Corporate History and 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.
In June of 2018, 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 Redsys, SA (“Redsys”). Redsys operates the major payments network in
Spain for credit and debit card transactions. Redsys 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 Redsys Advantis EMV Chip and operating
system is being used by Banks around the world on their Debit and Credit Cards. 1.3 Billion Redsys Advantis cards have been
issued by their member banks worldwide.
SmartMetric is now in the process of manufacturing its biometric
credit/debit card with the Redsys Advantis payments card chip and operating system. This will allow over 100 Banks worldwide who
are already using the Redsys Advantis chip and chip card operating system to easily issue this new SmartMetric – Redsys/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
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:
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Logical access smartcard card chip for insertion into a card reader attached to a computer or network
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RFID transceiver for physical access i.e. doorways, elevators, etc.
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Validation indicator light that glows green immediately following a fingerprint validation
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Rechargeable battery to power the card
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Size and thickness of a credit card
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Changeable security code on reverse of card for additional log on security
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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:
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Something known such as a password, PIN or mother’s maiden name;
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Something carried such as a token, card, or key; or
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something physical such as fingerprint, voice pattern, signature motion, facial shape or other biological or behavioral characteristic.
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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
The COVID-19 has had an impact on SmartMetric’s
final card production. While the delays are due to supply line disruption, the Company is confident that these delays will be short-lived
based on advice from our manufacturing partners, manufacturing alternatives and alternative supply lines that are being put into
place by the Company.
GHS Equity Financing Agreement and Registration
Rights Agreement
On March 6, 2020, the Company entered into
an equity financing agreement (the “Equity Financing Agreement”), and a registration rights agreement (the “Registration
Rights Agreement”) with GHS Investments LLC, a Nevada limited liability company (“GHS”). Under the terms of the
Equity Financing Agreement, GHS agreed to provide the Company with up to $4,000,000 over the course of 36 months in return for
shares of the Company’s common stock. The 36-month period will commence upon effectiveness of a registration statement on
Form S-1 (the “Registration Statement”) filed with the U.S. Securities and Exchange Commission (the “Commission”)
on August 6, 2020.
Following effectiveness of the Registration
Statement, the Company shall have the discretion to deliver puts to GHS and GHS will be obligated to purchase shares of the Company’s
common stock, par value $0.001 per share (the “Common Stock”) based on the investment amount specified in each put
notice. The maximum amount that the Company shall be entitled to put to GHS in each put notice shall not exceed two hundred percent
(200%) of the average daily trading dollar volume of the Company’s Common Stock during the ten (10) trading days preceding
the put, so long as such amount does not exceed $500,000. Pursuant to the Equity Financing Agreement, GHS and its affiliates will
not be permitted to purchase, and the Company may not put shares of the Company’s Common Stock to GHS that would result in
GHS’s beneficial ownership equaling more than 4.99% of the Company’s outstanding Common Stock. The price of each put
share shall be equal to eighty percent (80%) of the Market Price (as defined in the Equity Financing Agreement). Puts may be delivered
by the Company to GHS until the earlier of thirty-six (36) months after the effectiveness of the Registration Statement, the date
on which GHS has purchased an aggregate of $4,000,000 worth of Common Stock under the terms of the Equity Financing Agreement,
or at such time that the Registration Statement is no longer in effect. Additionally, in accordance with the Equity Financing Agreement,
the Company issued GHS a convertible promissory note in the principal amount of $35,000 and a 9 month maturity date (the “Commitment
Note”), with the first $20,000 of the Commitment Note deemed earned upon execution of the Equity Financing Agreement and
the remaining $15,000 of the Commitment Note deemed earned upon payment by GHS of the Company’s legal fees.
The Registration Rights Agreement provides
that the Company shall (i) use its best efforts to file with the Commission the Registration Statement within 60 days of the date
of the Registration Rights Agreement; and (ii) have the Registration Statement declared effective by the Commission within 30 days
after the date the Registration Statement is filed with the Commission, but in no event more than 90 days after the Registration
Statement is filed.
Sales and Marketing
SmartMetric has engaged distributors and
dealers in both North and South America. SmartMetric has entered into an agreement with Redsys the owner of the ADVANTIS credit
and debit card chip that is used in over 1.4 Billion credit/debit cards globally. RedSys/Advantis is owned by card issuing Banks.
Five hundred (500) card issuing banking organizations around the world are issuing credit and debit cards with the RedSys/ADVANTIS
chip.
SmartMetric
has added the ADVANTIS credit/debit card chip onto the SmartMetric biometric card thereby allowing the existing RedSys / ADVANTIS
banks already issuing credit and debit cards with their chip on board to now issue seamlessly the SmartMetric biometric credit
/ debit card. RedSys / ADVANTIS have agreed to work closely with
SmartMetric in promoting the SmartMetric card globally. RedSys / ADVANTIS is owned by some of the largest Banks in Europe and Latin
America.
