Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ No
Indicate by check mark if the registrant is not required to
file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes ☒ No
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§
232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting
company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
If an emerging growth company, indicate
by check mark if the registrant has elected not to use the extended transaction period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☒ No
The aggregate market value of the voting and non-voting common
equity held by non-affiliates was $9,698,446 computed by reference to the closing price of the registrant’s common stock
as quoted on the OTCQB maintained by OTC Markets, Inc. on December 31, 2018 (the last business day of the registrant’s most
recently completed second fiscal quarter) (which was $0.045 per share). For purposes of the above statement only, all directors,
executive officers and 10% shareholders are assumed to be affiliates. This determination of affiliate status is not necessarily
a conclusive determination for any other purpose.
As of September 5, 2019, there were 274,465,126 shares of common
stock, par value $0.001 issued and outstanding.
In this annual report, references to “SmartMetric,
Inc.,” “SmartMetric,” “SMME,” “the Company,” “we,” “us” and “our”
refers 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 Annual Report on Form 10-K 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 Annual Report on Form 10-K. Additionally, statements concerning future matters are forward-looking statements.
Although forward-looking statements in
this Annual Report on Form 10-K 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 not a 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:
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 Annual
Report on Form 10-K, except as required by federal securities laws. Readers are urged to carefully review and consider the various
disclosures made throughout the entirety of this Annual 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.
PART I
Corporate History and Overview
SmartMetric, Inc. (“SmartMetric” or the “Company”) was incorporated pursuant to
the laws of Nevada on December 18, 2002. SmartMetric is a development stage company engaged in the technology industry. SmartMetric’s
main products are a fingerprint sensor debit card as
well as a 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 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”). Servired operates the major payments network
in Spain for credit and debit card transactions. Subsequently, the Servired agreement has been transferred and assumed in total
by RedSys, SA. (“RedSys”) as part of a corporate reorganization. RedSys is now the corporate entity that owns the
ADVANTIS (discussed later) credit card and debit card chip and operating software system. Regarding integration of Advantis in
Redsys, Redsys acquired from Servired, through company succession, the independent economic marketing unit of the Advantis System
and the Pricenet, SIS and SAS family programs.
The ADVANTIS EMV Chip and operating system
is currently being used by banks around the world on their debit and credit cards. 1.4 Billion cards with the ADVANTIS chip and
software operating system have been issued by their member banks worldwide.
SmartMetric is now in the process of manufacturing
its biometric credit/debit card with the ADVANTIS payments card chip and operating system. This will allow over 500 Banks worldwide,
who are already using the ADVANTIS chip and chip card operating system, to seamlessly issue this new SmartMetric – 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 to
the biometric card.
In Card Fingerprint Matching and Verification
The SmartMetric Biometric card incorporates
a rechargeable, lithium polymer battery. This battery is rechargeable, very thin and has been designed by SmartMetric to fit inside
the SmartMetric fingerprint credit card sized card. This battery is manufactured by a third party unaffiliated with the Company
to SmartMetric’s specifications. This battery is embedded inside the card.
Other components needed for manufacture
of the SmartMetric Biometric Card include, but are not limited to, sensors, microchips, memory chips and processor chips. The ultra-thin
circuit board developed by SmartMetric has, in total, nearly 200 active and passive components. The sources and availability of
these materials are numerous, readily available and should not affect the ability of SmartMetric to meet future demand. The supply
of memory processors and passive components may be interrupted at any time based on global supply/demand issues. We have not experienced
component supply issues to date and the Company, as a matter of policy, has alternative component sources to mitigate and protect
against supply chain issues.
The biometric card has been designed to
offer the option of a built-in radio frequency transmitter for contactless access and identity verification. The RFID contactless
chip transmission is turned on using the card users fingerprint verification.
The thinness form factor of many of the
components, has also resulted in the Company having to develop its own process for high volume electronic assembly. The Company
has also successfully overcome the challenge of developing a process of encapsulating the electronics in plastic to create the
credit card sized biometric fingerprint activated card that also has an internal rechargeable battery.
Standard credit card manufacturing utilizes
machines that require high pressure and high temperature in fusing top and bottom sheets of plastic together thereby encasing any
electronics inside the card. Given the complexity of the card’s electronics and vulnerability to an assembly process involving
high heat and high pressure, damage to the electronic circuitry was a major challenge for the Company to overcome. Research and
development activities of the Company allowed the Company to achieve this ability through a trade secret process that protects
the silicon and internal battery that is mounted directly onto the card’s internal electronics circuit board.
The Security Technology Industry
SmartMetric Biometric Multi-Function Security Card
SmartMetric has developed a multi-function
logical and physical access security card this size and thickness of a standard credit card. Utilizing the small size breakthroughs
by the Company in its biometric payments card development, SmartMetric has successfully developed a biometric security card that
can easily fit inside a person’s wallet.
As with the biometric payments card, the SmartMetric security
card has an internal rechargeable battery that is used to power the card’s internal processor used in the biometric fingerprint
scan. All functions and operations of the card are subject to a valid fingerprint scan and match of the card user.
The main features of the SmartMetric biometric security card
are:
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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
On January 14, 2019,
the Company filed a Certificate of Designation with the Secretary of State of the State of Nevada (the “Certificate of Designation”),
which established 1,000,000 shares of Series C Convertible Preferred Stock (the “Series C Preferred Stock”), par value
$0.001 per share, having such designations, rights and preferences as set forth in the Certificate of Designation, as determined
by the Company’s Board of Directors in its sole discretion, in accordance with the Company’s Certificate of Incorporation
and Bylaws. The Certificate of Designation became effective with the State of Nevada upon filing.
The shares of Series
C Preferred Stock have a stated value of $1.00 per share, are convertible into Common Stock at a price per share equal to 71% of
the average of the lowest two (2) closing prices of the Common Stock during the fifteen (15) Trading Day (as defined in the Certificate
of Designation) period ending on the last complete Trading Day prior to the Conversion Date (as defined in the Certificate of Designation)
(the “Conversion Price”), and earn dividends at the rate of 10% per annum. Upon an Event of Default (as defined in
the Certificate of Designation), the Series C Preferred Stock earn dividends at the rate of 22% per annum.
The shares of Series
C Preferred Stock do not have voting rights, and rank: (a) senior with respect to dividend rights and rights of liquidation with
the Common Stock; (b) junior with respect to dividends and right of liquidation with respect to the Company’s Series B Preferred
Stock; and (c) junior with respect to dividends and right of liquidation to all existing indebtedness of the Company.
The Company may redeem
the Series C Preferred Stock in accordance with the terms of the Certificate of Designation prior to the one hundred eightieth
(180th) day following the date of issuance of the Series C Preferred Stock.
The
Company sold: (i) 70,000 shares of Series C Preferred Stock on January 15, 2019 for gross proceeds of $63,000; (ii) 51,700 shares
of Series C Preferred Stock on June 14, 2019 for gross proceeds of $47,000; and (iii) 52,800 shares of Series C Preferred Stock
on August 27, 2019 for gross proceeds of $48,000.
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
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, 2019, we
have raised approximately $26,000,000 million through the sale of our securities. During this same period, we have recorded an
accumulated deficit of approximately $26,933,463 million. Our net losses for the two most recent fiscal years ended June 30, 2019,
and 2018 were $936,551 and $1,641,788, 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, 2019 and
2018, we incurred a net loss of $936,551 and $1,641,788, 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, 2019.
Since our inception, we have funded our
operations primarily through the sale of our securities. Our cash and cash equivalents balance at June 30, 2019 was $10,161. Based
on our current expected level of operating expenditures, we expect to only be able to fund our operations through the first quarter
(ending September 30, 2020) of fiscal year ending June 30, 2021, at which time we will need additional capital. Our ability to
continue as a going concern is wholly dependent upon obtaining sufficient capital to fund our operations. We have no committed
sources of additional capital and our access to capital funding is always uncertain. Accordingly, despite our ability to secure
capital in the past, we cannot assure you that we will be able to secure additional capital through financing transactions, including
issuance of debt, or through other means. In the event that we are not able to secure additional funding, we may be forced to curtail
operations, delay or stop ongoing clinical trials, cease operations altogether or file for bankruptcy.
Our auditors have expressed substantial
doubt about our ability to continue as a going concern.
Our auditors’ report on our June
30, 2019 financial statements expressed an opinion that our capital resources as of the date of their audit report were not sufficient
to sustain operations or complete our planned activities for the upcoming year unless we raised additional funds. Our current
cash level raises substantial doubt about our ability to continue as a going concern past September 30, 2020. If we do not obtain
additional funds by such time, we may no longer be able to continue as a going concern and will cease operation which means that
our shareholders will lose their entire investment.
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, 2019, we owe Chaya
Hendrick, our CEO, $790,015 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 $790,015 in
salary owed to Chaya Hendrick pursuant to Chaya Hendrick’s employment agreement outstanding with us as of June 30, 2019.
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 back salaries and future salary owed. Additionally,
as of July 1, 2017, all prior and future deferred salary owed will bear interest at a rate of 7% per annum. In the event Chaya
Hendrick terminates employment for lack of payment, the Company believes such loss would cause irreparable harm to our product
development and would materially harm our business prospects. Additionally, there can be no assurances that Chaya would not attempt
to foreclose on our assets in order to satisfy such debt obligations.
Risks Relating to our Stage of Development
and Business
Our potential competitors have significantly
greater resources than we have, which may make competing difficult.
