þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
LASERLOCK TECHNOLOGIES, INC. |
Nevada | 23-3023677 | |
(State or Other Jurisdiction of Incorporation or Organization) | (IRS Employer Identification No.) |
3112 M Street Washington, DC 20007 | ||
(Address of Principal Executive Offices) (Zip Code) |
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company þ |
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1. | Optical technologies - use of light, i.e. holograms, |
2. | Electronic - magnetic strips and smart cards, |
3. | Biotechnologies - uses characteristics of biological proteins such as antibodies, enzymes and DNA, and |
4. | Chemical technologies - includes photochromic (or light-reactive) and thermochromic (or heat-reactive) inks. |
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1. | Documents of Value |
a. | Currency, |
b. | Stock certificates and bonds, |
c. | Event tickets, and |
d. | Lottery tickets. |
2. | Homeland Security |
a. | Container seals, |
b. | Pallet security, |
c. | Passports, |
d. | ID cards, |
e. | Driver’s licenses, and |
f. | Visas. |
3. | Consumer Product Security |
a. | Tax stamps, |
b. | CDs/DVDs, |
c. | Apparel tags and labels, |
d. | Pharmaceuticals, |
e. | Tobacco, |
f. | Alcohol, |
g. | Auto parts, |
h. | Aviation parts, and |
i. | Any other packaging requirements. |
4. | Gaming |
a. | Chips, |
b. | Dice, |
c. | Playing cards, |
d. | E-proms/critical memory devices, and |
e. | Slot tickets. |
5. | Product Diversion Tracking |
a. | Fragrances, |
b. | Apparel/licensed merchandise, |
c. | Cosmetics, |
d. | Pharmaceuticals, and |
e. | Watches and jewelry. |
6. | Financial Services and Products |
a. | Credit cards, |
b. | Bank checks, and |
c. | Financial documents/promissory notes. |
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1. | Security Ink Manufacturers. These are generally well-established companies such as SICPA and Sun Chemical, whose core business is printing inks; |
2. | System Integrators. These companies have often evolved from other sectors in the printing industry, mainly security printing manufacturers, technology providers, or packaging and label manufacturers. These companies offer a range of security solutions, enabling them to provide a complete suite of solutions tailored to the customer’s specific needs and requirements. The companies in this space include 3M, DuPont, Honeywell, and Avery Dennison; |
3. | System Consultancy Groups. These companies offer a range of technologies from several different providers and tailor specific solutions to end-users; |
4. | Traditional Authentication Technology Providers. These purveyors include American Banknote Holographics, and Digimarc, which provide holograms and digital watermarking, respectively; |
5. | Product Diversion Tracking Providers. Next-Generation Technology Providers LLC falls into this group, along with several companies such as Authentix, DNA Technologies, and Identif, which provide on-product and in-product tagging technologies; and |
6. | Traditional Security Printers. Traditional security printers such as Thomas de la Rue and Portals whose core products are printing the world’s currencies. |
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Fiscal Year Ended December 31, 2012 | High | Low |
Quarter ended March 31, 2012 | $0.07 | $0.01 |
Quarter ended June 30, 2012 | $0.07 | $0.05 |
Quarter ended September 30, 2012 | $0.06 | $0.02 |
Quarter ended December 31, 2012 | $0.05 | $0.02 |
Fiscal Year Ended December 31, 2013 | High | Low |
Quarter ended March 31, 2013 | $0.50 | $0.03 |
Quarter ended June 30, 2013 | $0.28 | $0.14 |
Quarter ended September 30, 2013 | $0.21 | $0.09 |
Quarter ended December 31, 2013 | $0.13 | $0.06 |
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Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | Weighted- average exercise price of outstanding options, warrants and rights (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | |||||||||
Equity compensation plans approved by security holders | 22,435,000 | $ | .00 | 19,074,004 | ||||||||
Equity compensation plans not approved by security holders | 12,900,000 | $ | .05 | - | ||||||||
Total: | 35,335,000 | $ | .05 | 19,074,004 |
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(a) | $450,000 on the date of the agreement (December 31, 2012), consisting of $250,000 in cash and warrants to purchase 4,444,444 shares of common stock under a cashless exercise initially at an exercise price of $0.045 on the terms set forth under the warrants issued by the Company to Zaah, dated as of December 31, 2012, | |
(b) | $100,000, accrued in full as of the date of the agreement, but payable in twelve (12) months from the date hereof to a designee of Zaah’s selection, with a right to convert (at Zaah’s sole discretion, from time to time at any time) to shares of common stock at the prevailing market price per share of common stock (which, as long as the common stock is listed, shall be the closing price on the last trading day prior to such issuance or sale of the common stock as traded on a national securities exchange, the NASDAQ Global Market, the NASDAQ Capital Market, or another nationally recognized trading system (including Pink OTC Markets, Inc.)), and | |
(c) | a commission of 10% of the revenue generated by any Company transaction originated through the efforts of Zaah, as substantiated by a written agreement between the Company and Zaah, specifically referencing the transaction in which Zaah is entitled to such commission, payable by the Company to Zaah in cash. Such payment shall be made on the earlier of (i) the date of the signing of such transaction, (ii) the date of the closing of such transaction, or (iii) any date on which any funds are paid to the Company in respect to such transaction. |
(a) | Payment 1, payable upon execution of the agreement on December 31, 2012: The sum of One Hundred Thousand Dollars ($100,000), to be paid by issuing (i) a number of shares of common stock, of the Company equal to (x) $100,000 divided by (y) $0.045 (2,222,222 shares) and (ii) cashless exercise warrants to purchase an equal number of shares exercisable at a price of Ten Cents ($0.10) per share with a term of five (5) years. | |
(b) | Payment 2, payable on January 1, 2014: The sum of Four Hundred Thousand Dollars ($400,000), to be paid by issuing (i) a number of shares equal to (x) $400,000 divided by (y) a price which equals a 10% discount to market and (ii) cashless exercise warrants to purchase an equal number of shares exercisable at a price of Ten Cents ($0.10) per share with a term of five (5) years. | |
(c) | Payment 3, payable on January 1, 2015: The sum of Four Million Five Hundred Thousand Dollars ($4,500,000), to be paid by issuing (i) a number of shares equal to (x) $4,500,000 divided by (y) a price which equals a 10% discount to market and (ii) cashless exercise warrants to purchase an equal number of shares exercisable at a price of Ten Cents ($0.10) per share with a term of five (5) years. | |
(d) | Future Payments Contingent: The Company’s payment of Payment 2 and Payment 3 is contingent. To the extent that VerifyMe does not develop and license to the Company at a time subsequent to Payment 1, further technology and/or a further patent right related to the local, mobile and cloud based biometric security systems, then any payments not already paid, will no longer be due to VerifyMe, this nonperformance being a likelihood, more likely than not. |
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In accordance with ASC 480 and 815, the Preferred Stock has been classified as permanent equity and has been valued at $1 million. |
