are warrants outstanding to purchase 594,482 shares of
common stock at a price of $.50 per share which expire on October 11, 2009 and
warrants to purchase 257,839 shares of common stock at a price of $.20 per share
from October 1, 2008 through August 31, 2009, or $.25 per share from September
1, 2009 through August 31, 2010.





Common
stock and options issued for services





During
2008 shares of common stock totaling 4,598,973 were issued for consulting
services for which the Company recognized $313,800 of expense. During 2007
shares of common stock totaling 817,727 were issued for legal and consulting
services for which the Company recognized $155,426 of expense.





Options
granted





Board of
Directors – On April 27, 2007, the Company granted its three Directors 1,500,000
options exercisable at $.40 per share.  The options were valued at
$431,276 and were charged to operations in 2007.





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
124.4% is based on the historical volatility of our stock. The risk-free
interest rate of 3.0% is based on the U.S. Treasury Constant Maturity rates
as of the grant date. The expected life of the option of two years is based on
historical exercise behavior and expected future experience.





See notes
to financial statements


F-19





Note
7 – Common Stock and Paid-In Capital (continued)





Board of
Directors – On February 25, 2008, the Company agreed to compensate its
non-employee Board members with options to purchase registered stock of the
corporation equaling the value of $100,000 for each of the three non-employee
Board members; using standard evaluation methods.  The Board granted
options to purchase an aggregate of 2,061,540 shares to its three non-employee
Board members; the exercise price for each option is $0.24 per share. The
options expire at the end of ten years. The $300,000 compensation is for
services on the Board during all or part of the calendar year 2008 and is deemed
fully vested on the date of the grant. Operations were charged with $300,000 for
the year ended December 31, 2008.





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
71.33% is based on the historical volatility of the stock since July 25, 2007,
the day the Company begantrading on the
Over-the-counter Bulletin Board. The risk-free interest rate of 3.0% 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.





Director
- On October 12, 2008, the Company agreed to compensate its Director John
O’Connor with 500,000 additional options to purchase stock of the corporation at
$0.055 per share. The options expire at the end of ten years. The compensation
is for services on the Board during all or part of the calendar year 2008 and is
deemed fully vested on the date of the grant. Operations were charged with
$25,391 for the year ended December 31, 2008.





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
125.20% is based on the historical volatility of the stock since July 25, 2007,
the day the Company begantrading on the
Over-the-counter Bulletin Board. The risk-free interest rate of 2.0% 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.





Employment
Agreement - On April 29, 2007 the Company entered into an Employment Agreement
with Vivek Bhaman (the “Bhaman Agreement”) pursuant to which Mr.
Bhaman   agreed to serve as the President and Chief Operating
Officer of the Company. Mr. Bhaman’s employment under the Bhaman Agreement
commenced on May 1, 2007 and will continue for a term of one year from May 1,
2007, the date on which he became a full-time employee of the Company. The term
of the Bhaman Agreement will automatically extend for successive one year periods
unless otherwise terminated by the parties in accordance with the terms of the
Bhaman Agreement. The following represents the material terms of the Bhaman
Agreement:





See notes
to financial statements


F-20





Note
7 – Common Stock and Paid-In Capital (continued)





·
            Annual
      salary of $250,000;





·
            Cash
      bonus equal to twenty-five percent (25%) of the annual salary in the event
      the Company records revenue of $500,000 for the calendar year 2007; and
      Mr. Bhaman is an employee of the
Company;





·
            Grant
      of 100,000 stock options valued at $21,032 with a term of 10 years and an
      exercise price of $0.080 per share which vest  on the
      commencement date of employment, May 1,
2007;





·
            Grant
      of 200,000 stock options valued at $44,064 with a term of 10 years and an
      exercise price of $1.00 per share which vest  on May 1, 2008;
      and




·
              Grant
      of 200,000 stock options valued at $32,211 with a term of 10 years and an
      exercise price of $1.50 per share which vest on May 1,
    2009.







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
137.60% 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 4.0% 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.





Amended
Employment Agreement- On October 12, 2008, the Company entered into an Amendment
to the Employment Agreement of Vivek Bhaman, (the “Amendment”). Pursuant to the
Amendment, Mr. Bhaman’s base salary effective May 1, 2008 is $300,000,
representing an annual increase of $50,000. The Company has the option to defer
payment of any or all of the increase until April 30, 2009. If deferred, the
Company may elect to pay the increase in shares of the Company’s common stock at
a 25% discount to the market price of the Company’s common stock on April 30,
2009. The Bonus provision of Mr. Bhaman’s employment agreement has been deleted.
In addition, pursuant to the amendment, Mr. Bhaman was granted an aggregate of
6,000,000 options to purchase shares of the Company’s common stock at an
exercise price of $0.055 per share with a term of 10 years comprised of (i)
1,000,000 options vesting immediately valued at $50,782, and (ii) 5,000,000
options valued at $253,909, vesting at a rate of 125,000 options per quarter.
The vesting schedule of the 5,000,000 options may be accelerated if the market
price of the Company’s common stock exceeds certain thresholds pursuant to the
terms of the Amendment. In addition, pursuant to the amendment, in the event
that Mr. Bhaman’s employment with the Company is terminated, he shall be
entitled to severance pay equal to his regular monthly salary for a period not
to exceed 6 months.





