10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the fiscal year ended December 31, 2013

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from _________ to _________

Commission File Number 0-31927

LASERLOCK TECHNOLOGIES, INC.

(Exact Name of Registrant as Specified in Its Charter)

Nevada	23-3023677
(State or Other Jurisdiction of Incorporation or Organization)	(IRS Employer Identification No.)

3112 M Street

 Washington, DC 20007 

 (Address of Principal Executive Offices) (Zip Code)

Registrant’s telephone number, including area code: (202) 400-3700

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.001 par value

     Indicate by check mark if the registrant is a well known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o or No þ

      Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o or No þ

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 þ or No o

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

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) 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-K 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. (Check one):

Large accelerated filer o Accelerated filer o Non-accelerated filer o (Do not check if a smaller reporting company) Smaller reporting company þ

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o or No þ

     The aggregate market value of the common stock held by non-affiliates of the registrant was $1,843,020 as of March 28, 2014 based on the price in which the common stock of the registrant was last sold as reported by the OTC Bulletin Board.  Shares of common stock held by each current executive officer and director and by each person who is known by the registrant to own 5% or more of the outstanding common stock have been excluded from this computation in that such persons may be deemed to be affiliates of the registrant. This determination of affiliate status is not a conclusive determination for other purposes.

     The registrant had 293,066,139 shares of common stock outstanding as of the close of business on March 28, 2014.

DOCUMENTS INCORPORATED BY REFERENCE

NONE

LASERLOCK TECHNOLOGIES, INC.

FORM 10-K ANNUAL REPORT

Year Ended December 31, 2013

		Page
PART I
Item 1.	Business	1
Item 1A.	Risk Factors	9
Item 1B.	Unresolved Staff Comments	9
Item 2.	Properties	9
Item 3.	Legal Proceedings	9
Item 4.	Mine Safety Disclosures	9
PART II
Item 5.	Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	10
Item 6.	Selected Financial Data	12
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	19
Item 8.	Financial Statements and Supplementary Data	19
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	19
Item 9A.	Controls and Procedures	19
Item 9B.	Other Information	20
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	21
Item 11.	Executive Compensation	25
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	27
Item 13.	Certain Relationships and Related Transactions, and Director Independence	28
Item 14.	Principal Accountant Fees and Services	28
PART IV
Item 15.	Exhibits and Financial Statement Schedules	30

PART I

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts included or incorporated by reference in this annual report on Form 10-K, including without limitation, statements regarding our future financial position, business strategy, budgets, projected revenues, projected costs and plans and objective of management for future operations, are forward-looking statements. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expects,” “intends,” “plans,” “projects,” “estimates,” “anticipates,” or “believes” or the negative thereof or any variation thereon or similar terminology or expressions.  We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are not guarantees and are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Important factors that could cause actual results to differ materially from our expectations include, but are not limited to:  our ability to raise additional capital, our limited revenues generated to date, our ability to attract and retain qualified personnel, the ability to successfully develop licensing programs and generate business, rapid technological change in relevant markets, changes in demand for current and future intellectual property rights, legislative, regulatory and competitive developments, intense competition with larger companies, general economic conditions, and other factors set forth described in “Item 7 — Management’s Discussions and Analysis of Financial Condition and Results of Operation” below.

All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the foregoing. Except as required by law, we assume no duty to update or revise our forward-looking statements.

ITEM 1.   BUSINESS.

General Development

LaserLock Technologies, Inc. (the “Company,” “LaserLock,” “we,” “us,” or “our”) was incorporated in Nevada on November 10, 1999.  Our principal offices are located at 3112 M Street, Washington, DC 20007, and our telephone number is (202) 400-3700.

We are a development stage company.

Following initial development and commercialization, the Company invested in developing new proprietary color shifting inks that it believed would allow it to penetrate broader markets and result in increased revenues. During the past fourteen years, the Company has refined its technologies and their applications, and now has what it believes to be one of the most cost effective and efficient authentication technologies available. Our most recent technology takes advantage of the new ubiquitous energy efficient fluorescent lighting to change the color of ink, resulting in numerous potential new applications ranging from credit cards to driver’s licenses, passports, stock certificates, clothing labels, currency, ID cards, and tax stamps. The technologies can also be used to protect DVDs, apparel, pharmaceuticals, and virtually any other physical product.

The identical compact fluorescent lighting is used in most color photocopiers and color scanners so that any document which incorporates the Company’s technology cannot be copied and/or reproduced on a color copier or color scanner.

We are a security technology company that delivers product and document authentication. We plan to develop and market technologies in a variety of applications in the security fields.

We believe that the technologies we own will have applications in various aspects of corporate security - from counterfeit identification to employee or customer monitoring. Potential applications of our technologies are available in different types of products and industries - e.g., gaming, apparel, tobacco, perfume, compact disks, pharmaceuticals, event and transportation tickets, driver’s licenses, insurance cards, passports, computer software, DVDs, and credit cards. We intend to generate sales through licenses of our technology or through direct sales of our technology to end-users.

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Overview

We have filed a total of five patent applications relating to our technology, which have all been issued. These patents seek to accomplish non-intrusive document and product authentication in order to reduce losses caused by unpermitted document reproduction or by product counterfeiting. The technologies involve the utilization of invisible or color shifting/changing inks, which are compatible with today’s printing machines. The inks may be used with certain printing systems such as offset, flexographic, silkscreen, gravure, and laser. Based upon the Company’s experience, we believe that the ink technologies may be incorporated into existing manufacturing processes.

Anti-Counterfeiting Technologies and Products

Recent developments in copying and printing technologies have made it easier to counterfeit a wide variety of documents and products. Currency, lottery tickets, gift certificates, credit cards, event and transportation tickets, casino slot tickets, and travelers’ checks are all susceptible to counterfeiting. We believe that losses from such counterfeiting have increased substantially with improvements in counterfeiting technology. Counterfeiting has long caused losses to manufacturers of brand name products, and we believe that these losses have increased as the counterfeiting of labeling and packaging has become easier.

We believe that our document authentication technologies may be useful to businesses desiring to authenticate a wide variety of printed materials and products. Our technologies include (1) a technology utilizing invisible ink that can be revealed by use of laser light for authentication purposes, (2) an inkjet ink technology, which allows invisible codes to be printed, and (3) a color shifting technology that is activated by certain types of lights. All of those technologies are intended to be substantially different than pen systems that are currently in the marketplace. Pen systems also rely on invisible ink that is activated by a special marker. If the item is an original and not an invisible print, then the ink will be activated and show a visible mark as a different color than on an illegitimate copy. We believe that our technologies are superior to the pen system technology because, in the case of its laser and color shifting technologies, it will not result in a permanent mark on the merchandise. Permanent marks generally lead to the disposal of the merchandise or its sale as a “second” rather than best-quality product. In the case of rubbed ink technology, no special tools are required to distinguish the counterfeit. Other possible variations of our laser based technology involve multiple color responses from a common laser, visible marks of one color that turn another color with a second laser, or visible and invisible marks that turn into a multicolored image. These technologies provide users with the ability to authenticate products and detect counterfeit documents. Applications include the authentication of documents having intrinsic value, such as currency, checks, travelers’ checks, gift certificates and event tickets, and the authentication of product labeling and packaging. When applied to product labeling and packaging, our technologies can be used to detect counterfeit products with labels and/or in packaging that do not contain the authenticating marks invisibly printed on the packaging or labels of legitimate products, as well as to combat product diversion (i.e., the sale of legitimate products through unauthorized distribution channels or in unauthorized markets). We believe that our technologies also could be used in a manner that permits manufacturers and distributors to track the movement of products from production to ultimate consumption when coupled with proprietary software.

We have focused on the widespread problem of counterfeiting in the gaming industry. We have incorporated our technology into traditional gaming accessories such as playing cards, casino chips, and dice as well as gaming-based machinery such as slot machines with cashless gaming systems. This is accomplished during the regular manufacturing and printing processes. Our products use ink that is incorporated into dice and casino chips that can be viewed with a laser to reveal the authenticity of the item. These covert authenticating technologies are also intended to be marketed to manufacturers of compact discs (“CDs”) to identify CDs produced by those manufacturers. We believe that this technology can provide CD manufacturers and publishers with a tool to combat the significant losses sustained as a result of illegal pirating and counterfeiting of data, music and videodiscs.

Industry Background

The U.S. is projected to remain the largest single consumer of security services and products in the world. One of the most important new areas of expansion is in the area of authentication, that is the act of confirming that some object--be it currency, passports, casino chips, credit cards, stock certificates, pharmaceuticals, stamps, identification cards or lottery tickets, to name just a few examples--is real and not a forgery.

With the advent of the digital age, including the color copier and other new technologies and templates available on the web, thieves and forgers have been able to make near identical copies of almost any printed item which has resulted in major financial losses to business and, importantly, has compromised security at critical installations.

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One particular problem is that criminal and civil penalties for forgery, fraud, and counterfeiting are relatively light, and many of those engaging in such activities are overseas and far from the reach of U.S. law enforcement. Thus, the affected industries have little choice other than to make their products more formidable, often with multiple layers of defense, adopting what is known as multifactor authentication strategies.

While some currency and credit cards have introduced holograms, seals, and embedded strips in order to add a level of protection, most such methodologies are expensive and, in some cases, time-consuming in the production process. In other instances, such as when printing cigarette tax stamps or hundreds of millions of pieces used in a popular restaurant chain’s contest game pieces, the authentication process must be extremely inexpensive and easy to use or it will be rejected. There is no commercially fiscal way, for example, that a hologram, costing around five cents a copy, can be introduced to verify tax stamps. More than half the national currencies in the world, moreover, lack even one layer of protection and can easily be counterfeited.

Authentication Industry Overview

Currency, passports, ID cards and other high-value documents have historically been subject to counterfeiting and forgery and continue to be today. In the last 15 years, the counterfeiting of goods has increased significantly on a global basis and has become a major threat to brand owners in most industries. Major brands, whether national or multinational, are being systematically attacked by sophisticated criminals and terrorists. Furthermore, counterfeiting and forgery have filtered down to the level of lone criminals due to the availability of digital scanning and copying technologies.

Losses by companies and governments from counterfeiting and diversion range from $500 billion to as high as $1 trillion annually. The International Anti-Counterfeiting Coalition (IACC) estimates losses of over $600 billion in 2010, up from $150 billion in 2008.

According to the 2012 Special 301 report prepared and released by United States Trade Representative Ambassador Mark Kirk, “Another notable trend involves shipping counterfeit products separately from labels and packaging to evade enforcement efforts. For example, infringers in Russia reportedly import unbranded products, package these products with unauthorized packaging materials bearing the right holder’s trademarks, and subsequently export the products to various countries.”

The industry is segmented into four general categories:

1. Optical technologies - use of light, i.e. holograms,

2. Electronic - magnetic strips and smart cards,

3. Biotechnologies - uses characteristics of biological proteins such as antibodies, enzymes and DNA, and

4. Chemical technologies - includes photochromic (or light-reactive) and thermochromic (or heat-reactive) inks.

We operate in the chemical technologies and security ink sectors of the industry. Products in this industry, when exposed to either heat or light change color, and when exposed again the color reverts to the original. Generally the effect is reversible as often as required. Inks have also been developed that are invisible to the human eye but which can be read by bar-code scanners. These have been used in the fragrance and pharmaceutical industries to authenticate products. Other reactive inks change color when brought into contact with specific substances, for example ink from a felt-tipped pen.

Recent developments in printing technologies have made it easier to counterfeit a wide variety of documents. Lottery tickets, gift certificates, event and transportation tickets and travelers’ checks are all susceptible to counterfeiting, and we believe that losses from such counterfeiting have increased substantially due to improvements in technology. Counterfeiting has long caused losses to manufacturers of brand name products, and we believe that these losses have increased as the counterfeiting of labeling and packaging has become easier.

In April 2010, the United States Government Accountability Office (“GAO”) issued a report to Congress entitled, “INTELLECTUAL PROPERTY Observations on Efforts to Quantify the Economic Effects of Counterfeit and Pirated Goods.” In that report the GAO estimated that the total economic value of intellectual property seizures by Customs and Border Protection during 2004 to 2009 was $1.12 billion. This was only based on imported goods and not goods produced in the United States.

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The Organization for Economic Cooperation and Development estimates that the value of counterfeiting is approximately $250 billion per year.  They also concluded that millions of consumers are risking their lives by using unsafe and ineffective counterfeit products unknowingly.

The mislabeling of foodstuffs caused thousands of Chinese babies to become sick in 2008 after drinking milk formula contaminated with melamine, which is normally used in plastics and banned from use in food.  The chemical is used as an additive to watered-down milk in order to appear higher in protein when tested.  This was reported by the United Nations Office on Drugs and Crime.

The Opportunity

As counterfeiting continues to increase and losses to manufacturers, and others having their intellectual property rights compromised, continue to escalate, we believe that those entities will seek better technologies to minimize their exposure. These technologies, however, must also be cost effective.

Our Solution

In the area of document and product authentication and serialization, we offer the following products:

1. RainbowSecure™

2. LaserXpose™

3. InkJetSecure™

4. SecurDox™

5. SecureLight™ and SecureLight+™

RainbowSecure™ Technology. This was the Company’s first technology to be patented. It combines an invisible ink with a proprietary tuned laser to enable counterfeit products to be exposed. It has been widely accepted in the gaming industry where the technology is used by casinos to protect their chips, dice, and playing cards from fraud. The technology also features a unique double layer of security which remains entirely covert at all times and provides licensees with additional protection. RainbowSecure™ is particularly well-suited to closed and controlled environments, such as casinos that want to verify transactions within a specific area, and are not interested in outside public verification. The technology is also appropriate for anti-counterfeit protection of tags and labels in the apparel industry, where it can be applied to a variety of different materials.

LaserXpose™ Technology. This is an innovative patented technology which combines overt and covert anti-counterfeiting technology in one printing ink. It offers customers the ability to have two layers of security within a product while not having to disclose the covert feature if desired. It also is easily applied on most commercial printing presses.

InkJetSecure™ Technology. This technology involves an innovative method for coating pigments so that they can be used in high speed continuous inkjet printers without clogging the submicron nozzles of the printers. The application for InkJetSecure™ is to invisibly mark and track individual products through the distribution chain where products are often illegally diverted. The technology is utilized in combination with proprietary tracking software.

SecurDox. The market for “Security on Demand” printing of documents with SecurDox on a standard desktop inkjet printer is large and growing. The Company’s patent for aqueous ink, which was issued in 2004, enables the printing of selective information invisibly on a desktop bubblejet printer, using a water-based secure inkjet cartridge. The information can then be activated on-demand.

SecureLight™ Technology. Following the development and commercialization of LaserLock, the Company invested in developing new proprietary color shifting inks that could penetrate broader markets and result in far greater revenues. During the past nine years, LaserLock has refined its technologies and their applications, and now has what is believed to be the easiest, most cost effective and efficient authentication technologies available in the world today. Our most recent technology, known as SecureLight™, takes advantage of the new ubiquitous energy efficient fluorescent lighting to change the color of ink, resulting in hundreds of new applications ranging from credit cards to driver’s licenses, passports, stock certificates, clothing labels, currency, ID cards, and tax stamps. The technologies can also be used to protect DVDs, apparel, pharmaceuticals, and virtually any other physical product.

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The identical compact fluorescent lighting is used in most color photocopiers and color scanners so that any document which incorporates SecureLight™ ink cannot be copied and/or reproduced on a color copier or color scanner.  In 2013, the Company filed for patent protection for an enhanced version of SecureLight technology, called SecureLight+TM.

Our digital solution is an iOS app that assists with Single Sign On and Username/Password management. It securely stores Username/Password combinations for multiple websites and allows the user to authenticate with a simple color, gesture swipe rather then having to remember which Username/Password is required for every website. The application is available in the Apple Online App Store and support iPod, iPhone and iPad.

The digital services is an enterprise, multi-factor, strong authentication solution that can also provided authenticated attributes like GeoLocation.  It combines 3 independent authentication factors – something you know (for instance a color, gesture swipe), something you have (for instance a smartphone) and something you are (for instance your facial geometry).  It can also determine Geolocation utilizing a number of mechanisms including GPS, cell tower triangulation and IP/WIFI address.  Because the services utilizes biometrics it completely eliminates the possibility that Users might share their authentication credentials. The combination of biometrics and geolocation provides extremely strong transactional evidence, making it nearly impossible for a end-user to refute having been part of a transaction.

Our Technology

We have attempted to achieve sufficient flexibility in our products and technologies so as to provide cost-effective solutions to a wide variety of counterfeiting problems. We intend to generate revenues primarily by collecting license fees from manufacturers who incorporate our technologies into their manufacturing processes and their products as well as through the sale of inks.

Our Intellectual Property

Intellectual property is important to our business.  Our current patent portfolio consists of five granted patents (one granted in 2002, two granted in 2004, one granted in 2005 and one granted in 2011). We believe that some of the patents that have been granted may have commercial application in the future but will require additional capital and/or a strategic partner in order to reach the potential markets. All of the patents related to the five inventions are described above.

We continue to develop new anti-counterfeiting technologies and to apply for patent protection for these technologies wherever possible.  Since January 2013, the Company has filed for three new patents. When a new product or process is developed, we may seek to preserve the economic benefit of the product or process by applying for a patent in each jurisdiction in which the product or process is likely to be exploited. Generally, for a patent to be granted, the product or process must be new and be inventively different from what has been previously patented or otherwise known anywhere in the world. Patents generally have a life span of 20 years from the date of application depending on the relevant jurisdiction, after which time any person is free to exploit the product or process covered by a patent. A person who is the owner of a patent has, within the jurisdiction in which the patent is granted, the exclusive right to exclude others from practicing the subject matter defined in the patent claims.

We intend to extend our patent filings to other countries where doing so is economically reasonable, considering the expense of foreign patent applications and the increasing level of our activity. Currently, we believe that we will be filing for patent protection in Europe, Australia and one or more countries in the Far East and South America. The granting of a patent does not prevent a third party from seeking a judicial determination that the patent is invalid. Such challenges to the validity of a patent are not uncommon and are occasionally successful. There can be no assurance that a challenge will not be filed to one or more of our patents, if granted, and that, if filed, such a challenge will not be successful. The granting of a U.S. patent does not ensure that patents will be granted in other countries where protection is sought. Standards for granting patents vary and there is a possibility that prior art not yet discovered could arise and could prevent the grant of a foreign patent and cast into question the validity of a U.S. patent.

In October 2010, the Company filed suit in the Western District of Pennsylvania, alleging that a company had infringed on one of the Company’s patents in the manufacture of game pieces. On June 4, 2012 both companies filed a stipulation to dismiss the action without prejudice and enter into settlement negotiations.  Settlement negotiations are ongoing.

Research and Development

We have been involved in research and development, or R&D, since our inception and intend to continue our R&D activities, funds permitting. We hope to expand our technology into new areas of implementation and to develop unique customer applications.

For the period from inception at November 10, 1999 to December 31, 2013 we incurred costs of $1,523,632 on R&D. For the years ended December 31, 2013 and 2012, we incurred costs of  $655,840 and $5,420, respectively.

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Our Revenue Model

We believe that a primary reason for our lack of revenue is our lack of funds to create a marketing program that effectively reaches potential customers in the security industry. In developing our most recent marketing approach, we have attempted to achieve sufficient flexibility in our products and technologies so as to provide cost-effective solutions to a wide variety of counterfeiting problems. We intend to generate revenues primarily by collecting license fees from manufacturers who incorporate our technologies into their manufacturing processes and their products as well as through the sale of inks.

According to the Bureau of Engraving and Printing (the “Bureau”), the color pigment market is estimated to be worth $2.6 billion per year, of which the color-shifting segment is valued at someplace between $55 million and $235 million annually, and this is based on a relatively limited number of products and applications. A more realistic estimate suggests that the color shifting pigment market will be worth several billion dollars a year within ten years, predicated on anticipated new security applications and demand for greater low-cost counterfeiting protection.

Currently, the Bureau produces 38.0 million notes per day valued at $545 million (or 9.8 billion notes annually). If the Company were to be part of the printing and security process of the $100 bill (which is the most counterfeited bill) at $ .003 for each piece of currency, then the cost to the Bureau would be approximately $8.6 million annually. If the Company were to provide security for the American currency, at $.003, then the cost to the Bureau would be approximately $29.4 million annually. At a one cent royalty, the cost to the Bureau would be approximately $98.0 million annually.

A hologram, by contrast, costs approximately 5 cents, or more than 17 times as much. Similarly, security threads, seals, and other methodologies for protecting currency are all more expensive than color shifting inks. In the U.S. there are more than 650 million credit cards as well as 488 million debit cards, many of which currently have holograms embedded in them. Should Visa and MasterCard use the Company’s product instead of a 5 cent hologram, and a one-cent royalty were obtained, instead of $.003, the cost to Visa and MasterCard would be approximately $11.4 million annually.

6

Sales and Marketing Strategy

We plan to direct our sales and marketing strategy at multiple target groups as follows:

1. Documents of Value

a. Currency,

b. Stock certificates and bonds,

c. Event tickets, and

d. Lottery tickets.

2. Homeland Security

a. Container seals,

b. Pallet security,

c. Passports,

d. ID cards,

e. Driver’s licenses, and

f. Visas.

3. Consumer Product Security

a. Tax stamps,

b. CDs/DVDs,

c. Apparel tags and labels,

d. Pharmaceuticals,

e. Tobacco,

f. Alcohol,

g. Auto parts,

h. Aviation parts, and

i. Any other packaging requirements.

4. Gaming

a. Chips,

b. Dice,

c. Playing cards,

d. E-proms/critical memory devices, and

e. Slot tickets.

5. Product Diversion Tracking

a. Fragrances,

b. Apparel/licensed merchandise,

c. Cosmetics,

d. Pharmaceuticals, and

e. Watches and jewelry.

6. Financial Services and Products

a. Credit cards,

b. Bank checks, and

c. Financial documents/promissory notes.

We plan for our sales and marketing strategy to include an outreach program and sales programs that tailor the product to the governmental body or merchant, as well as key partnerships with authorities and merchants whose products or audiences can be complementary to our own.

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Competition

The market for protection from counterfeiting, diversion, theft and forgery is a mature 25-year old industry dominated by a number of large, well-established companies, particularly in the area of traditional overt security technologies. This is due to the fact that security printing for currency production, for example, began in Europe over a century ago and has resulted in the establishment of old-line security printers who have branched out into brand and product protection as well. In North America, brand protection products, such as tamper-resistant packaging, security labels, and anti-theft devices are readily available and utilized on a widespread basis. In recent years, however, demand has increased for more sophisticated, overt and covert, security technologies. Competitors can be segregated into the groupings below:

1. Security Ink Manufacturers. These are generally well-established companies such as SICPA and Sun Chemical, whose core business is printing inks;

2. System Integrators. These companies have often evolved from other sectors in the printing industry, mainly security printing manufacturers, technology providers, or packaging and label manufacturers. These companies offer a range of security solutions, enabling them to provide a complete suite of solutions tailored to the customer’s specific needs and requirements. The companies in this space include 3M, DuPont, Honeywell, and Avery Dennison;

3. System Consultancy Groups. These companies offer a range of technologies from several different providers and tailor specific solutions to end-users;

4. Traditional Authentication Technology Providers. These purveyors include American Banknote Holographics, and Digimarc, which provide holograms and digital watermarking, respectively;

5. Product Diversion Tracking Providers. Next-Generation Technology Providers LLC falls into this group, along with several companies such as Authentix, DNA Technologies, and Identif, which provide on-product and in-product tagging technologies; and

6. Traditional Security Printers. Traditional security printers such as Thomas de la Rue and Portals whose core products are printing the world’s currencies.

To compete effectively, we expect that we will need to expend significant resources in technology and marketing. Each of our competitors has substantially greater financial, human and other resources than we have. As a result, we may not have sufficient resources to develop and market our services to the market effectively, if at all.

Manufacturing

We do not have manufacturing facilities. We acquire components from various suppliers, which are manufactured to our specifications and reprocess these components. We intend to subcontract the manufacturing of our ink technology to third-party manufacturers. Applications of our technology are expected to be effected mainly through printing and coating of products with both visible and invisible ink. These inks will be custom manufactured for us by a third party. Because some of the processes that we intend to use in our applications are based on relatively common manufacturing techniques, there is no technical or economic reason for us to invest our own capital in manufacturing facilities at this stage.

We have established a quality-control program that includes laboratory analysis of developed technologies. We intend to include as part of this quality control program a specially trained technician on site at third-party production facilities to monitor the manufacturing process when warranted.

Government Regulation

We are not currently aware of any regulations affecting our products; however, our technology is dependent upon an ink-based product. Therefore, it is possible that our products will be subject to environmental regulations in the future.

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Employees

As of December 31, 2013, we had eight full time employees. We are using three part time consultants to assist us with our marketing and sales strategy, R & D, technical assistance and distribution services. None of our employees are represented by a union or covered by a collective bargaining agreement. We believe that our relations with our employees and consultants are good.

ITEM 1A.  RISK FACTORS.

Not required.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

None.

ITEM 2.  PROPERTIES.

Our principal offices are currently located in approximately 1800 square feet of space rented by the Company at 3112 M Street, Washington, DC, 20007.

ITEM 3.  LEGAL PROCEEDINGS.

In October 2010, the Company filed suit in the Western District of Pennsylvania against WS Packaging Group, Inc. (“WS”) alleging that WS infringed on one of the Company’s patents in the manufacture of MONOPOLY game pieces on behalf of McDonald’s Corp. On June 4, 2012, both WS and the Company filed a stipulation to dismiss the action without prejudice and enter into settlement negotiations.Settlement negotiations are ongoing.

ITEM 4.  MINE SAFETY DISCLOSURES.

Not applicable.

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PART II

ITEM 5.   MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Our common stock is quoted on Pink OTC Markets, Inc. under the trading symbol “LLTI.PK”.  The following table sets forth the range of high and low bid prices of our common stock for the periods indicated as reported by Pink OTC Markets, Inc.  Until recently, there was only sporadic and intermittent trading activity of our common stock.  The quoted prices represent only prices between dealers on each trading day as submitted from time to time by certain of the securities dealers wishing to trade in our common stock, do not reflect retail mark-ups, mark-downs or commissions, and may differ substantially from prices in actual transactions.

Fiscal Year Ended December 31, 2012	High	Low
Quarter ended March 31, 2012	$0.07	$0.01
Quarter ended June 30, 2012	$0.07	$0.05
Quarter ended September 30, 2012	$0.06	$0.02
Quarter ended December 31, 2012	$0.05	$0.02

Fiscal Year Ended December 31, 2013	High	Low
Quarter ended March 31, 2013	$0.50	$0.03
Quarter ended June 30, 2013	$0.28	$0.14
Quarter ended September 30, 2013	$0.21	$0.09
Quarter ended December 31, 2013	$0.13	$0.06

Common Stockholders

As of February 28, 2014, our shares of common stock were held by approximately 100 stockholders of record.

Dividend Policy

We have never declared or paid a cash dividend. At this time, we do not anticipate paying dividends in the foreseeable future. The declaration and payment of dividends is subject to the discretion of our board of directors (the “Board”) and will depend upon our earnings (if any), our financial condition, and our capital requirements.

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Securities Authorized for Issuance Under Equity Compensation Plans

The following table provides certain information with respect to all of our equity compensation plans in effect as of the date of this filing.

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)	Weighted- average exercise price of outstanding options, warrants and rights (b)		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders	22,435,000	$	.00	19,074,004
Equity compensation plans not approved by security holders	12,900,000	$	.05	-
Total:	35,335,000	$	.05	19,074,004

2003 and 2013 Stock Option Plans

We adopted our 2003 Stock Option Plan as of December 17, 2003 (the “2003 Plan”). Awards were available to be made under the 2003 Plan for up to 18,000,000 shares of our common stock in the form of stock options or deferred stock awards.  Awards were available to be made to our employees, officers or directors as well as our consultants or advisors.  The Plan is administered by our board of directors which has full and final authority to interpret the Plan, select the persons to whom awards may be granted, and determine the amount, vesting and all other terms of any awards. 

During 2013, our Board adopted, and our shareholders approved, a new comprehensive incentive compensation plan (the “2013 Plan”, and together with the 2003 Plan, the “Plans”) which serves as the successor incentive compensation plan to the 2003 Plan, and provides the Company with an omnibus plan to design and structure grants of stock options, stock units, stock awards, stock appreciation rights and other stock-based awards for selected individuals in our employ or service. Our Board believes that the availability of (i) 20,000,000 new shares of our common stock, plus (ii) the number of shares of our common stock subject to outstanding grants under the 2003 Plan as of the date of the 2013 Annual Meeting, plus (iii) the number of shares of our common stock remaining available for issuance under the 2003 Plan but not subject to previously exercised, vested or paid grants, for issuance under the 2013 Plan, as sufficient to meet the current needs of the Company.

All stock options granted under the Plans are exercisable for a period of up to ten years from the date of grant, are subject to vesting as determined by the Board upon grant, and have an exercise price equal to not less than the fair market value of our common stock on the date of grant (except for incentive stock options granted to 10% stockholders, which are required to have an exercise price of not less than 110% of the fair market value of the common stock on the date the option is granted).  Unless otherwise determined by the Board, awards may not be transferred except by will or the laws of descent and distribution.  The Board has discretion to determine the effect on any award granted under the Plans of the death, disability, retirement, resignation, termination or other change in employment or other status of any participant in the Plans.

Upon the occurrence of a “Change in Control”, as defined in the Plans, the Board may take any number of actions.  These actions include, providing for all options outstanding under the Plans to be assumed by the acquiring corporation or to become immediately vested and exercisable in full.  As of the date of this report, we have issued options under the Plans to purchase 15,425,996 shares of common stock.

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ITEM 6. SELECTED FINANCIAL DATA.

Not required.

ITEM 7.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

This Management’s Discussion and Analysis of Financial Condition and Results of Operation and other parts of this Annual Report on Form 10-K contain forward-looking statements that involve risks and uncertainties.  All forward-looking statements included in this Annual Report on Form 10-K are based on information available to us on the date hereof, and except as required by law, we assume no obligation to update any such forward-looking statements.  Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors. The following should be read in conjunction with our annual financial statements contained elsewhere in this report.

Overview

We were incorporated in Nevada in November 1999. We are a technology development company that delivers product and document authentication and security. We plan to develop and market technologies in a variety of applications in the security fields.

We believe that the technologies we own will enable businesses to reconstruct their overall approaches to corporate security - from counterfeit identification to employee or customer monitoring. Potential applications of our technologies are available in different types of products and industries - e.g., gaming, apparel, tobacco, perfume, compact disks, pharmaceuticals, event and transportation tickets, driver’s licenses, insurance cards, passports, computer software, DVDs, and credit cards. We intend to generate sales through licenses of our technology or through direct sales of our technology to end-users.

We have filed a total of five patent applications relating to our technology, which have all been issued. These patents seek to accomplish non-intrusive document and product authentication in order to reduce losses caused by unpermitted document reproduction or by product counterfeiting. The technologies involve the utilization of invisible or color shifting/changing inks, which are compatible with today’s printing machines. The inks may be used with certain printing systems such as offset, flexographic, silkscreen, gravure, and laser. Based upon the Company’s experience, we believe that the ink technologies may be incorporated into existing manufacturing processes. We believe that some of our patents may have non-security applications, and we are attempting to commercialize these opportunities.

Strategic Outlook

We believe that the security and authentication industries will continue to grow over time, especially as counterfeiting becomes easier with advances in technology. Within the market, we intend to provide our products to government bodies and merchants in the consumer products, gaming and financial services industries.

Sustained spending on technology, our ability to raise additional financing, and the continued growth of the security and authentication markets are all external conditions that may affect our ability to execute our business plan. In addition, certain potential customers may view our small size and limited financial resources as a negative even if they prefer our products to those of our competitors.

Our primary strategic objective over the next 12-24 months is to successfully market our products and generate revenue that is sufficient to cover our operating expenses and support additional growth over the next several years. We plan to achieve this objective through a targeted marketing program. As we grow, we intend to hire professionals to develop new products and market our products.

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We believe that our near-term success will depend particularly on our ability to develop customer awareness and confidence in our products. Since we have limited capital resources, we will need to closely manage our expenses and conserve our cash by continually monitoring any increase in expenses and reducing or eliminating unnecessary expenditures. Our prospects must be considered in light of the risks, expenses and difficulties encountered by companies in the development stage, particularly given that we operate in rapidly evolving markets, that we have limited financial resources, and face an uncertain economic environment. We may not be successful in addressing such risks and difficulties.

Results of Operations

Comparison of the Years Ended December 31, 2013 and 2012

The following discussion analyzes our results of operations for the years ended December 31, 2013 and 2012. The following information should be considered together with our financial statements for such periods and the accompanying notes thereto.

Revenue/Net Loss

We are a development stage company and have not generated significant revenue since our inception.  For the years ended December 31, 2013 and 2012, we generated revenues of $3,140 and $17,029, respectively.  Our net loss increased $15,191,811 to $16,390,868 for the year ended December 31, 2013 compared to $1,199,057 for the year ended December 31, 2012, primarily as a result of fair value adjustments related to warrant liability and option grants.

General and Administrative Expenses

General and administrative expenses were $762,668 for the year ended December 31, 2013 compared to $129,329 for the year ended December 31, 2012, an increase of $633,339.  The increase is attributable to increases in depreciation, insurance, office expenses, payroll taxes and rent.  This increase primarily resulted from the opening of an office in Washington D.C.

Legal and Accounting

Legal and accounting fees increased $199,174 to $475,948 for the year ended December 31, 2013 from $276,774 for the year ended December 31, 2012.  The increase in legal and accounting fees between the periods was primarily related to patent costs and costs associated with the Form S-1 Registration Statement filed with the Securities and Exchange Commission in August 2013 and associated matters.

Payroll Expenses

Payroll expenses increased to $9,485,339 for the year ended December 31, 2013 from $612,721 for the year ended December 31, 2012, an increase of $8,872,618.  A portion of the increase relates to the hiring of the Chief Operating Officer, Chief Technology Officer and a Chief Financial Officer of the Company.  The majority of  the increase was the expense of the fair market value of options issued to the Board, the Vice Chairman, and the officers of the Company aggregating approximately $8.5 million.

Research and Development

Research and development expenses increased $650,420 to $655,840 for the year ended December 31, 2013 from $5,420 for the year ended December 31, 2012.  The increase in research and development expenses was due to the allocation of resources to the research and development effort.

Sales and Marketing

Sales and marketing expenses for the year ended December 31, 2013 were $261,804 as compared to $66,499 for the year ended December 31, 2012, an increase of $195,305.  The expenses consisted largely of expenses for marketing the new technology associated with the patents and the new patent applications, as well as a more active marketing program in 2013.

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Interest Expense

During the year ended December 31, 2013, we incurred interest expense of $127,825, as compared to $277,371 for the year ended December 31, 2012, a decrease of $149,446.  The decrease in interest expense relates to the conversion of notes payable into common stock in 2013 and the negotiation of a lower interest rate on certain debt in June 2011.

