In this Quarterly Report on Form 10-Q, references to “SmartMetric, Inc.,” “SmartMetric,” “SMME,” “the Company,” “we,”“we” “us,” and “our” refer to SmartMetric, Inc. Also, any reference to “common shares,” or “common stock” refers to our $0.001 par value common stock. Also, any reference to “preferred stock” or “preferred shares” refers to our $0.001 par value Series B Convertible Preferred Stock and our $0.001 par value Series C Convertible Preferred Stock.
This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. These statements relate to our business development plans, timing strategies, expectations, anticipated expense levels, business prospects, business outlook, technology spending and various other matters (including contingent liabilities and obligations and changes in accounting policies, standards and interpretations). These statements express our current intentions, beliefs, expectations, strategies or predictions as well as historical information. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “may,” “will,” “could,” “continue,” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not deemed to represent an all-inclusive means of identifying forward-looking statements as denoted in this Quarterly Report. Additionally, statements concerning future matters are forward-looking statements.
Although forward-looking statements in this Quarterly Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. These statements are not guaranteesno guarantee of future performance and involve risks and uncertainties that are difficult to predict. Our future operating results are dependent upon many factors which are outside our control. You should not place undue reliance on forward-looking statements. Forward-looking statements may not be realized due to a variety of factors, including, without limitation, our ability to:
We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this Quarterly Report, except as required by federal securities laws. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this Quarterly Report, which are designed to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.
See notes to consolidated financial statements.
SMARTMETRIC INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - | ORGANIZATION AND BASIS OF PRESENTATION |
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
SmartMetric, Inc. (“SmartMetric”(the “Company” or the “Company”“SmartMetric”) was incorporated pursuant toin the lawsState of Nevada on December 18, 2002. SmartMetricSmartMetric’s main product is a development stage company engaged in the technology industry. SmartMetric’s main products are a fingerprint sensor activated payments card and a securitysensor-activated card with a finger sensor onboard the card and fully functional fingerprint reader embedded inside the card. The SmartMetric biometric cards have a built-in rechargeable battery allowing for portable biometric identification and card activation.identification. This card ismay be referred to as a biometric card or the SmartMetric Biometric Card.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.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management of the Company, the accompanying unaudited financial statements contain all the adjustments (which are of a normal recurring nature) necessary for a fair presentation. Operating results for the sixthree months ended December 31, 2017September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending June 30, 2018.2021. For further information, refer to the financial statements and the footnotes thereto contained in the Company’s Annual Report on Form 10-K for the year ended June 30, 2017,2020, as filed with the Securities and Exchange Commission on October 13, 2017,20, 2020. The consolidated balance sheet as amended on October 27, 2017.of June 30, 2020, has been derived from the audited financial statements at that date, but does not include all the information and footnotes required by US GAAP for complete financial statements.
Going Concern
As shown in the accompanying condensed consolidated financial statements the Company has sustained recurring losses of $509,227$225,936 and $607,153$227,021 for the sixthree months ended December 31, 2017September 30, 2020 and 20162019, respectively, and has an accumulated deficit of $24,866,599$27,996,998 at December 31, 2017. The Company has spent a substantial portion of its time and capital resources in the development of its technology.September 30, 2020.
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 within one year of the date of this filing. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The COVID-19 has had an impact on SmartMetric’s final card production. While the delays are due to supply line disruption, the Company is confident that these delays will be short-lived based on advice from our manufacturing partners, manufacturing alternatives and alternative supply lines that are being put into place by the Company.
Management believes that the Company’s capital requirements will depend on many factors. These factors include product marketing and distribution. The management plans include equity sales and borrowing in order to fund the operations. The Company plans to continue its relationship with Geneva Roth Remark in order to raise capital through means other than private placement stock sales.
There are no assurances that the Company will be able to achieve the level of revenues adequate to generate sufficient cash flow from operations to support the Company’s working capital requirements. To the extent that funds generated are insufficient, the Company will have to raise additional working capital. No assurance can be given that additional financing will be available, or if available, will be on terms acceptable to the Company. If adequate working capital is not available, the Company may not continue its operations.
On March 5, 2020, the Company entered into an agreement with GHS Investments, LLC whereas the investor agrees to invest up to four million dollar ($4,000,000) over the 36 months immediately subsequent to the effective date of the agreement. As of the date of this filing, the registration is not effective, and is pending review by the Securities and Exchange Commission.
In December 2019, an outbreak of a novel strain of coronavirus originated in Wuhan, China (“COVID-19”) and has since spread worldwide, including to the Unites States, posing public health risks that have reached pandemic proportions (the “COVID-19 Pandemic”). The COVID-19 Pandemic poses a threat to the health and economic wellbeing of our employees, customers and vendors. Like most businesses world-wide, the COVID-19 Pandemic has impacted the Company financially; delaying the beginning of production.
Principles of Consolidation
The condensed consolidated financial statements do not include any adjustments relating to the carrying amountsaccounts 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.and its wholly owned subsidiary, SmartMetric Australia Pty. Ltd. All significant intercompany accounts and transactions have been eliminated in consolidation.
NOTE 2 - | NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Principles of Consolidation
The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, SmartMetric Australia Pty. Ltd. All significant intercompany accounts and transactions have been eliminated in consolidation.
NOTE 2 - | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted accounting principlesin the United States of America requires management to make estimates and assumptions that affect the reported amounts reported inof assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and accompanying disclosures.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 maycould differ from those estimates.
Cash and Cash Equivalents
Cash equivalents are comprised of certain highly liquid investments with maturity of three months or less when purchased. We maintain our cash in bank deposit accounts which, at times, may exceed federally insured limits. We have not experienced any losses in such accounts.
Research and Development
Research and development costs are charged to expense as incurred. Our research and development expenses consist primarily of expenditures for electronics design and engineering, software design and engineering, component sourcing, component engineering, manufacturing, product trials, compensation and consulting costs.
Revenue RecognitionRecent Accounting Pronouncements
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.
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 December 31, 2017 no accrual for uncertain income tax positions is necessary.
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 2013. The Company does not file in any other jurisdiction and remains open for audit for all tax years asexpect the statuteadoption of limitations does not begin untilrecently issued accounting pronouncements to have a significant impact on the returns are filed.
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 livesCompany’s results of the assets ranging from 3 - 5 years.operations, financial position or cash flow.
Loss Per Share of Common Stock
Basic netIn accordance with FASB ASC 260, “Earnings Per Share,” the basic loss per common share is computed usingby dividing the loss attributable to common stockholders by the weighted average number of common shares outstanding. The calculation of diluted earningsoutstanding during the period. Basic net loss per share (“EPS”) includes considerationexcludes the dilutive effect of dilution arising fromstock options or warrants and convertible notes. Diluted net earnings (loss) per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents, such as stock issuable pursuant to theconsisting of shares that might be issued upon exercise of common stock options and warrants. In periods where losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive. As of September 30, 2020 and 2019, 82,882,681 and 29,403,406 dilutive shares were excluded from the calculation of diluted loss per common share, with all dilutive shares being 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 losswarrants at September 30, 2020 and to do so2019, as their effect would be anti-dilutive for the periods presented.anti-dilutive.
Stock-Based Compensation
The Company measures expense for issuances ofrecords stock-based compensation in accordance with ASC 718, Compensation – Stock Compensation and ASC 505-50, Equity-Based Payments to employees and others at fair valueNon-Employees. All transactions in which goods or services are the consideration received for the issuance of the stock and warrants issued, as this is more reliable thanequity instruments are accounted for based on the fair value of the servicesconsideration received complete. Theor the fair value of the equity instrument issued, whichever is charged directlymore reliably measurable. Equity instruments issued to compensation expenseemployees and additional paid-in capital.the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued and are recognized over the employees required service period, which is generally the vesting period.
Reclassifications
Certain prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reported results of operations.
NOTE 3 - PREPAID EXPENSES
Prepaid expenses represent the unexpired terms of various consulting agreements as well as advance rental payments. The Company issued common stock and warrants as consideration for the consulting services,andPrepaid expenses at September 30, 2020 were valued based on the stock price or computed warrant value at the time of the respective agreements.$0.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
Lease Agreement
The Company’s main office is located in Las Vegas, Nevada. Rent expense under all leases for the sixthree months ended December 31, 2017September 30, 2020 and 20162019 was $15,938$766 and $17,955,$1,166 respectively. The Company maintains only one office. This office is in Las Vegas, NV and is a month-to-month lease.
