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
For the fiscal year ended June 30, 2015 |
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TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __ to_______________________________ |
Commission File Number: 0-54853
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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101 Convention Center Drive, 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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(305) 495-7190 |
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).
x Yes ¨ 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. ¨
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 ¨ |
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Accelerated filer ¨ |
Non-accelerated filer ¨ (Do not check if a smaller reporting company) |
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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 $8,759,825 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, 2014 (which was $0.05 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 21, 2015, there are presently 186,407,814 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 (smart cards and EMV cards). SmartMetric’s main product is a fingerprint sensor activated card
with a finger sensor and fully functional fingerprint reader embedded inside the card with a rechargeable battery for portable
biometric identification and card activation. This card may be referred to as a biometric card or the SmartMetric Biometric Datacard
or Payments Card.
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 is the originator and inventor of various miniature biometric activated
devices including the SmartMetric biometric fingerprint activated payments card with an embedded fully functional fingerprint reader
in side the card as well as the SmartMetric Medical Keyring. The SmartMetric biometric payments card provides for high level security
for credit and debit cards by adding biometric authentication and activation to the new EMV chip cards now in use around the World.
More than 3.4 Billion EMV chip debit and credit cards are now in use globally and the SmartMetric biometric payments card has been
manufactured to be totally interoperable with the EMV chip card infrastructure. Using the advanced electronic miniaturization by
SmartMetric to make it’s biometric credit/debit cards the company has also turned its attention to creating a multi functional
biometric building access control card that is also used for secure biometric computer network access. SmartMetric has also turned
its attention to creating a biometric health insurance card with up to 128 Gigabytes of memory for storing a persons medical files
as well as assisting in fighting medical fraud by using the card to provide in-card biometric identity validation.
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 cardholder has stored inside the card his or her fingerprint. To activate the card the person swipes the
fingerprint sensor, the sensor is connected to an internal microprocessor that manages the fingerprint sensor fingerprint
image capture and comparison matching with the pre-stored fingerprint of the cardholder held in the internal electronic
memory of the card. The card has a surface mounted chip as found on EMV banking chip cards 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. The surface mounted chip is an EMV chip that is a banking industry standard for what is called chip cards
or chip and pin cards. The SmartMetric biometric technology turns the EMV chip card into an EMV biometric chip card.
There are over 3.4 billion EMV chip
cards used by banks around the world for both credit cards, ATM cards and debit 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 replacement to the less secure password or PIN used in current cards thereby providing
biometric security to card issuing banks and biometric protection for the card user.
SmartMetric has completed
development of its card and is now in the final stages of preparations for mass manufacturing. The Company is scheduled to
have its first mass manufactured cards produced by the end of October 2015. The SmartMetric biometric payments card, due to
exposure in specialty trade publications and numerous press releases, is receiving much interest in the banking and payments
card sector.
SmartMetric is currently engaging sales representatives who
are now actively promoting the SmartMetric biometric chip card to banks and card issuers throughout Europe, the United Kingdom,
Asia and North America. After internal trials by Banks and Financial Institutions (card issuers) SmartMetric will then expect
sales revenue to begin. Card issuers may take from 3 months up to 6 months of internal trials and test marketing prior to
placing orders of consequence with SmartMetric. So as the company now moves to provide cards with Banks and Financial Institutions
the sales process is expected to take between 3 to 6 months from the end of October.
The SmartMetric biometric payments card, with a built-in rechargeable battery and EMV banking
industry contact interface chip (which activates following a fingerprint match on the card), is the first of its kind in the world.
THE SMARTMETRIC BIOMETRIC IN-CARD FINGERPRINT READER PAYMENTS
CARD
The SmartMetric biometric fingerprint activated card has several
functions:
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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 and card user verification; |
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Self powered with its own internal rechargeable battery to allow for fingerprint activation prior to insertion into a card reading device such as an ATM or 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 payments card 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 had 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 Datacard 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 has required
innovations in electronic manufacturing processes.
The SmartMetric biometric card is also
a leading edge solution in the identity and access control market. 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 data is travelling 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 Datacard will not operate.
SmartMetric, Inc. sees a significant market
for its biometric fingerprint activated credit cards to replace the use of PIN numbers used in current Bank issued EMV (Smartcards’)
around the World. There are more than 3.4 billion bank issued SmartCard Credit and ATM Cards in the world that have a chip that
stores credit card information but still rely on a user entered PIN or signature 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 and signatures are vulnerable to hackers. Replacing the PIN and/or signature for these cards with a person’s
fingerprint to activate the card provides the next level of security for the 3.4 Billion already issued around the World, Credit
and ATM chip cards.
In 2011 both Visa and MasterCard announced
that they will be introducing “Chip & Pin” Credit / ATM Cards based on the same smartcard technology already used
in most advanced 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
allows for a person to use their fingerprint to activate their Credit Card or ATM Card. For the banking and card industry it provides
a much more secure verification process then the PIN or signature chip card system currently used.
SmartMetric plans to roll out its
fingerprint activated cards in the United States. Latin America, Asia/Pacific and Europe no later than December 2015.
Previously the Company stated that mass production would come on-line in the first quarter of 2016.
In addition to
the Financial Services Sector, the Company believes its SmartMetric Biometric Datacard 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 Datacard contains a powerful on-card processor and varying degrees of encrypted memory, enabling the Biometric Datacard
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
payments card can help 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.
As an online money transfer card, the Company
has developed software and systems to allow money to be transferred from one card to another over the Internet with user confirmation
of transaction by both sender and receiver. Much as in the same way that digital files are transferred in a process called Peer
to Peer transfer. Because fingerprint activation is required at both ends of the transaction, the sending and receiving parties
can be confident that only the appropriate person is receiving the funds. This allows the low cost of Internet communication to
now be used for person-to-person money transfer.
SmartMetric believes that its biometric
card, by way of containing information unique to the individual user, protected by the card user’s biometrics, 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, we believe that confirmation of identify with the SmartMetric system may not be intercepted during the verification process
since the biometric information is embedded in the card, itself, in a memory chip protected by encryption. 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 smartcard will not operate.
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 acceptor devices. For contact card acceptor devices, the device must touch a chip mounted
on the surface of the biometric card. This contact allows the card to transmit data to the reading device. For contactless acceptor
devices, a radio frequency signal will be sent from the card to a radio frequency signal receiver in the acceptor device. In both
types of card reading devices, the activation signal is sent only when there has been a positive match of the persons fingerprint
by the cards fingerprint sensor. The card reader devices are standard smartcard readers available from a variety of third parties.
The memory and computational capacities
of the biometric card are used to store a user's fingerprint(s). The computational capacity 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 customers.
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 to SmartMetric’s
specifications and is unaffiliated with the Company. This battery is embedded inside the card.
Other components needed for manufacture
of the SmartMetric Biometric Datacard 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 a number of important components at silicon level to achieve the
component size required to fit inside a Credit Card. Both the supply of memory and processors in silicon wafers may
be interrupted at any time 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 and sale of the Cards.
