Item
1.
|
Financial
Statements
|
SMARTMETRIC, INC. AND SUBSIDIARY
Condensed Consolidated Balance Sheet
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(Unaudited)
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash
|
|
$
|
-
|
|
|
$
|
10,161
|
|
Prepaid expenses and other current assets
|
|
|
10,017
|
|
|
|
6,450
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
10,017
|
|
|
|
16,611
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
10,017
|
|
|
$
|
16,611
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
898,380
|
|
|
$
|
884,140
|
|
Liability for stock to be issued
|
|
|
69,183
|
|
|
|
147,484
|
|
Deferred Officer’s salary
|
|
|
821,682
|
|
|
|
790,015
|
|
Related party interest payable
|
|
|
135,240
|
|
|
|
93,488
|
|
Dividends payable
|
|
|
2,489
|
|
|
|
3,123
|
|
Due to shareholders
|
|
|
41,343
|
|
|
|
-
|
|
Shareholder loan
|
|
|
6,571
|
|
|
|
3,759
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,974,888
|
|
|
|
1,922,009
|
|
Total liabilities
|
|
|
1,974,888
|
|
|
|
1,922,009
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies (Note 4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series C mandatory redeemable convertible preferred stock, net of discount, authorized 1,000,000 shares 128,500 and 121,700 shares issued and outstanding, respectively
|
|
|
106,580
|
|
|
|
99,278
|
|
Preferred Series C stock subscriptions receivable
|
|
|
(30,000
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ deficit:
|
|
|
|
|
|
|
|
|
Preferred B stock, $.001 par value; 5,000,000 shares authorized, 610,000 and 610,000 shares issued and outstanding
|
|
|
610
|
|
|
|
610
|
|
Common stock, $.001 par value; 600,000,000 and 300,000,000 shares authorized, 316,875,686 and 264,648,821 shares issued and outstanding , respectively
|
|
|
316,876
|
|
|
|
264,649
|
|
Additional paid-in capital
|
|
|
25,215,910
|
|
|
|
24,663,528
|
|
Accumulated deficit
|
|
|
(27,574,847
|
)
|
|
|
(26,933,463
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders’ deficit
|
|
|
(2,041,451
|
)
|
|
|
(2,004,676
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities, redeemable convertible preferred stock and equity
|
|
$
|
10,017
|
|
|
$
|
16,611
|
|
The accompanying unaudited notes are an
integral part of these unaudited consolidated financial statements
SMARTMETRIC, INC. AND SUBSIDIARY
Condensed Consolidated Statement of
Operations
(Unaudited)
|
|
Three
Months
|
|
|
Three
Months
|
|
|
Nine
Months
|
|
|
Nine
Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officer’s salary
|
|
|
47,500
|
|
|
|
47,500
|
|
|
|
142,500
|
|
|
|
142,500
|
|
Other general and administrative
|
|
|
93,200
|
|
|
|
121,200
|
|
|
|
375,779
|
|
|
|
369,361
|
|
Research and development
|
|
|
14,090
|
|
|
|
38,949
|
|
|
|
60,796
|
|
|
|
90,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
154,790
|
|
|
|
207,649
|
|
|
|
579,075
|
|
|
|
601,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations before other expense
|
|
|
(154,790
|
)
|
|
|
(207,649
|
)
|
|
|
(579,075
|
)
|
|
|
(601,945
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(14,081
|
)
|
|
|
(13,647
|
)
|
|
|
(41,731
|
)
|
|
|
(39,468
|
)
|
Total Other expense
|
|
|
(14,081
|
)
|
|
|
(13,647
|
)
|
|
|
(41,731
|
)
|
|
|
(39,468
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(168,871
|
)
|
|
|
(221,296
|
)
|
|
|
(620,806
|
)
|
|
|
(641,413
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(168,871
|
)
|
|
|
(221,296
|
)
|
|
|
(620,806
|
)
|
|
|
(641,413
|
)
|
Preferred C stock dividends
|
|
|
(4,614
|
)
|
|
|
(4,273
|
)
|
|
|
(20,577
|
)
|
|
|
(4,273
|
)
|
Net loss available for common stockholders
|
|
$
|
(173,485
|
)
|
|
$
|
(225,569
|
)
|
|
$
|
(641,383
|
)
|
|
$
|
(645,686
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share, basic and diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding, basic and diluted
|
|
|
307,327,958
|
|
|
|
256,676,745
|
|
|
|
285,940,273
|
|
|
|
253,891,612
|
|
The accompanying unaudited notes are an
integral part of these unaudited consolidated financial statements
SMARTMETRIC, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders’
(Deficit)
(Unaudited)
|
|
Preferred Series B
|
|
|
|
|
|
Additional Paid In
|
|
|
Accumulated
|
|
|
|
|
|
|
Stock
|
|
|
Common Stock
|
|
|
Capital
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance June 30, 2019
|
|
|
610,000
|
|
|
$
|
610
|
|
|
|
264,648,821
|
|
|
|
264,649
|
|
|
$
|
24,663,528
|
|
|
$
|
(26,933,461
|
)
|
|
$
|
(2,004,674
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued of common stock and warrants for cash
|
|
|
-
|
|
|
|
-
|
|
|
|
7,991,662
|
|
|
|
7,992
|
|
|
|
218,008
|
|
|
|
-
|
|
|
|
226,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares converted from Preferred Series C shares
|
|
|
-
|
|
|
|
-
|
|
|
|
3,224,643
|
|
|
|
3,224
|
|
|
|
63,289
|
|
|
|
-
|
|
|
|
66,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Series C dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,725
|
)
|
|
|
(11,725
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss available for common shareholders
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(215,296
|
)
|
|
|
(215,296
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance September 30, 2019
|
|
|
610,000
|
|
|
$
|
610
|
|
|
|
275,865,126
|
|
|
$
|
275,865
|
|
|
$
|
24,944,825
|
|
|
$
|
(27,160,482
|
)
|
|
$
|
(1,939,182
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued of common stock and warrants for cash
|
|
|
-
|
|
|
|
-
|
|
|
|
3,730,000
|
|
|
|
3,730
|
|
|
|
77,720
|
|
|
|
-
|
|
|
|
81,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares converted from Preferred Series C shares
|
|
|
-
|
|
|
|
-
|
|
|
|
2,370,696
|
|
|
|
2,371
|
|
|
|
28,538
|
|
|
|
-
|
|
|
|
30,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Series C dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,238
|
)
|
|
|
(4,238
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss available for common shareholders
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(236,638
|
)
|
|
|
(236,638
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2019
|
|
|
610,000
|
|
|
$
|
610
|
|
|
|
281,965,822
|
|
|
$
|
281,966
|
|
|
$
|
25,051,083
|
|
|
$
|
(27,401,358
|
)
|
|
$
|
(2,067,699
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued of common stock for services
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
50
|
|
|
|
1,450
|
|
|
|
|
|
|
|
1,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued of common stock and warrants for cash
|
|
|
-
|
|
|
|
-
|
|
|
|
28,475,000
|
|
|
|
28,475
|
|
|
|
118,275
|
|
|
|
-
|
|
|
|
146,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares converted from Preferred Series C shares
|
|
|
-
|
|
|
|
-
|
|
|
|
6,384,864
|
|
|
|
6,385
|
|
|
|
45,102
|
|
|
|
-
|
|
|
|
51,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Series C dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,614
|
)
|
|
|
(4,614
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss available for common shareholders
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(168,871
|
)
|
|
|
(168,871
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2020
|
|
|
610,000
|
|
|
$
|
610
|
|
|
|
316,875,686
|
|
|
$
|
316,876
|
|
|
$
|
25,215,910
|
|
|
$
|
(27,574,847
|
)
|
|
$
|
(2,041,451