Gain (Loss) on Extinguishment of Debt

During the year ended December 31, 2012, we received a benefit of $156,110 in debt forgiveness, as compared to a loss on extinguishment of debt of $1,221,875 for the year ended December 31, 2013.  This was the result of management’s negotiation with vendors and debt holders to forgive amounts due and the forgiveness of accrued salary by the Company’s Vice Chairman and Chief Executive Officer.

Change in Fair Value of Warrants

During the year ended December 31, 2013, the Company incurred a change in the fair value of warrants of $604,209 as compared to $0 for the year ended December 31, 2012.  The change resulted from the re-valuation of warrants associated with the Investment Agreement entered into on December 31, 2012 and the Subscription Agreement entered into on January 31, 2013.  The value of the warrant liability has decreased because the stock price has decreased.

Change in Fair Value Embedded Derivative Liability

Change in fair value of embedded derivative liability increased $200,000 at December 31, 2013 resulting in an additional expense.  The change in the liability was attributed to change in the fair value of the Company’s stock price.

Fair Value of Warrants in Excess of Consideration for Convertible Preferred Stock

During the year ended December 31, 2013, the Company incurred a change in the fair value of warrants that were issued in excess of consideration for convertible preferred stock of $2,995,791.  The change resulted from the valuation of warrants associated with the Subscription Agreement entered into on January 31, 2013.

Liquidity and Capital Resources

Since our inception, we have focused on developing and implementing our business plan.   Our business plans are dependent on our ability to raise capital through private placements of our common stock and/or preferred stock, through the possible exercise of outstanding options and warrants, through debt financing and/or through future public offering of our securities. There is no assurance that we will raise sufficient capital in order to meet our goals of implementing a sales and marketing effort to introduce the products.  We believe that our existing cash resources will be sufficient to sustain our operations during the next twelve months, however we may need to raise additional funds in the future. We intend to raise such financing through private placements and/or the sale of debt and equity securities.  The issuance of additional equity would result in dilution to our existing shareholders.  If we are unable to obtain additional funds when they are needed or if such funds cannot be obtained on terms favorable to us, we may be unable to execute upon our business plan or pay our costs and expenses as they are incurred, which could have a material, adverse effect on our business, financial condition and results of operations.

Even if we are successful in raising sufficient capital, in order to continue in business as a viable going concern can only be achieved when our revenues reach a level that sustains our business operations. While it is impossible to predict the amount of revenues, if any, that we may receive from our products, we presently believe, based solely on our internal projections, that we will generate revenues sufficient to fund our planned business operations if the products are marketed effectively in accordance with our plans.  There can be no assurance that we will raise sufficient proceeds, or any proceeds, for us to implement fully our proposed business plan.  Moreover there can be no assurance that even if our products are marketed effectively, that we will generate revenues sufficient to fund our operations.  In either situation, we may not be able to continue our operations and our business might fail.

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As of March 14, 2014 we had cash resources of approximately $800,000.  

Net cash used in operating activities increased $2,421,709 to $2,788,769 for the year ended December 31, 2013 as compared to $367,060 for the year ended December 31, 2012.  The increase in net cash used in operating activities is mainly related to the expansion of operations including increased product development, legal expenses, hiring employees, increased marketing efforts, increased research and development efforts and opening an office in Washington, D.C.

Net cash used in investing activities was $32,527 for the year ended December 31, 2013 as compared to $9,025 for the year ended December 31, 2012, an increase of $23,502.  The increase in cash used is attributable to patent costs associated with the five patents and furniture and computer equipment purchases for the DC office.

Net cash provided by financing activities decreased by $2,203,943 to $1,112,919 for the year ended December 31, 2013 from $3,316,862 for the year ended December 31, 2012.  The cash provided consisted primarily of proceeds from the issuance of equity securities and proceeds from the exercise of options and warrants.  The issuance of equity securities was attributable to the agreements with one investor that were entered into on December 31, 2012, discussed below.

As we have not realized significant revenues since our inception, we have financed our operations through public and private offerings of debt and equity securities.  We do not currently maintain a line of credit or term loan with any commercial bank or other financial institution.  The following sets forth our primary sources of capital during the previous two years.

The Company is in the development stage. During the years ended December 31, 2013 and 2012, the Company’s operational resources were used primarily to fund general and administrative expenses to continue operations and to develop a sales and marketing program.

The following agreements were executed on December 31, 2012 and provided the Company with $2 million in funding.

Investment Agreement

The Company entered into an Investment Agreement with VerifyMe, Inc. (“VerifyMe”) on December 31, 2012 (the “Investment Agreement”). Under the terms of the Investment Agreement, VerifyMe  purchased 22,222,222 shares of the Company’s common stock as well as a warrant to purchase 22,222,222 shares of the Company’s common stock for $1 million.  In addition, a Subscription Agreement (discussed below) was to be entered into on or before January 31, 2013.

Registration Rights Agreement

In connection with the Investment Agreement, the Company entered into a Registration Rights Agreement with VerifyMe (the “Registration Rights Agreement”), pursuant to which VerifyMe has the right to demand at any time on or after four months after December 31, 2012, that the Company file a registration statement relative to shares owned by VerifyMe.  

After receiving extensions to the required timing, the Company filed a Form S-1 Registration Statement with respect to the shares owned by VerifyMe on August 5, 2013 in accordance with the terms of the Registration Rights Agreement.

Technology and Service Agreement

In connection with the Investment Agreement, the Company entered into a Technology and Service Agreement with VerifyMe (the “Technology and Service Agreement ”), pursuant to which VerifyMe purchased warrants of the Company to purchase 22,222,222 shares of the Company’s common stock for $1 million.  Additionally, the Company executed a services agreement with Zaah Technologies, Inc. (“Zaah”) concurrently with this agreement (the “Zaah Technology and Service Agreement”).  The Company is to use up to $550,000 of the proceeds from the Technology and Service Agreement for the purpose of the Company’s hiring (i) a full-time Chief Technology Officer or Chief Information Officer and (ii) two full-time business developers.

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Technology and Service Agreement with Zaah

Under the Zaah Technology and Service Agreement, Zaah will provide the Company (a) twelve (12) months of technical support, (b) up to twelve (12) days of meetings annually between the respective management teams of the Company and Zaah, (c) updates to technology as agreed in writing between the Company and Zaah, and (d) twelve (12) months of technical hosting.

 The Company was required to pay Zaah the following:

(a)	$450,000 on the date of the agreement (December 31, 2012), consisting of $250,000 in cash and warrants to purchase 4,444,444 shares of common stock under a cashless exercise initially at an exercise price of $0.045 on the terms set forth under the warrants issued by the Company to Zaah, dated as of December 31, 2012,
(b)	$100,000, accrued in full as of the date of the agreement, but payable in twelve (12) months from the date hereof to a designee of Zaah’s selection, with a right to convert (at Zaah’s sole discretion, from time to time at any time) to shares of common stock at the prevailing market price per share of common stock (which, as long as the common stock is listed, shall be the closing price on the last trading day prior to such issuance or sale of the common stock as traded on a national securities exchange, the NASDAQ Global Market, the NASDAQ Capital Market, or another nationally recognized trading system (including Pink OTC Markets, Inc.)), and
(c)	a commission of 10% of the revenue generated by any Company transaction originated through the efforts of Zaah, as substantiated by a written agreement between the Company and Zaah, specifically referencing the transaction in which Zaah is entitled to such commission, payable by the Company to Zaah in cash. Such payment shall be made on the earlier of (i) the date of the signing of such transaction, (ii) the date of the closing of such transaction, or (iii) any date on which any funds are paid to the Company in respect to such transaction.

Patent and Technology License Agreement

In connection with the Investment Agreement, the Company entered into a Patent and Technology License Agreement with VerifyMe, pursuant to which VerifyMe granted the Company exclusive and non-exclusive licenses relative to a specific list of patents in return for the following:

(a)	Payment 1, payable upon execution of the agreement on December 31, 2012: The sum of One Hundred Thousand Dollars ($100,000), to be paid by issuing (i) a number of shares of common stock, of the Company equal to (x) $100,000 divided by (y) $0.045 (2,222,222 shares) and (ii) cashless exercise warrants to purchase an equal number of shares exercisable at a price of Ten Cents ($0.10) per share with a term of five (5) years.
(b)	Payment 2, payable on January 1, 2014: The sum of Four Hundred Thousand Dollars ($400,000), to be paid by issuing (i) a number of shares equal to (x) $400,000 divided by (y) a price which equals a 10% discount to market and (ii) cashless exercise warrants to purchase an equal number of shares exercisable at a price of Ten Cents ($0.10) per share with a term of five (5) years.
(c)	Payment 3, payable on January 1, 2015: The sum of Four Million Five Hundred Thousand Dollars ($4,500,000), to be paid by issuing (i) a number of shares equal to (x) $4,500,000 divided by (y) a price which equals a 10% discount to market and (ii) cashless exercise warrants to purchase an equal number of shares exercisable at a price of Ten Cents ($0.10) per share with a term of five (5) years.
(d)	Future Payments Contingent: The Company’s payment of Payment 2 and Payment 3 is contingent. To the extent that VerifyMe does not develop and license to the Company at a time subsequent to Payment 1, further technology and/or a further patent right related to the local, mobile and cloud based biometric security systems, then any payments not already paid, will no longer be due to VerifyMe, this nonperformance being a likelihood, more likely than not.

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Asset Purchase Agreement

In connection with the Investment Agreement, the Company entered into an Asset Purchase Agreement with VerifyMe, pursuant to which the Company purchased trademark rights, software and a domain name at a purchase price of $100,000 to be paid by issuing shares equal to $100,000/0.045 (2,222,222 shares) and cashless exercise warrants to purchase an equal number of shares at an exercise price of ten cents per share with a term of five years.

The warrants associated with these Agreements are subject to anti-dilution adjustments outlined in the Agreements.  In accordance with ASC 815, the warrants were classified as a liability in the total amount of $2.4 million at December 31, 2012.  In addition, the warrants must be valued every reporting period and adjusted to market with the increase or decrease being adjusted through earnings.

The following agreement was executed on January 31, 2013 and provided the Company with $1 million in funding:

Subscription Agreement

VerifyMe subscribed to purchase 33,333,333 shares of the Company’s preferred stock and a warrant to purchase 33,333,333 shares of the Company’s common stock for $1 million at an exercise price of $0.12.  This agreement was executed on January 31, 2013.

At any time within two years after January 31, 2013, the subscriber has the right, but not the obligation to require the Company to repurchase all, but not less than all, of the capital stock of the Company and warrants exercisable for capital stock of the Company held by subscriber in exchange for the price originally paid by the subscriber therefor upon the occurrence of any of the following events:(i) the consummation of any bona fide business acquisition, (ii) the incurring of any indebtedness by the Company in an amount in excess of $2 million, (iii) the issuance or sale of any security having a preference on liquidation senior to common stock, or (iv) the sale by the Company of capital stock or warrants exercisable for its capital stock at a price below $0.03 per share.

In accordance with ASC 480 and 815, the Preferred Stock has been classified as permanent equity and has been valued at $1 million.

The conversion feature of the Preferred Stock is an embedded derivative, which is classified as a liability in accordance with ASC 815 and was valued in accordance with ASC 470 as a beneficial conversion feature at a fair market value of $1 million at January 31, 2013.  This was classified as an embedded derivative liability and a discount to Preferred Stock.  Because the Preferred Stock can be converted at any time, the full amount was accreted and classified as a reduction to the discount on Preferred Stock and a deemed dividend distribution in the full amount of $1 million.

At December 31, 2013, the fair value of the embedded derivative (beneficial conversion feature) was evaluated based on the fair value of the Company’s stock price as compared to the Preferred A conversion price.  The fair value of the embedded derivative at December 31, 2013 was $800,000.

The warrants associated with the Preferred Stock were also classified as a liability and valued at a fair value of $2,995,791 at January 31, 2013.  Because this amount was entirely in excess of the transaction price, this amount was recorded as a charge to expenses of $2,995,791.

In August 2013, VerifyMe elected to convert in a cashless transaction an equal number of Preferred A stock valued at $366,667 to 12,222,222 shares of common stock.   

During the second quarter of 2012, the Company received $200,000 for a 10% unsecured note payable, due April 27, 2013.  In December 2012, this note payable and accrued interest of $9,167 was converted into 4,703,711 shares of the Company’s common stock.

In October 2012, the Company commenced private placements consisting of shares of the Company’s common stock and warrants to purchase shares of the Company’s common stock at an exercise price of $0.10 per share.  The shares and warrants were sold in units with each unit comprised of one share and one warrant at a purchase price of $0.045 and $0.05 per unit.  As of December 31, 2012, the Company sold 21,888,889 units that raised $1,060,000 for the Company.

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On November 13, 2012, an employee and consultant exercised options to purchase in the aggregate 10,490,996 shares of the Company’s common stock at an exercise price of $.00125 per share that raised $13,114 for the Company.

On December 20, 2012, an investor exercised warrants to purchase 333,333 shares of the Company’s common stock at $0.15 per share that raised $50,000 for the Company.

In January and February 2013, the Company received $185,000 from the sales of 3,700,000 units from private placements consisting of shares of the Company’s common stock and warrants to purchase shares of the Company’s common stock at an exercise price of $0.10 per share.  The shares and warrants were sold in units with each unit comprised of one share and one warrant at a purchase price of $.05 per unit.  

In January 2013, the Company commenced private placements consisting of shares of the Company’s common stock and warrants to purchase shares of the Company’s common stock at an exercise price of $0.12 per share.  The shares and warrants were sold in units with each unit comprised of one share and one warrant at a purchase price of $.045 per unit.  The company sold 1,111,111 units and raised $50,000 as of the date of this report.

On February 1, 2013, an investor exercised a warrant to purchase 1 million shares of the Company’s common stock that raised $10,000 for the Company.

In February and March 2013, four investors exercised options to purchase 3,335,000 shares of the Company’s common stock that raised $17,919 for the Company.

Off-Balance Sheet Arrangements

As of December 31, 2013, we did not have any relationships with unconsolidated entities or financial partners, such as entities often referred to as structured finance or special purpose entities, established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.  As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

Critical Accounting Policies

Our financial statements are impacted by the accounting policies used and the estimates and assumptions made by management during their preparation. A complete summary of these policies is included in note 1 of the notes to our financial statements included elsewhere herein. We have identified below the accounting policies that are of particular importance in the presentation of our financial position, results of operations and cash flows and which require the application of significant judgment by management.

Stock-based Compensation

We account for stock-based compensation under the provisions of FASB ASC Topic 718,  Compensation—Stock Compensation   (“ASC 718”), which requires the measurement and recognition of compensation expense for all stock-based awards made to employees and directors based on estimated fair values on the grant date. We estimate the fair value of stock-based awards on the date of grant using the Black-Scholes model.  The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods using the straight-line method.

We account for stock-based compensation awards to non-employees in accordance with FASB ASC Topic 505-50, Equity-Based Payments to Non-Employees   (“ASC 505-50”). Under ASC 505-50, we determine the fair value of the warrants or stock-based compensation awards granted as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable.

All issuances of stock options or other equity instruments to non-employees as consideration for goods or services received by the Company are accounted for based on the fair value of the equity instruments issued. Any stock options issued to non-employees are recorded as an expense and additional paid-in capital in stockholders’ equity over the applicable service periods using variable accounting through the vesting dates based on the fair value of the options at the end of each period.

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Revenue Recognition

In accordance with Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin No. 104, Revenue Recognition (Codified in FASB ASC 605), we recognize revenue when (i) persuasive evidence of a customer or distributor arrangement exists, (ii) a retailer, distributor or wholesaler receives the goods and acceptance occurs, (iii) the price is fixed or determinable, and (iv) collectibility of the sales revenues is reasonably assured. Subject to these criteria, the Company recognizes revenue from product sales, consisting mainly of pigments and penlights, upon shipment to the customer.  Royalty revenue is recognized upon receipt of notification from a customer that the Company’s product has been used in the customer’s production process.

Recently Issued Accounting Pronouncements

Recently issued accounting pronouncements are discussed in Note 1 of the Notes to Consolidated Financial Statements contained elsewhere in this report.

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

Not required.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The financial statements required to be filed pursuant to this Item 8 are appended to this report beginning on page F-1 located immediately after the signature page.

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

As disclosed in the Company’s current report on Form 8-K filed with the Securities and Exchange Commission on January 1, 2013, the practice of Asher & Company, Ltd. (“Asher”), which on April 27, 2012 was engaged as the Company’s independent registered public accounting firm, was combined on November 1, 2012 with BDO, and the professional staff and partners of Asher joined BDO either as employees or partners of BDO.  As a result of this transaction, Asher resigned as the Company’s independent registered public accounting firm on November 1, 2012.  BDO was never appointed as the Company’s independent registered public accounting firm.  There were no disagreements with Asher.

ITEM 9A.  CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures

Our management has evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15(d)-15(e) under the Exchange Act) as of the end of the period covered by this report pursuant to Rule 13a-15(b) under the Exchange Act. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2013, our disclosure controls and procedures were effective to ensure (i) that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, in order to allow timely decisions regarding required disclosure.

Management’s 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 Securities Exchange Act of 1934 as amended. 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 in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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Our management conducted an evaluation of the effectiveness of our internal controls over financial reporting as of December 31, 2013 using criteria established in Internal Control — Integrated Framework issued (1992) by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Our management has concluded that our internal control over financial reporting was effective as of December 31, 2013.

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 the Dodd-Frank Wall Street Reform and Consumer Protection Act, which permits us to provide only management’s report in this annual report.

Changes in Internal Control Over Financial Reporting

There have been changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act) that occurred during the fiscal quarter ended December 31, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.  These changes have strengthened our internal controls.

ITEM 9B. OTHER INFORMATION.

Paul Klapper was appointed to the Board on December 9, 2013.  Mr. Klapper will receive the standard option-based compensation package offered by the Company for serving on the Board, in line with the compensation received by the other members of the Board, consisting of 1,000,000 options to purchase common stock of the Company, with an exercise price of $0.05, exercisable on the date of grant, and 1,000,000 options to purchase common stock of the Company, with an exercise price of $0.05, exercisable on the one-year anniversary of the date of grant.

Since the beginning of the Company’s last fiscal year, Mr. Klapper directly or indirectly participated in the following transactions with the Company:

PFK Acquisition Group II, LLC

1.    Sold 2,000,000 shares of common stock in February 2013 for a total of approximately $505,000.

2.    Converted notes from the Company representing indebtedness of approximately $370,000 into 7,400,000 shares of common stock.

Clydesdale Partners II, LLC

1.    Was paid $150,000 in retirement of notes from the Company.

2.    Converted notes from the Company representing indebtedness of approximately $671,000 into 4,473,334 shares of common stock.

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PART III

ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

The current members of our board of directors and executive officers of the Company are as follows:

Name	Age	Position with Company
Constance Harriman-Whitfield	65	Director
Claudio R. Ballard*	55	Director
Neil Alpert	36	Director, Chief Executive Officer
Paul Klapper	75	Director
Jonathan Weinberger*	37	Director
Giles Kyser	52	Chief Operating Officer
Paul Donfried Edward J. Weisberger	52 49	Chief Technical Officer Chief Financial Officer
Norman A. Gardner	70	Vice Chairman of the Board of Directors

*Appointed as Director by VerifyMe, Inc.

Board of Directors

We believe that our board of directors should be composed of individuals with sophistication and experience in many substantive areas that impact our business.  We believe that experience, qualifications, or skills in the following areas are most important: security industry experience, accounting and finance; strategic planning; and human resources and development practices; and board practices of other corporations.  These areas are in addition to the personal qualifications described in this section.  We believe that all of our current board members possess the professional and personal qualifications necessary for board service, and have highlighted particularly noteworthy attributes for each board member in the individual biographies below.  The principal occupation and business experience, for at least the past five years, of each current director is as follows:

CLAUDIO R. BALLARD

Claudio R. Ballard, 55, is the Chairman, Founder and one of the two Managing Members of VEEDIMS. Mr. Ballard is currently the President of VerifyMe, Inc. In 2010, Mr. Ballard was named “Inventor of the Year” by the United States Business and Industry Council, in recognition of his founding of Iconic Motors and VEEDIMS as well as the creation of the DataTreasury Global Repository Platform, a patent-protected electronic transaction system licensed by banks to process digital checks.

Mr. Ballard has over 37 years of experience in computer technology, software and business development. In 1979, he founded FORTEX Corporation, that in 1981 became the world’s first ORACLE Value-Added Reseller and Systems Integrator by delivering the earliest known commercially viable production mission critical application software and supporting development tools that initially ran on ORACLE and eventually ran on other database platforms. By the late 1980s, Mr. Ballard’s team had built sophisticated, mission critical systems for more than 30 Fortune 500 companies, including Kidder Peabody, General Electric (14 Divisions), Standard & Poor’s, CitiBank, Philip Morris, Boeing, McDonnell Douglas and AT&T Bell Labs, Pfizer, Novartis (formally Ciba-Geigy) as well as government agencies that included the U.S. Army, U.S. Air Force, U.S. Navy, the Food and Drug Administration (7 departments at the FDA) and the Central Intelligence Agency.

In 1994, Mr. Ballard invented the DataTreasury System, the sophisticated repository and on-line biometrics system that enables banks to quickly verify identity and process a myriad number of financial transactions. In 1998, Mr. Ballard founded DataTreasury Corporation and launched the core technology that led to the development of the check-imaging platform. Today, over 50 banks throughout the U.S. representing approximately 70% of U.S. check processing volume use this technology through a licensing arrangement.

As a result of these and other professional experiences, Mr. Ballard possesses particular knowledge and experience that strengthen the Board’s collective qualifications, skills and experience. Mr. Ballard was elected to the Board on March 30, 2013.

PAUL F. KLAPPER

Paul F Klapper, 75, brings over 50 years of business experience in various enterprises. Mr. Klapper has an extensive entrepreneurial background in travel, real estate development, venture capital and private equity. In 1994 he and his investment partners acquired Long John Silver’s and A&W Restaurants where he served as the Chairman and Board Member, until this company was sold to Yum Brands.

Since 1994, he has dedicated most of his time to venture capital and private equity investing. ln 1997, he led an investment group, Applied Underwriters Inc. and served as an Advisor to the company until it was sold to Berkshire Hathaway in 2007.

In 1999, Mr. Klapper formalized his first venture fund, “PFK Acquisition Company I, LLC”, at the suggestion of his investing partners. He organized his second fund in 2000 and his third fund, and the first of the Clydesdale family of funds, in 2005. He helped launch Clydesdale Partners, LLC in 2005. Mr. Klapper is currently Managing Partner of Clydesdale Ventures, LLC, (the management company for the two Clydesdale funds).

Mr. Klapper is still involved in real estate, managing a family portfolio and serves as advisor for various real estate companies. Since 1981, Mr. Klapper has been Chairman of PFK Development Group, Ltd., a privately held real estate company. PFK Development Group, Ltd., is presently developing a time-share project in Lake Tahoe, CA.

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Mr. Klapper currently serves as a Director of American Suppliers, Inc., Airtreks International, and Business Calcium as well as Advisor for several of the companies in his funds’ portfolios.

As a result of these and other professional experiences, Mr. Klapper possesses particular knowledge and experience that strengthen the Board’s collective qualifications, skills and experience. Mr. Klapper was appointed to the Board on December 9, 2013.

NORMAN A. GARDNER

Norman A. Gardner served as our president since inception on November 11, 1999 through October 8, 2012, when he became the Vice Chairman of the Company and has served as our Chief Excecutive Officer since inception. From 1974 to 1985 Mr. Gardner served as president of Polymark Management, Ltd., a Canadian public relations firm. In 1982, Mr. Gardner founded NoCopi Technologies, Inc. of West Conshohocken, PA, a publicly traded company. He served as president and chief executive officer of NoCopi from 1985 until 1997, and as chairman of its board until March 1998. Mr. Gardner received his B.A. in English from McGill University in 1963.

As a result of these and other professional experiences, Mr. Gardner possesses particular knowledge and experience in information technology that strengthen the board’s collective qualifications, skills and experience.

NEIL ALPERT

Neil Alpert became the President, a Director and Chief Operating Officer of LaserLock Technologies, Inc. on October 16, 2012.  In his capacity as President, Mr. Alpert is responsible for overseeing the day-to-day operations of the company as well as its vision for the future.  His background spans over a decade of management experience in the political, non-profit and business sectors.

From 2011 to 2012 Mr. Alpert served as President of The Kiawah Group, a boutique government relations and development firm specializing in fundraising, advocacy, non-profit consulting and global representation.

Prior to 2011 Mr. Alpert served as Special Assistant to the Chairman of the Republican National Committee.  In his role as Special Assistant, Mr. Alpert orchestrated a nationwide political outreach campaign targeting over 100 congressional districts. In addition, the campaign helped inspire the largest Congressional seat change since 1948 and the largest for any midterm election since the 1938 midterm elections.

Prior to joining the Republican National Committee, Mr. Alpert served in a number of capacities in the non-profit world ranging from National Campaign Director at the American Israel Public Affairs Committee (AIPAC) to working with Plácido Domingo and the Washington National Opera. He also worked with health-focused organizations such as the Red Cross and the American Cancer Society.

Mr. Alpert’s management experience ranges from managing small teams of just four employees to teams as large as 100+.  In each situation, Mr. Alpert’s leadership and vision has led to significant increases in productivity and output.

Mr. Alpert is involved with a number of charities and most recently served on the Board of Directors for the Armed Forces Foundation, a non-profit organization dedicated to providing comfort and solace to members of the military.  He also sits on the Board of Advisors for the Institute of World Politics, a graduate school focused on supplying professional education in statecraft, national security and international affairs.

As a result of these and other professional experiences, Mr. Alpert possesses particular knowledge and experience in information technology that strengthen the board’s collective qualifications, skills and experience.

CONSTANCE HARRIMAN-WHITFIELD

Constance B. Harriman has helped formulate U.S. trade, natural resource and legal policy in executive positions at three US government agencies: the US Export-Import Bank and the US Department of Justice and Interior.  During her over twenty-five years of legal, public policy, and management experience, Ms. Harriman has worked extensively with Congress, federal agencies, the media, and special interest groups.  She has given speeches throughout the United States and abroad on issues related to finance, natural resources, and environmental technology.

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During the Bush and Clinton administrations, she was one of five full-time members of the Board of Directors of the Export-Import Bank.  She served on the Board’s Audit Committee and chaired the Bank’s taskforce and environmental guidelines.  Previously, Ms. Harriman was Assistant Secretary for Fish and Wildlife and Parks at the US Department of the Interior.  She had policy, budget and administration responsibility for the National Park Service and the Fish and Wildlife Service: 25,000 employees, 170 million acres of land, and a budget of $2 billion.  Ms. Harriman played a key role in several inter-agency and international organizations.  She served as US Commissioner to the Great Lakes Fishery Commission and as a member of the President’s Advisory Council on Historic Preservation.

Ms. Harriman’s other government experience includes high-level legal positions at the US Department of Justice and the US Department of the Interior.  She also worked with the California law firm of Sheppard, Mullin, Richter & Hampton, where she practiced corporate and securities law and commercial and antitrust litigation.

Ms. Harriman is a member of numerous organizations, and her work in the public and private sectors has earned her admission in the Marquis “Who’s Who in America.”

A Phi Beta Kappa graduate of Stanford University, she holds Bachelor and Master’s degrees from Stanford, a Master’s degree in international Law from Georgetown University, and a Juris Doctor degree from the University of California at Los Angeles.

As a result of these and other professional experiences, Ms. Harriman-Whitfield possesses particular knowledge and experience in information technology that strengthen the board’s collective qualifications, skills and experience. Ms. Harriman was elected to the Board on November 21, 2012.

JONATHAN WEINBERGER

Jonathan R. Weinberger is an experienced, accomplished, and well respected member of the Washington D.C. legal, government, and business communities.  Jonathan currently serves as Executive Vice President of a revolutionary technology company called Veedims, LLC based in Fort Lauderdale, Florida.  He also serves as a senior advisor to the owners of the private holding company that owns Veedims.

Mr. Weinberger has served directly under six cabinet members in various positions.  At the Department of State he was on the staffs of both Secretary Albright and Secretary Powell.  At the U.S. Treasury, he served as the youngest Executive Secretary of the Treasury in the Department’s history.  He also served as the Executive Secretary and Deputy Chief of Staff at the Office of the United States Trade Representative at the White House.  Mr. Weinberger also served as Associate General Counsel where he was in charge of issues with respect to foreign investment in the United States and led the litigation team on various high-level trade disputes with China. Through his service in the government he has developed a superb skill for executive management at the largest scale, an eye for efficient operation, and a rare entrepreneurial mindset that allowed for the streamlining of multitudes of bureaucratic structures and processes.

Originally from Scranton, Pennsylvania, Mr. Weinberger received his Bachelors Degree in International Affairs and Italian from The Johns Hopkins University. He also earned a Masters Degree in U.S. Foreign Policy from the Elliott School of International Affairs at George Washington University, a Juris Doctor degree from the Washington College of Law at American University, and a Masters of Law (LL.M) in international finance and national security law, with distinction, from Georgetown University Law Center.

As a result of these and other professional experiences, Mr. Weinberger possesses particular knowledge and experience in information technology that strengthen the board’s collective qualifications, skills and experience.  Mr. Weinberger was elected to the Board on November 21, 2012.

GILES KYSER

Colonel Giles Kyser (USMC, Retired) joined LaserLock Technologies as Chief Operating Officer in September 2013. He hails from California, grew up in Virginia, and received his Bachelor of Science degree from the US Naval Academy in Annapolis, Maryland and holds Masters of Science degrees in Military Studies and in National Resource Strategy. He spent twenty-four years in the Marines in various worldwide Command and Staff assignments in the Infantry and Special Operations arena. He commanded at the Platoon, Company, and Battalion levels and saw combat during Desert Shield, Desert Storm, Bosnia, Kosovo, and Iraq. During his career he also served as the Platoon Commander for Marine Silent Drill Platoon, as the Senior Military Advisor to the Assistant Secretary of Defense for Special Operations and Low Intensity Conflict and as the Chief of Staff for the Deputy Under Secretary of the Navy. His business experience includes service as Vice President for Special Operations and Irregular Warfare and President and Chief Executive Officer for SELEX Galileo Inc. (Defense Electronics), and as a Senior Executive with MIC Industries (Construction technology). He is an Eagle Scout, serves as a member of the Consensus for Development Reform, the Order of St. Crsipin, the US Marine Raider Association, the Veterans of Foreign Wars, and on the Board of Advisors for V1 Analytical LLC.

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PAUL DONFRIED

Paul Donfried joined LaserLock as Chief Technology Officer in 2013.  He is responsible for leading the development of innovative, resilient and easy-to-use solutions for meeting the anti-counterfeiting and brand protection needs of our customers. In his role as CTO, Mr. Donfried is also responsible for IT services, both internal and external.

Prior to his current role at LaserLock Technologies, Mr. Donfried spent four years as CTO - Identity and Access Management for Verizon, responsible for the strategy, engineering and marketing direction of the company’s portfolio of enterprise identity services.  He led Verizon’s strategic alignment of cloud-based identity technologies across market segments, helping deliver a new generation of identity services that enable organizations to address the complex challenges of authenticating and managing user identities.

Prior to his role at Verizon, Mr. Donfried was Vice President of SAIC Identity & Access Management Solutions for two years, where his responsibilities included overall strategy, product development and the introduction of identity technologies. Earlier in his career, Mr. Donfried worked for Apple, General Electric and The Bank of Montreal.

A recognized expert in the fields of identity life cycle and risk management, Mr. Donfried has led the development of numerous industry organizations including SAFE-BioPharma and Identrust. He is a frequent speaker on the role of trusted e-commerce and its application in heavily regulated industries and the federal government.  As a member of the Open Identity Exchange (OIX), Mr. Donfried provides leadership on the creation of trust frameworks and the protection of critical infrastructure.

Mr. Donfried received a Bachelor of Science in computer science from Rensselaer Polytechnic Institute and holds multiple patents for identity, authentication, attributes and digital signing systems. 

EDWARD J. WEISBERGER

Edward Weisberger joined LaserLock in December 2013 and brings 30 years experience to his current role as the Chief Financial Officer.  He has worked in all facets of financial strategy and planning, development and design of accounting systems and procedures, and new venture management accounting.

Previously, Mr. Weisberger was a financial consultant for Deloitte & Touche, with a focus on providing financial leadership to S&P 500 companies. He served in multiple key leadership roles with increasing responsibility including Director of Corporate accounting for CarrAmerica, Controller and Tax Manager for First Data Investor Services, Senior Tax Manager for Host Marriott and Senior Accountant for MCI.  In addition he served 13 years as Treasurer and Chief Financial Officer of Igene Biotechnology and Naturxan LLC, aiding in operational planning for biotechnology research and development and manufacturing operations.   

Earlier in his career, Mr. Weisberger worked in public accounting. He received his BS degree in accounting from State University of New York in 1986 and earned his CPA in the State of Maryland.

Committees

Our board of directors has created a separately-designated audit committee, governance committee, compensation committee, and an investment committee.  As of the date of this annual report, we have eight full-time employees and have not generated significant revenue to date.  In light of the foregoing, our Board concluded that the benefits of retaining an individual who qualifies as an “audit committee financial expert,” as that term is defined in Item 407(d)(5)(ii) of Regulation S-K promulgated under the Securities Act, would be outweighed by the costs of retaining such a person.  As a result, no member of our Board is an “audit committee financial expert.” 

Code of Ethics

We have adopted a code of ethics applicable to our executives, as defined by applicable rules of the SEC.  

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires that our officers and directors and persons who beneficially own more than 10% of our common stock file initial reports of ownership and reports of changes in beneficial ownership of our common stock with the SEC.  They are also required to furnish us with copies of all Section 16(a) forms that they file with the SEC.  Based solely on our review of the copies of such forms received by us, or written representations from such persons that no reports were required for those persons, we believe that all Section 16(a) filing requirements were satisfied in a timely fashion during our fiscal year ended December 31, 2013.

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ITEM 11.  EXECUTIVE COMPENSATION.

Summary Compensation Table

The following table sets forth the compensation earned by the Company’s principal executive officer and named executive officers during the years ended December 31, 2013 and 2012.

Name and Principal Position	Year	Salary ($)	Option Awards(1) ($)	All Other Compensation (2)($)	Total ($)
Norman A. Gardner (3) Vice Chairman & Founder	2013 2012	171,333 50,000	3,787,700 44,769	- 56,414	3,959,033 151,183
Neil Alpert President & CEO	2013 2012	200,000 50,000	3,787,700 44,769	- -	3,987,700 94,769
Paul Donfried CTO	2013	282,692	24,993	-	307,685

(1)	Represents the grant date fair value of the option award, calculated in accordance with FASB Accounting Standard Codification 718, “Compensation – Stock Compensation,” or ASC 718.   The assumptions used in calculating the grant date fair value of the option awards are set forth in Note 13 of our Consolidated Financial Statements.
(2)	Company car, insurance, occupancy costs and expenses.
(3)	Mr. Gardner’s salary payments were paid in 2013 to Lindy Associates.