The biometric card has been designed to
offer the option of a built-in radio frequency transmitter for contactless long 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 internal electronics circuit board.
The SmartMetric Medical Keyring™
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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 simple to use
yet advanced biometric product that is completely portable, self-contained, guaranteed private, secured by onboard SmartMetric
Biometrics Technology electronic medical records storage and delivery device. It also has a display window that is used to display critical information to emergency medical providers
in the case of an unresponsive person such as if the person is suffering from diabetes, pre-existing heart condition or in fact
any other condition or medical information that could provide life saving information to those attending. Upon arrival at the ER
or hospital the attending physician after stabilizing the patient is then able to have the patient touch the biometric sensor to
unlock the patients medical records and then simply take the MedicalKeyring to computer, plug it into the USB port and then see
on the computers screen the patients medical files. The patient could be in the next town, across the county or even in another
country and the medical practitioner will have immediate access to the patient’s
medical records. This overcomes network interoperability issues currently existing with current electronic medical records systems.
It provides easy and effective patient medical records portability and provides peace of mind to the public who can now have a
new medical tool that could improve invaluable in the case of a medical situation.
ALL MEDICAL RECORDS IN ONE SECURE AND PORTABLE
PLACE
SmartMetric has also developed the Medical
Keyring. The SmartMetric Medical Keyring is a device designed to carry a person's complete medical files on a pocket USB biometric
storage device. It fits 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 is concentrating its engineering and resources on manufacturing its biometric payments and
identity card and intends to market its already manufactured Medical Keyring, following the product launch and marketing of its
biometric cards. SmartMetric is now actively marketing its Biometric EMV Chip Payments cards to Banks and Financial Institutions,
globally.
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 chips.
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.
The company is now actively marketing its
biometric EMV chip card to Banks and Financial Institutions. To assist the company in its marketing efforts the company has engaged
sales representatives in the United Kingdom, Europe and the United States. The company also has sales representation in Australia
and sales and marketing discussions under way with Financial Institutions in the Far East and Asia.
There are more than 3.4 Billion EMV chip cards in use by Banks and Financial Institutions around the world
according the standards body EMV.co. EMV chip cards are now being aggressively rolled out by major Banks within the United States.
Because the SmartMetric, Biometric EMV chip card uses the banking industry EMV chip it is fully operable with all ATM and Point
Of Sale chip card readers in the United States and throughout 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. The
company may also establish other card manufacturing centers at different locations as and when required. Separate
manufacturing centers have been engaged in order to make, assemble and complete the finished SmartMetric biometric EMV chip
card. Current production capacity is approximately 250,000 cards per week and this can be substantially increased in
co-ordination with our engaged manufacturing centers.
SmartMetric’s President &
CEO in one of the manufacturing facilities engaged in the SmartMetric Card manufacturing
Intellectual Property
We rely on patents, licenses, trade
secrets, trademarks, copyright registrations and non-disclosure agreements to establish and protect our proprietary rights in
our technologies and products. A number of Patents are in process (Patents Pending) that cover critical aspects of the
engineering and function of the SmartMetric biometric card. The founder of SmartMetric, Chaya Hendrick is the inventor of
these patents and has provided SmartMetric with an option over all smartcard related pending patents invented by her.
Some of the most recent patents pending have not been disclosed on the Publicly searchable USPTO database
of filed for patents and remain trade secrets within the company. Publishing of such patents pending will be done in due course.
Patents
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 control.
EMV Standards
SmartMetric’s biometric Smartcards 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 Smartcards 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:
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Supports enhanced cardholder verification methods |
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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
Our research and development program
has been focused on completing development of our biometric card. We continue to refine existing technology and develop
further improvements to our biometric card products. We have finalized our first biometric EMV payments card product. Research
and development will continue as the Company will continue to innovate and develop new products.
The company has developed and is continuing
to develop its own systems and application software that works with the SmartMetric Biometric Card. This development requires the
company to continue to expend time and financial resources on significant software development. Contractors engaged by and working
for SmartMetric in Tel Aviv, Israel and Buenos Aires, Argentina are undertaking this development.
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 of biometric card having an inbuilt fingerprint scanner with an inbuilt reader for fingerprint matching and identity
verification along with fingerprint match activated EMV banking chip inside.
The biggest companies in the SmartCard industry who are also the largest suppliers of EMV Smartcard’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. Gemalto does not have a biometric activated EMV chip card or Smartcard chip card where the chip on the card is activated
by biometrics.
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. G&D do not have a biometric
activated EMV chip card or Smartcard chip card where the chip on the card is activated following a biometric match.
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. Oberthur do not have a biometric activated EMV chip card or Smartcard chip card where the chip on the
card is activated following a biometric match.
http://www.oberthurcs.com
While these companies are the leading suppliers of the estimated more than 3.4 Billion EMV SmartCard’s
issued by Banks around the World, they all issue cards that rely upon PIN or signature user verification. None supply
cards that have inbuilt fingerprint scanners that use the cards internal biometric reader to activate the cards EMV chip. The
SmartMetric technology provides a much higher level of security than the PIN number or card user signature as a verification method. 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, the United States and Argentina.
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, 2015 and 2014, 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, 2015 and 2014,
we incurred a net loss of $1,713,612 and $3,349,347, 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.
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Difficulties in staffing; |
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Adequate resources of qualified technicians, engineers/assemblers, and programmers; |
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Potentially adverse tax consequences; |
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Unexpected changes in regulatory requirements; |
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Tariffs and other trade barriers; |
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export controls; |
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Political and economic instability; |
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Lack of control over the manufacturing process and ultimately over the quality of our products; |
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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; |
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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 |
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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 OTC Markets, 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:
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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; |
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changes in financial estimates by us or by any securities analysts who might cover our stock; |
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speculation about our business in the press or the investment community; |
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significant developments relating to our relationships with our customers or suppliers; |
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stock market price and volume fluctuations of other publicly traded companies and, in particular, those that are in our industry; |
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customer demand for our products; |
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investor perceptions of the industry in general and our company in particular; |
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the operating and stock performance of comparable companies; |
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general economic conditions and trends; |
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major catastrophic events; |
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announcements by us or our competitors of new products, significant acquisitions, strategic partnerships or divestitures; |
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changes in accounting standards, policies, guidance, interpretation or principles; |
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sales of our common stock, including sales by our directors, officers or significant stockholders; and |
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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:
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make a special written suitability determination for the purchaser; |
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receive the purchaser’s written agreement to the transaction prior to sale; |
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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 |
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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:
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delaying, deferring or preventing a change in corporate control; |
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impeding a merger, consolidation, takeover or other business combination involving us; or |
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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, 2015 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, 2015. 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 101 Convention
Center Drive, Las Vegas, Nevada 89109.
The Company exited its Buenos Aires, Argentina facility February
of 2014.
ISRAEL
Our primary 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 Riato 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.
