U.S. Securities and Exchange Commission
 Washington, D.C. 20549
 
 FORM 10-QSB
 
 
 [X]
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended September 30, 2004[_]
TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from ________________ to __________________Commission File No. 0-31927LASERLOCK TECHNOLOGIES, INC.(Exact name of small business issuer as specified in its charter)NEVADA

23-3023677(State or other jurisdiction of Incorporation or Organization)

(IRS Employer Identification No.)837 Lindy Lane, Bala Cynwyd, PA 19004(Address of Principal Executive Offices)(610) 668-1952(Issuer's telephone number, including area code)Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to suchYes
X

NoState the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date:Class

Outstanding at September 30, 2004Common Stock, no par value

60,590,506Transitional Small Business Disclosure Form (check one):Yes
X

No 
 
 
 
 LASERLOCK TECHNOLOGIES, INC.
 
 TABLE OF CONTENTS
 FORM 10-QSB
 PART IFINANCIAL INFORMATIONItem 1.
Consolidated Financial StatementsUnaudited Consolidated Balance Sheetsat September 30, 2004 and December 31, 2003
1Unaudited Consolidated Statement of Operations for thethree months and nine months ended September 30, 2004 and 2003
2Unaudited Consolidated Statement of Changes in Stockholders Equityfor the nine months ended September 30, 2004
3Unaudited Consolidated Statements of Cash Flowsfor the nine months ended September 30, 2004 and 2003
4Notes to Unaudited Consolidated Financial Statements
5 - 8Item 2.
Management's Discussion and Analysis of Financial Conditionand Results of Operation
9 - 12Item 3.
Controls and Procedures
13PART IIOTHER INFORMATIONItem 1.
Legal Proceedings
14Item 6.
Exhibits and Reports on Form 8-K
14Signatures

14 
 
 
 
 LASERLOCK TECHNOLOGIES, INC.
 (A DEVELOPMENT STAGE COMPANY)
 CONSOLIDATED BALANCE SHEETS
 
 
 September 30,

December 31,2004

2003ASSETS

(Unaudited)

(Audited)Current AssetsCash and cash equivalents

$
931,332

$
810,264Receivables


18,937


994Inventory


25,701


Prepaid expenses





10,197Total Current Assets


975,970


821,455Property and EquipmentCapital equipment


18,743


6,297Less accumulated depreciation


5,487


3,27513,256


3,022Patent costs, net of accumulated amortization of $6,788 as of September 30, 2004 and $3,587 as of December 31, 2003


70,687


53,097Total Assets

$
1,059,913

$
877,574LIABILITIES AND STOCKHOLDERS' EQUITYCurrent LiabilitiesAccounts payable and accrued expenses

$
67,106

$
104,994Deferred revenue


1,250


12,500Total Current Liabilities


68,356


117,494STOCKHOLDERS' EQUITYPreferred Stock, $.001 par value; 75,000,000 shares authorized, no shares issued and outstanding





Common Stock, $.001 par value; 175,000,000 sharesauthorized, 60,590,506 shares outstanding at September 30, 2004 and 41,990,506 shares outstanding at December 31, 2003


60,590


41,990Additional paid-in capital


5,893,885


4,495,204Deficit accumulated during the development state


(4,962,918
)

(3,777,114
)991,557


760,080TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$
1,059,913

$
877,574 
 
 See accompanying notes to consolidated financial statements.
   -1-  LASERLOCK TECHNOLOGIES, INC.
 (A DEVELOPMENT STAGE COMPANY)
 CONSOLIDATED STATEMENT OF OPERATIONS
 FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
 AND THE PERIOD NOVEMBER 10, 1999 (DATE OF INCEPTION) TO SEPTEMBER 30, 2003 (UNAUDITED)
 
 Three Months

Three Months

Nine Months

Nine MonthsEnded

Ended

Ended

EndedCumulativeSince

September 30,

September30,

September30,

September30,Inception

2004

2003

2004

2003REVENUESSales

$
124,952

$
34,552

$
8,608

$
55,347

$
23,511Royalties


167,194


10,507


8,750


36,576


30,618Total revenues


292,146


45,059


17,358


91,923


54,129COSTS AND EXPENSESResearch and development


757,471


84,071


67,257


287,616


116,645Patent costs


50,989











Legal and accounting


551,465


19,580


98,428


127,041


119,278Sales and marketing


2,466,936


172,591


175,633


580,169


249,871General and administrative


1,619,716


84,988


79,456


286,307


234,247Total costs and expenses


5,446,577


361,230


420,774


1,281,133


720,041LOSS BEFORE OTHER INCOME


(5,154,431
)

