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EX-31.1 - EXHIBIT 31.1 - SmartMetric, Inc.smartmetricinc_ex31-1.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q 

 

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2021

 

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

 

For the transition period from ___________ to ___________.

 

Commission file number 000-54853

 

SMARTMETRIC, INC.

(Exact name of registrant as specified in its charter)

 

Nevada   05-0543557

(State or Other Jurisdiction of

Incorporation or Organization)

  (IRS Employer
Identification No.)

 

3960 Howard Hughes Parkway, Suite 500, Las Vegas, NV   89169
Address of Principal Executive Offices   Zip Code

 

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

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
N/A   N/A   N/A

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒    No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☐    No ☒

 

Indicate by check mark whether the registrant is large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☒ Smaller reporting company ☒
Emerging growth company ☐  

  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐    No ☒

 

The number of shares outstanding of the registrant’s Common Stock, $0.001 par value per share, as of May 18, 2021 was 443,359,676.

 

 

  

 

 

 

SMARTMETRIC, INC.

 

TABLE OF CONTENTS

 

INDEX

 

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
  Condensed consolidated balance sheets as of March 31, 2021 (unaudited) and June 30,2020 1
  Condensed consolidated statements of operations for the three months and nine months ended March 31, 2021 and 2020 (unaudited) 2
  Condensed consolidated statements of stockholders’ deficit for the nine months ended March 31, 2021 and 2020 (unaudited) 3
  Condensed consolidated statements of cash flows for the nine months ended March 31, 2021 and 2020 (unaudited) 5
  Notes to condensed consolidated financial statements (unaudited) 6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures about Market Risk 18
Item 4. Controls and Procedures 18
     
PART II OTHER INFORMATION  
Item 1. Legal Proceedings 19
Item 1A. Risk Factors 19
Item 2. Unregistered sales of equity securities and use of proceeds 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Mine Safety Disclosures 19
Item 5. Other Information 19
Item 6. Exhibits 20
  Signatures 21

 

i

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

In this Quarterly Report on Form 10-Q, references to “SmartMetric, Inc.,” “SmartMetric,” “SMME,” “the Company,” “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.

 

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 no 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:

 

  manage our business given continuing operating losses and negative cash flows;
     
  obtain sufficient capital to fund our operations, development, and expansion plans;
     
  manage competitive factors and developments beyond our control;
     
  maintain and protect our intellectual property;
     
  obtain patents based on our current and/or future patent applications;
     
  obtain and maintain other rights to technology required or desirable to conduct or expand our business; and
     
  manage any other factors, if any, discussed in in this report and in the section titled “Risk Factors” in our most recent Annual Report on Form 10-K.

 

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.

 

ii

 

 

PART I. FINANCIAL INFORMATION

 

SMARTMETRIC, INC. AND SUBSIDIARY

Condensed Consolidated Balance Sheet

(Unaudited)

 

   March 31,   June 30, 
   2021   2020 
   (Unaudited)     
Assets        
Current assets:          
Cash  $21,594   $71,377 
Deferred financing costs   35,000    35,000 
Prepaid expenses and other current assets   8,583    7,017 
           
Total current assets   65,177    113,394 
           
Total assets  $65,177   $113,394 
           
Liabilities and Stockholders’ Deficit          
           
Current liabilities:          
Accounts payable and accrued expenses  $1,015,026   $916,728 
Liability for stock to be issued   107,321    50,000 
Deferred Officer’s salary   744,115    759,948 
Related party interest payable   188,686    149,481 
Dividends payable   2,442    2,945 
Due to shareholders   41,343    41,343 
Covid19 SBA loan   41,664    20,832 
Convertible note payable, net of discount   35,000    32,127 
Derivative liability   65,000    - 
Convertible interest payable   3,801    - 
Shareholder loan   (2,817)   - 
           
Total current liabilities   2,241,581    1,973,404 
           
Commitments and contingencies (See note 4)          
Series C mandatory redeemable convertible preferred stock, net of discount, authorized 1000,000 shares, 149,650 and 117,200 shares issued and outstanding, respectively   119,083    101,661 
           
Stockholders’ deficit:          
           
Preferred stock, $.001 par value; 5,000,000 shares authorized, 610,000 and 610,000 shares issued and outstanding   610    610 
Common stock, $.001 par value; 600,000,000 shares authorized, 443,359,676 and 379,523,000 shares issued and outstanding, respectively   443,360    379,524 
Additional paid-in capital   25,928,393    25,429,259 
Accumulated deficit   (28,667,850)   (27,771,064)
           
Total stockholders’ deficit   (2,295,487)   (1,961,671)
           