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance June 30, 2018
|
|
|
610,000
|
|
|
$
|
610
|
|
|
|
249,147,547
|
|
|
$
|
249,148
|
|
|
$
|
24,217,831
|
|
|
$
|
(25,996,910
|
)
|
|
$
|
(1,529,321
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued of common stock and warrants for cash
|
|
|
-
|
|
|
|
-
|
|
|
|
5,502,538
|
|
|
|
5,503
|
|
|
|
201,196
|
|
|
|
-
|
|
|
|
206,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(213,827
|
)
|
|
|
(213,827
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance September 30, 2018
|
|
|
610,000
|
|
|
$
|
610
|
|
|
|
254,650,085
|
|
|
$
|
254,651
|
|
|
$
|
24,419,027
|
|
|
$
|
(26,210,237
|
)
|
|
$
|
(1,526,479
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued of common stock and warrants for cash
|
|
|
-
|
|
|
|
-
|
|
|
|
2,026,660
|
|
|
|
2,027
|
|
|
|
59,973
|
|
|
|
-
|
|
|
|
62,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(206,790
|
)
|
|
|
(206,790
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2018
|
|
|
610,000
|
|
|
$
|
610
|
|
|
|
256,676,745
|
|
|
$
|
256,678
|
|
|
$
|
24,479,000
|
|
|
$
|
(26,417,027
|
)
|
|
$
|
(1,671,269
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Series C dividends
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,273
|
)
|
|
|
(4,273
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(221,296
|
)
|
|
|
(221,296
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2019
|
|
|
610,000
|
|
|
$
|
610
|
|
|
|
256,676,745
|
|
|
$
|
256,678
|
|
|
$
|
24,479,000
|
|
|
$
|
(26,642,596
|
)
|
|
$
|
(1,896,838
|
)
|
SMARTMETRIC, INC. AND SUBSIDIARY
Condensed Consolidated Statements Of
Cash Flows
(Unaudited)
|
|
Nine Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
Net loss
|
|
$
|
(620,806
|
)
|
|
$
|
(641,413
|
)
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in assets and liabilities
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
(3,567
|
)
|
|
|
(2,250
|
)
|
Accounts payable and accrued expenses
|
|
|
14,240
|
|
|
|
58,414
|
|
Deferred officer salary
|
|
|
31,667
|
|
|
|
142,500
|
|
Credit card debt
|
|
|
|
|
|
|
(536
|
)
|
Due to shareholder
|
|
|
41,343
|
|
|
|
|
|
Accrued interest payable
|
|
|
41,752
|
|
|
|
39,469
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(495,371
|
)
|
|
|
(403,816
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Loans from related parties
|
|
|
2,812
|
|
|
|
(7,261
|
)
|
Proceeds from sale of common stock
|
|
|
377,398
|
|
|
|
417,579
|
|
Proceeds from sale of Series C Preferred stock
|
|
|
105,000
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
485,210
|
|
|
|
460,318
|
|
|
|
|
|
|
|
|
|
|
NET DECREASE IN CASH
|
|
|
(10,161
|
)
|
|
|
56,502
|
|
|
|
|
|
|
|
|
|
|
CASH, BEGINNING OF PERIOD
|
|
|
10,161
|
|
|
|
4,427
|
|
CASH, END OF PERIOD
|
|
$
|
-
|
|
|
$
|
60,929
|
|
|
|
|
|
|
|
|
|
|
CASH PAID DURING THE PERIOD FOR:
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
Interest
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activity:
|
|
|
|
|
|
|
|
|
Conversion of 157,700 Preferred C shares into 11,980,203 shares of Common stock
|
|
$
|
142,722
|
|
|
$
|
-
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
The accompanying unaudited notes are an
integral part of these unaudited consolidated financial statements
SMARTMETRIC
INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE
1 - ORGANIZATION AND BASIS OF PRESENTATION
SmartMetric,
Inc. (“SmartMetric” or the “Company”) was incorporated pursuant to the laws of Nevada on December 18,
2002. SmartMetric is a company engaged in the technology industry. SmartMetric’s main products are a fingerprint sensor
activated payments card and a security card with a finger sensor and fully functional fingerprint reader embedded inside the card.
The SmartMetric biometric cards have a rechargeable battery allowing for portable biometric identification and card activation.
This card is referred to as a biometric card or the SmartMetric Biometric Card.
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 nine months ended March 31, 2020 are not necessarily
indicative of the results that may be expected for the year ending June 30, 2020. 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, 2019,
as filed with the Securities and Exchange Commission on September 30, 2019. The condensed consolidated balance sheet as of June
30, 2019, has been derived from the audited financial statements at that date, but does not include all the information and footnotes
required by US GAAP for complete financial statements.
Going
Concern
As
shown in the accompanying condensed consolidated financial statements the Company has sustained recurring losses of $641,383 and
$645,686 for the nine months ended March 31, 2020 and 2019, respectively, and has an accumulated deficit of $27,574,847 at March
31, 2020.
These conditions raise
substantial doubt about the Company’s ability to continue as a going concern within one year of the date of this filing.
The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts
or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Management believes
that the Company’s capital requirements will depend on many factors. These factors include product marketing and distribution.
The management plans include equity sales and borrowing in order to fund the operations.
There
are no assurances that the Company will be able to achieve the level of revenues adequate to generate sufficient cash flow from
operations to support the Company’s working capital requirements. To the extent that funds generated are insufficient, the
Company will have to raise additional working capital. No assurance can be given that additional financing will be available,
or if available, will be on terms acceptable to the Company. If adequate working capital is not available, the Company may not
continue its operations.
In December 2019, an outbreak
of a novel strain of coronavirus originated in Wuhan, China (“COVID-19”) and has since spread worldwide, including
to the Unites States, posing public health risks that have reached pandemic proportions (the “COVID-19 Pandemic”).
The COVID-19 Pandemic poses a threat to the health and economic wellbeing of our employees, customers and vendors. Like most businesses
world-wide, the COVID-19 Pandemic has impacted the Company financially; however, management cannot presently predict the scope
and severity with which COVID-19 will impact our business, financial condition, results of operations and cash flows.
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.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use
of Estimates
The
preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and accompanying disclosures. Actual results may
differ from those estimates.
Research
and Development
Research
and development costs are charged to expense as incurred. Our research and development expenses consist primarily of expenditures
for electronics design and engineering, software design and engineering, component sourcing, component engineering, manufacturing,
product trials, compensation and consulting costs.
Recent
Accounting Pronouncements
The
Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company’s
results of operations, financial position or cash flow except as noted below.
