U.S. SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| x | QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the quarterly period ended December
31, 2014
| ¨ | TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the transition period from to
Commission File No. 000-54853
SMARTMETRIC, INC. |
(Exact name of small business issuer as specified in its charter) |
Nevada |
|
05-0543557 |
(State or other jurisdiction of incorporation or organization) |
|
(IRS Employer Identification No.) |
|
|
|
3960 Howard Hughes Parkway, Suite 500, Las Vegas, NV 89109 |
(Address of principal executive offices) |
(702) 990-3687 |
(Issuer’s telephone number) |
Indicate
by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes x
No ¨
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
x No
¨
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large
accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.
Large accelerated filer |
¨ |
Accelerated filer |
¨ |
Non-accelerated filer |
¨ |
Smaller reporting company |
x |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨
No x
As of February 15, 2015, there were 176,592,752
shares issued and outstanding of the registrant’s common stock.
INDEX
PART I — FINANCIAL INFORMATION
SMARTMETRIC, INC. AND SUBSIDIARY
Condensed Consolidated
Balance Sheets
|
|
December 31, |
|
|
June 30, |
|
|
|
2014 |
|
|
2014 |
|
|
|
(Unaudited) |
|
|
|
|
Assets |
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
Cash |
|
$ |
50,832 |
|
|
$ |
97,924 |
|
Prepaid expenses and other current assets |
|
|
156,084 |
|
|
|
307,491 |
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
206,916 |
|
|
|
405,415 |
|
|
|
|
|
|
|
|
|
|
Other assets: |
|
|
|
|
|
|
|
|
Advances to shareholder |
|
|
- |
|
|
|
22,478 |
|
Patent costs, less accumulated amortization of $15,000 and $14,625, respectively |
|
|
- |
|
|
|
375 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
206,916 |
|
|
$ |
428,268 |
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Deficit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
321,090 |
|
|
$ |
325,877 |
|
Liability for stock to be issued |
|
|
414,257 |
|
|
|
355,750 |
|
Deferred Officer salary |
|
|
220,015 |
|
|
|
125,015 |
|
Shareholder loan |
|
|
9,522 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
964,884 |
|
|
|
806,642 |
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' deficit: |
|
|
|
|
|
|
|
|
Preferred stock, $.001 par value; 5,000,000 shares |
|
|
|
|
|
|
|
|
authorized, 410,000 and 210,000 shares issued and outstanding |
|
|
410 |
|
|
|
210 |
|
Common stock, $.001 par value; 200,000,000 shares |
|
|
|
|
|
|
|
|
authorized, 175,196,506 and 167,707,937 |
|
|
|
|
|
|
|
|
shares issued and outstanding , respectively |
|
|
175,196 |
|
|
|
167,708 |
|
Additional paid-in capital |
|
|
19,363,430 |
|
|
|
18,767,649 |
|
Accumulated deficit |
|
|
(20,297,004 |
) |
|
|
(19,313,941 |
) |
|
|
|
|
|
|
|
|
|
Total stockholders' deficit |
|
|
(757,968 |
) |
|
|
(378,374 |
) |
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' deficit |
|
$ |
206,916 |
|
|
$ |
428,268 |
|
See notes to condensed consolidated financial statements.
SMARTMETRIC, INC. AND SUBSIDIARY
Condensed Consolidated
Statements Of Operations
(Unaudited)
| |
Three Months | | |
Three Months | | |
Six Months | | |
Six Months | |
| |
Ended | | |
Ended | | |
Ended | | |
Ended | |
| |
December | | |
December | | |
December | | |
December | |
| |
31, | | |
31 | | |
31, | | |
31 | |
| |
2014 | | |
2013 | | |
2014 | | |
2013 | |
| |
| | |
| | |
| | |
| |
Revenues | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
| |
| | | |
| | | |
| | | |
| | |
Expenses: | |
| | | |
| | | |
| | | |
| | |
Officer's salary | |
| 47,500 | | |
| 47,500 | | |
| 95,000 | | |
| 95,000 | |
Other general and administrative | |
| 341,162 | | |
| 579,346 | | |
| 797,184 | | |
| 1,236,424 | |
Research and development | |
| 42,399 | | |
| 63,692 | | |
| 90,879 | | |
| 378,577 | |
| |
| | | |
| | | |
| | | |
| | |
Total operating expenses | |
| 431,061 | | |
| 690,538 | | |
| 983,063 | | |
| 1,710,001 | |
| |
| | | |
| | | |
| | | |
| | |
Loss from operations before income taxes | |
| (431,061 | ) | |
| (690,538 | ) | |
| (983,063 | ) | |
| (1,710,001 | ) |
| |
| | | |
| | | |
| | | |
| | |
Income taxes | |
| - | | |
| - | | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | |
Net loss | |
$ | (431,061 | ) | |
$ | (690,538 | ) | |
$ | (983,063 | ) | |
$ | (1,710,001 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net loss per share, basic and diluted | |
$ | (0.00 | ) | |
$ | (0.00 | ) | |
$ | (0.01 | ) | |
$ | (0.01 | ) |
| |
| | | |
| | | |
| | | |
| | |
Weighted average number of common | |
| | | |
| | | |
| | | |
| | |
shares outstanding, basic and diluted | |
| 172,850,123 | | |
| 160,086,219 | | |
| 170,664,640 | | |
| 157,945,946 | |
See notes to condensed consolidated financial statements.
SMARTMETRIC, INC.
AND SUBSIDIARY
Condensed Consolidated
Statements of Cash Flows
(Unaudited)
|
|
Six Months |
|
|
Six Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
December |
|
|
December |
|
|
|
31, |
|
|
31, |
|
CASH FLOWS FROM OPERATING ACTIVITIES |
|
2014 |
|
|
2013 |
|
Net loss |
|
$ |
(983,063 |
) |
|
$ |
(1,710,001 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Amortization |
|
|
375 |
|
|
|
750 |
|
Common stock and warrants issued and issuable for services |
|
|
294,224 |
|
|
|
479,526 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in assets and liabilities |
|
|
|
|
|
|
|
|
(Increase) decrease in prepaid expenses and other current assets |
|
|
57,240 |
|
|
|
(53,109 |
) |
Increase (decrease) in accounts payable and accrued expenses |
|
|
(4,787 |
) |
|
|
(35,933 |
) |
Increase (decrease) in deferred officer's salary |
|
|
95,000 |
|
|
|
- |
|
Increase (decrease) in payroll taxes and related fees |
|
|
- |
|
|
|
(4,142 |
) |
|
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(541,011 |
) |
|
|
(1,322,909 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
Advances to shareholder |
|
|
22,478 |
|
|
|
24,001 |
|
Loans from related parties |
|
|
9,522 |
|
|
|
- |
|
Proceeds from sale of common stock |
|
|
403,412 |
|
|
|
242,174 |
|
Liability for stock to be issued |
|
|
58,507 |
|
|
|
252,477 |
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
493,919 |
|
|
|
518,652 |
|
|
|
|
|
|
|
|
|
|
NET DECREASE IN |
|
|
|
|
|
|
|
|
CASH |
|
|
(47,092 |
) |
|
|
(804,257 |
) |
|
|
|
|
|
|
|
|
|
CASH |
|
|
|
|
|
|
|
|
BEGINNING OF PERIOD |
|
|
97,924 |
|
|
|
804,257 |
|
|
|
|
|
|
|
|
|
|
END OF PERIOD |
|
|
50,832 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
CASH PAID DURING THE PERIOD FOR: |
|
|
|
|
|
|
|
|
Income taxes |
|
|
- |
|
|
$ |
- |
|
Interest expense |
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
Issuance of preferred stock and reduction of additional paid in capital for patent |
|
$ |
200 |
|
|
$ |
- |
|
See notes to condensed consolidated financial statements.
SMARTMETRIC INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
| NOTE 1 - | ORGANIZATION AND BASIS OF PRESENTATION |
SmartMetric, Inc. (the “Company” or “SmartMetric”)
was incorporated in the State of Nevada on December 18, 2002. SmartMetric’s main product is a fingerprint sensor activated
card with a finger sensor onboard the card and a built-in rechargeable battery for portable biometric identification. This card
may be referred to as a biometric card or the SmartMetric Biometric Datacard. SmartMetric has completed development
of its card along with pre mass manufacturing cards but has not yet begun to mass manufacture the biometric fingerprint activated
cards.
The accompanying unaudited
condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include
all the information and footnotes required by generally accepted accounting principles for complete financial statements. In
the opinion of management of the Company, the accompanying unaudited financial statements contain all the adjustments (which
are of a normal recurring nature) necessary for a fair presentation. Operating results for the three and six months ended
December 31, 2014 are not necessarily indicative of the results that may be expected for the year ending June 30, 2015. For
further information, refer to the financial statements and the footnotes thereto contained in the Company’s Annual
Report on Form 10-K for the year ended June 30, 2014, as filed with the Securities and Exchange Commission.
Going Concern
As shown in the accompanying condensed consolidated
financial statements the Company has sustained recurring losses of $983,063 and $1,710,001 for the six months ended December 31,
2014 and 2013 respectively, and has an accumulated deficit of $20,297,004 at December 31, 2014. The Company has spent
a substantial portion of its time and capital resources in the development of its technology.
There is no guarantee that the Company will be able
to raise enough capital or generate revenues to sustain its operations. These conditions raise substantial doubt about
the Company’s ability to continue as a going concern.
Management believes that the Company’s capital
requirements will depend on many factors. These factors include the final phase of development and mass production being
successful as well as product implementation and distribution.
