CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
In
this Quarterly Report on Form 10-Q, references to “SmartMetric, Inc.,” “SmartMetric,” “SMME,”
“the Company,” “we” “us,” and “our” refer to SmartMetric, Inc. Also, any reference
to “common shares,” or “common stock” refers to our $0.001 par value common stock. Also, any reference
to “preferred stock” or “preferred shares” refers to our $0.001 par value Series B Convertible Preferred
Stock and our $0.001 par value Series C Convertible Preferred Stock.
This
Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended
and Section 21E of the Securities Exchange Act of 1934, as amended. These statements relate to our business development plans,
timing strategies, expectations, anticipated expense levels, business prospects, business outlook, technology spending and various
other matters (including contingent liabilities and obligations and changes in accounting policies, standards and interpretations).
These statements express our current intentions, beliefs, expectations, strategies or predictions as well as historical information.
Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,”
“seeks,” “estimates,” “may,” “will,” “could,” “continue,”
and similar expressions or variations of such words are intended to identify forward-looking statements, but are not deemed to
represent an all-inclusive means of identifying forward-looking statements as denoted in this Quarterly Report. Additionally,
statements concerning future matters are forward-looking statements.
Although
forward-looking statements in this Quarterly Report reflect the good faith judgment of our management, such statements can only
be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks
and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated
by the forward-looking statements. These statements are no guarantee of future performance and involve risks and uncertainties
that are difficult to predict. Our future operating results are dependent upon many factors which are outside our control. You
should not place undue reliance on forward-looking statements. Forward-looking statements may not be realized due to a variety
of factors, including, without limitation, our ability to:
●
|
manage our business
given continuing operating losses and negative cash flows;
|
●
|
obtain sufficient
capital to fund our operations, development, and expansion plans;
|
●
|
manage competitive
factors and developments beyond our control;
|
●
|
maintain and protect
our intellectual property;
|
●
|
obtain patents based
on our current and/or future patent applications;
|
●
|
obtain and maintain
other rights to technology required or desirable to conduct or expand our business; and
|
●
|
manage any other
factors, if any, discussed in the “Risk Factors” section, and elsewhere in this Quarterly Report.
|
We
undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that
may arise after the date of this Quarterly Report, except as required by federal securities laws. Readers are urged to carefully
review and consider the various disclosures made throughout the entirety of this Quarterly Report, which are designed to advise
interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.
SMARTMETRIC,
INC. AND SUBSIDIARY
Condensed Consolidated
Balance Sheets
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
60,929
|
|
|
$
|
4,427
|
|
Receivables
|
|
|
—
|
|
|
|
10,400
|
|
Credit card overpayment
|
|
|
536
|
|
|
|
—
|
|
Prepaid expenses and other current assets
|
|
|
11,017
|
|
|
|
8,767
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
72,482
|
|
|
|
23,594
|
|
Non-current assets:
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
10,400
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
82,882
|
|
|
$
|
23,594
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
789,208
|
|
|
$
|
730,794
|
|
Liability for stock to be issued
|
|
|
252,599
|
|
|
|
103,718
|
|
Deferred officer's salary
|
|
|
805,848
|
|
|
|
663,348
|
|
Related party interest payable
|
|
|
79,524
|
|
|
|
40,055
|
|
Shareholder loan
|
|
|
7,739
|
|
|
|
15,000
|
|
Dividends payable
|
|
|
1,458
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,936,376
|
|
|
|
1,552,915
|
|
|
|
|
|
|
|
|
|
|
Series C mandatory redeemable convertible preferred stock, net of discount, authorized,
1,000,000 shares, 70,000 and 0 shares issued and oustanding, respectively
|
|
|
52,815
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 4 and Note 8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' deficit:
|
|
|
|
|
|
|
|
|
Series B Preferred 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; 300,000,000 shares authorized, 256,676,745 and
249,147,547 shares issued and outstanding, respectively
|
|
|
256,677
|
|
|
|
249,148
|
|
Additional paid-in capital
|
|
|
24,479,000
|
|
|
|
24,217,831
|
|
Accumulated deficit
|
|
|
(26,642,596
|
)
|
|
|
(25,996,910
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders' deficit
|
|
|
(1,906,309
|
)
|
|
|
(1,529,321
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities, mezzanine equity and stockholders' deficit
|
|
$
|
82,882
|
|
|
$
|
23,594
|
|
See
notes to condensed consolidated financial statements.