SmartMetric filed on December 23, 2013
in the Federal Circuit Court a brief in its patent infringement litigation suit brought by SmartMetric against both Visa Inc. and
MasterCard International. SmartMetric’s patent (“464”) infringement litigation ultimately failed with the Court
saying to paraphrase, that since Visa and MasterCard to not exercise control over the issuance of offending cards they can not
be held liable for said infringement.
VISA and MasterCard asked the District
Court to award them attorneys' fees and costs approximating jointly $3 million. SmartMetric opposed this motion, which SmartMetric
argued was without merit because SmartMetric filed its suit in good faith, and had litigated the case in an objectively reasonable
manner.
On March 25, 2015, The Federal District
Court of the Southern District of California denied both Visa and MasterCard’s motion for fees and costs. A notice of appeal
has been lodged with the Court by MasterCard while Visa declined to lodge an appeal and the time for such an appeal by Visa has
now passed.
The “464” Patent was not found to be invalid and survived motions of invalidation. It also
survived two marksman hearings during the course of litigation however the enforcement of the Patent according to the rulings of
the Court need of essence to be brought against those infringing the patent that are also issuing the cards or exercise control
over such infringing card issuance. The SmartMetric issued “464” Patent still stands as a valid patent owned by SmartMetric.
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, 2013 | |
| 0.16 | | |
| 0.48 | |
Quarter Ended December 31, 2013 | |
| 0.13 | | |
| 0.25 | |
Quarter Ended March 31, 2014 | |
| 0.14 | | |
| 0.23 | |
Quarter Ended June 30, 2014 | |
| 0.13 | | |
| 0.19 | |
Quarter Ended September 30, 2014 | |
| 0.04 | | |
| 0.18 | |
Quarter Ended December 31, 2014 | |
| 0.04 | | |
| 0.08 | |
Quarter Ended March 31, 2015 | |
| 0.03 | | |
| 0.06 | |
Quarter Ended June 30, 2015 | |
| 0.02 | | |
| 0.18 | |
As of September 25, 2015, we had approximately
1,078 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.
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.
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 valued at $205,192, based on the stock price at the
time of the respective agreements underlying the services provided.
During the three months ended September
30, 2014, the Company sold for cash 4,893,731 shares and twenty-four month warrants to purchase: (i) 1,375,000 shares at $0.70
per share, and (ii) 724,500 shares at $1.00 per share, for net proceeds of $307,662.
During the three months ended December
31, 2014, the Company sold for cash 1,599,994 shares and twelve month warrants to purchase: (i) 1,187,500 shares at $0.70 per share,
and (ii) 598,500 shares at $1.00 per share, for net proceeds of $95,750.
During the three months ended March 31,
2015, the Company sold for cash 4,425,000 shares and twelve month warrants to purchase: (i) 2,375,000 shares at $0.70 per share,
and (ii) 1,197,000 shares at $1.00 per share, for net proceeds of $189,557.
During the three months ended March 31,
2015, the Company issued 296,250 shares for consulting services valued at $17,775, based on the stock price at the time of the
respective agreements underlying the services provided.
During the three months ended June 30,
2015, the Company sold for cash 4,362,500 shares and twelve month warrants to purchase: (i) 2,668,750 shares at $0.70 per share,
and (ii) 1,345,050 shares at $1.00 per share, for net proceeds of $212,934.
During the three months ended June 30,
2015, the Company issued 1,415,062 shares for consulting services valued at $71,435, based on the stock price at the time of the
respective agreements underlying the services provided.
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(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
Results of Operations
Comparison of the years Ended June
30, 2015 and 2014
Revenue and Net Loss
For the year ended June 30, 2015, there
was no revenue and a net loss of $1,713,612. For the year ended June 30, 2014, there was no revenue and a net loss of $3,349,347. This
decreased loss of $1,635,735 or 48.8% resulted primarily from lower general and administrative expenses.
General and Administrative Expenses
General and administrative expenses for
the year ended June 30, 2015 were $1,361,240, a decrease of $1,308,453 or 49.0% compared to $2,669,693 for the comparable period
in 2014. This decrease was primarily attributed to lower consulting expenses.
Research and Development Expenses
Research and development expenses for the
year ended June 30, 2015 were $162,372, a decrease of $327,282 or 66.8% compared to $489,654 for the comparable period in 2014.
This decrease was primarily attributable to lower engineering expenses.
Income Tax Expense
Income tax expense for the year ended June 30, 2015 was $0,
unchanged from the comparable period in 2014.
Cash
Our cash balance was $44,516 at June 30,
2015 compared with $97,924 at June 30, 2014. 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 $900,062 for the year ended June 30, 2015, a decrease of $793,737 or 46.9% from the comparable period in 2014. 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, 2015, unchanged from the comparable period in 2014.
Net cash provided by financing
activities
Net cash provided by financing activities
was $846,654 for the year ended June 30, 2015, a decrease of $140,812 or 14.3% from the comparable period in 2014. The
decrease was based on reduced activity of issuances of equity shares for cash.
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk.
Not Applicable.
Item 8. Financial Statements and Supplementary
Data.
Our audited consolidated financial statements
for the fiscal years ended June 30, 2015 and 2014, 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, 2015, 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, 2015. 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, 2015, 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, 2015.
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, 2015, 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, 2015. 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, 2015.
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 fiscal year ended June 30, 2015,
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 fiscal year ending June 30, 2015 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 |
|
59 |
|
President, Chief Executive Officer and Chairman of the Board |
Jay M. Needelman, CPA |
|
47 |
|
Chief Financial Officer, Director |
Elizabeth Ryba |
|
64 |
|
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 23 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 17 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 Company 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. |
Audit Committee Financial Expert
SmartMetric’s board of directors
has determined that the company does not have an audit committee financial expert serving. At
the present time, we 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. We do, however, recognize the importance
of good corporate governance and intend to appoint an audit committee comprised entirely of independent directors, including at
least one financial expert, in the near future.
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 2016 fiscal year.
Audit Committee Financial Expert
The Company’s does not have an audit
committee financial expert since Company’s board of directors currently acts as the audit committee and the board of directors
currently consists of only two directors one of which is the Company’s sole officer. 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., 101 Convention Center Drive, Las Vegas,
Nv, 89109. Attn: Secretary.
Compliance with Section 16(a) of the
Securities Act of 1934
Section 16(a) of the Securities Exchange
Act of 1934, as amended, requires our executive officers and directors and persons who own more than 10% of a registered class
of our equity securities to file with the Securities and Exchange Commission initial statements of beneficial ownership, reports
of changes in ownership and annual reports concerning their ownership of 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, 2015, the following persons have not filed Form 3s: C. Hendrick, Jay Needelman and Elizabeth Ryba.
Item 11. Executive Compensation.