(316,171
)

(403,416
)

(1,189,210
)

(665,912
)OTHER INCOME (EXPENSE)Gain (loss) on disposition of assets


4,722





(1,815
)




(1,815
)Interest income


51,061


2,029


580


3,406


628Interest expense


(29,270
)










(29,270
)LOSS BEFORE INCOME TAX BENEFIT


(5,127,918
)

(314,142
)

(404,651
)

(1,185,804
)

(696,369
)INCOME TAX BENEFIT


165,000











NET LOSS

$
(4,962,918
)
$
(314,142
)
$
(404,651
)
$
(1,185,804
)
$
(696,369
)BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING





60,590,506


32,822,653


51,049,557


24,015,549BASIC AND DILUTED NET LOSS PER COMMON SHARE




$
(0.01
)
$
(0.01
)
$
(0.02
)
$
(0.03
) 
 
 See accompanying notes to consolidated financial statements.
 
   -2-  LASERLOCK TECHNOLOGIES, INC.
 (A DEVELOMENT STAGE COMPANY)
 CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
 FOR THE PERIOD NOVEMBER 10, 1999 (DATE OF INCEPTION) TO SEPTEMBER 30, 2004
 (UNAUDITED)
 
 
 AccumulatedCommon Stock



Additional

During theNumber of



Consulting

Paid-In

DevelopmentShares

Amount

Fees

Capital

Stage

TotalIssuance of initial 4,278,000 shares on November 10, 1999


4,278,000

$
4,278

$


$
16,595

$


$
20,873Issuance of shares of common stock in exchange for services


1,232,000


1,232





35,728





36,960Issuance of shares of common stock


2,090,000


2,090





60,610





62,700Stock 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
)

52,730Issuance of shares of common stock


5,449,999


5,450





921,050





926,500Issuance 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





50,350Amortization of deferred consulting fees








20,117








20,117Net loss














(367,829
)

(367,829
)Balance, December 31, 2000


13,289,999


13,290


(20,683
)

1,094,868


(421,942
)

665,533Issuance of shares of common stock


217,500


218





77,723





77,941Issuance of shares of common stock and stock options for acqusition of subsidiary


2,000,000


2,000





736,000





738,000Issuance of stock options











15,000





15,000Exercise of options


1,450,368


1,450





230,609





232,059Fair value of non-employee stock options











323,250





323,250Amortization of deferred consulting fees








20,683








20,683Net loss














(1,052,299
)

(1,052,299
)Balance, December 31, 2001


16,957,867


16,958





2,477,450


(1,474,241
)

1,020,167Issuance of shares of common stock


3,376,875


3,377





687,223





690,600Fair value of non-employee stock options











94,000





94,000Salary due to shareholder contributed to capital











15,000





15,000Return 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
)

270,014Issuance of shares of common stock


22,512,764


22,512





1,387,109





1,409,621Fair value of non-employee stock options











213,300





213,300Issuance of shares of common stock for services


143,000


143





23,857





24,000Stock 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
)

760,080Fair value of non-employee stock options











483,800





483,800Issuance of shares of common stock


18,600,000


18,600





939,881





958,481Stock issuance costs











(25,000
)




(25,000
)Net loss for the nine month period ended September 30, 2004














(1,185,804
)

(1,185,804
)Balance, September 30, 2004


60,590,506

$
60,590

$


$
5,893,885

$
(4,962,918
)
$
991,557 
 See accompanying notes to consolidated financial statements.
 
