10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

o QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014

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)		(I.R.S. Employer Identification No.)

	3112 M Street NW, Washington, DC		20007
(Address of Principal Executive Offices)		(Zip Code)

	(202) 400-3700
(Registrant’s Telephone Number, Including Area Code)

(Former Name, Former Address and Former Fiscal year, if Changed Since Last Report)

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 x 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 Regulations 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 x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 307,778,149 shares of common stock outstanding at October 28, 2014.

PART I  FINANCIAL INFORMATION

Cautionary Note Regarding Forward-Looking Statements
ITEM 1.	Financial Statements
Condensed Consolidated Balance Sheets (Unaudited)		1
Condensed Consolidated Statements of Operations (Unaudited)		2
Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) (Unaudited)		3
Condensed Consolidated Statements of Cash Flows (Unaudited)		4
Notes to Condensed Consolidated Financial Statements (Unaudited)		5
ITEM 2.	Management’s Discussions and Analysis of Financial Condition and Results of Operations	19
ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	24
ITEM 4.	Controls and Procedures	24
	PART II OTHER INFORMATION
ITEM 1.	Legal Proceedings	25
ITEM 1A.	Risk Factors	25
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25
ITEM 3.	Defaults Upon Senior Securities	25
ITEM 4.	Mine Safety Disclosures	25
ITEM 5.	Other Information	26
ITEM 6.	Exhibits	26
SIGNATURES		27

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q, including without limitation, statements regarding our future financial position, business strategy, budgets, projected revenues, projected costs and plans and objectives of management for future operations, are forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expects,” “intends,” “plans,” “projects,” “estimates,” “anticipates,” “believes,” “contemplates,” “targets,” “could,” “would” or “should” or the negative thereof or any variation thereon or similar terminology or expressions.  Management cautions readers not to place undue reliance on any of the Company’s forward-looking statements, which speak only as of the date made.

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, the absence of any operating history or revenue, our ability to attract and retain qualified personnel, our dependence on third party developers who we cannot control, our ability to develop and introduce a new service to the market in a timely manner, market acceptance of our services, our limited experience in a relatively new industry, the ability to successfully develop licensing programs and generate business, rapid technological change in relevant markets, unexpected network interruptions or security breaches, 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 risks discussed in this filing, the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, as filed with filed with the Securities and Exchange Commission (the “SEC”), and the Company’s other filings with the SEC.

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. The Company has no obligation to and does not undertake to update, revise, or correct any of these forward-looking statements after the date of this report.

PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

LaserLock Technologies Inc.

CONTENTS
	PAGE
CONSOLIDATED BALANCE SHEETS	1
CONSOLIDATED STATEMENTS OF OPERATIONS	2
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT	3
CONSOLIDATED STATEMENTS OF CASH FLOWS	4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	5 - 18

LaserLock Technologies Inc.

 Condensed Consolidated Balance Sheets

September 30, 2014 and December 31, 2013

	September 30, 2014			December 31, 2013
	(unaudited)			(audited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	3,606		$	1,285,973
Accounts receivable, net of allowance of $0 at September 30, 2014 and December 31, 2013		76,669			3,573
Inventory		84,284			34,271
Prepaid expenses		181,578			189,474
TOTAL CURRENT ASSETS		346,137			1,513,291
PROPERTY AND EQUIPMENT
Capital equipment, net of accumulated depreciation of $143,892 and $91,952 as of September 30, 2014 and December 31, 2013		92,134			144,074
OTHER ASSETS
Deposits		37,197			37,197
Patents and trademarks, net of accumulated amortization of $115,225 and $105,393 as of September 30, 2014 and December 31, 2013		110,864			120,695
TOTAL ASSETS	$	586,332		$	1,815,257
LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses	$	465,645		$	316,784
Accrued interest - related party		29,215			16,668
Embedded derivative liability		400,000			800,000
Notes payable - net of accumulated discount of $72,610 as of September 30, 2014		627,390			50,000
TOTAL CURRENT LIABILITIES		1,522,250			1,183,452
LONG-TERM LIABILITIES
Warrant liability		4,582,716			6,000,000
Accrued interest - related parties		109,085			300,677
Senior secured convertible notes payable - related parties		114,000			330,249
TOTAL LONG-TERM LIABILITIES		4,805,801			6,630,926
STOCKHOLDERS’ DEFICIT
Preferred Stock, $ .001 par value; 75,000,000 shares authorized; 33,333,333 designated Serie’s A Preferred Stock, 21,111,111 shares of Serie’s A Preferred Stock issued and outstanding as of September 30, 2014 and December 31, 2013		633,333			633,333
Common stock, $ .001 par value; 675,000,000 shares authorized; 337,374,052 shares issued and 307,578,149 outstanding at September 30, 2014 and 319,862,042 shares issued and 290,066,139 outstanding at December 31, 2013		337,374			319,862
Additional paid in capital		24,670,652			22,938,983
Treasury stock, at cost (29,795,903 shares at September 30, 2014 and December 31, 2013)		(113,389	)		(113,389	)
Accumulated deficit		(31,269,690	)		(29,777,910	)
STOCKHOLDERS’ DEFICIT		(5,741,720	)		(5,999,121	)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	586,332		$	1,815,257

See the accompanying notes to these condensed consolidated financial statements.

-1-

LaserLock Technologies Inc.

Condensed Consolidated Statements of Operations

For the Three and Nine Months Ended September 30, 2014 and 2013

(Unaudited)

	Three Months			Three Months			Nine Months			Nine Months
	Ended			Ended			Ended			Ended
	September 30,			September 30,			September 30,			September 30,
	2014			2013			2014			2013
NET REVENUES
Sales	$	53,260		$	-		$	118,408		$	3,140
Royalties		-			-			-			-
TOTAL NET REVENUE		53,260			-			118,408			3,140
COST OF SALES		50,160			-			104,600			2,710
GROSS PROFIT		3,100			-			13,808			430
OPERATING EXPENSES
General and administrative		83,779			232,291			389,361			501,299
Legal and accounting		56,012			110,187			366,509			278,275
Payroll expenses (a)		410,421			344,539			1,912,279			9,085,336
Research and development (b)		13,601			158,030			889,450			470,005
Sales and marketing		45,256			78,225			170,587			182,726
Total operating expenses		609,069			923,272			3,728,186			10,517,641
LOSS BEFORE OTHER INCOME (EXPENSE)		(605,969	)		(923,272	)		(3,714,378	)		(10,517,211	)
OTHER INCOME (EXPENSE)
Interest expense		(83,663	)		(42,700	)		(107,691	)		(116,918	)
Loss on extinguishment of debt		-			-			(82,000	)		(1,221,875	)
Change in fair value of warrants		(824,283	)		9,676,165			2,012,289			(3,104,209	)
Change in fair value of embedded derivative liability		(200,000	)		(500,000	)		400,000			(500,000	)
Fair value of warrants in excess of consideration for convertible preferred stock		-			-			-			(2,995,791	)
		(1,107,946	)		9,133,465			2,222,598			(7,938,793	)
NET INCOME (LOSS) BEFORE INCOME TAX BENEFIT		(1,713,915	)		8,210,193			(1,491,780	)		(18,456,004	)
INCOME TAX BENEFIT		-			-			-			-
NET INCOME (LOSS)		(1,713,915	)		8,210,193			(1,491,780	)		(18,456,004	)
Less: Deemed dividend distribution		-			-			-			(1,000,000	)
NET INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS	$	(1,713,915	)	$	8,210,193		$	(1,491,780	)	$	(19,456,004	)
NET INCOME (LOSS) PER COMMON SHARE
BASIC	$	(0.01	)	$	0.03		$	(0.00	)	$	(0.08	)
DILUTED	$	(0.01	)	$	0.02		$	(0.00	)	$	(0.08	)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
BASIC		307,578,149			247,476,627			302,559,881			145,144,603
DILUTED		307,578,149			465,253,680			302,559,881			145,144,603

(a) -	includes share based compensation of $40,326 and $842,592 for the three and nine months ended September 30, 2014 and $154,975 and $8,427,202 for the three and nine months ended September 30, 2013
(b) -	includes share based compensation of $400,000 for the nine months ended September 30, 2014 related to the Patent & Technology services agreement

See the accompanying notes to these condensed consolidated financial statements.

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LaserLock Technologies Inc.

 Condensed Consolidated Statement of Changes in Stockholders’ Deficit

For the nine months ended September 30, 2014

	Convertible
	Preferred				Common
	Stock				Stock				Additional
	Number of				Number of				Paid-In			Treasury			Accumulated
	Shares		Amount		Shares		Amount		Capital			Stock			Deficit			Total
Balance at December 31, 2013 (audited)		21,111,111		633,333		290,066,139		319,862		22,938,984			(113,389	)		(29,777,910	)		(5,999,120	)
Issuance of shares of common stock for services						6,349,206		6,349		393,651			-			-			400,000
Cashless exercise of options						2,714,285		2,714		(2,714	)		-			-			-
Fair value of employee stock options		-		-		-		-		842,592			-			-			842,592
Issuance of common stock for settlement of debt						8,448,519		8,449		498,139									506,588
Net loss for the nine months ended September 30, 2014		-		-		-		-		-			-			(1,491,780	)		(1,491,780	)
Balance at September 30, 2014  (unaudited)		21,111,111	$	633,333		307,578,149	$	337,374	$	24,670,652		$	(113,389	)	$	(31,269,690	)	$	(5,741,720	)

See the accompanying notes to these condensed consolidated financial statements.

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LaserLock Technologies Inc.

Condensed Consolidated Statements of Cash Flows

For the Nine Months Ended September 30, 2014 and 2013

(Unaudited)

	Nine Months			Nine Months
	Ended			Ended
	September 30,			September 30,
	2014			2013
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(1,491,780	)	$	(18,456,004	)
Adjustments to reconcile net loss to net cash used in operating activities
Fair value of options issued in exchange for services		842,592			8,427,202
Accretion of discount on notes payable		-			3,718
Change in fair value warrant liability		(2,012,289	)		3,104,209
Change in fair value embedded derivative liability		(400,000	)		500,000
Fair value of warrants in excess of consideration for convertible preferred stock		-			2,995,791
Fair value of stock in excess of converted notes payable and accrued interest		82,000			1,221,875
Amortization and depreciation		61,771			61,339
Stock & warrants issued in exchange for technology		844,000			-
(Increase) decrease in assets
Accounts receivable		(22,936	)		-
Inventory		(100,173	)		(19,454	)
Prepaid expenses		7,896			420,395
Deposit		-			(37,197	)
Increase (decrease) in liabilities
Accounts payable and accrued expenses		256,551			(230,516	)
Net cash used in operating activities		(1,932,368	)		(2,008,642	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment		-			(10,573	)
Purchase of patents and trademarks		-			(21,954	)
Net cash used in investing activities		-			(32,527	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of preferred stock		-			1,000,000
Proceeds from issuance of common stock		-			235,000
Proceeds from exercise of stock options		-			17,919
Proceeds from exercise of warrants		-			10,000
Proceeds from issuance of notes payable		650,000			-
Net cash provided by financing activities		650,000			1,262,919
NET DECREASE IN CASH AND CASH EQUIVALENTS		(1,282,368	)		(778,250	)
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR		1,285,973			2,994,350
CASH AND CASH EQUIVALENTS - END OF PERIOD	$	3,605		$	2,216,100
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Cash paid during the year for:
Interest	$	-		$	13,895
Income taxes	$	-		$	-
Fair value of stock issued for conversion of notes payable and accrued interest	$	506,588		$	668,125
Fair value of stock issued for conversion of preferred stock to common stock				$	366,667
Accretion of discount on preferred stock as deemed dividend distribution	$	-		$	1,000,000
Fair value of beneficial conversion feature	$	-		$	1,500,000
Fair value of warrants issued as debt discount	$	151,005		$	-

See the accompanying notes to these condensed consolidated financial statements.

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NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of the Business

LaserLock Technologies Inc., together with its wholly-owned subsidiary, LL Security Products, Inc., is referred to as the “Company.” LaserLock Technologies Inc. was incorporated in the State of Nevada on November 10, 1999.  The Company is based in Washington, D.C. and its common stock is traded on the OTCQB under the ticker symbol “LLTI”.  A high-tech solutions company in the field of authenticating people and products, LaserLock offers state-of-the-art solutions to combat identity fraud and counterfeiting utilizing multi-factor authentication and a suite of security pigments for governments, health care providers, the gaming industry, the financial services industry and high-end retailers.

The Company invests in developing new proprietary color shifting inks that it believes will allow it to penetrate broader markets and result in increased revenues. The Company refines its technologies and their applications, and now has what it believes to be one of the most cost effective and efficient authentication technologies available. Its 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 drivers 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 Company’s digital solution is a multi-platform (iOS and Android) strong authentication solution that integrates biometrics and geo-location tagging. The solution completely eliminates passwords and the inherently weak security they provide. The solution also removes the user complexity associated with having to manage many complex passwords. The solution can be delivered either as a high availability cloud service, managed by the Company, or as licensed software product for operation on the client’s premises.

The solution integrates three independent authentication factors – something you have (for instance a smartphone), something you know (for instance a color gesture swipe) and something you are (for instance your facial geometry) - into a simple, fast, intuitive solution. The system can also accurately determine the precise location of the individual using a variety of mechanisms including GPS, cell tower triangulation, IP or WIFI address. Because the solution incorporates 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 an end-user to refute having been part of a transaction.

The Company’s activities are subject to significant risks and uncertainties, including the need to secure additional funding to operationalize the Company’s current technology.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions for Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The accompanying unaudited consolidated financial statements should be read in conjunction with the financial statements and notes included in the Company’s Annual Report on form 10-K for the year ended December 31, 2013 as filed with the SEC. Operating results for the three and nine months ended September 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014.

Principle of Consolidation

The accompanying condensed 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 U.S. GAAP 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.

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Comprehensive Income

The Company follows Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 220 in reporting comprehensive income.  Comprehensive income is a more inclusive financial reporting methodology that involves 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, embedded derivative, warrant liability 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. Depreciation of property and equipment was $17,313 and $51,940 for the three and nine months ended September 30, 2014 and $17,313 and $51,525 for the three and nine months ended September 30, 2013.

Patents and Trademark

The Company has five issued patents, filed for three provisional 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 that were determined to be 17 to 20 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 is 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.

-6-

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.

Derivative Instruments

The Company evaluates its convertible debt, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with Topic 480 of the FASB ASC and Topic 815 of the FASB Accounting Standards Codification. The result of this accounting treatment is that the fair value of the embedded derivative, if required to be bifurcated, is marked-to-market at each balance sheet date and recorded as a liability. The change in fair value is recorded in the Statement of Operations as a component of other income or expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity.

In circumstances where the embedded conversion option in a convertible instrument is required to be bifurcated and there are also other embedded derivative instruments in the convertible instrument that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument. 

The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Equity instruments that are initially classified as equity that become subject to reclassification are reclassified to liability at the fair value of the instrument on the reclassification date. Derivative instrument liabilities will be classified in the balance sheet as current or non-current based on whether net-cash settlement of the derivative instrument is expected within 12 months of the balance sheet date.