In February 2016, the
FASB issued authoritative guidance, which is included in ASC 842, “Leases.” This guidance requires lessees to recognize
most leases on the balance sheet by recording a right-of-use asset and a lease liability. The Company has made the decision to
adopt this guidance early, and it was adopted by the Company as of March 1, 2019. Based on the completed analysis, the Company
has determined that the adjustment did not have a material impact on the financial statements.
In June 2018, the
FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting,
which aligns accounting for share-based payments issued to nonemployees to that of employees under the existing guidance of Topic
718, with certain exceptions. This update supersedes previous guidance for equity-based payments to nonemployees under Subtopic
505-50, Equity—Equity-Based Payments to Non-Employees. This guidance was adopted by the Company as of March 1, 2019. Based
on the completed analysis, the Company has determined the adjustment did not have a material impact on the financial statements.
Loss
Per Share of Common Stock
In accordance with FASB
ASC 260, “Earnings Per Share,” the basic loss per share is computed by dividing the loss attributable to common stockholders
by the weighted average number of common shares outstanding during the period. Basic net loss per share excludes the dilutive
effect of stock options or warrants and convertible notes. Diluted net earnings (loss) per common share is determined using the
weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents,
consisting of shares that might be issued upon exercise of common stock options and warrants. In periods where losses are reported,
the weighted-average number of common shares outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive.
As of March 31, 2020 and 2019, 30,079,406 and 26,392,318 dilutive shares were excluded from the calculation of diluted loss per
common share, with all dilutive shares being Common stock warrants at March 31, 2020 and 2019.
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.
Reclassifications
Certain
prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no
effect on the reported results of operations.
NOTE
3 - PREPAID EXPENSES
Prepaid
expenses represent the unexpired terms of various consulting agreements as well as advance rental payments. The Company does not
currently have any prepaid items related to shares issued for services.
NOTE
4 - COMMITMENTS AND CONTINGENCIES
Lease
Agreement
The
Company’s main office is in Las Vegas, Nevada. Rent expense under all leases for the nine months ended March 31, 2020 and
2019 was $3,600 and $10,545 respectively. The Company maintains only one office. This office is in Las Vegas, NV and is a month-to-month
lease.
Related
Party Transactions
The
Company’s Chief Executive Officer has made cash advances to the Company with an aggregate amount due of $6,571 and $3,759
at March 31, 2020 and June 30, 2019, respectively. These advances bear interest at the rate of five percent (5%) per annum.
The
Company has accrued the amounts of $821,682 and $790,015 at March 31, 2020 and June 30, 2019, respectively, as deferred officer’s
salary, for the difference between the Chief Executive Officer’s annual salary and the amounts paid.
On
September 11, 2017, we received a license to certain patents from Chaya Hendrick, our founder and CEO, related to our technologies
until the expiration of the patents. As consideration, we issued Chaya Hendrick, or her assigns, (i) 200,000 shares of Series
B Convertible Preferred Stock, (ii) a royalty equal to 5% of gross revenues derived from products sold related to the patents,
and (iii) certain minimum required payments beginning at $50,000 and doubling each year thereafter. The Series B Preferred Shares
may be converted at the election of holder on a basis for 50 common shares for each preferred share at any time or an aggregate
of 10,000,000 common shares in exchange for all 200,000 preferred shares.
Litigation
From
time to time we may be a defendant or plaintiff in various legal proceedings arising in the normal course of our business. As
of the date of this Quarterly Report, there are no material pending legal or governmental proceedings relating to us or properties
to which we are a party, and, to our knowledge, there are no material proceedings to which any of our directors, executive officers
or affiliates are a party adverse to us or which have a material interest adverse to us.
NOTE
5 - STOCKHOLDERS’ DEFICIT
Preferred
Stock
As
of March 31, 2020, the Company has 5,000,000 shares of Class B preferred stock, par value $0.001, authorized and 610,000 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 preferred
stock 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 5,000,000 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 each 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, 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.
NOTE
5 - STOCKHOLDERS’ DEFICIT (CONTINUED)
Class
A Common Stock
As of March 31, 2020,
the Company has 50,000,000 shares of Class A common stock, par value $0.001, authorized and no shares issued and outstanding.
Common Stock
|
●
|
During the three months ended September 30, 2019, the Company sold for cash 6,337,500 shares of common stock and warrants to purchase:
(i) 6,337,500 shares at prices ranging from $0.10 per share to $0.25 per share for net proceeds of $133,495. The warrants expire
at various times through September 17, 2021. None of these shares were issued during the quarter ended September 30, 2019, with
all 6,337,500 shares being recorded as stock payable. There were 52,800 Preferred C shares issued for net proceeds of $45,000
and 70,000 Preferred C shares converted to 3,224,643 Common shares for the three month period ending September 30, 2019, see Note
6.
|
|
●
|
During the three month period ending December 31, 2019, the Company increased its total number of shares of authorized capital
stock to 600,000,000 shares, par value $0.001 per share.
|
|
●
|
During the three months ended December 31, 2019, the Company sold for cash 40,675,000 shares of common stock and warrants to purchase:
(i) 825,000 shares at prices ranging from $0.20 per share to $0.25 per share for net proceeds of $214,510. The warrants expire
at various times through November 1, 2021. None of these shares were issued during the quarter ended December 31, 2019, with all
40,675,000 shares being recorded as stock payable. There were 36,300 Preferred C shares converted to 2,370,696 Common shares for
the three month period ending December 31, 2019, see Note 6.
|
|
|
|
|
●
|
During the three months ended March 31,
2020, the Company sold for cash 9,550,000 shares of common stock and warrants to purchase: (i) 3,500,000 shares at prices ranging
from $0.05 per share to $1.00 per share for net proceeds of $66,500. The warrants expire at various times through March 12, 2022.
None of these shares were issued during the quarter ended March 31, 2020, with all 9,550,000 shares being recorded as stock payable. There
were 53,700 Preferred C shares converted to 6,384,864 Common shares for the three month period ending March 31, 2020. The Company
issued 41,800 preferred shares for net proceeds of $35,000 and another 33,600 preferred shares for which the net proceeds of $30,000
had not been received as of March 31, 2020.
|
|
●
|
As of March 31, 2020, the Company had 316,875,686 shares of common stock issued and outstanding.
|
|
●
|
During the three months ended September 30, 2018, the Company sold for cash 4,624,153 shares of common stock for net proceeds
of $145,770 and warrants to purchase (i) 3,699,988 shares at $0.25, (ii) 60,000 shares at $0.30, (iii) 30,000 shares at $0.50,
(iv) 301,875 shares at $0.70 and (v) 151,970 shares at $1.00. During the quarter ended September 30, 2018, the Company
issued a total of 5,502,538 shares of common stock. Of the total number of shares issued, 3,061,659 shares were for
proceeds received during the quarter and 2,440,879 shares to reduce the liability for stock to be issued.
|
|
●
|
During the three months ended December 31, 2018, the Company sold for cash 5,212,499 shares of common stock and warrants to purchase:
(i) 3,712,499 shares at $0.25 per share and (ii) 1,500,000 shares at $0.50 per share, for net proceeds of $106,060. The warrants
expire at various times through December 4, 2020. During the quarter ended December 31, 2018, the Company issued a total of 2,026,660
shares of common stock. Of the total number of shares issued, 250,000 shares were for proceeds received during the quarter and
4,962,499 shares to reduce the liability for stock to be issued.
|
|
●
|
As of March 31, 2019, the Company had 256,676,745 shares of common stock issued and outstanding
|
|
●
|
During the three months ended March 31, 2019, the Company sold for cash 7,541,663 shares of common stock and warrants to purchase:
(i) 7,541,663 shares at prices ranging from $0.05 per share to $0.50 per share for net proceeds of $165,749. The warrants expire
at various times through March 21, 2021. None of these shares were issued during the quarter ended March 31, 2019.
|
Equity Financing Agreement
On March 5, 2020, the Company entered into
an equity financing agreement with GHS Investments, LLC, a Nevada limited liability company (“Investor”). Pursuant
to the agreement, the Company agrees the sell to the investor an indeterminate amount of shares of the Company’s common stock,
par value $0.001 per share, up to an aggregate price of four million dollars ($4,000,000).