Total liabilities and stockholders’ deficit  $65,177   $113,394 

 

The accompanying notes are an integral part of these condensed consolidated financial statements

 

1

 

 

SMARTMETRIC, INC. AND SUBSIDIARY

Condensed Consolidated Statements Of Operations

(Unaudited)

 

   Three Months   Three Months   Nine Months   Nine Months 
   Ended   Ended   Ended   Ended 
   March 31,   March 31,   March 31,   March 31, 
   2021   2020   2021   2020 
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
                 
Revenues  $-   $-   $-   $- 
                     
Expenses:                    
Officer’s salary   47,500    47,500    142,500    142,500 
Other general and administrative   134,903    93,200    421,606    375,779 
Research and development   16,822    14,090    60,761    60,796 
                     
Total operating expenses   199,225    154,790    624,867    579,075 
                     
Loss from operations before income taxes   (199,225)   (154,790)   (624,867)   (579,075)
Interest & Financing Expense   (13,897)   (14,081)   (45,879)   (41,731)
Gain (loss) on change in derivatives   -    -    (62,465)   - 
                     
Net loss   (213,122)   (168,871)   (733,211)   (620,806)
Preferred stock dividends   -    (4,614)   (163,575)   (20,577)
Net loss available for common stockholders  $(213,122)  $(173,485)  $(896,786)  $(641,383)
                     
Net loss per share, basic and diluted  $(0.00)  $(0.00)  $(0.00)  $(0.00)
                     
Weighted average number of common shares outstanding, basic and diluted   426,484,097    307,327,958    403,759,231    285,940,273 

 

The accompanying notes are an integral part of these condensed consolidated financial statements

 

2

 

 

SMARTMETRIC, INC. AND SUBSIDIARY

Consolidated Statements of Changes In Stockholders’ (Deficit)

(Unaudited)

 

   Preferred Series C                   Additional Paid   Accumulated     
   Stock           Common Stock   In Capital   Deficit   Total 
Balance June 30, 2019   610,000   $610    -   $-    264,648,821   $264,649   $24,663,528   $(26,933,461)  $(2,004,674)
                                              
Shares issued of common stock and warrants for cash   -    -    -    -    7,991,662    7,992    218,008    -    226,000 
                                              
Shares converted from Preferred shares                       3,224,643    3,224    63,289         66,513 
                                              
Preferred dividends                                      (11,725)   (11,725)
                                              
Net loss available for common shareholders   -    -    -    -    -    -    -    (215,296)   (215,296)
                                              
Balance September 30, 2019   610,000   $610    -   $-    275,865,126   $275,865   $24,944,825   $(27,160,482)  $(1,939,182)
                                              
Shares issued of common stock and warrants for cash   -    -    -    -    3,730,000    3,730    77,720    -    81,450 
                                              
Shares converted from Preferred shares                       2,370,696    2,371    28,538         30,909 
                                              
Preferred dividends                                      (4,238)   (4,238)
                                              
Net loss available for common shareholders   -    -    -    -    -    -    -    (236,638)   (236,638)
                                              
Balance December 31, 2019   -   $-    -   $-    281,965,822   $281,966   $25,051,083   $(27,401,358)  $(2,067,699)
                                              
Shares issued for services   -    -    -    -    50,000    50    1,450         1,500 
                                              
Shares issued of common stock and warrants for cash   -    -    -    -    28,475,000    28,475    118,275    -    146,750 
                                              
Shares converted from Preferred shares                       6,384,864    6,385    45,102         51,487 
                                              
Preferred dividends                                      (4,614)   (4,614)
                                              
Net loss available for common shareholders   -    -    -    -    -    -    -    (168,871)   (168,871)
                                              
Balance March 31, 2020   -   $-    -   $-    316,875,686   $316,876   $25,215,910   $(27,574,847)  $(2,041,443)

 

3

 

 

SMARTMETRIC, INC. AND SUBSIDIARY

Consolidated Statements of Changes In Stockholders’ (Deficit)

(Unaudited)

 

   Preferred Series C                   Additional Paid   Accumulated     
   Stock           Common Stock   In Capital   Deficit   Total 
Balance June 30, 2020   610,000   $610         -   $       -    379,523,000   $379,523   $25,429,261   $(27,771,062)  $(1,961,671)
                                              
Shares issued of common stock and warrants for services   -    -    -    -    585,000    585    2,340    -    2,925 
                                              
Shares converted Preferred C shares   -    -    -    -    5,447,260    5,447    31,921    -    37,368 
                                              
Series C Preferred dividends   -    -    -    -    -    -    -    (4,029)   (4,029)
                                              