We compete against numerous companies,
many of which have substantially greater resources than we have. Several such competitors have large teams of engineers and scientists
that attempt to develop products and technologies similar to ours. Companies such as Gemalto, Giesecke & Devrient, IDEMIA,
as well as others, have substantially greater financial, research, manufacturing and marketing resources than we do. As a result,
such competitors may find it easier to compete in our industry and bring competing products to market.
Our business depends upon our ability
to keep pace with the latest technological changes, and our failure to do so could make us less competitive in our industry.
The market for our services is characterized
by rapid change and technological improvements. Failure to respond in a timely and cost-effective way to these technological developments
may result in serious harm to our business and operating results. As a result, our success will depend, in part, on our ability
to develop and market service offerings that respond in a timely manner to the technological advances of available to our customers,
evolving industry standards and changing preferences.
Our key personnel and directors are
critical to our business, and such key personnel may not remain with our company in the future.
We depend on the continued employment of
our President and CEO, Chaya Henrick and technical contracted personnel. If any of these key personnel were to leave and not be
replaced with sufficiently qualified and experienced personnel, our business could be adversely affected. In particular, our current
strategy to penetrate the market for contactless logical access identification and transaction solutions is heavily dependent on
the vision, leadership and experience of our President and CEO, Chaya Hendrick.
Our continued success will depend, to a
significant extent, upon the performance and contributions of Chaya Henrick and upon our ability to attract motivate and retain
highly qualified management personnel and employees. We depend on Chaya Henrick to effectively manage our business in a highly
competitive environment. If one or more of our key officers join a competitor or form a competing company, we may experience interruptions
in product development, delays in bringing products to market, difficulties in our relationships with customers and loss of additional
personnel, which could significantly harm our business, financial condition, operating results and projected growth.
We currently employ a part-time Chief
Financial Officer, Mr. Jay Needelman, who is also a member of the Company’s Board of Directors. The loss of services of
any of our key management personnel, whether through resignation or other causes, the reduced services of our part-time Chief
Financial Officer, or the inability to attract qualified personnel as needed, could prevent us from adequately executing our business
strategy.
Rapid technological changes could
make our services or products less attractive.
The smart card, biometric identification
and personal identification industries are characterized by rapid technological change, frequent new product innovations, changes
in customer requirements and expectations and evolving industry standards. If we are unable to keep pace with these changes, our
business may be harmed. Products using new technologies, or emerging industry standards, could make our technologies less attractive.
If addition, we may face unforeseen problems when developing our products, which could harm our business. Furthermore, our competitors
may have access to technologies not available to us, which may enable them to produce products of greater interest to consumers
or at a more competitive cost.
Sales of our products depend on the
development of emerging applications in their target markets and on diversifying and expanding our customer base in new markets
and geographic regions, all of which may be financially burdensome or unsuccessful.
Our intent is to market and sell our products
primarily to the private sector while addressing emerging applications that have not yet reached a stage of mass adoption or deployment.
The market for some of these solutions (electronic biometric fingerprinting) is at an early stage of deployment in the private
sector compared to other forms of services that try to identify a person through simpler means (by their name, social security
number, etc.) Additionally, we have a strategy of expanding sales of existing products into new geographic markets. Our target
market initially will be South America and Australia. In the event that we are unable to adequately develop our applications or
gain traction in these emerging markets, or that the cost of the foregoing is too great, our business may be harmed.
Continuing disruption in the global
financial markets may adversely impact customers and customer spending patterns.
Continuing disruption in the global financial
markets as a result of the ongoing global financial uncertainty may cause consumers, businesses and governments to defer purchases
in response to tighter credit, decreased cash availability and declining consumer confidence. Accordingly, demand for our products
could decrease and differ materially from their current expectations. Further, some of our customers may require substantial financing
in order to fund their operations and make purchases from us. The inability of these customers to obtain sufficient credit to finance
purchases of our products and meet their payment obligations to us or possible insolvencies of our customers could result in decreased
customer demand, an impaired ability for us to collect on outstanding accounts receivable, significant delays in accounts receivable
payments, and significant write-offs of accounts receivable, each of which could adversely impact our financial results.
Risks Related to Our Intellectual Property
If we are not able to adequately protect our intellectual
property, we may not be able to compete effectively.
Our ability to compete depends in part
upon the strength of our proprietary rights in our technologies, brands and content. The efforts we have taken to protect our intellectual
property and proprietary rights may not be sufficient or effective at stopping unauthorized use of our intellectual property and
proprietary rights. In addition, effective trademark, patent, copyright and trade secret protection may not be available or cost-effective
in every country in which our products are made available. There may be instances where we are not able to fully protect or utilize
our intellectual property in a manner that maximizes competitive advantage. If we are unable to protect our intellectual property
and proprietary rights from unauthorized use, the value of our products may be reduced, which could negatively impact our business.
Our inability to obtain appropriate protections for our intellectual property may also allow competitors to enter our markets and
produce or sell the same or similar products. In addition, protecting our intellectual property and other proprietary rights is
expensive and diverts critical managerial resources. If any of the foregoing were to occur, or if we are otherwise unable to protect
our intellectual property and proprietary rights, our business and financial results could be adversely affected. If we are forced
to resort to legal proceedings to enforce our intellectual property rights, the proceedings could be burdensome and expensive.
In addition, our proprietary rights could be at risk if we are unsuccessful in, or cannot afford to pursue, those proceedings.
We may incur substantial costs as
a result of litigation or other proceedings relating to patent and other intellectual property rights and we may be unable to protect
our rights to, or use of, our technology.
Some or all of our patent applications
may not issue as patents, or the claims of any issued patents may not afford meaningful protection for our technologies or products.
In addition, patents issued to us or our licensors, if any, may be challenged and subsequently narrowed, invalidated or circumvented.
Patent litigation is widespread in our industry and could harm our business. Litigation might be necessary to protect our patent
position or to determine the scope and validity of third-party proprietary rights. If we choose to go to court to stop someone
else from using the inventions claimed in our patents, that individual or company would have the right to ask the court to rule
that such patents are invalid and/or should not be enforced against that third party. These lawsuits are costly and we may not
have the required resources to pursue such litigation or to protect our patent rights. In addition, there is a risk that the court
might decide that these patents are not valid and that we do not have the right to stop the other party from using the inventions.
There is also the risk that, even if the validity of these patents is upheld, the court could refuse to stop the other party on
the grounds that such other party’s activities do not infringe on our rights contained in these patents.
Furthermore, a third party may claim that
we are using inventions covered by their patent rights and may go to court to stop us from engaging in our normal operations and
activities, including making or selling our product candidates. These lawsuits are costly and could materially increase our operating
expenses and divert the attention of managerial and technical personnel. There is a risk that a court would decide that we are
infringing the third party’s patents and would order us to stop the activities covered by the patents. In addition, there
is a risk that a court would order us to pay the other party damages for having violated the other party’s patents. It is
not always clear to industry participants, including us, which patents cover various types of products or methods of use. The coverage
of patents is subject to interpretation by the courts, and the interpretation is not always uniform.
Because some patent applications in the
United States may be maintained in secrecy until the patents are issued, patent applications in the United States and many foreign
jurisdictions are typically not published until eighteen months after filing, and publications in the scientific literature often
lag behind actual discoveries, we cannot be certain that others have not filed patent applications for technology covered by our
issued patents or that we were the first to invent the technology. Our competitors may have filed, and may in the future file,
patent applications covering technology similar to ours. Any such patent application may have priority over our patent applications
and could further require us to obtain rights to issued patents covering such technologies.
If another party has filed a United States
patent application on inventions similar to ours, we may have to participate in an interference or other proceeding in the U.S.
Patent and Trademark Office, or the PTO, or a court to determine priority of invention in the United States. The costs of these
proceedings could be substantial, and it is possible that such efforts would be unsuccessful, resulting in a loss of our United
States patent position with respect to such inventions.
Some of our competitors may be able to
sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources.
In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect
on our ability to raise the capital necessary to continue our operations.
Risks Relating to Market Approval and
Government Regulations
Compliance with regulation of corporate
governance and public disclosure diverts time and attention away from revenue generating activities.
Our management team invests significant
time and financial resources to comply with existing standards for public companies, which has lead to management time and attention
from developing our business to compliance activities which could have an adverse effect on our business.
Our technology relies on our ability
to gain the acceptance and approval of large banking / credit card institutions, the failure to do so may materially harm our business.
In the event that our SmartMetric Biometric
Card does not gain acceptance/approval amongst the large card issuing institutions in the United States and abroad, our cards will
not be provided for use to customers. We currently have no plans to open our own bank/credit card issuing institution and accordingly,
we plan to rely on our ability to have our products accepted within the banking/credit card industries. Our failure to do so will
have a material impact on our ability to generate revenues and continue to operate our business.
Risks Relating to the Development and
Manufacturing of Our Products
We currently rely on third party
manufacturers and suppliers for certain components of our product; with such parties being, to some extent, outside of our control.
We currently have limited internal manufacturing
capability and intend to rely on third party contract manufacturers or suppliers for the foreseeable future. Accordingly, factors
outside of our control may result in material manufacturing delays and product shortages, which could delay or otherwise negatively
impact our manufacturing and product development plans. Should we be forced to manufacture our proposed products, we cannot give
any assurance that we would be able to develop internal manufacturing capabilities. In the event that we seek third party suppliers
or alternative manufacturers, they may require us to purchase a minimum amount of materials or could require other unfavorable
terms. Any such event could materially impact our business prospects and could delay the development and manufacturing of our products.
Moreover, we cannot give any assurance that the contract manufacturers or suppliers that we select will be able to supply our products
in a timely or cost-effective manner or in accordance with our specifications.