Outstanding Equity Awards At December 31, 2013

The following table sets forth, for each named executive officer, information regarding unexercised options, stock that had not vested, and equity incentive plan awards as of the end of our fiscal year ended December 31, 2013.

Name	Number of securities underlying unexercised options  (#) exercisable	Number of securities underlying unexercised options (#) unexercisable	Option exercise price ($)	Option expiration Date
Norman A. Gardner	1,000,000 19,000,000	- -	$0.05 $0.05	11/20/2022 06/29/2023
Neil Alpert	1,000,000 19,000,000	- -	$0.05 $0.05	11/20/2022 06/29/2023
Paul Donfried	250,000	-	$0.05	1/22/2023

Narrative Disclosure to Summary Compensation Table and Outstanding Equity Awards Table

Employment Agreements

We currently have a three year employment agreement dated October 8, 2012 with our Vice Chairman and Chief Executive Officer of the Company with an annual compensation of $200,000 per year. In addition, upon execution of the agreement the Company has agreed to issue options to the Vice Chairman and Chief Executive Officer to purchase 5% of the fully diluted shares of the Company’s common stock at an exercise price of $.05 per share, subsequent to the Company receiving funding of $2.5 million.

We currently have a three year employment agreement dated October 16, 2012 with our President and Chief Operating Officer of the Company with an annual compensation of $200,000 per year. In addition, upon execution of the agreement the Company has agreed to issue options to the President and Chief Operating Officer to purchase 5% of the fully diluted shares of the Company’s common stock at an exercise price of $.05 per share, subsequent to the Company receiving funding of $2.5 million.

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Option Issuance

On November 21, 2012, the Company issued the Vice Chairman and Chief Executive Officer of the Company an option to purchase 1 million shares of the Company’s common stock at an exercise price of $0.05, with a term of ten years.

On November 21, 2012, the Company issued the President and Chief Operating Officer of the Company an option to purchase 1 million shares of the Company’s common stock at an exercise price of $0.05, with a term of ten years.

Director Compensation

Name		Fees earned or paid in cash ($)	Option awards ($)(1)	Total ($)
Michael Sonnenreich	2013 2012	- -	89,568 89,568	89,568 89,568
Claudio Ballard Michael Chertoff Neil Alpert	2013 2013 2013 2012	- - - -	219,982 230,000 - -	219,982 230,000 - -
Constance Harriman-Whitfield	2013 2012	- -	89,568 89,568	89,568 89,568
General Peter Pace	2013 2012	- -	89,568 89,568	89,568 89,568
Paul Wolfowitz	2013 2012	- -	89,568 89,568	89,568 89,568
Jonathan Weinberger	2013 2012	- -	89,568 89,568	89,568 89,568

(1) Represents the grant date fair value of the option award, calculated in accordance with FASB Accounting Standard Codification 718, “Compensation – Stock Compensation,” or ASC 718.   The assumptions used in calculating the grant date fair value of the option awards are set forth in Note 13 of our Consolidated Financial Statements.

On February 20, 2014, the following members of the Board of Directors of LaserLock Technologies, Inc. resigned from the Board of Directors: Michael Chertoff, General Peter Pace, Michael R. Sonnenreich and Paul Wolfowitz.

Narrative Disclosure to Directors Compensation Table

We did not pay an annual fee to any of our directors during 2012 or 2013.  Each member of our board of directors receives reimbursement of expenses incurred in connection with his or her services as a member of our board or board committees.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, MANAGEMENT AND   DIRECTORS

The following table sets forth, as of December 31, 2013, information with respect to the securities holdings of all persons that we have reason to believe, pursuant to filings with the SEC, may be deemed the beneficial owner of more than 5% of our outstanding common stock.  The following table also sets forth, as of such date, the beneficial ownership of our common stock by all executive officers and directors, individually and as a group.

The beneficial owners and amount of securities beneficially owned have been determined in accordance with Rule 13d-3 under the Exchange Act and, in accordance therewith, includes all shares of our common stock that may be acquired by such beneficial owners within 60 days of December 31, 2013 upon the exercise or conversion of any options, warrants or other convertible securities.  Unless otherwise indicated, each person or entity named below has sole voting and investment power with respect to all common stock beneficially owned by that person or entity, subject to the matters set forth in the footnotes to the table below, and has an address of c/o LaserLock Technologies, Inc., 3112 M Street, Washington, DC 20007.

Name and Address of Beneficial Owner	Amount and Nature Of Beneficial Ownership†	Percentage of Class†
5% Beneficial Owners
Robert L. Bast 110 Spruce Lane Ambler, PA 19002	28,423,622(1)	9.80%
Clydesdale Partners II LLC 201 Spear Street, Suite 1150 San Francisco, CA 94105	58,681,334(2)	20.23%
Nob Hill 1 Ferry Building, Suite 225 San Francisco, CA  19411	57,126,363(3)	19.69%
VerifyMe, Inc. 205 Linda Drive Daingerfield, TX  75638	155,333,332(4)	38.94%
Executive Officers and Directors
Michael Sonnenreich	7,000,000(5)	2.38%
Norman A. Gardner	39,046,339(6)	12.59%
Neil Alpert	20,000,000(7)	6.45%
Constance Harriman-Whitfield	3,000,000(8)	1.02%
Claudio Ballard	1,000,000(9)	*
All officers and directors as a group (9 people)	121,727,673	36.47%

*Less than 1 percent

†In accordance with SEC rules, options, warrants and other securities exercisable for or convertible into shares of our common stock that were exercisable as of November 4, 2013, or would become exercisable within 60 days thereafter, are deemed to be outstanding and beneficially owned by the person holding such options, warrants or other securities for the purpose of computing such person’s percentage ownership, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person.

(1) Consists of 28,423,622 shares of common stock.

(2) Consists of 48,348,334 shares of common stock and 10,333,000 shares of PFK Acquisition Group II LLC, which is under common control.

(3) Consists of 57,126,363 shares of common stock.

(4) Consists of 44,444,444 shares of common stock, 21,111,111 shares underlying convertible preferred stock, 87,777,777 shares underlying warrants exercisable at 0.10 per share.

(5) Consists of 3,000,000 shares of common stock, 2,000,000 shares underlying options exercisable at $0.05 per share and 2,000,000 shares underlying warrants exercisable at $0.15.

(6) Consists of 19,046,339 shares of common stock, and 20,000,000 shares underlying options exercisable at $0.05 per share.

(7) Consists of 20,000,000 shares underlying options exercisable at $0.05 per share.

(8) Consists of 333,333 shares of common stock, 2,000,000 shares underlying options exercisable at $.05 per share and 666,667 shares underlying warrants exercisable at $0.15 per share.

(9) Consists of 1,000,000 shares underlying options exercisable at $0.05 per share.

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Transfer Agent

Our Transfer Agent is Interwest Transfer Company, Inc. and their address and phone number are 1981 Murray Holladay Road, #100, Salt Lake City, UT 84117; (801) 272-9294.

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

Related Party Transactions

Under applicable SEC rules and regulations, the following individuals may be considered “promoters” of the Company as they were instrumental in forming and organizing the Company: (i) Norman A. Gardner.

At December 31, 2012, five shareholders of the Company held $491,249 of the senior secured convertible notes payable.

One shareholder held $140,000 of convertible notes payable as of December 31, 2012.

At December 31, 2013 and 2012 two shareholders of the Company held $330,000 and $561,000 of unsecured notes payable.

We have entered an employment agreement with Mr. Gardner and Mr. Alpert.  We have issued options to both, which awards are described in more detail under “Item 11.  Executive Compensation” of this report.

Policies and Procedures for Reviewing Related Party Transactions

We have not adopted any written policies or procedures governing the review, approval or ratification of related party transactions. However, our Board of Directors reviews, approves or ratifies, when necessary, all transactions with related parties.

Director Independence

Pursuant to Item 407(a)(1)(ii) of Regulation S-K promulgated under the Securities Act, we have adopted the definition of “independent director” as set forth in Rules 5000(a)(19) and 5605(a)(2) of the rules of the Nasdaq Stock Market.  We believe Constance Harriman-Whitfield qualified as an “independent director” pursuant to such rules.  Our Board has created separately-designated standing committees.  Officers are elected annually by our Board and serve at the discretion of our Board.

ITEM 14.   PRINCIPAL ACCOUNTING FEES AND DISCLOSURES.

Audit Fees

The fees billed for professional services rendered by our principal accountant for the audit of our annual financial statements for the years ended December 31, 2013 and 2012 and the review of the financial statements included in each of our quarterly reports during the years ended December 31, 2013 and 2012, were $40,500 and $36,500, respectively.

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Audit-Related Fees

There were no fees billed by our independent accountants for audit-related services during the fiscal year ended December 31, 2013 and 2012.   

Tax Fees

During the fiscal years ended December 31, 2013 and 2012, there were no fees billed for tax compliance, tax advice and/or tax planning by our principal accountants.

All Other Fees

During the for the year ended December 31, 2013 and 2012, there were no additional fees billed for products and services provided by the principal accountant other than those set forth above.

Audit Committee Approval

Our audit committee approves the engagement of our independent auditors, and meets with our independent auditors to approve the annual scope of accounting services to be performed and the related fee estimates.  It also meets with our independent auditors prior to the completion of our annual audit and reviews the results of their audit and review of our annual and interim consolidated financial statements, respectively.  During the course of the year, our chairperson has the authority to pre-approve requests for services that were not approved in the annual pre-approval process.  The chairperson reports any interim pre-approvals at the following quarterly meeting.  At each of the meetings, management and our independent auditors update our board of directors regarding material changes to any service..

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PART IV

ITEM 15.   EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

The following exhibits are filed as part of this report.

3.1 Amended and Restated Articles of Incorporation of the Company dated December 17, 2003 (filed as an exhibit to the Company’s Annual Report on Form 10-KSB filed with the Securities and Exchange Commission on March 30, 2004 and incorporated herein by reference).

3.2 Certificate of Amendment to Amended and Restated Articles of Incorporation of LaserLock Technologies, Inc., dated as of November 29, 2012 (filed as an exhibit to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 1, 2013 and incorporated herein by reference).

3.3 Amended Certificate of Designation of Series A Preferred Stock, dated as of January 31, 2013 (filed as an exhibit to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 6, 2013 and incorporated herein by reference).

3.4 Amended and Restated Bylaws of the Company dated December 17, 2003 (filed as an exhibit to the Company’s Annual Report on Form 10-KSB filed with the Securities and Exchange Commission on March 30, 2004 and incorporated herein by reference).

3.5 Certificate of Amendment to Amended and Restated Articles of Incorporation of LaserLock Technologies, Inc., dated as of May 23, 2013 (filed as an exhibit to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 30, 2013 and incorporated herein by reference).

10.1 Employment Agreement by and between the Company and Norman Gardner dated November 5, 2003 (filed as an exhibit to the Company’s Annual Report on Form 10-KSB filed with the Securities and Exchange Commission on March 30, 2004 and incorporated herein by reference).

10.2 Stock Loan Agreement by and among Norman Gardner, Californian Securities, SA and Pacific Continental Securities (UK) Nominees Limited and the Company (filed as an exhibit to the Company’s Quarterly Report on Form 10-QSB filed with the Securities and Exchange Commission on November 14, 2003 and incorporated herein by reference).

10.3 Regulations S Stock Purchase Agreement, dated May 2, 2003, by and between the Company and Californian Securities, S.A. (filed as an exhibit to the Company’s Quarterly Report on Form 10-QSB filed with the Securities and Exchange Commission on August 14, 2003 and incorporated herein by reference).

10.4 Amendment to Regulation S Stock Purchase Agreement by and between the Company and Californian Securities, S.A., dated October 15, 2003 (filed as an exhibit to the Company’s Quarterly Report on Form 10-QSB filed with the Securities and Exchange Commission on November 14, 2003 and incorporated herein by reference).

10.5 Regulations S Stock Purchase Agreement, dated March 10, 2004, by and between the Company and California Securities, S.A. (filed as an exhibit to the Company’s Quarterly Report on Form 10-QSB filed with the Securities and Exchange Commission on May 17, 2004 and incorporated herein by reference).

10.6 Senior Secured Convertible Note and Warrant Purchase Agreement, dated February 13, 2006, among the Company and Nob Hill Capital Partners, L.P. (filed as an exhibit to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 17, 2006 and incorporated herein by reference).

10.7 Schedule of Purchasers who have entered into the Senior Secured Convertible Note and Warrant Purchase Agreement (filed as an exhibit to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 17, 2006 and incorporated herein by reference).

10.8	Senior Secured Convertible Promissory Note, dated February 17, 2006, by the Company in favor of Nob Hill Capital Partners, L.P. in the amount of $100,000 (filed as an exhibit to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 17, 2006 and incorporated herein by reference).
10.9	Schedule of Payees who have entered into a senior secured convertible promissory note substantially identical to the Senior Secured Convertible Promissory Note (filed as an exhibit to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 17, 2006 and incorporated herein by reference).

10.10 Warrant, issued by the Company in favor of Nob Hill Capital Partners, L.P., dated February 13, 2006 (filed as an exhibit to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 17, 2006 and incorporated herein by reference).

10.11 Schedule of Holders to whom the Company has issued a warrant substantially identical to the Warrant (filed as an exhibit to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 17, 2006 and incorporated herein by reference).

10.12 Security Agreement, dated February 13, 2006, by and between the Company and Nob Hill Capital Partners, L.P. (filed as an exhibit to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 17, 2006 and incorporated herein by reference).

10.13 Schedule of Secured Parties who have entered into a security agreement substantially identical to the Security Agreement (filed as an exhibit to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 17, 2006 and incorporated herein by reference).

30

10.14 Grant of 3,000,000 shares of the Company to Norman A. Gardner on January 3, 2006 in consideration for services provided to the Company (filed as an exhibit to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 18, 2006 and incorporated herein by reference).

10.15 LaserLock Technologies, Inc. 2013 Omnibus Equity Compensation Plan adopted on December 9, 2013 (filed as an exhibit to the Company’s Definitive Proxy Statement filed with the Securities and Exchange Commission on November 19, 2013 and incorporated herein by reference).

10.16 Option Agreement, dated as of March 23, 2012, between the Company and Gaming Partners International Corporation (filed herewith).

10.17 Investment Agreement, dated as of December 31, 2012, between LaserLock Technologies, Inc. and VerifyMe, Inc. (filed as an exhibit to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 1, 2013 and incorporated herein by reference).

10.18 Registration Rights Agreement, dated as of December 31, 2012, between LaserLock Technologies, Inc. and VerifyMe, Inc. (filed as an exhibit to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 1, 2013 and incorporated herein by reference).

10.19 Technology and Services Agreement, dated as of December 31, 2012, between LaserLock Technologies, Inc. and VerifyMe, Inc. (filed as an exhibit to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 1, 2013 and incorporated herein by reference).

10.20 Patent and Technology License Agreement, dated as of December 31, 2012, between LaserLock Technologies, Inc. and VerifyMe, Inc. (filed as an exhibit to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 1, 2013 and incorporated herein by reference).

10.21 Asset Purchase Agreement, dated as of December 31, 2012, between LaserLock Technologies, Inc. and VerifyMe, Inc. (filed as an exhibit to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 1, 2013 and incorporated herein by reference).

10.22	Technology and Services Agreement (Zaah), dated as of December 31, 2012, between LaserLock Technologies, Inc. and Zaah Technologies, Inc. (filed as an exhibit to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 1, 2013 and incorporated herein by reference).
10.23	Employment Agreement between LaserLock Technologies, Inc. and Norman Gardner, dated as of October 8, 2012 (filed as an exhibit to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 1, 2013 and incorporated herein by reference).
10.24	Employment Agreement between LaserLock Technologies, Inc. and Neil Alpert, dated as of October 8, 2012 (filed as an exhibit to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 1, 2013 and incorporated herein by reference).
10.25	Employment Agreement between LaserLock Technologies, Inc. and Scott McPherson, dated as of December 14, 2012 (filed as an exhibit to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 1, 2013 and incorporated herein by reference).
10.26	Nonqualified Stock Option Grant Agreement between LaserLock Technologies, Inc. and Norman Gardner, dated as of November 21, 2012 (filed as an exhibit to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 1, 2013 and incorporated herein by reference).
10.27	Nonqualified Stock Option Grant Agreement between LaserLock Technologies, Inc. and Neil Alpert, dated as of November 21, 2012 (option grant on identical terms and for same amount of options as pursuant to agreement filed as Exhibit 10.26).
10.28	Nonqualified Stock Option Grant Agreement between LaserLock Technologies, Inc. and Michael Sonnenreich, dated as of November 21, 2012 (filed as an exhibit to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 1, 2013 and incorporated herein by reference).
10.29	Nonqualified Stock Option Grant Agreement between LaserLock Technologies, Inc. and Constance Harriman, dated as of November 21, 2012 (option grant on identical terms and for same amount of options as pursuant to agreement filed as Exhibit 10.28).
10.30	Nonqualified Stock Option Grant Agreement between LaserLock Technologies, Inc. and Peter Pace, dated as of November 21, 2012 (option grant on identical terms and for same amount of options as pursuant to agreement filed as Exhibit 10.28).
10.31	Nonqualified Stock Option Grant Agreement between LaserLock Technologies, Inc. and Jonathan Weinberger, dated as of November 21, 2012 (option grant on identical terms and for same amount of options as pursuant to agreement filed as Exhibit 10.28).
10.32	Nonqualified Stock Option Grant Agreement between LaserLock Technologies, Inc. and Paul Wolfowitz, dated as of November 21, 2012 (option grant on identical terms and for same amount of options as pursuant to agreement filed as Exhibit 10.28).
10.33	Subscription Agreement between LaserLock Technologies, Inc. and VerifyMe, Inc., dated as of January 31, 2013 (filed as an exhibit to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 6, 2013 and incorporated herein by reference).

10.34 Nonqualified Stock Option Grant Agreement between LaserLock Technologies, Inc. and Paul Klapper, dated as of December 9, 2013 (option grant on identical terms and for same amount of options as pursuant to agreement filed as Exhibit 10.28).

10.35 Nonqualified Stock Option Grant Agreement between LaserLock Technologies, Inc. and Michael Chertoff, dated as of May 4, 2013 (option grant on identical terms and for same amount of options as pursuant to agreement filed as Exhibit 10.28).

14.1 Code of Ethics (filed as an exhibit to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 1, 2013 and incorporated herein by reference).

23.1 Consent of Asher & Company, Ltd. (filed herewith).

31.1**	Certification of the principal executive officer of the Company, pursuant to Securities Exchange Act Rule 13a-14(a)
31.2**	Certification of the principal financial officer of the Company, pursuant to Securities Exchange Act Rule 13a-14(a)
32.1**	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002, signed by the chief executive officer of the Company
32.2**	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002, signed by the chief financial officer of the Company
101.INS**	XBRL Instance Document
101.SCH**	XBRL Taxonomy Extension Schema Document
101.CAL**	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF**	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB**	XBRL Taxonomy Extension Label Linkbase
101.PRE**	XBRL Taxonomy Extension Presentation Linkbase Document

**filed herewith

31

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

LaserLock Technologies, Inc.
By:	/s/ Neil Alpert
	Neil Alpert Chief Executive Officer
	Date:  March 28, 2014

Pursuant to the requirements of the Securities Exchange Act of 1934, 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
/s/ Neil Alpert	Chief Executive Officer	March 31, 2014
Neil Alpert	(Principal Executive Officer)
Signature	Title	Date
/s/ Edward J Weisberger	Chief Financial Officer	March 31, 2014
Edward J Weisberger	(Principal Financial Accounting Officer)
Signature	Title	Date
/s/ Constance Harriman-Whitfield	Director	March 31, 2014
Constance Harriman-Whitfield

Signature	Title	Date
/s/ Claudio Ballard	Director	March 31, 2014
Claudio Ballard
Signature	Title	Date
/s/ Jonathan Weinberger	Director	March 31, 2014
Jonathan Weinberger
Signature	Title	Date
/s/ Paul Klapper	Director	March 31, 2014
Paul Klapper

32

CONTENTS

	PAGE
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	1
CONSOLIDATED BALANCE SHEETS	2
CONSOLIDATED STATEMENTS OF OPERATIONS	3
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT	4 - 8
CONSOLIDATED STATEMENTS OF CASH FLOWS	9 - 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	11-27

Report of Independent Registered Public Accounting Firm

To the Board of Directors

LaserLock Technologies, Inc. and Subsidiary

We have audited the accompanying consolidated balance sheets of LaserLock Technologies, Inc. and its Subsidiary (a development stage enterprise) as of December 31, 2013 and 2012 and the related consolidated statements of operations, changes in stockholders’ equity (deficit), and cash flows for the years then ended and for the period from November 10, 1999 (date of inception) to December 31, 2013. 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 audit. We did not audit the consolidated financial statements of LaserLock Technologies, Inc. and its Subsidiary as of December 31, 2011, 2010, 2009 and 2008 and for each of the years in the four-year period ended December 31, 2011. Such statements are included in the cumulative since inception to December 31, 2013 totals of the consolidated statements of operations and cash flows. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to amounts for each of the years in the four-year period ended December 31, 2011, included in the cumulative totals, is based solely on the report of the other auditors.

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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 and the report of the other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the report of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of LaserLock Technologies, Inc. and its Subsidiary as of December 31, 2013, and the results of their operations and their cash flows for the years then ended and for the period November 10, 1999 (date of inception) to December 31, 2013, in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in Note 2 to the financial statements, the Company has incurred significant losses and experienced negative cash flow from operations during the development stage. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ MORISON COGEN LLP 

Bala Cynwyd, Pennsylvania

March 31, 2014

-1-

LaserLock Technologies, Inc. and Subsidiary

(A Development Stage Enterprise)

Consolidated Balance Sheets

December 31, 2013 and December 31, 2012

	December 31, 2013			December 31, 2012
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	1,285,973		$	2,994,350
Accounts receivable, net of allowance of $0 at December 31, 2013 and December 31, 2012		3,573			3,473
Inventory		34,271			19,980
Prepaid expenses		189,474			750,000
TOTAL CURRENT ASSETS		1,513,291			3,767,803
PROPERTY AND EQUIPMENT
Capital equipment, net of accumulated depreciation of $91,952 and $32,624 as of December 31, 2013 and December 31, 2012		144,074			2,340
OTHER ASSETS
Deposits		37,197			-
Patents and trademarks, net of accumulated amortization of $105,393 and $92,302 as of December 31, 2013 and December 31, 2012		120,695			311,832
TOTAL ASSETS	$	1,815,257		$	4,081,975
LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses	$	316,785		$	660,493
Accrued interest		16,667			97,563
Embedded derivative liability		800,000			-
Notes payable		50,000			200,000
TOTAL CURRENT LIABILITIES		1,183,452			958,056
LONG-TERM LIABILITIES
Warrant liability		6,000,000			2,400,000
Accrued interest - related parties		300,677			975,559
Senior secured convertible notes payable - related parties		330,249			775,249
Convertible notes payable		-			140,000
Notes payable, net of discount of $13,632 as of December 31, 2012		-			697,368
TOTAL LONG-TERM LIABILITIES		6,630,926			4,988,176
STOCKHOLDERS’ DEFICIT
Convertible Preferred Stock, $ .001 par value; 75,000,000 shares authorized; 21,111,111 shares issued and outstanding as of December 31, 2013 and no shares issued and outstanding at December 31, 2012		633,333			-
Common stock, $ .001 par value; 675,000,000 shares authorized; 319,862,042 shares issued and 290,066,139 outstanding at December 31, 2013 and 248,244,012 shares issued and 218,448,109 outstanding at December 31, 2012		319,862			248,244
Additional paid in capital		22,938,983			11,387,929
Treasury stock, at cost (29,795,903 shares at December 31, 2013 and December 31, 2012)		(113,389	)		(113,389	)
Deficit accumulated during the development stage		(29,777,910	)		(13,387,041	)
STOCKHOLDERS’ DEFICIT		(5,999,121	)		(1,864,257	)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	1,815,257		$	4,081,975

The accompanying notes are an integral part of these consolidated financial statements.

-2-

LaserLock Technologies, Inc. and Subsidiary

(A Development Stage Enterprise)

Consolidated Statement of Operations

For the years ended December 31, 2013 and 2012

And for the period November 10, 1999 (date of inception) to December 31, 2013

				Year			Year
	Cumulative			Ended			Ended
	Since			December 31,			December 31,
	Inception			2013			2012
NET REVENUES
Sales	$	464,295		$	3,140		$	7,029
Royalties		645,180			-			10,000
TOTAL NET REVENUE		1,109,475			3,140			17,029
COST OF SALES		431,741			2,710			4,083
GROSS PROFIT		677,734			430			12,946
OPERATING EXPENSES
General and administrative		2,306,027			762,668			129,329
Legal and accounting		2,014,734			475,948			276,774
Patent costs		65,000			-			-
Payroll expenses (a)		12,898,321			9,485,339			612,721
Research and development		1,523,632			655,840			5,420
Sales and marketing		5,281,536			261,804			66,499
Total operating expenses		24,089,250			11,641,599			1,090,743
LOSS BEFORE OTHER INCOME (EXPENSE)		(23,411,516	)		(11,641,169	)		(1,077,797	)
OTHER INCOME (EXPENSE)
Interest income		63,664			-			1
Interest expense		(2,318,257	)		(127,825	)		(277,371	)
Loss on extinguishment of debt		(1,221,875	)		(1,221,875	)		156,110
Change in fair value of warrants		(604,209	)		(604,209	)		-
Change in fair value of embedded derivative liability		200,000			200,000			-
Fair value of warrants in excess of consideration for convertible preferred stock		(2,995,791	)		(2,995,791	)		-
Gain on debt forgiveness		340,352			-			-
Gain on disposition of assets		4,722			-			-
		(6,531,394	)		(4,749,700	)		(121,260	)
INCOME (LOSS) BEFORE INCOME TAX BENEFIT		(29,942,910	)		(16,390,869	)		(1,199,057	)
INCOME TAX BENEFIT		(165,000	)		-			-
NET INCOME (LOSS)		(29,777,910	)		(16,390,869	)		(1,199,057	)
Less: Deemed dividend distribution		(1,000,000	)		(1,000,000	)		-
NET INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS	$	(30,777,910	)	$	(17,390,869	)	$	(1,199,057	)
NET INCOME (LOSS) PER COMMON SHARE
BASIC				$	(0.07	)	$	(0.01	)
DILUTED				$	(0.07	)	$	(0.01	)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
BASIC					250,043,403			150,559,287
DILUTED					250,043,403			150,559,287

(a) - includes share based compensation of $8,619,137 for the year ended December 31, 2013 and $0 for the year ended December 31, 2012

The accompanying notes are an integral part of these consolidated financial statements.

-3-

LaserLock Technologies, Inc. and Subsidiary

(A Development Stage Enterprise)

Consolidated Statements of Changes in Stockholders’ Equity (Deficit)

For the Period November 10, 1999 (Date of Inception) to December 31, 2013

													Deficit
	Common												Accumulated
	Stock				Deferred			Additional					During the
	Number of				Consulting			Paid-In			Treasury		Development
	Shares		Amount		Fees			Capital			Stock		Stage			Total
Issuance of initial 4,278,000 shares on November 10, 1999		4,278,000	$	4,278	$	-		$	16,595		$	-	$	-		$	20,873
Issuance of shares of common stock in exchange for services		1,232,000		1,232		-			35,728			-		-			36,960
Issuance of shares of common stock		2,090,000		2,090		-			60,610			-		-			62,700
Stock issuance costs		-		-		-			(13,690	)		-		-			(13,690	)
Net loss		-		-		-			-			-		(54,113	)		(54,113	)
Balance, December 31, 1999		7,600,000		7,600		-			99,243			-		(54,113	)		52,730
Issuance of shares of common stock		5,449,999		5,450		-			921,050			-		-			926,500
Issuance of shares of common stock in exchange for services		240,000		240		(40,800	)		40,560			-		-			-
Stock issuance costs		-		-		-			(16,335	)		-		-			(16,335	)
Fair value of non-employee stock options grants		-		-		-			50,350			-		-			50,350
Amortization of deferred consulting fees		-		-		20,117			-			-		-			20,117
Net loss		-		-		-			-			-		(367,829	)		(367,829	)
Balance, December 31, 2000		13,289,999		13,290		(20,683	)		1,094,868			-		(421,942	)		665,533
Issuance of shares of common stock		217,500		218		-			77,723			-		-			77,941
Issuance of shares of common stock and stock options for acquisition of subsidiary		2,000,000		2,000		-			736,000			-		-			738,000
Issuance of stock options		-		-		-			15,000			-		-			15,000
Exercise of options		1,450,368		1,450		-			230,609			-		-			232,059
Fair value of non-employee stock options		-		-		-			323,250			-		-			323,250
Amortization of deferred consulting fees		-		-		20,683			-			-		-			20,683
Net loss		-		-		-			-			-		(1,052,299	)		(1,052,299	)
Balance, December 31, 2001		16,957,867		16,958		-			2,477,450			-		(1,474,241	)		1,020,167

The accompanying notes are an integral part of these consolidated financial statements.

-4-

LaserLock Technologies, Inc. and Subsidiary

(A Development Stage Enterprise)

Consolidated Statements of Changes in Stockholders’ Equity (Deficit) (Continued)

For the Period November 10, 1999 (Date of Inception) to December 31, 2013

														Deficit
	Common													Accumulated
	Stock						Deferred		Additional					During the
	Number of						Consulting		Paid-In			Treasury		Development
	Shares			Amount			Fees		Capital			Stock		Stage			Total
Issuance of shares of common stock		3,376,875			3,377			-		687,223			-		-			690,600
Fair value of non-employee stock options		-			-			-		94,000			-		-			94,000
Salary due to shareholder contributed capital		-			-			-		15,000			-		-			15,000
Return of shares of common stock related to purchase price adjustment		(1,000,000	)		(1,000	)		-		(353,000	)		-		-			(354,000	)
Net loss		-			-			-		-			-		(1,195,753	)		(1,195,753	)
Balance, December 31, 2002		19,334,742			19,335			-		2,920,673			-		(2,669,994	)		270,014
Issuance of shares of common stock		22,512,764			22,512			-		1,387,109			-		-			1,409,621
Fair value of non-employee stock options		-			-			-		213,300			-		-			213,300
Issuance of shares of common stock in exchange for services		143,000			143			-		23,857			-		-			24,000
Stock issuance costs		-			-			-		(49,735	)		-		-			(49,735	)
Net loss		-			-			-		-			-		(1,107,120	)		(1,107,120	)
Balance, December 31, 2003		41,990,506			41,990			-		4,495,204			-		(3,777,114	)		760,080
Stock issuance costs		-			-			-		(25,000	)		-		-			(25,000	)
Fair value of non-employee stock options		-			-			-		493,600			-		-			493,600
Issuance of shares of common stock		18,600,000			18,600			-		939,881			-		-			958,481
Net loss		-			-			-		-			-		(1,406,506	)		(1,406,506	)
Balance, December 31, 2004		60,590,506			60,590			-		5,903,685			-		(5,183,620	)		780,655

The accompanying notes are an integral part of these consolidated financial statements.

-5-

LaserLock Technologies, Inc. and Subsidiary

(A Development Stage Enterprise)

Consolidated Statements of Changes in Stockholders’ Equity (Deficit) (Continued)

For the Period November 10, 1999 (Date of Inception) to December 31, 2013

														Deficit
	Common													Accumulated
	Stock						Deferred		Additional					During the
	Number of						Consulting		Paid-In			Treasury		Development
	Shares			Amount			Fees		Capital			Stock		Stage			Total
Fair value of non-employee stock options		-			-			-		286,762			-		-			286,762
Issuance of shares of common stock		3,000,000			3,000			-		102,000			-		-			105,000
Net loss for the year ended December 31, 2005		-			-			-		-			-		(1,266,811	)		(1,266,811	)
Balance at December 31, 2005		63,590,506			63,590			-		6,292,447			-		(6,450,431	)		(94,394	)
Fair value of non-employee stock options		-			-			-		215,463			-		-			215,463
Fair value of employee stock options		-			-			-		135,098			-		-			135,098
Fair value of warrants issued for deferred finance charges		-			-			-		392,376			-		-			392,376
Exercise of warrants		5,550,000			5,550			-		49,950			-		-			55,500
Exercise of options		4,300,000			4,300			-		(3,870	)		-		-			430
Shares retired upon cancellation of consulting agreements		(1,200,000	)		(1,200	)		-		1,080			-		-			(120	)
Issuance of shares for services		1,200,000			1,200			-		53,800			-		-			55,000
Net loss for the year ended December 31, 2006		-			-			-		-			-		(1,607,017	)		(1,607,017	)
Balance at December 31, 2006		73,440,506			73,440			-		7,136,344			-		(8,057,448	)		(847,664	)
Fair value of non-employee stock options		-			-			-		47,692			-		-			47,692
Fair value of employee stock options		-			-			-		67,651			-		-			67,651
Recognition of beneficial conversion feature		-			-			-		375,000			-		-			375,000
Net loss for the year ended December 31, 2007		-			-			-		-			-		(1,117,334	)		(1,117,334	)
Balance at December 31, 2007		73,440,506			73,440			-		7,626,687			-		(9,174,782	)		(1,474,655	)

The accompanying notes are an integral part of these consolidated financial statements.

-6-

LaserLock Technologies, Inc. and Subsidiary

(A Development Stage Enterprise)

Consolidated Statements of Changes in Stockholders’ Equity (Deficit) (Continued)

For the Period November 10, 1999 (Date of Inception) to December 31, 2013

											Deficit
	Common										Accumulated
	Stock				Deferred		Additional				During the
	Number of				Consulting		Paid-In		Treasury		Development
	Shares		Amount		Fees		Capital		Stock		Stage			Total
Fair value of non-employee stock options		-		-		-		28,752		-		-			28,752
Fair value of employee stock options		-		-		-		19,720		-		-			19,720
Fair value of warrants issued in conjunction with debt financing		-		-		-		25,000		-		-			25,000
Net loss for the year ended December 31, 2008		-		-		-		-		-		(931,338	)		(931,338	)
Balance at December 31, 2008		73,440,506		73,440		-		7,700,159		-		(10,106,120	)		(2,332,521	)
Fair value of non-employee stock options		-		-		-		1,524		-		-			1,524
Fair value of warrants issued in conjunction with debt financing		-		-		-		15,450		-		-			15,450
Issuance of shares for services		7,200,000		7,200		-		40,500		-		-			47,700
Shares issued for conversion of notes payable		48,750,000		48,750		-		263,291		-		-			312,041
Net loss for the year ended December 31, 2009		-		-		-		-		-		(694,910	)		(694,910	)
Balance at December 31, 2009		129,390,506		129,390		-		8,020,924		-		(10,801,030	)		(2,650,716	)
Fair value of non-employee stock options		-		-		-		364		-		-			364
Fair value of warrants issued in conjunction with debt financing		-		-		-		20,143		-		-			20,143
Issuance of shares for services		25,950,000		25,950		-		182,650		-		-			208,600
Net loss for the year ended Decemberr 31, 2010		-		-		-		-		-		(721,841	)		(721,841	)
Balance at December 31, 2010		155,340,506		155,340		-		8,224,081		-		(11,522,871	)		(3,143,450	)

The accompanying notes are an integral part of these consolidated financial statements.