SMARTMETRIC,
INC. AND SUBSIDIARY
Condensed Consolidated
Statements Of Operations
(Unaudited)
|
|
Three Months Ended
March 31, 2019
|
|
|
Three Months Ended March 31, 2018
|
|
|
Nine Months Ended
March 31, 2019
|
|
|
Nine Months Ended
March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officer's salary
|
|
|
47,500
|
|
|
|
47,500
|
|
|
|
142,500
|
|
|
|
142,500
|
|
Other general and administrative
|
|
|
121,200
|
|
|
|
176,418
|
|
|
|
369,361
|
|
|
|
528,974
|
|
Research and development
|
|
|
38,949
|
|
|
|
64,413
|
|
|
|
90,084
|
|
|
|
105,845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
207,649
|
|
|
|
288,331
|
|
|
|
601,945
|
|
|
|
777,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations before income taxes
|
|
|
(207,649
|
)
|
|
|
(288,331
|
)
|
|
|
(601,945
|
)
|
|
|
(777,319
|
)
|
Interest expense - related party
|
|
|
(13,647
|
)
|
|
|
(7,698
|
)
|
|
|
(39,468
|
)
|
|
|
(27,937
|
)
|
Income taxes
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(221,296
|
)
|
|
|
(296,029
|
)
|
|
|
(641,413
|
)
|
|
|
(805,256
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock dividends
|
|
|
(4,273
|
)
|
|
|
—
|
|
|
|
(4,273
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss available to common stockholders
|
|
$
|
(225,569
|
)
|
|
$
|
(296,029
|
)
|
|
$
|
(645,686
|
)
|
|
$
|
(805,256
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
256,676,745
|
|
|
|
244,132,321
|
|
|
|
253,891,612
|
|
|
|
237,906,584
|
|
See
notes to condensed consolidated financial statements.
SMARTMETRIC, INC. AND SUBSIDIARY
Condensed Consolidated Statement of Stockholders’ Deficit
(Unaudited)
|
|
|
|
|
|
|
|
Class
A
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Preferred
Stock
|
|
|
Common
Stock
|
|
|
Common
Stock
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
5,502
|
|
|
|
201,196
|
|
|
|
—
|
|
|
|
206,698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the period
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(213,327
|
)
|
|
|
(213,327
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
September 30, 2018
|
|
|
610,000
|
|
|
$
|
610
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
254,650,085
|
|
|
$
|
254,650
|
|
|
$
|
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
|
|
|
$
|
256,677
|
|
|
$
|
24,479,000
|
|
|
$
|
(26,417,027
|
)
|
|
$
|
(1,671,269
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(4,273
|
)
|
|
|
(4,273
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the period
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(221,296
|
)
|
|
|
(221,296
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
March 31, 2019
|
|
|
610,000
|
|
|
$
|
610
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
256,676,745
|
|
|
$
|
256,677
|
|
|
$
|
24,479,000
|
|
|
$
|
(26,642,596
|
)
|
|
$
|
(1,896,838
|
)
|
SMARTMETRIC, INC. AND SUBSIDIARY
Condensed Consolidated Statement of Stockholders’ Deficit
(Unaudited)
|
|
Preferred Stock
|
|
|
Class A
Common Stock
|
|
|
Common Stock
|
|
|
Additional
Paid-in
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
June 30, 2017
|
|
|
410,000
|
|
|
$
|
410
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
226,172,799
|
|
|
$
|
226,173
|
|
|
$
|
22,778,252
|
|
|
$
|
(24,346,047
|
)
|
|
$
|
(1,341,212
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series
B Preferred
|
|
|
200,000
|
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued of common stock and warrants for services rendered
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
362,864
|
|
|
|
363
|
|
|
|
21,462
|
|
|
|
—
|
|
|
|
21,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued of common stock and warrants for cash
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,260,000
|
|
|
|
8,260
|
|
|
|
264,240
|
|
|
|
—
|
|
|
|
272,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior period adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(11,325
|
)
|
|
|
(11,325
