NOTES PAYABLE

6 Months Ended

Jun. 30, 2012

Debt Disclosure [Abstract]

NOTES PAYABLE

NOTE 6 - NOTES PAYABLE

Notes payable consists of the following:

	June 30, 2012	December 31, 2011
Unsecured notes payable; interest at 10% per annum; principal and accrued interest due at maturity from April 2013 through September 2015	$761,000	$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	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	400,000	400,000
Less: Debt discount	(16,111)	(18,589)
	1,344,889	1,142,411
Less: Current portion	250,000	50,000
Long-term portion	$1,094,889	$1,092,411

At June 30, 2012 and December 31, 2011, accrued interest on notes payable was $457,398 and $362,806. Interest expense for the three and six months ended June 30, 2012 was $51,567 and $94,592, respectively. Interest expense for the three and six months ended June 30, 2011 was $41,942 and $86,592, respectively.

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 six units. Each unit consists of a $50,000, 8% Series A Note Payable, due September 30, 2011, and a non-detachable warrant to purchase two million shares of the Company’s common stock. During 2009, the Company sold four units, issued $200,000 of 8% Series A Notes Payable, issued eight million 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 one million warrants, and raised $17,500 net of commissions of $7,500. The commissions were treated as deferred finance charges and are expensed over the term of notes payable. For the three and six months ended June 30, 2011, amortization of deferred finance charges was $7,682 and $15,724, respectively. No amortization was recorded for the three and six months ended June 30, 2012, since the deferred finance charges were fully amortized as of December 31, 2011.

In June 2011, the maturity date on the $150,000 of the 8% Series A Notes Payable and the term on the associated six million 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 six million 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 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 are 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 June 30, 2012 and December 31, 2011, the unaccreted debt discount related to warrants issued in conjunction with the 8% Series A Notes payable was $16,111 and $18,589, respectively. For the three and six months ended June 30, 2012, interest expense from the accretion of the debt discount was $1,239 and 2,478, respectively. For the three and six months ended June 30, 2011, interest expense from the accretion of the debt discount was $4,910 and $9,820, respectively.

LaserLock Technologies, Inc. and Subsidiary

(A Development Stage Company)

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 6 – NOTES PAYABLE (Continued)

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 10 - Contingencies to these condensed 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 million realized by the Company shall be allocated 90% to the Company and 10% to the Lenders.

e. The next $1 million 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 are being amortized to interest expense over the life of the notes payable. For the three and six months ended June 30, 2012 and 2011, amortization of deferred finance charges was $4,313 and $8,625 for both periods, 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:

2012	$50,000
2013	690,000
2014	95,000
2015	1,447,500
2016	-