Revenue Recognition

In accordance with SEC Staff Accounting Bulletin 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.

License fee revenue is recognized on a straight-line basis over the term of the license agreement.

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.

Stock-based Payments

The Company accounts for stock-based compensation under the provisions of ASC 718,  Compensation—Stock Compensation, 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.

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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 $9,000 and $62,238 for the three and nine months ended September 30, 2014 and $23,615 and $29,371 for the three and nine months ended September 30, 2013, 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.

Basic and Diluted Net Income per Share of Common Stock

The Company follows FASB ASC 260 when reporting Earnings Per Share resulting in the presentation of basic and diluted earnings per share. Since the Company reported a net loss for the three and nine months ended September 30, 2014 and the nine months ended September 30, 2013, common stock equivalents, including stock options and warrants were anti-dilutive; therefore, the amounts reported for basic and dilutive loss per share during those periods were the same.

Basic net income per common share is based on the weighted average number of shares outstanding during the periods presented.  Diluted net income per common share is computed using weighted average number of common shares plus dilutive common share equivalents outstanding during the period. Potential common shares that would have the effect of increasing diluted earnings per share are considered to be anti-dilutive, i.e., the exercise prices of the outstanding stock options were greater than the market price of the common stock.

The numerator for both basic and diluted earnings per share is net income. The denominator for basic earnings per share is the weighted average number of common shares outstanding during the period. The dilutive effect of outstanding convertible debt, stock options and warrants is reflected in the denominator for diluted earnings per share using the treasury stock method.

The following is a reconciliation of basic shares to diluted shares:

	Three months
	Ended
	September 30,
	2013
Weighted-average shares - basic		247,476,627
Effect of dilutive securities		217,777,053
Weighted-average shares - diluted		465,253,680

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 FASB ASC 280 can be found in the consolidated financial statements.

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Recently Adopted Accounting Pronouncements

In June 2014, the FASB issued Accounting Standards Update No. 2014-10, Development State Entities (Topic 915), Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation.  The amendments in this update remove the definition of a development stage entity from the Master Glossary of the Accounting Standard Codification, thereby removing the financial reporting distinction that previously required development stage entities to (1) present inception-to-date information in the statements of income, cash flow, and stockholder equity, (2) label the financial statements as those of a development stage entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage.

The amendments also clarify that the guidance in Topic 275, Risks and Uncertainties, is applicable to entities that have not commenced planned principle operations.

The amendments related to the elimination of inception-to-date information and the other remaining disclosure requirements of Topic 915 should be applied retrospectively except for the clarification to Topic 275, which must be applied prospectively.  For public business entities, those amendments are effective for annual reporting periods beginning after December 15, 2014, and interim periods therein.

For public business entities, the amendment eliminating the exception to the sufficiency-of-equity-at-risk criterion for development stage entities in paragraph 810-10-15-16 should be applied retrospectively for annual reporting periods beginning after December 15, 2015, and interim periods therein.

Early application of each of the amendments is permitted for any annual reporting period or interim period for which the entity’s financial statements have not yet been issued (public business entities) or made available for issuance (other entities).  Upon adoption entities will no longer present or disclose any information required by Topic 915.

The Company adopted the amendment retrospectively for the interim period ending June 30, 2014.

Recently Issued Accounting Pronouncements Not Yet Adopted

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40), Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The amendments in this Update provide guidance about management’s responsibility to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued and to provide related footnote disclosures. Substantial doubt about an entity’s ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued. The amendments in this Update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted.

Reclassifications

Certain amounts in the 2013 statement of operations have been classified in order for them to conform with the 2014 presentation.

NOTE 2 – MANAGEMENT PLANS

The accompanying consolidated 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. 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.

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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 stockholders. 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.

On June 5, 2014, the Company entered into an exclusive agreement with Merriman Capital, Inc. to raise up to $5 million in additional capital for the Company (the “Capital Raise”). VerifyMe, Inc. (“VerifyMe”), the holder of a majority of the Company’s Series A Preferred Stock and warrants to purchase common stock, in connection with the Subscription Agreement, dated January 31, 2012, and as a holder of Preferred Stock, on May 23, VerifyMe waived its rights under such agreement as they relate to parameters of the raise based on the Company’s revised budget.

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 – PATENTS AND TRADEMARK

The Company has five issued patents and filed for three additional provisional 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 to 20 years). During the three and nine months ended September 30, 2014, the Company capitalized $0 of patent cost and during the three and nine months ended September 30, 2013, the Company capitalized patent costs of $0 and $21,594, respectively. Amortization expense for patents was $3,277 and $9,831 for the three and nine months ended September 30, 2014 and $3,277 and $9,814 for the three and nine months ended September 30, 2013, respectively. Future estimated annual amortization over the next five years is approximately $13,100 per year for the years ended December 31, 2014 through 2018.

NOTE 4 – INCOME TAXES

Income tax expense was $0 for the three and nine months ended September 30, 2014 and 2013.

As of January 1, 2014, the Company had no unrecognized tax benefits, and accordingly, the Company did not recognize interest or penalties during 2014 related to unrecognized tax benefits.  There has been no change in unrecognized tax benefits during the nine months ended September 30, 2014, and there was no accrual for uncertain tax positions as of September 30, 2014.  Tax years from 2010 through 2013 remain subject to examination by major tax jurisdictions.

The Company had income for the three and nine months ended September 30, 2014; however, due to tax adjustments, the Company had a net loss for tax purposes.  There is no income tax benefit for the three and nine months ended September 30, 2014 and 2013 since management has determined that the realization of the net tax deferred asset is not assured and has created a valuation allowance for the entire amount of such benefits.

NOTE 5 - SENIOR SECURED CONVERTIBLE NOTES PAYABLE –RELATED PARTIES

During the second quarter of 2014, $216,249 of principal of the Company’s outstanding senior convertible notes held by a significant shareholder of the Company, plus accrued interest of $208,339, were converted into 8,448,519 shares of common stock.  The excess of the fair value of the Company’s common stock over the value of the notes payable and accrued interest, $82,000, was recorded as loss on extinguishment of debt in accordance with FASB ASC 470-50.

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As of September 30, 2014, the outstanding principal balance on these notes was $114,000.  Accrued interest at September 30, 2014 amounted to $109,085.

If an equity financing with total proceeds of more than $5,000,000 occurs while any of these 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 of common stock 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 6 - NOTES PAYABLE

On September 8, 2014, the Company issued notes payable for $150,000, which included fully vested warrants to purchase 900,000 shares of the Company’s common stock at an exercise price of $0.05 per share, expiring in five years.  The warrants were valued at $62,544 using 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 233.8%, risk free interest rate of 1.67% and expected life of 5 years.  The relative fair value of the warrants was $44,140 and was recorded as a discount to the notes payable in accordance with FASB ASC 835-30-25, Recognition and is being accreted over the term of the note payable for financial statement purposes.  For the three and nine months ended September 30, 2014, $11,700 was accreted through interest expense.  The note and accrued interest at 8% per annum are due in full on December 1, 2014.  The warrants are subject to anti-dilutive adjustments and are therefore classified as a liability in accordance with FASB ASC 815.  The warrant liability is re-valued at each reporting period with the change in fair value recorded through earnings.  As of September 30, 2014, the fair value of the warrant liability was $44,566 and the note payable balance was $117,560, net of $32,440 discount.

On August 14, 2014, the Company issued notes payable for $100,000, which included fully vested warrants to purchase 600,000 shares of the Company’s common stock at an exercise price of $0.05 per share, expiring in five years.  The warrants were valued at $47,676 using 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 233.8%, risk free interest rate of 1.67% and expected life of 5 years.  The relative fair value of the warrants was $32,274 and was recorded as a discount to the notes payable in accordance with FASB ASC 835-30-25, Recognition and is being accreted over the term of the note payable for financial statement purposes.  For the three and nine months ended September 30, 2014, $14,045 was accreted through interest expense.  The note and accrued interest at 8% per annum are due in full on December 1, 2014.  The warrants are subject to anti-dilutive adjustments and are therefore classified as a liability in accordance with FASB ASC 815.  The warrant liability is re-valued at each reporting period with the change in fair value recorded through earnings.  As of September 30, 2014, the fair value of the warrant liability was $29,697 and the note payable balance was $81,771, net of $18,229 discount.

On August 12, 2014, the Company issued notes payable for $50,000, which included fully vested warrants to purchase 300,000 shares of the Company’s common stock at an exercise price of $0.05 per share, expiring in five years.  The warrants were valued at $26,817 using 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 233.8%, risk free interest rate of 1.67% and expected life of 5 years.  The relative fair value of the warrants was $17,455 and was recorded as a discount to the notes payable in accordance with FASB ASC 835-30-25, Recognition and is being accreted over the term of the note payable for financial statement purposes.  For the three and nine months ended September 30, 2014, $7,775 was accreted through interest expense.  The note and accrued interest at 8% per annum are due in full on December 1, 2014.  The warrants are subject to anti-dilutive adjustments and are therefore classified as a liability in accordance with FASB ASC 815.  The warrant liability is re-valued at each reporting period with the change in fair value recorded through earnings.  As of September 30, 2014, the fair value of the warrant liability was $14,848 and the note payable balance was $40,320, net of $9,680 discount.

On August 5, 2014, the Company issued notes payable for $100,000, which included fully vested warrants to purchase 600,000 shares of the Company’s common stock at an exercise price of $0.05 per share, expiring in five years.  The warrants were valued at $29,725 using 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 233.8%, risk free interest rate of 1.67% and expected life of 5 years.  The relative fair value of the warrants was $22,914 and was recorded as a discount to the notes payable in accordance with FASB ASC 835-30-25, Recognition and is being accreted over the term of the note payable for financial statement purposes.  For the three and nine months ended September 30, 2014, $10,653 was accreted through interest expense.  The note and accrued interest at 8% per annum are due in full on December 1, 2014.  The warrants are subject to anti-dilutive adjustments and are therefore classified as a liability in accordance with FASB ASC 815.  The warrant liability is re-valued at each reporting period with the change in fair value recorded through earnings.  As of September 30, 2014, the fair value of the warrant liability was $29,692 and the note payable balance was $87,739, net of $12,261 discount.

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On June 10, 2014, the Company issued a note payable for $250,000, which included fully vested warrants to purchase 1,000,000 shares of the Company’s common stock at an exercise price of $0.10 per share, expiring in five years.  The warrants were valued at $39,650 using 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 248.2%, risk free interest rate of 1.67% and expected life of 5 years.  The relative fair value of the warrants was $34,222 and was recorded as a discount to the notes payable in accordance with FASB ASC 835-30-25, Recognition and is being accreted over the term of the note payable for financial statement purposes.  For the three and nine months ended September 30, 2014, $26,617 and $34,222, respectively, were accreted through interest expense.  The note and accrued interest at 8% per annum as was originally due on September 11, 2014, but the Company received approval to extend the maturity until December 11, 2014.  The warrants are subject to anti-dilutive adjustments and are therefore classified as a liability in accordance with FASB ASC 815.  The warrant liability is re-valued at each reporting period with the change in fair value recorded through earnings.  As of September 30, 2014, the fair value of the warrant liability was $49,026 and the note payable balance was $250,000.

The notes payable balance as of September 30, 2014 also included a Series A note payable in the amount of $50,000 with interest of 8% per annum.  This note matured in October 2011 and is past due.  Accrued interest associated with this note was $19,667 as of September 30, 2014.

NOTE 7 – WARRANT LIABILITY

On December 31, 2012, the Company entered into an Investment Agreement, a Technology and Service Agreement, a Patent and Technology License Agreement and an Asset Purchase Agreement with VerifyMe, and on the same date entered into a Technology and Service Agreement with Zaah Technologies, Inc. (collectively with the VerifyMe agreements, the “Agreements”). Contemplated by those Agreements were warrants issuances by the Company for the purchase 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 September 30, 2014 and December 31, 2013, the fair value of the warrant liability was $2,516,231 and $3,700,000.

On January 1, 2014, the Company issued warrants to purchase 6,349,206 shares of the Company’s common stock as consideration for technology received from VerifyMe under to the Patent and Technology License Agreement dated December 31, 2012. The warrants are exercisable at $0.10 per share. The warrants are subject to anti-dilution adjustments outlined in the Agreement. In accordance with FASB ASC 815, the warrants were classified as a liability with an initial fair value of $444,000, which was immediately expensed as research and development costs. 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 September 30, 2014, the fair value of the warrant liability was $302,690.

The Company made the payment of warrants to VerifyMe on a good faith basis, based on the assumption that the technology conveyed to the Company would be patentable and licensable.  The Company has not reached a conclusion that the technology will be patentable and licensable, and can provide no assurance to this effect.

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Should the Company ultimately conclude that the technology received from VerifyMe is patentable and licensable, the Company would be required to make, on January 1, 2015, an additional payment pursuant to Patent and Technology Agreement in the amount of $4,500,000, to be paid by issuing (i) a number of shares of common stock equal to (x) $4,500,000 divided by (y) a price which equals a 10% discount to the market price at the time of issuance and (ii) warrants to purchase an equal number of shares of common stock exercisable at a price of $0.10 per share.  Based upon the current share price of $0.04 per share, this would result in the issuance of approximately an additional 125 million shares of common stock and warrants to purchase an additional 125 million shares. 

NOTE 8 – CONVERTIBLE PREFERRED STOCK

Subscription Agreement

The Company entered into a Subscription Agreement with 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 Series A preferred stock (the “Preferred Stock”) and a warrant to purchase 33,333,333 shares of the Company’s common stock at an exercise price of $0.12 per share, for $1 million.

At any time before January 31, 2015, VerifyMe 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 VerifyMe in exchange for the price originally paid by VerifyMe therefor upon the occurrence of any of the following events:(i) the consummation of any bona fide business acquisition, (ii) the incurrence 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, $800,000 at December 31, 2013 and $400,000 at September 30, 2014. 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, in 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 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 2013. 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 September 30, 2014 and December 31, 2013, the fair value of the warrants was $1,595,967 and $2,300,000, respectively.

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

The conversion price of the shares of Preferred Stock is currently $0.03 per share.

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

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NOTE 9 – 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:

	Level 1		Level 2		Level 3		Total
Derivative liability related to fair value of beneficial conversion feature	$	-	$	400,000	$	--	$	400,000
Derivative liability related to fair value of warrants		-		-		4,582,716		4,582,716
Total	$	-	$	400,000	$	4,582,716	$	4,982,716

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, 2014	$	6,000,000
Additional Warrants issued January 2014		444,000
Additional Warrants issued June 2014		34,222
Additional Warrants issued 3rd Quarter 2014		166,791
Change in fair value of derivative liabilities		(2,062,297	)
Balance at September 30, 2014	$	4,582,716

As of September 30, 2014, 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 traded in an active securities market, therefore the embedded derivative liability was valued using the following market based inputs:

Closing trade price of Common Stock	$	0.05
Series A Preferred Stock Conversion Price	$	0.03
Intrinsic value of conversion option per share	$	0.02

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 nine months ended September 30, 2014.

