VerifyMe, Inc. - Quarter Report: 2008 September (Form 10-Q)
United
States
Securities
and Exchange Commission
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
x
QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the
quarterly period ended September 30, 2008
¨
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
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
|
|
(IRS
Employer
|
|
or
Organization)
|
|
Identification
No.)
|
837
Lindy
Lane, Bala Cynwyd, PA 19004
(Address
of Principal Executive offices) (Zip Code)
610-668-1952
(Registrant’s
Telephone Number, Including Area Code)
Indicate
by check whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act of 1934 during the past twelve months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past
90
days. Yes x No
¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non- accelerated filer, or a smaller reporting company.
See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act (check one).
|
Large
accelerated filer ¨
|
Accelerated
filer ¨
|
|
|
|
|
Non-accelerated filer ¨ (Do not check if a smaller reporting company)
|
Smaller reporting company x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ¨ No x
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.
As
of
October 31, 2008, there were 73,440,506 shares of common stock, par value $0.001
per share, outstanding.
PART
I –
FINANCIAL INFORMATION
Item
1.
Financial Statements
LaserLock
Technologies, Inc. and Subsidiaries
(A
Development Stage Company)
Consolidated
Financial Statements
September
30, 2008 and 2007
LaserLock
Technologies, Inc. and Subsidiaries
(A
Development Stage Company)
CONTENTS
|
PAGE
|
||||
|
CONSOLIDATED
BALANCE SHEETS
|
2
|
|||
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
3
|
|||
|
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ DEFICIT
|
4-7
|
|||
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
8-9
|
|||
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
10-16
|
|||
-1-
LaserLock
Technologies, Inc. and Subsidiaries
(A
Development Stage Company)
Consolidated
Balance Sheets
September
30, 2008 and December 31, 2007
|
September 30, 2008
|
December 31, 2007
|
||||||
|
(Unaudited)
|
(Audited)
|
||||||
|
ASSETS
|
|||||||
|
CURRENT
ASSETS
|
|||||||
|
Cash
and cash equivalents
|
$
|
14,705
|
$
|
348
|
|||
|
Accounts
receivable, net of allowance of $0 at September 30, 2008 and December
31,
2007
|
30
|
1,994
|
|||||
|
Inventory
|
23,613
|
28,726
|
|||||
|
TOTAL
CURRENT ASSETS
|
38,348
|
31,068
|
|||||
|
PROPERTY
AND EQUIPMENT
|
|||||||
|
Capital
equipment
|
32,604
|
32,604
|
|||||
|
Less
accumulated depreciation
|
25,348
|
22,543
|
|||||
|
7,256
|
10,061
|
||||||
|
Patent
costs, net of accumulated amoritization of $44,456 and $36,318 as
of
September 30, 2008 and December 31, 2007
|
141,863
|
147,601
|
|||||
|
TOTAL
ASSETS
|
$
|
187,467
|
$
|
188,730
|
|||
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
|||||||
|
CURRENT
LIABILITIES
|
|||||||
|
Accounts
payable and accrued expenses
|
868,115
|
641,213
|
|||||
|
Senior
secured convertible notes payable
|
800,000
|
800,000
|
|||||
|
Convertible
notes payable
|
400,000
|
375,000
|
|||||
|
Notes
payable
|
354,000
|
70,000
|
|||||
|
TOTAL
CURRENT LIABILITIES
|
2,422,115
|
1,886,213
|
|||||
|
STOCKHOLDERS'
DEFICIT
|
|||||||
|
Preferred
Stock, $ .001 par value; 75,000,000 shares authorized; no shares
issued
and outstanding
|
-
|
-
|
|||||
|
Common
stock, $ .001 par value; 175,000,000 shares authorized; 73,440,506
shares
issued and oustanding at September 30, 2008 and December 31,
2007
|
73,440
|
73,440
|
|||||
|
Additional
paid in capital
|
7,259,331
|
7,251,687
|
|||||
|
Deficit
accumulated during the development stage
|
(9,567,419
|
)
|
(9,022,610
|
)
|
|||
|
STOCKHOLDERS'
DEFICIT
|
(2,234,648
|
)
|
(1,697,483
|
)
|
|||
|
TOTAL
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
$
|
187,467
|
$
|
188,730
|
|||
See
the
accompanying notes to the consolidated financial statements.
-2-
LaserLock
Technologies, Inc. and Subsidiaries
(A
Development Stage Company)
Consolidated
Statements of Operations
For
the
Three and Nine Months Ended September 30, 2008 and 2007
And
for
the Period November 10, 1999 (Date of Inception) to September 30, 2008
(UNAUDITED)
|
Three Months
|
Three Months
|
Nine Months
|
Nine Months
|
|||||||||||||
|
Cumulative
|
Ended
|
Ended
|
Ended
|
Ended
|
||||||||||||
|
Since
|
September 30,
|
September 30,
|
September 30,
|
September 30,
|
||||||||||||
|
Inception
|
2008
|
2007
|
2008
|
2007
|
||||||||||||
|
NET
REVENUES
|
||||||||||||||||
|
Sales
|
$
|
440,551
|
$
|
5,377
|
$
|
36,784
|
$
|
11,229
|
$
|
227,183
|
||||||
|
Royalties
|
540,517
|
1,758
|
26,180
|
26,979
|
80,323
|
|||||||||||
|
TOTAL
NET REVENUE
|
981,068
|
7,135
|
62,964
|
38,208
|
307,506
|
|||||||||||
|
COST
OF SALES
|
408,124
|
547
|
36,439
|
6,804
|
201,498
|
|||||||||||
|
GROSS
PROFIT
|
572,944
|
6,588
|
26,525
|
31,404
|
106,008
|
|||||||||||
|
OPERATING
EXPENSES
|
||||||||||||||||
|
Research
and development
|
822,920
|
4,298
|
7,367
|
15,190
|
15,459
|
|||||||||||
|
Patent
costs
|
61,187
|
-
|
-
|
1,311
|
900
|
|||||||||||
|
Legal
and Accounting
|
1,085,517
|
13,053
|
21,464
|
71,400
|
107,315
|
|||||||||||
|
Sales
and Marketing
|
4,735,365
|
69,195
|
103,474
|
190,071
|
310,640
|
|||||||||||
|
General
and administrative
|
2,953,992
|
59,993
|
68,569
|
180,109
|
207,860
|
|||||||||||
|
Total
operating expenses
|
9,658,981
|
146,539
|
200,874
|
458,081
|
642,174
|
|||||||||||
|
LOSS
BEFORE OTHER INCOME
|
(9,086,037
|
)
|
(139,951
|
)
|
(174,349
|
)
|
(426,677
|
)
|
(536,166
|
)
|
||||||
|
OTHER
INCOME (EXPENSE)
|
||||||||||||||||
|
Interest
income
|
63,587
|
-
|
138
|
3
|
1,012
|
|||||||||||
|
Interest
expense
|
(714,691
|
)
|
(43,222
|
)
|
(45,665
|
)
|
(118,135
|
)
|
(224,606
|
)
|
||||||
|
Gain
on disposition of assets
|
4,722
|
-
|
-
|
-
|
-
|
|||||||||||
|
(646,382
|
)
|
(43,222
|
)
|
(45,527
|
)
|
(118,132
|
)
|
(223,594
|
)
|
|||||||
|
LOSS
BEFORE INCOME TAX BENEFIT
|
(9,732,419
|
)
|
(183,173
|
)
|
(219,876
|
)
|
(544,809
|
)
|
(759,760
|
)
|
||||||
|
INCOME
TAX BENEFIT
|
(165,000
|
)
|
-
|
-
|
-
|
-
|
||||||||||
|
NET
LOSS
|
$
|
(9,567,419
|
)
|
$
|
(183,173
|
)
|
$
|
(219,876
|
)
|
$
|
(544,809
|
)
|
$
|
(759,760
|
)
|
|
|
BASIC
AND DILUTED NET LOSS PER COMMON
SHARE
|
$
|
(0.00
|
)
|
$
|
(0.00
|
)
|
$
|
(0.01
|
)
|
$
|
(0.01
|
)
|
||||
|
BASIC
AND DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
|
73,440,506
|
73,440,506
|
73,440,506
|
73,440,506
|
||||||||||||
See
the
accompanying notes to the consolidated financial statements.
