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 OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2008
 
o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION   FILE NUMBER ________________________________
  
3DICON CORPORATION
(Name of small business issuer in its charter)
 
OKLAHOMA
 
73-1479206
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)

6804 South Canton Avenue, Suite 150, Tulsa, OK 74136
(Address of principal executive offices) (Zip Code)

Issuer's telephone Number: (918) 494-0505
 
Securities registered under Section 12(b) of the Exchange Act: None.
 
Securities registered under Section 12(g) of the Exchange Act: None
 
Indicate by check mark is the issuer is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act
Yes o   No x

Indicate by check if the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.
Yes o   No x
 
Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x   No o
 
Indicate by check if no disclosure of delinquent filers in response to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-K.  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 Large accelerated filer o
Accelerated filer o
Non-accelerated filer o
Smaller reporting company x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o   No x

 
 

 

State issuer's revenues for its most recent fiscal year: $42,900
 
The aggregate market value of the voting and non-voting common equity held by non-affiliates, computed by reference to the average bid and asked price of such common equity as of June 30,  2008 was $7,723,618.
 
As of March 31, 2009, the issuer had 175,505,294 outstanding shares of Common Stock.
 
DOCUMENTS INCORPORATED BY REFERENCE: NONE

 
2

 

TABLE OF CONTENTS

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

 
3

 

PART I  

ITEM 1. BUSINESS.

Corporate History

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

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

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

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

In the fourth quarter of 2007 we announced the release of our first product, “Pixel Precision”. This is a companion software application to the DMD Discovery ™ line of products manufactured by Texas Instruments®.
 
The Oklahoma Center for the Advancement of Science and Technology (“OCAST”) approved our application for funding of a matching grant titled 800 Million Voxels Volumetric Display, on November 19, 2008.  The two-year matching grant, totaling $299,932, has a start date of January 1, 2009.  The award is for a maximum of $149,940 for 2009 and the remainder for 2010.  Funding beyond 2009 is contingent upon satisfactory performance evaluation and the availability of funds.

General Overview

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

Overview of Development of 3D Technology

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

 
4

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

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

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

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

 
·
I – Swept Volume Displays (we have successfully achieved the initial demonstration and proof of technology for this approach)
 
·
II – Static Volumetric Displays (Under Glass)
 
·
III – Stacked Volume Displays- We also have investigated the technologies for developing innovative Stacked Volumetric Displays. We are currently in the process of evaluating the commercialization potential of such technologies.
 
·
IV – Free Space Volumetric Displays: Our ultimate goal is to develop Free Space Volumetric Displays. Our future plans include the possible use of magnetic nano particles to achieve this among others.

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

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

 
5

 
 
University of Oklahoma - Sponsored Research Agreement

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

 
·
Literature review to determine key leading edge research in relevant areas;
 
·
Review of related commercial products to identify technological approaches and potential competitors and/or partners;
 
·
Preliminary patent review;
 
·
Recommendations for product research and development directions.

On July 15, 2005, we entered into a Sponsored Research Agreement with the University, which expired on January 14, 2007. Under this agreement, the University conducted a research project entitled "Investigation of 3-Dimensional Display Technologies" and the Company agreed to pay the University $453,584 at various dates from November 10, 2005 through July 15, 2006 to cover the costs of the research. The goals for this research were as follows:

 
·
To produce patentable and/or copyrightable intellectual property;
 
·
To produce proof-of-concept technology that demonstrates the viability of the intellectual property;
 
·
To assess opportunities for manufacturing technological products in Oklahoma;
 
·
Investigate magnetic nanospheres (MNs) for use as a projection media;
 
·
Develop a control platform to actively distribute (MNs) in an unbounded volumetric space;
 
·
Investigate the doping of MNs with fluorescent materials for light emission at different wavelengths, i.e., develop fluorescent MNs (FMNs);
 
·
Evaluate other display medium technologies for potential strategic partnerships;
 
·
Evaluate the most appropriate (from a cost-to-benefit standpoint) solid-state light sources for projection applications;
 
·
Develop software for displaying ideal 3D images;
 
·
Investigate software interface issues with other image capture technologies.

The final payment of $226,792, due on July 15, 2006, was not paid. On November 1, 2006 the Sponsored Research Agreement was modified to provide $125,259 additional funding, extend the term of the agreement through March 31, 2007, and revise the payment schedule to combine the July 15, 2005 remaining balance due of $226,792 with the additional funding into a revised payment schedule. Under the terms of the agreement, we agreed to pay the combined remaining obligation of $352,051 in four equal monthly installments of $88,013 beginning on December 31, 2006 through March 31, 2007.

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

On October 31, 2008 OU agreed to revise the payment terms under the SRA from a fixed monthly payment to a reimbursable cost payment basis effective September 1, 2008.  As of September 30, 2008 we had a remaining obligation under the previous SRA payment schedule of $2,665,818 which includes monthly payments due for December 2007 through August 31, 2008 of $861,131.  The $1,804,687 balance of the remaining scheduled payment obligation was cancelled.  Under the terms of the revised base payments schedule, the arrearages will be paid in nine monthly base installments from October 31, 2008 to June 30, 2009 of amounts ranging from $35,000 to $101,132 leaving a remaining balance after the base payments of $290,000.  In addition to the monthly base payments, we agreed to make additional payments on the $861,131 arrearages based on a formula of 50% of funding in excess of $120,000 plus the base monthly payment.  In the event funding does not provide for any additional payments, the remaining balance would be $290,000, which OU agreed to accept 4,264,707 shares of the our common stock based on the October 14, 2008 market price as reported on the OTC Bulletin Board of $0.068 per share as payment on June 30, 2009.  We have the option to repurchase the shares at $0.068 per share by September 30, 2009 or at market value, but not less than $0.068 per share, if the repurchase occurs after September 30, 2009.