   -3-  LASERLOCK TECHNOLOGIES, INC.
 (A DEVELOPMENT STAGE COMPANY)
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
 AND THE PERIOD NOVEMBER 10, 1999 (DATE OF INCEPTION) TO SEPTEMBER 30, 2004
 (UNAUDITED)
 
 Nine Months

Nine MonthsCumulative

Ended

EndedSince

September 30,

September 30,Inception

2004

2003CASH FLOWS FROM OPERATING ACTIVITIESNet loss

$
(4,962,918
)
$
(1,185,804
)
$
(696,369
)Adjustments to reconcile net loss to net cashflows used in operating activitiesFair value of options issued in exchange for services


1,164,700


483,800


41,500Amortization and depreciation


417,406


5,413


90,369Loss (gain) on sale of fixed assets


(4,722
)




1,815Financing expenses paid directly from stock proceeds


5,270





5,270Stock issued in exchange for services


60,960





24,000Amortization of deferred consulting fees


40,800





Salary due to shareholder contributed to capital


15,000





Net changes in:Receivables


(18,937
)

(17,943
)

(2,085
)Inventory


(25,701
)

(25,701
)

Prepaid expenses





10,197


11,250Accounts payable and accrued expenses


67,107


(37,888
)

78,320Deferred revenue


1,250


(11,250
)

Net cash used in operating activities


(3,239,785
)

(779,176
)

(445,930
)CASH FLOWS FROM INVESTING ACTIVITIESPurchase of property and equipment


(21,891
)

(12,446
)

Purchase of intangibles


(20,000
)




Purchase/capitalization of patent costs


(77,475
)

(20,791
)

(32,162
)Proceeds from sale of fixed assets


6,737





200Net cash used in investing activities


(112,629
)

(33,237
)

(31,962
)CASH FLOWS FROM FINANCING ACTIVITIESProceeds from issuance of common stock


4,091,447


958,481


1,007,129Proceeds from exercise of stock options


232,059





Proceeds from issuance of stock options


15,000





Proceeds from short-term borrowings


50,000





50,000Stock issuance costs


(104,760
)

(25,000
)

(37,024
)Net cash provided by financing activities


4,283,746


933,481


1,020,105NET INCREASE (DECREASE) IN CASH


931,332


121,068


542,213CASH - BEGINNING OF PERIOD





810,264


122,593CASH - END OF PERIOD

$
931,332

$
931,332

$
664,806SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCINGReturn of shares of common stock related topurchase price adjustmentCommon stock

$
(1,000
)
$


$
Additional paid-in capital


(353,000
)




Intangible assets

$
(354,000
)
$


$
Issuance of common stock and stock optionsfor acquisition of subsidiary

$
738,000

$


$
Common stock sales proceeds applied to debt andfinancing expenses repayment

$
55,270

$


$
55,270 
 
 See accompanying notes to consolidated financial statements.
   -4-  LASERLOCK TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 
 
 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-QSB and item 310(b) of Regulation S-B. 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 three months and nine months ended September 30, 2004 are not necessarily indicative of the results that may be expected for the year ended December 31, 2004. 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, 2003.
 
 Recently Issued Accounting Pronouncements
 The Company has adopted the disclosure requirements of Statement of Financial Accounting Standard (SFAS) No. 148 for fiscal 2003. In December 2002, the FASB issued SFAS No. 148, *Accounting for Stock-Based Compensation - Transition and Disclosure.* SFAS No. 148 provides alternative methods of transition for voluntary change to the fair value based method of accounting for stock-based employee compensation. SFAS 148 also requires prominent disclosure in the Summary of Significant Accounting Policies of both annual and interim financial statements about the method used on reported results. Adoption of this statement
has affected the location of certain of the Companys disclosure in the consolidated financial statements, but will not impact the Companys results of operation or financial position unless the Company changes to the fair value method of accounting for stock-based employee compensation.
 
 On April 22, 2003, the FASB announced its decision to require all companies to expense the fair value of employee stock options. Companies will be required to measure the cost according to the fair value of the options. Although the new guidelines have not yet been released, it is expected that they will be finalized soon and be effective in 2004. When final rules are announced, the Company will assess the impact to its financial statements.
 
 The following recently issued accounting pronouncements are currently not applicable to the Company:
 
 In January 2003, subsequently revised December 2003, the FASB issued FASB Interpretation No. 46R (FIN 46R), *Consolidation of Variable Interest Entities - An Interpretation of AARB No. 51.* FIN 46R requires that if any entity has a controlling financial interest in a variable interest entity, the assets, liabilities and results of activities of the variable interest entity should be included in the consolidated financial statements of the entity. FIN 46R provisions are effective for all arrangements entered into after January 31, 2003. FIN 46R provisions are required to be adopted for the first period ending after December
15, 2004 for a small business issuer.
 