Pursuant to the agreement, the Company is
required, to within sixty (60) calendar days upon the date of execution of this agreement, use its best efforts to file with the
SEC a registration statement or registration statements (as is necessary) on Form S-1, covering the resale of all of the registrable
securities, which registration statement(s) shall state that, in accordance with Rule 416 promulgated under the 1933 Act, such
registration statement also covers such indeterminate number of additional shares of Common Stock as may become issuable upon
stock splits, stock dividends or similar transactions. The Company failed to file the Registration S-1 within 60 days of the execution
of the Equity Financing Agreement, and has not been able to comply with that requirement as of the date of this filing.
Concurrently with the execution of the equity
financing agreement, the company entered into a convertible promissory note, for the principal balance of $35,000. Per the terms
of the convertible note agreement, the Company agrees to pay the investor interest at the rate of ten percent (10%) until it is
due on December 5, 2020. The holder shall have the right at any time to convert all or any part of the outstanding and unpaid
principal and interest at a fixed conversion price of $0.0175. As of the date of this filing, the Company has not yet received
this money.
NOTE
5 - STOCKHOLDERS’ DEFICIT (CONTINUED)
Warrants
From
time to time the Company granted warrants in connection with private placements of securities, as described herein.
As of March 31, 2020,
and June 30, 2019, the following is a breakdown of the warrant activity:
Range of Exercise Prices
|
|
Number of
Warrants
Outstanding
|
|
|
Weighted-Average
Contractual Life
Remaining in Years
|
|
|
Weighted-
Average
Exercise Price
|
|
|
Number
Exercisable
|
|
|
Weighted-
Average
Exercise Price
|
|
Warrants Outstanding and Exercisable at March 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.05 - $1.00
|
|
|
30,079,406
|
|
|
|
1.27
|
|
|
$
|
0.28
|
|
|
|
30,079,406
|
|
|
$
|
0.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants Outstanding and Exercisable at June 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.20 - $1.00
|
|
|
26,526,234
|
|
|
|
1.12
|
|
|
$
|
0.34
|
|
|
|
26,526,234
|
|
|
$
|
0.34
|
|
Warrant
Activity:
March
31, 2020:
Outstanding - June 30, 2019
|
|
|
26,526,234
|
|
Issued
|
|
|
10,662,500
|
|
Exercised
|
|
|
—
|
|
Expired
|
|
|
(7,109,328
|
)
|
Outstanding - March 31, 2020
|
|
|
30,079,406
|
|
June
30, 2019:
Outstanding - June 30, 2018
|
|
|
14,842,583
|
|
Issued
|
|
|
18,738,235
|
|
Exercised
|
|
|
—
|
|
Expired
|
|
|
(7,054,584
|
)
|
Outstanding - June 30, 2019
|
|
|
26,526,234
|
|
At
March 31, 2020, all 30,079,406 warrants are vested and (i) 29,779,406 warrants expire at various times prior to March 12, 2022,
(ii) 300,000 warrants expire in July 2020,
NOTE
6 - MANDATORY REDEEMABLE CONVERTIBLE PREFERRED STOCK
Issuances
of Series C Mandatory Redeemable Convertible Preferred Stock
On
January 10, 2019, the Board of Directors of the Company adopted a resolution pursuant to the Company’s Certificate of Incorporation,
as amended, providing for the designations, preferences and relative, participating, optional and other rights, and the qualifications,
limitations and restrictions, of the Series C Convertible Preferred Stock.
On
January 14, 2019, the Company filed a Certificate of Designations for a Series C Convertible Preferred Stock. The authorized number
of Series C Convertible Preferred Stock is 1,000,000 shares, par value 0.001. The Series C Preferred Stock will, with respect to
dividend rights and rights upon liquidation, winding-up or dissolution, rank: (a) senior with respect to dividends
and right of liquidation with the Company’s common stock, (b) junior with respect to
dividends and right of liquidation with respect to the Company’s Series B Preferred Stock; and (c)
junior with respect to dividends and right of liquidation to all existing indebtedness of the Company.
Series C Preferred Stock will carry an annual ten percent (10%) cumulative dividend, compounded daily, payable solely
upon redemption, liquidation or conversion. The Company will have a right, at any time in the period of 180 days from
the date of the issuance, at the Company’s option, to redeem all or any portion of the Series C Preferred Stock at prices
ranging from 105% to 130%, based on the passage of time.
The
number of Series C, mandatory redeemable convertible preferred stock shares issued and outstanding were 128,500 and 121,700, respectively,
for March 31, 2020 and June 30, 2019.
The
Holder shall have the right at any time during the period beginning on the date which is six (6) months following the Issuance
Date, to convert all or any part of the outstanding Series C Preferred Stock into fully paid and non-assessable shares of Common
Stock at the Variable Conversion Price. The “Variable Conversion Price” shall mean 71% multiplied by the Market Price
(representing a discount rate of 29%). “Market Price” means the average of the two (2) lowest Trading Prices (as defined
here) for the Common Stock during the fifteen (15) Trading Day period ending on the latest complete Trading Day prior to the Conversion
Date.
On
the date which is eighteen (18) months following the Issuance Date or upon the occurrence of an Event of Default (the “Mandatory
Redemption Date”), the Company shall redeem all of the shares of Series C Preferred Stock of the Holder (which have not
been previously redeemed or converted). With five (5) days of the Mandatory Redemption Date, the Company shall make payment to
each Holder of an amount in cash equal to the total number of shares of Series C Preferred Stock held by such Holder multiplied
by the then current Stated Value.
All
shares of mandatorily redeemable convertible preferred stock have been presented outside of permanent equity in accordance with
ASC 480, Classification and Measurement of Redeemable Securities. The Company accretes the carrying value of its Series
C mandatory redeemable convertible preferred stock to its estimate of fair value (i.e. redemption value) at period end.
The carrying value of
the Series C mandatory redeemable convertible preferred stock at March 31, 2020 and 2019 was $106,580 and $52,815, respectively.
