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, 2009




 ̈   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
CORPORTION


(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  ̈   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  ̈   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  ̈




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





Indicate
by check if 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.   ̈





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  ̈
            Accelerated
      filer  ̈Non-accelerated
      filer  ̈
            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  ̈   No x




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, 2009 was $3,022,559.




As of
March 31, 2010, the issuer had 418,205,705 outstanding shares of Common
Stock.




DOCUMENTS
INCORPORATED BY REFERENCE: NONE





TABLE OF
CONTENTS





PagePART
      IItem
      1.
                                    Business
                                    3Item
      1A.
                                    Risk
      Factors
                                    8Item
      1B.
                                    Unresolved
      Staff Comments
                                    12Item
      2.
                                    Properties
                                    12Item
      3.
                                    Legal
      Proceedings
                                    12Item
      4.
                                    Reserved
                                    12PART
      IIItem
      5.
                                    Market
      for Common Equity, and 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
                                    22Item
      9B.
                                    Other
      Information
                                    22PART
      IIIItem
      10.
                                    Directors,
      Executive Officers, Promoters and Control Persons; Compliance With Section
      16(A) of the Exchange Act.
                                    22Item
      11.
                                    Executive
      Compensation
                                    25Item
      12.
                                    Security
      Ownership of Certain Beneficial Owners and Managementand
      Related Stockholder Matters
                                    27Item
      13.
                                    Certain
      Relationships and Related Transactions, and Director
      Independence
                                    28Item
      14.
                                    Principal
      Accountant Fees and Services
                                    28PART
      IVItem
      15.
                                    Exhibits
                                    29SIGNATURES
                                    30




2


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 reorganization and accordingly, restated its
capital accounts as of January 1, 2001. At the inception on January 1, 2001, our
primary activity was the raising of capital in order to pursue its goal of
becoming a significant participant in the formation and commercialization of
interactive, optical holography for the communications and entertainment
industries.





In April
2004, we engaged the University to Oklahoma (“OU” or the “University”) to
conduct a pilot study to determine the opportunity and feasibility for the
creation of volumetric three 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 (Phase III) which was scheduled to expire on March 31, 2010. Under
this agreement, the University conducted a research project entitled
“3-Dimensional Display Development”.





In the
fourth quarter of 2007 we announced the release of our first product, “Pixel
Precision”. On February 12, 2009, version 2.0 of Pixel Precision was released to
expand its capabilities and provide new compatibility with Texas Instrument’s
newly released DLP® Discovery 4000 kits.  This is a companion software
application to the DMD Discovery 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, had a start date of January 1, 2009.  The
award is for a maximum of $149,940 for 2009 and the remainder for
2010.  We requested a no cost extension for the first
year.  OCAST approved our request and extended our first year contract
to April 30, 2010.  Funding beyond April 30, 2010 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. On May 26,
2009, the United States Patent and Trademark Office (USPTO) has approved the
pending patent called “Volumetric liquid crystal display” for rendering a
three-dimensional image” and converted it to US patent No.
7,537,345.  At this time, we do not own any intellectual property
rights in holographic technologies, and, apart from the Sponsored Research
Agreement with the University,  have no contracts or agreements
pending to acquire such rights or any other interest in such rights. We plan to
market the technology and the intellectual property developed by the University
and our staff by targeting various industries, such as retail, manufacturing,
entertainment, medical, healthcare, transportation, homeland security and the
military.  On April 6, 2009, we filed a provisional patent on an
emissive two-dimensional (2D) screen that is controlled and driven by a standard
digital light projector or other optical input source. This provisional patent
is called “Flexible/inflexible front/back projection screen or display” and
owned solely by 3DIcon Corporation.




3


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.





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
(“DMD”) 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 auto stereoscopic 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.


·
            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  entered into the subsequent second stage of improvement and
development in 2008. Additional work on this particular approach has been
deferred indefinitely because of the success and initial superiority of the
CSpace®TM technology.




4





The
Static Volume Display technology will employ the DMD 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. On
September 2008, we built a laboratory prototype for CSpace®TM and demonstrated
the creation of true 3D images within specified image space.  New
developments for eliminating the distortion occurred by the divergence of the
constructed 3D image have been presented at the SPIE Europe Security &
Defense conference in Berlin, Germany, August, 2009. Improvements for the
optical systems utilized by CSpace®TM with the latest achieved resolution have
been pblished on October 2009 at IEEE/OSA Journal of Display Technology titled
“Static volumetric three-dimensional display”. On February 15, 2010, at the SPIE
Medical Imaging conference, we presented the latest software developments that
allow reading digital imaging and communication in medicine (DICOM) formats
whether scanned by ultrasound devices, magnetic resonance imaging (MRI), or
computed tomography (CT) scanners.  With this new software
architecture, CSpace®TM would have the capability of displaying medical images
within  binary 3D volume.





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,
which expired October 19, 2004. We paid the University $14,116 pursuant to this
agreement. The purpose of this agreement was to conduct a pilot study to
investigate digital holography as a candidate technology for the development of
three-dimensional (“3D”) imaging and visualization systems. 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:





·
            produce
      patentable and/or copyrightable intellectual
  property;


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


·
            assess
      opportunities for manufacturing technological products in
      Oklahoma;


·
            Investigate
      magnetic nanospheres MNs for use as a projection
  media;


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


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


·
            Evaluate
      other display medium technologies for potential strategic
      partnerships;


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


·
            Develop
      software for displaying ideal 3D images;
and


·
            Investigate
      software interface issues with other image capture
      technologies.




5





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, 2006 remaining balance due of $226,792
with the additional funding into a revised payment schedule. Under the terms of
the agreement, we agreed to pay the combined remaining obligation of $352,051 in
four equal monthly installments of $88,013 beginning on December 31, 2006
through March 31, 2007.





On
February 23, 2007, we entered into a 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 agreed to pay the University $3,468,595
in monthly installments ranging from $92,263 to $112,777 beginning on April 30,
2007 and ending on March 31, 2010.





On
October 31, 2008 OU agreed to revise the payment terms under the SRA from a
fixed monthly payment to a reimbursable cost payment basis effective September
1, 2008.  As of September 30, 2008 we had a remaining obligation under
the previous SRA payment schedule of $2,665,818 which 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 would  be paid in nine monthly base installments from
October 31, 2008 to June 30, 2009 of amounts ranging from $35,000 to $101,132
leaving a remaining balance after the base payments of $290,000.  In
addition to the monthly base payments, we agreed to make additional payments on
the $861,131 arrearages based on a formula of 50% of funding in excess of
$120,000 plus the base monthly payment.  In the event funding did not
provide for any additional payments, the remaining balance would be $290,000,
which OU agreed to accept 4,264,707 shares of our common stock based on the
October 14, 2008 market price as reported on the OTC Bulletin Board of $0.068
per share as payment on June 30, 2009.  We had the option to
repurchase the shares at $0.068 per share by September 30, 2009 or at market
value, but not less than $0.068 per share, if the repurchase occurs after
September 30, 2009.





During
the years ended December 31, 2009 and 2008, we charged operations $64,084 and
$953,802, respectively pursuant to the SRA.  At December 31, 2009, we
owed the University $5,638 in aggregate monthly payments and $525,481 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. The University 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 Filing
                                        
                                        Grant
                                          Date
      of
                                          U.S.
                                          Patent
                                        
                                        European
                                          Pending
                                          Patent-
                                          Date
      of
                                          Filing
                                        
                                        Japanese
                                          Pending
                                          Patent-
                                          Date
      of
                                          FilingSwept
      Volume Display
                                        
                                        Swept
      Volume Display
                                        
                                        September 2006Colorful
      Translation Light Surface 3D Display
                                          Colorful
      Translation 3D Volumetric Display
                                          3D
      Light Surface Display
                                        
                                        Light
      Surface Display for Rendering Three-Dimensional Image
      (Combined)
                                        
                                        April
      2007
                                        
                                        
                                        
                                        April 2007
                                        
                                        April 2007Volumetric
      Liquid Crystal Display
                                        
                                        Volumetric
      Liquid Crystal Display for Rendering Three-Dimensional Image
      (Combined)
                                        
                                        April
      2007
                                        
                                        May 2009Computer
      System Interaction with DMD
                                        
                                        Computer
      System Interaction with DMD
                                        
                                        January
      2008Virtual
      Moving Screen for Rendering Three Dimensional Image
                                        
                                        Virtual
      moving screen for rendering a three-dimensional image
                                        
                                        January
      2008




6


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 the 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 Three 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:





·
            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.





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
three full-time employees as of December 31, 2009, Martin Keating, Chief
Executive Officer, Dr. Hakki Refai, Chief Technology Officer, 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.




7


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 $12,576,914 for the period from inception (January 1, 2001) to December
31, 2009.   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 assets are our Sponsored Research Agreement with the
University and the exclusive license agreement covering the technology on which
the University and  Dr. Hakki Refai  are currently working.
Our ability to accomplish our business plan relies entirely on the ability of
the University and Dr. Refai to successfully develop marketable 3D
communications technology.





Our only significant assets at the present time are our Sponsored
Research Agreement with the University and the exclusive license agreement
covering the technology on which the University and Dr. Refai are currently
working. In October 2008, Dr. Hakki Refai, the former chief researcher at
the University joined the Company as our Chief Technology
Officer.  Any technology independently developed by Dr. Refai
subsequent to October 2008, will be the sole property of 3DIcon.  If
we or the University researchers are not successful in developing 3D
communications technology that we have envisioned in our business plan, our
ability to generate revenues from marketing of the product or technologies
on which our business plan is based will be severely impacted, which could
threaten the very existence of the Company.





Even if
we or the University researchers and Dr. Refai are successful in
developing 3D communications technology, because of the revolutionary
nature of such technology (i.e., no similar technology currently exists, and
there are numerous unknowns relating to the technology, such as manufacturing
costs and operational costs), there can be no assurance that our marketing plans
for the technology will be successful.





