UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
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ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended June 30, 2014 |
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TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from __ to_______________________________ |
Commission File Number: 0-54853
SMARTMETRIC,
INC |
(Exact name of registrant as specified in its charter) |
Nevada |
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05-0543557 |
(State or other jurisdiction of |
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(I.R.S. Employer identification No.) |
incorporation or organization) |
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3960 Howard Hughes Parkway, Suite 500, Las Vegas NV |
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89109 |
(Address of principal executive offices) |
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(Zip Code) |
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Registrant’s telephone number, including area code |
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(702) 990.3687 |
Securities registered under Section 12(b)
of the Exchange Act:
Title of each class |
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Name of each exchange on which registered |
N/A |
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N/A |
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 x 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
x 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.
x Yes
¨ No
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).
¨
Yes x No
Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act.
Large accelerated filer ¨ |
Accelerated filer ¨ |
Non-accelerated filer ¨ (Do not check if a smaller reporting company) |
Smaller reporting company x |
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Act).
¨ Yes
x No
The aggregate market value of the voting
and non-voting common equity held by non-affiliates was $20,934,744 computed by reference to the closing price of the registrant’s
common stock as quoted on the Over-the-Counter Bulletin Board on December 31, 2013 (which was $0.13 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 8, 2014, there are presently 167,707,937 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” refer to SmartMetric, Inc.
This Annual Report on Form 10-K contains
forward-looking statements regarding our business, financial condition, results of operations and prospects. Words such as “expects,”
“anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates”
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.
Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically
addressed under the headings “Risks Factors” and “Management’s Discussion and Analysis of Financial Condition
and Results of Operations.” You are urged not to place undue reliance on these forward-looking statements, which speak only
as of the date of this Annual Report on Form 10-K. We file reports with the SEC. The SEC maintains a website (www.sec.gov) that
contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC,
including us. You can also read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street,
NE, Washington, DC 20549. You can obtain additional information about the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330.
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 law. 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
Item 1. Business
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 has an issued patent to utilize technology that involves connection
to networks using data cards. SmartMetric’s main product is a fingerprint sensor activated card with a finger sensor onboard
the card and built inside the card a fingerprint reader with a rechargeable battery for portable biometric identification. This
card may be referred to as a biometric card or the SmartMetric Biometric Datacard.
On September 14, 2004, C. Hendrick received
a United States patent, U.S. Patent No. 6,792,464 (the “’464 Patent”) with regard to the use of the biometric
card. C Hendrick transferred the ‘464 Patent, to Applied Cryptography, Inc., a Nevada corporation, owned by C. Hendrick,
in June 2004 (“ACI”). On December 11, 2009, the Company entered into an Assignment and Assumption Agreement (“Assignment
Agreement”) with ACI pursuant to which ACI assigned all or its rights, title and interest to the ‘464 Patent to the
Company in exchange for 200,000 shares of the Company’s series B preferred stock. In connection with the Assignment Agreement,
on December 11, 2009, the Company and ACI entered into an option agreement pursuant to which the Company agreed to grant ACI an
option to purchase the ‘464 Patent from the Company for 100,000 shares of the Company’s series B preferred stock, only
in the event that Company fails to generate at least $1,000,000 in gross revenues attributable to the Patent at the conclusion
of 24 months from the date of Assignment Agreement. As the option has expired the Company owns the ‘464 Patent outright.
SmartMetric has no off-balance sheet arrangements
that are reasonably likely to have a material current or future effect on SmartMetric's financial condition, results of operations
or liquidity.
The SmartMetric Biometric Technology
And Products
SmartMetric's founder, C. Hendrick has
designed various miniature biometric activated devices including the SmartMetric Medical Keyring. The Medical Keyring is a device
designed to carry a person's complete medical files on a keyring so as to fit into a pocket or purse with the health records information
secured from unauthorized access by the information owners biometrics (fingerprint). The device is self powered with an internal
rechargeable battery that powers the device in order to perform a fingerprint authorization in situations such as the bedside in
an ER room. The Medical Keyring has an internal records management system that manages the person's medical data including DICOM
formatted medical images such as x-rays, mammograms, CT Scans etc. The device has as well, a standard USB connector allowing the
biometric authorized medical files to be viewed on any Hospital or Doctor's windows PC anywhere in the World. The Medical Keyring
delivers portability, convenience, immediate access to a person’s medical files while being protected by the person's Biometrics.
SmartMetric has developed an even smaller
biometric self-powered fingerprint reader that is of a scale to fit "inside" a standard credit or debit card. The card
holder 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 card holder held in the internal electronic memory of the card. The card has a surface mounted
chip as found on smartcards that is activated or turned on only after a card holders fingerprint has been scanned and verified
using the SmartMetric miniature “in-card" biometric scanner.
There are over 1.65 Billion EMV smartcards
used by Banks around the World for both Credit Cards and ATM Cards. SmartMetric sees this existing user base as a natural market
for its advanced security biometric activated card technology. SmartMetric plans to market its in-card biometric solution as a
security advancement to the less secure personal identification number (PIN) used in current cards.
(photo of a typical retail chip card reader)
SmartMetric has completed development of
its card. It will manufacture the card under contract with an existing card manufacturer based in Asia. The estimated current card
production capacity of the contract card manufacturer is 250,000 cards per week with ability to upscale this production capacity.
We expect that card production will commence within 90 days following the closing of the current institutional round of funding
being done to fund mass production. The biometric card product, due to exposure in specialty trade publications and numerous press
releases, is receiving much interest in the private sector. The company has also commenced a marketing program in Europe with a
sales office based in London engaged in presenting the biometric EMV card solution to banks in the United Kingdom and throughout
Europe. The company plans on moving forward with marketing to Banks and card issuing institutions in Europe, Asia and South America
over the next 12 to 18 months after which and following the adoption of chip cards in the United States the company will then focus
marketing to Banks and card issuing companies in the USA.
The SmartMetric biometric fingerprint activated card has several
functions:
| ● | The card holders fingerprint is stored inside the card and NOT on a central computer; |
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| ● | Interoperable with existing smart card, EMV ATM and Retail Point Of Sale Machines; |
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| ● | The fingerprint sensor facilitates instant authorization verification; |
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| ● | Self powered with own internal rechargeable battery to allow for fingerprint activation prior to
insertion into a card reading device such as an ATM in Retail Card Reading machine; |
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| ● | In card biometric measurement storage safeguards personal information; |
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| ● | In card biometric storage permits access, identity and transaction control verification; |
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| ● | Instant identity verification will be more secure than central online or electronic wallet systems
since such information on the SmartMetric Card is contained in the card and not in a centralized database or an always connected
phone device. The SmartMetric Biometric fingerprint activated Datacard is a credit card size plastic card. On the card’s
surface are two components. The first is a standard Smartcard chip that is a standard interface that connects to universal serial
bus (USB) computer smartcard readers, teller machine (ATM) machines and smartcard (POS) point-of-sale machines in retail outlets.
The second component is a sensor that protrudes through the card’s surface. This sensor is connected to a sophisticated miniature
circuit board that allows the sensor to read a person’s fingerprint and match it with the user’s pre-stored fingerprint
encrypted and resident inside the circuit board. After a match between the users fingerprint and the pre-stored users
fingerprint stored inside the card, the internal card processor unlocks and activates the surface mounted SmartCard Chip. Forms
of the SmartMetric fingerprint activated biometric card involve insertion within proximity to a wireless proximity physical reader
or to a physical data card reader requiring physical insertion into the card reader. The challenge SmartMetric sought to overcome
was having a truly portable identification credential that incorporated biometrics and yet was the standard size of an employee
ID card, Credit Card or driver’s license. As it stood, standard biometric fingerprint scanners were too large to fit inside
a credit card sized card and none were portable having the to be attached to a computer that powered the scanning process thereby
not allowing for portability. In order to achieve the goal of biometric authentication with portability in the form factor to fit
inside a user’s wallet or purse and work across both computer and banking platforms, SmartMetric had to achieve incredible
reductions in the size of electronics and develop specialized mass manufacturing techniques. |
The SmartMetric Biometric card contains
active and passive components mounted onto a paper-thin circuit board. Reducing a powerful processor to a thin sliver of silicon
along with many other complex computer components including memory chips and then mounting them on the super thin board that of
itself has required innovations in electronic assembly and manufacturing. SmartMetric has created the world’s first
and to its knowledge the only portable biometric fingerprint scanner that resides inside a credit card sized card and acts independently
of any other computing device for use with the banking standard EMV chip used in credit and debit cards.
Unlike a picture-based identification system,
the SmartMetric biometric card has been designed to operate exclusively with the registered user. And unlike biometric security
systems where the biometric information is stored at a central location, the Company believes that security is significantly increased
during the verification process since the biometric information is embedded in the card itself, in a memory chip protected by encryption
and no user fingerprint data is traveling over a network. The built-in fingerprint scanner is designed to activate the card. Without
a match with the encrypted fingerprint already stored in the card, the SmartMetric Biometric card will not operate.
SmartMetric, Inc. sees a significant market
for its biometric fingerprint activated credit cards to enhance the security of bank issued EMV Chip Cards around the World. There
are more than 1.65 Billion issued EMV Credit and ATM Cards in the World that have a chip that stores credit card information but
still rely on a user entered PIN at the ATM or Point Of Sale machine to verify the Card user. The reliance on a PIN for these new
kinds of Credit & ATM Cards still leaves them vulnerable to hackers because of the use of PIN’s that are still proving
to be highly vulnerable to hackers. Adding biometrics to for these cards with a person’s fingerprint to activate the card
provides the next level of security for the 1.65 Billion cards already issued around the World.
In 2011 both Visa and MasterCard announced
that they will be introducingEMV chip Credit / ATM Cards based on the same EMV chip card technology already used in most banking
systems around the World, in the United States. Both Visa and MasterCard are actively involved in the deployment of EMV cards in
the United States with major National Banks actively issuing such cards.
The SmartMetric in-card fingerprint scanner
will allow for a person to use their fingerprint to activate their Credit Card or ATM Card. For the banking and card industry it
will allow for a much more secure verification process then the solely a PIN based card security system.
In addition to the Financial Services Sector,
the Company believes its SmartMetric Biometric Card may be used for a variety of security applications such as employee identity,
building access and security control, computer network access, driver’s licenses, passports, welfare payments, health insurance,
portable electronic medical records and check cashing identity verification, etc. Additionally, the Biometric Card contains a powerful
on-card processor and encrypted memory, enabling the Biometric Card to not only store the full image of a fingerprint but also
maintain a database capable of storing information such as medical records, financial or banking records or human resource data.
As an online purchasing card, the Biometric
Card helps protect against identity theft and related fraudulent crimes that consumers can be exposed to when making purchases
over the Internet. Unlike conventional credit cards, which require a consumer to type and deliver sensitive information over the
Internet in order to make a purchase, the biometric card is designed to be inserted into the USB port of a computer using a USB
port adapter and any purchasing information can only be released from the card when the owner’s finger print unlocks the
card. The consumer’s information then travels across the Internet encrypted, minimizing exposure to interception by hackers
and identity thieves.
(top side of the SmartMetric electronic
board showing the standard EMV chip along with the biometric fingerprint sensor)
SmartMetric believes
that its biometric card, by way of containing information unique to the individual user inside the card, will be useless in the
hands of others. Unlike a picture-based identification system, the SmartMetric biometric card has been designed to operate exclusively
with the registered user. And unlike biometric security systems where the biometric information is stored on a central database
and can be hacked or intercepted as it travels over a network, the SmartMetric system does not have the users biometric information
leave the card. The fingerprint sensor built into the card has been designed to activate the card. Without a match with the encrypted
fingerprint already stored on the card, the biometric Card will not operate. And since the SmartMetric Biometric Card uses the
banking standard EMV chip as its reader interface it is fully compatible with all chip card ATM’s and point of sale credit
and debit card readers.
The SmartMetric access control and identity
biometric card is a card that authorized persons will carry with them and activate to obtain access. Such activation will take
place by placing a finger on a fingerprint sensor on the surface of the card. The SmartMetric biometric cards are designed to be
read by both contact and contactless card readers. The memory and computational capacities of the biometric card are used to store
a user's fingerprint(s). The computational capacity (cortex processor) is used to process a digitized image from the fingerprint
sensor to confirm a match (or no match) with the fingerprint template. Additional computational processes such as increased cryptography
will depend on the requirements of specific bank and card issuing customers.