There were 75,400 Preferred C shares issued for net proceeds of $65,000 and 75,400 Preferred C shares converted to 6,384,864 Common
shares for the three month period ended March 31, 2020. For the nine month period ended March 31, 2020, there were 164,500 Preferred
C shares issued for net proceeds of $135,000 and 157,700 Preferred C shares converted to 11,980,203 Common shares.
|
|
Preferred C Stock
|
|
|
|
Shares
|
|
|
Amount
|
|
|
|
|
|
|
|
|
Balance, June 30, 2019
|
|
$
|
121,700
|
|
|
$
|
99,278
|
|
Shares issued for cash - Preferred Stock C
|
|
|
52,800
|
|
|
|
45,000
|
|
Preferred C accretion
|
|
|
-0-
|
|
|
|
9,473
|
|
Preferred shares converted into common stock
|
|
|
(70,000
|
)
|
|
|
(63,000
|
)
|
Balance, September 30, 2019
|
|
$
|
104,500
|
|
|
$
|
90,751
|
|
Shares issued for cash - Preferred Stock C
|
|
|
36,300
|
|
|
|
25,000
|
|
Preferred C accretion
|
|
|
-0-
|
|
|
|
1,722
|
|
Preferred shares converted into common stock
|
|
|
(34,000
|
)
|
|
|
(30,909
|
)
|
Balance, December 31, 2019
|
|
$
|
106,800
|
|
|
$
|
86,564
|
|
Shares issued for cash - Preferred Stock C
|
|
|
75,400
|
|
|
|
65,000
|
|
Preferred C accretion
|
|
|
-0-
|
|
|
|
3,825
|
|
Preferred shares converted into common stock
|
|
|
(53,700
|
)
|
|
|
(48,813
|
)
|
Balance, March 31, 2020
|
|
$
|
128,500
|
|
|
$
|
106,580
|
|
|
|
Preferred C Stock
|
|
|
|
Shares
|
|
|
Amount
|
|
Balance, June 30, 2018
|
|
$
|
0
|
|
|
$
|
0
|
|
Shares issued for cash - Preferred Stock C
|
|
|
-0-
|
|
|
|
-0-
|
|
Preferred C accretion
|
|
|
-0-
|
|
|
|
-0-
|
|
Preferred shares converted into common stock
|
|
|
-0-
|
|
|
|
-0-
|
|
Balance, September 30, 2018
|
|
$
|
0
|
|
|
$
|
0
|
|
Shares issued for cash - Preferred Stock C
|
|
|
-0-
|
|
|
|
-0-
|
|
Preferred C accretion
|
|
|
-0-
|
|
|
|
-0-
|
|
Preferred shares converted into common stock
|
|
|
-0-
|
|
|
|
-0-
|
|
Balance, December 31, 2018
|
|
$
|
0
|
|
|
$
|
0
|
|
Shares issued for cash - Preferred Stock C
|
|
|
70,000
|
|
|
|
50,000
|
|
Preferred C accretion
|
|
|
-0-
|
|
|
|
2,815
|
|
Preferred shares converted into common stock
|
|
|
-0-
|
|
|
|
-0-
|
|
Balance, March 31, 2019
|
|
$
|
70,000
|
|
|
$
|
52,815
|
|
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 - SUBSEQUENT EVENTS
In accordance with ASC
855-10, the Company has analyzed its operations subsequent to March 31, 2020 to the date these financial statements were issued.
On April 2, 2020, the Company converted 12,000 preferred C shares into 1,909,091 common shares and on April 24, 2020 the Company
converted 4,800 preferred shares into 775,385 common shares. On April 8, 2020 9,287,500 common shares were issued and on April
22, 2020, 12,000,000 common shares were issued. On May 1, 2020, 41,800 preferred shares were issued for net proceeds of $35,000.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
SmartMetric,
Inc. (“SmartMetric” or the “Company”) was incorporated pursuant to the laws of Nevada on December 18,
2002. SmartMetric is a company engaged in the technology industry. SmartMetric has an issued patent covering technology that involves
connection to networks using data cards (smart cards and EMV cards). In addition, SmartMetric holds the sole license to five issued
patents covering features of its biometric fingerprint activated cards. SmartMetric’s main products are a fingerprint sensor
activated payments card and a security card with a finger sensor and fully functional fingerprint reader embedded inside the card.
The cards have a rechargeable battery allowing for portable biometric identification and card activation. These cards are herein
sometimes referred to as a biometric card or the SmartMetric Biometric Card.
The
Market for Biometric Credit Cards
According
to a to a press release issued by Goode Intelligence, an independent market research company, regarding their October 2018 report
on the biometrics payment sector, nearly 579 million biometric credit/debit cards will be in use over the next five (5) years.
Goode Intelligence believes* there is a significant market opportunity for biometric payment cards. and forecasts that by 2023
there will be almost 579 million biometric payment cards in use around the world.
“Contactless
card payments are even outperforming mobile in many regions. Many consumers prefer to use a contactless payment card over a mobile
payment equivalent and according to Goode Intelligence research, many users would like to use cards in contactless mode for higher
value transactions. Biometric payment cards not only offer improved security by removing the PIN but also allow frictionless payments
for higher value transactions,” stated Good Intelligence.
SmartMetric
engaged an outside independent research company to survey a statistically relevant sample of Visa credit card holders in the United
States. One of the questions asked showed that nearly 67% of these credit card holders would be willing to pay $69.95 for a biometric
secured credit card.
The
survey asked:
Would
you pay for a safer biometric secured credit card that has a built-in fingerprint reader for your protection?
*
Goode Intelligence is an independent analyst and consultancy company that provides quality
advice to global decision makers in business and technology.
Goode
Intelligence works in information security, mobile security, authentication and identity verification, biometrics, enterprise
mobility and mobile commerce sectors.
Founded
in 2007 by Alan Goode and headquartered in London, Goode. Intelligence helps both technology providers, investors and IT purchasers
make strategic business decisions based on quality research, insight and consulting.
The
SmartMetric Biometric Technology and Products
SmartMetric’s
founder, Chaya Hendrick is the originator and inventor of various miniature biometric activated cards, including the SmartMetric
biometric fingerprint activated payments card with an embedded fully functional fingerprint reader inside. the card. The card
is the size and thickness of a standard credit card. The SmartMetric biometric payments card provides for high level security
for credit and debit cards by adding biometric authentication and activation to Europay, MasterCard and Visa (“EMV”)
chip cards in use around the world. The SmartMetric biometric payments card has been manufactured to be totally interoperable
with existing EMV chip card readers, ATMs as well as banking payments infrastructure. Using the advanced electronic miniaturization
by SmartMetric to make its biometric credit/debit cards the Company has also created a multi-functional biometric building access
control and logical network access card.
Since
July 1, 2018, SmartMetric has commenced efforts towards creating a biometric health insurance card with memory for storing a person’s
medical files, including medical images. This allows a person to securely take with them their private medical files inside the
card when traveling away from home. For the first time, a person’s complete medical files can be stored in a credit card-sized
card and the information is only able to be accessed by the card holder’s own fingerprint. The company is in discussion
with significant health membership organizations concerning the offering of the SmartMetric Biometric Medical Records card to
their respective members.
SmartMetric
has developed its rechargeable battery powered fingerprint reader that is of a scale that fits “inside” a standard
credit or debit card. The cardholder has stored inside the card his or her fingerprint. To activate the card the person swipes
the fingerprint sensor, the sensor is connected to an internal microprocessor that manages the fingerprint sensor fingerprint
image capture and comparison matching with the pre-stored fingerprint of the cardholder held in the internal electronic memory
of the card. The card has a surface mounted EMV chip as found on EMV banking chip cards that is activated or turned on only after
a card holder’s fingerprint has been scanned and verified using the SmartMetric miniature “in-card” biometric
scanner.