 
6

 

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

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

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

Marketing and Product Development

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

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

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

 
·
Digital Displays: Large Format, Retail Advertising;
 
·
Air Traffic Systems, Traffic Planning; Town Planning;
 
·
Pharmaceutical and Bio-Medical Research;
 
·
Homeland Defense and Security;
 
·
Architectural plans and virtual structures;
 
·
Interactive entertainment;
 
·
Geo-Spatial Applications;
 
·
Casino Gaming; and
 
·
Military Applications.

 
7

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

 
·
Lightspace DepthCube™ from LightSpace Technologies, Inc.
 
·
Felix 3D Displays
 
·
Perspecta Spatial 3D Display from Actuality Systems
 
·
3D Technology Laboratories

Employees

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

ITEM 1A. RISK FACTORS.

Risks Relating to Our Business:

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

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

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

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

Therefore, the fact that our success depends almost entirely on the efforts of others to develop technologically challenging new technologies that will be in a form readily licensable and/or marketable and acceptable to a given market, and our ability to then successfully market such technologies, makes an investment in the Company much more risky than a comparable investment in other companies that may have a broad range of existing, proven products and/or technologies.
 
 
8

 
 
We may not be able to compete successfully.

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

The technologies being developed may not gain market acceptance.

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

In addition, the development efforts of the University of Oklahoma on the 3D technology are subject to unanticipated delays, expenses or technical or other problems, as well as the possible insufficiency of funding to complete development. Our success will depend upon the ultimate products and technologies meeting acceptable cost and performance criteria, and upon their timely introduction into the marketplace. The proposed products and technologies may never be successfully developed, and even if developed, they may not satisfactorily perform the functions for which they are designed. Additionally, these may not meet applicable price or performance objectives. Unanticipated technical or other problems may occur which would result in increased costs or material delays in their development or commercialization.
 
If we are unable to successfully retain existing management and recruit qualified personnel having experience in our business, we may not be able to continue our operations.
 
Our success depends to a significant extent upon the continued services of Martin Keating, our Chairman and Chief Executive Officer, and James N. Welsh, our Interim Chief Operating Officer and Interim Treasurer. Our success also depends on our ability to attract and retain other key executive officers.

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

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

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

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

 
9

 

Risks Relating to Our Current Financing Arrangements:

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

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

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

The conversion price of our convertible debentures is continuously adjustable, which could require us 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 $96,678 and market prices 25%, 50% and 75% below the market price as of March 27, 2009 of $0.026.

% Below
Market
 
Price Per
Share
   
Effective
Conversion
Price
   
Number
of Shares
Issuable(1)
   
% of
Outstanding
Stock
 
25%
  $ 0.01925     $ 0.01540       689,590,363       433 %
50%
  $ 0.01283     $ 0.01026       1,035,541,992       650 %
75%
  $ 0.00642     $ 0.00513       2,072,050,764       1,300 %

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

The following is an example of the amount of shares of our common stock that are issuable, upon conversion of our 9 ¾% $700,000 convertible debentures (excluding accrued interest) issued to Golden State on June 8, 2007, based on the remaining principal balance of $364,000 and market prices 25%, 50% and 75% below the market price as of March 27, 2009 of $0.026.

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

The following is an example of the amount of shares of our common stock that are issuable, upon conversion of the $1.25 million convertible debenture issued to Golden State on January 15, 2008 (the “Second Debenture”) (excluding accrued interest), based on the principal balance of $578,601 and market prices 25%, 50% and 75% below the market price as of March 27, 2009 of $0.026.
 
10


         
Effective
 
Number
 
% of
 
% Below
 
Price Per
   
Conversion
 
of Shares
 
Outstanding
 
Market
 
Share
   
Price
 
Issuable
 
Stock
 
25%
  $ 0.01925     $ 0.01732       33,405,577       21 %
50%
  $ 0.01283     $ 0.01155       50,108,366       32 %
75%
  $ 0.00642     $ 0.00577       100,216,732       64 %

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

The continuously adjustable conversion price feature of our convertible debentures 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.

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

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

If we are unable to issue shares of common stock upon conversion of the convertible debenture as a result of our inability to increase our authorized shares of common stock or as a result of any other reason, we are required to pay penalties to Golden State, redeem the convertible debenture at 130% and/or compensate Golden State for any buy-in that it is required to make.
 
If we are unable to issue shares of common stock upon conversion of the convertible debenture as a result of our inability to increase our authorized shares of common stock or as a result of any other reason, we are required to:
 
 
·
pay late payments to Golden State for late issuance of common stock upon conversion of the convertible debenture, in the amount of $100 per business day after the delivery date for each $10,000 of convertible debenture principal amount being converted or redeemed;
 
·
in the event we are prohibited from issuing common stock, or fail to timely deliver common stock on a delivery date, or upon the occurrence of an event of default, then at the election of Golden State, we must pay to Golden State a sum of money determined by multiplying up to the outstanding principal amount of the convertible debenture designated by Golden State by 130%, together with accrued but unpaid interest thereon; and

 
11

 

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

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

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

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

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

 
·
that a broker or dealer approve a person's account for transactions in penny stocks; and
 
·
the broker or dealer receives from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

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

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

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

 
·
sets forth the basis on which the broker or dealer made the suitability determination; and
 
·
that the broker or dealer received a signed, written agreement from the investor prior to the transaction.

