UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2019

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ___________ to ___________.

 

Commission file number 000-54853

 

SMARTMETRIC, INC. 

(Exact name of registrant as specified in its charter)

 

Nevada   05-0543557
(State or Other Jurisdiction of
Incorporation or Organization)
  (IRS Employer
Identification No.)

 

3960 Howard Hughes Parkway, Suite 500, Las Vegas, NV   89169
Address of Principal Executive Offices   Zip Code

 

(702) 990-3687
Registrant’s telephone number, including area code

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
N/A   N/A   N/A

 

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 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.

 

Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☒ Smaller reporting company ☒
Emerging growth company ☐  

  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition 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 Exchange Act). Yes ☐ No ☒

 

The number of shares outstanding of the registrant’s Common Stock, $0.0001 par value per share, as of November 14, 2019, was 278,357,626.

 

 

 

 

 

  

SMARTMETRIC, INC.

 

TABLE OF CONTENTS

 

INDEX 

 

PART I. FINANCIAL INFORMATION  
Item 1. Financial Statements 1
  Condensed consolidated balance sheets as of September 30, 2019 (unaudited) and June 30, 2019 1
  Condensed consolidated statements of operations for the three months ended September 30, 2019 and 2018 (unaudited) 2
  Condensed consolidated statements of stockholders’ deficit for the three months ended September 30, 2019 and 2018 (unaudited) 3
  Condensed consolidated statements of cash flows for the three months ended September 30, 2019 and 2018 (unaudited) 4
  Notes to condensed consolidated financial statements (unaudited) 5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures about Market Risk 19
Item 4. Controls and Procedures 19
     
PART II OTHER INFORMATION  
Item 1. Legal Proceedings 20
Item 1A. Risk Factors 20
Item 2. Unregistered sales of equity securities and use of proceeds 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Mine Safety Disclosures 20
Item 5. Other Information 20
Item 6. Exhibits 21
  Signatures 22

 

i

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

In this Quarterly Report on Form 10-Q, references to “SmartMetric, Inc.,” “SmartMetric,” “SMME,” “the Company,” “we” “us,” and “our” refer to SmartMetric, Inc. Also, any reference to “common shares,” or “common stock” refers to our $0.001 par value common stock. Also, any reference to “preferred stock” or “preferred shares” refers to our $0.001 par value Series B Convertible Preferred Stock and our $0.001 par value Series C Convertible Preferred Stock.

 

This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. These statements relate to our business development plans, timing strategies, expectations, anticipated expense levels, business prospects, business outlook, technology spending and various other matters (including contingent liabilities and obligations and changes in accounting policies, standards and interpretations). These statements express our current intentions, beliefs, expectations, strategies or predictions as well as historical information. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “may,” “will,” “could,” “continue,” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not deemed to represent an all-inclusive means of identifying forward-looking statements as denoted in this Quarterly Report. Additionally, statements concerning future matters are forward-looking statements.

 

Although forward-looking statements in this Quarterly Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. These statements are no guarantee of future performance and involve risks and uncertainties that are difficult to predict. Our future operating results are dependent upon many factors which are outside our control. You should not place undue reliance on forward-looking statements. Forward-looking statements may not be realized due to a variety of factors, including, without limitation, our ability to:

 

  manage our business given continuing operating losses and negative cash flows;

 

  obtain sufficient capital to fund our operations, development, and expansion plans;

 

  manage competitive factors and developments beyond our control;

 

  maintain and protect our intellectual property;

 

  obtain patents based on our current and/or future patent applications;

 

  obtain and maintain other rights to technology required or desirable to conduct or expand our business; and

 

  manage any other factors, if any, discussed in the “Risk Factors” section, and elsewhere in this Quarterly Report.

 

We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this Quarterly Report, except as required by federal securities laws. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this Quarterly Report, which are designed to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.

 

ii

 

 

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

  

SMARTMETRIC, INC. AND SUBSIDIARY

Condensed Consolidated Balance Sheet

 

    September 30,     June 30,  
    2019     2019  
    (Unaudited)        
Assets            
Current assets:            
Cash   $ -     $ 10,161  
                 
Prepaid expenses and other current assets     14,017       6,450  
                 
Total current assets     14,017       16,611  
                 
Total assets   $ 14,017     $ 16,611  
                 
Liabilities and Stockholders’ Deficit                
                 
Current liabilities:                
Accounts payable and accrued expenses   $ 886,383     $ 880,390  
Liability for stock to be issued     54,979       147,484  
Deferred Officer’s salary     790,015       790,015  
Related party interest payable     107,313       93,488  
Dividends payable     1,862       3,123  
Credit card payable     7,839       3,750  
Shareholder loan     14,059       3,759  
                 
Total current liabilities     1,862,450       1,922,009  
Commitments and Contingencies (Note 4)                
                 
Series C mandatory redeemable convertible preferred stock, net of discount, authorized 1,000,000 shares 104,500 and 121,700 shares issued and outstanding, respectively     90,751       99,278  
                 
Stockholders’ deficit:                
Preferred stock, $.001 par value; 5,000,000 shares authorized, 610,000 and 610,000 shares issued and outstanding     610       610  
Common stock, $.001 par value; 300,000,000 shares authorized, 275,865,126 and 264,648,821 shares issued and outstanding, respectively     275,865       264,649  
Additional paid-in capital     24,944,825       24,663,528  
Accumulated deficit     (27,160,484 )     (26,933,463 )
                 
Total stockholders’ deficit     (1,939,184 )     (2,004,676 )
                 
Total liabilities and stockholders’ deficit   $ 14,017     $ 16,611  

 

See notes to condensed consolidated financial statements.