As of September 30, 2014, the Company’s outstanding warrants were 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:

	Sept 30, 2014
Annual Dividend Yield		0.0%
Expected Life (Years)		3.25 – 4.98
Risk-Free Interest Rate		1.67%
Expected Volatility		205.4% – 240.2%

Expected volatility was based primarily on historical volatility. Historical volatility was computed using daily pricing observations for recent periods. The Company believes 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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NOTE 10 – STOCKHOLDERS’ EQUITY

On January 1, 2014, under the terms of the Patent and Technology License Agreement, the Company issued 6,349,206 shares of common stock to VerifyMe, in addition to the warrants described in Note 7 above.  The shares were issued in payment for the technology received.  Under the agreement, $400,000 worth of the Company’s common stock was to be paid by the Company to VerifyMe at a 10% discount to the market at time of payment.  The closing price was $0.07 per share discounted 10% to $0.063.  The $400,000 payment divided by the $0.063 per share resulted in 6,349,206 shares to be issued.  The entire $400,000 payment was expensed to research and development.

During the second quarter of 2014, $216,249 of principal of the Company’s outstanding senior convertible notes plus accrued interest of $208,339, were converted into 8,448,519 shares of common stock.  The excess of the fair value of the Company’s common stock over the value of the notes payable and accrued interest, $82,000, was recorded as loss on extinguishment of debt in accordance with FASB ASC 470-50.

NOTE 11 – STOCK OPTIONS

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 the 2000 plan and created the 2003 Stock Option Plan (the “2003 Plan”). Under the 2003 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 2003 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 adopted a new omnibus incentive compensation plan (the “2013 Plan”) which will serve as the successor incentive compensation plan to the 2003 Plan, and will provide the Company with an comprehensive plan to design and structure grants of stock options, stock units, stock awards, stock appreciation rights and other stock-based awards for our employees, non-employee directors and certain consultants and advisors. Our Board of Directors believes that the availability of (i) 20,000,000 new shares of our common stock, plus (ii) the 74,004 shares of our common stock available for issuance under the 2003 Plan, will be sufficient to meet the objective.

As of September 30, 2014, there are 24,425,996 options that have been issued, and 13,574,004 options that are available to be issued under the Plan.

The 2013 Plan is administered by a committee of the Board (“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 with non-employees.  Options granted under the agreements are expensed when the related service or product is provided.

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Determining the appropriate fair value of stock-based awards requires the input of subjective assumptions.  The Company uses the Black-Scholes option pricing model to value its stock option awards.  The assumptions used in calculating the fair value represent management’s best estimates and involve inherent uncertainties and judgments.

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 $0.05 per share, with a term of ten years. The options vest as follows: 250,000 immediately, 250,000 on the first anniversary of the grant date and 500,000 on the second anniversary of the grant date. 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 the 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 three and nine months ended September 30, 2014 was $6,300 and $20,200, respectively. The total expense for the three and nine months ended September 30, 2013 was $12,599 and $59,367, respectively.

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 $0.05 per share, with a term of ten years. The options vest as follows: 200,000 on the first anniversary of the grant date, 200,000 on the second anniversary of the grant date and 100,000 on the third anniversary of the grant date. 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 total expense recognized for the three months ended March 31, 2013 was $5,000.  The employee was dismissed and 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 $0.05 per share, with a term of ten years, to a member of the Board. The options vested 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. There was no expense recognized for the three months ended September 30, 2014.  The total expense recognized for the nine months ended September 30, 2014 was $43,394. The total expense for the three and nine months ended September 30, 2013 was $55,447 and $341,122, respectively.

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 $0.05 per share, with a term of ten years, to a member of the Board. 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 three and nine months ended September 30, 2014 was $0 and $78,137.  The total expense for the three and nine months ended September 30, 2013 was $55,447 and $341,122.

Effective October 8, 2012, the Company entered into a three year agreement with the Vice Chairman of the Board of the Company, with an annual compensation of $200,000 per year. In addition, upon execution of the agreement the Company 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. The Company raised the $2.5 million in funding and on June 25, 2013, the Company issued the Vice Chairman 19 million 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, which 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 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 million 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, which was expensed immediately.

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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 $0.15 per share, 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 after the grant date.  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 three and nine months ended September 30, 2014 was $18,903 and $56,093, respectively. No expense was recognized for the three and nine months ended September 30, 2013.

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 $0.15 per share, 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 three and nine months ended September 30, 2014 was $15,123 and $44,875, respectively.

On March 28, 2014, the Company issued options to purchase an aggregate of 6,000,000 shares of the Company’s common stock at an exercise price of $0.05 per share, with a term of ten years, to a member of the Board of Directors.  The fair value of options issued was $599,893 of which all was expensed immediately.  These options 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 229%, risk-free interest rate of 2.73% and expected option life of ten years.

On February 7, 2014, options to purchase 6,000,000 shares of the Company’s common stock were exercised on a cashless basis.   Based on a stock price of $0.07 per share and an exercise price of $0.05 per share, the option exercise resulted in the issuance of 1,714,285 shares of common stock to the holder.

On February 25, 2014, options to purchase 6,000,000 shares of the Company’s common stock were exercised by the Company’s Chief Executive Officer on a cashless basis.   Based on a stock price of $0.06 per share and an exercise price of $0.05 per share, the option exercise resulted in the issuance of 1,000,000 shares of common stock to the holder.

The following tables summarize non-employee stock option/warrant activity of the Company since December 31, 2013:

	Option/Warrant Shares			Exercise Price		Weighted Average Exercise Price
Outstanding, December 31, 2013		111,516,665			0.01 to 0.20		0.09
Granted
Exercised		6,349,209			0.10		0.01
Expired		(700,000	)		.07 - .20		-
Outstanding, September 30, 2014		117,165,874			$0.01 to $.20	$	0.10
Exercisable,September 30, 2014		117,165,874			$0.01 to $.20	$	0.10
Weighted Average Remaining Life, Exercisable, September 30, 2014 (years)		6.0

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A summary of incentive stock option transactions for employees since December 31, 2013 is as follows:

						Weighted Average
	Option/Warrant			Exercise		Exercise
	Shares			Price		Price
Outstanding, December 31, 2013		59,866,667			.05 to .15		0.05
Granted		6,000,000			0.05		0.01
Exercised		(12,000,000	)		0.05		0.01
Expired/Returned		-			-		-
Outstanding, September 30, 2014		53,866,667			$0.05 to $0.15	$	0.05
Exercisable, September 30, 2014		51,366,667			$0.05 to $0.15	$	0.06
Weighted Average Remaining Life, Exercisable, Sepemeber 30, 2014 (years)		8.6

NOTE 12 - OPERATING LEASES

For the three and nine months ended September 30, 2014, total rent expense under leases amounted to $24,459 and $59,952.  For the three and nine months ended September 30, 2013, total rent expense under leases amounted to $17,532 and $35,876.  At September 30, 2014, the Company was obligated under various non-cancelable operating lease arrangements for property as follows:

2014	$	18,234
2015		74,637
2016		31,605
	$	124,476

NOTE 13 – RELATED PARTY TRANSACTIONS

At September 30, 2014, three stockholders of the Company held $164,000 in principal of the Company’s senior secured convertible notes payable, and were owed accrued interest of $128,752 related to such notes.

NOTE 14 – 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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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

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 including 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 the licensing of our technology or through direct sales of our technology to end-users.

We have five issued patents and have submitted three additional patent applications relating to our technology. 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 research, we believe that the ink technologies may be incorporated into existing manufacturing processes.

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 negatively, 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.

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, 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 Three Months Ended September 30, 2014 and 2013

The following discussion analyzes our results of operations for the three months ended September 30, 2014 and 2013. The following information should be considered together with our consolidated financial statements for such period and the accompanying notes thereto.

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Net Revenue/Net Loss

We have not generated significant revenue since our inception.  For the three months ended September 30, 2014 and 2013, we generated sales of $53,260.  For the three months ended September 30, 2014, we showed net loss of $1,713,915 as compared to a gain of $8,210,193 for the three months ended September 30, 2013.  These changes are primarily as a result of the change resulting from valuation adjustment of warrant liability and embedded derivative liability associated with the Investment Agreement entered into on December 31, 2012 and the Subscription Agreement entered into on January 31, 2013.

Cost of Sales

Cost of sales for the three months ended September 30, 2014 was $50,160, there was no revenue or cost of sales for the three months ended September 30, 2013.

General and Administrative Expenses

General and administrative expenses decreased $148,512 to $83,779 for the three months ended September 30, 2014 from $232,291 for the three months ended September 30, 2013.  The Company is attempting to reduce general and administrative expenses while generating revenue in order to develop profitability.  The large reduction is mainly due to the high level of general and administrative costs incurred in the third quarter of 2013 as the Company was initially opening the Washington DC office.

Legal and Accounting

Legal and accounting fees decreased $54,175 to $56,012 for the three months ended September 30, 2014 from $110,187 for the three months ended September 30, 2013.   The decrease in legal and accounting fees between the periods was primarily due to the use of an outside accounting firm during 2013, in addition to legal fees incurred in 2013 related to the development of contracts for potential long-term revenue agreements, guidance in protection of patents, and document review in relation to the Company’s fundraising efforts.

Payroll Expenses

Payroll expenses were $410,421 for the three months ended September 30, 2014, an increase of $65,882 from $344,539 for the three months ended September 30, 2013.  The increase is primarily related to the additional employees hired as a result of staffing the Washington DC office.

Research and Development

Research and development expenses were $13,601 and $158,030, respectively, for the three months ended September 30, 2014 and 2013, a decrease of $144,429.  The Company continued its fund raising and limited spending for the 2014 quarter.  The 2013 expense includes a charge for the technology service agreement entered into on December 31, 2012 and the allocation of resources to the research and development effort in 2013.

Sales and Marketing

Sales and marketing expenses for the three months ended September 30, 2014 were $45,256 as compared to $78,225 for the three months ended September 30, 2013, a decrease of $32,969.  The Company has reduced expenditures such as sales related travel and certain advertising programs that it has concluded were not generating revenue.

Interest Expense

During the three months ended September 30, 2014, the Company incurred interest expense of $83,662 as compared to $42,700 for the three months ended September 30, 2013, an increase of $40,962. The increase in interest expense was a result of an increase in debt related to the requirement for additional financing since June of 2014.

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Change in Fair Value of Warrants

During the three months ended September 30, 2014, the Company incurred an unrealized loss of on the market value of warrants of $824,283 as compared to a gain of $9,676,165 for the three months ended September 30, 2013.  The change resulted from the 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 values of the warrants have decreased because the stock price has fallen and the difference between the warrant exercise price and the stock price has decreased.

Comparison of the Nine Months Ended September 30, 2014 and 2013

The following discussion analyzes our results of operations for the nine months ended September 30, 2014 and 2013. The following information should be considered together with our consolidated financial statements for such period and the accompanying notes thereto.

Net Revenue/Net Loss

For the nine months ended September 30, 2014 and 2013, we generated $118,408 and $3,140 in net revenues, respectively.  We had a net loss of $1,491,779 for the nine months ended September 30, 2014 as compared to a net loss of $19,456,004 for the nine months ended September 30, 2013.  The reduction in loss is primarily as a result of decreases in expenses resulting from 2013 share based compensation and favorable adjustments in the valuation of warrant liability and embedded derivative liability associated with the Investment Agreement entered into on December 31, 2012 and the Subscription Agreement entered into on January 31, 2013 as described below.

Cost of Sales

For the nine months ended September 30, 2014 and 2013, we incurred proprietary technology costs of sales of $104,600 and $2,710.  The increase in cost of sales is a result of costs related to the production of pigments used in the generation of revenue.

General and Administrative Expenses

General and administrative expenses decreased $111,938 to $389,361 for the nine months ended September 30, 2014 from $501,299 for the nine months ended September 30, 2013.  The Company is attempting to reduce general and administrative expenses while generating revenue in order to develop profitability.  The reduction is mainly due to the high level of general and administrative costs incurred in the third quarter of 2013 as the Company was initially opening the Washington DC office.

Legal and Accounting

Legal and accounting fees increased $88,234 to $366,509 for the nine months ended September 30, 2014 from $278,275 for the nine months ended September 30, 2013.   The increase in legal and accounting fees was primarily related to the development of contracts for potential long-term revenue agreements, guidance in protection of patents, and document review in relation to the Company’s fundraising efforts.  This activity has slowed in the current quarter and the Company is working to continue to reduce this cost.

Payroll Expenses

Payroll expenses were $1,912,279 for the nine months ended September 30, 2014, a decrease of $7,173,057 from $9,085,336 for the nine months ended September 30, 2013.  The decrease related primarily to the 2013 stock-based compensation of the Vice Chairman and President and Chief Executive Officer related to their employment agreements in June 2013, which were valued at $7,534,000.

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Research and Development

Research and development expenses were $889,450 and $470,005, respectively, for the nine months ended September 30, 2014 and 2013, an increase of $419,445.  The increase in research and development expenses was due primarily to warrants and shares of stock issued in the quarter ended March 31, 2014 related to the Patent and Technology License Agreement entered into on December 31, 2012.

Sales and Marketing

Sales and marketing expenses for the nine months ended September 30, 2014 were $170,587 as compared to $182,726 for the nine months ended September 30, 2013, a decrease of $12,139.   The Company has reduced expenditures such as sales related travel and certain advertising programs that it has concluded were not generating revenue.

Interest Expense

During the nine months ended September 30, 2014, the Company incurred interest expense of $107,691 as compared to $116,918 for the nine months ended September 30, 2013, a decrease of $9,227. The decrease in interest expense was a result of the conversion and settlement of various notes payable in previous years and quarters offset by the increase in interest expense as a result of an increase in debt related to the requirement for additional financing since June of 2014.

 Loss on Extinguishment of Debt

The loss from extinguishment of debt was $1,221,875 for the nine months ended September 30, 2013, compared to $82,000 for the nine months ended September 30, 2014.  The decrease in loss on extinguishment of debt was a result of the excess fair value of the common stock issued over the value of the notes payable, and accrued interest thereon, that were retired in the three months ended June 30, 2013.

Change in Fair Value of Warrants

During the nine months ended September 30, 2013, the Company incurred an unrealized loss on the market value of warrants of $3,104,209 as compared to a gain of $2,012,289 for the nine months ended September 30, 2014.  The change resulted from the 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 values of the warrants decreased because the stock price has fallen and the difference between the warrant exercise price and the stock price has decreased.

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

During the nine months ended September 30, 2013, the Company incurred an unrealized loss on the market value of warrants that were issued in excess of consideration for convertible preferred stock of $2,995,791 as compared to $0 for the nine months ended September 30, 2014.  The loss resulted from the valuation of warrants associated with the Subscription Agreement entered into on January 31, 2013.

Liquidity and Capital Resources

As of September 30, 2014, we had cash on hand of $3,606.

Net cash used in operating activities for the nine months ended September 30, 2014 decreased to $1,932,367 from $2,008,642 for the nine months ended September 30, 2013, a decrease of $76,275. The decrease in net cash used in operating activities was primarily as a result of decrease in cash used on prepaid expenses and increases in accounts payable, offset by cash used in operations and the production of inventory.