-7-

LaserLock Technologies, Inc. and Subsidiary

 (A Development Stage Enterprise)

 Consolidated Statements of Changes in Stockholders’ Equity (Deficit) (Continued)

For the Period November 10, 1999 (Date of Inception) to December 31, 2013

	Convertible																			Deficit
	Preferred						Common													Accumulated
	Stock						Stock					Deferred		Additional						During the
	Number of						Number of					Consulting		Paid-In			Treasury			Development
	Shares			Amount			Shares			Amount		Fees		Capital			Stock			Stage			Total
Issuance of shares for services		-			-			1,000,000			1,000		-		29,000			-			-			30,000
Contribution of common stock from related parties		-			-			(12,000,000	)		-		-		95,594			(95,594	)		-			-
Purchase of common stock for treasury		-			-			(17,795,903	)		-		-		-			(17,795	)		-			(17,795	)
Sale of common stock		-			-			15,500,000			15,500		-		384,500			-			-			400,000
Issuance of shares for stock issuance costs		-			-			2,100,000			2,100		-		(2,100	)		-			-			-
Stock issuance costs		-			-			-			-		-		(40,000	)		-			-			(40,000	)
Exercise of options		-			-			1,000,000			1,000		-		9,000			-			-			10,000
Fair value of warrants issued in conjunction with debt financing		-			-			-			-		-		21,275			-			-			21,275
Fair value of employee stock options		-			-			-			-		-		47,658			-			-			47,658
Fair value of non-employee stock options		-			-			-			-		-		48,374			-			-			48,374
Net loss for the year ended December 31, 2011		-			-			-			-		-		-			-			(665,113	)		(665,113	)
Balance at December 31, 2011		-			-			145,144,603			174,940		-		8,817,382			(113,389	)		(12,187,984	)		(3,309,051	)
Issuance of shares for services		-			-			1,000,000			1,000		-		45,500			-			-			46,500
Issuance of shares of common stock		-			-			44,111,111			44,111		-		1,015,889			-			-			1,060,000
Issuance of stock for licensing		-			-			2,222,222			2,222		-		97,778			-			-			100,000
Issuance of stock for trademarks, etc.		-			-			2,222,222			2,222		-		97,778			-			-			100,000
Shares issued for conversion of notes payable and accrued interest		-			-			12,923,622			12,925		-		568,639			-			-			581,564
Exercise of options		-			-			10,490,996			10,491		-		2,622			-			-			13,113
Exercise of warrants		-			-			333,333			333		-		49,667			-			-			50,000
Fair value of employee stock options		-			-			-			-		-		332,036			-			-			332,036
Fair value of non-employee stock options		-			-			-			-		-		11,638			-			-			11,638
Forgiveness of debt - related party		-			-			-			-		-		349,000			-			-			349,000
Net loss for the year ended December 31, 2012		-			-			-			-		-		-			-			(1,199,057	)		(1,199,057	)
Balance at December 31, 2012		-			-			218,448,109			248,244		-		11,387,929			(113,389	)		(13,387,041	)		(1,864,257	)
Issuance of shares of preferred stock		33,333,333			1,000,000			-			-		-		-			-			-			1,000,000
Conversion of shares of preferred stock to common stock		(12,222,222	)		(366,667	)		12,222,222			12,222		-		354,445			-			-			-
Issuance of shares of common stock		-			-			4,811,111			4,811		-		230,189			-			-			235,000
Shares issued for conversion of notes payable and accrued interest		-			-			18,275,000			18,275		-		1,871,725			-			-			1,890,000
Exercise of options		-			-			3,335,000			3,335		-		14,584			-			-			17,919
Exercise of warrants		-			-			1,000,000			1,000		-		9,000			-			-			10,000
Fair value of employee stock options		-			-			-			-		-		8,619,136			-			-			8,619,136
Deemed dividend distribution		-			-			-			-		-		(1,000,000	)		-			-			(1,000,000	)
Exercise of warrants								6,000,000			6,000				53,999									59,999
Conversion of Notes payable		-						25,974,697			25,975				1,397,976									1,423,951
Net loss for the year ended December 31, 2013		-			-			-			-		-		-			-			(16,390,869	)		(16,390,869	)
Balance at December 31, 2013		21,111,111		$	633,333			290,066,139		$	319,862	$	-	$	22,938,983		$	(113,389	)	$	(29,777,910	)	$	(5,999,121	)

The accompanying notes are an integral part of these consolidated financial statements.

-8-

LaserLock Technologies, Inc. and Subsidiary

 (A Development Stage Enterprise)

Consolidated Statements of Cash Flows

For the Years Ended December 31, 2013 and 2012

And for the Period November 10, 1999 (Date of Inception) to December 31, 2013

				Year			Year
	Cumulative			Ended			Ended
	Since			December 31,			December 31,
	Inception			2013			2012
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(29,777,910	)	$	(16,390,869	)	$	(1,199,057	)
Adjustments to reconcile net loss to net cash used in operating activities
Fair value of options issued in exchange for services		11,036,369			8,619,137			343,674
Accretion of interest on deferred finance charges		453,625			-			13,625
Accretion of discount on notes payable		446,954			3,718			4,957
Change in fair value warrant liability		604,209			604,209			-
Change in fair value embedded derivative liability		(200,000	)		(200,000	)		-
Change in fair value of deemed distribution		-			-			-
Fair value of warrants in excess of consideration for convertible preferred stock		2,995,791			2,995,791			-
Fair value of stock in excess of converted notes payable and accrued interest		1,221,875			1,221,875			-
Salary due to stockholder contributed to capital		15,000			-			-
Amortization and depreciation		611,984			81,929			13,471
Loss on extinguishment of debt		-			-			-
Gain on disposition of assets		(4,722	)		-			-
Gain on debt forgiveness		(340,352	)		-			(156,110	)
Stock issued in exchange for services		553,760			-			46,500
Financing expenses paid directly from stock proceeds		5,270			-			-
Amortization of deferred consulting fees		40,800			-			-
(Increase) decrease in assets					-			-
Accounts receivable		(3,573	)		(100	)		(3,473	)
Inventory		5,689			(14,291	)		15,157
Prepaid expenses		210,526			560,526			(232,240	)
Deposit		(37,197	)		(37,197	)		-
Increase in liabilities					-
Accounts payable and accrued expenses		2,333,865			(233,497	)		786,436
Net cash used in operating activities		(9,828,037	)		(2,788,769	)		(367,060	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment		(48,682	)		(10,573	)		(2,360	)
Purchase of patents and trademarks		(246,088	)		(21,954	)		(6,665	)
Proceeds from sale of assets		6,738			-			-
Net cash used in investing activities		(288,032	)		(32,527	)		(9,025	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of preferred stock		1,000,000			1,000,000			-
Proceeds from issuance of common stock		5,786,447			235,000			1,060,000
Proceeds from exercise of stock options		273,401			17,919			13,113
Proceeds issuance of stock options		15,000			-			-
Proceeds from exercise of warrants		115,500			10,000			50,000
Proceeds from issuance of warrants		2,000,000			-			2,000,000
Proceeds from issuance of notes payable		2,789,000			-			200,000
Repayments of notes payable		(352,751	)		(150,000	)		(6,251	)
Payment for treasury stock		(17,795	)		-			-
Debt issuance costs		(62,000	)		-			-
Stock issuance costs		(144,760	)		-			-
Net cash provided by financing activities		11,402,042			1,112,919			3,316,862
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		1,285,973			(1,708,377	)		2,940,777
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD		-			2,994,350			53,573
CASH AND CASH EQUIVALENTS - END OF PERIOD	$	1,285,973		$	1,285,973		$	2,994,350

The accompanying notes are an integral part of these consolidated financial statements.

-9-

LaserLock Technologies, Inc. and Subsidiary

 (A Development Stage Enterprise)

Consolidated Statements of Cash Flows  (Continued)

For the Years Ended December 31, 2013 and 2012

And for the Period November 10, 1999 (Date of Inception) to December 31, 2013

				Year		Year
	Cumulative			Ended		Ended
	Since			December 31,		December 31,
	Inception			2013		2012
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Cash paid during the year for:
Interest	$	53,336		$	13,895	$	-
Income taxes	$	-		$	-	$	-
Return of shares of common stock related to purchase price adjustment
Common stock		(1,000	)		-		-
Additional paid-in capital		(353,000	)		-		-
Intangible assets	$	(354,000	)	$	-	$	-
Issuance of common stock and stock options for acquisition of subsidiary	$	738,000		$	-	$	-
Proceeds from common stock sales applied directly to debt and financing expenses repayment	$	55,270		$	-	$	-
Fair value of warrants issued for deferred finance charges	$	392,376		$	-	$	-
Fair value of stock issued for conversion of notes payable and accrued interest	$	2,985,680		$	2,092,075	$	581,564
Fair value of stock issued for conversion of preferred stock to common stock	$	366,667		$	366,667	$	-
Fair value of stock issued for purchase of assets	$	100,000		$	-	$	100,000
Fair value of warrants issued for purchase of assets	$	100,000		$	-	$	100,000
Fair value of stock issued for licensing costs	$	100,000		$	-	$	100,000
Fair value of warrants issued for licensing costs	$	300,000		$	-	$	300,000
Accretion of discount on preferred stock as deemed dividend distribution	$	1,000,000		$	1,000,000	$	-
Fair value of beneficial conversion feature	$	1,500,000		$	1,500,000	$	-
Fair value of warrants issued as debt discount	$	78,043		$	-	$	-
Issuance of common stock for stock issuance costs	$	2,100		$	-	$	-
Issuance of options as stock cost for treasury stock	$	5,594		$	-	$	-
Forgiveness of debt-related party treated as additional paid in capital	$	349,000		$	-	$	349,000
Conversionof warrant inlieu of cash repayment of notes payable	$	60,000		$	60,000	$	-

The accompanying notes are an integral part of these consolidated financial statements.

-10-

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of the Business

LaserLock Technologies, Inc. and Subsidiary (the “Company”) is a development stage enterprise incorporated in the state of Nevada on November 10, 1999. LaserLock Technologies, Inc., seeks to provide state-of-the-art authentication solutions to governments, health care providers, high-end retailers and the gaming industry. LaserLock Technologies, Inc. is based in Washington, D.C. and is publically traded on the OTC Market under the ticker symbol “LLTI”. The Company markets security technology to protect governments, health care providers, high-end retail goods, the gaming industry and branded products from counterfeiting.

Principle of Consolidation

The accompanying consolidated financial statements include the accounts of LaserLock Technologies, Inc. and its wholly-owned subsidiary, LL Security Products, Inc. All inter-company transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from these estimates.

Comprehensive Income

The Company follows Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) 220 in reporting comprehensive income.  Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of certain financial information that historically has not been recognized in the calculation of net income.  Since the Company has no items of other comprehensive income (loss), comprehensive income (loss) is equal to net income (loss).

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash, accounts receivable, accounts payable and accrued expenses and notes payable.  The carrying value of cash, accounts receivable, accounts payable and accrued expenses approximate their fair value because of their short maturities. The Company believes the carrying amount of its notes payable and convertible debt approximates its fair value based on rates and other terms currently available to the Company for similar debt instruments.

Cash and Cash Equivalents

For purposes of reporting cash flows, the Company considers all cash accounts, which are not subject to withdrawal restrictions or penalties, and certificates of deposit and commercial paper with original maturities of 90 days or less to be cash or cash equivalents.

Concentration of Credit Risk Involving Cash and Cash Equivalents

The Company’s cash and cash equivalents are held at two financial institutions. At times, the Company’s deposits may exceed Federal Deposit Insurance Corporation (FDIC) coverage limits.  The Company has not experienced any losses from maintaining cash accounts in excess of federally insured limits.

Inventory

Inventory principally consists of penlights and pigments and is stated at the lower of cost (determined by the first-in, first-out method) or market.

-11-

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Property and Equipment

Property and equipment is stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, principally five to seven years. Maintenance and repairs of property are charged to operations, and major improvements are capitalized. Upon retirement, sale, or other disposition of property and equipment, the costs and accumulated depreciation are eliminated from the accounts, and any resulting gain or loss is included in operations.

Patents and Trademark

The Company has five issued patents for anti-counterfeiting technology and purchased a trademark. Costs associated with the registration and legal defense of the patents have been capitalized and are amortized on a straight-line basis over the estimated lives of the patents which were determined to be 17 years.

Long-Lived Assets

The Company evaluates the recoverability of its long-lived assets in accordance with ASC 360 “Property, Plant, and Equipment.” The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets are measured by a comparison of the carrying amount of an asset to future cash flows expected to be generated by the asset, undiscounted and without interest or independent appraisals. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the assets.

Deferred Financing Costs

Costs incurred in securing long-term debt are deferred and amortized, as a charge to interest expense, over the term of the related debt. In the case of long-term debt modifications, the Company follows the guidance provided by ASC 470-50 “Debt – Modification and Extinguishments.”

Convertible Notes Payable

Convertible notes payable, for which the embedded conversion feature does not qualify for derivative treatment, are evaluated to determine if the effective or actual rate of conversion per the terms of the convertible note agreement is below market value. In these instances, the Company accounts for the value of the beneficial conversion feature (BCF) as a debt discount, which is then accreted to interest expense over the life of the related debt using the straight-line method which approximates the effective interest method.

Revenue Recognition

In accordance with Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) No. 104, Revenue Recognition (Codified in FASB ASC 605), the Company recognizes revenue when (i) persuasive evidence of a customer or distributor arrangement exists, (ii) a retailer, distributor or wholesaler receives the goods and acceptance occurs, (iii) the price is fixed or determinable, and (iv) collectability of the revenue is reasonably assured. Subject to these criteria, the Company recognizes revenue from product sales, consisting mainly of pigments and penlights, upon shipment to the customer. Royalty revenue is recognized upon receipt of notification from a customer that the Company’s product has been used in the customer’s production process.

Income Taxes

The Company follows FASB ASC 740 when accounting for income taxes, which requires an asset and liability approach to financial accounting and reporting for income taxes.  Deferred income tax assets and liabilities are computed annually for temporary differences between the financial statements and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income.  Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.  Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.  Tax years from 2009 through 2012 remain subject to examination by major tax jurisdictions.

-12-

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Stock-based Payments

The Company accounts for stock-based compensation under the provisions of ASC 718,  Compensation—Stock Compensation   (“ASC 718”), which requires the measurement and recognition of compensation expense for all stock-based awards made to employees and directors based on estimated fair values on the grant date. The Company estimates the fair value of stock-based awards on the date of grant using the Black-Scholes model.  The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods using the straight-line method.

The Company accounts for stock-based compensation awards to non-employees in accordance with ASC 505-50, Equity-Based Payments to Non-Employees (“ASC 505-50”). Under ASC 505-50, the Company determines the fair value of the warrants or stock-based compensation awards granted as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable.

All issuances of stock options or other equity instruments to non-employees as consideration for goods or services received by the Company are accounted for based on the fair value of the equity instruments issued. Any stock options issued to non-employees are recorded as an expense and additional paid-in capital in stockholders’ equity over the applicable service periods.

Advertising Costs

Advertising costs are expensed as incurred. Advertising costs were approximately $53,979 and $0 for the years ended December 31, 2013 and 2012, and are included in sales and marketing expenses.

Research and  Development Costs

In accordance with FASB ASC 730, research and development costs are expensed when incurred.

Loss Per Share

The Company follows FASB ASC 260 when reporting Earnings Per Share resulting in the presentation of basic and diluted earnings per share.  Because the Company reported a net loss for the years ended December 31, 2013 and 2012, common stock equivalents, including stock options and warrants were anti-dilutive; therefore, the amounts reported for basic and dilutive loss per share were the same.

Segment Information

The Company is organized and operates as one operating segment wherein the Company’s patented technologies are utilized to address counterfeiting issues. In accordance with ASC 280, Segment Reporting, the chief operating decision-maker has been identified as the Chief Executive Officer, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company.  Since the Company operates in one segment and provides one group of similar products, all financial segment and product line information required by ASC 280 can be found in the consolidated financial statements.

Recently Adopted Accounting Pronouncements

As of December 31, 2013 and for the period then ended there were no recently adopted accounting pronouncements that had a material effect on the Company’s financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

In July 2013, the FASB issued Accounting Standards Update (“ASU”) ASU 2013-11, Presentation of Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. The amendments in this update provide guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists, in order to eliminate the diversity in practice in the presentation of unrecognized tax benefits in such instances. This guidance generally requires that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward.

-13-

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

However, to the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and should be made presuming disallowance of the tax position at the reporting date. ASU 2013-11 is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. Retrospective application is permitted.

The Company is currently evaluating ASU 2013-11 and plans to comply with all applicable provisions of this ASU no later than the first quarter of 2014.

NOTE 2 – MANAGEMENT PLANS

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred significant losses and experienced negative cash flow from operations during the development stage. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

The Company believes that its existing cash resources will not be sufficient to sustain operations during the next twelve months. The Company currently needs to generate revenue in order to sustain its operations. In the event that the Company cannot generate sufficient revenue to sustain its operations, the Company will need to reduce expenses or obtain financing through the sale of debt and/or equity securities. The issuance of additional equity would result in dilution to existing shareholders. If the Company is unable to obtain additional funds when they are needed or if such funds cannot be obtained on terms acceptable to the Company, the Company may be unable to execute upon the business plan or pay costs and expenses as they are incurred, which could have a material, adverse effect on the business, financial condition and results of operations.

If sufficient revenues are not generated to sustain operations or additional funding cannot be obtained in the short term, the Company will need to reduce monthly expenditures to a level that will enable the Company to continue until such funds can be obtained.

The Company is in the development stage at December 31, 2013. Successful completion of the Company’s development program, and the attainment of profitable operations are dependent upon future events, including obtaining adequate financing to fulfill its development activities and achieving a level of sales adequate to support the Company’s cost structure. However, there can be no assurances that the Company will be able to secure additional equity investment or achieve an adequate sales level.

NOTE 3 – PROPERTY AND EQUIPMENT

Equipment consists of the following:

	December 31, 2013		December 31, 2012
Furniture and Fixtures	$	219,871	$	---
Equipment		16,155		34,964
		236,026		34,964
Less: Accumulated depreciation		91,952		32,624
	$	144,074	$	2,340

Depreciation of property and equipment was $68,839 and $20, respectively, for the years ended December 31, 2013 and 2012.

NOTE 4 – PATENTS AND TRADEMARK
 

The Company has five issued patents for anti-counterfeiting technology. Accordingly, costs associated with the registration of these patents and legal defense have been capitalized and are amortized on a straight-line basis over the estimated lives of the patents (17 years). During the years ended December 31, 2013 and 2012, the Company capitalized patent costs of $21,954 and $6,665, respectively.  Amortization expense for patents was $13,091 and $13,451 for the years ended December 31, 2013 and 2012, respectively. Future estimated annual amortization over the next five years is approximately $13,000 per year for the years ended December 31, 2014 through 2018.

NOTE 5 – INCOME TAXES

The Company follows FASB ASC 740-10-10 whereby an entity recognizes deferred tax assets and liabilities for future tax consequences or events that have been previously recognized in the Company’s financial statements or tax returns. The measurement of deferred tax assets and liabilities is based on provisions of enacted tax law. The effects of future changes in tax laws or rates are not anticipated.

At December 31, 2013 the Company has a net operating loss (“NOL”) that approximates $12.5 million. Consequently, the Company may have NOL carryforwards available for federal income tax purposes, which would begin to expire in 2019. Due to changes in ownership, a portion of the NOL carryforward may be subject to certain annual limitations imposed under Section 382 of the Internal Revenue Code. Deferred tax assets would arise from the recognition of anticipated utilization of these net operating losses to offset future taxable income.

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The income tax benefit (provision) consists of the following:

	Year Ended			Year Ended
	December 31,			December 31,
	2013			2012
Current	$	1,837,000		$	490,000
Deferred		3,284,000			263,000
Change in valuation allowance		(5,121,000	)		(753,000	)
		-			-

The following is a reconciliation of the tax derived by applying the U.S. Federal Statutory Rate of 35% to the earnings before income taxes and comparing that to the recorded tax provisions:

	2013						2012
	Amount			%			Amount			%
U.S. Federal income tax benefit at Federal Statutory Rate	$	(5,718,000	)		(35	)	$	(298,000	)		(35	)
State tax, net of federal effect		(956,000	)		(6	)		(50,000	)		(6	)
Non deductible accrued expense		-			-			(238,000	)		(28	)
Deductible share based compensation		(318,000	)		(2	)		(167,000	)		(20	)
Non-deductible changes in derivative liability and share based transactions		1,895,000			12			-			-
Other		(24,000	)		-			-			-
Change in valuation allowance		5,121,000			31			753,000			89
	$	-			-			-			-

The primary components of the Company’s December 31, 2013 and 2012 deferred tax assets, liabilities and related valuation allowance are as follows:

	December 31,			December 31,
	2013			2012
Deferred tax asset for NOL carryforwards	$	5,144,000		$	3,308,000
Deferred tax liability for intangibles		(165,000	)		(165,000	)
Share based compensation		3,683,000			162,000
Non deductible accrued expenses		150,000			386,000
Valuation allowance		(8,812,000	)		(3,691,000	)
	$	-		$	-

Management has determined that the realization of the net deferred tax asset is not assured and has created a valuation allowance for the entire amount of such benefits.

The Company follows FASB ASC 740-10, which provides guidance for the recognition and measurement of certain tax positions in an enterprise’s financial statements. Recognition involves a determination whether it is more likely than not that a tax position will be sustained upon examination with the presumption that the tax position will be examined by the appropriate taxing authority having full knowledge of all relevant information.
 

The Company’s policy is to record interest and penalties associated with unrecognized tax benefits as additional income taxes in the consolidated statement of operations. As of December 31, 2013 and 2012, the Company had no unrecognized tax benefits. There were no changes in the Company’s unrecognized tax benefits during the years ended December 31, 2013 and 2012. The Company did not recognize any interest or penalties during 2013 and 2012 related to unrecognized tax benefits.

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NOTE 6 - SENIOR SECURED CONVERTIBLE NOTES PAYABLE

In February 2006, the Company commenced a private placement of up to $800,000 principal amount of 10% senior secured convertible promissory notes due twelve months from the date of issue to certain Company shareholders and other accredited investors. As of December 31, 2006, the Company completed this private placement by selling all notes payable totaling $800,000. The notes are secured by a first priority lien on all of the tangible and intangible personal property of the Company. In May 2007, the due date of these notes was extended to August 2008 and the interest rate increased to 12% per annum during the extension period.  In June 2011, the interest rate on all of the notes was reset to 10% and $596,500 of the notes and accrued interest was extended until September 15, 2015. During the fourth quarter of 2012 the remaining $178,749 of unextended notes and the associated accrued interest were extended to September 30, 2015. In June 2013, $225,000 of these notes payable plus accrued interest of $181,125 were converted into 7.4 million shares of the Company’s common stock, which was valued at $1,628,000. The excess of the fair value of the Company’s common stock over the value of the notes payable and accrued interest was recorded as loss on extinguishment of debt in accordance with FASB ASC 470-50.

During the fourth quarter of 2013, $220,000 of senior convertible notes plus accrued interest of $395,000, were converted into 7,900,000 shares of common stock.  Since this transaction was with related parties, the conversion was treated as a capital transaction in accordance with FASB ASC 470-50-40-3.

As of December 31, 2013 and December 31, 2012, the outstanding principal balance on these notes was $330,249 and $775,249, respectively. Accrued interest at December 30, 2013 and December 31, 2012 amounted to $300,677 and $600,091, respectively.
 

Purchasers of the notes were issued 8,000,000 10-year warrants exercisable into the Company’s shares at an exercise price of $0.01 per share. The warrants were valued at $392,376 and recorded as a debt discount on the notes payable. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the warrants, with the following assumptions: no dividend yield, expected volatility of 169% and 284%, risk-free interest rate between 3.6% and 4.5% and expected warrant life of ten years. The deferred finance charges were amortized over one year, which was the original term of the notes. As of June 30, 2012, the Company had received $80,000 for the exercise of all 8,000,000 of the warrants.

In addition, if an equity financing with total proceeds of more than $5,000,000 occurs while any notes are outstanding, holders of notes will have the right, at their option, to convert the outstanding principal and interest of the notes into shares at a discount of 30% of the price per share in the qualified financing. Since the embedded conversion feature is contingent upon the occurrence of the qualified financing, the value of the contingent conversion feature, if beneficial, will be recognized if the triggering event occurs and the contingency is resolved.

NOTE 7 - CONVERTIBLE NOTES PAYABLE

During 2007, the Company commenced a private placement of up to $400,000 principal amount of 10% Convertible Promissory Notes originally due in August 2008 (the “Notes”). The Company raised $375,000 under this private placement in 2007 and the remaining $25,000 was raised in 2008. Previously $260,000 of the Notes were converted into shares of the Company’s common stock.  Holders of Notes will have the right, at their option, to convert the outstanding principal and interest of the Notes into shares of the Company’s Series A Preferred Stock at any time and from time to time at the option of the holder at the initial conversion price of $0.005333 per share. It is the intention, however, that the option holder will convert the Notes into shares of the Company’s common stock.  The Notes are unsecured.

In accordance with ASC 470, a beneficial conversion feature of $375,000 and $25,000 was required to be recorded in 2007 and 2008, respectively, since the fair value of the Company’s common stock at the date of issuance ($0.016 per share) was greater than the conversion price of $0.005333 per share. The value of the beneficial conversion feature was recorded to additional paid-in capital with the offset to discount on notes payable. The debt discount was accreted to interest expense over the one-year original term of the notes. 

In August 2009, noteholders exercised their option to convert $260,000 of the notes payable plus accrued interest into 48,750,000 shares of common stock. The noteholder of the remaining $140,000 under this convertible note issue agreed to extend the maturity date of these notes to September 30, 2015 at an interest rate of 10% per annum. Additionally, the noteholder agreed in writing to suspend its right to convert its note until such as the Company’s authorized shares have been increased. Remaining shares to be potentially issued under this convertible note issue is 26,250,000.

-16-

On March 19, 2013, the investor holding $140,000 of convertible notes transferred $14,000 of the $140,000 convertible notes to the Vice Chairman of the Company. Also on March 19, 2013, the investor agreed to convert $28,000 of the investor’s remaining $126,000 of convertible notes into 5,250,000 shares of the Company’s common stock.

On March 19, 2013, the Vice Chairman of the Company agreed to convert $14,000 of convertible notes into 2,625,000 of the Company’s common stock.

During the fourth quarter of 2013, the remaining $98,000 of convertible notes plus accrued interest of $87,150 were converted into 12,375,000 shares of common stock.  Since this conversion was with a related party it was treated as a capital transaction in accordance with FASB ASC 470-50-40-3.

NOTE 8 - NOTES PAYABLE

During the fourth quarter of 2013, all of the $561,000 of unsecured notes payable, less $9,914 of unamortized discount, plus accrued interest of $83,715 was converted into 4,473,333 shares of common stock plus a cash repayment of $150,000.  Since this conversion was with a related party it was treated as a capital transaction in accordance with FASB ASC 470-50-40-3.

Unsecured Notes Payable

During the second quarter of 2012, the Company received $200,000 for a 10% unsecured note payable, due April 27, 2013.  In December 2012, this note payable and accrued interest of $9,167 was converted into 4,703,711 shares of the Company’s common stock.

Private Placement of 8% Series A Notes Payable

In August 2009, the Company commenced a private placement of up to $300,000 consisting of up to 6 units. Each unit consists of a $50,000, 8% Series A Note Payable, due September 30, 2011, and a non-detachable warrant to purchase 2,000,000 shares of the Company’s common stock. During 2009, the Company sold 4 units, issued $200,000 of 8% Series A Notes Payable, issued 8,000,000 warrants, and raised $180,000, net of commission of $20,000. In January 2010, the Company sold 0.5 units, issued $25,000 of 8% Series A Notes Payable, issued 1,000,000 warrants, and raised $17,500 net of commissions of $7,500. The commissions were treated as deferred finance charges and fully expensed over the term of notes payable.

The 8,000,000 warrants in 2009 were valued at $15,450, fair value, using the Black-Scholes option pricing model to calculate the fair-value of the warrants, with the following assumptions: no dividend yield, expected volatility of between 30.9% and 34.5%, risk free interest rate between .95% and 1.06% and warrant life of approximately 2 years. The 1,000,000 warrants in 2010 were valued at $20,143, fair value, using the Black-Scholes option pricing model to calculate the fair-value of the warrants, with the following assumptions: no dividend yield, expected volatility of 28.6 %, risk free interest rate of .84% and warrant life of approximately 2 years.

In June 2011, the maturity date on the $150,000 of the 8% Series A Notes Payable and the term on the associated 6,000,000 warrants were extended to September 30, 2015. As a result, the warrants were revalued using the Black-Scholes option pricing model to calculate the incremental fair-value of the warrants of $21,275, with the following assumptions: no dividend yield, expected volatility of 60%, risk free interest rate of 1.52% and warrant life of approximately 1.25 years. As part of the debt extension, the lender holding the 6,000,000 warrants agreed in writing to suspend its right to exercise these warrants until such time that the Company’s authorized shares have been increased.  The authorized shares of the Company’s common stock were increased on May 23, 2013 from 425,000,000 to 675,000,000.

-17-

NOTE 8 - NOTES PAYABLE (Continued)

The relative fair value of the warrants issued in conjunction with the 8% Series A Notes Payable have been treated as a debt discount with an offsetting credit to additional paid-in capital. The debt discount related to the warrant issuances is being accreted to interest expense over the term of the notes. When the warrants were revalued the incremental amount of $21,275 was also treated as additional debt discount and is being accreted over the new term of the 8% Series A Notes Payable.  As of December 31, 2012 the unaccreted debt discount related to warrants issued in conjunction with the 8% Series A Notes payable was $13,632.

During the third quarter of 2011, $25,000 plus accrued interest of the 8% Series A Notes Payable were repaid and 3,000,000 of the associated warrants expired unexercised.

During the fourth quarter of 2013, the remaining series A notes payable of $150,000 was reduced by $60,000 for the exercise of 6,000,000 warrants into 6,000,000 shares of common stock.  The balance of $90,000 plus accrued interest of $49,000 was converted into 1,226,363 shares of common stock.    Since this conversion was with a related party it was treated as a capital transaction in accordance with FASB ASC 470-50-40-3.

Private Placement of 25% Notes Payable

In 2010, the Company issued $400,000 in notes payable in order to finance a patent infringement lawsuit (see Note 16 - Contingencies to these consolidated financial statements). The notes payable accrue interest at 25% per annum and mature upon the earlier of September 1, 2013 or the date on which the Company receives net proceeds from the patent infringement claim. In addition to the base interest of 25% per annum, the lenders are entitled to Bonus Interest equal to the following:

a. First monies realized by the Company from its share of the net proceeds of the lawsuit shall be allocated and paid to the Lender until the principal and base interest accruing has been fully paid.

b. The next monies from the net proceeds of the litigation settlement will be paid to the Company to reimburse for out-of-pocket legal costs related to the lawsuit.

c. The next $825,000 of proceeds will be split 50%/50% between the Company and the Lenders.

d. The next $1,000,000 realized by the Company shall be allocated 90% to the Company and 10% to the Lenders.

e. The next $1,000,000 realized by Company shall be allocated 85% to Company and 15% to Lenders.

f. All remaining proceeds realized by Company shall be allocated 80% to Company and 20% to Lenders.

The Lenders have a security interest in the Company’s patent infringement claim in which the Lender has the right to the net proceeds of this lawsuit to satisfy outstanding principal and interest under the notes.

As part of the private placement of the 25% notes payable, the Company incurred debt placement fees of $34,500 in 2010. These debt placement fees have been treated as deferred finance charges and were being amortized to interest expense over two years.  The remainder of amortization $13,625 was recorded the years ended December 31, 2012.

In December 2012, 250,000 of these notes payable and accrued interest of $122,397 were converted into 8,219,911 shares of the Company’s common stock. In March 2013, the remaining $150,000 of the notes payable and accrued interest of $70,000 were converted into 3,000,000 shares of the Company’s common stock. Accrued interest of $13,895 was paid in cash.

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NOTE 8 - NOTES PAYABLE (Continued)

Notes payable consists of the following as of December 31:

	December 31, 2013		December 31, 2012
Unsecured notes payable due to related parties; interest at 10% per annum; principal and accrued interest due at maturity in September 2015	$	330,000	$	561,000
Series A notes payable; interest at 8% per annum; principal and accrued interest due at extended maturity date in September 2015		---		150,000
Series A notes payable; interest at 8% per annum; principal and accrued interest due at maturity in October 2011 (past due)		50,000		50,000
Notes payable, interest at 25% per annum; principal and interest due September 2013		---		150,000
Less: Debt discount		----		(13,632	)
		380,000		897,368
Less: Current portion		50,000		200,000
Long-term portion	$	330,000	$	697,368

At December 31, 2013 and 2012 accrued interest on notes payable was $317,344 and $394,281, respectively.

Aggregate Maturities of Long-term Debt

Aggregate maturities of the senior secured convertible notes, convertible notes and notes payable over the next five years are as follows:

              2014                   $    50,000

              2015                       330,249

              2016                                  -

              2017                                  -

              2018                                  -

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NOTE 9 – WARRANT LIABILITY

On December 31, 2012, the Company entered into an Investment Agreement, a Technology and Services Agreement, a Technology and Services Agreement with Zaah Technologies, Inc. (“Zaah”)., a Patent and Technology License Agreement, and an Asset Purchase Agreement (collectively the “Agreements”). Included in these Agreements were Warrants to purchase shares of the Company’s common stock.

The warrants associated with these Agreements are subject to anti-dilution adjustments outlined in the Agreements. In accordance with FASB ASC 815, the warrants were classified as a liability in the total amount of $2.4 million at December 31, 2012. In addition, the warrants must be valued every reporting period and adjusted to market with the increase or decrease being adjusted through earnings. As of December 31, 2013, the fair value of the warrant liability was $3.7 million.

NOTE 10 – CONVERTIBLE PREFERRED STOCK

Subscription Agreement

The Company entered into a Subscription Agreement with VerifyMe, Inc. (“VerifyMe”) on January 31, 2013 (the “Subscription Agreement”). Under the terms of the Subscription Agreement VerifyMe subscribed to purchase 33,333,333 shares of the Company’s preferred stock and a warrant to purchase 33,333,333 shares of the Company’s common stock for $1 million at an exercise price of $0.12.