Net loss for the period   -    -    -    -    -    -    -    (221,907)   (221,907)
                                              
Balance September 30, 2020   610,000   $610    -   $-    385,555,260   $385,555   $25,463,522   $(27,996,998)  $(2,147,314)
                                              
Shares issued of common stock and warrants for cash   -    -    -    -    15,000,000    15,000    60,000    -    75,000 
                                              
Shares converted Preferred C shares   -    -    -    -    16,034,876    16,035    54,965    -    71,000 
                                              
Valuation of Preferred C and Derivative Liability                                 208,177         208,177 
                                              
Series C Preferred dividends   -    -    -    -    -    -    -    (112,547)   (112,547)
                                              
Net loss for the period   -    -    -    -    -    -    -    (345,183)   (345,183)
                                              
Balance December 31, 2020   610,000   $610    -   $-    416,590,136   $416,590   $25,786,662   $(28,454,728)  $(2,250,865)
                                              
Shares issued for services   -    -    -    -    2,560,440    2,560    13,440         16,000 
                                              
Shares issued of common stock and warrants for cash   -    -    -    -    17,500,000    17,500    70,000    -    87,500 
                                             
Shares converted Preferred C shares   -    -    -    -    6,709,100    6,709    58,291    -    65,000 
                                              
Valuation of Preferred C and Derivative Liability   -    -    -    -    -    -    -   -    - 
                                              
Series C Preferred dividends   -    -    -    -    -    -    -    -    - 
                                              
Net loss for the period   -    -    -    -    -    -    -    (213,122)   (213,122)
                                              
Balance March 31, 2021   610,000   $610    -   $-    443,359,676   $443,359   $25,928,393   $(28,667,850)  $(2,295,487)

 

4

 

 

SMARTMETRIC, INC. AND SUBSIDIARY

Condensed Consolidated Statements Of Cash Flows

(Unaudited)

 

   Nine Months   Nine Months 
   Ended   Ended 
   March 31,   March 31, 
  2021   2020 
   (Unaudited)   (Unaudited) 
CASH FLOWS FROM OPERATING ACTIVITIES        
Net loss  $(733,211)  $(620,806)
           
Adjustments to reconcile net loss to net cash used in operating activities:          
Common stock issued and issuable for services   18,926    - 
Non cash financing expense   49,322    - 
Gain (loss) on fair value of derivative liability   112,565    - 
Amortization of debt discount   2,873    - 
           
Changes in assets and liabilities          
Increase (Decrease) in prepaid expenses and other current assets   (1,566)   (3,567)
Increase in accounts payable and accrued expenses   98,298    14,240 
(Decrease) in deferred officer salary   (15,833)   31,667 
Increase in Due to shareholder   -    41,343 
Increase in Convertible interest payable   3,801    - 
Increase in accrued interest payable   39,205    41,752 
           
Net cash used in operating activities   (425,620)   (495,371)
           
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Loans from related parties   (2,817)   2,812 
Proceeds from sale of common stock   219,822    377,398 
Proceeds from CARES Act PPP loan   20,832    - 
Proceeds from sale of Series C Preferred stock   138,000    105,000 
Net cash provided by financing activities   375,837    485,210 
          
NET INCREASE (DECREASE) IN CASH   (49,783)   (10,161)
           
CASH BEGINNING OF PERIOD   71,377    10,161 
           
END OF PERIOD   21,594    - 
           
Non-cash investing and financing activities  $66,000   $142,722 
           
Conversion of 72,600 & 104,000 Preferred C Shares into 21,482,136 & 5,595,339 shares of common stock          
           
CASH PAID DURING THE PERIOD FOR:  $-   $- 
Income taxes  $-   $- 
Interest          

 

The accompanying notes are an integral part of these condensed consolidated financial statements

 

5

 

 

SMARTMETRIC INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 1 ORGANIZATION AND BASIS OF PRESENTATION

 

SmartMetric, Inc. (the “Company” or “SmartMetric”) was incorporated in the State of Nevada on December 18, 2002. SmartMetric’s main product is a fingerprint sensor-activated card with a finger sensor onboard the card and a built-in rechargeable battery for portable biometric identification. This card may be referred to as a biometric card or the SmartMetric Biometric Datacard. SmartMetric has completed development of its card along with pre-mass manufacturing cards but has not yet begun to mass manufacture the biometric fingerprint activated cards.

 

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 nine months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending June 30, 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, 2020, as filed with the Securities and Exchange Commission on October 20, 2020. The consolidated balance sheet as 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 $896,786 for the nine months ended March 31, 2021 and has an accumulated deficit of $28,667,850 at March 31, 2021.

 

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 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.

