SmartMetric, Inc. - Annual Report: 2019 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

☒ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended June 30, 2019

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

For the transition period from __ to_______________________________

Commission File Number: 0-54853

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

Securities registered under Section 12(b) of the Exchange Act:

Securities registered pursuant to section 12(g) of the Act:

Common Stock, par value $0.001 per share

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.

TABLE OF CONTENTS

FORWARD LOOKING STATEMENTS

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:

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:

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 (180^th) 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:

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:

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.

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.

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.

Not Applicable

PART II

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.

Not Applicable as we are a smaller reporting company.

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

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.

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.

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.

Not Applicable.

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.

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.

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

PART III

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.

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.

 

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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.

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(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.

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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.

21

 

 

●

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. 

 

Item 15.

Exhibits, Financial Statements Schedules

 

1.

Financial Statements: See “Index to Financial Statements” in Part II, Item 8 of this Form 10-K.

 

2.

Exhibits: The exhibits listed in the accompanying index to exhibits are filed or incorporated by reference as part of this Form 10-K.

 

Certain of the agreements filed as exhibits to this Form 10-K contain representations and warranties by the parties to the agreements that have been made solely for the benefit of the parties to the agreement. These representations and warranties:

 

●

may have been qualified by disclosures that were made to the other parties in connection with the negotiation of the agreements, which disclosures are not necessarily reflected in the agreements;

●

may apply standards of materiality that differ from those of a reasonable investor;

●

and were made only as of specified dates contained in the agreements and are subject to later developments.

 

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time, and investors should not rely on them as statements of fact.

 

22

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	SMARTMETRIC, INC.
Date: September 30, 2019	By:	/s/ Chaya Hendrick
		Chaya Hendrick
		President, Chief Executive Officer and Chairman (Principal Executive Officer)

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Name		Title		Date
/s/ Chaya Hendrick		Chief Executive Officer and Director		September 30, 2019
Chaya Hendrick		(principal executive officer)
/s/ Jay Needelman		Chief Financial Officer		September 30, 2019
Jay Needelman		(principal financial and accounting officer) and Director
/s/ Elizabeth Ryba		Director		September 30, 2019
Elizabeth Ryba

 

23

 

 

SMARTMETRIC INC. AND SUBSIDIARY  

CONSOLIDATED FINANCIAL STATEMENTS  

YEARS ENDED JUNE 30, 2019 AND 2018

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS	F-2 - F-3
CONSOLIDATED BALANCE SHEETS FOR THE YEARS ENDED JUNE 30, 2019 AND 2018	F-4
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED JUNE 30, 2019 AND 2018	F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JUNE 30, 2019 AND 2018	F-6
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT FOR THE YEARS ENDED JUNE 30, 2019 AND 2018	F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	F-8

 

F-1

 

  

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

  

To the Board of Directors and Stockholders of

Smartmetric, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying balance sheet of Smartmetric, Inc. (the “Company”) as of June 30, 2019 and the related statements of operations, stockholders’ (deficit), and cash flows for the year ended June 30, 2019, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2019, and the result of its operations and its cash flow for the year ended June 30, 2019, in conformity with accounting principles generally accepted in the United States of America.

 

Emphasis of Matter

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has incurred recurring losses which raises substantial doubt about its ability to continue as a going concern. Management’s plans concerning these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ Prager Metis CPAs, LLC

 

We have served as the Company’s auditor since 2019
Basking Ridge, New Jersey

September 30, 2019

 

F-2

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

  

To the Board of Directors and Stockholders of

Smartmetric, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying balance sheets of Smartmetric, Inc. (the “Company”) as of June 30, 2018 and June 30, 2017 and the related statements of operations, stockholders’ (deficit), and cash flows for each of the years in the two-year period ended June 30, 2018, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2018 and June 30, 2017, and the results of its operations and its cash flows for each of the years in the two-year period ended June 30, 2018 in conformity with accounting principles generally accepted in the United States of America.

 

Emphasis of Matter

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has no revenues, has negative working capital at June 30, 2018, has incurred recurring losses and recurring negative cash flow from operating activities, and has an accumulated deficit which raises substantial doubt about its ability to continue as a going concern. Management’s plans concerning these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ AMC Auditing

 

AMC Auditing
We have served as the Company’s auditor since 2017

Las Vegas, Nevada

October 5, 2018

 

F-3

 

 

SMARTMETRIC, INC. AND SUBSIDIARY

Consolidated Balance Sheets

  