 

1

 

  

SMARTMETRIC, INC. AND SUBSIDIARY

Condensed Consolidated Statement of Operations

(Unaudited)

 

    Three Months     Three Months  
    Ended     Ended  
    September 30,     September 30,  
    2019     2018  
             
Revenues   $ -     $ -  
                 
Expenses:                
Officer’s salary     47,500       47,500  
Other general and administrative     132,859       124,004  
Research and development     21,112       29,360  
                 
Total operating expenses     201,471       200,864  
                 
Loss from operations before other expense     (201,471 )     (200,864 )
                 
Other expense     -       -  
Interest expense     (13,825 )     (12,463 )
Total Other expense     (13,825 )     (12,463 )
                 
Loss before income taxes     (215,296 )     (213,327 )
                 
Provision for income taxes     -       -  
                 
Net loss     (215,296 )     (213,327 )
Preferred stock dividends     (11,725 )     -  
Net loss available for common stockholders   $ (227,021 )   $ (213,327 )
                 
Net loss per share, basic and diluted   $ (0.00 )   $ (0.00 )
                 
Weighted average number of common shares outstanding, basic and diluted     272,691,261       250,262,593  

 

See notes to condensed consolidated financial statements.

 

2

 

  

SMARTMETRIC, INC. AND SUBSIDIARY

Consolidated Statements of Changes In Stockholders’ (Deficit)

(Unaudited)

  

    Preferred Stock     Class A Common Stock     Common Stock     Additional Paid In Capital     Accumulated Deficit     Total  
Balance June 30, 2018     610,000     $ 610            -     $      -       249,147,547     $ 249,148     $ 24,217,831     $ (25,996,910 )   $ (1,529,321 )
                                                                         
Shares issued of common stock and warrants for cash     -       -       -       -       5,502,538       5,502       210,667       -       216,169  
                                                                         
Net loss for the period     -       -       -       -       -       -       -       (213,827 )     (213,827 )
                                                                         
Balance September  30, 2018     610,000     $ 610       -     $ -       254,650,085     $ 254,650       24,428,498     $ (26,210,737 )     (1,526,979 )

 

    Preferred Stock     Class A Common Stock     Common Stock     Additional Paid In Capital     Accumulated Deficit     Total  
Balance June 30, 2019     610,000     $ 610       -     $ -       264,648,821     $ 264,649     $ 24,663,528     $ (26,933,461 )   $ (2,004,674 )
                                                                         
Shares issued of common stock and warrants for cash     -     $ -       -     $ -       7,991,662       7,992.00       218,008       -       226,000  
                                                                         
Shares converted from Preferred shares     -     $ -       -     $ -       3,224,643       3,224.00       63,289       -       66,513  
                                                                         
Preferred dividends                                                             (11,725 )     (11,725 )
                                                                         
Net loss available for common shareholders     -       -       -       -       -       -       -       (215,296 )     (215,296 )
                                                                         
Balance September 30, 2019     610,000     $ 610       -     $ -       275,865,126     $ 275,865     $ 24,944,825     $ (27,160,482 )   $ (1,939,182 )

 

See notes to condensed consolidated financial statements.

 

3

 

  

SMARTMETRIC, INC. AND SUBSIDIARY

Condensed Consolidated Statements Of Cash Flows

(Unaudited)

 

    Three Months     Three Months  
    Ended     Ended  
    September 30,     September 30,  
    2019     2018  
CASH FLOWS FROM OPERATING ACTIVITIES            
Net loss   $ (215,296 )   $ (213,327 )
                 
Adjustments to reconcile net loss to net cash used in operating activities:                
                 
Changes in assets and liabilities                
Decrease in prepaid expenses and other current assets     (7,567 )     2,500  
(Decrease) increase in accounts payable and accrued expenses     5,993       7,726  
Increase in deferred officer salary     -       47,500  
Increase (decrease) in credit card debt     4,089       1,120  
Increase (decrease) in dividends payable     (1,261 )     -  
Increase in accrued interest payable     13,825       12,463  
                 
Net cash used in operating activities     (200,217 )     (142,018 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES     -       -  
                 
CASH FLOWS FROM FINANCING ACTIVITIES                
Loans from related parties     10,300       3,000  
Proceeds from sale of common stock     133,495       145,770  
Proceeds from sale of Series C Preferred stock     45,000       -  
Dividend payable     1,261       -  
                 
Net cash provided by financing activities     190,056       148,770  
                 
NET INCREASE (DECREASE) IN                
                 
CASH BEGINNING OF PERIOD     10,161       4,427  
END OF PERIOD     -       11,179  
                 
CASH PAID DURING THE PERIOD FOR:                
Income taxes   $ -     $ -  
Interest   $ -     $ -  

 

See notes to condensed consolidated financial statements.

 

4

 

  

SMARTMETRIC INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION

 

SmartMetric, Inc. (“SmartMetric” or the “Company”) was incorporated pursuant to the laws of Nevada on December 18, 2002. SmartMetric is a company engaged in the technology industry. SmartMetric’s main products are a fingerprint sensor activated payments card and a security card with a finger sensor and fully functional fingerprint reader embedded inside the card. The SmartMetric biometric cards have a rechargeable battery allowing for portable biometric identification and card activation. This card is referred to as a biometric card or the SmartMetric Biometric Card.

