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 March 31, 2015

 

¨   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 May 15, 2015, there were 177,752,752 shares issued and outstanding of the registrant’s common stock.

 

 
 

 

INDEX

 

        Page
         
PART I.   FINANCIAL INFORMATION    
Item 1.   Financial Statements    
    Condensed consolidated balance sheets as of March 31, 2015 (unaudited) and June 30, 2014   F-1
    Condensed consolidated statements of operations for the three and nine months ended March 31, 2015 and 2014 (unaudited)   F-2
    Condensed consolidated statements of cash flows for the nine months ended March 31, 2015 and 2014 (unaudited)   F-3
         
    Notes to condensed consolidated financial statements (unaudited)   F-4 - F-12
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations   3
Item 3.   Quantitative and Qualitative Disclosures about Market Risk   7
Item 4.   Controls and Procedures   8
         
PART II   OTHER INFORMATION    
Item 1.   Legal Proceedings   8
Item 1A.   Risk Factors   8
Item 2.   Unregistered sales of equity securities and use of proceeds   8
Item 3.   Defaults Upon Senior Securities   9
Item 4.   Mine Safety Disclosures   9
Item 5.   Other Information   9
Item 6.   Exhibits  

9

    Signatures   10

 

2
 

 

SMARTMETRIC, INC. AND SUBSIDIARY

Condensed Consolidated Balance Sheets

 

   March 31,   June 30, 
   2015   2014 
   (Unaudited)     
Assets          
Current assets:          
Cash  $87,970   $97,924 
Prepaid expenses and other current assets   114,417    307,491 
           
Total current assets   202,387    405,415 
           
Other assets:          
Advances to shareholder   -    22,478 
Patent costs, less accumulated amortization of $15,000 and $14,625, respectively   -    375 
           
Total assets  $202,387   $428,268 
           
Liabilities and Stockholders' Deficit           
           
Current liabilities:          
Accounts payable and accrued expenses  $367,006   $325,877 
Liability for stock to be issued   473,107    355,750 
Deferred Officer salary   220,015    125,015 
Shareholder loan   25,522    - 
           
Total current liabilities   1,085,650    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, 177,892,752 and 167,707,937      
shares issued and outstanding , respectively
   177,892    167,708 
Additional paid-in capital   19,509,216    18,767,649 
Accumulated deficit   (20,570,781)   (19,313,941)
           
Total stockholders' deficit   (883,263)   (378,374)
           
Total liabilities and stockholders' deficit     $202,387   $428,268 

 

See notes to condensed consolidated financial statements.

 

F-1
 

  

SMARTMETRIC, INC. AND SUBSIDIARY

Condensed Consolidated Statements Of Operations

(Unaudited)

 

   Three Months   Three Months   Nine Months   Nine Months 
   Ended   Ended   Ended   Ended 
   March   March   March   March 
   31,   31,   31,   31, 
   2015   2014   2015   2014 
                 
Revenues  $-   $-   $-   $- 
                     
Expenses:                    
Officer's salary   47,500    47,500    142,500    142,500 
Other general and administrative   203,045    708,790    1,000,229    1,945,214 
Research and development   23,232    58,490    114,111    437,067 
                     
Total operating expenses   273,777    814,780    1,256,840    2,524,781 
                     
Loss from operations before income taxes   (273,777)   (814,780)   (1,256,840)   (2,524,781)
                     
Income taxes   -    -    -    - 
                     
Net loss  $(273,777)  $(814,780)  $(1,256,840)  $(2,524,781)
                     
Net loss per share, basic and diluted  $(0.00)  $(0.00)  $(0.01)  $(0.02)
                     
Weighted average number of common
shares outstanding, basic and diluted
   177,086,406    163,349,821    172,780,876    159,722,082 

 

See notes to condensed consolidated financial statements.

 

F-2
 

  

SMARTMETRIC, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

   Nine Months   Nine Months 
   Ended   Ended 
   March   March 
   31,   31, 
   2015   2014 
CASH FLOWS FROM OPERATING ACTIVITIES          
  Net loss  $(1,256,840)  $(2,524,781)
           
Adjustments to reconcile net loss to net cash          
used in operating activities:          
Amortization   375    1,125 
Common stock and warrants issued and issuable for services   158,982    1,029,007 
           
Changes in assets and liabilities          
(Increase) decrease in prepaid expenses and other current assets   193,074    461,958 
(Increase) decrease in advances to shareholder   22,478    (24,428)
Increase (decrease) in accounts payable and accrued expenses   41,129    (9,805)
Increase (decrease) in deferred officer's salary   95,000    47,501 
           
Net cash used in operating activities   (745,802)   (1,019,423)
           
CASH FLOWS FROM INVESTING ACTIVITIES   -    - 
           
CASH FLOWS FROM FINANCING ACTIVITIES            
Loans from related parties   25,522    (21,572)
Proceeds from sale of common stock   592,969    580,861 
Liability for stock to be issued   117,357    (281,254)
           
Net cash provided by financing activities   735,848    278,035 
           
NET (DECREASE) IN CASH    (9,954)   (741,388)
           
CASH           
BEGINNING OF PERIOD   97,924    804,257 
           
END OF PERIOD  $87,970   $62,869 
           
CASH PAID DURING THE PERIOD FOR:          
Income taxes  $-   $- 
Interest  $-   $- 
           
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.