		June 30,				June 30,
		2019				2018
Assets
Current assets:
Cash		$	10,161			$	4,427
Receivables			-				10,400
Prepaid expenses and other current assets			6,450				8,767
Total current assets			16,611				23,594
Total assets		$	16,611			$	23,594
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable and accrued expenses		$	880,390			$	730,794
Liability for stock to be issued			147,484				103,718
Deferred Officer's salary			790,015				663,348
Related party interest payable			93,488				40,055
Dividends payable			3,123				-
Credit card payable			3,750				-
Shareholder loan			3,759				15,000
Total current liabilities			1,922,009				1,552,915
Commitments and Contingencies (Note 4 and 8)
Series C mandatory redeemable convertible preferred stock, net of discount, authorized 1,000,000 shares 121,700 and 0 shares issued and outstanding, respectively			99,278				0
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, 264,648,821 and 249,147,547 shares issued and outstanding , respectively			264,649				249,148
Additional paid-in capital			24,663,528				24,217,831
Accumulated deficit			(26,933,463	)			(25,996,910	)
Total stockholders' deficit			(2,004,676	)			(1,529,321	)
Total liabilities and stockholders' deficit		$	16,611			$	23,594

 

See notes to consolidated financial statements.

 

F-4

 

  

SMARTMETRIC, INC. AND SUBSIDIARY

Consolidated Statements Of Operations

  

		Year Ended				Year Ended
		June 30,				June 30,
		2019				2018
Revenues		$	-			$	-
Expenses:
Officer's salary			190,000				190,000
Other general and administrative			577,756				683,329
Research and development			107,962				129,375
Total operating expenses			875,718				1,002,704
Loss from operations before other expense			(875,718	)			(1,002,704	)
Other expense:
Interest expense			(53,432	)			(39,084	)
Loss on patent impairment			-				(600,000	)
Total other expense			(53,432	)			(639,084	)
Loss before income taxes			(929,150	)			(1,641,788	)
Provision for income taxes			-				-
Net loss			(929,150	)			(1,641,788	)
Preferred stock dividends			(7,401	)			-
Net loss available for common stockholders		$	(936,551	)		$	(1,641,788	)
Net loss per share, basic and diluted		$	(0.00	)		$	(0.01	)
Weighted average number of common shares outstanding, basic and diluted			256,676,745				240,133,406

 

See notes to consolidated financial statements.

 

F-5

 

  

SMARTMETRIC, INC. AND SUBSIDIARY

Consolidated Statements Of Cash Flows 

 

		Year Ended				Year Ended
		June 30,				June 30,
CASH FLOWS FROM OPERATING ACTIVITIES		2019				2018
Net loss		$	(936,551	)		$	(1,641,788	)
Adjustments to reconcile net loss to net cash used in operating activities:
Asset impairment			-				600,000
Common stock issued and issuable for services			-				66,824
Changes in assets and liabilities
Decrease in prepaid expenses and other current assets			2,317				50,560
(Decrease) increase in accounts payable and accrued expenses			149,596				104,822
Increase in deferred officer salary			126,667				142,500
Increase (decrease) in credit card debt			3,750				-
Increase (decrease) in allowance for bad debt			10,400				-
Increase (decrease) in dividends payable			1,458				-
Increase in accrued interest payable			53,433				39,084
Net cash used in operating activities			(588,930	)			(637,998	)
CASH FLOWS FROM FINANCING ACTIVITIES
Loans from related parties			(11,241	)			10,200
Proceeds from sale of common stock			507,782				580,530
Proceeds from sale of Series C Preferred stock			95,000				-
Dividends payable			3,123				-
Net cash provided by financing activities			594,664				590,730
NET INCREASE (DECREASE) IN CASH			5,734				(47,268	)
CASH AT BEGINNING OF YEAR			4,427				51,695
CASH AT END OF YEAR		$	10,161			$	4,427
CASH PAID DURING THE YEAR FOR:
Income taxes		$	-			$	-
Interest		$	-			$	-

 

See notes to consolidated financial statements.

 

F-6

 

  

SMARTMETRIC, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders’ Equity (Deficit)

 

										Class A																Additional
		Preferred Stock								Common Stock								Common Stock								Paid-In				Accumulated
		Shares				Amount				Shares				Amount				Shares				Amount				Capital				Deficit				Total
Balance June 30, 2017			410,000			$	410				-			$	-				226,172,799			$	226,173			$	22,778,252			$	(24,346,047	)		$	(1,341,212	)
Series B Preferred			200,000				200				-				-				-				-				599,800				200				600,000
Shares issued of common stock and warrants for services rendered			-				-				-				-				1,083,948				1,083				65,742				-				66,825
Shares issued of common stock and warrants for cash			-				-				-				-				21,891,800				21,892				774,037				-				795,929
To adjust for prior period expense			-				-				-				-				-				-				-				(9,075	)			(9,075	)
Net loss for period			-				-				-				-				-				-				-				(1,641,788	)			(1,641,788	)
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			-				-				-				-				15,501,274				15,501				445,697				-				461,198
Dividends																															(7,401	)			(7,401	)
Net loss for the period			-				-				-				-				-				-				-				(929,150	)			(929,150	)
Balance June 30, 2019			610,000			$	610				-			$	-				264,648,821			$	264,649			$	24,663,528			$	(26,933,461	)		$	(2,004,674	)

  

F-7

 

  

SMARTMETRIC INC. AND SUBSIDIARY 

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. 