The condensed consolidated financial statements do
not include any adjustments relating to the carrying amounts of recorded assets or the carrying amounts and classification of recorded
liabilities that may be required should the Company be unable to continue as a going concern.
| NOTE 2 - | SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES |
Principles of Consolidation
The condensed consolidated financial statements include
the accounts of the Company and its wholly owned subsidiary, SmartMetric Australia Pty. Ltd. All significant intercompany
accounts and transactions have been eliminated in consolidation.
SMARTMETRIC
INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
| NOTE 2 - | SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
Use of Estimates
The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis,
the Company evaluates its estimates, including, but not limited to, those related to income taxes and contingencies. The
Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under
the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities
that are not readily apparent from other sources. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments
and other short-term investments with an initial maturity of three months or less to be cash equivalents. Any amounts
of cash in financial institutions over FDIC insured limits exposes the Company to cash concentration risk. The Company has no cash
equivalents.
Fair Value of Financial Instruments
The carrying amounts reported in the condensed consolidated
balance sheet for cash, accounts payable, and accrued expenses approximate fair value because of the immediate or short-term maturity
of these financial instruments.
ASC 820 defines fair value, provides a consistent
framework for measuring fair value under generally accepted accounting principles and expands fair value financial statement disclosure
requirements. ASC 820’s valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily
obtainable data from independent sources, while unobservable inputs reflect our market assumptions. ASC 820 classifies these inputs
into the following hierarchy:
Level 1 inputs: Quoted prices for identical instruments
in active markets.
Level 2 inputs: Quoted prices for similar instruments
in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations
whose inputs are observable or whose significant value drivers are observable.
Level 3 inputs: Instruments with primarily unobservable
value drivers.
Research and Development
The Company annually incurs costs on activities that
relate to research and development of new technology and products. Research and development costs are expensed as incurred.
Revenue Recognition
The Company has not recognized revenues to date. The
Company anticipates recognizing revenue in accordance with the contracts it enters into for the sale and distribution of its products.
SMARTMETRIC INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
| NOTE 2 - | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
Accounts Receivable
The Company will extend credit based on its evaluation
of the customers’ financial condition, generally without requiring collateral. Exposure to losses on receivables
is expected to vary by customer due to the financial condition of each customer. The Company will monitor exposure to
credit losses and maintains allowances for anticipated losses considered necessary under the circumstances. The Company
has not recorded any receivables, and therefore no allowance for doubtful accounts.
Uncertainty in Income Taxes
GAAP requires the recognition and measurement of
uncertain income tax positions using a “more-likely-than-not” approach. Management evaluates Company
tax positions on an annual basis and has determined that as of December 31, 2014 no accrual for uncertain income tax positions
is necessary.
The Company files income tax returns in the United
States ("U.S.") federal jurisdiction. Generally, the Company is no longer subject to U.S. federal examinations
by tax authorities for fiscal years prior to 2010. The Company does not file in any other jurisdiction and remains open
for audit for all tax years as the statute of limitations does not begin until the returns are filed.
Advertising Costs
The Company will expense the cost associated with
advertising as incurred.
Equipment
Equipment is stated at cost. Depreciation
is computed using the straight-line method over the estimated economic useful lives of the assets ranging from 3 - 5 years.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. The Company
does not perform a periodic assessment of assets for impairment in the absence of such information or indicators. Conditions
that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant
change in the extent or manner in which an asset is used, or a significant adverse change that would indicate that the carrying
amount of an asset or group of assets is not recoverable. For long-lived assets to be held and used, the Company recognizes
an impairment loss only if its carrying amount is not recoverable through its undiscounted cash flows and measures the impairment
loss based on the difference between the carrying amount and estimated fair value.
Loss Per Share of Common Stock
Basic net loss per common share is computed using
the weighted average number of common shares outstanding. The calculation of diluted earnings per share ("EPS")
includes consideration of dilution arising from common stock equivalents, such as stock issuable pursuant to the exercise of stock
options and warrants. Common stock equivalents were not included in the computation of diluted earnings per share on
the consolidated statement of operations due to the fact that the Company reported a net loss and to do so would be anti-dilutive
for the periods presented.
Stock-Based Compensation
The Company measures expense for issuances of stock-based
compensation to employees and others at fair value of the stock and warrants issued, as this is more reliable than the fair value
of the services received complete. The fair value of the equity instrument is charged directly to compensation expense and additional
paid-in capital.
SMARTMETRIC INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
Reclassifications
Certain amounts in the prior period condensed consolidated
financial statements have been reclassified for comparative purposes to conform to the presentation in the current period condensed
consolidated financial statements. These reclassifications had no effect on previously reported results.
Prepaid expenses represent the unexpired terms of
various consulting agreements and expire through January 2016, as well as advance rental payments. The Company issued
common stock and warrants as consideration for the consulting services, and were valued based on the stock price or computed warrant
value at the time of the respective agreements.
Patent costs as of December 31, 2014 and June 30,
2014 are summarized as follows:
| |
Estimated Useful Lives ( Years) | |
December 31, 2014 | | |
June 30, 2014 | |
| |
| |
| | |
| |
Legal fees paid in connection with patent Applications | |
10 | |
$ | 15,000 | | |
$ | 15,000 | |
| |
| |
| | | |
| | |
Less: accumulated amortization | |
| |
| (15,000 | ) | |
| (14,625 | ) |
Patent costs, net | |
| |
$ | 0 | | |
$ | 375 | |
Amortization expense was $375 and $750 for the six
months ended December 31, 2014 and 2013, respectively.
Patent License Agreement
Effective August 1, 2004, the Company executed a
license agreement with Applied Cryptography, Inc. (“ACI”), a corporation controlled by the Company’s president
and the owner of certain technology. Pursuant to the license agreement, the Company has the right to make use of this technology
for the purpose of developing software and systems to be used by the Company to provide any or all of the following: 1) secure
transactions over the Internet from home and office computers; 2) an automatic method for connecting to remote computers; 3) a
method of developing targeted advertising to home and/or office computers; and 4) identity verification and access control as provided
for in the patent. Pursuant to this license agreement, ACI is to receive 2% of all revenues generated by the Company on products
which utilize this patented technology. The license fee is to be paid within 45 days of the end of each quarter. In the event no
revenues are generated through the use of any of the licensed patents during a given quarter, no money shall be owed ACI for such
quarter. ACI has the right to rescind the license agreement and reclaim all rights and interest in the patents if certain events,
such as the Company’s filing for bankruptcy protection or reorganization, occur. The license agreement remains in effect
for the lives of the patents. The Company may utilize the technological applications anywhere in the world without limitation. Upon
execution of the Assignment and Assumption Agreement on December 11, 2009 (see Note 6), the Patent License Agreement was terminated.
During November 2012, the Company acquired license
rights to ACI's Medical Keyring Device technology in consideration of the Company's issuance to ACI of 200,000 shares of its Series
B Convertible Preferred Stock.
During September 2013, the Company acquired license
rights to ACI's BioCentric Cloud Device technology in consideration of the Company's issuance to ACI of 200,000 shares of its Series
B Convertible Preferred Stock. Effective November 5, 2014, the Company increased the number of preferred shares designated as Series
B, and accordingly, the shares were issued to ACI on November 10, 2014.
SMARTMETRIC INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
Lease Agreement
In February 2012, the company entered into a facilities
lease in Buenos Aires, Argentina for its manufacturing activities. The lease term is from March 1, 2012 through January 31, 2015.
The Company terminated this lease and vacated its Argentina facility in February, 2014. The Company also utilizes offices in Australia,
Israel and Las Vegas, Nevada. The Company’s main office is located in Las Vegas, Nevada. Rent expense under all leases for
the six months ended December 31, 2014 and 2013 was $14,821 and $50,841, respectively.
Related Party Transactions
The Company’s Chief Executive Officer has made
cash advances to the Company with an aggregate amount due of $9,522 and $0 at December 31, 2014 and June 30, 2014, respectively.
The Company has made cash advances to its Chief Executive Officer with an aggregate amount due of $0 and $22,478 at December 31,
2014 and June 30, 2014, respectively. These advances bear interest at the rate of five percent (5%) per annum.
The Company has accrued the amounts of $220,015 and
$125,015 at December 31, 2014 and June 30, 2014, respectively, as deferred Officer’s salary, for the difference between the
Chief Executive Officer’s annual salary and the amounts paid.
SMARTMETRIC INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
| NOTE 6 - | STOCKHOLDERS’ EQUITY (DEFICIT) |
Preferred Stock
As of December 31, 2014, the Company has 5,000,000
shares of preferred stock, par value $0.001, authorized and 210,000 shares issued and outstanding.
On December 11, 2009, the Company filed a Certificate
of Designation with the State of Nevada, to designate 500,000 shares of the preferred stock to be designated as Series B Convertible
Preferred Stock (“Series B Convertible Preferred Stock”). Effective November 5, 2014, the number of shares designated
as Series B Convertible Preferred Stock was increased to 1,000,000 shares.
Each share of Series B Convertible Preferred Stock
has a par value of $0.001, and a stated value equal to $5.00 (“Stated Value”). Holders of the Series B Convertible
Preferred Stock are entitled to receive dividends or other distributions with the holders of the common stock of the Company on
an as converted basis when, as, and if declared by the directors of the Company. Holders of the Series B Convertible Preferred
Stock are entitled to convert all or any one (1) share of the Series B Convertible Preferred Stock into fifty (50) shares of common
stock.
Upon any liquidation, dissolution or winding-up of
the Company, whether voluntary or involuntary (“liquidation”), holders of the Series B Convertible Preferred Stock
are entitled to receive out of the assets, whether capital or surplus, of the Company an amount equal to the Stated Value, pro
rata with the holders of the common stock.