At any time within two years after January 31, 2013, the subscriber has the right, but not the obligation to require the Company to repurchase all, but not less than all, of the capital stock of the Company and warrants exercisable for capital stock of the Company held by subscriber in exchange for the price originally paid by the subscriber therefore upon the occurrence of any of the following events:(i) the consummation of any bona fide business acquisition, (ii) the incurring of any indebtedness by the Company in an amount in excess of $2 million, (iii) the issuance or sale of any security having a preference on liquidation senior to common stock, or (iv) the sale by the Company of capital stock or warrants exercisable for its capital stock at a price below $0.03 per share.

In accordance with FASB ASC 480 and 815, the Preferred Stock has been classified as permanent equity and was valued at $1 million at January 31, 2013.

The conversion feature of the Preferred Stock is an embedded derivative, which is classified as a liability in accordance with FASB ASC 815 and was valued in accordance with FASB ASC 470 as a beneficial conversion feature at a fair value of $1 million at January 31, 2013 and $800,000 at December 31, 2013. This was classified as an embedded derivative liability and a discount to Preferred Stock. Because the Preferred Stock can be converted at any time, the full amount of the original fair value was accreted and classified as a reduction to the discount on Preferred Stock and a deemed dividend distribution in the full amount of $1 million.

Because the Preferred Stock can be converted at any time, the embedded derivative is classified as a current liability at December 31, 2013.

The warrants associated with the Preferred Stock were also classified as a liability since they are subject to anti-dilutive adjustments outlined in the warrant agreement and valued at a fair market of $2,995,791 at January 31, 2013. Because this amount was entirely in excess of the transaction price, this amount was recorded as a charge to expenses of $2,995,791. In addition, the warrants must be valued every reporting period and adjusted to market with the increase or decrease being adjusted through earnings. As of December 31, 2013, the fair value of the warrants was $2,300,000.

The Convertible Preferred Stock has a preference in liquidation that the holders of the Convertible Preferred Stock are to be paid out of assets available for distribution prior to holders of common stock. The Convertible Preferred Stockholders may cast the number of votes equal to the number of whole shares of common stock into which the shares of Convertible Preferred Stock can be converted. In addition, the Convertible Preferred Stockholders are to be paid dividends, based on the number of Convertible Preferred shares as if the shares had been converted to common shares, prior to the common stockholders receiving a dividend.

-20-

The conversion price of the Preferred A shares is currently $0.03 per share. There are no arrearages on cumulative dividends.

In August 2013, VerifyMe elected to convert in a cashless transaction an equal number of Preferred A stock valued at $366,667 to 12,222,222 shares of common stock.

NOTE 11 – FAIR VALUE OF FINANCIAL INSTRUMENTS

Derivative Liabilities

For purposes of determining whether certain instruments are derivatives for accounting treatment, the Company follows the accounting standard that provides guidance for determining whether an equity-linked financial instrument, or embedded feature, is indexed to an entity’s own stock.  The standard applies to any freestanding financial instruments or embedded features that have the characteristics of a derivative, and to any freestanding financial instruments that are potentially settled in an entity’s own common stock.

Liabilities measured at fair value on a recurring basis are summarized as follows:

December 31, 2013	Level 1		Level 2		Level 3		Total
Derivative liability related to fair value of beneficial conversion feature	$	-	$	800,000	$	---	$	800,000
Derivative liability related to fair value of warrants		-		-		6,000,000		6,000,000
Total	$	-	$	800,000	$	6,000,000	$	6,800,000
December 31, 2012	Level 1		Level 2		Level 3		Total
Derivative liability related to fair value of beneficial conversion feature	$	-	$	-	$	-	$	-
Derivative liability related to fair value of warrants		-		-		2,400,000		2,400,000
Total	$	-	$	-	$	2,400,000	$	2,400,000

The following table details the approximate fair value measurements within the fair value hierarchy of the Company’s derivative liabilities using Level 3 inputs:

	Total
Balance at January 1, 2013	$	2,400,000
Derivative liabilities resulting from Subscription Agreement		2,998,027
Change in fair value of derivative liabilities		601,973
Balance at December 31, 2013	$	6,000,000

-21-

NOTE 11 – FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

As of December 31, 2013, the beneficial conversion feature of the preferred stock is treated as an embedded derivative liability and changes in the fair value were recognized in earnings.  The preferred stock shares are convertible into shares of the Company’s common stock, which did trade in an active securities market, therefore the embedded derivative liability was valued using the following market based inputs:

Closing trade price of Common Stock	$0.07
Series A Preferred Stock Conversion Price	$0.03
Intrinsic value of conversion option per share	$0.04

The Company has no assets that are measured at fair value on a recurring basis.  There were no assets or liabilities measured at fair value on a non-recurring basis during the year ended December 31, 2013.

As of December 31, 2013 and December 31, 2012, the Company’s outstanding warrants are treated as derivative liabilities and changes in the fair value were recognized in earnings.  These common stock purchase warrants did not trade in an active securities market, and as such, the Company estimated the fair value of these warrants using Black-Scholes and the following assumptions:

	December 31, 2013
Annual Dividend Yield	0.0%
Expected Life (Years)	4.00 – 4.08
Risk-Free Interest Rate	1.39%
Expected Volatility	267.3%

Expected volatility was based primarily on historical volatility. Historical volatility was computed using daily pricing observations for recent periods. The Company believed this method produced an estimate that was representative of the Company’s expectations of future volatility over the expected term of these warrants. The Company had no reason to believe future volatility over the expected remaining life of these warrants was likely to differ materially from historical volatility.  The expected life was based on the remaining contractual term of the warrants. The risk-free rate was based on the U.S. Treasury rate that corresponded to the expected term of the warrants.

NOTE 12 – STOCKHOLDERS’ EQUITY

In October 2012, the Company commenced private placements consisting of shares of the Company’s common stock and warrants to purchase shares of the Company’s common stock at an exercise price of $0.10 per share.  The shares and warrants were sold in units with each unit comprised of one share and one warrant at a purchase price of $.045 per unit.  As of December 31, 2012, the Company sold 6,888,889 units that raised $310,000 for the Company.

In October 2012, the Company commenced private placements consisting of shares of the Company’s common stock and warrants to purchase shares of the Company’s common stock at an exercise price of $0.10 per share.  The shares and warrants were sold in units with each unit comprised of one share and one warrant at a purchase price of $.05 per unit.  As of December 31, 2012, the Company sold 15,000,000 units that raised $750,000 for the Company.

On November 13, 2012, an employee and consultant exercised options to purchase in the aggregate 10,490,996 shares of the Company’s common stock at an exercise price of $.00125 per share that raised $13,114 for the Company.

-22-

On November 21, 2012, the Company issued 1,000,000 shares of the Company’s common stock, valued at $46,500 to a board member for services to the Company.

On December 5, 2012, the Company issued 12,923,622 shares of the Company’s common stock, valued at $581,564, for the retirement of two notes payable totaling $450,000 and accrued interest of $131,564.

On December 20, 2012, an investor exercised warrants to purchase 333,333 shares of the Company’s common stock at $0.15 per share that raised $50,000 for the Company.

In January and February 2013, the Company received $185,000 from the sale of 3,700,000 units from private placements consisting of shares of the Company’s common stock and warrants to purchase shares of the Company’s common stock at an exercise price of $0.10 per share. The shares and warrants were sold in units with each unit comprised of one share and one warrant at a purchase price of $.05 per unit.

 In January 2013, the Company commenced private placements consisting of shares of the Company’s common stock and warrants to purchase shares of the Company’s common stock at an exercise price of $0.12 per share. The shares and warrants were sold in units with each unit comprised of one share and one warrant at a purchase price of $.045 per unit. The company sold 1,111,111 units and raised $50,000.

On February 1, 2013, an investor exercised a warrant to purchase 1,000,000 shares of the Company’s common stock that raised $10,000 for the Company.

In February and March 2013, four investors exercised options to purchase 3,335,000 shares of the Company’s common stock that raised $17,919 for the Company.

NOTE 13 – STOCK OPTIONS AND WARRANTS

During 1999, the Board of Directors (“Board”) of the Company adopted, with the approval of the stockholders, a Stock Option Plan.  In 2000, the Board superseded that plan and created a new Stock Option Plan, pursuant to which it is authorized to grant options to purchase up to 1.5 million shares of common stock. On December 17, 2003, the Board, with approval of the stockholders, superseded this plan and created the 2003 Stock Option Plan (the “Plan”). Under the Plan the Company is authorized to grant options to purchase up to 18,000,000 shares of common stock to the Company’s employees, officers, directors, consultants, and other agents and advisors. The Plan is intended to permit stock options granted to employees under the Plan to qualify as incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended (“Incentive Stock Options”).  All options granted under the Plan, which are not intended to qualify as Incentive Stock Options, are deemed to be non-qualified options (“Non-Statutory Stock Options”).

During 2013, Our Board of Directors adopted a new comprehensive incentive compensation plan which will serve as the successor incentive compensation plan to the earlier plan, and provide the Company with an omnibus plan to design and structure grants of stock options, stock units, stock awards, stock appreciation rights and other stock-based awards for selected individuals in our employ or service. Our Board of Directors believes that the availability of (i) 20,000,000 new shares of our common stock, plus (ii) the number of shares of our common stock subject to outstanding grants under the 2003 Plan as of the date of the Annual Meeting, plus (iii) the number of shares of our common stock remaining available for issuance under the 2003 Plan but not subject to previously exercised, vested or paid grants, for issuance under the 2013 Plan.

As of December 31, 2013, there are 18,425,996 options that have been issued, and 19,574,004 options that are available to be issued under the Plan.

The Plan is administered by a committee of the Board of Directors (“Stock Option Committee”) which determines the persons to whom awards will be granted, the number of awards to be granted and the specific terms of each grant, including the vesting thereof, subject to the provisions of the plan.

-23-

In connection with Incentive Stock Options, the exercise price of each option may not be less than 100% of the fair market value of the common stock on the date of the grant (or 110% of the fair market value in the case of a grantee holding more than 10% of the outstanding stock of the Company). The aggregate fair market value (determined at the time of the grant) of stock for which an employee may exercise Incentive Stock Options under all plans of the company shall not exceed $1,000,000 per calendar year. If any employee shall have the right to exercise any options in excess of $100,000 during any calendar year, the options in excess of $100,000 shall be deemed to be Non-Statutory Stock Options, including prices, duration, transferability and limitations on exercise.

The Company issued non-statutory stock options pursuant to contractual agreements to non-employees. Options granted under the agreements are expensed when the related service or product is provided.

On July 16, 2012, the Company issued an option to purchase 200,000 shares of the Company’s common stock at an exercise price of $.05, with a term of ten years, to a consultant. The fair value of options issued was $11,638. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the warrants, with the following assumptions: no dividend yield, expected volatility of 133%, risk-free interest rate of 1.5% and expected option life of ten years. These options granted were fully vested as of the date of the agreement. As a result, the Company recorded $11,638 of consulting expense for the year ended December 31, 2012.

On November 21, 2012, the Company issued options to purchase an aggregate of 2,000,000 shares of the Company’s common stock at an exercise price of $.05, with a term of ten years, to the Chief Executive Officer and the Chief Operating Officer. The fair value of options issued was $89,538 and was expensed immediately.

On November 21, 2012, the Company issued options to purchase an aggregate of 10,000,000 shares of the Company’s common stock at an exercise price of $.05, with a term of ten years, to the five members of the Board of Directors. The fair value of options issued was $447,689 of which $223,844 was expensed immediately and the remainder will be expensed over one year with one month expense of $18,564 being expensed in 2012.  The remaining balance of $199,313 was expensed during 2013.

All of the options issued on November 21, 2012 were valued using the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 131%, risk-free interest rate of 1.7% and expected option life of ten years.

Effective October 8, 2012, the Company entered into a three year agreement with the Vice Chairman of the Board of Company with an annual compensation of $200,000 per year. In addition, upon execution of the agreement the Company has agreed to issue options to the Vice Chairman to purchase 5% of the shares of the Company’s fully diluted common stock at an exercise price of $.05 per share, subsequent to the Company receiving funding of $2.5 million and on June 25, 2013, the Company issued the Vice Chairman 19,000,000 options in satisfaction of the 5% of the shares of the Company’s fully diluted common stock clause. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the warrants, with the following assumptions: no dividend yield, expected volatility of 146.1%, risk-free interest rate of 2.6% and expected option life of ten years. The fair value of options issued was $3,767,700 that was expensed immediately.

Effective October 16, 2012, the Company entered into a three year agreement with the President and Chief Executive Officer of the Company with an annual compensation of $200,000 per year. In addition, upon execution of the agreement the Company has agreed to issue options to the President to purchase 5% of the shares of the Company’s fully diluted common stock at an exercise price of $.05 per share, subsequent to the Company receiving funding of $2.5 million and on June 25, 2013, the Company issued the President and Chief Executive Officer 19,000,000 options in satisfaction of the 5% of the shares of the Company’s fully diluted common stock clause. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the warrants, with the following assumptions: no dividend yield, expected volatility of 146.1%, risk-free interest rate of 2.6% and expected option life of ten years. The fair value of options issued was $3,767,700 that was expensed immediately.

-24-

On January 22, 2013, the Company issued options to an employee to purchase 1,000,000 shares of the Company’s common stock at an exercise price of $.05, with a term of ten years. The options vest as follows: 250,000 immediately, 250,000 in one year and 500,000 in two years The Company used the Black- Scholes option pricing model to calculate the grant-date fair value of the warrants, with the following assumptions: no dividend yield, expected volatility of 222%, risk-free interest rate of 1.9% and expected option life of ten years. The fair value of options issued was $99,972 of which $25,000 was expensed immediately and the remainder is being expensed over the vesting terms.   The total expense for the year ended December 31, 2013 was $71,967.

On February 25, 2013, the Company issued options to an employee to purchase 500,000 shares of the Company’s common stock at an exercise price of $.05, with a term of ten years. The options vest as follows: 200,000 in one year, 200,000 in two years and 100,000 in three years. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the warrants, with the following assumptions: no dividend yield, expected volatility of 259%, risk-free interest rate of 1.9% and expected option life of ten years. The fair value of options issued was $89,998. The options were cancelled during the three months ended June 30, 2013. The total expense recognized of $5,000 was reversed upon cancellation of the options.

On March 13, 2013, the Company issued an option to purchase 2,000,000 shares of the Company’s common stock at an exercise price of $.05, with a term of ten years, to a member of the Board of Directors. The options vest 50% immediately and 50% on March 13, 2014. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the warrants, with the following assumptions: no dividend yield, expected volatility of 235%, risk-free interest rate of 2.0% and expected option life of ten years. The fair value of the option issued was $439,963 of which $219,982 was expensed immediately and the remainder will be expensed over one year.  The total expense for the year ended December 31, 2013 was $396,569.

On May 4, 2013, the Company issued an option to purchase 2,000,000 shares of the Company’s common stock at an exercise price of $.05, with a term of ten years, to the a member of the Board of Directors. The options vest 50% immediately and 50% on May 4, 2014. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the warrants, with the following assumptions: no dividend yield, expected volatility of 235%, risk-free interest rate of 1.78% and expected option life of ten years. The fair value of the option issued was $460,000 of which $230,000 was expensed immediately and the remainder will be expensed over one year.  The total expense for the year ended December 31, 2013 was $381,864.

On September 30, 2013, the Company issued an option to purchase 1,000,000 shares of the Company’s common stock at an exercise price of $.15, with a term of ten years, to the Company’s Chief Operating Officer. The options vest 50% after the first year and 50% at the end of 24 months.  The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the warrants, with the following assumptions: no dividend yield, expected volatility of ranging from 268.4% to 272.8%, risk-free interest rate of 1.39% and expected option life ranging from 10 years.  The fair value of the option issued was $99,840.  The total expense for the year ended December 31, 2013 was $18,903.

On December 2, 2013, the Company issued an option to purchase 1 million shares of the Company’s common stock at an exercise price of $.15, with a term of ten years, to the Company’s Chief Financial Officer.  The options vest 50% after the first year and 50% at the end of 24 months.  The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the warrants, with the following assumptions: no dividend yield, expected volatility of ranging from 266.1%, risk-free interest rate of 2.64% and expected option life of 10 years.  The fair value of the option issued was $79,994, which will be expensed over the vesting term.  The total expense for the year ended December 31, 2013 was $15,123.

-25-

The following tables summarize non-employee stock option/warrant activity of the Company since December 31, 2011:

							Weighted Average
	Option/Warrant			Exercise			Exercise
	Shares			Price			Price
Outstanding, December 31, 2011		15,585,996			$0.00125 to $0.20		$	0.01
Granted		72,422,221		0.05 to 0.10				0.08
Transferred to employee options		(200,000	)		(0.05	)		-
Exercised		(5,000,996	)		0.00125			-
Expired		-			-			-
Outstanding, December 31, 2012		82,807,221		0.00125 to 0.20				0
Granted		38,144,444		0.10 to 0.15				0.03
Exercised		(9,435,000	)		0.00125 - 0.07			-
Expired		-			-			-
Outstanding, December 31, 2013		111,516,665			$0.01 to $.20		$	0.10
Exercisable, December 2013		111,516,665			$0.01 to $.20		$	0.10
Weighted Average Remaining Life,
Exercisable, December 31, 2013 (years)		7.0

A summary of incentive stock option transactions for employees since December 31, 2011 is as follows:

						Weighted Average
	Option/Warrant			Exercise		Exercise
	Shares			Price		Price
Outstanding, December 31, 2011		6,390,000			$0.00125	$	0.00125
Granted		15,000,000			0.05 - 0.15		0.06
Transferred from non-employee options		200,000			0.05		-
Exercised		(5,823,333	)		0.00125 - 0.15		-
Expired/Returned		-			-		-
Outstanding, December 31, 2012		15,766,667		0.00125 to 0.10			0.06
Granted		45,500,000			0.05 - 0.15		0.04
Exercised		(900,000	)		0.00125		-
Expired/Returned		(500,000	)		0.05		-
Outstanding, December 31, 2013		59,866,667			$0.05 to $0.15	$	0.05
Exercisable, December 31, 2013		50,116,667			$0.05 to $0.15	$	0.06
Weighted Average Remaining Life,
Exercisable, December 31, 2013 (years)		9.6

-26-

NOTE 14 - OPERATING LEASES

For the year ended December 31, 2013 and 2012, total rent expense under leases amounted to $59,272 and $0, respectively, and is included in general and administrative expense. At December 31, 2013, the Company was obligated under various non-cancelable operating lease arrangements for property as follows:

2014	$	71,766
2015		74,637
2016		31,605
	$	178,008

NOTE 15 – RELATED PARTY TRANSACTIONS

During the fourth quarter of 2013, the company converted outstanding debt owed to shareholders into 25,974,697 shares of common stock  (See Notes 6,7,8).

At December 31, 2013 and 2012, five shareholders of the Company held $330,249 and $512,249 of the senior secured convertible notes payable.

One shareholder held $140,000 of convertible notes payable as of December 31, 2012, that was satisfied by December 31, 2013.

At December 31, 2012 two shareholders of the Company held $561,000 of unsecured notes payable that was satisfied by December 31, 2013.

At December 31, 2013, five shareholders of the Company were owed accrued interest of $300,676 related to the senior secured convertible notes payable.

The Company maintained its office at the home of its Chief Executive Officer in 2012. No formal lease agreement existed and no direct rent expense has been incurred. However, related occupancy costs of $32,414 were incurred during the year ended December 31, 2012.

At December 31, 2011, accrued and unpaid salary for the Chief Executive Officer was $208,514.  As of December 31, 2012, the Chief Executive Officer has forgiven any unpaid accrued and unpaid salary.

NOTE 16 – CONTINGENCIES

In October 2010, the Company filed suit in the Western District of Pennsylvania against WS Packaging Group, Inc. (“WS”) alleging that WS infringed on one of the Company’s patents in the manufacture of MONOPOLY game pieces on behalf of McDonald’s Corp. On June 4, 2012, both WS and the Company filed a stipulation to dismiss the action without prejudice and enter into settlement negotiations. Settlement negotiations are ongoing.

-27-

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO RULES 13a-14a AND 15d-14a

OF THE SECURITIES AND EXCHANGE ACT OF 1934

AS ADOPTED PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, Neil Alpert, certify that:

1.  I have reviewed this annual report on Form 10-K for the year ended December 31, 2013 of LaserLock Technologies, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 31, 2014	By:	/s/ Neil Alpert
		Neil Alpert
		Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO RULES 13a-14a AND 15d-14a

OF THE SECURITIES AND EXCHANGE ACT OF 1934

AS ADOPTED PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, Edward J. Weisberger, certify that:

1. I have reviewed this annual report on Form 10-K for the year ended December 31, 2013 of LaserLock Technologies, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  March 31, 2014	By:	/s/ Edward J. Weisberger
		Edward J. Weisberger
		Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION OF

CHIEF EXECUTIVE OFFICER

OF LASERLOCK TECHNOLOGIES, INC.

PURSUANT TO 18 U.S.C. SECTION 1350

In connection with the Annual Report on Form 10-K of LaserLock Technologies, Inc. and Subsidiary (the “Company”) for the year ended December 31, 2013, as filed with the Securities and Exchange Commission (the “Report”), I, Neil Alpert, Chief Executive Officer of the Company, do hereby certify, pursuant to 18 U.S.C. Section 1350, that to my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 31,  2014	By:	/s/ Neil Alpert
		Neil Alpert
		Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION OF

CHIEF FINANCIAL OFFICER

OF LASERLOCK TECHNOLOGIES, INC.

PURSUANT TO 18 U.S.C. SECTION 1350

In connection with the Annual Report on Form 10-K of LaserLock Technologies, Inc. and Subsidiary (the “Company”) for the year ended December 31, 2013, as filed with the Securities and Exchange Commission (the “Report”), I, Edward J. Weisberger, Chief Financial Officer of the Company, do hereby certify, pursuant to 18 U.S.C. Section 1350, that to my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:  March 31, 2014	By:	/s/ Edward J. Weisberger
		Edward J. Weisberger
		Chief Financial Officer

XML

INCOME TAXES (Detail Textuals) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Income Tax Disclosure [Abstract]
Net operating loss carryforward	$ 12.5
U.S federal income tax benefit at Federal statutory rate	35.00%	35.00%

XML

CONVERTIBLE PREFERRED STOCK (Detail textuals) (USD $)	12 Months Ended	170 Months Ended	1 Months Ended		12 Months Ended		1 Months Ended
	Dec. 31, 2013	Dec. 31, 2013	Jan. 31, 2013 Subscription Agreement	Jan. 31, 2013 Subscription Agreement Verify Me	Dec. 31, 2013 Subscription Agreement Verify Me	Dec. 31, 2013 Subscription Agreement Preferred Class	Aug. 31, 2013 Subscription Agreement Convertible Preferred Stock Verify Me	Jan. 31, 2013 Subscription Agreement Convertible Preferred Stock Verify Me	Aug. 31, 2013 Subscription Agreement Common Stock Verify Me	Jan. 31, 2013 Subscription Agreement Common Stock Verify Me
Class of Stock [Line Items]
Number of preferred stock purchased								33,333,333
Number of common stock called by warrants (in shares)										33,333,333
Value of shares issued										$ 1,000,000
Exercise price of warrants								0.12		0.12
Convertible preferred stock description			(i) the consummation of any bona fide business acquisition, (ii) the incurring of any indebtedness by the Company in an amount in excess of $2 million, (iii) the issuance or sale of any security having a preference on liquidation senior to common stock, or (iv) the sale by the Company of capital stock or warrants exercisable for its capital stock at a price below $0.03 per share.
Excess amount for incurring indebtedness			2,000,000
Exercise price of capital stock or warrant			$ 0.03
Preferred stock value	633,333	633,333	1,000,000
Beneficial conversion feature at fair market value				1,000,000	800,000
Fair value of warrants in excess of consideration for convertible preferred stock	2,995,791	2,995,791	2,995,791
Fair value of warrants recorded as charge to expenses			2,995,791
Initial conversion price per share (in dollars per share)						$ 0.03
Preferred stock value in noncash transaction							366,667
Shares of common stock shares issued on conversion									12,222,222
Fair value of warrants	$ 2,300,000	$ 2,300,000

XML

NOTES PAYABLE (Detail Textuals 2) (USD $)			1 Months Ended		12 Months Ended
	Mar. 19, 2013	Dec. 31, 2012	Jan. 31, 2010 8% Series A Notes Payable Unit	Aug. 31, 2009 8% Series A Notes Payable Unit	Dec. 31, 2009 8% Series A Notes Payable Unit	Sep. 30, 2011 8% Series A Notes Payable	Jun. 30, 2011 8% Series A Notes Payable
Debt Instrument [Line Items]
Convertible notes payable	$ 126,000	$ 140,000	$ 25,000	$ 300,000	$ 200,000	$ 50,000
Number of units			0.5	6	4
Interest rate			8.00%		8.00%	8.00%	8.00%
Number of shares of common stock						2,000,000
Warrants issued			1,000,000		8,000,000
Proceeds from issuance of units			17,500		180,000
Commissions charges			$ 7,500		$ 20,000

XML

RELATED PARTY TRANSACTIONS (Detail Textuals 1) (Chief Executive Officer, USD $)	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Chief Executive Officer
Related Party Transaction [Line Items]
Occupancy costs	$ 32,414
Accrued and unpaid salary		$ 208,514

XML

FAIR VALUE OF FINANCIAL INSTRUMENTS - Liabilities measured at fair value on recurring basis (Details) (Fair value on a recurring basis, USD $)	Dec. 31, 2013	Dec. 31, 2002
Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative liability related to fair value of beneficial conversion feature
Derivative liability related to fair value of warrants
Total
Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative liability related to fair value of beneficial conversion feature	800,000
Derivative liability related to fair value of warrants
Total	800,000
Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative liability related to fair value of beneficial conversion feature
Derivative liability related to fair value of warrants	6,000,000	2,400,000
Total	6,000,000	2,400,000
Total
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative liability related to fair value of beneficial conversion feature	800,000
Derivative liability related to fair value of warrants	6,000,000	2,400,000
Total	$ 6,800,000	$ 2,400,000

XML

NOTES PAYABLE (Detail Textuals) (USD $)	12 Months Ended		170 Months Ended	1 Months Ended	3 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2013	Dec. 31, 2012 Unsecured notes payable	Dec. 31, 2013 Unsecured notes payable
Debt Instrument [Line Items]
Amount of note payable					$ 561,000
Amount of unamortized discount		13,632			9,914
Accrued interest				9,167	83,715
Number of shares issued upon conversion of debt				4,703,711	4,473,333
Amount of cash repaid	$ 150,000	$ 6,251	$ 352,751		$ 150,000

XML

PROPERTY AND EQUIPMENT (Details) (USD $)	Dec. 31, 2013	Dec. 31, 2012
Property, Plant and Equipment [Line Items]
Property, plant and equipment, gross	$ 236,026	$ 34,964
Less: Accumulated depreciation	91,952	32,624
Total property and equipment	144,074	2,340
Furniture and Fixtures
Property, Plant and Equipment [Line Items]
Property, plant and equipment, gross	219,871
Equipment
Property, Plant and Equipment [Line Items]
Property, plant and equipment, gross	$ 16,155	$ 34,964

XML

FAIR VALUE OF FINANCIAL INSTRUMENTS - Estimated fair value of embedded derivative liability using Black-Scholes (Details 2) (USD $)	Dec. 31, 2013
Fair Value Disclosures [Abstract]
Closing trade price of Common Stock	$ 0.07
Series A Preferred Stock Conversion Price	$ 0.03
Intrinsic value of conversion option per share	$ 0.04

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

12 Months Ended

Dec. 31, 2013

Accounting Policies [Abstract]

Principle of Consolidation

Principle of Consolidation

The accompanying consolidated financial statements include the accounts of LaserLock Technologies, Inc. and its wholly-owned subsidiary, LL Security Products, Inc. All inter-company transactions have been eliminated in consolidation.

Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from these estimates.

Comprehensive Income

Comprehensive Income

The Company follows Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) 220 in reporting comprehensive income.  Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of certain financial information that historically has not been recognized in the calculation of net income.  Since the Company has no items of other comprehensive income (loss), comprehensive income (loss) is equal to net income (loss).

Fair Value of Financial Instruments

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash, accounts receivable, accounts payable and accrued expenses and notes payable.  The carrying value of cash, accounts receivable, accounts payable and accrued expenses approximate their fair value because of their short maturities. The Company believes the carrying amount of its notes payable and convertible debt approximates its fair value based on rates and other terms currently available to the Company for similar debt instruments.

Cash and Cash Equivalents

Cash and Cash Equivalents

For purposes of reporting cash flows, the Company considers all cash accounts, which are not subject to withdrawal restrictions or penalties, and certificates of deposit and commercial paper with original maturities of 90 days or less to be cash or cash equivalents.

Concentration of Credit Risk Involving Cash and Cash Equivalents

Concentration of Credit Risk Involving Cash and Cash Equivalents

The Company’s cash and cash equivalents are held at two financial institutions. At times, the Company’s deposits may exceed Federal Deposit Insurance Corporation (FDIC) coverage limits.  The Company has not experienced any losses from maintaining cash accounts in excess of federally insured limits.

Inventory

Inventory

Inventory principally consists of penlights and pigments and is stated at the lower of cost (determined by the first-in, first-out method) or market.

Property and Equipment

Property and Equipment

Property and equipment is stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, principally five to seven years. Maintenance and repairs of property are charged to operations, and major improvements are capitalized. Upon retirement, sale, or other disposition of property and equipment, the costs and accumulated depreciation are eliminated from the accounts, and any resulting gain or loss is included in operations.

Patents and Trademark

Patents and Trademark

The Company has five issued patents for anti-counterfeiting technology and purchased a trademark. Costs associated with the registration and legal defense of the patents have been capitalized and are amortized on a straight-line basis over the estimated lives of the patents which were determined to be 17 years.

Long-Lived Assets

Long-Lived Assets

The Company evaluates the recoverability of its long-lived assets in accordance with ASC 360 “Property, Plant, and Equipment.” The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets are measured by a comparison of the carrying amount of an asset to future cash flows expected to be generated by the asset, undiscounted and without interest or independent appraisals. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the assets.

Deferred Financing Costs

Deferred Financing Costs

Costs incurred in securing long-term debt are deferred and amortized, as a charge to interest expense, over the term of the related debt. In the case of long-term debt modifications, the Company follows the guidance provided by ASC 470-50 “Debt – Modification and Extinguishments.”

Convertible Notes Payable

Convertible Notes Payable

Convertible notes payable, for which the embedded conversion feature does not qualify for derivative treatment, are evaluated to determine if the effective or actual rate of conversion per the terms of the convertible note agreement is below market value. In these instances, the Company accounts for the value of the beneficial conversion feature (BCF) as a debt discount, which is then accreted to interest expense over the life of the related debt using the straight-line method which approximates the effective interest method.

Revenue Recognition

Revenue Recognition

In accordance with Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) No. 104, Revenue Recognition (Codified in FASB ASC 605), the Company recognizes revenue when (i) persuasive evidence of a customer or distributor arrangement exists, (ii) a retailer, distributor or wholesaler receives the goods and acceptance occurs, (iii) the price is fixed or determinable, and (iv) collectability of the revenue is reasonably assured. Subject to these criteria, the Company recognizes revenue from product sales, consisting mainly of pigments and penlights, upon shipment to the customer. Royalty revenue is recognized upon receipt of notification from a customer that the Company’s product has been used in the customer’s production process.

Income Taxes

Income Taxes

The Company follows FASB ASC 740 when accounting for income taxes, which requires an asset and liability approach to financial accounting and reporting for income taxes.  Deferred income tax assets and liabilities are computed annually for temporary differences between the financial statements and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income.  Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.  Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.  Tax years from 2009 through 2012 remain subject to examination by major tax jurisdictions.

Stock-based Payments

Stock-based Payments

The Company accounts for stock-based compensation under the provisions of ASC 718,  Compensation—Stock Compensation   (“ASC 718”), which requires the measurement and recognition of compensation expense for all stock-based awards made to employees and directors based on estimated fair values on the grant date. The Company estimates the fair value of stock-based awards on the date of grant using the Black-Scholes model.  The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods using the straight-line method.

The Company accounts for stock-based compensation awards to non-employees in accordance with ASC 505-50, Equity-Based Payments to Non-Employees (“ASC 505-50”). Under ASC 505-50, the Company determines the fair value of the warrants or stock-based compensation awards granted as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable.

All issuances of stock options or other equity instruments to non-employees as consideration for goods or services received by the Company are accounted for based on the fair value of the equity instruments issued. Any stock options issued to non-employees are recorded as an expense and additional paid-in capital in stockholders’ equity over the applicable service periods.

Advertising Costs

Advertising Costs

Advertising costs are expensed as incurred. Advertising costs were approximately $53,979 and $0 for the years ended December 31, 2013 and 2012, and are included in sales and marketing expenses.

Research and Development Costs

Research and  Development Costs

In accordance with FASB ASC 730, research and development costs are expensed when incurred.

Loss Per Share

Loss Per Share

The Company follows FASB ASC 260 when reporting Earnings Per Share resulting in the presentation of basic and diluted earnings per share.  Because the Company reported a net loss for the years ended December 31, 2013 and 2012, common stock equivalents, including stock options and warrants were anti-dilutive; therefore, the amounts reported for basic and dilutive loss per share were the same.

Segment Information

Segment Information

The Company is organized and operates as one operating segment wherein the Company’s patented technologies are utilized to address counterfeiting issues. In accordance with ASC 280, Segment Reporting, the chief operating decision-maker has been identified as the Chief Executive Officer, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company.  Since the Company operates in one segment and provides one group of similar products, all financial segment and product line information required by ASC 280 can be found in the consolidated financial statements.

Recently Adopted Accounting Pronouncements

Recently Adopted Accounting Pronouncements

As of December 31, 2013 and for the period then ended there were no recently adopted accounting pronouncements that had a material effect on the Company’s financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

Recently Issued Accounting Pronouncements Not Yet Adopted

In July 2013, the FASB issued Accounting Standards Update (“ASU”) ASU 2013-11, Presentation of Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. The amendments in this update provide guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists, in order to eliminate the diversity in practice in the presentation of unrecognized tax benefits in such instances. This guidance generally requires that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward.

However, to the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and should be made presuming disallowance of the tax position at the reporting date. ASU 2013-11 is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. Retrospective application is permitted.

The Company is currently evaluating ASU 2013-11 and plans to comply with all applicable provisions of this ASU no later than the first quarter of 2014.