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the period
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(247,063
|
)
|
|
|
(247,063
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
September 30, 2017
|
|
|
610,000
|
|
|
|
610
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
234,795,663
|
|
|
$
|
234,794
|
|
|
$
|
23,063,954
|
|
|
$
|
(24,604,435
|
)
|
|
$
|
(1,305,075
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued of common stock and warrants for services rendered
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
212,164
|
|
|
|
212
|
|
|
|
14,788
|
|
|
|
—
|
|
|
|
15,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued of common stock and warrants for cash
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,237,500
|
|
|
|
7,238
|
|
|
|
245,762
|
|
|
|
—
|
|
|
|
253,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior period adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,894
|
)
|
|
|
(1,894
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the period
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(260,270
|
)
|
|
|
(260,270
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
December 31, 2017
|
|
|
610,000
|
|
|
$
|
610
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
242,245,327
|
|
|
$
|
242,244
|
|
|
$
|
23,324,504
|
|
|
$
|
(24,864,705
|
)
|
|
$
|
(1,297,345
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued of common stock and warrants for services rendered
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
508,620
|
|
|
|
508
|
|
|
|
29,492
|
|
|
|
—
|
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued of common stock and warrants for cash
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,685,000
|
|
|
|
2,685
|
|
|
|
82,315
|
|
|
|
—
|
|
|
|
85,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior period adjustment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,250
|
)
|
|
|
(1,250
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the period
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(296,029
|
)
|
|
|
(296,029
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
March 31, 2018
|
|
|
610,000
|
|
|
$
|
610
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
245,438,947
|
|
|
$
|
245,437
|
|
|
$
|
23,436,311
|
|
|
$
|
(25,161,984
|
)
|
|
$
|
(1,479,624
|
)
|
SMARTMETRIC,
INC. AND SUBSIDIARY
Condensed
Consolidated Statements Of Cash Flows
(Unaudited)
|
|
Nine Months Ended
March 31,2019
|
|
|
Nine Months Ended
March 31, 2018
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(641,413
|
)
|
|
$
|
(805,256
|
)
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
Shares issued of common stock and warrant for services
|
|
|
—
|
|
|
|
66,824
|
|
Changes in assets and liabilities
|
|
|
|
|
|
|
|
|
Decrease in prepaid expenses and other current assets
|
|
|
(2,250
|
)
|
|
|
48,060
|
|
(Decrease) increase in accounts payable and accrued expenses
|
|
|
58,414
|
|
|
|
58,459
|
|
Increase in deferred officer salary
|
|
|
142,500
|
|
|
|
110,833
|
|
Increase (decrease) in credit card debt
|
|
|
(536
|
)
|
|
|
—
|
|
Increase in accrued interest payable
|
|
|
39,469
|
|
|
|
27,936
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(403,816
|
)
|
|
|
(493,144
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Loans from related parties
|
|
|
(7,261
|
)
|
|
|
5,200
|
|
Proceeds from the sale of series C preferred stock
|
|
|
50,000
|
|
|
|
—
|
|
Proceeds from sale of common stock
|
|
|
417,579
|
|
|
|
448,218
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
460,318
|
|
|
|
453,418
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH
|
|
|
56,502
|
|
|
|
(39,726
|
)
|
|
|
|
|
|
|
|
|
|
CASH BEGINNING OF PERIOD
|
|
|
4,427
|
|
|
|
51,695
|
|
|
|
|
|
|
|
|
|
|
END OF PERIOD
|
|
|
60,929
|
|
|
|
11,969
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest
|
|
$
|
—
|
|
|
$
|
—
|
|
See
notes to condensed consolidated financial statements.