On December 11, 2009, the Company entered into an
Assignment and Assumption Agreement with ACI (the “assignment and Assumption Agreement”). In accordance with the Assignment
and Assumption Agreement, ACI conveyed, assigned and transferred to the Company all of ACI’s rights, title and interest in
and to the Patent (see Note 5) and delegated to the Company all of its duties and obligations to be performed under the Patent;
and the Company hereby accepts the assignment of all of ACI’s rights, title and interest to the Patent and the rights and
delegation of duties and obligations and agrees to be bound by and to assume such duties and obligations.
In consideration for the assignment of the Patent,
the Company issued 200,000 shares of Series B Convertible Preferred Stock. ACI may only convert these shares into common shares
(in accordance with the conversion terms noted herein) upon delivering to the Company, a third party valuation of the assigned
Patent conducted by a nationally qualified accounting firm or IP law firm mutually agreed upon between the Company and ACI, indicating
that such Patent is valued at a minimum of $1,000,000.
On November 12, 2012, the Company issued 200,000
shares of its Series B Convertible Preferred Stock to ACI in consideration for ACI’s patent relating to the Medical Keyring
Device.
In July 2013, ACI elected to convert 190,000 shares
of Series B Convertible Preferred Stock, issued in 2012, into 9,500,000 shares of the Company’s common stock.
During September 2013, the Company acquired license
rights to ACI's BioCentric Cloud Device technology in consideration of the Company's issuance to ACI of 200,000 shares of its Series
B Convertible Preferred Stock. Effective November 5, 2014, the Company increased the number of preferred shares designated as Series
B, and accordingly, the shares were issued to ACI on November 10, 2014.
In accordance with Staff Accounting Bulletin (“SAB”)
topic 5G “Transfers of Non-monetary Assets by Promoters and Shareholders” the Company recorded these transactions
at ACI’s carrying basis of the Patents, which was $0.
SMARTMETRIC INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
| NOTE 6 - | STOCKHOLDERS’
EQUITY (DEFICIT) (CONTINUED) |
Class A Common Stock
As of December 31, 2014, the Company has 50,000,000
shares of Class A common stock, par value $0.001, authorized and no shares issued and outstanding. In October 2003, the Company
issued 50,000,000 shares of Class A common stock at par value ($50,000). These shares were converted into 50,000,000 shares of
common stock in 2006.
Common Stock
The Company was incorporated on December 18, 2002,
with 45,000,000 shares of Common Stock, par value $0.001. The articles of incorporation were amended in 2006 to increase the number
of authorized shares to 100,000,000 shares, and again in 2009 to increase the number of authorized shares to 200,000,000.
As of December 31, 2014, the Company has 175,196,506
shares of common stock issued and outstanding.
During the three months ended September 30, 2013,
the Company sold for cash 515,367 shares and twenty-four month warrants to purchase an additional 515,367 shares at $0.70 per share
for net proceeds of $123,474.
During the three months ended
September 30, 2013, the Company issued 130,875 shares for consulting services valued at $70,898, based on the stock price at the
time of the respective agreements underlying the services provided.
During the three months ended
December 31, 2013, the Company issued 2,134,166 shares for consulting services valued at $339,900, based on the stock price at
the time of the respective agreements underlying the services provided.
During the three months ended
December 31, 2013, the Company sold for cash 660,000 shares and twenty-four month warrants to purchase an additional 660,000 shares
at $0.60 per share for net proceeds of $118,700.
During the three months ended
March 31, 2014, the Company sold for cash 2,120,000 shares and twenty-four month warrants to purchase: (i) 4,240,000 shares at
$0.70 per share, and (ii) 2,136,960 shares at $1.00 per share, for net proceeds of $338,687.
During the three months ended
March 31, 2014, the Company issued 2,798,776 shares for consulting and legal services valued at $375,149, based on the stock price
at the time of the respective agreements underlying the services provided.
During the three months ended
June 30, 2014, the Company sold for cash 1,812,500 shares and twenty-four month warrants to purchase: (i) 3,625,000 shares at $0.70
per share, and (ii) 1,827,000 shares at $1.00 per share, for net proceeds of $289,405.
During the three months ended
June 30, 2014, the Company issued 1,490,170 shares for consulting and legal services valued at $205,192, based on the stock price
at the time of the respective agreements underlying the services provided.
SMARTMETRIC INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
| NOTE 6 - | STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED) |
During the three months ended
September 30, 2014, the Company sold for cash 4,893,731 shares and twenty-four month warrants to purchase: (i) 1,375,000 shares
at $0.70 per share, and (ii) 724,500 shares at $1.00 per share, for net proceeds of $307,662.
During the three months ended
December 31, 2014, the Company sold for cash 1,599,994 shares and twelve month warrants to purchase: (i) 1,187,500 shares at $0.70
per share, and (ii) 598,500 shares at $1.00 per share, for net proceeds of $95,750.
Warrants
From time to time the Company granted warrants in
connection with private placements of securities, as described herein.
In October 2009, the Company executed a warrant agreement
with an investor relations company for 5,000,000 warrants to be issued in two tranches. The first tranche of 2,500,000 warrants
(the “October warrants”) has been issued in October 2009, and the second tranche of 2,500,000 warrants has been issued
on March 31, 2010 (the “March warrants”). The October warrants, which were set to expire October 25, 2014(as extended)
but have been further extended by the Company to expire on October 25, 2015, have strike prices as follows: 1,000,000 at $0.10
per share; 1,000,000 at $0.15 per share; and 500,000 at $0.20 per share. The March warrants, which were set to expire March 29,
2015 (as extended) but have been further extended by the Company to expire on March 29, 2016, have strike prices as follows: 500,000
at $0.20 per share; 1,000,000 at $0.25 per share; and 1,000,000 at $0.30 per share.
In June 2011, the Company issued warrants to purchase
1,000,000 shares of its common stock at an exercise price of $0.50 per share as partial consideration for a consulting agreement. These
warrants were set to expire on June 3, 2014 (as extended) but have been further extended by the Company to expire on June 3, 2015.
In connection with the extension of the above referenced
warrants during the year ended June 30, 2014, which were partial consideration in connection with a new consulting agreement, the
Company assigned a value of $209,300 using the Black-Scholes option pricing model. The Company recorded the charge to consulting
expenses over the term of the new consulting agreement, which expired in July 2014.
In May 2012, the Company issued warrants to purchase
250,000 shares of its common stock at an exercise price of $0.50 per share, as partial consideration for a consulting agreement
for public relations services. The warrants expired in May 2014.
As of December 31, 2014 and June 30, 2014, the following
is a breakdown of the Company’s warrant activity:
December 31, 2014:
Outstanding – June 30, 2014 | |
| 19,004,326 | |
Issued | |
| 3,885,500 | |
Exercised | |
| - | |
Expired | |
| - | |
Outstanding - December 31, 2014 | |
| 22,889,826 | |
June 30, 2014:
Outstanding - June 30, 2013 | |
| 21,757,578 | |
Issued | |
| 13,004,326 | |
Exercised | |
| - | |
Expired | |
| (15,757,578 | ) |
| |
| | |
Outstanding - June 30, 2014 | |
| 19,004,326 | |
SMARTMETRIC INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
| NOTE 6 | -
STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED) |
At December 31, 2014, all of the 22,889,826 warrants
are vested and 16,889,826 warrants expire at various times through January 15, 2016, 1 million warrants expire on June 20, 2015,
2.5 million warrants expire on October 25, 2015, and 2.5 million warrants expire on March 29, 2016.
The Company provides for income taxes at the end
of each interim period based on the estimated effective tax rate for the full fiscal year. Cumulative adjustments to
the Company’s estimate are recorded in the interim period in which a change in the estimated annual effective rate is determined.
The Company has estimated its effective tax rate
to be 0%, based primarily on losses incurred and the uncertainty of realization of the tax benefit of such losses.
On July 27, 2010, the Company
filed a second amended complaint (the “Visa and MasterCard Complaint”) in the United States District Court, Central
District of California (the “Court”), Case No. 2:10-cv-01864, against MasterCard, Inc. and Visa, Inc. alleging patent
infringement on the Company’s patent, U.S. Patent 6,792,464 (the “ ‘ 464 Patent”) (the “Visa and
MasterCard Case”).
On October 2013, the Federal
District Court, Central District of California, held that the Defendants did not infringe on the ‘464 Patent.
VISA and MasterCard asked the
District Court to award them attorneys' fees and costs approximating $3 million. SmartMetric has opposed this request, which SmartMetric
believes is without merit because SmartMetric filed its suit in good faith, and has litigated the case in an objectively reasonable
manner. The company awaits a decision from the presiding Judge hearing this matter.
| NOTE 9 - | SUBSEQUENT EVENTS |
On February 11, 2015, the Company entered into a security agreement (the “Agreement”) with
Chaya Hendrick, the Company’s chief executive officer (“Executive”), pursuant to which the Company granted Executive
a continuing security interest in all of the Company’s assets, which are existing now or arise after the date of the Agreement,
until such time that the Company repays all loans and accrued but unpaid salary owed to Executive. As of the date of the
Agreement, the Company had loans and accrued but unpaid salary owed to Executive in the aggregate principal amount of $270,015.
| Item 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN
OF OPERATIONS |
Cautionary Notice Regarding Forward-Looking Statements
In this quarterly report on
Form 10-Q (“Report”), references to “SmartMetric,” “SMME,” “the Company,” “we,”
“us,” and “our” refer to Smartmetric, Inc.
The following discussion should
be read in conjunction with our condensed consolidated financial statements and other financial information appearing elsewhere
in this quarterly report. In addition to historical information, the following discussion and other parts of this quarterly report
contain forward-looking statements. You can identify these statements by forward-looking words such as “plan,” “may,”
“will,” “expect,” “intend,” “anticipate,” believe,” “estimate”
and “continue” or similar words. Forward-looking statements include information concerning possible or assumed future
business success or financial results. You should read statements that contain these words carefully because they discuss future
expectations and plans, which contain projections of future results of operations or financial condition or state other forward-looking
information. We believe that it is important to communicate future expectations to investors. However, there may be events in the
future that we are not able to accurately predict or control. Accordingly, we do not undertake any obligation to update any forward-looking
statements for any reason, even if new information becomes available or other events occur in the future.