Therefore,
the fact that our success depends significantly on our efforts  to
develop a technologically challenging new product that will be in a form readily
marketable and acceptable to a given market, and our ability to then
successfully market such technology, 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.





We
may not be able to compete successfully.





Although
the volumetric 3D imaging and display technology that we are 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, 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.




8


The
technologies being developed may not gain market acceptance.





The
products that we are 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 3DIcon and the University 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, Dr. Hakki Refai,our Chief
Technology Officer and, James N. Welsh, our President.  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 March 31, 2010, our auditors have expressed substantial doubt 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.





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, 2010, we had 418,205,705 shares of common stock issued and
outstanding and convertible debentures outstanding that may be converted into an
estimated 2,203,577,831 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 919,683 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.




9





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 to issue 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 $91,968 and market prices 25%, 50% and 75%
below the market price as of March 24, 2010 of $0.006.





%
      Below
                          Market
                        
                        Price
      Per
                          Share
                        
                        
                        Effective
                          Conversion
                          Price
                        
                        
                        Number
                          of
      Shares
                          Issuable(1)
                        
                        
                        %
      of
                          Outstanding
                          Stock25%
                        
                        $
                        0.0045
                        
                        
                        $
                        0.0036
                        
                        
                        
                        2,812,266,151
                        
                        
                        
                        672
                        %50%
                        
                        $
                        0.0030
                        
                        
                        $
                        0.0024
                        
                        
                        
                        4,218,874,567
                        
                        
                        
                        1,009
                        %75%
                        
                        $
                        0.0015
                        
                        
                        $
                        0.0012
                        
                        
                        
                        8,438,669,817
                        
                        
                        
                        2,018
                        %





(1)
Shares issuable exclude 919,683 shares underlying the remaining warrants
exercisable at $10.90 per share.





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 $463,558 and market prices 25%, 50%
and 75% below the market price as of March 24, 2010 of $0.006.





Effective
                        
                        Number
                        
                        %
      of%
      Below
                        
                        Price
      Per
                        
                        
                        Conversion
                        
                        of
      Shares
                        
                        OutstandingMarket
                        
                        Share
                        
                        
                        Price
                        
                        Issuable
                        
                        Stock25%
                        
                        $
                        0.0045
                        
                        
                        $
                        0.0040
                        
                        
                        
                        114,458,800
                        
                        
                        
                        27
                        %50%
                        
                        $
                        0.0030
                        
                        
                        $
                        0.0027
                        
                        
                        
                        171,688,200
                        
                        
                        
                        41
                        %75%
                        
                        $
                        0.0015
                        
                        
                        $
                        0.0013
                        
                        
                        
                        343,376,400
                        
                        
                        
                        82
                        %





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
may encourage 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.




10





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 9.9% 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


·
            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.




11





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.





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. RESERVED.




12


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.





Year
Ended December 31, 2009





High
                      
                      
                      LowFirst
      Quarter ended March 31, 2009
                      
                      $
                      0.05
                      
                      
                      $
                      0.02Second
      Quarter ended June 30, 2009
                      
                      $
                      0.03
                      
                      
                      $
                      0.011Third
      Quarter ended September 30, 2009
                      
                      $
                      0.014
                      
                      
                      $
                      0.0075Fourth
      Quarter ended December 31, 2009
                      
                      $
                      0.0097
                      
                      
                      $
                      0.0051





Year
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





Holders





As of
March 31, 2010 we had approximately 387 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.




13


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
                                              
                                              -
                                              
                                              
                                              -
                                              
                                              -Equity
      compensation plans not approved by security holders:
                                              
                                              02009
      Amended Plan
                                              
                                              36,271,123
                                              
                                              $
                                              0.64
                                              
                                              14,422,0122010
      Plan
                                              
                                              0
                                              
                                              
                                              
                                              
                                              75,000,000Total
                                              
                                              36,271,123
                                              
                                              $
                                              0.64
                                              
                                              89,422,012




Recent
Sales of Unregistered Securities





During
the fiscal year ended December 31, 2009, we issued the below securities without
registration under the Securities Act of 1933, as amended (the "Securities
Act").





Pursuant
to subscription agreements entered into during March and April 2009, the Company
sold 999,999 shares of the Company’s common stock at a per share price of $.03
per share and warrants to purchase an aggregate of 500,000 shares of its common
stock at a price of $.10 per share from closing for a period of twelve months;
$.15 per share for the second subsequent twelve months; or $0.20 per share for
the subsequent twelve months to three accredited individuals. The Company
received aggregate proceeds of $30,000 from the sale.  The
500,000 warrants are valued at $6,579 and the 999,999 shares are valued at
$23,421. The warrants terminate three year from date of issue in
2012.





The
estimated fair value of the warrants was determined using the Black-Scholes
option pricing model. The expected dividend yield of $-0- is based on the
average annual dividend yield as of the grant date. Expected volatility of 178%
is based on the historical volatility of the stock since July 25, 2007, the day
the Company began trading on the OTC Bulletin Board. The risk-free interest
rate of 1.38% is based on the U.S. Treasury Constant Maturity rates as of
the grant date. The expected life of the option of five years is based on
historical exercise behavior and expected future experience.





On June
18, 2009 the Company entered into subscription agreements with two of its
directors pursuant to which the two directors purchased an aggregate
of 17,941,176 shares of the Company’s common stock at a price per share
equal to 50% of the average closing price during the five days prior to June 18,
2009 (0.0068 per share) for aggregate proceeds of $122,000.





Pursuant
to subscription agreements entered into during October and November 2009, the
Company sold 1,666,666 shares of the Company’s common stock at a per share price
of $.03 per share and warrants to purchase an aggregate of 16,666,666 shares of
its common stock at a price of $.10 per share from closing for a period of
twelve months; $.25 per share for the second subsequent twelve months; or $0.50
per share for the third subsequent twelve months to two accredited individuals.
The Company received aggregate proceeds of $50,000 from the
sale.  The 16,666,666 warrants are valued at $35,225 and the 1,666,666
shares are valued at $14,775.  The warrants terminate three years from
date of issue in 2012.





The
estimated fair value of the warrants was determined using the Black-Scholes
option pricing model. The expected dividend yield of $-0- is based on the
average annual dividend yield as of the grant date. Expected volatility of 178%
is based on the historical volatility of the stock since July 25, 2007, the day
the Company began trading on the OTC Bulletin Board. The risk-free interest
rate of 1.38% is based on the U.S. Treasury Constant Maturity rates as of
the grant date. The expected life of the option of three years is based on
historical exercise behavior and expected future experience.





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





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





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





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





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





The
Oklahoma Center for the Advancement of Science and Technology approved the
Company’s application for funding of a matching grant titled "800 Million Voxels
Volumetric Display," on November 19, 2008.  The two-year matching
grant, totaling $299,932, has a start date of January 1, 2009.  The
award is for a maximum of $149,940 for 2009 and the remainder for 2010. 
The Company received $35,139 from the grant during 2009.  We received
approval for our no cost extension request for the first year of the contract.
With the new modification, the first year ends on April 30, 2010. Funding beyond
April 30, 2010  is contingent upon satisfactory performance evaluation
and the availability of funds.




15





Current
Activities and Operations




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





Static Volume Display Technology: Also
known as CSpace®TM, the Company 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).
This technology incorporates existing and rapidly evolving image projection
technologies, such as DLP®/DMD technology from Texas Instruments, allowing
3DIcon to pursue full-color, full-motion 3D visualization, in harmony with
3DIcon’s vision for product development.





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





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





We have
signed a sales and distribution agreement with Digital Light Innovations (DLi)
for the sales, marketing and first level support of the Pixel 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 Filing
                                  
                                  Granted
                                    U.S. Patent
                                  
                                  European
                                    Pending
                                    Patent-
                                    Date of
                                    Filing
                                  
                                  Japanese
                                    Pending
                                    Patent-Date of
                                    FilingSwept
      Volume Display
                                  
                                  Swept
      Volume Display
                                  
                                  Filed
      by OU in September 2006Colorful
      Translation Light Surface 3D Display
                                    Colorful
      Translation 3D Volumetric Display
                                    3D
      Light Surface Display
                                  
                                  Light
      Surface Display for Rendering Three-Dimensional Image
      (Combined)
                                  
                                  Filed
      by OU in April 2007
                                  
                                  
                                  
                                  April 2007
                                  
                                  April 2007Volumetric
      Liquid Crystal Display
                                  
                                  Volumetric
      Liquid Crystal Display for Rendering Three-Dimensional Image
      (Combined)
                                  
                                  Filed
      by OU in April 2007
                                  
                                  May 2009Computer
      System Interaction with DMD
                                  
                                  Computer
      System Interaction with DMD
                                  
                                  Filed
      by OU in January 2008Virtual
      Moving Screen for Rendering Three Dimensional Image
                                  
                                  Virtual
      moving screen for rendering a three-dimensional image
                                  
                                  Filed
      by OU in January 2008Optically
      Controlled Light Emitting...and System for Optically Written 2D and 3D
      Displays
                                  
                                  Utility
      Patent Application to be filed
                                  
                                  Filed
      by 3DIcon in April 2008




16





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 2010 calendar year are as follows.
The work will mainly be done by the Company and researchers, faculty and
selected graduate or doctoral level students at the University with oversight by
Company personnel:





I. Static
Volumetric Display (CSpace®TM)





·
            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.


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


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


·
            Add
      gray-scale levels for the constructed 3D images by
    CSpace®TM.





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 Version 3.0 for the Discovery 4000 series (D4000). This
      will be done in the near future.


·
            Develop
      the new invention of 2D screen that can be optically driven if compared to
      the conventional electrically driven 2D
screens.








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).




17





RESULTS
OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2009 COMPARED TO THE YEAR ENDED
DECEMBER 31, 2008





Revenue




The
Company received $35,139 from the OCAST grant during 2009 and $25,000 from a
liscensing agreement during 2008.