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

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

 
12

 

ITEM 1B. UNRESOLVED STAFF COMMENTS.

N/A

ITEM 2. PROPERTIES.

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

ITEM 3. LEGAL PROCEEDINGS.

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

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
 
None

PART II

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

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

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

   
High
   
Low
 
First Quarter ended March 31, 2009
  $ 0.05       0.02  

 
  $ 0.32     $ 0.04  
Year Ended December 31, 2008
 
High
   
Low
 
First Quarter ended March 31, 2008
  $ 0.32     $ 0.20  
Second Quarter ended June 30, 2008
  $ 0.24     $ 0.08  
Third Quarter ended September 30, 2008
  $ 0.18     $ 0.05  
Fourth Quarter ended December 31, 2008
  $ 0.15     $ 0.04  
 
Year Ended December 31, 2007   
High
   
Low
 
First Quarter ended March 31, 2007
  $ 0.70     $ 0.39  
Second Quarter ended June 30, 2007
  $ 0.72     $ 0.32  
Third Quarter ended September 30, 2007 (1)
  $ 1.05     $ 0.31  
Fourth Quarter ended December 31, 2007
  $ 0.59     $ 0.28  

(1)
The Company’s Shares were traded on the Pink Sheets until July 25, 2007 and began trading on the OTC Bulletin Board thereafter.
 
 
13

 

Holders

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

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

Equity Compensation Plan Information

The following table sets forth the information indicated with respect to our compensation plans under which our common stock is authorized for issuance.
 
Plan category
 
Number of
 securities
 to be issued
upon
exercise of
outstanding
options,
warrants and
rights
   
Weighted average
exercise price of
outstanding options,
warrants and
rights
   
Number of
securities
remaining
available for
future issuance
under equity
compensation
plans (excluding
securities
reflected in
column (a)
 
   
(a)
   
(b)
   
(c)
 
Equity compensation plans approved by security holders
    8,000,000     $ 0.64       3,191,027  
                         
Equity compensation plans not approved by security holders
                       
      27,000,000               27,000,000  
Total
    35,000,000     $ 0.64       30,191,027  
 
Recent Sales of Unregistered Securities

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

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

ITEM 6. SELECTED FINANCIAL DATA

N/A

 
14

 

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

Forward –Looking Statements
 
The information in this annual report contains forward-looking statements. All statements other than statements of historical fact made in this annual report are forward looking. In particular, the statements herein regarding industry prospects and future results of operations or financial position are forward-looking statements. Forward-looking statements reflect management's current expectations and are inherently uncertain. Our actual results may differ significantly from management's expectations.
 
The following discussion and analysis should be read in conjunction with the consolidated financial statements, included herewith. This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment of our management.

Plan of Operation

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

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

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

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

We continue to build intellectual property through the University of Oklahoma, to which 3DIcon has exclusive rights and engage in product research and development both directly related to the display as well as by-product technologies.

Current Activities and Operations
 
Currently the Company is pursuing the research and development of volumetric 3-D display technology through the Sponsored Research Agreement (“SRA”) with the University of Oklahoma (“OU”). Our efforts are focused on multiple technological approaches, two of which are being further developed into proof-of-concept demonstration systems:

Static Volume Display Technology: Also known as CSpace™, 3DIcon has produced the first non-mechanical, 360-degree, multi-view, high-resolution volumetric display. A prototype was demonstrated during September 2008, when a 3D image was created within a proprietary volumetric media (also called projection space or image matrix).

 
15

 

This technology incorporates existing and rapidly evolving image projection technologies, such as DLP®/DMD technology from Texas Instruments, allowing 3DIcon to pursue full-color, full-motion 3D visualization, in harmony with 3DIcon’s vision for product development.

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

We have also released a software product called Pixel Precision™. The current version of the software is 1.0. We plan to continue to pursue this market and provide versions and variations of this software. The plans include enhancements to the functionality as well as variants to address additional opportunities.

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

Progress on Research and Development Activities

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

Under the aegis of the SRA, the University has filed the following Patent Applications. The Utility Patents have been converted and consolidated from the previously filed Provisional Applications.

Description of Provisional Patent Application as
Filed
 
Description of Utility Patent Application Filing (Combined)
 
Date of Filing
Swept Volume Display
 
Swept Volume Display
 
September 2006
         
Colorful Translation Light Surface 3D Display
 
Light Surface Display for
 
April 2007
Colorful Translation 3D Volumetric Display
 
Rendering Three-Dimensional
   
3D Light Surface Display
 
Image (Combined)
   
         
Volumetric Liquid Crystal Display
 
Volumetric Liquid Crystal Display
 
April 2007
   
for Rendering Three-Dimensional
   
   
Image (Combined)
   
         
Computer System Interaction with DMD
 
Computer System Interaction with DMD
 
January 2008
Virtual Moving Screen for Rendering Three Dimensional Image
 
Utility Patent Application to be filed
 
January 2008
(Provisional)
Optically Controlled Light Emitting…and System for Optically Written 2D and 3D Displays
 
Utility Patent Application to be filed
 
April 2008
(Provisional)

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

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

I. Static Volumetric Display (CSpace™)

 
·
Continue work on development of blue and red up-conversion materials.
 
·
Synthesize near-transparent projection media suitable for dispersion of display materials.
 
·
Investigate the use of additional technologies for development of image space that enhance the commercialization of the technology. Dr. Hakki Refai has begun collaboration with parties outside of OU to explore alternate material development strategies.