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Name | Age | Position with Company |
Constance Harriman-Whitfield | 65 | Director |
Claudio R. Ballard* | 55 | Director |
Neil Alpert | 36 | Director, Chief Executive Officer |
Paul Klapper | 75 | Director |
Jonathan Weinberger* | 37 | Director |
Giles Kyser | 52 | Chief Operating Officer |
Paul Donfried Edward J. Weisberger | 52 49 | Chief Technical Officer Chief Financial Officer |
Norman A. Gardner | 70 | Vice Chairman of the Board of Directors |
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Name and Principal Position | Year | Salary ($) | Option Awards(1) ($) | All Other Compensation (2)($) | Total ($) |
Norman A. Gardner (3) Vice Chairman & Founder | 2013 2012 | 171,333 50,000 | 3,787,700 44,769 | - 56,414 | 3,959,033 151,183 |
Neil Alpert President & CEO | 2013 2012 | 200,000 50,000 | 3,787,700 44,769 | - - | 3,987,700 94,769 |
Paul Donfried CTO | 2013 | 282,692 | 24,993 | - | 307,685 |
(1) | Represents the grant date fair value of the option award, calculated in accordance with FASB Accounting Standard Codification 718, “Compensation – Stock Compensation,” or ASC 718. The assumptions used in calculating the grant date fair value of the option awards are set forth in Note 13 of our Consolidated Financial Statements. |
(2) | Company car, insurance, occupancy costs and expenses. |
(3) | Mr. Gardner’s salary payments were paid in 2013 to Lindy Associates. |
Name | Number of securities underlying unexercised options (#) exercisable | Number of securities underlying unexercised options (#) unexercisable | Option exercise price ($) | Option expiration Date |
Norman A. Gardner | 1,000,000 19,000,000 | - - | $0.05 $0.05 | 11/20/2022 06/29/2023 |
Neil Alpert | 1,000,000 19,000,000 | - - | $0.05 $0.05 | 11/20/2022 06/29/2023 |
Paul Donfried | 250,000 | - | $0.05 | 1/22/2023 |
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Name | Fees earned or paid in cash ($) | Option awards ($)(1) | Total ($) | |
Michael Sonnenreich | 2013 2012 | - - | 89,568 89,568 | 89,568 89,568 |
Claudio Ballard Michael Chertoff Neil Alpert | 2013 2013 2013 2012 | - - - - | 219,982 230,000 - - | 219,982 230,000 - - |
Constance Harriman-Whitfield | 2013 2012 | - - | 89,568 89,568 | 89,568 89,568 |
General Peter Pace | 2013 2012 | - - | 89,568 89,568 | 89,568 89,568 |
Paul Wolfowitz | 2013 2012 | - - | 89,568 89,568 | 89,568 89,568 |
Jonathan Weinberger | 2013 2012 | - - | 89,568 89,568 | 89,568 89,568 |
(1) | Represents the grant date fair value of the option award, calculated in accordance with FASB Accounting Standard Codification 718, “Compensation – Stock Compensation,” or ASC 718. The assumptions used in calculating the grant date fair value of the option awards are set forth in Note 13 of our Consolidated Financial Statements. |
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Name and Address of Beneficial Owner | Amount and Nature Of Beneficial Ownership† | Percentage of Class† |
5% Beneficial Owners | ||
Robert L. Bast 110 Spruce Lane Ambler, PA 19002 | 28,423,622(1) | 9.80% |
Clydesdale Partners II LLC 201 Spear Street, Suite 1150 San Francisco, CA 94105 | 58,681,334(2) | 20.23% |
Nob Hill 1 Ferry Building, Suite 225 San Francisco, CA 19411 | 57,126,363(3) | 19.69% |
VerifyMe, Inc. 205 Linda Drive Daingerfield, TX 75638 | 155,333,332(4) | 38.94% |
Executive Officers and Directors | ||
Michael Sonnenreich | 7,000,000(5) | 2.38% |
Norman A. Gardner | 39,046,339(6) | 12.59% |
Neil Alpert | 20,000,000(7) | 6.45% |
Constance Harriman-Whitfield | 3,000,000(8) | 1.02% |
Claudio Ballard | 1,000,000(9) | * |
All officers and directors as a group (9 people) | 121,727,673 | 36.47% |
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3.1 | Amended and Restated Articles of Incorporation of the Company dated December 17, 2003 (filed as an exhibit to the Company’s Annual Report on Form 10-KSB filed with the Securities and Exchange Commission on March 30, 2004 and incorporated herein by reference). |
3.2 | Certificate of Amendment to Amended and Restated Articles of Incorporation of LaserLock Technologies, Inc., dated as of November 29, 2012 (filed as an exhibit to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 1, 2013 and incorporated herein by reference). |
3.3 | Amended Certificate of Designation of Series A Preferred Stock, dated as of January 31, 2013 (filed as an exhibit to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 6, 2013 and incorporated herein by reference). |
3.4 | Amended and Restated Bylaws of the Company dated December 17, 2003 (filed as an exhibit to the Company’s Annual Report on Form 10-KSB filed with the Securities and Exchange Commission on March 30, 2004 and incorporated herein by reference). |
3.5 | Certificate of Amendment to Amended and Restated Articles of Incorporation of LaserLock Technologies, Inc., dated as of May 23, 2013 (filed as an exhibit to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 30, 2013 and incorporated herein by reference). |
10.1 | Employment Agreement by and between the Company and Norman Gardner dated November 5, 2003 (filed as an exhibit to the Company’s Annual Report on Form 10-KSB filed with the Securities and Exchange Commission on March 30, 2004 and incorporated herein by reference). |
10.2 | Stock Loan Agreement by and among Norman Gardner, Californian Securities, SA and Pacific Continental Securities (UK) Nominees Limited and the Company (filed as an exhibit to the Company’s Quarterly Report on Form 10-QSB filed with the Securities and Exchange Commission on November 14, 2003 and incorporated herein by reference). |
10.3 | Regulations S Stock Purchase Agreement, dated May 2, 2003, by and between the Company and Californian Securities, S.A. (filed as an exhibit to the Company’s Quarterly Report on Form 10-QSB filed with the Securities and Exchange Commission on August 14, 2003 and incorporated herein by reference). |
10.4 | Amendment to Regulation S Stock Purchase Agreement by and between the Company and Californian Securities, S.A., dated October 15, 2003 (filed as an exhibit to the Company’s Quarterly Report on Form 10-QSB filed with the Securities and Exchange Commission on November 14, 2003 and incorporated herein by reference). |
10.5 | Regulations S Stock Purchase Agreement, dated March 10, 2004, by and between the Company and California Securities, S.A. (filed as an exhibit to the Company’s Quarterly Report on Form 10-QSB filed with the Securities and Exchange Commission on May 17, 2004 and incorporated herein by reference). |
10.6 | Senior Secured Convertible Note and Warrant Purchase Agreement, dated February 13, 2006, among the Company and Nob Hill Capital Partners, L.P. (filed as an exhibit to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 17, 2006 and incorporated herein by reference). |
10.7 | Schedule of Purchasers who have entered into the Senior Secured Convertible Note and Warrant Purchase Agreement (filed as an exhibit to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 17, 2006 and incorporated herein by reference). |
10.8 | Senior Secured Convertible Promissory Note, dated February 17, 2006, by the Company in favor of Nob Hill Capital Partners, L.P. in the amount of $100,000 (filed as an exhibit to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 17, 2006 and incorporated herein by reference). |
10.9 | Schedule of Payees who have entered into a senior secured convertible promissory note substantially identical to the Senior Secured Convertible Promissory Note (filed as an exhibit to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 17, 2006 and incorporated herein by reference). |