-3-
LaserLock
Technologies, Inc. and Subsidiaries
(A
Development Stage Company)
Consolidated
Statements of Changes in Stockholders’ Equity (Deficit)
For
the
Period November 10, 1999 (Date of Inception) to September 30, 2008
|
Deficit
|
|||||||||||||||||||
|
Common
|
Accumulated
|
||||||||||||||||||
|
Stock
|
Additional
|
During the
|
|||||||||||||||||
|
Number of
|
Consulting
|
Paid-In
|
Development
|
||||||||||||||||
|
Shares
|
Amount
|
Fees
|
Capital
|
Stage
|
Total
|
||||||||||||||
|
Issuance
of initial 4,278,000 shares on November 10, 1999
|
4,278,000
|
$
|
4,278
|
$
|
-
|
$
|
16,595
|
$
|
-
|
$
|
20,873
|
||||||||
|
Issuance
of shares of common stock in exchange for services
|
1,232,000
|
1,232
|
-
|
35,728
|
-
|
36,960
|
|||||||||||||
|
Issuance
of shares of common stock
|
2,090,000
|
2,090
|
-
|
60,610
|
-
|
62,700
|
|||||||||||||
|
Stock
issuance costs
|
-
|
-
|
-
|
(13,690
|
)
|
-
|
(13,690
|
)
|
|||||||||||
|
Net
loss
|
-
|
-
|
-
|
-
|
(54,113
|
)
|
(54,113
|
)
|
|||||||||||
|
Balance,
December 31, 1999
|
7,600,000
|
7,600
|
-
|
99,243
|
(54,113
|
)
|
52,730
|
||||||||||||
|
Issuance
of shares of common stock
|
5,449,999
|
5,450
|
-
|
921,050
|
-
|
926,500
|
|||||||||||||
|
Issuance
of shares of common stock in exchange for services
|
240,000
|
240
|
(40,800
|
)
|
40,560
|
-
|
-
|
||||||||||||
|
Stock
issuance costs
|
-
|
-
|
-
|
(16,335
|
)
|
-
|
(16,335
|
)
|
|||||||||||
|
Fair
value of non-employee stock options grants
|
-
|
-
|
-
|
50,350
|
-
|
50,350
|
|||||||||||||
|
Amortization
of deferred consulting fees
|
-
|
-
|
20,117
|
-
|
-
|
20,117
|
|||||||||||||
|
Net
loss
|
-
|
-
|
-
|
-
|
(367,829
|
)
|
(367,829
|
)
|
|||||||||||
|
Balance,
December 31, 2000
|
13,289,999
|
13,290
|
(20,683
|
)
|
1,094,868
|
(421,942
|
)
|
665,533
|
|||||||||||
|
Issuance
of shares of common stock
|
217,500
|
218
|
-
|
77,723
|
-
|
77,941
|
|||||||||||||
|
Issuance
of shares of common stock and stock options for acquisition of
subsidiary
|
2,000,000
|
2,000
|
-
|
736,000
|
-
|
738,000
|
|||||||||||||
|
Issuance
of stock options
|
-
|
-
|
-
|
15,000
|
-
|
15,000
|
|||||||||||||
|
Exercise
of options
|
1,450,368
|
1,450
|
-
|
230,609
|
.
|
232,059
|
|||||||||||||
|
Fair
value of non-employee stock options
|
-
|
-
|
-
|
323,250
|
-
|
323,250
|
|||||||||||||
|
Amortization
of deferred consulting fees
|
-
|
-
|
20,683
|
-
|
-
|
20,683
|
|||||||||||||
|
Net
loss
|
-
|
-
|
-
|
-
|
(1,052,299
|
)
|
(1,052,299
|
)
|
|||||||||||
|
Balance,
December 31, 2001
|
16,957,867
|
16,958
|
-
|
2,477,450
|
(1,474,241
|
)
|
1,020,167
|
||||||||||||
See
the
accompanying notes to the consolidated financial statements.
-4-
LaserLock
Technologies, Inc. and Subsidiaries
(A
Development Stage Company)
Consolidated
Statements of Changes in Stockholders’ Equity (Deficit) (Continued)
For
the
Period November 10, 1999 (Date of Inception) to September 30, 2008
|
Deficit
|
|||||||||||||||||||
|
Common
|
Accumulated
|
||||||||||||||||||
|
Stock
|
Additional
|
During the
|
|||||||||||||||||
|
Number of
|
Consulting
|
Paid-In
|
Development
|
||||||||||||||||
|
Shares
|
Amount
|
Fees
|
Capital
|
Stage
|
Total
|
||||||||||||||
|
Issuance
of shares of common stock
|
3,376,875
|
3,377
|
-
|
687,223
|
-
|
690,600
|
|||||||||||||
|
Fair
value of non-employee stock options
|
-
|
-
|
-
|
94,000
|
-
|
94,000
|
|||||||||||||
|
Salary
due to shareholder contributed capital
|
-
|
-
|
-
|
15,000
|
-
|
15,000
|
|||||||||||||
|
Return
of shares of common stock related to purchase price
adjustment
|
(1,000,000
|
)
|
(1,000
|
)
|
-
|
(353,000
|
)
|
-
|
(354,000
|
)
|
|||||||||
|
Net
loss
|
-
|
-
|
-
|
(1,195,753
|
)
|
(1,195,753
|
)
|
||||||||||||
|
Balance,
December 31, 2002
|
19,334,742
|
19,335
|
-
|
2,920,673
|
(2,669,994
|
)
|
270,014
|
||||||||||||
|
Issuance
of shares of common stock
|
22,512,764
|
22,512
|
-
|
1,387,109
|
-
|
1,409,621
|
|||||||||||||
|
Fair
value of non-employee stock options
|
-
|
-
|
-
|
213,300
|
213,300
|
||||||||||||||
|
Issuance
of shares of common stock in exchange for services
|
143,000
|
143
|
-
|
23,857
|
24,000
|
||||||||||||||
|
Stock
issuance costs
|
-
|
-
|
-
|
(49,735
|
)
|
(49,735
|
)
|
||||||||||||
|
Net
loss
|
-
|
-
|
-
|
-
|
(1,107,120
|
)
|
(1,107,120
|
)
|
|||||||||||
|
Balance,
December 31, 2003
|
41,990,506
|
41,990
|
-
|
4,495,204
|
(3,777,114
|
)
|
760,080
|
||||||||||||
|
Stock
issuance costs
|
-
|
-
|
-
|
(25,000
|
)
|
-
|
(25,000
|
)
|
|||||||||||
|
Fair
value of non-employee stock options
|
-
|
-
|
-
|
493,600
|
-
|
493,600
|
|||||||||||||
|
Issuance
of shares of common stock
|
18,600,000
|
18,600
|
-
|
939,881
|
-
|
958,481
|
|||||||||||||
|
Net
loss
|
-
|
-
|
-
|
-
|
(1,406,506
|
)
|
(1,406,506
|
)
|
|||||||||||
|
Balance,
December 31, 2004
|
60,590,506
|
60,590
|
-
|
5,903,685
|
(5,183,620
|
)
|
780,655
|
||||||||||||
See
the
accompanying notes to the consolidated financial statements.