 In May 2003, FASB issued Statement of Financial Accounting Standard No. 150, *Accounting for Certain Financial Instruments With Characteristics of Both Liabilities and Equity* (SFAS No. 150) *.* SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both debt and equity and requires an issuer to classify the following instruments as liabilities in its balance sheet:
  ·
a financial instrument issued in the form of shares that is mandatorily redeemable and embodies an unconditional obligation that requires the issuer to redeem it by transferring its assets at a specified or determinable date or upon an event that is certain to occur; 
 ·
a financial instrument, other than an outstanding share, that embodies an obligation to repurchase the issuers equity shares, or is indexed to such an obligation, and requires the issuer to settle the obligation by transferring assets; and 
 
 -5-
 
 LASERLOCK TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 
 
 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
 ·
a financial instrument that embodies and unconditional obligation that the issuer must settle by issuing a variable number of its equity shares if the monetary value of the obligation is based solely or predominantly on (1) a fixed monetary amount, (2) variations in something other than the fair value of the issuers equity shares, or (3) variations inversely related to changes in the fair value of the issuers equity shares. 
 In November 2003, FASB issued FASB Staff Position No. 150-3 which deferred the effective dates for applying certain provisions of SFAS No. 150 related to mandatorily redeemable financial instruments of certain non-public entities and certain mandatorily redeemable non-controlling interests for public and non-public companies. For public entities SFAS No. 150 is effective for mandatorily redeemable financial instruments entered into or modified after May 31, 2003 and is effective for all other financial instruments as of the first interim period beginning after June 15, 2003. For mandatorily redeemable non-controlling interest that would not have to be classified as liabilities by a subsidiary under the exception in paragraph 9 of SFAS No. 150, but would be classified as liabilities by the parent, the
classification and measurement provisions of SFAS No. 150 are deferred indefinitely. The measurement provisions of SFAS No. 150 are also deferred indefinitely for other mandatorily redeemable non-controlling interests that were issued before November 4, 2003. For those instruments, the measurement guidance for redeemable shares and non-controlling interests in other literature shall apply during the deferral period. The adoption of SFAS No. 150 did not affect the Companys revenue recognition policies, nor the results of operations, financial position or cash flows.
 
 Reclassifications
 Certain reclassifications have been made to the financial statements related to prior periods to conform to the presentation in the financial statements related to the current period.
 
 NOTE 2 - REALIZATION OF ASSETS
 
 The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred losses from activities during the development stage. This condition raises 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.
 
 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 patent (17 years). During the nine months ending September 30, 2004, additional capitalized patent costs incurred amounted to $20,791. Amortization expense for patents for the three months and nine months ended September 30, 2004 totaled $1,259 and $3,201.
 
 NOTE 4 - INCOME TAXES
 
 There is no income tax benefit for the losses for the three and nine months ended September 30, 2004 and 2003 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.
 
 
 
 -6-
 
 LASERLOCK TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 
 
 NOTE 5 - COMMON STOCK
 
 During the quarter ended June 30, 2004, the Company sold 14,500,000 shares of its common stock for a total of $687,481, net of offering costs of $25,000, in connection with a private placement with investors located outside the United States, pursuant to an exemption from registration afforded by Regulation S of the Securities Act of 1933.
 
 Also during the quarter ended June 30, 2004, the Company sold 4,100,000 shares of its common stock for a total of $246,000 in connection with a private placement pursuant to an exemption from registration afforded by Regulation D of the Securities Act of 1933.
 
 NOTE 6 - STOCK OPTIONS
 
 In January 2004, in conjunction with three consulting agreements, the Company granted options to purchase 200,000 shares of common stock at an exercise price of $0.07 per share, options to purchase 500,000 shares of common stock at an exercise price of $0.20 per share and options to purchase 3,056,662 shares of common stock (7.5% of outstanding shares as of October 8, 2003) at an exercise price of $0.07 per share. The options to acquire 200,000 shares of common stock vested immediately and expire in ten years from the date of grant. The options to acquire 500,000 shares of common stock vested in six monthly installments beginning in January 2004 and expire in ten years from the date of grant. The options to purchase 3,056,662 shares of common stock expire in ten years from the date of grant, with 25% vesting on
December 17, 2003 and 6% vesting at the quarter's end of each subsequent quarter until fully vested. 550,199 of such 3,056,662 options vested in the three quarters ended September 30, 2004. In addition, in January 2004, the Company extended the date of expiration of options previously issued to acquire 500,000 shares of common stock from December 31, 2004 to December 31, 2008. In accordance with the fair value method as described in accounting requirements of SFAS No. 123, the Company recognized consulting expenses of $33,400 and $346,400 for the three months and nine months ended September 30, 2004.
  In March 2004, in conjunction with a marketing contract, the Company granted options to purchase 100,000 shares of common stock at an exercise price of $0.15 per share, vesting immediately and expiring in five years from the date of grant. In accordance with the fair value method as described in accounting requirements of SFAS No. 123, the Company recognized consulting expense of $10,000 for the nine months ended September 30, 2004.
 