Summary Compensation Table
The table below sets forth, for the fiscal years ended June
30, 2015 and 2014, 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 | |
| 2015 | | |
$ | 190,000 | | |
| -0- | | |
| -0- | | |
| -0- | | |
| -0- | | |
| -0- | | |
| -0- | | |
| 190,000 | |
Officer, Chairman of the Board) (1) | |
| 2014 | | |
$ | 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 July 1, 2012, 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 sixty (60) months from the date of the
Agreement. Thereafter the Agreement shall be renewed by the mutual written agreement of Company and Executive. Executive is to
receive an annual base salary of $190,000 per year. Executive is also entitled to receive a fee equal to $50,000 per year beginning
with the Company’s fiscal year ended June 30, 2012 and each fiscal year thereafter during the term of the Agreement. The
fee payment shall be made within thirty (30) days after the Company has manufactured its first product. This fee shall increase
by 25% per annum at the conclusion of each calendar year and shall be based on the continued manufacturing and sales of products
by the Company. 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. The Company shall provide Executive with the use of an automobile of Executive’s choice at a purchase price not to
exceed $60,000. Executive’s employment with the Company may be terminated at any time, with cause, as such terms are defined
in the Agreement. In the event that Executive’s employment is terminated by the Company, Company shall pay to Executive an
amount equal to the Executive’s base salary for the remaining period of the term of the Agreement plus $350,000.
On September 30, 2015, the Company and Executive entered into an Addendum to the Agreement (the “Addendum”)
pursuant to which in consideration for the issuance of 200,000 shares of the Company’s series B preferred stock (“Series
B Shares”), the Executive hereby grants the Company the first right to purchase or license any patents (the “Patent
Option”) relating to “Smartcards” which the Executive (i) shall apply for with the relevant patent authorities
during the term of the Agreement, and (ii) are currently applied for with the relevant patent authorities or pending as of the
date hereof (the “Patent Rights”). In exchange for the Patent Option the Company agrees, during the term of the Agreement,
to pay for any fees and/or expenses related to the application for the Executive’s Patent Rights with the relevant patent
authorities, including, but not limited to, legal or filing fees. If, upon the Company’s receipt of notice of any Patent
Rights of the Executive’s in writing (“Patent Notification”) the parties fail to successfully negotiate and execute
a purchase or license agreement as it relates to the Patent Right that is the subject of such Patent Notification within 60 calendar
days of the receipt of such Patent Notification, the Executive shall be permitted to retain or transfer the Patent Rights to a
third party without any subsequent notice to the Company.
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 21, 2015, 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 | |
| 79,127,778 | | |
| 57.57 | % |
| |
| |
| | | |
| | |
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 | | |
| 0 | % |
| |
| |
| | | |
| | |
All Executive Officers and Directors as a Group (3 persons) | |
| |
| | | |
| | |
| |
| |
| | | |
| | |
5% Shareholders | |
| |
| | | |
| | |
Applied Cryptography, Inc. (2) 9195 Collins Avenue Surfside, Fl, 33154 | |
Not applicable | |
| 79,127,778 | | |
| 57.57 | % |
(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 21, 2015, (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) 186,407,814, the total
shares of common stock outstanding on September 21, 2015, 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) 410,000 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
Stockholders) equal to that number of common shares which is not less than 51% of the vote required to approve any action, which
Nevada law provides may or must be approved by vote or consent of the common shares or the holders of other securities entitled
to vote, if any. Each share of Series B 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, 2015.
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 $84,000 and $74,000 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, 2015 and 2014, 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, 2015 and 2014, 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, 2015 and 2014, 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, 2015 and
2014, 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) |
|
|
|
10.8 |
|
Addendum, dated September 30, 2015, to the Executive Employment Agreement, dated July 1,
2012, between SmartMetric, Inc. and Chaya Coleena Hendrick. * |
|
|
|
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 5, 2015 |
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 5, 2015 |
C. Hendrick |
|
|
|
|
|
|
|
|
|
/s/ Jay Needelman |
|
Chief Financial Officer (principal financial and accounting officer) and Director |
|
October 5, 2015 |
Jay Needelman |
|
|
|
|
|
|
|
|
|
/s/ Elizabeth Ryba |
|
Director |
|
October 5, 2015 |
Elizabeth Ryba |
|
|
|
|
SMARTMETRIC INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2015 AND 2014
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 (the “Company”) as of June 30, 2015 and 2014, and the related consolidated
statements of operations, stockholders’ deficit and cash flows for each of the years in the two-year period ended June 30,
2015. 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, 2015 and 2014, and the results of its operations and its cash flows for each of the years in the two-year period
ended June 30, 2015 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 5, 2015
SMARTMETRIC, INC. AND SUBSIDIARY
Consolidated Balance Sheets
| |
June 30, | | |
June 30, | |
| |
2015 | | |
2014 | |
| |
| | |
| |
Assets | |
| | | |
| | |
Current assets: | |
| | | |
| | |
Cash | |
$ | 44,516 | | |
$ | 97,924 | |
Prepaid expenses and other current assets | |
| 84,417 | | |
| 307,491 | |
| |
| | | |
| | |
Total current assets | |
| 128,933 | | |
| 405,415 | |
| |
| | | |
| | |
Other assets: | |
| | | |
| | |
Advances to shareholder | |
| - | | |
| 22,478 | |
Patent costs, less accumulated amortization of $15,000 and $14,625, respectively | |
| - | | |
| 375 | |
| |
| | | |
| | |
Total assets | |
$ | 128,933 | | |
$ | 428,268 | |
| |
| | | |
| | |
Liabilities and Stockholders' Deficit | |
| | | |
| | |
| |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Accounts payable and accrued expenses | |
$ | 439,828 | | |
$ | 325,877 | |
Liability for stock to be issued | |
| 382,541 | | |
| 355,750 | |
Deferred Officer salary | |
| 267,515 | | |
| 125,015 | |
Shareholder loan | |
| 13,960 | | |
| - | |
| |
| | | |
| | |
Total current liabilities | |
| 1,103,844 | | |
| 806,642 | |
| |
| | | |
| | |
Commitments and contingencies | |
| | | |
| | |
| |
| | | |
| | |
Stockholders' deficit: | |
| | | |
| | |
Preferred stock, $.001 par value; 5,000,000 shares
authorized, 410,000 and 210,000 shares issued and outstanding, respectively | |
| 410 | | |
| 210 | |
Common stock, $.001 par value; 200,000,000 shares authorized, 186,407,814 and 167,707,937 shares issued and outstanding, respectively | |
| 186,408 | | |
| 167,708 | |
Additional paid-in capital | |
| 19,865,824 | | |
| 18,767,649 | |
Accumulated deficit | |
| (21,027,553 | ) | |
| (19,313,941 | ) |
| |
| | | |
| | |
Total stockholders' deficit | |
| (974,911 | ) | |
| (378,374 | ) |
| |
| | | |
| | |
Total liabilities and stockholders' deficit | |
$ | 128,933 | | |
$ | 428,268 | |
See notes to consolidated financial statements.