-5-
LaserLock
Technologies, Inc. and Subsidiaries
(A
Development Stage Company)
Consolidated
Statements of Changes in Stockholders’ Equity (Deficit) (Continued)
For
the
Period November 10, 1999 (Date of Inception) to September 30, 2008
|
Deficit
|
|||||||||||||||||||
|
Common
|
Accumulated
|
||||||||||||||||||
|
Stock
|
Additional
|
During the
|
|||||||||||||||||
|
Number of
|
Consulting
|
Paid-In
|
Development
|
||||||||||||||||
|
Shares
|
Amount
|
Fees
|
Capital
|
Stage
|
Total
|
||||||||||||||
|
Fair
value of non-employee stock options
|
-
|
-
|
-
|
286,762
|
-
|
286,762
|
|||||||||||||
|
Issuance
of shares of common stock
|
3,000,000
|
3,000
|
-
|
102,000
|
-
|
105,000
|
|||||||||||||
|
Net
loss for the year ended December 31, 2005
|
-
|
-
|
-
|
-
|
(1,266,811
|
)
|
(1,266,811
|
)
|
|||||||||||
|
Balance
at December 31, 2005
|
63,590,506
|
63,590
|
-
|
6,292,447
|
(6,450,431
|
)
|
(94,394
|
)
|
|||||||||||
|
Fair
value of non-employee stock options
|
-
|
-
|
-
|
215,463
|
-
|
215,463
|
|||||||||||||
|
Fair
value of employee stock options
|
-
|
-
|
-
|
135,098
|
-
|
135,098
|
|||||||||||||
|
Fair
value of warrants issued for deferred finance charges
|
-
|
-
|
-
|
392,376
|
-
|
392,376
|
|||||||||||||
|
Exercise
of warrants
|
5,550,000
|
5,550
|
-
|
49,950
|
-
|
55,500
|
|||||||||||||
|
Exercise
of options
|
4,300,000
|
4,300
|
-
|
(3,870
|
)
|
-
|
430
|
||||||||||||
|
Shares
retired upon cancellation of consulting agreements
|
(1,200,000
|
)
|
(1,200
|
)
|
-
|
1,080
|
-
|
(120
|
)
|
||||||||||
|
Issuance
of shares for services
|
1,200,000
|
1,200
|
53,800
|
55,000
|
|||||||||||||||
|
Net
loss for the year ended December 31, 2006
|
-
|
-
|
-
|
-
|
(1,607,017
|
)
|
(1,607,017
|
)
|
|||||||||||
|
|
|||||||||||||||||||
|
Balance
at December 31, 2006
|
73,440,506
|
73,440
|
-
|
7,136,344
|
(8,057,448
|
)
|
(847,664
|
)
|
|||||||||||
|
Fair
value of non-employee stock options
|
-
|
-
|
-
|
47,692
|
-
|
47,692
|
|||||||||||||
|
Fair
value of employee stock options
|
-
|
-
|
-
|
67,651
|
-
|
67,651
|
|||||||||||||
|
Net
loss for the year ended December 31, 2007
|
-
|
-
|
-
|
(965,162
|
)
|
(965,162
|
)
|
||||||||||||
|
Balance
at December 31, 2007
|
73,440,506
|
73,440
|
-
|
7,251,687
|
(9,022,610
|
)
|
(1,697,483
|
)
|
|||||||||||
See
the
accompanying notes to the consolidated financial statements.
-6-
LaserLock
Technologies, Inc. and Subsidiaries
(A
Development Stage Company)
Consolidated
Statements of Changes in Stockholders’ Equity (Deficit) (Continued)
For
the
Period November 10, 1999 (Date of Inception) to September 30, 2008
|
Deficit
|
|||||||||||||||||||
|
Common
|
Accumulated
|
||||||||||||||||||
|
Stock
|
Additional
|
During the
|
|||||||||||||||||
|
Number of
|
Consulting
|
Paid-In
|
Development
|
||||||||||||||||
|
Shares
|
Amount
|
Fees
|
Capital
|
Stage
|
Total
|
||||||||||||||
|
Fair
value of non-employee stock options
|
-
|
-
|
-
|
7,644
|
-
|
7,644
|
|||||||||||||
|
Net
loss for the nine months ended September 30, 2008
|
-
|
-
|
-
|
(544,809
|
)
|
(544,809
|
)
|
||||||||||||
|
Balance
at September 30, 2008 (Unaudited)
|
73,440,506
|
$
|
73,440
|
$
|
-
|
$
|
7,259,331
|
$
|
(9,567,419
|
)
|
$
|
(2,234,648
|
)
|
||||||
See
the
accompanying notes to the consolidated financial statements.
-7-
LaserLock
Technologies, Inc. and Subsidiaries
(A
Development Stage Company)
Consolidated
Statements of Cash Flows
For
the
Nine Months Ended September 30, 2008 and 2007
And
for
the Period November 10, 1999 (Date of Inception) to September 30,
2008
(UNAUDITED)
|
Nine Months
|
Nine Months
|
|||||||||
|
Cumulative
|
Ended
|
Ended
|
||||||||
|
Since
|
September
30,
|
September
30,
|
||||||||
|
Inception
|
2008
|
2007
|
||||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
||||||||||
|
Net
loss
|
$
|
(9,567,419
|
)
|
$
|
(544,809
|
)
|
$
|
(759,760
|
)
|
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities
|
||||||||||
|
Fair
value of options issued in exchange for services
|
1,934,810
|
7,644
|
95,882
|
|||||||
|
Amortization
of deferred finance charges
|
392,375
|
-
|
140,407
|
|||||||
|
Salary
due to stockholder contributed to capital
|
15,000
|
-
|
-
|
|||||||
|
Provision
for bad debts
|
-
|
-
|
12,900
|
|||||||
|
Amortization
and depreciation
|
474,933
|
10,943
|
13,163
|
|||||||
|
Gain
on disposition of assets
|
(4,722
|
)
|
-
|
-
|
||||||
|
Stock
issued in exchange for services
|
220,960
|
-
|
-
|
|||||||
|
Financing
expenses paid directly from stock proceeds
|
5,270
|
-
|
-
|
|||||||
|
Amortization
of deferred consulting fees
|
40,800
|
-
|
-
|
|||||||
|
(Increase)
decrease in assets
|
||||||||||
|
Receivables
|
(30
|
)
|
1,964
|
(7,393
|
)
|
|||||
|
Inventory
|
(23,613
|
)
|
5,113
|
13,363
|
||||||
|
Increase
in liabilities
|
||||||||||
|
Accounts
payable and accrued expenses
|
868,115
|
226,902
|
184,794
|
|||||||
|
Net
cash used in operating activities
|
(5,643,521
|
)
|
(292,243
|
)
|
(306,644
|
)
|
||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
||||||||||
|
Purchase
of property and equipment
|
(35,749
|
)
|
-
|
-
|
||||||
|
Purchase
of intangibles
|
(20,000
|
)
|
-
|
|||||||
|
Purchase
of patent costs
|
(186,319
|
)
|
(2,400
|
)
|
(20,354
|
)
|
||||
|
Loan
payable, officer
|
-
|
-
|
(5,000
|
)
|
||||||
|
Proceeds
from sale of assets
|
6,738
|
-
|
-
|
|||||||
|
Net
cash used in investing activities
|
(235,330
|
)
|
(2,400
|
)
|
(25,354
|
)
|
||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
||||||||||
|
Proceeds
from issuance of common stock
|
4,091,447
|
-
|
-
|
|||||||
|
Proceeds
from exercise of stock options
|
232,369
|
-
|
-
|
|||||||
|
Proceeds
from issuance of stock options
|
15,000
|
-
|
-
|
|||||||
|
Proceeds
from exercise of warrants
|
55,500
|
-
|
-
|
|||||||
|
Proceeds
from issuance of notes
|
1,704,000
|
309,000
|
450,000
|
|||||||
|
Repayments
of notes
|
(100,000
|
)
|
-
|
(100,000
|
)
|
|||||
|
Stock
issuance costs
|
(104,760
|
)
|
-
|
-
|
||||||
|
Net
cash provided by financing activities
|
5,893,556
|
309,000
|
350,000
|
|||||||
|
NET
DECREASE IN CASH AND CASH EQUIVALENTS
|
14,705
|
14,357
|
18,002
|
|||||||
|
CASH
AND CASH EQUIVALENTS - BEGINNING OF PERIOD
|
-
|
348
|
2,058
|
|||||||
|
CASH
AND CASH EQUIVALENTS - END OF PERIOD
|
$
|
14,705
|
$
|
14,705
|
$
|
20,060
|
||||
See
the
accompanying notes to the consolidated financial statements.
-8-
LaserLock
Technologies, Inc. and Subsidiaries
(A
Development Stage Company)
Consolidated
Statements of Cash Flows (Continued)
For
the
Nine Months Ended September 30, 2008 and 2007
And
for
the Period November 10, 1999 (Date of Inception) to September 30,
2008
(UNAUDITED)
|
Nine Months
|
Nine Months
|
|||||||||
|
Cumulative
|
Ended
|
Ended
|
||||||||
|
Since
|
September 30,
|
September 30,
|
||||||||
|
Inception
|
2008
|
2007
|
||||||||
|
|
||||||||||
|
SUPPLEMENTAL
DISCLOSURE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
|
||||||||||
|
Cash
paid during the year for:
|
||||||||||
|
Interest
|
$
|
29,745
|
$
|
135
|
$
|
270
|
||||
|
Income
taxes
|
$
|
-
|
$
|
-
|
$
|
-
|
||||
|
Return
of shares of common stock related to purchase price
adjustment
|
||||||||||
|
Common
stock
|
(1,000
|
)
|
-
|
-
|
||||||
|
Additional
paid-in capital
|
(353,000
|
)
|
-
|
-
|
||||||
|
Intangible
assets
|
$
|
(354,000
|
)
|
$
|
-
|
$
|
-
|
|||
|
Issuance
of common stock and stock options for acquisition of
subsidiary
|
$
|
738,000
|
$
|
-
|
$
|
-
|
||||
|
Proceeds
from common stock sales applied directly to debt and financing expenses
repayment
|
$
|
55,270
|
$
|
-
|
$
|
-
|
||||
|
Fair
value of warrants issued for deferred finance charges
|
$
|
392,376
|
$
|
-
|
$
|
-
|
||||
See
the
accompanying notes to the consolidated financial statements.