Net cash used in investing activities, consisting of equipment purchases and patent costs, was $32,527 for the nine months ended September 30, 2013 and $0 for the nine months ended September 30, 2014.  The company has not undertaken additional patent activity during 2014.  The company is attempting to delay purchases of equipment until cash flow improves.

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Net cash provided by financing activities was $650,000 and $1,262,919, respectively, for the nine months ended September 30, 2014 and 2013.  The net cash provided by financing activities for the nine months ended September 30, 2013 relates to $1 million from the sale of the Company’s preferred stock and a warrant, and $262,919 in proceeds received from the issuance of common stock and exercise of stock options.  The $650,000 of cash provided by financing activities during the nine months ended September 30, 2014 related to short-term bridge loans from investors.

During the nine months ended September 30, 2014 and 2013, the Company’s operational resources were used primarily to fund general and administrative expenses, hire employees and expand the continuing sales and marketing program. 

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.  

On June 5, 2014, we entered into an exclusive agreement with Merriman Capital, Inc. to raise up to $5 million in additional capital.

Also, on July 31, 2014, we announced that we signed a 10-year, $7 million contract with a Mexican gaming company to license our VerifyMe™ Identity Services.   It is expected that activity will begin in the fourth quarter of 2014 and that 1/10 of the revenue will be generated annually.

Since our inception, we have focused on developing and implementing our business plan.  Our business plan is 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 a 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 our products.  

Our existing cash resources will not be sufficient to sustain our operations during the next twelve months, and we may need to raise additional funds. We intend to raise such financing through private placements and/or the sale of debt and equity securities.  The issuance of additional equity could result in dilution to our existing stockholders.  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 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, our ability 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, 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.

Off-Balance Sheet Arrangements

As of September 30, 2014, we do not have any off-balance sheet arrangements.

Critical Accounting Policies

Our financial statements are impacted by the accounting policies used and the estimates and assumptions made by management during their preparation. 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.

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Stock-based Compensation

We account for stock-based compensation under the provisions of FASB ASC Topic 718,  Compensation—Stock Compensation, 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.

Revenue Recognition

In accordance with 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) collectability 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.

License fee revenue is recognized on a straight-line basis over the term of the license agreement.

Recently Issued Accounting Pronouncements

Recently issued accounting pronouncements are discussed in Note 1 of the notes to consolidated financial statements contained in this report.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not Applicable.

ITEM 4. CONTROLS AND PROCEDURES.

As of September 30, 2014, our management carried out the evaluation of the effectiveness of our disclosure controls and procedures required by Rule 13a-15(e) under the Exchange Act with the participation of our Chief Executive Officer and Chief Financial Officer.  Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2014, our disclosure controls and procedures were effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is: (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

There has been no change in our internal control over financial reporting identified in connection with this evaluation that occurred during our fiscal quarter ended September 30, 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.

None.

ITEM 1A.  RISK FACTORS.

There have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2013.

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

On September 8, 2014, the Company issued notes payable for $150,000 to accredited investors, which included warrants to purchase 900,000 shares of the Company’s common stock at an exercise price of $0.05 per share. The warrant expires in five years and may be exercised on a cashless basis. The warrants were valued at $62,544 using the Black-Scholes option-pricing model. See Note 6 of the consolidated financial statements for more information about the value of the warrants. The note payable and the associated warrants were issued pursuant to the private offering exemption from federal securities registration provided under Section 4(a)(2) of the Securities Act.

On August 14, 2014, the Company issued a note payable for $100,000 to an accredited investor, which included warrants to purchase 600,000 shares of the Company’s common stock at an exercise price of $0.05 per share. The warrant expires in five years and may be exercised on a cashless basis. The warrants were valued at 47,654 using the Black-Scholes option-pricing model. See Note 6 of the consolidated financial statements for more information about the value of the warrants. The note payable and the associated warrants were issued pursuant to the private offering exemption from federal securities registration provided under Section 4(a)(2) of the Securities Act.

On August 12, 2014, the Company issued a note payable for $50,000 to an accredited investor, which included warrants to purchase 300,000 shares of the Company’s common stock at an exercise price of $0.05 per share. The warrant expires in five years and may be exercised on a cashless basis. The warrants were valued at $26,817 using the Black-Scholes option-pricing model. See Note 6 of the consolidated financial statements for more information about the value of the warrants. The note payable and the associated warrants were issued pursuant to the private offering exemption from federal securities registration provided under Section 4(a)(2) of the Securities Act.

On August 5, 2014, the Company issued notes payable for $100,000 to accredited investors, which included warrants to purchase 600,000 shares of the Company’s common stock at an exercise price of $0.05 per share. The warrant expires in five years and may be exercised on a cashless basis. The warrants were valued at $26,725 using the Black-Scholes option-pricing model. See Note 6 of the consolidated financial statements for more information about the value of the warrants. The note payable and the associated warrants were issued pursuant to the private offering exemption from federal securities registration provided under Section 4(a)(2) of the Securities Act.

On June 10, 2014, the Company issued a note payable for $250,000 to an accredited investor, which included warrants to purchase 1,000,000 shares of the Company’s common stock at an exercise price of $0.10 per share. The warrant expires in five years and may be exercised on a cashless basis. The warrants were valued at $39,650 using the Black-Scholes option-pricing model. See Note 6 of the consolidated financial statements for more information about the value of the warrants. The note payable and the associated warrants were issued pursuant to the private offering exemption from federal securities registration provided under Section 4(a)(2) of the Securities Act.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

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ITEM 5. OTHER INFORMATION.

None.

ITEM 6.  EXHIBITS

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 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).

3.5 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).

31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.*

31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.*

32.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the United States Code.*

32.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the United States Code.*

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 Document*

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document*

*Included herewith.

-26-

SIGNATURE

Pursuant to the requirements 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.

Date: November 19, 2014	By:	/s/ Neil Alpert
		Neil Alpert
		Chief Executive Officer

-27-

EXHIBIT INDEX

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 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).

3.5 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).

31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.*

31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.*

32.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the United States Code.*

32.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the United States Code.*

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 Document*

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document*

*Included herewith.

-28-

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 Quarterly Report on Form 10-Q 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:  November 19, 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 Weisberger, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q 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:  November 19, 2014	By:	/s/ Edward Weisberger
		Edward 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

AS ADOPTED PURSUANT TO SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of LaserLock Technologies Inc. (the “Company”) for the period ended September 30, 2014, 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 as of September 30, 2014 and for the period then ended.

Date:  November 19, 2014	/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

AS ADOPTED PURSUANT TO SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of LaserLock Technologies Inc. (the “Company”) for the period ended September 30, 2014, as filed with the Securities and Exchange Commission (the “Report”), I, Edward 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 as of September 30, 2014 and for the period then ended.

Date:  November 19, 2014	/s/ Edward Weisberger
	Edward Weisberger
	Chief Financial Officer

XML

FAIR VALUE OF FINANCIAL INSTRUMENTS - Estimated fair value of embedded derivative liability using Black-Scholes (Details 2) (USD $)	Sep. 30, 2014
Fair Value Disclosures [Abstract]
Closing trade price of Common Stock	$ 0.05
Series A Preferred Stock Conversion Price	$ 0.03
Intrinsic value of conversion option per share	$ 0.02

XML

OPERATING LEASES (Detail Textuals) (General and administrative expense, USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
General and administrative expense
Schedule Of Operating Lease [Line Items]
Total rent expense under leases	$ 24,459	$ 17,532	$ 59,952	$ 35,876

XML

STOCK OPTIONS (Detail Textuals 2) (Stock options, USD $)	0 Months Ended	1 Months Ended
	Feb. 07, 2014	Feb. 25, 2014 Chief Executive Officer
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock option exercised share (in shares)	6,000,000	6,000,000
Closing price of share	$ 0.07	$ 0.06
Exercise price	$ 0.05	$ 0.05
Number of stock issued	1,714,285	1,000,000

XML

SENIOR SECURED CONVERTIBLE NOTES PAYABLE (Detail Textuals 1) (Senior Secured Convertible Notes Payable)	9 Months Ended
	Sep. 30, 2014
Senior Secured Convertible Notes Payable
Debt Instrument [Line Items]
Debt instrument conditional covenants amount	If an equity financing with total proceeds of more than $5,000,000 occurs while any of these 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 of common stock at a discount of 30% of the price per share in the qualified financing.
Percentage of discount on price per share	30.00%

XML

STOCK OPTIONS (Tables)

9 Months Ended

Sep. 30, 2014

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

Schedule of non-employee stock option/warrant activity

	Option/Warrant Shares			Exercise Price		Weighted Average Exercise Price
Outstanding, December 31, 2013		111,516,665			0.01 to 0.20		0.09
Granted
Exercised		6,349,209			0.10		0.01
Expired		(700,000	)		.07 - .20		-
Outstanding, September 30, 2014		117,165,874			$0.01 to $.20	$	0.10
Exercisable,September 30, 2014		117,165,874			$0.01 to $.20	$	0.10
Weighted Average Remaining Life, Exercisable, September 30, 2014 (years)		6.0

Schedule of incentive stock option transactions for employees

						Weighted Average
	Option/Warrant			Exercise		Exercise
	Shares			Price		Price
Outstanding, December 31, 2013		59,866,667			.05 to .15		0.05
Granted		6,000,000			0.05		0.01
Exercised		(12,000,000	)		0.05		0.01
Expired/Returned		-			-		-
Outstanding, September 30, 2014		53,866,667			$0.05 to $0.15	$	0.05
Exercisable, September 30, 2014		51,366,667			$0.05 to $0.15	$	0.06
Weighted Average Remaining Life, Exercisable, Sepemeber 30, 2014 (years)		8.6

XML

STOCK OPTIONS - Non-Employee Stock Option/Warrant Activity (Details) (Stock Options and Warrants, USD $)	9 Months Ended
	Sep. 30, 2014
Option/Warrant Shares
Outstanding, December 31, 2013	111,516,665
Granted
Exercised	6,349,209
Expired/Returned	(700,000)
Outstanding, September 30, 2014	117,165,874
Exercisable, September 30, 2014	117,165,874
Weighted Average Remaining Life, Exercisable, June 30, 2014 (years)	6 years
Exercise Price
Granted
Exercised	$ 0.10
Weighted Average Exercise Price
Outstanding, December 31, 2013	$ 0.09
Granted
Exercised	$ 0.01
Expired/Returned
Outstanding, September 30, 2014	$ 0.10
Exercisable, September 30, 2014	$ 0.1
Minimum
Exercise Price
Outstanding, December 31, 2013	$ 0.01
Expired/Returned	$ 0.07
Outstanding, September 30, 2014	$ 0.01
Exercisable, September 30, 2014	$ 0.01
Maximum
Exercise Price
Outstanding, December 31, 2013	$ 0.20
Expired/Returned	$ 0.20
Outstanding, September 30, 2014	$ 0.20
Exercisable, September 30, 2014	$ 0.20

XML

FAIR VALUE OF FINANCIAL INSTRUMENTS - Liabilities measured at fair value on recurring basis (Details) (Fair value on a recurring basis, USD $)	Sep. 30, 2014
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	400,000
Derivative liability related to fair value of warrants
Total	400,000
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	4,582,716
Total	4,582,716
Total
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Derivative liability related to fair value of beneficial conversion feature	400,000
Derivative liability related to fair value of warrants	4,582,716
Total	$ 4,982,716

XML

OPERATING LEASES (Details) (USD $)	Sep. 30, 2014
Leases, Operating [Abstract]
2014	$ 18,234
2015	74,637
2016	31,605
Total	$ 124,476

XML

MANAGEMENT PLANS

9 Months Ended

Sep. 30, 2014

Management Plans [Abstract]

MANAGEMENT PLANS

NOTE 2 – MANAGEMENT PLANS

The accompanying consolidated 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. 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 stockholders. 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.

On June 5, 2014, the Company entered into an exclusive agreement with Merriman Capital, Inc. to raise up to $5 million in additional capital for the Company (the “Capital Raise”). VerifyMe, Inc. (“VerifyMe”), the holder of a majority of the Company’s Series A Preferred Stock and warrants to purchase common stock, in connection with the Subscription Agreement, dated January 31, 2012, and as a holder of Preferred Stock, on May 23, VerifyMe waived its rights under such agreement as they relate to parameters of the raise based on the Company’s revised budget.

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.

XML

STOCK OPTIONS - Incentive Stock Option Transactions (Details 1) (Incentive stock options, USD $)	9 Months Ended
	Sep. 30, 2014	Sep. 30, 2014 Minimum	Jan. 01, 2014 Minimum	Sep. 30, 2014 Maximum	Jan. 01, 2014 Maximum
Option/Warrant Shares
Outstanding, December 31, 2013	59,866,667
Granted	6,000,000
Exercised	(12,000,000)
Expired/Returned
Outstanding, September 30, 2014	53,866,667
Exercisable, September 30, 2014	51,366,667
Weighted Average Remaining Life, Exercisable, September 30, 2014 (years)	8 years 7 months 6 days
Exercise Price
Outstanding, December 31, 2013		$ 0.05	$ 0.05	$ 0.15	$ 0.15
Granted	$ 0.05
Exercised	$ 0.05
Expired/Returned
Outstanding, September 30, 2014		$ 0.05	$ 0.05	$ 0.15	$ 0.15
Exercisable, September 30, 2014		$ 0.05		$ 0.15
Weighted Average Exercise Price
Outstanding, December 31, 2013	$ 0.05
Granted	$ 0.01
Exercised	$ 0.01
Expired/Returned
Outstanding, September 30, 2014	$ 0.05
Exercisable, September 30, 2014	$ 0.06

XML

MANAGEMENT PLANS (Detail Textuals) (Exclusive Agreement, USD $) In Millions, unless otherwise specified	Jun. 05, 2014
Exclusive Agreement
Management Plans [Line Items]
Threshold limit for additional borrowing	$ 5

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Detail Textuals) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014 Segment Institution	Sep. 30, 2013
Schedule Of Significant Accounting Policies [Line Items]
Number of financial institutions at which company's cash and cash equivalents are held			2
Depreciation method of property and equipment			straight-line method
Estimated useful lives property and equipment			five to seven years
Depreciation on property and equipment	$ 17,313	$ 17,313	$ 51,940	$ 51,525
Number of operating segment			1
Sales and marketing expenses
Schedule Of Significant Accounting Policies [Line Items]
Advertising costs	$ 9,000	$ 23,615	$ 62,238	$ 29,371
Patents and Trademark
Schedule Of Significant Accounting Policies [Line Items]
Number of patents issued			5
Number of provisional patents filed			3
Amortization method of patents			straight-line basis
Patents and Trademark | Minimum
Schedule Of Significant Accounting Policies [Line Items]
Estimated lives of patents			17 years
Patents and Trademark | Maximum
Schedule Of Significant Accounting Policies [Line Items]
Estimated lives of patents			20 years

XML

STOCK OPTIONS (Detail Textuals)			9 Months Ended
	Dec. 31, 2000 Stock option 2000 plan Stock options	Dec. 31, 2013 Stock option 2003 plan Common Stock	Sep. 30, 2014 Stock option 2003 plan Stock options	Dec. 17, 2003 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			24,425,996
Number of options available to be issued		74,004	13,574,004

XML

PATENTS AND TRADEMARK (Detail Textuals) (Patents and Trademark, USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014 Patent	Sep. 30, 2013
Finite-Lived Intangible Assets [Line Items]
Number of patents issued			5
Number of provisional patents filed			3
Amortization method of patents			straight-line basis
Capitalized patent costs	$ 0	$ 0	$ 0	$ 21,594
Amortization expense	3,277	3,277	9,831	9,814
Future estimated annual amortization in December 31, 2014	13,100		13,100
Future estimated annual amortization in December 31, 2015	13,100		13,100
Future estimated annual amortization in December 31, 2016	13,100		13,100
Future estimated annual amortization in December 31, 2017	13,100		13,100
Future estimated annual amortization in December 31, 2018	$ 13,100		$ 13,100
Minimum
Finite-Lived Intangible Assets [Line Items]
Estimated lives of patents			17 years
Maximum
Finite-Lived Intangible Assets [Line Items]
Estimated lives of patents			20 years

XML

INCOME TAXES (Detail Textuals) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Income Tax Disclosure [Abstract]
Income Tax Expense (Benefit)

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Sep. 30, 2014

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of the Business

LaserLock Technologies Inc., together with its wholly-owned subsidiary, LL Security Products, Inc., is referred to as the “Company.” LaserLock Technologies Inc. was incorporated in the State of Nevada on November 10, 1999.  The Company is based in Washington, D.C. and its common stock is traded on the OTCQB under the ticker symbol “LLTI”.  A high-tech solutions company in the field of authenticating people and products, LaserLock offers state-of-the-art solutions to combat identity fraud and counterfeiting utilizing multi-factor authentication and a suite of security pigments for governments, health care providers, the gaming industry, the financial services industry and high-end retailers.