10.10 | Warrant, issued by the Company in favor of Nob Hill Capital Partners, L.P., dated February 13, 2006 (filed as an exhibit to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 17, 2006 and incorporated herein by reference). |
10.11 | Schedule of Holders to whom the Company has issued a warrant substantially identical to the Warrant (filed as an exhibit to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 17, 2006 and incorporated herein by reference). |
10.12 | Security Agreement, dated February 13, 2006, by and between the Company and Nob Hill Capital Partners, L.P. (filed as an exhibit to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 17, 2006 and incorporated herein by reference). |
10.13 | Schedule of Secured Parties who have entered into a security agreement substantially identical to the Security Agreement (filed as an exhibit to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 17, 2006 and incorporated herein by reference). |
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10.14 | Grant of 3,000,000 shares of the Company to Norman A. Gardner on January 3, 2006 in consideration for services provided to the Company (filed as an exhibit to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 18, 2006 and incorporated herein by reference). |
10.15 | LaserLock Technologies, Inc. 2013 Omnibus Equity Compensation Plan adopted on December 9, 2013 (filed as an exhibit to the Company’s Definitive Proxy Statement filed with the Securities and Exchange Commission on November 19, 2013 and incorporated herein by reference). |
10.16 | Option Agreement, dated as of March 23, 2012, between the Company and Gaming Partners International Corporation (filed herewith). |
10.17 | Investment Agreement, dated as of December 31, 2012, between LaserLock Technologies, Inc. and VerifyMe, Inc. (filed as an exhibit to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 1, 2013 and incorporated herein by reference). |
10.18 | Registration Rights Agreement, dated as of December 31, 2012, between LaserLock Technologies, Inc. and VerifyMe, Inc. (filed as an exhibit to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 1, 2013 and incorporated herein by reference). |
10.19 | Technology and Services Agreement, dated as of December 31, 2012, between LaserLock Technologies, Inc. and VerifyMe, Inc. (filed as an exhibit to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 1, 2013 and incorporated herein by reference). |
10.20 | Patent and Technology License Agreement, dated as of December 31, 2012, between LaserLock Technologies, Inc. and VerifyMe, Inc. (filed as an exhibit to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 1, 2013 and incorporated herein by reference). |
10.21 | Asset Purchase Agreement, dated as of December 31, 2012, between LaserLock Technologies, Inc. and VerifyMe, Inc. (filed as an exhibit to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 1, 2013 and incorporated herein by reference). |
10.22 | Technology and Services Agreement (Zaah), dated as of December 31, 2012, between LaserLock Technologies, Inc. and Zaah Technologies, Inc. (filed as an exhibit to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 1, 2013 and incorporated herein by reference). |
10.23 | Employment Agreement between LaserLock Technologies, Inc. and Norman Gardner, dated as of October 8, 2012 (filed as an exhibit to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 1, 2013 and incorporated herein by reference). |
10.24 | Employment Agreement between LaserLock Technologies, Inc. and Neil Alpert, dated as of October 8, 2012 (filed as an exhibit to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 1, 2013 and incorporated herein by reference). |
10.25 | Employment Agreement between LaserLock Technologies, Inc. and Scott McPherson, dated as of December 14, 2012 (filed as an exhibit to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 1, 2013 and incorporated herein by reference). |
10.26 | Nonqualified Stock Option Grant Agreement between LaserLock Technologies, Inc. and Norman Gardner, dated as of November 21, 2012 (filed as an exhibit to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 1, 2013 and incorporated herein by reference). |
10.27 | Nonqualified Stock Option Grant Agreement between LaserLock Technologies, Inc. and Neil Alpert, dated as of November 21, 2012 (option grant on identical terms and for same amount of options as pursuant to agreement filed as Exhibit 10.26). |
10.28 | Nonqualified Stock Option Grant Agreement between LaserLock Technologies, Inc. and Michael Sonnenreich, dated as of November 21, 2012 (filed as an exhibit to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 1, 2013 and incorporated herein by reference). |
10.29 | Nonqualified Stock Option Grant Agreement between LaserLock Technologies, Inc. and Constance Harriman, dated as of November 21, 2012 (option grant on identical terms and for same amount of options as pursuant to agreement filed as Exhibit 10.28). |
10.30 | Nonqualified Stock Option Grant Agreement between LaserLock Technologies, Inc. and Peter Pace, dated as of November 21, 2012 (option grant on identical terms and for same amount of options as pursuant to agreement filed as Exhibit 10.28). |
10.31 | Nonqualified Stock Option Grant Agreement between LaserLock Technologies, Inc. and Jonathan Weinberger, dated as of November 21, 2012 (option grant on identical terms and for same amount of options as pursuant to agreement filed as Exhibit 10.28). |
10.32 | Nonqualified Stock Option Grant Agreement between LaserLock Technologies, Inc. and Paul Wolfowitz, dated as of November 21, 2012 (option grant on identical terms and for same amount of options as pursuant to agreement filed as Exhibit 10.28). |
10.33 | Subscription Agreement between LaserLock Technologies, Inc. and VerifyMe, Inc., dated as of January 31, 2013 (filed as an exhibit to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 6, 2013 and incorporated herein by reference). |
10.34 | Nonqualified Stock Option Grant Agreement between LaserLock Technologies, Inc. and Paul Klapper, dated as of December 9, 2013 (option grant on identical terms and for same amount of options as pursuant to agreement filed as Exhibit 10.28). |
10.35 | Nonqualified Stock Option Grant Agreement between LaserLock Technologies, Inc. and Michael Chertoff, dated as of May 4, 2013 (option grant on identical terms and for same amount of options as pursuant to agreement filed as Exhibit 10.28). |
14.1 | Code of Ethics (filed as an exhibit to the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 1, 2013 and incorporated herein by reference). |
23.1 | Consent of Asher & Company, Ltd. (filed herewith). |
31.1** | Certification of the principal executive officer of the Company, pursuant to Securities Exchange Act Rule 13a-14(a) |
31.2** | Certification of the principal financial officer of the Company, pursuant to Securities Exchange Act Rule 13a-14(a) |
32.1** | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002, signed by the chief executive officer of the Company |
32.2** | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002, signed by the chief financial officer of the Company |
101.INS** | XBRL Instance Document |
101.SCH** | XBRL Taxonomy Extension Schema Document |
101.CAL** | XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF** | XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB** | XBRL Taxonomy Extension Label Linkbase |
101.PRE** | XBRL Taxonomy Extension Presentation Linkbase Document |
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LaserLock Technologies, Inc. | |||
By: | /s/ Neil Alpert | ||
Neil Alpert Chief Executive Officer | |||
Date: March 28, 2014 |
Signature | Title | Date | ||