Manufacturing
The
Company designs and develops its biometric technology. Current production capacity is approximately 250,000 cards per
week that can be substantially increased over a relatively
short period of time.
SmartMetric’s President & CEO in the card lamination
factory.
Intellectual Property
We rely on patents, licenses, trade secrets,
trademarks, copyright registrations and non-disclosure agreements to establish and protect our proprietary rights in our technologies
and products. A number of patents are in process (Patents Pending) that cover critical aspects of the engineering and function
of the SmartMetric biometric card. The founder of SmartMetric, Chaya Hendrick, is the inventor of these patents, and has provided
SmartMetric with an option over biometric card related pending patents invented by her.
Some of the most recent patents pending
have not been disclosed on the publicly searchable USPTO database of filed for patents and remain trade secrets within the Company.
Publishing of such patents pending will be done in due course.
Patents
SmartMetric biometric card is protected
by five (5) USPTO issued patents. Other patents are pending. Our technology is also dependent upon unpatented trade secrets. However,
trade secrets are difficult to protect. In an effort to protect our trade secrets, we have a policy of requiring our employees,
consultants and advisors to execute non-disclosure agreements. The principal shareholder of SmartMetric and technology inventor,
Chaya Hendrick, through various corporate investment vehicles and companies also owns other technologies, patents, and has financial
interest in other technology companies. Chaya Hendrick, under an executed employment agreement is not subject to any restriction
on using and owning any technology, methodology, process or invention created by Chaya Hendrick.
Government Regulation
There are currently no governmental regulations,
which have any bearing on the raw materials or the manufacturing of our payments card products. United States federal departments
such as the Department of Defense have rules and regulations concerning security features of smart cards used as identity or building
and cyber access cards. These regulations stipulate a specific licensing and testing protocol for such cards.
Banking Industry Self-Regulation
The EMV chip used in chip cards are subject
to licensing and testing by the banking-controlled body called EMVco. EMVco is an acronym standing for Europay, MasterCard and
Visa. These international payments card networks were the founding parties of EMVco.
Individual payments networks such as Visa,
Mastercard, Europay, American Express, Union Pay Dinners and JCB all have their own individual licensing and testing standards
and processes.
Research and Development
Our research and development program is
focused on ongoing development of new products built on our existing biometric card. We continue to refine our technology and develop
further improvements to our biometric card products. We have finalized our first biometric EMV payments card product. We have also
concluded the design and electronic engineering for our soon-to-be released multi-function security and access control biometric
cards. Research and development will continue as the Company continues to innovate and develop new biometric card-based products.
Future biometric card-based products the Company is now working on, include but are not limited to: (a) health insurance card with
stored in-card medical records; (b) national identity card; and (c) drivers’ licenses.
The Company has developed and is continuing
to develop its own embedded systems and application software that works with the SmartMetric Biometric Card. This development software
and systems and ongoing electronic design and development requires the company to continue to expend time and financial resources
on significant software development. Currently, the Company has electronic and software engineers working in Tel Aviv, Israel and
Buenos Aires, Argentina.
Competition
Various potential competitors have announced
products similar to that of SmartMetric’s. It is understood that “announced” is defined as a person to hold their
finger on the cards fingerprint sensor while it is in a card reader. Unlike the SmartMetric biometric card that is powered from
its own internal rechargeable battery, this other type of card does not allow the card to be used in most restaurants that need
to take the card away from the table for processing at the checkout. It also does not allow their other type of card to be used
at the vast majority of ATM’s.
Employees
As of the date of this annual report, we
have one full time employee, our Chief Executive Officer and President, Chaya Hendrick. We primarily use direct contract hires
in administration and engineering, as is common in the information technology world. All work product developed by all of our engineers
remains the intellectual property of SmartMetric. Engineers who work for SmartMetric under contract are primarily based in Tel
Aviv, Israel. Some software engineering is conducted in Buenos Aires, Argentina.
Corporate History
We were incorporated in the State of Nevada
on December 18, 2002 and our principal office is located in Las Vegas, Nevada. Since our inception, we have invested a substantial
portion of our efforts and financial resources in the development of our products. We have generated no revenues from the sale
of our products and have experienced substantial net operating losses.
We entered into a royalty and licensing
agreement with Chaya Hendrick, our CEO, which requires substantial payments by us on an annual basis and additionally in the event
gross revenues are derived, which could harm our financial position.
Pursuant to a licensing and royalty agreement,
entered into on September 11, 2017 by the Company and Chaya Hendrick, our founder and CEO, we received a license to certain patents
related to our technologies until the expiration of such patents in exchange for the following : (i) issuance of 200,000 Series
B Convertible Preferred Shares, (ii) 5% of gross revenues derived from the sale of products derived from the patents, and (iii)
annual payments beginning at $50,000 per annum, increased by 100% of each previous year (offset against 5% gross revenue royalty
payments). We believe these patents are instrumental our business plan and if we are unable to make such required payments under
the plan, Chaya Hendrick may terminate the agreement, which may materially impact our business plan. Furthermore, there can be
no assurances that we will be able to continue to meet our financial obligations under the terms of the agreement unless we are
able to raise additional capital through the sale of our securities or derive revenue from some other source.