 
16

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

 
·
Continue to generate revenue from Pixel Precision™ the DMD Control Software for DMD Application development markets
 
·
Develop next generation of Pixel Precision™ software for controlling multiple DMDs as well as for controlling the next generation of the DMD-Discovery™ series
 
·
Release Pixel Precision™ for the Discovery 4000 series (D4000). This will be done after TI/DLi develop and provide the API for D4000.

III. New 3D Technologies

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

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

Revenue

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

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

The cost of sales for Pixel Precision™ of $8,435 includes commissions payable to the exclusive distributor DLi. This is an outright obligation and not a license.  We have no other significant cost of sales.  Shared marketing support costs are charged to operations when incurred.

We expect sales of Pixel Precision™ to the installed and active user base of the earlier D1100 and D3000 systems in the near term and as companion product sales to D4000 systems.  We expect that the revenue from this product to contribute to the operating expenses (General & Administrative, R&D, Interest Payments) but do not expect the revenue generated in 2009 to cover the operating expenses.

Research and Development Expenses

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

General and Administrative Expenses

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

Interest Expense

Interest expense for the year ended December 31, 2008 was $122,291 as compared to $88,583 for the year ended December 31, 2007. The increase in interest expense resulted from increase in the amounts outstanding on our convertible debentures during the periods.
 
 
17

 

Financial Condition, Liquidity and Capital Resources
 
Management remains focused on controlling cash expenses. We recognize our limited cash resources and plan our expenses accordingly. We intend to leverage stock-for-services wherever possible. The operating budget consists of the following expenses:

 
·
Research and development expenses pursuant to our Sponsored Research Agreement with the University of Oklahoma. This includes development of an initial demonstrable prototype and a second prototype for static volume technology
 
·
Acceleration of R&D through increased research personnel as well as other research agencies
 
·
General and Administrative expenses: salaries, insurance, investor related expenses, rent; travel, website, etc.
 
·
Hiring executive officers for technology, operations and finance
 
·
Development, support and operational costs related to Pixel Precision™ software
 
·
Professional fees for accounting and audit; legal services for securities and financing; patent research and protection

Our independent registered public accountants, in their audit report accompanying our financial statements for the year ended December 31, 2008, expressed substantial doubt about our ability to continue as a going concern due to our status as a development stage organization with insufficient revenues to fund development and operating expenses.

We had net cash of $48,400 at December 31, 2008.
We had negative working capital of $1,642,297 at December 31, 2008.

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

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

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

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

Our ability to fund the operations of the Company is highly dependent on the underlying stock price of the Company. As a result of our stock price being around the 52 week low mark and trending downward, our ability to raise cash is restricted.

Pursuant to the 4.75% Convertible Debenture due in 2011, beginning in November 2007, Golden State is obligated to submit conversion notices in an amount such that Golden State receives 1% of the outstanding shares of the Company every calendar quarter for a period of one year.  In connection with each conversion, Golden State is expected to exercise warrants equal to 10 times the amount of principal converted.  The warrants are exercisable at $10.90 per share.  Beginning in November 2008, Golden State is required to convert $3,000 of the 4.75% Convertible Debenture and exercise 30,000 warrants per month.  During the year ended December 31, 2008, we received $297,145 in funding from Golden State as a result of the 4.75% Convertible Debenture warrants exercised.

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

 
18

 

On October 31, 2008, OU agreed to revise the payment terms under the SRA from a fixed monthly payment to a reimbursable cost payment basis effective September 1, 2008. As of September 30, 2008, the Company had a remaining obligation under the previous SRA payment schedule of $2,665,818 which includes monthly payments due for December 2007 through August 31, 2008 of $861,131.  The $1,804,687 balance of the remaining scheduled payment obligation was cancelled.  Under the terms of the revised base payments schedule, the arrearages will be paid in nine monthly base installments from October 31, 2008 to June 30, 2009 of amounts ranging from $35,000 to $101,132 leaving a remaining balance after the base payments of $290,000.  In addition to the monthly base payments, the Company agreed to make additional payments on the $861,131 arrearages based on a formula of 50% of funding in excess of $120,000 plus the base monthly payment.  In the event funding does not provide for any additional payments, the remaining balance would be $290,000,  for which OU agreed to accept 4,264,707 shares of the Company’s common stock based on the October 14, 2008 market price as reported on the OTC Bulletin Board of $0.068 per share as payment on June 30, 2009.  The Company has the option to repurchase the shares at $0.068 per share by September 30, 2009, or at market value, but not less than $0.068 per share, if the repurchase occurs after September 30, 2009.

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

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

Off Balance Sheet Arrangements
 
3DIcon does not engage in any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, and results of operations, liquidity or capital expenditures.

Significant Accounting Policies
 
Research and Development Costs

Statement of Accounting Standards No. 2, “Accounting for Research and Development Costs,” requires that all research and development costs be expensed as incurred. Until we have developed a commercial product, all costs incurred in connection with the Sponsored Research Agreement with the University of Oklahoma, as well as all other research and development costs incurred, will be expensed. After a commercial product has been developed, we will report costs incurred in producing products for sale as assets, but we will continue to expense costs incurred for further product research and development activities.

Stock-Based Compensation

Since its inception 3DIcon has used its common stock or warrants to purchase its common stock as a means of compensating our employees and consultants. Statement of Financial Accounting Standards No. 123 “Accounting for Stock Based Compensation” and No. 123(R), “Share Based Payments,” requires us to estimate the value of securities used for compensation and to charge such amounts to expense over the periods benefited.
 