SMARTMETRIC, INC. AND SUBSIDIARY
Consolidated Statements Of Operations
| |
Year | | |
Year | |
| |
Ended | | |
Ended | |
| |
June | | |
June | |
| |
30, | | |
30, | |
| |
2015 | | |
2014 | |
| |
| | |
| |
Revenues | |
$ | - | | |
$ | - | |
| |
| | | |
| | |
Expenses: | |
| | | |
| | |
Officer's salary | |
| 190,000 | | |
| 190,000 | |
Other general and administrative | |
| 1,361,240 | | |
| 2,669,693 | |
Research and development | |
| 162,372 | | |
| 489,654 | |
| |
| | | |
| | |
Total operating expenses | |
| 1,713,612 | | |
| 3,349,347 | |
| |
| | | |
| | |
Loss from operations before income taxes | |
| (1,713,612 | ) | |
| (3,349,347 | ) |
| |
| | | |
| | |
Income taxes | |
| - | | |
| - | |
| |
| | | |
| | |
Net loss | |
$ | (1,713,612 | ) | |
$ | (3,349,347 | ) |
| |
| | | |
| | |
Net loss per share, basic and diluted | |
$ | (0.01 | ) | |
$ | (0.02 | ) |
| |
| | | |
| | |
Weighted average number of common shares outstanding, basic and diluted | |
| 175,013,149 | | |
| 161,252,272 | |
See notes to consolidated financial statements.
SMARTMETRIC, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
| |
Year | | |
Year | |
| |
Ended | | |
Ended | |
| |
June | | |
June | |
| |
30, | | |
30, | |
| |
2015 | | |
2014 | |
CASH FLOWS FROM OPERATING ACTIVITIES | |
| | | |
| | |
Net loss | |
$ | (1,713,612 | ) | |
$ | (3,349,347 | ) |
| |
| | | |
| | |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
Amortization | |
| 375 | | |
| 1,500 | |
Common stock and warrants issued and issuable for services | |
| 311,172 | | |
| 1,057,755 | |
| |
| | | |
| | |
Changes in assets and liabilities | |
| | | |
| | |
(Increase) decrease in prepaid expenses and other current assets | |
| 223,074 | | |
| 492,208 | |
(Increase) decrease in advances to shareholder | |
| 22,478 | | |
| (22,478 | ) |
Increase (decrease) in accounts payable and accrued expenses | |
| 113,951 | | |
| 63,229 | |
Increase (decrease) in deferred officer's salary | |
| 142,500 | | |
| 63,334 | |
| |
| | | |
| | |
Net cash used in operating activities | |
| (900,062 | ) | |
| (1,693,799 | ) |
| |
| | | |
| | |
CASH FLOWS FROM INVESTING ACTIVITIES | |
| - | | |
| - | |
| |
| | | |
| | |
CASH FLOWS FROM FINANCING ACTIVITIES | |
| | | |
| | |
Loans from related parties | |
| 13,960 | | |
| (21,572 | ) |
Proceeds from sale of common stock | |
| 805,903 | | |
| 870,266 | |
Liability for stock to be issued | |
| 26,791 | | |
| 138,772 | |
| |
| | | |
| | |
Net cash provided by financing activities | |
| 846,654 | | |
| 987,466 | |
| |
| | | |
| | |
NET (DECREASE) IN CASH | |
| (53,408 | ) | |
| (706,333 | ) |
| |
| | | |
| | |
CASH | |
| | | |
| | |
BEGINNING OF YEAR | |
| 97,924 | | |
| 804,257 | |
| |
| | | |
| | |
END OF YEAR | |
$ | 44,516 | | |
$ | 97,924 | |
| |
| | | |
| | |
CASH PAID DURING THE PERIOD 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 | |
$ | - | | |
$ | - | |
Conversion of Series B Convertible Preferred Stock to Common Stock | |
$ | - | | |
$ | - | |
See notes to consolidated financial statements.
SMARTMETRIC, INC. AND SUBSIDIARY
Consolidated Statements of Changes In
Stockholders' 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, 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 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Shares issued upon conversion of preferred
stock | |
| 200,000 | | |
| 200 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 200 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Shares issued of common stock and warrants
for services rendered | |
| - | | |
| - | | |
| - | | |
| - | | |
| 2,593,455 | | |
| 2,594 | | |
| 122,876 | | |
| - | | |
| 125,470 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Shares issued of common stock and warrants
for cash | |
| - | | |
| - | | |
| - | | |
| - | | |
| 16,106,422 | | |
| 16,106 | | |
| 975,299 | | |
| - | | |
| 991,405 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss for the
year | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (1,713,612 | ) | |
| (1,713,612 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance June 30, 2015 | |
| 410,000 | | |
$ | 410 | | |
| - | | |
$ | - | | |
| 186,407,814 | | |
$ | 186,408 | | |
$ | 19,865,824 | | |
$ | (21,027,553 | ) | |
$ | (974,911 | ) |
See notes to consolidated financial statements.
PART I — FINANCIAL INFORMATION
SMARTMETRIC INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -
ORGANIZATION AND BASIS OF PRESENTATION
SmartMetric, Inc. (the “Company” or “SmartMetric”)
was incorporated in the State of Nevada on December 18, 2002. SmartMetric’s main product is a fingerprint sensor-activated
card with a finger sensor onboard the card and a built-in rechargeable battery for portable biometric identification. This card
may be referred to as a biometric card or the SmartMetric Biometric Datacard. SmartMetric has completed development
of its card along with pre mass manufacturing cards but has not yet begun to mass manufacture the biometric fingerprint activated
cards.
Going Concern
As shown in the accompanying consolidated financial
statements the Company has incurred recurring losses of $1,713,612 and $3,349,347 for the years ended June 30, 2015 and 2014 respectively,
and has incurred a cumulative loss of $21,027,553 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
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, 2015 and 2014.
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.
SMARTMETRIC
INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Accounts Receivable
The Company will extend credit based on its evaluation
of the customers’ financial condition, generally without requiring collateral. Exposure to losses on receivables
is expected to vary by customer due to the financial condition of each customer. The Company will monitor exposure to
credit losses and maintains allowances for anticipated losses considered necessary under the circumstances. The Company
has not recorded any receivables, and therefore no allowance for doubtful accounts.
Uncertainty in Income Taxes
GAAP requires the recognition and measurement of
uncertain income tax positions using a “more-likely-than-not” approach. Management evaluates Company
tax positions on an annual basis and has determined that as of June 30, 2015 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 2014 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.
SMARTMETRIC INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 -
PREPAID EXPENSES
Prepaid expenses represent the unexpired terms of
various consulting agreements and expire through January 2016, as well as advance rental payments. 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, 2015 and June 30, 2014
are summarized as follows:
| |
Estimated Useful Lives ( Years) | |
June 30, 2015 | | |
June 30, 2014 | |
| |
| |
| | |
| |
Legal fees paid in connection with patent Applications | |
10 | |
$ | 15,000 | | |
$ | 15,000 | |
| |
| |
| | | |
| | |
Less: accumulated amortization | |
| |
| (15,000 | ) | |
| (14,625 | ) |
Patent costs, net | |
| |
$ | 0 | | |
$ | 375 | |
Amortization expense was $375 and $1,500 for the
years ended June 30, 2015 and 2014, 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.