Related Party Transactions
The Company’s Chief Executive Officer has made cash advances to the Company with an aggregate amount due of $1,709 and $0 and $4,800 at December 31, 2017as of September 30, 2020 and June 30, 2017,2020, respectively. These advances bear interest at the rate of five percent (5%)7.00% per annum.
TheAs of September 30, 2020 and June 30, 2020, the Company has accrued the amounts of $615,848$744,115 and $520,848 at December 31, 2017 and June 30, 2017,$759,948, respectively, as deferred officer’sOfficer’s salary for the difference between the Chief Executive Officer’spresident’s annual salary and the amounts paid.
As a result of these shareholder loans and deferred officer salary, the Company has accrued a balance of $162,642 and $149,481 as interest payable as of September 30, 2020 and June 30, 2020.
On September 11, 2017, we received a license to certain patents from Chaya Hendrick, our founder and CEO, related to our technologies until the expiration of the patents. As consideration, we issued Chaya Hendrick, or her assigns, (i) 200,000 shares of Series B Convertible Preferred Stock, (ii) a royalty equal to 5% of gross revenues derived from products sold related to the patents, and (iii) certain minimum required payments beginning at $50,000 and doubling each year thereafter. The Series B Preferred Shares may be converted at the election of holder on a basis for 50 common shares for each preferred share at any time or an aggregate of 10,000,000 common shares in exchange for all 200,000 preferred shares.
NOTE 5 - | STOCKHOLDERS’ EQUITY (DEFICIT) |
Our CEO maintains an employment agreement that stipulates a $190,000 annual salary. This agreement is in effect until mutual agreement between its CEO and the Company to terminate.
Litigation
From time to time we may be a defendant or plaintiff in various legal proceedings arising in the normal course of our business. As of the date of this Quarterly Report, there are no material pending legal or governmental proceedings relating to us or properties to which we are a party, and, to our knowledge, there are no material proceedings to which any of our directors, executive officers or affiliates are a party adverse to us or which have a material interest adverse to us.
NOTE 5 -DEBT
On April 17, 2020, we received funds under the Paycheck Protection Program, a part of the CARES Act. The loan is serviced by Chase Bank, and the application for these funds required us to, in good faith, certify that the current economic uncertainty made the loan necessary to support our ongoing operations. We used the funds for payroll and related costs. The receipt of these funds, and the forgiveness of the loan attendant to these funds, is dependent on our ability to adhere to the forgiveness criteria. The loan bears interest at a rate of 0.98% per annum and matures on April 6, 2022, with the first payment being deferred until October 6, 2020. Under the terms of the PPP, certain amounts may be forgiven if they are used in accordance with the CARES Act. The Company believes that the full amount of the $20,832 Paycheck Protection Program loan will be forgiven and therefore the entire loan is classified as current liability in the accompanying Balance Sheet.
On March 5, 2020, the Company issued a $35,000 10% convertible note to the investor in relation to the equity financing agreement (Note 6). The note is due on December 5, 2020 and is convertible at a rate of $0.0175 per share which resulted in a discount from the beneficial conversion feature totaling $5,000. During the year ended June 30, 2020, $2,127 of the debt discount was amortized. For the three month period ended September 30, 2020, $3,804 of the debt discount was amortized. As of September 30, 2020, the note was shown net of unamortized discount of $33,804.
NOTE 6 - STOCKHOLDERS’ DEFICIT
Preferred Stock
As of December 31, 2017,September 30, 2020, the Company has 5,000,000 shares of Class B preferred stock, par value $0.001, authorized and 610,000 shares issued and outstanding.
On December 11, 2009, the Company filed a Certificate of Designation with the State of Nevada, to designate 500,000 shares of preferred stock as Series B Convertible Preferred Stock (“Series B Convertible Preferred Stock”). Effective November 5, 2014, the number of shares designated as Series B Convertible Preferred Stock was increased to 1,000,0005,000,000 shares.
Each share of Series B Convertible Preferred Stock has a par value of $0.001, and a stated value equal to $5.00 (“Stated Value”). Holders of the Series B Convertible Preferred Stock are entitled to receive dividends or other distributions with the holders of the common stock of the Company on an as converted basis when, as, and if declared by the directors of the Company. Holders of the Series B Convertible Preferred Stock are entitled to convert each share of the Series B Convertible Preferred Stock into fifty (50) shares of common stock.
Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, holders of the Series B Convertible Preferred Stock are entitled to receive out of the assets, whether capital or surplus, of the Company an amount equal to the Stated Value, pro rata with the holders of the common stock.
The Company issued 200,000 Series B preferred shares upon its inception in 2004.
In October 2015, the Company issued 200,000 Series B preferred shares.
On September 11, 2017, the Company issued an additional 210,000 shares of Series B preferred shares to its CEO, Chaya Hendrick, in consideration for grant of exclusive rights to the licensed patent.
NOTE 5 - | STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED) |
NOTE 6 - STOCKHOLDERS’ DEFICIT (CONTINUED)
Class A Common Stock
As ofDuring the three month period ending December 31, 2017,2019, 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, authorized. The Articles of Incorporation were amended in 2006 to increase the number of authorized shares to 100,000,000 shares, and in 2009 to increase the number of authorized shares to 200,000,000. As a result of a screener’s error, the Company previously disclosed inincreased its Quarterly Report on Form 10-Q for the quarters ended September 30, 2015 and December 31, 2015 that it increased the number of authorized shares of common stock to 300,000,000. On March 31, 2016, our Board of Directors approved an amendment (the “Amendment”) to the Company’s Articles of Incorporation to increase the total number of shares of authorized capital stock to 305,000,000600,000,000 shares, par value $0.001 per share, consisting of (i) 300,000,000 shares of share.
Common Stock up from 200,000,000 shares of Common Stock, and (ii) 5,000,000 shares of Preferred Stock, subject to shareholder approval (the “Proposal”). On March 31, 2016, a majority of the Company’s stockholders approved the Amendment. The Company filed a definitive information statement on Schedule 14C with the Securities and Exchange Commission on May 4, 2016 (the “InformationStatement”). The Information Statement was furnished to all of the Company’s shareholders for the purpose of informing them of the action taken by a majority of the Company’s stockholders.
As of December 31, 2017,September 30, 2020, the Company has 242,245,327had 385,555,260 shares of common stock issued and outstanding.
| ● | During the three months ended September 30, 2016,2020, the Company sold 17,500,000 shares of common stock for net proceeds of $155,991, units consisting of an aggregate of (i) 3,130,000 shares, (ii)$77,409. With these issuances the company also issued warrants to purchase 1,956,250purchase: (i) 17,500,000 shares at $0.70prices ranging from $0.05 to $0.10 per share and (iii) warrants to purchase 985,950(ii) 14,500,000 shares at $1.00 per share.prices ranging from $0.10 to $0.20. The warrants expire at various times through January 15, 2018. September 21, 2022. None of the 17,500,000 shares were issued during the quarter ended September 30, 2020, and were recognized as stock payable. |
| ● | During the three months ended September 30, 2016,2020, the Company issued an aggregate of 1,669,6336,032,260 shares. Of these shares, 585,000 were issued for consulting services valued at $84,400, based on the stock price at the time of the respective agreements underlying the services provided. and 5,447,260 were converted from Preferred shares. |
| | ● | During the three months ended December 31, 2016, the Company sold, for net proceeds of $272,904, units consisting of an aggregate of (i) 5,470,000 shares, (ii) warrants to purchase 3,418,750 shares at $0.70 per share, and (iii) warrants to purchase 1,723,050 shares at $1.00 per share. The warrants expire at various times through January 31, 2018. |
| ● | During the three months ended December 31, 2016, the Company issued an aggregate of 5,000,000 shares for consulting services valued at $550,000 based on the stock price at the time of the respective agreements underlying the services provided. |
| ● | During the three months ended March 31, 2017, the Company sold, for net proceeds of $127,247.50, units consisting of an aggregate of (i) 2,550,000 shares, (ii) warrants to purchase 1,593,750 shares at $0.70 per share, and (iii) warrants to purchase 803,250 shares at $1.00 per share. The warrants expire at various times through September 27, 2018. |
| ● | During the three months ended March 31, 2017, the Company issued an aggregate of 2,423,000 shares of common stock for consulting services valued at $283,955, based on the stock price at the time of the respective agreements underlying the services provided. |
| ● | During the three months ended June 30, 2017, the Company sold, for net proceeds of $242,157, units consisting of an aggregate of (i) 7,450,000 shares, (ii) warrants to purchase 3,031,250 shares at $0.70 per share, and (iii) warrants to purchase 1,527,750 shares at $1.00 per share. The warrants expire at various times through October 20, 2018. |
| ● | On September 11, 2017, we received a license to certain patents from Chaya Hendrick, our founder and CEO, related to our technologies until the expiration of the patents. As consideration, we issued Chaya Hendrick, or her assigns, (i) 200,000 shares of Series B Convertible Preferred Stock, (ii) a royalty equal to 5% of gross revenues derived from products sold related to the patents, and (iii) certain minimum required payments beginning at $50,000 and doubling each year thereafter. The Series B Preferred Shares may be converted at the election of holder on a basis for 50 common shares for each preferred share at any time or an aggregate of 10,000,000 common shares in exchange for all 200,000 preferred shares. |
| ● | During the three months ended September 30, 2017,2019, the Company sold for cash 2,500,0006,337,500 shares of common stock and warrants to purchase: (i) 937,5006,337,500 shares at $0.70prices ranging from $0.10 per share (ii) 500,000 shares at $0.20 per share, (iii) 472,500 shares at $1.00 per share and (iv) 252,000 shares at $0.50to $0.25 per share for net proceeds of $114,625.$133,495. The warrants expire at various times through September 28,17, 2021. None of these shares were issued during the quarter ended September 30, 2019, |
| ● | with all 6,337,500 shares being recorded as stock payable. During the three months ended September 30, 2017,2019, the Company issued 362,86411,216,305 shares of commonfor cash. Of these shares, 7,991,662 were issued from stock for consulting services valued at $21,825, based on the stock price at the time of the respective agreements underlying the services provided. |
| ● | During the three months ended December 31, 2017, the Company sold for cash 8,319,000 shares of common stockpayable and warrants to purchase: (i) 3,250,000 shares at $0.20 per share and (ii) 1,638,000 shares at $0.50 per share, for net proceeds of $259,362. The warrants expire at various times through December 29, 2019
During the three months ended December 31, 2017, the Company issued 212,164 shares of common stock for consulting services valued at $15,000, based on the stock price at the time of the respective agreements underlying the services provided.3,224,643 were converted from Preferred shares.