We have a limited number of suppliers
of key components and may experience difficulties in obtaining components for which there is significant demand, which would materially
impact our business prospects.
We rely upon a limited number of suppliers
for some key components of our products. Our reliance on a limited number of suppliers may expose us to various risks including,
without limitation, an inadequate supply of components, price increases, late deliveries and poor component quality. In addition,
some of the basic components we use in our products, such as biometric fingerprint devices and various smart card technologies
may at any time be in great demand. This could result in components not being available to us in a timely manner or at all, particularly
if larger companies have ordered more significant volumes of those components, or in higher prices being charged for components.
Disruption or termination of the supply of components or software used in our products could delay shipments of these products.
The following delays/factors from our third-party suppliers could have a material adverse effect on our business and operating
results and could also damage relationships with current and prospective customers:
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Difficulties in staffing;
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Adequate resources of qualified technicians, engineers/assemblers, and programmers;
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Potentially 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 and economic instability; and
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Late delivery of our products.
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We utilize third party manufacturing
plants for silicon for the manufacturing our products, which, in the event of growth would need to use large quantities of silicon,
for which raw material shortages may occur.
While we currently use silicon in our products,
and no shortage currently exists of these materials, there can be no assurances that there will not be a shortage in the future,
which may materially impact our manufacturing capabilities, growth prospects, and ability to generate revenue in the future.
Risks Related to our Securities
Our board of directors has broad
discretion to issue additional securities.
We
are authorized under our certificate of incorporation to issue up to 305,000,000 shares consisting of 300,000,000 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 June 30, 2019, we have
issued and outstanding 264,648,821 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 121,700 shares of shares of Series C Convertible Preferred
Stock that are convertible into 16,901,408 shares of common stock. Additionally, we have 26,526,234 shares of common stock reserved
upon the exercise of outstanding purchase warrants. Accordingly, as of June 30, 2019 we are entitled to issue up to 8,824,945
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, 2019 based on the framework set
forth in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
In connection with the assessment described above, management identified control deficiencies that represented a material weakness
at June 30, 2019. 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.
Item 1B.
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Unresolved Staff Comments.
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Not Applicable.
Our principal office is located at 3960
Howard Hughes Parkway, Suite 500, Las Vegas, Nevada 89109. We currently lease this property at a rate of approximately $1,100 per
month. We believe that our existing office facility is adequate for our current needs and that additional space will be available
if, and when needed.
Item 3.
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Legal Proceedings.
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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 Annual 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.
Item 4.
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Mine Safety Disclosures.
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Not Applicable
PART II
Item 5.
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Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
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Market Information
As of June 30, 2019, 264,648,821 shares
of our common stock were issued and outstanding.
Holders
As of June 30, 2019, the Company had 1,100
shareholders of record of our common stock, including the shares held in street name by brokerage firms.
Dividend Policy
During fiscal year ended June 30, 2019,
the Company declared preferred stock dividends of $7,401 and accrued preferred stock dividends payable of $3,123. We currently
intend to retain all of our future earnings, if any, to finance the operation and expansion of our business. Any future determination
relating to our dividend policy will be made at the discretion of our board of directors and will depend on a number of factors,
including future earnings, capital requirements, financial conditions, future prospects, contractual restrictions and covenants,
applicable law and other factors that our board of directors may deem relevant. If we do not pay dividends, a return on your investment
will occur only if the market price of our common stock appreciates.
Transfer Agent
The transfer agent for our common stock
is Worldwide Stock Transfer, LLC, One University Plaza, Suite 505, Hackensack, NJ 07601.
Rule 10B-18 Transactions
During the fiscal year ended June 30, 2019,
there were no repurchases of the Company’s common stock by the Company.
Recent Sales of Unregistered Securities
During the years ended June 30, 2019 and
2018, we issued securities that were not registered under the Securities Act. Except where noted, all of the securities discussed
in this Item 5 were issued in reliance on the exemption under Section 4(a)(2) of the Securities Act.
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During the three months ended September 30, 2017,
the Company sold for cash 2,500,000 shares of common stock and warrants to purchase: (i) 1,437,500 shares at $0.70 and $0.20 per
share and (ii) 724,500 shares at $1.00 and $0.50 per share, for net proceeds of $114,625. The warrants expire at various times
through September 28, 2019. During the three months ended September 30, 2017, 300,000 shares
were issued and 2,200,000 shares were accrued as stock payable.
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During the three months ended September 30, 2017,
the Company issued 362,864 shares of common stock for consulting services valued at $21,825, based on the stock price at the time
of the respective agreements underlying the services provided. All 362,864 shares were accrued to stock payable.
|
|
●
|
During the three months ended December 31, 2017, the
Company sold for cash 8,319,000 shares of common stock and warrants to purchase: (i) 3,250,000 shares at $0.20 per share and (ii)
1,638,000 shares at $0.50 per share, for net proceeds of $259,362. The warrants expire at various times through December 29, 2019.
During the three months ended December 31, 2017, 5,120,000 were issued and 3,199,000 shares were accrued to stock payable.
|
|
●
|
During the three months ended December 31, 2017, the
Company issued 212,164 shares of common stock for consulting services valued at $15,000, based on the stock price at the time
of the respective agreements underlying the services provided. These shares were issued on November 8, 2017.
|
|
●
|
During the three months ended March 31, 2018, the
Company sold for cash 2,850,000 shares of common stock and warrants to purchase: (i) 2,051,250 shares at $0.70 per share and (ii)
929,250 shares at $1.00 per share, for net proceeds of $142,305. The warrants expire at various times through February 21, 2020.
None of the 2,850,000 shares were issued as of March 31, 2018.
|
|
●
|
During the three months ended March 31, 2018, the
Company issued 508,620 shares of common stock for consulting services valued at $30,000, based on the stock price at the time
of the respective agreements underlying the services provided. These shares were issued on February 26, 2018.
|
|
●
|
During the three months ended June 30, 2018, the Company
sold for cash 2,646,100 shares of common stock and warrants to purchase: (i) 1,536,625 shares at $0.70 per share and (ii) 774,459
shares at $1.00 per share, for net proceeds of $119,738. The warrants expire at various times through June 15, 2020. During the
three months ended June 30, 2018, 1,937,500 of these shares were issued and 708,600 shares were accrued to stock payable.
|
|
●
|
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 September 30, 2018, 3,061,659 of these shares were issued
and 1,562,494 shares were accrued to stock payable.
|
|
●
|
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 December 31, 2018, 250,000 shares were issued and 4,962,499 shares were accrued
to stock payable.
|
|
●
|
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. During the three months ended March 31, 2019, none of the 7,541,663
were issued and all 7,541,663 shares were accrued to stock payable.
|
|
●
|
During the three months ended June 30, 2019, the Company
sold for cash 1,740,000 shares of common stock and warrants to purchase: (i) 1,740,000 shares at a price of $0.25 per share for
net proceeds of $86,934. The warrants expire at various times through June 10, 2021. None of these shares were issued during the
quarter ended June 30, 2019. During the three months ended June 30, 2019, none of the 1,740,000 shares were issued and all 1,740,000
shares were accrued to stock payable.
|
Item 6.
|
Selected Financial Data
|
Not Applicable as we are a smaller reporting company.
Item 7.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
Our Management’s Discussion and Analysis
of Financial Condition and Results of Operations (“MD&A”) is provided in addition to the accompanying financial
statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows. MD&A
is organized as follows:
|
●
|
Company Overview - Discussion of our business plan and strategy in order to provide context for the remainder of MD&A.
|
|
●
|
Critical Accounting Policies - Accounting policies that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results and forecasts.
|
|
●
|
Results of Operations - Analysis of our financial results comparing the year ended June 30, 2019 and June 30, 2018.
|
|
●
|
Liquidity and Capital Resources - Liquidity discussion of our financial condition and potential sources of liquidity.
|
Company Overview
Business
SmartMetric, Inc. was incorporated pursuant
to the laws of Nevada on December 18, 2002. “SmartMetric is a development stage company engaged in the technology industry.
SmartMetric’s main products are a fingerprint sensor activated payments card and 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.”
To date, we have devoted a substantially
all of our efforts and financial resources to the development of our SmartMetric Card. Since our inception in 2002, we have generated
no revenue from product sales and have funded our operations principally through the private sales of our equity securities. We
have never been profitable and, as of June 30, 2019, we had an accumulated deficit of approximately $26,933,463. We expect to continue
to incur significant operating losses for the foreseeable future as we continue the development of our technologies and advance
them to market.
Our cash and cash equivalents balance at
June 30, 2019 was approximately $10,161, representing 37.6% of total assets. Notwithstanding our recent capital raises, based on
our current expected level of operating expenditures, we expect to be able to fund our operations into the quarter beginning January
1, 2020. This period could be shortened if there are any significant increases in spending that were not anticipated or other unforeseen
events.
We anticipate raising additional cash through
the private or public sales of equity or debt securities to continue to fund our operations and the development of our technologies.
There is no assurance that financing will be available to us when needed in order to allow us to continue our operations, or if
available, on terms acceptable to us. If we do not raise sufficient funds in a timely manner, we may be forced to curtail operations,
delay or stop our ongoing clinical trials, cease operations altogether, or file for bankruptcy. We currently do not have commitments
for future funding from any source.
Going Concern
As shown in the accompanying consolidated
financial statements the Company has incurred recurring losses of $936,551 and $1,641,788 for the years ended June 30, 2019 and
2018, respectively, and has incurred a cumulative loss of $26,933,463 since inception (December 18, 2002). The Company
is currently in the development stage and has spent a substantial portion of its time in the development of its technology.