-9-
LaserLock
Technologies, Inc. and Subsidiaries
(A
Development Stage Company)
Notes
to
Consolidated Financial Statements
NOTE
1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentations
The
accompanying unaudited financial statements have been prepared in accordance
with U.S. generally accepted accounting principles 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 generally accepted accounting principles 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. Operating results for the nine months ended September 30, 2008 are
not
necessarily indicative of the results that may be expected for the year ended
December 31, 2008. The unaudited financial statements should be read in
conjunction with the financial statements and footnotes thereto included in
the
Company’s annual report on Form 10-KSB for the year ended December 31, 2007.
The
financial statements are presented in accordance with Statement of Financial
Accounting Standard (“SFAS”) No. 7, Accounting
and Reporting by Development Stage Enterprises.
Recently
Issued Pronouncements
During
September 2006, the Financial Accounting Standards Board (“FASB”)
issued SFAS No. 157, Fair
Value Measurements
(“SFAS
157”), which is effective for fiscal years beginning after November 15,
2007 with earlier adoption encouraged. SFAS 157 defines fair value, establishes
a framework for measuring fair value in generally accepted accounting
principles, and expands disclosures about fair value measurements. In February
2008, the FASB issued FASB Staff Position FAS 157-2, Effective Date of FASB
Statement No. 157, which delayed the effective date of SFAS 157 for all
non-financial assets and liabilities, except those that are recognized or
disclosed at fair value in the financial statements on a recurring basis, until
January 1, 2009. The Company adopted SFAS 157 on January 1,
2008 for all financial assets and liabilities, but the implementation did not
require additional disclosures or have a significant impact on the Company's
financial statements. The Company has not yet determined the impact
the implementation of SFAS 157 will have on the Company’s non-financial assets
and liabilities which are not recognized or disclosed on a recurring
basis. However, the Company does not anticipate that the full
adoption of SFAS 157 will significantly impact their financial
statements.
During
February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial
Liabilities—including
an amendment of FASB Statement No. 115 (“SFAS 159”), which permits entities to
choose to measure many financial instruments and certain other items at fair
value. The objective of SFAS 159 is to improve financial reporting by providing
entities with the opportunity to mitigate volatility in reported earnings caused
by measuring related assets and liabilities differently without having to apply
complex hedge accounting provisions. The Company adopted SFAS 159 on January
1,
and has elected not to measure any additional financial assets, liabilities
or
other items at fair value.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business
Combinations
(“SFAS 141R”). SFAS 141R establishes principles and requirements for
how an acquirer recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, any noncontrolling
interest in the acquiree and the goodwill acquired. SFAS 141R also
establishes disclosure requirements to enable the evaluation of the nature
and
financial effects of the business combination. This statement is effective
for
the Company beginning January 1, 2009 and will change the accounting for
business combinations on a prospective basis.
-10-
LaserLock
Technologies, Inc. and Subsidiaries
(A
Development Stage Company)
Notes
to
Consolidated Financial Statements
NOTE
1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recently
Issued Pronouncements (Continued)
In
December 2007, the FASB issued SFAS No. 160, Noncontrolling
Interests in Consolidated Financial Statements—an
amendment of Accounting Research Bulletin No. 51 (“SFAS 160”).
SFAS 160 establishes accounting and reporting standards for ownership
interests in subsidiaries held by parties other than the parent, the amount
of
consolidated net income attributable to the parent and to the noncontrolling
interest, changes in a parent’s ownership interest, and the valuation of
retained noncontrolling equity investments when a subsidiary is deconsolidated.
SFAS 160 also establishes disclosure requirements that clearly identify and
distinguish between the interests of the parent and the interests of the
noncontrolling owners. This statement is effective for the Company beginning
January 1, 2009. SFAS 160 is not currently applicable to the Company since
the Company’s subsidiary is wholly owned.
In
March
2008, the FASB issued SFAS No. 161, Disclosures
about Derivative Instruments and Hedging Activities
(“SFAS
161”), which is effective January 1, 2009. SFAS 161 requires enhanced
disclosures about derivative instruments and hedging activities to allow for
a
better understanding of their effects on an entity’s financial position,
financial performance, and cash flows. Among other things, SFAS 161 requires
disclosures of the fair values of derivative instruments and associated gains
and losses in a tabular formant. SFAS 161 is not currently applicable to the
Company since the Company does not have derivative instruments or hedging
activity.
In
May
2008, the FASB issued SFAS No. 162, The
Hierarchy of
Generally
Accepted Accounting Principles (“SFAS
162"). SFAS 162 identifies the sources of accounting principles and the
framework for selecting the principles to be used in the preparation of
financial statements of nongovernmental entities that are presented in
conformity with generally accepted accounting principles. SFAS 162 directs
the hierarchy
to the entity, rather than the independent auditors, as the entity is
responsible for selecting accounting principles for financial statements that
are presented in conformity with generally accepted accounting principles.
SFAS
162 is effective 60 days following SEC approval of the Public Company Accounting
Oversight Board amendments to remove the hierarchy of generally accepted
accounting principles from the auditing standards. SFAS 162 is not expected
to
have an impact on the Company’s financial statements.
In
April
2008, the FASB issued FASB Staff Position (FSP) FAS 142-3, Determination
of the Useful Life of Intangible Assets,
which
amends the factors that should be considered in developing renewal or extension
assumptions used to determine the useful life of a recognized intangible asset
under FASB Statement No. 142, Goodwill
and Other Intangible Assets. This
Staff Position is effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods within those fiscal
years. Early adoption is prohibited. This FSP is not currently applicable to
the
Company.
In
June
2008, the FASB issued FSP EITF 03-6-1, Determining
Whether Instruments Granted in Share-Based Payment Transactions are
Participating Securities.
This
FSP provides that unvested share-based payment awards that contain
nonforfeitable rights to dividends or dividend equivalents (whether paid or
unpaid) are participating securities and shall be included in the computation
of
earnings per share pursuant to the two-class method. The Company does not
currently have any share-based awards that would qualify as participating
securities. Therefore, application of this FSP is not expected to have an effect
on the Company's financial reporting.
-11-
LaserLock
Technologies, Inc. and Subsidiaries
(A
Development Stage Company)
Notes
to
Consolidated Financial Statements
NOTE
1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recently
Issued Pronouncements (Continued)
In
May
2008, the FASB issued FASB Staff Position (FSP) APB 14-1, Accounting
for Convertible Debt That May Be Settled in Cash upon Conversion (Including
Partial Cash Settlement) ("FSP
14-1"). FSP 14-1 will be effective for financial statements issued for fiscal
years beginning after December 15, 2008. The FSP includes guidance that
convertible debt instruments that may be settled in cash upon conversion
should
be separated between the liability and equity components, with each component
being accounted for in a manner that will reflect the entity's nonconvertible
debt borrowing rate when interest costs are recognized
in subsequent periods. The Company has not determined the effect that the
implementation of FSP 14-1 will have on its financial
statements.
Comprehensive
Income
The
Company follows SFAS No. 130, Reporting
Comprehensive Income.
Comprehensive income is a more inclusive financial reporting methodology that
includes disclosure of certain financial information that historically has
not
been recognized in the calculation of net income. Since the Company has no
items
of other comprehensive income, comprehensive income (loss) is equal to net
income (loss).
Reclassifications
Certain
amounts in the 2007 financial statements have been reclassified in order for
them to be in conformity with the 2008 presentation.
