UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

AMENDMENT NO.1 TO
FORM SB-2

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

SMARTMETRIC, INC.
(Name of small business issuer in its charter)


Nevada
334610
05-0543557
(State or jurisdiction of incorporation or organization)
(Primary Standard Industrial Classification Code Number)
(I.R.S. Employer Identification No.)


67 Wall Street, 22 nd Floor, New York, New York 10005 (212) 859-5007
(Address and telephone number of principal executive offices)

67 Wall Street, 22 nd Floor, New York, New York 10005 (212) 859-5007
(Address of Principal place of business or intended principal Place of business)

Schonfeld & Weinstein, L.L.P., 80 Wall Street, Suite 815, New York, NY 10005 (212) 344-1600
(Name, address, and telephone number of agent for service)

Copies to:

Andrea I. Weinstein, Esq.
Schonfeld & Weinstein, L.L.P.
80 Wall Street, Suite 815
New York, New York 10005
Phone: (212) 344-1600
Fax: (212) 480-0717


Approximate date of proposed sale to the public as soon as practicable after the effective date of this Registration Statement and Prospectus.

If any of the securities being registered on this Form are being offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. X

  
     

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, (the "Securities Act") or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.


CALCULATION OF REGISTRATION FEE


Title of Each
Class of Securities
Amount Being
Registered
Proposed Maximum offering Price per share
Proposed Maximum Aggregate Offering Price (1)
Amount of Registration Aggregate Fee
 
 
 
 
 
Common Stock
4,000,000
$1.50
$ 6,000,000
$ 760.20
         
Class A Common Stock by selling shareholders
3,000,000
$1.50
$ 4,500,000
$ 570.15
         
Common Stock
by selling shareholders
8,628,464
$1.50
$12,942,696
$1,639.84
         
Total
15,628,464
$1.50
$23,442,696
$2,970.19



(1) Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457.
 

  
     

 

Cross Reference Sheet
Showing the Location In Prospectus of
Information Required by Items of Form SB-2

Part I. Information Required in Prospectus

 
Item No.
 
Required Item
 
Location or Caption
     
1.
Front of Registration Statement
Front of Registration
 
and Outside Front Cover of
Statement and outside
 
Prospectus
front cover of Prospectus
     
2.
Inside Front and Outside Back
Inside Front Cover Page
 
Cover Pages of Prospectus
of Prospectus and Outside
 
 
Front cover Page of Prospectus
     
3.
Summary Information and Risk
Prospectus Summary;
 
Factors  
High Risk Factors
     
4.
Use of Proceeds
Use of Proceeds
     
5.
Determination of Offering
Prospectus Summary -
 
Price
Determination of Offering
 
 
Price; Risk Factors
     
6.
Dilution
Dilution
     
7.
Selling Security Holders
Selling Security Holders
     
8.
Plan of Distribution
Plan of Distribution
     
9.
Legal Proceedings
Legal Proceedings
     
10.
Directors, Executive Officers,
Management
 
Promoters and Control Persons
 
     
11.
Security Ownership of Certain
Principal Shareholders
 
Beneficial Owners and Management
 
     
12.
Description of Securities
Description of Securities
     
13.
Interest of Named Experts and
Legal Opinions; Experts;
 
Counsel
 
     
14.
Disclosure of Commission Position
Statement as to
 
on Indemnification for Securities
Indemnification
 
Act Liabilities
 
     
15.
Organization Within Last
Business
 
Five Years
 
     
16.
Description of Business
Business
     
17.
Management's Discussion and
Management's Discussion and
 
Analysis or Plan of
Analysis of Financial Condition
 
Operation
 
     
18.
Description of Property
Not Applicable
     
19.
Certain Relationships and Related
Certain Transactions
 
Transactions
 
     
20.
Market for Common Stock and
Prospectus Summary
 
Related Stockholder Matters
 
     
21.
Executive Compensation
Executive Compensation
     
22.
Financial Statements
Financial Statements

  
     

 

PROSPECTUS

SMARTMETRIC, INC.
(a Nevada corporation)

SmartMetric is offering for sale a minimum of 333,333 shares, par value $.001 (the “Minimum Offering”) and a maximum of 4,000,000 shares (the “Maximum Offering”) of common stock of SmartMetric, Inc., a Nevada corporation (“SmartMetric”) at $1.50 per share. The shares shall be sold exclusively by SmartMetric in a self-underwritten offering on a best efforts basis with a minimum requirement to sell 333,333 shares for a period of ninety (90) days and may be extended for an additional ninety (90) days at SmartMetric’s option, however SmartMetric reserves the right to retain registered broker-dealers for this offering. All investment proceeds will be held in escrow until the Minimum Offering is raised. If the Minimum Offering has not been sold within the first ninety days, the offering may be extended an additional ninety days. In the event SmartMetric does not raise the Minimum Offering during this time period, all escrowed funds shall be returned to investors. The securities offered are not listed on any securities exchange or on the Nasdaq stock market.

This offering also relates to 11,628,464 shares being offered by selling shareholders, 3,000,000 of which are Class A common stock. Selling shareholders will sell at a fixed price of $1.50 per share until our common stock is quoted on the Over-the-Counter Bulletin Board, after which they will sell their common stock at prevailing market rates or privately negotiated prices.

The offering price of $1.50 per share has been arbitrarily determined by the Company.


 
 
 
 
Per Share
Price to the Public
Minimum offering
Proceeds to
SmartMetric
Maximum Offering
Proceeds to
SmartMetric
 
$1.50
 
$499,999.50
 
$6,000,000
 
Proceeds to SmartMetric
Before offering costs
 
$1.50
 
$499,999.50
 
$6,000,000
 
     

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
 
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE ____ IN THIS
PROSPECTUS.

The date of this Prospectus is __________________.

This offering will terminate on ____________, but may be extended for an additional ninety (90) days at SmartMetric’s option.

  
     

 


TABLE OF CONTENTS
 
   
 
Page #
   
PROSPECTUS SUMMARY
 
   
RISK FACTORS
 
   
USE OF PROCEEDS
 
   
CAPITALIZATION
 
   
DILUTION
 
   
MANAGEMENT'S DISCUSSION AND
 
ANALYSIS OF FINANCIAL CONDITION
 
   
BUSINESS
 
   
MANAGEMENT
 
   
PRINCIPAL SHAREHOLDERS
 
   
DESCRIPTION OF SECURITIES
 
   
SHARES ELIGIBLE FOR FUTURE SALE
 
   
SELLING SHAREHOLDERS
 
   
CERTAIN TRANSACTIONS
 
   
LEGAL MATTERS
 
EXPERTS
 
   
SMARTMETRIC, INC. FINANCIAL STATEMENTS
 
   

 




  
     

 

PROSPECTUS SUMMARY

The following is a summary of certain information contained in this prospectus and is qualified by the more detailed information and consolidated financial statements (including notes thereto) appearing elsewhere in this prospectus. Investors should carefully consider the information set forth under the heading "Risk Factors". Unless otherwise indicated, the capital structure, the number of shares outstanding and the per share data and information in this Prospectus have been adjusted to give effect to the merger described herein.

SmartMetric, Inc.

SmartMetric was incorporated pursuant to the laws of Nevada on December 18, 2002. SmartMetric is a development stage company engaged in the technology industry. SmartMetric has a license to utilize proprietary technology to manufacture and sell a fingerprint sensor activated card with a finger sensor on the board card, itself. The SmartMetric SmartCard is a credit card size plastic card embedded with an integrated circuit chip and biometric fingerprint sensor, which provides identification of the user. It can also be used to store information. This card may be referred to as a “biometric card” or the SmartMetric “SmartCard.” There is a patent pending for the SmartMetric SmartCard. The technology and use covered by this patent pending has been licensed to SmartMetric. The company intends to begin to outsource the manufacturing of its SmartCards with the proceeds of this offering.

On October 30, 2003, SmartMetric entered into an agreement with Information Spectrum, Inc., a corporation located in Annandale, Virginia. Information Spectrum, Inc. shall hereinafter be referred to as ISI. Pursuant to this agreement, ISI shall market SmartMetric SmartCards and a SmartCard reading device. Neither prices, nor division of expenses or profits has been determined; before submitting each proposal to the prospective purchaser SmartMetric and ISI shall enter into a separate agreement defining the parties’ respective rights and obligations concerning that particular opportunity.

The executive offices of SmartMetric are located at 67 Wall Street, 27 th Floor, New York, New York 10005. The telephone number is (212) 859-5007.

Our Strategy

SmartMetric seeks to position itself as a producer of various identity cards utilizing its licensed technology and providing such cards to government agencies, corporations and organizations interested in identification cards.

Plan of Distribution

We are offering our common stock on a best efforts basis with a minimum requirement to sell 333,333 shares. This is a self-underwritten offering; we do not have agreements with any underwriters for the sale of our common stock, although we may enter into such agreements at a later date.

The Offering

SmartMetric is offering a minimum of 333,333 shares and a maximum of 4,000,000 shares of common stock at $1.50 per share. This offering price has been arbitrarily determined. The shares shall be sold by SmartMetric’s officers and directors, although the Company may decide to engage the service of a registered broker-dealer. All investment proceeds from this offering will be held in escrow until the Minimum Offering is raised.

Certain selling shareholders are offering 11,628,464 shares of common stock at $1.50 per share; 3,000,000 of these shares are Class A common stock.

There are currently 58,628,464 shares of common stock outstanding of which 50,000,000 are Class A common stock. Class A common stock is identical in all respects to the other, undesignated class of common stock. Unless otherwise indicated, both the Class A common stock and the common stock shall collectively be referred to as “common stock.” There will be 58,961,797 shares outstanding if the minimum offering is sold and 62,628,464 shares if the maximum offering is sold.

Risk Factors

The securities offered hereby are highly speculative and involve a high degree of risk. Carefully review and consider the factors set forth under “Risk Factors” as well as all other information contained herein.

Use of Proceeds

The proceeds from this offering before offering costs, which are $499,999.50 in the minimum offering and $6,000,000 in the maximum offering, will be used to complete a SmartCard prototype, to contract with a third party to begin manufacturing our SmartCards, for marketing, working capital and offering costs.
 
 
RISK FACTORS

Investment in the securities offered hereby involves a high degree of risk. Prospective investors should carefully consider, together with the other information appearing in this prospectus, the following factors, among others, in evaluating SmartMetric and its business before investing in SmartMetric.

SmartMetric will rely on key existing and future personnel, the loss of whom could negatively impact our ability to conduce a successful business.

SmartMetric's success will depend to a large degree upon the efforts and abilities of Colin Hendrick, Chief Executive Officer, President and Chairman of the Board of SmartMetric. The loss of the services of Mr. Hendrick could have a material adverse effect on SmartMetric's business prospects and potential earning capacity. SmartMetric has entered into a one year employment agreement with Mr. Hendrick, after which Mr. Hendrick may choose not to continue his employment with SmartMetric. SmartMetric currently has no key person life insurance on Mr. Hendrick. SmartMetric will need to recruit and retain additional members of senior management to manage anticipated growth, but may be unable to do so on terms suitable to SmartMetric.

As of the date of this prospectus, we have no product for sale and have yet to produce a prototype.

SmartMetric was incorporated on December 18, 2002. To date, we have been engaged in research and development primarily in the design and production of a SmartCard prototype. We have yet to produce a prototype and have no product for sale. We will not achieve any sales revenues until our prototype is complete and ready to be marketed. Although we plan to use the proceeds of this offering to engage in marketing and outsource production of our SmartCards, such efforts may not be successful.

Even if we are successful in developing our business and gaining market acceptance, we may not become profitable. Further, we may be unable to find a manufacturer to successfully manufacture our biometric card and even if we do, our SmartCard may not gain market acceptance.

We expect to incur significant start up costs, which could delay the commencement of our operations.

SmartMetric expects to incur significant start-up costs in connection with manufacturing and marketing the SmartMetric biometric card. The Company estimates such start up expenses at $300,000, which includes completion of the SmartCard prototype and costs associated with manufacturing. As of December 31, 2004, we have incurred net losses of $52,768 and we anticipate that we will incur additional losses in the future. The extent of these losses will be dependent, in part, on our ability to successfully market our products, and the costs involved in outsourcing production of our SmartCards. In the event start up costs exceed our expectations, we may have to raise additional funds which could delay the commencement of our operations.

Current SmartMetric shareholders, including our president and chief executive officer, will own a majority of the shares after the offering and as a result, will still control the Company which means that investors in this offering will have little influence over how the Company is managed.

After the minimum offering, the current shareholders of SmartMetric will control the vote of 99.4% of SmartMetric's issued and outstanding common shares and after the maximum offering, current shareholders will control 93.6% of SmartMetric’s issued and outstanding shares. As a result, the former SmartMetric shareholders will have the ability to control the outcome of substantially all issues submitted to shareholders.

An investment in SmartMetric stock will result in an immediate dilution of $1.49 in the Minimum Offering and $1.41 in the Maximum Offering which means that your investment will initially be worth less than the amount you are paying for it .

The holders of the restricted common shares of SmartMetric have acquired their interest in SmartMetric at an average cost per share which was significantly less than that which the public investors paid for their securities. Consequently, the public investors’ investment will be immediately diluted. Further, the public investors will bear the majority of the risk of any loss that may be incurred in SmartMetric's operations.

There is no public market for our securities and investors may be unable to sell their shares, which could result in the loss of their investments.

SmartMetric intends to apply for listing of its common stock on the Nasdaq Over-the- Counter Bulletin Board. However, to date, there is no public trading market for our common stock. If such a market does develop, the price of SmartMetric’s common stock may be volatile. Thus, investors run the risk that they will never be able to sell their shares or, if they are able to sell them, the price may be lower than the initial purchase price. No potential market makers have been solicited by SmartMetric, and SmartMetric may be unable to find any brokers willing to make a market in SmartMetric’s securities.

We will need additional financing which could dilute the interests of current shareholders.

If we raise less than the maximum offering, we expect to seek an additional $2,000,000 to $3,000,000 within 12 to 24 months after completion of this offering, depending on how much money we raise in this offering. Such financing could take the form of bank financing or other debt or equity securities in public or private financing. Any such financing could dilute the interest of current shareholders. Such additional financing may not be available or, if it is available, it may not be in such amounts or on terms satisfactory to SmartMetric.

We will face intense competition from better-known and/or better-funded companies which could result in our failure to realize lower than expected sales revenues .

The market for companies involved in security technology is fragmented and highly competitive, and competition is increasing substantially. SmartMetric will be competing with other technology companies both regionally, nationally and internationally. Other competitors, some of which may have greater financial and other resources than SmartMetric, may also enter the markets in which SmartMetric currently operates or intends to expand. We may be unable to compete successfully against these competitors.

We will be depending on qualified personnel and key individuals, none of whom have worked with publicly traded companies before and may not be able to adequately manage certain responsibilities of publicly traded companies which could adversely effect our operations and/or stock price.

None of our officers or directors has any experience working with publicly traded companies and it is possible that they will not be qualified to run a publicly owned company. Their inability to successfully manage SmartMetric’s business and the responsibilities of a publicly traded company could adversely affect our ability to obtain a large customer base and, as a result, our profitability and stock price.

Our business model is based on a product for which we have not yet produced a prototype and, as a result, we cannot be certain the product will function as we expect it to, in which case we will have to invest additional funds into research and development.

Our business plan revolves around sales of the SmartMetric SmartCard which we believe will permit identity and transaction control verification and which, through its fingerprint sensor, we believe will facilitate instant authorization verification. We have licensed patent-pending technology for this purpose. However, while the prototype design is completed, further engineering is required to produce a prototype of this SmartCard. We may be unable to produce such prototype or, if produced, it is possible that the prototype will not function as expected. In the event it does not, we will have to invest additional funds into research and development.

If we sell less than the Maximum Offering, we will not be able to effectively market our SmartCard or produce it in large quantities which could result in low sales and a possible need to finance production of the SmartCards.

SmartMetric is seeking to raise a minimum of $499,999.50 and a maximum of $6,000,000. The Company believes that with the maximum offering proceeds, it will be able to effectively market the Smartmetric SmartCards in addition to paying the costs involved with outsourcing production of the SmartCards. Sales of less than the Maximum Offering will force us to greatly reduce our marketing efforts which could result in lower sales, and which may prohibit us from producing SmartCards in cost-effective quantities and may necessitate the need to finance production of our SmartCards.

Information Spectrum, Inc. may be unsuccessful in marketing SmartMetric’s SmartCards in which case we will have to seek a new marketing company or self market our SmartCard which could delay any potential sales revenues.

In October 2003, SmartMetric entered into an agreement with Information Spectrum, Inc. or ISI, pursuant to which ISI has agreed to market SmartMetric’s SmartCards by generating interest in credential cards and card production systems incorporating SmartMetric’s proprietary technology. ISI is the exclusive reseller of SmartMetric products to agencies of the United States and Canadian governments.

To date, ISI has not begun its marketing efforts. In the event ISI is unable to locate companies interested in purchasing SmartMetric’s products, SmartMetric will be forced to find another marketing partner or start to market its products on its own, which could delay potential sales revenues.

Failure to agree upon the terms of one or more “Teaming Agreements” with ISI could result in the loss of sales opportunities to SmartMetric.

The agreement between ISI and SmartMetric states that ISI and SmartMetric must enter into a Teaming Agreement prior to ISI submitting a formal proposal to a potential SmartMetric customer. A Teaming Agreement will outline each party’s rights with respect to each individual proposal. Failure of SmartMetric and ISI to enter into any particular Teaming Agreement will result in the loss of potential sales opportunities and revenues to SmartMetric.

SmartMetric’s patented technology may infringe upon patents issued to third parties, subjecting SmartMetric to the cost of defending the patent and possibly requiring SmartMetric to stop using the technology or to license it from another party.

In August 2004, Applied Cryptology, Inc., licensed patent-pending technology to SmartMetric. SmartMetric depends on such technology in the building of its SmartCard. The patent was granted on September 14, 2004. However, this patent may infringe on others, in which case SmartMetric may be forced to defend the patent or possibly stop using it or license it from a third party, which could cost SmartMetric a lot in legal fees and which could possibly prevent SmartMetric from selling its SmartCard.

Third parties may infringe on the patent in which case SmartMetric would bear the cost of enforcing the patent.

Although a patent was issued for the technology we license from Applied Cryptology, third parties may infringe on the patent. Such infringement would result in SmartMetric bearing the cost of enforcing the paten tan could reduce funds SmartMetric intended to spend on marketing or producing its SmartCards.

SmartMetric may have difficulty selling shares in this offering as selling shareholders may in effect compete with SmartMetric for investors.

While SmartMetric is offering for sale a minimum of 333,333 shares and a maximum of 4,000,000 shares, at the same time, selling shareholders are offering for sale 11,628,464 shares. As a result, selling shareholders may be competing with SmartMetric for investors, which could result in less money being invested in the Company. Further, if SmartMetric’s shares are listed on an exchange before the Maximum Offering is sold, and if the price of SmartMetric’s shares declines, investors may be able to obtain shares from selling shareholders at a lower price than SmartMetric’s price of $1.50 per share.

The shares being offered are “penny stocks” which are associated with such risks as price fluctuations, additional disclosure requirements and lack of a liquid market. These risks could result in investors finding it difficult to sell their shares.

Broker-dealer practices in connection with transactions in "penny-stock" are regulated by certain penny stock rules adopted by the Securities and Exchange Commission. Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system). The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure regarding penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer's account. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from such rules the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for a stock that becomes subject to the penny stock rules. Such factors could result in SmartMetric selling less than the Minimum Offering and investors finding it difficult to sell their shares.


USE OF PROCEEDS

The gross proceeds of SmartMetric’s minimum offering will be $499,999.50 and the gross proceeds of its maximum offering will be $6,000,000. The following table sets forth management’s proposed use of proceeds. However, the Company retains the right to apply these proceeds in any manner in which it sees fit:


Application of Proceeds
Minimum Offering ($499,999.50)
50% of the Offering
($3,000,000)
Maximum Offering ($6,000,000)
 
 

 

 
Complete Prototype of SmartCard (1)
$100,000
$ 100,000
$ 100,000
       
Outsource Production of SmartCards
$100,000
$1,200,000
$2,400,000
       
Marketing
$ 50,000
$ 825,000
$1,650,000
       
Officer’s salary (2)
$ 70,000
$ 170,000
$ 170,000
       
Working capital
$ 32,042.50
$ 557,043
$1,532,043
       
Offering Costs
$147,957
$ 147,957
$ 147,957
       
Total
$499,999.50
$3,000,000
$6,000,000
 
     
(1)   While the   prototype design is completed, further engineering is necessary to complete the prototype.

(2)   This money may be paid to Colin Hendrick from the proceeds of this offering. (See Summary Compensation Table.)


CAPITALIZATION

The following table sets forth the capitalization at December 31, 2004 and as adjusted to give effect to the sale of certain assumed numbers of shares sold in this offering. This table should be read in conjunction with the financial statements and related notes included elsewhere in this prospectus.