There is no guarantee that the Company
will be able to raise enough capital or generate revenues to sustain its operations. These conditions raise substantial
doubt about the Company’s ability to continue as a going concern.
Management believes that the Company’s
capital requirements will depend on many factors. These factors include the final phase of development and mass production
being successful as well as product implementation and distribution.
The consolidated financial statements do
not include any adjustments relating to the carrying amounts of recorded assets or the carrying amounts and classification of recorded
liabilities that may be required should the Company be unable to continue as a going concern.
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 our significant accounting policies
are discussed in Note 2, Summary of Significant Accounting Policies, to our financial statements, included elsewhere in this annual
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:
Earnings
Per Share - 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.
Patent Impairment - When the carrying
balance of the Company’s patent is more than what it could be sold for on the open market and/or is not recoverable through
future use, the Company decreases its value. In determining whether the carrying value is not recoverable, the Company estimates
the sum of the expected cash flows from the use of the patent or its possible sale. If the results in an amount less that the patent’s
value on the financial statements, the Company will deem the patent’s carrying value on the balance sheet to be impaired
by the amount that the carrying value exceeds the fair market value of the asset. The decrease in the patent’s value will
then be included as a loss in the Company’s profit and loss statement. The Company recorded no loss from patent impairment
during the period ended June 30, 2019. During the year ended June 30, 2018, the Company recorded a loss of $600,000 related to
the patent impairment
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 –
The Company considers all highly liquid debt instruments and other short-term investments with an initial maturity of three
months or less to be cash equivalents. Any amounts of cash in financial institutions which exceed FDIC insured limits exposes the
Company to cash concentration risk. The Company had no cash equivalents at June 30, 2019 and 2018.
Research and Development
Costs - Research and development costs are charged to expense as incurred. Our research and development expenses consist
primarily of expenditures for toxicology and other studies, manufacturing, clinical trials, compensation and consulting costs.
Result of Operations
Year Ended June 30, 2019 Compared to the Year Ended June
30, 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 during the years ending
June 30, 2019 and 2018. We do not anticipate generating any revenues during the year ending June 30, 2020. Net loss for the years
ended June 30, 2019 and 2018 were $936,551 and $1,641,788, respectively, resulting from the operational activities described below.
Operating Expenses
Operating expense totaled $875,718 and
$1,002,704 during the years ended June 30, 2019 and 2018, respectively. The decrease in operating expenses is the result
of the following factors.
|
|
Year Ended
June 30,
|
|
|
Change in 2019
Versus 2018
|
|
|
|
2019
|
|
|
2018
|
|
|
$
|
|
|
%
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
107,962
|
|
|
$
|
129,375
|
|
|
$
|
(21,413
|
)
|
|
|
(16.6
|
)%
|
General and administrative
|
|
|
577,756
|
|
|
|
683,329
|
|
|
|
(105,573
|
)
|
|
|
(15.4
|
)%
|
Officer salary
|
|
|
190,000
|
|
|
|
190,000
|
|
|
|
—
|
|
|
|
(0
|
)%
|
Total operating expense
|
|
$
|
875,718
|
|
|
$
|
1,002,704
|
|
|
$
|
(126,986
|
)
|
|
|
(12.7
|
)%
|
Research and Development
Research and development expenses totaled
$107,962 and $129,375 for the years ended June 30, 2019 and 2018, respectively. The decrease of $21,143, or 16.6%, in 2019 compared
to 2018 was primarily attributable to a decrease in engineering costs.
Our research and development expenses consist
primarily of expenditures related to engineering.
General and Administrative
General and administrative expenses totaled
$577,756 and $683,329 for the years ended June 30, 2019 and 2018, respectively. The decrease of $105,573 or 15.4%, 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.
Officer salary totaled $190,000 for the
years ended June 30, 2019 and 2018, respectively.
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 approximately $26.9 million as of June 30, 2019 and anticipate that we will continue to incur additional
losses for the foreseeable future. Through June 30, 2019, we have funded our operations through the private sale of our equity
securities and exercise of options and warrants, resulting in gross proceeds of approximately $26 million. Cash and cash equivalents
at June 30, 2019 were $10,161.
We are actively seeking sources of financing
to fund our continued operations and research and development programs. To raise additional capital, we may sell shares of equity
or debt securities. There can be no assurance that we will be able to complete any financing transaction in a timely manner or
on acceptable terms or otherwise. If we are not able to raise additional cash, we may be forced to further delay, curtail, or cease
development of our product candidates, or cease operations altogether.
|
|
Year Ended
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
Cash at beginning of period
|
|
$
|
4,427
|
|
|
$
|
51,695
|
|
Net cash used in operating activities
|
|
|
(588,930
|
)
|
|
|
(637,997
|
)
|
Net cash used in investing activities
|
|
|
—
|
|
|
|
—
|
|
Net cash provided by financing activities
|
|
|
594,664
|
|
|
|
590,729
|
|
Cash at end of period
|
|
$
|
10,161
|
|
|
$
|
4,427
|
|
Net Cash Used in Operating Activities
Net cash used in operating activities was
$587,265 and $637,997 for the years ended June 30, 2019 and 2018, respectively. The decrease of $50,737 in cash used during 2019
compared to 2018 was primarily attributable to lower consulting and legal expenses.
Net Cash Used in Investing Activities
Cash used in investing activities was $0
and $0 for years ended June 30, 2019 and 2018, respectively.
Net Cash Provided by Financing Activities
During the year ended June 30, 2019, we
received net proceeds of $592,999 from the sales of our securities, compared to $590,729 for the year ended June 30, 2018. The
increase was due to slightly increased private placement sales. We are actively seeking sources of financing to fund our continued
operations and research and development programs.
Item 7A.
|
Quantitative and Qualitative Disclosures About Market Risk.
|
Not Applicable.
Item 8.
|
Financial Statements and Supplementary Data.
|
Our audited consolidated financial statements
for the fiscal years ended June 30, 2019 and 2018, together with the reports of the independent registered public accounting firms
thereon and the notes thereto, are presented beginning at page F-1.
Item 9.
|
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
|
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.
Item 9A.
|
Controls and Procedures
|
Evaluation of Disclosure Controls
and Procedures
We maintain disclosure
controls and procedures that are designed to ensure that information required to be disclosed in our reports, filed under the Securities
Exchange Act of 1934, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules
and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and
chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the
disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated,
can provide only reasonable and not absolute assurance of achieving the desired control objectives. In reaching a reasonable level
of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible
controls and procedures. In addition, the design of any system of controls 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. Over time, a control may become inadequate because of changes in conditions or the degree of compliance
with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements
due to error or fraud may occur and not be detected.
As required by the
SEC Rules 13a-15(b) and 15d-15(b), we carried out an evaluation under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of
our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our principal
executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective at the
reasonable assurance level due to the material weaknesses described below.
Management’s Annual Report
on Internal Control Over Financial Reporting
The management of the
Company is responsible for establishing and maintaining adequate internal control over financial reporting (“ICFR”)
for the Company. Our internal control system was designed to, in general, provide reasonable assurance to the Company’s
management and board regarding the preparation and fair presentation of published financial statements, but because of its inherent
limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed
the effectiveness of the Company’s internal control over financial reporting as of June 30, 2019. The framework used by management
in making that assessment was the criteria set forth in the document entitled “2013 Internal Control – Integrated Framework”
issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that assessment, management concluded
that, during the period covered by this report, such internal controls and procedures were not effective as of June 30, 2019 and
that material weaknesses in ICFR existed as more fully described below.
A material weakness
is a deficiency, or a combination of deficiencies, within the meaning of Public Company Accounting Oversight Board (“PCAOB”)
Auditing Standard AS 2201, in internal control over financial reporting, such that there is a reasonable possibility that a material
misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
Management has identified the material weaknesses described below which have caused management to conclude that as of June 30,
2019 our internal controls over financial reporting were not effective at the reasonable assurance level.
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 ICFR was not effective and that there are material weaknesses as identified herein, we believe that our consolidated
financial statements contained in this Annual Report fairly present our financial position, results of operations and cash flows
for the years covered thereby in all material respects.
This Annual Report
does not include an attestation report of the Company’s registered public accounting firm regarding internal control over
financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting
firm as we are a smaller reporting company and are not required to provide the report.
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 fiscal year ended June 30, 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
Item 9B.
|
Other Information
|
PART III
Item 10.
|
Directors, Executive Officers and Corporate Governance
|
The following table sets forth the names
and ages of the members of our Board of Directors and our executive officers and the positions held by each. Each member
of the Board of Directors serves for a term of one year, or until his or her successor has been duly elected and has been qualified.
Each of our officers serve until they are replaced by the Board of Directors.
Name
|
|
Age
|
|
Position with the Company
|
Chaya Hendrick
|
|
63
|
|
President, Chief Executive Officer and Chairman of the Board
|
Jay M. Needelman, CPA
|
|
51
|
|
Chief Financial Officer, Director
|
Elizabeth Ryba
|
|
68
|
|
Director
|
CHAYA HENDRICK has been President,
Chief Executive Officer and Chairman of the Board of Directors of SmartMetric since the Company’s inception in 2002. C.
Hendrick has served as President and CEO of Smart Micro Chip, Inc., an Australian corporation from 2000 to 2002. From 1999 to
2001, C. Hendrick was President and Chief Executive Officer of Smarticom Inc. and FastEcom, Inc., Australian corporations. From
1994 to 1998, C. Hendrick served as executive officer of Applied Computing Science (Australia), an Australian company involved
in e-commerce systems, research and development. Ms. Hendrick founded Asset Developments a property development company that created
and sold regional residential land subdivisions. The last being a 1,000-acre subdivision named Claire Valley Estates in the Canberra
region of Australia. All of the property development projects were funded by C. Hendrick and were financially profitable. C. Hendrick
attended Dandenong College in Australia.