There are
1,425,000 options vested at December 31, 2008 under the original and amended
employment agreements.





See notes
to financial statements


F-21





Note
7 – Common Stock and Paid-In Capital (continued)





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
125.20% 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 2.0% 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.  Operations were charged $50,782 for the vesting of the
one million options on October 1, 2008.  The $253,909 value of the
five million options will be charged to operations at the rate of $25,391
annually over the ten year vesting period under the terms of the Employment
Agreement.





Employment
Agreement - On July 28, 2008 the Company entered into an Employment Agreement
with Dr. Hakki Refai (the “Employment Agreement”) pursuant to which Dr. Refai
has agreed to serve as the Chief Technology Officer of the Company. Dr. Refai’s
employment under the Employment Agreement commenced on October 1, 2008 and will
continue for a term of one year from October 1, 2008, the date on which he
became a full-time employee of the Company. The term of the Employment Agreement
will automatically extend for successive one year periods unless otherwise
terminated by the parties in accordance with the terms of the Employment
Agreement. The following represents the material terms of the Employment
Agreement:





·
            Annual
      salary of $175,000 until the achievement of certain technical milestones
      as provided in the Employment Agreement (the “Technical Milestones”). Upon
      achievement of the Technical Milestones, the annual salary shall increase
      to $200,000;





·
            Commission
      which shall not exceed 3% of sales of the Company’s Pixel PrecisionTM and
      CSpaceTM technologies products, which commission shall not exceed $30,000
      for the 12 month period commencing on October 1, 2008 and $50,000 for the
      12 month period commencing on October 1, 2009;
  and





·
            Grant
      of 5,000,000 incentive stock options with a term of 10 years and an
      exercise price of $0.085 per share which vest as
  follows:





1.
            The
      first installment of 500,000 options, valued at $33,622, are vested and
      exercisable on October 1, 2008, the date Dr. Refai commences full-time
      employment;





2.
            3,500,000
      options, valued at $235,357, vesting in accordance with certain technical
      achievements, deliverables and milestones as provided in the Employment
      Agreement; and





See notes
to financial statements


F-22





Note
7 – Common Stock and Paid-In Capital (continued)





3.
            1,000,000
      options vesting in accordance with certain non-technical, general
      milestones as provided in the Employment Agreement or upon severance of
      the Employment Agreement under certain conditions as provided in the
      Employment Agreement.





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
95.50% 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 2.0% 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.  Operations were charged $100,867 in 2008 for the vesting
of the options cost of Mr. Refai under the terms of the Employment
Agreement.





The
following summary reflects warrant and option activity for the year ended
December 31, 2008.





Attached
                              Warrants
                            
                            
                            Golden
      Gate
                              Warrants
                            
                            
                            OptionsOutstanding
      December 31, 2007
                            
                            
                            1,994,482
                            
                            
                            
                            994,044
                            
                            
                            
                            7,250.000Granted
                            
                            
                            257,839
                            
                            
                            
                            -
                            
                            
                            
                            13,761,540Exercised
                            
                            
                            (1,320,000
                            )
                            
                            
                            (27,261
                            )
                            
                            
                            (750,000
                            )Cancelled
                            
                            
                            (80,000
                            )
                            
                            
                            -
                            
                            
                            
                            (750,000
                            )Outstanding
      December 31, 2008
                            
                            
                            852,321
                            
                            
                            
                            966,783
                            
                            
                            
                            20,111,540





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
our 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.





See notes
to financial statements


F-23





Note
7 – Common Stock and Paid-In Capital (continued)





Common
stock rights





Holders
of shares of common stock are entitled to one vote per share on all matters
submitted to a vote of the shareholders.  Shares of common stock do
not have cumulative voting rights.  Holders of record of shares of
common stock are entitled to receive dividends when and if declared by the board
of directors.  To date, the Company has not paid cash
dividends.  The Company intends to retain any earnings for the
operation and expansion of its business and does not anticipate paying cash
dividends in the foreseeable future.





Any
future determination as to the payment of cash dividends will depend on future
earnings, results of operations, capital requirements, financial condition and
such other factors as the board of directors may consider.  Upon any
liquidation, dissolution or termination of the Company, holders of shares of
common stock are entitled to receive a pro rata distribution of the assets of
the Company after liabilities are paid.





Holders
of common stock do not have pre-emptive rights to subscribe for or to purchase
any stock, obligations or other securities of 3DIcon.





Note
8 – Incentive Stock Plan





In August
2007 the Company established 3DIcon Corporation 2007 Incentive Stock Plan (the
"Plan"). The Plan is designed to retain directors, executives and selected
employees and consultants and reward them for making major contributions to the
success of the Company. These objectives are accomplished by making long-term
incentive awards under the Plan thereby providing Participants with a
proprietary interest in the growth and performance of the Company. 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 Plan shall not exceed eight
million (8,000,000) shares.  The shares are included in a registration
statement filed August 7, 2007 which registered shares totaling fifteen million
shares.  Shares totaling 4,598,973 and 210,000 were issued from the
Plan during 2008 and 2007, respectively, for services.