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 $10,200 and $17,900 before commissions and costs from the sales
of PixelPrecisionTM for the years ended December 31, 2009 and December 31, 2008,
respectively.





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 and administrative, research and development,
interest) but do not expect the revenue generated in 2010 to cover the operating
expenses.





Research
and Development Expenses





The
research and development expenses were $313,082 for the year ended December 31,
2009 as compared to $953,802 for the year ended December 31,
2008.  The decrease was a result of modifications to the SRA whereby,
on October 31, 2008 the University agreed to revise the payment terms under the
SRA from a fixed monthly payment to a reimbursable cost payment basis effective
September 1, 2008.  Additionally on October 1, 2008 we employed Dr.
Hakki Refai as Chief Technology Officer who previously was the lead investigator
on the SRA with the University.





General
and Administrative Expenses





Our
general and administrative expenses were $1,218,798 for the year ended December
31, 2009 as compared to $2,578,357 for the year ended December 31,
2008.  The decrease is due primarily to the decrease in salaries and
related payroll taxes of $289,000, a decrease of $250,000 in options issued to
employees, a $328,000 decrease due to options not being issued to Directors and
consultants for services for the year ended December 31, 2009, a decrease in
legal fees of approximately $100,000, termination of consulting contract of
$176,000, decrease in annual meeting expense of approximately $37,000 and a
general decrease in overall marketing, travel and administrative expenses due to
decreased funding.





Interest
Expense





Interest
expense for the year ended December 31, 2009 was $80,294 as compared to $122,291
for the year ended December 31, 2008. The decrease in interest expense resulted
from decrease in the amounts outstanding on our convertible debentures during
the periods.





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. This includes development of an initial demonstrable
      prototype and a second prototype for static volume
    technology


·
            Acceleration
      of research and development through increased research personnel as well
      as other research agencies


·
            General
      and administrative expenses: salaries, insurance, investor related
      expenses, rent, travel, website,
etc.




18





·
            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, 2009, 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 $1,118 at December 31, 2009.


We had
negative working capital of $1,751,634 at December 31, 2009.





During
the year ended December 31, 2009, we used $539,883 of cash for operating
activities, a decrease of $1,366,280 or 72% compared to the year ended December
31, 2008. The decrease in the use of cash for operating activities was a result
of the decrease in net loss of $2,044,715.





Cash used
in investing activities during the year ended December 31, 2009 was $0, a
decrease of $25,363 compared to the year ended December 31, 2008.  The
decrease was a result of purchasing office furniture and equipment for the
leased office space in the year ended December 31, 2008.





Cash
provided by financing activities during the year ended December 31, 2009 was
$492,601, a decrease of $781,806 or 61% compared to the year ended December 31,
2008.  The decrease was the result of the decreased debenture funding,
stock sales and warrant sales in 2009.





We expect
to fund the ongoing operations through the existing financing in place (see
below); through raising additional funds as permitted by the terms of Golden
State financing as well as reducing our monthly expenses.





Our
ability to fund the operations of the Company is highly dependent on the
underlying stock price of the Company. As a result of our stock price being
around the 52 week low mark and trending downward, our ability to raise cash is
currently 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, 2009, we received $382,590 in
funding from Golden State as a result of the 4.75% Convertible Debenture
warrants exercised.





On
November 19, 2008, we received a research grant from OCAST titled the "800
Million Voxels Volumetric Display."  The two-year matching grant
totals $299,932.  The award is for a maximum of $149,940 for the
calendar year 2009 and the remainder for calendar year 2010.  Funding
of the 2009 amount is contingent upon the Company providing matching funds for
the first year’s research and submission of all required documentation to
OCAST.  We received approval for our no cost extension request for the
first year of the contract. With the new modification, the first year ends on
April 30, 2010.Funding beyond 2010 is contingent upon satisfactory performance
evaluation and the availability of funds.





The
Company was unable to meets it monthly payment obligations under the SRA and
received notification from the University that they were in
default.  A new payment schedule has been
negotiated.   Failure of the Company to meet its payment
obligations under the new payments schedule could result in the termination of
the SRA, termination of the related projects and termination of any outstanding
license agreements under the SRA.




19





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 would be paid in nine monthly base installments from October 31, 2008
to June 30, 2009 of amounts ranging from $35,000 to $101,132 leaving a remaining
balance after the base payments of $290,000.  In addition to the
monthly base payments, the Company agreed to make additional payments on the
$861,131 arrearages based on a formula of 50% of funding in excess $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 market value, but not less than $0.068 per
share.




The
Company was unable to meet the revised payment schedule and on May 18, 2009 the
University agreed to revise the payment terms.  Under the terms of the
revised base payments schedule, the arrearages scheduled to be paid in nine
monthly base installments from October 31, 2008 to June 30, 2009 of amounts
ranging from $35,000 to $101,132 were deferred to a monthly payment schedule of
July 2009 through February 2010.  On February 19, 2010 the University
agreed to modify the repayment plan to retire the outstanding debt of
$525,481.  Under the terms of the modified repayment plan the Company
agreed to make payments to the University, not less than quarterly, in an amount
equal to 22.5% of any funding received by the Company.  Eligible
funding shall include all revenues, investments in the Company, funding from
current sources or other funding, provided, however, that grants or other
similar funding with specific allocation to designated research and development
projects shall be excluded from such calculation. The quarterly payments shall
be made within thirty (30) days of the end of each calendar
quarter.  The first quarterly payment is due to the University on
April 30, 2010.  The Company shall provide its financial statements to
the University upon completion and submission to the SEC at the end of each
quarter. These repayment terms shall remain in effect until the outstanding debt
is retired. The University has the right at its sole discretion to request an
independent audit of the Company’s financial statement the cost of which shall
be borne solely by the Company.





In
addition management 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. This, along with other
measures, has reduced our current cash flow burn rate from $267,000 per month to
an estimated amount of $130,000 to $150,000 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





The
Company expenses all research and development costs as incurred. Until we have
developed a commercial product, all costs incurred in connection with the SRA
with the University, as well as all other research and development costs
incurred, will be expensed as incurred. After a commercial product has been
developed, we will report costs incurred in producing products for sale as
assets, but we will continue to expense costs incurred for further product
research and development activities.




20





Stock-Based
Compensation





Since its
inception 3DIcon has used its common stock or warrants to purchase its common
stock as a means of compensating our employees and consultants. Financial
Accounting Standards Board (“FASB”) guidance on accounting for share based
payments requires us to estimate the value of securities used for compensation
and to charge such amounts to expense over the periods benefited.




The estimated fair value at date of
grant of options for our common stock is estimated using the Black-Scholes
option pricing model, as follows:




The
expected dividend yield is based on the average annual dividend yield as of the
grant date. Expected volatility is based on the historical volatility of our
stock.  The risk-free interest rate is based on the U.S. Treasury
Constant Maturity rates as of the grant date. The expected life of the option is
based on historical exercise behavior and expected future
experience.





Subsequent
Events





Debentures
payable





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, 2009 and subsequent to December 31, 2009.  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, 2009 Golden State converted $1,200 of the 4.75% convertible
debenture into 35,201,188 shares of common stock at $0.00004 per share and
exercised 12,000 warrants at $10.90 per share for $130,800 under the terms of
the securities purchase agreements.





Common
stock and paid- in capital





Concordia
Financial Group was issued 22,550,810 shares of common stock in payment of
$63,000 for December, January, February, and March services under the terms of
their consulting agreement.  Additionally common shares totaling
5,000,000 were issued to vendors in payment of $9,650 for services.





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.





N/A




21





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.





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, 2009.  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, 2009, 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, 2009, 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
                      
                      68
                      
                      Chief
      Executive Officer and  DirectorJames
      N. Welsh
                      
                      66
                      
                      President,
      Chief Operating Officer and TreasurerLawrence
      Field
                      
                      48
                      
                      DirectorJohn
      O’Connor
                      
                      53
                      
                      DirectorVictor
      F. Keen
                      
                      68
                      
                      Director




22





Martin
Keating – Chief Executive Officer and Director





Martin
Keating has been Chief Executive Officer and a director of the Company 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.





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.





Lawrence
Field - Director





Mr.
Lawrence Field was appointed to the Board of Directors of the Company 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 the Company 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,  Director





Mr.
Victor F. Keen was appointed to the Board of Directors of the Company 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 five years.





Audit
Committee





On
February 25, 2008, the Board of Directors created an Audit Committee comprising
of 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





Director
or Officer Involvement in Certain Legal Proceedings





Our
directors and executive officers were not involved in any legal proceedings as
described in Item 401(f) of Regulation S-K in the past ten years.





Board
Leadership Structure and Role in Risk Oversight





Although
we have not adopted a formal policy on whether the Chairman and Chief Executive
Officer positions should be separate or combined, we have traditionally
determined that it is in the best interests of the Company and its shareholders
to combine these roles.  Martin Keating has served as our Chairman and
Chief Executive Officer since the inception of the Company. Due to the small
size and early stage of the Company, we believe it is currently most effective
to have the Chairman and Chief Executive Officer positions
combined.





Our Board
of Directors receives and reviews periodic reports from management, auditors,
legal counsel, and others, as considered appropriate regarding our company’s
assessment of risks. Our Board of Directors focuses on the most significant
risks facing our company and our company’s general risk management strategy, and
also ensure that risks undertaken by us are consistent with the Board’s appetite
for risk. While the Board oversees our company’s risk management, management is
responsible for day-to-day risk management processes. We believe this division
of responsibilities is the most effective approach for addressing the risks
facing our company and that our board leadership structure and role in risk
oversight is effective.





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.





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
      CSpace®TM 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;




24





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®TM technologies being
developed under the Company's Sponsored Research Agreement with the University
of Oklahoma. Dr. Refai is the lead inventor of the CSpace®TM 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.