SMARTMETRIC
INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
|
NOTE 1
-
|
ORGANIZATION AND BASIS OF PRESENTATION
|
SmartMetric,
Inc. (“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, 2019
are not necessarily indicative of the results that may be expected for the year ending June 30, 2019. 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, 2018, as filed with the Securities and Exchange Commission on October 12, 2018. The condensed consolidated balance sheet as of June 30, 2018, 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 $641,413 and
$805,256 for the nine months ended March 31, 2019 and 2018 respectively, and has an accumulated deficit of $26,642,596 at March
31, 2019.
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.
These conditions raise substantial doubt about the Company’s ability to continue as a going concern.
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.
NOTE 2
-
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
Principles
of Consolidation
The
condensed consolidated financial statements do not include any adjustments relating to the carrying amounts of recorded assets
or the carrying amounts and classification of recorded liabilities that may be required should the Company be unable to continue
as a going concern.
NOTE 2
-
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
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. This guidance is
effective for the Company as of March 1, 2019. Based on the completed analysis, the Company has determined the adjustment will
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 is effective for the Company as of March
1, 2019. Based on the completed analysis, the Company has determined the adjustment will 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, 2019 and 2018, 26,392,318 and 14,505,499 dilutive shares were
excluded from the calculation of diluted loss per common share.
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 issue for services.
Lease
Agreement
The
Company’s main office is located in Las Vegas, Nevada. Rent expense under all leases for the nine months ended March 31,
2019 and 2018 was $10,545 and $25,589 respectively. The Company maintains only one office. This office is located 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 $7,739 and $15,000
at March 31, 2019 and June 30, 2018, respectively. These advances bear interest at the rate of five percent (5%) per annum.
The
Company has accrued the amounts of $805,848 and $663,348 at March 31, 2019 and June 30, 2018, 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.
NOTE 5
-
|
STOCKHOLDERS’ DEFICIT
|
Preferred
Stock
As
of March 31, 2019, the Company has 5,000,000 shares of Class B preferred stock, par value $0.001, authorized and 680,000 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 C Convertible Preferred Stock was increased to 1,000,000 shares.
Each
share of Series B Convertible Preferred Stock has a par value of $0.001, and a stated value equal to $5.00 (“Stated Value”).
Holders of the Series B Convertible Preferred Stock are entitled to receive dividends or other distributions with the holders
of the common stock of the Company on an as converted basis when, as, and if declared by the directors of the Company. Holders
of the Series B Convertible Preferred Stock are entitled to convert 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.
Class
A Common Stock
As
of March 31, 2019, the Company has 50,000,000 shares of Class A common stock, par value $0.001, authorized and no shares issued
and outstanding. In October 2003, the Company issued 50,000,000 shares of Class A common stock at par value ($50,000). These shares
were converted into 50,000,000 shares of common stock in 2006.