Note
9 – Office Lease





The
Company signed an Office Lease Agreement (the “Agreement”) on April 24, 2008.
The Agreement commences on June 1, 2008 and expires June 1, 2011. At December
31, 2008, minimum future lease payments to be paid annually under the three year
non-cancellable operating lease for office space are as follows:






2009
                            
                            $
                            27,0712010
                            
                            
                            27,5702011
                            
                            
                            11,575$
                            66,216





See notes
to financial statements


F-24




Note
10 – 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, has a start date of January 1, 2009.  The
award is for a maximum of $149,940 for 2009 and the remainder for 2010. 
Funding beyond 2009 is contingent upon satisfactory performance evaluation and
the availability of funds.




Note
11 – Income Taxes




At December 31, 2008 and 2007, the
Company had accumulated net operating losses of approximately $9,335,000 and
$6,650,000, respectively, available to reduce future federal and state taxable
income.  Unless utilized, the loss carryforward amounts will begin to
expire in 2014.




Deferred
tax assets resulting from the operating loss carryforward, are reduced by a
valuation allowance.




The deferred tax asset consisted of the
following:




December 31,
                    2008
                  
                  
                  December 31,
                    2007Loss
      carry forward amount
                  
                  $
                  9,335,000
                  
                  
                  $
                  6,650,000Effective
      tax rate
                  
                  
                  38
                  %
                  
                  
                  38
                  %Deferred
      tax asset
                  
                  
                  3,547,300
                  
                  
                  
                  2,527,000Less
      valuation allowance
                  
                  
                  (3,547,000
                  )
                  
                  
                  (2,527,000
                  )Net
      deferred taxes
                  
                  $
                  -
                  
                  
                  $
                  -








Note
12 – 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 years ended
December 31, 2008 and 2007, the Company incurred legal fees to Newton O’Connor,
Turner & Ketchum in the amount of $135,440 and $174,103
respectively.





The
Company has fee income of $25,000 with a company affiliated by common
ownership.





See notes
to financial statements


F-25





Note
13 – 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 December 31, 2008.  On each of the occasions Golden Gate, by
separate letter agreements, agreed that the occasions did not constitute a
default and thereby waived the default provision for the occasions.





Subsequent
to December 31, 2008 Golden Gate converted $111,500 of the 9.75% convertible
debenture into 4,855,767 shares of common stock at prices ranging from $0.018 to
$0.029 per share, converted $980 of the 4.75% convertible debenture into
1,940,405 shares of common stock at $0.0002 per share and exercised 9,800
warrants at $10.90 per share for $106,820 under the terms of the securities
purchase agreements.





Common
stock and paid in capital





Concordia
was issued 1,413,986 shares of common stock in payment of $31,500 for January
and February services under the consulting agreement.  Additionally
common shares totaling 1,802,977 were issued to vendors in payment of $25,275
for services.





President’s resignation and interim
President appointed





On
February 3, 2009, Vivek Bhaman resigned as President, Chief Operating Officer
and Treasurer of 3DIcon Corporation effective March 3, 2009.  Mr.
Bhaman was due an aggregate of $41,667 compensation for January and February
2009 under the terms of the April 29, 2007 Employment
Agreement.  Additionally he is due $41,667 under the terms of the
October 12, 2008 Amended Employment Agreement which increased his annual
compensation to $300,000 from $250,000.  Under the terms of the
contract, the Company elected to defer the $50,000 increase until April 30, 2009
and pay the increased compensation in registered common stock discounted at 25%
to the market price.  Mr. Bhaman was issued 1,851,852 registered
common shares at $0.0225 per share for the $41,667 deferred
compensation.  The Company has been unable to pay Mr. Bhaman for the
remaining $41,667 compensation under his original Employment
Contract.  Additionally under the terms of the employment agreements,
Mr. Bhaman has vested 1,425,000 options to purchase shares at common stock of
the Company at prices ranging from $0.055 to $1.00 per share that expire at
various dates through October 12, 2018.  In connection with his
resignation, the Company agreed to waiver certain provisions of Mr. Bhaman's
employment agreement which prevented him from continuing to serve as a Director
of the Company following the termination of his employment. Accordingly, Mr.
Bhaman continued to serve as a Director of the Company.





On
February 9, 2009, the Board of Directors of the Company appointed James N. Welsh
to serve as the Company’s Interim Chief Operating Officer and Treasurer. His
appointment was effective as of March 1, 2009.





See notes
to financial statements


F-26





Note
13 – Subsequent Events (continued)





Incentive
stock plan amended





The
Company’s Incentive Stock Plan was amended in February 2009 to increase the
number of shares available to be issued upon exercise of outstanding options and
warrants.  Originally eight million shares were included in the
plan.  The 2009 amendment increase the available shares by
twenty-seven million shares.  There are currently 30,191,027 shares
available under the plan.





See notes
to financial statements


F-27