The Company invests in developing new proprietary color shifting inks that it believes will allow it to penetrate broader markets and result in increased revenues. The Company refines its technologies and their applications, and now has what it believes to be one of the most cost effective and efficient authentication technologies available. Its 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 drivers 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 Company’s digital solution is a multi-platform (iOS and Android) strong authentication solution that integrates biometrics and geo-location tagging. The solution completely eliminates passwords and the inherently weak security they provide. The solution also removes the user complexity associated with having to manage many complex passwords. The solution can be delivered either as a high availability cloud service, managed by the Company, or as licensed software product for operation on the client’s premises.

The solution integrates three independent authentication factors – something you have (for instance a smartphone), something you know (for instance a color gesture swipe) and something you are (for instance your facial geometry) - into a simple, fast, intuitive solution. The system can also accurately determine the precise location of the individual using a variety of mechanisms including GPS, cell tower triangulation, IP or WIFI address. Because the solution incorporates 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 an end-user to refute having been part of a transaction.

The Company’s activities are subject to significant risks and uncertainties, including the need to secure additional funding to operationalize the Company’s current technology.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions for Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The accompanying unaudited consolidated financial statements should be read in conjunction with the financial statements and notes included in the Company’s Annual Report on form 10-K for the year ended December 31, 2013 as filed with the SEC. Operating results for the three and nine months ended September 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014.

Principle of Consolidation

The accompanying condensed 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 U.S. GAAP 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 (“FASB”) Accounting Standards Codification (“ASC”) 220 in reporting comprehensive income.  Comprehensive income is a more inclusive financial reporting methodology that involves 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, embedded derivative, warrant liability 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. Depreciation of property and equipment was $17,313 and $51,940 for the three and nine months ended September 30, 2014 and $17,313 and $51,525 for the three and nine months ended September 30, 2013.

Patents and Trademark

The Company has five issued patents, filed for three provisional 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 that were determined to be 17 to 20 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 is 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.

Derivative Instruments

The Company evaluates its convertible debt, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with Topic 480 of the FASB ASC and Topic 815 of the FASB Accounting Standards Codification. The result of this accounting treatment is that the fair value of the embedded derivative, if required to be bifurcated, is marked-to-market at each balance sheet date and recorded as a liability. The change in fair value is recorded in the Statement of Operations as a component of other income or expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity.

In circumstances where the embedded conversion option in a convertible instrument is required to be bifurcated and there are also other embedded derivative instruments in the convertible instrument that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument. 

The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Equity instruments that are initially classified as equity that become subject to reclassification are reclassified to liability at the fair value of the instrument on the reclassification date. Derivative instrument liabilities will be classified in the balance sheet as current or non-current based on whether net-cash settlement of the derivative instrument is expected within 12 months of the balance sheet date.

Revenue Recognition

In accordance with SEC Staff Accounting Bulletin 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.

License fee revenue is recognized on a straight-line basis over the term of the license agreement.

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.

Stock-based Payments

The Company accounts for stock-based compensation under the provisions of ASC 718,  Compensation—Stock Compensation, 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 $9,000 and $62,238 for the three and nine months ended September 30, 2014 and $23,615 and $29,371 for the three and nine months ended September 30, 2013, 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.

Basic and Diluted Net Income per Share of Common Stock

The Company follows FASB ASC 260 when reporting Earnings Per Share resulting in the presentation of basic and diluted earnings per share. Since the Company reported a net loss for the three and nine months ended September 30, 2014 and the nine months ended September 30, 2013, common stock equivalents, including stock options and warrants were anti-dilutive; therefore, the amounts reported for basic and dilutive loss per share during those periods were the same.

Basic net income per common share is based on the weighted average number of shares outstanding during the periods presented.  Diluted net income per common share is computed using weighted average number of common shares plus dilutive common share equivalents outstanding during the period. Potential common shares that would have the effect of increasing diluted earnings per share are considered to be anti-dilutive, i.e., the exercise prices of the outstanding stock options were greater than the market price of the common stock.

The numerator for both basic and diluted earnings per share is net income. The denominator for basic earnings per share is the weighted average number of common shares outstanding during the period. The dilutive effect of outstanding convertible debt, stock options and warrants is reflected in the denominator for diluted earnings per share using the treasury stock method.

The following is a reconciliation of basic shares to diluted shares:

	Three months
	Ended
	September 30,
	2013
Weighted-average shares - basic		247,476,627
Effect of dilutive securities		217,777,053
Weighted-average shares - diluted		465,253,680

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 FASB ASC 280 can be found in the consolidated financial statements.

Recently Adopted Accounting Pronouncements

In June 2014, the FASB issued Accounting Standards Update No. 2014-10, Development State Entities (Topic 915), Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation.  The amendments in this update remove the definition of a development stage entity from the Master Glossary of the Accounting Standard Codification, thereby removing the financial reporting distinction that previously required development stage entities to (1) present inception-to-date information in the statements of income, cash flow, and stockholder equity, (2) label the financial statements as those of a development stage entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage.

The amendments also clarify that the guidance in Topic 275, Risks and Uncertainties, is applicable to entities that have not commenced planned principle operations.

The amendments related to the elimination of inception-to-date information and the other remaining disclosure requirements of Topic 915 should be applied retrospectively except for the clarification to Topic 275, which must be applied prospectively.  For public business entities, those amendments are effective for annual reporting periods beginning after December 15, 2014, and interim periods therein.

For public business entities, the amendment eliminating the exception to the sufficiency-of-equity-at-risk criterion for development stage entities in paragraph 810-10-15-16 should be applied retrospectively for annual reporting periods beginning after December 15, 2015, and interim periods therein.

Early application of each of the amendments is permitted for any annual reporting period or interim period for which the entity’s financial statements have not yet been issued (public business entities) or made available for issuance (other entities).  Upon adoption entities will no longer present or disclose any information required by Topic 915.

The Company adopted the amendment retrospectively for the interim period ending June 30, 2014.

Recently Issued Accounting Pronouncements Not Yet Adopted

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40), Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The amendments in this Update provide guidance about management’s responsibility to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued and to provide related footnote disclosures. Substantial doubt about an entity’s ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued. The amendments in this Update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted.

Reclassifications

Certain amounts in the 2013 statement of operations have been classified in order for them to conform with the 2014 presentation.

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SENIOR SECURED CONVERTIBLE NOTES PAYABLE (Detail Textuals) (USD $)	9 Months Ended		3 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Jun. 30, 2014 Senior Secured Convertible Notes Payable	Sep. 30, 2014 Senior Secured Convertible Notes Payable
Debt Instrument [Line Items]
Amount of notes converted into common stock shares			$ 216,249
Accrued interest of notes converted into common stock shares			208,339
Common stock shares issued on conversion of debt (in shares)			8,448,519
Loss on extinguishment of debt	(82,000)	(1,221,875)	82,000
Outstanding principal balance on notes				114,000
Accrued interest				$ 109,085

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FAIR VALUE OF FINANCIAL INSTRUMENTS - Estimated fair value of warrants using Black-Scholes (Details 3) (Warrants treated as Derivative Liabilities)	9 Months Ended
	Sep. 30, 2014
Fair Value Inputs Quantitative Information [Line Items]
Annual Dividend Yield	0.00%
Risk-Free Interest Rate	1.67%
Minimum
Fair Value Inputs Quantitative Information [Line Items]
Expected Life (Years)	3 years 3 months
Expected Volatility	205.40%
Maximum
Fair Value Inputs Quantitative Information [Line Items]
Expected Life (Years)	4 years 11 months 23 days
Expected Volatility	240.20%

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Condensed Consolidated Balance Sheets (USD $)	Sep. 30, 2014	Dec. 31, 2013
CURRENT ASSETS
Cash and cash equivalents	$ 3,606	$ 1,285,973
Accounts receivable, net of allowance of $0 at September 30, 2014 and December 31, 2013	76,669	3,573
Inventory	84,284	34,271
Prepaid expenses	181,578	189,474
TOTAL CURRENT ASSETS	346,137	1,513,291
PROPERTY AND EQUIPMENT
Capital equipment, net of accumulated depreciation of $143,892 and $91,952 as of September 30, 2014 and December 31, 2013	92,134	144,074
OTHER ASSETS
Deposits	37,197	37,197
Patents and trademarks, net of accumulated amortization of $115,225 and $105,393 as of September 30, 2014 and December 31, 2013	110,864	120,695
TOTAL ASSETS	586,332	1,815,257
CURRENT LIABILITIES
Accounts payable and accrued expenses	465,645	316,784
Accrued interest - related party	29,215	16,668
Embedded derivative liability	400,000	800,000
Notes payable - net of accumulated discount of $72,610 as of September 30, 2014	627,390	50,000
TOTAL CURRENT LIABILITIES	1,522,250	1,183,452
LONG-TERM LIABILITIES
Warrant liability	4,582,716	6,000,000
Accrued interest - related parties	109,085	300,677
Senior secured convertible notes payable - related parties	114,000	330,249
TOTAL LONG-TERM LIABILITIES	4,805,801	6,630,926
STOCKHOLDERS' DEFICIT
Preferred Stock, $ .001 par value; 75,000,000 shares authorized; 33,333,333 designated Serie's A Preferred Stock, 21,111,111 shares of Serie's A Preferred Stock issued and outstanding as of September 30, 2014 and December 31, 2013	633,333	633,333
Common stock, $ .001 par value; 675,000,000 shares authorized; 337,374,052 shares issued and 307,578,149 outstanding at September 30, 2014 and 319,862,042 shares issued and 290,066,139 outstanding at December 31, 2013	337,374	319,862
Additional paid in capital	24,670,652	22,938,983
Treasury stock, at cost (29,795,903 shares at September 30, 2014 and December 31, 2013)	(113,389)	(113,389)
Accumulated deficit	(31,269,690)	(29,777,910)
STOCKHOLDERS' DEFICIT	(5,741,720)	(5,999,121)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$ 586,332	$ 1,815,257

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STOCK OPTIONS (Detail Textuals 1) (USD $)	9 Months Ended		3 Months Ended		9 Months Ended					3 Months Ended	9 Months Ended				3 Months Ended	9 Months Ended				3 Months Ended		9 Months Ended					3 Months Ended	9 Months Ended						3 Months Ended	9 Months Ended		1 Months Ended	0 Months Ended	1 Months Ended				0 Months Ended
	Sep. 30, 2013	Sep. 30, 2014 Stock options	Sep. 30, 2014 Stock options January 22, 2013 Employee	Sep. 30, 2013 Stock options January 22, 2013 Employee	Sep. 30, 2014 Stock options January 22, 2013 Employee	Sep. 30, 2013 Stock options January 22, 2013 Employee	Sep. 30, 2014 Stock options January 22, 2013 Employee Options Vests Immediately	Sep. 30, 2014 Stock options January 22, 2013 Employee Option Vests One Year	Sep. 30, 2014 Stock options January 22, 2013 Employee Options Vested Year Two	Mar. 31, 2013 Stock options February 25, 2013 Employee	Sep. 30, 2014 Stock options February 25, 2013 Employee	Sep. 30, 2014 Stock options February 25, 2013 Employee Option Vests One Year	Sep. 30, 2014 Stock options February 25, 2013 Employee Options Vested Year Two	Sep. 30, 2014 Stock options February 25, 2013 Employee Options Vested Year Three	Mar. 31, 2013 Stock options March 13, 2013 Director	Sep. 30, 2014 Stock options March 13, 2013 Director	Sep. 30, 2013 Stock options March 13, 2013 Director	Sep. 30, 2014 Stock options March 13, 2013 Director Options Vests Immediately	Sep. 30, 2014 Stock options March 13, 2013 Director Vested on March 13, 2014	Sep. 30, 2014 Stock options May 4, 2013 Director	Sep. 30, 2013 Stock options May 4, 2013 Director	Sep. 30, 2014 Stock options May 4, 2013 Director	Sep. 30, 2013 Stock options May 4, 2013 Director	Sep. 30, 2014 Stock options May 4, 2013 Director Options Vests Immediately	Sep. 30, 2014 Stock options May 4, 2013 Director Vested after the first year	Sep. 30, 2014 Stock options September 30, 2013 Option Vests One Year	Sep. 30, 2014 Stock options September 30, 2013 Chief Operating Officer	Sep. 30, 2014 Stock options September 30, 2013 Chief Operating Officer	Sep. 30, 2014 Stock options September 30, 2013 Chief Operating Officer Vested at the end of 24 months	Sep. 30, 2014 Stock options September 30, 2013 Chief Operating Officer Minimum	Sep. 30, 2014 Stock options September 30, 2013 Chief Operating Officer Maximum	Sep. 30, 2014 Stock options December 2, 2013 Option Vests One Year	Sep. 30, 2014 Stock options December 2, 2013 Vested at the end of 24 months	Sep. 30, 2014 Stock options December 2, 2013 Chief Financial Officer	Sep. 30, 2014 Stock options December 2, 2013 Chief Financial Officer	Sep. 30, 2014 Stock options March 28, 2014 Director	Oct. 31, 2012 Three year agreement Vice Chairman of the Board	Oct. 31, 2012 Three year agreement President and Chief Executive Officer	Jun. 25, 2013 Three year agreement Common Stock Vice Chairman of the Board	Jun. 25, 2013 Three year agreement Stock options Common Stock Vice Chairman of the Board	Oct. 31, 2012 Three year agreement Stock options Common Stock Vice Chairman of the Board	Jun. 25, 2013 Three year agreement Stock options Common Stock President and Chief Executive Officer	Oct. 31, 2012 Three year agreement Stock options Common Stock President and Chief Executive Officer
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of option issued					1,000,000						500,000					2,000,000						2,000,000						1,000,000							1,000,000	6,000,000					19,000,000		19,000,000
Exercisable common stock share price					$ 0.05						$ 0.05					$ 0.05						$ 0.05						$ 0.15							$ 0.15	$ 0.05					$ 0.05		$ 0.05
Term for options					10 years						10 years					10 years						10 years						10 years							10 years	10 years
Fair value of options issued					$ 99,972						$ 89,998					$ 439,963						$ 460,000						$ 99,840							$ 79,994
Fair value of option issued expensed immediately					25,000											219,982						230,000														599,893					3,767,700		3,767,700
Number of options vested							250,000	250,000	500,000			200,000	200,000	100,000
Percentage of option vested																		50.00%	50.00%					50.00%	50.00%	50.00%			50.00%			50.00%	50.00%
Expected volatility					222.00%						259.00%					235.00%						235.00%								268.40%	272.80%				266.10%	229.00%					146.10%		146.10%
Risk-free interest rate					1.90%						1.90%					2.00%						1.78%						1.39%							2.64%	2.73%					2.60%		2.60%
Expected option life (in years)					10 years						10 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 mode						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
Allocated share-based compensation expense			6,300	12,599	20,200	59,367				5,000					55,447	43,394	341,122			0	55,447	78,137	341,122				18,903	56,093						15,123	44,875
Stock based compensation reversed upon cancellation of stock options											5,000
Exercise price, description		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.
Share based compensation																																					200,000	200,000
Percentage of number of options to purchase common stock																																									5.00%		5.00%
Amount received in funding	235,000																																									2,500,000
Amount raised in funding																																							$ 2,500,000	$ 2,500,000