Common
Stock
The
Company was incorporated on December 18, 2002, with 45,000,000 shares of Common Stock, par value $0.001, authorized. The Articles
of Incorporation were amended in 2006 to increase the number of authorized shares to 100,000,000 shares, and in 2009 to increase
the number of authorized shares to 200,000,000. As a result of a screener’s error, the Company previously disclosed in its
Quarterly Report on Form 10-Q for the quarters ended September 30, 2015 and December 31, 2015 that it increased the number of
authorized shares of common stock to 300,000,000. On March 31, 2016, our Board of Directors (“The Board”) approved
an amendment (the “Amendment”) to the Company’s Articles of Incorporation to increase the total number of shares
of authorized capital stock to 305,000,000 shares, par value $0.001 per share, consisting of (i) 300,000,000 shares of Common
Stock, up from 200,000,000 shares of Common Stock, and (ii) 5,000,000 shares of Preferred Stock, subject to shareholder approval
(the “Proposal”). On March 31, 2016, a majority of the Company’s stockholders approved the Amendment. The Company
filed a definitive information statement on Schedule 14C with the Securities and Exchange Commission on May 4, 2016 (the “Information
Statement”). The Information Statement was furnished to all of the Company’s shareholders for the purpose of informing
them of the action taken by a majority of the Company’s stockholders.
As
of March 31, 2019, the Company has 256,676,745 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.
|
|
●
|
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.
|
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, 2019, and June 30, 2018, the following is a breakdown of the warrant activity:
March
31, 2019:
Outstanding - June 30, 2018
|
|
|
|
14,842,583
|
|
Issued
|
|
|
|
16,998,235
|
|
Exercised
|
|
|
|
—
|
|
Expired
|
|
|
|
(5,448,500
|
)
|
Outstanding - March 31, 2019
|
|
|
|
26,392,318
|
|
June
30, 2018:
Outstanding - June 30, 2017
|
|
|
|
20,276,399
|
|
Issued
|
|
|
|
12,341,584
|
|
Exercised
|
|
|
|
—
|
|
Expired
|
|
|
|
(17,775,400
|
)
|
Outstanding - June 30, 2018
|
|
|
|
14,842,583
|
|
At
March 31, 2019, all of the 26,392,318 warrants are vested and (i) 23,092,318 warrants expire at various times prior to March 21,
2021, (ii) 3,000,000 warrants expire in September 2019, (iii) and 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
liquidat
ion,
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
li
quidation
with respect
to
the
Company’s Series B Preferred Stock;
and
(c) junior with
respect to
dividends
and
right of liquidation to all
ex
is
ting
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
Holder shall have the right at any time during the period beginning on the date which
i
s 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 estimated fair value of the Series
C mandatory redeemable convertible preferred stock at March 31, 2019 and 2018 was $52,815 and $0, respectively.
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.
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 9
-
|
SUBSEQUENT EVENTS
|
In accordance with ASC
855-10, the Company has analyzed its operations subsequent to March 31, 2019 to the date these financial statements were issued,
and there were no material subsequent events to disclose in these financial statements.
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
Effective February 1, 2019, AMC Auditing
(“AMC”), the independent registered public accounting firm for the Company was acquired by Prager Metis CPAs LLC (“Prager”).
As a result of this transaction, on April 10, 2019, AMC resigned as the independent registered public accounting firm for the Company.
Concurrent with such resignation, the Company’s Board approved the engagement of Prager as the new independent registered
public accounting firm for the Company
Going Concern
Our auditors’ report on our June
30, 2018 financial statements expressed an opinion that there is a substantial doubt about our ability to continue as a going concern.
The Company continues to rely on direct equity investment in the Company through the sale of shares by way of private placement
offerings.
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.
Cash and Equivalents
-
Cash equivalents are comprised of certain highly liquid investments with maturity of three months or less when purchased. We maintain
our cash in bank deposit accounts which, at times, may exceed federally insured limits. We have not experienced any losses in such
accounts.
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, 2019 and 2018
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, 2019 and 2018. Net loss for the three months ended March 31, 2019 and 2018 were $221,295 and $296,029, respectively,
resulting from the operational activities described below.