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management of the Company, the accompanying unaudited financial statements contain all the adjustments (which are of a normal recurring nature) necessary for a fair presentation. Operating results for the three months ended September 30, 2019 are not necessarily indicative of the results that may be expected for the year ending June 30, 2020. For further information, refer to the financial statements and the footnotes thereto contained in the Company’s Annual Report on Form 10-K for the year ended June 30, 2019, as filed with the Securities and Exchange Commission on September 30, 2019. The condensed consolidated balance sheet as of June 30, 2019, has been derived from the audited financial statements at that date, but does not include all the information and footnotes required by US GAAP for complete financial statements.

 

Going Concern

 

As shown in the accompanying condensed consolidated financial statements the Company has sustained recurring losses of $215,296 and $213,327 for the three months ended September 30, 2019 and 2018, respectively, and has an accumulated deficit of $27,160,484 at September 30, 2019.

 

There are no assurances that the Company will be able to achieve the level of revenues adequate to generate sufficient cash flow from operations to support the Company’s working capital requirements. To the extent that funds generated are insufficient, the Company will have to raise additional working capital. No assurance can be given that additional financing will be available, or if available, will be on terms acceptable to the Company. If adequate working capital is not available, the Company may not continue its operations.

 

These conditions raise substantial doubt about the Company’s ability to continue as a going concern beyond November 2020. 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.

 

5

 

  

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Principles of Consolidation

 

The condensed consolidated financial statements do not include any adjustments relating to the carrying amounts of recorded assets or the carrying amounts and classification of recorded liabilities that may be required should the Company be unable to continue as a going concern. The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, SmartMetric Australia Pty. Ltd.  All significant intercompany accounts and transactions have been eliminated in consolidation. 

 

Use of Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying disclosures. Actual results may differ from those estimates.

 

Research and Development

 

Research and development costs are charged to expense as incurred. Our research and development expenses consist primarily of expenditures for electronics design and engineering, software design and engineering, component sourcing, component engineering, manufacturing, product trials, compensation and consulting costs.

 

Recent Accounting Pronouncements

 

The Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company’s results of operations, financial position or cash flow except as noted below.

 

In February 2016, the FASB issued authoritative guidance, which is included in ASC 842, “Leases.” This guidance requires lessees to recognize most leases on the balance sheet by recording a right-of-use asset and a lease liability. The Company has made the decision to adopt this guidance early, making it effective for the Company as of March 1, 2019. Based on the completed analysis, the Company has determined the adjustment did not have a material impact on the financial statements.

 

In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which aligns accounting for share-based payments issued to nonemployees to that of employees under the existing guidance of Topic 718, with certain exceptions. This update supersedes previous guidance for equity-based payments to nonemployees under Subtopic 505-50, Equity—Equity-Based Payments to Non-Employees. This guidance is effective for the Company as of March 1, 2019. Based on the completed analysis, the Company has determined the adjustment did not have a material impact on the financial statements.

 

Loss Per Share of Common Stock

 

In accordance with FASB ASC 260, “Earnings Per Share,” the basic loss per share is computed by dividing the loss attributable to common stockholders by the weighted average number of common shares outstanding during the period. Basic net loss per share excludes the dilutive effect of stock options or warrants and convertible notes. Diluted net earnings (loss) per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents, consisting of shares that might be issued upon exercise of common stock options and warrants. In periods where losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive. As of September 30, 2019 and 2018, 29,403,406 and 17,488,656 dilutive shares were excluded from the calculation of diluted loss per common share. 

 

NOTE 3 - PREPAID EXPENSES

 

Prepaid expenses represent the unexpired terms of various consulting agreements as well as advance rental payments. The Company does not currently have any prepaid items related to shares issued for services.

 

6

 

  

NOTE 4 - COMMITMENTS

 

Lease Agreement

 

The Company’s main office is located in Las Vegas, Nevada. Rent expense under all leases for the three months ended September 30, 2019 and 2018 was $1,166 and $3,349 respectively. The Company maintains only one office. This office is located in Las Vegas, NV and is a month-to-month lease.

 

Related Party Transactions

 

The Company’s Chief Executive Officer has made cash advances to the Company with an aggregate amount due of $14,059 and $3,759 at September 30, 2019 and June 30, 2019, respectively. These advances bear interest at the rate of seven percent (7%) per annum.

 

The Company has accrued the amounts of $790,015 and $790,015 at September 30, 2019 and June 30, 2019, respectively, as deferred officer’s salary, for the difference between the Chief Executive Officer’s annual salary and the amounts paid.

 

On September 11, 2017, we received a license to certain patents from Chaya Hendrick, our founder and CEO, related to our technologies until the expiration of the patents. As consideration, we issued Chaya Hendrick, or her assigns, (i) 200,000 shares of Series B Convertible Preferred Stock, (ii) a royalty equal to 5% of gross revenues derived from products sold related to the patents, and (iii) certain minimum required payments beginning at $50,000 and doubling each year thereafter. The Series B Preferred Shares may be converted at the election of holder on a basis for 50 common shares for each preferred share at any time or an aggregate of 10,000,000 common shares in exchange for all 200,000 preferred shares.

  

NOTE 5 - STOCKHOLDERS’ DEFICIT

 

Preferred Stock

 

As of September 30, 2019, the Company had 5,000,000 shares of Class B preferred stock, par value $0.001, authorized and 610,000 shares issued and outstanding.

 

On December 11, 2009, the Company filed a Certificate of Designation with the State of Nevada, to designate 500,000 shares of preferred stock as Series B Convertible Preferred Stock (“Series B Convertible Preferred Stock”). Effective November 5, 2014, the number of shares designated as Series C Convertible Preferred Stock was increased to 1,000,000 shares.