The estimated fair value at date of grant of options for our common stock is estimated using the Black-Scholes option pricing model, as follows: 
The expected dividend yield is based on the average annual dividend yield as of the grant date. Expected volatility is based on the historical volatility of our stock.  The risk-free interest rate is based on the U.S. Treasury Constant Maturity rates as of the grant date. The expected life of the option is based on historical exercise behavior and expected future experience.

 
19

 

Subsequent Events:

Debentures payable

In accordance with the terms of the Second Debenture an event of default occurs if the common stock of the Company trades at a price per share of $0.21 or lower. The trading price was at $0.21 or lower on several occasions during the year ended December 31, 2008.  On each of the occasions Golden State, by separate letter agreements, agreed that the occasions did not constitute a default and thereby waived the default provision for the occasions.

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

Common stock and paid in capital

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

President’s resignation and interim President appointed

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

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

REOFFER PROSPECTUS 2,851,852 SHARES OF COMMON STOCK
 
The March 2009 reoffer prospectus relates to the sale of 2,851,852 shares of our common stock, $.0002 par value per share, that may be offered and resold from time to time by certain eligible participants and existing selling shareholders identified in the prospectus for their own account issuable upon exercise of currently outstanding stock options which have been issued pursuant to the unanimous written consent of our Board of Directors and pursuant to the employment agreement of one of our officers. It is anticipated that the selling shareholders will offer common shares for sale at prevailing prices on the OTC Bulletin Board on the date of sale. We will receive no part of the proceeds from sales made under this reoffer prospectus. The selling shareholders will bear all sales commissions and similar expenses. Any other expenses incurred by us in connection with the registration and offering and not borne by the selling shareholders will be borne by us.
 
The shares of common stock will be issued pursuant to awards granted by the unanimous written consent of our Board of Directors and pursuant to the employment agreement of certain officers and will be "control securities" under the Securities Act before their sale under this reoffer prospectus. This reoffer prospectus has been prepared for the purposes of registering the common shares under the Securities Act to allow for future sales by selling shareholders on a continuous or delayed basis to the public without restriction.

 
20

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

N/A

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

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

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

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

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

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

ITEM 9A. CONTROLS AND PROCEDURES.
 
Management’s Report on Internal Control over Financial Reporting
 
Evaluation of Disclosure Controls and Procedures. Under the supervision and with the participation of our management, including our President, Chief Financial Officer and Secretary, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")) as of the end of the period covered by this report. Based upon that evaluation, our President, Chief Financial Officer and Secretary concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective such that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and (ii) accumulated and communicated to our management to allow timely decisions regarding disclosure. A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud,  if any, within a company have been detected.

 
21

 

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

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

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

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

Changes.  During the most recent quarter ended December 31, 2008, there has been no change in our internal control over  financial  reporting  (as defined in Rule  13a-15(f) and 15d-15(f) under the Exchange Act)  that has materially affected,  or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION.
 
None.

PART III  
  
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.  
  
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
 
The following table sets forth the names and ages of the members of our Board of Directors and our executive officers and the positions held by each. There are no family relationships among any of our Directors and Executive Officers.

Name
 
Age
 
Position
Martin Keating
 
66
 
Chief Executive Officer, Acting Chief Financial Officer and  Director
James N. Welsh
 
66
 
President, Chief Operating Officer and Treasurer
Dr. Hakki Refai       Chief Technology Officer
Vivek Bhaman
 
41
 
Director
Lawrence Field
 
48
 
Director
John O’Connor
 
53
 
Director
Victor F. Keen
 
66
 
Director
 
Martin Keating – Chief Executive Officer and Director

Martin Keating has been Chief Executive Officer and a director of 3DIcon since 1998. Previously, Mr. Keating organized and managed private placement limited partnerships, ranging from real estate development to motion picture financing. Mr. Keating was also general counsel and director of investor relations for CIS Technologies, then a NASDAQ company. Mr. Keating is an attorney licensed to practice law in Oklahoma and Texas.
 
 
22

 

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

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

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

Lawrence Field - Director

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

John O’ Connor - Director

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

Victor F. Keen F. Director

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

Audit Committee

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

Compensation Committee

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

Nomination and Corporate Governance Committee

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

 
23

 

Code of Ethics

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

Director Compensation

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

The estimated fair market value of the options was determined using the Black-Scholes option pricing model.  The expected dividend yield of $-0- is based on the average annual dividend yield as of the grant date. Expected volatility of 124.4% is based on the historical volatility of our stock. The risk-free interest rate of 3.0% is based on the U.S. Treasury Constant Maturity rates as of the grant date. The expected life of the option of two years is based on historical exercise behavior and expected future experience.

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

The estimated fair market value of the options was determined using the Black-Scholes option pricing model. The expected dividend yield of $-0- is based on the average annual dividend yield as of the grant date. Expected volatility of 71.33% is based on the historical volatility of the stock since July 25, 2007, the day the Company began trading on the Over-the-counter Bulletin Board. The risk-free interest rate of 3.0% is based on the U.S. Treasury Constant Maturity rates as of the grant date. The expected life of the option of five years is based on historical exercise behavior and expected future experience.

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

The estimated fair market value of the options was determined using the Black-Scholes option pricing model. The expected dividend yield of $-0- is based on the average annual dividend yield as of the grant date. Expected volatility of 125.20% is based on the historical volatility of the stock since July 25, 2007, the day the Company began trading on the Over-the-counter Bulletin Board. The risk-free interest rate of 2.0% is based on the U.S. Treasury Constant Maturity rates as of the grant date. The expected life of the option of five years is based on historical exercise behavior and expected future experience.

