SMARTMETRIC,
INC. AND SUBSIDIARY
Consolidated
Statements Of Cash Flows
(Unaudited)
|
|
Three Months
Ended
|
|
|
Three Months
Ended
|
|
|
|
September 30,
2017
|
|
|
September 30,
2016
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(247,062
|
)
|
|
$
|
(295,451
|
)
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
Common stock and warrants issued and issuable for services
|
|
|
—
|
|
|
|
48,214
|
|
|
|
|
|
|
|
|
|
|
Changes in assets and liabilities
|
|
|
|
|
|
|
|
|
Decrease in prepaid expenses and other current assets
|
|
|
20,845
|
|
|
|
—
|
|
(Decrease) increase in accounts payable and accrued expenses
|
|
|
13,091
|
|
|
|
(53,063
|
)
|
Increase (decrease) in discounts taken
|
|
|
—
|
|
|
|
—
|
|
Increase in deferred officer’s salary
|
|
|
47,500
|
|
|
|
31,667
|
|
Increase in accrued interest payable
|
|
|
9,658
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(155,968
|
)
|
|
|
(268,633
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Loans from related parties
|
|
|
(4,800
|
)
|
|
|
—
|
|
Proceeds from sale of common stock
|
|
|
114,624
|
|
|
|
151,016
|
|
Liability for stock to be issued
|
|
|
—
|
|
|
|
27,936
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
109,824
|
|
|
|
178,952
|
|
|
|
|
|
|
|
|
|
|
NET (DECREASE) IN CASH
|
|
|
(46,144
|
)
|
|
|
(89,681
|
)
|
|
|
|
|
|
|
|
|
|
CASH
|
|
|
|
|
|
|
|
|
BEGINNING OF PERIOD
|
|
|
51,695
|
|
|
|
138,823
|
|
END OF PERIOD
|
|
$
|
5,551
|
|
|
$
|
49,142
|
|
Income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Issuance of preferred stock and reduction of additional paid in capital for patent
|
|
$
|
—
|
|
|
$
|
—
|
|
Conversion of Series B Convertible Preferred Stock to Common Stock
|
|
$
|
—
|
|
|
$
|
—
|
|
See
notes to consolidated financial statements.
NOTE
1
-
|
ORGANIZATION
AND BASIS OF PRESENTATION
|
SmartMetric,
Inc. (“SmartMetric” or the “Company”) was incorporated pursuant to the laws of Nevada on December 18,
2002. SmartMetric is a development stage company engaged in the technology industry. SmartMetric’s main products are a fingerprint
sensor activated payments card and security card with a finger sensor and fully functional fingerprint reader embedded inside
the card. The SmartMetric biometric cards have a rechargeable battery allowing for portable biometric identification and card
activation. This card is referred to as a biometric card or the SmartMetric Biometric Card.
The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not
include all the information and footnotes required by generally accepted accounting principles for complete financial statements.
In the opinion of management of the Company, the accompanying unaudited financial statements contain all the adjustments (which
are of a normal recurring nature) necessary for a fair presentation. Operating results for the three months ended September 30,
2017 are not necessarily indicative of the results that may be expected for the year ending June 30, 2018. 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, as filed with the Securities and Exchange Commission.
Going
Concern
As
shown in the accompanying condensed consolidated financial statements the Company has sustained recurring losses of $247,062 and
$295,451 for the three months ended September 30, 2017 and 2016 respectively, and has an accumulated deficit of $24,604,435 at
September 30, 2017. The Company has spent a substantial portion of its time and capital resources in the development
of its technology.
There
is no guarantee that the Company will be able to raise enough capital or generate revenues to sustain its operations. These
conditions raise substantial doubt about the Company’s ability to continue as a going concern.
Management believes that the Company’s capital requirements will depend on many factors. These factors
include product marketing and distribution.
The
condensed consolidated financial statements do not include any adjustments relating to the carrying amounts of recorded assets
or the carrying amounts and classification of recorded liabilities that may be required should the Company be unable to continue
as a going concern.
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 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 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
Recognition
The
Company has not recognized revenues to date. The Company anticipates recognizing revenue in accordance with the contracts
it enters into for the sale and distribution of its products.
|
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 September 30, 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 as the statute of limitations does not begin until
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 lives
of the assets ranging from 3 - 5 years.
Loss
Per Share of Common Stock
Basic
net loss per common share is computed using the weighted average number of common shares outstanding. The calculation
of diluted earnings per share (“EPS”) includes consideration of dilution arising from common stock equivalents, such
as stock issuable pursuant to the exercise of stock options and warrants. Common stock equivalents were not included
in the computation of diluted earnings per share on the consolidated statement of operations due to the fact that the Company
reported a net loss and to do so would be anti-dilutive for the periods presented.
Stock-Based
Compensation
The
Company measures expense for issuances of stock-based compensation to employees and others at fair value of the stock and warrants
issued, as this is more reliable than the fair value of the services received complete. The fair value of the equity instrument
is charged directly to compensation expense and additional paid-in capital.