 

Each share of Series B Convertible Preferred Stock has a par value of $0.001, and a stated value equal to $5.00 (“Stated Value”). Holders of the Series B Convertible Preferred Stock are entitled to receive dividends or other distributions with the holders of the common stock of the Company on an as converted basis when, as, and if declared by the directors of the Company. Holders of the Series B Convertible Preferred Stock are entitled to convert each share of the Series B Convertible Preferred Stock into fifty (50) shares of common stock.

 

Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, holders of the Series B Convertible Preferred Stock are entitled to receive out of the assets, whether capital or surplus, of the Company an amount equal to the Stated Value, pro rata with the holders of the common stock.

 

7

 

  

NOTE 5 -

STOCKHOLDERS’ DEFICIT (CONTINUED)

 

Common Stock

  

As of September 30, 2019, the Company had 275,865,126 shares of common stock issued and outstanding.

 

  During the three months ended September 30, 2019, the Company sold for cash 6,337,500 shares of common stock and warrants to purchase: (i) 6,337,500 shares at prices ranging from $0.10 per share to $0.25 per share for net proceeds of $133,495. The warrants expire at various times through September 17, 2021. None of these shares were issued during the quarter ended September 30, 2019, with all 6,337,500 shares being recorded as stock payable.  During the three months ended September 30, 2019, the Company issued 11,216,305 shares for cash.  Of these shares, 7,991,662 were issued from stock payable and 3,224,643 were converted from Preferred shares.

 

  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.

 

Warrants

 

From time to time the Company granted warrants in connection with private placements of securities, as described herein.

 

As of September 30, 2019, and June 30, 2019, the following is a breakdown of the warrant activity:

 

Range of Exercise Prices   Number of Warrants Outstanding     Weighted-
Average Contractual Life Remining in Years
    Weighted-
Average Exercise Price
    Number Exercisable     Weighted-
Average Exercise Price
 
                               
$0.05 - $1.00     32,863,734       1.26     $ 0.28       32,863,734     $ 0.28  
                                         
Warrants Outstanding and Exercisable at June 30, 2019:                                        
                                         
$0.20 - $1.00     26,526,234       1.12     $ 0.34       26,526,234     $ 0.34  

 

Warrant Activity:

 

September 30, 2019:

 

Outstanding - June 30, 2019     26,526,234  
Issued     6,337,500  
Exercised      
Expired     (3,460,328 )
Outstanding - September 30, 2019     29,403,406  

 

June 30, 2019:

 

Outstanding - June 30, 2018     14,842,583  
Issued     18,738,235  
Exercised      
Expired     (7,054,584 )
Outstanding - June 30, 2019     26,526,234  

 

At September 30, 2019, all of the 29,403,406 warrants are vested and (i) 29,103,406 warrants expire at various times prior to September 17, 2021, (ii) 300,000 warrants expire in July 2020,

 

8

 

 

 

NOTE 6 - MANDATORY REDEEMABLE CONVERTIBLE PREFERRED STOCK

 

Issuances of Series C Mandatory Redeemable Convertible Preferred Stock

 

On January 10, 2019, the Board of Directors of the Company adopted a resolution pursuant to the Company’s Certificate of Incorporation, as amended, providing for the designations, preferences and relative, participating, optional and other rights, and the qualifications, limitations and restrictions, of the Series C Convertible Preferred Stock.

 

On January 14, 2019, the Company filed a Certificate of Designations for a Series C Convertible Preferred Stock. The authorized number of Series C Convertible Preferred Stock is 1,000,000 shares, par value 0.001. The Series C Preferred Stock will, with respect to dividend rights and rights upon liquidation, winding-up or dissolution, rank: (a) senior with respect to dividends and right of liquidation with the Company’s common stock, , (b) junior with respect to dividends and right of liquidation with respect to the Company’s Series B Preferred Stock; and (c) junior with respect to dividends and right of liquidation to all existing indebtedness of the Company. Series C Preferred Stock will carry an annual ten percent (10%) cumulative dividend, compounded daily, payable solely upon redemption, liquidation or conversion. The Company will have a right, at any time in the period of 180 days from the date of the issuance, at the Company’s option, to redeem all or any portion of the Series C Preferred Stock at prices ranging from 105% to 130%, based on the passage of time.

 

The number of Series C, mandatory redeemable convertible preferred stock shares issued and outstanding were 104,500 and 121,700, respectively, for September 30, 2019 and June 30, 2019.

 

The Holder shall have the right at any time during the period beginning on the date which is six (6) months following the Issuance Date, to convert all or any part of the outstanding Series C Preferred Stock into fully paid and non-assessable shares of Common Stock at the Variable Conversion Price. The “Variable Conversion Price” shall mean 71% multiplied by the Market Price (representing a discount rate of 29%). “Market Price” means the average of the two (2) lowest Trading Prices (as defined here) for the Common Stock during the fifteen (15) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date.

 

On the date which is eighteen (18) months following the Issuance Date or upon the occurrence of an Event of Default (the “Mandatory Redemption Date”), the Company shall redeem all of the shares of Series C Preferred Stock of the Holder (which have not been previously redeemed or converted). With five (5) days of the Mandatory Redemption Date, the Company shall make payment to each Holder of an amount in cash equal to the total number of shares of Series C Preferred Stock held by such Holder multiplied by the then current Stated Value.