 
24

 

Employment Agreement

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

 
·
base salary of $250,000;
 
·
bonus for calendar year 2007 equal to 25% of the base salary, payable on or before March 15, 2008 (the “Payment Date”) if the Company books revenue of $500,000 for calendar year 2007 and Bhaman is an employee of the Company on the Payment Date;
 
·
bonus beyond calendar year 2007 shall be in the discretion of the Board of Directors;
 
·
participation in employee benefit plans and programs of the Company; and
 
·
reimbursement of reasonable expenses

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

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

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

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

 
25

 

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

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

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

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

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

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

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

The estimated fair market value of the options was determined using the Black-Scholes option pricing model. The expected dividend yield of $-0- is based on the average annual dividend yield as of the grant date. Expected volatility of 95.50% is based on the historical volatility of the stock since July 25, 2007, the day the Company began trading on the Over-the-counter Bulletin Board. The risk-free interest rate of 2.0% is based on the U.S. Treasury Constant Maturity rates as of the grant date. The expected life of the option of five years is based on historical exercise behavior and expected future experience.  Operations were charged $100,867 in 2008 for the vesting of the options cost of Mr. Refai under the terms of the Employment Agreement.

ITEM 11. EXECUTIVE COMPENSATION.
 
The following table sets forth all compensation earned in respect of our Chief Executive Officer and those individuals who received compensation in excess of $100,000 per year, collectively referred to as the named executive officers, for our last three completed fiscal years.

 
26

 


SUMMARY COMPENSATION TABLE
 
The following information is furnished for the years ended December 31, 2008, December 31, 2007 and 2006 for our principal executive officer and the two most highly compensated officers other than our principal executive officer who was serving as such at the end of our last completed fiscal year:
Name &
Principal
Position
 
Year
 
Salary
($)
   
Bonus
($)
   
Stock
Awards
($)
   
Option
Awards
($)
   
Non-Equity
Incentive Plan
Compensation ($)
   
Change in Pension
Value and Non-
Qualified Deferred
Compensation
Earnings
($)
   
All Other
Compensation
($)
   
Total
($)
 
Martin Keating
CEO
 
2008
    144,000                                            
   
2007
    144,000       -       -       -       -       -       -       144,000  
   
2006
    90,000       -       -       -       -       -       -       90,000  
                                                                     
Vivek Bhaman,
Pres. and COO
 
2008
    250,000                       50,782                       33,333       334,115  
   
2007
    166,666                                                       166,666  
 
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
 
The following table sets forth with respect to grants of options to purchase our common stock to the name executive officers as of December 31, 2008
Name
 
Number of
Securities
Underlying
Unexercised
Options
#
Exercisable
   
Number of
Securities
Underlying
Unexercised
Options
#
Un-exercisable
   
Equity
Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
#
   
Option
Exercise
Price
$
 
Option
Expiration
Date
 
Number
of
Shares
or Units
of Stock
That
Have
Not
Vested
#
   
Market
Value
of
Shares
or Units
of Stock
That
have not
vested
 $
   
Equity
Incentive
Plan
Awards: Number of
Unearned
Shares Units
or Other
Rights That
Have Not
Vested #
   
Equity
Incentive
Plan
Awards
Market or
Payout
Value of
Unearned
Shares Units
or Other
Rights That
have not
Vested
 $
 
Martin
Keating
    500,000                     $ 0.40  
April 26, 2009
                               
                                                                   
Vivek Bhaman
    1,425,000       5,075,000               (1 )
April 30, 2010
                               
 
(1) Mr. Bhaman’s options are exercisable as follows: 100,000 at $0.80 per share, 200,000 at $1.00 per share and 1,125,000 at $0.055 per share

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
 
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
The following table provides information about shares of common stock beneficially owned as of
March 31, 2009 by:

 
·
each director;
 
·
each officer named in the summary compensation table;
 
·
each person owning of record or known by us, based on information provided to us by the persons named below, to own beneficially at least 5% of our common stock; and
 
·
all directors and executive officers as a group.

 
27

 

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

*           Less than 1%

 
(1)
Unless otherwise indicated, the address of each beneficial owner listed below is c/o 3DIcon Corporation, 6804 South Canton Avenue, Suite 150, Tulsa, Oklahoma 74136.    
 
(2)
Applicable percentage ownership is based on 175,505,294 shares of common stock outstanding as of March 31, 2009. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Options to acquire shares of common stock that are currently exercisable or exercisable within 60 days of March 31 2009 are deemed to be beneficially owned by the person holding such securities for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage.
 
(3)
Represents (i) 37,987,452 shares of common stock owned by Mr. Keating and (ii) 4,230,022 shares of common stock owned by Mr. Keating’s wife, Judy Keating.  
 
(4)
Represents (i) 2,146,660 shares of common stock owned by Regent Private Capital of which Mr. Lawrence Field is a principal and managing director. Mr. Field disclaims any beneficial ownership of these shares and (ii) 1,625,000 stock options.
 
(5)
Represents (i) 110,000 shares of common stock owned by Mr. O’Connor and (ii) 100,000 shares of common stock owned by the John M. and Lucia D. O’Connor Revocable Living Trust over which Mr. O’Connor has voting and investment control.
 
(6)
Represents 1,425,000 stock options.

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

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

3DIcon has engaged the law firm of Newton, O’Connor, Turner & Ketchum as its outside corporate counsel since 2005. John O’Connor, a director of 3DIcon, is the Chairman of Newton, O’Connor, Turner & Ketchum.

Director Independence

Of the members of the Company’s board of directors, Victor F. Keen and Lawrence Field are considered to be independent under the listing standards of the Rules of NASDAQ set forth in the NASDAQ Manual.
 