 

F-8

 

  

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.

 

F-9

 

  

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.

 

F-10

 

  

SMARTMETRIC INC. AND SUBSIDIARY 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 4 -

COMMITMENTS

 

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.

 

F-11

 

  

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.

 

F-12

 

  

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. 

 

F-13

 

 

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.

 

NOTE 7 -

INCOME TAXES

 

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	)
		$	—			$	—

 

F-14

 

  

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.

 

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.   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.

 

F-15

 

  

INDEX TO EXHIBITS

 

Exhibit				Incorporated by Reference						Filed or Furnished
Number		Exhibit Description		Form		Exhibit		Filing Date		Herewith
3.01		Articles of Incorporation of SmartMetric, Inc. filed 12/18/02		SB-2		3.1		9/3/04
3.02		Amendment to Articles of Incorporation dated 12/11/09		8-K		3.1		12/18/09
3.03		Amendment to Articles of Incorporation dated June 8, 2016		10-K		3.5		9/28/16
3.04		Certificate of Designation of Series B Preferred Stock		8-K		3.2		12/18/09
3.05		Amendment to Certificate of Designation of Series B Preferred Stock dated 11/5/14		10-Q		3.1		11/14/14
3.06		Amendment to Certificate of Designation of Series B Preferred Stock dated 6/8/16		10-K		3.4		9/28/16
3.07		Amended and Restated Bylaws of SmartMetric		8-K		3.1		4/26/16
3.08		Series C Preferred Stock Certificate of Designations dated 1/14/19		8-K		3.1		1/18/19
4.01		Common Stock Certificate Specimen		SB-2		4.1		9/3/04
4.02		Form of Warrant issued to May 2013 Investor		8-K		4.1		5/28/13
4.03		Form of Warrant issued to investors between 2015 – 2017		10-K		4.03		10/13/17
4.04*		SmartMetric, Inc. 2017 Equity Compensation Plan		10-Q		4.04		11/14/17
4.05*		Form of Option Grant under 2017 Equity Compensation Plan		10-Q		4.05		11/14/17
4.06*		Form of Restricted Stock Grant under 2017 Equity Compensation Plan		10-Q		4.06		11/14/17
4.07*		Form of Restricted Stock Unit Grant under 2017 Equity Compensation Plan		10-Q		4.07		11/14/17
10.01*		Assignment and Assumption Agreement dated 11/12/12 with Applied Cryptography		8-K		10.1		11/16/12
10.02		Subscription Agreement with May 2013 Investor		8-K		10.1		5/28/13
10.03*		Employment Agreement dated July 1, 2012 with Chaya Hendrick and Addendum dated 9/30/15		8-K		10.8		10/5/15
								10/13/17
10.04*		Assignment and Assumption dated 9/3/13 with Applied Cryptography		10-K		10.04
10.05		Form of Securities Purchase Agreement with investors used between 2015 - 2017		10-K		10.05		10/13/17
10.06*		Employment Agreement with Chaya Hendrick dated July 1, 2017		10-K		10.06		10/13/17
10.07*		Issued Patent License and Royalty Agreement dated 9/11/17 with Chaya Hendrick		10-K		10.07		10/13/17
10.08*		Jay Needelman Services Agreement		10-K/A		10.01		10/27/17
10.09		Manufacturer’s Representative Agreement		8-K		10.01		12/26/17
10.10		Agreement by and between the Company and Hogier Gartner CIA S.A. dated February 16, 2018		8-K		10.1		2/23/18

 

23

 

 

10.11		2018 Professional/Consultant Stock Compensation Plan		S-8		10.1		1/18/18
10.12		Securities Purchase Agreement by and between the Company and Geneva Roth Remark Holdings, Inc., dated January 9, 2019		8-K		10.1		1/18/19
14.01		SmartMetric Code of Ethics		SB-2		16.1		9/3/04
21.01		Subsidiaries of the Registrant		S-B/A		21.1		2/3/05
23.01		Consent of AMC Auditing, LLC								X
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								X
101.CAL		XBRL Taxonomy Extension Calculation Linkbase								X
101.DEF		XBRL Taxonomy Extension Definition Linkbase								X
101.LAB		XBRL Taxonomy Extension Label Linkbase								X
101.PRE		XBRL Taxonomy Extension Presentation Linkbase								X

 

* Management contracts or compensation plans or arrangements in which directors or executive officers are eligible to participate.

 

 

24