/s/ Neil Alpert | Chief Executive Officer | March 31, 2014 | ||
Neil Alpert | (Principal Executive Officer) | |||
Signature | Title | Date | ||
/s/ Edward J Weisberger | Chief Financial Officer | March 31, 2014 | ||
Edward J Weisberger | (Principal Financial Accounting Officer) | |||
Signature | Title | Date | ||
/s/ Constance Harriman-Whitfield | Director | March 31, 2014 | ||
Constance Harriman-Whitfield |
Signature | Title | Date | ||
/s/ Claudio Ballard | Director | March 31, 2014 | ||
Claudio Ballard | ||||
Signature | Title | Date | ||
/s/ Jonathan Weinberger | Director | March 31, 2014 | ||
Jonathan Weinberger | ||||
Signature | Title | Date | ||
/s/ Paul Klapper | Director | March 31, 2014 | ||
Paul Klapper |
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We have audited the accompanying consolidated balance sheets of LaserLock Technologies, Inc. and its Subsidiary (a development stage enterprise) as of December 31, 2013 and 2012 and the related consolidated statements of operations, changes in stockholders’ equity (deficit), and cash flows for the years then ended and for the period from November 10, 1999 (date of inception) to December 31, 2013. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We did not audit the consolidated financial statements of LaserLock Technologies, Inc. and its Subsidiary as of December 31, 2011, 2010, 2009 and 2008 and for each of the years in the four-year period ended December 31, 2011. Such statements are included in the cumulative since inception to December 31, 2013 totals of the consolidated statements of operations and cash flows. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to amounts for each of the years in the four-year period ended December 31, 2011, included in the cumulative totals, is based solely on the report of the other auditors.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of the other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of LaserLock Technologies, Inc. and its Subsidiary as of December 31, 2013, and the results of their operations and their cash flows for the years then ended and for the period November 10, 1999 (date of inception) to December 31, 2013, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has incurred significant losses and experienced negative cash flow from operations during the development stage. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ MORISON COGEN LLP
Bala Cynwyd, Pennsylvania
March 31, 2014
-1- |
LaserLock Technologies, Inc. and Subsidiary |
(A Development Stage Enterprise) |
December 31, 2013 and December 31, 2012 |
December 31, 2013 | December 31, 2012 | |||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash and cash equivalents | $ | 1,285,973 | $ | 2,994,350 | ||||
Accounts receivable, net of allowance of $0 at December 31, 2013 and December 31, 2012 | 3,573 | 3,473 | ||||||
Inventory | 34,271 | 19,980 | ||||||
Prepaid expenses | 189,474 | 750,000 | ||||||
TOTAL CURRENT ASSETS | 1,513,291 | 3,767,803 | ||||||
PROPERTY AND EQUIPMENT | ||||||||
Capital equipment, net of accumulated depreciation of $91,952 and $32,624 as of December 31, 2013 and December 31, 2012 | 144,074 | 2,340 | ||||||
OTHER ASSETS | ||||||||
Deposits | 37,197 | - | ||||||
Patents and trademarks, net of accumulated amortization of $105,393 and $92,302 as of December 31, 2013 and December 31, 2012 | 120,695 | 311,832 | ||||||
TOTAL ASSETS | $ | 1,815,257 | $ | 4,081,975 | ||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts payable and accrued expenses | $ | 316,785 | $ | 660,493 | ||||
Accrued interest | 16,667 | 97,563 | ||||||
Embedded derivative liability | 800,000 | - | ||||||
Notes payable | 50,000 | 200,000 | ||||||
TOTAL CURRENT LIABILITIES | 1,183,452 | 958,056 | ||||||
LONG-TERM LIABILITIES | ||||||||
Warrant liability | 6,000,000 | 2,400,000 | ||||||
Accrued interest - related parties | 300,677 | 975,559 | ||||||
Senior secured convertible notes payable - related parties | 330,249 | 775,249 | ||||||
Convertible notes payable | - | 140,000 | ||||||
Notes payable, net of discount of $13,632 as of December 31, 2012 | - | 697,368 | ||||||
TOTAL LONG-TERM LIABILITIES | 6,630,926 | 4,988,176 | ||||||
STOCKHOLDERS’ DEFICIT | ||||||||
Convertible Preferred Stock, $ .001 par value; 75,000,000 shares authorized; 21,111,111 shares issued and outstanding as of December 31, 2013 and no shares issued and outstanding at December 31, 2012 | 633,333 | - | ||||||
Common stock, $ .001 par value; 675,000,000 shares authorized; 319,862,042 shares issued and 290,066,139 outstanding at December 31, 2013 and 248,244,012 shares issued and 218,448,109 outstanding at December 31, 2012 | 319,862 | 248,244 | ||||||
Additional paid in capital | 22,938,983 | 11,387,929 | ||||||
Treasury stock, at cost (29,795,903 shares at December 31, 2013 and December 31, 2012) | (113,389 | ) | (113,389 | ) | ||||
Deficit accumulated during the development stage | (29,777,910 | ) | (13,387,041 | ) | ||||
STOCKHOLDERS’ DEFICIT | (5,999,121 | ) | (1,864,257 | ) | ||||
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | 1,815,257 | $ | 4,081,975 |
-2- |
LaserLock Technologies, Inc. and Subsidiary |
(A Development Stage Enterprise) |
For the years ended December 31, 2013 and 2012 |
And for the period November 10, 1999 (date of inception) to December 31, 2013 |
Year | Year | |||||||||||
Cumulative | Ended | Ended | ||||||||||
Since | December 31, | December 31, | ||||||||||
Inception | 2013 | 2012 | ||||||||||
NET REVENUES | ||||||||||||
Sales | $ | 464,295 | $ | 3,140 | $ | 7,029 | ||||||
Royalties | 645,180 | - | 10,000 | |||||||||
TOTAL NET REVENUE | 1,109,475 | 3,140 | 17,029 | |||||||||
COST OF SALES | 431,741 | 2,710 | 4,083 | |||||||||
GROSS PROFIT | 677,734 | 430 | 12,946 | |||||||||
OPERATING EXPENSES | ||||||||||||
General and administrative | 2,306,027 | 762,668 | 129,329 | |||||||||
Legal and accounting | 2,014,734 | 475,948 | 276,774 | |||||||||
Patent costs | 65,000 | - | - | |||||||||
Payroll expenses (a) | 12,898,321 | 9,485,339 | 612,721 | |||||||||
Research and development | 1,523,632 | 655,840 | 5,420 | |||||||||
Sales and marketing | 5,281,536 | 261,804 | 66,499 | |||||||||
Total operating expenses | 24,089,250 | 11,641,599 | 1,090,743 | |||||||||
LOSS BEFORE OTHER INCOME (EXPENSE) | (23,411,516 | ) | (11,641,169 | ) | (1,077,797 | ) | ||||||
OTHER INCOME (EXPENSE) | ||||||||||||
Interest income | 63,664 | - | 1 | |||||||||
Interest expense | (2,318,257 | ) | (127,825 | ) | (277,371 | ) | ||||||
Loss on extinguishment of debt | (1,221,875 | ) | (1,221,875 | ) | 156,110 | |||||||
Change in fair value of warrants | (604,209 | ) | (604,209 | ) | - | |||||||
Change in fair value of embedded derivative liability | 200,000 | 200,000 | - | |||||||||
Fair value of warrants in excess of consideration for convertible preferred stock | (2,995,791 | ) | (2,995,791 | ) | - | |||||||
Gain on debt forgiveness | 340,352 | - | - | |||||||||
Gain on disposition of assets | 4,722 | - | - | |||||||||
(6,531,394 | ) | (4,749,700 | ) | (121,260 | ) | |||||||
INCOME (LOSS) BEFORE INCOME TAX BENEFIT | (29,942,910 | ) | (16,390,869 | ) | (1,199,057 | ) | ||||||
INCOME TAX BENEFIT | (165,000 | ) | - | - | ||||||||
NET INCOME (LOSS) | (29,777,910 | ) | (16,390,869 | ) | (1,199,057 | ) | ||||||
Less: Deemed dividend distribution | (1,000,000 | ) | (1,000,000 | ) | - | |||||||
NET INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS | $ | (30,777,910 | ) | $ | (17,390,869 | ) | $ | (1,199,057 | ) | |||
NET INCOME (LOSS) PER COMMON SHARE | ||||||||||||
BASIC | $ | (0.07 | ) | $ | (0.01 | ) | ||||||
DILUTED | $ | (0.07 | ) | $ | (0.01 | ) | ||||||
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING | ||||||||||||