 
 
 
As Adjusted
     
       
     
Minimum Offering
50% of the
Offering
Maximum Offering
   
Actual
($500,000)
($3,000,000)
($6,000,000)
   
 

  

 

 
Long - term debt
$
-
$
-
$
-
$
-
                   
Stockholders’ equity:
               
Preferred stock, $.01 per value;
               
 
5,000,000 shares authorized,
               
 
no shares issued
 
-
 
-
 
-
 
-
Class A common stock; $.001 par
               
 
value; authorized issued and
               
 
outstanding 50,000,000 shares
 
50,000
 
50,000
 
50,000
 
50,000
Common stock, $.001 par value;
               
 
authorized 45,000,000 shares,
               
 
issued and outstanding
               
 
8,628,464, 8,961,797,
               
 
10,628,464 and 12,628,464
               
 
shares, respectively
 
8,628
 
8,962
 
10,628
 
12,628
Additional paid-in capital
 
135,233
 
486,942
 
2,985,276
 
5,983,276
Deficit accumulated during the
               
 
development stage
 
(97,338)
 
(97,388)
 
(97,388)
 
(97,388)
                   
Total stockholders’ equity
 
96,523
 
448,566
 
2,948,566
 
5,948,566
                   
Total Capitalization
$
96,523
$
448,566
$
2,948,566
$
5,948,566

 

DILUTION


At December 31, 2004, SmartMetric had a net tangible book value of $1,163 or $.00 per share of common stock. Net tangible book value per share is equal to SmartMetric's tangible assets less its total liabilities, divided by the number of shares of common stock outstanding on such date.

If we sell only the Minimum Offering under this Prospectus at the offering price of $1.50 per share, after deducting estimated unpaid costs of this offering, our proforma net tangible book value as of December 31, 2004 would be $433,206 or $.01 per share of common stock based on the 58,961,797 shares that would be outstanding. This represents an immediate increase in the net tangible book value per share to our existing shareholders of $.01 per share and an immediate dilution of $1.49 per share to those who purchase shares in this offering.

If we sell 50% of the Maximum Offering under this Prospectus, our proforma net tangible book value as of December 31, 2004 would be $2,937,206 or $.05 per share of common stock based on the 60,628,464 shares that would be outstanding. This represents an immediate increase in the net tangible book value per share to our existing shareholders of $.05 per share and an immediate dilution of $1.45 per share to those who purchase shares in this offering.

If we sell the Maximum Offering under this Prospectus, our proforma net tangible book value as of December 31, 2004 would be $5,933,206 or $.09 per share of common stock based on the 62,628,464 shares that would be outstanding. This represents an immediate increase in the net tangible book value per share to our existing shareholders of $.09 per share and an immediate dilution of $1.41 per share to those who purchase shares in this offering.

The following illustrates the per share dilution to new investors based on certain assumed numbers of shares sold in this offering:


 
Minimum Shares Sold
50% Maximum Shares sold
Maximum Shares Sold
   
 
 
Public offering price per share
$1.50
$1.50
$1.50
Net tangible book value per share before offering
$ .00
$ .00
$ .00
Increase per share attributable to new investors in this offering
$ .01
$ .05
$ .09
Net tangible book value per share after offering
$ .01
$ .05
$ .09
Dilution per share to new investors
$1.49
$1.45
$1.41
         

The following table sets forth the difference between the price paid by our existing shareholders and the price to be paid by new investors in this offering based on certain assumed numbers of shares sold in this offering.
 
Minimum
Shares
Sold
Number of Shares Purchased
% of Class
Total Consideration
% of Total Consideration
Average Price Per Share
 

 

 
 

 
 
Existing Shareholders
58,628,464
99.4 %
$193,861
27.9 %
$.00
           
Public Shareholders
333,333
0.6 %
$500,000
72.1 %
$1.50
           
Total
58,961,797
100 %
$693,861
100 %
$0.01



50% Maximum
Shares Sold
Number of Shares Purchased
% of Class
Total Consideration
% of Total Consideration
Average Price Per Share
 
 
 
 
 
 
Existing Shareholders
58,628,464
96.7%
$ 193,861
6.1%
$.00
           
Public Shareholders
2,000,000
3.3%
$3,000,000
95.7%
$1.500
           
Total
60,628,464
100 %
$3,193,861
100%
$.05



Maximum
Shares
Sold
Number of Shares Purchased
% of Class
Total Consideration
% of Total Consideration
Average Price Per Share
 
 
 
 
 
 
Existing Shareholders
58,628,464
93.6 %
$ 193,861
3.1%
$.00
           
Public Shareholders
4,000,000
6.4%
$6,000,000
96.9%
$1.50
           
Total
62,628,464
100 %
$6,193,861
100%
$.01


PLAN OF DISTRIBUTION

SmartMetric is offering up to 4,000,000 shares of common stock at $1.50 per share, which price has been arbitrarily determined by SmartMetric. SmartMetric has not yet determined how it will advertise the offering. We have no arrangements with any third party to host or access the party preliminary prospectus on the Internet.

Changes in terms of the offering.

Changes in the material terms of the offering after the registration statement’s effective date will terminate the original offer. Investors would then be entitled to a refund. Example of material changes include:

·   Extension of the offering period;
·   Change in the offering price;
·   Change in the minimum purchase required of investors;
·   Change in the amount of proceeds necessary to release the proceeds in escrow;
·   Change in application proceeds.

SmartMetric proposes to offer the shares directly on a best efforts basis with a minimum requirement to sell 333,333 shares. In the event SmartMetric does not sell the Minimum Offering within the Offering Period, SmartMetric will refund the escrowed funds by the next business day or as soon as possible after the offering’s termination. While SmartMetric reserves the right to sell its securities through registered broker-dealers, it has no commitments to do so. SmartMetric has no plans to sell the offering through registered broker-dealers and has not determined the circumstances under which these plans would change. In the event registered broker-dealers are engaged, SmartMetric contemplates paying a commission of 10% of securities sold by such broker-dealers. All offering proceeds will remain in escrow until the minimum offering is raised.

As of the date of this prospectus, no broker has been retained by the company in connection with the sale of securities being offered hereby. In the event a broker who may be deemed an underwriter is retained by SmartMetric, an amendment to SmartMetric's registration statement will be filed with the Securities and Exchange Commission.

Colin Hendrick, Peter Sleep, Joseph Katzman, Applied Cryptology or any other affiliate of SmartMetric may each purchase up to 10,000 shares to meet the required 333,333 shares. Each such person, however, must purchase such shares for investment purposes and not for resale.

There is no minimum or maximum purchase requirement. Subscription proceeds received by SmartMetric shall be placed in an escrow account with Signature Bank until the minimum offering is achieved, after which proceeds shall be released directly to SmartMetric. If the minimum offering is not sold by the end of the offering period, or extended offering period if so extended, all escrowed proceeds shall be returned to investors.

This offering will be sold by SmartMetric’s offices and directors, none of whom are registered broker-dealers. The officers and directors are in compliance with the Rule 3a4-1 under the Securities Exchange Act of 1934 (the “Exchange Act”) and are not deemed to be brokers because, although they are associated persons they

(1)   are not subject to a statutory disqualification, as that term is defined in Section 3(a)(39) of the Act; and

(2)   are not compensated in connection with their participation by the payment of commissions or other remuneration based either directly or indirectly on transactions in securities; and

(3)   are not at the time of their participation an associated person of a broker or dealer; and

(4)   they meet the following conditions:

(A)   they perform substantial duties on behalf of SmartMetric otherwise than in connection with transactions in securities;

(B)   were not broker- dealers of associated persons of broker-dealers within the preceding 12 months; and

(C)   they do no participate in selling a offering of securities for any issuer more than once every 12 months other than in reliance on paragraph (a)(4)(i) or (a)(4)(iii) of Rule 3a4-1, except that for securities issued pursuant to Rule 415 under The Securities Act of 1933, the 12 months shall begin with the last sale of any securities including within and Rule 415 registration.


SUMMARY FINANCIAL INFORMATION

The following is a summary of our Financial Information for the period indicated and should be read in conjunction with "Management's Discussion and Analysis of Financial Condition" and the Financial Statements including the notes thereto included in this prospectus.

 
Six Months
 
Period December 18
 
Ended December 31,
Year Ended
2002 to
 
2004
2003
June 30, 2004
June 30, 2003
 
 

 

 
 
Statement of Operations Data:
(Unaudited)
   
         
Total revenues…………………..
$0
$0
$0
$0
Net income (loss)……………….
$(61,300)
$(061)
$(35,978)
$(60)
Net income (loss) per share…….
$(0.00)
$(0.00)
$(0.00)
$(0.00)
Weighted average number of
       
common shares outstanding…….
58,594,361
$25,000,000
58,628,464
      -



 
As Adjusted Assuming
   
 
     
50% of
 
   
Minimum
Maximum
Maximum
 
Actual
Shares Sold
Shares Sold
Share Sold
   
 
 
 
Balance Sheet Data (December 31, 2004):
     
         
Working capital…………..
$ 1,163
$433,206
$2,933,206
$5,933,206
         
Cash and cash equivalents..
$ 32,190
$464,233
$2,964,233
$5,973,235
         
Total assets……………….
$128,950
$489,953
$2,980,
$5,989,227
         
Total liabilities……………
$ 32,427
$ 32,457
$ 32,457
$ 32,457
         
Shareholders' equity……...
$ 96,523
$448,566
$2,948,566
$5,948,566

 
 
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

SmartMetric was incorporated in the State of Nevada on December 18, 2002 to serve as a developer of identity management products. SmartMetric has been engaged in research and development of a biometric security solution, which can authenticate the identity of an individual in a self-contained credit card-sized device. SmartMetric refers to this device as a “biometric card” or a “SmartCard.” SmartMetric’s CEO, Colin Hendrick, has several patents pending for this biometric card. A company controlled by Mr. Hendrick has granted SmartMetric a license to use, market and distribute this patent-pending technology.

The following presentation of management's discussion and analysis of SmartMetric's financial condition should be read in conjunction with SmartMetric's financial statements and notes thereto, as well as other financial information contained in this prospectus.

Overview

Incorporated in 2002, SmartMetric and its founder and CEO, Colin Hendrick, have been engaged in research and development of a biometric security solution which would authenticate the identity of a person in a self-contained credit card-sized device. SmartMetric’s biometric card has been designed to use an on-board finger print sensor which is imbedded in the card along with an integrated circuit chip which will provide one gigabyte of memory capacity. SmartMetric has not yet completed a prototype of its SmartCard and has not yet begun to manufacture SmartCards utilizing its licensed technology. To date, SmartMetric has had no sales revenues.

SmartMetric’s CEO, Colin Hendrick, applied for a patent for this biometric card technology connecting SmartCards to networks, and providing secure access for such connections. In June 2004, Mr. Hendrick transferred this technology to Applied Cryptology, Inc., a Nevada corporation, he owns and controls. On August 1, 2004, Applied Cryptology entered into a license agreement with SmartMetric pursuant to which Applied Cryptology agreed to license this technology to SmartMetric in perpetuity in exchange for a royalty payment. This patent was granted on September 14, 2004.

We had $0 sales revenue for the year ended June 30, 2004, with a net loss of $35,978. For the quarter ending December 31, 2004, there were no sales revenues and a net loss of $16,730.

In October 2003, we sold 50,000,000 shares of common stock to the President of SmatMetric at $.001 per share for a total of $50,000. From November 2003 to June 30, 2004, SmartMetric sold 8,560,257 shares of common stock to the President of the corporation, Colin Hendrick, at $.01 per share for a total of $85,602.57. Mr. Hendrick rendered complete payment for these shares by October 2004. In August 2004, Mr. Hendrick transferred these shares to approximately 600 shareholders for no consideration. All shares are restricted from resale, except 11,560,257 shares which are being registered for resale.

In October and November 2004, we sold 68,207 shares to 9 people at $1.50 per share. All 68,207 shares are being registered in this registration statement.

Plan of Operation .

Over the next 12 months, SmartMetric intends to complete the prototype of its SmartCard and commence marketing in an attempt to generate sales. We will use the proceeds of this offering to complete the prototype and commence marketing. We believe that proceeds from the Maximum Offering will be sufficient to cover these costs, as well as working capital, for at least 12 months. However, in the event we raise less than the Maximum Offering, we will have to raise additional funds during the next 12 months.

A key part of our business plan is to complete the prototype of the SmartCard within the next 12 months. Additional research and development may be necessary if the prototype does not work as planned, or if after it is complete, we believe it could be improved upon.

We expect to outsource manufacturing of our SmartCards once the prototype is complete and we have sales orders. We do not intend to purchase any plants or significant equipment.

Once we have begun to generate sales, we intend to hire additional employees. However, until that time, we may only hire a few employees to market the SmartMetric SmartCard.

Completion of Prototype

We have hired a company to design and manufacture a model of our SmartCard utilizing our licensed technology and according to our proposed plans for the SmartCard. That engineering firm has been working on the design and once they have built the prototype, they will need to test it to determine if it works. Any defects will be addressed until all the engineering works to the satisfaction of SmartMetric. The finished product will be the prototype or model for our SmartCards, which will be manufactured upon receipt of customer orders. We expect this prototype to be complete in the first quarter of 2005.

Production of SmartCards

Once we have a working prototype of our SmartCard, we will seek to obtain orders for it. However, because SmartMetric does not own or rent a manufacturing facility, we will have to contract with a manufacturing facility to produce our SmartCards. We will begin to search for one or more manufacturing facilities once we have obtained the completed SmartCard prototype. When searching for a manufacturing facility, we will take into consideration such factors as pricing, timing, location and quality of product. We may contract with one or more facilities to produce our SmartCards. A portion of the proceeds from this offering will be applied toward the production of SmartCard.

SmartMetric believes its current sources of credit and liquidity, including funds raised in its private placement are sufficient to commence operations in a limited capacity, and that, in the event we raise less than the maximum offering, we may have to raise additional capital within the next 12-24 months. SmartMetric believes the Maximum Offering proceeds will be sufficient to proceed with its plan of operations for the next eighteen months. We estimate that we will need approximately $4,000,000 to proceed with our plan of operation for the next 12 months. This amount takes into consideration outsourcing or contract manufacturing approximately 75,000 SmartCards. A key element of SmartMetric's growth strategy is raising adequate funding to begin to outsource the manufacture of its biometric card. We believe that $499,999.50 will suffice to begin outsourcing the manufacturing of our SmartCard. The amount of funds required will depend on the size of the orders we receive. We estimate that $499,999.50 will allow us to outsource production of 5,000 SmartCards. We expect that orders larger than will require additional financing. Such financing may be in the form of debt or equity. Currently, SmartMetric has no material commitments for capital expenditures.

SmartMetric does not believe its business is seasonal in any way.

On October 30, 2003, we entered into an agreement with Information Spectrum, Inc. Pursuant to this agreement, ISI will seek to market our SmartCards. Once ISI begins such marketing efforts and is able to find companies and/or government agencies to purchase our SmartCards, we will contract with a manufacturer to produce the required number of SmartCards. While we have located several manufacturing facilities, we have not entered into agreements with any of them. There is no guarantee that ISI will locate companies or agencies that are interested in purchasing our SmartCards, or that we will be able to negotiate a manufacturing agreement on terms acceptable to SmartMetric.

 
Six Months
 
Period
 
Ended December 31
Year Ended
December 18, 2002,
 
 
June 30,
to June 30,
 
2004
2003
2004
2003
   

 

 

 
 
(unaudited)
   
Net Sales
$0
$0
$0
$0
         
Cost of Sales
$0
$0
$0
$0
         
Selling, general and
       
administrative expenses
$61,300
$1,061
$35,978
$60
         
Income (loss) from operations
$(61,300)
$(1,061)
$(35,978)
$(60)


Net sales for the year ended June 30, 2004 were $0. Administrative expenses for the year ended June 30, 2004 were $6,643. SmartMetric expended $29,335 in research and development for the year ended June 30, 2004. Net loss was $35,978 in the year ended June 30, 2004.

For the six months ended December 31, 2004, we had no sales. Administrative expenses were $20,890. We spent $40,410 on research and development. Our net loss for the six months ended December 31, 2004 was $61,300.


BUSINESS


General

SmartMetric was incorporated pursuant to the laws of the State of Nevada on December 18, 2002.

SmartMetric’s Chief Executive Officer, Colin Hendrick, has created the SmartMetric “Biometric Card,” a credit card-sized device which utilizes a finger print sensor to authenticate a person’s identity. The embedded sensor takes the image of the person’s fingerprint and matches it with a fingerprint stored on the card. Mr. Hendrick applied for a United States and International patent with regard to the Biometric card and the technology contained therein. Both patents are pending. Mr. Hendrick transferred the patent pending to Applied Cryptology, Inc., a Nevada corporation, owned by Mr. Hendrick in June 2004. On August 1, 2004, Applied Cryptology, Inc. entered into a license agreement with SmartMetric pursuant to which SmartMetric has the right to use, manufacture and sell products utilizing the patented technology in perpetuity. This patent was granted on September 14, 2004

As of December 31, 2004, SmartMetric had total stockholders' equity of $82,834, and cash of $61,192. Management of SmartMetric believes that in the event SmartMetric raises less than the maximum offering, SmartMetric would have to generate additional resources to enable it to continue with research and development related to the prototype of its SmartCard if further research and development is required, and to commence operations. SmartMetric would then have to obtain additional working capital from other sources, including creditors and investors.

SmartMetric has no off-balance sheet arrangements that are reasonably likely to have a material current or future effect on SmartMetric’s financial condition, results of operations or liquidity.

The SmartMetric Biometric Card

SmartMetric has designed a biometric card utilizing patented technology licensed to the company. A portion of the proceeds from this offering will be applied to completion of a prototype of this biometric card.

SmartMetric   believes that its biometric card will have several functions:

·   The fingerprint sensor will facilitate instant authorization verification;
·   In card biometric measurement storage will safeguard personal information;
·   In card biometric storage will permit access, identity and transaction control verification;
·   Instant identity verification will be secure since such information is contained in the card and not in centralized database

The SmartCard has been designed to contain two on-card processors and 1 gigabyte of memory. SmartMetric believes this will enable the card to store the full image of a fingerprint and a database capable of storing information such as medical records, financial or banking records or human resource card. SmartMetric believes its SmartCard may be used as a credit card, building access card or computer access card.

The SmartMetric SmartCard, because it contains information unique to the individual user, will be useless in the hands of others. Unlike a picture-based identification system, the SmartMetric biometric card has been designed to operate exclusively with the registered user. And unlike biometric security systems where the biometric information is stored at a central we believe that confirmation of identify with the SmartMetric system may not be interrupted during the verification process or while it is stored at the remote location since the biometric information is embedded in the card, itself, in a memory chip protected by encryption. The fingerprint sensor built into the card has been designed to activate the card. Without a match with the encrypted fingerprint already stored on the card, the SmartCard will not operate.

SmartMetric believes its SmartCard may be used for a variety of security applications such as airport employed access and identity, building access and identity, computer network access, drivers licenses, passports and check cashing identity verification.

Fingerprint Sensor

The fingerprint sensor designed by Colin Hendrick, CEO of SmartMetric, and licensed to SmartMetric is known as the “Metric 60” fingerprint sensor. The Metric 60 allows for fingerprints which are either wet or dry to be recognized or authenticated. It is also pressure sensitive.

The SmartMetric biometric card has been designed to utilize a patented rechargeable, lithium polymer battery. Because this battery is available in a variety of shapes and sizes, SmartMetric can design its cards in similar variety of shapes. By utilizing this lithium polymer battery, the SmartCard can be as thin as .45mm in width. This lithium polymer battery is owned and manufactured by a third party unaffiliated with SmartMetric.

The SmartMetric card has been designed to meet the International Standard Organization 7816 Flex requirements so that it will not break or crack when bent or flexed. The prototype card, which has yet to be completed, has been designed to meet ISO requirements for crush test, drop test and nail test. It has been designed to operate in a wide range of temperatures.

The SmartCard has been designed to offer the option of a built-in radio frequency fingerprint transmitter for contactless entry and identity verification.

Marketing Agreement

On October 30, 2003, SmartMetric entered into an agreement with Information Spectrum, Inc., a company located in Annandale, Virginia. Information Spectrum, Inc. shall be referred to as ISI. Pursuant to this agreement, ISI shall seek to market SmartMetric’s SmartCard technology by actively seeking customers interested in purchasing, credential cards which incorporate SmartMetric’s patented SmartCard technology. Prior to ISI offering SmartMetric products by submitting a formal proposal, ISI and SmartMetric shall enter into a “Teaming Agreement” which will define each party’s rights and obligations concerning that particular sales opportunity. Every proposal will require its own Teaming Agreement.

Pursuant to this Agreement, ISI is the exclusive reseller of SmartMetric products to agencies of the United States government and the Government of Canada. In addition, ISI has the right of first refusal for other marketing, sales or re-sales opportunities for customers other than the United States or Canadian governments.

The terms of this agreement is two years and may be extended upon mutual agreement of the parties.

The Security Technology Industry
 
Biometrics

Biometric technologies identify users by electronically capturing a specific biological or behavioral characteristic of that individual, such as a fingerprint or voice or facial feature, and creating a unique digital identifier from that characteristic. Because this process relies on largely unalterable human characteristics, positive identification can be achieved independent of any information possessed by the individual seeking authorization.

The process of identity authentication typically requires that a person present for comparison one or more of the following factors:

·   Something known such as a password, PIN or mother’s maiden name;

·   Something carried such as a token, card, or key; or

·   Something physical such as fingerprint, voice pattern, signature motion, facial shape or other biological or behavioral characteristic.