(SmartMetric Biometric Card with the top layer partly removed
to show part of the cards internal electronics)
IN CARD FINGERPRINT MATCHING AND VERIFICATION
The fingerprint sensor used in the SmartMetric
biometric card is known as the "Metric 2.0" fingerprint sensor. The Metric 2.0 allows for fingerprints, which are either
wet or dry to be recognized or authenticated. It is also pressure sensitive. SmartMetric purchases its fingerprint sensors from
various third party suppliers. SmartMetric has designed a method of integrating the fingerprint sensor on the card, which is then
connected to a microprocessor, which is connected to a rechargeable power supply in the card and a memory chip for storage, retrieval
and matching of the fingerprint on the card. The miniaturization of the complex electronic components to fit inside the thickness
of an ISO standard credit card is what has been the biggest challenge for the company resulting in the extended amount of time
necessary to complete the card and bring it to the point of being able to be mass produced.
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
SmartMetric. This battery is integrated into the card.
Other components needed for manufacture
of the SmartMetric Biometric Card include, but are not limited to, microchips, memory chips and processor chips. The sources and
availability of these materials are numerous and readily available, and should not affect the ability of SmartMetric to meet future
demand. However, SmartMetric does re-engineer important components at silicon level to achieve the component size and
thinness required to fit inside a Credit Card. Both the supply of memory and processors in silicon wafers may be interrupted
at anytime based on global silicon supply/demand issues and the re-engineering of Silicon by SmartMetric may also cause end component
supply problems from time to time which may affect production.
The biometric card has been designed to
offer the option of a built-in radio frequency transmitter for contactless long and short range access and identity verification. Another
version of the card incorporates a short range RFID contactless chip that is also turned off and on using the card users fingerprint
verification on the Card.
The thinness form factor of many of the
components including the processor itself being an unpackaged wafer of silicon has also resulted in the Company having to develop
its own process for mass electronic assembly. The Company was also challenged in the process of encapsulating the electronics in
plastic creating the credit card sized biometric fingerprint activated card.
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 combination of adjusting the pressure
and heat required using special polymers together with a trade secret process that protects the silicon that is mounted directly
onto the electronics circuit board.
New mass manufacturing machinery has had
to be developed for our manufacturing process along with other advanced processing techniques, including pick and place electronics
manufacturing for mounting non standard thickness, super thin silicon onto our electronic boards.
The challenges described above have delayed
the expected release time of our product overcoming these technological issues has given the Company a product that it will be
able to efficiently produce in large quantities.
The Company is currently concentrating
on building out its manufacturing facility that will be incorporating SmartMetric’s advanced manufacturing processes.
Much of the machinery to be used in the
manufacturing processes has to be specially made and will be shipped from various locations around the world to the Company’s
manufacturing facility in Buenos Aires, Argentina. We will need approximately $3,000,000 of the net proceeds to be
used to complete the production of the machinery to be used in our manufacturing processes.
The SmartMetric Medical Keyring™
On November 12, 2012, the Company entered
into an Assignment and Assumption Agreement (“Keyring Assignment Agreement”) with Applied Cryptography, Inc. (“ACI”)
pursuant to which ACI assigned all or its rights, title and interest to its newly designed and developed electronic electronic
medical records device, the Medical Keyring™ in exchange for 200,000 shares of the Company’s series B preferred stock.
This revolutionary product provides to an individual user the world’s first and only completely portable, self-contained,
guaranteed private, secured by onboard SmartMetric Biometrics Technology electronic medical records storage and delivery device
MEDICAL RECORDS IN ONE SECURE AND PORTABLE
PLACE
SmartMetric will be releasing the SmartMetric
Medical Keyring ™ by the first quarter of 2015, marketed
through direct sales generated by national radio advertising and supported by web based customer purchasing. SmartMetric will also
offer the MedicalKeyring™ through national and international
retail distribution. Discussions are currently being held with one of the largest Pharmacy retailers in the United States. Soon
to follow, SmartMetric will release its fingerprint activated Medical Records Insurance Card, marketed as a co-branded card in
some instances, with selected Health Insurance Providers both in the United States and globally, containing similar functionality
to the Medical Keyring in a credit card sized form factor. Like the Keyring, the SmartMetric electronic medical records card is
the only credit card-sized device in the world with a built-in fingerprint scanner/analyzer. Like its Keyring sibling, the card
comes with up to 128 GB of memory, its own powerful microprocessor, built-in rechargeable battery, and a surface-mounted SmartCard
Interface that facilitates connection to any PC, all within the size of a standard Credit Card.
Medical Records Keyring and the Electronic
Medical Records Card, two products with a singular focus: to provide complete self-contained medical records, protected by the
record owners own Biometrics (fingerprint) and totally portable allowing access whenever and wherever needed. Whether in case of
an emergency in any ER in the world or when visiting any medical practitioner, the person’s medical records will be available
at the touch of the persons fingerprint. The SmartMetric MedicalKeyring™
provides portability with absolute privacy.
In the last quarter of 2013 the Company
released on a small release basis, its MedicalKeyring product. The release was via limited radio advertising in New York with the
focus on testing the market for the product and radio advertising directing interested consumers to the company website for information
and product purchasing. The Company received interest from the advertising with orders placed on its website. The numbers of orders
placed however were insignificant but did show that there was interest in the product. With a small number of users feedback of
the product was obtained which in turn has confirmed the functional use and benefit of the product as a portable storage device
of a person’s medical files while protecting these files with the SmartMetric fingerprint activation technology. Experience
was also gained in respect of the functionality of the products software that in turn has lead us to undertake further work on
developing and improving the products internal software and interface. The Company has decided to focus its engineering development
resources on its Biometric payments card product at this point in time rather than spreading its development resources across two
new product releases. After discussions with a major United States retailer, the Company has decided to now begin selling the MedicalKeyring
in the beginning of 2015. In the meantime discussions are taking place with Health Fund industry companies in respect of offering
the MedicalKeyring to consumers.
The Security Technology Industry
Biometrics
Biometric technologies identify users by
electronically capturing a specific biological or behavioral characteristic of that individual, such as a fingerprint or voice
or facial feature, and creating a unique digital identifier from that characteristic. Because this process relies on largely unalterable
human characteristics, positive identification can be achieved independent of any information possessed by the individual seeking
authorization.
The process of identity authentication
typically requires that a person present for comparison with one or more of the following factors:
• Something known such as a password,
PIN or mother's maiden name; • Something carried such as a
token, card, or key; or
• something physical such as fingerprint, voice pattern, signature motion, facial shape or other biological or behavioral
characteristic.
Comparison of biological and behavioral
characteristics has historically been the most reliable and accurate of the three factors, but has also been the most difficult
and costly to implement into a single product that can automatically verify the identity of a user accessing a computer network
or the Internet. However, recent advances in biometric collection technologies (both biometric hardware products and their associated
processing software) have increased the speed and accuracy and reduced the cost of implementing biometrics in commercial environments.
Management believes that individuals, website operators, government organizations, and businesses will increasingly use this method
of identity authentication.
Biometrics refers to the automatic identification
of a person based on his/her physiological or behavioral characteristics. This method of identification is preferred over traditional
methods involving passwords and personal identification numbers ("PINs") for various reasons: (i) the person to be identified
is required to be physically present at the point of identification to be identification; (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. In fact, SmartMetric is the only company in the World that has created a stand-alone
fingerprint scanner that is built directly inside a Banking Card, allowing SmartMetric to be the only provider of a stand-alone
biometric solution that can be deployed in any Banking Chip Card that replaces the security vulnerable PIN numbers.
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 plastic card embedded with an integrated circuit 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 will make 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, it is made up of three elements. The plastic card is
the most basic one and has the dimensions of 85.60mm x 53.98 x 0.80mm, with a printed circuit and an integrated circuit chip that
are embedded in the card.
The SmartMetric card has been designed
so that it conforms to ISO standards. The printed circuit is a part of, and not distinct from, the biometric card. The printed
circuit is intended to protect the circuit chips from mechanical stress and static electricity. Communication with the chip is
accomplished through contacts that overlay the printed circuit. The integrated circuit chip defines the capability of a smart chip.
Typically, an integrated SmartCard circuit chip consists of a microprocessor, read only memory (ROM), non-static random access
memory and electrically erasable programmable read only memory which retain its state when the power is removed. The current circuit
chip is made from silicon, which is not flexible and may be subject to break. In order to avoid breakage when the card is bent,
the chip is restricted to only a few millimeters in size. Also the Card itself is internally stiffened in order to protect
the electronics from damage by users. SmartCard circuit chips are all low power and low memory chips that can only do very basic
functions. It is these chips that are used in the EMV Cards used in the Banking and Credit Card industry. They
normally only have 8,000 bytes of memory.
SmartMetric attaches this standard Smart
Card chip to the internal circuit board and connects it electronically to a further powerful processor chip and memory chip. Thereby
advancing many fold both the memory and processing capacity giving a Smart Card the power and in many cases the functionality of
a portable computer. The processor inside the SmartMetric fingerprint scanning card is an ARM 9 or ARM 7 processor
attached to up to 123 Gigabytes of memory.
The communication line between the card
and ATM’s and other standard Smart Card reading devices is bi-directional serial transmission, which conforms to ISO standards.
All the data exchanges are under the control of the central processing unit in the integrated processor chip inside the Card. 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.
Sales and Marketing
We plan to market and sell our product
to commercial and banking interests in the private sector and governmental agencies such as the Department of Homeland Security
and the Department of Defense. As noted previously, we have received interest in the product from the aforementioned.
We will need to expend resources further
to develop our own marketing and sales force in various regions of the World. The company is receiving inquiries from financial
institutions and government sales organizations from around the world.
Manufacturing
The Company contracts outside silicon and
component fabrication plants to manufacture specific components to SmartMetric’s specifications. Creation of the sub-micro
circuit boards are outsourced, assembly of components on the board are also outsourced while the finished end card will be mass
manufactured in Asia. Software engineering is undertaken primarily in Argentina while advanced electronic design and
research and development is undertaken by SmartMetric contractors in Tel Aviv, Israel.
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.
Patents
On September 14, 2004, C. Hendrick received
a United States patent, U.S. Patent No. 6,792,464 (the “’464 Patent”) with regard to the use of a Smart Card
as claimed in various applications including the use of a SmartCard in various Banking transactions. C Hendrick transferred the
‘464 Patent, to Applied Cryptography, Inc., a Nevada corporation, owned by C. Hendrick, in June 2004 (“ACI”).
On December 11, 2009, the Company entered into an Assignment and Assumption Agreement (“Assignment Agreement”) with
ACI pursuant to which ACI assigned all or its rights, title and interest to the ‘464 Patent to the Company in exchange for
200,000 shares of the Company’s series B preferred stock. In connection with the Assignment Agreement, on December 11, 2009,
the Company and ACI entered into an option agreement pursuant to which the Company agreed to grant ACI an option to purchase the
‘464 Patent from the Company for 100,000 shares of the Company’s series B preferred stock, only in the event that Company
fails to generate at least $1,000,000 in gross revenues attributable to the Patent at the conclusion of 24 months from the date
of Assignment Agreement. As that option has expired, the Company owns the 464 Patent outright.
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 principle shareholder of SmartMetric
and technology inventor, C. Hendrick, through various corporate investment vehicles and companies also owns other technologies,
patents, and has financial interest in other technology companies. C. Hendrick, under an executed employment agreement is not subject
to any restriction on using and owning any technology, methodology, process or invention created by C. Hendrick.
Government Regulation
There are currently no governmental regulations, which have
any bearing on the raw materials or the manufacturing of our product. In some jurisdictions for security purposes, Smartcards
are subject to Government export control.
EMV Standards
SmartMetric’s biometric cards conform to International
EMV standards, ensuring market acceptance and growth worldwide. EMV format cards are becoming the de facto standard
for worldwide financial transactions using Credit Cards, ATM Cards or Banking Debit Cards with more than 1.5 billion cards already
in circulation. As a more secure weapon in the multi-billion dollar war against credit card fraud, EMV chip cards are
significantly more secure than cards that rely only on magnetic stripe data, which is easily spoofed or counterfeited. A
transaction-unique digital seal or signature in the EMV card’s chip proves its authenticity, even in an offline environment,
and prevents criminals from assigning fraudulent payment cards purchases to unsuspecting legitimate cardholders. However
even the higher level of security that the EMV SmartCard – ATM or Credit Card, is still subject to hackers attacking weaknesses
inherent in the use of PIN numbers. The SmartMetric Biometric fingerprint solution built inside the card is designed to replace
the vulnerable PIN number. In the first instance SmartMetric will target the adoption of its biometric technology to replace PIN
numbers on the 1.5 Billion Cards used in the Banking Industry around the World. These cards can be used to secure online
payment transactions and protect cardholders, merchants and issuers against fraud through a transaction-unique online cryptogram
that:
| · | Supports enhanced cardholder verification methods |
| | |
| · | Stores considerably more information than magnetic stripe cards |
| | |
The EMV standards are a series of specifications
and testing procedures for EMV chip payment cards and card accepting devices, such as point of sale (POS) terminals and ATMs. A
primary goal of the EMV standards, and EMVCo as an organization, is to help facilitate the global interoperability and compatibility
of chip-based payment cards and payment terminals.