 

6

 

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates, including, but not limited to, those related to income taxes and contingencies. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates. 

 

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.

 

Recent Accounting Pronouncements

 

The Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company’s results of operations, financial position or cash flow.

 

Loss Per Share of Common Stock

 

In accordance with FASB ASC 260, “Earnings Per Share,” the basic loss per share is computed by dividing the loss attributable to common stockholders by the weighted average number of common shares outstanding during the period. Basic net loss per share excludes the dilutive effect of stock options or warrants and convertible notes. Diluted net earnings (loss) per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents, consisting of shares that might be issued upon exercise of common stock options and warrants. In periods where losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive. As of March 31, 2021 and 2020, 126,618,519  and 30,079,406 dilutive shares were excluded from the calculation of diluted loss per common share, with all dilutive shares being Common stock warrants at March 31, 2021 and 2020, as their effect would be anti-dilutive.

 

Stock-Based Compensation

 

The Company records stock-based compensation in accordance with ASC 718, Compensation – Stock Compensation and ASC 505-50, Equity-Based Payments to Non-Employees. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and 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.

 

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NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Fair value of financial instruments

 

The Company measures fair value in accordance with ASC 820 - Fair Value Measurements. ASC 820 defines fair value and establishes a three-level valuation hierarchy for disclosures of fair value measurements. ASC 820 establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, ASC 820 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by ASC 820 are:

 

Level 1 - Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

 

Level 2 - Inputs (other than quoted market prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.

 

Level 3 - Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. Valuation of instruments includes unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.

 

As defined by ASC 820, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale, which was further clarified as the price that would be received to sell an asset or paid to transfer a liability (“an exit price”) in an orderly transaction between market participants at the measurement date.

 

The reported fair values for financial instruments that use Level 2 and Level 3 inputs to determine fair value are based on a variety of factors and assumptions. Accordingly, certain fair values may not represent actual values of the Company’s financial instruments that could have been realized as of March 31, 2021 or that will be recognized in the future, and do not include expenses that could be incurred in an actual settlement. The carrying amounts of the Company’s financial assets and liabilities, such as cash, accounts receivable, receivables from related parties, prepaid expenses and other, accounts payable, accrued liabilities, and related party and third-party notes payables approximate fair value due to their relatively short maturities. The Company’s notes payable to related parties approximates the fair value of such instrument based upon management’s best estimate of terms that would be available to the Company for similar financial arrangements at March 31, 2021.

 

NOTE 3 PREPAID EXPENSES

 

Prepaid expenses represent the unexpired terms of various consulting agreements as well as advance rental payments. Prepaid expenses at March 31, 2021 were $8,583.

 

NOTE 4 - COMMITMENTS AND CONTINGENCIES

 

Lease Agreement

 

The Company’s main office is in Las Vegas, Nevada. Rent expense under all leases for the nine months ended March 31, 2021 and 2020 was $3,794 and $3,600 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 ($2,817) and $0 as of March 31, 2021 and June 30, 2020, respectively. These advances bear interest at 7.00% per annum.

 

As of March 31, 2021 and June 30, 2020, the Company has accrued the amounts of $744,115 and $759,948, respectively, as deferred Officer’s salary for the difference between the president’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 $188,686 and $149,481 as interest payable as of March 31, 2021 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.

 

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.

 

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NOTE 4 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

 

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 April 17, 2021. 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 was 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 31, 2020, $3,804 of the debt discount was amortized. As of December 31, 2020, all $5,000 of the debt discount was fully amortized and the note was at its full amount of $35,000. As of March 31, 2021, the note has not been paid and currently is in default. The default conversion rate is convertible at a variable rate. Accordingly, the Company concluded there is an embedded derivative which was required to be bifurcated and accounted for as a derivative liability. The Company chose to use the Black Scholes model to calculate the derivative liability. The assumptions in the derivative liability calculation included the price of the Company’s common stock of $0.0070 at the valuation date, term of zero, a risk free rate of between $0.0010 and $0.0011 and a volatility rate of between 337% and 341%.

 

NOTE 6 STOCKHOLDERS’ DEFICIT

 

Preferred Stock

 

As of March 31, 2021, 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 5,000,000 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.

 

9

 

 

NOTE 6 STOCKHOLDERS’ DEFICIT (CONTINUED)

 

Class A Common Stock

 

During the three month period ending December 31, 2019, the Company increased its total number of shares of authorized capital stock to 600,000,000 shares, par value $0.001 per share.

 

Common Stock

 

As of March 31, 2021, the Company had 443,359,676 shares of common stock issued and outstanding.