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, and were valued based on the stock price or computed
warrant value at the time of the respective agreements.
Lease
Agreement
The
Company’s main office is located in Las Vegas, Nevada. Rent expense under all leases for the three months ended September
30, 2017 and 2016 was $7,090 and $9,127, respectively.
Related
Party Transactions
The
Company’s Chief Executive Officer has made cash advances to the Company with an aggregate amount due of $0 and $4,800 at
September 30, 2017 and June 30, 2017, respectively. These advances bear interest at the rate of five percent (5%) per annum.
The
Company has accrued the amounts of $568,348 and $520,848 at September 30, 2017 and June 30, 2017, respectively, as deferred officer’s
salary, for the difference between the Chief Executive Officer’s annual salary and the amounts paid.
On
September 11, 2017, we received a license to certain patents from Chaya Hendrick, our founder and CEO, related to our technologies
until the expiration of the patents. As consideration, we issued Chaya Hendrick, or her assigns, (i) 200,000 shares of Series
B Convertible Preferred Stock, (ii) a royalty equal to 5% of gross revenues derived from products sold related to the patents,
and (iii) certain minimum required payments beginning at $50,000 and doubling each year thereafter. The Series B Preferred Shares
may be converted at the election of holder on a basis for 50 common shares for each preferred share at any time or an aggregate
of 10,000,000 common shares in exchange for all 200,000 preferred shares.
NOTE
5
-
|
STOCKHOLDERS’
EQUITY (DEFICIT)
|
Preferred
Stock
As
of September 30, 2017, the Company has 5,000,000 shares of preferred stock, par value $0.001, authorized and 610,000 shares issued
and outstanding.
On
December 11, 2009, the Company filed a Certificate of Designation with the State of Nevada, to designate 500,000 shares of 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 1,000,000 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.
NOTE
5
-
|
STOCKHOLDERS’
EQUITY (DEFICIT) (CONTINUED)
|
Class
A Common Stock
As
of September 30, 2017, 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 in 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 305,000,000
shares, par value $0.001 per share, consisting of (i) 300,000,000 shares of 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 “Information
Statement”).
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 September 30, 2017, the Company has 234,795,663 shares of common stock issued and outstanding.
|
●
|
During
the three months ended September 30, 2016, the Company sold, for net proceeds of $155,991,
units consisting of an aggregate of (i) 3,130,000 shares, (ii) warrants to purchase 1,956,250
shares at $0.70 per share, and (iii) warrants to purchase 985,950 shares at $1.00 per
share. The warrants expire at various times through January 15, 2018.
|
|
●
|
During
the three months ended September 30, 2016, the Company issued an aggregate of 1,669,633
shares for consulting services valued at $84,400, based on the stock price at the time
of the respective agreements underlying the services provided.
|
|
●
|
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, the Company sold for cash 2,500,000 shares
of common stock and warrants to purchase: (i) 937,500 shares at $0.70 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 $0.50 per share for net proceeds of $114,625. The warrants expire at various
times through September 28, 2019
|
|
●
|
During
the three months ended September 30, 2017, the Company issued 362,864 shares of common
stock for consulting services valued at $21,825, based on the stock price at the time
of the respective agreements underlying the services provided.
|
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 shares 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 September 30, 2017 and June 30, 2017, the following is a breakdown of the warrant activity:
September
30, 2017:
Outstanding
- June 30, 2017
|
|
|
|
20,276,399
|
|
Issued
|
|
|
|
2,162,000
|
|
Exercised
|
|
|
|
—
|
|
Expired
|
|
|
|
—
|
|
Outstanding
- September 30, 2017
|
|
|
|
22,438,399
|
|
June
30, 2017:
Outstanding
- June 30, 2016
|
|
|
12,540,199
|
|
Issued
|
|
|
15,040,000
|
|
Exercised
|
|
|
—
|
|
Expired
|
|
|
(7,303,800
|
)
|
Outstanding
- June 30, 2017
|
|
|
20,276,399
|
|
NOTE
5
-
|
STOCKHOLDERS’
EQUITY (DEFICIT) (CONTINUED)
|
At
September 30, 2017, all of the 22,438,399 warrants are vested and (i) 19,138,399 warrants expire at various times prior to September
2019, (ii) 3,000,000 warrants expire in September 2019, (iii) and 300,000 warrants expire in July 2020.
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 Annual Report, there are no material pending legal or governmental proceedings relating to us or properties
to which we are a party, and, to our knowledge, there are no material proceedings to which any of our directors, executive officers
or affiliates are a party adverse to us or which have a material interest adverse to us.
NOTE
8
-
|
SUBSEQUENT
EVENTS
|
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 the plan to employees, directors and consultants. The plan permits the
grant of incentive stock options, nonstatutory stock options, restricted stock, stock appreciation rights, restricted stock units,
performance units, performance shares and other stock based awards.
On
November 8, 2017, the Company issued 212,164 shares of common stock in exchange for the cancellation of an outstanding invoice
of $15,000 to a consultant.