Comparison of biological and behavioral characteristics has historically been the most reliable and accurate of the three factors, but has also been the most difficult and costly to implement into a single product that can automatically verify the identity of a user accessing a computer network or the Internet. However, recent advances in biometric collection technologies (both biometric hardware products and their associated processing software) have increased the speed and accuracy and reduced the cost of implementing biometrics in commercial environments. Management believes that individuals, Web site operators, government organizations, and businesses will increasingly use this method of identity authentication.

Biometrics refers to the automatic identification of a person based on his/her physiological or behavioral characteristics. This method of identification is preferred over traditional methods involving passwords and personal identification numbers (“PINs”)   for various reasons: (i) the person to be identified is required to be physically present at the point of identification to be identification; (ii) identification based on biometric techniques obviates the need to remember a password or carry a token. By replacing PINs, biometric techniques can potentially prevent unauthorized access to or fraudulent use of cellular phones, SmartCards, desktop PCs, workstations and computer networks. It can be used during transactions conducted via telephone and Internet (e-commerce and e-banking). In automobiles, biometrics could replace keys-less entry devices.

PINs and passwords may be forgotten, and token-based methods of identification, e.g., passports and driver’s licenses, may be forged, stolen or lost. Various types of biometric systems are being used for real-time identification, with the most popular based on face recognition and fingerprint matching. Other biometric systems utilize iris and retinal scanning, speech, facial thermograms and hand geometry.

A biometric system is essentially a pattern recognition system, which makes a personal identification by determining the authenticity of a specific physiological or behavioral characteristic possessed by the user. An important issue in designing a practical system is to determine how an individual is identified.

There are two different ways to resolve a person’s identity: verification and identification. Verification ( Am I whom I claim I am?) involves confirming or denying a person’s claimed identity. In identification, one has to establish a person’s identity ( Who am I?) .

The SmartMetric SmartCard

The SmartMetric biometric SmartCard, an intelligent cryptographic platform, is a credit-card sized plastic card embedded with an integrated circuit chip and biometric fingerprint sensor. It has been designed to provide not only memory capacity, but also computational capability along with secure non-refutable identification of the user. We believe that the self-containment of SmartMetric’s SmartCard will make it resistant to attack, as it will not need to depend upon potentially vulnerable external resources. Because of this characteristic, we expect that the SmartMetric SmartCard may be used in different applications which require strong security protection and authentication.

The physical structure of a SmartCard is specified by the International Standards Organization (“ISO”) 7810, 7816/1 and 7816/2. Generally, it is made up of three elements. The plastic card is the most basic one and has the dimensions of 85.60mm x 53.98 x 0.80mm. A printed circuit and an integrated circuit chip are embedded on the card.

In the SmartMetric SmartCard the printed circuit conforms to ISO standard 7816/3 which provides five connection points for power and data. It will be hermetically fixed in the recess provided for the card and will be burned onto the circuit chip, filled with a conductive material and sealed with contracts protruding. The printed circuit will protect the circuit chip from mechanical stress and static electricity. Communication with the chip will be accomplished through contacts that overlay the printed circuit. The integrated circuit chip defines the capability of a smart chip. Typically, an integrated circuit chip consists of a microprocessor, read only memory (ROM), non-static random access memory and electrically erasable programmable read only memory which will retain its state when the power is removed. The current circuit chip is made from silicon, which is not flexible and particularly easy to break. In order to avoid breakage when the card is bent, the chip is restricted to only a few millimeters in size.

Furthermore, the physical interface which allows data exchange between the integrated circuit chip and the card acceptor device will be limited to 9600 bits per second. The communication line is intended to be a bi-directional serial transmission line, which conforms to ISO standard 7816/3. All the data exchanges will be under the control of the central processing unit in the integrated circuit chip. Card commands and input data will be sent to the chip that responds with status words and output data upon the receipt of these commands and data. Information will be sent in half duplex mode (transmission of data is in one direction at a time). This protocol, together with the restriction of the bit rate, is designed to prevent massive data attack on the card.

In general, the size, the thickness and bend requirements for the SmartCard were designed to protect the card from being spoiled physically. However, this also limits the memory and processing resources that may be placed on the card. In the past, industry participants have encountered particular difficulty in attempting to integrate high memory chips and finger sensor technology that will withstand both the size constraints and physical daily usage such as bending in a user’s wallet sitting in his back pocket. We believe SmartMetric has met and overcome the physical demands of the credit card to produce what is a powerful on-card computer processor with state-of-the-art biometric technology.
The Patent

Applied Cryptology, Inc., a company owned and controlled by Colin Hendrick, President and CEO of SmartMetric, owns a patent for a SmartCard process. This patent has been licensed to SmartMetric.

The patent asserts claims to the following processes:

·   A system for managing digital rights of digital content over a network.

·   A data card contains user information including digital rights information specific to a users, the data card having memory component for enabling information to be stored within the data card.

·   A data card reader is adapted to access the user information contained on the data card when the data card is in communication with a card reading device.

·   A data processor in communication with the data card reader is adapted to be connected to the network.

·   An application program resides on the memory component of the data card, the application program being configured to operate in conjunction with a universal language for creating and controlling digital rights, to manage user rights of the digital content available on the network based on the digital rights information specific to the user which is contained on the data card.

License Agreements

On August 1, 2004, SmartMetric entered into a license agreement with Applied Cryptology, Inc., a Nevada corporation which is owner of certain technology for which a patent was issued from the United States and is pending in Australia. Pursuant to the license agreement, SmartMetric has the right to make use of this technology for the purpose of developing software and systems to be used by SmartMetric to provide certain applications including any or all of the following: 1) secure transactions over the Internet from home and office computers; 2) an automatic method for connecting to remote computers; 3) a method of developing targeted advertising to home and/or office computers; 4) identity verification and access control as provided for in the patent. Colin Hendrick, President, Chief Executive Officer and Chairman of the Board of Directors of SmartMetric, is the sole officer and shareholder of Applied Cryptology, Inc.

Pursuant to this license agreement, Applied Cryptology, Inc. will receive 2% of all revenues generated by SmartMetric on products which utilize this patented technology. The license fee will be paid on a quarterly basis based on revenues received during that quarter. The license fee shall be due within 45 days of the end of each quarter. In the event no revenues were generated through the use of any of the licensed patents during a given quarter, no money shall be owed Applied Cryptology, Inc. for such quarter. Late license fees shall accrue interest at a rate of 2% per quarter. Applied Cryptology, Inc. may rescind the license agreement and reclaim all rights and interest in the patents if certain events, such as SmartMetric’s filing for bankruptcy protection or reorganization, occur.

This license agreement will remain in effect for the lives of the patent. SmartMetric may utilize their patented technological applications anywhere in the world without limitation.

Competition

SmartMetric is a company involved in identity management. This industry is dominated by several large international corporations such as BioNetrix, Keyware, Genplus and Precise Biometrics, all of which manufacture and/or distribute and market identity management products. These companies and many others are more established than SmartMetric, which will put it at a competitive disadvantage. For example, Precise Biometrics, a company whose stock is listed on the Stockholm stock exchange, sells products which utilize its patented biometric fingerprint authentication technology which allows it to isolate the characteristic features of a human fingerprint and to match such features with a stored template to secure identity. However, Precise Biometrics is publicly traded and better funded then SmartMetric, and thus better known. This is similar to SmartMetric’s technology, except that SmartMetic’s licensed patent allows for such data to be stored on a credit card sized device.

BioNetrix offers a solution for systems security - user authentication and sign on. This company was found in 1997.

SmartMetric is a newcomer to this industry, with no proven track record and an untested product. We are not as well known as our potential competitors, nor are we certain our SmartCard will work as intended or that it will meet clients’ needs. We are at a competitive disadvantage when compared to those better known, better funded and experienced identity management companies. SmartMetric will be competing with these as well as smaller and mid-size identity management manufactures, distributors, and developers.

Facilities

The company currently uses office space provided by its president at no cost to the Company. It is anticipated that the Company will look for new office space following the successful completion of the Public Offering.

In November 2004, SmartMetric executed a lease agreement for office space in Aventura, Florida. This agreement provides rental fee of $700 and an initial term of six months, ending May 31, 2005. Unless SmartMetric notifies the lessor of its intent to terminate the lease at least 60 days prior to the termination date, it will automatically renew for additional one-year terms.

Employees

SmartMetric currently has 1 full time employee: Colin Hendrick. Mr. Hendrick does not belong to any unions.

MANAGEMENT

Directors and Executive Officers

Set forth below is certain information regarding the directors and executive officers of SmartMetric.

 
Name  
 
Age  
 
Position with the Company
 
Colin Hendrick
314 Brooklyn Avenue Brooklyn, New York 11213
 
48
 
President, Chief Executive Officer, Chief Financial Officer and Chairman of the Board
 
Peter Sleep
3 Bernadette Court
East Doncaster, Victoria Australia
 
59
 
Secretary, and Director
 
Joseph Katzman
790 Montgomery Street
Brooklyn, New York 11213
 
47
 
Director


BIOGRAPHY

COLLIN HENDRICK , has been President, Chief Executive Officer, Chief Financial Officer and Chairman of the Board of SmartMetric since the Company’s inception in 2002. He has served as President and CEO of Smart Micro Chip, Inc., an Australian corporation from 2000 to 2002. From 1999 to 2001, Mr. Hendrick was President and Chief Executive Officer of Smarticom Inc. and Fast Econ, Inc., Australian corporations. From 1994 to 1998, Mr. Hendrick served as executive officer of Applied Computing Science (Australia), an Australian company involved in e-commerce systems, research and development. Mr. Hendrick attended Dandenong College in Australia.

PETER SLEEP, has been Secretary and a director of SmartMetric since January 2003. From November 1996 to January 2003, Mr. Sleep was Vice President of Smart MicroChip, Inc., an Australian corporation. Mr. Sleep attended Brunswick Technology School and Footscray College, both located in Australia.

JOSEPH KATZMAN , has been a director of SmartMetric since January 2003. Since 1993, he has been host and executive producer of A Cable To Jewish Life , a television talk show. From 1991 to 2000, he was the New York office administrator of congregation Yeshiva Tomchei Tmimim Lubavitch. Mr. Katzman is a graduate of KfarChabad and the Rabinical College of Canada.

Executive Compensation

The following summary compensation table sets forth compensation information for services performed during the fiscal years ended June 30, 2003 and 2004 by SmartMetric 's executive officers.

SUMMARY COMPENSATION TABLE

Name and Principal
Position  
Fiscal
Year  
Annual
Compensation
 
Collin Hendrick (1)  
 
2003
 
$0
 
2004
$0
     
Peter Sleep
2003
$0
 
2004
$0
_________________
(1) SmartMetric has entered into an employment agreement with Mr. Hendrick. Pursuant to SmartMetric's one-year employment agreement with Mr. Hendrick, he shall receive an annual salary of $170,000, which shall commence upon SmartMetric’s achieving $1,000,000 in sales revenues. Commencing January 1, 2005, Mr. Hendrick shall begin accruing an annual salary of $170,000. Prior to SmartMetric’s achieving $1,000,000 in sales revenues, SmartMetric may pay Mr. Hendrick a salary of 25% of offering proceeds received from this or subsequent offerings, up to $170,000. Mr. Hendrick is eligible for an annual bonus based on certain performance criteria to be determined by a Compensation Committee of the board of directors at a later date. The Compensation Committee shall be comprised of at least three directors, the majority of whom shall be independent. Mr. Hendrick’s employment may be terminated for cause at any time and may be renewed upon mutual agreement of SmartMetric and Mr. Hendrick. According to the employment agreement, any inventions, ideas, disclosures and improvements made or conceived by Mr. Hendrick during his employment, including adoptions and improvements to existing patents, shall be the property of Mr. Hendrick.


DESCRIPTION OF SECURITIES

Common Stock

SmartMetric is authorized to issue 95,000,000 shares of common stock, $.001 par value, of which 50,000,000 have been designated Class A common stock. The Class A common stock and the common stock are identical. There are 50,000,000 Class A common stock outstanding, and 8,560,257 shares of otherwise undesignated common stock issued and outstanding as of December 31, 2004. Each outstanding share of common stock of SmartMetric is entitled to one vote, either in person or by proxy, on all matters that may be voted upon by the owners thereof at meetings of the stockholders. Unless otherwise indicated, reference to “common stock” includes both the Class A common stock and undesignated common stock.

The holders of shares of SmartMetric do not have cumulative voting rights, which means that the holders of more than 50% of such outstanding shares, voting for the election of directors, can elect all of the directors to be elected, if they so chose. In such event, the holders of the remaining shares will not be able to elect any of SmartMetric's directors. SmartMetric's current shareholders will own approximately 99.4% of the common shares outstanding after the minimum offering and 93.6% after the maximum offering.

SmartMetric intends to adopt an employee stock option plan in the near future.

Preferred Stock

SmartMetric is authorized to issue 5,000,000 shares of preferred stock, $.01par value. The preferred stock may be issued in one or more series and with such designations, rights, preference, privileges, qualifications, limitations and restrictions as shall be stated and expressed in a resolution of the Board of Directors providing for the creation and issuance of such preferred stock. There are no shares of preferred stock issued or outstanding and SmartMetric has no plans to issue shares of its authorized preferred stock.


DIVIDENDS

SmartMetric has paid no dividends to date, and does not intend to pay dividends in the near future.


TRANSFER AGENT

SmartMetric has appointed Olde Monmouth Stock Transfer to serve as Transfer Agent.


PRINCIPAL SHAREHOLDERS

The following table sets forth certain information regarding the beneficial ownership of the SmartMetric's common stock as of the date of this prospectus by (i) each person known to SmartMetric to beneficially own 5% or more of SmartMetric's common stock, (ii) each director of SmartMetric and (iii) all directors and executive officers of SmartMetric as a group. All information with respect to beneficial ownership has been furnished to SmartMetric by the respective director, executive officer or 5% shareholder, as the case may be.      

         
NAME/ADDRESS
BENEFICIAL
OWNER (1)
NUMBER
OF
SHARES
% BEFORE THE
OFFERING
% AFTER
THE MINIMUM OFFERING (2)
% AFTER
THE MAXIMUM OFFERING (2)
 
 
 
 
 
Colin Hendrick
314 Brooklyn Avenue
Brooklyn, New York 11213
 
 
49,500,000 (3)
84.4%
84.0%
79.0%
         
Peter Sleep        
3 Bernadette Court
East Doncaster, Victoria
Australia
760,000
1.3%
1.3%
1.2%
         
Joseph Katzman      
790 Montgomery Street
Brooklyn, New York 11213
0
0%
0%
0%
         
All Officers and Directors
as a Group (3 persons)
50,260,000
85.7%
85.3%
80.2%
(1)   Each shareholder has sole voting and investment power with respect to his/her shares.
(2)   Based on 58,961,797 shares to be outstanding after the Minimum Offering and 62,628,464 after the Maximum Offering.
(3)   All shares held by Mr. Hendrick are Class A common stock.
 

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

SmartMetric was incorporated in the State of Nevada on December 18, 2002. In October 2003, SmartMetric sold 50,000,000 shares of common stock to its president and chief executive officer, Colin Hendrick, at $.001 per share for a total of $50,000. Between November 2003 and June 30, 2004 SmartMetric sold 8,560,257 shares to Mr. Hendrick at $0.01 per share for a total of $85,602.57. In August 2004, these 8,560,257 shares were assigned to approximately 600 people for no consideration. The transferees were all friends, family and business acquaintances of Mr. Hendrick. Mr. Hendrick distributed shares because he wanted to create a large shareholder base for SmartMetric.

On August 1, 2004, SmartMetric entered into a license agreement with Applied Cryptology, Inc., a company owned and controlled by Colin Hendrick, President and CEO of SmartMetric, pursuant to which Applied Cryptology, Inc. has agreed to license a patent-pending owned by that company. Applied Cryptology, Inc. shall receive a license fee of the greater of 2% of the sales price of any licensed product or the fair market value of any license products. SmartMetric believes the license agreement is on terms at least as favorable to SmartMetric as those it would expect to negotiate with unaffiliated party.

 
LEGAL MATTERS

An opinion as to the validity of the securities offered hereby has been passed upon for SmartMetric by Schonfeld & Weinstein, L.L.P., 80 Wall Street, Suite 815, New York, New York, counsel to SmartMetric. Schonfeld & Weinstein, L.L.P. is a shareholder of SmartMetric. Schonfeld & Weinstein, L.L.P. consents to the use of its name in this registration statement.

EXPERTS

The consolidated balance sheets of SmartMetric as of June 30, 2004 and June 30, 2003, and the related consolidated statements of operations, changes in stockholders' equity (deficit) and cash flows for the year ended June 30, 2004 and for the period December 18, 2002 to June 30, 2003 included in this Prospectus and incorporated by reference in the registration statement, have been audited by Michael T. Studer, CPA, PC, independent auditor, as stated in his report appearing in this prospectus and incorporated by reference in the registration statement, and are included and incorporated by reference in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing. Michael T. Studer, CPA, PC consents to the use of his name in this registration statement.

SELLING SHAREHOLDERS


Shareholders
Number of Shares held
Number of shares being offered
Number of shares held after offering
% of shares held after maximum offering
A. S. P. Pty Ltd
7,662
7,662
0
0%
Aberg Ann-Sophie
4,000
4,000
0
0%
Abingdon Engineering Services Super Fund
4,050
4,050
0
0%
Ahern Lynne Robyn
7,313
7,313
0
0%
Alan Brian & Robyn May Stevens
2,430
2,430
0
0%
Allanach Jack
8,100
8,100
0
0%
Allanach Verena S
8,100
8,100
0
0%
Allum Jeanette
5,160
5,160
0
0%
Anderson Jason R
1,883
1,883
0
0%
Anderson Kelly
1,883
1,883
0
0%
Anderson Shane
1,883
1,883
0
0%
Anderson Tiger & Julie-Ann
131,663
131,663
0
0%
Applied MicroMedia Pty Ltd
32,500
32,500
0
0%
Atkins Peter
9,600
9,600
0
0%
Auaform Pty Ltd
6,000
6,000
0
0%
Bain Kenneth
79,500
79,500
0
0%
Bains Alan
7,500
7,500
0
0%
Baker Carol Lorain
1,620
1,620
0
0%
Baker Diana Lillian &
McNeill Peter Douglas
5,310
5,310
0
0%
Baker Karlene Joy (Jaeger)
6,200
6,200
0
0%
Balding Joan
3,240
3,240
0
0%
Ballis Trudy
25,000
25,000
0
0%
Bambridge Shirley & Harold
1,620
1,620
0
0%
Banfield Jennifer
63,627
63,627
0
0%
Bartlett Trevor & Nola
2,000
2,000
0
0%
Bassett Christopher
4,860
4,860
0
0%
Bassett Jason
4,860
4,860
0
0%
Bassett Noelle
70,565
70,565
0
0%
Bassie-Wade Lucy
3,200
3,200
0
0%
Beaton Esther & Gleitzman Nicholas
1,920
1,920
0
0%
Beatty Dennis
3,000
3,000
0
0%
Belot Matthew
16,000
16,000
0
0%
Bendick Robin
2,000
2,000
0
0%
Bettson Julie Gay
8,910
8,910
0
0%
Bevilacqua Maureen
7,632
7,632
0
0%
Bird Geoffery J.
6,500
6,500
0
0%
Black Shamrock Investments
6,000
6,000
0
0%
Bloom Jerome
30,000
30,000
0
0%
Bodnant Investments Pty Ltd
7,000
7,000
0
0%
Boniello Liz
1,620
1,620
0
0%
Booth Jennifer
1,920
1,920
0
0%
Booth Jennifer & John Norris
7,662
7,662
0
0%
Booth Sandra
55,580
55,580
0
0%
Borel Noel & Susan
2,001
2,001
0
0%
Borel Susan
2,000
2,000
0
0%
Bourke Ronia M.
1,620
1,620
0
0%
Braun Norman
25,000
25,000
0
0%
Brodie Gary I.
2,000
2,000
0
0%
Brown Rosemary & Simon Hennessey
9,120
9,120
0
0%
Burrows Rita
1,920
1,920
0
0%
Burston Andrew & Julie
12,150
12,150
0
0%
Byarmi Pty Ltd
32,500
32,500
0
0%
Cartledge Russell & Lynette
6,000
6,000
0
0%
Case Beverly
63,262
63,262
0
0%
Cavallo Celestino
7,908
7,908
0
0%
Cavallo Superannuation Fund
4,500
4,500
0
0%
Cerniauakas John James
405
405
0
0%
Cerniauskas Angela Kate
405
405
0
0%
Cerniauskas Clare Mary
405
405
0
0%
Cerniauskas Denise & John Henry
7,695
7,695
0
0%
Cerniauskas Mark Peter
405
405
0
0%
Cerniauskas Monica Helen
405
405
0
0%
Chell David
3,200
3,200
0
0%
Chevallier Courtney
5,262
5,262
0
0%
Chittock Claire
2,000
2,000
0
0%
Christie Colin & Robyn
1,620
1,620
0
0%
Church Lesley
4,800
4,800
0
0%
Churcher Ron
3,840
3,840
0
0%
Colborne Glen
15,000
15,000
0
0%
Coleman Anne Christine & Joseph Stuart
6,000
6,000
0
0%
Colhoun William
1,920
1,920
0
0%
Collins Joshua Lucas
540
540
0
0%
Conners Matthew
30,000
30,000
0
0%
Connors Deirdre
15,000
15,000
0
0%
Cooper Ronald
104,145
104,145
0
0%
Corrigan Lorie
1,620
1,620
0
0%
Craddock Diana
9,789
9,789
0
0%
Craig Phillip & Wilding Monique Maree
7,514
7,514
0
0%
Crilly Caroline
2,192
2,192
0
0%
Crisp Holdings Pty Ltd
180,000
180,000
0
0%
Crocket Elizabeth
2,430
2,430
0
0%
Crompton Patricia
2,880
2,880
0
0%
Cullan Patricia Deirdre
5,000
5,000
0
0%
Cunningham Judith
2,000
2,000
0
0%
Czermak Herbert
25,000
25,000
0
0%
Daly Linda
1,620
1,620
0
0%
Dangar John
412,179
412,179
0
0%
Dangar Robyn C. A.
205,307
205,307
0
0%
Davis Garry
4,330
4,330
0
0%
Davis Garry & Sandra
7,329
7,329
0
0%
Day by Day Charter (St.Germain)
91,000
91,000
0
0%
de Villeneuve Christine
11,850
11,850
0
0%
Dickes David
5,000
5,000
0
0%
Ditton Hector
4,050
4,050
0
0%
Dolle Christine
2,100
2,100
0
0%
Doncon Kathryn
1,920
1,920
0
0%
Drury Suzanne
6,309
6,309
0
0%
Dyer Brett Anthony
1,620
1,620
0
0%
Dyer Grant Andrew
1,620
1,620
0
0%
Dyer Shelly Anne
1,620
1,620
0
0%
Dyer William & Vicki
19,440
19,440
0
0%
Dyson Mark & Elaine
1,620
1,620
0
0%
Edwards Mark
11,187
11,187
0
0%
Mark Edwards & Jenny Lee Stone
Superannuation Fund
18,000
18,000
0
0%
Eggeling Philip John
1,620
1,620
0
0%
Eggeling Yvonne & McKeown Brendan
1,782
1,782
0
0%
Eisman Levine Lehrhaupt & Kakoyiannis P.C. (2)
500,000
500,000
0
0%
Eledman Alex
25,000
25,000
0
0%
Erikson Penelopie
1,620
1,620
0
0%
Fagan Fiona Elizabethe
19,200
19,200
0
0%
Fagan Melissa Jane
9,600
9,600
0
0%
Fagan Roslyn Jill
14,851
14,851
0
0%
Fagan Shane Kelso
9,600
9,600
0
0%
Fakhri John
13,000
13,000
0
0%
Farrugia Beverley
3,000
3,000
0
0%
Favaloro Vincent
7,500
7,500
0
0%
Fiala Bohumir
40,200
40,200
0
0%
Finch Russell
12,900
12,900
0
0%
Flack Leanne
2,001
2,001
0
0%
Francill Patricia
25,000
25,000
0
0%
Freeman Belinda
1,620
1,620
0
0%
Frost Jean
5,000
5,000
0
0%
Frykberg Kimberly
6,000
6,000
0
0%
Furdan Pty Ltd
41,405
41,405
0
0%
G. D. & Co Nominees Pty Ltd
102,750
102,750
0
0%
Gaby Ann
4,050
4,050
0
 