|
Equity Financing Agreement
On March 5, 2020, the Company entered into an equity financing agreement with GHS Investments, LLC, a Nevada limited liability company (“Investor”). Pursuant to the agreement, the Company agrees the sell to the investor an indeterminate amount of shares of the Company’s common stock, par value $0.001 per share, up to an aggregate price of four million dollars ($4,000,000).
Pursuant to the agreement, the Company is required, to within sixty (60) calendar days upon the date of execution of this agreement, use its best efforts to file with the SEC a registration statement or registration statements (as is necessary) on Form S-1, covering the resale of all of the registrable securities, which registration statement(s) shall state that, in accordance with Rule 416 promulgated under the 1933 Act, such registration statement also covers such indeterminate number of additional shares of Common Stock as may become issuable upon stock splits, stock dividends or similar transactions. Pursuant to this equity financing agreement, the Company filed the Registration S-1 on August 6, 2020. The Registration Statement is not effective as of the date of this filing, and is currently being reviewed by The Securities and Exchange Commission.
Following effectiveness of the Registration Statement, the Company shall have the discretion to deliver puts to GHS and GHS will be obligated to purchase shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”) based on the investment amount specified in each put notice. The maximum amount that the Company shall be entitled to put to GHS in each put notice shall not exceed two hundred percent (200%) of the average daily trading dollar volume of the Company’s Common Stock during the ten (10) trading days preceding the put, so long as such dollar amount does not exceed $500,000. Pursuant to the Equity Financing Agreement, GHS and its affiliates will not be permitted to purchase and the Company may not put shares of the Company’s Common Stock to GHS that would result in GHS’s beneficial ownership, equaling more than 4.99% of the Company’s outstanding Common Stock. The price of each put share shall be equal to eighty percent (80%) of the Market Price (as defined in the Equity Financing Agreement). Puts may be delivered by the Company to GHS until the earlier of thirty-six (36) months after the effectiveness of the Registration Statement.
Concurrently with the execution of the equity financing agreement, the company entered into a convertible promissory note, for the principal balance of $35,000. Per the terms of the convertible note agreement, the Company agrees to pay the investor interest at the rate of ten percent (10%) until it is due on December 5, 2020. The holder shall have the right at any time to convert all or any part of the outstanding and unpaid principal and interest at a fixed conversion price of $0.0175. See Note 5. The $35,000 has been recognized as deferred financing costs in current assets on the accompanying Consolidated Balance Sheet, and will be charged against the gross proceeds of each put when received. Although the Company has not as of yet put to GHS, the agreement is in effect for three years, through March, 2023, and as the Company does plan to put to GHS, the Company has determined it is proper for the deferred costs to remain for the length of the agreement .
NOTE 6 - STOCKHOLDERS’ DEFICIT (CONTINUED)
NOTE 5 - | STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED) |
Warrants
From time to time the Company granted warrants in connection with private placements of securities, as described herein.
In July 2015, as consideration for a consulting agreement, the Company issued warrants to purchase 300,000 sharesAs of its common stock at an exercise price of $0.01 per share. The warrants are fully vested and exercisable for five-years. The Company valued the warrants using the Black-Scholes method with the following criteria: stock price of $0.14; volatility 150%; term 5 years; and risk-free rate of 1.71%. The criteria yielded a per-warrant value of $0.14, resulting in a total value of $42,000 for the 300,000 warrants. The Company recorded the charge to consulting expense over the three-month term of the consulting agreement. During the three months ended September 30, 2016, the Company recorded a charge of $35,000 to consulting expense, which is included in other general and administrative expenses in the condensed consolidated statement of operations.
In April 2016, as partial consideration for consulting services rendered, the Company authorized to be issued warrants to purchase 1,000,000 shares of its common stock at an exercise price of $0.03 per share (“$0.03 Warrants”), and 2,000,000 warrants to purchase shares of its common stock at an exercise price of $0.08 per share (“$0.08 Warrants,” and, together with the $0.03 Warrants, the “Warrants”). The Warrants are fully vested and exercisable for three-years. The Company valued the Warrants using the Black-Sholes option pricing model with the following criteria: stock price of $0.11; volatility 136%; term 3 years; and risk-free rate of 0.92%. The criteria yielded a per-warrant value of $0.10 for the $0.03 Warrants, and a per-warrant value of $0.09 for the $0.08 Warrants, resulting in a total value of $280,000 for the Warrants. The expense has been included in other general and administrative expenses in the consolidated statement of operations.
As of December 31, 20172020, and June 30, 2017,2020, the following is a breakdown of the warrant activity:
| Range of Exercise Prices | | Number of
Warrants
Outstanding | | | Weighted-Average
Contractual Life
Remaining in Years | | | Weighted-
Average
Exercise Price | | | Number
Exercisable | | | Weighted-
Average
Exercise Price | |
| Warrants Outstanding and Exercisable at September 30, 2020: | | | | | | | | | | | | | | | |
| $0.05 - $1.00 | | | 82,882,681 | | | | 1.27 | | | $ | 0.28 | | | | 82,882,681 | | | $ | 0.28 | |
| | | | | | | | | | | | | | | | | | | | | |
| Warrants Outstanding and Exercisable at June 30, 2020: | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| $0.20 - $1.00 | | | 53,280,406 | | | | 1.12 | | | $ | 0.34 | | | | 53,280,406 | | | $ | 0.34 | |
December 31, 2017:
Warrant Activity:
September 30, 2020:
Outstanding - June 30, 20172020 | | | | 20,276,39953,280,406 | |
| Issued | | | | 4,888,000 | |
Exercised | | | | — | |
Expired | | | | — | |
Outstanding - December 31, 2017 | | | | 25,164,399 | |
June 30, 2017:
Outstanding - June 30, 2016 | | | 12,540,199 | |
Issued | | | 15,040,00032,000,000 | |
| Exercised | | | — | |
| Expired | | | (7,303,8002,397,725 | ) |
Outstanding - JuneSeptember 30, 20172020 | | | 20,276,39982,882,681 | |
September 30, 2019:
NOTE 5 Outstanding - June 30, 2019 | STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED) | | 26,526,234 | |
| Issued | | | 6,337,500 | |
| Exercised | | | — | |
| Expired | | | (3,460,328 | ) |
| Outstanding - September 30, 2019 | | | 29,403,406 | |
At December 31, 2017,September 30, 2020, all of the 25,164,39982,882,681 warrants are vested and (i) 24,026,399all 84,882,681 warrants expire at various times prior to DecemberSeptember 21, 2022.