There
are over seven (7) billion EMV chip cards used by banks around the world for credit cards, ATM cards and debit cards according
to EMVco. SmartMetric sees this existing user base as a natural market for its advanced biometric activated card technology for
the credit and debit card market. SmartMetric has established a network of card manufacturers and technology distributors to market
its in-card biometric products to card issuing banks and in the case of the SmartMetric biometric security card, to businesses.
SmartMetric
has completed development of its biometric card and is now actively marketing its card to major card issuing banks throughout
the world in partnership with established card distributors and dealers.
SmartMetric
has also developed a multi-function logical and physical access security card this size and thickness of a standard credit card.
Utilizing the small size breakthroughs by the Company in its biometric payments card development, SmartMetric has successfully
developed a biometric security card that is the size and thickness of a standard credit card that can easily fit inside a person’s
wallet.
As
with the biometric payments card, the SmartMetric security card has an internal rechargeable battery that is used to power the
card’s internal processor used in the biometric fingerprint scan. All functions and operations of the card are subject to
a valid fingerprint scan and match of the card user.
On
February 1, 2019, SmartMetric entered into a manufacturing and license agreement with Servired, SA. Servired operates the major
payments network in Spain for credit and debit card transactions. Servired is owned by 65 Banks as shareholders and has over 100
Banks in Europe, the United States and South America as customers and users of its technology.
The
Servired Advantis EMV Chip and operating system is being used by Banks around the world on their Debit and Credit Cards. 1.3
Billion Servired Advantis cards have been issued by their member banks worldwide.
SmartMetric
is now in the process of manufacturing it’s biometric credit/debit card with the ServiRed Advantis payments card chip and
operating system. This will allow over 100 Banks worldwide who are already using the ServiRed Advantis chip and chip card operating
system to easily issue this new SmartMetric – ServiRed/Advantis biometric credit and debit card.
Additional
technological advances have now been made on both the Company’s biometric credit/debit card and its multifunction cyber
security, building access biometric card.
In
Card Fingerprint Matching and Verification
The
SmartMetric Biometric card incorporates a rechargeable, lithium polymer battery. This battery is rechargeable, very thin and has
been designed by SmartMetric to fit inside the SmartMetric fingerprint credit card sized card. This battery is manufactured by
a third party unaffiliated with the Company to SmartMetric’s specifications. This battery is embedded inside the card.
Other
components needed for manufacture of the SmartMetric Biometric Card include, but are not limited to, sensors, microchips, memory
chips and processor chips. The ultra-thin circuit board developed by SmartMetric has, in total, nearly 200 active and passive
components. The sources and availability of these materials are numerous, readily available and should not affect the ability
of SmartMetric to meet future demand. The supply of memory processors and passive components may be interrupted at any time based
on global supply/demand issues. We have not experienced component supply issues to date and the Company, as a matter of policy,
has alternative component sources to mitigate and protect against supply chain issues.
The
biometric card has been designed to offer the option of a built-in radio frequency transmitter for contactless access and identity
verification. The RFID contactless chip transmission is turned on using the card users fingerprint verification.
The
thinness form factor of many of the components, has also resulted in the Company having to develop its own process for high volume
electronic assembly. The Company has also successfully overcome the challenge of developing a process of encapsulating the electronics
in plastic to create the credit card sized biometric fingerprint activated card that also has an internal rechargeable battery.
Standard
credit card manufacturing utilizes machines that require high pressure and high temperature in fusing top and bottom sheets of
plastic together thereby encasing any electronics inside the card. Given the complexity of the card’s electronics and vulnerability
to an assembly process involving high heat and high pressure, damage to the electronic circuitry was a major challenge for the
Company to overcome. Research and development activities of the Company allowed the Company to achieve this ability through a
trade secret process that protects the silicon and internal battery that is mounted directly onto the card’s internal electronics
circuit board.
The
Security Technology Industry
SmartMetric
Biometric Multi-Function Security Card
The
Access management market is estimated to grow from USD 8.09 billion in 2016 to USD 14.82 billion by 2021
SmartMetric
has developed a multi-function logical and physical access security card this size and thickness of a standard credit card. Utilizing
the small size breakthroughs by the Company in its biometric payments card development, SmartMetric has successfully developed
a biometric security card that can easily fit inside a person’s wallet.
As
with the biometric payments card, the SmartMetric security card has an internal rechargeable battery that is used to power the
card’s internal processor used in the biometric fingerprint scan. All functions and operations of the card are subject to
a valid fingerprint scan and match of the card user.
The
main features of the SmartMetric biometric security card are:
|
1.
|
Logical
access smartcard card chip for insertion into a card reader attached to a computer or network
|
|
|
|
|
2.
|
RFID
transceiver for physical access i.e. doorways, elevators, etc.
|
|
|
|
|
3.
|
Validation
indicator light that glows green immediately following a fingerprint validation
|
|
|
|
|
4.
|
Rechargeable
battery to power the card
|
|
|
|
|
5.
|
Size
and thickness of a credit card
|
|
|
|
|
6.
|
Changeable
security code on reverse of card for additional log on security
|
Cybersecurity
and identity validation for network access control, physical building entry and secure on-the-spot identity security is now handled
by the revolutionary biometric activated cyber and ID multi-function security card which has been developed by SmartMetric after
over a decade of R&D.
From
governments to the workplace, better, stronger security is desired across the enterprise. Our new biometric multifunction security
card provides a revolutionary biometric based solution that is portable, easily integrated and backward compatible to existing
backend security infrastructure.
The
new multifunction biometric security card by SmartMetric is a revolutionary leap forward in the Cyber and Access Security world
according to SmartMetric.
Access
management market is estimated to grow from USD 8.09 billion in 2016 to USD 14.82 billion by 2021, at a CAGR of 12.9% between
2016 and 2021 according to a recent research report by KBV Research in a publication titled Identity & Access Management Market
– Global Forecast by Marqual IT Solutions Pvt. Ltd (KBV Research) November 2016 KBV Research is a name owned by IT Solutions
Pvt. Ltd.
Biometrics
Biometric
technologies identify users by electronically capturing a specific biological or behavioral characteristic of that individual,
such as a fingerprint or voice or facial feature, and creating a unique digital identifier from that characteristic. Because this
process relies on largely unalterable human characteristics, positive identification can be achieved independent of any information
possessed by the individual seeking authorization.
The
process of identity authentication typically requires that a person present for comparison with one or more of the following factors:
|
●
|
Something
known such as a password, PIN or mother’s maiden name;
|
|
|
|
|
●
|
Something
carried such as a token, card, or key; or
|
|
|
|
|
●
|
something
physical such as fingerprint, voice pattern, signature motion, facial shape or other biological or behavioral characteristic.
|
Comparison
of biological and behavioral characteristics has historically been the most reliable and accurate of the three factors but has
also been the most difficult and costly to implement into a single product that can automatically verify the identity of a user
accessing a computer network or the Internet. However, recent advances in biometric collection technologies (both biometric hardware
products and their associated processing software) have increased the speed and accuracy and reduced the cost of implementing
biometrics in commercial environments. Management believes that individuals, website operators, government organizations, and
businesses will increasingly use this method of identity authentication.