Where to Find More Information
We make our public filings with the SEC,
including our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all exhibits and amendments
to these reports. These materials are available on the Company’s website at www.smartmetric.com or on the SEC’s
web site, http://www.sec.gov.
We have described below a number of
uncertainties and risks which, in addition to uncertainties and risks presented elsewhere in this Annual Report, may adversely
affect our business, operating results and financial condition. The uncertainties and risks enumerated below as well as those presented
elsewhere in this Annual Report should be considered carefully in evaluating us, our business and the value of our securities.
The following important factors, among others, could cause our actual business, financial condition and future results to differ
materially from those contained in forward-looking statements made in this Annual Report or presented elsewhere by management from
time to time.
Risks Related to Our Financial Position
and Need to Raise Additional Capital
We have a limited operating history
as a company and may not be able to effectively operate our business.
Our limited staff and operating history
mean that there is a high degree of uncertainty regarding our ability to:
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develop our technologies and proposed products;
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identify, hire and retain the needed personnel to implement our business plan and sell our products;
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Manage our growth and / or successfully scale our business; or
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respond to competition.
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No assurances can be given as to exactly
when, if at all, we will be able to fully develop, and take the necessary steps to derive any revenues from our proposed products.
Our business depends upon our ability
to keep pace with the latest technological changes, and our failure to do so could make us less competitive in our industry.
The market for our services is characterized
by rapid change and technological improvements. Failure to respond in a timely and cost-effective way to these technological developments
may result in serious harm to our business and operating results. As a result, our success will depend, in part, on our ability
to develop and market service offerings that respond in a timely manner to the technological advances of available to our customers,
evolving industry standards and changing preferences.
Raising capital may be difficult
as a result of our history of losses and limited operating history in our current stage of development.
When making investment decisions, investors
typically look at a company’s management, earnings and historical performance in evaluating the risks and operations of the
business and the business’s future prospects. Our history of losses and relatively limited operating history in our current
stage of development makes such evaluation, as well as any estimation of our future performance, substantially more difficult.
As a result, investors may be unwilling to invest in us or on terms or conditions which are acceptable. If we are unable to secure
additional financing, we may need to materially scale back our business plan and/or operations or cease operations altogether.
We are an early-stage company, have
no product revenues, are not profitable and may never be profitable.
From inception through June 30, 2020, we have raised approximately
$26,000,000 through the sale of our securities. During this same period, we have recorded an accumulated deficit of approximately
$27,771,062. Our net losses for the two most recent fiscal years ended June 30, 2020, and 2019 were $805,577 and $929,150, respectively.
We have never made any sales and have never generated revenues and we anticipate none will be generated for the foreseeable future.
We expect to incur significant operating losses for the foreseeable future as we continue the development of our products. Accordingly,
we will need additional capital to fund our continuing operations and any expansion plans. Since we do not generate any revenue,
the most likely source of such additional capital is the sale of our securities. To the extent that we raise additional capital
by issuing equity securities, our stockholders are likely to experience dilution with regard to their percentage ownership of the
company, which may be significant. If we raise additional capital by incurring debt, we could incur significant interest expense
and become subject to covenants that could affect the manner in which we conduct our business, including securing such debt obligations
with our assets.
To date, we have generated only losses,
which are expected to continue for the foreseeable future.
For the years ended June 30, 2020 and 2019,
we incurred a net loss of $805,577 and $929,150, respectively. We may not be able to achieve expected results, including any guidance
or outlook it may provide from time to time.
We may continue to incur losses and may be unable to achieve
profitability. We cannot assure you that our net losses and negative cash flow will not accelerate and surpass our expectations
nor can we assure you that we will ever generate any net income or positive cash flow.
We may not be able to continue as
a going concern if we do not obtain additional financing by December 31, 2020.
Since our inception, we have funded our
operations primarily through the sale of our securities. Our cash and cash equivalents balance at June 30, 2020 was $71,377. Based
on our current expected level of operating expenditures, we expect to only be able to fund our operations through the second quarter
(ending December 31, 2020) of fiscal year ending June 30, 2021, at which time we will need additional capital. Our ability to continue
as a going concern is wholly dependent upon obtaining sufficient capital to fund our operations. We have no committed sources of
additional capital and our access to capital funding is always uncertain. Accordingly, despite our ability to secure capital in
the past, we cannot assure you that we will be able to secure additional capital through financing transactions, including issuance
of debt, or through other means. In the event that we are not able to secure additional funding, we may be forced to curtail operations,
delay or stop ongoing clinical trials, cease operations altogether or file for bankruptcy.
Management has expressed substantial
doubt about our ability to continue as a going concern.