NOTE 7 - MANDATORY REDEEMABLE CONVERTIBLE PREFERRED STOCK
Issuances of Series C Mandatory Redeemable Convertible Preferred Stock
On January 10, 2019, (ii) 3,000,000 warrants expirethe Board of Directors of the Company adopted a resolution pursuant to the Company’s Certificate of Incorporation, as amended, providing for the designations, preferences and relative, participating, optional and other rights, and the qualifications, limitations and restrictions, of the Series C Convertible Preferred Stock.
On January 14, 2019, the Company filed a Certificate of Designations for a Series C Convertible Preferred Stock. The authorized number of Series C Convertible Preferred Stock is 1,000,000 shares, par value 0.001. The Series C Preferred Stock will, with respect to dividend rights and rights upon liquidation, winding-up or dissolution, rank: (a) senior with respect to dividends and right of liquidation with the Company’s common stock, (b) junior with respect to dividends and right of liquidation with respect to the Company’s Series B Preferred Stock; and (c) junior with respect to dividends and right of liquidation to all existing indebtedness of the Company. Series C Preferred Stock will carry an annual ten percent (10%) cumulative dividend, compounded daily, payable solely upon redemption, liquidation or conversion. The Company will have a right, at any time in the period of 180 days from the date of the issuance, at the Company’s option, to redeem all or any portion of the Series C Preferred Stock at prices ranging from 105% to 130%, based on the passage of time.
NOTE 7 - MANDATORY REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)
The number of Series C, mandatory redeemable convertible preferred stock shares issued and outstanding were 148,000 and 117,200, respectively, for September 2019, (iii)30, 2020 and 300,000 warrants expire in JulyJune 30, 2020.
The Holder shall have the right at any time during the period beginning on the date which is six (6) months following the Issuance Date, to convert all or any part of the outstanding Series C Preferred Stock into fully paid and non-assessable shares of Common Stock at the Variable Conversion Price. The “Variable Conversion Price” shall mean 71% multiplied by the Market Price (representing a discount rate of 29%). “Market Price” means the average of the two (2) lowest Trading Prices (as defined here) for the Common Stock during the fifteen (15) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date.
The Preferred shares are convertible at 71% of the average market price of the Company’s stock based on the lowest two (2) market closes fifteen (15) days prior. The Company analyzed the conversion feature and determined it was required to be bifurcated and recognized as a derivative liability. The derivative at inception was valued at $43,945, based on the Black Scholes Merton pricing model. As the fair value of the derivative and the shares issued at inception were in excess of the face amount of the Preferred shares, the Company recorded a discount in the amount of $30,000 to be amortized utilizing the effective interest method of accretion over the term of the note. The assumptions used in the model were a conversion price of $0.0071, a stock volatility of between 225% and 242% and a discount rate of 0.15%, based on the current 18-month interest rates of the U.S. T-Bill.
The following table provides a summary of the changes in fair value, including net transfers in and out of the derivative financial instruments, measured at fair value on a recurring basis using significant unobservable inputs for the three months ended June 30, 2020.
| Balance, June 25, 2020: | | $ | 43,831 | |
| Unamortized discount originated from derivative liabilities: | | | 30,000 | |
| Financing costs recorded: | | | 13,831 | |
| Derivative liability: | | | (43,831 | ) |
| Change in fair market value of derivative liabilities: | | | (1,064 | ) |
| Balance, June 30, 2020 | | $ | 42,767 | |
On the date which is eighteen (18) months following the Issuance Date or upon the occurrence of an Event of Default (the “Mandatory Redemption Date”), the Company shall redeem all of the shares of Series C Preferred Stock of the Holder (which have not been previously redeemed or converted). With five (5) days of the Mandatory Redemption Date, the Company shall make payment to each Holder of an amount in cash equal to the total number of shares of Series C Preferred Stock held by such Holder multiplied by the then current Stated Value.
All shares of mandatorily redeemable convertible preferred stock have been presented outside of permanent equity in accordance with ASC 480, Classification and Measurement of Redeemable Securities. The Company accretes the carrying value of its Series C mandatory redeemable convertible preferred stock to its estimate of fair value (i.e. redemption value) at period end.
The carrying value of the Series C mandatory redeemable convertible preferred stock at September 30, 2020 and 2019 was $97,575 and $90,751 net of discount, respectively. There were 72,600 Preferred C shares issued for net proceeds of $60,000 and 41,800 Preferred C shares converted to 5,447,260 Common shares for the three months ended September 30, 2020.
NOTE 8 - INCOME TAXES
The Company provides for income taxes at the end of each interim period based on the estimated effective tax rate for the full fiscal year. Cumulative adjustments to the Company’s estimate are recorded in the interim period in which a change in the estimated annual effective rate is determined.
The Company has estimated its effective tax rate to be 0%, based primarily on losses incurred and the uncertainty of realization of the tax benefit of such losses.
From time to time we may be a defendant or plaintiff in various legal proceedings arising in the normal course of our business. As of the date of this Quarterly Report, there are no material pending legal or governmental proceedings relating to us or properties to which we are a party, and, to our knowledge, there are no material proceedings to which any of our directors, executive officers or affiliates are a party adverse to us or which have a material interest adverse to us.
NOTE 8 - | SUBSEQUENT EVENTS |
There were no subsequent events at the time of filing.NOTE 9 - SUBSEQUENT EVENTS
In accordance with ASC 855-10, the Company has reviewed its operations subsequent to September 30, 2020 to the date these financial statements were issued. Between July 1, 2020 and November 17, 2020, the Company issued 21,117,205 shares of common stock. Of this amount, 6,172,205 shares were issued from 30,000 Preferred C shares that were converted and 14,945,000 shares were issued for cash and services.
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
SmartMetric, Inc. (“SmartMetric” or the “Company”) was incorporated pursuant to the laws of Nevada on December 18, 2002. SmartMetric is a development stage company engaged in the technology industry. SmartMetric has an issued patent covering technology that involves connection to networks using data cards (smart cards and EMV cards). In addition, SmartMetric has in addition,holds the sole license to five issued patents covering features of its biometric fingerprint activated cards. SmartMetric’s main products are a fingerprint sensor activated payments card and a security card with a finger sensor and fully functional fingerprint reader embedded inside the card. The cards have a rechargeable battery allowing for portable biometric identification and card activation. This card isThese cards are herein sometimes referred to as a biometric card or the SmartMetric Biometric Card.
The SmartMetric Biometric Technology and Products
SmartMetric’s founder Chaya Hendrick, is the originator and inventor of various miniature biometric activated devicescards, including the SmartMetric biometric fingerprint activated payments card with an embedded fully functional fingerprint reader inside theinside. The card is the size and thickness of a standard credit card. We believe the
The SmartMetric biometric payments card provides for high level security for credit and debit cards by adding biometric authentication and activation to EMVEuropay, MasterCard and Visa (“EMV”) chip cards now in use around the world. More than 6 Billion EMV chip debit and credit cards are now in use globally. The SmartMetric biometric payments card has been manufactured to be totally interoperable with theexisting EMV chip card readers, andATMs as well as banking payments infrastructure. Using the advanced electronic miniaturization developed by SmartMetric to make its biometric credit/debit cards the Company has also now developedcreated a multi-functional biometric identity, building access control and logical network access card.
SmartMetric has also turned its attention tocommenced efforts towards creating a biometric health insurance card with memory for storing a person’s medical files, aiding travelersincluding medical images. This allows a person to securely take with medical conditions to have transportablethem their private medical files protected by their biometrics. We believe such a card could also assist in fighting medical fraud by usinginside the card when traveling away from home. For the first time, a person’s complete medical files can be stored in a credit card-sized card and the information is only able to provide in-card biometric identity verification.be accessed by the card holder’s own fingerprint. The company is in discussion with significant health membership organizations concerning the offering of the SmartMetric Biometric Medical Records card to their respective members.
SmartMetric has developed its rechargeable battery powered fingerprint sensorreader that is of a scale that fits “inside” a standard credit or debit card. The cardholder storeshas stored inside the card his or her fingerprint inside the card.fingerprint. To activate the card the person touchesswipes the fingerprint sensor, the sensor is connected to an internal microprocessor that manages the fingerprint sensor fingerprint image capture and comparison matching with the pre-stored fingerprint of the cardholder held in the internal electronic memory of the card. The card has a surface mounted EMV chip as found on EMV banking chip cards that is activated or turned on only after a card holder’s fingerprint has been scanned and verified using the SmartMetric miniature “in-card” biometric sensor.scanner.