On March
25, 2009 the Company entered into a Resolution Agreement with Dr. Hakki Refai
(the “Resolution  Agreement”) pursuant to which the Company agreed to
remove the time constraints on the technical milestone achievements whereby the
issuance of the options will be solely upon the achievement of the
milestones.





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.





SUMMARY
COMPENSATION TABLE




The
following information is furnished for the years ended December 31, 2009 and
December 31, 2008 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
                                                                                        
                                                                                        
                                                                                        2009
                                                                                        
                                                                                        144,000
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        144,0002008
                                                                                        
                                                                                        144,000
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        -
                                                                                        
                                                                                        144,000James
      N. Welsh,
                                                                                          Pres.
      and COO
                                                                                        
                                                                                        
                                                                                        2009
                                                                                        
                                                                                        95,000
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        0
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        0
                                                                                        
                                                                                        95,000Vivek
      Bhaman,
                                                                                          Pres.
      and Coo
                                                                                        
                                                                                        
                                                                                        2008
                                                                                        
                                                                                        250,000
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        50,782
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        33,333
                                                                                        
                                                                                        334,1152009
                                                                                        
                                                                                        71,955
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        98,148
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        -
                                                                                        170,103Hakki
      Refai
                                                                                        
                                                                                        
                                                                                        2009
                                                                                        
                                                                                        200,000
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        67,244
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        -
                                                                                        267,2442008
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        100,867
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        -
                                                                                        100,867




25





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 executive officers as of December 31, 2009:


Name
                                                      
                                                      Number of
                                                        Securities
                                                        Underlying
                                                        Unexercised
                                                        Options
                                                        #
                                                        Exercisable
                                                      
                                                      Number of
                                                        Securities
                                                        Underlying
                                                        Unexercised
                                                        Options
                                                        #
                                                        Un-exercisable
                                                      
                                                      Equity
                                                        Incentive
                                                        PlanAwards:
                                                        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
                                                        $MartinKeating
                                                      
                                                      
                                                      500,000
                                                      
                                                      -
                                                      
                                                      -
                                                      
                                                      $
                                                      0.40
                                                      
                                                      April 26, 2009
                                                      
                                                      -
                                                      
                                                      
                                                      -
                                                      
                                                      -
                                                      
                                                      
                                                      -Vivek
      Bhaman (1)
                                                      
                                                      
                                                      1,425,000
                                                      
                                                      5,075,000
                                                      
                                                      -
                                                      
                                                      
                                                      (1
                                                      )
                                                      April
      30, 2010
                                                      
                                                      -
                                                      
                                                      
                                                      -
                                                      
                                                      -
                                                      
                                                      
                                                      -Dr.
      Hakki Refai
                                                      
                                                      
                                                      1,500,000
                                                      
                                                      -
                                                      
                                                      -
                                                      
                                                      $
                                                      0.85
                                                      
                                                      July 28, 2018
                                                      
                                                      2,000,000
                                                      
                                                      
                                                      -
                                                      
                                                      -3,500,000
                                                      
                                                      
                                                      
                                                      $
                                                      0.85





(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





Director
Compensation





Name
                        
                        Fees
                          Earned or
                          Paid in
                          Cash ($)
                        
                        
                        Stock
                          Awards
                          ($)
                        
                        
                        Option
                          Awards
                          ($)
                        
                        
                        Non-Equity
                          Incentive Plan
                          Compensation
                          ($)
                        
                        
                        Change in
                          Pension
                          Value and
                          Nonqualified
                          Deferred
                          Compensation
                          Earnings ($)
                        
                        
                        All Other
                          Compensation
                          ($)
                        
                        
                        Total ($)Victor
      Keen 2009
                        
                        
                        -
                        
                        
                        $
                        33,600
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        $
                        33,600Victor
      Keen 2008
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        $
                        100,000
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        $
                        100,000Lawrence
      Field 2008
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        $
                        100,000
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        $
                        100,000John
      O’Connor 2009
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        $
                        125,391
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        $
                        125,391




26





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,
2010 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.





Number of
                          Shares
                          Beneficially
                        
                        
                        
                        PercentageName of Beneficial Owner (1)
                        
                        Owned
                        
                        Class of Stock
                        
                        Outstanding (2)Martin
      Keating (3)
                        
                        
                        42,217,474
                        
                        Common
                        
                        
                        10.0
                        %Victor
      F. Keen
                        
                        
                        24,599,729
                        
                        Common
                        
                        
                        5.88
                        %Lawrence
      Field (4)
                        
                        
                        7,953,134
                        
                        Common
                        
                        
                        1.90
                        %John
      O’Connor (5)
                        
                        
                        1,397,180
                        
                        Common
                        
                        
                        *Vivek
      Bhaman (6)
                        
                        
                        1,425,000
                        
                        Common
                        
                        
                        *James
      N. Welsh
                        
                        
                        14,963,571
                        
                        Common
                        
                        
                        3.58All
      directors and executive officers as a group (4 persons)
                        
                        
                        92,556,088
                        
                        Common
                        
                        
                        21.36
                        %Golden
      State Investors, Inc. (7)
                        
                        
                        32,679,588
                        
                        Common
                        
                        
                        9.50




*
                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 418,205,705 shares of common stock
      outstanding as of March 31, 2010. 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 2010 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 and, (iii) 1,187,180 options owned by Mr.
  O’Connor.
 (6)
                Represents
      1,425,000 stock options.
  27
  (7)
                Excludes
      11,000,000 shares held as collateral under the Securities Purchase
      Agreement, such shares are included in Martin Keating total
      shares.





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  from 2005 through 2008. 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.





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, 2009 and 2008 were $67,415 and $57,000,
respectively.





Audit-Related
Fees





The
aggregate fees billed by our principal accountant for assurance and advisory
services that were related to the performance of the audit or review of our
financial statements  for the fiscal years ended December 31,
2009 and 2008 were $0 and $0, respectively.





Tax
Fees




The
aggregate fees billed for professional services rendered by our principal
accountant for tax compliance, tax advice and tax planning for the fiscal years
ended December 31, 2009 and 2008 were $0 and $0, respectively.





All
Other Fees





The
aggregate fees billed for products and services provided by our principal
accountant for the fiscal years ended December 31, 2009 and 2008 were $0
and $0, respectively.





Policy
on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of
Independent Auditors




The Audit
Committee’s policy is to pre-approve all audit and permissible non-audit
services provided by the independent auditors. These services may include audit
services, audit-related services, tax services and other services. Pre-approval
is generally provided for up to one year and any pre-approval is detailed as to
the particular service or category of services and is generally subject to a
specific budget. The independent auditors and management are required to
periodically report to our Board of Directors regarding the extent of services
provided by the independent auditors in accordance with this pre-approval, and
the fees for the services performed to date. The Board of Directors may also
pre-approve particular services on a case-by-case basis.




28


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, 200731.1
            
            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




29





(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:
      March 31, 2010
                  /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)
                                        
                                        March
      31, 2010Martin
      KeatingBy:
                                        
                                        
                                        Director
                                        
                                        March
      31, 2010Lawrence
      FieldBy:
                                        /s/
      John O’Connor
                                        
                                        Director
                                        
                                        March
      31, 2010John
      O’ConnorBy:
                                        /s/
      Victor F. Keen
                                        
                                        Director
                                        
                                        March
      31, 2010Victor
      F. Keen




31





3DIcon
CORPORATION


(A
Development Stage Company)





December
31, 2009 and 2008





CONTENTS





Report
      of Independent Registered Public Accounting Firm
                
                F-1Balance
      Sheets as of December 31, 2009 and 2008
                
                F-2S  Statements
      of Operations for the years ended December 31, 2009 and 2008 and period
      from inception (January 1, 2001) to December 31, 2009
                
                F-3S  Statements
      of Changes in Stockholders’ Deficiency for period from inception (January
      1, 2001) to December 31, 2009
                
                F-4Statements
      of Cash Flows for the years ended December 31, 2009 and 2008 and for
      period from inception (January 1, 2001) to December 31,
    2009
                
                F-6Notes
      to Financial Statements, December 31, 2009 and 2008 and for period from
      inception (January 1, 2001) to December 31, 2009
                
                F-7




32





REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
 To the
Board of Directors and Stockholders of
 3DIcon
Corporation
 
 We have
audited the accompanying balance sheets of 3DIcon Corporation (a Development
Stage Company) as of December 31, 2009 and 2008, and the related statements of
operations, stockholders' deficiency, and cash flows for the years then ended
and for the period from inception (January 1, 2001) to December 31,
2009.  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.
 