Thanks to the EMV standards, SmartMetric
and other chip card issuers have a uniform standard to help them ensure that the payment cards they give their cardholders will
work in EMV compliant acceptance infrastructures anywhere in the world. Merchants and banks can invest in chip card
acceptance infrastructures knowing EMV compliant cards have been developed based on uniform standards. Cardholders can
feel more confident knowing the security advantages of EMV will help protect them against the risk of fraud anywhere EMV is implemented.
Research and Development
After a decade of R&D we have completed
the development of our in-card fingerprint reader at a size smaller than a credit card thereby allowing the electronics to be embedded
inside a credit or debit card. To achieve this breakthrough in miniaturizing a fully functional fingerprint scanner to fit into
a credit card the company has had to engineer thinner components than what is standard in the electronics industry. The company
has also had to develop a power management system that recharges the internal card battery that is used to power the very small
internal fingerprint reader.
Along with advanced electronic design and
development the company has had to develop its own operating system along with other embedded software.
We will continue to refine existing technology
and develop further improvements to our product with further versions and applications for our fingerprint activated card product
in both the banking, access control and security industry’s.
Product Release
SmartMetric plans on releasing its first card based fingerprint activated payments card within 90 days
from the completion of funding for its manufacturing. This time frame may be reduced based on lesser time required for the supply
of components. The company engineers many of its own critical components, which are supplied on silicon wafer.
Competition
SmartMetric is a company involved in portable
smart card built-in-card biometric identity verification.
The company knows of no other company that has created the same kind or similar biometric card with an inbuilt fingerprint scanner
with an inbuilt reader for fingerprint matching and identity verification.
The biggest companies in the SmartCard industry who are also
the largest suppliers of EMV Card’s or what are commonly called, “chip and pin”
cards are:
Gemalto
Gemalto, the result of a merger of equals
between Axalto and Gemplus, aims to build a major player in digital security and to develop secure technologies for the digital
world.
http://www.gemalto.com
Giesecke & Devrient
Giesecke & Devrient is one of the founders
of the smart card industry. G&D is a worldwide group, providing smart cards, modules and solutions in the fields of telecommunications,
electronic payments, transportation, health, ID and Internet security. G&D is also a leading provider of banknotes and securities
as well as currency processing equipment.
http://www.gi-de.com
Oberthur Card Systems
Oberthur Card Systems is one of the founders
of the smartcard industry and one of the world's leading providers of card-based solutions, software and applications including
SIM and multi-application smart cards and services ranging from consulting to personalization.
http://www.oberthurcs.com
While these companies are the leading suppliers
of the estimated more than 1.5 Billion EMV SmartCard’s issued by Banks around the World, they all issue cards that rely upon
PIN user verification. None supply cards that have inbuilt fingerprint scanners. The SmartMetric technology
replaces the PIN number as a verification method with its unique inbuilt fingerprint scanner that scans a person’s fingerprint
rather than have the card holder input a PIN. This is a level of magnitude increase in EMV Card Security and is
unique to SmartMetric, Inc.
Employees
As of the date of this annual report, SmartMetric has one full
time employee in the United States, C. Hendrick. All other functions in the company are undertaken by contractors including
but not limited to engineers working under contract in Israel, Argentina and the United States. Administrative functions
are also undertaken under contract staffing in the United States and offshore primarily in Israel.
Item 1A. Risk Factors.
You should carefully consider the following
risk factors and the other information included in this annual report on Form 10-K, as well as the information included in
other reports and filings made with the SEC, before investing in our common stock. If any of the following risks actually occurs,
our business, financial condition or results of operations could be harmed. The trading price of our common stock could decline
due to any of these risks, and you may lose part or all of your investment.
Our independent auditors have expressed
doubt about our ability to continue our activities as a going concern, which may hinder our ability to obtain future financing.
Since we have been focused on developing
our propriety technology for availability of commercialization, we have suffered recurring losses from operations. The continuation
of our Company as a going concern is dependent upon our Company attaining and maintaining profitable operations and raising additional
capital. The financial statements do not include any adjustment relating to the recovery and classification of recorded asset amounts
or the amount and classification of liabilities that might be necessary should our Company discontinue operations.
In their report on the annual financial
statements for the years ended June 30, 2014 and 2013, our independent registered accounting firm included an explanatory paragraph
regarding the doubt about our ability to continue as a going concern. Our financial statements contain additional note disclosures
describing the status of the Company.
The continuation of our business is dependent
upon us raising additional financial support. The issuance of additional equity securities by us could result in a significant/substantial
dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available,
will increase our liabilities and future cash commitments. If the Company should fail to continue as a going concern, you may lose
the value of your investment in the Company.
We have a limited operating history
upon which to base an investment decision.
We were formed in December 2002 but have
a limited operating history as a company. As a result, there is very limited historical performance upon which to evaluate our
prospects for achieving our business objectives. Our prospects must be considered in light of the risks, difficulties and uncertainties
frequently encountered by development stage entities.
To date, we have generated only losses,
which are expected to continue for the foreseeable future.
For the years ended June 30, 2014 and 2013,
we incurred a net loss of $3,349,347 and $4,688,217, 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 or maintain 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.
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
its senior executive officers and other key management and technical contracted personnel. If any of its 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 its Chairman and CEO, C. Hendrick.
Our continued success will depend, to a
significant extent, upon the performance and contributions of our senior management and upon our ability to attract motivate and
retain highly qualified management personnel and employees. We depend on our key senior management to effective 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.
Rapid technological changes could
make our service 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.
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.
If we infringe on the rights of third
parties, we may not be able to sell our products, and we may have to defend against litigation and pay damages.
If a third party were to assert that our
products infringe on its patent or other intellectual property rights, we could incur substantial litigation costs and be forced
to pay substantial damages. Third-party infringement claims, regardless of their outcome, would not only consume significant financial
resources, but would also divert our management’s time and attention. Such claims could also cause our customers or potential
customers to purchase competitors’ products or defer or limit their purchase or use of our affected products until resolution
of the claim. If any of our products are found to violate third-party intellectual property rights, we may have to re-engineer
one or more of our products, or we may have to obtain licenses from third parties to continue offering our products without substantial
re-engineering. Our efforts to re-engineer or obtain licenses could require significant expenditures and may not be successful.
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, and with new products.
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 by their name and social security number. Additionally,
we have a strategy of expanding sales of existing products into new geographic markets. Our target market initially
will begin in South America and Australia.
Disruption in the global financial
markets may adversely impact the availability and cost of credit.
We may seek or need to raise additional
funds. Our ability to obtain financing for general corporate and commercial purposes or acquisitions depends on operating and financial
performance, and is also subject to prevailing economic conditions and to financial, business and other factors beyond our control.
The global credit markets and the financial services industry have been experiencing a period of unprecedented turmoil characterized
by the bankruptcy, failure or sale of various financial institutions. An unprecedented level of intervention from the U.S. and
other governments has been seen. As a result of such disruption, our ability to raise capital may be severely restricted and the
cost of raising capital through such markets or privately may increase significantly at a time when we would like, or need, to
do so. Either of these events could have an impact on our flexibility to fund our business operations, make capital expenditures,
pursue additional expansion or acquisition opportunities, or make another discretionary use of cash and could adversely impact
our financial results.
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.
Failure to properly manage the implementation
of customer projects in our business may result in costs or claims against us, and our financial results could be adversely affected.
In our business, deployments of our solution
often involve large-scale projects. The quality of our performance on such projects depends in large part upon our ability to manage
relationships with customers and to effectively manage the implementation of solutions in such projects and to deploy appropriate
resources, including its own project managers and third party subcontractors, in a timely manner. Any defects or errors or failures
to meet customers’ expectations could result in damage to our reputation or even claims for substantial monetary damages.
Our products may have defects, which
could damage our reputation, decrease market acceptance of our products, cause us to lose customers and revenue and result in costly
litigation or liability.
Our products, such as digital fingerprint
devices, may contain defects for many reasons, including defective design or manufacture, defective material or software interoperability
issues. Products as complex as those we offer, frequently develop or contain undetected defects or errors. Despite testing defects
or errors may arise in our existing or new products, which could result in loss of revenue, market share, failure to achieve market
acceptance, diversion of development resources, injury to our reputation, and increased service and maintenance cost. Defects or
errors in our products and solutions might discourage customers from purchasing future products. Often, these defects are not detected
until after the products have been shipped. If any of our products contain defects or perceived defects or have reliability, quality
or compatibility problems or perceived problems, our reputation might be damaged significantly, we could lose or experience a delay
in market acceptance of the affected product or products and might be unable to retain existing customers or attract new customers.
In addition, these defects could interrupt or delay sales. In the event of an actual or perceived defect or other problem, we may
need to invest significant capital, technical, managerial and other resources to investigate and correct the potential defect or
problem and potentially divert these resources from other development efforts. If we are unable to provide a solution to the potential
defect or problem that is acceptable to its customers, we may be required to incur substantial product recall, repair and replacement
and even litigation costs. These costs could have a material adverse effect on our business and operating results.
We will provide warranties on certain product
sales and allowances for estimated warranty costs are recorded during the period of sale. The determination of such allowances
requires us to make estimates of product return rates and expected costs to repair or to replace the products under warranty. We
will establish warranty reserves based on our best estimates of warranty costs for each product line combined with liability estimates
based on the prior twelve months’ sales activities. If actual return rates and/or repair and replacement costs differ significantly
from our estimates, adjustments to recognize additional cost of sales may be required in future periods. In addition, because our
customers rely on secure authentication and identification of cardholder to prevent unauthorized access to programs, PC’s,
networks, or facilities, a malfunction of or design defect in its products (or even a perceived defect) could result in legal or
warranty claims against us for damages resulting from security breaches. If such claims are adversely decided against us, the potential
liability could be substantial and have a material adverse effect on our business and operating results. Furthermore, the possible
publicity associated with any such claim, whether or not decided against us, could adversely affect our reputation. In addition,
a well-publicized security breach involving smart card-based or other security systems could adversely affect the market’s
perception of products like ours in general, or our products in particular, regardless of whether the breach is actual or attributable
to our products. Any of the foregoing events could cause demand for our products to decline, which would cause its business and
operating results to suffer.
We have a limited number of suppliers
of key components, and may experience difficulties in obtaining components for which there is significant demand.
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.
These delays could have a material adverse effect on our business and operating results and could also damage relationships with
current and prospective customers.
| • | Difficulties in staffing; |
| • | Adequate resources of qualified technicians, engineers/assemblers,
and programmers; |
| • | Potentially adverse tax consequences; |
| • | Unexpected changes in regulatory requirements; |
| • | Tariffs and other trade barriers; |
| • | Political and economic instability; |
| • | Lack of control over the manufacturing process and ultimately
over the quality of our products; |
| • | Late delivery of our products, whether because of limited
access to product components, transportation delays and interruptions, difficulties in staffing, or disruptions such as natural
disasters; |
| • | Capacity limitations of our manufacturers, particularly
in the context of new large contracts for its products, whether because its manufacturers lack the required capacity or are unwilling
to produce the quantities we desire; and |
| • | Obsolescence of our hardware products at the end of the
manufacturing cycle. |
Risks Related to our Common Stock
There has not been an active public market for our common
stock so the price of our common stock could be volatile and could decline at a time when you want to sell your holdings.
Our common stock is quoted on the OTCQB
maintained by OTCMarkets, Inc. under the symbol SMME. Our common stock is not actively traded and the price of our common
stock may be volatile. Numerous factors, many of which are beyond our control, may cause the market price of our common
stock to fluctuate significantly. These factors include:
| • | our earnings releases, actual or anticipated changes in our earnings, fluctuations in our operating results or our failure
to meet the expectations of financial market analysts and investors; |
| • | changes in financial estimates by us or by any securities analysts who might cover our stock; |
| • | speculation about our business in the press or the investment community; |
| • | significant developments relating to our relationships with our customers or suppliers; |
| • | stock market price and volume fluctuations of other publicly traded companies and, in particular, those that are in our industry; |
| • | customer demand for our products; |
| • | investor perceptions of the industry in general and our company in particular; |
| • | the operating and stock performance of comparable companies; |
| • | general economic conditions and trends; |
| • | major catastrophic events; |
| • | announcements by us or our competitors of new products, significant acquisitions, strategic partnerships or divestitures; |
| • | changes in accounting standards, policies, guidance, interpretation or principles; |
| • | sales of our common stock, including sales by our directors, officers or significant stockholders; and |
| • | additions or departures of key personnel. |
Securities class action
litigation is often instituted against companies following periods of volatility in their stock price. This type of litigation
could result in substantial costs to us and divert our management’s attention and resources.