Gagen John
4,050
4,050
0
0%
The Garvin Family Trust
3,831
3,831
0
0%
Gawne Graham
7,500
7,500
0
0%
Gawne Graham & Julie Robinson
2,400
2,400
0
0%
Gibbons John Richard
83,925
83,925
0
0%
Giddey Colleen
810
810
0
0%
Giddey Kim
810
810
0
0%
Glinatsis Nick & Maria
1,620
1,620
0
0%
Godin Marie-France
5,000
5,000
0
0%
Godin Marie-France & Stephen Kossew
3,600
3,600
0
0%
Goodger Duane Edward
1,620
1,620
0
0%
Goodger Peter
1,920
1,920
0
0%
Goodger Peter John & Susan Rosemary
4,455
4,455
0
0%
Gordon Robert
18,364
18,364
0
0%
Gray Simon
4,820
4,820
0
0%
Greenlaw Denise
9,600
9,600
0
0%
Greenlaw Rafe A.
6,948
6,948
0
0%
Greenwell Denise
2,000
2,000
0
0%
Greg Baker & Associates
8,034
8,034
0
0%
Gridley Kirsten
5,254
5,254
0
0%
Grima Trica
32,550
32,550
0
0%
Grove David
14,100
14,100
0
0%
Guest Laurence
2,400
2,400
0
0%
Guinan Patrick
3,240
3,240
0
0%
Gummer Peter & Kim Murray
4,713
4,713
0
0%
Gutnick Abraham
65,000
65,000
0
0%
Hadlow William & Lynda
12,800
12,800
0
0%
Hall Timothy David
2,250
2,250
0
0%
Hamilton Elizabeth
10,000
10,000
0
0%
Hamilton Nicholas
5,000
5,000
0
0%
Hamilton Peter & Christine
6,000
6,000
0
0%
Hardy Sarah Louise
1,620
1,620
0
0%
Harmelink Milton
2,880
2,880
0
0%
Harrington Olga
4,050
4,050
0
0%
Havenstein William Geoffery
4,800
4,800
0
0%
Headley Lyn
4,755
4,755
0
0%
Hehir Veronica Heather
13,620
13,620
0
0%
Heindke Juergan & Kay
48,000
48,000
0
0%
Heindke Kay
7,514
7,514
0
0%
Hendrick Colin (2)
49,500,000
2,500,000
47,000,000
75.0%
Henley Margaret
2,000
2,000
0
0%
Hershman Dwight & Michelle
15,000
15,000
0
0%
Hess Martin
1,530
1,530
0
0%
Hickey John
13,650
13,650
0
0%
Hilton Ross & Judith Ann Jullienne
1,980
1,980
0
0%
Hobbs Vivieene Jean
3,831
3,831
0
0%
Hogarth Christopher
2,000
2,000
0
0%
Hollier Daphne
9,000
9,000
0
0%
Howe Sarah, Paul & James
2,325
2,325
0
0%
Iddles Susan
20,893
20,893
0
0%
Intec Products Asia Ltd
118,160
118,160
0
0%
Isaacs Jennifer
4,000
4,000
0
0%
Ivanovic Dragan
3,162
3,162
0
0%
Ivanovic Milica
1,259
1,259
0
0%
James Cassandra
2,000
2,000
0
0%
Jarberg Investments
15,000
15,000
0
0%
Johnson Sheila
2,400
2,400
0
0%
Joss Paula
1,920
1,920
0
0%
Jullienne Ross
2,712
2,712
0
0%
Just Amo Pty Ltd
30,150
30,150
0
0%
Just Solar Pty Ltd
6,000
6,000
0
0%
Kahn Daniel G. & Orenstein Shira L.
20,000
20,000
0
0%
Kai Lau Wing
15,000
15,000
0
0%
Kalfus Marcel
50,000
50,000
0
0%
Kalsow Kyle
1,920
1,920
0
0%
Kalsow Matthew
1,920
1,920
0
0%
Kanarek Sol & Miriam
25,000
25,000
0
0%
Katz Maurice
25,000
25,000
0
0%
Kazakas Ugi
1,620
1,620
0
0%
Kean Jennifer
1,920
1,920
0
0%
Keans Heather
4,750
4,750
0
0%
Kelly Superannuation Fund
8,430
8,430
0
0%
Keys Maggie
8,547
8,547
0
0%
King Colleen
171,291
171,291
0
0%
King Tanya
3,000
3,000
0
0%
Knowles Louise
3,717
3,717
0
0%
Kolb Kerstin
5,000
5,000
0
0%
Kramar Pty Ltd
3,000
3,000
0
0%
Lachman Ben & Hedy
25,000
25,000
0
0%
Lai Iris
50,000
50,000
0
0%
Lamplough Pension Fund
26,343
26,343
0
0%
Lamplough Philip Grant
8,190
8,190
0
0%
Lamplough Philip Grant & Suzanne Lesley
19,350
19,350
0
0%
Lamplough Winsome Russell
17,700
17,700
0
0%
Lang John Gregory
6,400
6,400
0
0%
Lawrence Sandra
20,000
20,000
0
0%
Lawson Henry & Joan
9,750
9,750
0
0%
Layton Anne
2,000
2,000
0
0%
Lee Kyung
25,040
25,040
0
0%
Leeden Christine Rosney
1,620
1,620
0
0%
Lees Paul S.
1,620
1,620
0
0%
Lemuel Investments Ltd
143,000
143,000
0
0%
Lenz Janette
2,001
2,001
0
0%
Leo Robert
29,250
29,250
0
0%
Leonard Bradley James
5,236
5,236
0
0%
Leonard Susanne
2,000
2,000
0
0%
Leonard Susanne & Ronald
2000
2000
0
0%
Leonard Ronald
2,376
2,376
0
0%
Lieshout Christine Elizabeth
6,720
6,720
0
0%
Lifetrack Financial Services
9,900
9,900
0
0%
Lowit Lydia
4,050
4,050
0
0%
Lydiard Virginia
2,000
2,000
0
0%
M.E.G Holdings Superannuation Fund
70,000
70,000
0
0%
Macallum Henry Colin
12,000
12,000
0
0%
Madison Matria
1,620
1,620
0
0%
Maher Geoffery Russell &
Kerri Maries
6,000
6,000
0
0%
Mahony Evelyn Clair
2,719
2,719
0
0%
Mannix Nicole M.
1,620
1,620
0
0%
Marilyn A Sullivan Superannuation Fund
7,662
7,662
0
0%
Marr Pauline Francis
3,000
3,000
0
0%
Marsh Timothy B.
3,000
3,000
0
0%
Martin Julie Anne
37,458
37,458
0
0%
Martin Keith
4,030
4,030
0
0%
Matthews Christine P.
1,620
1,620
0
0%
McCarthy John T. & Laurel M.
7,662
7,662
0
0%
McCotter Andrew
2,000
2,000
0
0%
McCurtayne Michael
1,920
1,920
0
0%
McGuire Ross A.
12,308
12,308
0
0%
McIlquham Allan
7,420
7,420
0
0%
McKee Fletcher
6,000
6,000
0
0%
McLean Cheryl
4,718
4,718
0
0%
McLean Graeme
4,500
4,500
0
0%
McLeland Linda
2,000
2,000
0
0%
McLeland Pamela H.
6,000
6,000
0
0%
McLeland Sally
1,924
1,924
0
0%
McLlquham Elaine
2,000
2,000
0
0%
McNally Michael John & Kirstine Jane
3,240
3,240
0
0%
McNamara Clare
6,620
6,620
0
0%
McNamarra Patricia
4,000
4,000
0
0%
McRea Monica
2,000
2,000
0
0%
Merchandising Solutions
Australia Pty Limited
4,200
4,200
0
 
Merlin Glen Pty Ltd
14,300
14,300
0
0%
Metz Dennis
30,000
30,000
0
0%
Milne Brook N. N.
1,620
1,620
0
0%
Milne Margaret L.
45,490
45,490
0
0%
Mitchell Samantha
1,620
1,620
0
0%
Mitchell Susan
3,240
3,240
0
0%
Mojo Productions Pty Ltd
30,150
30,150
0
0%
Monks Helga
9,600
9,600
0
0%
Mordey Shirley
60,000
60,000
0
0%
Moree Robert
7,680
7,680
0
0%
Motida Nominees Pty Ltd
6,548
6,548
0
0%
Mullinger Julie
2,000
2,000
0
0%
Murphy Jonathan
10,863
10,863
0
0%
Murphy Peter & Kathleen
4,050
4,050
0
0%
Musgrave Leonie, Susan Scott,
Graham Ravenswood
2,301
2,301
0
0%
Myall Alan
9,600
9,600
0
0%
Myers Justine
1,620
1,620
0
0%
Myes Elizabeth
2,430
2,430
0
0%
Nairn Cheryl
2,000
2,000
0
0%
Nairn Maurice
2,000
2,000
0
0%
Nairn Ross
2,000
2,000
0
0%
Nairns John & Jennifer
1,000
1,000
0
0%
Neal Vanessa
1,883
1,883
0
0%
Neates David
32,500
32,500
0
0%
Neyenhuizen Elisabeth
4,000
4,000
0
0%
Nicholls Leigh
19,650
19,650
0
0%
Nicholson Ian
5,500
5,500
0
0%
Noonan William
1,920
1,920
0
0%
Nydegger Christine
16,589
16,589
0
0%
O'Hare Kathleen Lilian
9,431
9,431
0
0%
Ollerenshaw Lore
1,920
1,920
0
0%
Olver Akash
17,400
17,400
0
0%
O'Neil Robert
19,500
19,500
0
0%
Palmer Caryl
11,000
11,000
0
0%
Parameters (Mitchell) Staff Benefit Fund
45,000
45,000
0
0%
Parrett Gregory Matthew
98,687
98,687
0
0%
Parrett Ronald
1,920
1,920
0
0%
Pawson Bruce
2,430
2,430
0
0%
Pearson Judith P.
6,000
6,000
0
0%
Pearson Patricia
810
810
0
 
Pemberton Debbie Elaine & Allen John
1,920
1,920
0
0%
Pereira Benjamin Willem
2,000
2,000
0
0%
Pereira Roman Joshua
2,000
2,000
0
0%
Peterson Geoff
42,000
42,000
0
0%
PG Lamplough Pty Ltd
4,800
4,800
0
0%
Phillips Ian R.
5,000
5,000
0
0%
Pointon Alan Arthur
1,620
1,620
0
0%
Post 'N Save Prints
45,000
45,000
0
0%
Poulos Con
9,175
9,175
0
0%
Prerau Greg
2,001
2,001
0
0%
Preston David W.
1,620
1,620
0
0%
Price Lesley
85,833
85,833
0
0%
Pronk Martin Adrin
8,100
8,100
0
0%
Ratcliffe Barbara
5,000
5,000
0
0%
Ratcliffe Peter & Judy
3,240
3,240
0
0%
Ray Ashley
1,883
1,883
0
0%
Ray Emma
1,883
1,883
0
0%
Ray Tim
1,883
1,883
0
0%
Redelvo Pty Ltd
1,920
1,920
0
0%
Reich Jules
50,000
50,000
0
0%
Reinkowsky Janet
1,920
1,920
0
0%
Renfew Robert & Narelle
6,900
6,900
0
0%
Res Bella Pty Ltd Superannuation Fund
10,500
10,500
0
0%
Resch Marcia
9,600
9,600
0
0%
Riches Terance John
3,831
3,831
0
0%
Richmond-Tanner Maia
12,662
12,662
0
0%
Ritchie Henry George
1,000
1,000
0
0%
Robert Towers & Assc P/L Retirement Fund
16,644
16,644
0
0%
Robertson Barbara
2,000
2,000
0
0%
Robinson Ann
3,620
3,620
0
0%
Robson David
40,930
40,930
0
0%
Rollinson Jean
3,920
3,920
0
0%
Ross Barbara
3,889
3,889
0
0%
Rottenberg Mark & Livia
25,000
25,000
0
0%
Rowley Jill
4,800
4,800
0
0%
Rufus Denise M.
2,880
2,880
0
0%
Rushton Ben
4,880
4,880
0
0%
Rushton Sandra Ann
10,000
10,000
0
0%
Rushton Stephnie
2,000
2,000
0
0%
Russell Wayne & Judith
1,500
1,500
0
0%
Ruzohorsky Peter
40,000
40,000
0
0%
Ryan Ambrose
42,500
42,500
0
0%
Saint German Fashions
13,504
13,504
0
0%
Salm John
27,000
27,000
0
0%
Salz Ronald & Jillian
7,662
7,662
0
0%
Sargent Ian James
6,400
6,400
0
0%
Sargent Murray
6,400
6,400
0
0%
Schemmer Kay
4,050
4,050
0
0%
Schofield Andrew
9,750
9,750
0
0%
Schonfeld & Weinstein, L.L.P.
1,061,782
1,061,782
0
0%
Secerov Milan
17,421
17,421
0
0%
Selig Joseph & Sheila
25,000
25,000
0
0%
Sharma Maria
4,800
4,800
0
0%
Sharp Kim
2,430
2,430
0
0%
Shaw Barbara
7,529
7,529
0
0%
Shaw Jill
2,000
2,000
0
0%
Shaw Kelly
7,529
7,529
0
0%
Sheedy Dawn
3,840
3,840
0
0%
Sheedy Edward & Dawn
2,000
2,000
0
0%
Siebrands Alda Lorene
5,250
5,250
0
0%
Silvasi Enterprises Pty Ltd
6,307
6,307
0
0%
Silverosa Patricia H.
15,267
15,267
0
0%
Simpson Ecila
1,000
1,000
0
0%
Singer Barry
6,500
6,500
0
0%
Skane William M.
1,620
1,620
0
0%
Sky Grace Pty Ltd
4,050
4,050
0
0%
Skygrace Pty Ltd
ATF The Willis Family Trust
4,050
4,050
0
0%
Sleep Peter J.
560,000
560,000
0
0%
Sloan David & Sandra
1,500
1,500
0
0%
Smallwood Leonie
1,620
1,620
0
0%
Smallwood Lesley
2,025
2,025
0
0%
Smith & L.I. Superannuation Fund
7,662
7,662
0
0%
Smith Brian
2,100
2,100
0
0%
Smith Duncan Boyd
1,620
1,620
0
0%
Smith John
5,000
5,000
0
0%
Smith John & Deborah
1,620
1,620
0
0%
Smith Naftali
5,000
5,000
0
0%
Smith Nicole
3,540
3,540
0
0%
Smith Ruth
1,620
1,620
0
0%
Sneesby Clayton
Jonathan & Courtney Taylor
11,493
11,493
0
0%
Southern Paul George
13,662
13,662
0
0%
Southwell Helen Susan
17,020
17,020
0
0%
Southwell Katie Maree
9,600
9,600
0
0%
Southwell Kim Louise
4,800
4,800
0
0%
Southwell Raymond John
26,620
26,620
0
0%
Southwell Tricia Rae
4,800
4,800
0
0%
Spice Francis
3,000
3,000
0
0%
Stanton Jean
1,920
1,920
0
0%
Stevenson Lynn
1,620
1,620
0
0%
Stone Jenny
11,187
11,187
0
0%
Strachan Terry
1,620
1,620
0
0%
Straiton Adrian
21,713
21,713
0
0%
Straiton Justine
5,317
5,317
0
0%
Straiton Kay
117,731
117,731
0
0%
Stuart-Sharpe Cedric & Jean
4,050
4,050
0
0%
Successful Money Management
6,000
6,000
0
0%
Sullivan Marilyn A.
10,920
10,920
0
0%
Sutherland Margaret
2,001
2,001
0
0%
Svalbe Shirley Ann
1,920
1,920
0
0%
Szeto Roasline
204,301
204,301
0
0%
Taylor Colin & Debra
14,786
14,786
0
0%
Taylor'd Solutions Pty Ltd
12,000
12,000
0
0%
Thompson Helen
2,880
2,880
0
0%
Thompson Helen & David Goodbold
4,500
4,500
0
0%
The Thompson Superannuation Fund
1,620
1,620
0
0%
Tickner Jane Lindsay
3,240
3,240
0
0%
Tickner Simon
3,240
3,240
0
0%
Tinkle Tinkle Superannuation Fund
6,000
6,000
0
0%
Trajanoska Ace
4,050
4,050
0
0%
Trajanoska Steve Cvetan
13,650
4,050
0
0%
Trajanoska Vesna
15,324
11,274
0
0%
Treadwell Anne
19,786
19,786
0
0%
Trevan Johns &
Associates Pty Ltd Provident Fund
10,000
10,000
0
0%
Trinity Trust
500,000
500,000
0
0%
Troy Barry Colin
1,920
1,920
0
0%
Truant Jim
22,168
22,168
0
0%
Tsoromoks George
4,283
4,283
0
0%
Turner Anne M.
9,100
9,100
0
0%
Tzortzis Dimitrios Aris
24,909
24,909
0
0%
Upitis Astrida
2,430
2,430
0
0%
Vago Leslie
44,562
44,562
0
0%
van Brakel Wilhelmus Johannus
8,100
8,100
0
0%
van Gasselt Martina
5,381
5,381
0
0%
van Zeggeren Nicole &
Angela Astone
10,692
10,692
0
0%
Vanbase Pty Ltd
8,100
8,100
0
0%
Vassallo Doris
1,620
1,620
0
0%
Venn Sonia
5,451
5,451
0
0%
Vitney David R.
1,620
1,620
0
0%
Waalkens Roderick
2,000
2,000
0
0%
Walker David
15,000
15,000
0
0%
Wallace Peter
1,620
1,620
0
0%
Wehr Anne
2,000
2,000
0
0%
Weinstein Steven & Robin
105,000
105,000
0
0%
Weinstein Victor
25,000
25,000
0
0%
Wells Jannette
3,620
3,620
0
0%
Wheeler Laurence
11,601
11,601
0
0%
Whitfield Barbara
1,620
1,620
0
0%
Widdup Julieanne
2,430
2,430
0
0%
Wild Richard
5,272
5,272
0
0%
Wilding Ayden Daniel
540
540
0
0%
Wilding Luke Baily
540
540
0
0%
Wilding Monique M.
2,000
2,000
0
0%
Williams Leonard
2,000
2,000
0
0%
Williams Phillip
3,000
3,000
0
0%
Willis James
1,532
1,532
0
0%
Wilson Brett
6,500
6,500
0
0%
Wilson Cassandra Marr
3,000
3,000
0
0%
Wilson Harriet Marr
2,250
2,250
0
0%
Wilson Kathryn
3,870
3,870
0
0%
Woods Frances A. & Carmel J.
1,620
1,620
0
0%
Woods Mona A.
1,060
1,060
0
0%
Woods William G.
2,000
2,000
0
0%
Wynn Paul W.
100,395
100,395
0
0%
Wyrznski Gwendoline
2,130
2,130
0
0%
Young Sandra
2,880
2,880
0
0%
Young Steven & Kim
1,620
1,620
0
0%
Zbroja Candice
2,430
2,430
0
0%
Zbroja Charles & Jay
1,620
1,620
0
0%
Zek Equity Corp
CIO Zeichner, Ellman & Krause LLP
25,000
25,000
0
0%
Zomick Elliot & Nomi
8,000
8,000
0
0%
Total
58,628,464
11,628,464
47,000,000
75.0%
(1)   All selling shareholders may be statutory underwriters pursuant to Section 2(a)(ii) of the Securities Act of 1933.
(2)   These are shares of Class A common stock.