 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 are free of material misstatement.  An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements.  An audit also includes
assessing 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, the financial statements referred to above present fairly, in all
material respects, the financial position of 3DIcon Corporation as of
December 31, 2009 and 2008, and the results of its operations and its cash flows
for the years then ended and for the period from inception (January 1, 2001) to
December 31, 2009, 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 company 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 assessment of the effectiveness of 3DIcon
Corporation’s internal control over financial reporting as of December 31, 2009,
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
 March 31,
2010


F-1





3DIcon
CORPORATION


(A
Development Stage Company)





BALANCE
SHEETS





December
31, 2009 and 2008





2009
                                      
                                      
                                      2008AssetsCurrent
      assets:Cash
                                      
                                      $
                                      1,118
                                      
                                      
                                      $
                                      48,400Prepaid
      expenses
                                      
                                      
                                      11,304
                                      
                                      
                                      
                                      16,113Total
      current assets
                                      
                                      
                                      12,422
                                      
                                      
                                      
                                      64,513Net
      property and equipment
                                      
                                      
                                      18,624
                                      
                                      
                                      
                                      31,537Debt
      issue costs, net
                                      
                                      
                                      16,706
                                      
                                      
                                      
                                      56,978Deposits-other
                                      
                                      
                                      17,315
                                      
                                      
                                      
                                      17,315Total
      Assets
                                      
                                      $
                                      65,067
                                      
                                      
                                      $
                                      170,343Liabilities
      and Stockholders' DeficiencyCurrent
      liabilities:Current
      maturities of convertible debentures payable
                                      
                                      $
                                      564,261
                                      
                                      
                                      $
                                      364,000Warrant
      exercise advances
                                      
                                      
                                      48,511
                                      
                                      
                                      
                                      140,500Accounts
      payable
                                      
                                      
                                      844,530
                                      
                                      
                                      
                                      1,135,887Accrued
      salaries
                                      
                                      
                                      279,603
                                      
                                      
                                      
                                      59,615Accrued
      interest on debentures
                                      
                                      
                                      16,151
                                      
                                      
                                      
                                      6,808Advance
      due officer
                                      
                                      
                                      11,000
                                      
                                      
                                      
                                      -Total
      current liabilities
                                      
                                      
                                      1,764,056
                                      
                                      
                                      
                                      1,706,810Convertible
      debentures payable, less current maturities
                                      
                                      
                                      93,168
                                      
                                      
                                      
                                      675,279Total
      Liabilities
                                      
                                      
                                      1,857,224
                                      
                                      
                                      
                                      2,382,089Stockholders'
      deficiency:Common
      stock $.0002 par, 750,000,000 shares authorized; 343,690,812 and
      157,515,766 shares issued and outstanding at December 31, 2009 and 2008,
      respectively
                                      
                                      
                                      68,738
                                      
                                      
                                      
                                      31,503Additional
      paid-in capital
                                      
                                      
                                      10,716,019
                                      
                                      
                                      
                                      8,766,830Deficit
      accumulated during development stage
                                      
                                      
                                      (12,576,914
                                      )
                                      
                                      
                                      (11,010,079
                                      )Total
      stockholders' deficiency
                                      
                                      
                                      (1,792,157
                                      )
                                      
                                      
                                      (2,211,746
                                      )Total
      Liabilities and Stockholders' Deficiency
                                      
                                      $
                                      65,067
                                      
                                      
                                      $
                                      170,343





See notes
to financial statements


F-2


3DIcon
CORPORATION


(A
Development Stage Company)





STATEMENTS
OF OPERATIONS





Years
ended December 31, 2009 and 2008


and
Period from Inception (January 1, 2001) to December 31, 2009





2009
                                      
                                      
                                      2008
                                      
                                      
                                      Inception to
                                        December 31,
                                        2009Income:License
      Fee
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      25,000
                                      
                                      
                                      $
                                      25,000Grant
      income
                                      
                                      
                                      35,139
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      35,139Sales
                                      
                                      
                                      10,200
                                      
                                      
                                      
                                      17,900
                                      
                                      
                                      
                                      28,100Total
      income
                                      
                                      
                                      45,339
                                      
                                      
                                      
                                      42,900
                                      
                                      
                                      
                                      88,239Expenses:Research
      and development
                                      
                                      
                                      313,082
                                      
                                      
                                      
                                      953,802
                                      
                                      
                                      
                                      2,776,643General
      and administrative
                                      
                                      
                                      1,218,798
                                      
                                      
                                      
                                      2,578,357
                                      
                                      
                                      
                                      9,566,824Interest
                                      
                                      
                                      80,294
                                      
                                      
                                      
                                      122,291
                                      
                                      
                                      
                                      321,686Total
      expenses
                                      
                                      
                                      1,612,174
                                      
                                      
                                      
                                      3,654,450
                                      
                                      
                                      
                                      12,665,153Net
      loss
                                      
                                      $
                                      (1,566,835
                                      )
                                      
                                      $
                                      (3,611,550
                                      )
                                      
                                      $
                                      (12,576,914
                                      )Loss
      per share:Basic
      and diluted
                                      
                                      $
                                      (0.007
                                      )
                                      
                                      $
                                      (0.025
                                      )Weighted
      average shares outstanding, Basic and diluted
                                      
                                      
                                      238,635,629
                                      
                                      
                                      
                                      142,669,496





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, 2009





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
                  )




F-4





3DIcon
CORPORATION


(A
Development Stage Company)





STATEMENTS
OF CHANGES IN STOCKHOLDERS’ DEFICIENCY





Period
from Inception (January 1, 2001) to December 31, 2009





DeficitAccumulatedCommon Stock
                              
                              
                              Additional
                                Paid-In
                              
                              
                              During the
                                DevelopmentShares
                              
                              
                              Par Value
                              
                              
                              Capital
                              
                              
                              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
                              )Stock
      issued for cash
                              
                              
                              20,607,841
                              
                              
                              
                              4,122
                              
                              
                              
                              197,878
                              
                              
                              
                              -
                              
                              
                              
                              202,000Warrants
      exercised
                              
                              
                              35,100
                              
                              
                              
                              7
                              
                              
                              
                              382,583
                              
                              
                              
                              -
                              
                              
                              
                              382,590Debentures
      converted
                              
                              
                              77,451,141
                              
                              
                              
                              15,490
                              
                              
                              
                              467,514
                              
                              
                              
                              -
                              
                              
                              
                              483,004Stocks
      issued for service
                              
                              
                              68,506,130
                              
                              
                              
                              13,701
                              
                              
                              
                              524,653
                              
                              
                              
                              -
                              
                              
                              
                              538,354Stock
      issued for accounts payable
                              
                              
                              11,264,706
                              
                              
                              
                              2,253
                              
                              
                              
                              321,409
                              
                              
                              
                              -
                              
                              
                              
                              323,662Stock
      issued for interest
                              
                              
                              8,310,128
                              
                              
                              
                              1,662
                              
                              
                              
                              41,647
                              
                              
                              
                              -
                              
                              
                              
                              43,309Warrants
      issued for accounts payable
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              13,505
                              
                              
                              
                              -
                              
                              
                              
                              13,505Net
      loss for the year
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (1,566,835
                              )
                              
                              
                              (1,566,835
                              )Balance,
      December 31, 2009
                              
                              
                              343,690,812
                              
                              
                              $
                              68,738
                              
                              
                              $
                              10,716,019
                              
                              
                              $
                              (12,576,914
                              )
                              
                              $
                              (1,792,157
                              )





See notes
to financial statements


F-5





3DIcon
CORPORATION


(A
Development Stage Company)





STATEMENTS
OF CASH FLOWS





Years
ended December 31, 2009 and 2008


and
Period from Inception (January 1, 2001) to December 31, 2009





2009
                                          
                                          
                                          2008
                                          
                                          
                                          Inception to
                                            December 31,
                                            2009Cash
      Flows from Operating ActivitiesNet
      loss
                                          
                                          $
                                          (1,566,835
                                          )
                                          
                                          $
                                          (3,611,550
                                          )
                                          
                                          $
                                          (12,576,914
                                          )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Options
      issued for services
                                          
                                          
                                          -
                                          
                                          
                                          
                                          654,199
                                          
                                          
                                          
                                          1,928,865Stock
      issued for services
                                          
                                          
                                          538,355
                                          
                                          
                                          
                                          313,800
                                          
                                          
                                          
                                          1,649,905Stock
      issued for interest
                                          
                                          
                                          43,309
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          81,660Book
      value of assets retired
                                          
                                          
                                          5,861
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          5,861Amortization
      of debt issuance costs
                                          
                                          
                                          54,227
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          153,708Depreciation
                                          
                                          
                                          7,052
                                          
                                          
                                          
                                          5,658
                                          
                                          
                                          
                                          14,796Change
      in:Impairment
      of assets
                                          
                                          
                                          
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          292,202Prepaid
      expenses and other assets
                                          
                                          
                                          4,809
                                          
                                          
                                          
                                          (17,484
                                          )
                                          
                                          
                                          (262,019
                                          )Accounts
      payable and accrued liabilities
                                          
                                          
                                          373,339
                                          
                                          
                                          
                                          708,943
                                          
                                          
                                          
                                          1,604,647Net
      cash used in operating activities
                                          
                                          
                                          (539,883
                                          )
                                          
                                          
                                          (1,906,163
                                          )
                                          
                                          
                                          (7,107,289
                                          )Cash
      Flows from Investing ActivitiesPurchase
      of office furniture and equipment
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (25,363
                                          )
                                          
                                          
                                          (39,281
                                          )Net
      cash used in investing activities
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (25,363
                                          )
                                          
                                          
                                          (39,281
                                          )Cash
      Flows from Financing ActivitiesProceeds
      from stock and warrant sales, exercise of warrants and warrant exercise
      advances
                                          
                                          
                                          492,601
                                          
                                          
                                          
                                          528,194
                                          
                                          
                                          
                                          3,238,965Proceeds
      from issuance of debentures
                                          
                                          
                                          -
                                          
                                          
                                          
                                          746,213
                                          
                                          
                                          
                                          3,908,713Net
      cash provided by financing activities
                                          
                                          
                                          492,601
                                          
                                          
                                          
                                          1,274,407
                                          
                                          
                                          
                                          7,147,678Net
      increase (decrease) in cash
                                          
                                          
                                          (47,282
                                          )
                                          
                                          
                                          (657,119
                                          )
                                          
                                          
                                          1,108Cash,
      beginning of period
                                          
                                          
                                          48,400
                                          
                                          
                                          
                                          705,519
                                          
                                          
                                          
                                          10Cash,
      end of year
                                          
                                          $
                                          1,118
                                          
                                          
                                          $
                                          48,400
                                          
                                          
                                          $
                                          1,118Supplemental DisclosuresNon-Cash
      Investing and Financing ActivitiesConversion
      of debentures to common stock (net)
                                          
                                          $
                                          483,004
                                          
                                          
                                          $
                                          965,309
                                          
                                          
                                          $
                                          3,274,943Cash
      paid for interest
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          124,336
                                          
                                          
                                          $
                                          232,326Stock
      issued to satisfy payable
                                          
                                          
                                          323,663
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          323,63Debenture
      issued to satisfy payable
                                          
                                          
                                          100,703
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          100,703





See notes
to financial statements


F-6





3DIcon
CORPORATION


(A
Development Stage Company)





NOTES TO
FINANCIAL STATEMENTS





Years
ended December 31, 2009 and 2008


and
period from Inception (January 1, 2001) to December 31, 2009





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 has therefore been in default of the
Sponsored Research Agreement (“SRA”) (see Note 4) and the Newton, O’Connor,
Turner, Ketchum 10% convertible debenture (see Note 6).  A revised
payment schedule was agreed to with the University of Oklahoma (“University”) in
October 2008, March 2009 and in and August 2009.  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
University immediately and without notice or opportunity to cure, may terminate
any or all existing agreements between the parties, including but not limited
to, the Exclusive License Agreement, the Facilities/Resources Use Agreement, and
the 2009 SRAs.  The termination of the license agreement with the
University would forfeit the Company’s rights to any or all intellectual
property licensed to it under the terminated license.