 
28

 
 
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
 
Audit Fees 
 
The aggregate fees billed by our principal accountant for the audit of our annual financial statements, review of financial statements included in the quarterly reports and other fees that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for the fiscal years ended December 31, 2008 and 2007 were $57,000 and $59,385.
 
Tax Fees 
There were no other fees billed for compliance, tax advice and tax planning, by our principal accountant for the fiscal year ended December 31, 2008 and 2007.

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

ITEM 15. EXHIBITS.

3.1
 
Certificate of Incorporation (1)
     
3.2
 
Bylaws (1)
     
3.3
 
Amended Certificate of Incorporation (1)
     
3.4
 
Amended Certificate of Incorporation (1)
     
3.5
 
Amended Certificate of Incorporation (1)
     
10.1
 
Securities Purchase Agreement (1)
     
10.2
 
Amendment No. 1 to Securities Purchase Agreement and Debenture (1)
     
10.3
 
Registration Rights Agreement dated November 3, 2006(1)
     
10.4
 
$100,000 convertible debenture (1)
     
10.5
 
$1.25 million convertible debenture dated November 3, 2006 (1)
     
10.6
 
Common Stock Purchase Warrant (1)
     
10.7
 
Sponsored Research Agreement by and between 3DIcon Corporation and the Board of Regents of the University of Oklahoma (1)
     
10.8
 
Sponsored Research Agreement Modification No. 1 by and between 3DIcon Corporation and the Board of Regents of the University of Oklahoma (1)
     
10.9
 
Sponsored Research Agreement Modification No. 2 by and between 3DIcon Corporation and the Board of Regents of the University of Oklahoma (1)
     
10.10
 
Amendment No. 2 to Securities Purchase Agreement, Debentures, and Registration Rights Agreement (2)
     
10.11
 
Securities Purchase Agreement dated June 11, 2007 (2)
     
10.12
 
$700,000 Convertible Debenture (2)
     
10.13
 
$1.25 million convertible debenture dated November 21, 2007
     
10.14
 
Registration Rights Agreement dated November 21, 2007
     
23.1   Consent of HoganTaylor LLP
 
29

 
31.1
 
Certification by Chief Executive Officer, required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act
     
31.2
 
Certification by Chief Financial Officer, required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act
     
32.1
 
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 Code
     
32.2
 
Certification by Chief Financial Officer, required by Rule 13a-14(b) or Rule 15d-14(b) of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code
 
(1)
 
Incorporated by reference to Form SB-2 as filed on December 15, 2006 (File No. 333-139420) and subsequently withdrawn on February 5, 2007
(2)
 
Incorporated by reference to Form SB-2 as filed on June 14, 2007 (File No. 333-143761)

 
30

 

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

 
3DICON CORPORATION
     
 Date: April 15, 2009
 
/s/Martin Keating
 
Name: Martin Keating
 
Title:   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
 
DATE
           
By:
/s/ Martin Keating
 
Chief Executive Officer, Director (Principal Executive and Accounting Officer)
 
April 15, 2009
 
Martin Keating
       
           
           
By:  
/s/ Vivek Bhaman
 
Director
 
April 15, 2009
 
Vivek Bhaman
       
           
           
By:
/s/ Lawrence Field
 
Director
 
April 15, 2009
 
Lawrence Field
       
           
By: 
/s/ John O’ Connor
 
Director
 
April 15, 2009
 
John O’Connor
       
           
By: 
/s/ Victor Keen
 
Director
 
April 15, 2009
 
Victor F. Keen
       

 
31

 

 
3DIcon CORPORATION
(A Development Stage Company)

December 31, 2008 and 2007

CONTENTS

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

 
32

 
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Stockholders of
3DIcon Corporation

We have audited the accompanying balance sheets of 3DIcon Corporation (a Development Stage Company) as of December 31, 2008 and 2007, 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, 2008.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.  Tullius Taylor Sartain & Sartain LLP audited the financial statements of 3DIcon Corporation as of and for the year ended December 31, 2007 and for the period from inception (January 1, 2001) to December 31, 2007 and merged with Hogan & Slovacek P.C. to form HoganTaylor LLP effective January 7, 2009.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements 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, 2008 and 2007, 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, 2008, in conformity with U.S. generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company is a development stage organization having insufficient revenues and capital commitments to fund the development of its planned products. This raises substantial doubt about the Company's ability to continue as a going concern. Management's plan in regard to these matters is also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

We were not engaged to examine management’s assertion about the effectiveness of 3DIcon Corporation’s internal controls over financial reporting as of December 31, 2008, included in the accompanying Management’s Report on Internal Control over Financial Reporting and, accordingly, we do not express an opinion thereon.


/s/ HoganTaylor LLP


Tulsa, Oklahoma
April 15, 2009
 
 
F-1

 

3DIcon CORPORATION
(A Development Stage Company)

BALANCE SHEETS

December 31, 2008 and 2007

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

See notes to financial statements

 
F-2

 

3DIcon CORPORATION
(A Development Stage Company)

STATEMENTS OF OPERATIONS

Years ended December 31, 2008 and 2007
and Period from Inception (January 1, 2001) to December 31, 2008


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

See notes to financial statements

 
F-3

 

3DIcon CORPORATION
(A Development Stage Company)

STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIENCY

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

               
Deficit
       
                     
Accumulated
       
   
Common Stock
   
Additional
   
During the
       
   
Shares
   
Par
Value
   
Paid-In
Capital
   
Development
Stage
   
Total
 
Balance, January 1, 2001 – as reorganized
    27,723,750     $ 27,724     $ 193,488     $ -     $ 221,212  
                                         