NOTE
2 – GOING CONCERN
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 during the development
stage. These conditions raise substantial doubt about the Company’s ability to
continue as a going concern. The consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
The
Company is in the development stage at September 30, 2008. Successful completion
of the Company’s development program and, ultimately the attainment of
profitable operations is 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
The
Company continues to apply for patents. Accordingly costs associated with the
registration of these patents have been capitalized and are amortized on a
straight-line basis over the estimated lives of the patents (17 years). During
the nine months ended September 30, 2008, there were additional capitalized
patent costs of $2,400 incurred. Amortization expense for patents was $2,729
and
$8,138 for the three and nine months ended September 30, 2008 and $2,714 and
$10,197 for the three and nine months ended September 30, 2007.
NOTE
4 – INCOME TAXES
As
of
January 1, 2008, we had no unrecognized tax benefits, and accordingly, we have
not recognized any interest or penalties during 2008 related to unrecognized
tax
benefits. There has been no change in unrecognized tax benefits during the
nine
months ended September 30, 2008, and there was no accrual for uncertain tax
positions as of September 30, 2008.
There
is
no income tax benefit for the losses for the nine months ended September 30,
2008 and 2007, since management has determined that the realization of the
net
deferred tax asset is not assured and has created a valuation allowance for
the
entire amount of such benefits.
-12-
LaserLock
Technologies, Inc. and Subsidiaries
(A
Development Stage Company)
Notes
to
Consolidated Financial Statements
NOTE
5 - SENIOR SECURED CONVERTIBLE NOTES PAYABLE
In
February 2006, the Company commenced a private placement of up to $800,000
principal amount of 10% senior secured convertible promissory notes due twelve
months from the date of issue to certain of our shareholders and other
accredited investors. On May 7, 2007, the due date of these notes was extended
to August 31, 2008 and the interest rate increased to 12% during the extension
period. As of September 30, 2008, these notes are unpaid. Purchasers of the
notes were issued 10-year warrants exercisable into the Company’s shares at an
exercise price of $0.01 per share. In addition, if an equity financing with
total proceeds of more than $5,000,000 occurs while any notes are outstanding,
holders of notes will have the right, at their option, to convert the
outstanding principal and interest of the notes into shares at a discount of
30%
of the price per share in the qualified financing. In accordance with Emerging
Issue Task Force No. 98-5, Accounting
for Convertible Securities with Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios, the
contingent beneficial conversion feature is not recognized unless the triggering
event occurs and the contingency is resolved. The notes are secured by a first
priority lien on all of the tangible and intangible personal property of the
Company.
As
of
December 31, 2006, the Company sold $800,000 principal amount of the notes
and
issued 8,000,000 warrants. In accordance with FAS 123(R), warrants were valued
at $392,376 and recorded as deferred finance charges. The Company uses the
Black-Scholes option pricing model to calculate the grant-date fair value of
the
warrants, with the following assumptions: no dividend yield, expected volatility
of 169% and 284%, risk-free interest rate between 3.6% and 4.5% and expected
warrant life of ten years. The deferred finance charges were amortized over
one
year, which was the original term of the convertible notes. The Company received
$55,500 for the exercise of 5,550,000 of the warrants during 2006. Accrued
interest at September 30, 2008 and December 31, 2007 amounted to $217,700 and
$145,700.
NOTE
6 - CONVERTIBLE NOTES PAYABLE
During
2007, the Company commenced a private placement of up to $400,000 principal
amount of 10%
Convertible Promissory Notes due August 31, 2008 (the “Notes”). Holders of Notes
will have the right, at their option, to convert the outstanding principal
and
interest of the Notes into shares of the Company’s Series A Preferred Stock at
any time and from time to time at the option of the holder at the initial
conversion price of $0.005333 per share. The Notes are unsecured. In accordance
with Emerging Issue Task Force No. 00-27, Application
of Issue No. 98-5 to Certain Convertible Instruments,
there is
no intrinsic value to the embedded conversion option since the conversion price
is higher than the fair value as determined by management. During 2007 the
Company issued Notes payable under the private placement totaling $375,000.
During 2008 the Company issued an additional $25,000 of the Notes payable to
complete the private placement. The Notes are due on August 31, 2008 and bear
interest at 10%. As of September 30, 2008, these Notes are unpaid. Accrued
interest at September 30, 2008 and December 31, 2007 amounted to $48,542 and
$18,542.
NOTE
7 – NOTES PAYABLE
During
2007, the Company issued $70,000 of unsecured notes payable, which are payable
on demand and bear interest at the rate of 10%. During 2008, the Company issued
an additional $284,000 of these unsecured notes payable. Accrued interest at
September 30, 2008 and December 31, 2007 amounted to $26,250 and $10,250.
-13-
LaserLock
Technologies, Inc. and Subsidiaries
(A
Development Stage Company)
Notes
to
Consolidated Financial Statements
NOTE
8 – STOCK OPTIONS AND WARRANTS
During
1999, the Board of Directors (“Board”) of the Company adopted, with the approval
of the stockholders, a Stock Option Plan. In 2000, the Board superseded that
plan and created a new Stock Option Plan, pursuant to which it is authorized
to
grant options to purchase up to 1.5 million shares of common stock. On December
17, 2003, the Board, with approval of the stockholders, superseded this plan
and
created the 2003 Stock Option Plan (the “Plan”). Under the Plan the Company is
authorized to grant options to purchase up to 18,000,000 shares of common stock
to the Company’s employees, officers, directors, consultants, and other agents
and advisors. The Plan is intended to permit stock options granted to employees
under the Plan to qualify as incentive stock options under Section 422 of the
Internal Revenue Code of 1986, as amended (“Incentive Stock Options”). All
options granted under the Plan, which are not intended to qualify as Incentive
Stock Options, are deemed to be non-qualified options (“Non-Statutory Stock
Options”). As of September 30, 2008, there are 3,100,000 options that have been
issued and exercised, 14,006,662 options that have been issued and are
unexercised, and 893,338 options that are available to be issued under the
Plan.
The
Plan
is administered by a committee of the Board of Directors (“Stock Option
Committee”) which determines the persons to whom awards will be granted, the
number of awards to be granted and the specific terms of each grant, including
the vesting thereof, subject to the provisions of the plan.
In
connection with Incentive Stock Options, the exercise price of each option
may
not be less than 100% of the fair market value of the common stock on the date
of the grant (or 110% of the fair market value in the case of a grantee holding
more than 10% of the outstanding stock of the Company). The aggregate fair
market value (determined at the time of the grant) of stock for which an
employee may exercise Incentive Stock Options under all plans of the company
shall not exceed $1,000,000 per calendar year. If any employee shall have the
right to exercise any options in excess of $100,000 during any calendar year,
the options in excess of $100,000 shall be deemed to be Non-Statutory Stock
Options, including prices, duration, transferability and limitations on
exercise.
The
Company issued Non-Statutory Stock Options pursuant to contractual agreements
to
non-employees. Options granted under the agreements are expensed when the
related service or product is provided. For the three and nine months ended
September 30, 2008, the Company expensed approximately $2,500 and $7,600 and
for
the three and nine months ended September 30, 2007, the Company expensed
approximately $2,000 and $45,000 relative to non-employee options granted.
As of
September 30, 2008, there was approximately $4,000 of unrecognized compensation
expense related to non-vested market-based share awards that is expected to
be
recognized through January 2009.
-14-
LaserLock
Technologies, Inc. and Subsidiaries
(A
Development Stage Company)
Notes
to
Consolidated Financial Statements
NOTE
8 – STOCK OPTIONS AND WARRANTS (Continued)
The
following tables summarize non-employee stock option/warrant activity of the
Company since December 31, 2007:
|
Weighted Average
|
||||||||||
|
Option/Warrant
|
Exercise
|
Exercise
|
||||||||
|
Shares
|
Price
|
Price
|
||||||||
|
Outstanding,
December 31, 2007
|
12,856,662
|
$
|
.01
to $.28
|
$
|
0.06
|
|||||
|
Granted
|
-
|
-
|
-
|
|||||||
|
Exercised
|
-
|
-
|
-
|
|||||||
|
Expired
|
-
|
-
|
-
|
|||||||
|
Outstanding,
September 30, 2008
|
12,856,662
|
$
|
.01
to $.28
|
$
|
0.06
|
|||||
|
Exercisable,
September 30, 2008
|
12,773,329
|
$
|
.01
to $.28
|
$
|
0.08
|
|||||
|
Weighted
Average Remaining Life, Exercisable, September 30, 2008
(years)
|
4.4
|
|||||||||
A
summary
of incentive stock option transactions for employees since December 31, 2007
is
as follows:
|
Weighted Average
|
||||||||||
|
Option
|
Exercise
|
Exercise
|
||||||||
|
Shares
|
Price
|
Price
|
||||||||
|
Outstanding,
December 31, 2007
|
6,550,000
|
$
|
.03
to $.28
|
$
|
0.12
|
|||||
|
Granted
|
-
|
-
|
-
|
|||||||
|
Exercised
|
-
|
-
|
-
|
|||||||
|
Expired
|
-
|
-
|
-
|
|||||||
|
Outstanding,
September 30, 2008
|
6,550,000
|
$
|
.03
to $.28
|
$
|
0.12
|
|||||
|
Exercisable,
September 30, 2008
|
6,520,833
|
$
|
.03
to $.28
|
$
|
0.12
|
|||||
|
Weighted
Average Remaining Life, Exercisable, September 30, 2008
|
3.8
|
|||||||||
-15-
LaserLock
Technologies, Inc. and Subsidiaries
(A
Development Stage Company)
Notes
to
Consolidated Financial Statements
NOTE
9 – RELATED PARTY TRANSACTIONS
Six
shareholders of the Company hold $680,000 of the senior secured convertible
notes payable, one shareholder holds $140,000 of the convertible notes payable
and one shareholder holds $50,000 of the notes payable as of September 30,
2008.