As of June 30, 2020, management has expressed
the opinion that our capital resources as of the date of their audit report were not sufficient to sustain operations or complete
our planned activities for the upcoming year unless we raised additional funds. Our current cash level raises substantial doubt
about our ability to continue as a going concern past June 30, 2021. If we do not obtain additional funds by such time, we may
no longer be able to continue as a going concern and will cease operation which means that our shareholders will lose their entire
investment. The COVID-19 has had an impact on SmartMetric’s final card production. While the delays are due to supply line disruption,
the Company is confident that these delays will be short-lived based on advice from our manufacturing partners, manufacturing alternatives
and alternative supply lines that are being put into place by the Company.
We entered into a royalty and licensing
agreement with Chaya Hendrick, our CEO, which requires substantial payments by us on an annual basis and additionally in the event
gross revenues are derived, which could harm our financial position.
Pursuant to a licensing and royalty agreement,
entered into on September 11, 2017 by the Company and Chaya Hendrick, our founder and CEO, we received a license to certain patents
related to our technologies until the expiration of such patents in exchange for the following : (i) Issuance of 200,000 Series
B Convertible Preferred Shares, (ii) 5% of gross revenues derived from the sale of products derived from the patents, and (iii)
annual payments beginning at $50,000 per annum, increased by 100% of each previous year (offset against 5% gross revenue royalty
payments). We believe these patents are instrumental our business plan and if we are unable to make such required payments under
the plan, Chaya Hendrick may terminate the agreement, which may materially impact our business plan. Furthermore, there can be
no assurances that we will be able to continue to meet our financial obligations under the terms of the agreement unless we are
able to raise additional capital through the sale of our securities or derive revenue from some other source.
As of June 30, 2020, we owe Chaya
Hendrick, our CEO, $759,948 in deferred salary, of which the failure to pay could result in Chaya Hendrick’s termination
of employment, the result of which would materially harm our business.
We currently have not paid $759,948 in
salary owed to Chaya Hendrick pursuant to Chaya Hendrick’s employment agreement outstanding with us as of June 30, 2020.
While Chaya Hendrick continues to support the Company and continues to operate as its CEO, President and chairman of the Board
of Directors, there can be no assurances that this will continue if we fail to pay back salaries and future salary owed. Additionally,
as of July 1, 2017, all prior and future deferred salary owed will bear interest at a rate of 7% per annum. In the event Chaya
Hendrick terminates employment for lack of payment, the Company believes such loss would cause irreparable harm to our product
development and would materially harm our business prospects. Additionally, there can be no assurances that Chaya would not attempt
to foreclose on our assets in order to satisfy such debt obligations.
Risks Relating to our Stage of Development
and Business
Our potential competitors have significantly
greater resources than we have, which may make competing difficult.
We compete against numerous companies,
many of which have substantially greater resources than we have. Several such competitors have large teams of engineers and scientists
that attempt to develop products and technologies similar to ours. Companies such as Gemalto, Giesecke & Devrient, IDEMIA,
as well as others, have substantially greater financial, research, manufacturing and marketing resources than we do. As a result,
such competitors may find it easier to compete in our industry and bring competing products to market.
Our business depends upon our ability
to keep pace with the latest technological changes, and our failure to do so could make us less competitive in our industry.
The market for our services is characterized
by rapid change and technological improvements. Failure to respond in a timely and cost-effective way to these technological developments
may result in serious harm to our business and operating results. As a result, our success will depend, in part, on our ability
to develop and market service offerings that respond in a timely manner to the technological advances of available to our customers,
evolving industry standards and changing preferences.
Our key personnel and directors are
critical to our business, and such key personnel may not remain with our company in the future.
We depend on the continued employment of
our President and CEO, Chaya Henrick and technical contracted personnel. If any of these key personnel were to leave and not be
replaced with sufficiently qualified and experienced personnel, our business could be adversely affected. In particular, our current
strategy to penetrate the market for contactless logical access identification and transaction solutions is heavily dependent on
the vision, leadership and experience of our President and CEO, Chaya Hendrick.
Our continued success will depend, to a
significant extent, upon the performance and contributions of Chaya Henrick and upon our ability to attract motivate and retain
highly qualified management personnel and employees. We depend on Chaya Henrick to effectively manage our business in a highly
competitive environment. If one or more of our key officers join a competitor or form a competing company, we may experience interruptions
in product development, delays in bringing products to market, difficulties in our relationships with customers and loss of additional
personnel, which could significantly harm our business, financial condition, operating results and projected growth.
We currently employ a part-time Chief Financial
Officer, Mr. Jay Needelman, who is also a member of the Company’s Board of Directors. The loss of services of any of our
key management personnel, whether through resignation or other causes, the reduced services of our part-time Chief Financial Officer,
or the inability to attract qualified personnel as needed, could prevent us from adequately executing our business strategy.
Rapid technological changes could
make our services or products less attractive.