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NOTES PAYABLE (Detail Textuals 4) (Private Placement of 25% Notes Payable, USD $)	Dec. 31, 2010
Private Placement of 25% Notes Payable
Debt Instrument [Line Items]
Note payable, amount	$ 400,000
Interest rate	25.00%

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CONVERTIBLE NOTES PAYABLE (Detail Textuals) (USD $)	12 Months Ended	170 Months Ended		1 Months Ended	3 Months Ended	12 Months Ended			1 Months Ended
	Dec. 31, 2012	Dec. 31, 2013	Mar. 19, 2013	Aug. 31, 2009 10% Convertible Promissory Notes	Dec. 31, 2013 10% Convertible Promissory Notes	Dec. 31, 2008 10% Convertible Promissory Notes	Dec. 31, 2007 10% Convertible Promissory Notes	Dec. 31, 2007 10% Convertible Promissory Notes Series A Preferred Stock	Mar. 19, 2013 10% Convertible Promissory Notes Vice Chairman	Mar. 19, 2013 10% Convertible Promissory Notes Investor
Debt Instrument [Line Items]
Debt instrument principal amount							$ 400,000
Interest rate				10.00%			10.00%
Maturity date				2015-09			2008-08
Proceeds from issuance of notes payable	200,000	2,789,000				25,000	375,000
Amount of notes converted in to common stock shares				260,000			260,000
Number of common stock shares issued on conversion of notes				48,750,000
Initial conversion price per share (in dollars per share)							$ 0.005333	$ 0.005333
Convertible notes payable	140,000		126,000	140,000	98,000				14,000	28,000
Common stock shares issued on conversion of debt (in shares)					12,375,000				2,625,000	5,250,000
Warrants issued				26,250,000
Accrued interest					87,150
Beneficial conversion feature related to the issuance of convertible notes payable						$ 25,000	$ 375,000
Common stock issuance price per share for convertible notes payable (in dollars per share)							0.016

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INCOME TAXES - Reconciliation of tax (Details 1) (USD $)	12 Months Ended		170 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2013
Income Tax Disclosure [Abstract]
U.S federal income tax benefit at Federal statutory rate, amount	$ (5,718,000)	$ (298,000)
State tax, net of federal tax effect, amount	(956,000)	(50,000)
Non deductible accrued expense, amount		(238,000)
Deductible share based compensation, amount	(318,000)	(167,000)
Non-deductible changes in derivative liability and share based transactions, amount	1,895,000
Other, amount	(24,000)
Change in valuation allowance, amount	5,121,000	753,000
Income tax benefit (provision), total			$ (165,000)
U.S federal income tax benefit at Federal statutory rate, percent	(35.00%)	(35.00%)
State tax, net of federal tax effect, percent	(6.00%)	(6.00%)
Non deductible accrued expense, percent		(28.00%)
Deductible share based compensation, percent	(2.00%)	(20.00%)
Non-deductible changes in derivative liability and share based transactions, percent	12.00%
Other, percent
Change in valuation allowance, percent	31.00%	89.00%
Effective income tax rate, total

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NOTES PAYABLE (Detail Textuals 6) (USD $)	12 Months Ended	170 Months Ended	1 Months Ended	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2013	Mar. 31, 2013 Private Placement of 25% Notes Payable	Dec. 31, 2012 Private Placement of 25% Notes Payable	Dec. 31, 2010 Private Placement of 25% Notes Payable	Dec. 31, 2013 Notes Payable	Dec. 31, 2012 Notes Payable
Debt Instrument [Line Items]
Interest rate					25.00%
Debt placement fees					$ 34,500
Amortization of deferred finance charges		40,800		13,625
Private placement of convertible notes			150,000	250,000
Accrued interest			70,000	122,397		317,344	394,281
Accrued interest paid in cash	$ 13,895	$ 53,336		$ 13,895
Number of shares issued upon conversion of debt			3,000,000	8,219,911

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OPERATING LEASES (Details) (USD $)	Dec. 31, 2013
Leases, Operating [Abstract]
2014	$ 71,766
2015	74,637
2016	31,605
Total	$ 178,008

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STOCK OPTIONS AND WARRANTS - Incentive Stock Option Transactions (Details 1) (Incentive stock options, USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Option/Warrant Shares
Outstanding	15,766,667	6,390,000
Granted	45,500,000	15,000,000
Transferred from non-employee options		200,000
Exercised	(900,000)	(5,823,333)
Expired/Returned	(500,000)
Outstanding	59,866,667	15,766,667
Exercisable	50,116,667
Weighted Average Remaining Life, Exercisable, December 31, 2013 (years)	9 years 7 months 6 days
Exercise Price
Outstanding		$ 0.00125
Transferred from non-employee options		$ 0.05
Exercised	$ 0.00125
Expired/Returned	$ 0.05
Weighted Average Exercise Price
Outstanding	$ 0.06	$ 0.00125
Granted	$ 0.04	$ 0.06
Transferred from non-employee options
Exercised
Expired/Returned
Outstanding	$ 0.05	$ 0.06
Weighted Average Remaining Life, Exercisable, December 31, 2013 (years)	$ 0.06
Minimum
Exercise Price
Outstanding	$ 0.00125
Granted	$ 0.05	$ 0.05
Exercised		$ 0.00125
Outstanding	$ 0.05	$ 0.00125
Exercisable	$ 0.05
Maximum
Exercise Price
Outstanding	$ 0.10
Granted	$ 0.15	$ 0.15
Exercised		$ 0.15
Outstanding	$ 0.15	$ 0.10
Exercisable	$ 0.15

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NOTES PAYABLE (Detail Textuals 1) (USD $)	12 Months Ended	170 Months Ended	1 Months Ended	3 Months Ended
	Dec. 31, 2012	Dec. 31, 2013	Dec. 31, 2012 Unsecured notes payable	Dec. 31, 2013 Unsecured notes payable	Jun. 30, 2012 Unsecured notes payable
Debt Instrument [Line Items]
Proceeds from issuance of notes payable	$ 200,000	$ 2,789,000			$ 200,000
Interest rate			10.00%	10.00%	10.00%
Accrued interest			$ 9,167	$ 83,715
Number of shares issued upon conversion of debt			4,703,711	4,473,333

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

12 Months Ended

Dec. 31, 2013

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of the Business

LaserLock Technologies, Inc. and Subsidiary (the “Company”) is a development stage enterprise incorporated in the state of Nevada on November 10, 1999. LaserLock Technologies, Inc., seeks to provide state-of-the-art authentication solutions to governments, health care providers, high-end retailers and the gaming industry. LaserLock Technologies, Inc. is based in Washington, D.C. and is publically traded on the OTC Market under the ticker symbol “LLTI”. The Company markets security technology to protect governments, health care providers, high-end retail goods, the gaming industry and branded products from counterfeiting.

Principle of Consolidation

The accompanying consolidated financial statements include the accounts of LaserLock Technologies, Inc. and its wholly-owned subsidiary, LL Security Products, Inc. All inter-company transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from these estimates.

Comprehensive Income

The Company follows Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) 220 in reporting comprehensive income.  Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of certain financial information that historically has not been recognized in the calculation of net income.  Since the Company has no items of other comprehensive income (loss), comprehensive income (loss) is equal to net income (loss).

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash, accounts receivable, accounts payable and accrued expenses and notes payable.  The carrying value of cash, accounts receivable, accounts payable and accrued expenses approximate their fair value because of their short maturities. The Company believes the carrying amount of its notes payable and convertible debt approximates its fair value based on rates and other terms currently available to the Company for similar debt instruments.

Cash and Cash Equivalents

For purposes of reporting cash flows, the Company considers all cash accounts, which are not subject to withdrawal restrictions or penalties, and certificates of deposit and commercial paper with original maturities of 90 days or less to be cash or cash equivalents.

Concentration of Credit Risk Involving Cash and Cash Equivalents

The Company’s cash and cash equivalents are held at two financial institutions. At times, the Company’s deposits may exceed Federal Deposit Insurance Corporation (FDIC) coverage limits.  The Company has not experienced any losses from maintaining cash accounts in excess of federally insured limits.

Inventory

Inventory principally consists of penlights and pigments and is stated at the lower of cost (determined by the first-in, first-out method) or market.
 

Property and Equipment

Property and equipment is stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, principally five to seven years. Maintenance and repairs of property are charged to operations, and major improvements are capitalized. Upon retirement, sale, or other disposition of property and equipment, the costs and accumulated depreciation are eliminated from the accounts, and any resulting gain or loss is included in operations.

Patents and Trademark

The Company has five issued patents for anti-counterfeiting technology and purchased a trademark. Costs associated with the registration and legal defense of the patents have been capitalized and are amortized on a straight-line basis over the estimated lives of the patents which were determined to be 17 years.

Long-Lived Assets

The Company evaluates the recoverability of its long-lived assets in accordance with ASC 360 “Property, Plant, and Equipment.” The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets are measured by a comparison of the carrying amount of an asset to future cash flows expected to be generated by the asset, undiscounted and without interest or independent appraisals. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the assets.

Deferred Financing Costs

Costs incurred in securing long-term debt are deferred and amortized, as a charge to interest expense, over the term of the related debt. In the case of long-term debt modifications, the Company follows the guidance provided by ASC 470-50 “Debt – Modification and Extinguishments.”

Convertible Notes Payable

Convertible notes payable, for which the embedded conversion feature does not qualify for derivative treatment, are evaluated to determine if the effective or actual rate of conversion per the terms of the convertible note agreement is below market value. In these instances, the Company accounts for the value of the beneficial conversion feature (BCF) as a debt discount, which is then accreted to interest expense over the life of the related debt using the straight-line method which approximates the effective interest method.

Revenue Recognition

In accordance with Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) No. 104, Revenue Recognition (Codified in FASB ASC 605), the Company recognizes revenue when (i) persuasive evidence of a customer or distributor arrangement exists, (ii) a retailer, distributor or wholesaler receives the goods and acceptance occurs, (iii) the price is fixed or determinable, and (iv) collectability of the revenue is reasonably assured. Subject to these criteria, the Company recognizes revenue from product sales, consisting mainly of pigments and penlights, upon shipment to the customer. Royalty revenue is recognized upon receipt of notification from a customer that the Company’s product has been used in the customer’s production process.

Income Taxes

The Company follows FASB ASC 740 when accounting for income taxes, which requires an asset and liability approach to financial accounting and reporting for income taxes.  Deferred income tax assets and liabilities are computed annually for temporary differences between the financial statements and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income.  Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.  Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.  Tax years from 2009 through 2012 remain subject to examination by major tax jurisdictions.
 

Stock-based Payments

The Company accounts for stock-based compensation under the provisions of ASC 718,  Compensation—Stock Compensation   (“ASC 718”), which requires the measurement and recognition of compensation expense for all stock-based awards made to employees and directors based on estimated fair values on the grant date. The Company estimates the fair value of stock-based awards on the date of grant using the Black-Scholes model.  The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods using the straight-line method.

The Company accounts for stock-based compensation awards to non-employees in accordance with ASC 505-50, Equity-Based Payments to Non-Employees (“ASC 505-50”). Under ASC 505-50, the Company determines the fair value of the warrants or stock-based compensation awards granted as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable.

All issuances of stock options or other equity instruments to non-employees as consideration for goods or services received by the Company are accounted for based on the fair value of the equity instruments issued. Any stock options issued to non-employees are recorded as an expense and additional paid-in capital in stockholders’ equity over the applicable service periods.

Advertising Costs

Advertising costs are expensed as incurred. Advertising costs were approximately $53,979 and $0 for the years ended December 31, 2013 and 2012, and are included in sales and marketing expenses.

Research and  Development Costs

In accordance with FASB ASC 730, research and development costs are expensed when incurred.

Loss Per Share

The Company follows FASB ASC 260 when reporting Earnings Per Share resulting in the presentation of basic and diluted earnings per share.  Because the Company reported a net loss for the years ended December 31, 2013 and 2012, common stock equivalents, including stock options and warrants were anti-dilutive; therefore, the amounts reported for basic and dilutive loss per share were the same.

Segment Information

The Company is organized and operates as one operating segment wherein the Company’s patented technologies are utilized to address counterfeiting issues. In accordance with ASC 280, Segment Reporting, the chief operating decision-maker has been identified as the Chief Executive Officer, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company.  Since the Company operates in one segment and provides one group of similar products, all financial segment and product line information required by ASC 280 can be found in the consolidated financial statements.

Recently Adopted Accounting Pronouncements

As of December 31, 2013 and for the period then ended there were no recently adopted accounting pronouncements that had a material effect on the Company’s financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

In July 2013, the FASB issued Accounting Standards Update (“ASU”) ASU 2013-11, Presentation of Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. The amendments in this update provide guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists, in order to eliminate the diversity in practice in the presentation of unrecognized tax benefits in such instances. This guidance generally requires that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward.

However, to the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and should be made presuming disallowance of the tax position at the reporting date. ASU 2013-11 is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. Retrospective application is permitted.

The Company is currently evaluating ASU 2013-11 and plans to comply with all applicable provisions of this ASU no later than the first quarter of 2014.

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STOCK OPTIONS AND WARRANTS (Detail Textuals)			12 Months Ended
	Dec. 31, 2000 Stock option 2000 plan Stock options	Dec. 31, 2013 Stock option 2003 plan Common Stock	Dec. 31, 2013 Stock option 2003 plan Stock options	Dec. 17, 2013 Stock option 2003 plan Stock options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares authorized to grant options	1,500,000	20,000,000		18,000,000
Number of option issued			18,425,996
Number of options available to be issued			19,574,004

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NOTES PAYABLE - Summary of notes payable (Details) (USD $)	Dec. 31, 2013	Dec. 31, 2012
Debt Instrument [Line Items]
Less: Debt discount		$ (13,632)
Notes payable	380,000	897,368
Less: Current portion	50,000	200,000
Long-term portion	330,000	697,368
Unsecured notes payable due to related parties; interest at 10% per annum; principal and accrued interest due at maturity in September 2015
Debt Instrument [Line Items]
Less: Debt discount	(9,914)
Notes payable	330,000	561,000
Series A notes payable; interest at 8% per annum; principal and accrued interest due at extended maturity date in September 2015
Debt Instrument [Line Items]
Notes payable		150,000
Series A notes payable; interest at 8% per annum; principal and accrued interest due at maturity in October 2011 (past due)
Debt Instrument [Line Items]
Notes payable	50,000	50,000
Notes payable, interest at 25% per annum; principal and interest due September 2013
Debt Instrument [Line Items]
Notes payable		$ 150,000

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FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables)

12 Months Ended

Dec. 31, 2013

Fair Value Disclosures [Abstract]

Schedule of liabilities measured at fair value on a recurring basis

December 31, 2013	Level 1		Level 2		Level 3		Total
Derivative liability related to fair value of beneficial conversion feature	$	-	$	800,000	$	---	$	800,000
Derivative liability related to fair value of warrants		-		-		6,000,000		6,000,000
Total	$	-	$	800,000	$	6,000,000	$	6,800,000
December 31, 2012	Level 1		Level 2		Level 3		Total
Derivative liability related to fair value of beneficial conversion feature	$	-	$	-	$	-	$	-
Derivative liability related to fair value of warrants		-		-		2,400,000		2,400,000
Total	$	-	$	-	$	2,400,000	$	2,400,000

Schedule of fair value measurements within the fair value hierarchy of derivative liabilities using Level 3 inputs

	Total
Balance at January 1, 2013	$	2,400,000
Derivative liabilities resulting from Subscription Agreement		2,998,027
Change in fair value of derivative liabilities		601,973
Balance at December 31, 2013	$	6,000,000

Schedule of embedded derivative liability valuation assumptions

Closing trade price of Common Stock	$0.07
Series A Preferred Stock Conversion Price	$0.03
Intrinsic value of conversion option per share	$0.04

Schedule of common stock purchase warrants valuation assumptions

	December 31, 2013
Annual Dividend Yield	0.0%
Expected Life (Years)	4.00 – 4.08
Risk-Free Interest Rate	1.39%
Expected Volatility	267.3%

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NOTES PAYABLE (Tables)

12 Months Ended

Dec. 31, 2013

Debt Disclosure [Abstract]

Schedule of notes payable

	December 31, 2013		December 31, 2012
Unsecured notes payable due to related parties; interest at 10% per annum; principal and accrued interest due at maturity in September 2015	$	330,000	$	561,000
Series A notes payable; interest at 8% per annum; principal and accrued interest due at extended maturity date in September 2015		---		150,000
Series A notes payable; interest at 8% per annum; principal and accrued interest due at maturity in October 2011 (past due)		50,000		50,000
Notes payable, interest at 25% per annum; principal and interest due September 2013		---		150,000
Less: Debt discount		----		(13,632	)
		380,000		897,368
Less: Current portion		50,000		200,000
Long-term portion	$	330,000	$	697,368

Schedule of aggregate maturities of senior secured convertible notes

              2014                   $    50,000

              2015                       330,249

              2016                                  -

              2017                                  -

              2018                                  -

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FAIR VALUE OF FINANCIAL INSTRUMENTS - Fair value measurements within fair value hierarchy of derivative liabilities using Level 3 inputs (Details 1) (USD $)	12 Months Ended
	Dec. 31, 2013
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Balance at January 1, 2013	$ 2,400,000
Derivative liabilities resulting from Subscription Agreement	2,998,027
Change in fair value of derivative liabilities	601,973
Balance at December 31, 2013	$ 6,000,000

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NOTES PAYABLE - Information regarding notes payable - (Parentheticals) (Details)	Dec. 31, 2013 Unsecured notes payable due to related parties; interest at 10% per annum; principal and accrued interest due at maturity in September 2015	Dec. 31, 2012 Unsecured notes payable due to related parties; interest at 10% per annum; principal and accrued interest due at maturity in September 2015	Jun. 30, 2012 Unsecured notes payable due to related parties; interest at 10% per annum; principal and accrued interest due at maturity in September 2015	Dec. 31, 2013 Series A notes payable; interest at 8% per annum; principal and accrued interest due at extended maturity date in September 2015	Dec. 31, 2012 Series A notes payable; interest at 8% per annum; principal and accrued interest due at extended maturity date in September 2015	Jun. 30, 2011 Series A notes payable; interest at 8% per annum; principal and accrued interest due at extended maturity date in September 2015	Dec. 31, 2013 Series A notes payable; interest at 8% per annum; principal and accrued interest due at maturity in October 2011 (past due)	Dec. 31, 2012 Series A notes payable; interest at 8% per annum; principal and accrued interest due at maturity in October 2011 (past due)	Dec. 31, 2013 Notes payable, interest at 25% per annum; principal and interest due September 2013	Dec. 31, 2012 Notes payable, interest at 25% per annum; principal and interest due September 2013
Debt Instrument [Line Items]
Interest rate	10.00%	10.00%	10.00%	8.00%	8.00%	8.00%	8.00%	8.00%	25.00%	25.00%

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STOCK OPTIONS AND WARRANTS (Tables)

12 Months Ended

Dec. 31, 2013

Disclosure Of Compensation Related Costs, Share-Based Payments [Abstract]

Schedule of non-employee stock option/warrant activity

							Weighted Average
	Option/Warrant			Exercise			Exercise
	Shares			Price			Price
Outstanding, December 31, 2011		15,585,996			$0.00125 to $0.20		$	0.01
Granted		72,422,221		0.05 to 0.10				0.08
Transferred to employee options		(200,000	)		(0.05	)		-
Exercised		(5,000,996	)		0.00125			-
Expired		-			-			-
Outstanding, December 31, 2012		82,807,221		0.00125 to 0.20				0
Granted		38,144,444		0.10 to 0.15				0.03
Exercised		(9,435,000	)		0.00125 - 0.07			-
Expired		-			-			-
Outstanding, December 31, 2013		111,516,665			$0.01 to $.20		$	0.10
Exercisable, December 2013		111,516,665			$0.01 to $.20		$	0.10
Weighted Average Remaining Life,
Exercisable, December 31, 2013 (years)		7.0

Schedule of incentive stock option transactions for employees

						Weighted Average
	Option/Warrant			Exercise		Exercise
	Shares			Price		Price
Outstanding, December 31, 2011		6,390,000			$0.00125	$	0.00125
Granted		15,000,000			0.05 - 0.15		0.06
Transferred from non-employee options		200,000			0.05		-
Exercised		(5,823,333	)		0.00125 - 0.15		-
Expired/Returned		-			-		-
Outstanding, December 31, 2012		15,766,667		0.00125 to 0.10			0.06
Granted		45,500,000			0.05 - 0.15		0.04
Exercised		(900,000	)		0.00125		-
Expired/Returned		(500,000	)		0.05		-
Outstanding, December 31, 2013		59,866,667			$0.05 to $0.15	$	0.05
Exercisable, December 31, 2013		50,116,667			$0.05 to $0.15	$	0.06
Weighted Average Remaining Life,
Exercisable, December 31, 2013 (years)		9.6

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OPERATING LEASES (Tables)

12 Months Ended

Dec. 31, 2013

Leases, Operating [Abstract]

Schedule of non-cancelable operating lease arrangements for property

2014	$	71,766
2015		74,637
2016		31,605
	$	178,008

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Consolidated Statements of Cash Flows (USD $)	12 Months Ended		170 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2013
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$ (16,390,869)	$ (1,199,057)	$ (29,777,910)
Adjustments to reconcile net loss to net cash used in operating activities
Fair value of options issued in exchange for services	8,619,137	343,674	11,036,369
Accretion of interest on deferred finance charges		13,625	453,625
Accretion of discount on notes payable	3,718	4,957	446,954
Change in fair value warrant liability	604,209		604,209
Change in fair value embedded derivative liability	(200,000)		(200,000)
Change in fair value of deemed distribution
Fair value of warrants in excess of consideration for convertible preferred stock	2,995,791		2,995,791
Fair value of stock in excess of converted notes payable and accrued interest	1,221,875		1,221,875
Salary due to stockholder contributed to capital			15,000
Amortization and depreciation	81,929	13,471	611,984
Loss on extinguishment of debt	1,221,875	(156,110)	1,221,875
Gain on disposition of assets			(4,722)
Gain on debt forgiveness			(340,352)
Stock issued in exchange for services		46,500	553,760
Financing expenses paid directly from stock proceeds			5,270
Amortization of deferred consulting fees			40,800
(Increase) decrease in assets
Accounts receivable	(100)	(3,473)	(3,573)
Inventory	(14,291)	15,157	5,689
Prepaid expenses	560,526	(232,240)	210,526
Deposit	(37,197)		(37,197)
Increase in liabilities
Accounts payable and accrued expenses	(233,497)	786,436	2,333,865
Net cash used in operating activities	(2,788,769)	(367,060)	(9,828,037)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment	(10,573)	(2,360)	(48,682)
Purchase of patents and trademarks	(21,954)	(6,665)	(246,088)
Proceeds from sale of assets			6,738
Net cash used in investing activities	(32,527)	(9,025)	(288,032)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of preferred stock	1,000,000		1,000,000
Proceeds from issuance of common stock	235,000	1,060,000	5,786,447
Proceeds from exercise of stock options	17,919	13,113	273,401
Proceeds issuance of stock options			15,000
Proceeds from exercise of warrants	10,000	50,000	115,500
Proceeds from issuance of warrants		2,000,000	2,000,000
Proceeds from issuance of notes payable		200,000	2,789,000
Repayments of notes payable	(150,000)	(6,251)	(352,751)
Payment for treasury stock			(17,795)
Debt issuance costs			(62,000)
Stock issuance costs			(144,760)
Net cash provided by financing activities	1,112,919	3,316,862	11,402,042
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	(1,708,377)	2,940,777	1,285,973
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD	2,994,350	53,573
CASH AND CASH EQUIVALENTS - END OF PERIOD	1,285,973	2,994,350	1,285,973
Cash paid during the year for:
Interest	13,895		53,336
Income taxes
Return of shares of common stock related to purchase price adjustment
Common stock			(1,000)
Additional paid-in capital			(353,000)
Intangible assets			(354,000)
Issuance of common stock and stock options for acquisition of subsidiary			738,000
Proceeds from common stock sales applied directly to debt and financing expenses repayment			55,270
Fair value of warrants issued for deferred finance charges			392,376
Fair value of stock issued for conversion of notes payable and accrued interest	2,092,075	581,564	2,985,680
Fair value of stock issued for conversion of preferred stock to common stock	366,667		366,667
Fair value of stock issued for purchase of assets		100,000	100,000
Fair value of warrants issued for purchase of assets		100,000	100,000
Fair value of stock issued for licensing costs		100,000	100,000
Fair value of warrants issued for licensing costs		300,000	300,000
Accretion of discount on preferred stock as deemed dividend distribution	1,000,000		1,000,000
Fair value of beneficial conversion feature	1,500,000		1,500,000
Fair value of warrants issued as debt discount			78,043
Issuance of common stock for stock issuance costs			2,100
Issuance of options as stock cost for treasury stock			5,594
Forgiveness of debt-related party treated as additional paid in capital		349,000	349,000
Conversion of warrant in lieu of cash repayment of notes payable	$ 60,000		$ 60,000

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Detail Textuals) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Finite-Lived Intangible Assets [Line Items]
Number of financial institutions at which company's cash and cash equivalents are held	2
Property and equipment depreciation method	straight-line method
Property and equipment estimated useful lives	five to seven years
Number of operating segment	1
Sales and marketing expenses
Finite-Lived Intangible Assets [Line Items]
Advertising costs	$ 53,979	$ 0
Patents and Trademark
Finite-Lived Intangible Assets [Line Items]
Number of patents issued	5
Amortization method of patents	straight-line basis
Estimated lives of patents	17 years

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SENIOR SECURED CONVERTIBLE NOTES PAYABLE (Detail Textuals) (USD $)	1 Months Ended	3 Months Ended		12 Months Ended
	Jun. 30, 2013	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2006	Jun. 30, 2011	May 31, 2007	Feb. 28, 2006
Debt Instrument [Line Items]
Accrued interest		$ 300,677	$ 600,091
Outstanding principal balance on notes		330,249	775,249
10% Senior Secured Convertible Promissory Notes
Debt Instrument [Line Items]
Debt instrument principal amount	225,000	220,000			596,500		800,000
Interest rate					10.00%	12.00%	10.00%
Sale price of notes payable				800,000
Remaining debt and accrued interest was extended until September 15, 2015			178,749
Accrued interest	181,125	395,000
Common stock shares issued on conversion of debt (in shares)	7,400,000	7,900,000
Amount of notes converted in to common stock shares	$ 1,628,000

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WARRANT LIABILITY (Detail Textuals) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Major Agreements [Line Items]
Warrant liability	$ 6,000,000	$ 2,400,000
Agreements | Zaah Technologies
Major Agreements [Line Items]
Warrant liability		2,400,000
Value of the warrants increased	$ 3,700,000

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Consolidated Balance Sheets (USD $)	Dec. 31, 2013	Dec. 31, 2012
CURRENT ASSETS
Cash and cash equivalents	$ 1,285,973	$ 2,994,350
Accounts receivable, net of allowance of $0 at December 31, 2013 and December 31, 2012	3,573	3,473
Inventory	34,271	19,980
Prepaid expenses	189,474	750,000
TOTAL CURRENT ASSETS	1,513,291	3,767,803
PROPERTY AND EQUIPMENT
Capital equipment, net of accumulated depreciation of $91,952 and $32,624 as of December 31, 2013 and December 31, 2012	144,074	2,340
OTHER ASSETS
Deposits	37,197
Patents and trademarks, net of accumulated amortization of $105,393 and $92,302 as of December 31, 2013 and December 31, 2012	120,695	311,832
TOTAL ASSETS	1,815,257	4,081,975
CURRENT LIABILITIES
Accounts payable and accrued expenses	316,785	660,493
Accrued interest	16,667	97,563
Embedded derivative liability	800,000
Notes payable	50,000	200,000
TOTAL CURRENT LIABILITIES	1,183,452	958,056
LONG-TERM LIABILITIES
Warrant liability	6,000,000	2,400,000
Accrued interest - related parties	300,677	975,559
Senior secured convertible notes payable - related parties	330,249	775,249
Convertible notes payable		140,000
Notes payable, net of discount of $13,632 as of December 31, 2012		697,368
TOTAL LONG-TERM LIABILITIES	6,630,926	4,988,176
STOCKHOLDERS' DEFICIT
Convertible Preferred Stock, $ .001 par value; 75,000,000 shares authorized; 21,111,111 shares issued and outstanding as of December 31, 2013 and no shares issued and outstanding at December 31, 2012	633,333
Common stock, $ .001 par value; 675,000,000 shares authorized; 319,862,042 shares issued and 290,066,139 outstanding at December 31, 2013 and 248,244,012 shares issued and 218,448,109 outstanding at December 31, 2012	319,862	248,244
Additional paid in capital	22,938,983	11,387,929
Treasury stock, at cost (29,795,903 shares at December 31, 2013 and December 31, 2012)	(113,389)	(113,389)
Deficit accumulated during the development stage	(29,777,910)	(13,387,041)
STOCKHOLDERS' DEFICIT	(5,999,121)	(1,864,257)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$ 1,815,257	$ 4,081,975

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NOTES PAYABLE - Aggregate Maturities of Long-term Debt (Details 1) (USD $)	Dec. 31, 2013
Debt Disclosure [Abstract]
2014	$ 50,000
2015	330,249
2016
2017
2018

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Consolidated Statements of Changes in Stockholders' Equity (Deficit) (USD $)	Convertible Preferred Stock	Common Stock	Deferred Consulting Fees	Additional Paid-In Capital	Treasury Stock	Deficit Accumulated During the Development Stage	Total
Balance (in shares) at Nov. 10, 1999							4,278,000
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of initial 4,278,000 shares on November 10, 1999		$ 4,278		$ 16,595			$ 20,873
Issuance of initial 4,278,000 shares on November 10, 1999 (in shares)		4,278,000
Issuance of shares of common stock in exchange for services		1,232		35,728			36,960
Issuance of shares of common stock in exchange for services (in shares)		1,232,000
Issuance of shares of common stock		2,090		60,610			62,700
Issuance of shares of common stock (in shares)		2,090,000
Stock issuance costs				(13,690)			(13,690)
Net loss						(54,113)	(54,113)
Balance at Dec. 31, 1999		7,600		99,243		(54,113)	52,730
Balance (in shares) at Dec. 31, 1999		7,600,000
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of shares of common stock in exchange for services		240	(40,800)	40,560
Issuance of shares of common stock in exchange for services (in shares)		240,000
Issuance of shares of common stock		5,450		921,050			926,500
Issuance of shares of common stock (in shares)		5,449,999
Stock issuance costs				(16,335)			(16,335)
Fair value of non-employee stock options				50,350			50,350
Amortization of deferred consulting fees			20,117				20,117
Net loss						(367,829)	(367,829)
Balance at Dec. 31, 2000		13,290	(20,683)	1,094,868		(421,942)	665,533
Balance (in shares) at Dec. 31, 2000		13,289,999
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of shares of common stock		218		77,723			77,941
Issuance of shares of common stock (in shares)		217,500
Issuance of shares of common stock and stock options for acquisition of subsidiary		2,000		736,000			738,000
Issuance of shares of common stock and stock options for acquisition of subsidiary (in shares)		2,000,000
Exercise of options		1,450		230,609			232,059
Exercise of options (in shares)		1,450,368
Fair value of non-employee stock options				323,250			323,250
Issuance of stock options				15,000			15,000
Amortization of deferred consulting fees			20,683				20,683
Net loss						(1,052,299)	(1,052,299)
Balance at Dec. 31, 2001		16,958		2,477,450		(1,474,241)	1,020,167
Balance (in shares) at Dec. 31, 2001		16,957,867
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of shares of common stock		3,377		687,223			690,600
Issuance of shares of common stock (in shares)		3,376,875
Fair value of non-employee stock options				94,000			94,000
Salary due to shareholder contributed capital				15,000			15,000
Return of shares of common stock related to purchase price adjustment		(1,000)		(353,000)			(354,000)
Return of shares of common stock related to purchase price adjustment (in shares)		(1,000,000)
Net loss						(1,195,753)	(1,195,753)
Balance at Dec. 31, 2002		19,335		2,920,673		(2,669,994)	270,014
Balance (in shares) at Dec. 31, 2002		19,334,742
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of shares of common stock in exchange for services		143		23,857			24,000
Issuance of shares of common stock in exchange for services (in shares)		143,000
Issuance of shares of common stock		22,512		1,387,109			1,409,621
Issuance of shares of common stock (in shares)		22,512,764
Stock issuance costs				(49,735)			(49,735)
Fair value of non-employee stock options				213,300			213,300
Net loss						(1,107,120)	(1,107,120)
Balance at Dec. 31, 2003		41,990		4,495,204		(3,777,114)	760,080
Balance (in shares) at Dec. 31, 2003		41,990,506
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of shares of common stock		18,600		939,881			958,481
Issuance of shares of common stock (in shares)		18,600,000
Stock issuance costs				(25,000)			(25,000)
Fair value of non-employee stock options				493,600			493,600
Net loss						(1,406,506)	(1,406,506)
Balance at Dec. 31, 2004		60,590		5,903,685		(5,183,620)	780,655
Balance (in shares) at Dec. 31, 2004		60,590,506
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of shares of common stock		3,000		102,000			105,000
Issuance of shares of common stock (in shares)		3,000,000
Fair value of non-employee stock options				286,762			286,762
Net loss						(1,266,811)	(1,266,811)
Balance at Dec. 31, 2005		63,590		6,292,447		(6,450,431)	(94,394)
Balance (in shares) at Dec. 31, 2005		63,590,506
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of shares of common stock in exchange for services		1,200		53,800			55,000
Issuance of shares of common stock in exchange for services (in shares)		1,200,000
Exercise of options		4,300		(3,870)			430
Exercise of options (in shares)		4,300,000
Shares retired upon cancellation of consulting agreements		(1,200)		1,080			(120)
Shares retired upon cancellation of consulting agreements (in shares)		(1,200,000)
Exercise of warrants		5,550		49,950			55,500
Exercise of warrants (in shares)		5,550,000
Fair value of employee stock options				135,098			135,098
Fair value of non-employee stock options				215,463			215,463
Fair value of warrants issued for deferred finance charges				392,376			392,376
Net loss						(1,607,017)	(1,607,017)
Balance at Dec. 31, 2006		73,440		7,136,344		(8,057,448)	(847,664)
Balance (in shares) at Dec. 31, 2006		73,440,506
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Fair value of employee stock options				67,651			67,651
Fair value of non-employee stock options				47,692			47,692
Recognition of beneficial conversion feature				375,000			375,000
Net loss						(1,117,334)	(1,117,334)
Balance at Dec. 31, 2007		73,440		7,626,687		(9,174,782)	(1,474,655)
Balance (in shares) at Dec. 31, 2007		73,440,506
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Fair value of warrants issued in conjunction with debt financing				25,000			25,000
Fair value of employee stock options				19,720			19,720
Fair value of non-employee stock options				28,752			28,752
Net loss						(931,338)	(931,338)
Balance at Dec. 31, 2008		73,440		7,700,159		(10,106,120)	(2,332,521)
Balance (in shares) at Dec. 31, 2008		73,440,506
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of shares of common stock in exchange for services		7,200		40,500			47,700
Issuance of shares of common stock in exchange for services (in shares)		7,200,000
Shares issued for conversion of notes payable and accrued interest		48,750		263,291			312,041
Shares issued for conversion of notes payable and accrued interest (in shares)		48,750,000
Fair value of warrants issued in conjunction with debt financing				15,450			15,450
Fair value of non-employee stock options				1,524			1,524
Net loss						(694,910)	(694,910)
Balance at Dec. 31, 2009		129,390		8,020,924		(10,801,030)	(2,650,716)
Balance (in shares) at Dec. 31, 2009		129,390,506
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of shares of common stock in exchange for services		25,950		182,650			208,600
Issuance of shares of common stock in exchange for services (in shares)		25,950,000
Fair value of warrants issued in conjunction with debt financing				20,143			20,143
Fair value of non-employee stock options				364			364
Net loss						(721,841)	(721,841)
Balance at Dec. 31, 2010		155,340		8,224,081		(11,522,871)	(3,143,450)
Balance (in shares) at Dec. 31, 2010		155,340,506
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of shares of common stock in exchange for services		1,000		29,000			30,000
Issuance of shares of common stock in exchange for services (in shares)		1,000,000
Contribution of common stock from related parties				95,594	(95,594)
Contribution of common stock from related parties (in shares)		(12,000,000)
Purchase of common stock for treasury					(17,795)		(17,795)
Purchase of common stock for treasury (in shares)		(17,795,903)
Sale of common stock		15,500		384,500			400,000
Sale of common stock (in shares)		15,500,000
Issuance of shares for stock issuance costs		2,100		(2,100)
Issuance of shares for stock issuance costs (in shares)		2,100,000
Stock issuance costs				(40,000)			(40,000)
Exercise of options		1,000		9,000			10,000
Exercise of options (in shares)		1,000,000
Fair value of warrants issued in conjunction with debt financing				21,275			21,275
Fair value of employee stock options				47,658			47,658
Fair value of non-employee stock options				48,374			48,374
Net loss						(665,113)	(665,113)
Balance at Dec. 31, 2011		174,940		8,817,382	(113,389)	(12,187,984)	(3,309,051)
Balance (in shares) at Dec. 31, 2011		145,144,603
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of shares of common stock in exchange for services		1,000		45,500			46,500
Issuance of shares of common stock in exchange for services (in shares)		1,000,000
Issuance of shares of common stock		44,111		1,015,889			1,060,000
Issuance of shares of common stock (in shares)		44,111,111
Issuance of stock for licensing		2,222		97,778			100,000
Issuance of stock for licensing (in shares)		2,222,222
Issuance of stock for trademarks, etc.		2,222		97,778			100,000
Issuance of stock for trademarks, etc. (in shares)		2,222,222
Shares issued for conversion of notes payable and accrued interest		12,925		568,639			581,564
Shares issued for conversion of notes payable and accrued interest (in shares)		12,923,622
Exercise of options		10,491		2,622			13,113
Exercise of options (in shares)		10,490,996
Exercise of warrants		333		49,667			50,000
Exercise of warrants (in shares)		333,333
Fair value of employee stock options				332,036			332,036
Fair value of non-employee stock options				11,638			11,638
Forgiveness of debt-related party				349,000			349,000
Net loss						(1,199,057)	(1,199,057)
Balance at Dec. 31, 2012		248,244		11,387,929	(113,389)	(13,387,041)	(1,864,257)
Balance (in shares) at Dec. 31, 2012		218,448,109
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of shares of preferred stock	1,000,000						1,000,000
Issuance of shares of preferred stock (in shares)	33,333,333
Conversion of shares of preferred stock to common stock	(366,667)	12,222		354,445
Conversion of shares of preferred stock to common stock (in shares)	(12,222,222)	12,222,222
Issuance of shares of common stock		4,811		230,189			235,000
Issuance of shares of common stock (in shares)		4,811,111
Shares issued for conversion of notes payable and accrued interest		18,275		1,871,725			1,890,000
Shares issued for conversion of notes payable and accrued interest (in shares)		18,275,000
Exercise of options		3,335		14,584			17,919
Exercise of options (in shares)		3,335,000
Exercise of warrants		1,000		9,000			10,000
Exercise of warrants (in shares)		1,000,000
Fair value of employee stock options				8,619,136			8,619,136
Deemed dividend distribution				(1,000,000)			(1,000,000)
Exercise of warrants		6,000		53,999			59,999
Exercise of warrants (in shares)		6,000,000
Conversion of Notes payable		25,975		1,397,976			1,423,951
Conversion of Notes payable (in shares)		25,974,697
Net loss						(16,390,869)	(16,390,869)
Balance at Dec. 31, 2013	$ 633,333	$ 319,862		$ 22,938,983	$ (113,389)	$ (29,777,910)	$ (5,999,121)
Balance (in shares) at Dec. 31, 2013	21,111,111	290,066,139