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Condensed Consolidated Statement of Changes in Stockholders' Deficit (USD $)	Convertible Preferred Stock	Common Stock	Additional Paid-In Capital	Treasury Stock	Accumulated Deficit	Total
Balance at Jan. 01, 2014	$ 633,333	$ 319,862	$ 22,938,984	$ (113,389)	$ (29,777,910)	$ (5,999,120)
Balance (in shares) at Jan. 01, 2014	21,111,111	290,066,139
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of shares of common stock for services		6,349	393,651			400,000
Issuance of shares of common stock for services (in shares)		6,349,206
Cashless exercise of options		2,714	(2,714)
Cashless exercise of options (in shares)		2,714,285
Fair value of employee stock options			842,592			842,592
Fair value of employee stock options (in shares)
Issuance of common stock for settlement of debt		8,449	498,139			506,588
Issuance of common stock for settlement of debt (in shares)		8,448,519
Net loss					(1,491,780)	(1,491,780)
Balance at Sep. 30, 2014	$ 633,333	$ 337,374	$ 24,670,652	$ (113,389)	$ (31,269,690)	$ (5,741,720)
Balance (in shares) at Sep. 30, 2014	21,111,111	307,578,149

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WARRANT LIABILITY (Detail Textuals) (USD $)								1 Months Ended	9 Months Ended
	Sep. 30, 2014	Dec. 31, 2013	Sep. 30, 2014 Verify Me Warrants issued on January 1, 2014	Jan. 01, 2014 Verify Me Warrants issued on January 1, 2014	Sep. 30, 2014 Agreements Zaah Technologies	Dec. 31, 2013 Agreements Zaah Technologies	Dec. 31, 2012 Agreements Zaah Technologies	Jan. 01, 2014 Agreements Verify Me Research and Development Expense	Sep. 30, 2014 Patent And Technology Agreement	Sep. 30, 2014 Patent And Technology Agreement Verify Me
Major Agreements [Line Items]
Warrant liability	$ 4,582,716	$ 6,000,000					$ 2,400,000
Fair value of warrant liability			302,690		2,516,231	3,700,000
Number of warrants issued				6,349,206
Exercise price (in dollars per share)				$ 0.10					$ 0.10
Initial fair value of warrant expensed as research and development cost								444,000
Additional payment for patent and technology									$ 4,500,000
Discount to market price at time of issuance									10.00%
Current share price (in dollars per share)	$ 0.05								$ 0.04
Additional shares issued for patent and technology agreement (in shares)									125,000,000	6,349,206
Number of common stock shares purchased under warrants (in shares)									125,000,000

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Sep. 30, 2014

Accounting Policies [Abstract]

Principle of Consolidation

Principle of Consolidation

The accompanying condensed 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 U.S. GAAP 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 (“FASB”) Accounting Standards Codification (“ASC”) 220 in reporting comprehensive income.  Comprehensive income is a more inclusive financial reporting methodology that involves 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, embedded derivative, warrant liability 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. Depreciation of property and equipment was $17,313 and $51,940 for the three and nine months ended September 30, 2014 and $17,313 and $51,525 for the three and nine months ended September 30, 2013.

Patents and Trademark

Patents and Trademark

The Company has five issued patents, filed for three provisional 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 that were determined to be 17 to 20 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 is 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.

Derivative Instruments

Derivative Instruments

The Company evaluates its convertible debt, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with Topic 480 of the FASB ASC and Topic 815 of the FASB Accounting Standards Codification. The result of this accounting treatment is that the fair value of the embedded derivative, if required to be bifurcated, is marked-to-market at each balance sheet date and recorded as a liability. The change in fair value is recorded in the Statement of Operations as a component of other income or expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity.

In circumstances where the embedded conversion option in a convertible instrument is required to be bifurcated and there are also other embedded derivative instruments in the convertible instrument that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument. 

The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Equity instruments that are initially classified as equity that become subject to reclassification are reclassified to liability at the fair value of the instrument on the reclassification date. Derivative instrument liabilities will be classified in the balance sheet as current or non-current based on whether net-cash settlement of the derivative instrument is expected within 12 months of the balance sheet date.

Revenue Recognition

Revenue Recognition

In accordance with SEC Staff Accounting Bulletin 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.

License fee revenue is recognized on a straight-line basis over the term of the license agreement.

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.

Stock-based Payments

Stock-based Payments

The Company accounts for stock-based compensation under the provisions of ASC 718,  Compensation—Stock Compensation, 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 $9,000 and $62,238 for the three and nine months ended September 30, 2014 and $23,615 and $29,371 for the three and nine months ended September 30, 2013, 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.

Basic and Diluted Net Income per Share of Common Stock

Basic and Diluted Net Income per Share of Common Stock

The Company follows FASB ASC 260 when reporting Earnings Per Share resulting in the presentation of basic and diluted earnings per share. Since the Company reported a net loss for the three and nine months ended September 30, 2014 and the nine months ended September 30, 2013, common stock equivalents, including stock options and warrants were anti-dilutive; therefore, the amounts reported for basic and dilutive loss per share during those periods were the same.

Basic net income per common share is based on the weighted average number of shares outstanding during the periods presented.  Diluted net income per common share is computed using weighted average number of common shares plus dilutive common share equivalents outstanding during the period. Potential common shares that would have the effect of increasing diluted earnings per share are considered to be anti-dilutive, i.e., the exercise prices of the outstanding stock options were greater than the market price of the common stock.

The numerator for both basic and diluted earnings per share is net income. The denominator for basic earnings per share is the weighted average number of common shares outstanding during the period. The dilutive effect of outstanding convertible debt, stock options and warrants is reflected in the denominator for diluted earnings per share using the treasury stock method.

The following is a reconciliation of basic shares to diluted shares:

	Three months
	Ended
	September 30,
	2013
Weighted-average shares - basic		247,476,627
Effect of dilutive securities		217,777,053
Weighted-average shares - diluted		465,253,680

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 FASB ASC 280 can be found in the consolidated financial statements.

Recently Adopted Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In June 2014, the FASB issued Accounting Standards Update No. 2014-10, Development State Entities (Topic 915), Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation.  The amendments in this update remove the definition of a development stage entity from the Master Glossary of the Accounting Standard Codification, thereby removing the financial reporting distinction that previously required development stage entities to (1) present inception-to-date information in the statements of income, cash flow, and stockholder equity, (2) label the financial statements as those of a development stage entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage.

The amendments also clarify that the guidance in Topic 275, Risks and Uncertainties, is applicable to entities that have not commenced planned principle operations.

The amendments related to the elimination of inception-to-date information and the other remaining disclosure requirements of Topic 915 should be applied retrospectively except for the clarification to Topic 275, which must be applied prospectively.  For public business entities, those amendments are effective for annual reporting periods beginning after December 15, 2014, and interim periods therein.

For public business entities, the amendment eliminating the exception to the sufficiency-of-equity-at-risk criterion for development stage entities in paragraph 810-10-15-16 should be applied retrospectively for annual reporting periods beginning after December 15, 2015, and interim periods therein.

Early application of each of the amendments is permitted for any annual reporting period or interim period for which the entity’s financial statements have not yet been issued (public business entities) or made available for issuance (other entities).  Upon adoption entities will no longer present or disclose any information required by Topic 915.

The Company adopted the amendment retrospectively for the interim period ending June 30, 2014.

Recently Issued Accounting Pronouncements Not Yet Adopted

Recently Issued Accounting Pronouncements Not Yet Adopted

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40), Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The amendments in this Update provide guidance about management’s responsibility to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued and to provide related footnote disclosures. Substantial doubt about an entity’s ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued. The amendments in this Update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted.

Reclassification

Reclassifications

Certain amounts in the 2013 statement of operations have been classified in order for them to conform with the 2014 presentation.

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CONVERTIBLE PREFERRED STOCK (Detail Textuals) (USD $)	9 Months Ended	12 Months Ended	1 Months Ended		9 Months Ended	12 Months Ended		1 Months Ended
	Sep. 30, 2014	Dec. 31, 2013	Jan. 31, 2013 Subscription Agreement	Jan. 31, 2013 Subscription Agreement Verify Me	Sep. 30, 2014 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 incurrence 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	400,000	800,000
Fair value of warrants	1,595,967	2,300,000	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

XML

FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables)

9 Months Ended

Sep. 30, 2014

Fair Value Disclosures [Abstract]

Schedule of liabilities measured at fair value on a recurring basis

	Level 1		Level 2		Level 3		Total
Derivative liability related to fair value of beneficial conversion feature	$	-	$	400,000	$	--	$	400,000
Derivative liability related to fair value of warrants		-		-		4,582,716		4,582,716
Total	$	-	$	400,000	$	4,582,716	$	4,982,716

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

	Total
Balance at January 1, 2014	$	6,000,000
Additional Warrants issued January 2014		444,000
Additional Warrants issued June 2014		34,222
Additional Warrants issued 3rd Quarter 2014		166,791
Change in fair value of derivative liabilities		(2,062,297	)
Balance at September 30, 2014	$	4,582,716

Schedule of embedded derivative liability valuation assumptions

Closing trade price of Common Stock	$	0.05
Series A Preferred Stock Conversion Price	$	0.03
Intrinsic value of conversion option per share	$	0.02

Schedule of common stock purchase warrants valuation assumptions

	Sept 30, 2014
Annual Dividend Yield		0.0%
Expected Life (Years)		3.25 – 4.98
Risk-Free Interest Rate		1.67%
Expected Volatility		205.4% – 240.2%

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Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $)	9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$ (1,491,780)	$ (18,456,004)
Adjustments to reconcile net loss to net cash used in operating activities
Fair value of options issued in exchange for services	842,592	8,427,202
Accretion of discount on notes payable		3,718
Change in fair value warrant liability	(2,012,289)	3,104,209
Change in fair value embedded derivative liability	(400,000)	500,000
Fair value of warrants in excess of consideration for convertible preferred stock		2,995,791
Fair value of stock in excess of converted notes payable and accrued interest	82,000	1,221,875
Amortization and depreciation	61,771	61,339
Stock & warrants issued in exchange for technology	844,000
(Increase) decrease in assets
Accounts receivable	(22,936)
Inventory	(100,173)	(19,454)
Prepaid expenses	7,896	420,395
Deposit		(37,197)
Increase (decrease) in liabilities
Accounts payable and accrued expenses	256,551	(230,516)
Net cash used in operating activities	(1,932,368)	(2,008,642)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment		(10,573)
Purchase of patents and trademarks		(21,954)
Net cash used in investing activities		(32,527)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of preferred stock		1,000,000
Proceeds from issuance of common stock		235,000
Proceeds from exercise of stock options		17,919
Proceeds from exercise of warrants		10,000
Proceeds from issuance of notes payable	650,000
Net cash provided by financing activities	650,000	1,262,919
NET DECREASE IN CASH AND CASH EQUIVALENTS	(1,282,368)	(778,250)
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR	1,285,973	2,994,350
CASH AND CASH EQUIVALENTS - END OF PERIOD	3,606	2,216,100
Cash paid during the year for:
Interest		13,895
Income taxes
Fair value of stock issued for conversion of notes payable and accrued interest	506,588	668,125
Fair value of stock issued for conversion of preferred stock to common stock		366,667
Accretion of discount on preferred stock as deemed dividend distribution		1,000,000
Fair value of beneficial conversion feature		1,500,000
Fair value of warrants issued as debt discount	$ 151,005

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Condensed Consolidated Balance Sheets (Parentheticals) (USD $)	Sep. 30, 2014	Dec. 31, 2013
Allowance for accounts receivable (in dollars)	$ 0	$ 0
Accumulated depreciation on capital equipment (in dollars)	143,892	91,952
Accumulated amortization, patent and trademarks (in dollars)	115,225	105,393
Accumulated discount, notes payable (in dollars)	$ 72,610
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, shares authorized	75,000,000	75,000,000
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	337,374,052	319,862,042
Common stock, shares outstanding	307,578,149	290,066,139
Treasury stock, shares	29,795,903	29,795,903
Series A Preferred Stock
Preferred stock, designated shares	33,333,333	33,333,333
Preferred stock, shares issued	21,111,111	21,111,111
Preferred stock, shares outstanding	21,111,111	21,111,111

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STOCKHOLDERS' EQUITY

9 Months Ended

Sep. 30, 2014

Stockholders' Equity Note [Abstract]

STOCKHOLDERS' EQUITY

NOTE 10 – STOCKHOLDERS’ EQUITY

On January 1, 2014, under the terms of the Patent and Technology License Agreement, the Company issued 6,349,206 shares of common stock to VerifyMe, in addition to the warrants described in Note 7 above.  The shares were issued in payment for the technology received.  Under the agreement, $400,000 worth of the Company’s common stock was to be paid by the Company to VerifyMe at a 10% discount to the market at time of payment.  The closing price was $0.07 per share discounted 10% to $0.063.  The $400,000 payment divided by the $0.063 per share resulted in 6,349,206 shares to be issued.  The entire $400,000 payment was expensed to research and development.