SmartMetric will file a prospectus supplement to name successors to any named selling shareholders who are able to sue the prospectus to resell the securities.

 
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS

The consolidated financial statements and other financial information appearing in this Registration Statement were prepared by the management of SmartMetric, which are responsible for the integrity and objectivity of the information for their respective companies. The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States consistently applied and therefore include amounts that are based on information, judgments and management's best estimates.

The management of the company maintains a system of internal accounting controls and procedures, which management believes is adequate under the circumstances. The system is intended to provide reasonable assurance, in relation to reasonable cost, that transactions are executed in accordance with management's authorization, are recorded properly and accurately, and that accountability for assets is maintained. These controls are supported by management's commitment to the integrity of the system.

The consolidated financial statements of SmartMetric for the year ended June 30, 2004 and for the period December 18, 2002 to June 30, 2003 have been audited by Michael T. Studer, C.P.A, P.C., independent certified public accountant, to the extent required by standards of the Public Company Accounting Oversight Board (United States). His role is to form an independent judgment as to the fairness with which the statements present the financial condition and the results of its operations of each entity for the periods presented. While the independent accountant make selective tests of procedures and controls, it is neither practicable nor necessary for him to scrutinize all of an entity's transactions. His auditor's report appears with the respective financial statements. The ultimate responsibility for the consolidated financial statements of SmartMetric remains with management. The auditor’s responsibility is to express his opinion on the overall financial statement presentation.
 
 
LITIGATION

SmartMetric knows of no litigation pending, threatened or contemplated, or unsatisfied judgments against it, or any proceedings in which it is a party. SmartMetric knows of no legal actions pending or threatened or judgments entered against SmartMetric’s officer and directors in their capacity as such.

 
INDEMNIFICATION OF OFFICERS AND DIRECTORS

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling SmartMetric pursuant to the foregoing provisions, or otherwise, SmartMetric has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is therefore unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by SmartMetric of expenses incurred or paid by a director, officer or controlling person of SmartMetric in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, SmartMetric will, unless in the opinion of its counsel, the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by itself against public policy as expressed in the Act and will be governed by the final adjudication of such issue.


FURTHER INFORMATION

SmartMetric has filed with the Commission in Washington, D.C., a Registration Statement under the Securities Act with respect to the Common Stock offered by this prospectus. This prospectus does not contain all of the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. For further information with respect to SmartMetric and this offering, reference is made to the Registration Statement, including the exhibits filed therewith, copies of which may be obtained at prescribed rates from the Commission at the public reference facilities maintained by the Commission or at the Commission's web site: www.sec.gov.


SMARTMETRIC, INC. AND SUBSIDIARY
(A Development Stage Company)
Index to Financial Statements


     
Page
       
Report of Independent Auditor
F-2
       
Financial Statements:
 
       
 
Consolidated Balance Sheets as of December 31, 2004 (Unaudited),
F-3
   
June 30, 2004 and June 30, 2003
 
       
 
Consolidated Statements of Operations for the six months ended
F-4
   
December 31, 2004 and 2003 (Unaudited), for the year ended
 
   
June 30, 2004, for the period December 18, 2002 to June 30, 2003,
 
   
and for the period December 18, 2002 (inception)
 
   
to December 31, 2004 (Unaudited)
 
       
 
Consolidated Statements of Changes in Stockholders’ Equity
F-5
   
for the period December 18, 2002 (inception)
 
   
to December 31, 2004 (Unaudited)
 
       
 
Consolidated Statements of Cash Flows for the six months ended
F-6
   
December 31, 2004 and 2003 (Unaudited), for the year ended
 
   
June 30, 2004, for the period December 18, 2002 to
 
   
June 30, 2003, and for the period December 18, 2002 (inception)
 
   
to December 31, 2004 (Unaudited)
 
       
 
Notes to Consolidated Financial Statements
F-7

F-1


     

REPORT OF INDEPENDENT AUDITOR


To the Board of Directors and Stockholders of
SmartMetric, Inc.

I have audited the accompanying consolidated balance sheets of SmartMetric, Inc. and subsidiary (the “Company”), a development stage company, as of June 30, 2004 and June 30, 2003, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for the year ended June 30, 2004 and for the period December 18, 2002 to June 30, 2003. These consolidated financial statements are the responsibility of the Company’s management. My responsibility is to express an opinion on these consolidated financial statements based on my audit.

I conducted my audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audit provides a reasonable basis for my opinion.

In my opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of SmartMetric, Inc. and subsidiary, a development stage company, as of June 30, 2004 and June 30, 2003, and the results of their operations and cash flows for the year ended June 30, 2004 and for the period December 18, 2002 to June 30, 2003 in conformity with accounting principles generally accepted in the United States.


 
/s/ Michael T. Studer CPA P.C.
 
Michael T. Studer CPA P.C.


Freeport, New York
August 25, 2004, except for Notes 4, 5, 7, and 8, as to which the date is January 5, 2005.



F-2


     

SMARTMETRIC, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Balance Sheets
                 
   
December 31,
 
June 30,
   
2004
   
2004
   
2003
Assets
 
(Unaudited)
           
                 
Current assets:
               
    Cash
$
32,190
 
$
64,142
 
$
-
    Stock subscriptions receivable
 
-
   
35,602
   
-
    Prepaid expenses
 
1,400
   
-
   
-
                 
   Total current assets
 
33,590
   
99,744
   
-
                 
    Other assets:
               
    Patent costs
 
15,000
   
-
   
-
    Deferred offering costs
 
80,000
   
52,500
   
50,000
    Organization costs - net
 
360
   
420
   
540
                 
Total assets
$
128,950
 
$
152,664
 
$
50,540
                 
Liabilities and Stockholders' Equity
               
                 
Current liabilities:
               
    Accounts payable and accrued expenses
$
3,000
 
$
1,250
 
$
-
    Due to related party
 
29,427
   
51,850
   
50,600
                 
   Total current liabilities
 
32,427
   
53,100
   
50,600
                 
    Other liabilities
 
-
   
-
   
-
                 
         Total liabilities
 
32,427
   
53,100
   
50,600
                 
Stockholders' equity :
               
    Preferred stock, $.01 par value; 5,000,000 shares
               
     authorized, 0 shares issued and outstanding
 
-
   
-
   
-
    Class A common stock, $.001 par value;
               
     50,000,000 shares authorized, 50,000,000 shares
               
      issued and outstanding
 
50,000
   
50,000
   
-
   Common stock, $.001 par value; 45,000,000 shares
               
     authorized, issued and outstanding 8,628,464,
               
     8,560,257 and 0 shares, respectively
 
8,628
   
8,560
   
-
   Additional paid-in capital
 
135,233
   
77,042
   
-
   Deficit accumulated during the development stage
 
(97,338)
   
(36,038)
   
(60)
                 
     Total stockholders' equity
 
96,523
   
99,564
   
(60)
                 
Total liabilities and stockholders' equity
$
128,950
 
$
152,664
 
$
50,540
                 
See notes to consolidated financial statements.
               
                 
  F-3

 
SMARTMETRIC, INC. AND SUBSIDIARY                              
(A Development Stage Company)                              
Consolidated Statements of Operations                              
                               
                           
Cumulative
 
                           
During the
 
                     
Period
   
Development
 
                      December 18,    
Stag
 
   
Six Months      
   
Year Ended
   
2002
  (December 18, 2002  
   
Ended December 31,      
   
June 30,
   
to June 30,
   
to December 31,  
   
2004
   
2003
   
2004
   
2003
   
2004)
 
   
(Unaudited)      
               
(Unaudited)
 
                               
Revenues
$
-
 
$
-
 
$
-
 
$
-
 
$
-
 
                               
Expenses:
                             
    General and administrative
 
20,890
   
1,061
   
6,643
   
60
   
27,593
 
    Research and development
 
40,410
   
-
   
29,335
   
-
   
69,745
 
                               
      Total expenses
 
61,300
   
1,061
   
35,978
   
60
   
97,338
 
                               
Net loss
$
(61,300)
 
$
(1,061)
 
$
(35,978)
 
$
(60)
 
$
(97,338)
 
                               
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
 
58,594,361
   
25,000,000
   
58,560,257
   
-
       
                               
                               
See notes to consolidated financial statements.        
                     
                               
                               
                               
F-4          

 
SMARTMETRIC, INC. AND SUBSIDIARY                  
(A Development Stage Company)                  
Consolidated Statements of Changes in Stockholders' Equity                  
                                   
                           
Deficit 
   
                           
Accumulated
   
                       
Additional
   
During the
 
Total
 
Class A Common Stock      
 
Common Stock  
   
Paid-In
 
Development
 
Stockholders'
 
 
Shares
   
Amount
 
Shares
   
Amount
   
Capital
   
Stage
 
Equity
                                   
Net loss for period
                                 
    December 18, 2002
                                 
    (date of inception)
                                 
    to June 30, 2003
-
 
$
-
 
-
 
$
-
 
$
-
 
$
(60)
$
(60)
                                   
                                   
Balances, June 30, 2003
-
   
-
 
-
   
-
   
-
   
(60)
 
(60)
                                   
Sale of Class A
                                 
    common stock in
                                 
    October 2003 at a price
                                 
    of $.001 per share
50,000,000
   
50,000
 
-
   
-
   
-
   
-
 
50,000
                                   
Sale of common stock
                                 
    from October 2003
                                 
    to June 2004 at a
                                 
    price of $.01 per share
-
   
-
 
8,560,257
   
8,560
   
77,042
   
-
 
85,602
                                   
Net loss for year ended
                                 
     June 30, 2004
-
   
-
 
-
   
-
   
-
   
(35,978)
 
(35,978)
                                   
Balances, June 30, 2004
50,000,000
   
50,000
 
8,560,257
   
8,560
   
77,042
   
(36,038)
 
99,564
                                   
Sale of common stock
                                 
    in October and
                                 
    November 2004 at a
                                 
    price of $1.50 per share,
                                 
    less $44,052 private
                                 
    placement costs
-
   
-
 
68,207
   
68
   
58,191
   
-
 
58,259
                                   
Net loss for six months
                                 
    ended December 31,
                                 
    2004 (Unaudited)
-
   
-
 
-
   
-
   
-
   
(61,300)
 
(61,300)
                                   
Balances, December 31,
                                 
    2004 (Unaudited)
50,000,000
 
$
50,000
 
8,628,464
 
$
8,628
 
$
135,233
 
$
(97,338)
$
96,523
                                   
                                   
                                   
                                   
See notes to consolidated financial statements.        
                         
                                   
F-5
 


SMARTMETRIC, INC. AND SUBSIDIARY                              
(A Development Stage Company)                              
Consolidated Statements of Cash Flows                              
                               
                           
Cumulative
 
                           
During the
 
                     
Period
   
Development
 
                     
December 18,
   
Stage
 
   
Six Months      
   
Year Ended
   
2002
  December 18, 2002  
   
Ended December 31,      
   
June 30,
   
to June 30,
   
to December 31,
 
   
2004
   
2003
   
2004
   
2003
   
2004)
 
   
(Unaudited)
                     
(Unaudited)
 
                               
Cash flows from operating activities:  
                           
  Net loss
$
(61,300)
 
$
(1,061)
 
$
(35,978)
 
$
(60)
 
$
(97,338)
 
  Changes in assets and liabilities:
                             
    Prepaid expenses
 
(1,400)
   
-
   
-
   
-
   
(1,400)
 
    Organization costs
 
60
   
60
   
120
   
(540)
   
(360)
 
    Accounts payable
                             
      and accrued expenses
 
1,750
   
-
   
1,250
   
-
   
3,000
 
                               
Net cash used for
                             
operating activities
 
(60,890)
   
(1,001)
   
(34,608)
   
(600)
   
(96,098)
 
                               
Cash flows from investing activities:
                           
  Patent costs incurred
 
(15,000)
   
-
   
-
   
-
   
(15,000)
 
                               
  Net cash used for
                             
    investing activities
 
(15,000)
   
-
   
-
   
-
   
(15,000)
 
                               
Cash flows from financing activities:
                           
  Loans from related party
 
2,577
   
-
   
1,250
   
50,600
   
54,427
 
  Repayment of loans from
                             
    related party
 
(25,000)
   
-
   
-
   
-
   
(25,000)
 
  Stock subscriptions collected, net
 
93,861
   
100,000
   
100,000
   
-
   
193,861
 
  Deferred offering costs incurred
 
(27,500)
   
-
   
(2,500)
   
(50,000)
   
(80,000)
 
                               
Net cash provided
                             
    by financing activities
 
43,938
   
100,000
   
98,750
   
600
   
143,288
 
 
                             
Net increase (decrease) in cash
 
(31,952)
   
98,999
   
64,142
   
-
   
32,190
 
                               
Cash, beginning of period
 
64,142
   
-
   
-
   
-
   
-
 
 
                             
Cash, end of period
$
32,190
 
$
98,999
 
$
64,142
 
$
-
 
$
32,190
 
                               
Supplemental disclosures
                             
    of cash flow information:
                             
    Interest paid
$
-
 
$
-
 
$
-
 
$
-
 
$
-
 
                               
     Income taxes paid
$
-
 
$
-
 
$
-
 
$
-
 
$
-
 
                               
See notes to consolidated financial statements.    
                         
                               
F-6
 

 

SMARTMETRIC, INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements
For the Six Months Ended December 31, 2004 and 2003 (Unaudited),
For the Year Ended June 30, 2004, For the Period December 18, 2002
to June 30, 2003, and For the Period December 18, 2002
(Date of Inception) to December 31, 2004 (Unaudited)


NOTE 1 - ORGANIZATION

SmartMetric, Inc. (“SmartMetric”) was incorporated in the State of Nevada on December 18, 2002. SmartMetric is developing a credit card size plastic card embedded with an integrated circuit chip and biometric fingerprint sensor which provides identification of the user (the “SmartMetric Smart Card”) to market to government agencies, corporations, and organizations interested in identification cards.


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation - The consolidated financial statements include the accounts of SmartMetric and its wholly owned subsidiary SmartMetric Australia Pty. Ltd. (collectively, the “Company”). The Company has been presented as a “development stage enterprise” in accordance with Statement of Financial Accounting Standards (“SFAS”) No.7, “Accounting and Reporting by Development Stage Enterprises”. Since inception, the Company’s activities have been limited to organizational efforts, obtaining initial financing, and product development.

Use of estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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. Actual results could differ from those estimates.

Fair value of financial instruments - The Company’s financial instruments consist of cash, stock subscriptions receivable, accounts payable and accrued expenses, and due to related party, which approximate fair value because of their short maturity.

Income taxes - The Company follows SFAS No. 109, “Accounting for Income Taxes”, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

Net loss per common share - Basic and diluted net loss per common share has been calculated based upon the weighted average number of common shares outstanding.
NOTE 3 - DEFERRED OFFERING COSTS

Deferred offering costs of $80,000 at December 31, 2004 consist of legal fees and audit fees incurred in connection with the Company’s planned public offering (see note 7). If the public offering is successful, the Company will charge these costs to additional paid-in capital. If the public offering is unsuccessful, the Company will expense these costs.


NOTE 4 - DUE TO RELATED PARTY

Prior to opening the Company’s bank account, the president of the Company paid organization costs of $600 on behalf of the Company. Subsequently, the president of the Company paid legal fees of $52,500 and audit fees of $1,250 on behalf of the Company and advanced $77 directly to the Company. On December 14, 2004, SmartMetric repaid $25,000 of the then $54,427 balance due to related party. These loans do not bear interest and are due on demand.


NOTE 5 - STOCKHOLDERS’ EQUITY

In October 2003, the Company sold 50,000,000 shares of Class A common stock to the president of the Company at a price of $.001 per share, or $50,000 total. From October 2003 to June 30, 2004, the Company sold 8,560,257 shares of common stock (the “Additional Shares”) to the president of the Company at a price of $.01 per share, or $85,602 total. These Additional Shares were assigned by the president of the Company in varying amounts to approximately 600 shareholders for no consideration.

In October and November 2004, the Company sold a total of 68,207 shares of common stock to 9 investors at a price of $1.50 per share, or $102,311 total. The net proceeds to the Company, after deducting $44,052 in costs relating to this private placement, was $58,259.

The Class A common stock and the common stock have identical voting and other rights.


NOTE 6 - INCOME TAXES

No provisions for income taxes have been recorded since the Company has incurred losses since inception.

At December 31, 2004, deferred tax assets consist of:

 
Net operating loss carryforwards
$
33,095
 
Less valuation allowance
 
__ (33,095)
       
 
Net
$
-  

Based on management's present assessment, the Company has not yet determined it to be more likely than not that a deferred tax asset of $33,095 attributable to the future utilization of $97,338 of net operating loss carryforwards as of December 31, 2004 will be realized. Accordingly, the Company has provided a 100% allowance against the deferred tax asset in the financial statements at December 31, 2004. The Company will continue to review this valuation allowance and make adjustments as appropriate. The net operating loss carryforwards expire $60 in 2023, $35,978 in 2024, and $61,300 in 2025.


NOTE 7 - PLANNED PUBLIC OFFERING

The Company filed a Form SB-2 registration statement with the U.S. Securities and Exchange Commission in September 2004 in connection with a public offering (the “Public Offering”) of up to 4,000,000 shares of common stock at $1.50 per share or $6,000,000 total. The Company plans on offering the shares directly on a “best efforts, all or none basis” as to the first 333,333 shares and on a best efforts basis as to the remaining 3,500,000 shares. The shares are planned to be sold by SmartMetric’s officers and directors in a self-underwritten offering (although the Company may decide to engage registered broker-dealers to assist in the sale) for a period of 90 days (which may be extended for an additional 90 days at the Company’s option). The Public Offering plans that subscription proceeds will be placed in an escrow account until the minimum offering of $500,000 is achieved, after which proceeds shall be released directly to the Company; if the minimum offering is not sold by the end of the offering period, or extended offering period if so extended, the escrowed proceeds would be returned to investors. Also, certain selling shareholders plan on offering 11,628,464 shares for sale in this offering.


NOTE 8 - COMMITMENTS

Marketing agreement - On October 30, 2003, SmartMetric executed an agreement with Information Spectrum, Inc. (“ISI”). Pursuant to this agreement, ISI shall seek to market SmartMetric’s Smart Card technology by actively seeking customers interested in purchasing credential cards which incorporate SmartMetric’s patented Smart Card technology. Prior to ISI offering SmartMetric products by submitting a formal proposal, ISI and SmartMetric shall enter into a “Teaming Agreement” which will define each party’s rights and obligations concerning that particular sales opportunity. Every proposal will require its own Teaming Agreement. Pursuant to this Agreement, ISI is the exclusive reseller of SmartMetric products to agencies of the United States government and the Government of Canada. In addition, ISI has the right of first refusal for other marketing, sales or re-sales opportunities for customers other than the United States or Canadian governments. The term of this agreement is two years and may be extended upon mutual agreement of the parties.

Patent license agreement - Effective August 1, 2004, SmartMetric executed a license agreement with Applied Cryptology, Inc. (“ACI”), a corporation controlled by SmartMetric’s president and the owner of certain technology. Pursuant to the license agreement, SmartMetric has the right to make use of this technology for the purpose of developing software and systems to be used by SmartMetric to provide any or all of the following: 1) secure transactions over the Internet from home and office computers; 2) an automatic method for connecting to remote computers; 3) a method of developing targeted advertising to home and/or office computers; 4) identity verification and access control as provided for in the patent. Pursuant to this license agreement, ACI will receive 2% of all revenues generated by SmartMetric on products which utilize this patented technology. The license fee will be paid on a quarterly basis based on revenues received during the quarter. The license fee shall be due within 45 days of the end of each quarter. In the event no revenues are generated through the use of any of the licensed patents during a given quarter, no money shall be owed ACI for such quarter. ACI may rescind the license agreement and reclaim all rights and interest in the patents if certain events, such as SmartMetric’s filing for bankruptcy protection or reorganization, occur. This license agreement will remain in effect for the lives of the patents. SmartMetric may utilize the patent-pending technological applications anywhere in the world without limitation.