SMARTMETRIC
INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 -
COMMITMENTS (CONTINUED)
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 issuance to ACI of 200,000 shares of its Series
B Convertible Preferred Stock. Effective November 5, 2014, the Company increased the number of preferred shares designated as Series
B, and accordingly, the shares were issued to ACI on November 10, 2014.
Lease Agreement
In February 2012, the company entered into a facilities
lease in Buenos Aires, Argentina for its manufacturing activities. The lease term was from March 1, 2012 through January 31, 2015.
The Company terminated this lease and vacated its Argentina facility in February, 2014. The Company also utilizes offices in Australia,
Israel and Las Vegas, and Nevada on short-term leases. The Company’s main office is located in Las Vegas, Nevada. Rent expense
under all leases for the years ended June 30, 2015 and 2014 was $35,502 and $59,635, respectively.
Related Party Transactions
The Company has made cash advances to its Chief Executive
Officer with an aggregate amount due of $0 and $22,478 as of June 30, 2015 and June 30, 2014, respectively. The Company’s
Chief Executive Officer has made cash advances to the Company with an aggregate amount due of $13,960 and $0 as of June 30, 2015
and 2014, respectively. These advances bear interest at 5.00% per annum.
As of June 30, 2015 and June 30, 2014, the Company
has accrued the amounts of $267,515 and $125,015, respectively, as deferred Officer’s salary for the difference between the
president’s annual salary and the amounts paid.
SMARTMETRIC INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 -
STOCKHOLDERS’ EQUITY (DEFICIT)
Preferred Stock
As of June 30, 2015, the Company has 5,000,000 shares
of preferred stock, par value $0.001, authorized and 410,000 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 issuance to ACI of 200,000 shares of its Series
B Convertible Preferred Stock. Effective November 5, 2014, the Company increased the number of preferred shares designated as Series
B, and accordingly, the shares were issued to ACI on November 10, 2014.
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.
SMARTMETRIC INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 -
STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED)
Class A Common Stock
As of June 30, 2015, 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, 2015, the Company has 186,407,814
shares of common stock issued and outstanding.
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.
SMARTMETRIC INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 -
STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED)
Common Stock (Continued)
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.
During the three months ended
September 30, 2014, the Company sold for cash 4,893,731 shares and twenty-four month warrants to purchase: (i) 1,375,000 shares
at $0.70 per share, and (ii) 724,500 shares at $1.00 per share, for net proceeds of $307,662.
During the three months ended
December 31, 2014, the Company sold for cash 1,599,994 shares and twenty-four month warrants to purchase: (i) 1,187,500 shares
at $0.70 per share, and (ii) 598,500 shares at $1.00 per share, for net proceeds of $95,750.
During the three months ended
March 31, 2015, the Company sold for cash 4,425,000 shares and twenty-four month warrants to purchase: (i) 2,375,000 shares at
$0.70 per share, and (ii) 1,197,000 shares at $1.00 per share, for net proceeds of $189,557.
During the three months ended
March 31, 2015, the Company issued 296,250 shares for consulting services valued at $17,775, based on the stock price at the time
of the respective agreements underlying the services provided.
During the three months ended
June 30, 2015, the Company sold for cash 4,362,500 shares and twenty-four month warrants to purchase: (i) 2,668,750 shares at $0.70
per share, and (ii) 1,345,050 shares at $1.00 per share, for net proceeds of $212,934.
During the three months ended
June 30, 2015, the Company issued 1,415,062 shares for consulting services valued at $71,435, 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 were further extended by the Company and expired 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, 2015 and 2014, the following is a
breakdown of the activity:
SMARTMETRIC INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 -
STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED)
June 30, 2015:
Outstanding - beginning of year | |
| 19,004,326 | |
Issued | |
| 11,471,300 | |
Exercised | |
| - | |
Expired | |
| (1,000,000 | ) |
| |
| | |
Outstanding - end of year | |
| 29,475,626 | |
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 | |
At June 30, 2015, all of the 29,475,626 warrants are vested
and 24,475,626 warrants expire at various times through June 30, 2016, 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, 2015 and 2014, deferred tax assets consist of the
following:
| |
2015 | | |
2014 | |
Net operating loss carryforward | |
$ | 6,031,857 | | |
$ | 5,541,413 | |
Warrant issuances | |
| - | | |
| 240,966 | |
Deferred officer compensation | |
| 90,955 | | |
| 42,505 | |
Other | |
| 1,632 | | |
| 1,632 | |
Valuation allowance | |
| (6,124,444 | ) | |
| (5,826,516 | ) |
| |
$ | - | | |
$ | - | |
A reconciliation of the activity related to the liability for
gross unrecognized tax benefits during fiscal 2015 and 2014 is as follows:
| |
Year ended June 30, | |
| |
2015 | | |
2014 | |
Balance as of beginning of fiscal year | |
$ | 164,869 | | |
$ | 164,869 | |
(Decreases) related to prior year positions | |
| (164,869 | ) | |
| - | |
Balance as of June 30, | |
$ | - | | |
$ | 164,869 | |
SMARTMETRIC INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 -
INCOME TAXES (CONTINUED)
At June 30, 2015, the Company had a net operating loss carryforwards
in the amount of approximately $17.7 million available to offset future taxable income through 2034, 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, 2015 and 2014 is summarized as follows:
| |
2015 | | |
2014 | |
Tax on income before income tax | |
| 34.00 | % | |
| 34.00 | % |
Effect of non-temporary differences | |
| (0.07 | )% | |
| (0.06 | )% |
Effect of prior year items | |
| (16.54 | )% | |
| (0.00 | )% |
Change in valuation allowance | |
| (17.39 | )% | |
| (33.94 | )% |
| |
| 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 2011. 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.
SMARTMETRIC INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - LITIGATION
On July 27, 2010, the Company
filed a second amended complaint (the “Visa and MasterCard Complaint”) in the United States District Court, Central
District of California (the “Court”), Case No. 2:10-cv-01864, against MasterCard, Inc. and Visa, Inc. alleging patent
infringement on the Company’s patent, U.S. Patent 6,792,464 (the “ ‘ 464 Patent”) (the “Visa and
MasterCard Case”).
In October 2013, the Federal
District Court, Central District of California, held that the Defendants did not infringe on the ‘464 Patent.
VISA and MasterCard asked the
District Court to award them attorneys' fees and costs approximating $3 million. SmartMetric opposed this request, which SmartMetric
believed was without merit because SmartMetric filed its suit in good faith and had litigated the case in an objectively reasonable
manner.