The smart card, biometric identification
and personal identification industries are characterized by rapid technological change, frequent new product innovations, changes
in customer requirements and expectations and evolving industry standards. If we are unable to keep pace with these changes, our
business may be harmed. Products using new technologies, or emerging industry standards, could make our technologies less attractive.
If addition, we may face unforeseen problems when developing our products, which could harm our business. Furthermore, our competitors
may have access to technologies not available to us, which may enable them to produce products of greater interest to consumers
or at a more competitive cost.
Sales of our products depend on the
development of emerging applications in their target markets and on diversifying and expanding our customer base in new markets
and geographic regions, all of which may be financially burdensome or unsuccessful.
Our intent is to market and sell our products
primarily to the private sector while addressing emerging applications that have not yet reached a stage of mass adoption or deployment.
The market for some of these solutions (electronic biometric fingerprinting) is at an early stage of deployment in the private
sector compared to other forms of services that try to identify a person through simpler means (by their name, social security
number, etc.) Additionally, we have a strategy of expanding sales of existing products into new geographic markets. Our target
market initially will be South America and Australia. In the event that we are unable to adequately develop our applications or
gain traction in these emerging markets, or that the cost of the foregoing is too great, our business may be harmed.
Continuing disruption in the global
financial markets may adversely impact customers and customer spending patterns.
Continuing disruption in the global financial
markets as a result of the ongoing global financial uncertainty may cause consumers, businesses and governments to defer purchases
in response to tighter credit, decreased cash availability and declining consumer confidence. Accordingly, demand for our products
could decrease and differ materially from their current expectations. Further, some of our customers may require substantial financing
in order to fund their operations and make purchases from us. The inability of these customers to obtain sufficient credit to finance
purchases of our products and meet their payment obligations to us or possible insolvencies of our customers could result in decreased
customer demand, an impaired ability for us to collect on outstanding accounts receivable, significant delays in accounts receivable
payments, and significant write-offs of accounts receivable, each of which could adversely impact our financial results.
Risks Related to Our Intellectual Property
If we are not able to adequately protect our intellectual
property, we may not be able to compete effectively.
Our ability to compete depends in part
upon the strength of our proprietary rights in our technologies, brands and content. The efforts we have taken to protect our intellectual
property and proprietary rights may not be sufficient or effective at stopping unauthorized use of our intellectual property and
proprietary rights. In addition, effective trademark, patent, copyright and trade secret protection may not be available or cost-effective
in every country in which our products are made available. There may be instances where we are not able to fully protect or utilize
our intellectual property in a manner that maximizes competitive advantage. If we are unable to protect our intellectual property
and proprietary rights from unauthorized use, the value of our products may be reduced, which could negatively impact our business.
Our inability to obtain appropriate protections for our intellectual property may also allow competitors to enter our markets and
produce or sell the same or similar products. In addition, protecting our intellectual property and other proprietary rights is
expensive and diverts critical managerial resources. If any of the foregoing were to occur, or if we are otherwise unable to protect
our intellectual property and proprietary rights, our business and financial results could be adversely affected. If we are forced
to resort to legal proceedings to enforce our intellectual property rights, the proceedings could be burdensome and expensive.
In addition, our proprietary rights could be at risk if we are unsuccessful in, or cannot afford to pursue, those proceedings.
We may incur substantial costs as
a result of litigation or other proceedings relating to patent and other intellectual property rights and we may be unable to protect
our rights to, or use of, our technology.
Some or all of our patent applications
may not issue as patents, or the claims of any issued patents may not afford meaningful protection for our technologies or products.
In addition, patents issued to us or our licensors, if any, may be challenged and subsequently narrowed, invalidated or circumvented.
Patent litigation is widespread in our industry and could harm our business. Litigation might be necessary to protect our patent
position or to determine the scope and validity of third-party proprietary rights. If we choose to go to court to stop someone
else from using the inventions claimed in our patents, that individual or company would have the right to ask the court to rule
that such patents are invalid and/or should not be enforced against that third party. These lawsuits are costly and we may not
have the required resources to pursue such litigation or to protect our patent rights. In addition, there is a risk that the court
might decide that these patents are not valid and that we do not have the right to stop the other party from using the inventions.
There is also the risk that, even if the validity of these patents is upheld, the court could refuse to stop the other party on
the grounds that such other party’s activities do not infringe on our rights contained in these patents.
Furthermore, a third party may claim that
we are using inventions covered by their patent rights and may go to court to stop us from engaging in our normal operations and
activities, including making or selling our product candidates. These lawsuits are costly and could materially increase our operating
expenses and divert the attention of managerial and technical personnel. There is a risk that a court would decide that we are
infringing the third party’s patents and would order us to stop the activities covered by the patents. In addition, there
is a risk that a court would order us to pay the other party damages for having violated the other party’s patents. It is
not always clear to industry participants, including us, which patents cover various types of products or methods of use. The coverage
of patents is subject to interpretation by the courts, and the interpretation is not always uniform.