 

All shares of mandatorily redeemable convertible preferred stock have been presented outside of permanent equity in accordance with ASC 480, Classification and Measurement of Redeemable Securities. The Company accretes the carrying value of its Series C mandatory redeemable convertible preferred stock to its estimate of fair value (i.e. redemption value) at period end. The accretion for the three month period was 2,252.

 

The estimated fair value of the Series C mandatory redeemable convertible preferred stock at September 30, 2019 and 2018 was $90,751 and $0, respectively.

 

NOTE 7 - INCOME TAXES

 

The Company provides for income taxes at the end of each interim period based on the estimated effective tax rate for the full fiscal year. Cumulative adjustments to the Company’s estimate are recorded in the interim period in which a change in the estimated annual effective rate is determined.

 

The Company has estimated its effective tax rate to be 0%, based primarily on losses incurred and the uncertainty of realization of the tax benefit of such losses.

 

NOTE 8 - LITIGATION

 

From time to time we may be a defendant or plaintiff in various legal proceedings arising in the normal course of our business. As of the date of this Quarterly Report, there are no material pending legal or governmental proceedings relating to us or properties to which we are a party, and, to our knowledge, there are no material proceedings to which any of our directors, executive officers or affiliates are a party adverse to us or which have a material interest adverse to us. 

 

Commitments and Contingencies

 

NOTE 9 - SUBSEQUENT EVENTS

 

In accordance with ASC 855-10, the Company has analyzed its operations subsequent to September 30, 2019 to the date these financial statements were issued. Subsequent to September 30, 2019, the Company issued 2,492,500 common stock shares, all of which attributable to stock payable.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Overview

 

SmartMetric, Inc. (“SmartMetric” or the “Company”) was incorporated pursuant to the laws of Nevada on December 18, 2002. SmartMetric is a company engaged in the technology industry. SmartMetric has an issued patent covering technology that involves connection to networks using data cards (smart cards and EMV cards). In addition, SmartMetric holds the sole license to five issued patents covering features of its biometric fingerprint activated cards. SmartMetric’s main products are a fingerprint sensor activated payments card and a security card with a finger sensor and fully functional fingerprint reader embedded inside the card. The cards have a rechargeable battery allowing for portable biometric identification and card activation. These cards are herein sometimes referred to as a biometric card or the SmartMetric Biometric Card.

 

The Market for Biometric Credit Cards

 

According to a to a press release issued by Goode Intelligence, an independent market research company, regarding their October 2018 report on the biometrics payment sector, nearly 579 million biometric credit/debit cards will be in use over the next five (5) years. Goode Intelligence believes* there is a significant market opportunity for biometric payment cards. and forecasts that by 2023 there will be almost 579 million biometric payment cards in use around the world.

 

“Contactless card payments are even outperforming mobile in many regions. Many consumers prefer to use a contactless payment card over a mobile payment equivalent and according to Goode Intelligence research, many users would like to use cards in contactless mode for higher value transactions. Biometric payment cards not only offer improved security by removing the PIN but also allow frictionless payments for higher value transactions,” stated Good Intelligence.

 

SmartMetric engaged an outside independent research company to survey a statistically relevant sample of Visa credit card holders in the United States. One of the questions asked showed that nearly 67% of these credit card holders would be willing to pay $69.95 for a biometric secured credit card.

 

The survey asked:

 

Would you pay for a safer biometric secured credit card that has a built-in fingerprint reader for your protection?

 

A1. Yes 64.5%
     
  No 35.5%

 

  * 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.

 

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The SmartMetric Biometric Technology and Products

 

SmartMetric’s founder, Chaya Hendrick is the originator and inventor of various miniature biometric activated cards, including the SmartMetric biometric fingerprint activated payments card with an embedded fully functional fingerprint reader inside. the card. The card is the size and thickness of a standard credit card. The SmartMetric biometric payments card provides for high level security for credit and debit cards by adding biometric authentication and activation to Europay, MasterCard and Visa (“EMV”) chip cards in use around the world. The SmartMetric biometric payments card has been manufactured to be totally interoperable with existing EMV chip card readers, ATMs as well as banking payments infrastructure. Using the advanced electronic miniaturization by SmartMetric to make its biometric credit/debit cards the Company has also created a multi-functional biometric building access control and logical network access card.

 

Since July 1, 2018, SmartMetric has commenced efforts towards creating a biometric health insurance card with memory for storing a person’s medical files, including medical images. This allows a person to securely take with them their private medical files inside the card when traveling away from home. For the first time, a person’s complete medical files can be stored in a credit card-sized card and the information is only able to be accessed by the card holder’s own fingerprint. The company is in discussion with significant health membership organizations concerning the offering of the SmartMetric Biometric Medical Records card to their respective members.

 

SmartMetric has developed its rechargeable battery powered fingerprint reader that is of a scale that fits “inside” a standard credit or debit card. The cardholder has stored inside the card his or her fingerprint. To activate the card the person swipes the fingerprint sensor, the sensor is connected to an internal microprocessor that manages the fingerprint sensor fingerprint image capture and comparison matching with the pre-stored fingerprint of the cardholder held in the internal electronic memory of the card. The card has a surface mounted EMV chip as found on EMV banking chip cards that is activated or turned on only after a card holder’s fingerprint has been scanned and verified using the SmartMetric miniature “in-card” biometric scanner.

 

There are over seven (7) billion EMV chip cards used by banks around the world for credit cards, ATM cards and debit cards according to EMVco. SmartMetric sees this existing user base as a natural market for its advanced biometric activated card technology for the credit and debit card market. SmartMetric has established a network of card manufacturers and technology distributors to market its in-card biometric products to card issuing banks and in the case of the SmartMetric biometric security card, to businesses.