 

F-3
 

  

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 nine months ended March 31, 2015 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 $1,256,840 and $2,524,781 for the nine months ended March 31, 2015 and 2014 respectively, and has an accumulated deficit of $20,570,781 at March 31, 2015.   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.

 

F-4
 

 

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.

 

F-5
 

 

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 March 31, 2015 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.

 

F-6
 

  

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.

 

NOTE 3 - PREPAID EXPENSES

 

Prepaid expenses represent the unexpired terms of various consulting agreements and expire through June 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.

 

NOTE 4 - PATENT COSTS

 

Patent costs as of March 31, 2015 and June 30, 2014 are summarized as follows:

 

   Estimated 
Useful Lives
( Years)
   March
31,
2015
   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 $1,125 for the nine months ended March 31, 2015 and 2014, respectively.

 

F-7
 

 

SMARTMETRIC INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

  NOTE 5 - COMMITMENTS

 

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.

 

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, and Nevada on short-term leases. The Company’s main office is located in Las Vegas, Nevada. Rent expense under all leases for the nine months ended March 31, 2015 and 2014 was $13,883 and $55,769, respectively. 

 

Related Party Transactions

 

The Company’s Chief Executive Officer has made cash advances to the Company with an aggregate amount due of $25,522 and $0 at March 31, 2015 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 March 31, 2015 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 March 31, 2015 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.

 

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. 

 

F-8
 

  

SMARTMETRIC INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

  NOTE 6 - STOCKHOLDERS’ EQUITY (DEFICIT)

 

Preferred Stock

 

As of March 31, 2015, the Company has 5,000,000 shares of preferred stock, par value $0.001, authorized and 410,000 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.

 

F-9
 

 

 SMARTMETRIC INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

  NOTE 6 - STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED)

 

Class A Common Stock

 

As of March 31, 2015, 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 March 31, 2015, the Company has 177,892,752 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.

 

F-10
 

  

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.

 

During the three months ended March 31, 2015, the Company sold for cash 4,425,000 shares and twelve month warrants to purchase: (i) 2,375,000 shares at $0.70 per share, and (ii) 1,197,000 shares at $1.00 per share, for net proceeds of $189,557.

 

During the three months ended March 31, 2015, the Company issued 296,250 shares for consulting services valued at $17,775, based on the stock price at the time of the respective agreements underlying the services provided.

 

 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 March 31, 2015 and June 30, 2014, the following is a breakdown of the Company’s warrant activity:

 

March 31, 2015:

 

Outstanding - June 30, 2014   19,004,326 
Issued   7,457,500 
Exercised   - 
Expired   - 
 Outstanding - March 31, 2015   26,461,826 

 

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 

 

F-11
 

  

SMARTMETRIC INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 6 - STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED)

 

At March 31, 2015, all of the 26,461,826 warrants are vested and 20,461,826 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.

 

NOTE 7 - INCOME TAXES

 

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. 

 

NOTE 8 - LITIGATION

 

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”).

 

In 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 opposed this request, which SmartMetric believed was without merit because SmartMetric filed its suit in good faith and had litigated the case in an objectively reasonable manner.

 

On March 25, 2015, The Federal District Court of the Southern District of California denied both Visa and Mastercard’s motion for fees and costs. A notice of appeal has been lodged with the Court by Mastercard while Visa declined to lodge an appeal and the time for such an appeal by Visa has now passed.

 

F-12
 

  

  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.

 

3
 

  

The Company intends to market its biometric payments card directly to banks as well as forging marketing relationships with banking card Industry companies.

 

MedicalKeyring:

 

In the last quarter of 2013 the Company released on a small release basis, its MedicalKeyring product. The release was marketed using 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 Company’s 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 expected to be set by the banks at 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.  

 

By the end of 2014, the number of EMV payment cards in circulation rose by 1 billion, up 43% from the previous year to 3.4 billion, from 2.37 billion in Q4 2013.  There are now 3.4 billion EMV chip cards in use 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.

 

4
 

 

Results of Operations

 

Comparison of the Nine Months Ended March 31, 2015 and 2014

 

Revenue and Net Loss

 

For the nine months ended March 31, 2015, there was no revenue and a net loss of $1,256,840.  For the nine months ended March 31, 2014, there was no revenue and a net loss of $2,524,781.  This decreased loss of $1,267,941 or 50.2% resulted primarily from lower general and administrative expenses.