The
Company maintains its office at the home of its President. No formal lease
agreement exists and no direct rent expense has been incurred. However, related
occupancy costs of $2,386 and $5,019 were incurred during the three and nine
months ended September 30, 2008 and $1,080 and $3,275 were incurred during
the
three and nine months ended September 30, 2007.
At
September 30, 2008 and December 31, 2007, the Company had accrued salary to
the
President in the amount of $173,250 and $99,750.
NOTE
10 – MAJOR CUSTOMERS AND VENDORS
During
the three and nine months ended September 30, 2008, the Company earned a
substantial portion of its revenue from two customers and during the three
and
nine months ended September 30, 2007 the Company earned a substantial portion
of
its revenue from one customer. During the three and nine months ended September
30, 2008, revenue from those customers aggregated $3,645 and $34,069 and during
the three and nine months ended September 30, 2007, revenue from those customers
aggregated $61,604 and $291,420. At September 30, 2008 and 2007, amounts due
from those customers included in trade accounts receivable were $30 and $13,933.
-16-
Item
2. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
Forward-Looking
Information
The
following Management’s Discussion and Analysis should be read in conjunction
with our unaudited financial statements and notes thereto included herein and
our audited financial statements and notes thereto for the year ended December
31, 2007 included in our Annual Report on Form 10-KSB filed with the Securities
and Exchange Commission.
This
discussion, analysis and other sections of this report contain, in addition
to
historical information, forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Forward-looking statements
involve known and unknown risks, uncertainties and other factors, which may
cause our actual results, performance or achievements expressed or implied
by
these forward-looking statements to differ materially from such forward-looking
statements. The forward-looking statements included in this report may prove
to
be inaccurate. These statements are based on a number of assumptions concerning
future events, and are subject to a number of uncertainties and other factors,
many of which are outside our control. Actual results may differ materially
from
such statements for a number of reasons, including the effects of regulation
and
changes in capital requirements and funding. In light of the significant
uncertainties inherent in these forward-looking statements, you should not
consider this information to be a guarantee by us or any other person that
our
objectives and plans will be achieved. We do not undertake to publicly update
or
revise our forward-looking statements even if experience or future changes
make
it clear that any projected results (expressed or implied) will not be
realized.
Overview
We
are a
technology licensing company that licenses our technology to both third parties
who incorporate it into their products for resale to their customers, and to
end
users who incorporate the technology into their products at their manufacturing
facilities. We receive royalties on volume usage of our technology from third
parties who sell products incorporating such technologies. We intend to require,
whenever possible, minimum annual royalties to enter into these licensing
agreements.
Our
initial focus involved offering security solutions to the gaming industry
through third parties that supply various products and services to the gaming
industry. We license our technology to these third-party product and service
suppliers who, in turn, incorporate our technology into the products they sell.
We receive a royalty on each license. As part of these security solutions,
we
sell inks and pigments used to detect counterfeit products and documents to
these same third-party product and service suppliers. By the end of fiscal
year
2003, we had signed agreements to provide technology for the protection of
playing cards, dice, and casino chips from fraud with Gaming Partners
International and CoPAG U.S.A. Inc. (“CoPAG”). The agreement with Gaming
Partners International is still in effect. The agreement with CoPAG expired
in
September 2005 and was not renewed.
In
February 2005 we entered into a six-month agreement with the Nicolette
Consulting Group Limited (“NCG”) utilizing the services of Thomas A. Nicolette,
its principal. The agreement anticipated that NCG would mainly provide sales
and
marketing services to LaserLock. During the initial term these services were
expanded to include strategic planning and the longer-term objectives. In July
2005, February 2006 and August 2006, the contract was extended for further
six
month periods with the understanding that Mr. Nicolette would, in addition
to
his sales and marketing services, provide services similar to those of a senior
executive, although he would not be an officer of LaserLock. This agreement
expired on January 31, 2007.
On
December 13, 2005 we signed a Letter of Intent (“LOI”) to acquire a minimum of
95% of the outstanding shares of ExaqtWorld S.A.R.L. (“Exaqt”) based in Paris,
France for 36.6% of the outstanding shares of LaserLock (assuming 100% of the
shares of Exaqt are tendered). With the acquisition of Exaqt we would own the
worldwide rights in the security sector to a fundamental patent to manufacturer
multi-tech Electronic Article Surveillance (“EAS”) systems, which simultaneously
detect multiple EAS frequencies (RF, EM, AM and RFID). The multi-tech EAS
systems allow the seamless integration of source tagging of products at the
manufacturing level of the supply chain of the retail industry. The LOI was
subject to the signing of a definitive agreement between Exaqt and us. The
standstill agreement contained in the LOI expired June 13, 2006. In the first
quarter of 2007 we elected not to pursue the acquisition of Exaqt.
-17-
We
continue to develop new anti-counterfeiting technologies and to apply for patent
protection for these technologies wherever possible. Our current patent
portfolio consists of four granted patents (one granted in 2002, two granted
in
2004 and one granted in 2005) and one patent pending. Management believes that
some of the patents that have been granted may have commercial application
in
the future but will require additional capital and/or a strategic partner in
order to reach the potential markets.
We
are
currently exploring the uses of our technologies in general industry and
government. Whenever possible, we will license our technology to strategic
partners that currently service those industries and charge them royalty fees
and/or a share of the revenues/profits from their use of our
technology.
In
February 2006 we commenced a private placement of up to $800,000 principal
amount of 10% senior secured convertible promissory notes due twelve months
from
the date of issue to certain of our shareholders and other accredited investors.
Purchasers of notes were issued 10-year warrants exercisable into LaserLock’s
equity securities at an exercise price of $0.01 per share. Additionally, if
an
equity financing with total proceeds of more than $5,000,000 occurs while any
notes are outstanding, holders of notes will have the right, at their option,
to
convert the outstanding principal and interest of the notes into shares at
a
discount of 30% of the price per share in the qualified financing. The notes
are
secured by a first priority lien on all of the tangible and intangible personal
property of LaserLock. The private placement relied upon applicable exemptions
from registration under Section 4(2) of the Securities Exchange Act of 1934,
as
amended, and Section 506 of Regulation D promulgated thereunder. We
completed the private placement on August 10, 2006. In total, we sold $800,000
of notes and issued warrants for the purchase of 8,000,000 shares of our common
stock in the private placement. On May 7, 2007, we entered into an agreement
with the holders of the notes whereby the parties extended the due date of
the
notes to August 31, 2008. Interest under the notes was increased to 12% during
the extended period. These notes and interest thereon were not paid on August
31, 2008 and remain unpaid.
In
October 2006 we entered into an agreement with UTEK Corporation (“UTEK”) a
publicly traded company located in Tampa, Florida to conduct a study of our
intellectual property portfolio. The study focused on potential uses of our
intellectual property portfolio for non-security applications. The approximate
cost of the study was $55,000. We issued 1,200,000 restricted Common Shares
to
UTEK to pay the costs of the study. The shares had a market price of $.045.
UTEK
completed its initial study in December 2006 and provided a report, which,
indicated that there was significant opportunity for licensing our intellectual
property for non-security applications.