The forward-looking statements
included herein are based on current expectations that involve a number of risks and uncertainties set forth under “Risk
Factors” in our Annual Report on Form 10-K as of and for the year ended June 30, 2014 and other periodic reports filed
with the United States Securities and Exchange Commission (“SEC”). Accordingly, to the extent that this Report contains
forward-looking statements regarding the financial condition, operating results, business prospects or any other aspect of the
Company, please be advised that the Company’s actual financial condition, operating results and business performance may
differ materially from that projected or estimated by the Company in forward-looking statements. We do not undertake any responsibility
to publicly release any revisions to these forward-looking statements to take into account events or circumstances that occur after
the date of this Report, except as required by law. Additionally, we do not undertake any responsibility to update you on the occurrence
of any unanticipated events which may cause actual results to differ from those expressed or implied by any forward-looking statements.
Overview
Incorporated in 2002, SmartMetric
and its founder and CEO, C. Hendrick, have been engaged in research and development of a biometric security solution which would
authenticate the identity of a person in a self-contained credit card-sized device. SmartMetric’s Biometric Datacard
has been designed to use an on-board finger print sensor which is embedded in the card along with an integrated circuit chip which
will provide varying degrees of encrypted memory SmartMetric has completed development of its card along with pre mass manufacturing
cards but has not yet begun to mass manufacture the biometric fingerprint activated cards. To date, SmartMetric has
had no reportable sales revenues.
Recent Developments
On February 11, 2015, the Company entered into a security agreement (the “Agreement”) with
Chaya Hendrick, the Company’s chief executive officer (“Executive”), pursuant to which the Company granted Executive
a continuing security interest in all of the Company’s assets, which are existing now or arise after the date of the Agreement,
until such time that the Company repays all loans and accrued but unpaid salary owed to Executive. As of the date of the
Agreement, the Company had loans and accrued but unpaid salary owed to Executive in the aggregate principal amount of $270,015.
Products
Biometric Fingerprint Activated
Payments and Identity Cards:
Prior plans called for the manufacturing
of the SmartMetric biometric cards after the Company built not only a special factory that meets security conditions of the card
companies but also that the Company configure specialized mass production machines that would allow for the specialized manufacturing
process required to laminate sub micro thin silicon components that are mounted on a circuit board in order to create SmartMetric
biometric credit and debit cards.
The Company has now developed
a pre-lamination encasing technique that provides protection of the card components against heat and pressure experienced during
the card plastic lamination process and as well protecting the card with a thin hardened impervious coating of its circuit board
in order to thwart reverse engineering by those who would seek to copy SmartMetric’s electronics and design.
With the newly developed “pre-lamination
encasing” the Company is now able to safely outsource mass plastic card manufacturing to contract card manufacturers. Thereby
saving SmartMetric significant capital and lead times in achieving high volume manufacturing.
The Company intends to market
its biometric payments card directly to banks as well as forging marketing relationships with banking card Industry Company’s.
MedicalKeyring:
In
the last quarter of 2013 the Company released on a small release basis, its MedicalKeyring product. The release was via limited
radio advertising in New York with the focus on testing the market for the product and radio advertising directing interested consumers
to the company website for information and product purchasing. The Company received interest from the advertising with orders placed
on its website. The numbers of orders placed however were insignificant but did show that there was interest in the product. A
small number of user feedback of the product was obtained which in turn has confirmed the functional use and benefit of the product
as a portable storage device of a person’s medical files while protecting these files with the SmartMetric fingerprint biometric
technology. Experience was also gained in respect of the functionality of the products software that in turn has lead us to undertake
further work on developing and improving the products internal software and interface.
The Company has decided to focus
its engineering development resources on its Biometric payments card product at this point in time rather than spreading its development
resources across two new product releases. Following commercial release of the SmartMetric biometric fingerprint card the company
will move forward with the release of mark 2 MedicalKeyring.
Our ability to continue as a
going concern prior to the generation of sales is almost exclusively dependent upon our ability to raise capital, specifically
through sales of unregistered securities. The ability to raise capital through private placement sales is very unpredictable,
thus greatly influencing the Company’s ability to continue as a going concern.
Research & Development:
The Company’s ongoing
research and development is undertaken by engineering contractors working for SmartMetric in the United States, Israel and Argentina.
Research & Development is
broken up into two areas of engineering. The first is hardware engineering which involves system design, component sourcing and
development as well as assembly and mass production card lamination processes. Second, the company has a research and development
focus on embedded and operational software systems for its biometric products.
The company will have an ongoing
Research & Development effort even after the release of its first biometric card product with the aim of bringing further card
and new biometric products to market based on the companies expertise in miniature sub micro-electronics.
Sales & Marketing:
SmartMetric anticipates selling its biometric card to banks as a state of the art protection against identity theft and financial fraud for $50.00 a card. The company plans to have the card released to the public through banks and financial institutions as a special anti-fraud and anti-identity theft premium card that is offered to their banking customers. Discussions are being held concerning the offering by banks directly to their banking customers, the SmartMetric biometric protected card as a premium credit/debit card with a monthly premium card fee to the consumer set by the banks between $4.95 to $9.95 per month.
The SmartMetric cards made for use in the financial services industry are EMV chip cards that have the chip in an off state that is turned on after the card user touches the fingerprint reader sensor. The cards are designed to be fully operative with existing point of sale machines and ATM’s that take EMV chip cards.
There has been in excess of 1.6 billion EMV chip cards already issued globally. The first phase of marketing and sales by SmartMetric will be concentrated on regions around the World that already have significant EMV credit and debit card adoption.
The Company is developing a fingerprint activated identity verification and verified entry card based on the Company’s development of its banking EMV chip card. The Company foresees a great deal of opportunity in the security and identity validation industries from both Government and Business customers.
SmartMetric does not believe its business is seasonal.
Results of Operations
Comparison of the Three
Months Ended December 31, 2014 and 2013
Revenue and Net Loss
For the three months ended December
31, 2014, there was no revenue and a net loss of $431,061. For the three months ended December 31, 2013, there was no
revenue and a net loss of $690,538. This decreased loss of $259,477 or 37.6% resulted primarily from lower research
and development and general and administrative expenses.
General
and Administrative Expenses
General and administrative expenses
for the three months ended December 31, 2014 were $341,162, a decrease of $238,184 or 41.1% compared to $597,346 for the comparable
period in 2013. This decrease was primarily attributed to lower consulting expenses and legal and professional fees.
Research and Development
Expenses
Research and development expenses
for the three months ended December 31, 2014 were $42,399 a decrease of $21,293 or 33.4% compared to $63,692 for the comparable
period in 2013. This decrease was primarily attributable to lower engineering expenses.
Income Tax Expense
Income tax expense for the three months ended December
31, 2014 was $0, unchanged from the comparable period in 2013.
Comparison of the Six
Months Ended December 31, 2014 and 2013
Revenue and Net Loss
For the six months ended December
31, 2014, there was no revenue and a net loss of $983,063. For the six months ended December 31, 2013, there was no
revenue and a net loss of $1,710,001. This decreased loss of $726,938 or 42.5% resulted primarily from lower research
and development and general and administrative expenses.
General
and Administrative Expenses
General and administrative expenses
for the six months ended December 31, 2014 were $797,184, a decrease of $439,240 or 35.5% compared to $1,236,424 for the comparable
period in 2013. This decrease was primarily attributed to lower consulting expenses and legal and professional fees.
Research and Development
Expenses
Research and development expenses
for the six months ended December 31, 2014 were $90,879 a decrease of $287,698 or 76.0% compared to $378,577 for the comparable
period in 2013. This decrease was primarily attributable to lower engineering expenses.
Income Tax Expense
Income tax expense for the six months ended December
31, 2014 was $0, unchanged from the comparable period in 2013.
Liquidity and Capital Resources
The Company is a development
stage company and has spent a majority of resources and time in developing its technology. There is no guarantee that
the Company can continue to raise enough capital or generate revenues to sustain its operations. These conditions raise
a substantial doubt about the Company’s ability to continue as a going concern. Management believes that the Company’s
capital requirements will depend on a number of factors including the final phase of product development and the development of
its production process as well as product implementation and distribution. The consolidated financial statements do
not include any adjustments relating to the carrying amounts of recorded assets or the carrying amount and classification of recorded
liabilities that may be required should the Company be unable to continue as a going concern.
At December 31, 2014, the Company had an accumulated
deficit of $20,297,004 and it is likely that the Company will incur additional losses in the future. While we have funded our operations
since inception from operations and through private placements of equity securities, there can be no assurance that adequate financing
will continue to be available to us and, if available, on terms that are favorable to us.
We believe that we will require additional financing
to carry out our intended objectives during the next twelve months. There can be no assurance, however, that such financing will
be available or, if it is available, that we will be able to structure such financing on terms acceptable to us and that it will
be sufficient to fund our cash requirements until we can reach a level of profitable operations and positive cash flows. If we
are unable to obtain the financing necessary to support our operations, we may be unable to continue as a going concern.
A downturn in the United States stock and debt markets
could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise
the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts owed
to us, or experience unexpected cash requirements that would force us to seek alternative financing. Further, if we issue additional
equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences
or privileges senior to those of existing holders of our shares of common stock or the debt securities may cause us to be subject
to restrictive covenants. There is a risk of dilution whenever the Company sells securities to raise capital. If additional financing
is not available or is not available on acceptable terms, we will have to curtail our operations.