During the second quarter of 2014, $216,249 of principal of the Company’s outstanding senior convertible notes plus accrued interest of $208,339, were converted into 8,448,519 shares of common stock.  The excess of the fair value of the Company’s common stock over the value of the notes payable and accrued interest, $82,000, was recorded as loss on extinguishment of debt in accordance with FASB ASC 470-50.

XML

Document and Entity Information	9 Months Ended
	Sep. 30, 2014	Oct. 28, 2014
Document and Entity Information [Abstract]
Entity Registrant Name	LASERLOCK TECHNOLOGIES INC
Entity Central Index Key	0001104038
Trading Symbol	llti
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		307,778,149
Document Type	10-Q
Document Period End Date	Sep. 30, 2014
Amendment Flag	false
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q3

XML

STOCK OPTIONS

9 Months Ended

Sep. 30, 2014

Equity [Abstract]

STOCK OPTIONS

NOTE 11 – STOCK OPTIONS

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 the 2000 plan and created the 2003 Stock Option Plan (the “2003 Plan”). Under the 2003 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 2003 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 adopted a new omnibus incentive compensation plan (the “2013 Plan”) which will serve as the successor incentive compensation plan to the 2003 Plan, and will provide the Company with an comprehensive plan to design and structure grants of stock options, stock units, stock awards, stock appreciation rights and other stock-based awards for our employees, non-employee directors and certain consultants and advisors. Our Board of Directors believes that the availability of (i) 20,000,000 new shares of our common stock, plus (ii) the 74,004 shares of our common stock available for issuance under the 2003 Plan, will be sufficient to meet the objective.

As of September 30, 2014, there are 24,425,996 options that have been issued, and 13,574,004 options that are available to be issued under the Plan.

The 2013 Plan is administered by a committee of the Board (“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 with non-employees.  Options granted under the agreements are expensed when the related service or product is provided.

Determining the appropriate fair value of stock-based awards requires the input of subjective assumptions.  The Company uses the Black-Scholes option pricing model to value its stock option awards.  The assumptions used in calculating the fair value represent management’s best estimates and involve inherent uncertainties and judgments.

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 $0.05 per share, with a term of ten years. The options vest as follows: 250,000 immediately, 250,000 on the first anniversary of the grant date and 500,000 on the second anniversary of the grant date. 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 the 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 three and nine months ended September 30, 2014 was $6,300 and $20,200, respectively. The total expense for the three and nine months ended September 30, 2013 was $12,599 and $59,367, respectively.

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 $0.05 per share, with a term of ten years. The options vest as follows: 200,000 on the first anniversary of the grant date, 200,000 on the second anniversary of the grant date and 100,000 on the third anniversary of the grant date. 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 total expense recognized for the three months ended March 31, 2013 was $5,000.  The employee was dismissed and 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 $0.05 per share, with a term of ten years, to a member of the Board. The options vested 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. There was no expense recognized for the three months ended September 30, 2014.  The total expense recognized for the nine months ended September 30, 2014 was $43,394. The total expense for the three and nine months ended September 30, 2013 was $55,447 and $341,122, respectively.

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 $0.05 per share, with a term of ten years, to a member of the Board. 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 three and nine months ended September 30, 2014 was $0 and $78,137.  The total expense for the three and nine months ended September 30, 2013 was $55,447 and $341,122.

Effective October 8, 2012, the Company entered into a three year agreement with the Vice Chairman of the Board of the Company, with an annual compensation of $200,000 per year. In addition, upon execution of the agreement the Company 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. The Company raised the $2.5 million in funding and on June 25, 2013, the Company issued the Vice Chairman 19 million 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, which 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 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 million 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, which was expensed immediately.

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 $0.15 per share, 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 after the grant date.  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 three and nine months ended September 30, 2014 was $18,903 and $56,093, respectively. No expense was recognized for the three and nine months ended September 30, 2013.

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 $0.15 per share, 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 three and nine months ended September 30, 2014 was $15,123 and $44,875, respectively.

On March 28, 2014, the Company issued options to purchase an aggregate of 6,000,000 shares of the Company’s common stock at an exercise price of $0.05 per share, with a term of ten years, to a member of the Board of Directors.  The fair value of options issued was $599,893 of which all was expensed immediately.  These options 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 229%, risk-free interest rate of 2.73% and expected option life of ten years.

On February 7, 2014, options to purchase 6,000,000 shares of the Company’s common stock were exercised on a cashless basis.   Based on a stock price of $0.07 per share and an exercise price of $0.05 per share, the option exercise resulted in the issuance of 1,714,285 shares of common stock to the holder.

On February 25, 2014, options to purchase 6,000,000 shares of the Company’s common stock were exercised by the Company’s Chief Executive Officer on a cashless basis.   Based on a stock price of $0.06 per share and an exercise price of $0.05 per share, the option exercise resulted in the issuance of 1,000,000 shares of common stock to the holder.

The following tables summarize non-employee stock option/warrant activity of the Company since December 31, 2013:

	Option/Warrant Shares			Exercise Price		Weighted Average Exercise Price
Outstanding, December 31, 2013		111,516,665			0.01 to 0.20		0.09
Granted
Exercised		6,349,209			0.10		0.01
Expired		(700,000	)		.07 - .20		-
Outstanding, September 30, 2014		117,165,874			$0.01 to $.20	$	0.10
Exercisable,September 30, 2014		117,165,874			$0.01 to $.20	$	0.10
Weighted Average Remaining Life, Exercisable, September 30, 2014 (years)		6.0

A summary of incentive stock option transactions for employees since December 31, 2013 is as follows:

						Weighted Average
	Option/Warrant			Exercise		Exercise
	Shares			Price		Price
Outstanding, December 31, 2013		59,866,667			.05 to .15		0.05
Granted		6,000,000			0.05		0.01
Exercised		(12,000,000	)		0.05		0.01
Expired/Returned		-			-		-
Outstanding, September 30, 2014		53,866,667			$0.05 to $0.15	$	0.05
Exercisable, September 30, 2014		51,366,667			$0.05 to $0.15	$	0.06
Weighted Average Remaining Life, Exercisable, Sepemeber 30, 2014 (years)		8.6

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Condensed Consolidated Statements of Operations (Unaudited) (USD $)	3 Months Ended				9 Months Ended
	Sep. 30, 2014		Sep. 30, 2013		Sep. 30, 2014		Sep. 30, 2013
NET REVENUES
Sales	$ 53,260				$ 118,408		$ 3,140
Royalties
TOTAL NET REVENUE	53,260				118,408		3,140
COST OF SALES	50,160				104,600		2,710
GROSS PROFIT	3,100				13,808		430
OPERATING EXPENSES
General and administrative	83,779		232,291		389,361		501,299
Legal and accounting	56,012		110,187		366,509		278,275
Payroll expenses	410,421	[1]	344,539	[1]	1,912,279	[1]	9,085,336	[1]
Research and development	13,601	[2]	158,030	[2]	889,450	[2]	470,005	[2]
Sales and marketing	45,256		78,225		170,587		182,726
Total operating expenses	609,069		923,272		3,728,186		10,517,641
LOSS BEFORE OTHER INCOME (EXPENSE)	(605,969)		(923,272)		(3,714,378)		(10,517,211)
OTHER INCOME (EXPENSE)
Interest expense	(83,663)		(42,700)		(107,691)		(116,918)
Loss on extinguishment of debt					(82,000)		(1,221,875)
Change in fair value of warrants	(824,283)		9,676,165		2,012,289		(3,104,209)
Change in fair value of embedded derivative liability	(200,000)		(500,000)		400,000		(500,000)
Fair value of warrants in excess of consideration for convertible preferred stock							(2,995,791)
TOTAL OTHER INCOME (EXPENSE)	(1,107,946)		9,133,465		2,222,598		(7,938,793)
NET INCOME (LOSS) BEFORE INCOME TAX BENEFIT	(1,713,915)		8,210,193		(1,491,780)		(18,456,004)
INCOME TAX BENEFIT
NET INCOME (LOSS)	(1,713,915)		8,210,193		(1,491,780)		(18,456,004)
Less: Deemed dividend distribution							(1,000,000)
NET INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS	$ (1,713,915)		$ 8,210,193		$ (1,491,780)		$ (19,456,004)
NET INCOME (LOSS) PER COMMON SHARE
BASIC (in dollars per share)	$ (0.01)		$ 0.03		$ 0.00		$ (0.08)
DILUTED (in dollars per share)	$ (0.01)		$ 0.02		$ 0.00		$ (0.08)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
BASIC (in shares)	307,578,149		247,476,627		302,559,881		145,144,603
DILUTED (in shares)	307,578,149		465,253,680		302,559,881		145,144,603

[1] includes share based compensation of $40,326 and $842,592 for the three and nine months ended September 30, 2014 and $154,975 and $8,427,202 for the three and nine months ended September 30, 2013

[2] includes share based compensation of $400,000 for the nine months ended September 30, 2014 related to the Patent & Technology services agreement

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SENIOR SECURED CONVERTIBLE NOTES PAYABLE -RELATED PARTIES

9 Months Ended

Sep. 30, 2014

Senior Secured Convertible Notes Payable [Abstract]

SENIOR SECURED CONVERTIBLE NOTES PAYABLE -RELATED PARTIES

NOTE 5 - SENIOR SECURED CONVERTIBLE NOTES PAYABLE –RELATED PARTIES

During the second quarter of 2014, $216,249 of principal of the Company’s outstanding senior convertible notes held by a significant shareholder of the Company, plus accrued interest of $208,339, were converted into 8,448,519 shares of common stock.  The excess of the fair value of the Company’s common stock over the value of the notes payable and accrued interest, $82,000, was recorded as loss on extinguishment of debt in accordance with FASB ASC 470-50.

As of September 30, 2014, the outstanding principal balance on these notes was $114,000.  Accrued interest at September 30, 2014 amounted to $109,085.

If an equity financing with total proceeds of more than $5,000,000 occurs while any of these 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 of common stock 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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INCOME TAXES

9 Months Ended

Sep. 30, 2014

Income Tax Disclosure [Abstract]

INCOME TAXES

NOTE 4 – INCOME TAXES

Income tax expense was $0 for the three and nine months ended September 30, 2014 and 2013.

As of January 1, 2014, the Company had no unrecognized tax benefits, and accordingly, the Company did not recognize interest or penalties during 2014 related to unrecognized tax benefits.  There has been no change in unrecognized tax benefits during the nine months ended September 30, 2014, and there was no accrual for uncertain tax positions as of September 30, 2014.  Tax years from 2010 through 2013 remain subject to examination by major tax jurisdictions.

The Company had income for the three and nine months ended September 30, 2014; however, due to tax adjustments, the Company had a net loss for tax purposes.  There is no income tax benefit for the three and nine months ended September 30, 2014 and 2013 since management has determined that the realization of the net tax deferred asset is not assured and has created a valuation allowance for the entire amount of such benefits.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

9 Months Ended

Sep. 30, 2014

Accounting Policies [Abstract]

Schedule of basic and diluted net income per share of common stock

	Three months
	Ended
	September 30,
	2013
Weighted-average shares - basic		247,476,627
Effect of dilutive securities		217,777,053
Weighted-average shares - diluted		465,253,680

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OPERATING LEASES

9 Months Ended

Sep. 30, 2014

Leases, Operating [Abstract]

OPERATING LEASES

NOTE 12 - OPERATING LEASES

For the three and nine months ended September 30, 2014, total rent expense under leases amounted to $24,459 and $59,952.  For the three and nine months ended September 30, 2013, total rent expense under leases amounted to $17,532 and $35,876.  At September 30, 2014, the Company was obligated under various non-cancelable operating lease arrangements for property as follows:

2014	$	18,234
2015		74,637
2016		31,605
	$	124,476

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CONVERTIBLE PREFERRED STOCK

9 Months Ended

Sep. 30, 2014

Features of Convertible Preferred Stock [Abstract]

CONVERTIBLE PREFERRED STOCK

NOTE 8 – CONVERTIBLE PREFERRED STOCK

Subscription Agreement

The Company entered into a Subscription Agreement with 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 Series A preferred stock (the “Preferred Stock”) and a warrant to purchase 33,333,333 shares of the Company’s common stock at an exercise price of $0.12 per share, for $1 million.

At any time before January 31, 2015, VerifyMe 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 VerifyMe in exchange for the price originally paid by VerifyMe therefor upon the occurrence of any of the following events:(i) the consummation of any bona fide business acquisition, (ii) the incurrence 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, $800,000 at December 31, 2013 and $400,000 at September 30, 2014. 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, in 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 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 2013. 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 September 30, 2014 and December 31, 2013, the fair value of the warrants was $1,595,967 and $2,300,000, respectively.

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

The conversion price of the shares of Preferred Stock is currently $0.03 per share.

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

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NOTES PAYABLE

9 Months Ended

Sep. 30, 2014

Debt Disclosure [Abstract]

NOTES PAYABLE

NOTE 6 - NOTES PAYABLE

On September 8, 2014, the Company issued notes payable for $150,000, which included fully vested warrants to purchase 900,000 shares of the Company’s common stock at an exercise price of $0.05 per share, expiring in five years.  The warrants were valued at $62,544 using 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 233.8%, risk free interest rate of 1.67% and expected life of 5 years.  The relative fair value of the warrants was $44,140 and was recorded as a discount to the notes payable in accordance with FASB ASC 835-30-25, Recognition and is being accreted over the term of the note payable for financial statement purposes.  For the three and nine months ended September 30, 2014, $11,700 was accreted through interest expense.  The note and accrued interest at 8% per annum are due in full on December 1, 2014.  The warrants are subject to anti-dilutive adjustments and are therefore classified as a liability in accordance with FASB ASC 815.  The warrant liability is re-valued at each reporting period with the change in fair value recorded through earnings.  As of September 30, 2014, the fair value of the warrant liability was $44,566 and the note payable balance was $117,560, net of $32,440 discount.

On August 14, 2014, the Company issued notes payable for $100,000, which included fully vested warrants to purchase 600,000 shares of the Company’s common stock at an exercise price of $0.05 per share, expiring in five years.  The warrants were valued at $47,676 using 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 233.8%, risk free interest rate of 1.67% and expected life of 5 years.  The relative fair value of the warrants was $32,274 and was recorded as a discount to the notes payable in accordance with FASB ASC 835-30-25, Recognition and is being accreted over the term of the note payable for financial statement purposes.  For the three and nine months ended September 30, 2014, $14,045 was accreted through interest expense.  The note and accrued interest at 8% per annum are due in full on December 1, 2014.  The warrants are subject to anti-dilutive adjustments and are therefore classified as a liability in accordance with FASB ASC 815.  The warrant liability is re-valued at each reporting period with the change in fair value recorded through earnings.  As of September 30, 2014, the fair value of the warrant liability was $29,697 and the note payable balance was $81,771, net of $18,229 discount.