Because some patent applications in the
United States may be maintained in secrecy until the patents are issued, patent applications in the United States and many foreign
jurisdictions are typically not published until eighteen months after filing, and publications in the scientific literature often
lag behind actual discoveries, we cannot be certain that others have not filed patent applications for technology covered by our
issued patents or that we were the first to invent the technology. Our competitors may have filed, and may in the future file,
patent applications covering technology similar to ours. Any such patent application may have priority over our patent applications
and could further require us to obtain rights to issued patents covering such technologies.
If another party has filed a United States
patent application on inventions similar to ours, we may have to participate in an interference or other proceeding in the U.S.
Patent and Trademark Office, or the PTO, or a court to determine priority of invention in the United States. The costs of these
proceedings could be substantial, and it is possible that such efforts would be unsuccessful, resulting in a loss of our United
States patent position with respect to such inventions.
Some of our competitors may be able to
sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources.
In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect
on our ability to raise the capital necessary to continue our operations.
Risks Relating to Market Approval and
Government Regulations
Compliance with regulation of corporate
governance and public disclosure diverts time and attention away from revenue generating activities.
Our management team invests significant
time and financial resources to comply with existing standards for public companies, which has lead to management time and attention
from developing our business to compliance activities which could have an adverse effect on our business.
Our technology relies on our ability
to gain the acceptance and approval of large banking / credit card institutions, the failure to do so may materially harm our business.
In the event that our SmartMetric Biometric
Card does not gain acceptance/approval amongst the large card issuing institutions in the United States and abroad, our cards will
not be provided for use to customers. We currently have no plans to open our own bank/credit card issuing institution and accordingly,
we plan to rely on our ability to have our products accepted within the banking/credit card industries. Our failure to do so will
have a material impact on our ability to generate revenues and continue to operate our business.
Risks Relating to the Development and
Manufacturing of Our Products
We currently rely on third party
manufacturers and suppliers for certain components of our product; with such parties being, to some extent, outside of our control.
We currently have limited internal manufacturing
capability and intend to rely on third party contract manufacturers or suppliers for the foreseeable future. Accordingly, factors
outside of our control may result in material manufacturing delays and product shortages, which could delay or otherwise negatively
impact our manufacturing and product development plans. Should we be forced to manufacture our proposed products, we cannot give
any assurance that we would be able to develop internal manufacturing capabilities. In the event that we seek third party suppliers
or alternative manufacturers, they may require us to purchase a minimum amount of materials or could require other unfavorable
terms. Any such event could materially impact our business prospects and could delay the development and manufacturing of our products.
Moreover, we cannot give any assurance that the contract manufacturers or suppliers that we select will be able to supply our products
in a timely or cost-effective manner or in accordance with our specifications.
We have a limited number of suppliers
of key components and may experience difficulties in obtaining components for which there is significant demand, which would materially
impact our business prospects.
We rely upon a limited number of suppliers
for some key components of our products. Our reliance on a limited number of suppliers may expose us to various risks including,
without limitation, an inadequate supply of components, price increases, late deliveries and poor component quality. In addition,
some of the basic components we use in our products, such as biometric fingerprint devices and various smart card technologies
may at any time be in great demand. This could result in components not being available to us in a timely manner or at all, particularly
if larger companies have ordered more significant volumes of those components, or in higher prices being charged for components.
Disruption or termination of the supply of components or software used in our products could delay shipments of these products.
The following delays/factors from our third-party suppliers could have a material adverse effect on our business and operating
results and could also damage relationships with current and prospective customers:
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Unexpected changes in regulatory requirements;
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Tariffs and other trade barriers;
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Export controls;
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Political and economic instability; and
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Late delivery of our products.
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We utilize third party manufacturing
plants for silicon for the manufacturing our products, which, in the event of growth would need to use large quantities of silicon,
for which raw material shortages may occur.
While we currently use silicon in our products,
and no shortage currently exists of these materials, there can be no assurances that there will not be a shortage in the future,
which may materially impact our manufacturing capabilities, growth prospects, and ability to generate revenue in the future.
Risks Related to our Securities
Our board of directors has broad
discretion to issue additional securities.
We
are authorized under our certificate of incorporation to issue up to 605,000,000 shares consisting of 600,000,000 shares of common
stock and 5,000,000 “blank check” shares of preferred stock. Shares of our blank check preferred stock provide the
board of directors with broad authority to determine voting, dividend, conversion, and other rights. As of September 2, 2020, we
have issued and outstanding 383,858,000 shares of common
stock; 610,000 shares of Series B Convertible Preferred Stock that are convertible into 30,500,000 shares of common stock at the
election of the holder; and 117,200 shares of shares of Series C Convertible Preferred Stock that are convertible into 16,901,408
shares of common stock. Additionally, we have 53,280,406 shares of common stock reserved upon the exercise of outstanding purchase
warrants. Accordingly, as of June 30, 2020 we are entitled to issue up to 220,477,000 additional shares of common stock, and 4,390,000
additional shares of “blank check” preferred stock. Our board may generally issue those common and preferred shares,
or convertible securities to purchase those shares, without further approval by our shareholders. Any additional preferred shares
we may issue could have such rights, preferences, privileges, and restrictions as may be designated from time-to-time by our board,
including preferential dividend rights, voting rights, conversion rights, redemption rights and liquidation provisions.