Employment agreement - Effective July 1, 2004, SmartMetric executed an employment agreement with its president. Pursuant to this one-year employment agreement, the president shall receive an annual salary of $170,000 commencing January 1, 2005. This salary will commence upon the Company achieving gross revenues of $1,000,000. Until that time, the salary shall be accrued and SmartMetric may pay the president as salary up to 25% of any offering proceeds received by the Company, which amount shall not exceed $170,000 in any given 12 month period. The president is also eligible for an annual bonus based on certain performance criteria to be determined by a Compensation Committee of the board of directors at a later date. His employment may be terminated for cause at any time. According to the employment agreement, any inventions, ideas, disclosures and improvements made or conceived by him during his employment, including adoptions and improvements to existing patents, shall be his property.

Rental agreement - The Company currently uses office space provided by its president at no cost to the Company. It is anticipated that the Company will start paying rent for this space following the successful completion of the Public Offering.

Lease agreement - In November 2004, SmartMetric executed a lease agreement for office space in Aventura, Florida. This agreement provides for monthly rentals of $700 and an initial term of six months ending May 31, 2005. Unless the lessor is notified in writing at least 60 days prior to the Termination Date, this agreement shall renew for additional one-year terms. Lessor has the right to terminate the lease agreement at any time upon 45 days advance written notice to SmartMetric.



F-7


     
PART II

INFORMATION NOT REQUIRED IN PROSPECTUS


Item 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
 
The Nevada General Corporation Law, as amended, provides for the indemnification of the Company's officers, directors and corporate employees and agents under certain circumstances as follows:

INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS; INSURANCE. - (a) A corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful.

(b) A corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstance of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such court shall deem proper.

(c) To the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsections (a) and (b) of this section, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorney's fees) actually and reasonably incurred by him in connection therewith.

(d) Any indemnification under subsections (a) and (b) of this section (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in subsections (a) and (b) of this section. Such determination shall be made (1) by the board of directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (3) by the stockholders.

(e) Expenses incurred by an officer or director in defending any civil, criminal, administrative or investigative action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the corporation as authorized in this section. Such expenses including attorneys' fees incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the board of directors deems appropriate.

(f) The indemnification and advancement expenses provided by, or granted pursuant to, the other subsections of this section shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement expenses may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office.

(g) A corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under this section.

(h) For purposes of this Section, references to "the corporation" shall include, in addition to the resulting corporation, any constituent corporation including absorbed in a consolidation of merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers and employees or agents so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under this section with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation doubled if its separate existence had continued.

(i) For purposes of this section, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the corporation" shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the corporation" as referred to in this section.

(j) The indemnification and advancement of expenses provided by, or granted pursuant to, this section shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors, and administrators of such person.

Article XI of the Company's By-laws provides for the indemnification of the company's officers, directors, and corporate employees and agents under certain circumstances as follows:

Article XI provides that the Company will hold harmless and will indemnify all officers, directors, employees and agents of the Company against all expense, liability and loss reasonably incurred or suffered by such person in its connection as such with the Company. The Company shall indemnify any such person seeking indemnification in connection with a proceeding initiated by such person (except against the Company) only if such proceeding was authorized by the Company's Board of Directors.

If a claim under the above paragraph is not paid in full by the Company within 30 days after a written claim has been received by the Company, the claimant may at anytime thereafter bring suit against the Company to recover the unpaid amount of the claim. If the claimant is successful, it is entitled to be paid the expense of prosecuting such claim, as well.

Notwithstanding any limitations in other sections of the By-laws, the Company will, to the fullest extend permitted by Section 145 of the General Corporation Law of Nevada, indemnify any and all persons whom it has the power to indemnify against any and all of the expense, liabilities and loss, and this indemnification shall not be deemed exclusive of any other rights to which the indemnities may be entitled under any By-law, agreement, or otherwise, both as to action in his/her official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such persons.

SmartMetric may, at its own expense, maintain insurance to protect itself and any director, officer, employee or agent of SmartMetric against any such expense, liability or loss, whether or not SmartMetric would have the power to indemnify such person against such expense, liability or loss under the Nevada General Corporation Law.


Item 25. EXPENSES OF ISSUANCE AND DISTRIBUTION

The other expenses payable by the Registrant in connection with the issuance and distribution of the securities are approximately:

Escrow Fee ………………………………………
$0.00
Securities and Exchange Commission
 
Registration Fee………………………………….
$2,957.23
Legal Fees………………………………………..
$130,000.00
Accounting Fees …………………………….…...
$5,000.00
Printing and Engraving ……………………….….
$5,000.00
Blue Sky Qualification Fees and Expenses………
$2,000.00
Miscellaneous ……………………………………
$500.00
Transfer Agent Fee ………………………………
$2,500.00
TOTAL ………………………………………….
$147,957.23


Item 26. RECENT SALES OF UNREGISTERED SECURITIES

In October 2003, SmartMetric issued 50,000,000 shares of common stock to the President of SmartMetric, Colin Hendrick, at $.001 per share for a total of $50,000. From November 2003, to June 30, 2004 SmartMetric sold an additional 8,560,257 shares to Mr. Hendrick at $.01 per share for a total of $85,602.57. Mr. Hendrick completed payment for these shares in October 2004. These sales were made pursuant to Section 4(2) of the Securities Act of 1933. There was no general solicitation or advertising, and Mr. Hendrick did not purchase the shares with the intent to resell them. In August 2004, Mr. Hendrick assigned 8,560,257 shares to approximately 600 people for no consideration. Each of these tranferees is registering his/her shares in this registration statement.

In October and November 2004, SmartMetric sold 68,207 shares to 9 people at $1.50 per share. SmartMetric relied upon Section 4(2) of the Securities Act when offering these securities to a limited number of persons without general solicitation or advertising.


Item 27. EXHIBITS

3.1
Certificate of Incorporation of SmartMetric, Inc. (2)
   
3.2
By-Laws of SmartMetric, Inc. (2)
   
4.1
Specimen Certificate of Common Stock. (2)
   
4.6
Form of Escrow Agreement. (2)
   
5.1
Opinion of Counsel.
   
10.1
License Agreement between SmartMetric and Applied Cryptology, Inc.
10.2
Employment Agreement- Colin Hendrick
   
10.3
Agreement between SmartMetric and ISI (2)
   
14.1
Code of Ethics (2)
   
21.1
Subsidiaries of SmartMetric
   
23.2
Independent Auditor's Consent
   
24.1
Counsel's Consent to Use Opinion (1)
   
99.1
Subscription Agreement.
 
 
(1)   Contained in Exhibit 5.1
(2)   Filed with original registration statement on September 3, 2004

Item 28.

UNDERTAKINGS

The registrant undertakes:

(1) To file, during any period in which offers or sales are being made, post-effective amendment to this registration statement:

(i) To include any prospectus required by Section 10 (a) (3) of the Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after the Effective Date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement;

(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement, including (but not limited to) any addition or deletion of managing underwriter;

(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be treated as a new registration statement of the securities offered, and the offering of the securities at that time to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to any provisions contained in its Certificate of Incorporation, or by-laws, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

  
     

 

SIGNATURES


In accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements of filing on Form SB-2 and authorized this registration statement to be signed on its behalf by the undersigned, in the City of New York, State of New York, on February 2, 2005.
                                         

 
SMARTMETRIC, INC.
   
 
By: /s/ Colin Hendrick
 
       Colin Hendrick


In accordance with the requirements of the Securities Act of 1933, this registration statement was signed by the following persons in the capacities and on the dates stated.


Dated: January 31, 2005
/s/ Colin Hendrick
Colin Hendrick, President, Chief Executive Officer, Chief Financial Officer, Director
 
 
 
 
Dated: January 31, 2005
/s/ Peter J. Sleep
Peter J. Sleep, Vice President, Director
 
 
 
 
 
 
Dated: January 31, 2005
/s/ Joseph Katzman
Joseph Katzman, Director

     
 
 
 


ESCROW DEPOSIT AGREEMENT

AGREEMENT dated this __ day of ____ 20__, by and between SMARTMETRIC, INC., a Nevada corporation (the “Company”), having its principal place of business at 67 Wall Street, 22 nd Floor, New York, New York 10005 and SIGNATURE BANK (the "Escrow Agent"), a New York State chartered bank and having an office at 71 Broadway, New York, New York 10006.

W   I   T   N   E   S   S   E   T   H :

WHEREAS, the Company has filed with the Securities and Exchange Commission (“SEC”) a registration statement (the “Registration Statement”) covering a proposed public offering (the “Offering”) of Company’s securities (collectively, the “Securities”, and individually, a “Share”) at a price of $1.50 per Share on a “best efforts, all or none basis” a minimum of 333,333 shares ($499,999.50) (“Minimum Amount”) and a maximum of 4,000,000 shares ($6,000,000) (“Maximum Amount”); and

WHEREAS, unless the Company sells the Minimum Amount by ______, which is 90 days from the date of the prospectus (the “Termination Date”), or if the Offering is extended by the Company for an additional 90 days until ______ (the “Final Termination Date”), the Offering will terminate and all funds will be returned to the Subscribers (hereinafter defined); and

WHEREAS, the Company desires to establish an escrow account with Escrow Agent into which the Company shall instruct subscribers to deposit checks and other instruments for the payment of money made payable to the order of Signature Bank, as Escrow Agent for SmartMetric, Inc. and Escrow Agent is willing to accept said checks and other instruments for the payment of money in accordance with the terms hereinafter set forth; and

WHEREAS, Company represents and warrants to the Escrow Agent that it has not stated to any individual or entity that the Escrow Agent's duties will include anything other than those duties stated in this Agreement; and

WHEREAS, Company warrants to the Escrow Agent that a copy of the Registration Statement and all other documents which have been delivered to Subscribers and third parties which include Escrow Agent’s name and duties, have been attached hereto as Schedule 1;

NOW, THEREFORE, IT IS AGREED as follows:

1.     Delivery of Escrow Funds .

(a) (i) The Company shall cause to be delivered to Escrow Agent checks received from Subscribers made payable to the order of Signature Bank, as Escrow Agent for SmartMetric, Inc., along with the name, address and social security number or taxpayer identification number of the individual or entity making payment (“Subscriber”). The checks shall be deposited into a non interest-bearing account at Signature Bank entitled "Signature Bank, as Escrow Agent for SmartMetric, Inc.” (the "Escrow Account").

(a) (ii) The Escrow Agent may receive money from the Subscriber by means of wire transfer, whereby money shall be wired to Signature Bank, 565 Fifth Avenue, New York, New York 10018, ABA Number 026013576 for credit to Signature Bank, as Escrow Agent for SmartMetric, Inc., Account No. ____________. In the event that the Escrow Agent receives funds directly from the Subscriber, the Company shall provide the Escrow Agent in writing with the name, address and social security number or taxpayer identification number of the Subscriber. All such money shall be deposited into the Escrow Account.

(b)     The collected funds deposited into the Escrow Account are referred to as the "Escrow Funds.”

(c)     The Escrow Agent shall have no duty or responsibility to enforce the collection or demand payment of any funds deposited into the Escrow Account. If, for any reason, any check deposited into the Escrow Account shall be returned unpaid to the Escrow Agent, the sole duty of the Escrow Agent shall be to return the check to the Subscriber and advise the Company promptly thereof.

2.     Release of Escrow Funds . The Escrow Funds shall be paid by the Escrow Agent in accordance with the following:

(a)     In the event that the Company advises the Escrow Agent in writing that the offering has been withdrawn, Escrow Agent shall promptly return the funds paid by each Subscriber to said Subscriber without interest or deduction, penalty or expense;

(b)     If prior to 3:00 P.M. (local New York City time) on the Termination Date, the Escrow Agent receives written notification, in form of Exhibit A, attached hereto and made a part hereof, and signed by the Company, stating that the Termination Date has been extended to, or any date prior to, the Final Termination Date, the date shall be so extended.

(c)     Provided that the Escrow Agent does not receive the notice stated in (a) above and there is at least the Minimum Amount deposited into the Escrow Account on or prior to the Termination Date or the Final Termination Date or such other date that is after the Termination Date (if Escrow Agent has, prior to the Termination Date, received Exhibit A), the Escrow Agent shall, upon receipt of written instructions, in the form of Exhibit B or in form and substance satisfactory to the Escrow Agent, received from the Company, pay the Escrow Funds in accordance with such written instructions, such payment or payments to be made by wire transfer or bank check.
 
           (d)     If by 3:00 P.M. (local New York City time) on the Termination Date, or in the event the Escrow Agent has received Exhibit A, in accordance with (b) above, on the Final Termination Date, the Escrow Agent has not received written instructions from the Company regarding the disbursement of the Escrow Funds or there is a balance in the Escrow Account of less than the Minimum Amount, the Escrow Agent shall promptly return the Escrow Funds to the Subscribers; provided, however, solely to accommodate the clearing of Escrow Funds which have been properly deposited into the Escrow Account prior to the Termination Date or Final Termination Date, the notice for release of funds may be delivered within 7 banking days and Escrow Funds shall not be sent back to Subscribers until after such date. A banking day is any day other than a Saturday, Sunday or day that the Bank is not legally obligated to be open.

(e)     The Escrow Agent shall not be required to pay any uncollected funds or any funds that are not available for withdrawal.

3.     Acceptance by Escrow Agent . The Escrow Agent hereby accepts and agrees to perform its obligations hereunder, provided that:

(a)     The Escrow Agent may act in reliance upon any signature believed by it to be genuine, and may assume that any person who has been designated by the Company to give any written instructions, notice or receipt, or make any statements in connection with the provisions hereof has been duly authorized to do so. Escrow Agent shall have no duty to make inquiry as to the genuineness, accuracy or validity of any statements or instructions or any signatures on statements or instructions. The names and true signatures of each individual authorized to act singly on behalf of the Company is stated in Schedule A, which is attached hereto and made a part hereof.

     (b)     The Escrow Agent may act relative hereto in reliance upon advice of counsel in reference to any matter connected herewith. The Escrow Agent shall not be liable for any mistake of fact or error of judgment or law, or for any acts or omissions of any kind, unless caused by its willful misconduct or gross negligence.

(c)     The Company agrees to indemnify and hold the Escrow Agent harmless from and against any and all claims, losses, costs, liabilities, damages, suits, demands, judgments or expenses (including but not limited to attorney's fees) claimed against or incurred by Escrow Agent arising out of or related, directly or indirectly, to the Escrow Agreement.

(d)     In the event that the Escrow Agent shall be uncertain as to its duties or rights hereunder, the Escrow Agent shall, to the extent not prohibited by applicable law, be entitled to (i) refrain from taking any action other than to keep safely the Escrow Funds until it shall be directed otherwise by a court of competent jurisdiction, or (ii) deliver the Escrow Funds to a court of competent jurisdiction.

(e)     The Escrow Agent shall have no duty, responsibility or obligation to interpret or enforce the terms of any agreement other than Escrow Agent's obligations hereunder, and the Escrow Agent shall not be required to make a request that any monies be delivered to the Escrow Account, it being agreed that the sole duties and responsibilities of the Escrow Agent, to the extent not prohibited by applicable law, shall be (i) to accept checks or other instruments for the payment of money and wire transfers delivered to the Escrow Agent for the Escrow Account and deposit said checks and wire transfers into the non-interest-bearing Escrow Account, and (ii) to disburse or refrain from disbursing the Escrow Funds as stated above, provided that the checks received by the Escrow Agent have been collected and are available for withdrawal.

4.     Resignation and Termination of the Escrow Agent . The Escrow Agent may resign at any time by giving 30 days' notice of such resignation to the Company. Upon providing such notice, the Escrow Agent shall have no further obligation hereunder except to hold the Escrow Funds that it has received as of the date on which it provided the notice of resignation as depositary. In such event, the Escrow Agent shall not take any action until the Company has designated a banking corporation, trust company, attorney or other person as successor. Upon receipt of such written instructions signed by the Company, the Escrow Agent shall promptly deliver the Escrow Funds, net of any outstanding charges, to such successor and shall thereafter have no further obligations hereunder. If such instructions are not received within 30 days following the effective date of such resignation, then the Escrow Agent may deposit the Escrow Funds and any other amounts held by it pursuant to this Agreement with a clerk of a court of competent jurisdiction pending the appointment of a successor. In either case provided for in this paragraph, the Escrow Agent shall be relieved of all further obligations and released from all liability thereafter arising with respect to the Escrow Funds and all interest earned thereon.

5.     Termination . The Company may terminate the appointment of the Escrow Agent hereunder upon written notice specifying the date upon which such termination shall take effect, which date shall be at least 30 days from the date of such notice. In the event of such termination, the Company shall, within 30 days of such notice, appoint a successor escrow agent and the Escrow Agent shall, upon receipt of written instructions signed by the Company, turn over to such successor escrow agent all of the Escrow Funds; provided, however, that if the Company fails to appoint a successor escrow agent within such 30-day period, such termination notice shall be null and void and the Escrow Agent shall continue to be bound by all of the provisions hereof. Upon receipt of the Escrow Funds, the successor escrow agent shall become the Escrow Agent hereunder and shall be bound by all of the provisions hereof and the Escrow Agent shall be relieved of all further obligations and released from all liability thereafter arising with respect to the Escrow Funds.

6.     Investment . All funds received by the Escrow Agent shall be invested only in non-interest bearing bank accounts at Signature Bank.

  7.     Compensation . Escrow Agent shall be entitled, for the duties to be performed by it hereunder, to a fee of $1,500 which fee shall be paid by the Company promptly following the signing of this agreement. In addition, the Company shall be obligated to reimburse Escrow Agent for all reasonable costs and expenses incurred in connection with this Agreement, including reasonable counsel fees other than the cost and expense attributable to the preparation and execution of this Agreement. No modification, cancellation or rescission of this Agreement or resignation or termination of the Escrow Agent shall affect the right of Escrow Agent to retain the amount of any fee which has been paid prior to the effective date of any such modification, cancellation, rescission, resignation or termination. If the Company fails to pay such compensation or reimbursement, then the Company shall incude such payment to the Escrow Agent on Exhibit B, which provides disbursemnent instructions in accordance with paragraph 2(c) .

8.     Notices . All notices, requests, demands and other communications required or permitted to be given hereunder shall be in writing and shall be deemed to have been duly given if sent by hand-delivery, by nationally recognized overnight courier service or by prepaid registered or certified mail, return receipt requested, to the addresses set forth below.

If to the Company:

SmartMetric, Inc.
          67 Wall Street, 22 nd Floor
New York, NY 10005
Attention : _____________________
Fax: ______________

If to Escrow Agent:

Signature Bank
71 Broadway
New York, NY 10006
Attention : James V. Raggi, Group Director & Senior Vice President
Fax: 646-822-1556

9.     General .

(a)     This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York applicable to agreements made and to be entirely performed within such State, without regard to choice of law principles.

(b)     This Agreement sets forth the entire agreement and understanding of the parties in respect to the matters contained herein and supersedes all prior agreements, arrangements and understandings relating thereto.

(c)     All of the terms and conditions of this Agreement shall be binding upon, and inure to the benefit of and be enforceable by, the parties hereto.

(d)     This Agreement may be amended, modified, superseded or canceled, and any of the terms or conditions hereof may be waived, only by a written instrument executed by each party hereto or, in the case of a waiver, by the party waiving compliance. The failure of any party at any time or times to require performance of any provision hereof shall in no manner affect its right at a later time to enforce the same. No waiver of any party of any condition, or of the breach of any term contained in this Agreement, whether by conduct or otherwise, in any one or more instances shall be deemed to be or construed as a further or continuing waiver of any such condition or breach or a waiver of any other condition or of the breach of any other term of this Agreement. No party may assign any rights, duties or obligations hereunder unless all other parties have given their prior written consent.

(e)     If any provision included in this Agreement proves to be invalid or unenforceable, it shall not affect the validity of the remaining provisions.

(f)     This Agreement and any amendment or modification of this Agreement may be executed in several counterparts or by separate instruments and all of such counterparts and instruments shall constitute one agreement, binding on all of the parties hereto.

10.     Form of Signature. The parties hereto agree to accept a facsimile transmission copy of their respective actual signatures as evidence of their actual signatures to this Agreement and any amendment or modification of this Agreement; provided however , that each party who produces a facsimile signature agrees, by the express terms hereof, to place, promptly after transmission of his or her signature by fax, a true and correct original copy of his or her signature in overnight mail to the address of the other party.

IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first set forth above.

SmartMetric, Inc.


By:     _______________________
        Name:
        Title:


SIGNATURE BANK

By:      _____________________________
        Name:
        Title:

By:       _____________________________
        Name:
        Title:





 
     

 


 
Exhibit A






Date: __________________



Signature Bank
71 Broadway
New York, NY 10006
Attention: James V. Raggi,
Group Director & Senior Vice President



Dear Mr. Raggi:

In accordance with the terms of Section 2(b) of an Escrow Deposit Agreement dated ___ _______, by and between SmartMetric, Inc. (the “Company”) and Signature Bank (the “Escrow Agent”), the Company hereby notifies the Escrow Agent that the Termination Date has been extended to __________ __, 20__.