 

  During the three months ended March 31, 2021, the Company sold 11,000,000 shares of common stock for net proceeds of $59,957. With these issuances the company also issued warrants to purchase: (i) 12,000,000 shares at a price of $0.10 per share and (ii) 12,000,000 shares at a price of $0.20.  The warrants expire at various times through February 4, 2022. None of the 12,000,000 shares were issued during the quarter ended March 31, 2021, and were recognized as stock payable.

 

  During the three months ended March 31, 2021, the Company issued 26,769,540 shares, of which 17,000,000  were issued from stock payable, 6,709,100 were converted from 72,600 Preferred shares and 2,560,440 shares were issued for legal services.

 

  During the three months ended March 31, 2020, the Company sold for cash 9,550,000 shares of common stock and warrants to purchase: (i) 3,500,000 shares at prices ranging from $0.05 per share to $1.00 per share for net proceeds of $66,500. The warrants expire at various times through March 12, 2022. None of these shares were issued during the quarter ended March 31, 2020, with all 9,550,000 shares being recorded as stock payable.  There were 53,700 Preferred C shares converted to 6,384,864 Common shares for the three month period ending March 31, 2020. The Company issued 41,800 preferred shares for net proceeds of $35,000 and another 33,600 preferred shares for which the net proceeds of $30,000 had not been received as of March 31, 2020.    

 

As of March 31, 2020, the Company had 316,875,686 shares of common stock issued and outstanding

 

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 became 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.

 

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NOTE 6 STOCKHOLDERS’ DEFICIT (CONTINUED)

 

Warrants

 

From time to time the Company granted warrants in connection with private placements of securities, as described herein.

 

As of March 31, 2021, and June 30, 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 March 31, 2021:                         
$0.05 - $1.00   126,628,519    1.27   $0.28    126,628,519   $0.28 
                          
Warrants Outstanding and Exercisable at June 30, 2020:                         
$0.05 - $1.00   53,280,406    1.12   $0.33    53,280,406   $0.33 

 

Warrant Activity:

 

March 31, 2021:

 

Outstanding - June 30, 2020   53,280,406 
Issued   90,500,000 
Exercised    
Expired   (17,151,887)
Outstanding - March 31, 2021   126,628,519 

 

March 31, 2020:

 

Outstanding - June 30, 2019   26,526,234 
Issued   10,662,500 
Exercised    
Expired   (7,109,328)
Outstanding - March 31, 2020   30,079,406 

 

At March 31, 2021, all 126,628,519 warrants are vested and all 126,628,519 warrants expire at various times prior to September 21, 2022.

   

NOTE 7 MANDATORY REDEEMABLE CONVERTIBLE PREFERRED STOCK

 

Issuances of Series C Mandatory Redeemable Convertible Preferred Stock

 

On January 10, 2019, the Board of Directors of the Company adopted a resolution pursuant to the Company’s Certificate of Incorporation, as amended, providing for the designations, preferences and relative, participating, optional and other rights, and the qualifications, limitations and restrictions, of the Series C Convertible Preferred Stock.

 

On January 14, 2019, the Company filed a Certificate of Designations for a Series C Convertible Preferred Stock. The authorized number of Series C Convertible Preferred Stock is 1,000,000 shares, par value 0.001. The Series C Preferred Stock will, with respect to dividend rights and rights upon liquidation, winding-up or dissolution, rank: (a) senior with respect to dividends and right of liquidation with the Company’s common stock, (b) junior with respect to dividends and right of liquidation with respect to the Company’s Series B Preferred Stock; and (c) junior with respect to dividends and right of liquidation to all existing indebtedness of the Company. Series C Preferred Stock will carry an annual ten percent (10%) cumulative dividend, compounded daily, payable solely upon redemption, liquidation or conversion. The Company will have a right, at any time in the period of 180 days from the date of the issuance, at the Company’s option, to redeem all or any portion of the Series C Preferred Stock at prices ranging from 105% to 130%, based on the passage of time.

 

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NOTE 7 MANDATORY REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)

 

The number of Series C, mandatory redeemable convertible preferred stock shares issued and outstanding were 149,650 and 117,200, respectively, for March 31, 2021 and June 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. Consequently, the shares were converted at different rates. The Company analyzed the conversion feature and determined it was required to be bifurcated and recognized as a derivative liability. Three batches of Preferred shares were subject to derivative liability valuation based on the Black Scholes Merton pricing model. As the fair value of each of the three 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 $35,000  to be amortized utilizing the effective interest method of accretion over the term of the note.