Moreover, securities
markets may from time to time experience significant price and volume fluctuations for reasons unrelated to operating performance
of particular companies. These market fluctuations may adversely affect the price of our common stock and other interests
in our company at a time when you want to sell your interest in us.
If our common stock becomes subject to the SEC’s
penny stock rules, broker-dealers may experience difficulty in completing customer transactions and trading activity in our securities
may be adversely affected.
If at any time our securities are not listed on a national securities
exchange or we have net tangible assets of $5,000,000 or less and our common stock has a market price per share of less than $5.00,
transactions in our common stock will be subject to the SEC’s “penny stock” rules. If our common stock becomes
subject to the “penny stock” rules promulgated under the Securities Exchange Act of 1934, broker-dealers may find it
difficult to effectuate customer transactions and trading activity in our securities may be adversely affected.
Under these rules, broker-dealers who recommend such securities
to persons other than institutional accredited investors must:
| • | make a special written suitability determination for the purchaser; |
| • | receive the purchaser’s written agreement to the transaction prior to sale; |
| • | provide the purchaser with risk disclosure documents which identify certain risks associated with investing in “penny
stocks” and which describe the market for these “penny
stocks” as well as a purchaser’s legal remedies; and |
| • | obtain a signed and dated acknowledgment from the purchaser demonstrating that the purchaser has actually received the required
risk disclosure document before a transaction in a “penny stock”
can be completed. |
As a result, if our common stock becomes
subject to the penny stock rules, the market price of our securities may be depressed, and you may find it more difficult to sell
our securities.
Because certain of our stockholders control a significant
number of shares of our common stock, they may have effective control over actions requiring stockholder approval.
Our directors, executive officers and principal
stockholders, and their respective affiliates, will beneficially own approximately 49% of our outstanding shares of common stock.
As a result, these stockholders, acting together, would have the ability to control the outcome of matters submitted to our stockholders
for approval, including the election of directors and any merger, consolidation or sale of all or substantially all of our assets. In
addition, these stockholders, acting together, would have the ability to control the management and affairs of our company. Accordingly,
this concentration of ownership might harm the market price of our common stock by:
| • | delaying, deferring or preventing a change in corporate control; |
| • | impeding a merger, consolidation, takeover or other business combination involving us; or |
| • | discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us. |
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, 2014 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 the control deficiencies that represent material
weaknesses at June 30, 2014. See "Item 9. 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.
If securities or industry analysts do not publish research
or reports about our business, or if they change their recommendations regarding our stock adversely, our stock price and trading
volume could decline.
The trading market for our common stock
will be influenced by the research and reports that industry or securities analysts publish about us or our business. We do not
currently have and may never obtain research coverage by industry or financial analysts. If no or few analysts commence coverage
of us, the trading price of our stock would likely decrease. Even if we do obtain analyst coverage, if one or more of the analysts
who cover us downgrade our stock, our stock price would likely decline. If one or more of these analysts cease coverage of our
company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause
our stock price or trading volume to decline.
Item 1B. Unresolved Staff Comments.
Not Applicable.
Item 2. Properties.
UNITED STATES
Our principal office is located at 3690 Howard Hughes
Parkway, Las Vegas, Nevada. 89169
ARGENTINA
The Company exited its Argentina offices in February of 2014.
ISRAEL
Our primary electronics research and development is undertaken
in Tel Aviv Israel. We rent office space at Ackerstein Touners, Building B, 5th floor, 11, Hamenofim Street, Itertzelia
Pituach Israel, with administrative support on a “month to month”
basis.
AUSTRALIA
We lease a support office at Rialto South Tower, Level 27, 525
Collins Street, Melbourne Australia, on a month to month basis.
We believe that our existing facilities will be adequate for
our current needs and that additional space will be available as needed. The material terms of our property leases are set forth
in the table below.
Item 3. Legal Proceedings.
From time to time we may be a defendant
or plaintiff in various legal proceedings arising in the normal course of our business. Except as described below, 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.
On September 12, 2014, the Company filed an appeal before
the full bench of the Federal Circuit Court in Washington D.C. in respect of an appeal of a prior ruling of non infringement
on the part of the defendants Visa Inc. and MasterCard International Inc. by the Federal District Court for the Central
District of California in the last quarter of the calendar year ending December 31, 2013.
Item 4. Mine Safety Disclosures.
Not Applicable
PART II
Item 5. Market for Registrant’s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our common stock has been quoted on the
OTCQB maintained by OTCMarkets, Inc. since July 23, 2012. From January 1, 2008 through July 22, 2012, our common stock was quoted
on the over-the-counter on the Over-the-Counter (“OTC”) Bulletin Board and the market for the stock has been relatively
inactive. The range of high and low bid quotations for the quarters of the last two years ended June 30, 2013 is listed below.
The quotations are taken from the OTCQB and OTC Bulletin Board. They reflect inter-dealer prices, without retail mark-up, mark-down
or commission, and may not necessarily represent actual transactions.
| |
Low | | |
High | |
| |
$ | | |
$ | |
Quarter Ended September 30, 2012 | |
| 0.12 | | |
| 0.28 | |
Quarter Ended December 31, 2012 | |
| 0.10 | | |
| 0.25 | |
Quarter Ended March 31, 2013 | |
| 0.14 | | |
| 0.30 | |
Quarter Ended June 30, 2013 | |
| 0.22 | | |
| 0.51 | |
Quarter Ended September 30, 2013 | |
| 0.12 | | |
| 0.48 | |
Quarter Ended December 31, 2013 | |
| 0.12 | | |
| 0.28 | |
Quarter Ended March 31, 2014 | |
| 0.14 | | |
| 0.25 | |
Quarter Ended June 30, 2014 | |
| 0.10 | | |
| 0.21 | |
As of September 26, 2014, we had approximately
1,079 shareholders of record of our common stock, including the shares held in street name by brokerage firms. The holders of common
stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders. Holders
of the common stock have no preemptive rights and no right to convert their common stock into any other securities. There are no
redemption or sinking fund provisions applicable to the common stock.
Dividends
Any payment of dividends will be within
the discretion of the Company's Board of Directors and will depend, among other factors, on earnings, capital requirements and
the operating and financial condition of the Company. At the present time, the Company's anticipated financial capital requirements
are such that it intends to follow a policy of retaining earnings in order to finance the development of its business.
Securities authorized for issuance
under equity compensation plans
As of the date of this report, we do not
have any securities authorized for issuance under any equity compensation plans and we do not have any equity compensation plans.
Penny Stock Regulations
Our shares of common stock are subject
to the "penny stock" rules of the Securities Exchange Act of 1934 and various rules under this Act. In general terms,
"penny stock" is defined as any equity security that has a market price less than $5.00 per share, subject to certain
exceptions. The rules provide that any equity security is considered to be a penny stock unless that security is registered and
traded on a national securities exchange meeting specified criteria set by the SEC, issued by a registered investment company,
and excluded from the definition on the basis of price (at least $5.00 per share), or based on the issuer's net tangible assets
or revenues. In the last case, the issuer's net tangible assets must exceed $3,000,000 if in continuous operation for at least
three years or $5,000,000 if in operation for less than three years, or the issuer's average revenues for each of the past three
years must exceed $6,000,000.
Trading in shares of penny stock is subject
to additional sales practice requirements for broker-dealers who sell penny stocks to persons other than established customers
and accredited investors. Accredited investors, in general, include individuals with assets in excess of $1,000,000 or annual income
exceeding $200,000 (or $300,000 together with their spouse), and certain institutional investors. For transactions covered by these
rules, broker-dealers must make a special suitability determination for the purchase of the security and must have received the
purchaser's written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock,
the rules require the delivery, prior to the first transaction, of a risk disclosure document relating to the penny stock. A broker-dealer
also must disclose the commissions payable to both the broker-dealer and the registered representative, and current quotations
for the security. Finally, monthly statements must be sent disclosing recent price information for the penny stocks. These rules
may restrict the ability of broker-dealers to trade or maintain a market in our common stock, to the extent it is penny stock,
and may affect the ability of shareholders to sell their shares.
Recent Sales of Unregistered Securities
During the three months ended September 30, 2013, the Company
sold for cash 515,367 shares and twenty-four month warrants to purchase an additional 515,367 shares at $0.70 per share for net
proceeds of $123,474.
During the three months ended September
30, 2013, the Company issued 130,875 shares for consulting services valued at $70,898, based on the stock price at the time of
the respective agreements underlying the services provided. The shares were issued pursuant
to an exemption from registration afforded under Section 4(a)(2) of the Securities Act of 1933, as amended.
During the three months ended December
31, 2013, the Company issued 1,595,000 shares for consulting services valued at $339,900, based on the stock price at the time
of the respective agreements underlying the services provided. The shares were issued pursuant
to an exemption from registration afforded under Section 4(a)(2) of the Securities Act of 1933, as amended.
During the three months ended December
31, 2013, the Company sold for cash 660,000 shares and twenty-four month warrants to purchase an additional 660,000 shares at $0.60
per share for net proceeds of $118,700.
During the three months ended March 31,
2014, the Company sold for cash 2,120,000 shares and twenty-four month warrants to purchase: (i) 4,240,000 shares at $0.70 per
share, and (ii) 2,136,960 shares at $1.00 per share, for net proceeds of $338,687.
During the three months ended March 31,
2014, the Company issued 2,798,776 shares for consulting and legal services valued at $375,149, based on the stock price at the
time of the respective agreements underlying the services provided. The shares were issued
pursuant to an exemption from registration afforded under Section 4(a)(2) of the Securities Act of 1933, as amended.
During the three months ended June 30,
2014, the Company sold for cash 1,812,500 shares and twenty-four month warrants to purchase: (i) 3,625,000 shares at $0.70 per
share, and (ii) 1,827,000 shares at $1.00 per share, for net proceeds of $289,405.
During the three months ended June 30,
2014, the Company issued 1,490,170 shares for consulting and legal services valued at $205,192, based on the stock price at the
time of the respective agreements underlying the services provided. The shares were issued
pursuant to an exemption from registration afforded under Section 4(a)(2) of the Securities Act of 1933, as amended.
Unless otherwise noted in this section,
with respect to the sale of unregistered securities referenced above, all transactions were exempt from registration pursuant to
Section 4(a)(2) of the Securities Act of 1933, as amended (the "1933 Act"), and Regulation D or Regulation S promulgated
under the 1933 Act. In each instance, the purchaser had access to sufficient information regarding SmartMetric so as to make an
informed investment decision. More specifically, we had a reasonable basis to believe that each purchaser was an "accredited
investor" as defined in Regulation D or Regulation S of the 1933 Act and otherwise had the requisite sophistication to make
an investment in SmartMetric's securities.
Item 6. Selected Financial Data.
Not Applicable.
Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
You should read this discussion together with the Financial
Statements, related Notes and other financial information included elsewhere in this Form 10-K. The following discussion contains
assumptions, estimates and other forward-looking statements that involve a number of risks and uncertainties, including those discussed
under “Risk Factors,” and elsewhere in this Form 10-K. These risks could cause our actual results to differ materially
from those anticipated in these forward-looking statements.
Results of Operations
Comparison of the years Ended June
30, 2014 and 2013
Revenue and Net Loss
For the year ended June 30, 2014, there
was no revenue and a net loss of $3,349,347. For the year ended June 30, 2013, there was no revenue and a net loss of
$4,688,217. This decreased loss of $1,338,870 or 28.6% resulted primarily from lower general and administrative expenses.
General and Administrative Expenses
General and administrative expenses for
the year ended June 30, 2014 were $2,669,693, a decrease of $685,105 or 20.4% compared to $3,354,798 for the comparable period
in 2013. This decrease was primarily attributed to lower consulting expenses.
Research and Development Expenses
Research and development expenses for the
year ended June 30, 2014 were $489,654, a decrease of $646,265 or 56.9% compared to $1,135,919 for the comparable period in 2013.
This decrease was primarily attributable to lower engineering expenses.
Income Tax Expense
Income tax expense for the year ended June 30, 2014 was $0,
unchanged from the comparable period in 2013.
Cash
Our cash balance was $97,924 at June 30,
2014 compared with $804,257 at June 30, 2013. The decrease was primarily attributable to losses incurred from
general and administrative expenses in excess of cash received from sales of stock.
Net cash used in operating activities
Net cash used in operating activities
was $1,693,799 for the year ended June 30, 2014, a decrease of $111,241 or 6.2% from the comparable period in 2013. The
Company is largely dependent on the capital it raises to fund operations. When capital is raised the development process
is accelerated, and when cash flows are decreased the Company conserves its cash by delaying development and other operating costs.
Net cash used in investing activities
Net cash used in investing activities was
$0 for the year ended June 30, 2014, unchanged from the comparable period in 2013.