There are over 6nine (9) billion EMV chip cards used by banks around the world for credit cards, ATM cards and debit cards.cards according to EMVco. SmartMetric sees this existing user base as a natural market for its advanced biometric activated card technology.technology for the credit and debit card market. SmartMetric is marketinghas established a network of card manufacturers and technology distributors to market its in-card biometric solution as a replacementproducts to card issuing banks and in the less secure password or PIN used in current EMV cards.case of the SmartMetric biometric security card, to businesses.
SmartMetric has completed development of its biometric card. The SmartMetric Biometric card and is now being presentedactively marketing its card to major card issuing banks in various parts ofthroughout the world both directlyin partnership with established card distributors and through product distributors who work in the credit card industry.
As the Company disclosed in its recent Current Report on Form 8-K filed on December 26, 2017, it reached a manufacturer’s representative agreement with Protec Secure Card, LLC as national distributor for the SmartMetric Biometric Card. Protec Secure Card is a credit card manufacturer (accredited by Visa and MasterCard) who has a long history in sales and marketing of specialist credit card products to banks and other credit card manufacturers in the United States.
In Card Fingerprint Matching and Verification
The SmartMetric Biometric Card incorporates a rechargeable battery. 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.
The Security Technology Industry – Multi-Function Security Carddealers.
SmartMetric has also developed a multi-function logical and physical access security card thethis size and thickness of a standard credit card. Utilizing the small size breakthroughs by the Company in its biometric payments card development, SmartMetric has moved forward withsuccessfully developed a biometric multifunction security identitycard that is the size and secure accessthickness of a standard credit card that can easily fit inside a person’s wallet.
As with the biometric payments card, the SmartMetric security card has an internal rechargeable battery that is used to power the card’s internal processor used in performing athe biometric fingerprint scan. All functions and operations of the card are subject to a valid fingerprint scan and match of the card user’s fingerprint.user.
In Card Fingerprint Matching and Verification
The SmartMetric Biometric card incorporates a rechargeable, lithium polymer battery. This battery is rechargeable, very thin and has been designed by SmartMetric to fit inside the SmartMetric fingerprint credit card sized card. This battery is manufactured by a third party unaffiliated with the Company to SmartMetric’s specifications. This battery is embedded inside the card.
Other components needed for manufacture of the SmartMetric Biometric Card include, but are not limited to, sensors, microchips, memory chips and processor chips. The ultra-thin circuit board developed by SmartMetric has, in total, nearly 200 active and passive components. The sources and availability of these materials are numerous, readily available and should not affect the ability of SmartMetric to meet future demand. The supply of memory processors and passive components may be interrupted at any time based on global supply/demand issues. We have not experienced component supply issues to date and the Company, as a matter of policy, has alternative component sources to mitigate and protect against supply chain issues.
The biometric card has been designed to offer the option of a built-in radio frequency transmitter for contactless access and identity verification. The RFID contactless chip transmission is turned on using the card users fingerprint verification.
The thinness form factor of many of the components, has also resulted in the Company having to develop its own process for high volume electronic assembly. The Company has also successfully overcome the challenge of developing a process of encapsulating the electronics in plastic to create the credit card sized biometric fingerprint activated card that also has an internal rechargeable battery.
Standard credit card manufacturing utilizes machines that require high pressure and high temperature in fusing top and bottom sheets of plastic together thereby encasing any electronics inside the card. Given the complexity of the card’s electronics and vulnerability to an assembly process involving high heat and high pressure, damage to the electronic circuitry was a major challenge for the Company to overcome. Research and development activities of the Company allowed the Company to achieve this ability through a trade secret process that protects the silicon and internal battery that is mounted directly onto the card’s internal electronics circuit board.
The Security Technology Industry
SmartMetric Biometric Multi-Function Security Card
The Access management market is estimated to grow from USD 8.09 billion in 2016 to USD 14.82 billion by 2021
SmartMetric has developed a multi-function logical and physical access security card this size and thickness of a standard credit card. Utilizing the small size breakthroughs by the Company in its biometric payments card development, SmartMetric has successfully developed a biometric security card that can easily fit inside a person’s wallet.
As with the biometric payments card, the SmartMetric security card has an internal rechargeable battery that is used to power the card’s internal processor used in the biometric fingerprint scan. All functions and operations of the card are subject to a valid fingerprint scan and match of the card user.
The main features of the SmartMetric biometric security card are:
| 1. | Logical access smartcard card chip for insertion into a card reader attached to a computer or network |
| | |
| 2. | RFID transceiver for physical access i.e. doorways, elevators, etc. |
| | |
| 3. | Validation indicator light that glows green immediately following a fingerprint validation |
| | |
| 4. | Rechargeable battery to power the card |
| | |
| 5. | Size and thickness of a credit card |
| | |
| 6. | Changeable security code on reverse of card for additional log on security |
Cybersecurity and identity validation for network access control, physical building entry and secure on-the-spot identity security is now handled by the revolutionary biometric activated cyber and ID multi-function security card which has been developed by SmartMetric after over a decade of R&D.
From governments to the workplace, better, stronger security is desired across the enterprise. Our new biometric multifunction security card provides a revolutionary biometric based solution that is portable, easily integrated and backward compatible to existing backend security infrastructure.
The new multifunction biometric security card by SmartMetric is a revolutionary leap forward in the Cyber and Access Security world according to SmartMetric.
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 company is now actively marketing itsprocess 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 EMV chip card to bankscollection technologies (both biometric hardware products and financial institutions withintheir associated processing software) have increased the United States, Asia, Latin Americaspeed and Europe.accuracy and reduced the cost of implementing biometrics in commercial environments. Management believes that individuals, website operators, government organizations, and businesses will increasingly use this method of identity authentication.
Biometrics refers to the automatic identification of a person based on his/her physiological or behavioral characteristics. This method of identification is preferred over traditional methods involving passwords and personal identification numbers (“PINs”) for two reasons: (i) the person to be identified is required to be physically present at the point of identification to be identification; and (ii) identification based on biometric techniques obviates the need to remember a password or carry a token. By replacing PINs, biometric techniques can potentially prevent unauthorized access to or fraudulent use of cellular phones, Biometric cards, desktop PCs, workstations and computer networks. It can be used during transactions conducted via telephone and Internet (e-commerce and e-banking). In automobiles, biometrics could replace keys-less entry devices. The SmartMetric continuesfingerprint activated credit card that has the fingerprint encased inside the credit card has been developed to actively promote itsreplace the less secure PIN’s for credit and debit cards.
PINs and passwords may be forgotten, may be hacked and token-based methods of identification, e.g., passports and driver’s licenses, may be forged, stolen or lost. Various types of biometric systems are being used for real-time identification, with the most popular based on facial recognition and fingerprint matching. Other biometric systems utilize iris and retinal scanning, speech, facial thermograms and hand geometry. Of the biometric options available to work with a credit or debit card, fingerprint scanning is the only biometric methodology that has been successfully reduced in size to fit inside such cards.
A biometric system is essentially a pattern recognition system, which makes a personal identification by determining the authenticity of a specific physiological or behavioral characteristic possessed by the user. An important issue in designing a practical system is to determine how an individual is identified.
There are two different ways to resolve a person’s identity; verification and identification. Verification (Am I whom I claim I am?) involves confirming or denying a person’s claimed identity. In identification, one has to establish a person’s identity (Who am I?).
As stated above, the SmartMetric fingerprint biometric card through exhibiting in industry specific conferenceshas been designed as a credit-card sized card embedded with an integrated circuit, contact chip and exhibitions.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 focusing on specific nationalthat the self-containment of SmartMetric’s card makes it substantially resistant to attack, as it will not need to depend upon vulnerable external resources. Because of this characteristic, we expect that the SmartMetric biometric card may be used in different applications, which require strong security protection and international conferencesauthentication.
The physical structure of a card is specified by the International Standards Organization (“ISO”). Generally, this structure is made up of three elements: (i) the plastic card, which is the most basic one and exhibitionshas the dimensions of 85.60mm x 53.98 x 0.80mm; (ii) an electronic circuit board inlay; and (iii) a contact chip that are embedded in the card.
The SmartMetric card has been designed to conform to ISO standards. The electronic circuit inlay is provinga part of, and not distinct from, the biometric card.