BASIC | 250,043,403 | 150,559,287 | ||||||||||
DILUTED | 250,043,403 | 150,559,287 |
-3- |
LaserLock Technologies, Inc. and Subsidiary |
(A Development Stage Enterprise) |
For the Period November 10, 1999 (Date of Inception) to December 31, 2013 |
Deficit | ||||||||||||||||||||||||||||
Common | Accumulated | |||||||||||||||||||||||||||
Stock | Deferred | Additional | During the | |||||||||||||||||||||||||
Number of | Consulting | Paid-In | Treasury | Development | ||||||||||||||||||||||||
Shares | Amount | Fees | Capital | Stock | Stage | Total | ||||||||||||||||||||||
Issuance of initial 4,278,000 shares on November 10, 1999 | 4,278,000 | $ | 4,278 | $ | - | $ | 16,595 | $ | - | $ | - | $ | 20,873 | |||||||||||||||
Issuance of shares of common stock in exchange for services | 1,232,000 | 1,232 | - | 35,728 | - | - | 36,960 | |||||||||||||||||||||
Issuance of shares of common stock | 2,090,000 | 2,090 | - | 60,610 | - | - | 62,700 | |||||||||||||||||||||
Stock issuance costs | - | - | - | (13,690 | ) | - | - | (13,690 | ) | |||||||||||||||||||
Net loss | - | - | - | - | - | (54,113 | ) | (54,113 | ) | |||||||||||||||||||
Balance, December 31, 1999 | 7,600,000 | 7,600 | - | 99,243 | - | (54,113 | ) | 52,730 | ||||||||||||||||||||
Issuance of shares of common stock | 5,449,999 | 5,450 | - | 921,050 | - | - | 926,500 | |||||||||||||||||||||
Issuance of shares of common stock in exchange for services | 240,000 | 240 | (40,800 | ) | 40,560 | - | - | - | ||||||||||||||||||||
Stock issuance costs | - | - | - | (16,335 | ) | - | - | (16,335 | ) | |||||||||||||||||||
Fair value of non-employee stock options grants | - | - | - | 50,350 | - | - | 50,350 | |||||||||||||||||||||
Amortization of deferred consulting fees | - | - | 20,117 | - | - | - | 20,117 | |||||||||||||||||||||
Net loss | - | - | - | - | - | (367,829 | ) | (367,829 | ) | |||||||||||||||||||
Balance, December 31, 2000 | 13,289,999 | 13,290 | (20,683 | ) | 1,094,868 | - | (421,942 | ) | 665,533 | |||||||||||||||||||
Issuance of shares of common stock | 217,500 | 218 | - | 77,723 | - | - | 77,941 | |||||||||||||||||||||
Issuance of shares of common stock and stock options for acquisition of subsidiary | 2,000,000 | 2,000 | - | 736,000 | - | - | 738,000 | |||||||||||||||||||||
Issuance of stock options | - | - | - | 15,000 | - | - | 15,000 | |||||||||||||||||||||
Exercise of options | 1,450,368 | 1,450 | - | 230,609 | - | - | 232,059 | |||||||||||||||||||||
Fair value of non-employee stock options | - | - | - | 323,250 | - | - | 323,250 | |||||||||||||||||||||
Amortization of deferred consulting fees | - | - | 20,683 | - | - | - | 20,683 | |||||||||||||||||||||
Net loss | - | - | - | - | - | (1,052,299 | ) | (1,052,299 | ) | |||||||||||||||||||
Balance, December 31, 2001 | 16,957,867 | 16,958 | - | 2,477,450 | - | (1,474,241 | ) | 1,020,167 |
-4- |
LaserLock Technologies, Inc. and Subsidiary |
(A Development Stage Enterprise) |
Consolidated Statements of Changes in Stockholders’ Equity (Deficit) (Continued) |
For the Period November 10, 1999 (Date of Inception) to December 31, 2013 |
Deficit | ||||||||||||||||||||||||||||
Common | Accumulated | |||||||||||||||||||||||||||
Stock | Deferred | Additional | During the | |||||||||||||||||||||||||
Number of | Consulting | Paid-In | Treasury | Development | ||||||||||||||||||||||||
Shares | Amount | Fees | Capital | Stock | Stage | Total | ||||||||||||||||||||||
Issuance of shares of common stock | 3,376,875 | 3,377 | - | 687,223 | - | - | 690,600 | |||||||||||||||||||||
Fair value of non-employee stock options | - | - | - | 94,000 | - | - | 94,000 | |||||||||||||||||||||
Salary due to shareholder contributed capital | - | - | - | 15,000 | - | - | 15,000 | |||||||||||||||||||||
Return of shares of common stock related to purchase price adjustment | (1,000,000 | ) | (1,000 | ) | - | (353,000 | ) | - | - | (354,000 | ) | |||||||||||||||||
Net loss | - | - | - | - | - | (1,195,753 | ) | (1,195,753 | ) | |||||||||||||||||||
Balance, December 31, 2002 | 19,334,742 | 19,335 | - | 2,920,673 | - | (2,669,994 | ) | 270,014 | ||||||||||||||||||||
Issuance of shares of common stock | 22,512,764 | 22,512 | - | 1,387,109 | - | - | 1,409,621 | |||||||||||||||||||||
Fair value of non-employee stock options | - | - | - | 213,300 | - | - | 213,300 | |||||||||||||||||||||
Issuance of shares of common stock in exchange for services | 143,000 | 143 | - | 23,857 | - | - | 24,000 | |||||||||||||||||||||
Stock issuance costs | - | - | - | (49,735 | ) | - | - | (49,735 | ) | |||||||||||||||||||
Net loss | - | - | - | - | - | (1,107,120 | ) | (1,107,120 | ) | |||||||||||||||||||
Balance, December 31, 2003 | 41,990,506 | 41,990 | - | 4,495,204 | - | (3,777,114 | ) | 760,080 | ||||||||||||||||||||
Stock issuance costs | - | - | - | (25,000 | ) | - | - | (25,000 | ) | |||||||||||||||||||
Fair value of non-employee stock options | - | - | - | 493,600 | - | - | 493,600 | |||||||||||||||||||||
Issuance of shares of common stock | 18,600,000 | 18,600 | - | 939,881 | - | - | 958,481 | |||||||||||||||||||||
Net loss | - | - | - | - | - | (1,406,506 | ) | (1,406,506 | ) | |||||||||||||||||||
Balance, December 31, 2004 | 60,590,506 | 60,590 | - | 5,903,685 | - | (5,183,620 | ) | 780,655 |
-5- |
LaserLock Technologies, Inc. and Subsidiary |
(A Development Stage Enterprise) |
Consolidated Statements of Changes in Stockholders’ Equity (Deficit) (Continued) |
For the Period November 10, 1999 (Date of Inception) to December 31, 2013 |
Deficit | ||||||||||||||||||||||||||||
Common | Accumulated | |||||||||||||||||||||||||||
Stock | Deferred | Additional | During the | |||||||||||||||||||||||||
Number of | Consulting | Paid-In | Treasury | Development | ||||||||||||||||||||||||
Shares | Amount | Fees | Capital | Stock | Stage | Total | ||||||||||||||||||||||
Fair value of non-employee stock options | - | - | - | 286,762 | - | - | 286,762 | |||||||||||||||||||||
Issuance of shares of common stock | 3,000,000 | 3,000 | - | 102,000 | - | - | 105,000 | |||||||||||||||||||||
Net loss for the year ended December 31, 2005 | - | - | - | - | - | (1,266,811 | ) | (1,266,811 | ) | |||||||||||||||||||
Balance at December 31, 2005 | 63,590,506 | 63,590 | - | 6,292,447 | - | (6,450,431 | ) | (94,394 | ) | |||||||||||||||||||
Fair value of non-employee stock options | - | - | - | 215,463 | - | - | 215,463 | |||||||||||||||||||||
Fair value of employee stock options | - | - | - | 135,098 | - | - | 135,098 | |||||||||||||||||||||
Fair value of warrants issued for deferred finance charges | - | - | - | 392,376 | - | - | 392,376 | |||||||||||||||||||||
Exercise of warrants | 5,550,000 | 5,550 | - | 49,950 | - | - | 55,500 | |||||||||||||||||||||
Exercise of options | 4,300,000 | 4,300 | - | (3,870 | ) | - | - | 430 | ||||||||||||||||||||
Shares retired upon cancellation of consulting agreements | (1,200,000 | ) | (1,200 | ) | - | 1,080 | - | - | (120 | ) | ||||||||||||||||||
Issuance of shares for services | 1,200,000 | 1,200 | - | 53,800 | - | - | 55,000 | |||||||||||||||||||||
Net loss for the year ended December 31, 2006 | - | - | - | - | - | (1,607,017 | ) | (1,607,017 | ) | |||||||||||||||||||
Balance at December 31, 2006 | 73,440,506 | 73,440 | - | 7,136,344 | - | (8,057,448 | ) | (847,664 | ) | |||||||||||||||||||
Fair value of non-employee stock options | - | - | - | 47,692 | - | - | 47,692 | |||||||||||||||||||||
Fair value of employee stock options | - | - | - | 67,651 | - | - | 67,651 | |||||||||||||||||||||
Recognition of beneficial conversion feature | - | - | - | 375,000 | - | - | 375,000 | |||||||||||||||||||||
Net loss for the year ended December 31, 2007 | - | - | - | - | - | (1,117,334 | ) | (1,117,334 | ) | |||||||||||||||||||