Operating Expenses
Operating expense totaled $207,648 and
$288,331 during the three months ended March 31, 2019 and 2018, respectively. The decrease in operating expenses is the result
of the following factors.
|
|
Quarter Ended
March 31
|
|
|
Change in 2019
Versus 2018
|
|
|
|
2019
|
|
|
2018
|
|
|
$
|
|
|
%
|
|
Operating expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officer salary
|
|
$
|
47,500
|
|
|
$
|
47,500
|
|
|
$
|
—
|
|
|
|
(0
|
)%
|
Research and development
|
|
|
38,949
|
|
|
|
64,413
|
|
|
|
(25,464
|
)
|
|
|
(39.5
|
)%
|
General and administrative
|
|
|
121,200
|
|
|
|
176,418
|
|
|
|
(55,218
|
)
|
|
|
(31.3
|
)%
|
Total operating expense
|
|
$
|
207,649
|
|
|
$
|
288,331
|
|
|
$
|
(80,682
|
)
|
|
|
(28.0
|
)%
|
Research and Development
Research and development expenses totaled
$38,949 and $64,413 for the three months ended March 31, 2019 and 2018, respectively. The decrease of $25,464, or 39.5%, in 2019
compared to 2018 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
$121,200 and $176,418 for the three months ended March 31, 2019 and 2018, respectively. The decrease of $55,218 or 31.3%, in 2019
compared to 2018 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 Income (Expense)
Other income (expense) totaled $13,647
and $7,698 for the three months ended March 31, 2019 and 2018, respectively.
|
|
Quarter Ended
March 31
|
|
|
Change in 2019
Versus 2018
|
|
|
|
2019
|
|
|
2018
|
|
|
$
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
|
13,647
|
|
|
|
7,698
|
|
|
|
5,949
|
|
|
|
77.3
|
%
|
Total operating expense
|
|
$
|
13,647
|
|
|
$
|
7,698
|
|
|
$
|
5,949
|
|
|
|
77.3
|
%
|
Interest income (expense)
We had net interest expense of $13,647
in the three months ended March 31, 2019 compared to $7,698 net interest expense for the three months ended March 31, 2018. The
increase of $5,949 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, 2019 and 2018
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, 2019 and 2018. Net loss for the nine months ended March 31, 2019 and 2018 were $641,413 and $805,256,
respectively, resulting from the operational activities described below.
Operating Expenses
Operating expense totaled $601,945 and
$777,319 during the nine months ended March 31, 2019 and 2018, respectively. The decrease in operating expenses is the result
of the following factors.
|
|
Nine Months Ended
March 31
|
|
|
Change in 2019
Versus 2018
|
|
|
|
2019
|
|
|
2018
|
|
|
$
|
|
|
%
|
|
Operating expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officer salary
|
|
$
|
142,500
|
|
|
$
|
142,500
|
|
|
$
|
—
|
|
|
|
(0
|
)%
|
Research and development
|
|
|
90,084
|
|
|
|
105,845
|
|
|
|
(15,761
|
)
|
|
|
(14.9
|
)%
|
General and administrative
|
|
|
369,361
|
|
|
|
528,974
|
|
|
|
(159,613
|
)
|
|
|
(30.2
|
)%
|
Total operating expense
|
|
$
|
601,945
|
|
|
$
|
777,319
|
|
|
$
|
(175,374
|
)
|
|
|
(22.6
|
)%
|
Research and Development
Research and development expenses totaled
$90,084 and $105,845 for the nine months ended March 31, 2019 and 2018, respectively. The decrease of $15,761, or 14.9%, in 2019
compared to 2018 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
$369,361 and $528,974 for the nine months ended March 31, 2019 and 2018, respectively. The decrease of $159,613 or 30.2%, in 2019
compared to 2018 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 Income (Expense)
Other income (expense) totaled $39,468
and $27,937 for the nine months ended March 31, 2019 and 2018, respectively.
|
|
Nine Months Ended
March 31
|
|
|
Change in 2019
Versus 2018
|
|
|
|
2019
|
|
|
2018
|
|
|
$
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
|
39,468
|
|
|
|
27,937
|
|
|
|
11,531
|
|
|
|
41.3
|
%
|
Total operating expense
|
|
$
|
39,468
|
|
|
$
|
27,937
|
|
|
$
|
11,531
|
|
|
|
41.3
|
%
|
Interest income (expense)
We had net interest expense of $39,468
in the nine months ended March 31, 2019 compared to $27,937 net interest expense for the nine months ended March 31, 2018. The
increase of $11,531 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 $26,642,596 as of March 31, 2019 and anticipate that we will continue to incur additional losses for the foreseeable future.