It is likely that we will issue additional
securities to raise capital in order to further our business plans. It is also likely that we will issue additional securities
to directors, officers, employees and consultants as compensatory grants in connection with their services. Any issuances could
be made at a price that reflects a discount to, or a premium from, the then-current market price of our common stock. These issuances
would dilute the percentage ownership interest of our current shareholders, which would have the effect of reducing your influence
on matters on which our stockholders vote and might dilute the net tangible book value per share of our common stock.
If securities or industry analysts
do not publish research or reports or if they publish unfavorable research or reports, an active market for our common stock may
not develop and the price of our common stock could decline.
We are a small company which is relatively
unknown to stock analysts, stockbrokers, institutional investors and others in the investment community that generate or influence
sales volume. Even if we come to the attention of such persons, they may be reluctant to follow or recommend an unproven company
such as ours until such time as we became more seasoned and viable. Generally, the trading market for a company’s securities
depends in part on the research and reports that securities or industry analysts publish. We currently have limited research coverage
by securities and industry analysts. As a consequence, there may be periods of time when trading activity in our shares is minimal
or non-existent, as compared to a seasoned issuer with significant research coverage. We cannot give you any assurance that a broader
or more active public trading market for our common stock will develop or if developed, will be sustained, or that current trading
levels could be sustained or not diminish. In addition, in the event any analyst downgrades our securities, the price of our shares
would likely decline. If one or more of these analysts ceases to cover us or fails to publish regular reports on us, interest in
the purchase of our securities could decrease, which could cause the price of our common stock and its trading volume, if any,
to decline.
Our common stock may be considered
a “penny stock,” and may be subject to additional sale and trading regulations that may make it more difficult to sell.
Our common stock may be considered a “penny
stock.” The principal result or effect of being designated a penny stock is that securities broker-dealers participating
in sales of our common stock may be subject to the penny stock regulations set forth in Rules 15g-2 through 15g-9 promulgated under
the Exchange Act. For example, Rule 15g-2 requires broker-dealers dealing in penny stocks to provide potential investors with a
document disclosing the risks of penny stocks and to obtain a manually signed and dated written receipt of the document at least
two business days before effecting any transaction in a penny stock for the investor’s account. Moreover, Rule 15g-9 requires
broker-dealers in penny stocks to approve the account of any investor for transactions in such stocks before selling any penny
stock to that investor. This procedure requires the broker-dealer to (i) obtain from the investor information concerning his or
her financial situation, investment experience and investment objectives; (ii) reasonably determine, based on that information,
that transactions in penny stocks are suitable for the investor and that the investor has sufficient knowledge and experience as
to be reasonably capable of evaluating the risks of penny stock transactions; (iii) provide the investor with a written statement
setting forth the basis on which the broker-dealer made the determination in (ii) above; and (iv) receive a signed and dated copy
of such statement from the investor, confirming that it accurately reflects the investor’s financial situation, investment
experience and investment objectives. Compliance with these requirements may make it more difficult and time consuming for holders
of our common stock to resell their shares to third parties or to otherwise dispose of them in the market or otherwise.
Our CEO and Chairman, as the sole
holder of our Series B Convertible Preferred Stock, controls our company.
Chaya Hendrick, our CEO and Chairman, holds
(via shares in her name or shares in the name of an entity she controls - Applied Cryptography, Inc. (“ACI”)) all 610,000
shares of Series B Convertible Preferred Stock outstanding. The outstanding shares of Series B Convertible Preferred Stock are
entitled to vote on any matter with the holders of Common Stock voting together as one (1) class and shall have that number of
votes (identical in every other respect to the voting rights of the holder of common stock entitled to vote at any regular or special
meeting of Stockholders) equal to that number of common shares which is not less than 51% of the vote required to approve any action,
which Nevada law provides may or must be approved by vote or consent of the common shares or the holders of other securities entitled
to vote, if any. Each share of Series B Convertible Preferred Stock is convertible, at the option of the holder, into fifty (50)
shares of Common Stock upon the satisfaction of certain conditions and for purposes of determining a quorum of a shareholder meeting,
the outstanding shares of Series B Convertible Preferred Stock shall be deemed the equivalent of 51% of all shares of the Company’s
Common Stock entitled to vote at such meetings. Accordingly, Ms. Hendrick can (without the approval of our other shareholders)
elect our entire Board of Directors and determine the outcome of various matters submitted to shareholders for approval, including
fundamental corporate transactions. Voting control by Ms. Hendrick may discourage certain types of transactions involving an actual
or potential change in control of us, including transactions in which the holders of our common stock might receive a premium for
their shares over prevailing market prices.