Balance at December 31, 2007 | 73,440,506 | 73,440 | - | 7,626,687 | - | (9,174,782 | ) | (1,474,655 | ) |
-6- |
LaserLock Technologies, Inc. and Subsidiary |
(A Development Stage Enterprise) |
Consolidated Statements of Changes in Stockholders’ Equity (Deficit) (Continued) |
For the Period November 10, 1999 (Date of Inception) to December 31, 2013 |
Deficit | ||||||||||||||||||||||||||||
Common | Accumulated | |||||||||||||||||||||||||||
Stock | Deferred | Additional | During the | |||||||||||||||||||||||||
Number of | Consulting | Paid-In | Treasury | Development | ||||||||||||||||||||||||
Shares | Amount | Fees | Capital | Stock | Stage | Total | ||||||||||||||||||||||
Fair value of non-employee stock options | - | - | - | 28,752 | - | - | 28,752 | |||||||||||||||||||||
Fair value of employee stock options | - | - | - | 19,720 | - | - | 19,720 | |||||||||||||||||||||
Fair value of warrants issued in conjunction with debt financing | - | - | - | 25,000 | - | - | 25,000 | |||||||||||||||||||||
Net loss for the year ended December 31, 2008 | - | - | - | - | - | (931,338 | ) | (931,338 | ) | |||||||||||||||||||
Balance at December 31, 2008 | 73,440,506 | 73,440 | - | 7,700,159 | - | (10,106,120 | ) | (2,332,521 | ) | |||||||||||||||||||
Fair value of non-employee stock options | - | - | - | 1,524 | - | - | 1,524 | |||||||||||||||||||||
Fair value of warrants issued in conjunction with debt financing | - | - | - | 15,450 | - | - | 15,450 | |||||||||||||||||||||
Issuance of shares for services | 7,200,000 | 7,200 | - | 40,500 | - | - | 47,700 | |||||||||||||||||||||
Shares issued for conversion of notes payable | 48,750,000 | 48,750 | - | 263,291 | - | - | 312,041 | |||||||||||||||||||||
Net loss for the year ended December 31, 2009 | - | - | - | - | - | (694,910 | ) | (694,910 | ) | |||||||||||||||||||
Balance at December 31, 2009 | 129,390,506 | 129,390 | - | 8,020,924 | - | (10,801,030 | ) | (2,650,716 | ) | |||||||||||||||||||
Fair value of non-employee stock options | - | - | - | 364 | - | - | 364 | |||||||||||||||||||||
Fair value of warrants issued in conjunction with debt financing | - | - | - | 20,143 | - | - | 20,143 | |||||||||||||||||||||
Issuance of shares for services | 25,950,000 | 25,950 | - | 182,650 | - | - | 208,600 | |||||||||||||||||||||
Net loss for the year ended Decemberr 31, 2010 | - | - | - | - | - | (721,841 | ) | (721,841 | ) | |||||||||||||||||||
Balance at December 31, 2010 | 155,340,506 | 155,340 | - | 8,224,081 | - | (11,522,871 | ) | (3,143,450 | ) |
-7- |
Convertible | Deficit | |||||||||||||||||||||||||||||||||||
Preferred | Common | Accumulated | ||||||||||||||||||||||||||||||||||
Stock | Stock | Deferred | Additional | During the | ||||||||||||||||||||||||||||||||
Number of | Number of | Consulting | Paid-In | Treasury | Development | |||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Fees | Capital | Stock | Stage | Total | ||||||||||||||||||||||||||||
Issuance of shares for services | - | - | 1,000,000 | 1,000 | - | 29,000 | - | - | 30,000 | |||||||||||||||||||||||||||
Contribution of common stock from related parties | - | - | (12,000,000 | ) | - | - | 95,594 | (95,594 | ) | - | - | |||||||||||||||||||||||||
Purchase of common stock for treasury | - | - | (17,795,903 | ) | - | - | - | (17,795 | ) | - | (17,795 | ) | ||||||||||||||||||||||||
Sale of common stock | - | - | 15,500,000 | 15,500 | - | 384,500 | - | - | 400,000 | |||||||||||||||||||||||||||
Issuance of shares for stock issuance costs | - | - | 2,100,000 | 2,100 | - | (2,100 | ) | - | - | - | ||||||||||||||||||||||||||
Stock issuance costs | - | - | - | - | - | (40,000 | ) | - | - | (40,000 | ) | |||||||||||||||||||||||||
Exercise of options | - | - | 1,000,000 | 1,000 | - | 9,000 | - | - | 10,000 | |||||||||||||||||||||||||||
Fair value of warrants issued in conjunction with debt financing | - | - | - | - | - | 21,275 | - | - | 21,275 | |||||||||||||||||||||||||||
Fair value of employee stock options | - | - | - | - | - | 47,658 | - | - | 47,658 | |||||||||||||||||||||||||||
Fair value of non-employee stock options | - | - | - | - | - | 48,374 | - | - | 48,374 | |||||||||||||||||||||||||||
Net loss for the year ended December 31, 2011 | - | - | - | - | - | - | - | (665,113 | ) | (665,113 | ) | |||||||||||||||||||||||||
Balance at December 31, 2011 | - | - | 145,144,603 | 174,940 | - | 8,817,382 | (113,389 | ) | (12,187,984 | ) | (3,309,051 | ) | ||||||||||||||||||||||||
Issuance of shares for services | - | - | 1,000,000 | 1,000 | - | 45,500 | - | - | 46,500 | |||||||||||||||||||||||||||
Issuance of shares of common stock | - | - | 44,111,111 | 44,111 | - | 1,015,889 | - | - | 1,060,000 | |||||||||||||||||||||||||||
Issuance of stock for licensing | - | - | 2,222,222 | 2,222 | - | 97,778 | - | - | 100,000 | |||||||||||||||||||||||||||
Issuance of stock for trademarks, etc. | - | - | 2,222,222 | 2,222 | - | 97,778 | - | - | 100,000 | |||||||||||||||||||||||||||
Shares issued for conversion of notes payable and accrued interest | - | - | 12,923,622 | 12,925 | - | 568,639 | - | - | 581,564 | |||||||||||||||||||||||||||
Exercise of options | - | - | 10,490,996 | 10,491 | - | 2,622 | - | - | 13,113 | |||||||||||||||||||||||||||
Exercise of warrants | - | - | 333,333 | 333 | - | 49,667 | - | - | 50,000 | |||||||||||||||||||||||||||
Fair value of employee stock options | - | - | - | - | - | 332,036 | - | - | 332,036 | |||||||||||||||||||||||||||
Fair value of non-employee stock options | - | - | - | - | - | 11,638 | - | - | 11,638 | |||||||||||||||||||||||||||
Forgiveness of debt - related party | - | - | - | - | - | 349,000 | - | - | 349,000 | |||||||||||||||||||||||||||
Net loss for the year ended December 31, 2012 | - | - | - | - | - | - | - | (1,199,057 | ) | (1,199,057 | ) | |||||||||||||||||||||||||
Balance at December 31, 2012 | - | - | 218,448,109 | 248,244 | - | 11,387,929 | (113,389 | ) | (13,387,041 | ) | (1,864,257 | ) | ||||||||||||||||||||||||
Issuance of shares of preferred stock | 33,333,333 | 1,000,000 | - | - | - | - | - | - | 1,000,000 | |||||||||||||||||||||||||||
Conversion of shares of preferred stock to common stock | (12,222,222 | ) | (366,667 | ) | 12,222,222 | 12,222 | - | 354,445 | - | - | - | |||||||||||||||||||||||||
Issuance of shares of common stock | - | - | 4,811,111 | 4,811 | - | 230,189 | - | - | 235,000 | |||||||||||||||||||||||||||
Shares issued for conversion of notes payable and accrued interest | - | - | 18,275,000 | 18,275 | - | 1,871,725 | - | - | 1,890,000 | |||||||||||||||||||||||||||
Exercise of options | - | - | 3,335,000 | 3,335 | - | 14,584 | - | - | 17,919 | |||||||||||||||||||||||||||
Exercise of warrants | - | - | 1,000,000 | 1,000 | - | 9,000 | - | - | 10,000 | |||||||||||||||||||||||||||
Fair value of employee stock options | - | - | - | - | - | 8,619,136 | - | - | 8,619,136 | |||||||||||||||||||||||||||
Deemed dividend distribution | - | - | - | - | - | (1,000,000 | ) | - | - | (1,000,000 | ) | |||||||||||||||||||||||||
Exercise of warrants | 6,000,000 | 6,000 | 53,999 | 59,999 | ||||||||||||||||||||||||||||||||
Conversion of Notes payable | - | 25,974,697 | 25,975 | 1,397,976 | 1,423,951 | |||||||||||||||||||||||||||||||
Net loss for the year ended December 31, 2013 | - | - | - | - | - | - | - | (16,390,869 | ) | (16,390,869 | ) | |||||||||||||||||||||||||
Balance at December 31, 2013 | 21,111,111 | $ | 633,333 | 290,066,139 | $ | 319,862 | $ | - | $ | 22,938,983 | $ | (113,389 | ) | $ | (29,777,910 | ) | $ | (5,999,121 | ) |
-8- |
Year | Year | |||||||||||
Cumulative | Ended | Ended | ||||||||||
Since | December 31, | December 31, | ||||||||||
Inception | 2013 | 2012 | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||