 In April 2004, in conjunction with consulting contracts, the Company granted options to purchase 1,700,000 shares of common stock and 800,000 shares of common stock at an exercise price of $0.06 per share, expiring in June 2009, and vesting in equal monthly installments commencing April 2004 through June 2006. In accordance with the fair value method as described in accounting requirements of SFAS No. 123, the Company recognized consulting expenses of $33,400 and $66,800 for the three months and nine months ended September 30, 2004.
 
 
   -7-  LASERLOCK TECHNOLOGIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 
 
 NOTE 6 - STOCK OPTIONS (Continued)
 
 On July 19, 2004, the Company granted to three consultants options to purchase an aggregate of 750,000 shares of common stock, 500,000 of which have an exercise price of $0.06 per share and 250,000 of which have an exercise price of $0.15 per share. All of such options to purchase 750,000 shares of common stock vested immediately and expire ten years from date of vesting. In accordance with the fair value method as described in accounting requirements of SFAS No. 123, the Company recognized consulting expenses of $57,200.
 
 In April 2004, the Company granted an employee options to purchase 2,500,000 shares of common stock at an exercise price of $0.06 per share, expiring in June 2009, and vesting in equal monthly installments commencing April 2004 through June 2006.
 
 The Company applies Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for the issuance of its stock options. Accordingly, no compensation cost has been recognized for its stock options issued during the nine months ended September 30, 2004. Had compensation cost for the Companys issuance of vested stock options been determined based on the fair value at grant dates for options consistent with the method of SFAS No. 123, the Companys net loss would have been increased to the pro forma amounts indicated below. The net loss per share would not change. Fair value amounts were estimated using the Black-Scholes model with the following assumptions: no dividend yield, expected volatility of 60%, and risk-free
interest rate of 5% for the three and nine months ended September 30, 2004. There were no options issued for the nine months ended September 30, 2003.
 
 
 Three Months Ended

Nine Months EndedSeptember 30, 2004

September 30, 2004Net loss


As reported

$
(314,142
)
$
(1,185,804
)Pro forma$
(352,342
)
$
(1,262,204
)Net loss per share


As reported

$
(0.01
)
$
(0.02
)Pro forma

$
(0.01
)
$
(0.02
)
 
 NOTE 7 - RELATED PARTIES
 
 The Companys office is owned by its President and Chief Executive Officer. No lease exists and there was no rent expense incurred. However, the Company incurred other occupancy expenses of $5,082 and $8,487 for the three months and nine months ended September 30, 2004.
 
 
 
 -8-
 
 LASERLOCK TECHNOLOGIES, INC.
 
 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 for the nine month period ended September 30, 2004 included herein and our audited financial statements and notes for the year ended December 31, 2003 included in our Annual Report on Form 10-KSB filed with the Securities and Exchange Commission.
 
 This discussion and other sections of this Quarterly 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. The Company does not undertake to publicly update or revise its 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 which licenses our technology to both third parties who incorporate it into their products for resale to their customers, and also directly 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.
 
 Beginning in early 2003, we began to refocus our goals and alter our business plans. Initially, the plan was to primarily market anti-counterfeiting solutions to the gaming industry. In 2003, we restructured our management team and refocused our short and long-term goals.
 
 We offer security solutions to the gaming industry through third parties. These third parties sell to the gaming industry various supplies and services. We have licensed to these companies our technology and receive royalty payments, and sell to the same companies inks that are used to detect counterfeit products and documents. The third parties incorporate our technology into the products they sell to the gaming industry. By the end of fiscal 2003, we had signed agreements to provide technology for the protection of playing cards, dice, casino chips and slot tickets from fraud with Paul Son, Bud Jones and CoPAG U.S.A. Inc.
 