Cash
Our cash balance was $50,832
at December 31, 2014 compared with $97,924 at June 30, 2014. The decrease was primarily attributable to reduced sales of securities.
Net cash used in operating activities
Net cash used in operating
activities was $541,011 for the six months ended December 31, 2014, a decrease of $791,898, or 59.1% from the comparable period
in 2013. The Company is largely dependent on the capital it raises to fund operations. When capital is raised
the development process is accelerated, and when cash flows are decreased the Company conserves its cash by delaying development
and other operating costs.
Net
cash used in investing activities
Net cash used in investing activities
was $0 for the six months ended December 31, 2014, unchanged from the comparable period in 2013.
Net cash provided
by financing activities
Net cash provided by financing
activities was $493,919 for the six months ended December 31, 2014, a decrease of $24,733 or 4.8% from the comparable period in
2013. This decrease was based on lower sales and issuances of equity shares in the period.
Contractual Obligations and
Off-Balance Sheet Arrangements.
There were no off-balance sheet
arrangements at December 31, 2014 and June 30, 2014.
In connection with an Assignment
and Assumption Agreement with Applied Cryptography, Inc. (“ACI”), a corporation controlled by the Company’s president
and the owner of certain technology, ACI conveyed, assigned and transferred to the Company all of ACI's rights, title and interest
in and to its patents (collectively, the “Patent”) and delegated to the Company all of its duties and obligations to
be performed under the Patent.
In consideration for the assignment
of the Patent, the Company issued 200,000 shares of Series B Convertible Preferred Stock. ACI may only convert these shares into
common shares (in accordance with the conversion terms noted herein) upon delivering to the Company, a third party valuation of
the assigned Patent conducted by a nationally qualified accounting firm or IP law firm mutually agreed upon between the Company
and ACI, indicating that such Patent is valued at a minimum of $1,000,000.
Critical accounting policies and estimates
The condensed consolidated financial
statements are prepared in accordance with accounting principles generally accepted in the United States, which require us to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Management
makes these estimates using the best information available at the time the estimates are made; however actual results could differ
materially from those estimates.
Intangible assets
SmartMetric issued 200,000 of its Series B Convertible
Preferred Stock to ACI during the period in exchange for the Medical Keyring Device. The Company acquired license rights to ACI's
BioCentric Cloud Device technology in consideration of the Company's issuance of 200,000 shares of its Series B Convertible Preferred
Stock.
| Item 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK |
Our exposure to market risk
for changes in interest rates relates primarily to our short-term investments; thus, fluctuations in interest rates would not
have a material impact on the fair value of these investments. At December 31, 2014, we had $50,832 in cash. A
hypothetical 5% increase or decrease in either short term or long term interest rates would not have a material impact on our
earnings or loss, or the fair market value or cash flows of these instruments.
| Item 4. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure
Controls and Procedures
We maintain "disclosure
controls and procedures," as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), that are designed to ensure that information required to be disclosed by us in reports
that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified
in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls
and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives
of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management
necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and
procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood
of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential
future conditions.
We carried out an evaluation,
under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness
of the design and operation of our disclosure controls and procedures. Based on this evaluation, as of December 31, 2014, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective in ensuring
that information required to be disclosed by us in our periodic reports is recorded, processed, summarized and reported, within
the time periods specified for each report and that such information is accumulated and communicated to our management, including
our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely
decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
In order to correct the foregoing
deficiencies, we plan to take the following remediation measures:
| 1. | We have committed to the establishment of effective internal audit
functions, however, due to the limited resources of the Company and the limited operations, we plan to defer the establishment
of an effective internal audit function until our product is ready for production and sale. |
| 2. | Due to our size and nature, segregation of all conflicting duties
may not always be possible and may not be economically feasible. However, to the extent possible, we will implement
procedures to ensure that the initiation of transactions, the custody of assets and the recording of transactions will be performed
by capable individuals. |
We believe that the foregoing
steps will remediate the deficiencies identified above, and we will continue to monitor the effectiveness of these steps and make
any changes that our management deems appropriate. However, as of December 31, 2014, these steps have not been completed.
A material weakness (within
the meaning of PCAOB auditing standard No. 5) is a deficiency, or a combination of deficiencies, in internal control over financial
reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements
will not be prevented or detected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies,
in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention
by those responsible for oversight of the company’s financial reporting.
Our management is aware
of the material weaknesses in our internal control over financial reporting, and has acknowledged the increased possibility of
errors existing in our financial statements as of December 31, 2014. The reportable conditions and other areas of internal
control over financial reporting identified by us as needing improvement have cause an increased possibility of a material misstatement
of our financial statements, however we are not aware of any instance where such reportable conditions or other identified areas
of weakness have resulted in a material misstatement or omission in any report we have filed with or submitted to the Commission. Accordingly,
while we believe that our financial controls were ineffective, we do not believe there to be any material misstatements in our
financial statements at December 31, 2014.
Limitations on Controls
Management does not expect
that the Company's disclosure controls and procedures or the Company's internal control over financial reporting will prevent or
detect all error and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and
can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide
absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if
any, within the Company have been detected. The Company's disclosure controls and procedures are designed to provide
reasonable assurance of achieving their objectives and the Company's chief executive officer and chief financial officer have concluded
that the Company's disclosure controls and procedures are effective at that reasonable assurance level.
Changes in Internal
Controls
During the six months ended
December 31, 2014, there have been no changes in our internal control over financial reporting that have materially affected or
are reasonably likely to materially affect our internal controls over financial reporting.
PART II. OTHER INFORMATION
On July 27, 2010, the Company
filed a second amended complaint (the “Visa and MasterCard Complaint”) in the United States District Court, Central
District of California (the “Court”), Case No. 2:10-cv-01864, against MasterCard, Inc. and Visa, Inc. alleging patent
infringement on the Company’s patent, U.S. Patent 6,792,464 (the “ ‘ 464 Patent”) (the “Visa and
MasterCard Case”).
On
October 2013, the Federal District Court, Central District of California, held that the Defendants did not infringe on the ‘464
Patent.
Defendants asked the Court to
award them attorneys' fees and costs approximating $3 million. The Company has opposed this request, which the Company believes
is without merit because the Company filed its suit in good faith, and has litigated the case in an objectively reasonable manner.
No final determination has been made by the Court.
Not Applicable
| Item 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE
OF PROCEEDS |
The following summarizes the securities
that we sold during the three months ended December 31, 2014 without registering the securities under the Securities Act:
During the three months ended December
31, 2014, the Company sold for cash 1,599,994 shares and twelve month warrants to purchase: (i) 1,187,500 shares at $0.70 per share,
and (ii) 598,500 shares at $1.00 per share, for net proceeds of $95,750.
Unless otherwise noted in this section,
with respect to the sale of unregistered securities referenced above, all transactions were exempt from registration pursuant to
Section 4(2) of the Securities Act of 1933, as amended (the "1933 Act"), and Regulation S promulgated under the 1933
Act. In each instance, the purchaser had access to sufficient information regarding SmartMetric so as to make an informed investment
decision. More specifically, we had a reasonable basis to believe that each purchaser was an "accredited investor" and
otherwise had the requisite sophistication to make an investment in SmartMetric's securities.
| Item 3. | DEFAULTS UPON SENIOR SECURITIES |
None.
| Item 4. | MINE SAFETY DISCLOSURES |
N/A.
There were no matters required to be disclosed on Form 8-K during
the three months ended December 31, 2014 which were not disclosed on such form.
The following exhibits are attached to this Form 10-Q and made
a part hereof.
Exhibit No. |
|
Description |
|
|
|
10.1 |
|
Security Agreement, dated February 11, 2015, between SmartMetric, Inc. and Chaya Hendrick |
|
|
|
31.1 |
|
Certification of SmartMetric’s Chief Executive Officer pursuant to Rule13a- 14(a) of the Securities Exchange Act of 1934, as amended |
|
|
|
31.2 |
|
Certificate of SmartMetric’s Chief Financial Officer pursuant to Rule13a- 14(a) of the Securities Exchange Act of 1934, as amended |
|
|
|
32.1 |
|
Certification of SmartMetric’s Chief Executive Officer required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended and Section 1350 of Chapter 63 of Title 18 the United States Code (18 U.S.C. 1350) |
|
|
|
32.2 |
|
Certification of SmartMetric’s Chief Financial Officer required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended and Section 1350 of Chapter 63 of Title 18 the United States Code (18 U.S.C. 1350) |
|
|
|
|
|
|
EX-101.INS |
|
XBRL Instance Document |
|
|
|
EX-101.SCH |
|
XBRL Taxonomy Extension Schema Document |
|
|
|
EX-101.CAL |
|
XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
EX-101.DEF |
|
XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
EX-101.LAB |
|
XBRL Taxonomy Extension Labels Linkbase Document |
|
|
|
EX-101.PRE |
|
XBRL Taxonomy Extension Presentation Linkbase Document |
SIGNATURE
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.
|
SMARTMETRIC, INC. |
|
|
|
Dated: February 17, 2015 |
By: |
/s/ C. Hendrick |
|
|
C. Hendrick, President, Chief Executive Officer and Chairman (Principal Executive Officer) |
Dated: February 17, 2015 |
By: |
/s/ Jay Needelman |
|
|
Jay Needelman, Chief Financial Officer (Principal Financial Officer) |
Exhibit 10.1
SECURITY AGREEMENT
This SECURITY AGREEMENT,
dated as of February 11, 2015 (this “Agreement”), is among Smartmetric, Inc., a Nevada corporation (“Debtor”),
and the undersigned lender(s) set forth on Schedule A hereto (the “Secured Party”).