On
November 2, 2006, we entered into an agreement with Athanor Capital Partners
Limited, based in London, United Kingdom ("Athanor"), under which Athanor will
act as a corporate advisor and broker to us. With Athanor's guidance, we
intended to form a new holding company in the United Kingdom ("Newco") and
raise
up to $5,000,000 through the issuance of Newco's shares on the London Stock
Exchange's AIM market ("AIM"). Under the terms of the agreement, Athanor would
provide corporate finance advice and capital raising assistance to us in
connection with a proposed application for the admission of Newco's shares
to
trade on the AIM. The proceeds of the offering would be used to complete the
acquisition of the assets of Exaqt, including Exaqt’s patent portfolio, fund the
global sales and marketing operations of the combined product lines, and
exchange all outstanding shares of LaserLock for shares in Newco. On signing
the
agreement, we paid Athanor a $10,000 non-refundable fee and granted Athanor
options to purchase 1,000,000 Common Shares at $.0001 per share. This option
was
promptly exercised. In the first quarter of 2007 we elected not to pursue the
acquisition of Exaqt and the listing on AIM.
On
February 28, 2007, we entered into a commercialization agreement with UTEK
under
which it will market on our behalf the non-security applications of our
intellectual property. Upon execution of the agreement, we paid UTEK an initial
fee of $5,000, which will be credited against future commissions payable to
UTEK
under the commercialization agreement. Commissions payable to UTEK are based
on
the net revenues of LaserLock attributable to licenses and/or sales of the
non-security applications of our intellectual property during the term of the
agreement. The agreement had an initial term of nine months, which would have
been automatically extended in the event contact was made during the initial
term with any prospective licensees or purchasers of the non-security
applications of our intellectual property.
-18-
On
March
9, 2007, we entered into a non-exclusive sales and marketing agreement with
RCD
Technologies Inc. (“RCD”). RCD is a security technology company, which
specializes in RFID technology. During the initial six-month period of the
agreement, RCD agreed to market the LaserLock technologies using its in-house
sales force and to share the net revenues with LaserLock on a 50-50 basis.
This
agreement was not extended.
As
of May
17, 2007, the Company filed a Certificate of Designation of Series A Preferred
Stock with the Secretary of State of the State of Nevada designating 75,000,000
shares of the Company’s preferred stock as Series A Preferred Stock. The Series
A Preferred Stock is non-voting. In the event of any liquidation, dissolution
or
winding up of the affairs of the Company, before any payment is made to the
holders of the Company’s common stock, the holders of Series A Preferred Stock
will be entitled to receive an amount equal to $0.0213 per share out of the
assets available for distribution by the Company. This preference amount is
subject to adjustment for any stock dividends, combinations or splits with
respect to shares of Series A Preferred Stock. At any time after the earlier
of
May 18, 2009 or the date the Company becomes insolvent, each share of Series
A
Preferred Stock is convertible at the option of the holder into one share of
the
Company’s common stock, in each case as adjusted for any stock dividends,
combinations or splits with respect to such shares.
In
May
2007 we commenced a private placement of up to $400,000 principal amount of
10%
convertible promissory notes due August 31, 2008 (the “Notes”). Holders of Notes
will have the right, at their option, to convert the outstanding principal
and
interest of the Notes into shares of our Series A Preferred Stock at any time
and from time to time at the option of the holder at the initial conversion
price of $0.005333 per share. The Notes are unsecured.
As
of
January 31, 2008 all of the Notes were sold to Nob Hill Capital Partners LP
and
Clydesdale Partners II, LLC. The Notes were issued in reliance upon applicable
exemptions from registration under Section 4(2) of the Securities Exchange
Act
of 1934, as amended, and Section 506 of Regulation D promulgated thereunder.
These notes and interest thereon were not paid on August 31, 2008 and remain
unpaid.
On
June
23, 2008, we entered into a worldwide Exclusive Agreement (the “Agreement”) with
Arthur Blank & Company, Inc. (“AB”), under which AB and its affiliates will
have exclusive use of specific applications of our color changing proprietary
pigments known as WHYTELITE® technology. Under the terms of the Agreement, the
exclusive products are defined as all plastic cards printed with WHYTELITE®
pigments. Exclusions to the exclusivity are the American Express card and all
applications or products not using plastic as a substrate.
The
term
of the Agreement ends on December 31, 2009, but the Agreement has automatically
renewing one-year terms for each of the following four years if the royalties
paid to us by AB exceed certain levels during the year immediately preceding
any
potential renewal year, or if AB makes additional non-royalty payments that,
if
combined with the actual royalty amounts received, would equal such threshold
levels. The Agreement automatically expires on December 31, 2013.
In
addition to the above, in order to continue operations and implement our
strategy, it will be necessary for us to raise additional capital and/or enter
into strategic alliances or partnerships. There can be no assurances that such
capital or strategic alliances or partnerships will be available and, if
available, that we will be able to secure such capital or arrangements on
acceptable terms.
Results
of Operations
Comparison
of the Three-Month Periods Ended September 30, 2008 and September 30,
2007.
Since
we
were and currently still are in our startup stages it is difficult for us to
forecast our revenue or earnings accurately. We believe that period-to-period
comparisons of our operating results may not be meaningful. We believe that
we
will start generating larger amounts of revenue in the future due to our
attempts to cultivate business relationships over the past years.
-19-
As
a
result of our limited operating history, we do not have meaningful historical
financial data on which to base planned operating expenses. Thus, annual revenue
and results of operation are difficult to project.
For
the
three months ended September 30, 2008, we had sales and royalty revenues of
$7,135 as compared to $62,964 for the three months ending September 30, 2007.
During the period, sales were $5,377 as compared to $36,784 for last year.
Royalty revenues decreased to $1,758 from $26,180. The number of chips using
our
ink in 2008 was less than in the 2007 period resulting in lower sales and
royalty income.
Our
cost
of sales was $547 for the three months ended September 30, 2008 as compared
to
$36,439 for the three months ended September 30, 2007. The total sales during
the current period were not material enough to permit a realistic calculation
of
cost of sales.
Our
research and development costs aggregated $4,298 for the three months ended
September 30, 2008 as compared to $7,367 for the three months ended September
30, 2007, a decrease of $3,069. The decrease results principally from reduced
development efforts in the current period as compared to the prior
year.
There
were no patent costs for either the three months ended September 30, 2008 or
2007. This expense is the cost for maintaining the patents that have been issued
to the Company.
Our
legal
and accounting costs aggregated $13,053 for the three months ended September
30,
2008 as compared to $21,464 for the three months ended September 30, 2007,
a
decrease of $8,411. Legal fees for the 2008 period were $6,553 as compared
to
$3,414 in the prior year. Accounting fees were $6,500 in the 2008 period as
compared to $18,050 for the same period last year, a decrease of
$11,550.
Our
sales
and marketing costs aggregated $69,195 for the three months ended September
30,
2008 as compared to $103,474 for the three months ended September 30, 2007,
a
decrease of $34,279. The reduction in the costs result primarily from lower
costs for salaries and benefits of $12,000, reduced travel related costs of
approximately $13,800 and lower other sales and marketing costs of approximately
$8,500.
Our
general and administrative costs aggregated $59,993 for the three months ended
September 30, 2008 as compared to $68,569 for the three months ended September
30, 2007, a decrease of $8,576. The decrease is principally the result of
reduced costs for salaries and benefits of $15,300 and consulting fees of $3,000
partially offset by increased costs for insurance of $4,600 and a reduction
of
bad debts expense in the 2007 period of $4,600 that did not exist in 2008.
Our
interest expense for the three months ended September 30, 2008 was $43,222
as
compared to $45,665 for the three months ended September 30, 2007. Accrued
interest expense on the Company’s debt was $43,100 for the three months ended
September 30, 2008 as compared to $33,550 for the 2007 period resulting from
an
increase in the average amount of notes outstanding during 2008 as compared
to
2007. The amortization of the deferred finance charges related to the issuance
of warrants related to the Notes was $11,156 for the three months ended
September 30, 2007.
The
net
loss for the three months ended September 30, 2008 was $183,173 or $0.00 per
share (rounded to the nearest $0.01). This compares to a net loss of $219,876
or
$0.00 per share (rounded to the nearest $0.01) for the same period in 2007,
a
decrease in the net loss of $36,703. Included in the net loss for the 2008
period was $2,548 that represents the expense portion of the fair value of
stock
options issued compared to $30,596 in the 2007 period that also includes the
fair value of warrants issued, a decrease of $28,048.