 We have also made a commitment to sell advertising on the back of slot tickets in the cashless ticket-in ticket-out slot machines such as those using the EZ Pay system developed by IGT. We signed an agreement with Ambient Planet, Ltd., a media and marketing company, in February 2004. The agreement was extended by mutual consent in September 2004 through September 2007. Although no advertising sales have been consummated, Ambient Planet has informed the Company that it is not unusual for a new advertising media, such as slot ticket, to take a long time to be implemented and that they remain optimistic about the potential for advertising sales.
 
 
 
 -9-
 
 LASERLOCK TECHNOLOGIES, INC.
 
 **Overview (Continued)**
 
 We continue to develop technology and apply for patents to protect that technology. In 2003, we were granted our second patent in the U.S. A third patent in the U.S. was granted in 2004. We have two additional patents pending for anti-counterfeiting solutions. We continue to file for protection of our patent portfolio in foreign jurisdictions.
 
 We are currently exploring the uses of our technologies in general industry and government. We, whenever possible, will use licenses and strategic partners that currently service those industries who will pay royalties and/or a share of the revenues/profits from their use of our technology.
 
 In the second quarter of 2004, we raised $933,481, net of expenses, in additional capital. However in order to fully implement our strategy, it may be necessary for us to raise additional capital. There can be no assurances that such capital will be available and, if available, or that we will be able to secure such capital on acceptable terms.
 
 **Results of Operations for the three months ended September 30, 2004 as compared to the three months ended September 30, 2003**
 
 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 near future due to our attempts to cultivate business relationships over the past year.
 
 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, 2004, we had sales and royalties revenues of $45,059, as compared to sales and royalties revenues of $17,358 for the three months ending September 30, 2003, resulting from additional casinos adopting our laser technology coupled with the continued use by existing casinos.
 
 Our research and development costs aggregated approximately $84,071 for the three months ended September 30, 2004 as compared to $67,257 for the three months ended September 30, 2003, an increase of $16,814. This results from work to develop new anti-counterfeiting technologies as well as attempts to refine our existing product line.
 
 Our legal and accounting costs aggregated approximately $19,580 for the three months ended September 30, 2004 as compared to $98,428 for the three months ended September 30, 2003, representing a decrease of $78,848. This decrease relates primarily to expenses relating to a proxy statement for a special meeting of stockholders in the fourth quarter of 2003 and lower costs in 2004 period for preparing various SEC documents, and cost associated with the filing requirements under the Exchange Act.
 
 Our sales and marketing costs aggregated $172,591 for the three months ended September 30, 2004 as compared to $175,633 for the three months ended September 30, 2003, representing a decrease of $3,042. Sales and marketing includes consulting and marketing services associated with sales and marketing agreements and the related value of options granted in connection with these agreements. The value assigned to 2004 and 2003 stock options was $56,100 and $21,200, respectively, which are non cash expenses.
 
 Our general and administrative costs aggregated $84,988 for the three months ended September 30, 2004 as compared to $79,456 for the three months ended September 30, 2003, representing an increase of $5,532. Included in general and administrative expenses is the value assigned to stock options during the three months ended September 30, 2004 of $51,100, which is a non cash expense.
 
 
 -10-
 
 LASERLOCK TECHNOLOGIES, INC.
 
 
 **Results of Operations for the nine months ended September 30, 2004 as compared to the nine months ended September 30, 2003**
 
 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 near future due to our attempts to cultivate business relationships over the past year.
 
 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, 2004, we had sales and royalties revenues of $91,923, as compared to sales and royalties revenues of $54,129 for the nine months ending September 30, 2003, resulting from additional casinos adopting our laser technology coupled with the continued use by existing casinos.
 
 Our research and development costs aggregated approximately $287,616 for the nine months ended September 30, 2004 as compared to $116,645 for the nine months ended September 30, 2003, an increase of $170,971. This results from work to develop new anti-counterfeiting technologies as well as attempts to refine our existing product line and includes $190,800 of non-cash items related to the issuance of stock options.
 
 Our legal and accounting costs aggregated approximately $127,041 for the nine months ended September 30, 2004 as compared to $119,278 for the nine months ended September 30, 2003, representing an increase of $7,763.
 