 

SmartMetric has completed development of its biometric card and is now actively marketing its card to major card issuing banks throughout the world in partnership with established card distributors and dealers.

 

SmartMetric has also developed a multi-function logical and physical access security card this size and thickness of a standard credit card. Utilizing the small size breakthroughs by the Company in its biometric payments card development, SmartMetric has successfully developed a biometric security card that is the size and thickness of a standard credit card that can easily fit inside a person’s wallet.

 

As with the biometric payments card, the SmartMetric security card has an internal rechargeable battery that is used to power the card’s internal processor used in the biometric fingerprint scan. All functions and operations of the card are subject to a valid fingerprint scan and match of the card user.

 

On February 1, 2019, SmartMetric entered into a manufacturing and license agreement with Servired, SA. Servired operates the major payments network in Spain for credit and debit card transactions. Servired is owned by 65 Banks as shareholders and has over 100 Banks in Europe, the United States and South America as customers and users of its technology.

 

The Servired Advantis EMV Chip and operating system is being used by Banks around the world on their Debit and Credit Cards. 1.3 Billion Servired Advantis cards have been issued by their member banks worldwide.

 

SmartMetric is now in the process of manufacturing it’s biometric credit/debit card with the ServiRed Advantis payments card chip and operating system. This will allow over 100 Banks worldwide who are already using the ServiRed Advantis chip and chip card operating system to easily issue this new SmartMetric – ServiRed/Advantis biometric credit and debit card.

 

Additional technological advances have now been made on both the Company’s biometric credit/debit card and its multifunction cyber security, building access biometric card.

 

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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.

 

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The Security Technology Industry

 

SmartMetric Biometric Multi-Function Security Card

 

The Access management market is estimated to grow from USD 8.09 billion in 2016 to USD 14.82 billion by 2021

 

SmartMetric has developed a multi-function logical and physical access security card this size and thickness of a standard credit card. Utilizing the small size breakthroughs by the Company in its biometric payments card development, SmartMetric has successfully developed a biometric security card that can easily fit inside a person’s wallet.

 

As with the biometric payments card, the SmartMetric security card has an internal rechargeable battery that is used to power the card’s internal processor used in the biometric fingerprint scan. All functions and operations of the card are subject to a valid fingerprint scan and match of the card user.

 

The main features of the SmartMetric biometric security card are:

 

  1. Logical access smartcard card chip for insertion into a card reader attached to a computer or network

 

  2. RFID transceiver for physical access i.e. doorways, elevators, etc.

 

  3. Validation indicator light that glows green immediately following a fingerprint validation

 

  4. Rechargeable battery to power the card

 

  5. Size and thickness of a credit card

 

  6. Changeable security code on reverse of card for additional log on security

 

Cybersecurity and identity validation for network access control, physical building entry and secure on-the-spot identity security is now handled by the revolutionary biometric activated cyber and ID multi-function security card which has been developed by SmartMetric after over a decade of R&D.

 

From governments to the workplace, better, stronger security is desired across the enterprise. Our new biometric multifunction security card provides a revolutionary biometric based solution that is portable, easily integrated and backward compatible to existing backend security infrastructure.

 

The new multifunction biometric security card by SmartMetric is a revolutionary leap forward in the Cyber and Access Security world according to SmartMetric.

 

Access management market is estimated to grow from USD 8.09 billion in 2016 to USD 14.82 billion by 2021, at a CAGR of 12.9% between 2016 and 2021 according to a recent research report by KBV Research in a publication titled Identity & Access Management Market – Global Forecast by Marqual IT Solutions Pvt. Ltd (KBV Research) November 2016 KBV Research is a name owned by IT Solutions Pvt. Ltd.

 

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Biometrics

 

Biometric technologies identify users by electronically capturing a specific biological or behavioral characteristic of that individual, such as a fingerprint or voice or facial feature, and creating a unique digital identifier from that characteristic. Because this process relies on largely unalterable human characteristics, positive identification can be achieved independent of any information possessed by the individual seeking authorization.

 

The process of identity authentication typically requires that a person present for comparison with one or more of the following factors:

 

  Something known such as a password, PIN or mother’s maiden name;

 

  Something carried such as a token, card, or key; or

 

  something physical such as fingerprint, voice pattern, signature motion, facial shape or other biological or behavioral characteristic.

 

Comparison of biological and behavioral characteristics has historically been the most reliable and accurate of the three factors but has also been the most difficult and costly to implement into a single product that can automatically verify the identity of a user accessing a computer network or the Internet. However, recent advances in biometric collection technologies (both biometric hardware products and their associated processing software) have increased the speed and accuracy and reduced the cost of implementing biometrics in commercial environments. Management believes that individuals, website operators, government organizations, and businesses will increasingly use this method of identity authentication.

 

Biometrics refers to the automatic identification of a person based on his/her physiological or behavioral characteristics. This method of identification is preferred over traditional methods involving passwords and personal identification numbers (“PINs”) for two reasons: (i) the person to be identified is required to be physically present at the point of identification to be identification; and (ii) identification based on biometric techniques obviates the need to remember a password or carry a token. By replacing PINs, biometric techniques can potentially prevent unauthorized access to or fraudulent use of cellular phones, Biometric cards, desktop PCs, workstations and computer networks. It can be used during transactions conducted via telephone and Internet (e-commerce and e-banking). In automobiles, biometrics could replace keys-less entry devices. The SmartMetric fingerprint activated credit card that has the fingerprint encased inside the credit card has been developed to replace the less secure PIN’s for credit and debit cards.