We believe Ms. Hendrick is qualified to
serve on our Board due to her extensive experience in technology development and as an executive at technology companies.
JAY M. NEEDELMAN, CPA, has
been the Chief Financial Officer and a director of SmartMetric since 2007. Mr. Needelman has over 20 years of experience in public
accounting. A 1991 graduate of Florida State University in Tallahassee, Fl, Mr. Needelman began his career in public accounting
in Miami, Fl, in 1991. After working for two different firms, Mr. Needelman founded his own firm in late 1992.
We believe Mr. Needelman is qualified to
serve on our Board due to his financial expertise.
ELIZABETH RYBA has been a director
of SmartMetric since April 5, 2006. From 2015 to the present, Ms. Ryba has been Vice President of Marketing at the Design and Decoration
Building in New York, one of the premier destinations for luxury interior design showrooms in the country. From 2006 to 2015, Ms.
Ryba had marketing positions at two luxury home decor brands. Ms. Ryba was a promotion director at Hearst Publishing from 2002
through 2005. Between 2001 and 2004, Ms. Ryba was a consultant at Stratus Rewards Credit Cards where she launched a Visa Luxury
credit card where points were redeemable on private jets. Between 2000 and 2001, Ms. Ryba worked as a Marketing Consultant for
SpaFinder. From 1991 through 1999, Ms. Ryba worked at Master Card where she launched a Smart Card in Australia. Ms. Ryba received
her M.S. in Marketing from the University of Illinois, and her B.A. in English from the State University of New York at Stony Brook.
We believe Ms. Ryba is qualified to serve
on our Board due to her extensive experience in the credit card industry as well as her extensive experience in marketing in the
luxury sector which we believe is a sector to which we may be able to sell our products.
Family Relationships
There are no family relationships among
officers or directors of the Company.
Committees of the Board
Our business, property and affairs are
managed by or under the direction of the Board. Members of the Board are kept informed of our business through discussion with
the chief executive and financial officers and other officers, by reviewing materials provided to them and by participating at
meetings of the Board. We have not previously had an audit committee, compensation committee or nominations and governance committee.
Audit Committee
We currently do not have an acting audit
committee, and our Board of Directors currently acts as our audit committee.
Audit Committee Financial Expert
We do not have an audit committee and thus
do not have an audit committee financial expert.
Compensation Committee
We do not presently have a compensation
committee. Our Board currently acts as our compensation committee.
Director Independence
For purposes of determining independence,
we have adopted the definition of “independence” contained in the NASDAQ Market Place Rules. Pursuant to
the definition, the company has determined that Elizabeth Ryba qualifies as independent.
Code of Ethics
The Company has adopted a Code of Ethics
that applies to its Chief Executive Officer and Chief Financial Officer. A copy of the Company’s code of ethics is available
to any person without charge upon written request to the Company at SmartMetric, Inc., 3960 Howard Hughes Parkway, Suite 500, Las
Vegas, NV, 89109. Attn: Secretary.
Compliance with Section 16(a) of the
Securities Act of 1934
Section 16(a) of the Securities Exchange
Act of 1934, as amended, requires our executive officers and directors and persons who own more than 10% of a registered class
of our equity securities to file with the Securities and Exchange Commission initial statements of beneficial ownership, reports
of changes in ownership and annual reports concerning their ownership of our common stock and other equity securities, on Form
3, 4 and 5 respectively. Executive officers, directors and greater than 10% shareholders are required by the Securities and Exchange
Commission regulations to furnish our company with copies of all Section 16(a) reports they file.
Based solely on our review of the copies
of such reports received by us, and on written representations by our officers and directors regarding their compliance with the
applicable reporting requirements under Section 16(a) of the Exchange Act, we believe that, with respect to the fiscal year ended
June 30, 2019, there were no failures to file such forms in a timely fashion.
Involvement in Certain Legal Proceedings
To the best of our
knowledge, none of our directors or executive officers has, during the past ten years:
|
●
|
been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
|
|
●
|
had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two years prior to that time;
|
|
●
|
been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity;
|
|
●
|
been found by a court of competent jurisdiction in a civil action or by the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;
|
|
●
|
been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
|
|
●
|
been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
|
Except as set forth
in our discussion below in “Certain Relationships and Related Transactions, and Director Independence” none of our
directors or executive officers has been involved in any transactions with us or any of our directors, executive officers, affiliates
or associates which are required to be disclosed pursuant to the rules and regulations of the SEC.
Item 11.
|
Executive Compensation
|
Summary Compensation Table
The table below sets forth, for the fiscal
years ended June 30, 2019 and 2018, the compensation earned by each person acting as our Chief Executive Officer and Chief Financial
Officer. The Company’s only employee is our Chief Executive Officer.
Name and Principal Position
|
|
Fiscal
Year Ended
|
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards
($)
|
|
|
Non-equity
Incentive Plan
Compensation
($)
|
|
|
Nonqualified
Deferred
Compensation
Earnings
($)
|
|
|
All Other Compensation
($)
|
|
|
Total
($)
|
|
Chaya Hendrick
(President, Chief Executive Officer,
|
|
|
2019
|
|
|
$
|
63,333
|
(2)
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
$
|
126,667
|
(4)
|
|
$
|
190,000
|
|
Chairman of the Board (1)
|
|
|
2018
|
|
|
$
|
47,500
|
(3)
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
$
|
142,500
|
(5)
|
|
$
|
190,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jay Needelman
(Chief and Principal Financial Officer,
|
|
|
2019
|
|
|
$
|
15,000
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
$
|
15,000
|
|
Director) (6)
|
|
|
2018
|
|
|
$
|
15,000
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
-0-
|
|
|
$
|
15,000
|
|
(1)
|
Chaya Hendrick has been President, Chief Executive Officer and director of the Company since inception. This Summary Compensation Table does not include the issuance of 200,000 shares of Series B Convertible Preferred Stock issued to Ms. Hendrick pursuant to an addendum to the employment agreement entered into on 9/30/2015. Each share of Series B Convertible Preferred Stock is convertible into 50 shares of Common Stock. Chaya Hendrick also has a car allowance in her employment agreement which she has forgone for the years ended June 30, 2019 and 2018.
|
(2)
|
The Company paid Chaya Hendrick $63,333 for the year ended June 30, 2019 out of her total aggregate salary of $190,000, with the remainder being accrued but unpaid. As of June 30, 2019, the Company has accrued $790,015 of unpaid salary, which includes previously accrued but unpaid salary for periods not covered under this Summary Compensation Table.
|
(3)
|
The Company paid Chaya Hendrick $47,500 for the year ended June 30, 2018 out of her total aggregate salary of $190,000, with the remainder being accrued but unpaid. As of June 30, 2018, the Company has accrued $663,348 of unpaid salary, which includes previously accrued but unpaid salary for periods not covered under this Summary Compensation Table.
|
|
|
(4)
|
Includes $126,667 in accrued but unpaid salary for the year end June 30, 2019. As of June 30, 2019, the Company has accrued $790,015 of unpaid salary, which includes previously accrued but unpaid salary for periods not covered under this Summary Compensation Table.
|
|
|
(5)
|
Includes $142,500 in accrued but unpaid salary for the year end June 30, 2018. As of June 30, 2018, the Company has accrued $663,348 of unpaid salary, which includes previously accrued but unpaid salary for periods not covered under this Summary Compensation Table.
|
|
|
(6)
|
Jay Needelman has served as our Chief Financial Officer since 2007. Mr. Needelman receives annual compensation of $15,000 for his services as our Chief Financial Officer.
|
Outstanding Equity Awards at Fiscal Year End
None.
Chaya Hendrick Employment
Previous Employment Agreement
On July 1, 2012, the Company entered into
an employment agreement (the “Prior Agreement”) with Chaya Hendrick, the Company’s Chief Executive Officer that
expired on July 1, 2017. Pursuant to the Prior Agreement, Ms. Hendrick received an annual base salary of $190,000 per year. Ms.
Hendrick was also entitled to receive a management fee equal to $50,000 per year beginning with the Company’s fiscal year
ended June 30, 2012 and each fiscal year thereafter during the term of the Agreement provided that the Company has manufactured
its first product. This fee was to increase by 25% per annum at the conclusion of each calendar year and was based on the continued
manufacturing and sales of products by the Company. As of the end of the term of the Prior Agreement, no compensation was paid
pursuant to this management fee.
Ms. Hendrick was also entitled to participate
in any and all benefit plans, from time to time, in effect for senior management, along with vacation, sick and holiday pay in
accordance with the Company’s policies established and in effect from time to time. The Company also provided Ms. Hendrick
with the use of an automobile of Ms. Hendrick’s choice at a purchase price not to exceed $60,000. Executive’s employment
with the Company was subject to termination at any time, with cause, as such terms are defined in the Prior Agreement.
The Prior Agreement may be terminated on
30 days’ notice by Ms. Hendrick but may only be terminated by the Company for “cause.” In the event that Ms.
Hendrick’s employment was terminated by the Company, the Company was obligated to pay to Ms. Hendrick an amount equal to
$350,000 plus salary remaining on the term of the Prior Agreement.