Comparison
of the Nine-Month Periods Ended September 30, 2008 and September 30,
2007.
Since
we
were and currently still are in our startup stages it is difficult for us to
forecast our revenue or earnings accurately. We believe that period-to-period
comparisons of our operating results may not be meaningful. We believe that
we
will start generating larger amounts of revenue in the future due to our
attempts to cultivate business relationships over the past years.
-20-
As
a
result of our limited operating history, we do not have meaningful historical
financial data on which to base planned operating expenses. Thus, annual revenue
and results of operation are difficult to project.
For
the
nine months ended September 30, 2008, we had sales and royalty revenues of
$38,208 as compared to $307,506 for the nine months ending September 30, 2007.
During the period, sales were $11,229 as compared to $227,183 for last year.
Royalty revenues decreased to $26,979 from $80,323. The reduction in sales
results from the use of our ink in casino chips during the 2007 period in a
manner that required more ink per chip than in other periods. In addition,
the
number of chips using our ink in 2008 was less than in the 2007 period resulting
in lower sales and royalty income.
Our
cost
of sales was $6,804 for the nine months ended September 30, 2008 as compared
to
$201,498 for the nine months ended September 30, 2007. For the 2007 period
the
costs were 88.7% of sales. The total sales during the current period were not
material enough to permit a realistic calculation of cost of sales.
Our
research and development costs aggregated $15,190 for the nine months ended
September 30, 2008 as compared to $15,459 for the nine months ended September
30, 2007, a decrease of $269. The change in costs during the two periods was
not
meaningful.
Our
patent costs for the nine months ended September 30, 2008 were $1,311 as
compared to $900 during the nine month period ending September 30, 2007. This
expense is the cost for maintaining the patents that have been issued to the
Company.
Our
legal
and accounting costs aggregated $71,400 for the nine months ended September
30,
2008 as compared to $107,315 for the nine months ended September 30, 2007,
a
decrease of $35,915. Legal fees for the 2008 period decreased to $48,400 from
$57,165 in the prior year. The decrease principally results from costs for
legal
work in the 2007 period in connection with the potential acquisition of Exaqt
and listing on the London Stock Exchange’s AIM Market. In the first quarter of
2007 we elected not to pursue the acquisition of Exaqt and the AIM listing.
Accounting fees were $23,000 in the 2008 period as compared to $50,150 for
the
same period last year, a decrease of $27,150.
Our
sales
and marketing costs aggregated $190,071 for the nine months ended September
30,
2008 as compared to $310,640 for the nine months ended September 30, 2007,
a
decrease of $120,569. The reduction in the costs result primarily from reduced
charges for the issuance of stock options for marketing consultants of
approximately $37,500, reduced travel related costs of approximately $41,500,
lower salaries and related benefits of approximately $18,100, a $5,000 fee
paid
in 2007 to UTEK for a commercialization contract and most of the balance,
reduced fees and costs paid to marketing consultants.
Our
general and administrative costs aggregated $180,109 for the nine months ended
September 30, 2008 as compared to $207,860 for the nine months ended September
30, 2007, a decrease of $27,751. The decrease is principally the result of
lower
costs in most expense categories for 2008 and a 2007 charge for bad debts of
$12,900. Offsetting these reductions was an increase in insurance costs of
$3,700.
Our
interest expense for the nine months ended September 30, 2008 was $118,135
as
compared to $224,606 for the nine months ended September 30, 2007. Accrued
interest expense on the Company’s debt was $118,000 for the nine months ended
September 30, 2008 as compared to $83,241 for the 2007 period resulting from
an
increase in the average amount of notes outstanding during 2008 as compared
to
2007 and an increase in the interest rate from 10% to 12%. The amortization
of
the deferred finance charges for the issuance of warrants related to the Notes
was $140,407 for the nine months ended September 30, 2007. There was no
amortization charge in the 2008 period.
The
net
loss for the nine months ended September 30, 2008 was $544,809 or $0.01 per
share (rounded to the nearest $0.01). This compares to a net loss of $759,760
or
$0.01 per share (rounded to the nearest $0.01) for the same period in 2007,
a
decrease in the net loss of $214,951. Included in the net loss for the 2008
period was $7,644 that represents the expense portion of the fair value of
stock
options issued compared to $236,289 in the 2007 period that also includes the
fair value of warrants issued, a decrease of $228,645.
-21-
Liquidity
and Capital Resources
Our
cash
balance at September 30, 2008 of $14,705 was $14,357 more than the $348 as
of
December 31, 2007. Working capital at September 30, 2008 was negative
$2,383,767, representing a decrease in working capital of $528,622 from the
negative $1,855,145 at December 31, 2007. This decrease in working capital
relates principally to the cash portion of our net loss for the nine months
ended September 30, 2008.
Our
cash
flow from operations, since inception, has been and continues to be negative.
We
continue to attempt to solicit customers and expect to continue to expend funds
in excess of our revenues in the near future. We have notes that were due August
31, 2008 that have not been paid, and we currently do not have available funds
to pay them.
Future
capital requirements and the adequacy of available funds will depend on numerous
factors, including the successful commercialization of our existing products,
cost of filing, prosecuting, defending and enforcing any current and future
patent claims and other intellectual property rights, competing technological
and marketing of our products. In the event our plans change, our assumptions
change or prove to be inaccurate or the funds available prove to be insufficient
to fund operations at the planned level (due to further unanticipated expenses,
delays, problems or otherwise), we could be required to obtain additional funds
through equity or debt financing, through strategic alliances with corporate
partners and others, or through other sources in order to bring our products
through to commercialization. We do not have any committed sources of additional
financing, and there can be no assurance that additional funding will be
available on acceptable terms, if at all. If adequate funds are not available,
we may be required to further delay, scale back, or eliminate certain aspects
of
our operations or attempt to obtain funds through arrangements with
collaborative partners or others that may require us to surrender rights to
certain of our technologies, product development projects, certain products
or
existing markets. Specifically, unless we are able to obtain additional funding
and if we are unable to consummate sales, we may have to delay our anticipated
marketing and delivery dates, scale back our third-party production capabilities
or eliminate certain areas of further research and development. If adequate
funds are not available, our business, financial condition, and results of
operations will be materially and adversely affected.
Our
actual research and development and related activities may vary significantly
depending on numerous factors, including changes in the costs of such activities
from current estimates, the results of our research and development programs,
the results of clinical studies, the timing of regulatory submissions,
technological advances, determinations as to commercial potential, the status
of
competitive products and the availability of sufficient funds to achieve our
goals. At this time we cannot project our cash expenditures on our research
and
development program for fiscal years 2008 or 2009. Our research and development
plans are uncertain but may include the application of our product to additional
materials, as well as improving our existing products in conjunction with client
feedback and the commercialization of new products. The focus and direction
of
our operations also will be dependent upon the establishment of collaborative
arrangements with other companies.
Our
current policy is to invest our cash reserves in bank deposits, certificates
of
deposit, commercial paper, corporate notes, U.S. government instruments or
other
investment-grade quality instruments.
There
can
be no assurance that we will be able to commercialize our technologies or that
profitability will ever be achieved. We expect that our operating results will
fluctuate significantly from year to year in the future and will depend on
a
number of factors, most of which are beyond our control.
As
of
September 30, 2008, we did not have any off-balance sheet arrangements as
defined in Item 303 of Regulation S-K.
-22-
Item
4(T). Controls
and Procedures
(a) Evaluation
of Disclosure Controls and Procedures
Disclosure
controls and procedures are controls and other procedures that are designed
to
ensure that information required to be disclosed in our reports filed or
submitted under the Exchange Act are recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commission's rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed in our reports filed under the Exchange Act is
accumulated and communicated to management to allow timely decisions regarding
required disclosure.
(b) Change
in
Internal Control over Financial Reporting
No
change
in our internal control over financial reporting occurred during our most recent
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
-23-
PART
II –
OTHER INFORMATION
Item
6. Exhibits
31.1 Certification
of Principal Executive Officer and Principal Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).*
32.1 Certification
of Principal Executive Officer and Principal Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).*
* The same individual serves as the Company's Principal Executive Officer and Principal Financial Officer.
-24-
SIGNATURES
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.
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LaserLock
Technologies, Inc.
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(Registrant)
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Date:
November 14, 2008
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By:
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/s/
Norman A. Gardner
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Norman
A. Gardner
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President
and CEO
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-25-