 

PINs and passwords may be forgotten, may be hacked and token-based methods of identification, e.g., passports and driver’s licenses, may be forged, stolen or lost. Various types of biometric systems are being used for real-time identification, with the most popular based on facial recognition and fingerprint matching. Other biometric systems utilize iris and retinal scanning, speech, facial thermograms and hand geometry. Of the biometric options available to work with a credit or debit card, fingerprint scanning is the only biometric methodology that has been successfully reduced in size to fit inside such cards.

 

A biometric system is essentially a pattern recognition system, which makes a personal identification by determining the authenticity of a specific physiological or behavioral characteristic possessed by the user. An important issue in designing a practical system is to determine how an individual is identified.

 

There are two different ways to resolve a person’s identity; verification and identification. Verification (Am I whom I claim I am?) involves confirming or denying a person’s claimed identity. In identification, one has to establish a person’s identity (Who am I?).

 

As stated above, the SmartMetric fingerprint biometric card has been designed as a credit-card sized card embedded with an integrated circuit, contact chip and biometric fingerprint sensor. The SmartMetric card has been designed to provide not only memory capacity, but also computational capability along with secure non-refutable identification of the user. We believe that the self-containment of SmartMetric’s card makes it substantially resistant to attack, as it will not need to depend upon vulnerable external resources. Because of this characteristic, we expect that the SmartMetric biometric card may be used in different applications, which require strong security protection and authentication.

 

The physical structure of a card is specified by the International Standards Organization (“ISO”). Generally, this structure is made up of three elements: (i) the plastic card, which is the most basic one and has the dimensions of 85.60mm x 53.98 x 0.80mm; (ii) an electronic circuit board inlay; and (iii) a contact chip that are embedded in the card.

 

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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.

  

Going Concern

 

As shown in the accompanying consolidated financial statements the Company has incurred recurring losses of $215,296 and $213,327 for the period ending September 30, 2019 and 2018, respectively, and has incurred a cumulative loss of $27,160,484 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 the Company’s significant accounting policies are discussed in Note 2, Summary of Significant Accounting Policies, to our financial statements, included elsewhere in this Quarterly Report. We have identified the following as our significant accounting policies and estimates, which are defined as those that are reflective of significant judgments and uncertainties, are the most pervasive and important to the presentation of our financial condition and results of operations and could potentially result in materially different results under different assumptions, judgments or conditions.

 

We believe the following critical accounting policies reflect our more significant estimates and assumptions used in the preparation of our financial statements:

 

Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying disclosures. Actual results may differ from those estimates.

  

Research and Development Costs - Research and development costs are charged to expense as incurred. Our research and development expenses consist primarily of expenditures for electronics design and engineering, software design and engineering, component sourcing, component engineering, manufacturing, product trials, compensation and consulting costs.

 

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Results of Operations

 

Comparison of the Three Months Ended September 30, 2019 and 2018

 

Our results of operations have varied significantly from year to year and quarter to quarter and may vary significantly in the future. We did not have revenue for the three months ending September 30, 2019 and 2018. Net loss for the three months ended September 30, 2019 and 2018 were $215,296 and $213,327, respectively, resulting from the operational activities described below.

 

Operating Expenses

 

Operating expense totaled $201,471 and $200,864 during the three months ended September 30, 2019 and 2018, respectively. The decrease in operating expenses is the result of the following factors.

 

    Quarter Ended
September 30
    Change in 2019
Versus 2018
 
    2019     2018     $     %  
Operating expense                                
Officer salary   $ 47,500     $ 47,500     $       (0 )%
Research and development     21,112       29,360       (8,248 )     (28.1 )%
General and administrative     132,859       124,004       8,855       7.1 %
Total operating expense   $ 201,471     $ 200,864     $ 607       0 %

 

Research and Development

 

Research and development expenses totaled $21,112 and $29,360 for the three months ended September 30, 2019 and 2018, respectively. The decrease of $8,248, or 18.1%, in 2019 compared to 2018 was primarily attributable to decreased engineering expenses. Our research and development expenses consist primarily of expenditures related to engineering.

 

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General and Administrative

 

General and administrative expenses totaled $132,859 and $124,004 for the three months ended September 30, 2019 and 2018, respectively. The increase of $8,855 or 7.1%, in 2019 compared to 2018 was primarily the result of an increase in consulting expenses. Our general and administrative expenses consist primarily of expenditures related to employee compensation, legal, accounting and tax, other professional services, and general operating expenses.

 

Other Expense

 

Other income (expense) totaled $13,825 and $12,463 for the three months ended September 30, 2019 and 2018, respectively.

 

    Quarter Ended
September 30
    Change in 2019
Versus 2018
 
    2019     2018     $     %  
                         
Interest Expense     13,825       12,463       1,362       10.9 %
Total operating expense   $ 13,825     $ 12,463     $ 1,362       10.9 %

 

Interest expense

 

We had net interest expense of $13,825 in the three months ended September 30, 2019 compared to $12,463 net interest expense for the three months ended September 30, 2018. The increase of $1,362 was attributable to interest expenses related to accrued but unpaid salary of our CEO pursuant to an amended and restated employment agreement entered into on July 1, 2017.