Biometrics
refers to the automatic identification of a person based on his/her physiological or behavioral characteristics. This method of
identification is preferred over traditional methods involving passwords and personal identification numbers (“PINs”)
for two reasons: (i) the person to be identified is required to be physically present at the point of identification to be identification;
and (ii) identification based on biometric techniques obviates the need to remember a password or carry a token. By replacing
PINs, biometric techniques can potentially prevent unauthorized access to or fraudulent use of cellular phones, Biometric cards,
desktop PCs, workstations and computer networks. It can be used during transactions conducted via telephone and Internet (e-commerce
and e-banking). In automobiles, biometrics could replace keys-less entry devices. The SmartMetric fingerprint activated credit
card that has the fingerprint encased inside the credit card has been developed to replace the less secure PIN’s for credit
and debit cards.
PINs
and passwords may be forgotten, may be hacked and token-based methods of identification, e.g., passports and driver’s licenses,
may be forged, stolen or lost. Various types of biometric systems are being used for real-time identification, with the most popular
based on facial recognition and fingerprint matching. Other biometric systems utilize iris and retinal scanning, speech, facial
thermograms and hand geometry. Of the biometric options available to work with a credit or debit card, fingerprint scanning is
the only biometric methodology that has been successfully reduced in size to fit inside such cards.
A
biometric system is essentially a pattern recognition system, which makes a personal identification by determining the authenticity
of a specific physiological or behavioral characteristic possessed by the user. An important issue in designing a practical system
is to determine how an individual is identified.
There
are two different ways to resolve a person’s identity; verification and identification. Verification (Am I whom I claim
I am?) involves confirming or denying a person’s claimed identity. In identification, one has to establish a person’s
identity (Who am I?).
As
stated above, the SmartMetric fingerprint biometric card has been designed as a credit-card sized card embedded with an integrated
circuit, contact chip and biometric fingerprint sensor. The SmartMetric card has been designed to provide not only memory capacity,
but also computational capability along with secure non-refutable identification of the user. We believe that the self-containment
of SmartMetric’s card makes it substantially resistant to attack, as it will not need to depend upon vulnerable external
resources. Because of this characteristic, we expect that the SmartMetric biometric card may be used in different applications,
which require strong security protection and authentication.
The
physical structure of a card is specified by the International Standards Organization (“ISO”). Generally, this structure
is made up of three elements: (i) the plastic card, which is the most basic one and has the dimensions of 85.60mm x 53.98 x 0.80mm;
(ii) an electronic circuit board inlay; and (iii) a contact chip that are embedded in the card.
The
SmartMetric card has been designed to conform to ISO standards. The electronic circuit inlay is a part of, and not distinct from,
the biometric card.
The
communication line between the card and ATMs and other standard Smart Card reading devices is bi-directional serial transmission,
which conforms to ISO standards. Card commands and input data are sent to the chip that responds with status words and output
data upon the receipt of these commands and data. Information is sent in half duplex mode (transmission of data is in one direction
at a time). This protocol, together with the restriction of the bit rate, is designed to prevent data attack on the card. Other
data protection systems are utilized inside the card including advanced encryption.
In
general, the size, the thickness and bend requirements for the biometric card were designed to protect the card from being spoiled
physically.
Recent Developments
There have been no recent developments.
Going
Concern
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.
As
shown in the accompanying consolidated financial statements the Company has incurred recurring losses of $641,383 and $645,686
for the period ending March 31, 2020 and 2019, respectively, and has incurred a cumulative loss of $27,574,847 since inception
(December 18, 2002). The Company is currently in the development stage and has spent a substantial portion of its
time 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 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.
In December 2019, an
outbreak of a novel strain of coronavirus originated in Wuhan, China (“COVID-19”) and has since spread worldwide,
including to the Unites States, posing public health risks that have reached pandemic proportions (the “COVID-19 Pandemic”).
The COVID-19 Pandemic poses a threat to the health and economic wellbeing of our employees, customers and vendors. Like most businesses
world-wide, the COVID-19 Pandemic has impacted the Company financially; however, management cannot presently predict the scope
and severity with which COVID-19 will impact our business, financial condition, results of operations and cash flows.
Critical
Accounting Policies
We
have prepared our financial statements in conformity with accounting principles generally accepted in the United States, which
requires management to make significant judgments and estimates 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 expenses during
the reporting period. We base these significant judgments and estimates on historical experience and other applicable assumptions
we believe to be reasonable based upon information presently available. These estimates may change as new events occur, as additional
information is obtained and as our operating environment changes. These changes have historically been minor and have been included
in the financial statements as soon as they became known. Actual results could materially differ from our estimates under different
assumptions, judgments or conditions.
All
of the Company’s significant accounting policies are discussed in Note 2, Summary of Significant Accounting Policies, to
our financial statements, included elsewhere in this Quarterly Report. We have identified the following as our significant accounting
policies and estimates, which are defined as those that are reflective of significant judgments and uncertainties, are the most
pervasive and important to the presentation of our financial condition and results of operations and could potentially result
in materially different results under different assumptions, judgments or conditions.
We
believe the following critical accounting policies reflect our more significant estimates and assumptions used in the preparation
of our financial statements:
Use
of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying disclosures.
Actual results may differ from those estimates.
Research
and Development Costs - Research and development costs are charged to expense as incurred. Our research and development
expenses consist primarily of expenditures for electronics design and engineering, software design and engineering, component
sourcing, component engineering, manufacturing, product trials, compensation and consulting costs.
Results
of Operations
Comparison
of the Three Months Ended March 31, 2020 and 2019
Our results of operations have varied significantly
from year to year and quarter to quarter and may vary significantly in the future. We did not have revenue for the three months
ending March 31, 2020 and 2019. Net loss for the three months ended March 31, 2020 and 2019 were $168,871 and $221,296, respectively,
resulting from the operational activities described below.
Operating
Expenses
Operating
expense totaled $154,790 and $207,649 during the three months ended March 31, 2020 and 2019, respectively. The decrease in operating
expenses is the result of the following factors.
|
|
Quarter Ended
March 31
|
|
|
Change in 2020
Versus 2019
|
|
|
|
2020
|
|
|
2019
|
|
|
$
|
|
|
%
|
|
Operating expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officer salary
|
|
$
|
47,500
|
|
|
$
|
47,500
|
|
|
$
|
—
|
|
|
|
(0
|
)%
|
Research and development
|
|
|
14,090
|
|
|
|
38,949
|
|
|
|
(24,589
|
)
|
|
|
(63.8
|
)%
|
General and administrative
|
|
|
93,200
|
|
|
|
121,200
|
|
|
|
(28,000
|
)
|
|
|
(23.1
|
)%
|
Total operating expense
|
|
$
|
154,790
|
|
|
$
|
207,649
|
|
|
$
|
(52,859
|
)
|
|
|
(25.5
|
)%
|
Research
and Development
Research
and development expenses totaled $14,090 and $38,949 for the three months ended March 31, 2020 and 2019, respectively. The decrease
of $24,589, or 63.8%, in 2020 compared to 2019 was primarily attributable to decreased engineering expenses. Our research and
development expenses consist primarily of expenditures related to engineering.