 

Balance, June 30, 2020:  $42,767 
Unamortized discount originated from derivative liabilities:   (29,585)
Financing costs recorded:   (13,831)
Derivative liability:   1,064 
Preferred stock dividend:   (415)
Balance, March 31, 2021  $-0- 

 

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 March 31, 2021 and 2020 was $119,083 and $106,580 net of discount, respectively. There were 79,200 Preferred C shares issued for net proceeds of $65,000 and 72,600 Preferred C shares converted to 6,709,100 Common shares for the three months ended March 31, 2021.

 

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.

 

NOTE 9 SUBSEQUENT EVENTS 

 

In accordance with ASC 855-10, the Company has reviewed its operations subsequent to March 31, 2021 to the date these financial statements were issued. Between January 1, 2021 and March 31, 2021, the Company issued 26,769,540 shares of common stock. Of this amount, 17,500,000 shares were issued from stock payable, 6,709,100 were converted from Preferred C shares and 2,560,440 shares were issued for legal services.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Overview

 

SmartMetric, Inc. (“SmartMetric” or the “Company”) is a 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 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. These cards are herein sometimes referred to as a biometric card or the SmartMetric Biometric Card.

 

Recent Developments

 

The COVID-19 pandemic 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 5, 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 was expected to 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 would have had 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 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 equalling 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. As of December 31, 2020, the note has not been paid.

 

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.

 

On March 11, 2021 the Company withdrew the Registration Statement pursuant to Rule 477 of the Securities Act of 1933. As a result, the Company cannot avail itself of the benefits of the Equity Financing Agreement.

 

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 going concern.

 

13

 

 

As shown in the accompanying consolidated financial statements the Company has incurred recurring losses of $213,122 for the three month period ending March 31, 2021 and has incurred a cumulative loss of $28,667,850 since inception (December 18, 2002). The Company is currently in the development stage and has spent a substantial portion of its time in the development of its technology.

 

There is no guarantee that the Company will be able to raise enough capital or generate revenues to sustain its operations.  These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

 

Management believes that the Company’s capital requirements will depend on many factors. These factors include the final phase of development and mass production being successful as well as product implementation and distribution.

 

The consolidated financial statements do not include any adjustments relating to the carrying amounts of recorded assets or the carrying amounts and classification of recorded liabilities that may be required should the Company be unable to continue as a going concern. 

 

Effect of Covid-19

 

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.

 

SmartMetric’s commitment to the health and safety of its employees remains our first priority. Our rigorous precautionary measures include the formation of global and regional response teams that maintain contact with authorities and experts to actively manage the situation, restrictions on company travel, quarantine protocols for employees who may have had exposure or have symptoms, frequent disinfecting of our locations and other measures designed to help protect employees, customers and suppliers. We expect to continue these measures until the COVID-19 pandemic is adequately contained for our business.

 

In the near-term, our operating results are going to be challenged due to this crisis. We continue to manage our cost structure to meet the uncertain demand, while making additional cost reductions as needed. Our customers’ businesses are subject to the fluctuations in global economic cycles and conditions and other business risk factors which may impact their ability to operate their businesses. The performance and financial condition of our customers may cause us to alter our business terms or to cease doing business with a particular customer. Further, the potential impact of the COVID-19 pandemic on their businesses could adversely impact our customers’ ability to pay us for work performed, increasing our future estimate of credit losses. 

 

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.

 

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All of the 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.

 

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, 2020 and 2019

 

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 March 31, 2020 and 2020. Net loss for the three months ended March 31, 2021 and 2020 were $213,122 and $173,485, respectively, resulting from the operational activities described below.

 

Operating Expenses

 

Operating expense totaled $199,225 and $154,790 during the three months ended March 31, 2021 and 2020, respectively. The increase in operating expenses is the result of higher consulting expenses.

 

   Quarter Ended
March 31
   Change in 2021
Versus 2020
 
   2021   2020   $   % 
Operating expense                    
Officer salary  $47,500   $47,500   $    (0)%
Research and development   16,822    14,090    2,732    19.4%
General and administrative   134,903    93,200    41,703    44.7%
Total operating expense  $199,225   $154,790   $44,435    28.7%

 

Research and Development

 

Research and development expenses totaled $16,822 and $14,090 for the three months ended March 31, 2021 and 2020, respectively. The increase of $2,732, or 19.4%, in 2021 compared to 2020 was primarily attributable to increased engineering expenses. Our research and development expenses consist primarily of expenditures related to engineering.

 

General and Administrative

 

General and administrative expenses totaled $134,903 and $93,200 for the three months ended March 31, 2021 and 2020, respectively. The increase of $41,703 or 44.7%, in 2021 compared to 2020 was primarily the result of an increase in consulting expenses. Our general and administrative expenses consist primarily of expenditures related to employee compensation, legal, accounting and tax, other professional services, and general operating expenses.