F-7





The
Company has realized a cumulative net loss of $12,576,914 for the period from
inception (January 1, 2001) to December 31, 2009, and a net loss of $1,566,835
and $3,611,550 for the years ended December 31, 2009 and 2008,
respectively.





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





Management
plans to fund the future operations of the Company with existing cash of $1,118,
grants and investor funding. Under the terms of the Golden State debentures,
Golden State may advance an additional $378,787.  The additional
advance would be available if the Company filed a registration statement;
however, the Company does not plan to file such registration statement. In
addition, pursuant to the 4.75% Convertible Debenture due in 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.  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 State from converting on the 4.75%
Debenture or exercising warrants if such conversion or exercise would cause
Golden State’s holdings to exceed 9.99% of the Company’s issued and outstanding
common stock.  Subject to the Beneficial Ownership Limitations, Golden
State is required to convert $3,000 of the 4.75% Convertible Debenture and
exercise 30,000 warrants per month.  Based upon our current stock price,
our issued and outstanding shares as of December 31, 2009 and ignoring the
impact of the Beneficial Ownership Limitations, the Company may receive up to
$3,924,000 in funding from Golden State as a result of warrant exercises during
the year ended December 31, 2010.





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)





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 AccountingStandards Codification (“ASC”) No. 718, Compensation-Stock
Compensation.  The Company recognizes expenses for employee
services received in exchange for stock based compensation based 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 ASC No. 718.


F-8


Income
taxes





The
Company accounts for income taxes in accordance withAccounting Standards Codification
(“ASC”) No. 740, Income Taxes.This standardrequires 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, this standard 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 ASC No. 260,
Earnings Per
Share.  Under the provisions of this standard, 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 is 36,271,123 and 21,930,644 for the years ended December 31,
2009 and 2008, respectively.





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:





Subsequent Events–In May 2009,
the FASB issued new standards which establish the accounting for and disclosure
of events that occur after the balance sheet date but before financial
statements are issued. In particular, the new standards set forth:





·
            the period after the balance
      sheet date during which management of a reporting entity should evaluate
      events or transactions that may occur for potential recognition or
      disclosure in the financial statements (through the date that the
      financial statements are issued or are available to be
      issued);  F-9





·
            the circumstances under which an
      entity should recognize events or transactions occurring after the balance
      sheet date in its financial statements;
  and


·
            the disclosures that an entity
      should make about events or transactions that occurred after the balance
      sheet date.





The
Company adopted the new standard as of June 30, 2009. See Note 13.





Fair Value Measurements– The FASB’s fair value measurement standards establish a single
authoritative definition of fair value based upon the assumptions market
participants would use when pricing an asset or liability and create a fair
value hierarchy that prioritizes the information used to develop those
assumptions. The standards require additional disclosures, including disclosures
of fair value measurements by level within the fair value hierarchy. As of
January 1, 2008, we adopted the new standards as they related to our financial
assets and liabilities.   Adoption did not have a significant
impact on our financial statements.  As of January 1, 2009, we adopted
the new standards as they related to our nonfinancial assets and
liabilities.  In April 2009, the FASB issued additional guidance
clarifying the application of US GAAP for fair value measurements in the current
economic environment, modifying the recognition of other-than-temporary
impairments of debt securities, and requiring companies to disclose the fair
value of financial instruments in interim periods. The revised guidance is
effective for interim and annual periods ending after June 15, 2009. The
guidance:




·
            describes how to determine the
      fair value of assets and liabilities in the current economic environment
      and reemphasizes that the objective of a fair value measurement remains
      the price that would be received to sell an asset or paid to transfer a
      liability at the measurement
date.


·
            modifies the requirements for
      recognizing other-than-temporarily impaired debt securities and
      significantly changes the existing impairment model for such securities.
      It also modifies the presentation of other-than-temporary impairment
      losses and increases the frequency of and expands already required
      disclosures about other-than-temporary impairment for debt and equity
      securities.


·
            requires disclosures of the fair
      value of financial instruments in interim financial statements, the method
      or methods and significant assumptions used to estimate the fair value of
      financial instruments, and a discussion of changes, if any, in the method
      or methods and significant assumptions during the
      period.





We
adopted this new guidance for the quarter ended June 30, 2009. Adoption had no
impact on our financial position or results of operations.





Accounting Standards Update–
In August 2009, the FASB issued Accounting Standards Update (Update) 2009-5,
“Measuring Liabilities at Fair Value” in order to provide further guidance on
how to measure the fair value of a liability. The Update clarifies that, in
circumstances in which a quoted price in an active market for the identical
liability is not available, a reporting entity is required to measure fair value
using one or more prescribed techniques. We adopted the new guidance as of
October 1, 2009. Adoption had no impact on our financial position or results of
operations.





Accounting Standards
Codification–In June 2009, the FASB established the FASB Accounting Standards
Codification (Codification), which officially commenced July 1, 2009, to become
the source of authoritative US GAAP recognized by the FASB to be applied by
nongovernmental entities.  Rules and interpretive releases of the SEC
under authority of federal securities laws are also sources of authoritative US
GAAP for SEC registrants.  Generally, the Codification is not expected
to change US GAAP.  All other accounting literature excluded from the
Codification will be considered nonauthoritative.  The Codification is
effective for financial statements issued for interim and annual periods ending
after September 15, 2009.  We adopted the new standards for our
quarter ending September 30, 2009.  All references to authoritative
accounting literature are now referenced in accordance with the
Codification.




F-10


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  (“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  3-Dimensional Display
Technologies".  The agreement was modified in November 2006 to provide
additional funding, and extended the term of the agreement through March 31,
2009.





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 the University 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 would be paid in nine monthly base
installments from October 31, 2008 to June 30, 2009 of amounts ranging from
$35,000 to $101,132 leaving a remaining balance after the base payments of
$290,000.  In addition to the monthly base payments, the Company
agreed to make additional payments on the $861,131 arrearages based on a formula
of 50% of funding in excess of $120,000 plus the base monthly
payment.  In the event funding 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 market value, but not less than $0.068 per share.




The Company was unable to meet the
revised payment schedule and on May 18, 2009 the University agreed to revise the
payment terms.  Under the terms of the revised base payments schedule,
the arrearages scheduled to be paid in nine monthly base installments from
October 31, 2008 to June 30, 2009 of amounts ranging from $35,000 to $101,132
were deferred to a monthly payment schedule of July 2009 through February 2010.
(See Note 13, Subsequent Events)




Should
the Company fail to report revenue or fail to timely pay any of the quarterly
amounts owed above, the University immediately and without notice or opportunity
to cure, may terminate any or all existing agreements between the parties,
including but not limited to, the Exclusive License Agreement, the
Facilities/Resources Use Agreement, and the 2009 SRAs.  The
termination of the license agreement with the University would forfeit the
Company’s rights to any or all intellectual property licensed to it under the
terminated license.





During
the years ended December 31, 2009 and 2008, the Company charged operations
$64,084 and $953,802, respectively, pursuant to the SRA.  At December
31, 2009, the Company owed the University $5,638 in aggregate monthly payments
and $525,481 on the arrearages under the revised payment terms.


F-11


Note
5 – Consulting Agreements





Concordia Financial
Group.





The
Company entered into a one year Independent Consulting Agreement with Concordia
effective November 1, 2007.  Under the terms of the agreement
Concordia will serve as liaison to Golden State Investors, Inc. and provide
business strategy services by assisting 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, 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.  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.  The Company paid Concordia
$189,000 and $204,750 for services during the periods ended December 31, 2009
and 2008, respectively under the terms of the agreement.  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 was charged to operations in the year ended December
31, 2008.





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.   During 2008 IDI was paid $113,000 under the terms of the
consulting agreement.  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.  The agreement trial commitment period terminated October 1, 2008 and
is automatically extended on a month-to-month basis unless terminated by either
party.   The Company paid LIB $3,000 and $36,000 for services
during the periods ended December 31, 2009 and 2008, respectively under the
terms of the agreement.  The contract was terminated February 1,
2009.


F-12


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.  Corporate Profile LLC was paid $6,000 and
$36,000 for the years ending December 31, 2009 and December 31, 2008
respectively under the terms of the agreement.  The contract was
terminated February 1, 2009.





Note
6 – Debentures Payable





Debentures
payable consist of the following:





December 31,
                                2009
                              
                              
                              December 31,
                                2008Senior
      Convertible Debentures:9.75%
      Debenture due July 31, 2009
                              
                              $
                              -
                              
                              
                              $
                              364,0006.25%
      Debenture due 2010
                              
                              
                              463,558
                              
                              
                              
                              578,6014.75%
      Debentures due 2011
                              
                              
                              93,168
                              
                              
                              
                              96,67810.0%
      Debenture due 2010
                              
                              
                              100,703
                              
                              
                              
                              -Total
      Debentures
                              
                              
                              657,429
                              
                              
                              
                              1,039,279Less
      - Current Maturities
                              
                              
                              (564,261
                              )
                              
                              
                              (364,000
                              )Long-term
      Debentures
                              
                              $
                              93,168
                              
                              
                              $
                              675,279





Securities
Purchase Agreement





6.25%
Convertible Debenture due 2009





The
Company entered into a Securities Purchase Agreement (“Purchase Agreement”) with
Golden State Investors, Inc. (“Golden State”) on November 3, 2006 for the sale
of a 6.25% convertible debenture in the principal amount of $1,250,000 (the
“First Debenture”). The Company filed a registration statement with the SEC for
the resale of the common stock underlying the debenture, which became effective
on July 3, 2007.  Under the terms of the Purchase Agreement, Golden
State 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. Golden State
provided the Company with an additional $312,500 of debenture funding 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 advanced during 2007 and 2008.  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 July 3, 2007 $478,529 of the
debenture was converted into 2,097,406 shares of common stock at prices ranging
from $0.20 to $0.26 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.