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STOCKHOLDERS' EQUITY (Details Textuals) (USD $)	0 Months Ended	2 Months Ended	12 Months Ended							170 Months Ended	0 Months Ended	1 Months Ended	2 Months Ended			1 Months Ended		2 Months Ended	12 Months Ended	1 Months Ended	12 Months Ended
	Dec. 05, 2012	Dec. 31, 1999	Dec. 31, 2013	Dec. 31, 2012 Unit	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2009	Dec. 31, 2006	Dec. 31, 2003	Dec. 31, 2013	Nov. 13, 2012 Employee and Consultant	Nov. 21, 2012 Board member	Mar. 31, 2013 Investor	Feb. 01, 2013 Investor	Dec. 20, 2012 Investor	Jan. 31, 2013 Private placement Unit Warrant	Oct. 31, 2012 Private placement Warrant	Feb. 28, 2013 Private placement Unit Warrant	Dec. 31, 2012 Private placement Unit	Oct. 31, 2012 Private placement Warrant	Dec. 31, 2012 Private placement Unit
Stockholders Equity Note [Line Items]
Warrants exercise price (in dollars per share)															0.15	0.12	0.10	0.10		0.10
Sale of units under private offering, Issue price per unit (in dollars per unit)																0.045	0.045	0.05		0.05
Number of units sold under private offering (in units)				15,000,000												1,111,111		3,700,000	6,888,889		15,000,000
Number of units sold under private offering value				$ 750,000												$ 50,000		$ 185,000	$ 310,000		$ 750,000
Number of share of common stock consist in each offering unit																1	1	1		1
Number of warrant consist in each offering unit																1	1	1		1
Stock option exercised share (in shares)											10,490,996		3,335,000
Proceeds from exercise of stock options			17,919	13,113						273,401	13,114		17,919
Stock option exercised per share (in dollars per share)											$ 0.00125
Issuance of shares for services (in shares)												1,000,000
Issuance of shares for services		36,960		46,500	30,000	208,600	47,700	55,000	24,000			46,500
Common stock share issue for retired notes payable and accrued interest (in shares)	12,923,622
Value of common stock issued	581,564
Common stock value issue for retired notes payable	450,000
Common stock value issued for accrued interest	131,564
Number of common stock called by warrants (in shares)														1,000,000	333,333
Amount received for exercised of warrants														$ 10,000	$ 50,000
Number of investors													4

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PATENTS AND TRADEMARK (Detail Textuals) (Patents and Trademark, USD $)	12 Months Ended
	Dec. 31, 2013 Patent	Dec. 31, 2012
Patents and Trademark
Finite-Lived Intangible Assets [Line Items]
Number of patents issued	5
Amortization method of patents	straight-line basis
Estimated lives of patents	17 years
Capitalized patent costs	$ 21,954	$ 6,665
Amortization expense	13,091	13,451
Future estimated annual amortization in December 31, 2014	13,000
Future estimated annual amortization in December 31, 2015	13,000
Future estimated annual amortization in December 31, 2016	13,000
Future estimated annual amortization in December 31, 2017	13,000
Future estimated annual amortization in December 31, 2018	$ 13,000

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STOCK OPTIONS AND WARRANTS (Details Textuals 3) (USD $)	1 Months Ended	12 Months Ended
	Nov. 21, 2012 Director	Dec. 31, 2013
Board of Directors
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of options issued to purchase aggregate common stocks	10,000,000
Stock options | Chief Executive Officer and Chief Operating Officer
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of options issued to purchase aggregate common stocks	2,000,000
Exercisable common stock share price	$ 0.05
Term for options	10 years
Fair value of options issued	$ 89,538
Stock options | Board of Directors
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of options issued to purchase aggregate common stocks	10,000,000
Exercisable common stock share price	$ 0.05
Term for options	10 years
Fair value of options issued	447,689
Fair value of option issued expensed immediately	223,844
Fair value of option issued expensed over one year	$ 18,564	$ 199,313
Number of board of directors	5
Expected volatility	131.00%
Risk-free interest rate	1.70%
Expected option life (in years)	10 years

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OPERATING LEASES

12 Months Ended

Dec. 31, 2013

Leases, Operating [Abstract]

OPERATING LEASES

NOTE 14 - OPERATING LEASES

For the year ended December 31, 2013 and 2012, total rent expense under leases amounted to $59,272 and $0, respectively, and is included in general and administrative expense. At December 31, 2013, the Company was obligated under various non-cancelable operating lease arrangements for property as follows:

2014	$	71,766
2015		74,637
2016		31,605
	$	178,008

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INCOME TAXES -Summary of income tax benefit (provision) (Details) (USD $)	12 Months Ended		170 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2013
Income Tax Disclosure [Abstract]
Current	$ 1,837,000	$ 490,000
Deferred	3,284,000	263,000
Change in valuation allowance	(5,121,000)	(753,000)
Income tax benefit (provision), total			$ (165,000)

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CONTINGENCIES

12 Months Ended

Dec. 31, 2013

Commitments and Contingencies Disclosure [Abstract]

CONTINGENCIES

NOTE 16 – CONTINGENCIES

In October 2010, the Company filed suit in the Western District of Pennsylvania against WS Packaging Group, Inc. (“WS”) alleging that WS infringed on one of the Company’s patents in the manufacture of MONOPOLY game pieces on behalf of McDonald’s Corp. On June 4, 2012, both WS and the Company filed a stipulation to dismiss the action without prejudice and enter into settlement negotiations. Settlement negotiations are ongoing.

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OPERATING LEASES (Detail Textuals) (General and administrative expense, USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
General and administrative expense
Schedule Of Operating Lease [Line Items]
Total rent expense under leases	$ 59,272	$ 0

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Consolidated Statements of Changes in Stockholders' Equity (Deficit) (Parentheticals)	Nov. 10, 1999
Statement Of Stockholders' Equity [Abstract]
Issuance of shares	4,278,000

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Consolidated Balance Sheets (Parentheticals) (USD $)	Dec. 31, 2013	Dec. 31, 2012
Statement Of Financial Position [Abstract]
Allowance for accounts receivable (in dollars)	$ 0	$ 0
Accumulated depreciation on capital equipment (in dollars)	91,952	32,624
Accumulated amortization, patent and trademark costs (in dollars)	105,393	92,302
Discount, notes payable (in dollars)		$ 13,632
Convertible preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Convertible preferred stock, shares authorized	75,000,000	75,000,000
Convertible preferred stock, shares issued	21,111,111
Convertible preferred stock, shares outstanding	21,111,111
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized	675,000,000	675,000,000
Common stock, shares issued	319,862,042	248,244,012
Common stock, shares outstanding	290,066,139	218,448,109
Treasury stock, shares	29,795,903	29,795,903

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WARRANT LIABILITY

12 Months Ended

Dec. 31, 2013

Warrants Liability [Abstract]

WARRANT LIABILITY

NOTE 9 – WARRANT LIABILITY

On December 31, 2012, the Company entered into an Investment Agreement, a Technology and Services Agreement, a Technology and Services Agreement with Zaah Technologies, Inc. (“Zaah”)., a Patent and Technology License Agreement, and an Asset Purchase Agreement (collectively the “Agreements”). Included in these Agreements were Warrants to purchase shares of the Company’s common stock.

The warrants associated with these Agreements are subject to anti-dilution adjustments outlined in the Agreements. In accordance with FASB ASC 815, the warrants were classified as a liability in the total amount of $2.4 million at December 31, 2012. In addition, the warrants must be valued every reporting period and adjusted to market with the increase or decrease being adjusted through earnings. As of December 31, 2013, the fair value of the warrant liability was $3.7 million.

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Document and Entity Information (USD $)	12 Months Ended
	Dec. 31, 2013	Mar. 28, 2014
Document and Entity Information [Abstract]
Entity Registrant Name	LASERLOCK TECHNOLOGIES INC
Entity Central Index Key	0001104038
Trading Symbol	llti
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Well-known Seasoned Issuer	No
Entity Common Stock, Shares Outstanding		293,066,139
Entity Public Float		$ 1,843,020
Document Type	10-K
Document Period End Date	Dec. 31, 2013
Amendment Flag	false
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	FY

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CONVERTIBLE PREFERRED STOCK

12 Months Ended

Dec. 31, 2013

Features of Convertible Preferred Stock [Abstract]

CONVERTIBLE PREFERRED STOCK

NOTE 10 – CONVERTIBLE PREFERRED STOCK

Subscription Agreement

The Company entered into a Subscription Agreement with VerifyMe, Inc. (“VerifyMe”) on January 31, 2013 (the “Subscription Agreement”). Under the terms of the Subscription Agreement VerifyMe subscribed to purchase 33,333,333 shares of the Company’s preferred stock and a warrant to purchase 33,333,333 shares of the Company’s common stock for $1 million at an exercise price of $0.12.

At any time within two years after January 31, 2013, the subscriber has the right, but not the obligation to require the Company to repurchase all, but not less than all, of the capital stock of the Company and warrants exercisable for capital stock of the Company held by subscriber in exchange for the price originally paid by the subscriber therefore upon the occurrence of any of the following events:(i) the consummation of any bona fide business acquisition, (ii) the incurring of any indebtedness by the Company in an amount in excess of $2 million, (iii) the issuance or sale of any security having a preference on liquidation senior to common stock, or (iv) the sale by the Company of capital stock or warrants exercisable for its capital stock at a price below $0.03 per share.

In accordance with FASB ASC 480 and 815, the Preferred Stock has been classified as permanent equity and was valued at $1 million at January 31, 2013.

The conversion feature of the Preferred Stock is an embedded derivative, which is classified as a liability in accordance with FASB ASC 815 and was valued in accordance with FASB ASC 470 as a beneficial conversion feature at a fair value of $1 million at January 31, 2013 and $800,000 at December 31, 2013. This was classified as an embedded derivative liability and a discount to Preferred Stock. Because the Preferred Stock can be converted at any time, the full amount of the original fair value was accreted and classified as a reduction to the discount on Preferred Stock and a deemed dividend distribution in the full amount of $1 million.

Because the Preferred Stock can be converted at any time, the embedded derivative is classified as a current liability at December 31, 2013.

The warrants associated with the Preferred Stock were also classified as a liability since they are subject to anti-dilutive adjustments outlined in the warrant agreement and valued at a fair market of $2,995,791 at January 31, 2013. Because this amount was entirely in excess of the transaction price, this amount was recorded as a charge to expenses of $2,995,791. In addition, the warrants must be valued every reporting period and adjusted to market with the increase or decrease being adjusted through earnings. As of December 31, 2013, the fair value of the warrants was $2,300,000.

The Convertible Preferred Stock has a preference in liquidation that the holders of the Convertible Preferred Stock are to be paid out of assets available for distribution prior to holders of common stock. The Convertible Preferred Stockholders may cast the number of votes equal to the number of whole shares of common stock into which the shares of Convertible Preferred Stock can be converted. In addition, the Convertible Preferred Stockholders are to be paid dividends, based on the number of Convertible Preferred shares as if the shares had been converted to common shares, prior to the common stockholders receiving a dividend.

The conversion price of the Preferred A shares is currently $0.03 per share. There are no arrearages on cumulative dividends.

In August 2013, VerifyMe elected to convert in a cashless transaction an equal number of Preferred A stock valued at $366,667 to 12,222,222 shares of common stock.

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Consolidated Statement of Operations (USD $)	12 Months Ended				170 Months Ended
	Dec. 31, 2013		Dec. 31, 2012		Dec. 31, 2013
NET REVENUES
Sales	$ 3,140		$ 7,029		$ 464,295
Royalties			10,000		645,180
TOTAL NET REVENUE	3,140		17,029		1,109,475
COST OF SALES	2,710		4,083		431,741
GROSS PROFIT	430		12,946		677,734
OPERATING EXPENSES
General and administrative	762,668		129,329		2,306,027
Legal and accounting	475,948		276,774		2,014,734
Patent costs					65,000
Payroll expenses	9,485,339	[1]	612,721	[1]	12,898,321	[1]
Research and development	655,840		5,420		1,523,632
Sales and marketing	261,804		66,499		5,281,536
Total operating expenses	11,641,599		1,090,743		24,089,250
LOSS BEFORE OTHER INCOME (EXPENSE)	(11,641,169)		(1,077,797)		(23,411,516)
OTHER INCOME (EXPENSE)
Interest income			1		63,664
Interest expense	(127,825)		(277,371)		(2,318,257)
Loss on extinguishment of debt	(1,221,875)		156,110		(1,221,875)
Change in fair value of warrants	(604,209)				(604,209)
Change in fair value of embedded derivative liability	200,000				200,000
Fair value of warrants in excess of consideration for convertible preferred stock	(2,995,791)				(2,995,791)
Gain on debt forgiveness					340,352
Gain on disposition of assets					4,722
TOTAL OTHER INCOME (EXPENSE)	(4,749,700)		(121,260)		(6,531,394)
INCOME (LOSS) BEFORE INCOME TAX BENEFIT	(16,390,869)		(1,199,057)		(29,942,910)
INCOME TAX BENEFIT					(165,000)
NET INCOME (LOSS)	(16,390,869)		(1,199,057)		(29,777,910)
Less: Deemed dividend distribution	(1,000,000)				(1,000,000)
NET INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS	$ (17,390,869)		$ (1,199,057)		$ (30,777,910)
NET INCOME (LOSS) PER COMMON SHARE
BASIC (in dollars per share)	$ (0.07)		$ (0.01)
DILUTED (in dollars per share)	$ (0.07)		$ (0.01)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
BASIC (in shares)	250,043,403		150,559,287
DILUTED (in shares)	250,043,403		150,559,287

[1] includes share based compensation of $8,619,137 for the year ended December 31, 2013 and $0 for the year ended December 31, 2012

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PATENTS AND TRADEMARK

12 Months Ended

Dec. 31, 2013

Goodwill and Intangible Assets Disclosure [Abstract]

PATENTS AND TRADEMARK

NOTE 4 – PATENTS AND TRADEMARK
 

The Company has five issued patents for anti-counterfeiting technology. Accordingly, costs associated with the registration of these patents and legal defense have been capitalized and are amortized on a straight-line basis over the estimated lives of the patents (17 years). During the years ended December 31, 2013 and 2012, the Company capitalized patent costs of $21,954 and $6,665, respectively.  Amortization expense for patents was $13,091 and $13,451 for the years ended December 31, 2013 and 2012, respectively. Future estimated annual amortization over the next five years is approximately $13,000 per year for the years ended December 31, 2014 through 2018.

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PROPERTY AND EQUIPMENT

12 Months Ended

Dec. 31, 2013

Property, Plant and Equipment [Abstract]

PROPERTY AND EQUIPMENT

NOTE 3 – PROPERTY AND EQUIPMENT

Equipment consists of the following:

	December 31, 2013		December 31, 2012
Furniture and Fixtures	$	219,871	$	---
Equipment		16,155		34,964
		236,026		34,964
Less: Accumulated depreciation		91,952		32,624
	$	144,074	$	2,340

Depreciation of property and equipment was $68,839 and $20, respectively, for the years ended December 31, 2013 and 2012.

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RELATED PARTY TRANSACTIONS

12 Months Ended

Dec. 31, 2013

Related Party Transactions [Abstract]

RELATED PARTY TRANSACTIONS

NOTE 15 – RELATED PARTY TRANSACTIONS

During the fourth quarter of 2013, the company converted outstanding debt owed to shareholders into 25,974,697 shares of common stock  (See Notes 6,7,8).

At December 31, 2013 and 2012, five shareholders of the Company held $330,249 and $512,249 of the senior secured convertible notes payable.

One shareholder held $140,000 of convertible notes payable as of December 31, 2012, that was satisfied by December 31, 2013.

At December 31, 2012 two shareholders of the Company held $561,000 of unsecured notes payable that was satisfied by December 31, 2013.

At December 31, 2013, five shareholders of the Company were owed accrued interest of $300,676 related to the senior secured convertible notes payable.

The Company maintained its office at the home of its Chief Executive Officer in 2012. No formal lease agreement existed and no direct rent expense has been incurred. However, related occupancy costs of $32,414 were incurred during the year ended December 31, 2012.

At December 31, 2011, accrued and unpaid salary for the Chief Executive Officer was $208,514.  As of December 31, 2012, the Chief Executive Officer has forgiven any unpaid accrued and unpaid salary.

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FAIR VALUE OF FINANCIAL INSTRUMENTS

12 Months Ended

Dec. 31, 2013

Fair Value Disclosures [Abstract]

FAIR VALUE OF FINANCIAL INSTRUMENTS

NOTE 11 – FAIR VALUE OF FINANCIAL INSTRUMENTS

Derivative Liabilities

For purposes of determining whether certain instruments are derivatives for accounting treatment, the Company follows the accounting standard that provides guidance for determining whether an equity-linked financial instrument, or embedded feature, is indexed to an entity’s own stock.  The standard applies to any freestanding financial instruments or embedded features that have the characteristics of a derivative, and to any freestanding financial instruments that are potentially settled in an entity’s own common stock.

Liabilities measured at fair value on a recurring basis are summarized as follows:

December 31, 2013	Level 1		Level 2		Level 3		Total
Derivative liability related to fair value of beneficial conversion feature	$	-	$	800,000	$	---	$	800,000
Derivative liability related to fair value of warrants		-		-		6,000,000		6,000,000
Total	$	-	$	800,000	$	6,000,000	$	6,800,000
December 31, 2012	Level 1		Level 2		Level 3		Total
Derivative liability related to fair value of beneficial conversion feature	$	-	$	-	$	-	$	-
Derivative liability related to fair value of warrants		-		-		2,400,000		2,400,000
Total	$	-	$	-	$	2,400,000	$	2,400,000

The following table details the approximate fair value measurements within the fair value hierarchy of the Company’s derivative liabilities using Level 3 inputs:

	Total
Balance at January 1, 2013	$	2,400,000
Derivative liabilities resulting from Subscription Agreement		2,998,027
Change in fair value of derivative liabilities		601,973
Balance at December 31, 2013	$	6,000,000

As of December 31, 2013, the beneficial conversion feature of the preferred stock is treated as an embedded derivative liability and changes in the fair value were recognized in earnings.  The preferred stock shares are convertible into shares of the Company’s common stock, which did trade in an active securities market, therefore the embedded derivative liability was valued using the following market based inputs:

Closing trade price of Common Stock	$0.07
Series A Preferred Stock Conversion Price	$0.03
Intrinsic value of conversion option per share	$0.04

The Company has no assets that are measured at fair value on a recurring basis.  There were no assets or liabilities measured at fair value on a non-recurring basis during the year ended December 31, 2013.

As of December 31, 2013 and December 31, 2012, the Company’s outstanding warrants are treated as derivative liabilities and changes in the fair value were recognized in earnings.  These common stock purchase warrants did not trade in an active securities market, and as such, the Company estimated the fair value of these warrants using Black-Scholes and the following assumptions:

	December 31, 2013
Annual Dividend Yield	0.0%
Expected Life (Years)	4.00 – 4.08
Risk-Free Interest Rate	1.39%
Expected Volatility	267.3%

Expected volatility was based primarily on historical volatility. Historical volatility was computed using daily pricing observations for recent periods. The Company believed this method produced an estimate that was representative of the Company’s expectations of future volatility over the expected term of these warrants. The Company had no reason to believe future volatility over the expected remaining life of these warrants was likely to differ materially from historical volatility.  The expected life was based on the remaining contractual term of the warrants. The risk-free rate was based on the U.S. Treasury rate that corresponded to the expected term of the warrants.

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CONVERTIBLE NOTES PAYABLE

12 Months Ended

Dec. 31, 2013

Convertible Notes Payable [Abstract]

CONVERTIBLE NOTES PAYABLE

NOTE 7 - CONVERTIBLE NOTES PAYABLE

During 2007, the Company commenced a private placement of up to $400,000 principal amount of 10% Convertible Promissory Notes originally due in August 2008 (the “Notes”). The Company raised $375,000 under this private placement in 2007 and the remaining $25,000 was raised in 2008. Previously $260,000 of the Notes were converted into shares of the Company’s common stock.  Holders of Notes will have the right, at their option, to convert the outstanding principal and interest of the Notes into shares of the Company’s Series A Preferred Stock at any time and from time to time at the option of the holder at the initial conversion price of $0.005333 per share. It is the intention, however, that the option holder will convert the Notes into shares of the Company’s common stock.  The Notes are unsecured.

In accordance with ASC 470, a beneficial conversion feature of $375,000 and $25,000 was required to be recorded in 2007 and 2008, respectively, since the fair value of the Company’s common stock at the date of issuance ($0.016 per share) was greater than the conversion price of $0.005333 per share. The value of the beneficial conversion feature was recorded to additional paid-in capital with the offset to discount on notes payable. The debt discount was accreted to interest expense over the one-year original term of the notes. 

In August 2009, noteholders exercised their option to convert $260,000 of the notes payable plus accrued interest into 48,750,000 shares of common stock. The noteholder of the remaining $140,000 under this convertible note issue agreed to extend the maturity date of these notes to September 30, 2015 at an interest rate of 10% per annum. Additionally, the noteholder agreed in writing to suspend its right to convert its note until such as the Company’s authorized shares have been increased. Remaining shares to be potentially issued under this convertible note issue is 26,250,000.

On March 19, 2013, the investor holding $140,000 of convertible notes transferred $14,000 of the $140,000 convertible notes to the Vice Chairman of the Company. Also on March 19, 2013, the investor agreed to convert $28,000 of the investor’s remaining $126,000 of convertible notes into 5,250,000 shares of the Company’s common stock.

On March 19, 2013, the Vice Chairman of the Company agreed to convert $14,000 of convertible notes into 2,625,000 of the Company’s common stock.

During the fourth quarter of 2013, the remaining $98,000 of convertible notes plus accrued interest of $87,150 were converted into 12,375,000 shares of common stock.  Since this conversion was with a related party it was treated as a capital transaction in accordance with FASB ASC 470-50-40-3.

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STOCK OPTIONS AND WARRANTS - Non-Employee Stock Option/Warrant Activity (Details) (Stock Options and Warrants, USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Option/Warrant Shares
Outstanding	82,807,221	15,585,996
Granted	38,144,444	72,422,221
Transferred to employee options		(200,000)
Exercised	(9,435,000)	(5,000,996)
Expired
Outstanding	111,516,665	82,807,221
Exercisable, December 2013	111,516,665
Weighted Average Remaining Life, Exercisable, December 31, 2013 (years)	7 years
Exercise Price
Transferred to employee options		$ (0.05)
Exercised		$ 0.00125
Expired
Weighted Average Exercise Price
Outstanding	$ 0	$ 0.01
Granted	$ 0.03	$ 0.08
Transferred to employee options
Exercised
Expired
Outstanding	$ 0.10	$ 0
Exercisable, December 2013	$ 0.10
Minimum
Exercise Price
Outstanding	$ 0.00125	$ 0.00125
Granted	$ 0.10	$ 0.05
Exercised	$ 0.00125
Outstanding	$ 0.01	$ 0.00125
Exercisable, December 2013	$ 0.01
Maximum
Exercise Price
Outstanding	$ 0.20	$ 0.20
Granted	$ 0.15	$ 0.10
Exercised	$ 0.07
Outstanding	$ 0.20	$ 0.20
Exercisable, December 2013	$ 0.20

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INCOME TAXES

12 Months Ended

Dec. 31, 2013

Income Tax Disclosure [Abstract]

INCOME TAXES

NOTE 5 – INCOME TAXES

The Company follows FASB ASC 740-10-10 whereby an entity recognizes deferred tax assets and liabilities for future tax consequences or events that have been previously recognized in the Company’s financial statements or tax returns. The measurement of deferred tax assets and liabilities is based on provisions of enacted tax law. The effects of future changes in tax laws or rates are not anticipated.

At December 31, 2013 the Company has a net operating loss (“NOL”) that approximates $12.5 million. Consequently, the Company may have NOL carryforwards available for federal income tax purposes, which would begin to expire in 2019. Due to changes in ownership, a portion of the NOL carryforward may be subject to certain annual limitations imposed under Section 382 of the Internal Revenue Code. Deferred tax assets would arise from the recognition of anticipated utilization of these net operating losses to offset future taxable income.

The income tax benefit (provision) consists of the following:

	Year Ended			Year Ended
	December 31,			December 31,
	2013			2012
Current	$	1,837,000		$	490,000
Deferred		3,284,000			263,000
Change in valuation allowance		(5,121,000	)		(753,000	)
		-			-

The following is a reconciliation of the tax derived by applying the U.S. Federal Statutory Rate of 35% to the earnings before income taxes and comparing that to the recorded tax provisions:

	2013						2012
	Amount			%			Amount			%
U.S. Federal income tax benefit at Federal Statutory Rate	$	(5,718,000	)		(35	)	$	(298,000	)		(35	)
State tax, net of federal effect		(956,000	)		(6	)		(50,000	)		(6	)
Non deductible accrued expense		-			-			(238,000	)		(28	)
Deductible share based compensation		(318,000	)		(2	)		(167,000	)		(20	)
Non-deductible changes in derivative liability and share based transactions		1,895,000			12			-			-
Other		(24,000	)		-			-			-
Change in valuation allowance		5,121,000			31			753,000			89
	$	-			-			-			-

The primary components of the Company’s December 31, 2013 and 2012 deferred tax assets, liabilities and related valuation allowance are as follows:

	December 31,			December 31,
	2013			2012
Deferred tax asset for NOL carryforwards	$	5,144,000		$	3,308,000
Deferred tax liability for intangibles		(165,000	)		(165,000	)
Share based compensation		3,683,000			162,000
Non deductible accrued expenses		150,000			386,000
Valuation allowance		(8,812,000	)		(3,691,000	)
	$	-		$	-

Management has determined that the realization of the net deferred tax asset is not assured and has created a valuation allowance for the entire amount of such benefits.

The Company follows FASB ASC 740-10, which provides guidance for the recognition and measurement of certain tax positions in an enterprise’s financial statements. Recognition involves a determination whether it is more likely than not that a tax position will be sustained upon examination with the presumption that the tax position will be examined by the appropriate taxing authority having full knowledge of all relevant information.
 

The Company’s policy is to record interest and penalties associated with unrecognized tax benefits as additional income taxes in the consolidated statement of operations. As of December 31, 2013 and 2012, the Company had no unrecognized tax benefits. There were no changes in the Company’s unrecognized tax benefits during the years ended December 31, 2013 and 2012. The Company did not recognize any interest or penalties during 2013 and 2012 related to unrecognized tax benefits.

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SENIOR SECURED CONVERTIBLE NOTES PAYABLE

12 Months Ended

Dec. 31, 2013

Senior Secured Convertible Notes Payable [Abstract]

SENIOR SECURED CONVERTIBLE NOTES PAYABLE

NOTE 6 - SENIOR SECURED CONVERTIBLE NOTES PAYABLE

In February 2006, the Company commenced a private placement of up to $800,000 principal amount of 10% senior secured convertible promissory notes due twelve months from the date of issue to certain Company shareholders and other accredited investors. As of December 31, 2006, the Company completed this private placement by selling all notes payable totaling $800,000. The notes are secured by a first priority lien on all of the tangible and intangible personal property of the Company. In May 2007, the due date of these notes was extended to August 2008 and the interest rate increased to 12% per annum during the extension period.  In June 2011, the interest rate on all of the notes was reset to 10% and $596,500 of the notes and accrued interest was extended until September 15, 2015. During the fourth quarter of 2012 the remaining $178,749 of unextended notes and the associated accrued interest were extended to September 30, 2015. In June 2013, $225,000 of these notes payable plus accrued interest of $181,125 were converted into 7.4 million shares of the Company’s common stock, which was valued at $1,628,000. The excess of the fair value of the Company’s common stock over the value of the notes payable and accrued interest was recorded as loss on extinguishment of debt in accordance with FASB ASC 470-50.

During the fourth quarter of 2013, $220,000 of senior convertible notes plus accrued interest of $395,000, were converted into 7,900,000 shares of common stock.  Since this transaction was with related parties, the conversion was treated as a capital transaction in accordance with FASB ASC 470-50-40-3.

As of December 31, 2013 and December 31, 2012, the outstanding principal balance on these notes was $330,249 and $775,249, respectively. Accrued interest at December 30, 2013 and December 31, 2012 amounted to $300,677 and $600,091, respectively.
 

Purchasers of the notes were issued 8,000,000 10-year warrants exercisable into the Company’s shares at an exercise price of $0.01 per share. The warrants were valued at $392,376 and recorded as a debt discount on the notes payable. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the warrants, with the following assumptions: no dividend yield, expected volatility of 169% and 284%, risk-free interest rate between 3.6% and 4.5% and expected warrant life of ten years. The deferred finance charges were amortized over one year, which was the original term of the notes. As of June 30, 2012, the Company had received $80,000 for the exercise of all 8,000,000 of the warrants.

In addition, if an equity financing with total proceeds of more than $5,000,000 occurs while any notes are outstanding, holders of notes will have the right, at their option, to convert the outstanding principal and interest of the notes into shares at a discount of 30% of the price per share in the qualified financing. Since the embedded conversion feature is contingent upon the occurrence of the qualified financing, the value of the contingent conversion feature, if beneficial, will be recognized if the triggering event occurs and the contingency is resolved.

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NOTES PAYABLE

12 Months Ended

Dec. 31, 2013

Debt Disclosure [Abstract]

NOTES PAYABLE

NOTE 8 - NOTES PAYABLE

During the fourth quarter of 2013, all of the $561,000 of unsecured notes payable, less $9,914 of unamortized discount, plus accrued interest of $83,715 was converted into 4,473,333 shares of common stock plus a cash repayment of $150,000.  Since this conversion was with a related party it was treated as a capital transaction in accordance with FASB ASC 470-50-40-3.

Unsecured Notes Payable

During the second quarter of 2012, the Company received $200,000 for a 10% unsecured note payable, due April 27, 2013.  In December 2012, this note payable and accrued interest of $9,167 was converted into 4,703,711 shares of the Company’s common stock.