 

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Other Expense

 

Other income (expense) totaled $13,897 and $14,081 for the three months ended March 31, 2021 and 2020, respectively.

 

   Quarter Ended
March 31
   Change in 2021
Versus 2020
 
   2021   2020   $   % 
                 
Gain (loss) on change in derivatives   -0-    -0-    -0-    0.0%
Interest Expense   13,897    14,081    (184)   (1.3)%
Total other (income) expense  $13,897   $14,081   $(184)   (1.3)%

  

Interest income (expense)

 

We had net interest expense of $13,897 in the three months ended March 31, 2021 compared to $14,081 net interest expense for the three months ended March 31, 2020. The decrease of $184 was attributable to a reduction in deferred officer salary.

 

Comparison of the Nine Months Ended March 31, 2021 and 2020

 

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 nine months ending March 31, 2021 and 2020. Net loss for the nine months ended March 31, 2021 and 2020 were $896,786 and $641,383, respectively, resulting from the operational activities described below.

 

Operating Expenses

 

Operating expense totaled $624,867 and $579,075 during the nine months ended March 31, 2021 and 2020, respectively. The increase in operating expenses is the result of higher consulting expenses.

 

   Nine Months Ended
March 31
   Change in 2021
Versus 2020
 
   2021   2020   $   % 
Operating expense                    
Officer salary  $95,000   $95,000   $    (0)%
Research and development   60,761    60,796    (35)   (0)%
General and administrative   421,606    375,779    45,827    12.2%
Total operating expense  $624,867   $579,075   $45,792    7.9%

 

Research and Development

 

Research and development expenses totaled $60,761 and $60,796 for the nine months ended March 31, 2021 and 2020, respectively. The decrease of $35, or 0%, in 2021 compared to 2020 was not material.

 

General and Administrative

 

General and administrative expenses totaled $421,606 and $375,779 for the nine months ended March 31, 2021 and 2020, respectively. The increase of $45,827 or 12.2%, in 2021 compared to 2020 was primarily the result of an increase in consulting expenses. Our general and administrative expenses consist primarily of expenditures related to employee compensation, legal, accounting and tax, other professional services, and general operating expenses.

 

Other Expense

 

Other income (expense) totaled $108,344 and $41,731 for the nine months ended March 31, 2021 and 2020, respectively.

 

   Nine Months Ended
March 31
   Change in 2021
Versus 2020
 
   2021   2020   $   % 
                 
Loss on change in derivatives   62,465    -0-    62,465    100.0%
Interest Expense   45,879    41,731    4,148    9.9%
Total other (income) expense  $108,344   $41,731   $66,213    159.6%

  

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Interest income (expense)

 

We had net interest expense of $45,879 in the nine months ended March 31, 2021 compared to $41,731 net interest expense for the nine months ended March 31, 2021. The increase of $4,148 was attributable to an increase in deferred officer salary.

 

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 $28,667,850 as of March 31, 2021 and anticipate that we will continue to incur additional losses for the foreseeable future. Through March 31, 2021, 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 $25.9 million from inception through March 31, 2021.

 

  

Nine months ended
March 31,

   Change in 2021
versus 2020
 
   2021   2020   $   % 
             
Cash at beginning of period  $71,377   $10,161   $61,216    602.5%
Net cash used in operating activities   425,620    495,371    (69,751)   (14.1%)
Net cash used in investing activities                
Net cash provided by financing activities   375,837    485,210    (109,373)   (22.5)%
Cash at end of period  $21,594   $-0-   $21,594    100.0%

 

Net Cash Used in Operating Activities

 

Net cash used in operating activities was $425,620 and $495,371 for the nine months ended March 31, 2021 and 2020, respectively. The decrease of $69,751 in cash used during 2021 compared to 2020 was primarily attributable to a decrease in consultant costs.

 

Net Cash Used in Investing Activities

 

Cash used in investing activities was $0 and $0 for the nine months ended March 31, 2021 and 2020, respectively.

 

Net Cash Provided by Financing Activities

 

During the nine months ended March 31, 2021, net cash provided by financing activities was 375,837, compared to $485,210 for the nine months ended March 31, 2020. The decrease of $109,373 was due to lower sales of the Company’s securities in private placements. We continue to seek funding through private placement sales of equity 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 agreed 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 was 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 under the agreement. Nevertheless, on March 11, 2021 the Company withdrew the Registration Statement pursuant to Rule 477 of the Securities Act of 1933. As a result, the Company cannot avail itself of the benefits of the agreement with the Investor.