Addendum to Prior Agreement
On September 30, 2015, the Company and
Ms. Hendrick entered into an Addendum to the Agreement (the “Addendum”) pursuant to which in consideration for the
issuance of 200,000 shares of the Company’s Series B Convertible Preferred Stock, Ms. Hendrick granted the Company the first
right to purchase or license any patents (the “Patent Option”) relating to “Smartcards” which Ms. Hendrick
(i) shall apply for with the relevant patent authorities during the term of the Agreement, and (ii) are currently applied for with
the relevant patent authorities or pending as of the date of the Prior Agreement (the “Patent Rights”). In exchange
for the Patent Option the Company agrees, during the term of the Prior Agreement, to pay for any fees and/or expenses related to
the application for the Ms. Hendrick’s Patent Rights with the relevant patent authorities, including, but not limited to,
legal or filing fees. If, upon the Company’s receipt of notice of any Patent Rights of Ms. Hendrick’s in writing (“Patent
Notification”) the parties fail to successfully negotiate and execute a purchase or license agreement as it relates to the
Patent Right that is the subject of such Patent Notification within 60 calendar days of the receipt of such Patent Notification,
the Ms. Hendrick shall be permitted to retain or transfer the Patent Rights to a third party without any subsequent notice to the
Company.
Amended and Restated Employment Agreement
On July 1, 2017, the Company and Ms. Hendrick
entered into an amended and restated employment agreement (“Agreement”) with a duration of sixty (60) months. Pursuant
to the Agreement, Ms. Hendrick shall receive (i) an annual base salary of $190,000, subject to adjustment at the end of each fiscal
year at the discretion of the board of directors, with a minimum increase of 10% per annum for the duration of the term, (ii) an
incentive management fee equal to $50,000 upon the Company manufacturing its first product, which shall increase by 25% per annum
and based on the continued manufacturing and sales of products by our Company.
Additionally, Ms. Hendrick shall maintain
certain rights to initiate, write, invent and / or create inventions separate from SmartMetric, Inc. and to retain the intellectual
property rights of such patents, inventions or new products.
The Agreement may be terminated on 30 days’
notice by Ms. Hendrick but may only be terminated by the Company for “cause.” In the event that Ms. Hendrick’s
employment is terminated by the Company for such “cause,” the Company is obligated to pay to Ms. Hendrick an amount
equal to $350,000 plus the remaining salary on the term of the Agreement.
Jay Needelman Contract
We currently have an oral agreement with
Jay Needelman, our part-time Chief Financial Officer, whereby we pay Mr. Needelman an annual fee of $15,000 for his services,
payable in quarterly installments of $3,750.
Item 12.
|
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|
The following table sets forth certain
information, as of June 30, 2019, with respect to the beneficial ownership of the outstanding common stock by (i) any holder of
more than five (5%) percent; (ii) each of the Company’s executive officers and directors; and (iii) the Company’s directors
and executive officers as a group. Except as otherwise indicated, each of the stockholders listed below has sole voting and investment
power over the shares beneficially owned.
Amount and Nature of Beneficial Ownership
Title
of Class
|
|
Name and Address of
Beneficial Owner
|
|
Director/Officer
|
|
Number of
Shares
of Common
Stock (1)
|
|
|
Percentage
of Class (1)
|
|
|
|
Directors and Executive Officers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Chaya Hendrick (2)
145 East Harmon Avenue, Unit 19620
Las Vegas, NV 89109
|
|
Chief Executive Officer,
Chairman of the Board of Directors
|
|
|
89,127,778
|
(2)
|
|
|
33.68
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Jay Needelman, CPA
520 West 47th Street
Miami Beach, FL 33140
|
|
Director; Chief Financial Officer
|
|
|
-0-
|
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Elizabeth Ryba
73 Brown Road
Scarsdale, New York 10583
|
|
Director
|
|
|
40,000
|
|
|
|
*
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Executive Officers and Directors as a Group (3 persons)
|
|
|
|
|
89,167,778
|
|
|
|
33.69
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5% Shareholders
|
|
|
|
|
|
|
|
|
|
|
*
|
Less than one percent (1%)
|
|
(1)
|
In determining beneficial ownership of our common stock
as of a given date, the number of shares shown includes shares of common stock which may be acquired on exercise of warrants or
options or conversion of convertible securities within 60 days of that date. In determining the percent of common stock owned
by a person or entity on June 30, 2019, (a) the numerator is the number of shares of the class beneficially owned by such person
or entity, including shares which may be acquired within 60 days on exercise of warrants or options and conversion of convertible
securities, and (b) the denominator is the sum of (i) 264,648,821, the total shares of common stock outstanding on June 30,
2019, and (ii) the total number of shares that the beneficial owner may acquire upon conversion of any preferred stock and on
exercise of the warrants and options. Unless otherwise stated, each beneficial owner has sole power to vote and dispose of its
shares.
|
|
(2)
|
The 89,127,778 shares of common stock include (i) 58,627,778
of Common Stock and; (ii) 610,000 shares of Series B Convertible Preferred Stock convertible into 30,500,000 shares of common
stock held by Applied Cryptography, Inc. (“ACI”) and / or Chaya Hendrick. 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. Our
Chairman and Chief Executive Officer, has sole voting and dispositive power over all of the shares beneficially owned by ACI.
|
Item 13.
|
Certain Relationships and Related Transactions, and Director Independence
|
Information regarding disclosure of an
employment relationship or transaction involving an executive officer and any related compensation solely resulting from that employment
relationship or transaction is incorporated by reference from the section of this Annual Report on Form10-K entitled “Executive
Compensation.”
Information related to “Director
Independence” is incorporated by reference from the section of this this Annual Report on Form10-K entitled “Directors,
Executive Officers, and Corporate Governance.”
Related Party Transactions:
|
●
|
Chaya
Hendrick, our CEO has made cash advances to the Company periodically in exchange for promissory notes of such face values. As
of the years ended June 30, 2019 and 2018, we owed $3,759 and $15,000, respectively. These notes bear interest at 7.00% per annum.
We have paid down $11,241 of these cash advances during the year ended June 30, 2019.
|
|
●
|
During the years ended June 30, 2019 and 2018, Chaya Hendrick, our CEO deferred $126,667 and $142,500 in annual salary, respectively. As of June 30, 2019 and 2018, respectively, the Company has accrued the amounts of $790,015 and $663,348 as deferred salary for the difference between Chaya Hendrick’s contractual annual salary and the amounts actually paid. These amounts include previously deferred salary prior to the years ended June 30, 2019 and 2018.
|
|
●
|
On September 30, 2015, we entered into an Addendum to the then existing employment agreement of Chaya Hendrick, pursuant to which in consideration for the issuance of 200,000 shares of the Company’s Series B Convertible Preferred Stock, Chaya Hendrick granted the us the first right to purchase or license any patents (the “Patent Option”) relating to “Smartcards” which the Hendrick (i) shall apply for with the relevant patent authorities during the term of the employment agreement, and (ii) are currently applied for with the relevant patent authorities or pending as of the date of the employment agreement. In exchange for the Patent Option the Company agreed, during the term of the such employment agreement, to pay for any fees and/or expenses related to the application for the such patent rights with the relevant patent authorities, including, but not limited to, legal or filing fees. If, upon our receipt of notice of any patent rights in writing; we and Hendrick fail to successfully negotiate and execute a purchase or license agreement as it relates to such patent rights within 60 calendar days of such receipt, Hendrick shall be permitted to retain or transfer such patent rights to a third party without any subsequent notice to us.
|
|
●
|
On September 11, 2017, we entered into a licensing a royalty agreement with Chaya Hendrick, our founder and CEO, whereby we received a license to certain patents related to our technologies until the expiration of such patents in exchange for the following : (i) the Issuance to Chaya Hendrick of 200,000 Series B Convertible Preferred Shares, (ii) the payment of 5% of gross revenues derived from the sale of products derived from the patents in the future, and (iii) annual payments beginning at $50,000 per annum, increased by 100% of each previous year (offset against 5% gross revenue royalty payments) for the duration of the term of the agreement. The agreement continues until (i) the terms of the licensed patents expire, (ii) we terminate the agreement with notice to Chaya Hendrick, or (iii) Chaya Hendrick terminates the agreement pursuant to a material breach of our duties or payments contained thereunder.
|
Item 14.
|
Principal Accounting Fees and Services
|
Type of Fees
|
|
Year end June 30, 2019
|
|
|
Year end June 30, 2018
|
|
|
|
|
|
|
|
|
Audit Fees
|
|
|
|
|
|
|
Prager Metis, LLC
|
|
$
|
17,046
|
|
|
$
|
15,746
|
|
Daszkal Bolton, LLC
|
|
$
|
—
|
|
|
$
|
2,000
|
|
Audit Related Fees
|
|
|
|
|
|
|
|
|
Tax Fees
|
|
|
—
|
|
|
|
—
|
|
All Other Fees
|
|
$
|
—
|
|
|
|
2,000
|
|
Total Fees
|
|
$
|
17,046
|
|
|
$
|
17,746
|
|
Policy on Pre-Approval of Audit and Permissible Non-audit
Services of Independent Auditors
Consistent with the SEC policies regarding
auditor independence, our Board of Directors has responsibility for appointing, setting compensation and overseeing the work of
the independent auditor. In recognition of this responsibility, our Board of Directors has established a policy to pre-approve
all audit and permissible non-audit services provided by the independent auditor.
Prior to engagement of the independent
auditor for the next year’s audit, management will submit an aggregate of services expected to be rendered during that year
for each of the following four categories of services to the Board of Directors for approval.
1. Audit services
include audit work performed in the preparation of financial statements, as well as work that generally only the independent auditor
can reasonably be expected to provide, including comfort letters, statutory audits, and attest services and consultation regarding
financial accounting and/or reporting standards.