Net cash provided by financing
activities
Net cash provided by financing activities
was $987,466 for the year ended June 30, 2014, a decrease of $732,242 or 42.6% from the comparable period in 2013. The
decrease was based on reduced activity of issuances of equity shares for cash.
Off-Balance Sheet Arrangements
We had no off-balance sheet arrangements as of June 30, 2014.
Item 8. Financial Statements and Supplementary
Data.
Our audited consolidated financial statements
for the fiscal years ended June 30, 2014 and 2013, together with the reports of the independent registered public accounting firms
thereon and the notes thereto, are presented beginning at page F-1.
Item 9. Changes in and Disagreements
with Accountants on Accounting and Financial Disclosure.
Not Applicable.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls
and Procedures
We maintain "disclosure controls and
procedures," as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange
Act"), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under
the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange
Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and
evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how
well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls
and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required
to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of
any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and
there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
As of June 30, 2014, we carried out an
evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective in ensuring that information
required to be disclosed by us in our periodic reports is recorded, processed, summarized and reported, within the time periods
specified for each report and that such information is accumulated and communicated to our management, including our principal
executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding
required disclosure.
Management’s Report on Internal
Control over Financial Reporting
Our management is responsible for establishing
and maintaining adequate internal control over financial reporting as defined in rules 13a-15(f) and 15d-15(f) under the Securities
Exchange Act. Our management is also required to assess and report on the effectiveness of our internal
control over financial reporting in accordance with section 404 of the Sarbanes-Oxley of 2002 (“section 404”). Management
assessed the effectiveness of our internal control over financial reporting as of June 30, 2014. In making this assessment
we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated
Framework. During our assessment of the effectiveness of internal control over financial reporting as of June 30, 2014, management
identified significant deficiencies related to (i) the U.S. GAAP expertise of our internal accounting staff, (ii) our internal
audit functions and (iii) a lack of segregation of duties within accounting functions. Management believes that these deficiencies
amount to a material weakness. Therefore our internal controls over financial reporting were ineffective as of June
30, 2014.
Management of the Company believes that
these material weaknesses are due to the small size of the Company’s accounting staff. The small size of the Company’s
accounting staff may prevent adequate controls in the future, such as segregation of duties, due to the cost/benefit of such remediation. To
mitigate the current limited resources and limited employees, we rely heavily on direct management oversight of transactions, along
with the use of external legal and accounting professionals. As we grow, we expect to increase our number of employees, which will
enable us to implement adequate segregation of duties within the internal control framework.
In order to correct the foregoing deficiencies,
we plan to take the following remediation measures:
| 1) | We have committed to the establishment of effective internal audit functions, however, due to the
limited resources of the Company and the limited operations, we plan to defer the establishment of an effective internal audit
function until our product is ready for production and sale. |
| 2) | 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, we will implement procedures to ensure that the initiation
of transactions, the custody of assets and the recording of transactions will be performed by capable individuals. |
We believe that the foregoing steps will
remediate the deficiencies identified above, and we will continue to monitor the effectiveness of these steps and make any changes
that our management deems appropriate. However, as of June 30, 2014, these steps have not been completed.
A material weakness (within the meaning
of PCAOB auditing standard No. 5) is a deficiency, or a combination of deficiencies, in internal control over financial reporting,
such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not
be prevented or detected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies,
in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention
by those responsible for oversight of the company’s financial reporting.
Our management is aware of the material
weaknesses in our internal control over financial reporting, and has acknowledged the increased possibility of errors existing
in our financial statements as of June 30, 2014. The reportable conditions and other areas of internal control over
financial reporting identified by us as needing improvement have cause an increased possibility of a material misstatement of our
financial statements, however we are not aware of any instance where such reportable conditions or other identified areas of weakness
have resulted in a material misstatement or omission in any report we have filed with or submitted to the Commission. Accordingly,
while we believe that our financial controls were ineffective, we do not believe there to be any material misstatements in our
financial statements at June 30, 2014.
This Annual Report on Form 10-K does not
include an attestation report of the Company's independent registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by the Company's independent registered public accounting firm pursuant
to temporary rules of the SEC that permit the Company to provide only management's report in this Annual Report on Form 10-K.
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 effective at that reasonable assurance level.
Changes in Internal Controls
During the quarter ended June 30, 2014,
there have been no changes in our internal control over financial reporting that have materially affected or are reasonably likely
to materially affect our internal controls over financial reporting
Item 9B. Other Information.
There have been no material events that
have occurred during the quarter ending June 30, 2014 that were not previously disclosed.
PART III
Item 10. Directors, Executive Officers and Corporate
Governance
The following table sets forth the names
and ages of the members of our Board of Directors and our executive officers and the positions held by each. Each member
of the Board of Directors serves for a term of one year, or until his or her successor has been duly elected and has been qualified.
Each of our officers serve until they are replaced by the Board of Directors.
Name |
|
Age |
|
Position with the Company |
C. Hendrick |
|
58 |
|
President, Chief Executive Officer and Chairman of the Board |
Jay M. Needelman, CPA |
|
46 |
|
Chief Financial Officer, Director |
Elizabeth Ryba |
|
63 |
|
Director |
C.
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 Fast
Econ, 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. C. Hendrick attended Dandenong College in Australia.
JAY
M. NEEDELMAN, CPA, has been the Chief Financial Officer for SmartMetric since July 2004. 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.
ELIZABETH
RYBA , has been a director of SmartMetric since April 5, 2006. Ms. Ryba has over 16 years of experience in the
credit card industry. She 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. In 1991 through 1999 Ms. Ryba worked at Master
Card where she launched a SmartCard 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.
The Board believes that each of the Company’s
directors is highly qualified to serve as a member of the Board. Each of the directors has contributed to the mix of skills, core
competencies and qualifications of the Board. When evaluating candidates for election to the Board, the Nominating Committee seeks
candidates with certain qualities that it believes are important, including integrity, an objective perspective, good judgment,
leadership skills. Our directors are highly educated and have diverse backgrounds and talents and extensive track records of success
in what we believe are highly relevant positions.
Family Relationships
There are no family relationships among
officers or directors of the Company.
Director Experience
Our Board believes that each of the Company’s
directors should possess the highest personal and professional ethics, integrity and values, and be committed to representing the
long-term interests of the Company’s shareholders. When evaluating candidates for election to the Board, the Board seeks
candidates with certain qualities that it believes are important, including integrity, an objective perspective, good judgment,
and leadership skills. Our directors are highly educated and have diverse backgrounds and talents and extensive track records of
success in what we believe are highly relevant positions.
Legal Proceedings
To our knowledge, during the last ten years,
none of our directors and executive officers (including those of our subsidiaries) has:
Had a bankruptcy petition filed
by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy
or within two years prior to that time.
Been convicted in a criminal proceeding
or been subject to a pending criminal proceeding, excluding traffic violations and other minor offenses.
Been subject to any order, judgment
or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily
enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities.
Been found by a court of competent
jurisdiction (in a civil action), the SEC, or the Commodities 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 to, or a party
to, any sanction or order, not subsequently reverse, suspended or vacated, of any self-regulatory organization, any registered
entity, or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons
associated with a member.
Committees of the Board
Our business, property and affairs are
managed by or under the direction of the board of directors. 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 and its committees. We have not previously had an audit committee, compensation committee or
nominations and governance committee. We anticipate that the board of directors will authorize the creation of such committees,
in compliance with established corporate governance requirements in the future.
Audit Committee
We have not yet appointed an audit committee,
and our Board of Directors currently acts as our audit committee. The Company intends to appoint an audit committee comprised entirely
of independent directors, including at least one financial expert, during its 2015 fiscal year.
Audit Committee Financial Expert
SmartMetric’s board of directors
has determined that the company does not have an audit committee financial expert serving on its audit committee. While
the Company believe that the members of Board of Directors are collectively capable of analyzing and evaluating our financial statements
and understanding internal controls and procedures for financial reporting the Company is currently engaged in a search to identify
a qualified individual who will meet the definition of “audit
committee financial expert as that term is defined by Item 407(d)(5) of Regulation S-K.
Compensation Committee
SmartMetric does not presently have
a compensation committee. Our board of directors currently acts as our compensation committee.
Compensation Committee Interlocks and Insider Participation
We do not currently have a standing Compensation Committee.
Our entire board of directors participated in deliberations concerning executive officer compensation. None of our officers serve
on the board of any other entity whose executive officer serves on our board of directors.
Nominating Committee
SmartMetric does not presently have
a nominating committee. Our board of directors currently acts as our nominating committee.
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, 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 the 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, 2014, all filing requirements were complied with.
Item 11. Executive Compensation.
Summary Compensation Table
The table below sets forth, for the fiscal years ended June
30, 2014 and 2013, the compensation earned by each person acting as our Chief Executive Officer and our next two most highly compensated
executive officers whose total annual compensation exceeded $100,000 in fiscal 2014 (together, the “Named Executive Officers”).
Name and Principal Position | |
Fiscal Year | |
Salary ($) | | |
Bonus ($) | | |
Stock Awards ($) | | |
Option Awards ($) | | |
Non- equity Incentive Plan
Compensation ($) | | |
Change in Pension Value and
Nonqualified Deferred Compensation Earnings ($) | | |
All Other Compensation ($) | | |
Total ($) | |
| |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
C. Hendrick (President, Chief Executive | |
2014 | |
$ | 190,000 | | |
| -0- | | |
| -0- | | |
| -0- | | |
| -0- | | |
| -0- | | |
| -0- | | |
| 190,000 | |
| |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Officer, Chairman of the Board) (1) | |
2013 | |
$ | 190,000 | | |
| -0- | | |
| -0- | | |
| -0- | | |
| -0- | | |
| -0- | | |
| -0- | | |
| 190,000 | |
| (1) | C. Hendrick has been President, Chief Executive Officer and director of the Company since inception. C. Hendrick
receives an annual salary of $190,000 |
Outstanding Equity Awards at Fiscal Year End
None.
Employment Agreements
On December 9, 2009, the Company entered
into an employment agreement (the “Agreement”) with C. Hendrick, the Company’s Chief Executive Officer (“Executive”). Pursuant
to the terms of the Agreement, the Company will employ Executive for a period of three (3) years from the date of the Agreement
provided that such term may be renewed by the mutual written agreement of Company and Executive for additional consecutive one
(1) year terms. Executive is to receive an annual base salary of $170,000 a year. Executive is entitled to
receive certain bonuses to be determined based on performance criteria set forth by a committee of the Board of Directors. Executive
is 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. Executive’s
employment with the Company may be terminated at any time, with cause or good reason, as such terms are defined in the Agreement. In
the event that Executive’s employment is terminated by the Company, Company shall pay the first twelve (12) months of COBRA
premiums for Executive’s coverage under the Company’s group medical insurance plan.
On July 1, 2012, the Company entered into
a new employment agreement with C. Hendrick. Under this agreement, the Executive is to receive an annual base salary of $190,000.
Compensation Discussion and Analysis
We strive to provide our Named Executive
Officers with a competitive base salary that is in line with their roles and responsibilities when compared to peer companies of
comparable size in similar locations.
We plan to implement a more comprehensive
compensation program, which takes into account other elements of compensation, including, without limitation, short and long term
compensation, cash and non-cash, and other equity-based compensation such as stock options. We expect that this compensation program
will be comparable to the programs of our peer companies and aimed to retain and attract talented individuals.
We will also consider forming a compensation
committee to oversee the compensation of our Named Executive Officers. The majority of the members of the compensation committee
would be independent directors.
Compensation of Directors
As of the date of this annual report, our
directors have received no compensation for their service on the board of directors. A compensation program for
our independent directors, as and when they are appointed, which we anticipate will include such elements as an annual retainer,
meeting attendance fees and stock options. The details of that compensation program will be negotiated with each independent director
Item 12. Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters.
The following table sets forth certain
information, as of September 28, 2014, 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
Name and Address of Beneficial Owner | |
Director/Officer | |
Number of Shares of Common Stock (1) | | |
Percentage of Class (1) | |
Directors and Executive Officers | |
| |
| | | |
| | |
| |
| |
| | | |
| | |
C. Hendrick
9195 Collins Avenue
Surfside, FL 33154 | |
Chief Executive Officer,
Chairman of the Board of Directors | |
| 69,127,778 | | |
| 80.3 | % |
| |
| |
| | | |
| | |
Jay Needelman, CPA
520 West 47th Street
Miami Beach, FL 33140 | |
Chief Financial Officer, Director | |
| -0- | | |
| 0 | % |
| |
| |
| | | |
| | |
Elizabeth Ryba
73 Brown Road
Scarsdale, New York 10583 | |
Director | |
| 40,000 | | |
| * | |
| |
| |
| | | |
| | |
All Executive Officers and Directors as a Group (3 persons) | |
| |
| 69,167,778 | | |
| | |
| |
| |
| | | |
| | |
5% Shareholders | |
| |
| | | |
| | |
| |
| |
| | | |
| | |
Applied Cryptography, Inc. (2)
9195 Collins Avenue
Surfside, Fl, 33154 | |
Not applicable | |
| 69,127,778 | | |
| 80.3 | % |
* Less than 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 September 28, 2014, (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) 167,707,937, the total
shares of common stock outstanding on September 8, 2014, 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) Includes (1) 58,627,778 shares of common stock and (2) 200,000 shares of series B preferred stock held
by Applied Cryptography, Inc (“ACI”). Each share of series
B preferred stock shall be 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 shareholders) 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 Preferred Stock is convertible, at the option
of the holder, into fifty (50) shares of common stock upon the satisfaction of certain conditions. On May 7, 2013, ACI
satisfied these conditions and the series B preferred stock became convertible. C. Hendrick, 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.