Through March 31, 2019, 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 $26.6 million from inception through March 31, 2019. Cash at March
31, 2019 were $60,929.
|
|
Nine months ended
March 31,
|
|
|
Change in 2019 versus
2018
|
|
|
|
2019
|
|
|
2018
|
|
|
$
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Cash at beginning of period
|
|
$
|
4,427
|
|
|
$
|
51,695
|
|
|
$
|
(47,268
|
)
|
|
|
(91.4
|
)%
|
Net cash used in operating activities
|
|
|
403,816
|
|
|
|
559,968
|
|
|
|
(156,152
|
)
|
|
|
(27.9
|
)%
|
Net cash used in investing activities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net cash provided by financing activities
|
|
|
460,317
|
|
|
|
520,242
|
|
|
|
(59,925
|
)
|
|
|
(11.5
|
)%
|
Cash at end of period
|
|
|
60,929
|
|
|
|
11,969
|
|
|
|
48,960
|
|
|
|
409.1
|
%
|
Net Cash Used in Operating Activities
Net cash used in operating activities
was $403,816 and $559,968 for the nine months ended March 31, 2019 and 2018, respectively. The decrease of $156,152 in cash used
during 2019 compared to 2018 was primarily attributable to a decrease 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, 2019 and 2018, respectively.
Net Cash Provided by Financing Activities
During the nine months ended March 31,
2019, we received net proceeds of $460,317 from the sales of our securities, compared to $520,242 for the nine months ended March
31, 2018. The decrease was due to lower 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
We are not required to provide the information
required by this item as we are considered a smaller reporting company, as defined by Rule 229.10(f)(1).
ITEM 4. CONTROLS AND PROCEDURES
We maintain “disclosure controls
and procedures,” as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the
“Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports that we file
or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities
and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including
our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures,
no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure
controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was
required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The
design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future
events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
In connection with the preparation of this
Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, our principal executive officer and principal financial officer
have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(c) and 15d-15(e) under the Exchange Act)
are not effective to ensure that information required to be disclosed by us in report that we file or submit under the Exchange
Act is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission’s
rules and forms and to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange
Act is accumulated and communicated to our management, including our Chief Executive Officer, as appropriate to allow timely decisions
regarding required disclosure.
Limitations on Controls
Management does not expect that the Company’s
disclosure controls and procedures or the Company’s internal control over financial reporting will prevent or detect all
error and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide
only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute
assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within
the Company have been detected. The Company’s disclosure controls and procedures are designed to provide reasonable assurance
of achieving their objectives and the Company’s chief executive officer and chief financial officer have concluded that the
Company’s disclosure controls and procedures are not effective at that reasonable assurance level due to the material weakness
described below.
Due to our size and nature, segregation
of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the
initiation of transactions, the custody of assets and the recording of transactions are being performed by separate individuals.
Management evaluated the impact of our failure to have segregation of duties in all of our financially significant processes and
have concluded that this control deficiency represented a material weakness. We plan to remediate this weakness over the next 12
months.
Notwithstanding the assessment that our
disclosure controls and procedures and our internal controls over financial reporting were not effective and that there are material
weaknesses as identified herein, we believe that our condensed consolidated financial statements contained in this Quarterly Report
fairly present our financial position, results of operations and cash flows for the periods covered thereby in all material respects.
Changes in Internal Controls
During the three months ended March 31,
2019, there have been no changes in our internal control over financial reporting that have materially affected or are reasonably
likely to materially affect our internal controls over financial reporting.