Net loss | $ | (29,777,910 | ) | $ | (16,390,869 | ) | $ | (1,199,057 | ) | |||
Adjustments to reconcile net loss to net cash used in operating activities | ||||||||||||
Fair value of options issued in exchange for services | 11,036,369 | 8,619,137 | 343,674 | |||||||||
Accretion of interest on deferred finance charges | 453,625 | - | 13,625 | |||||||||
Accretion of discount on notes payable | 446,954 | 3,718 | 4,957 | |||||||||
Change in fair value warrant liability | 604,209 | 604,209 | - | |||||||||
Change in fair value embedded derivative liability | (200,000 | ) | (200,000 | ) | - | |||||||
Change in fair value of deemed distribution | - | - | - | |||||||||
Fair value of warrants in excess of consideration for convertible preferred stock | 2,995,791 | 2,995,791 | - | |||||||||
Fair value of stock in excess of converted notes payable and accrued interest | 1,221,875 | 1,221,875 | - | |||||||||
Salary due to stockholder contributed to capital | 15,000 | - | - | |||||||||
Amortization and depreciation | 611,984 | 81,929 | 13,471 | |||||||||
Loss on extinguishment of debt | - | - | - | |||||||||
Gain on disposition of assets | (4,722 | ) | - | - | ||||||||
Gain on debt forgiveness | (340,352 | ) | - | (156,110 | ) | |||||||
Stock issued in exchange for services | 553,760 | - | 46,500 | |||||||||
Financing expenses paid directly from stock proceeds | 5,270 | - | - | |||||||||
Amortization of deferred consulting fees | 40,800 | - | - | |||||||||
(Increase) decrease in assets | - | - | ||||||||||
Accounts receivable | (3,573 | ) | (100 | ) | (3,473 | ) | ||||||
Inventory | 5,689 | (14,291 | ) | 15,157 | ||||||||
Prepaid expenses | 210,526 | 560,526 | (232,240 | ) | ||||||||
Deposit | (37,197 | ) | (37,197 | ) | - | |||||||
Increase in liabilities | - | |||||||||||
Accounts payable and accrued expenses | 2,333,865 | (233,497 | ) | 786,436 | ||||||||
Net cash used in operating activities | (9,828,037 | ) | (2,788,769 | ) | (367,060 | ) | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||
Purchase of property and equipment | (48,682 | ) | (10,573 | ) | (2,360 | ) | ||||||
Purchase of patents and trademarks | (246,088 | ) | (21,954 | ) | (6,665 | ) | ||||||
Proceeds from sale of assets | 6,738 | - | - | |||||||||
Net cash used in investing activities | (288,032 | ) | (32,527 | ) | (9,025 | ) | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||
Proceeds from issuance of preferred stock | 1,000,000 | 1,000,000 | - | |||||||||
Proceeds from issuance of common stock | 5,786,447 | 235,000 | 1,060,000 | |||||||||
Proceeds from exercise of stock options | 273,401 | 17,919 | 13,113 | |||||||||
Proceeds issuance of stock options | 15,000 | - | - | |||||||||
Proceeds from exercise of warrants | 115,500 | 10,000 | 50,000 | |||||||||
Proceeds from issuance of warrants | 2,000,000 | - | 2,000,000 | |||||||||
Proceeds from issuance of notes payable | 2,789,000 | - | 200,000 | |||||||||
Repayments of notes payable | (352,751 | ) | (150,000 | ) | (6,251 | ) | ||||||
Payment for treasury stock | (17,795 | ) | - | - | ||||||||
Debt issuance costs | (62,000 | ) | - | - | ||||||||
Stock issuance costs | (144,760 | ) | - | - | ||||||||
Net cash provided by financing activities | 11,402,042 | 1,112,919 | 3,316,862 | |||||||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 1,285,973 | (1,708,377 | ) | 2,940,777 | ||||||||
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD | - | 2,994,350 | 53,573 | |||||||||
CASH AND CASH EQUIVALENTS - END OF PERIOD | $ | 1,285,973 | $ | 1,285,973 | $ | 2,994,350 |
-9- |
Year | Year | |||||||||||
Cumulative | Ended | Ended | ||||||||||
Since | December 31, | December 31, | ||||||||||
Inception | 2013 | 2012 | ||||||||||
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||||||
Cash paid during the year for: | ||||||||||||
Interest | $ | 53,336 | $ | 13,895 | $ | - | ||||||
Income taxes | $ | - | $ | - | $ | - | ||||||
Return of shares of common stock related to purchase price adjustment | ||||||||||||
Common stock | (1,000 | ) | - | - | ||||||||
Additional paid-in capital | (353,000 | ) | - | - | ||||||||
Intangible assets | $ | (354,000 | ) | $ | - | $ | - | |||||
Issuance of common stock and stock options for acquisition of subsidiary | $ | 738,000 | $ | - | $ | - | ||||||
Proceeds from common stock sales applied directly to debt and financing expenses repayment | $ | 55,270 | $ | - | $ | - | ||||||
Fair value of warrants issued for deferred finance charges | $ | 392,376 | $ | - | $ | - | ||||||
Fair value of stock issued for conversion of notes payable and accrued interest | $ | 2,985,680 | $ | 2,092,075 | $ | 581,564 | ||||||
Fair value of stock issued for conversion of preferred stock to common stock | $ | 366,667 | $ | 366,667 | $ | - | ||||||
Fair value of stock issued for purchase of assets | $ | 100,000 | $ | - | $ | 100,000 | ||||||
Fair value of warrants issued for purchase of assets | $ | 100,000 | $ | - | $ | 100,000 | ||||||
Fair value of stock issued for licensing costs | $ | 100,000 | $ | - | $ | 100,000 | ||||||
Fair value of warrants issued for licensing costs | $ | 300,000 | $ | - | $ | 300,000 | ||||||
Accretion of discount on preferred stock as deemed dividend distribution | $ | 1,000,000 | $ | 1,000,000 | $ | - | ||||||
Fair value of beneficial conversion feature | $ | 1,500,000 | $ | 1,500,000 | $ | - | ||||||
Fair value of warrants issued as debt discount | $ | 78,043 | $ | - | $ | - | ||||||
Issuance of common stock for stock issuance costs | $ | 2,100 | $ | - | $ | - | ||||||
Issuance of options as stock cost for treasury stock | $ | 5,594 | $ | - | $ | - | ||||||
Forgiveness of debt-related party treated as additional paid in capital | $ | 349,000 | $ | - | $ | 349,000 | ||||||
Conversionof warrant inlieu of cash repayment of notes payable | $ | 60,000 | $ | 60,000 | $ | - |
-10- |
-11- |
-12- |
-13- |
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred significant losses and experienced negative cash flow from operations during the development stage. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The Company believes that its existing cash resources will not be sufficient to sustain operations during the next twelve months. The Company currently needs to generate revenue in order to sustain its operations. In the event that the Company cannot generate sufficient revenue to sustain its operations, the Company will need to reduce expenses or obtain financing through the sale of debt and/or equity securities. The issuance of additional equity would result in dilution to existing shareholders. If the Company is unable to obtain additional funds when they are needed or if such funds cannot be obtained on terms acceptable to the Company, the Company may be unable to execute upon the business plan or pay costs and expenses as they are incurred, which could have a material, adverse effect on the business, financial condition and results of operations.
If sufficient revenues are not generated to sustain operations or additional funding cannot be obtained in the short term, the Company will need to reduce monthly expenditures to a level that will enable the Company to continue until such funds can be obtained.
The Company is in the development stage at December 31, 2013. Successful completion of the Company’s development program, and the attainment of profitable operations are dependent upon future events, including obtaining adequate financing to fulfill its development activities and achieving a level of sales adequate to support the Company’s cost structure. However, there can be no assurances that the Company will be able to secure additional equity investment or achieve an adequate sales level.