There have been no significant related
party transactions meeting the requirements for disclosure for the fiscal year ended June 30, 2014.
Procedures for Approval of Related
Party Transactions
Our Board of Directors is charged with
reviewing and approving all potential related party transactions. All such related party transactions must then be reported
under applicable SEC rules. We have not adopted other procedures for review, or standards for approval, of such transactions, but
instead review them on a case-by-case basis.
Director Independence
The Company currently does not have a director
that qualifies as an “independent” director as that term is defined under the National Association of Securities Dealers
Automated Quotation system. Our company, however, recognizes the importance of good corporate governance and intends
to appoint an audit committee comprised entirely of independent directors, including at least one financial expert, in the near
future.
Item
14. Principal Accounting Fees and Services
Audit Fee
The Company incurred, in the aggregate,
approximately $74,000 and $67,000 for professional services rendered by its registered independent public accounting firms for
the audit of the Company’s annual financial statements for the years ended June 30, 2014 and 2013, respectively, and for
the reviews of the financial statements included in its Quarterly Reports on Form 10-Q during those fiscal years.
Audit-Related Fees
The Company incurred approximately $0 and
$0 in fees from its registered independent public accounting firms for audit-related services during the years ended June
30, 2014 and 2013, respectively.
Tax Fees
The Company incurred approximately $0 and
$0 in fees from its registered independent public accounting firms for tax compliance or tax consulting services during the years
ended June 30, 2014 and 2013, respectively.
All Other Fees
The Company incurred $0 and $0 for fees
from its registered independent public accounting firms for services rendered to the Company, other than the services covered in
"Audit Fees", “Audit-Related Fees” and “Tax Fees” for the fiscal years ended June 30, 2014 and
2013, respectively.
Item 15. Exhibits, Financial Statements Schedules
3.1 |
|
Articles of Incorporation of SmartMetric, Inc. (incorporated by reference to Exhibit 3.1 of the Company’s Registration Statement on Form SB-2 filed with the Securities and Exchange Commission on September 3, 2004) |
|
|
|
3.2 |
|
Amendment to the Articles of Incorporation of SmartMetric Inc. (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 18, 2009) |
|
|
|
3.3 |
|
Certificate of Designation for the Company’s Series B Preferred Stock (incorporated by reference to Exhibit 3.2 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 18, 2009) |
|
|
|
3.4 |
|
By-laws of SmartMetric, Inc. (incorporated by reference to Exhibit 3.2 of the Company’s Registration Statement on Form SB-2 filed with the Securities and Exchange Commission on September 3, 2004) |
|
|
|
3.5 |
|
Specimen Certificate of Common Stock. (incorporated by reference to Exhibit 4.1 of the Company’s Registration Statement on Form SB-2 filed with the Securities and Exchange Commission on September 3, 2004) |
|
|
|
4.1 |
|
Form of Warrant issued to the May 2013 Investor (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 28, 2013) |
|
|
|
10.1 |
|
License Agreement between SmartMetric and Applied Cryptography, Inc. (incorporated by reference to Exhibit 10.1 of the Company’s Registration Statement on Form SB-2 filed with the Securities and Exchange Commission on May 23, 2005) |
|
|
|
10.2 |
|
Employment Agreement, dated December 9, 2009 by and between Colin Hendrick and SmartMetric, Inc (incorporated by reference to Exhibit 99.3 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 18, 2009) |
|
|
|
10.3 |
|
Agreement between SmartMetric and ISI (incorporated by reference to Exhibit 10.3 of the Company’s Registration Statement on Form SB-2 filed with the Securities and Exchange Commission on May 23, 2005) |
10.4 |
|
Assignment and Assumption Agreement, dated December 11, 2009 by and between SmartMetric, Inc. and Applied Cryptology Inc. (incorporated by reference to Exhibit 99.1 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 18, 2009) |
|
|
|
10.5 |
|
Option Agreement, dated December 11, 2009 (incorporated by reference to Exhibit 99.2 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 18, 2009) |
|
|
|
10.6 |
|
Assignment and Assumption Agreement, dated November 12, 2012, by and between SmartMetric, Inc. and Applied Cryptography, Inc. (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 16, 2012) |
|
|
|
10.7 |
|
Form of subscription agreement by and among SmartMetric, Inc. and the May 2013 Investor (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 28, 2013) |
14.1 |
|
Code of Ethics (incorporated by reference to Exhibit 16.1 of the Company’s Registration Statement on Form SB-2 filed with the Securities and Exchange Commission on September 3, 2004) |
|
|
|
31.1 |
|
Certification of SmartMetric’s Chief Executive Office pursuant to Rule13a- 14(a) of the Securities Exchange Act of 1934 * |
|
|
|
31.2 |
|
Certification of SmartMetric’s Chief Financial Officer pursuant to Rule13a- 14(a) of the Securities Exchange Act of 1934 * |
|
|
|
32.1 |
|
Certification of SmartMetric’s Chief Executive Officer required by Rule 13a-14(b) under the Securities Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C.1350) * |
|
|
|
32.2 |
|
Certification of SmartMetric’s Chief Financial Officer required by Rule 13a-14(b) under the Securities Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C.1350) * |
|
|
|
EX-101.INS |
|
XBRL INSTANCE DOCUMENT* |
|
|
|
EX-101.SCH |
|
XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT* |
|
|
|
EX-101.CAL |
|
XBRL TAXONOMY EXTENSION CALCULATION LINKBASE* |
|
|
|
EX-101.DEF |
|
XBRL TAXONOMY EXTENSION DEFINITION LINKBASE* |
|
|
|
EX-101.LAB |
|
XBRL TAXONOMY EXTENSION LABELS LINKBASE* |
|
|
|
EX-101.PRE |
|
XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE* |
* Filed
herewith
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: October 14, 2014 |
By: |
/s/ C Hendrick |
|
|
C. 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/ C Hendrick |
|
Chief Executive Officer and Director (principal executive officer) |
|
October 14, 2014 |
C. Hendrick |
|
|
|
|
|
|
|
|
|
/s/ Jay Needelman |
|
Chief Financial Officer (principal financial and accounting officer) and Director |
|
October 14, 2014 |
Jay Needelman |
|
|
|
|
|
|
|
|
|
/s/ Elizabeth Ryba |
|
Director |
|
October 14, 2014 |
Elizabeth Ryba |
|
|
|
|
SMARTMETRIC INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2014 AND 2013
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report
of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
Smartmetric, Inc. and Subsidiary
We have audited the accompanying
consolidated balance sheets of Smartmetric, Inc. and Subsidiary (a development stage company) (the “Company”) as
of June 30, 2014 and 2013, and the related consolidated statements of operations, stockholders’ equity (deficit) and
cash flows for each of the years in the two-year period ended June 30, 2014. The Company’s management is
responsible for these consolidated financial statements. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with
the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit also
includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the financial position of Smartmetric, Inc. and Subsidiary
as of June 30, 2014 and 2013, and the results of its operations and its cash flows for each of the years in the two-year period
ended June 30, 2014 in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial
statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated
financial statements, the Company has sustained recurring losses, has negative cash flows from operations, and has not generated
any revenues to this point. These matters raise substantial doubt about the Company’s ability to continue as a going
concern. Management’s plans in this regard are described in Note 1. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ Daszkal Bolton LLP
Boca Raton, Florida
October 14, 2014
SMARTMETRIC, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Balance Sheets
| |
June 30, | | |
June 30, | |
| |
2014 | | |
2013 | |
| |
| | |
| |
Assets | |
| | | |
| | |
Current assets: | |
| | | |
| | |
Cash | |
$ | 97,924 | | |
$ | 804,257 | |
Prepaid expenses and other current assets | |
| 307,491 | | |
| 799,699 | |
| |
| | | |
| | |
Total current assets | |
| 405,415 | | |
| 1,603,956 | |
| |
| | | |
| | |
Other assets: | |
| | | |
| | |
Advances to shareholder | |
| 22,478 | | |
| - | |
Patent costs, less accumulated amortization of $14,625 and $13,125, respectively | |
| 375 | | |
| 1,875 | |
| |
| | | |
| | |
Total assets | |
$ | 428,268 | | |
$ | 1,605,831 | |
| |
| | | |
| | |
Liabilities and Stockholders' (Deficit) Equity | |
| | | |
| | |
| |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Accounts payable and accrued expenses | |
$ | 325,877 | | |
$ | 262,648 | |
Liability for stock to be issued | |
| 355,750 | | |
| 216,978 | |
Deferred Officer salary | |
| 125,015 | | |
| 61,681 | |
Shareholder loan | |
| - | | |
| 21,572 | |
| |
| | | |
| | |
Total current liabilities | |
| 806,642 | | |
| 562,879 | |
| |
| | | |
| | |
Commitments and contingencies | |
| | | |
| | |
| |
| | | |
| | |
Stockholders' (deficit) equity: | |
| | | |
| | |
Preferred stock, $.001 par value; 5,000,000 shares authorized, 210,000 and 400,000 shares issued and outstanding | |
| 210 | | |
| 400 | |
Common stock, $.001 par value; 200,000,000 shares authorized, 167,707,937 and 147,698,950 shares issued and outstanding , respectively | |
| 167,708 | | |
| 147,699 | |
Additional paid-in capital | |
| 18,767,649 | | |
| 16,859,447 | |
Accumulated deficit | |
| (19,313,941 | ) | |
| (15,964,594 | ) |
| |
| | | |
| | |
Total stockholders' (deficit) equity | |
| (378,374 | ) | |
| 1,042,952 | |
| |
| | | |
| | |
Total liabilities and stockholders' (deficit) equity | |
$ | 428,268 | | |
$ | 1,605,831 | |
See notes to consolidated financial statements.
SMARTMETRIC, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements Of Operations
| |
Year | | |
Year | |
| |
Ended | | |
Ended | |
| |
June | | |
June | |
| |
30, | | |
30, | |
| |
2014 | | |
2013 | |
| |
| | |
| |
Revenues | |
$ | - | | |
$ | - | |
| |
| | | |
| | |
Expenses: | |
| | | |
| | |
Officer's salary | |
| 190,000 | | |
| 197,500 | |
Other general and administrative | |
| 2,669,693 | | |
| 3,354,798 | |
Research and development | |
| 489,654 | | |
| 1,135,919 | |
| |
| | | |
| | |
Total operating expenses | |
| 3,349,347 | | |
| 4,688,217 | |
| |
| | | |
| | |
Loss from operations before income taxes | |
| (3,349,347 | ) | |
| (4,688,217 | ) |
| |
| | | |
| | |
Income taxes | |
| - | | |
| - | |
| |
| | | |
| | |
Net loss | |
$ | (3,349,347 | ) | |
$ | (4,688,217 | ) |
| |
| | | |
| | |
Net loss per share, basic and diluted | |
$ | (0.02 | ) | |
$ | (0.04 | ) |
| |
| | | |
| | |
Weighted average number of common shares outstanding, basic and diluted | |
| 161,252,272 | | |
| 130,120,074 | |
See notes to consolidated financial statements.