 Our sales and marketing costs aggregated $580,169 for the nine months ended September 30, 2004 as compared to $249,871 for the nine months ended September 30, 2003, representing an increase of $330,298. This increase relates to consulting and marketing services associated with sales and marketing agreements and the related value of options granted in connection with these agreements. The value assigned to the 2004 and 2003 stock options was $231,200 and $21,200, respectively, which are a non cash expenses. The balance of the cost increase relates to increased exposure of our product line to both national and international companies.
 
 Our general and administrative costs aggregated $286,307 for the nine months ended September 30, 2004 as compared to $234,247 for the nine months ended September 30, 2003, representing an increase of $52,060. Included in general and administrative expenses is the value assigned to the 2004 stock options of $61,800, which is a non cash expense.
 
 **Liquidity and Capital Resources**
 
 We increased our cash balance position by $121,068, from a cash balance at December 31, 2003 of $810,264, to $932,332 at September 30, 2004. Working capital at September 30, 2004 was $907,614, representing an increase in working capital of $203,653 from December 31, 2003. This increase in cash and working capital relates principally to the proceeds from the issuance of common stock of $933,481 pursuant to Regulation D and Regulation S offerings, reduced by the cash portion of our net loss for nine months ended September 30, 2004.
 
 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 during the balance of the current year.
 
   -11-  LASERLOCK TECHNOLOGIES, INC.
 
 
 **Liquidity and Capital Resources (Continued)**
 
 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 market developments, and the building of strategic alliances for the development and marketing of our products. In the event our plans change or 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, if necessary, 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, 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.
 
 On March 10, 2004, we began seeking to raise up to approximately $2 million in capital through the issuance of additional shares of our common stock in transactions that are exempt from the registration requirements under the Securities Act of 1933, as amended. As of June 30, 2004, we had raised $933,481 through the issuance of 18,600,000 shares of common stock in these transactions. We have ceased our efforts to sell additional shares because we consider the price of our shares unsatisfactory for such efforts. In the future, there can be no assurance given that we will be successful in raising additional capital through similar transactions.
 
 Our actual research and development and related activities may vary significantly from current plans 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 and the status of competitive products. We expect to expend approximately $100,000 in cash on our research and development program for the balance of the current year. We have not yet made plans for expenditures for fiscal 2005. Our research and development plans over the next year 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.
 
 We have plans to increase the number of employees and/or independent contractors we employ at this time contingent upon our ability to have sufficient funds to achieve our goals. We intend to license or use third parties to manufacture all of our products, and do not believe that we will be making any plant or equipment purchases during the coming year.
 
 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.
 
   -12-  LASERLOCK TECHNOLOGIES, INC.
 
 
 Item 3. Controls and Procedures
 
 (a) Evaluation of Disclosure Controls and Procedures
 
 Our Chief Executive Officer and principal financial officer evaluated the effectiveness of the Company's disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and principal financial officer concluded that our disclosure controls and procedures as of the end of the period covered by this report are functioning effectively to provide reasonable assurance that the information required to be disclosed by the Company in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. A controls system, no matter how well designed and operated, cannot provide absolute
assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. We note that the same individual serves as both the Chief Executive Officer and principal financial officer.
 
 (b) Change in Internal Control over Financial Reporting
 
 No change in the Company's internal control over financial reporting occurred during the Company's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
 
 
 -13-
 
 LASERLOCK TECHNOLOGIES, INC.
 PART II - OTHER INFORMATION
 
 Item 1. Legal Proceedings
 
 There are no pending legal proceedings to which the Company or any of its subsidiaries is a party or to which any of their properties is the subject that are expected to have a material effect on our financial position, results of operations or cash flows.
 Item 6. Exhibits and Reports on Form 8-K
 
 (A)
Exhibits  31.1
Certification of Chief Executive Officer and principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*  32.1
Certification of Chief Executive Officer and principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*  *
The same individual serves as the Company's Chief Executive Officer and principal financial officer.  (B)
Reports on Form 8-K  The Company did not file any Current Reports on Form 8-K during the period covered by this report. 
 
 SIGNATURES
 
 In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 **LASERLOCK TECHNOLOGIES, INC.**(Registrant)Date: November 12, 2004
By:
/s/ Norman GardnerNorman GardnerPresident and CEO-14-