Failure to maintain effective internal
controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and operating
results and stockholders could lose confidence in our financial reporting.
Effective internal controls are necessary
for us to provide reliable financial reports and effectively prevent fraud. If we cannot provide reliable financial reports or
prevent fraud, our operating results could be harmed. Failure to achieve and maintain an effective internal control environment,
regardless of whether we are required to maintain such controls, could also cause investors to lose confidence in our reported
financial information, which could have a material adverse effect on our stock price. The Company’s management assessed the
design and operating effectiveness of internal control over financial reporting as of June 30, 2020 based on the framework set
forth in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
In connection with the assessment described above, management identified control deficiencies that represented a material weakness
at June 30, 2020. See “Item 9A. Controls and Procedures” for more detailed discussion.
We have not paid dividends on our
common stock in the past and do not expect to pay dividends on our common stock for the foreseeable future. Any return on investment
may be limited to the value of our common stock.
No cash dividends have been paid on our
common stock. We expect that any income received from operations will be devoted to our future operations and growth. We do not
expect to pay cash dividends on our common stock in the near future. Payment of dividends would depend upon our profitability at
the time, cash available for those dividends, and other factors as our board of directors may consider relevant. If we do not pay
dividends, our common stock may be less valuable because a return on an investor’s investment will only occur if our stock
price appreciates.
The requirements of being a public
company may strain our resources, divert management’s attention and affect our ability to attract and retain qualified board
members.
The Exchange Act requires, among other
things, that we file annual, quarterly and current reports with respect to our business and financial condition. The Sarbanes-Oxley
Act requires, among other things, that we maintain effective disclosure controls and procedures and internal controls for financial
reporting. For example, Section 404 of the Sarbanes-Oxley Act of 2002 requires that our management report on, and our independent
auditors attest to, the effectiveness of our internal controls structure and procedures for financial reporting. Section 404 compliance
may divert internal resources and will take a significant amount of time and effort to complete. We may not be able to successfully
complete the procedures and certification and attestation requirements of Section 404 by the time we will be required to do so.
If we fail to do so, or if in the future our chief executive officer, chief financial officer or independent registered public
accounting firm determines that our internal controls over financial reporting are not effective as defined under Section 404,
we could be subject to sanctions or investigations by the SEC or other regulatory authorities. Furthermore, investor perceptions
of our company may suffer, and this could cause a decline in the market price of our common stock. Irrespective of compliance with
Section 404, any failure of our internal controls could have a material adverse effect on our stated results of operations and
harm our reputation. If we are unable to implement these changes effectively or efficiently, it could harm our operations, financial
reporting or financial results and could result in an adverse opinion on internal controls from our independent auditors. We may
need to hire a number of additional employees with public accounting and disclosure experience in order to meet our ongoing obligations
as a public company, which will increase costs. Our management team and other personnel will need to devote a substantial amount
of time to new compliance initiatives and to meeting the obligations that are associated with being a public company, which may
divert attention from other business concerns, which could have a material adverse effect on our business, financial condition
and results of operations. In addition, because our management team has limited experience managing a public company, we may not
successfully or efficiently manage our transition into a public company.
We face risks related to Novel Coronavirus
(COVID-19) which could significantly disrupt our research and development, operations, sales, and financial results.
Our business will be adversely impacted
by the effects of COVID-19. In addition to global macroeconomic effects, the COVID-19 outbreak and any other related adverse public
health developments will cause disruption to our operations and sales activities and our final card production. While the delays
to our final card production are due to supply line disruption, these delays may be short-lived based on advice from our manufacturing
partners, manufacturing alternatives and alternative supply lines that are being put into place by the Company.
Our customers have been and will be disrupted
by worker absenteeism, quarantines and restrictions on employees’ ability to work, office and factory closures, disruptions
to ports and other shipping infrastructure, border closures, or other travel or health-related restrictions. In addition, COVID-19
or another disease outbreak will in the short-run and may over the longer term adversely affect the economies and financial markets
of many countries, resulting in an economic downturn that will affect demand for our products and services and impact our operating
results. There can be no assurance that any decrease in sales resulting from COVID-19 will be offset by increased sales in subsequent
periods. Although the magnitude of the impact of COVID-19 outbreak on our business and operations remains uncertain, the continued
spread of COVID-19 or the occurrence of other epidemics and the imposition of related public health measures and travel and business
restrictions will adversely impact our business, financial condition, operating results and cash flows. In addition, we have experienced
and will experience disruptions to our business operations resulting from quarantines, self-isolations, or other movement and restrictions
on the ability of our employees to perform their jobs that may impact our ability to develop and design our products and services
in a timely manner or meet required milestones or customer commitments.