Adjustment to accrue compensation earned but not recorded
    -       -       -       (60,000 )     (60,000 )
Stock issued for services
    2,681,310       2,681       185,450       -       188,131  
Stock issued for cash
    728,500       729       72,121       -       72,850  
Net loss for the year
    -       -       -       (259,221 )     (259,221 )
Balance, December 31, 2001
    31,133,560       31,134       451,059       (319,221 )     162,972  
                                         
Adjustment to record compensation earned but not recorded
    -       -       -       (60,000 )     (60,000 )
Stock issued for services
    3,077,000       3,077       126,371       -       129,448  
Stock issued for cash
    1,479,000       1,479       146,421       -       147,900  
Net loss for the year
    -       -       -       (267,887 )     (267,887 )
Balance, December 31, 2002
    35,689,560       35,690       723,851       (647,108 )     112,433  
                                         
Adjustment to record compensation earned but not recorded
    -       -       -       (90,000 )     (90,000 )
Stock issued for services
    15,347,000       15,347       -       -       15,347  
Stock issued for cash
    1,380,000       1,380       33,620       -       35,000  
Reverse split 1:10
    (47,174,904 )     -       -       -       -  
Par value $0.0001 to $0.0002
    -       (51,369 )     51,369       -       -  
Net loss for the year
    -       -       -       (51,851 )     (51,851 )
Balance, December 31, 2003
    5,241,656       1,048       808,840       (788,959 )     20,929  
                                         
Additional Founders shares issued
    25,000,000       5,000       (5,000 )     -       -  
Stock issued for services
    24,036,000       4,807       71,682       -       76,489  
Stock issued for cash
    360,000       72       28,736       -       28,808  
Warrants issued to purchase common stock at $.025
    -       -       18,900       -       18,900  
Warrants issued to purchase common stock at $.05
    -       -       42,292       -       42,292  
Stock warrants exercised
    2,100,000       420       60,580       -       61,000  
Net loss for the year
    -       -       -       (617,875 )     (617,875 )
Balance, December 31, 2004
    56,737,656       11,347       1,026,030       (1,406,834 )     (369,457 )
                                         
Stock issued for services
    5,850,000       1,170       25,201       -       26,371  
Stock issued to settle liabilities
    5,000,000       1,000       99,000       -       100,000  
Stock issued for cash
    1,100,000       220       72,080       -       72,300  
Warrants issued to purchase common stock at $.025
    -       -       62,300       -       62,300  
Warrants issued to purchase common stock at $.05
    -       -       140,400       -       140,400  
Stock warrants exercised
    5,260,000       1,052       172,948       -       174,000  
Net loss for the year
    -       -       -       (592,811 )     (592,811 )
Balance, December 31, 2005
    73,947,656     $ 14,789     $ 1,597,959     $ (1,999,645 )   $ (386,897 )

See notes to financial statements

 
F-4

 

3DIcon CORPORATION
(A Development Stage Company)

STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIENCY

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

                     
Deficit
       
                     
Accumulated
       
   
Common
   
Stock
   
Additional
   
During the
       
   
Shares
   
Par Value
   
Paid-In
Capital
   
Development
Stage
   
Total
 
                               
Stock issued for services
    4,700,000       940       205,597       -       206,537  
Debentures converted
    3,000,000       600       149,400       -       150,000  
Stock issued for cash
    200,000       40       16,160       -       16,200  
Warrants issued to purchase common stock
    -       -       33,800       -       33,800  
Warrants converted to purchase common stock
    16,489,000       3,297       565,203       -       568,500  
Net loss for the year
    -       -       -       (1,469,888 )     (1,469,888 )
Balance, December 31, 2006
    98,327,656       19,666       2,568,119       (3,469,533 )     (881,748 )
Stock issued for services
    817,727       164       155,262       -       155,426  
Stock issued for interest
    767,026       153       38,198       -       38,351  
Stock based compensation
    -       -       1,274,666       -       1,274,666  
Debentures converted
    17,215,200       3,442       1,673,741       -       1,677,183  
Stock issued for cash
    1,188,960       238       191,898       -       192,136  
Options exercised
    222,707       45       (45 )     -       -  
Warrants issued to purchase common stock
    -       -       87,864       -       87,864  
Warrants converted to purchase common stock
    8,585,956       1,717       462,203       -       463,920  
Net loss for the year
    -       -       -       (3,928,996 )     (3,928,996 )
Balance, December 31, 2007
    127,125,232       25,425       6,451,906       (7,398,529 )     (921,198 )
Stock issued for cash
    515,677       103       24,897       -       25,000  
Warrants exercised
    1,347,261       269       362,425       -       362,694  
Stock based compensation
    -       -       654,199       -       654,199  
Debentures converted
    15,257,163       3,052       962,257       -       965,309  
Options exercised and escrowed shares
    8,671,460       1,734       (1,734 )     -       -  
Stocks issued for service
    4,598,973       920       312,880       -       313,800  
Net loss for the year
    -       -       -       (3,611,550 )     (3,611,550 )
Balance, December 31, 2008
    157,515,766     $ 31,503     $ 8,766,830     $ (11,010,079 )   $ (2,211,746 )

See notes to financial statements

 
F-5

 

3DIcon CORPORATION
(A Development Stage Company)

STATEMENTS OF CASH FLOWS

Years ended December 31, 2008 and 2007
and Period from Inception (January 1, 2001) to December 31, 2008

   
2008
   
2007
   
Inception to
December 31,
2008
 
Cash Flows from Operating Activities
                 
Net loss
  $ (3,611,550 )