 

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Liquidity and Capital Resources

 

We have incurred losses since our inception in 2002 as a result of significant expenditures for operations and research and development and the lack of any revenue. We have an accumulated deficit of $27,160,484 as of September 30, 2019 and anticipate that we will continue to incur additional losses for the foreseeable future. Through September 30, 2019, we have funded our operations through the private sale of our equity securities and exercises of options and warrants, resulting in gross proceeds of approximately $24.9 million from inception through September 30, 2019. Cash overdraft at September 30, 2019 was $4,609.

 

    Three months ended
September 30,
    Change in 2019
versus 2018
 
    2019     2018     $     %  
                   
Cash at beginning of period   $ 10,161     $ 4,427     $ 5,734       129.5 %
Net cash used in operating activities     204,826       142,018       62,808       44.2 %
Net cash used in investing activities                        
Net cash provided by financing activities     190,056       148,770       41,286       27.8 %
Cash at end of period   $ -0-       11,179     $ (15,788 )     (141.2 %)

 

Net Cash Used in Operating Activities

 

Net cash used in operating activities was $204,826 and $142,018 for the three months ended September 30, 2019 and 2018, respectively. The increase of $62,808 in cash used during 2019 compared to 2018 was primarily attributable to an increase in consultant costs.

 

Net Cash Used in Investing Activities

 

Cash used in investing activities was $0 and $0 for the three months ended September 30, 2019 and 2018, respectively.

 

Net Cash Provided by Financing Activities

 

During the three months ended September 30, 2019, net cash provided by financing activities was 190,056, compared to $148,770 for the three months ended September 30, 2018. The increase of $41,286 was due to higher sales of the Company’s securities in private placements. We continue to seek funding through private placement sales of equity to fund our continued operations, sales and marketing and ongoing research and development programs.

 

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

We are not required to provide the information required by this item as we are considered a smaller reporting company, as defined by Rule 229.10(f)(1).

 

ITEM 4. CONTROLS AND PROCEDURES

 

We maintain “disclosure controls and procedures,” as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

 

In connection with the preparation of this Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(c) and 15d-15(e) under the Exchange Act) are not effective to ensure that information required to be disclosed by us in report that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms and to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer, as appropriate to allow timely decisions regarding required disclosure.

 

Limitations on Controls

 

Management does not expect that the Company’s disclosure controls and procedures or the Company’s internal control over financial reporting will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. The Company’s disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives and the Company’s chief executive officer and chief financial officer have concluded that the Company’s disclosure controls and procedures are not effective at that reasonable assurance level due to the material weakness described below.

 

Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions are being performed by separate individuals. Management evaluated the impact of our failure to have segregation of duties in all of our financially significant processes and have concluded that this control deficiency represented a material weakness. We plan to remediate this weakness over the next 12 months.

 

Notwithstanding the assessment that our disclosure controls and procedures and our internal controls over financial reporting were not effective and that there are material weaknesses as identified herein, we believe that our condensed consolidated financial statements contained in this Quarterly Report fairly present our financial position, results of operations and cash flows for the periods covered thereby in all material respects.

 

Changes in Internal Controls

 

During the three months ended September 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.

 

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PART II. OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

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.

 

ITEM 1A. RISK FACTORS

 

In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in Part I, Item 1A in our Annual Report on Form 10-K for the year ended June 30, 2019 filed with the SEC on September 30, 2019 and our subsequent filings with the Securities and Exchange Commission, which could materially affect our business, financial condition or future results. These cautionary statements are to be used as a reference in connection with any forward-looking statements. The factors, risks and uncertainties identified in these cautionary statements are in addition to those contained in any other cautionary statements, written or oral, which may be made or otherwise addressed in connection with a forward-looking statement or contained in any of our subsequent filings with the Securities and Exchange Commission.

 

As of September 30, 2019, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

The following information is given with regard to unregistered securities sold since January 1, 2019 and not previously reported on a Current Report on Form 8-K. The following securities were issued in private offerings pursuant to the exemption from registration contained in the Securities Act and the rules promulgated thereunder in reliance on Section 4(a)(2) thereof of the Securities Act of 1933, as amended and Regulation D and Regulation S promulgated thereunder, relating to offers of securities by an issuer not involving any public offering.

 

  During the three months ended September 30, 2019, the Company sold for cash 6,337,500 shares of common stock and warrants to purchase: (i) 6,337,500 shares at prices ranging from $0.10 per share to $0.25 per share for net proceeds of $133,495. The warrants expire at various times through September 17, 2021.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not Applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

 

20

 

  

ITEM 6. EXHIBITS

 

INDEX TO EXHIBITS

 

        Filed or Furnished   Incorporated by Reference 
Exhibit No.   Description   Herewith   Form   Exhibit No.   Filing Date
31.1   Certification by the Principal Executive Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)).   X              
                     
31.2   Certification by the Principal Financial Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)).   X              
                     
32.1   Certification by the Principal Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *   X              
                     
32.2   Certification by the Principal Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *   X              
                     
101.INS   XBRL Instance Document X              
                     
101.SCH   XBRL Taxonomy Extension Schema Document X              
                     
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document X              
                     
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document X              
                     
101.LAB   XBRL Taxonomy Extension Label Linkbase Document X              
                     
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document X              

 

  * In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed

 

21

 

  

SIGNATURE

 

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  SMARTMETRIC, INC.
     
Dated: November 14, 2019 By: /s/ Chaya Hendrick
    Chaya Hendrick, President,
Chief Executive Officer and Chairman
(Principal Executive Officer)
     
Dated: November 14, 2019 By: /s/ Jay Needelman
    Jay Needelman, Chief Financial Officer
(Principal Financial Officer)

 

22

 

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