Debtor hereby agrees
in favor of Secured Party as follows:
1. In
consideration for loans made or to be made to Debtor in the form of (i) compensation for services provided as an employee by the
Secured Party for the benefit of the Debtor, and (ii) a $25,000 cash loan made by the Secured Party to the Debtor, due to the
Debtor from the Company in the principal amounts set forth on Schedule A hereto, payable to the order of Secured Party
(such backpay and loan amount due, as amended, modified, supplemented, replaced or substituted from time to time, being herein
referred to as the “Backpay”), Debtor hereby grants to Secured Party a continuing security interest in, lien upon
and a right of setoff against, and Debtor hereby assigns to Secured Party, all of Debtor’s right, title and interest in
and to the Collateral described in Section 2, to secure the full and prompt payment, performance and observance of all present
and future indebtedness, obligations, liabilities and agreements of any kind of Debtor to Secured Party arising under or in connection
with the Backpay, which are existing now or arise after the date hereof (all of the foregoing being herein referred to as the
“Obligations”).
2. The Collateral is described on
Schedule B annexed hereto as part hereof and on any separate schedule(s) identified as Collateral at any time or from time
to time furnished by Debtor to Secured Party (all of which are hereby deemed part of this Security Agreement) and includes claims
of Debtor against third parties for loss or damage to or destruction of any Collateral.
3.1 Debtor hereby warrants and represents
that (a) the Debtor is duly organized, validly existing and in good standing as a corporation under the laws of the State of Nevada
and has all requisite power and authority to own, lease and operate the Collateral and its other properties, to carry on its business
as now conducted and as proposed to be conducted and to enter into and perform its obligations under this Agreement, (b) the Debtor
has complied and will comply with any applicable federal and state securities laws in connection with the Backpay, (c) this Agreement
has been duly and validly authorized, executed and delivered by the Debtor, and constituted the valid and legally binding obligation
of the Debtor, enforceable against the Debtor in accordance with their terms, except as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors’ rights
generally, (d) there is no claim or proceeding (i) pending, which if adversely determined (taking the fact as alleged in such proceeding
as true for such purposes) could reasonably be expected to have a material adverse effect on the Debtor or (ii) to the Debtor’s
knowledge, threatened against or affecting the Debtor or its subsidiaries or any of their respective properties or assets, which
if adversely determined could reasonably be expected to have a material adverse effect on the debtor and (e) the fair saleable
value of the Debtor’s assets is in excess of the total amount of its liabilities as they become absolute and matured, and
the Debtor is able to pay its debts as they mature.
3.2 Debtor hereby warrants, represents,
covenants and agrees (as of the date hereof and so long as any Obligation remains outstanding) that: (a) the chief executive office
and other places of business of Debtor, the books and records relating to the Collateral (except for such records as are in the
possession or control of Secured Party) and the Collateral are located at 3960 Howard Hughes Parkway, Suite 500, Las Vegas NV 89109,
and Debtor will not change any of the same, or merge or consolidate with any person or change its name or conduct its business
under any trade, assumed or fictitious name, without prior written notice to and consent of Secured Party (and in the case of location
of Collateral, will from time to time notify Secured Party of the locations thereof); (b) the Collateral is and will be used in
the business of Debtor and not for personal, family, household or farming use; (c) the Collateral is now, and at all times will
be, owned by Debtor free and clear of all liens, security interests, claims and encumbrances, except pursuant to this Agreement;
(d) Debtor will not abandon or assign, sell, lease, transfer or otherwise dispose of, other than in the ordinary course of Debtor’s
business, nor will Debtor suffer or permit any of the same to occur with respect to, any Collateral, without prior written notice
to and consent of a designated representative of the Secured Party; (e) Debtor will make payment or will provide for the payment,
when due, of all taxes, assessments or contributions or other public or private charges which have been or may be levied or assessed
against Debtor, whether with respect to the Collateral, to any wages or salaries paid by Debtor, or otherwise, will deliver to
Secured Party, on demand, certificates or other evidence satisfactory to Secured Party attesting thereto and shall cause Debtor’s
subsidiaries to take any such action as described under this Section 3(e); (f) Debtor will, at its sole cost and expense, perform
all acts and execute all documents requested by Secured Party from time to time to evidence, perfect, maintain or enforce Secured
Party‘s security interest granted herein or otherwise in furtherance of the provisions of this Security Agreement; (g) at
any time and from time to time, Debtor shall, at its sole cost and expense, execute and deliver to Secured Party such financing
statements pursuant to the Uniform Commercial Code (“UCC”), applications for certificate of title and other papers,
documents or instruments as may reasonably be requested by Secured Party in connection with this Security Agreement, and to the
extent permitted by applicable law, Debtor hereby authorizes Secured Party to execute and file at any time and from time to time
one or more financing statements or copies thereof or of this Security Agreement with respect to the Collateral signed only by
Secured Party, and Debtor agrees to pay any recording tax or similar tax arising in connection with the filing of any such financing
statement and further agrees to pay any additional recording or similar tax which is incurred in connection therewith; (h) Debtor
assumes all responsibility and liability arising from the Collateral; (i) in its discretion, Secured Party may, at any time and
from time to time, upon the occurrence and during the continuance of a Default (as hereinafter defined), demand, sue for, collect
or receive any money or property at any time payable or receivable on account of or in exchange for, or make any compromise or
settlement deemed desirable by Secured Party with respect to, any Collateral, and/or extend the time of payment, arrange for payment
in installments, or otherwise modify the terms of, or release, any of the Obligations and/or the Collateral, or any obligor, maker,
endorser, acceptor, surety or guarantor of, or any Party to, any of the Obligations or the Collateral, all without notice
to or
consent by Debtor and without otherwise discharging or affecting the Obligations, the Collateral or the security interest granted
herein; (j) in its discretion, Secured Party may, at any time and from time to time, for the account of Debtor, pay any amount
or do any act required of Debtor hereunder and which Debtor fails to do or pay, and any such payment shall be deemed an advance
by Secured Party to Debtor payable on demand together with interest at the highest rate then payable on any of the Obligations;
(k) Debtor will promptly pay Secured Party for any and all sums, costs, and expenses which Secured Party may pay or incur pursuant
to the provisions of this Security Agreement or in perfecting, defending, protecting or enforcing this Security Agreement or the
first priority security interest granted herein or in enforcing payment of the Obligations or otherwise in connection with the
provisions hereof, including but not limited to all search, filing and recording fees, taxes, fees and expenses for the service
and filing of papers, premium on bonds and undertakings, fees of marshals, sheriffs, custodians, auctioneers, court costs, collection
charges, travel expenses, and reasonable attorneys’ fees, all of which together with interest at the highest rate then payable
on any of the Obligations, shall be part of the Obligations and be payable on demand; (l) upon the occurrence and during the continuance
of a Default, any proceeds of the Collateral received by Debtor shall not be commingled with other property of Debtor, but shall
be segregated, held by Debtor in trust for Secured Party, and immediately delivered to Secured Party in the form received, duly
endorsed in blank where appropriate to effectuate the provisions hereof, the same to be held by Secured Party as additional Collateral
hereunder or, at Secured Party’s option, to be applied to payment of the Obligations, whether or not due and in any order;
(m) in its sole discretion, Secured Party may, at any time and from time to time, assign, transfer or deliver to any transferee
of any Obligations, any Collateral, whereupon Secured Party shall be fully discharged from all responsibility and the transferee
shall be vested with all powers and rights of Secured Party hereunder with respect thereto, but Secured Party shall retain all
rights and powers with respect to any Collateral not assigned, transferred or delivered; and (n) upon request of Secured Party,
at any time and from time to time, Debtor shall, at its cost and expense, execute and deliver to Secured Party reports as to the
Collateral listing all items thereof, describing the condition of same and setting forth the value thereof (lower of cost or market)
all in form and substance reasonably satisfactory to Secured Party.
4. Upon demand upon Debtor, the
Secured Party may declare any Obligations immediately due and payable and Secured Party shall have the following rights and remedies
(to the extent permitted by applicable law) in addition to all rights and remedies of a Secured Party under the UCC or of Secured
Party under the Obligations, all such rights and remedies being cumulative, not exclusive and enforceable alternatively, successively
or concurrently:
(a) Secured Party may, at any time
and from time to time, with or without judicial process or the aid and assistance of others, (i) enter upon any premises in which
any Collateral may be located and, without resistance or interference by Debtor, take possession of the Collateral, (ii) dispose
of any part or all of the Collateral on any such premises, (iii) require Debtor to assemble and make available to Secured Party
at the expense of Debtor any part or all of the Collateral at any place and time designated by Secured Party which is reasonably
convenient to both parties, (iv) remove any part or all of the Collateral from any such premises for the purpose of effecting sale
or other disposition thereof (and if any of the Collateral consists of motor vehicles, Secured Party may use Debtor’s license
plates), and (v) sell, resell, lease, assign and deliver, grant options for or otherwise dispose of any part or all of the Collateral
in its then condition or following any commercially reasonable preparation or processing, at public or private sale or proceedings
or otherwise, by one or more contracts, in one or more parcels, at the same or different times, with or without having the Collateral
at the place of sale or other disposition, for cash and/or credit, and upon any terms, at such place(s) and time(s) and to such
person(s) as Secured Party deems best, all without demand, notice or advertisement whatsoever except that where an applicable statute
requires reasonable notice of sale or other disposition Debtor hereby agrees that the sending of ten days’ notice by overnight
mail, postage prepaid, to any address of Debtor set forth in this Security Agreement shall be deemed reasonable notice thereof.