2. Audit-Related services
are for assurance and related services that are traditionally performed by the independent auditor, including due diligence related
to mergers and acquisitions, employee benefit plan audits, and special procedures required to meet certain regulatory requirements.
3. Tax services
include all services performed by the independent auditor’s tax personnel except those services specifically related to the
audit of the financial statements, and includes fees in the areas of tax compliance, tax planning, and tax advice.
4. Other
Fees are those associated with services not captured in the other categories.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -
|
ORGANIZATION
AND BASIS OF PRESENTATION
|
SmartMetric, Inc. (the “Company”
or “SmartMetric”) was incorporated in the State of Nevada on December 18, 2002. SmartMetric’s main product is
a fingerprint sensor-activated card with a finger sensor onboard the card and a built-in rechargeable battery for portable biometric
identification. This card may be referred to as a biometric card or the SmartMetric Biometric Datacard. SmartMetric
has completed development of its card along with pre-mass manufacturing cards but has not yet begun to mass manufacture the biometric
fingerprint activated cards.
Basis of Presentation
The financial statements present
the balance sheets, statements of operations, stockholder’s equity (deficit) and cash flows of the Company. The financial
statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States
of America.
The Company has adopted June
30 as its fiscal year end.
Going Concern
As shown in the accompanying
consolidated financial statements the Company has incurred recurring losses of $936,551 and $1,641,788 for the years ended June
30, 2019 and 2018, respectively, and has incurred a cumulative loss of $26,933,463 since inception (December 18, 2002).
The Company is currently in the development stage and has spent a substantial portion of its time in the development of its technology.
There are no assurances that the Company will be
able to achieve the level of revenues adequate to generate a 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
|
Recent Accounting Pronouncements
From time to time, the FASB or other standards setting
bodies issue new accounting pronouncements. Updates to the FASB ASCs are communicated through issuance of an Accounting Standards
Update (“ASU”). Unless otherwise discussed, we believe that the impact of recently issued guidance, whether adopted
or to be adopted in the future, is not expected to have a material impact on our consolidated financial statements upon adoption.
Principles of Consolidation
The consolidated financial
statements include the accounts of the Company and its wholly owned subsidiary, SmartMetric Australia Pty. Ltd. All
significant intercompany accounts and transactions have been eliminated in consolidation.
SMARTMETRIC INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 -
|
SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
Fair Value of Financial Instruments
The carrying amounts reflected
in the balance sheets for cash, accounts payable and related party payables approximate the respective fair values due to the
short maturities of these items. The Company does not hold any investments that are available-for-sale.
As required by the Fair Value
Measurements and Disclosures Topic of the FASB ASC, fair value is measured based on a three-tier fair value hierarchy, which prioritizes
the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level
2) inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and (Level 3) unobservable
inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
The three levels of the fair
value hierarchy are described below:
Level 1: Unadjusted quoted prices
in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2: Quoted prices in markets
that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset
or liability;
Level 3: Prices or valuation
techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or
no market activity).
The Company at present does
not have any Level 2 or Level 3 fair value instruments.
Use of Estimates
The preparation of financial
statements in conformity with accounting principles generally accepted in the United States of America requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting
period. On an ongoing basis, the Company evaluates its estimates, including, but not limited to, those related to income
taxes and contingencies. The Company bases its estimates on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the
carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ
from those estimates.
Cash
The Company considers all highly liquid debt instruments
and other short-term investments with an initial maturity of three months or less to be cash equivalents. Any amounts of cash
in financial institutions which exceed FDIC insured limits exposes the Company to cash concentration risk. The Company had no
cash equivalents at June 30, 2019 and 2018.
Research and Development
The Company annually incurs
costs on activities that relate to research and development of new technology and products. Research and development
costs are expensed as incurred.
Revenue Recognition
The Company has not recognized
revenues to date. Therefore, the Company has not yet adopted a revenue recognition policy.
SMARTMETRIC INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 -
|
SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
Accounts Receivable
The Company will extend credit
based on its evaluation of the customers’ financial condition, generally without requiring collateral. Exposure
to losses on receivables is expected to vary by customer due to the financial condition of each customer. The Company
will monitor exposure to credit losses and maintains allowances for anticipated losses considered necessary under the circumstances. The
Company has not recorded any receivables, and therefore no allowance for doubtful accounts.
Uncertainty in Income
Taxes
GAAP requires the recognition
and measurement of uncertain income tax positions using a “more-likely-than-not” approach. Management
evaluates Company tax positions on an annual basis and has determined that as of June 30, 2019 and 2018, no accrual for uncertain
income tax positions is necessary.
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 June 30, 2019, and 2018, respectively, 26,526,234 and 14,842,583 dilutive shares were excluded from the calculation of diluted
loss per common share.
Patent Impairment
When the carrying balance of
the Company’s patent is more than what it could be sold for on the open market and/or is not recoverable through future
use, the Company decreases its value. In determining whether the carrying value is not recoverable, the Company estimates the
sum of the expected cash flows from the use of the patent or its possible sale. If the results in an amount less that the patent’s
value on the financial statements, the Company will deem the patent’s carrying value on the balance sheet to be impaired
by the amount that the carrying value exceeds the fair market value of the asset. The decrease in the patent’s value will
then be included as a loss in the Company’s profit and loss statement. The Company recorded no loss from patent impairment
during the year ended June 30, 2019. During the year ended June 30, 2018, the Company recorded a loss of $600,000 related to the
patent impairment.
NOTE 3 -
|
PREPAID EXPENSES
|
Prepaid expenses represent
the unexpired terms of any consulting agreements, as well as advance rental payments. All consulting agreements are
entered into for the issuance of common stock and warrants and are valued based on the stock price or computed warrant value at
the time of the respective agreement.
SMARTMETRIC INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Lease Agreement
The Company utilizes office
in Las Vegas, NV on a short-term lease basis. The Company’s main office is located in Las Vegas, NV. Rent expense for the
years ended June 30, 2019 and 2018 was $12,522 and $30,947, respectively.
The Company adopted ASC 842 on January 1, 2019 and
evaluated to conclude that it has no impact on the financial statements, as under the practical expedient, the lease consists
of terms less than one year, and therefore is not required to be capitalized.
Related Party
Transactions
The Company’s Chief Executive
Officer has made cash advances to the Company with an aggregate amount due of $3,759 and $15,000 as of June 30, 2019 and 2018,
respectively. These advances bear interest at 7.00% per annum.
As of June 30, 2019 and June
30, 2018, the Company has accrued the amounts of $790,015 and $663,348, respectively, as deferred Officer’s salary for the
difference between the president’s annual salary and the amounts paid.
NOTE 5 -
|
STOCKHOLDERS’
DEFICIT
|
Preferred Stock
As of June 30, 2019, the Company
has 5,000,000 shares of preferred stock, par value $0.001, authorized and 610,000 shares issued and outstanding.
On December 11, 2009, the Company
filed a Certificate of Designation with the State of Nevada, to designate 500,000 shares of the preferred stock to be designated
as Series B Convertible Preferred Stock (“Series B Convertible Preferred Stock”).
Each share of Series B Convertible
Preferred Stock has a par value of $0.001, and a stated value equal to $5.00 (“Stated Value”). Holders of the Series
B Convertible Preferred Stock are entitled to receive dividends or other distributions with the holders of the common stock of
the Company on an as converted basis when, as, and if declared by the directors of the Company. Holders of the Series B Convertible
Preferred Stock are entitled to convert all or any one (1) share of the Series B Convertible Preferred Stock into fifty (50) shares
of common stock.
Upon any liquidation, dissolution
or winding-up of the Company, whether voluntary or involuntary (“liquidation”), holders of the Series B Convertible
Preferred Stock are entitled to receive out of the assets, whether capital or surplus, of the Company an amount equal to the Stated
Value, pro rata with the holders of the common stock.
On September 11, 2017, the
Company issued 200,000 shares of Series B preferred shares to its CEO, Chaya Hendrick, in consideration for grant of exclusive
rights to the licensed patent.
SMARTMETRIC INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 -
|
STOCKHOLDERS’
DEFICIT (CONTINUED)
|
Class A Common Stock
As of June 30, 2019, the Company
has 50,000,000 shares of Class A common stock, par value $0.001, authorized and no shares issued and outstanding.
Common Stock and Warrants
During the three months ended
to September 30, 2017, the Company sold for cash 2,500,000 shares of common stock and warrants to purchase (i) 1,437,500 shares
at $0.70 and $0.20 per share and (ii) 724,500 shares at $1.00 and $0.50 per share, for net proceeds of $114,625.
During the three months ended
September 30, 2017, the Company issued 362,864 shares of common stock for consulting services valued at $21,825, based on the
stock price at the time of the respective agreements underlying the services provided.
During the three months ended December 31, 2017,
the Company sold for cash 8,319,000 shares of common stock and warrants to purchase: (i) 3,250,000 shares at $0.20 per share and
(ii) 1,638,000 shares at $0.50 per share, for net proceeds of $259,362.
The warrants expire at various times through December
29, 2019.
During the three months
ended December 31, 2017, the Company issued 212,164 shares of common stock for consulting services valued at $15,000 based on
the stock price at the time of the respective agreements underlying the services provided.
During the three months ended March 31, 2018, the
Company sold for cash 2,850,000 shares of common stock and warrants to purchase: (i) 2,051,250 shares at $0.70 per share and (ii)
929,250 shares at $1.00 per share, for net proceeds of $142,305. The warrants expire at various times through February 21, 2020.
None of the 2,850,000 shares were issued as of March 31, 2018.