On March 25, 2015, The Federal
District Court of the Southern District of California denied both Visa and Mastercard’s motion for fees and costs. A notice
of appeal has been lodged with the Court by Mastercard while Visa declined to lodge an appeal and the time for such an appeal
by Visa has now passed.
Exhibit 10.8
Addendum A
To the
Executive Employment Agreement
by and between
SmartMetric, Inc. and
Ms. Chaya Coleena Hendrick
This Addendum, dated the 30th of September 2015,
is made to the AGREEMENT (the “Agreement”) made and entered into the 1st day of July, 2012, by and between
SmartMetric, Inc., (hereinafter referred to as the “Company”) and Ms. Chaya Coleena Hendrick (Hereinafter referred
to as the “Executive”)
Both parties hereto agree as follows:
That in case of any conflict between any terms and conditions
herein and those in the Agreement dated 1st day of July, 2012, the terms and conditions herein shall supersede those in the aforementioned
Agreement; and that remaining terms and conditions of the aforementioned Agreement shall not be affected.
Patent License Option: For the issuance of 200,000 Series
B preferred shares of the Company (“Series B Shares”), the Executive hereby grants the Company the first right to purchase
or license any patents (the “Patent Option”) relating to “Smartcards” which the Executive (i) shall apply
for with the relevant patent authorities during the term of the Agreement, and (ii) are currently applied for with the relevant
patent authorities or pending as of the date hereof (the “Patent Rights”). The Company shall be granted the first option
to purchase or license any Patent Rights of the Executive’s relating to “Smartcards” currently pending upon such
terms and conditions as are mutually agreeable to the Company and the Executive, to be negotiated in reasonable good faith. Upon
the application for any additional patents regarding “Smartcards” the Company shall be granted the first option to
purchase or license such additional Patent Rights upon such terms and conditions as are mutually agreeable to the Company and the
Executive, to be negotiated in reasonable good faith.
If, upon the Company’s receipt of notice of any Patent
Rights of the Executive’s in writing (“Patent Notification”) the parties fail to successfully negotiate and execute
a purchase or license agreement as it relates to the Patent Right that is the subject of such Patent Notification within 60 calendar
days of the receipt of such Patent Notification, the Executive shall be permitted to retain or transfer the Patent Rights to a
third party without any subsequent notice to the Company.
In exchange for the Patent Option the Company agrees, during
the term of the Agreement, to pay for any fees and/or expenses related to the application for the Executive’s Patent Rights
with the relevant patent authorities, including, but not limited to, legal or filing fees.
IN WITNESS WHEREOF, the Parties have executed this Addendum
to the Agreement dated 30th of September 2015, on the day and year first above written.
SMARTMETRIC, INC.
/s/ Jay Needleman
Name: Jay Needleman
Title: Chief Financial Officer
CONFIRMED AND AGREED:
Chaya Coleena Hendrick
/s/ Chaya Coleena Hendrick
Chief Executive Officer
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement ("Agreement")
is made and effective as of July 1, 2012, by and between SmartMetric, Inc. ("Company") and M/s. Chaya Coleena Hendrick
("Executive").
NOW, THEREFORE, the parties hereto agree
as follows:
Employment.
Company hereby agrees to continue to employ
Executive as its President & CEO and Executive hereby accepts such employment in accordance with the terms of this Agreement.
In the event of any conflict or ambiguity between the terms of this Agreement and terms of employment applicable to regular employees,
the terms of this Agreement shall control.
Duties of Executive.
The duties of Executive shall include the
performance of all of the duties typical of the office held by Executive as described in the bylaws of the Company and such other
duties and projects as may be assigned, if any, by the board of directors of the Company. Executive shall devote her majority of
productive time, ability and attention to the business of the Company and shall perform all duties in a professional, ethical and
businesslike manner. Executive is permitted, during the term of this Agreement, directly or indirectly to engage in other businesses,
either as an employee, employer, consultant, principal, officer, director, advisor, or in any other capacity, either with or without
compensation, without the prior written consent of Company. In addition to the duties described herein, Executive is also authorized
and directed to do the following:
To manage the day to day business of SmartMetric,
Inc. overseeing and managing all aspects including but not limited to product development, marketing, sales, distribution, hiring
and all responsibilities normally undertaken by a Company President and Chief Executive Officer.
It is recognized and accepted by the Company
that Executive has other businesses that she owns, operates and or manages, and while spending the bulk of her time working on
the business of SmartMetric, Inc., is free without limitation to pursue her other business activities.
It is further noted that Executive holds
inventions independent to the Company, SmartMetric, Inc. and is free to initiate, write, invent and or create other inventions
independent of SmartMetric, Inc. and SmartMetric, Inc. may have no claim or economic interest in any patents, inventions or new
products unless expressly sold or licensed to SmartMetric, Inc. by the employee. It is recognized that the employee is free to
invent and register new Patents and Trademarks that will remain the sole property of the inventor and or its assignees or purchasers.
Compensation.
Executive will be paid compensation during
this Agreement as follows:
| A. | A base salary of $190,000.00 One Hundred and Ninety Thousand
Dollars per year, payable in installments according to the Company's regular payroll schedule. The base salary shall be adjusted
at the end of each year of employment at the discretion of the board of directors. |
| B. | An incentive management
fee equal to $50,000.00 beginning with the Company's year-end of June 30, 2012 and each fiscal year thereafter during the term
of this Agreement. The incentive management fee payment shall be made within thirty (30) days after the Company has manufactured
its first product. The incentive management fee shall increase by 25% per annum calculated at the conclusion of each calendar
year and shall be based on the continued manufacturing and sales of product by SmartMetric, Inc. |
| C. | The incentive
management fee at discretion may be paid to the employees associated company Applied Cryptography or any other company the employee
so directs. |
Benefits.