On August 12, 2014, the Company issued notes payable for $50,000, which included fully vested warrants to purchase 300,000 shares of the Company’s common stock at an exercise price of $0.05 per share, expiring in five years.  The warrants were valued at $26,817 using 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 233.8%, risk free interest rate of 1.67% and expected life of 5 years.  The relative fair value of the warrants was $17,455 and was recorded as a discount to the notes payable in accordance with FASB ASC 835-30-25, Recognition and is being accreted over the term of the note payable for financial statement purposes.  For the three and nine months ended September 30, 2014, $7,775 was accreted through interest expense.  The note and accrued interest at 8% per annum are due in full on December 1, 2014.  The warrants are subject to anti-dilutive adjustments and are therefore classified as a liability in accordance with FASB ASC 815.  The warrant liability is re-valued at each reporting period with the change in fair value recorded through earnings.  As of September 30, 2014, the fair value of the warrant liability was $14,848 and the note payable balance was $40,320, net of $9,680 discount.

On August 5, 2014, the Company issued notes payable for $100,000, which included fully vested warrants to purchase 600,000 shares of the Company’s common stock at an exercise price of $0.05 per share, expiring in five years.  The warrants were valued at $29,725 using 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 233.8%, risk free interest rate of 1.67% and expected life of 5 years.  The relative fair value of the warrants was $22,914 and was recorded as a discount to the notes payable in accordance with FASB ASC 835-30-25, Recognition and is being accreted over the term of the note payable for financial statement purposes.  For the three and nine months ended September 30, 2014, $10,653 was accreted through interest expense.  The note and accrued interest at 8% per annum are due in full on December 1, 2014.  The warrants are subject to anti-dilutive adjustments and are therefore classified as a liability in accordance with FASB ASC 815.  The warrant liability is re-valued at each reporting period with the change in fair value recorded through earnings.  As of September 30, 2014, the fair value of the warrant liability was $29,692 and the note payable balance was $87,739, net of $12,261 discount.

On June 10, 2014, the Company issued a note payable for $250,000, which included fully vested warrants to purchase 1,000,000 shares of the Company’s common stock at an exercise price of $0.10 per share, expiring in five years.  The warrants were valued at $39,650 using 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 248.2%, risk free interest rate of 1.67% and expected life of 5 years.  The relative fair value of the warrants was $34,222 and was recorded as a discount to the notes payable in accordance with FASB ASC 835-30-25, Recognition and is being accreted over the term of the note payable for financial statement purposes.  For the three and nine months ended September 30, 2014, $26,617 and $34,222, respectively, were accreted through interest expense.  The note and accrued interest at 8% per annum as was originally due on September 11, 2014, but the Company received approval to extend the maturity until December 11, 2014.  The warrants are subject to anti-dilutive adjustments and are therefore classified as a liability in accordance with FASB ASC 815.  The warrant liability is re-valued at each reporting period with the change in fair value recorded through earnings.  As of September 30, 2014, the fair value of the warrant liability was $49,026 and the note payable balance was $250,000.

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WARRANT LIABILITY

9 Months Ended

Sep. 30, 2014

Warrants Liability [Abstract]

WARRANT LIABILITY

NOTE 7 – WARRANT LIABILITY

On December 31, 2012, the Company entered into an Investment Agreement, a Technology and Service Agreement, a Patent and Technology License Agreement and an Asset Purchase Agreement with VerifyMe, and on the same date entered into a Technology and Service Agreement with Zaah Technologies, Inc. (collectively with the VerifyMe agreements, the “Agreements”). Contemplated by those Agreements were warrants issuances by the Company for the purchase 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 September 30, 2014 and December 31, 2013, the fair value of the warrant liability was $2,516,231 and $3,700,000.

On January 1, 2014, the Company issued warrants to purchase 6,349,206 shares of the Company’s common stock as consideration for technology received from VerifyMe under to the Patent and Technology License Agreement dated December 31, 2012. The warrants are exercisable at $0.10 per share. The warrants are subject to anti-dilution adjustments outlined in the Agreement. In accordance with FASB ASC 815, the warrants were classified as a liability with an initial fair value of $444,000, which was immediately expensed as research and development costs. 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 September 30, 2014, the fair value of the warrant liability was $302,690.

The Company made the payment of warrants to VerifyMe on a good faith basis, based on the assumption that the technology conveyed to the Company would be patentable and licensable.  The Company has not reached a conclusion that the technology will be patentable and licensable, and can provide no assurance to this effect.

Should the Company ultimately conclude that the technology received from VerifyMe is patentable and licensable, the Company would be required to make, on January 1, 2015, an additional payment pursuant to Patent and Technology Agreement in the amount of $4,500,000, to be paid by issuing (i) a number of shares of common stock equal to (x) $4,500,000 divided by (y) a price which equals a 10% discount to the market price at the time of issuance and (ii) warrants to purchase an equal number of shares of common stock exercisable at a price of $0.10 per share.  Based upon the current share price of $0.04 per share, this would result in the issuance of approximately an additional 125 million shares of common stock and warrants to purchase an additional 125 million shares. 

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FAIR VALUE OF FINANCIAL INSTRUMENTS

9 Months Ended

Sep. 30, 2014

Fair Value Disclosures [Abstract]

FAIR VALUE OF FINANCIAL INSTRUMENTS

NOTE 9 – 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:

	Level 1		Level 2		Level 3		Total
Derivative liability related to fair value of beneficial conversion feature	$	-	$	400,000	$	--	$	400,000
Derivative liability related to fair value of warrants		-		-		4,582,716		4,582,716
Total	$	-	$	400,000	$	4,582,716	$	4,982,716

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, 2014	$	6,000,000
Additional Warrants issued January 2014		444,000
Additional Warrants issued June 2014		34,222
Additional Warrants issued 3rd Quarter 2014		166,791
Change in fair value of derivative liabilities		(2,062,297	)
Balance at September 30, 2014	$	4,582,716

As of September 30, 2014, 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 traded in an active securities market, therefore the embedded derivative liability was valued using the following market based inputs:

Closing trade price of Common Stock	$	0.05
Series A Preferred Stock Conversion Price	$	0.03
Intrinsic value of conversion option per share	$	0.02

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 nine months ended September 30, 2014.

As of September 30, 2014, the Company’s outstanding warrants were 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:

	Sept 30, 2014
Annual Dividend Yield		0.0%
Expected Life (Years)		3.25 – 4.98
Risk-Free Interest Rate		1.67%
Expected Volatility		205.4% – 240.2%

Expected volatility was based primarily on historical volatility. Historical volatility was computed using daily pricing observations for recent periods. The Company believes 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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NOTES PAYABLE (Detail Textuals) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013
Debt Instrument [Line Items]
Proceeds from issuance of notes payable			$ 650,000
Interest expense	83,663	42,700	107,691	116,918
Accumulated discount, notes payable (in dollars)	72,610		72,610
Note payable balance	627,390		627,390		50,000
Warrant | September 8, 2014
Debt Instrument [Line Items]
Fair value of warrant liability	44,566		44,566
Warrant | August 14, 2014
Debt Instrument [Line Items]
Fair value of warrant liability	29,697		29,697
Warrant | August 12, 2014
Debt Instrument [Line Items]
Fair value of warrant liability	14,848		14,848
Warrant | August 5, 2014
Debt Instrument [Line Items]
Fair value of warrant liability	29,692		29,692
Warrant | June 10, 2014
Debt Instrument [Line Items]
Fair value of warrant liability	49,026		49,026
Notes Payable | September 8, 2014
Debt Instrument [Line Items]
Interest expense	11,700		11,700
Interest rate, notes payable	8.00%		8.00%
Accumulated discount, notes payable (in dollars)	32,440		32,440
Note payable balance	117,560		117,560
Notes Payable | August 14, 2014
Debt Instrument [Line Items]
Interest expense	14,045		14,045
Interest rate, notes payable	8.00%		8.00%
Accumulated discount, notes payable (in dollars)	18,229		18,229
Note payable balance	81,771		81,771
Notes Payable | August 12, 2014
Debt Instrument [Line Items]
Interest expense	7,775		7,775
Interest rate, notes payable	8.00%		8.00%
Accumulated discount, notes payable (in dollars)	9,680		9,680
Note payable balance	40,320		40,320
Notes Payable | August 5, 2014
Debt Instrument [Line Items]
Interest expense	10,653		10,653
Interest rate, notes payable	8.00%		8.00%
Accumulated discount, notes payable (in dollars)	12,261		12,261
Note payable balance	87,739		87,739
Notes Payable | June 10, 2014
Debt Instrument [Line Items]
Interest expense	26,617		34,222
Interest rate, notes payable	8.00%		8.00%
Note payable balance	250,000		250,000
Notes Payable | Warrant | September 8, 2014
Debt Instrument [Line Items]
Proceeds from issuance of notes payable			150,000
Number of common stock called by warrants (in shares)	900,000		900,000
Exercise price (in dollars per share)	$ 0.05		$ 0.05
Fair value of warrant liability	62,544		62,544
Expected volatility			233.80%
Risk-free interest rate			1.67%
Expected warrant term			5 years
Accumulated discount, notes payable (in dollars)	44,140		44,140
Notes Payable | Warrant | August 14, 2014
Debt Instrument [Line Items]
Proceeds from issuance of notes payable			100,000
Number of common stock called by warrants (in shares)	600,000		600,000
Exercise price (in dollars per share)	$ 0.05		$ 0.05
Fair value of warrant liability	47,676		47,676
Expected volatility			233.80%
Risk-free interest rate			1.67%
Expected warrant term			5 years
Accumulated discount, notes payable (in dollars)	32,274		32,274
Notes Payable | Warrant | August 12, 2014
Debt Instrument [Line Items]
Proceeds from issuance of notes payable			50,000
Number of common stock called by warrants (in shares)	300,000		300,000
Exercise price (in dollars per share)	$ 0.05		$ 0.05
Fair value of warrant liability	26,817		26,817
Expected volatility			233.80%
Risk-free interest rate			1.67%
Expected warrant term			5 years
Accumulated discount, notes payable (in dollars)	17,455		17,455
Notes Payable | Warrant | August 5, 2014
Debt Instrument [Line Items]
Proceeds from issuance of notes payable			100,000
Number of common stock called by warrants (in shares)	600,000		600,000
Exercise price (in dollars per share)	$ 0.05		$ 0.05
Fair value of warrant liability	29,725		29,725
Expected volatility			233.80%
Risk-free interest rate			1.67%
Expected warrant term			5 years
Accumulated discount, notes payable (in dollars)	22,914		22,914
Notes Payable | Warrant | June 10, 2014
Debt Instrument [Line Items]
Proceeds from issuance of notes payable			250,000
Number of common stock called by warrants (in shares)	1,000,000		1,000,000
Exercise price (in dollars per share)	$ 0.10		$ 0.10
Fair value of warrant liability	39,650		39,650
Expected volatility			248.20%
Risk-free interest rate			1.67%
Expected warrant term			5 years
Accumulated discount, notes payable (in dollars)	34,222		34,222
Series A Notes Payable
Debt Instrument [Line Items]
Notes payable	50,000		50,000
Interest rate, notes payable	8.00%		8.00%
Accrued interest	$ 19,667		$ 19,667

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CONTINGENCIES

9 Months Ended

Sep. 30, 2014

Commitments and Contingencies Disclosure [Abstract]

CONTINGENCIES

NOTE 14 – 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 (Tables)

9 Months Ended

Sep. 30, 2014

Leases, Operating [Abstract]

Schedule of non-cancelable operating lease arrangements for property

2014	$	18,234
2015		74,637
2016		31,605
	$	124,476

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RELATED PARTY TRANSACTIONS (Detail Textuals) (Senior secured convertible notes payable, USD $)	Sep. 30, 2014 Shareholder
Senior secured convertible notes payable
Debt Instrument [Line Items]
Number of shareholders	3
Convertible notes payable	$ 164,000
Amount of accrued interest owed by shareholders	$ 128,752

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STOCKHOLDERS' EQUITY (Detail Textuals) (USD $)	3 Months Ended				9 Months Ended				3 Months Ended	9 Months Ended
	Sep. 30, 2014		Sep. 30, 2013		Sep. 30, 2014		Sep. 30, 2013		Jun. 30, 2014 Senior Secured Convertible Notes Payable	Sep. 30, 2014 Patent And Technology Agreement	Sep. 30, 2014 Patent And Technology Agreement Verify Me
Stockholders Equity Note [Line Items]
Issuance of shares for services (in shares)										125,000,000	6,349,206
Worth of common stock to be paid					$ 400,000						$ 400,000
Percentage of discount											10.00%
Closing price of share											$ 0.07
Closing price of share after discount											$ 0.063
Research and development	13,601	[1]	158,030	[1]	889,450	[1]	470,005	[1]			400,000
Debt Conversion, Converted Instrument, Amount									216,249
Accrued interest of notes converted into common stock shares									208,339
Number of shares issued upon conversion of debt									8,448,519
Gains (Losses) on Extinguishment of Debt					$ (82,000)		$ (1,221,875)		$ 82,000

[1] includes share based compensation of $400,000 for the nine months ended September 30, 2014 related to the Patent & Technology services agreement

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Condensed Consolidated Statements of Operations (Unaudited) (Parentheticals) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Payroll expenses
Share based compensation	$ 40,326	$ 154,975	$ 842,592	$ 8,427,202
Research and development
Share based compensation			$ 400,000

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PATENTS AND TRADEMARK

9 Months Ended

Sep. 30, 2014

Goodwill and Intangible Assets Disclosure [Abstract]

PATENTS AND TRADEMARK

NOTE 3 – PATENTS AND TRADEMARK

The Company has five issued patents and filed for three additional provisional 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 to 20 years). During the three and nine months ended September 30, 2014, the Company capitalized $0 of patent cost and during the three and nine months ended September 30, 2013, the Company capitalized patent costs of $0 and $21,594, respectively. Amortization expense for patents was $3,277 and $9,831 for the three and nine months ended September 30, 2014 and $3,277 and $9,814 for the three and nine months ended September 30, 2013, respectively. Future estimated annual amortization over the next five years is approximately $13,100 per year for the years ended December 31, 2014 through 2018.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Reconciliation of basic shares to diluted shares
Weighted-average shares - basic	307,578,149	247,476,627	302,559,881	145,144,603
Effect of dilutive securities		217,777,053
Weighted-average shares - diluted	307,578,149	465,253,680	302,559,881	145,144,603

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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 $)	9 Months Ended
	Sep. 30, 2014
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Balance at January 1, 2014	$ 6,000,000
Additional Warrants issued January 2014	444,000
Additional Warrants issued June 2014	34,222
Additional Warrants issued 3rd Quarter 2014	166,791
Change in fair value of derivative liabilities	(2,062,297)
Balance at September 30, 2014	$ 4,582,716

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RELATED PARTY TRANSACTIONS

9 Months Ended

Sep. 30, 2014

Related Party Transactions [Abstract]

RELATED PARTY TRANSACTIONS

NOTE 13 – RELATED PARTY TRANSACTIONS

At September 30, 2014, three stockholders of the Company held $164,000 in principal of the Company’s senior secured convertible notes payable, and were owed accrued interest of $128,752 related to such notes.