If any Collateral is sold by Secured Party upon credit or for future delivery, Secured Party shall not be liable for the failure
of the purchaser to pay for same and in such event Secured Party may resell or otherwise dispose of such Collateral. Secured Party
may buy any part or all of the Collateral at any public sale and, if any part or all of the Collateral is of a type customarily
sold in a recognized market or is of the type which is the subject of widely distributed standard price quotations, Secured Party
may buy such Collateral at private sale and in each case may make payment therefor by any means, whether by credit against the
Obligations or otherwise. Secured Party may apply the cash proceeds actually received from any sale or other disposition to the
reasonable expenses of retaking, holding, preparing for sale, selling, leasing and the like, to reasonable attorneys’ fees
and all legal, travel and other expenses which may be incurred by Secured Party in attempting to collect the Obligations, proceed
against the Collateral or enforce this Security Agreement or in the prosecution or defense of any action or proceeding related
to the Obligations, the Collateral or this Security Agreement; and then to the Obligations in such order and as to principal or
interest as Secured Party may desire; and Debtor shall remain liable and will pay Secured Party on demand any deficiency remaining,
together with interest thereon at the highest rate then payable on the Obligations and the balance of any expenses unpaid, with
any surplus to be paid to Debtor, subject to any duty of Secured Party imposed by law to the holder of any subordinate security
interest in the Collateral known to Secured Party.
(b) Secured Party may, at any time
and from time to time, as appropriate, set off and apply to the payment of the Obligations, any Collateral in or coming into the
possession of Secured Party or their agents, without notice to Debtor and in such manner as Secured Party may in its discretion
determine.
5. With respect to the enforcement
of Secured Party’s rights under this Security Agreement, Debtor hereby releases Secured Party from any claims, causes of
action and demands at any time arising out of or with respect to this Security Agreement, the Obligations, the Collateral and its
use and/or any actions taken or omitted to be taken by Secured Party in good faith with respect thereto, and Debtor hereby agrees
to hold Secured Party harmless from and with respect to any and all such claims, causes of action and demands.
6. Secured Party’s prior recourse
to any Collateral shall not constitute a condition of any demand, suit or proceeding for payment or collection of the Obligations
nor shall any demand, suit or proceeding for payment or collection of the Obligations constitute a condition of any recourse by
Secured Party to the Collateral. Any suit or proceeding by Secured Party to recover any of the Obligations shall not be deemed
a waiver of, or bar against, subsequent proceedings by Secured Party with respect to any other Obligations and/or with respect
to the Collateral. No act, omission or delay by Secured Party shall constitute a waiver of their rights and remedies hereunder
or otherwise. No single or partial waiver by Secured Party of any covenant, warranty, representation, Default or right or remedy
which they may have shall operate as a waiver of any other covenant, warranty, representation, Default, right or remedy or of the
same covenant, warranty, representation, Default, right or remedy on a future occasion. Debtor hereby waives presentment, notice
of dishonor and protest of all instruments included in or evidencing any Obligations or Collateral, and all other notices and demands
whatsoever (except as expressly provided herein).
7. Debtor hereby agrees to pay,
on demand, all out-of-pocket expenses incurred by Secured Party in connection with the recoupment of the Backpay, this Security
Agreement, and the Obligations and in connection with any amendment, including, without limitation, the fees and disbursements
of counsel to Secured Party.
8. So long as any
principal of or interest on the Backpay (whether or not due) shall remain unpaid, Debtor will, unless the Secured Party shall otherwise
consent in writing, furnish to the Secured Party:
(a)
Furnish to the Secured Party:
(i)
within five business days following any request therefor, such other information regarding the results of operations, business
affairs and financial condition of, and litigation, investigation or proceeding pending against, threatened against or affecting,
Debtor, or any of its subsidiaries or any other matter relating to Debtor and its subsidiaries as the Secured Party may reasonably
request;
(ii)
within five business days after the end of each fiscal quarter, copies of any new material contract entered into during
the preceding fiscal quarter;
(iii)
as soon as possible and in any event within three business days after any executive officer of Debtor obtains knowledge
of the occurrence of any event or development that could reasonably be expected to have a Material Adverse Effect, the written
statement of an executive officer of the Company setting forth the details of such event or development having a Material Adverse
Effect and the action which Debtor proposes to take with respect thereto;
(iv)
promptly after the commencement thereof but in any event not later than five business days after service of process with
respect thereto on, or the obtaining of knowledge thereof by, Debtor, notice of each action, suit or proceeding before any court
or other governmental authority or other regulatory body or any arbitrator which, if adversely determined, could reasonably be
expected to have a Material Adverse Effect;
(v)
promptly after the sending or filing thereof, copies of all statements, reports and other information Debtor sends to any
holders of any of its outstanding indebtedness or its securities; and
(vi)
promptly upon receipt thereof, copies of all final financial reports (including, without limitation, management letters),
if any, submitted to Debtor by its auditors in connection with any annual or interim audit of the financial statements or books
thereof.
(b)
Comply, and cause each of its subsidiaries to comply, with all applicable laws, judgments and awards (including any settlement
of any claim that, if breached, could give rise to any of the foregoing), such compliance to include, without limitation, (i) paying
before the same become delinquent all taxes, assessments and governmental charges or levies imposed upon it or upon its income
or profits or upon any of its properties, and (ii) paying all lawful claims which if unpaid might become a lien or charge
upon any of its properties, except in each case to the extent contested in good faith by proper proceedings which stay the imposition
of any penalty, fine or lien resulting from the non-payment thereof and with respect to which adequate reserves have been set aside
for the payment thereof in accordance with GAAP.
(c)
Maintain and preserve, and cause each of its subsidiaries to maintain and preserve, (i) its existence, rights and privileges,
and (ii) become or remain, and cause each of its subsidiaries to become or remain, duly qualified and in good standing in each
jurisdiction in which the character of the properties owned or leased by it or in which the transaction of its business makes such
qualification necessary, except to the extent that the failure to do so could not reasonably be expected, either individually or
in the aggregate, to have a Material Adverse Effect.
(d)
Keep, and cause each of its subsidiaries to keep, adequate records and books of account, with complete entries made
to permit the preparation of financial statements in accordance with GAAP.
(e)
Maintain and preserve, and cause each of its subsidiaries to maintain and preserve, all of its properties which are necessary
or useful in the proper conduct of its business in good working order and condition, ordinary wear and tear excepted, and comply,
and cause each of its subsidiaries to comply, at all times with the provisions of all leases to which it is a party as lessee or
under which it occupies property, so as to prevent any loss or forfeiture thereof or thereunder.
(f)
Duly observe and perform, and cause each of its subsidiaries to duly observe and perform, all material terms and conditions
of all material contracts to which it is a party and diligently protect and enforce (or cause to be protected and enforced) the
material rights of Debtor under all such agreements in a manner consistent with prudent business judgment and subject to the terms
and conditions of such agreements as from time to time in effect.
(g)
Maintain, and cause each of its subsidiaries to maintain, insurance with responsible and reputable insurance companies or
associations (including, without limitation, comprehensive general liability, hazard, rent and business interruption insurance)
with respect to its properties (including all real properties leased or owned by it) and business, in such amounts and covering
such risks as is required by any governmental authority having jurisdiction with respect thereto or as is carried generally in
accordance with sound business practice by companies in similar businesses similarly situated
(h)
Obtain, maintain and preserve, and cause each of its subsidiaries to obtain, maintain and preserve, and take all necessary
action to timely renew, all material permits, licenses, authorizations, approvals, entitlements and accreditations which are necessary
or useful in the proper conduct of its business.
(i)
Take such action and execute, acknowledge and deliver, and cause each of its subsidiaries to take such action and execute,
acknowledge and deliver, at its sole cost and expense, such ancillary and related agreements, instruments or other documents as
the Secured Party may reasonably require from time to time consistent herewith in order (i) to carry out more effectively
the purposes of this Agreement, (ii) to subject to valid and perfected first priority liens any of the Collateral or any other
property of Debtor and its subsidiaries, (iii) to establish and maintain the validity and effectiveness of any documents and
the validity, perfection and priority of the liens intended to be created thereby, and (iv) to better assure, convey, grant,
assign, transfer and confirm unto the Secured Party the rights now or hereafter intended to be granted to it under this Agreement.
(j)
Cause all indebtedness and any other obligations now or hereafter owed by it to any of its Affiliates, to be subordinated
in right of payment and security to obligations owing to the Secured Party.
9. So long as any
principal of or interest on the Backpay (whether or not due) shall remain unpaid, Debtor shall not, unless the Secured Party shall
otherwise consent in writing:
(a)
Wind-up, liquidate or dissolve, or merge, consolidate or amalgamate with any person, or convey, sell, lease or sublease,
transfer or otherwise dispose of, whether in one transaction or a series of related transactions, all or any part of its business,
property or assets, whether now owned or hereafter acquired (or agree to do any of the foregoing), or purchase or otherwise acquire,
whether in one transaction or a series of related transactions, all or substantially all of the assets of any person (or any division
thereof) (or agree to do any of the foregoing), or permit any of its subsidiaries to do any of the foregoing;
(b)
Enter into, renew, extend or be a party to, or permit any of its subsidiaries to enter into, renew, extend or be a party
to, any transaction or series of related transactions (including, without limitation, the purchase, sale, lease, transfer or exchange
of property or assets of any kind or the rendering of services of any kind) with any of its affiliates, unless reasonably consistent
with past practices of Debtor;
(c)
Make any payment, prepayment, redemption, defeasance, sinking fund payment or repurchase of any subordinated indebtedness
in violation of the subordination provisions thereof or any subordination agreement with respect thereto, or make any payment,
prepayment, redemption, defeasance, sinking fund payment or repurchase of any Indebtedness as a result of any asset sale, change
of control, issuance and sale of debt or equity securities or similar event, or give any notice with respect to any of the foregoing;
(d)
Amend, modify or otherwise change its name, jurisdiction of organization, organizational identification number or FEIN,
except that Debtor may change its name, jurisdiction of organization, organizational identification number or FEIN upon at least
30 days' prior written notice to the Secured Party;
(e)
Establish, sponsor, maintain, become party or contribute to or become obligated to sponsor, maintain or contribute to any
multiemployer benefit plan or any defined benefit plan which provides benefits to employees after termination of employment other
than as required by Section 601 of ERISA or applicable law.