Private Placement of 8% Series A Notes Payable

In August 2009, the Company commenced a private placement of up to $300,000 consisting of up to 6 units. Each unit consists of a $50,000, 8% Series A Note Payable, due September 30, 2011, and a non-detachable warrant to purchase 2,000,000 shares of the Company’s common stock. During 2009, the Company sold 4 units, issued $200,000 of 8% Series A Notes Payable, issued 8,000,000 warrants, and raised $180,000, net of commission of $20,000. In January 2010, the Company sold 0.5 units, issued $25,000 of 8% Series A Notes Payable, issued 1,000,000 warrants, and raised $17,500 net of commissions of $7,500. The commissions were treated as deferred finance charges and fully expensed over the term of notes payable.

The 8,000,000 warrants in 2009 were valued at $15,450, fair value, using the Black-Scholes option pricing model to calculate the fair-value of the warrants, with the following assumptions: no dividend yield, expected volatility of between 30.9% and 34.5%, risk free interest rate between .95% and 1.06% and warrant life of approximately 2 years. The 1,000,000 warrants in 2010 were valued at $20,143, fair value, using the Black-Scholes option pricing model to calculate the fair-value of the warrants, with the following assumptions: no dividend yield, expected volatility of 28.6 %, risk free interest rate of .84% and warrant life of approximately 2 years.

In June 2011, the maturity date on the $150,000 of the 8% Series A Notes Payable and the term on the associated 6,000,000 warrants were extended to September 30, 2015. As a result, the warrants were revalued using the Black-Scholes option pricing model to calculate the incremental fair-value of the warrants of $21,275, with the following assumptions: no dividend yield, expected volatility of 60%, risk free interest rate of 1.52% and warrant life of approximately 1.25 years. As part of the debt extension, the lender holding the 6,000,000 warrants agreed in writing to suspend its right to exercise these warrants until such time that the Company’s authorized shares have been increased.  The authorized shares of the Company’s common stock were increased on May 23, 2013 from 425,000,000 to 675,000,000.

The relative fair value of the warrants issued in conjunction with the 8% Series A Notes Payable have been treated as a debt discount with an offsetting credit to additional paid-in capital. The debt discount related to the warrant issuances is being accreted to interest expense over the term of the notes. When the warrants were revalued the incremental amount of $21,275 was also treated as additional debt discount and is being accreted over the new term of the 8% Series A Notes Payable.  As of December 31, 2012 the unaccreted debt discount related to warrants issued in conjunction with the 8% Series A Notes payable was $13,632.

During the third quarter of 2011, $25,000 plus accrued interest of the 8% Series A Notes Payable were repaid and 3,000,000 of the associated warrants expired unexercised.

During the fourth quarter of 2013, the remaining series A notes payable of $150,000 was reduced by $60,000 for the exercise of 6,000,000 warrants into 6,000,000 shares of common stock.  The balance of $90,000 plus accrued interest of $49,000 was converted into 1,226,363 shares of common stock.    Since this conversion was with a related party it was treated as a capital transaction in accordance with FASB ASC 470-50-40-3.

Private Placement of 25% Notes Payable

In 2010, the Company issued $400,000 in notes payable in order to finance a patent infringement lawsuit (see Note 16 - Contingencies to these consolidated financial statements). The notes payable accrue interest at 25% per annum and mature upon the earlier of September 1, 2013 or the date on which the Company receives net proceeds from the patent infringement claim. In addition to the base interest of 25% per annum, the lenders are entitled to Bonus Interest equal to the following:

a. First monies realized by the Company from its share of the net proceeds of the lawsuit shall be allocated and paid to the Lender until the principal and base interest accruing has been fully paid.

b. The next monies from the net proceeds of the litigation settlement will be paid to the Company to reimburse for out-of-pocket legal costs related to the lawsuit.

c. The next $825,000 of proceeds will be split 50%/50% between the Company and the Lenders.

d. The next $1,000,000 realized by the Company shall be allocated 90% to the Company and 10% to the Lenders.

e. The next $1,000,000 realized by Company shall be allocated 85% to Company and 15% to Lenders.

f. All remaining proceeds realized by Company shall be allocated 80% to Company and 20% to Lenders.

The Lenders have a security interest in the Company’s patent infringement claim in which the Lender has the right to the net proceeds of this lawsuit to satisfy outstanding principal and interest under the notes.

As part of the private placement of the 25% notes payable, the Company incurred debt placement fees of $34,500 in 2010. These debt placement fees have been treated as deferred finance charges and were being amortized to interest expense over two years.  The remainder of amortization $13,625 was recorded the years ended December 31, 2012.

In December 2012, 250,000 of these notes payable and accrued interest of $122,397 were converted into 8,219,911 shares of the Company’s common stock. In March 2013, the remaining $150,000 of the notes payable and accrued interest of $70,000 were converted into 3,000,000 shares of the Company’s common stock. Accrued interest of $13,895 was paid in cash.

Notes payable consists of the following as of December 31:

	December 31, 2013		December 31, 2012
Unsecured notes payable due to related parties; interest at 10% per annum; principal and accrued interest due at maturity in September 2015	$	330,000	$	561,000
Series A notes payable; interest at 8% per annum; principal and accrued interest due at extended maturity date in September 2015		---		150,000
Series A notes payable; interest at 8% per annum; principal and accrued interest due at maturity in October 2011 (past due)		50,000		50,000
Notes payable, interest at 25% per annum; principal and interest due September 2013		---		150,000
Less: Debt discount		----		(13,632	)
		380,000		897,368
Less: Current portion		50,000		200,000
Long-term portion	$	330,000	$	697,368

At December 31, 2013 and 2012 accrued interest on notes payable was $317,344 and $394,281, respectively.

Aggregate Maturities of Long-term Debt

Aggregate maturities of the senior secured convertible notes, convertible notes and notes payable over the next five years are as follows:

              2014                   $    50,000

              2015                       330,249

              2016                                  -

              2017                                  -

              2018                                  -

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STOCK OPTIONS AND WARRANTS (Detail Textuals 2) (Stock options, Exercise price of $.05, Consultant, USD $)	0 Months Ended
	Jul. 16, 2012
Stock options | Exercise price of $.05 | Consultant
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Exercise of options (in shares)	200,000
Exercise price of common stock	$ 0.05
Term for options	10 years
Fair value of options issued	$ 11,638
Method used to calculate the grant-date fair value of the warrants	Black-Scholes option pricing model
Expected volatility	133.00%
Risk-free interest rate	1.50%
Expected option life (in years)	10 years
Consulting expense	$ 11,638

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STOCK OPTIONS AND WARRANTS (Details Textuals 4) (USD $)	1 Months Ended			12 Months Ended	1 Months Ended	12 Months Ended	0 Months Ended	12 Months Ended	0 Months Ended	12 Months Ended	1 Months Ended	12 Months Ended	1 Months Ended		0 Months Ended	12 Months Ended
	Nov. 21, 2012 Director	Nov. 21, 2012 Stock options Director	Jan. 22, 2013 Stock options January 22, 2013 Employee	Dec. 31, 2013 Stock options January 22, 2013 Employee	Feb. 25, 2013 Stock options February 25, 2013 Employee	Dec. 31, 2013 Stock options February 25, 2013 Employee	Mar. 13, 2013 Stock options March 13, 2013 Director	Dec. 31, 2013 Stock options March 13, 2013 Director	May 04, 2013 Stock options May 4, 2013 Director	Dec. 31, 2013 Stock options May 4, 2013 Director	Sep. 30, 2013 Stock options September 30, 2013 Chief Operating Officer	Dec. 31, 2013 Stock options September 30, 2013 Chief Operating Officer	Sep. 30, 2013 Stock options September 30, 2013 Chief Operating Officer Maximum	Sep. 30, 2013 Stock options September 30, 2013 Chief Operating Officer Minimum	Dec. 02, 2013 Stock options December 2, 2013 Chief Financial Officer	Dec. 31, 2013 Stock options December 2, 2013 Chief Financial Officer
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of options issued to purchase aggregate common stocks	10,000,000	10,000,000	1,000,000		500,000		2,000,000		2,000,000		1,000,000				1,000,000
Exercisable common stock share price		$ 0.05	$ 0.05		$ 0.05		$ 0.05		$ 0.05		$ 0.15				$ 0.15
Term for options			10 years		10 years		10 years		10 years		10 years				10 years
Fair value of options issued		$ 447,689	$ 99,972		$ 89,998		$ 439,963		$ 460,000		$ 99,840				$ 79,994
Fair value of option issued expensed immediately		223,844	25,000				219,982		230,000
Fair value of option issued total expense				71,967				396,569		381,864		18,903				15,123
Expense recognized upon cancellation						$ 5,000
Options vest immediately			250,000
Options vest one year			250,000		200,000
Options vest two years			500,000		200,000
Options vests year three					100,000
Percentage of options vests immediately							50.00%		50.00%
Percentage of options vests							50.00%		50.00%
Percentage of option vests after the first year											50.00%				50.00%
Percentage of option vests at the end of 24 month											50.00%				50.00%
Expected volatility		131.00%	222.00%		259.00%		235.00%		235.00%				272.80%	268.40%	266.10%
Risk-free interest rate		1.70%	1.90%		1.90%		2.00%		1.78%		1.39%				2.64%
Expected option life (in years)		10 years	10 years		10 years		10 years		10 years		10 years				10 years
Method used to calculate the grant-date fair value of the warrants			Black-Scholes option pricing model		Black-Scholes option pricing model		Black-Scholes option pricing model		Black-Scholes option pricing model		Black-Scholes option pricing model				Black-Scholes option pricing model

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STOCK OPTIONS AND WARRANTS (Detail Textuals 1) (USD $)	0 Months Ended
	Oct. 08, 2012 Board of Directors Chairman	Oct. 16, 2012 President and Chief Operating Officer	Dec. 31, 2013 Stock option 2003 plan Incentive stock options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Minimum percentage for exercise price of option, percentage of the fair market value of the common stock			100.00%
Minimum percentage for exercise price of option in case outstanding stock held by grantee, percentage of the fair market value of the common stock			110.00%
Percentage of outstanding stock held by grantee			10.00%
Maximum threshold limit for aggregate fair market value of stock for which an employee may exercise incentive stock options			$ 1,000,000
Maximum value of options to be exercised			100,000
Maximum value of options shall be deemed to be Non-Statutory stock options			100,000
Term of agreement	3 years	3 years
Officers compensation	200,000	200,000
Percentage shares purchase (in shares)	5.00%	5.00%
Exercise price of funding (in dollars per share)	$ 0.05	$ 0.05
Funding received by company	2,500,000	2,500,000
Number of options issued	19,000,000	19,000,000
Percentage of fully diluted common stock issued as options	5.00%	5.00%
Method used to calculate grant-date fair value	Black-Scholes option pricing model	Black-Scholes option pricing model
Expected Volatility	146.10%	146.10%
Risk-free interest rate	2.60%	2.60%
Expected Life (Years)	10 years	10 years
Fair value of options issued	$ 3,767,700	$ 3,767,700

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PROPERTY AND EQUIPMENT (Detail Textuals) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Property, Plant and Equipment [Abstract]
Depreciation of property and equipment	$ 68,839	$ 20

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NOTES PAYABLE (Detail Textuals 5) (Private Placement of 25% Notes Payable, USD $)	12 Months Ended
	Dec. 31, 2010
Litigation Case Three
Debt Instrument [Line Items]
Proceeds from litigation settlement	$ 825,000
Percentage allocated to company	50.00%
Percentage allocated to lenders	50.00%
Litigation Case Four
Debt Instrument [Line Items]
Proceeds from litigation settlement	1,000,000
Percentage allocated to company	90.00%
Percentage allocated to lenders	10.00%
Litigation Case Five
Debt Instrument [Line Items]
Proceeds from litigation settlement	$ 1,000,000
Percentage allocated to company	85.00%
Percentage allocated to lenders	15.00%
Litigation Case Six
Debt Instrument [Line Items]
Percentage allocated to company	80.00%
Percentage allocated to lenders	20.00%

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STOCK OPTIONS AND WARRANTS

12 Months Ended

Dec. 31, 2013

Equity [Abstract]

STOCK OPTIONS AND WARRANTS

NOTE 13 – STOCK OPTIONS AND WARRANTS

During 1999, the Board of Directors (“Board”) of the Company adopted, with the approval of the stockholders, a Stock Option Plan.  In 2000, the Board superseded that plan and created a new Stock Option Plan, pursuant to which it is authorized to grant options to purchase up to 1.5 million shares of common stock. On December 17, 2003, the Board, with approval of the stockholders, superseded this plan and created the 2003 Stock Option Plan (the “Plan”). Under the Plan the Company is authorized to grant options to purchase up to 18,000,000 shares of common stock to the Company’s employees, officers, directors, consultants, and other agents and advisors. The Plan is intended to permit stock options granted to employees under the Plan to qualify as incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended (“Incentive Stock Options”).  All options granted under the Plan, which are not intended to qualify as Incentive Stock Options, are deemed to be non-qualified options (“Non-Statutory Stock Options”).

During 2013, Our Board of Directors adopted a new comprehensive incentive compensation plan which will serve as the successor incentive compensation plan to the earlier plan, and provide the Company with an omnibus plan to design and structure grants of stock options, stock units, stock awards, stock appreciation rights and other stock-based awards for selected individuals in our employ or service. Our Board of Directors believes that the availability of (i) 20,000,000 new shares of our common stock, plus (ii) the number of shares of our common stock subject to outstanding grants under the 2003 Plan as of the date of the Annual Meeting, plus (iii) the number of shares of our common stock remaining available for issuance under the 2003 Plan but not subject to previously exercised, vested or paid grants, for issuance under the 2013 Plan.

As of December 31, 2013, there are 18,425,996 options that have been issued, and 19,574,004 options that are available to be issued under the Plan.

The Plan is administered by a committee of the Board of Directors (“Stock Option Committee”) which determines the persons to whom awards will be granted, the number of awards to be granted and the specific terms of each grant, including the vesting thereof, subject to the provisions of the plan.

In connection with Incentive Stock Options, the exercise price of each option may not be less than 100% of the fair market value of the common stock on the date of the grant (or 110% of the fair market value in the case of a grantee holding more than 10% of the outstanding stock of the Company). The aggregate fair market value (determined at the time of the grant) of stock for which an employee may exercise Incentive Stock Options under all plans of the company shall not exceed $1,000,000 per calendar year. If any employee shall have the right to exercise any options in excess of $100,000 during any calendar year, the options in excess of $100,000 shall be deemed to be Non-Statutory Stock Options, including prices, duration, transferability and limitations on exercise.

The Company issued non-statutory stock options pursuant to contractual agreements to non-employees. Options granted under the agreements are expensed when the related service or product is provided.

On July 16, 2012, the Company issued an option to purchase 200,000 shares of the Company’s common stock at an exercise price of $.05, with a term of ten years, to a consultant. The fair value of options issued was $11,638. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the warrants, with the following assumptions: no dividend yield, expected volatility of 133%, risk-free interest rate of 1.5% and expected option life of ten years. These options granted were fully vested as of the date of the agreement. As a result, the Company recorded $11,638 of consulting expense for the year ended December 31, 2012.

On November 21, 2012, the Company issued options to purchase an aggregate of 2,000,000 shares of the Company’s common stock at an exercise price of $.05, with a term of ten years, to the Chief Executive Officer and the Chief Operating Officer. The fair value of options issued was $89,538 and was expensed immediately.

On November 21, 2012, the Company issued options to purchase an aggregate of 10,000,000 shares of the Company’s common stock at an exercise price of $.05, with a term of ten years, to the five members of the Board of Directors. The fair value of options issued was $447,689 of which $223,844 was expensed immediately and the remainder will be expensed over one year with one month expense of $18,564 being expensed in 2012.  The remaining balance of $199,313 was expensed during 2013.

All of the options issued on November 21, 2012 were valued using the Black-Scholes option pricing model to calculate the grant-date fair value of the options, with the following assumptions: no dividend yield, expected volatility of 131%, risk-free interest rate of 1.7% and expected option life of ten years.

Effective October 8, 2012, the Company entered into a three year agreement with the Vice Chairman of the Board of Company with an annual compensation of $200,000 per year. In addition, upon execution of the agreement the Company has agreed to issue options to the Vice Chairman to purchase 5% of the shares of the Company’s fully diluted common stock at an exercise price of $.05 per share, subsequent to the Company receiving funding of $2.5 million and on June 25, 2013, the Company issued the Vice Chairman 19,000,000 options in satisfaction of the 5% of the shares of the Company’s fully diluted common stock clause. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the warrants, with the following assumptions: no dividend yield, expected volatility of 146.1%, risk-free interest rate of 2.6% and expected option life of ten years. The fair value of options issued was $3,767,700 that was expensed immediately.

Effective October 16, 2012, the Company entered into a three year agreement with the President and Chief Executive Officer of the Company with an annual compensation of $200,000 per year. In addition, upon execution of the agreement the Company has agreed to issue options to the President to purchase 5% of the shares of the Company’s fully diluted common stock at an exercise price of $.05 per share, subsequent to the Company receiving funding of $2.5 million and on June 25, 2013, the Company issued the President and Chief Executive Officer 19,000,000 options in satisfaction of the 5% of the shares of the Company’s fully diluted common stock clause. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the warrants, with the following assumptions: no dividend yield, expected volatility of 146.1%, risk-free interest rate of 2.6% and expected option life of ten years. The fair value of options issued was $3,767,700 that was expensed immediately.

On January 22, 2013, the Company issued options to an employee to purchase 1,000,000 shares of the Company’s common stock at an exercise price of $.05, with a term of ten years. The options vest as follows: 250,000 immediately, 250,000 in one year and 500,000 in two years The Company used the Black- Scholes option pricing model to calculate the grant-date fair value of the warrants, with the following assumptions: no dividend yield, expected volatility of 222%, risk-free interest rate of 1.9% and expected option life of ten years. The fair value of options issued was $99,972 of which $25,000 was expensed immediately and the remainder is being expensed over the vesting terms.   The total expense for the year ended December 31, 2013 was $71,967.

On February 25, 2013, the Company issued options to an employee to purchase 500,000 shares of the Company’s common stock at an exercise price of $.05, with a term of ten years. The options vest as follows: 200,000 in one year, 200,000 in two years and 100,000 in three years. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the warrants, with the following assumptions: no dividend yield, expected volatility of 259%, risk-free interest rate of 1.9% and expected option life of ten years. The fair value of options issued was $89,998. The options were cancelled during the three months ended June 30, 2013. The total expense recognized of $5,000 was reversed upon cancellation of the options.

On March 13, 2013, the Company issued an option to purchase 2,000,000 shares of the Company’s common stock at an exercise price of $.05, with a term of ten years, to a member of the Board of Directors. The options vest 50% immediately and 50% on March 13, 2014. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the warrants, with the following assumptions: no dividend yield, expected volatility of 235%, risk-free interest rate of 2.0% and expected option life of ten years. The fair value of the option issued was $439,963 of which $219,982 was expensed immediately and the remainder will be expensed over one year.  The total expense for the year ended December 31, 2013 was $396,569.

On May 4, 2013, the Company issued an option to purchase 2,000,000 shares of the Company’s common stock at an exercise price of $.05, with a term of ten years, to the a member of the Board of Directors. The options vest 50% immediately and 50% on May 4, 2014. The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the warrants, with the following assumptions: no dividend yield, expected volatility of 235%, risk-free interest rate of 1.78% and expected option life of ten years. The fair value of the option issued was $460,000 of which $230,000 was expensed immediately and the remainder will be expensed over one year.  The total expense for the year ended December 31, 2013 was $381,864.

On September 30, 2013, the Company issued an option to purchase 1,000,000 shares of the Company’s common stock at an exercise price of $.15, with a term of ten years, to the Company’s Chief Operating Officer. The options vest 50% after the first year and 50% at the end of 24 months.  The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the warrants, with the following assumptions: no dividend yield, expected volatility of ranging from 268.4% to 272.8%, risk-free interest rate of 1.39% and expected option life ranging from 10 years.  The fair value of the option issued was $99,840.  The total expense for the year ended December 31, 2013 was $18,903.

On December 2, 2013, the Company issued an option to purchase 1 million shares of the Company’s common stock at an exercise price of $.15, with a term of ten years, to the Company’s Chief Financial Officer.  The options vest 50% after the first year and 50% at the end of 24 months.  The Company used the Black-Scholes option pricing model to calculate the grant-date fair value of the warrants, with the following assumptions: no dividend yield, expected volatility of ranging from 266.1%, risk-free interest rate of 2.64% and expected option life of 10 years.  The fair value of the option issued was $79,994, which will be expensed over the vesting term.  The total expense for the year ended December 31, 2013 was $15,123.

The following tables summarize non-employee stock option/warrant activity of the Company since December 31, 2011:

							Weighted Average
	Option/Warrant			Exercise			Exercise
	Shares			Price			Price
Outstanding, December 31, 2011		15,585,996			$0.00125 to $0.20		$	0.01
Granted		72,422,221		0.05 to 0.10				0.08
Transferred to employee options		(200,000	)		(0.05	)		-
Exercised		(5,000,996	)		0.00125			-
Expired		-			-			-
Outstanding, December 31, 2012		82,807,221		0.00125 to 0.20				0
Granted		38,144,444		0.10 to 0.15				0.03
Exercised		(9,435,000	)		0.00125 - 0.07			-
Expired		-			-			-
Outstanding, December 31, 2013		111,516,665			$0.01 to $.20		$	0.10
Exercisable, December 2013		111,516,665			$0.01 to $.20		$	0.10
Weighted Average Remaining Life,
Exercisable, December 31, 2013 (years)		7.0

A summary of incentive stock option transactions for employees since December 31, 2011 is as follows:

						Weighted Average
	Option/Warrant			Exercise		Exercise
	Shares			Price		Price
Outstanding, December 31, 2011		6,390,000			$0.00125	$	0.00125
Granted		15,000,000			0.05 - 0.15		0.06
Transferred from non-employee options		200,000			0.05		-
Exercised		(5,823,333	)		0.00125 - 0.15		-
Expired/Returned		-			-		-
Outstanding, December 31, 2012		15,766,667		0.00125 to 0.10			0.06
Granted		45,500,000			0.05 - 0.15		0.04
Exercised		(900,000	)		0.00125		-
Expired/Returned		(500,000	)		0.05		-
Outstanding, December 31, 2013		59,866,667			$0.05 to $0.15	$	0.05
Exercisable, December 31, 2013		50,116,667			$0.05 to $0.15	$	0.06
Weighted Average Remaining Life,
Exercisable, December 31, 2013 (years)		9.6

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PROPERTY AND EQUIPMENT (Tables)

12 Months Ended

Dec. 31, 2013

Property, Plant and Equipment [Abstract]

Schedule of components equipment

	December 31, 2013		December 31, 2012
Furniture and Fixtures	$	219,871	$	---
Equipment		16,155		34,964
		236,026		34,964
Less: Accumulated depreciation		91,952		32,624
	$	144,074	$	2,340

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NOTES PAYABLE (Detail Textuals 3) (USD $)			3 Months Ended	1 Months Ended	3 Months Ended		12 Months Ended			3 Months Ended	12 Months Ended	1 Months Ended					1 Months Ended	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2013 Common Stock	Jan. 31, 2010 8% Series A Notes Payable	Dec. 31, 2013 8% Series A Notes Payable	Sep. 30, 2011 8% Series A Notes Payable	Dec. 31, 2009 8% Series A Notes Payable	Dec. 31, 2012 8% Series A Notes Payable	Jun. 30, 2011 8% Series A Notes Payable	Dec. 31, 2013 8% Series A Notes Payable Common Stock	Dec. 31, 2010 8% Series A Notes Payable Warrant	Jun. 30, 2011 Series A notes payable; interest at 8% per annum; principal and accrued interest due at extended maturity date in September 2015	Dec. 31, 2013 Series A notes payable; interest at 8% per annum; principal and accrued interest due at extended maturity date in September 2015	May 23, 2013 Series A notes payable; interest at 8% per annum; principal and accrued interest due at extended maturity date in September 2015	May 22, 2013 Series A notes payable; interest at 8% per annum; principal and accrued interest due at extended maturity date in September 2015	Dec. 31, 2012 Series A notes payable; interest at 8% per annum; principal and accrued interest due at extended maturity date in September 2015	Jun. 30, 2011 Series A notes payable; interest at 8% per annum; principal and accrued interest due at extended maturity date in September 2015 Warrant	Dec. 31, 2009 Series A notes payable; interest at 8% per annum; principal and accrued interest due at extended maturity date in September 2015 Warrant	Dec. 31, 2009 Series A notes payable; interest at 8% per annum; principal and accrued interest due at extended maturity date in September 2015 Warrant Minimum	Dec. 31, 2009 Series A notes payable; interest at 8% per annum; principal and accrued interest due at extended maturity date in September 2015 Warrant Maximum
Debt Instrument [Line Items]
Amount of note payable					$ 150,000							$ 150,000
Interest rate				8.00%		8.00%	8.00%		8.00%			8.00%	8.00%			8.00%
Warrants issued				1,000,000			8,000,000				1,000,000	6,000,000						8,000,000
Fair value of the warrants											20,143						21,275	15,450
Method used to calculate fair value of warrants											Black-Scholes option pricing model						Black-Scholes option pricing model	Black-Scholes option pricing model
Dividend yield											0.00%						0.00%	0.00%
Expected volatility											28.60%						60.00%		30.90%	34.50%
Risk-free interest rate											0.84%						1.52%		0.95%	1.06%
Expected warrant term											2 years						1 year 3 months	2 years
Discount, notes payable (in dollars)		13,632						13,632
Amount of notes payable repaid with accrued interest						25,000
Number of warrants expired unexercised						3,000,000
Common stock, shares authorized	675,000,000	675,000,000												675,000,000	425,000,000
Reduction in value of debt					60,000
Number of warrants exercised for conversion of securities					6,000,000
Number of common stock called by warrants (in shares)						2,000,000				6,000,000
Balance amount of debt					90,000
Amount of accrued interest					$ 49,000
Number of shares issued upon conversion of debt			25,974,697							1,226,363

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SENIOR SECURED CONVERTIBLE NOTES PAYABLE (Detail Textuals 1) (USD $)

170 Months Ended

12 Months Ended

12 Months Ended

12 Months Ended

Dec. 31, 2013

Dec. 31, 2013

10% Senior Secured Convertible Promissory Notes

Dec. 31, 2012

10% Senior Secured Convertible Promissory Notes

Dec. 31, 2013

10% Senior Secured Convertible Promissory Notes

Warrant

Jun. 30, 2012

10% Senior Secured Convertible Promissory Notes

Warrant

Dec. 31, 2013

10% Senior Secured Convertible Promissory Notes

Warrant

Minimum

Dec. 31, 2013

10% Senior Secured Convertible Promissory Notes

Warrant

Maximum

Debt Instrument [Line Items]

Repurchase of notes issued exercise by warrants

8,000,000

Term of warrants

10 years

Warrants exercise price (in dollars per share)

0.01

0.01

Fair value of warrants recorded as a debt discount on the notes payable

$ 392,376

$ 392,376

Method used to calculate fair value of warrants

Black-Scholes option pricing model

Dividend yield

0.00%

Expected volatility

169.00%

284.00%

Risk-free interest rate

3.60%

4.50%

Expected warrant term

10 years

Amortization period

1 year

Amount received for exercised of warrants

$ 80,000

Number of warrants

8,000,000

Debt instrument conditional covenants amount

if an equity financing with total proceeds of more than $5,000,000 occurs while any notes are outstanding, holders of notes will have the right, at their option, to convert the outstanding principal and interest of the notes into shares at a discount of 30% of the price per share in the qualified financing.

Percentage of discount on price per share

30.00%

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Consolidated Statement of Operations (Parentheticals) (Payroll expenses, USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Payroll expenses
Share based compensation	$ 8,619,137	$ 0

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MANAGEMENT PLANS

12 Months Ended

Dec. 31, 2013

Management Plans [Abstract]

MANAGEMENT PLANS

NOTE 2 – MANAGEMENT PLANS

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred significant losses and experienced negative cash flow from operations during the development stage. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

The Company believes that its existing cash resources will not be sufficient to sustain operations during the next twelve months. The Company currently needs to generate revenue in order to sustain its operations. In the event that the Company cannot generate sufficient revenue to sustain its operations, the Company will need to reduce expenses or obtain financing through the sale of debt and/or equity securities. The issuance of additional equity would result in dilution to existing shareholders. If the Company is unable to obtain additional funds when they are needed or if such funds cannot be obtained on terms acceptable to the Company, the Company may be unable to execute upon the business plan or pay costs and expenses as they are incurred, which could have a material, adverse effect on the business, financial condition and results of operations.

If sufficient revenues are not generated to sustain operations or additional funding cannot be obtained in the short term, the Company will need to reduce monthly expenditures to a level that will enable the Company to continue until such funds can be obtained.

The Company is in the development stage at December 31, 2013. Successful completion of the Company’s development program, and the attainment of profitable operations are dependent upon future events, including obtaining adequate financing to fulfill its development activities and achieving a level of sales adequate to support the Company’s cost structure. However, there can be no assurances that the Company will be able to secure additional equity investment or achieve an adequate sales level.

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FAIR VALUE OF FINANCIAL INSTRUMENTS - Estimated fair value of warrants using Black-Scholes (Details 3) (Warrants treated as Derivative Liabilities)	12 Months Ended
	Dec. 31, 2013
Fair Value Inputs Quantitative Information [Line Items]
Annual Dividend Yield	0.00%
Risk-Free Interest Rate	1.39%
Expected Volatility	267.30%
Minimum
Fair Value Inputs Quantitative Information [Line Items]
Expected Life (Years)	4 years
Maximum
Fair Value Inputs Quantitative Information [Line Items]
Expected Life (Years)	4 years 29 days

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RELATED PARTY TRANSACTIONS (Detail Textuals) (USD $)	1 Months Ended	3 Months Ended
	Jun. 30, 2013	Dec. 31, 2013 Shareholder	Dec. 31, 2012 Shareholder
Common Stock
Debt Instrument [Line Items]
Common stock shares issued on conversion of debt (in shares)		25,974,697
Senior secured convertible notes payable
Debt Instrument [Line Items]
Common stock shares issued on conversion of debt (in shares)	7,400,000	7,900,000
Number of shareholders		5	5
Convertible notes payable		$ 330,249	$ 512,249
Amount of accrued interest owed by shareholders		300,676
Convertible notes payable
Debt Instrument [Line Items]
Common stock shares issued on conversion of debt (in shares)		12,375,000
Number of shareholders			1
Convertible notes payable			140,000
Unsecured notes payable
Debt Instrument [Line Items]
Number of shareholders			2
Unsecured notes payable			$ 561,000

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INCOME TAXES (Tables)

12 Months Ended

Dec. 31, 2013

Income Tax Disclosure [Abstract]

Schedule of income tax benefit (provision)

	Year Ended			Year Ended
	December 31,			December 31,
	2013			2012
Current	$	1,837,000		$	490,000
Deferred		3,284,000			263,000
Change in valuation allowance		(5,121,000	)		(753,000	)
		-			-

Schedule of reconciliation of the tax

	2013						2012
	Amount			%			Amount			%
U.S. Federal income tax benefit at Federal Statutory Rate	$	(5,718,000	)		(35	)	$	(298,000	)		(35	)
State tax, net of federal effect		(956,000	)		(6	)		(50,000	)		(6	)
Non deductible accrued expense		-			-			(238,000	)		(28	)
Deductible share based compensation		(318,000	)		(2	)		(167,000	)		(20	)
Non-deductible changes in derivative liability and share based transactions		1,895,000			12			-			-
Other		(24,000	)		-			-			-
Change in valuation allowance		5,121,000			31			753,000			89
	$	-			-			-			-

Schedule of deferred tax assets, liabilities and related valuation

	December 31,			December 31,
	2013			2012
Deferred tax asset for NOL carryforwards	$	5,144,000		$	3,308,000
Deferred tax liability for intangibles		(165,000	)		(165,000	)
Share based compensation		3,683,000			162,000
Non deductible accrued expenses		150,000			386,000
Valuation allowance		(8,812,000	)		(3,691,000	)
	$	-		$	-

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INCOME TAXES - Primary components of deferred tax assets, liabilities and related valuation allowances (Details 2) (USD $)	Dec. 31, 2013	Dec. 31, 2012
Income Tax Disclosure [Abstract]
Deferred tax asset for NOL carryforwards	$ 5,144,000	$ 3,308,000
Deferred tax liability for intangibles	(165,000)	(165,000)
Share based compensation	3,683,000	162,000
Non deductible accrued expenses	150,000	386,000
Valuation allowance	(8,812,000)	(3,691,000)
Deferred tax assets, net

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STOCKHOLDERS' EQUITY

12 Months Ended

Dec. 31, 2013

Stockholders' Equity Note [Abstract]

STOCKHOLDERS' EQUITY

NOTE 12 – STOCKHOLDERS’ EQUITY

In October 2012, the Company commenced private placements consisting of shares of the Company’s common stock and warrants to purchase shares of the Company’s common stock at an exercise price of $0.10 per share.  The shares and warrants were sold in units with each unit comprised of one share and one warrant at a purchase price of $.045 per unit.  As of December 31, 2012, the Company sold 6,888,889 units that raised $310,000 for the Company.

In October 2012, the Company commenced private placements consisting of shares of the Company’s common stock and warrants to purchase shares of the Company’s common stock at an exercise price of $0.10 per share.  The shares and warrants were sold in units with each unit comprised of one share and one warrant at a purchase price of $.05 per unit.  As of December 31, 2012, the Company sold 15,000,000 units that raised $750,000 for the Company.

On November 13, 2012, an employee and consultant exercised options to purchase in the aggregate 10,490,996 shares of the Company’s common stock at an exercise price of $.00125 per share that raised $13,114 for the Company.

On November 21, 2012, the Company issued 1,000,000 shares of the Company’s common stock, valued at $46,500 to a board member for services to the Company.

On December 5, 2012, the Company issued 12,923,622 shares of the Company’s common stock, valued at $581,564, for the retirement of two notes payable totaling $450,000 and accrued interest of $131,564.

On December 20, 2012, an investor exercised warrants to purchase 333,333 shares of the Company’s common stock at $0.15 per share that raised $50,000 for the Company.

In January and February 2013, the Company received $185,000 from the sale of 3,700,000 units from private placements consisting of shares of the Company’s common stock and warrants to purchase shares of the Company’s common stock at an exercise price of $0.10 per share. The shares and warrants were sold in units with each unit comprised of one share and one warrant at a purchase price of $.05 per unit.

 In January 2013, the Company commenced private placements consisting of shares of the Company’s common stock and warrants to purchase shares of the Company’s common stock at an exercise price of $0.12 per share. The shares and warrants were sold in units with each unit comprised of one share and one warrant at a purchase price of $.045 per unit. The company sold 1,111,111 units and raised $50,000.

On February 1, 2013, an investor exercised a warrant to purchase 1,000,000 shares of the Company’s common stock that raised $10,000 for the Company.

In February and March 2013, four investors exercised options to purchase 3,335,000 shares of the Company’s common stock that raised $17,919 for the Company.