General
and Administrative
General
and administrative expenses totaled $93,200 and $121,200 for the three months ended March 31, 2020 and 2019, respectively. The
decrease of $28,000 or 23.1%, in 2020 compared to 2019 was primarily the result of a decrease in consulting expenses. Our general
and administrative expenses consist primarily of expenditures related to employee compensation, legal, accounting and tax, other
professional services, and general operating expenses.
Other Expense
Other income (expense) totaled $14,081
and $13,647 for the three months ended March 31, 2020 and 2019, respectively.
|
|
Quarter Ended
March 31
|
|
|
Change in 2020
Versus 2019
|
|
|
|
2020
|
|
|
2019
|
|
|
$
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
|
14,081
|
|
|
|
13,647
|
|
|
|
434
|
|
|
|
3.2
|
%
|
Total other expense
|
|
$
|
14,081
|
|
|
$
|
13,647
|
|
|
$
|
434
|
|
|
|
3.2
|
%
|
Interest income (expense)
We had net interest expense of $14,081
in the three months ended March 31, 2020 compared to $13,647 net interest expense for the three months ended March 31, 2019. The
increase of $434 was attributable to interest expenses related to accrued but unpaid salary of our CEO pursuant to an amended
and restated employment agreement entered into on July 1, 2017.
Comparison of the Nine Months Ended
March 31, 2020 and 2019
Our results of operations have varied significantly
from year to year and quarter to quarter and may vary significantly in the future. We did not have revenue for the nine months
ending March 31, 2020 and 2019. Net loss for the nine months ended March 31, 2020 and 2019 were $620,806 and $641,413, respectively,
resulting from the operational activities described below.
Operating Expenses
Operating expense totaled $579,075 and
$601,945 during the nine months ended March 31, 2020 and 2019, respectively. The decrease in operating expenses is the result
of the lower research & development expenses.
|
|
Nine Months Ended
March 31
|
|
|
Change in 2020
Versus 2019
|
|
|
|
2020
|
|
|
2019
|
|
|
$
|
|
|
%
|
|
Operating expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Officer salary
|
|
$
|
142,500
|
|
|
$
|
142,500
|
|
|
$
|
—
|
|
|
|
(0
|
)%
|
Research and development
|
|
|
60,796
|
|
|
|
90,084
|
|
|
|
(29,288
|
)
|
|
|
(32.5
|
)%
|
General and administrative
|
|
|
375,779
|
|
|
|
369,361
|
|
|
|
6,418
|
|
|
|
1.7
|
%
|
Total operating expense
|
|
$
|
579,075
|
|
|
$
|
601,945
|
|
|
$
|
(22,870
|
)
|
|
|
(3.8
|
)%
|
Research and Development
Research and development expenses totaled
$60,796 and $90,084 for the nine months ended March 31, 2020 and 2019, respectively. The decrease of $29,288, or 35.2%, in 2020
compared to 2019 was primarily attributable to decreased engineering expenses. Our research and development expenses consist primarily
of expenditures related to engineering.
General and Administrative
General and administrative expenses totaled
$375,779 and $369,361 for the nine months ended March 31, 2020 and 2019, respectively. The increase of $6,418 or 1.7%, in 2020
compared to 2019 was primarily the result of an increase in consulting expenses. Our general and administrative expenses consist
primarily of expenditures related to employee compensation, legal, accounting and tax, other professional services, and general
operating expenses.
Other Expense
Other income (expense) totaled $41,731 and
$39,468 for the nine months ended March 31, 2020 and 2019, respectively.
|
|
Quarter
Ended
March 31
|
|
|
Change
in 2020
Versus 2019
|
|
|
|
2020
|
|
|
2019
|
|
|
$
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
|
41,731
|
|
|
|
39,468
|
|
|
|
2,263
|
|
|
|
5.7
|
%
|
Total other expense
|
|
$
|
41,731
|
|
|
$
|
39,468
|
|
|
$
|
2,263
|
|
|
|
5.7
|
%
|
Interest income (expense)
We had net interest expense of $41,731 in
the nine months ended March 31, 2020 compared to $39,468 net interest expense for the nine months ended March 31, 2019. The increase
of $2,263 was attributable to interest expenses related to accrued but unpaid salary of our CEO pursuant to an amended and restated
employment agreement entered into on July 1, 2017.
Liquidity
and Capital Resources
We
have incurred losses since our inception in 2002 as a result of significant expenditures for operations and research and development
and the lack of any revenue. We have an accumulated deficit of $27,574,847 as of March 31, 2020 and anticipate that we will continue
to incur additional losses for the foreseeable future. Through March 31, 2020, we have funded our operations through the private
sale of our equity securities and exercises of options and warrants, resulting in gross proceeds of approximately $27.6 million
from inception through March 31, 2020.
|
|
Nine months ended
March 31,
|
|
|
Change in 2020
versus 2019
|
|
|
|
2020
|
|
|
2019
|
|
|
$
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Cash at beginning of period
|
|
$
|
10,161
|
|
|
$
|
4,427
|
|
|
$
|
5,734
|
|
|
|
129.5
|
%
|
Net cash used in operating activities
|
|
|
495,371
|
|
|
|
403,816
|
|
|
|
91,555
|
|
|
|
22.7
|
%
|
Net cash used in investing activities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net cash provided by financing activities
|
|
|
485,210
|
|
|
|
460,318
|
|
|
|
24,892
|
|
|
|
5.4
|
%
|
Cash at end of period
|
|
$
|
-0-
|
|
|
$
|
60,929
|
|
|
$
|
(60,929
|
)
|
|
|
(100.0
|
)%
|
Net
Cash Used in Operating Activities
Net
cash used in operating activities was $495,371 and $403,816 for the nine months ended March 31, 2020 and 2019, respectively. The
increase of $91,555 in cash used during 2020 compared to 2019 was primarily attributable to an increase in consultant costs.
Net
Cash Used in Investing Activities
Cash
used in investing activities was $0 and $0 for the nine months ended March 31, 2020 and 2019, respectively.
Net
Cash Provided by Financing Activities
During
the nine months ended March 31, 2020, net cash provided by financing activities was 485,210, compared to $460,318 for the nine
months ended March 31, 2019. The increase of $24,892 was due to higher sales of the Company’s securities in private placements.
We continue to seek funding through private placement sales of equity to fund our continued operations, sales and marketing and
ongoing research and development programs.
Equity Financing Agreement
On March 5, 2020, the Company entered into
an equity financing agreement with GHS Investments, LLC, a Nevada limited liability company (“Investor”). Pursuant
to the agreement, the Company agrees the sell to the investor an indeterminate amount of shares of the Company’s common stock,
par value $0.001 per share, up to an aggregate price of four million dollars ($4,000,000).
Pursuant to the agreement, the
Company is required, to within sixty (60) calendar days upon the date of execution of this Agreement, use its best efforts to file
with the SEC a Registration Statement or Registration Statements (as is necessary) on Form S-1, covering the resale of all of the
Registrable Securities, which Registration Statement(s) shall state that, in accordance with Rule 416 promulgated under the 1933
Act, such Registration Statement also covers such indeterminate number of additional shares of Common Stock as may become issuable
upon stock splits, stock dividends or similar transactions.
Per terms of the convertible note agreement, the Company agrees
to pay the investor the sum of $35,000, together with interest, on December 5, 2020. As of the date of this filing, the Company
has not yet received this money.