Corporate
History and Overview
SmartMetric,
Inc. (“SmartMetric” or the “Company”) is a company that was incorporated pursuant to the laws of Nevada on December
18, 2002 and is engaged in the biometric technology manufacturing 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 for use in the credit and debit card industry. The SmartMetric fingerprint biometric cards have a rechargeable
battery allowing for portable biometric identification and card activation prior to being presented to or inserted in, a credit or debit
card reader. These cards are herein sometimes referred to as a biometric card or the SmartMetric Biometric Card.
The
Market for Biometric Credit Cards
Estimated
Market Size
The
estimated size of the market for biometric credit and debit cards is significant. While the company is not making any projections on
the actual size of the market a number of industry figures point to the outsized market size and potential.
According
to EMVCo which is a credit card standards body responsible for the licensing and rules governing EMV chips used on today’s credit
and debit cards, more than 10 billion EMV chip cards have been issued by banks globally.
SmartMetric
contracted an independent consumer market research company to ascertain the potential consumer demand for a credit card with incorporated
fingerprint biometrics. The survey was conducted in the USA and the respondents were Visa credit card users.
The
result of the consumer research survey is as follows.
1:
Are you concerned about credit card or identity fraud?
Answered
Yes: 80.1%
2:
Would you pay for a safer biometric secured credit card that has a built-in fingerprint reader for your protection?
Answered
Yes: 65.5%
3:
What would you prefer to pay for a biometric fingerprint secured safer credit card?
Answer
1: $69.95 onetime charge for the life of the card (3 years) 60.2%
Answer
2: $8.95 per month (includes identity theft insurance) 39.7%
Given
these consumer research results and given the number of credit cards issued by banks, it is a massively large potential market that SmartMetric
has developed its product for.
All
credit and debit cards that are to be issued by a Bank must be tested and approved of by the card brand network that the card is to operate
on. Visa, MasterCard, American Express and Diners brands and networks all have their own individual testing and approval procedures.
The card brand that SmartMetric is working with published its biometric testing procedures in March of 2021. This caused the company
to make changes to its card. Adding its newly invented anti spoofing live fingerprint detection technology to its biometric card.
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.
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.
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 ten (10) 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 also developed a multi-function logical and physical access security card the 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.
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 the 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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1.
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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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2.
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RFID transceiver
for physical access i.e. doorways, elevators, etc.
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3.
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Validation indicator
light that glows green immediately following a fingerprint validation
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4.
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Rechargeable
battery to power the card
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5.
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Size and thickness
of a credit card
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6.
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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.
SmartMetric
has presented its fingerprint activated biometric card to a large global payments network and credit/debit card brand. The company has
been advised that the card testing and approval requirements for this network is that the company’s biometric fingerprint scanning
must be able to differentiate between a live finger and a fake finger at the time of fingerprint scanning. This is to protect the card
from what is called in the industry, spoofing.
The
adopted method for this kind of anti-spoofing detection within the biometric industry is performed through intelligent software analysis
done at the time of the fingerprint scan. SmartMetric has tested this methodology and was not confident in its robustness in performing
the task at hand. So as to ensure the highest level of anti-spoofing capability, SmartMetric has developed its own method that it believes
is far in advance to the normal standard within the biometric industry.
SmartMetric
has completed the invention of its advanced live finger detection method and is now working on its incorporation into the company’s
biometric card. Once this has been completed the company will then be presenting its card for testing as a biometric card to the global
payments network. SmartMetric has received a license from this network to move forward with its product testing by the networks designated
biometric card test laboratory.
The
company’s product is different from most other biometric cards that have been announced in that it has its own internal rechargeable
battery. This is important and a must if the card is to be used at ATM’s.
Other
differentiations are the now newly developed advanced anti-spoofing technology.
Various
versions of the SmartMetric fingerprint biometric card are under development including but not limited to a version that has one time
password OTP display and another that has a small display for showing the cards CVV.
Other
cards under development based on the company’s biometric technology include memory cards with up to 2GB of memory. Also cards that
have much larger display screens that can display such things as Q-Codes.
The
large-scale memory fingerprint biometric protected card has potential application in the portable medical records industry as well as
advanced applications in the banking and financial transaction industries.
Years
of research and development has gone into the miniaturization of the electronics at the core of the SmartMetric fingerprint biometric
card. All of the design and electronic engineering has been undertaken by SmartMetric and is the owned property and trade secrets of
the company.
The
card developed by SmartMetric has its own ARM Cortex processor along with additional memory. The user’s fingerprint is stored inside
the cards memory and is protected by advanced very strong elliptic curve cryptography.
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, 2021, 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 $28,859,366. Our net losses for the two most recent fiscal years ended June 30, 2021 and 2020 were $924,728 and $805,577,
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, 2021 and 2020, we
incurred a net loss of $924,728 and $805,577, 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, 2021.
Since
our inception, we have funded our operations primarily through the sale of our securities. Our cash and cash equivalents balance at June
30, 2021 was $10,325. 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, 2021) of fiscal year ending June 30, 2022, 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’s
opinion about our ability to continue as a going concern.
As
of June 30, 2021, management has expressed the opinion that our capital resources as of the date of their audit report were sufficient
to sustain operations and complete our planned activities for the upcoming year. Our current cash is sufficient to continue as a going
concern past June 30, 2022. 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, 2021, we owe Chaya Hendrick, our CEO, $737,642 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 $737,642 in salary owed to Chaya Hendrick pursuant to Chaya Hendrick’s employment agreement outstanding
with us as of June 30, 2021. 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 led
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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adverse tax consequences;
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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
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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 24, 2021, we have issued and
outstanding 472,859,208 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 239,025 shares of shares of Series C Convertible Preferred
Stock. Additionally, we have 124,888,519 shares of common stock reserved upon the exercise of outstanding purchase warrants. Accordingly,
as of June 30, 2021 we are entitled to issue up to 127,140,792 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, 2021 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 no control deficiencies that represented a material weakness at June 30, 2021. 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.