| A. | Holidays. Executive will
be entitled to at least all public holidays paid holidays each calendar year and 14 personal days. Company will notify Executive
on or about the beginning of each calendar year with respect to the holiday schedule for the coming year. Personal holidays, if
any, will be scheduled in advance subject to requirements of Company. Such holidays must be taken during the calendar year and
cannot be carried forward into the next year. Executive is not entitled to any personal holidays during the first six months of
employment. |
| B. | Vacation. Following the first six months of employment, Executive
shall be entitled to 4 Weeks paid vacation each year. |
| C. | Sick Leave. Executive shall be entitled to sick leave and emergency
leave according to the regular policies and procedures of Company. Additional sick leave or emergency leave over and above paid
leave provided by the Company, if any, shall be granted at the discretion of the board of directors. |
| D. | Medical and Group Life Insurance. Company agrees to include Executive
in the group medical and hospital plan of Company and provide group life insurance for Executive at no charge to Executive in the
amount of $1,000,000.00 during this Agreement. Executive shall be responsible for payment of any federal or state income tax imposed
upon these benefits. |
| E. | Pension and Profit Sharing Plans. Executive shall be entitled to
participate in any pension or profit sharing plan or other type of plan adopted by Company for the benefit of its officers and/or
regular employees. |
| F. | Automobile. Company will provide to Executive the use of an automobile
of Executive's choice at a gross purchase price not to exceed $60,000.00. Company agrees to replace the automobile with a new one
at Executive's request no more often than once every two years. Company will pay all automobile operating expenses incurred by
Executive in the performance of an Executive's company duties. Company will procure and maintain in force an automobile liability
policy for the automobile with coverage, including Executive, in the minimum amount of $1,000,000 combined single limit on bodily
injury and property damage. |
| G. | Expense
Reimbursement. Executive shall be entitled to reimbursement for all reasonable expenses, including travel and entertainment, incurred
by Executive in the performance of Executive's duties. Executive will maintain records and written receipt as required by the
Company policy. The company shall pay the Executive all relocation costs, living costs, motor vehicle purchase/lease
or rental costs including insurances and accommodation expenses for time spent in Buenos Aires, Argentina while overseeing and
managing the establishment of the Company’s manufacturing facility in Argentina. Any additional costs associated
with safety precautions for the executive while living in Argentina will be paid for by the company. Any illness contracted
while on company time spent in a foreign country shall be covered and paid for by the Company. |
Term and Termination.
| A. | The Initial Term of this Agreement shall commence on July 1, 2012
and it shall continue in effect for a period of 60 months. Thereafter, the Agreement shall be renewed upon the mutual agreement
of Executive and Company. This Agreement and Executive's employment may be terminated at Company's discretion during the Initial
Term, provided that Company shall pay to Executive an amount equal to payment at Executive's base salary rate for the remaining
period of Initial Term, plus an amount equal to $350,000.00 of Executive's base salary. |
| B. | This Agreement and Executive's employment may be terminated by Company
only by cause, and provided that in such case, Executive shall be paid $350,000.00 of Executive's then applicable base salary.
In the event of such a termination by cause, Executive shall be entitled to receive any incentive salary payment or any other compensation
then in effect, prorated or otherwise. |
| C. | This Agreement may be terminated by Executive at Executive's discretion
by providing at least thirty (30) days prior written notice to Company. In the event of termination by Executive pursuant to this
subsection. |
| D. | In the event that Executive is in breach of any material obligation
owed Company in this Agreement, habitually neglects the duties to be performed under this Agreement, excepting in the case of illness,
engages in any conduct which is criminally dishonest, then the Company may terminate this Agreement upon thirty (30) days notice
to Executive. |
| E. | In the event Company is acquired, or is the non-surviving party in
a merger, or sells all or substantially all of its assets, this Agreement shall not be terminated and Company agrees to use its
best efforts to ensure that the transferee or surviving company is bound by the provisions of this Agreement. |
No Attachment.
Except as required by law, no right to
receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance,
charge, pledge, or hypothecation or to execution, attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to effect any such action shall be null, void and of no effect; provided, however, that
nothing in this Section shall preclude the assumption of such rights by executors, administrators or other legal representatives
of the Executive or her estate and their conveying any rights hereunder to the person or persons entitled thereto.
Costs of Enforcement.
In the event of the commencement of any
legal proceeding, whether or not instituted by the Company or the Executive, relating to the interpretation or enforcement of any
provision of this Agreement, the Company shall reimburse the Executive her costs and expenses (including attorneys’ fees
and expenses), unless the Company prevails on each and every material issue in the proceeding.
Binding Agreement; No Assignment.
This Agreement shall be binding upon, and
shall inure to the benefit of, the Executive and the Company and their respective permitted successors, assigns, heirs, beneficiaries
and representatives. This Agreement is personal to the Executive and may not be assigned by him. This Agreement may not be assigned
by the Company except (a) in connection with a sale of all or substantially all of its assets or a merger or consolidation of the
Company, or (b) to an entity that is a subsidiary or affiliate of the Company. Any attempted assignment in violation of this Section
shall be null and void.
Notices.
Any notice required by this Agreement or
given in connection with it, shall be in writing and shall be given to the appropriate party by personal delivery or by certified
mail, postage prepaid, or recognized overnight delivery services;
If to Company:
SmartMetric, Inc.
1150 Kane Concourse, Suite 402, Bay Harbor
Islands, FL. 33154 U.S.A.
If to Executive:
Ms. Chaya Coleena Hendrick, 9195 Collins
Avenue, Apt 302 Surfside, FL. 33154 U.S.A.
Final Agreement.
This Agreement terminates and supersedes
all prior understandings or agreements on the subject matter hereof. This Agreement may be modified only be a further writing that
is duly executed by both parties.
Governing Law. This Agreement shall
be construed and enforced in accordance with the laws of the State Nevada, USA.
Headings.
Headings used in this Agreement are provided
for convenience only and shall not be used to construe meaning or intent.
No Assignment.
Neither this Agreement nor any or interest
in this Agreement may be assigned by Executive without the prior express written approval of Company, which may be withheld by
Company at Company's absolute discretion.
Severability.
If any term of this Agreement is held by
a court of competent jurisdiction to be invalid or unenforceable, then this Agreement, including all of the remaining terms, will
remain in full force and effect as if such invalid or unenforceable term had never been included.
Arbitration.
The parties agree that they will use their
best efforts to amicably resolve any dispute arising out of or relating to this Agreement. Any controversy, claim or dispute that
cannot be so resolved shall be settled by final binding arbitration in accordance with the rules of the American Arbitration Association
and judgment upon the award rendered by the arbitrator or arbitrators may be entered in any court having jurisdiction thereof.
Any such arbitration shall be conducted in Nevada, or such other place as may be mutually agreed upon by the parties. Within fifteen
(15) days after the commencement of the arbitration, each party shall select one person to act arbitrator, and the two arbitrators
so selected shall select a third arbitrator within ten (10) days of their appointment. Each party shall bear its own costs and
expenses and an equal share of the arbitrator's expenses and administrative fees of arbitration.
IN WITNESS WHEREOF, the parties hereto
have executed this Agreement as of the date first above written.
/s/ Jay Needelman
Jay Needelman, CFO SmartMetric, Inc.
/s/ Chaya Coleena Hendrick
Chaya Coleena Hendrick, CEO SmartMetric,
Inc.
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 5, 2015 |
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 5, 2015 |
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, 2015, 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.
The foregoing certification is being furnished solely to accompany
the Report pursuant to 18 U.S.C. section 1350 and is not being filed for purposes of Section 18 of the Securities Exchange Act
of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the
date hereof, regardless of any general incorporation language in such filing.
Dated: October 5, 2015 |
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, 2015, 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.
The foregoing certification is being furnished solely to accompany
the Report pursuant to 18 U.S.C. section 1350 and is not being filed for purposes of Section 18 of the Securities Exchange Act
of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the
date hereof, regardless of any general incorporation language in such filing.
Dated: October 5, 2015 |
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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