The communication line between the card and ATMs and other standard Smart Card reading devices is bi-directional serial transmission, which conforms to beISO standards. Card commands and input data are sent to the chip that responds with status words and output data upon the receipt of these commands and data. Information is sent in half duplex mode (transmission of data is in one direction at a highly effective method of exposing and presenting our products to a large number of industry decision makers. SmartMetric is developing a network of distributors and resellers in various partstime). This protocol, together with the restriction of the worldbit rate, is designed to aid and assist in product sales and marketing efforts.prevent data attack on the card. Other data protection systems are utilized inside the card including advanced encryption.
WeIn general, the size, the thickness and bend requirements for the biometric card were designed to protect the card from being spoiled physically.
Recent Developments
The COVID-19 has had an impact on SmartMetric’s final card production. While the delays are due to supply line disruption, the Company is confident that these delays will be short-lived based on advice from our manufacturing partners, manufacturing alternatives and alternative supply lines that are being put into place by the Company.
GHS Equity Financing Agreement and Registration Rights Agreement
On March 6, 2020, the Company entered into an equity financing agreement (the “Equity Financing Agreement”), and a registration rights agreement (the “Registration Rights Agreement”) with GHS Investments LLC, a Nevada limited liability company (“GHS”). Under the terms of the Equity Financing Agreement, GHS agreed to provide the Company with up to $4,000,000 over the course of 36 months in return for shares of the Company’s common stock. The 36-month period will commence upon effectiveness of a registration statement on Form S-1 (the “Registration Statement”) filed with the U.S. Securities and Exchange Commission (the “Commission”) on August 6, 2020.
Following effectiveness of the Registration Statement, the Company shall have incurred losses since our inceptionthe discretion to deliver puts to GHS and GHS will be obligated to purchase shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”) based on the investment amount specified in 2002each put notice. The maximum amount that the Company shall be entitled to put to GHS in each put notice shall not exceed two hundred percent (200%) of the average daily trading dollar volume of the Company’s Common Stock during the ten (10) trading days preceding the put, so long as such amount does not exceed $500,000. Pursuant to the Equity Financing Agreement, GHS and its affiliates will not be permitted to purchase, and the Company may not put shares of the Company’s Common Stock to GHS that would result in GHS’s beneficial ownership equaling more than 4.99% of the Company’s outstanding Common Stock. The price of each put share shall be equal to eighty percent (80%) of the Market Price (as defined in the Equity Financing Agreement). Puts may be delivered by the Company to GHS until the earlier of thirty-six (36) months after the effectiveness of the Registration Statement, the date on which GHS has purchased an aggregate of $4,000,000 worth of Common Stock under the terms of the Equity Financing Agreement, or at such time that the Registration Statement is no longer in effect. Additionally, in accordance with the Equity Financing Agreement, the Company issued GHS a convertible promissory note in the principal amount of $35,000 and a 9 month maturity date (the “Commitment Note”), with the first $20,000 of the Commitment Note deemed earned upon execution of the Equity Financing Agreement and the remaining $15,000 of the Commitment Note deemed earned upon payment by GHS of the Company’s legal fees.
The Registration Rights Agreement provides that the Company shall (i) use its best efforts to file with the Commission the Registration Statement within 60 days of the date of the Registration Rights Agreement; and (ii) have the Registration Statement declared effective by the Commission within 30 days after the date the Registration Statement is filed with the Commission, but in no event more than 90 days after the Registration Statement is filed.
Going Concern
The condensed consolidated financial statements do not include any adjustments relating to the carrying amounts of recorded assets or the carrying amounts and classification of recorded liabilities that may be required should the Company be unable to continue as a resultgoing concern.
As shown in the accompanying consolidated financial statements the Company has incurred recurring losses of significant expenditures for operations$225,936 and research and development and the lack of any revenue. We have an accumulated deficit of approximately $24,866,599 as of December 31, 2017 and anticipate that we will continue to incur additional losses$227,021 for the foreseeable future. Through December 31, 2017, we have funded our operations throughperiod ending September 30, 2020 and 2019, respectively, and has incurred a cumulative loss of $27,996,998 since inception (December 18, 2002). The Company is currently in the private saledevelopment stage and has spent a substantial portion of our equity securities and exercisesits time in the development of options and warrants, resulting in gross proceeds of approximately $24 million from inception through December 31, 2017. Cash and cash equivalents at December 31, 2017 were $85,377.its technology.
We are actively seeking, on an ongoing basis, additional funding to fund our continued operations and sales and marketing programs SmartMetric has funded its activities since 2002 from the sale of equity shares via private placements. While there can beThere is no guarantees of future financings,guarantee that the Company continueswill be able to raise funds through the sale of equity via direct private placementsenough capital or generate revenues to existing and new shareholders. The Company has not and does not intend to receive funds through structured financings such as convertible notes, debentures or other types of debt financing instruments.
Going Concern
Our auditors’ report on our June 30, 2017 financial statements expressed an opinion that there is asustain its operations. These conditions raise substantial doubt about ourthe 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.
In December 2019, an outbreak of a novel strain of coronavirus originated in Wuhan, China (“COVID-19”) and has since spread worldwide, including to the Unites States, posing public health risks that have reached pandemic proportions (the “COVID-19 Pandemic”). The COVID-19 Pandemic poses a threat to the health and economic wellbeing of our employees, customers and vendors. Like most businesses world-wide, the COVID-19 Pandemic has impacted the Company financially; however, management cannot presently predict the scope and severity with which COVID-19 will impact our business, financial condition, results of operations and cash flows.
Critical Accounting Policies
We have prepared our financial statements in conformity with accounting principles generally accepted in the United States, which requires management to make significant judgments and estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. We base these significant judgments and estimates on historical experience and other applicable assumptions we believe to be reasonable based upon information presently available. These estimates may change as new events occur, as additional information is obtained and as our operating environment changes. These changes have historically been minor and have been included in the financial statements as soon as they became known. Actual results could materially differ from our estimates under different assumptions, judgments or conditions.
All of ourthe Company’s significant accounting policies are discussed in Note 2, Summary of Significant Accounting Policies, to our financial statements, included elsewhere in this Quarterly Report. We have identified the following as our significant accounting policies and estimates, which are defined as those that are reflective of significant judgments and uncertainties, are the most pervasive and important to the presentation of our financial condition and results of operations and could potentially result in materially different results under different assumptions, judgments or conditions.
We believe the following critical accounting policies reflect our more significant estimates and assumptions used in the preparation of our financial statements:
Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying disclosures. Actual results may differ from those estimates.
Cash and Equivalents - Cash equivalents are comprised of certain highly liquid investments with maturity of three months or less when purchased. We maintain our cash in bank deposit accounts which, at times, may exceed federally insured limits. We have not experienced any losses in such accounts.
Research and Development Costs - Research and development costs are charged to expense as incurred. Our research and development expenses consist primarily of expenditures for electronics design and engineering, software design and engineering, component sourcing, component engineering, manufacturing, product trials, compensation and consulting costs.
Results of Operations
Comparison of the Three Months Ended December 31, 2017September 30, 2020 and 20162019
Our results of operations have varied significantly from year to year and quarter to quarter and may vary significantly in the future. We did not have revenue for the three months ending December 31, 2017September 30, 2020 and 2016, and we do not anticipate generating any revenues during the year ending June 30, 2018.2019. Net loss for the three months ended December 31, 2017September 30, 2020 and 20162019 were $260,270$225,936 and $311,793,$227,021, respectively, resulting from the operational activities described below.
Operating Expenses
Operating expense totaled $249,690$208,133 and $311,793$201,471 during the three months ended December 31, 2017September 30, 2020 and 2016,2019, respectively. The decrease in operating expenses is the result of the following factors.lower
| | | | | | | |
| | | Quarter Ended
December 31, 2017 | | | Change in 2017
Versus 2016 | |
| | | 2017 | | | 2016 | | | $ | | | % | |
| | | | | | | | | | |
| Operating Expenses | | | | | | | | | | | | | | | | |
| Research and development | | $ | 24,832 | | | $ | 45,755 | | | $ | (20,923 | ) | | | (45.7 | )% |
| General and administrative | | | 224,858 | | | | 266,038 | | | | (41,180 | ) | | | (15.5 | )% |
| Total operating expense | | $ | 249,690 | | | $ | 311,793 | | | $ | (62,103 | ) | | | (19.9 | )% |
| | | Quarter Ended
September 30 | | | Change in 2020
Versus 2019 | |
| | | 2020 | | | 2019 | | | $ | | | % | |
| Operating expense | | | | | | | | | | | | |
| Officer salary | | $ | 47,500 | | | $ | 47,500 | | | $ | — | | | | (0 | )% |
| Research and development | | | 22,206 | | | | 21,112 | | | | 1,094 | | | | 5.2 | % |
| General and administrative | | | 124,596 | | | | 132,859 | | | | (8,263 | ) | | | (6.2 | )% |
| Total operating expense | | $ | 194,302 | | | $ | 201,471 | | | $ | 6,662 | | | | 3.3 | % |
Research and Development
Research and development expenses totaled $24,832$22,206 and $45,755$21,112 for the three months ended December 31, 2017September 30, 2020 and 2016,2019, respectively. The decreaseincrease of $20,923,$1,094, or 45.7%5.2%, in 20172020 compared to 20162019 was primarily attributable to decreasedincreased engineering expenses. Our research and development expenses consist primarily of expenditures related to engineering.