SMARTMETRIC, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Cash Flows
| |
Year | | |
Year | |
| |
Ended | | |
Ended | |
| |
June | | |
June | |
| |
30, | | |
30, | |
| |
2014 | | |
2013 | |
CASH FLOWS FROM OPERATING ACTIVITIES | |
| | | |
| | |
Net loss | |
$ | (3,349,347 | ) | |
$ | (4,688,217 | ) |
| |
| | | |
| | |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
Amortization | |
| 1,500 | | |
| 1,500 | |
Common stock and warrants issued and issuable for services | |
| 1,057,755 | | |
| 2,824,387 | |
| |
| | | |
| | |
Changes in assets and liabilities | |
| | | |
| | |
(Increase) decrease in prepaid expenses and other current assets | |
| 492,208 | | |
| (50,537 | ) |
(Increase) decrease in advances to shareholder | |
| (22,478 | ) | |
| - | |
Increase (decrease) in accounts payable and accrued expenses | |
| 63,229 | | |
| 129,723 | |
Increase (decrease) in deferred officer's salary | |
| 63,334 | | |
| (5,345 | ) |
Increase (decrease) in payroll taxes and related fees | |
| - | | |
| (16,551 | ) |
| |
| | | |
| | |
Net cash used in operating activities | |
| (1,693,799 | ) | |
| (1,805,040 | ) |
| |
| | | |
| | |
CASH FLOWS FROM INVESTING ACTIVITIES | |
| - | | |
| - | |
| |
| | | |
| | |
CASH FLOWS FROM FINANCING ACTIVITIES | |
| | | |
| | |
Loans from related parties | |
| - | | |
| 20,150 | |
Repayments of loans from related parties | |
| (21,572 | ) | |
| - | |
Proceeds from sale of common stock | |
| 870,266 | | |
| 2,406,972 | |
Liability for stock to be issued | |
| 138,772 | | |
| (707,414 | ) |
| |
| | | |
| | |
Net cash provided by financing activities | |
| 987,466 | | |
| 1,719,708 | |
| |
| | | |
| | |
NET (DECREASE) IN CASH | |
| (706,333 | ) | |
| (85,332 | ) |
| |
| | | |
| | |
CASH | |
| | | |
| | |
BEGINNING OF YEAR | |
| 804,257 | | |
| 889,589 | |
| |
| | | |
| | |
END OF YEAR | |
$ | 97,924 | | |
$ | 804,257 | |
| |
| | | |
| | |
CASH PAID DURING THE YEAR FOR: | |
| | | |
| | |
Income taxes | |
$ | - | | |
$ | - | |
Interest | |
$ | - | | |
$ | - | |
| |
| | | |
| | |
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES | |
| | | |
| | |
Issuance of preferred stock and reduction of additional paid in capital for patent | |
$ | - | | |
$ | 200 | |
Conversion of Series B Convertible Preferred Stock to Common Stock | |
$ | 190 | | |
$ | - | |
See notes to consolidated financial statements.
SMARTMETRIC, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Changes In
Stockholders' Equity (Deficit)
| |
| | |
| | |
Class A | | |
Common | | |
| | |
Additional | | |
| | |
| |
| |
Preferred Stock | | |
Common Stock | | |
Stock | | |
| | |
Paid-in | | |
Accumulated | | |
| |
| |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Total | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Balance June 30, 2012 | |
| 200,000 | | |
$ | 200.00 | | |
| - | | |
$ | - | | |
| 118,974,672 | | |
$ | 118,975 | | |
$ | 11,657,012 | | |
$ | (11,276,377 | ) | |
$ | 499,810 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Shares issued for patent | |
| 200,000 | | |
| 200 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (200 | ) | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Shares issued of common stock and warrants for
services rendered | |
| - | | |
| - | | |
| - | | |
| - | | |
| 13,344,760 | | |
| 13,345 | | |
| 2,779,791 | | |
| - | | |
| 2,793,136 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Shares issued of common stock and warrants for
cash | |
| - | | |
| - | | |
| - | | |
| - | | |
| 15,379,518 | | |
| 15,379 | | |
| 2,422,844 | | |
| - | | |
| 2,438,223 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss for the year | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (4,688,217 | ) | |
| (4,688,217 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance June 30, 2013 | |
| 400,000 | | |
| 400 | | |
| - | | |
| - | | |
| 147,698,950 | | |
| 147,699 | | |
| 16,859,447 | | |
| (15,964,594 | ) | |
| 1,042,952 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Shares issued upon conversion of preferred stock | |
| (190,000 | ) | |
| (190 | ) | |
| - | | |
| - | | |
| 9,500,000 | | |
| 9,500 | | |
| (9,310 | ) | |
| - | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Shares issued of common stock and warrants for
services rendered | |
| - | | |
| - | | |
| - | | |
| - | | |
| 6,014,821 | | |
| 6,015 | | |
| 1,177,605 | | |
| - | | |
| 1,183,620 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Shares issued of common stock and warrants for
cash | |
| - | | |
| - | | |
| - | | |
| - | | |
| 4,494,166 | | |
| 4,494 | | |
| 739,907 | | |
| - | | |
| 744,401 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss for the year | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (3,349,347 | ) | |
| (3,349,347 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance June 30, 2014 | |
| 210,000 | | |
$ | 210 | | |
| - | | |
$ | - | | |
| 167,707,937 | | |
$ | 167,708 | | |
$ | 18,767,649 | | |
$ | (19,313,941 | ) | |
$ | (378,374 | ) |
See notes to consolidated financial statements.
PART
I — FINANCIAL INFORMATION
SMARTMETRIC INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
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.
Going Concern
As shown in the accompanying consolidated financial
statements the Company has incurred recurring losses of $3,349,347 and $4,688,217 for the years ended June 30, 2014 and 2013 respectively,
and has incurred a cumulative loss of $19,313,941 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.
NOTE
2 - SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Development Stage Company
The Company is considered to be in the development
stage as defined in ASC 915-10, "Accounting and Reporting by Development Stage Enterprises". The Company has devoted
substantially all of its efforts to the development of its technology. Additionally, the Company has allocated a substantial
portion of its time and investment in bringing its services to the market, and the raising of capital.
Principles of Consolidation
The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiary, SmartMetric Australia Pty. Ltd. All significant intercompany
accounts and transactions have been eliminated in consolidation.
SMARTMETRIC
INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
2 - SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 and Cash Equivalents
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, 2014 and 2013.
Fair Value of Financial Instruments
The carrying amounts reported in the consolidated
balance sheet for cash, accounts payable, and accrued expenses including payroll withholdings, interest and penalties approximate
fair value because of the immediate or short-term maturity of these financial instruments.
ASC 820 defines fair value, provides a consistent
framework for measuring fair value under generally accepted accounting principles and expands fair value financial statement disclosure
requirements. ASC 820’s valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily
obtainable data from independent sources, while unobservable inputs reflect our market assumptions. ASC 820 classifies these inputs
into the following hierarchy:
Level 1inputs: Quoted prices for identical instruments
in active markets.
Level 2 inputs: Quoted prices for similar instruments
in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations
whose inputs are observable or whose significant value drivers are observable.
Level 3 inputs: Instruments with primarily unobservable
value drivers.
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. The
Company anticipates recognizing revenue in accordance with the contracts it enters into for the sale and distribution of its products.
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.
NOTE
2 - SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, 2014 no accrual for uncertain income tax positions is necessary.
Advertising Costs
The Company will expense the cost associated with
advertising as incurred.
Equipment
Equipment is stated at cost. Depreciation
is computed using the straight-line method over the estimated economic useful lives of the assets ranging from 3 - 5 years.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. The Company
does not perform a periodic assessment of assets for impairment in the absence of such information or indicators. Conditions
that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant
change in the extent or manner in which an asset is used, or a significant adverse change that would indicate that the carrying
amount of an asset or group of assets is not recoverable. For long-lived assets to be held and used, the Company recognizes
an impairment loss only if its carrying amount is not recoverable through its undiscounted cash flows and measures the impairment
loss based on the difference between the carrying amount and estimated fair value.
Loss Per Share of Common Stock
Basic net loss per common share is computed using
the weighted average number of common shares outstanding. The calculation of diluted earnings per share ("EPS")
includes consideration of dilution arising from common stock equivalents, such as stock issuable pursuant to the exercise of stock
options and warrants. Common stock equivalents were not included in the computation of diluted earnings per share on
the consolidated statement of operations due to the fact that the Company reported a net loss and to do so would be anti-dilutive
for the periods presented.
Stock-Based Compensation
The Company measures expense for issuances of stock-based
compensation to employees and others at fair value of the stock and warrants issued, as this is more reliable than the fair value
of the services received. The fair value is measured at the value of the Company’s common stock on the date that the commitment
for performance by the counterparty has been reached or the counterparty’s performance obligation is complete. The fair value
of the equity instrument is charged directly to compensation expense and additional paid-in capital.
Reclassifications
Certain amounts in the 2013 consolidated financial
statements have been reclassified for comparative purposes to conform to the presentation in the current year consolidated financial
statements. These reclassifications had no effect on previously reported results.
Recent Accounting Pronouncements
On June 10, 2014, the Financial Accounting Standards
Board (FASB) issued Accounting Standards Update No. 2014-10 (ASU 2014-10), Development Stage Entities (Topic 915): Elimination
of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation.
ASU 2014-10 eliminates the requirement to present inception-to-date information about income statement line items, cash flows,
and equity transactions, and clarifies how entities should disclose the risks and uncertainties related to their activities. ASU
2014-10 also eliminates an exception provided to development stage entities in Consolidations (ASC Topic 810) for determining whether
an entity is a variable interest entity on the basis of the amount of investment equity that is at risk. The presentation and disclosure
requirements in Topic 915 will no longer be required for interim and annual reporting periods beginning after December 15, 2014,
and the revised consolidation standards will take effect in annual periods beginning after December 15, 2015. Early adoption is
permitted. The Company adopted the provisions of ASU 2014-10 effective for its financial statements for the annual period ended
June 30, 2014, and accordingly, is no longer presenting the inception-to-date financial information and disclosures formerly required.
SMARTMETRIC INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
3 - PREPAID
EXPENSES
Prepaid expenses represent the unexpired terms of
various consulting agreements and expire through November 2014. These consulting agreements were entered into for the
issuance of common stock and warrants and were valued based on the stock price or computed warrant value at the time of the respective
agreement.
NOTE
4 - PATENT COSTS
Patent costs as of June 30, 2014 and June 30, 2013
are summarized as follows:
| |
Estimated | | |
| | |
| |
| |
Useful Lives | | |
June 30, | | |
June 30, | |
| |
( Years) | | |
2014 | | |
2013 | |
| |
| | |
| | |
| |
Legal fees paid in connection with patent Applications | |
| 10 | | |
$ | 15,000 | | |
$ | 15,000 | |
| |
| | | |
| | | |
| | |
Less: accumulated amortization | |
| | | |
| (14,625 | ) | |
| (13,125 | ) |
Patent costs, net | |
| | | |
$ | 375 | | |
$ | 1,875 | |
Amortization expense was $1,500 for the years ended
June 30, 2014 and 2013, respectively.
NOTE
5 - COMMITMENTS
Patent License Agreement
Effective August 1, 2004, the Company executed a
license agreement with Applied Cryptography, Inc. (“ACI”), a corporation controlled by the Company’s president
and the owner of certain technology. Pursuant to the license agreement, the Company has the right to make use of this technology
for the purpose of developing software and systems to be used by the Company to provide any or all of the following: 1) secure
transactions over the Internet from home and office computers; 2) an automatic method for connecting to remote computers; 3) a
method of developing targeted advertising to home and/or office computers; and 4) identity verification and access control as provided
for in the patent. Pursuant to this license agreement, ACI is to receive 2% of all revenues generated by the Company on products
which utilize this patented technology. The license fee is to be paid within 45 days of the end of each quarter. In the event no
revenues are generated through the use of any of the licensed patents during a given quarter, no money shall be owed ACI for such
quarter. ACI has the right to rescind the license agreement and reclaim all rights and interest in the patents if certain events,
such as the Company’s filing for bankruptcy protection or reorganization, occur. The license agreement remains in effect
for the lives of the patents. The Company may utilize the technological applications anywhere in the world without limitation. Upon
execution of the Assignment and Assumption Agreement on December 11, 2009 (see Note 6), the Patent License Agreement was terminated.
During November 2012, the Company acquired license
rights to ACI's Medical Keyring Device technology in consideration of the Company's issuance to ACI of 200,000 shares of its Series
B Convertible Preferred Stock.
During September 2013, the Company acquired license
rights to ACI's BioCentric Cloud Device technology in consideration of the Company's obligation to issue to ACI of 200,000 shares
of its Series B Convertible Preferred Stock. As of the filing date, the Company has not increased its amount of Series B Convertible
Preferred Stock shares and, accordingly, these shares have not been issued.
Lease Agreement
In February 2012, the company entered into a facilities
lease in Buenos Aires, Argentina for its manufacturing activities. The lease term is from March 1, 2012 through January 31, 2015.
The Company exited its Argentina offices in February of 2014. The Company also utilizes offices in Australia, Israel and Las Vegas,
Nevada. The Company’s main office is located in Las Vegas, Nevada. Rent expense under all leases for the years ended June
30, 2014 and 2013 was $59,635 and $103,814 respectively.
Related Party Transactions
The Company has made cash advances to its Chief
Executive Officer with an aggregate amount due of $22,478 and $0 as of June 30, 2014 and June 30, 2013,
respectively. The Company’s Chief Executive Officer has made cash advances to the Company with an aggregate
amount due of $0 and $21,572 as of June 30, 2014 and 2013, respectively. These advances bear interest at 5.00% per annum.