Very truly yours,

SmartMetric, Inc.

By:_____________
Name:
Title:





 
     

 



Exhibit B

                     FORM OF ESCROW RELEASE NOTICE

Date:

SIGNATURE BANK
261 Madison Avenue
New York, N.Y. 10016
Attn: ____________

Dear ________:

In accordance with the terms of paragraph 2(c) of an Escrow Deposit Agreement dated as of ________ __, 2004 (the "Escrow Agreement"), by and between SmartMetric, Inc. (the "Company") and Signature Bank (the "Escrow Agent"), the Company hereby notifies the Escrow Agent that the ________ closing will be held on ___________ for gross proceeds of $_________.

PLEASE DISTRIBUTE FUNDS BY WIRE TRANSFER AS FOLLOWS (wire instructions attached):

____________________________:             $  

________________________:             $    

________________________:             $  


Very truly yours,

SmartMetric, Inc.

By: __________________________________
Name: _____________
Title: _____________

 
 

     

 

Schedule A


The Escrow Agent is authorized to accept instructions signed or believed by the Escrow Agent to be signed by any one of the following on behalf of SmartMetric, Inc.


                        Name
                  True Signature
   
_____________________________________
______________________________________
   
_____________________________________
______________________________________
   

 



     

February 1, 2005

Securities and Exchange Commission
Washington, D.C.

Re: SmartMetric, Inc.


To Whom It May Concern:

SmartMetric, Inc. (the "Company") is a corporation duly incorporated and validly existing and in good standing under the laws of the state of Nevada. The Company has full corporate powers to own its property and conduct its business, as such business is described in the prospectus. The Company is qualified to do business as a foreign corporation in good standing in every jurisdiction in which the ownership of property and the conduct of business requires such qualification.

This opinion is given in connection with the registration with the Securities and Exchange Commission of four million (4,000,000) Shares of Common Stock at a price of $1.50 per Share, for sale in the Company's proposed public Offering, and 11,628,464 shares of common stock being offered by selling shareholders.

We have acted as counsel to the company in connection with the preparation of the Registration Statement on Form SB-2, pursuant to which such Shares are being registered and, in so acting, we have examined the originals and copies of the corporate instruments, certificates and other documents of the Company and interviewed representatives of the Company to the extent we deemed it necessary in order to form the basis for the opinion hereafter set forth. In such examination we have assumed the genuineness of all signatures and authenticity of all documents submitted to me as certified or photostatic copies. As to all questions of fact material to this opinion which have not been independently established, we have relied upon statements or certificates of officers or representatives of the Company.

All of the 4,000,000 Shares being registered are now authorized but unissued shares.

Based upon the foregoing, we are of the opinion that the 4,000,000 Shares of Common Stock of the Company being registered for sale by the Company, when issued and sold pursuant to this Registration Statement, and the 11,628,464 shares being offered by the selling shareholders are legally issued, fully paid and non-assessable and there will be no personal liability to the owners thereof.

The undersigned hereby consents to the use of this opinion in connection with such Registration Statement and its inclusion as an exhibit accompanying such Registration Statement.

Very truly yours,



/s/SCHONFELD & WEINSTEIN, L.L.P.
SCHONFELD & WEINSTEIN, L.L.P.

JS: kc-w


 

 
 
PATENT LICENSE AGREEMENT
 
 

 
 
between
 
 

 
 
SmartMetric, Inc. and Applied Cryptology, Inc.
 
 
Revised and Dated December 22, 2004
 


 

 
     

 

PATENT LICENSE AGREEMENT
 

AGREEMENT made and entered into as of the 1 st day of August 2004, with revisions dated December 33, 2004 by and between Applied Cryptology, Inc., a Nevada corporation having its principal offices at [address] (the “Licensor”), and SmartMetric, Inc., a Nevada corporation having its principal offices at 67 Wall Street, Level 22, New York, New York 10005 (the “Company”).

WHEREAS , the Licensor is the owner of certain technology which is the subject of a Patent Cooperation Treaty Application filed on February 18, 2000 with the United States Patent and Trademark Office, and originally the subject of an application filed on February 18, 1999 with the Australian Patent and Trademark Office, a copy of which is annexed hereto and made a part hereof as Exhibit A, and the recipient of a patent from the United States Patent and Trademark office, dated September 14, 2004 which was filed on February 15, 2001, a copy of which is annexed hereto and made a part hereof as Exhibit B, including adaptations, derivatives of, and current and future technological developments thereto (the “Patent”); and

WHEREAS , the Licensor has agreed to license certain rights to use the Patent to the Company, and the Company wishes to accept such rights to use from the Licensor, as more fully described in Section 4.
 

NOW, THEREFORE , in consideration of the mutual covenants of the parties which are hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged,

IT IS AGREED:
1.    Recitals .   The parties hereby adopt as part of this Agreement each of the recitals which is contained in the WHEREAS clauses, and agree that such recitals shall be binding upon the parties hereto by way of contract and not merely by way of recital or inducement; and such clauses are hereby confirmed and ratified as being true and accurate by each party as to himself, herself or itself.
 
2.    Grant of License .
 
A.    Subject to the terms and conditions of this Agreement, the Licensor grants to the Company, and the Company accepts from the Licensor, a license (the “License”) to utilize the Patent, including the use, manufacture and sub-license of products which utilize the Patent and the patented technology within the Territory (hereinafter defined). During this terms of this Agreement, Licensor shall not grant any license of the Patent to any other company that directly, or indirectly through a subsidiary, affiliate, licensee or otherwise provides users with Internet access or sells, distribute or manufacturers smartcards, nor shall Licensor use the Patent in any way so as to compete with the Company. Further, Licensor may not transfer the Patent to any third party that may compete with SmartMetric.
 
B.    The license herein granted to the Company shall be effective as of the date of this Agreement. The Licensor agrees to execute any and all such other and further instruments and documents, and to take any and all such further actions, which are reasonably required to effectuate this Agreement and the intents and purposes hereof. The Company and the Licensor each agree to execute any and all instruments and documents, and to take any and all such further actions reasonably required to effectuate this Agreement and the intents and purposes hereof.
 
3.    Reservation of Rights .   The Licensor retains all rights to the Patent, except with respect to the license of the specific rights granted pursuant to this Agreement as provided for in Section 4.
 
4.    Rights to Use .   The license here stated is a license to make use of the Patent for the purpose of developing software, systems and products to be used in the business of the company, namely providing secure transactions over the Internet from home and office computers and/or providing either or an automatic method for connecting to remote computers and/or a method of delivering targeted advertising to home and/or office computers and/or providing identity verification and access control as provided for in the Patent.
 
5.    Geographical Scope .   The geographical scope of this Agreement shall be worldwide (the “Territory”).
 
6.    Royalty Payments. In consideration of the license and rights granted in this Agreement, the Company shall pay to Licensor royalties in accordance with this Section 6.

A.    Accrual . Royalties shall accrue on the first use or putting into use of the Patent as evidenced by (a) the sub-license of the Patent, or the (b) sale, lease or provision to others of one or more products which utilize the Patent by the Company (“Licensed Products”). No royalties may accrue until the first such use of the Patent by the Company. The obligation to pay accrued Royalties shall survive termination of this Agreement. Notwithstanding any other provision hereunder, royalties shall accrue and be payable only to the extent that enforcement of the Company’s obligation to pay such royalty would not be prohibited by applicable law.

B.    Royalty Reports and Payments . Within forty-five (45) days after the end of each calendar quarter (i.e., within 45 days after March 31 st , June 30 th , September 30 th and December 31 st ) during the Term of this Agreement, the Company shall provide Licensor with a report certified by a duly authorized officer of the Company (the “Royalty Report”) which shall identify this Agreement and include the information set forth in Schedule C as well as any other information Licensor may reasonably require from time-to-time. If no Royalties were accrued during a calendar quarter, the Royalty Report shall state that fact. Simultaneously with each Royalty Report shall pay the Company the royalties accrued during such calendar quarter (“Quarterly Payment”). In the event no royalties accrued during the quarter, no funds shall be owed Licensor.

C.    Method of Payment and Reporting .

(i)   All payments required hereunder shall be paid to Licensor by electronic bank transfer to the following account:

Bank Acct Name:
Bank:


Bank Number:
ABA:

(ii)   All Royalty Reports shall be sent to Licensor as follows, with a copy sent to the address indicated for receiving notice on the Cover Sheet (if different than below):

Applied Cryptology, Inc.
314 Brooklyn Avenue
Brooklyn, New York 11213

Licensor may change the foregoing payment account and address upon written notice to the Company.

D.    Overdue Payments . Payments which are required hereunder and which are overdue shall be subject to a late payment charge calculated at an annual rate of one percent (1%) over the U.S. prime rate or successive U.S. prime rate (as posted in the Wall Street Journal) during delinquency. If the amount of such charge exceeds the maximum permitted by law, such charge shall be reduced to such maximum.

E.    Currency . All payments to be made under this Agreement shall be made in United States dollars unless otherwise indicated. Any conversion to United States dollars for a payment required under this Agreement shall be at the prevailing rate for bank cable transfers as quoted for the day such payment is due under this Agreement or, if paid earlier, the day actually paid, by leading United States banks in New York City dealing in the foreign exchange market.
 
7.    Duties of Licensor .   During the Term, Licensor shall provide such other services to the Company as may be necessary in order to implement the intent and purposes of this Agreement including assisting the Company in obtaining the approval of the Patent in the United States and in those other countries in which the Licensor determines to file a patent.
 
8.    Term .   The term of this Agreement (the “Term”) shall commence as of the date hereof and shall remain in force in perpetuity, subject to the terms and conditions of this Agreement, including, but not limited to, Article 13 of this Agreement.
 
9.    Licensor’s Representations, Warranties and Covenants .   The Licensor warrants, represents and covenants to the Company as follows:
 
A.    The Licensor is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada with full right, power and legal capacity to enter into this Agreement. Licensor has no other business aside from owning this Patent. The execution of this Agreement by the Licensor, its delivery to the Company and the consummation of the transactions which are contemplated by this Agreement have been approved and authorized by the Board of Directors of Licensor and require no further authorization on the part of the Licensor for the performance and consummation by the Licensor of the transactions which are contemplated by this Agreement.
 
B.    The performance of this Agreement shall not result in any breach of, or constitute a default under, or result in the imposition of any lien or encumbrance upon any property of the Licensor or cause an acceleration under any arrangement, agreement or other instrument to which the Licensor is a party or by which any of his assets are bound. The Licensor has performed all of his obligations which are required to be performed by him pursuant to the terms of any such agreement, contract or commitment.
 
C.    The Licensor is the sole and exclusive owner and Licensor of the Patent which has been approved by the United States Patent and Trademark Offic e with the applicable authorities.
 
10.    Company’s Representations, Warranties and Covenants . The Company represents, warrants and covenants to the Licensor as follows:
 
A.    The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada, with all requisite power and authority to carry on its business as presently conducted, to enter into this Agreement and to carry out the transactions which are contemplated herein.
 
B.    The Company has full right, power and legal capacity to enter into this Agreement. The execution of this Agreement by the Company and its delivery to the Licensor, and the consummation of the transactions which are contemplated by this Agreement have been duly approved and authorized by all necessary action by its Board of Directors and no further authorization on the part of the Company for the performance and consummation by the Company of the transactions which are contemplated in this Agreement.
 
C.    The performance of this Agreement shall not result in any breach of, or constitute a default under, or result in the imposition of any lien or encumbrance upon any property of the Company or cause an acceleration under any arrangement, agreement or other instrument to which the Company is a party or by which any of its assets is bound.
 
11.    Company’s Obligations .    
 
A.    The Company shall take such steps and bear the costs related thereto as may be necessary to develop the software and/or products which is necessary to utilize and exploit the Patent. All technological developments under, including, without limitation, all software, and any improvements to, and derivatives of, the Patent which are developed by the Company shall be the Company’s property.
 
B.    The Company shall bear the costs related to both defending and enforcing the Patent, including, but not limited to, legal fees and filing fees with patent offices.
 
12.    Non-Use and Non-Disclosure of Confidential Information .
 
A.    As used in this Agreement, “Confidential Information” means information which is disclosed to the Company or known by the Company as a result of or through this Agreement, and not generally known by the public about the Patent, including without limitation, all documentation and software relating thereto, and all know-how and technology required to use the Patent and information and data in written, graphic and/or machine readable form, processes and services, including information with respect to research, development, inventions, manufacture, purchasing, accounting, engineering, marketing, merchandising and selling regardless of whether patentable, trademarkable or copyrightable, including, but not limited to, any information acquired by the Company from any source prior to the commencement of this Agreement.
 
B.    Except as required in order to exploit the Patent pursuant to this Agreement, the Company will not, during or after the term of this Agreement, directly or indirectly, use any Confidential Information or disseminate or disclose any Confidential Information to any person, firm, corporation, association or other entity except in accordance with this Agreement. The foregoing prohibition shall not apply to any Confidential Information which (i) becomes publicly available through no act or omission of the Company, (ii) is reasonably required to be disclosed in a proceeding to enforce the Company’s rights under this Agreement, (iii) is required to be disclosed by court order or by any law, (iv) is or becomes available to the Company from third parties who in making such disclosure breach no confidentiality relationships, or (v) is intentionally disclosed by the Licensor on an unrestricted basis to any entity not a party to this Agreement.
 
C.    Upon the termination of this Agreement, all documents, records, notebooks and similar repositories of or containing Confidential Information, including copies thereof, then in the Company’s possession, whether prepared by it or others, will be delivered to the Licensor.
 
D.    The Company hereby waives, now and for the future, any rights under or with respect to any discoveries, concepts or ideas, or improvements or know-how which relate to the Patent.
 
13.    Rescission .
 
A.    If there occurs a rescission of this Agreement pursuant to Paragraph B of this Article 13, the Licensor, upon written notice to the Company pursuant to Paragraph C of Article 15, may:
 
  (i) Require that the Company cease any further use of the Patent; and
 
  (ii) Cease performance of all the Licensor’s obligations hereunder without liability to the Company.
 
B.    The Licensor may rescind this Agreement and reclaim all rights and interest in the Patent if:
 
(i)   the Company admits in writing that it is unable to pay its debts as they mature;
 
(ii)   the Company files a petition for protection as a debtor under the bankruptcy laws, or a petition to take advantage of any insolvency act;
 
(iii)   the Company makes an assignment for the benefit of its creditors;
 
(iv)   the Company consents to the appointment of, or possession by, a custodian for the whole or any substantial part of its property;
 
(v)   the Company, with regard to a petition filed with or without the Company’s consent by a third party to subject the Company as a debtor to the bankruptcy laws, fails to have such petition dismissed within sixty (60) days from the date that such petition is filed;
 
(vi)   notwithstanding the sixty (60) day provision in subparagraph v of this paragraph B of this Article 13, the Company, pursuant to a petition in bankruptcy filed against it, is adjudicated a bankrupt; or
 
(vii)   the Company files a petition or answer seeking reorganization or similar aid or relief under the bankruptcy laws or any state or the federal law for the relief of debtors, or if the Company fails in a timely fashion to deny the material allegations of a petition filed against it for any such relief; or
 
(viii)   a court of competent jurisdiction shall enter an order, judgment or decree appointing, with or without the Company’s consent, a custodian for the whole or any substantial part of the Company’s property, or approving a petition filed against the Company seeking reorganization or similar aid or relief under any bankruptcy or insolvency laws or any state or the federal law for the relief of debtors, and such order, judgment or decree shall not be vacated, set aside or stayed within sixty (60) days from the date of entry thereof; or
 
(ix)   under the provisions of any law for the relief of debtors, any court of competent jurisdiction, or a custodian, shall assume custody or control of the whole or any substantial part of the Company’s property, with or without the Company’s consent, and such custody or control shall not be terminated or stayed within sixty (60) days from the date of assumption of such custody or control; or
 
(x)   any creditor of the Company commences a proceeding to foreclose a security interest in, or lien on, any property or assets of the Company; or
 
(xi)   a court of competent jurisdiction shall enter a final judgment for the payment of money by the Company and such judgment shall not be vacated, set aside or stayed within sixty (60) days from the date of entry thereof; or
 
(xii)   there is an imposition of any attachment or levy, or the issuance of any note of eviction against the assets or properties of the Company.
 
C.    The foregoing rights and remedies of the Licensor shall be cumulative and in addition to all other rights and remedies available to the Licensor in law and equity.
 
D.    The Company agrees to execute any and all other instruments and documents, and to take any and all further actions, which may be reasonably required to effectuate this Agreement and the intents and purposes hereof.
 
14.    Survival .   All covenants, agreements, representations and warranties made in or in connection with this Agreement shall survive its termination, and shall continue in full force and effect after its termination, it being understood and agreed that each of such covenants, agreements, representations and warranties is of the essence of this Agreement and the same shall be binding upon and shall inure to the benefit of the parties hereto, their successors and assigns.
 
15.    Miscellaneous .
 
A.    Headings .   Headings contained in this Agreement are for reference only and shall not in any way affect the meaning or interpretation of this Agreement.
 
B.    Enforceability .   If any provision of this Agreement should, for any reason, be held to be invalid or unenforceable under the laws of any jurisdiction, this Agreement shall be construed as if such invalid or unenforceable provisions are not contained herein.
 
C.    Notices .   Any notice or other communication required or permitted hereunder must be in writing and sent by either (i) registered or certified mail, postage prepaid, return receipt requested, (ii) overnight delivery with confirmation of delivery or (iii) facsimile transmission with an original mailed by first class mail, postage prepaid, in each case addressed as follows:
 

To the Licensor:
Applied Cryptology, Inc.
 
c/o Colin Hendrick, President
 
314 Brooklyn Avenue
 
Brooklyn, New York 11213
   
To the Company:
SmartMetric, Inc.
 
67 Wall Street, Level 22
 
New York, New York 10005
 
Attn: Colin Hendrick, President
 
Facsimile No.: 917.591.3226
   
Copy to:
Schonfeld & Weinstein, L.L.P.
 
80 Wall Street, Suite 815
 
New York, New York 10005
 
Facsimile No.: 212.344.1600

 
or in each case to such other address and facsimile number as shall have last been furnished by like notice. If mailing is impossible due to an absence of postal service, notice shall be in writing and personally delivered to the aforesaid addresses. Each notice or communication shall be deemed to have been given as of three (3) days after the date so mailed or as of the date delivered, as the case may be.
 
D.    Governing Law; Disputes .   This Agreement shall in all respects be construed, governed, applied and enforced in accordance with the laws of the State of New York without giving effect to the principles of conflicts of laws thereof and shall be deemed to be an agreement made pursuant to the laws of the State of New York entered into in the State of New York. The parties hereby consent to and submit to personal jurisdiction over each of them by the courts of the State of New York in any action or proceeding, waive personal service of any and all process and specifically consent that in any such action or proceeding any service of process may be effectuated upon any of them by certified mail, return receipt requested, in accordance with paragraph C of this Article 14. The parties agree, further, that the prevailing party in any action or proceeding as determined by the tribunal making the final and nonappealable determination of the matter in dispute, shall be entitled to reimbursement of all of its reasonable fees, costs and expenses, including, without limitation, legal fees and disbursements, in connection with such matter. In connection with the tribunal’s determination for the purpose of which party, if any, is the prevailing party, the tribunal shall take into account all of the factors and circumstances including, without limitation, the relief sought, and by whom, and the relief, if any, awarded, and to whom. In addition, and notwithstanding the foregoing sentence, a party shall not be deemed to be the prevailing party in a claim seeking monetary damages unless the amount of the final determination exceeds the amount offered in a writing by the other party by fifteen percent (15%) or more. For example, if the party initiating a claim (“A”) seeks damages of $100,000 plus costs and expenses, and the other party (“B”) has offered A $50,000 prior to the commencement of the proceeding, if the tribunal awards any amount less than $57,500 to A, the tribunal should determine that B has prevailed.
 
E.    Modification .   This Agreement may not be changed, modified, extended, terminated or discharged except in writing, signed by each of the parties hereto.
 
F.    Further Actions .   The parties hereto agree to execute any and all instruments and documents, and to take any and all such further actions reasonably required, to effectuate this Agreement and the intents and purposes hereof.
 
G.    Binding Agreement .   This Agreement shall be binding upon and inure to the benefit of the parties hereto and their successors and assigns.
 
H.    Non-Waiver .   Except as otherwise expressly provided herein, no waiver of any covenant, condition, or provision of this Agreement shall be deemed to have been made unless expressly made in writing and signed by the party against whom such waiver is charged. The failure of any party to insist upon the performance of any of the provisions, covenants, or conditions of this Agreement or to exercise any option herein contained, shall not be construed as a waiver or relinquishment in the future of such provision, covenant, or condition. The acceptance by a party, made with such party’s knowledge of the breach or failure of any covenant, condition, or provision hereof, of performance by the other party, shall not be deemed a waiver by the accepting party of such breach or failure. The waiver by one party of breach by the other party shall not be construed as a waiver of any other or any subsequent breach.
 