 

General and Administrative Expenses

 

General and administrative expenses for the nine months ended March 31, 2015 were $1,000,229, a decrease of $944,985 or 48.6% compared to $1,945,214 for the comparable period in 2014. This decrease was primarily attributed to lower consulting expenses and legal and professional fees.

 

Research and Development Expenses

 

Research and development expenses for the nine months ended March 31, 2015 were $114,111 a decrease of $322,956 or 73.9% compared to $437,067 for the comparable period in 2014.   This decrease was primarily attributable to lower engineering expenses.

 

Income Tax Expense

 

Income tax expense for the nine months ended March 31, 2015 was $0, unchanged from the comparable period in 2014.

 

Comparison of the Three Months Ended March 31, 2015 and 2014

 

Revenue and Net Loss

 

For the three months ended March 31, 2015, there was no revenue and a net loss of $273,777.  For the three months ended March 31, 2014, there was no revenue and a net loss of $814,780.  This decreased loss of $541,003 or 66.4% resulted primarily from lower general and administrative expenses.

 

General and Administrative Expenses

 

General and administrative expenses for the three months ended March 31, 2015 were $203,045, a decrease of $505,745 or 71.4% compared to $708,790 for the comparable period in 2014. 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 March 31, 2015 were $23,232 a decrease of $35,258 or 60.3% compared to $58,490 for the comparable period in 2014.   This decrease was primarily attributable to lower engineering expenses.

 

Income Tax Expense

 

Income tax expense for the three months ended March 31, 2015 was $0, unchanged from the comparable period in 2014.

 

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.

 

5
 

  

At March 31, 2015, the Company had an accumulated deficit of $20,570,781 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 $87,970 at March 31, 2015 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 $745,802 for the nine months ended March 31, 2015, a decrease of $273,621, or 26.8% from the comparable period in 2014.  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 nine months ended March 31, 2015, unchanged from the comparable period in 2014.

 

Net cash provided by financing activities

 

Net cash provided by financing activities was $735,848 for the nine months ended March 31, 2015, an increase of $457,813 or 164.7% from the comparable period in 2014.  This increase was based on higher sales and issuances of equity shares in the period.

 

Contractual Obligations and Off-Balance Sheet Arrangements.

 

There were no off-balance sheet arrangements at March 31, 2015 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.

 

6
 

  

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 March 31, 2015, we had $87,970 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 March 31, 2015, 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 March 31, 2015, these steps have not been completed.

 

7
 

  

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 March 31, 2015.  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 March 31, 2015.

  

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 three months ended March 31, 2015, 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

 

Item 1. LEGAL PROCEEDINGS

 

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”).

 

In 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 opposed this request, which the Company believed was without merit because the Company filed its suit in good faith and had litigated the case in an objectively reasonable manner.

 

On March 25, 2015, The Federal District Court of the Southern District of California denied both Visa and Mastercard’s motion for fees and costs. A notice of appeal has been lodged with the Court by Mastercard while Visa declined to lodge an appeal and the time for such an appeal by Visa has now passed.

 

 

Item 1A. RISK FACTORS

 

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 March 31, 2015 without registering the securities under the 1933 Act (as defined below):

 

During the three months ended March 31, 2015, the Company sold for cash 4,425,000 shares and twelve month warrants to purchase: (i) 1,750,000 shares at $0.70 per share, and (ii) 882,000 shares at $1.00 per share, for net proceeds of $189,557.

 

8
 

  

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(a)(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.

 

Item 5. OTHER INFORMATION

 

There were no matters required to be disclosed on Form 8-K during the three months ended March 31, 2015 which were not disclosed on such form.

 

Item 6. EXHIBITS

 

The following exhibits are attached to this Form 10-Q and made a part hereof.

 

Exhibit No.   Description
     
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

 

9
 

 

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:  May 15, 2015 By:   /s/ C. Hendrick
    C. Hendrick, President, Chief Executive Officer and Chairman (Principal Executive Officer)

 

Dated:  May 15, 2015 By:   /s/ Jay Needelman
    Jay Needelman, Chief Financial Officer (Principal Financial Officer)

 

10



 

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:

 

  a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

 

  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):

 

  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

 

  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: May 15, 2015 By: /s/  C. Hendrick  
    C. Hendrick  
    Chief Executive Officer  
    (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:

 

  a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

 

  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

 

  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:  May 15, 2015 By: /s/  Jay Needelman      
    Jay Needelman  
    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 March 31, 2015, 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:

 

   (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
     
   (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

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:  May 15, 2015 By: /s/ C. Hendrick    
    C. Hendrick  
    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 March 31, 2015, 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:

 

   (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
     
   (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

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:  May 15, 2015 By: /s/ Jay Needelman  
    Jay Needelman  
    Chief Financial Officer (Principal Financial and Accounting Officer)  

 

 

 

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