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 State with written notice that it desired to require Golden
State to purchase the second debenture.





On
November 21, 2007, the Company issued and sold a second convertible note in the
principal amount of $1,250,000 to Golden State (the “Second
Debenture”).  Pursuant to the terms of the Second Debenture, Golden
State 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 State’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 Company filed a registration statement covering the
shares to be issued upon conversion of the debenture.  Included in the
registration statement were 2.25 million shares issuable upon conversion of the
balance of the First Debenture and 4.25 million shares issuable on the Second
Debenture based on 2007 market prices and assuming full conversion of the
convertible debentures The registration statement became effective on January 4,
2008.


F-13


Golden
State advanced $125,000 on the second $1.25 million debenture on November 9,
2007.  Additionally, Golden State 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
State has funded an aggregate of $871,213 on the Second Debenture. Golden State
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.  At various dates during 2009, $115,043, of the debenture
was converted into 12,124,828 shares of common stock at prices ranging from
$0.007 to $0.01 based on the formula in the convertible debenture. Shares
remaining in escrow and reported as outstanding at December 31, 2009 total
4,310,449.





The
conversion price for the $1.25 million Second Debenture is the lesser of (i)
$2.00 or (ii) 90% of the average of the five lowest volume weighted average
prices during the twenty (20) trading days prior to the
conversion.  If Golden State elects to convert a portion of the
debenture and, on the day that the election is made, the volume weighted average
price is below $0.75, the Company shall have the right to prepay that portion of
the debenture that Golden State elected to convert, plus any accrued and unpaid
interest, at 135% of such amount.





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 State shall have the right to immediately sell the pledged shares in
satisfaction of any amounts of principal and interest owing under the Second
Debenture.





In
addition to standard default provisions concerning timeliness of payments,
delivery and notifications, the Second Debenture will be in default if the
common stock of the Company trades at a price per share of $0.21 or lower,
regardless of whether the trading price subsequently is higher than $0.21 per
share.  The trading price was at $0.21 or lower on several occasions
during and subsequent to 2009. On each of the occasions Golden State, by
separate letter agreements, agreed that the occasions did not constitute a
default and thereby waived the default provision for those occasions
only.  (See Note 13 -Subsequent Events)





4.75%
Convertible Debenture due 2011





On
November 3, 2006, the Company also issued to Golden State a 4.75% convertible
debenture in a principal amount of $100,000, due 2011, and warrants to buy
1,000,000 shares of the common stock at an exercise price of $10.90 per
share.   Under the terms of the debenture, warrants are exercised
in an amount equal to ten times the dollar amount of the debenture
conversion.  During 2007 Golden State 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 State 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 2009, Golden State converted $3,510 of the $100,000
debenture into 35,622,803 shares of common stock at $0.002 per share, exercised
warrants to purchase 35,100 shares of common stock at $10.90 per share and the
Company received $382,590 from the exercise of the warrants.  During
2009 Golden State advanced $240,000 against future exercises of warrants and
applied $4,181 of accrued interest due on the debenture to the advance account
of which $336,170 was applied to the exercise of warrants leaving $48,511 of
unapplied advances.


F-14





The
conversion price for the 4.75% $100,000 convertible debenture is the lesser of
(i) $4.00 or (ii) 80% of the average of the five lowest volume weighted average
prices during the twenty (20) trading days prior to the
conversion.  If Golden State elects to convert a portion of the
debenture and, on the day that the election is made, the volume weighted average
price is below $0.75, the Company shall have the right to prepay that portion of
the debenture that Golden State elected to convert, plus any accrued and unpaid
interest, at 135% of such amount.





9.75%
Convertible due July 31, 2009





To obtain
funding for ongoing operations, the Company entered into a Bridge Financing
Agreement with Golden State 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 State 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. At
various dates during 2009 the remaining balance $364,000 of the debenture was
converted into 29,703,510 shares of common stock at prices ranging from $0.029
to $0.009 per common share based on the formula in the convertible
debenture.





Newton,
O’Connor, Turner & Ketchum 10% convertible debenture due September 30,
2009




On May
22, 2009, the Company issued to Newton, O’Connor, Turner & Ketchum, a
professional corporation (“NOTK”) and the legal counsel to the Company, a 10%
convertible debenture in a principal amount of $100,703, due September 30, 2009,
and warrants to purchase 4,378,394 shares of the common stock at an exercise
price of $0.09 per share through September 30, 2010 and an exercise price of
$0.18 per share through September 30, 2014.  The Company was indebted to
NOTK for legal services performed for the Company and reimbursement of expenses
in rendition of those services for the period ended December 31, 2008. The
debenture and the warrants were issued in settlement of the
indebtedness.  The debentures and warrants were recorded at their pro
rata fair values in relation to the proceeds received.  The warrants
were valued at $13,504. The difference between the pro rata fair value and face
value of the debenture was charged to operations in 2009.  (See note
13)





The
estimated fair value of the warrants was determined using the Black-Scholes
option pricing model. The expected dividend yield of $-0- is based on the
average annual dividend yield as of the grant date. Expected volatility of
160.73% is based on the historical volatility of the stock since July 25, 2007,
the day the Company began trading on the Over-The-Counter Bulletin Board. The
risk-free interest rate of 2.23% is based on the U.S. Treasury Constant
Maturity rates as of the grant date. The expected life of the warrant of two
years is based on historical exercise behavior and expected future
experience.





Note
7 – Common Stock and Paid-In Capital





Pursuant
to a special meeting of the stockholders held on August 21, 2009, the
stockholders approved the filing of an amendment to the Company’s Articles of
Incorporation to increase the Company’s authorized shares of common stock from
250,000,000 shares, par value $0.0002, to 750,000,000 shares, par value
$0.0002.





At
various dates throughout 2008, the Company issued 1,320,000 shares of its common
stock pursuant to the exercise of the warrants by non-employees.  The
Company received $66,000 in cash. The remaining warrants totaling 80,000 were
cancelled in 2008.


F-15





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
$.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 terminated 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.





Pursuant
to Subscription Agreements entered into during March and April 2009, the Company
sold 999,999 shares of the Company’s common stock at a per share price of $.03
per share and warrants to purchase 500,000 shares of its common stock at a price
of $.10 per share from closing for a period of twelve months; $.15 per share for
the second subsequent twelve months or; $0.20 per share for the subsequent
twelve months to three accredited individuals. The Company received $30,000 in
cash from the sale. The 500,000 warrants are valued at $6,579 and the
999,999 shares are valued at $23,421.  The warrants terminate three
years from date of issue in 2012.





The
estimated fair value of the warrants was determined using the Black-Scholes
option pricing model. The expected dividend yield of $-0- is based on the
average annual dividend yield as of the grant date. Expected volatility of 178%
is based on the historical volatility of the stock since July 25, 2007, the day
the Company began trading on the Over-the-counter Bulletin Board. The
risk-free interest rate of 1.38% is based on the U.S. Treasury Constant
Maturity rates as of the grant date. The expected life of the option of five
years is based on historical exercise behavior and expected future
experience.





On June
18, 2009 the Company entered into Subscription Agreements with two of its
directors pursuant to which the two directors purchased 17,941,176 shares of the
Company’s common stock at a price per share equal to 50% of the average closing
price during the five days prior to June 18, 2009 (0.0068 per share) for
aggregate proceeds of $122,000.





Pursuant
to Subscription Agreements entered into during October and November 2009, the
Company sold 1,666,666 shares of the Company’s common stock at a per share price
of $.03 per share and warrants to purchase 16,666,666 shares of its common stock
at a price of $.10 per share from closing for a period of twelve months; $.25
per share for the second subsequent twelve months and; $0.50 per share for the
third subsequent twelve months to two accredited individuals. The Company
received $50,000 in cash from the sale.  The 16,666,666 warrants are
valued at $35,225 and the 1,666,666 shares are valued at $14,775.  The
warrants terminate three years from date of issue in 2012.





The
estimated fair value of the options was determined using the Black-Scholes
option pricing model. The expected dividend yield of $-0- is based on the
average annual dividend yield as of the grant date. Expected volatility of 178%
is based on the historical volatility of the stock since July 25, 2007, the day
the Company began trading on the Over-the-counter Bulletin Board. The
risk-free interest rate of 1.38% is based on the U.S. Treasury Constant
Maturity rates as of the grant date. The expected life of the option of five
years is based on historical exercise behavior and expected future
experience.





As of
December 31, 2009, there are warrants outstanding to purchase 257,839 shares of
common stock at a price of $.25 per share from September 30, 2009 through August
31, 2010, warrants outstanding to purchase 500,000 shares of common stock at a
price of $.10 per share through various dates in March and April 2010; $.15 per
share through various dates in March and April 2011; or $.20 per share that
expire on various dates in March and April 2012, warrants to purchase 16,666,666
shares of its common stock at a price of $.10 per share from closing for a
period of twelve months; $.25 per share for the second subsequent twelve months
and; $0.50 per share for the third subsequent twelve months and, warrants to
purchase 4,378,394 shares of common stock at a price of $0.09 per share through
September 30, 2010 and $0.18 per share that expire on September 30,
2014.  Additionally, Golden State has warrants outstanding to purchase
931,683 shares of common stock at a price of $10.90 per share which expire
November 2, 2011.