During the three months ended March 31, 2018, the
Company issued 508,620 shares of common stock for consulting services valued at $30,000, based on the stock price at the time
of the respective agreements underlying the services provided. These shares were issued on February 26, 2018.
During the three months ended June 30, 2018, the
Company sold for cash 2,646,100 shares of common stock and warrants to purchase: (i) 1,536,625 shares at $0.70 per share and (ii)
774,459 shares at $1.00 per share, for net proceeds of $119,738. The warrants expire at various times through June 15, 2020.
During the three months ended
June 30, 2018, the Company issued zero shares of common stock for consulting services.
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)
152,210 shares at $1.00.
SMARTMETRIC INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 -
|
STOCKHOLDERS’
EQUITY (DEFICIT) (CONTINUED)
|
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 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.
During
the three months ended June 30, 2019, the Company sold for cash 1,740,000 shares of common stock and warrants to purchase: (i)
1,740,000 shares at a price of $0.05 per share for net proceeds of $86,934. The warrants expire at various times through June
10, 2021.
During the year ended June
30, 2018, the Company issued a total of 21,891,800 shares of common stock for cash totaling $759,929. In addition, the Company
sold common shares, which have not yet been issued as June 30, 2018 and are considered stock payable in the amount of $103,718.
During the year ended June
30, 2019, the Company issued a total of 15,501,274 shares of common stock for cash totaling $461,198. In addition, the Company
sold common shares, which have not yet been issued as June 30, 2019 and are considered stock payable in the amount of $147,484.
The
common shares issued for services was 0, and 1,083,948, as of June 30, 2019 and 2018, respectively.
The following information summarizes the warrants outstanding
and exercisable.
Warrants Outstanding and Exercisable at June 30, 2019:
Range of Exercise Prices
|
|
Number of Warrants Outstanding
|
|
|
Weighted-Average Contractual Life Remining
in Years
|
|
|
Weighted-Average Exercise Price
|
|
|
Number Exercisable
|
|
|
Weighted-Average Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.05 - $1.00
|
|
|
26,526,234
|
|
|
|
1.120
|
|
|
$
|
0.33
|
|
|
|
26,526,234
|
|
|
$
|
0.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants Outstanding and Exercisable at September 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.20 - $1.00
|
|
|
14,842,583
|
|
|
|
0.527
|
|
|
$
|
0.53
|
|
|
|
14,842,583
|
|
|
$
|
0.53
|
|
Warrant Activity:
As of June 30, 2019 and 2018,
the following is a breakdown of the activity:
June 30, 2019:
Outstanding - beginning of year
|
|
|
14,842,583
|
|
Issued
|
|
|
18,738,235
|
|
Exercised
|
|
|
—
|
|
Expired
|
|
|
(7,054,584
|
)
|
|
|
|
|
|
Outstanding - end of year
|
|
|
26,526,234
|
|
June 30, 2018:
Outstanding - beginning of year
|
|
|
20,276,399
|
|
Issued
|
|
|
12,341,584
|
|
Exercised
|
|
|
—
|
|
Expired
|
|
|
(17,775,400
|
)
|
|
|
|
|
|
Outstanding - end of year
|
|
|
14,842,583
|
|
At June 30, 2019, all of the
26,526,234 warrants are vested, 23,226,234 warrants expire at various times through July 2020, 3,000,000 warrants expire in September
2019, and 300,000 warrants expire in July 2020.
SMARTMETRIC INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
NOTE 6 -
|
MANDATORY REDEEMABLE CONVERTIBLE PREFERRED STOCK
|
Issuances of Series C Mandatory Redeemable
Convertible Preferred Stock
On January 10, 2019, the Board of Directors
of the Company adopted a resolution pursuant to the Company’s Certificate of Incorporation, as amended, providing for the
designations, preferences and relative, participating, optional and other rights, and the qualifications, limitations and restrictions,
of the Series C Convertible Preferred Stock.
On January 14, 2019, the Company filed
a Certificate of Designations for a Series C Convertible Preferred Stock. The authorized number of Series C Convertible Preferred
Stock is 1,000,000 shares, par value 0.001. The Series C Preferred Stock will, with respect to dividend
rights and rights upon liquidation, winding-up or dissolution, rank: (a) senior with respect to dividends
and right of liquidation with the Company’s common stock, , (b) junior with respect to
dividends and right of liquidation with respect to the Company’s Series B Preferred Stock; and (c)
junior with respect to dividends and right of liquidation to all existing indebtedness of the Company.
Series C Preferred Stock will carry an annual ten percent (10%) cumulative dividend, compounded daily, payable solely
upon redemption, liquidation or conversion. The Company will have a right, at any time in the period of 180 days from
the date of the issuance, at the Company’s option, to redeem all or any portion of the Series C Preferred Stock at prices
ranging from 105% to 130%, based on the passage of time.
The Holder shall have the right at any
time during the period beginning on the date which is six (6) months following the Issuance Date, to convert all or any part
of the outstanding Series C Preferred Stock into fully paid and non-assessable shares of Common Stock at the Variable Conversion
Price. The “Variable Conversion Price” shall mean 71% multiplied by the Market Price (representing a discount rate
of 29%). “Market Price” means the average of the two (2) lowest Trading Prices (as defined here) for the Common Stock
during the fifteen (15) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date.
On the date which is eighteen (18) months
following the Issuance Date or upon the occurrence of an Event of Default (the “Mandatory Redemption Date”), the Company
shall redeem all of the shares of Series C Preferred Stock of the Holder (which have not been previously redeemed or converted).
With five (5) days of the Mandatory Redemption Date, the Company shall make payment to each Holder of an amount in cash equal
to the total number of shares of Series C Preferred Stock held by such Holder multiplied by the then current Stated Value.
All shares of mandatorily redeemable convertible
preferred stock have been presented outside of permanent equity in accordance with ASC 480, Classification and Measurement
of Redeemable Securities. The Company accretes the carrying value of its Series C mandatory redeemable convertible preferred
stock to its estimate of fair value (i.e. redemption value) at period end.
The estimated fair value of the Series
C, mandatory redeemable convertible preferred stock at June 30, 2019 and 2018 was $110,000 and $0, respectively.
The Company recorded preferred stock dividends
of $7,401 during fiscal year 2019, and accrued dividends payable of $3,123.
Deferred income taxes are determined using
the liability method for the temporary differences between the financial reporting basis and income tax basis of the Company’s
assets and liabilities. Deferred income taxes are measured based on the tax rates expected to be in effect when the temporary
differences are included in the Company’s tax return. Deferred tax assets and liabilities are recognized based on anticipated
future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities and
their respective tax bases. The Company recognizes interest and penalties related to income tax matters as a component
of income tax expense.
At June 30, 2019 and 2018, deferred tax assets consist of the
following:
|
|
2019
|
|
|
2018
|
|
Net operating loss carryforward
|
|
$
|
7,972,161
|
|
|
$
|
6,958,336
|
|
Warrant issuances
|
|
|
—
|
|
|
|
—
|
|
Deferred officer compensation
|
|
|
790,015
|
|
|
|
225,538
|
|
Other
|
|
|
371
|
|
|
|
644
|
|
Valuation allowance
|
|
|
(8,762,547
|
)
|
|
|
(7,184,518
|
)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
SMARTMETRIC INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 7 -
|
INCOME TAXES (CONTINUED)
|
At June 30, 2019, the Company had a net
operating loss carry-forwards in the amount of approximately $21.0 million available to offset future taxable income through 2036,
which will begin to expire in 2021. The Company established valuation allowances equal to the full amount of the deferred
tax assets due to the uncertainty of the utilization of the operating losses in future periods. A reconciliation of the Company’s
effective tax rate as a percentage of income before taxes and federal statutory rate for the period ended June 30, 2019 and 2018
is summarized as follows:
|
|
2019
|
|
|
2018
|
|
Tax on income before income tax
|
|
|
21.00
|
%
|
|
|
34.00
|
%
|
Effect of non-temporary differences
|
|
|
(0.01
|
)%
|
|
|
(0.07
|
)%
|
Effect of prior year items
|
|
|
—
|
%
|
|
|
—
|
%
|
Effect of temporary differences
|
|
|
—
|
%
|
|
|
—
|
%
|
Change in valuation allowance
|
|
|
(20.99
|
)%
|
|
|
(33.90
|
)%
|
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
The total amount of unrecognized tax benefits
can change due to tax examination activities, lapse of applicable statutes of limitations and the recognition and measurement
criteria under the guidance related to accounting for uncertainty in income taxes. The Company does not believe any
significant increases or decreases will occur within the next twelve months.
The Company files income tax returns in
the United States (“U.S.”) federal jurisdiction. Generally, the Company is no longer subject to U.S. federal
examinations by tax authorities for fiscal years prior to 2015. The Company does not file in any other jurisdiction
and remains open for audit for all tax years as the statute of limitations does not begin until the returns are filed.
From time to time we may be a defendant
or plaintiff in various legal proceedings arising in the normal course of our business. We know of no material, active,
pending or threatened proceeding against us or our subsidiaries, nor are we, or any subsidiary, involved as a plaintiff or defendant
in any material proceeding or pending litigation.
NOTE 9 -
|
SUBSEQUENT EVENTS
|
In accordance with ASC 855-10, the Company
has analyzed its operations subsequent to June 30, 2019 to the date these financial statements were issued.
Subsequent to June 30, 2019, the Company
sold 52,800 shares of Series C Preferred Stock on August 26, 2019 for gross proceeds of $48,000.
Subsequent to June 30, 2019, the Company issued 11,216,305 common
shares, all of which were for stock payable existing as of year end. These shares had a cash value of $226,000.