 

On March 5, 2020, the Company issued a $35,000 10% convertible note to the investor in relation to the equity financing agreement. The note was 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 31, 2020, $3,804 of the debt discount was amortized. As of March 31, 2021, all $5,000 of the debt discount was fully amortized and the note was at its full amount of $35,000. As of March 31, 2021, the note has not been paid and currently is in default.

 

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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 principal executive officer and 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.

 

In connection with the preparation of this Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(c) and 15d-15(e) under the Exchange Act) are not effective to ensure that information required to be disclosed by us in report that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms and to ensure that 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 Chief Executive Officer, as appropriate to allow timely decisions regarding required disclosure.

 

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 and that there are material weaknesses as identified herein, we believe that our condensed consolidated financial statements contained in this Quarterly Report fairly present our financial position, results of operations and cash flows for the periods covered thereby in all material respects.

 

Changes in Internal Controls

 

During the three months ended March 31, 2021, 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.

 

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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, 2020 filed with the Commission on October 20, 2020 and our subsequent filings with the 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 Commission.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

The following information is given with regard to unregistered securities sold since January 1, 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 March 31, 2021, the Company sold 11,000,000 shares of Common Stock for net proceeds of $59,957. With these issuances the Company also issued warrants to purchase: (i) 12,000,000 shares at a price of $0.10 per share and (ii) 12,000,000 shares at a price of $0.20. The warrants expire at various times through February 4, 2022. These securities were issued in reliance upon Section 4(a)(2) of the Securities Act as a transaction by an issuer not involving a public offering.

 

Additionally, during the three months ended March 31, 2021:

 

o2,560,440 shares of the Common Stock were issued in consideration of legal services in reliance upon Section 4(a)(2) of the Securities Act as a transaction by an issuer not involving a public offering; and

 

o6,709,100 shares of Common Stock were converted from 72,600 Series C Preferred Stock. Such shares were issued in transactions exempt from registration under the Securities Act of 1933, as amended, by virtue of Section 3(a)(9) thereof, because no commission or other remuneration was paid in connection with conversion of the shares of Series C Preferred Stock.  

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

On March 5, 2020, the Company issued a $35,000 10% convertible note to the investor in relation to the equity financing agreement. The note was 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 31, 2020, $3,804 of the debt discount was amortized. As of March 31, 2021, all $5,000 of the debt discount was fully amortized and the note was at its full amount of $35,000. As of March 31, 2021, the note has not been paid and currently is in default.

 

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not Applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

 

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ITEM 6. EXHIBITS

 

INDEX TO EXHIBITS

 

     

Filed or

Furnished

  Incorporated by Reference
Exhibit No.  Description  Herewith  Form  Exhibit No.  Filing Date
                
3.01  Articles of Incorporation of SmartMetric, Inc. filed 12/18/02     SB-2  3.1  9/3/04
                
3.02  Amendment to Articles of Incorporation dated 12/11/09     8-K  3.1  12/18/09
                
3.03  Amendment to Articles of Incorporation dated June 8, 2016     10-K  3.5  9/28/16
                
3.04  Certificate of Designation of Series B Preferred Stock     8-K  3.2  12/18/09
                
3.05  Amendment to Certificate of Designation of Series B Preferred Stock dated 11/5/14     10-Q  3.1  11/14/14
                
3.06  Amendment to Certificate of Designation of Series B Preferred Stock dated 6/8/16     10-K  3.4  9/28/16
                
3.07  Amended and Restated Bylaws of SmartMetric     8-K  3.1  4/26/16
                
3.08  Series C Preferred Stock Certificate of Designations dated 1/14/19     8-K  3.1  1/18/19
                
31.1  Certification by the Principal Executive Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)).  X         
                
31.2  Certification by the Principal Financial Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)).  X         
                
32.1*  Certification by the Principal Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *  X         
                
32.2*  Certification by the Principal Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *  X         
                
101.INS  XBRL Instance Document  X         
                
101.SCH  XBRL Taxonomy Extension Schema Document  X         
                
101.CAL  XBRL Taxonomy Extension Calculation Linkbase Document  X         
                
101.DEF  XBRL Taxonomy Extension Definition Linkbase Document  X         
                
101.LAB  XBRL Taxonomy Extension Label Linkbase Document  X         
                
101.PRE  XBRL Taxonomy Extension Presentation Linkbase Document  X         

  

* In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed

 

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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:  May 18, 2021 By: /s/ Chaya Hendrick
   

Chaya Hendrick, President,

Chief Executive Officer and Chairman

(Principal Executive Officer)

     
Dated:  May 18, 2021 By: /s/ Jay Needelman
    Jay Needelman, Chief Financial Officer
(Principal Financial Officer)

 

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