F-16





Common
stock and options issued for services





During
2009 and 2008 shares of common stock totaling 68,506,130 and 4,598,973
respectively were issued for consulting services for which the Company
recognized $538,354 and $313,800 of expense
respectively.  Additionally, shares of common stock totaling 8,310,128
shares were issued to Golden State for accrued interest due December 1, 2009 for
which the Company recognized $36,501 in expense and reduced accrued interest
payable for $6,808.  Shares totaling 4,264,706 were issued during 2009
to the University of Oklahoma under the repayment terms of the SRA (see Note 4)
which were valued at $290,000.  Shares totaling 7,000,000 were issued
to consultant for previous services provided to the Company for which the
accounts payable liability was reduced by $33,662.





Options
granted





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 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.





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 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.





Employment
Agreement - On April 29, 2007 the Company entered into an Employment Agreement
with Vivek Bhaman (the “Bhaman Agreement”) and an Amended Employment Agreement
on October 12, 2008 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 continued
until his resignation February 3, 2009.  The following represents the
material terms of the Bhaman Agreement:





·
            Annual salary of
      $250,000;





·
            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


F-17


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 was increased $50,000
to $300,000 annually.  The Company had the option to defer payment of
any or all of the increase until April 30, 2009. Under the deferment, the
Company elected to pay the $50,000 increase with shares of the Company’s common
stock at a 25% discount to the market price of the Company’s common
stock.  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. 125,000 of the 5,000,000 options had vested at the time of his
resignation pursuant to the terms of the Amendment.





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.  Of the five million options,
one hundred twenty-five thousand were vested upon resignation, valued at $6,348
and was charged to operations in 2009 under the terms of the Employment
Agreement.





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 was unable to pay Mr. Bhaman timely for the
remaining $41,667 compensation under his original Employment Contract and
therefore agreed to compensate Mr. Bhaman an additional $58,333 in consideration
under the terms of a Separation Agreement and Release signed April 29,
2009.  Additionally under the terms of the employment agreements, Mr.
Bhaman had vested a total of 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.   Mr. Bhaman
continued to serve as a Director of the Company through his elected term ending
May 17, 2009.





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.  Under the terms of the
consulting agreement, Mr. Welsh is to be compensated $2,000 per week in either
cash or stock.  In the event stock is issued for the compensation, it
will be issued at 50% of the average of the five previous closing
prices.  During the year ended December 31, 2009, $83,000 was charged
to operations and Mr. Welsh was issued 7,119,231 shares in consideration of
$61,000 at an average price of $0.009 per share in consideration of his services
and was due an additional $22,000 at December 31, 2009.





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:


F-18





·
            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.





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.





On March
25, 2009 the Company entered into a Resolution Agreement with Dr. Hakki Refai
(the “Resolution  Agreement”) pursuant to which the Company agreed to
remove the time constraints on the technical milestone achievements whereby the
issuance of the options will be solely upon the achievement of the
milestones.





The
following summary reflects warrant and option activity for the year ended
December 31, 2009





Attached
                        Warrants
                      
                      
                      Golden State
                        Warrants
                      
                      
                      OptionsOutstanding
      December 31, 2008
                      
                      
                      852,321
                      
                      
                      
                      966,783
                      
                      
                      
                      20,111,540Granted
                      
                      
                      21,545,061
                      
                      
                      
                      -
                      
                      
                      
                      -Exercised
                      
                      
                      
                      
                      
                      
                      (35,100
                      )
                      
                      
                      -Cancelled
                      
                      
                      (594,482
                      )
                      
                      
                      -
                      
                      
                      
                      (6,575,000
                      )Outstanding
      December 31, 2009
                      
                      
                      21,802,900
                      
                      
                      
                      931,683
                      
                      
                      
                      13,536,540





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.


F-19





The
estimated fair value of options for common stock granted was determined using
the Black-Scholes option pricing model.  The expected dividend yield
is based on the average annual dividend yield as of the grant date. Expected
volatility is based on the historical volatility of our stock. The risk-free
interest rate is based on the U.S. Treasury Constant Maturity rates as of
the grant date. The expected life of the option is based on historical exercise
behavior and expected future experience.





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 the 3DIcon Corporation 2007 Incentive Stock Plan
(the "2007 Plan"). The 2007 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 2007 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 2007 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, (15,000,000) shares.





Incentive
stock plan amended





The
Company’s 2007 Plan was amended in February 2009 to increase the number of
shares available to be issued upon exercise of outstanding options and
warrants.  Originally 8,000,000 shares were included in the 2007
Plan.  The February amendment increased the available shares by
27,000,000 shares to 35,000,000 shares.  Shares totaling
30,191,027, 598,973 and, 210,000  were issued from the amended 2007
Plan during the years ended December 31, 2009, 2008, and 2007, respectively ,
for services rendered to the Company. There are currently no shares available
for issuance under the amended 2007 Plan.





In
September 2009 the Company established the 3DIcon Corporation 2009 Incentive
Stock Plan (the "2009 Plan").   The total number of shares of stock
which may be purchased or granted directly by options, stock awards or
restricted stock purchase offers, or purchased indirectly through exercise of
options granted under the 2009 Plan shall not exceed 50,737,115
shares.  The shares are included in a registration statement filed
September 23, 2009.  Shares totaling36,315,103 were issued
from the Plan during the year ended December 31, 2009 for services rendered to
the Company There are 14,422,022 shares available under the plan at December 31,
2009 (See Note 13).




F-20





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, 2009, minimum future lease payments to be paid annually under the three year
non-cancellable operating lease for office space are as follows:





2010
                      
                      $
                      27,5702011
                      
                      $
                      11,575Total
                      
                      $
                      39,145





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. 
The Company received $35,139 from the grant during 2009.  The Company
received approval for our no cost extension request for the first year of the
contract. With the new modification, the first year ends on April 30, 2010.
Funding beyond April 30, 2010  is contingent upon satisfactory
performance evaluation and the availability of funds.




Note
11 – Income Taxes




At
December 31, 2009 and 2008, the Company had accumulated net operating losses of
approximately $10,900,000 and $9,335,000, 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,
                          
                          
                          December 31,2009
                          
                          
                          2008Loss
      carry forward amount
                          
                          $
                          10,900,000
                          
                          
                          $
                          9,335,000Effective
      tax rate
                          
                          
                          38
                          %
                          
                          
                          38
                          %Deferred
      tax asset
                          
                          
                          4,142,000
                          
                          
                          
                          3,547,300Less
      valuation allowance
                          
                          
                          (4,142,000
                          )
                          
                          
                          (3,547,000
                          )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 through 2008. John O’Connor, a director of
3DIcon, is the Chairman of Newton, O’Connor, Turner & Ketchum. During the
years ended December 31, 2009 and 2008, the Company incurred legal fees to
Newton, O’Connor, Turner & Ketchum in the amount of $41,509 and $135,440
respectively.





The
Company has fee income of $25,000 during 2008 with a company affiliated by
common ownership.


F-21


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, 2009 and subsequent to December 31, 2009.  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, 2009 Golden State converted $975 of the 4.75% convertible
debenture into 29,310,581 shares of common stock at $0.0002 per share and
exercised 9,750 warrants at $10.90 per share for $106,275 under the terms of the
securities purchase agreements.




Newton, O'Connor, Turner & Ketchum 10%
convertible debenture due September 30, 2009




On March 1, 2010, Newton, O'Connor, Turner &
Ketchum agreed to extend the due date of their 10% debenture to March 31, 2010
in consideration for one million (1,000,000) shares of common stock.  The
shares were valued at 50% of the average of the previous five day closing price,
which was $0.003 per share totaling $3,000 and will be charged to operations in
March 2010.





Common
stock and paid in capital





Concordia
was issued 22,550,810 shares of common stock in payment of $63,000 for December,
January and February services under the consulting agreement.  James
N. Welsh, President, was issued 10,250,895 shares of common stock in payment of
$30,000 for September through December services under the consulting
agreement.  Dr. Hakki Refai was issued 1,500,000 shares valued at
$0.02 per share in payment of accrued salary of $30,000.  Additionally
common shares totaling 5,000,000 were issued to vendors in payment of $9,650 for
services.





Sponsored
Research Agreement (SRA)





On
February 19, 2010 OU agreed to modify the repayment plan to retire the
outstanding debt of $525,481. Under the terms of the modified repayment plan the
Company agreed to make payments to the University, not less than quarterly, in
an amount equal to 22.5% of any funding received by the Company. Eligible
funding shall include all revenues, investments in the Company, funding from
current sources or other funding, provided, however, that grants or other
similar funding with specific allocation to designated research and development
projects shall be excluded from such calculation. The quarterly payments shall
be made within thirty (30) days of the end of each calendar quarter. The first
quarterly payment is due to the University on April 30, 2010. The Company shall
provide its financial statements to the University upon completion and
submission to the SEC at the end of each quarter. These repayment terms shall
remain in effect until the outstanding debt is retired. The University has the
right at its sole discretion to request an independent audit of the Company’s
financial statement the cost of which shall be borne solely by the
Company.





Incentive
Stock Plans





Shares
totaling14,422,022 were
issued from the amended 2009 Plan subsequent to December 31, 2009 for services
rendered to the Company. There are currently no shares available for issuance
under the 2009 Plan. In February the Company established the 3DIcon Corporation
2010 Incentive Stock Plan (the "2010 Plan"). The total number of shares of stock
which may be purchased or granted directly by options, stock awards or
restricted stock purchase offers, or purchased indirectly through exercise of
options granted under the 2010 Plan shall not exceed seventy-five million
(75,000,000) shares. The shares are included in a registration statement filed
February 26, 2010. Shares totaling21,550,895 were issued from
the 2010 Plan subsequent to December 31, 2009 for services rendered to the
Company. There are currently 53,449,105 shares available for issuance under the
2010 Plan.




F-22