December 31, 2013 | December 31, 2012 | |||||||
Furniture and Fixtures | $ | 219,871 | $ | --- | ||||
Equipment | 16,155 | 34,964 | ||||||
236,026 | 34,964 | |||||||
Less: Accumulated depreciation | 91,952 | 32,624 | ||||||
$ | 144,074 | $ | 2,340 |
-14- |
Year Ended | Year Ended | |||||||
December 31, | December 31, | |||||||
2013 | 2012 | |||||||
Current | $ | 1,837,000 | $ | 490,000 | ||||
Deferred | 3,284,000 | 263,000 | ||||||
Change in valuation allowance | (5,121,000 | ) | (753,000 | ) | ||||
- | - |
2013 | 2012 | |||||||||||||||
Amount | % | Amount | % | |||||||||||||
U.S. Federal income tax benefit at Federal Statutory Rate | $ | (5,718,000 | ) | (35 | ) | $ | (298,000 | ) | (35 | ) | ||||||
State tax, net of federal effect | (956,000 | ) | (6 | ) | (50,000 | ) | (6 | ) | ||||||||
Non deductible accrued expense | - | - | (238,000 | ) | (28 | ) | ||||||||||
Deductible share based compensation | (318,000 | ) | (2 | ) | (167,000 | ) | (20 | ) | ||||||||
Non-deductible changes in derivative liability and share based transactions | 1,895,000 | 12 | - | - | ||||||||||||
Other | (24,000 | ) | - | - | - | |||||||||||
Change in valuation allowance | 5,121,000 | 31 | 753,000 | 89 | ||||||||||||
$ | - | - | - | - |
December 31, | December 31, | |||||||
2013 | 2012 | |||||||
Deferred tax asset for NOL carryforwards | $ | 5,144,000 | $ | 3,308,000 | ||||
Deferred tax liability for intangibles | (165,000 | ) | (165,000 | ) | ||||
Share based compensation | 3,683,000 | 162,000 | ||||||
Non deductible accrued expenses | 150,000 | 386,000 | ||||||
Valuation allowance | (8,812,000 | ) | (3,691,000 | ) | ||||
$ | - | $ | - |
-15- |
-16- |
-17- |
a. | First monies realized by the Company from its share of the net proceeds of the lawsuit shall be allocated and paid to the Lender until the principal and base interest accruing has been fully paid. |
b. | The next monies from the net proceeds of the litigation settlement will be paid to the Company to reimburse for out-of-pocket legal costs related to the lawsuit. |
c. | The next $825,000 of proceeds will be split 50%/50% between the Company and the Lenders. |
d. | The next $1,000,000 realized by the Company shall be allocated 90% to the Company and 10% to the Lenders. |
e. | The next $1,000,000 realized by Company shall be allocated 85% to Company and 15% to Lenders. |
f. | All remaining proceeds realized by Company shall be allocated 80% to Company and 20% to Lenders. |
-18- |
December 31, 2013 | December 31, 2012 | |||||||
Unsecured notes payable due to related parties; interest at 10% per annum; principal and accrued interest due at maturity in September 2015 | $ | 330,000 | $ | 561,000 | ||||
Series A notes payable; interest at 8% per annum; principal and accrued interest due at extended maturity date in September 2015 | --- | 150,000 | ||||||
Series A notes payable; interest at 8% per annum; principal and accrued interest due at maturity in October 2011 (past due) | 50,000 | 50,000 | ||||||
Notes payable, interest at 25% per annum; principal and interest due September 2013 | --- | 150,000 | ||||||
Less: Debt discount | ---- | (13,632 | ) | |||||
380,000 | 897,368 | |||||||
Less: Current portion | 50,000 | 200,000 | ||||||
Long-term portion | $ | 330,000 | $ | 697,368 |
-19- |
-20- |
December 31, 2013 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Derivative liability related to fair value of beneficial conversion feature | $ | - | $ | 800,000 | $ | --- | $ | 800,000 | ||||||||
Derivative liability related to fair value of warrants | - | - | 6,000,000 | 6,000,000 | ||||||||||||
Total | $ | - | $ | 800,000 | $ | 6,000,000 | $ | 6,800,000 | ||||||||
December 31, 2012 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Derivative liability related to fair value of beneficial conversion feature | $ | - | $ | - | $ | - | $ | - | ||||||||
Derivative liability related to fair value of warrants | - | - | 2,400,000 | 2,400,000 | ||||||||||||
Total | $ | - | $ | - | $ | 2,400,000 | $ | 2,400,000 |
Total | ||||
Balance at January 1, 2013 | $ | 2,400,000 | ||
Derivative liabilities resulting from Subscription Agreement | 2,998,027 | |||
Change in fair value of derivative liabilities | 601,973 | |||
Balance at December 31, 2013 | $ | 6,000,000 |
-21- |
Closing trade price of Common Stock | $0.07 |
Series A Preferred Stock Conversion Price | $0.03 |
Intrinsic value of conversion option per share | $0.04 |
December 31, 2013 | ||
Annual Dividend Yield | 0.0% | |
Expected Life (Years) | 4.00 – 4.08 | |
Risk-Free Interest Rate | 1.39% | |
Expected Volatility | 267.3% |
-22- |
-23- |
-24- |
-25- |
Weighted Average | ||||||||||||
Option/Warrant | Exercise | Exercise | ||||||||||
Shares | Price | Price | ||||||||||
Outstanding, December 31, 2011 | 15,585,996 | $0.00125 to $0.20 | $ | 0.01 | ||||||||
Granted | 72,422,221 | 0.05 to 0.10 | 0.08 | |||||||||
Transferred to employee options | (200,000 | ) | (0.05 | ) | - | |||||||
Exercised | (5,000,996 | ) | 0.00125 | - | ||||||||
Expired | - | - | - | |||||||||
Outstanding, December 31, 2012 | 82,807,221 | 0.00125 to 0.20 | 0 | |||||||||
Granted | 38,144,444 | 0.10 to 0.15 | 0.03 | |||||||||
Exercised | (9,435,000 | ) | 0.00125 - 0.07 | - | ||||||||
Expired | - | - | - | |||||||||
Outstanding, December 31, 2013 | 111,516,665 | $0.01 to $.20 | $ | 0.10 | ||||||||
Exercisable, December 2013 | 111,516,665 | $0.01 to $.20 | $ | 0.10 | ||||||||
Weighted Average Remaining Life, | ||||||||||||
Exercisable, December 31, 2013 (years) | 7.0 |
Weighted Average | ||||||||||||
Option/Warrant | Exercise | Exercise | ||||||||||
Shares | Price | Price | ||||||||||
Outstanding, December 31, 2011 | 6,390,000 | $0.00125 | $ | 0.00125 | ||||||||
Granted | 15,000,000 | 0.05 - 0.15 | 0.06 | |||||||||
Transferred from non-employee options | 200,000 | 0.05 | - | |||||||||
Exercised | (5,823,333 | ) | 0.00125 - 0.15 | - | ||||||||
Expired/Returned | - | - | - | |||||||||
Outstanding, December 31, 2012 | 15,766,667 | 0.00125 to 0.10 | 0.06 | |||||||||
Granted | 45,500,000 | 0.05 - 0.15 | 0.04 | |||||||||
Exercised | (900,000 | ) | 0.00125 | - | ||||||||
Expired/Returned | (500,000 | ) | 0.05 | - | ||||||||
Outstanding, December 31, 2013 | 59,866,667 | $0.05 to $0.15 | $ | 0.05 | ||||||||
Exercisable, December 31, 2013 | 50,116,667 | $0.05 to $0.15 | $ | 0.06 | ||||||||
Weighted Average Remaining Life, | ||||||||||||
Exercisable, December 31, 2013 (years) | 9.6 |
-26- |
2014 | $ | 71,766 | ||
2015 | 74,637 | |||
2016 | 31,605 | |||
$ | 178,008 |
-27- |