(f)
Agree to any material amendment or other material change to or material waiver of any of its rights under any material contract
in any manner adverse to the Secured Party.
(g)
Enter into, incur or permit to exist, or permit any subsidiary to enter into, incur or permit to exist, directly or indirectly,
any agreement, instrument, deed, lease or other arrangement that prohibits, restricts or imposes any condition upon the ability
of Debtor or any of its subsidiaries to create, incur or permit to exist any lien upon any of its property or revenues, whether
now owned or hereafter acquired, or that requires the grant of any security for an obligation if security is granted for another
obligation, except this Agreement.
10. In the event of any litigation
with respect to any matter connected with this Security Agreement, the Obligations, or the Collateral, Debtor hereby waives the
right to a trial by jury and all rights of setoff. Debtor hereby waives personal service of any process in connection with any
such action or proceeding and agrees that the service thereof may be made by certified or registered mail directed to Debtor at
any address of Debtor set forth in this Security Agreement. Debtor so served shall appear or answer to such process within thirty
days after the mailing thereof. Should Debtor so served fail to appear or answer within said thirty-day period, Debtor shall be
deemed in default and judgment may be entered by Secured Party against Debtor for the amount or such other relief as may be demanded
in any process so served. In the alternative, Secured Party may in their discretion effect service upon Debtor in any other form
or manner permitted by law.
11. Upon the payment in full of
the Backpay, the security interest granted hereby in the Collateral shall terminate and all rights to the Collateral under this
Agreement shall immediately revert to Debtor. Upon any such termination, the Secured Party shall within three (3) business days:
(x) return any Collateral that is in possession of the Secured Party, and (y) execute and deliver UCC–3 financing statement
releases or other documents of release reasonably requested by Debtor.
12. Secured Party may assign its
rights and obligation hereunder to any Affiliate of Secured Party provided that such Affiliate assumes all of the liabilities or
obligations of Secured Party hereunder. For purposes of this section, “Affiliate” of any person means any other person
or entity which, directly or indirectly, controls or is controlled by that person, or is under common control with that person
or entity. “Control” (including, with correlative meaning, the terms “controlled by” and “under common
control with”), as used with respect to any person or entity, means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of such person or entity, whether through the ownership of voting
securities, by contract or otherwise.
13. All terms herein shall have
the meanings as defined in the UCC, unless the context otherwise requires. No provision hereof shall be modified, altered, waived,
released, terminated or limited except by a written instrument expressly referring to this Security Agreement and to such provision,
and executed by the party to be charged. The execution and delivery of this Security Agreement has been authorized by the Board
of Directors of Debtor and by any necessary vote or consent of stockholders of Debtor. This Security Agreement shall only be assignable
to the extent that the Backpay is assignable, and this Security Agreement and all Obligations shall be binding upon the permitted
successors and assigns of Debtor and shall, together with the rights and remedies of Secured Party hereunder, inure to the benefit
of Secured Party, their executors, administrators, successors, permitted endorsees and permitted assigns.
14. This Security Agreement shall
be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflicts of
laws. The parties to this Security Agreement irrevocably submit to the exclusive jurisdiction of the courts of the State of New
York located in New York County and the United States District Court for the Southern District of New York for the purpose of any
suit, action, proceeding or judgment relating to or arising out of this Security Agreement and the transaction contemplated hereby.
The parties to this Security Agreement hereby irrevocably waive any objection to jurisdiction and venue of any action instituted
hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. The
parties waive trial by jury. The prevailing party shall be entitled to recover from the other party its reasonable
attorney's fees
and costs. In the event that any provision of this Security Agreement or any other agreement delivered in connection herewith is
invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent
that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which
may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any
agreement. Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action
or proceeding in connection with this Security Agreement by mailing a copy thereof via registered or certified mail or overnight
delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Security Agreement and
agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall
be deemed to limit in any way any right to serve process in any other manner permitted by law.
15. If any term or other provision
of this Security Agreement is invalid, illegal or incapable of being enforced by any rule of law, or public policy, all other conditions
and provisions of this Security Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance
of the transactions contemplated hereby is not affected in any manner adverse to any party. Upon such determination that any term
or other provision is invalid, illegal, or incapable of being enforced, the parties hereto shall negotiate in good faith to modify
this Security Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner
in order that the transactions contemplated hereby be consummated as originally contemplated to the fullest extent possible.
16. Each party hereto acknowledges
and agrees it has had the opportunity to draft, review, and edit the language of this Security Agreement and that no presumption
for or against any party arising out of drafting all or any part of this Security Agreement will be applied in any dispute relating
to, in connection with, or involving this Security Agreement. Accordingly, the parties hereto hereby waive the benefit of any rule
of law or any legal decision that would require, in cases of uncertainty, that the language of a contract should be interpreted
most strongly against the party who drafted such language.
17. All notices and other communications
under this Agreement shall be in writing and shall be deemed given when delivered personally, by overnight mail or delivery service
or mailed by certified mail, return receipt requested, to the parties.
IN WITNESS WHEREOF,
the undersigned have executed or caused this security agreement to be executed on the date first above set forth.
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COMPANY:
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SMARTMETRIC, INC. |
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By: /s/ Jay Needelman |
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Name: Jay Needelman |
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Title: Chief Financial Officer |
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Address of Debtor:
3960 Howard Hughes Parkway, Suite 500
Las Vegas NV 89109 |
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Secured Parties:
/s/ Chaya Hendrick
Name: Chaya Hendrick
SCHEDULE A
Chaya Hendrick: $245,015.00
SCHEDULE B
The term “Collateral” means collectively,
wherever located, whether now owned or hereafter acquired or now existing or hereafter acquired or created, all right, title and
interest of Debtor in and to all of its assets, including, without limitation: (i) accounts, chattel paper, deposit accounts, documents,
general intangibles (including, but not limited to intellectual property, payment intangibles, software, licenses, franchises and
customer information), goods (including, but not limited to equipment, fixtures and inventory), instruments, investment property,
letter-of-credit rights, money, other personal property, software, any commercial tort claims; (ii) to the extent not referred
to in clause (i) of this sentence, all (A) supporting obligations and incidental property rights incident to, arising or accruing
pursuant to or otherwise relating to any of the things referred to in clause (i) of this sentence, whether arising or accruing
from any action taken by Debtor or the Secured Party or otherwise, (B) proceeds of any of the items
referred to in clauses (i) and (ii)(A) of this sentence and (C) books and records relating to any of the items
referred to in clauses (i) and (ii)(A) and (B) of this sentence. Such Collateral shall include United States patent, U.S.
Patent No. 6,792,464, previously assigned by the Secured Party to the Debtor, and any and all other intellectual property rights
currently held or hereafter acquired or created by the Debtor.
EXHIBIT 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE
OFFICER
PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, C. Hendrick, certify that:
1. I have reviewed
this quarterly report on Form 10-Q of Smartmetric, Inc.;
2. Based on my knowledge,
this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge,
the financial statements, and other financial information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s
other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
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a) |
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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b) |
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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c) |
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; |
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d) |
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; |
5. The registrant’s
other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the
audit committee of the registrant’s board of directors (or persons performing the equivalent function):
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a) |
all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and |
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b) |
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting. |
Dated: February 17, 2015 |
By: |
/s/ C. Hendrick |
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C. Hendrick |
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Chief Executive Officer |
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(principal executive officer) |
EXHIBIT 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL
AND ACCOUNTING OFFICER
PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Jay Needelman, certify that:
1. I have reviewed this quarterly
report on Form 10-Q of Smartmetric, Inc.;
2. Based on my knowledge,
this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge,
the financial statements, and other financial information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s
other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
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a) |
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b) |
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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c) |
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; |
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d) |
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; |
5. The registrant’s
other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the
audit committee of registrant’s board of directors (or persons performing the equivalent function):
|
a) |
all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and |
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b) |
any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant’s internal controls over financial reporting
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Dated: February 17, 2015 |
By: |
/s/ Jay Needelman |
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Jay Needelman |
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Chief Financial Officer (principal financial and accounting officer) |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION
1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY
ACT OF 2002
In connection with the Quarterly Report
of Smartmetric, Inc. (the “Company”) on Form 10-Q for the period ended December 31, 2014, as filed with the Securities
and Exchange Commission on the date hereof (the “Report”), I, C Hendrick, Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. section 1350 of the Sarbanes-Oxley Act of 2002, that:
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(1) |
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
A signed original of this written statement
required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and
Exchange Commission or its staff upon request.
Dated: February 17, 2015 |
By: |
/s/ C. Hendrick |
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C. Hendrick |
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Chief Executive Officer (Principal Executive Officer) |
EXHIBIT 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION
1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY
ACT OF 2002
In connection with the Quarterly Report
of Smartmetric, Inc. (the “Company”) on Form 10-Q for the period ended December 31, 2014, as filed with the Securities
and Exchange Commission on the date hereof (the “Report”), I, Jay Needelman, Chief Financial Officer of the Company,
certify, pursuant to 18 U.S.C. section 1350 of the Sarbanes-Oxley Act of 2002, that:
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(1) |
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
A signed original of this written statement
required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and
Exchange Commission or its staff upon request.
Dated: February 17, 2015 |
By: |
/s/ Jay Needelman |
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Jay Needelman |
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Chief Financial Officer (Principal Financial and Accounting Officer) |
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