General and Administrative
General and administrative expenses totaled $224,858$124,596 and $266,038$132,859 for the three months ended December 31, 2017September 30, 2020 and 2016,2019, respectively. The decrease of $41,180$8,263 or 15.5%6.2%, in 20172020 compared to 20162019 was primarily the result of a decreasean increase in consulting expense.expenses. Our general and administrative expenses consist primarily of expenditures related to employee compensation, legal, accounting and tax, other professional services, and general operating expenses.
Other Income (Expense)Expense
Other income (expense) totaled $10,580$27,605 and $0$13,825 for the three months ended December 31, 2017September 30, 2020 and 2016,2019, respectively.
| | | | | | | | Quarter Ended
September 30 | | | Change in 2020
Versus 2019 | |
| | | Quarter Ended
December 31, 2017 | | Change in 2017
Versus 2016 | | | 2020 | | | 2019 | | | $ | | | % | |
| | | 2017 | | 2016 | | $ | | % | | | | | | | | | | |
| | | | | | | | | | | | |
| Gain on change in derivatives | | | | (1,064 | ) | | | -0- | | | | (1,064 | ) | | | 0.0 | % |
| Interest Expense | | | 10,580 | | | — | | | (10,580 | ) | | (100 | )% | | | 28,669 | | | | 13,825 | | | | 14,844 | | | | 100.7 | % |
| Total operating expense | | $ | 10,580 | | $ | — | | $ | (10,580 | ) | | (100 | )% | |
| Total other (income) expense | | | $ | 27,605 | | | $ | 13,825 | | | $ | 13,780 | | | | 99.7 | % |
Interest income (expense)
We had net interest expense of $10,580$28,669 in the three months ended December 31, 2017September 30, 2020 compared to no$13,825 net interest expense for the three months ended December 31, 2016.September 30, 2019. The increase of $10,580$14,844 was attributable to interest expenses related to accrued but unpaid salary of our CEO pursuant to an amended and restated employment agreement entered into on July 1, 2017.
Comparison of the Six Months Ended December 31, 2017 and 2016
We did not have revenue for the six months ending December 31, 2017 and 2016, and we do not anticipate generating any revenues during the year ending June 30, 2018. Net loss for the six months ended December 31, 2017 and 2016 were $509,227 and $607,153, respectively, resulting from the operational activities described below.debt discount amortization.
Operating Expenses
Operating expense totaled $488,989 and $607,153 during the six months ended December 31, 2017 and 2016, respectively. The decrease in operating expenses is the result of the following factors.
| | | | | | | |
| | | Six Months Ended
December 31, 2017 | | | Change in 2017
Versus 2016 | |
| | | 2017 | | | 2016 | | | $ | | | % | |
| | | | | | | | | | |
| Operating Expenses | | | | | | | | | | | | | | | | |
| Research and development | | $ | 41,432 | | | $ | 97,600 | | | $ | (56,168 | ) | | | (57.5 | )% |
| General and administrative | | | 447,557 | | | | 509,553 | | | | (61,996 | ) | | | (12.2 | )% |
| Total operating expense | | $ | 488,989 | | | $ | 607,153 | | | $ | (118,164 | ) | | | (19.5 | )% |
Research and Development
Research and development expenses totaled $41,432 and $97,600 for the six months ended December 31, 2017 and 2016, respectively. The decrease of $56,168, or 57.5%, in 2017 compared to 2016 was primarily attributable to decreased engineering expenses. Our research and development expenses consist primarily of expenditures related to engineering.
General and Administrative
General and administrative expenses totaled $447,557and $509,553 for the six months ended December 31, 2017 and 2016, respectively. The decrease of $61,996 or 12.2%, in 2017 compared to 2016 was primarily the result of a decrease in consulting expense. Our general and administrative expenses consist primarily of expenditures related to employee compensation, legal, accounting and tax, other professional services, and general operating expenses.
Other Income (Expense)
Other income (expense) totaled $20,238 and $0 for the six months ended December 31, 2017 and 2016, respectively.
| | | | | | | |
| | | Six Months Ended
December 31, 2017 | | | Change in 2017
Versus 2016 | |
| | | 2017 | | | 2016 | | | $ | | | % | |
| | | | | | | | | | | | | | | | | |
| Interest Expense | | | 20,238 | | | | — | | | | (20,238 | ) | | | (100 | )% |
| Total operating expense | | $ | 20,238 | | | $ | — | | | $ | (20,238 | ) | | | (100 | )% |
Interest income (expense)
We had net interest expense of $20,238 in the six months ended December 31, 2017 compared to no net interest expense for the three months ended December 31, 2016. The increase of $20,238 was attributable to interest expenses related to accrued but unpaid salary of our CEO pursuant to an amended and restated employment agreement entered into on July 1, 2017.
Liquidity and Capital Resources
We have incurred losses since our inception in 2002 as a result of significant expenditures for operations and research and development and the lack of any revenue. We have an accumulated deficit of approximately $24,866,599$27,996,998 as of December 31, 2017September 30, 2020 and anticipate that we will continue to incur additional losses for the foreseeable future. Through December 31, 2017,September 30, 2020, we have funded our operations through the private sale of our equity securities and exercises of options and warrants, resulting in gross proceeds of approximately $24$27.8 million from inception through December 31, 2017. Cash and cash equivalents at December 31, 2017 were $85,377.September 30, 2020.
| | | Three months ended September 30, | | | Change in 2020
versus 2019 | |
| | | 2020 | | | 2019 | | | $ | | | % | |
| | | | | | | | | | |
| Cash at beginning of period | | $ | 71,377 | | | $ | 10,161 | | | $ | 61,216 | | | | 622.0 | % |
| Net cash used in operating activities | | | 182,995 | | | | 200,217 | | | | (17,222 | ) | | | (8.6 | )% |
| Net cash used in investing activities | | | — | | | | — | | | | — | | | | — | |
| Net cash provided by financing activities | | | 139,118 | | | | 190,056 | | | | (50,938 | ) | | | (26.8 | )% |
| Cash at end of period | | $ | 27,500 | | | $ | -0- | | | $ | 27,500 | | | | 100.0 | % |
Our auditors’ report on our June 30, 2017 financial statements expressed an opinion that there is a substantial doubt about our ability to continue as a going concern.
We are actively seeking sources of financing to fund our continued operations and research and development programs. To raise additional capital, we may sell shares of equity or debt securities. There can be no assurance that we will be able to complete any financing transaction in a timely manner or on acceptable terms or otherwise. If we are not able to raise additional cash, we may be forced to further delay, curtail, or cease development of our product candidates, or cease operations altogether.
| | | Six months ended December 31, | | | Change in 2017 versus
2016 | |
| | | 2017 | | | 2016 | | | $ | | | % | |
| | | | | | | | | | |
| Cash at beginning of period | | $ | 51,695 | | | $ | 138,823 | | | $ | (87,128 | ) | | | (62.8 | )% |
| Net cash used in operating activities | | | (335,505 | ) | | | (502,332 | ) | | | 166,827 | | | | (33.2 | )% |
| Net cash used in investing activities | | | — | | | | — | | | | — | | | | — | |
| Net cash provided by financing activities | | | 369,187 | | | | 477,210 | | | | 108,023 | | | | (22.6 | )% |
| Cash at end of period | | | 85,377 | | | | 113,701 | | | | 28,324 | | | | (24.9 | )% |
Net Cash Used in Operating Activities
Net cash used in operating activities was $335,505$182,995 and $502,332$200,217 for the sixthree months ended December 31, 2017September 30, 2020 and 2016,2019, respectively. The decrease of $166,827$17,222 in cash used during 20172020 compared to 20162019 was primarily attributable to an decrease in consultant costs.