As of June 30, 2014 and June 30, 2013, the Company
has accrued the amounts of $125,015 and $61,681, respectively, as deferred Officer’s salary for the difference between the
president’s annual salary and the amounts paid.
NOTE
6 - STOCKHOLDERS’ EQUITY (DEFICIT)
Preferred Stock
As of June 30, 2014, the Company has 5,000,000 shares
of preferred stock, par value $0.001, authorized and 210,000 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 December 11, 2009, the Company entered into an
Assignment and Assumption Agreement with ACI (the “assignment and Assumption Agreement”). In accordance with the Assignment
and Assumption Agreement, ACI conveyed, assigned and transferred to the Company all of ACI’s rights, title and interest in
and to the Patent (see Note 5) and delegated to the Company all of its duties and obligations to be performed under the Patent;
and the Company hereby accepts the assignment of all of ACI’s rights, title and interest to the Patent and the rights and
delegation of duties and obligations and agrees to be bound by and to assume such duties and obligations.
In consideration for the assignment of the Patent,
the Company issued 200,000 shares of Series B Convertible Preferred Stock. ACI may only convert these shares into common shares
(in accordance with the conversion terms noted herein) upon delivering to the Company, a third party valuation of the assigned
Patent conducted by a nationally qualified accounting firm or IP law firm mutually agreed upon between the Company and ACI, indicating
that such Patent is valued at a minimum of $1,000,000.
On November 12, 2012, the Company issued 200,000
shares of its Series B Convertible Preferred Stock to ACI in consideration for ACI’s patent relating to the Medical Keyring
Device.
In July 2013, ACI elected to convert 190,000 shares
of Series B Convertible Preferred Stock, issued in 2012, into 9,500,000 shares of the Company’s common stock.
During September 2013, the Company acquired license
rights to ACI's BioCentric Cloud Device technology in consideration of the Company's obligation to issue to ACI of 200,000 shares
of its Series B Convertible Preferred Stock. As of the filing date, the Company has not increased its amount of Series B Convertible
Preferred Stock shares and, accordingly, these shares have not been issued.
NOTE
6 - STOCKHOLDERS’
EQUITY (DEFICIT) (CONTINUED)
Common Stock (Continued)
In accordance with Staff Accounting Bulletin (“SAB”)
topic 5G “Transfers of Non-monetary Assets by Promoters and Shareholders” the Company recorded these transactions at
ACI’s carrying basis of the Patents, which was $0.
Class A Common Stock
As of June 30, 2014, the Company has 50,000,000 shares
of Class A common stock, par value $0.001, authorized and no shares issued and outstanding. In October 2003, the Company issued
50,000,000 shares of Class A common stock at par value ($50,000). These shares were converted into 50,000,000 shares of common
stock in 2006.
Common Stock
The Company was incorporated on December 18, 2002,
with 45,000,000 shares of Common Stock, par value $0.001. The articles of incorporation were amended in 2006 to increase the number
of authorized shares to 100,000,000 shares, and again in 2009 to increase the number of authorized shares to 200,000,000.
As of June 30, 2014, the Company has 167,707,937
shares of common stock issued and outstanding.
During the three months ended September 30, 2012,
the Company sold 860,000 shares and twelve month warrants to purchase an additional 860,000 shares at $0.80 per share for net proceeds
of $171,758.
During the three months ended September 30, 2012,
the Company authorized the issuance of 4,379,122 shares for legal and consulting services valued at $627,899.
During the three months ended December 31, 2012,
the Company sold for cash 200,000 shares and twelve month warrants to purchase an additional 200,000 shares at $0.80 per share.
The Company also sold for cash 125,000 shares and twelve month warrants to purchase an additional 125,000 shares at $0.50 per share.
Total net proceeds received was $60,041.
During the three months ended December 31, 2012,
the Company authorized the issuance of 5,575,000 shares for consulting services valued at $1,115,000.
During the three months ended March 31, 2013, the
Company sold for cash 4,131,328 shares and twelve month warrants to purchase an additional 4,131,328 shares at $0.50 per share
for net proceeds of $672,380.
During the three months ended June 30, 2013, the
Company sold for cash 10,097,331 shares and twelve month warrants to purchase an additional 10,097,331 shares at $0.50 per share
for net proceeds of $1,499,793.
During the three months ended September 30, 2013,
the Company sold for cash 515,367 shares and twenty-four month warrants to purchase an additional 515,367 shares at $0.70 per share
for net proceeds of $123,474.
During the three months ended
September 30, 2013, the Company issued 130,875 shares for consulting services valued at $70,898, based on the stock price at the
time of the respective agreements underlying the services provided.
During the three months ended
December 31, 2013, the Company issued 2,134,166 shares for consulting services valued at $339,900, based on the stock price at
the time of the respective agreements underlying the services provided.
During the three months ended
December 31, 2013, the Company sold for cash 660,000 shares and twenty-four month warrants to purchase an additional 660,000 shares
at $0.60 per share for net proceeds of $118,700.
During the three months ended
March 31, 2014, the Company sold for cash 2,120,000 shares and twenty-four month warrants to purchase: (i) 4,240,000 shares at
$0.70 per share, and (ii) 2,136,960 shares at $1.00 per share, for net proceeds of $338,687.
During the three months ended
March 31, 2014, the Company issued 2,798,776 shares for consulting and legal services valued at $375,149, based on the stock price
at the time of the respective agreements underlying the services provided.
During the three months ended
June 30, 2014, the Company sold for cash 1,812,500 shares and twenty-four month warrants to purchase: (i) 3,625,000 shares at $0.70
per share, and (ii) 1,827,000 shares at $1.00 per share, for net proceeds of $289,405.
During the three months ended
June 30, 2014, the Company issued 1,490,170 shares for consulting and legal services value at $205,192, based on the stock price
at the time of the respective agreements underlying the services provided.
Warrants
From time to time the Company granted warrants in
connection with private placements of securities, as described herein.
In October 2009, the Company executed a warrant agreement
with an investor relations company for 5,000,000 warrants to be issued in two tranches. The first tranche of 2,500,000 warrants
(the “October warrants”) has been issued in October 2009, and the second tranche of 2,500,000 warrants has been issued
on March 31, 2010 (the “March warrants”). The October warrants, which were set to expire October 25, 2014(as extended)
but have been further extended by the Company to expire on October 25, 2015, have strike prices as follows: 1,000,000 at $0.10
per share; 1,000,000 at $0.15 per share; and 500,000 at $0.20 per share. The March warrants, which were set to expire March 29,
2015 (as extended) but have been further extended by the Company to expire on March 29, 2016, have strike prices as follows: 500,000
at $0.20 per share; 1,000,000 at $0.25 per share; and 1,000,000 at $0.30 per share.
In June 2011, the Company issued warrants to purchase
1,000,000 shares of its common stock at an exercise price of $0.50 per share as partial consideration for a consulting agreement. These
warrants were set to expire on June 3, 2014 (as extended) but have been further extended by the Company to expire on June 3, 2015.
In connection with the extension of the above referenced
warrants during the year ended June 30, 2014, which were partial consideration in connection with a new consulting agreement, the
Company assigned a value of $209,300 using the Black-Scholes option pricing model. The Company is recording the charge to consulting
expenses over the term of the new consulting agreement. During the year ended June 30, 2014, the Company recorded $174,417 to consulting
expenses, included as a component of other general and administrative expenses.
In May 2012, the Company issued warrants to purchase
250,000 shares of its common stock at an exercise price of $0.50 per share, as partial consideration for a consulting agreement
for public relations services. The warrants expired in May 2014.
As of June 30, 2014 and June 30, 2013, the following
is a breakdown of the activity:
June 30, 2014:
Outstanding - beginning of year | |
| 21,757,578 | |
Issued | |
| 13,004,326 | |
Exercised | |
| - | |
Expired | |
| (15,757,578 | ) |
| |
| | |
Outstanding - end of year | |
| 19,004,326 | |
June 30, 2013:
Outstanding - beginning of year | |
| 18,802820 | |
Issued | |
| 16,507,578 | |
Exercised | |
| - | |
Expired | |
| (13,552,820 | ) |
| |
| | |
Outstanding - end of year | |
| 21,757,578 | |
NOTE
6 - STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED)
At June 30, 2014, all of the 19,004,326 warrants
are vested and 13,004,326 warrants expire at various times through June 30, 2016, 1 million warrants expire on June 20, 2015, 2.5
million warrants expire on October 25, 2015, and 2.5 million warrants expire on March 29, 2016.
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, 2014 and 2013, deferred tax assets consist of the
following:
| |
2014 | | |
2013 | |
Net operating loss carryforward | |
$ | 5,541,413 | | |
$ | 4,495,399 | |
Warrant issuances | |
| 240,966 | | |
| 171,374 | |
Other | |
| 44,137 | | |
| 22,604 | |
Valuation allowance | |
| (5,826,516 | ) | |
| (4,689,377 | ) |
| |
$ | - | | |
$ | - | |
A reconciliation of the activity related to the liability for
gross unrecognized tax benefits during fiscal 2014 and 2013 is as follows:
| |
Year ended June 30, | |
| |
2014 | | |
2013 | |
Balance as of beginning of fiscal year | |
$ | 164,869 | | |
$ | 164,869 | |
Increases related to prior year positions | |
| - | | |
| - | |
Balance as of June 30, | |
$ | 164,869 | | |
$ | 164,869 | |
At June 30, 2014, the Company had a net operating loss carryforwards
in the amount of $16,298,273 available to offset future taxable income through 2033, which will begin to expire in 2022. 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, 2014 and 2013 is summarized as follows:
| |
2014 | | |
2013 | |
Tax on income before income tax | |
| 34.00 | % | |
| 34.00 | % |
Effect of nontemporary differences | |
| (0.06) | % | |
| (0.66 | )% |
Effect of NOL true-up adjustment | |
| (0.00) | % | |
| (14.48 | )% |
Change in valuation allowance | |
| (33.94) | % | |
| (18.86 | )% |
| |
| 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 2010. 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
On September 12, 2014, the Company filed an appeal before
the full bench of the Federal Circuit Court in Washington D.C. in respect of an appeal of a prior ruling of non infringement
on the part of the defendants Visa Inc. and MasterCard International by the Federal District Court for the Central District
of California in the last quarter of the calendar year ending December 31, 2013.
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE
OFFICER
PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, C. Hendrick, certify that:
1. I have reviewed this annual report
on Form 10-K of SmartMetric, Inc.;
2. Based on my knowledge, this report
does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial
statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant’s other certifying
officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
a) |
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) |
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) |
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) |
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; |
5. The registrant’s
other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting,
to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing
the equivalent function):
a) |
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) |
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting. |
Dated: October 14, 2014 |
By: |
/s/ C Hendrick |
|
|
C. Hendrick |
|
|
Chief Executive Officer |
|
|
(principal executive officer) |
Exhibit 31.2
CERTIFICATION OF PRINCIPAL EXECUTIVE
OFFICER
PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Jay Needelman, certify that:
1. I have reviewed this annual report
on Form 10-K of SmartMetric, Inc.;
2. Based on my knowledge, this report
does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
annual report;
3. Based on my knowledge, the financial
statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant’s other certifying
officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
a) |
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) |
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) |
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) |
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; |
5. The registrant’s other certifying
officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):
a) |
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) |
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting. |
Dated: October 14, 2014 |
By: |
/s/ Jay Needelman |
|
|
Jay Needelman, CPA |
|
|
Chief Financial Officer |
|
|
(principal financial and accounting officer ) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF
2002
In connection with the Annual Report of SmartMetric, Inc. (the
“Company”) on Form 10-K for the period ended June 30, 2014, as filed with the Securities and Exchange Commission on
the date hereof (the “Report”), I, C Hendrick , Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C.
section 1350 of the Sarbanes-Oxley Act of 2002, that:
(1) |
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
A signed original of this written statement required by Section
906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission
or its staff upon request.
Dated: October 14, 2014 |
By: |
/s/ C Hendrick |
|
|
C. Hendrick |
|
|
Chief Executive Officer |
|
|
(principal executive officer) |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF
2002
In connection with the Annual Report of SmartMetric, Inc. (the
“Company”) on Form 10-K for the period ended June 30, 2014, as filed with the Securities and Exchange Commission on
the date hereof (the “Report”), I, Jay Needelman, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C.
section 1350 of the Sarbanes-Oxley Act of 2002, that:
(1) |
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
A signed original of this written statement required by Section
906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission
or its staff upon request.
Dated: October 14, 2014 |
By: |
/s/ Jay Needelman |
|
|
Jay Needelman, CPA |
|
|
Chief Financial Officer |
|
|
(principal financial and accounting officer) |
SmartMetric (PK) (USOTC:SMME)
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SmartMetric (PK) (USOTC:SMME)
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