Net Cash Used in Investing Activities
Cash used in investing activities was $0 and $0 for the sixthree months ended December 31, 2017September 30, 2020 and 2016,2019, respectively.
Net Cash Provided by Financing Activities
During the sixthree months ended December 31, 2017, we receivedSeptember 30, 2020, net proceeds of $369,187 from the sales of our securities,cash provided by financing activities was 139,118, compared to $477,210$190,056 for the sixthree months ended December 31, 2016.September 30, 2019. The decrease of $50,938 was due to reducedlower sales of the Company’s securities in private placements. We continue to seek funding through private placement sales. We are actively seeking sourcessales of financingequity to fund our continued operations, sales and marketing and ongoing research and development programs.
Equity Financing Agreement
On March 5, 2020, the Company entered into an equity financing agreement with GHS Investments, LLC, a Nevada limited liability company (“Investor”). Pursuant to the agreement, the Company agrees the sell to the investor an indeterminate amount of shares of the Company’s common stock, par value $0.001 per share, up to an aggregate price of four million dollars ($4,000,000).
Pursuant to the agreement, the Company is required, to within sixty (60) calendar days upon the date of execution of this Agreement, use its best efforts to file with the SEC a Registration Statement or Registration Statements (as is necessary) on Form S-1, covering the resale of all of the Registrable Securities, which Registration Statement(s) shall state that, in accordance with Rule 416 promulgated under the 1933 Act, such Registration Statement also covers such indeterminate number of additional shares of Common Stock as may become issuable upon stock splits, stock dividends or similar transactions.
Per terms of the convertible note agreement, the Company agrees to pay the investor the sum of $35,000, together with interest, on December 5, 2020. As of the date of this filing, the Company has not yet received this money.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are not required to provide the information required by this item as we are considered a smaller reporting company, as defined by Rule 229.10(f)(1).
ITEM 4. CONTROLS AND PROCEDURES
We maintain “disclosure controls and procedures,” as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officerprincipal executive officer and Chief Financial Officer,principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
As of December 31, 2017, we carried out an evaluation, under the supervision andIn connection with the participationpreparation of this Quarterly Report on Form 10-Q for the quarter ended September 30, 2020, our Chief Executive Officerprincipal 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 Officerprincipal financial officer have concluded that our disclosure controls and procedures were(as defined in Rules 13a-15(c) and 15d-15(e) under the Exchange Act) are not effective due to material weaknesses in our internal control over financial reporting, in ensuringensure that information required to be disclosed by us in our periodic reportsreport that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified for each reportin the U.S. Securities and Exchange Commission’s rules and forms and to ensure that such information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions,Chief Executive Officer, as appropriate to allow timely decisions regarding required disclosure. Management identified material weaknesses in our internal control over financial reporting 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.
Limitations on Controls
Management does not expect that the Company’s disclosure controls and procedures or the Company’s internal control over financial reporting will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. The Company’s disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives and the Company’s chief executive officer and chief financial officer have concluded that the Company’s disclosure controls and procedures are not effective.
Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions are being performed by separate individuals. Management evaluated the impact of our failure to have segregation of duties in all of our financially significant processes and have concluded that this control deficiency represented a material weakness. We plan to remediate this weakness over the next 12 months.
Notwithstanding the assessment that our disclosure controls and procedures and our internal controls over financial reporting were not effective atand that reasonable assurance level. there are material weaknesses as identified herein, we believe that our condensed consolidated financial statements contained in this Quarterly Report fairly present our financial position, results of operations and cash flows for the periods covered thereby in all material respects.
Changes in Internal Controls
During the sixthree months ended December 31, 2017,September 30, 2020, there have been no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time we may be a defendant or plaintiff in various legal proceedings arising in the normal course of our business. We know of no material, active, pending or threatened proceeding against us or our subsidiaries, nor are we, or any subsidiary, involved as a plaintiff or defendant in any material proceeding or pending litigation.
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in Part I, Item 1A in our Annual Report on Form 10-K for the year ended June 30, 20172020 filed with the Commission on October 20, 2020 and our subsequent filings with the Securities and Exchange Commission, which could materially affect our business, financial condition or future results. These cautionary statements are to be used as a reference in connection with any forward-looking statements. The factors, risks and uncertainties identified in these cautionary statements are in addition to those contained in any other cautionary statements, written or oral, which may be made or otherwise addressed in connection with a forward-looking statement or contained in any of our subsequent filings with the SecuritiesCommission.
As of September 30, 2020, we carried out an evaluation, under the supervision and Exchange Commission.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.
Below is a risk factor regarding the coronavirus that the Company’s stockholders and potential investors in the Company should consider with respect to the year that will end on June 30, 2021.
We face risks related to Novel Coronavirus (COVID-19) which could significantly disrupt our research and development, operations, sales, and financial results.
Our business will be adversely impacted by the effects of COVID-19. In addition to global macroeconomic effects, the COVID-19 outbreak and any other related adverse public health developments will cause disruption to our operations and sales activities and our final card production. While the delays to our final card production are due to supply line disruption, these delays may be short-lived based on advice from our manufacturing partners, manufacturing alternatives and alternative supply lines that are being put into place by the Company.
Our customers have been and will be disrupted by worker absenteeism, quarantines and restrictions on employees’ ability to work, office and factory closures, disruptions to ports and other shipping infrastructure, border closures, or other travel or health-related restrictions. In addition, COVID-19 or another disease outbreak will in the short-run and may over the longer term adversely affect the economies and financial markets of many countries, resulting in an economic downturn that will affect demand for our products and services and impact our operating results. There can be no assurance that any decrease in sales resulting from COVID-19 will be offset by increased sales in subsequent periods. Although the magnitude of the impact of COVID-19 outbreak on our business and operations remains uncertain, the continued spread of COVID-19 or the occurrence of other epidemics and the imposition of related public health measures and travel and business restrictions will adversely impact our business, financial condition, operating results and cash flows. In addition, we have experienced and will experience disruptions to our business operations resulting from quarantines, self-isolations, or other movement and restrictions on the ability of our employees to perform their jobs that may impact our ability to develop and design our products and services in a timely manner or meet required milestones or customer commitments.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following information is given with regard to unregistered securities sold since OctoberJanuary 1, 2017.2020 and not previously reported on a Current Report on Form 8-K. The following securities were issued in private offerings pursuant to the exemption from registration contained in the Securities Act and the rules promulgated thereunder in reliance on Section 4(a)(2) thereof of the Securities Act of 1933, as amended and Regulation D and Regulation S promulgated thereunder, relating to offers of securities by an issuer not involving any public offering.
| ● | During the three months ended December 31, 2017,September 30, 2020, the Company sold for cash 8,319,00017,500,000 shares of common stock and warrants to purchase: (i) 3,250,00017,500,000 shares at $0.20prices ranging from$0.05 to $0.10 per share and (ii) 1,638,00014,500,000 shares at $0.50 per share,prices ranging from $0.10 to $0.20 for net proceeds of $259,362.$77,409. The warrants expire at various times through December 29, 2019. September 21, 2022. None of these shares were issued during the quarter ended September 30, 2020, with all 17,500,000 shares being recorded as stock payable. During the three months ended December 31, 2017,September 30, 2020, the Company issued 212,1646,032,260 shares. Of these shares, of common stock585,000 were issued for consulting services valued at $15,000, based on the stock price at the time of the respective agreements underlying the services provided. and 5,447,260 were converted from Preferred shares. |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
ITEM 5. OTHER INFORMATION
On October 12, 2017, the board of directors of the Company approved the SmartMetric, Inc. 2017 Equity Compensation Plan whereby 23,500,000 shares of common stock were authorized for issuance under such plan to employees, directors and consultants. The plan permits the grant of incentive stock options, non-statutory stock options, restricted stock, stock appreciation rights, restricted stock units, performance units, performance shares and other stock based awards.None.
ITEM 6. EXHIBITS
INDEX TO EXHIBITS
| * | In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed |
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | SMARTMETRIC, INC. |
| | |
Dated: February 9, 2018 | By: | /s/ C. Hendrick |
| | C. Hendrick, President, Chief Executive Officer and Chairman (Principal Executive Officer) |
| | | |
Dated: February 9, 2018November 23, 2020 | By: | /s/ Jay NeedelmanChaya Hendrick |
| | | Chaya Hendrick, President, Chief Executive Officer and Chairman (Principal Executive Officer) |
| | |
| Dated: November 23, 2020 | By: | /s/ Jay Needelman |
| | Jay Needelman, Chief Financial Officer
(Principal Financial Officer) |
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