I.    Counterparts .   This Agreement may be executed simultaneously in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
 
J.    Entire Agreement .   The parties have not made any representations, warranties, or covenants about the subject matter hereof which is not set forth herein, and this Agreement, together with any instruments executed simultaneously herewith, constitutes the entire Agreement between them about the subject matter hereof. All understandings and agreements heretofore had between the parties about the subject matter hereof are merged in this Agreement and any instrument executed simultaneously herewith.

 
     

 

 
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized officers, as of the day, month and year first above written.
 


 
Licensor
   
 
/s/ Colin Hendrick
 
Colin Hendrick
   
Attest:
SmartMetric, Inc.
   
 
By:  /s/ Colin Hendrick
 
       Colin Hendrick
 



 
     

 

SCHEDULE A
To Patent License Agreement


The following patent, as well as all continuations and reissues thereof, are “Licensed Patents” under the Agreement:

U.S. Patent No.
 
Issue Date
 
Title
6,325,285
Sept. 14, 2004
Smart Card With Integrated Fingerprint Reader













Signature below by both Parties indicates that this
 
Schedule is agreed to and accepted by them as part of the patent License Agreement.
 
   
THE COMPANY:  
LICENSOR:
   
By: /s/ Colin Hendrick
By: /s/ Colin Hendrick
(Authorized Signature)
(Authorized Signature)
   
Colin Hendrick
Colin Hendrick
(Typed or Printed Name)
(Typed or Printed Name)
   
   
(Date) 12/22/04
(Date) 12/22/04

 
 
     

 

SCHEDULE C
To Patent License Agreement

1.   Royalties

For each product made by or for the Company or a sub-license of the Company which products utilize the Patent pursuant to this Agreement, royalties shall be Two Percent (2%) of the greater of

(a)   The sales price of such Licensed Product; OR

(b)   The Fair Market Value of such Licensed Product, where “Fair Market Value” shall mean the selling price which a seller would realize from an unaffiliated buyer in an arms-length sale of the licensed product at the time of the making of the Product, and wherein such selling price is not discounted or diminished by any other agreement or arrangement between such buyer and seller, including agreements or arrangements relating to any other product, service, or benefit furnished or provided by the seller to the buyer.

2.   Royalty Report

Each Royal Report required under the Agreement shall identify the gross receipts of the Company in accordance with this Agreement, as well as, for the Company, the number of products manufactured in accordance with this Agreement; the identity of each customer who is furnished such product(s), the number of units of licensed product furnished to each such customer (such units identified by type and model number), the price charged to each such customer for each such unit to licensed product, and the date such units of Licensed Product were furnished to each such customer.

Signature below by both Parties indicates that this
 
Schedule is agreed to and accepted by them as part of the patent License Agreement.
 
   
THE COMPANY:
LICENSOR:
   
By: /s/ Colin Hendrick
By: /s/ Colin Hendrick
(Authorized Signature)
(Authorized Signature)
   
Colin Hendrick
Colin Hendrick
(Typed or Printed Name)
(Typed or Printed Name)
   
   
(Date) 12/22/04
(Date) 12/22/04

 


     


EMPLOYMENT AGREEMENT
 
EMPLOYMENT AGREEMENT, dated as of 1 st July 2004 and effective as of the Effective Date (as defined below), by and between SmartMetric Inc., a Nevada corporation (the “ Company ”), and Colin Hendrick (“ Executive ”).
 
W I T N E S E T H :
 
WHEREAS , Executive is currently serving as Chief Executive Officer and President of the Company, and the Company wishes to assure itself of the services of Executive for the period provided in this Agreement (“ Agreement ”); and
 
WHEREAS , Executive is willing to serve in the employ of the Company on the terms and conditions hereinafter set forth.
 
NOW THEREFORE, in consideration of the promises and the mutual covenants herein contained, the Company and Executive, intending to be legally bound, hereby agree as follows:
 
Section 1. Employment .
 
(a)       Agreement to Employ . Upon the terms and subject to the conditions of this Agreement, the Company hereby employs Executive, and Executive hereby accepts employment by the Company.
 
(b)       Employment Period . For the purposes of this Agreement, the Effective Date shall mean July 1, 2004. The term of Executive’s employment shall initially be for a period of one (1) year (the “ Initial Term ”) commencing on the Effective Date; provided that such term may be renewed by the mutual written agreement of Executive and the Company for additional consecutive one (1) year terms (each, a “ Renewal Term ”), unless, in either case, this Agreement shall have been earlier terminated in accordance with Section 5 (the “ Employment Period ”).
 
Section 2. Position and Duties .
 
During the Employment Period, Executive agrees to serve as Chairman of the Board of Directors, President and Chief Executive Officer of the Company. Executive shall render administrative and management services to the Company such as are customarily performed by persons situated in a similar executive capacity and shall perform such other duties not inconsistent with his title and office as may be assigned to him by or under the authority of the Board of Directors of the Company (“ Board of Directors ”). Executive shall also perform the duties of Chief Software Engineer and Electronic Engineer. During the Employment Period, Executive shall devote a majority of his business time, skill and efforts to the business of the Company. Notwithstanding the foregoing, Executive may (i) except as provided in Section 6(a) hereof, (x) make and manage personal business investments of his choice, (y) serve in any capacity with any civic, educational or charitable organization, or any trade association, and (z) be involved in the management and serve on the Board of Directors of any other company that does not conflict with the business interests of SmartMetric, Inc., only upon obtaining approval by the Board of Directors. Executive shall not be relocated from New York City without Executive’s consent. If in the event the Executive is relocated to a place other than New York for a period longer then one month and not exceeding three (3) years then the company will pay all expenses for relocation including rent/or mortgage payments for the duration of the relocation. Executive shall have such authority as is necessary or appropriate to carry out his assigned duties.
 
Section 3. Compensation .
 
The Company shall pay Executive an annual salary of $170,000 commencing January 1, 2005. Such salary shall be paid upon the Company’s achieving a minimum of $1,000,000 in gross revenues. Prior to the Company’s achieving a minimum of $1,000,000 in gross revenues, Executive shall acc rue said salary, and may receive as salary a maximum of 25% of any offering proceeds received by the Company, which amount shall not exceed $170,000 in any given 12 month period. In addition Executive’s salary shall be paid on a semi-monthly basis, except for acc rued salaries, which may be paid in a lump sum. In addition, the Executive may earn bonus amounts payable in cash, to be paid to the Executive within sixty (60) days following the year-end audit, based upon the satisfaction of performance criteria that will be established by a committee of the Board of Directors (the “ Compensation Committee ”) in its discretion, and subject to the approval of the Board of Directors (or, if the Compensation Committee is not yet established, by the Board of Directors). The Compensation Committee shall be comprised of a minimum of three (3) directors, a majority of whom are shall be independent. Such performance criteria will include corporate performance goals consistent with the Company’s business plan. The final determination as to the actual corporate and individual performance against the pre-established goals and objectives, and the bonus amounts payable in relationship to such performance, shall be made by the Compensation Committee in its sole discretion. If this Agreement is renewed in accordance with Section 1(b), the Compensation Committee shall review Executive’s salary in light of the performance of Executive and the Company, and may, in its discretion, increase (but not decrease) such salary by an amount it determines to be appropriate. Executive’s annual salary payable hereunder, is referred to herein as “ Salary ”.
 
Section 4. Benefits .
 
(a)       Vacations . Executive shall be entitled to up to three (3) weeks’ paid vacation and up to 21 days paid religious holidays (in addition to the holidays the Company extends, as a matter of policy, to its employees) during each year of the Employment Period which, with regard to vacation time shall be scheduled in Executive’s discretion, subject to and taking into account the business exigencies of the Company, and with regard to religious holidays will be taken at the appointed times. Unused vacation (but not religious holidays) may be accrued from year to year in accordance with the Company’s policy as in effect from time to time with regard to executive employees.
 
(b)       Business Expenses . The Company shall pay or reimburse Executive for all documented reasonable business expenses incurred by Executive in the performance of Executive’s duties hereunder, in accordance with the Company’s policies.
 
(c)       Other Benefits . During the Employment Period, Executive shall receive such other life insurance, pension, disability insurance, health insurance and sick pay benefits and other benefits which the Company extends, as a matter of policy, to its executive employees and, except as otherwise provided herein, shall be entitled to participate in all deferred compensation and other incentive plans of the Company on the same basis as other like employees of the Company.
 
(d)       Indemnification. The Company shall, to the maximum extent permitted by applicable law and the Company’s certificate of incorporation or its bylaws, indemnify Executive and hold Executive harmless from and against any claim, loss or cause of action arising from or out of Executive’s performance as an officer, director or employee of the Company provided that Executive acted in good faith, was not negligent and did not breach any duty owed to the Company. If any claim is asserted hereunder for which Executive reasonably believes in good faith he is entitled to be indemnified, the Company shall pay Executive’s reasonable legal expenses (or cause such expenses to be paid), as may be required but no less frequently than on a quarterly basis, provided that Executive shall reimburse the Company for such amounts, plus simple interest thereon at the 90-day United States Treasury Bill rate as in effect from time to time, compounded annually, if Executive shall be found by a final, non-appealable order of a court of competent jurisdiction not to be entitled to indemnification.
 
(e)       Key-Person Life Insurance. The company may purchase “key-person” life insurance policies on the Executive’s life in such amounts and of such types as is determined by the Board of Directors. Executive shall cooperate fully with the Company in obtaining such insurance and shall submit to such physical examinations and provide such information as is reasonably required to obtain and maintain such policies. Neither Executive nor his successor-in-interest or estate shall have any interest in any such key-person policies so obtained.
 
Section 5. Termination of Employment .
 
(a)       Early Termination of the Employment Period . Executive’s employment under this Agreement may be terminated in any of the following manners:
 
Executive may, upon written notice to the Company, terminate employment with the Company at any time for “ Good Reason ” (as defined in Section 5(e)) it being agreed that any such termination, although effected by Executive shall not constitute a Voluntary Termination;
 
Executive’s employment may, upon written notice to Executive, be terminated by the Company at any time for “ Cause ” (as defined in Section 5(d));
 
This Agreement shall terminate automatically upon Executive’s death;
 
The Company may, upon written notice to Executive, terminate this Agreement upon Executive’s Disability. As used herein, the term “ Disability ” shall mean a determination that Executive suffers from illness or other physical or mental impairment that prevents Executive from substantially performing his duties for a period of 60 days during any six (6) month period during the Employment Period or for 90 days during any twelve (12) month period during the Employment Period. The determination of whether (and, if appropriate, when) a Disability has occurred shall be made by a majority of the Board of Directors of the Company.
 
Any termination pursuant to this Section 5(a) shall be communicated to the non-terminating party by a “ Notices ” in accordance with Section 10.
 
(b)       Benefits Payable Upon Termination .
 
  (i) Following the end of the Employment Period pursuant to any manner described in Section 5(a) or for any other reason, the Company shall pay to Executive (or, in the event of his death, his surviving spouse, if any, or his estate): (A) any Salary earned, but unpaid, for services rendered to the Company on or prior to the date on which the Employment Period ended, and (B) amounts which are vested or which Executive is otherwise entitled to receive under the terms of or in accordance with any plan, policy, practice or program of, or any contract or agreement with, the Company at the date the Employment Period ends. In addition, the Executive shall be eligible for insurance coverage’s mandated under COBRA and for any benefits for which Executive, as a former employee, is eligible under the terms of the welfare plans, programs and arrangements of the Company. The Corporation shall pay the first twelve (12) months of COBRA premiums for Executive’s coverage under the Company’s group medical insurance plan.
 
  (ii) Vested benefits referred to in Section 5(b)(i) shall be payable in accordance with the terms of the plan, policy, practice, program, contract or agreement under which such benefits have accrued.
 
(c)       Continuing Obligations . After receipt of written notice of termination, but prior to the effective date of such termination, Executive shall continue to perform his duties under this Agreement unless specifically instructed to discontinue such performance. In the event of termination, Executive and the Company shall remain liable for their respective obligations accrued under this Agreement prior to the effective date of termination.
 
(d)       Definition of Cause . For purposes of this Agreement, “ Cause ” means Executive’s:
 
  (i) persistent and repeated refusal, failure or neglect to perform the material duties of his employment under this Agreement (other than by reason of Executive’s physical or mental illness or impairment), provided that such Cause shall be deemed to occur only after the Corporation gave written notice thereof to Executive specifying in reasonable detail the conduct constituting Cause, and Executive failed to cure and correct his conduct within thirty (30) days after such notice;
 
  (ii) committing any act of fraud or embezzlement, provided that such Cause shall be deemed to occur only after the Corporation gave written notice thereof to Executive specifying in reasonable detail the instances of such conduct, and Executive had the opportunity to be heard at a meeting of the Board of Directors;
 
  (iii) breach of clauses (a), (b) or (c) of Section 6 hereof that results in a material detriment to the Company;
 
  (iv) conviction of a felony (including pleading guilty to a felony); or
 
  (v) habitual abuse of alcohol or drugs.
 
(e)       Definition of Good Reason . For purposes of this Agreement, “ Good Reason ” means:
 
  (i) any material reduction in Executive’s authority, duties or responsibilities;
 
  (ii) any material change in Executive’s reporting lines or removal of the Executive from his principal positions as of the beginning of the Employment Period (other than a promotion); or
 
  (iii) any material failure by the Company to pay or provide the compensation and benefits under this Agreement; provided that, in each such event, the Executive shall give the Company notice thereof which shall specify in reasonable detail the circumstances constituting Good Reason, and there shall be no Good Reason with respect to any such circumstances cured by the Corporation within thirty (30) days after such notice.
 
Section 6. Noncompetition and Confidentiality .
 
(a)       Noncompetition . During the Employment Period and for three years thereafter, Executive shall not, without the consent of the Company, assist or become associated with any person or entity, whether as a principal, partner, employee, consultant or shareholder (other than as a holder of not in excess of 5% of the outstanding voting shares of any publicly traded company purchased in open market transactions) that is actively engaged in the business of applying Smartcard technology to Internet access and internet e-commerce solutions.
 
(b)       Confidentiality and Company Property . Executive agrees that he will not at any time during the Employment Period and for five (5) years thereafter for any reason, in any fashion, form, or manner, either directly or indirectly, divulge, disclose or communicate to any person, firm, corporation or other business entity, in any manner whatsoever, any confidential information or trade secrets concerning the business of the Company, including, without limiting the generality of the foregoing, the techniques, methods or systems of its operation or management, any information regarding its financial matters, research and development data and materials, and intellectual property rights, including, without limitation, patents, patent applications, patent rights, trademarks, trademark applications, trade names, service marks, service mark applications, copyrights, copyright applications, databases, algorithms, computer programs and other software, know-how, trade secrets, proprietary processes and formulae, inventions, trade dress, logos and designs or any other material information concerning the business of the Company (including customer lists), its manner of operation, its plans or other material data (the “ Confidential Information ”). The provisions of this Section 6 shall not apply to (i) information disclosed in the performance of Executive’s duties to the Company based on his reasonable good faith belief that such a disclosure is in the best interests of Company (ii) information that is, at the time of the disclosure, public knowledge; (iii) information disseminated by the Company to third parties in the ordinary course of business; (iv) information lawfully received by Executive from a third party who, based upon inquiry by Executive, is not bound by a confidential relationship to the Company; or (v) information disclosed under a requirement of law or as directed by applicable legal authority having jurisdiction over Executive and (vi) information, ideas or inventions developed by Executive prior to his employment by the Company.
 
During and after the term of employment hereunder, the Executive agrees not to remove from the Company’s premises any documents, records, files, notebooks, correspondence, computer printouts, computer programs, computer software, price lists, microfilm, or other similar documents containing confidential information, including copies thereof, whether prepared by him or others, except as his duties shall require, and in such cases, will promptly return such items to the Company. Upon termination of the Executive’s employment with the Company, all such items including summaries or copies thereof, then in his possession, shall be returned to the Company immediately. The Executive agrees to the return of such items, which shall be a requirement in order for him to receive, at the time of such termination, or any time thereafter, any compensation due him pursuant to any paragraphs hereunder or otherwise;
 
(c)       Patents and Inventions . Executive owns all of the rights, title and interest in and to all inventions, ideas, disclosures and improvements, whether patented or unpatented, and copyrightable material, made or conceived by Executive, solely or jointly, or in whole or in part, during the Employment Term. The foregoing includes all adoptions and improvements to the patent and the underlying technology (the “Patent”) that are the subject of that certain license agreement between Executive and the Company dated and revised as of December 22, 2004 (the “License Agreement”) pursuant to which Executive has granted the Company an exclusive royalty license to distribute, sell develop and otherwise utilize the Patent which consists of a business system concept involving the use of a Smartcard to facilitate interconnectivity to the Internet, storage of personal information and form filling and transaction and identity verification functions. In the event the License Agreement terminates, the Patent reverts to the Executive in accordance with the terms and conditions of the License Agreement.
 
Executive hereby grants to the Company during the Employment Term a right of first refusal to be the licensee of or to purchase on terms to be mutually agreed upon all of the rights, title and interest of Executive in and to all inventions, ideas, disclosures and improvements, whether patented or unpatented, and copyrightable material, made or conceived by Executive, in whole or in part, during the Employment Term which (i) relate to methods, apparatus, designs, products, processes or devices sold, leased, used or under construction or development by the Company or (ii) otherwise relate to or pertain to the business, functions or operations of the Company. However, under no circumstances shall Executive utilized, sell, transfer, license or otherwise hypothecate any such patents, inventions, ideas, disclosures, improvements and/or copyrightable materials so as to compete with the business or products of the Company.
 
(d)       Non-Solicitation of Employees . During the Employment Period and for five years thereafter, Executive will not directly or indirectly induce any employee of the Company or any of its subsidiaries or affiliates to terminate employment with such entity, and will not directly or indirectly, either individually or as owner, agent, employee, consultant or otherwise, employ or offer employment to any person who is or was employed by the Company or a subsidiary thereof, unless such person shall have ceased to be employed by such entity for a period of at least six months.
 
(e)       Injunctive Relief with Respect to Covenants . Executive acknowledges and agrees that the covenants and obligations of Executive with respect to Noncompetition, inventions, confidentiality and Company property contained in this Section 6 relate to special, unique and extraordinary matters and that a violation of any of the terms of such covenants and obligations will cause the Company irreparable injury for which adequate remedies are not available at law. Therefore, Executive agrees that the Company shall be entitled to an injunction, restraining order or such other equitable relief as a court of competent jurisdiction may deem necessary or appropriate to restrain Executive from committing any violation of the covenants and obligations contained in this Section 6. These injunctive remedies are cumulative and are in addition to any other rights and remedies the Company may have at law or in equity.
 
Section 7. No Conflict With Prior Agreements: Due Authorization .
 
Executive represents to the Company that neither Executive’s execution of this Agreement or commencement of employment hereunder nor the performance of Executive’s duties hereunder conflicts with any contractual commitment on Executive’s part to any third party. The Company represents to Executive that it is fully authorized and empowered by action of the Company’s Board of Directors to enter into this Agreement and that performance of its obligations under this Agreement will not violate any agreement between it and any other person, firm or other entity. Executive agrees that by execution of this Agreement any other employment agreements between Executive and the Company and any of its subsidiaries, are hereby terminated and neither party shall have any further rights or obligations thereunder.
 
Nothing herein shall be construed to require Executive to use or disclose any information that he is prohibited from using or disclosing as a result of legal or contractual obligations.
 
Section 8. Post-Termination Obligations .
 
(a)       Notwithstanding anything else provided in this Agreement, all payments and benefits to Executive under this Agreement shall be subject to Executive’s compliance with clause (b) of this Section 8 during the term of this Agreement and for one full year after the expiration or termination hereof.
 
(b)       Executive shall, upon reasonable notice, furnish such information and assistance to the Company as may reasonably be required by the Company in connection with any litigation in which it or any of its subsidiaries or affiliates is, or may become, a party; provided that the Company shall be required to reimburse Executive for the reasonable value of his time in connection therewith and for any out-of-pocket costs attributable thereto.
 
Section 9. Source of Payments .
 
All payments provided in this Agreement shall be timely paid in cash or check by the Company.
 
Section 10. Miscellaneous .
 
(a)       Survival . Sections 4(d), 5, 6, 7 and 8 shall survive the termination hereof.
 
(b)       Binding Effect . This Agreement shall be binding on the Company and any person or entity which succeeds to the interest of the Company (regardless of whether such succession occurs by operation of law) by reason of the sale of all or a portion the Company’s stock, a merger, consolidation, or reorganization involving the Company or a sale of the assets of the business of the Company (or portion thereof) in which Executive performs a majority of his services. This Agreement shall also inure to the benefit of Executive’s heirs, executors, administrators and legal representatives.
 
(c)       Assignment . Neither this Agreement nor any of the rights or obligations hereunder shall be assigned or delegated by any party hereto without the prior written consent of the other party, except that the Company may delegate to any of its direct or indirect wholly owned subsidiaries its obligations to provide compensation and benefits hereunder, provided no such delegation shall relieve the Company of its obligations hereunder.
 
(d)       Entire Agreement . This Agreement constitutes the entire agreement between the parties hereto with respect to the matters referred to herein, and supersedes any other employment agreement Executive may have with the Company or any subsidiary of the Company and no other agreement, oral or otherwise, shall be binding between the parties unless it is in writing and signed by the party against whom enforcement is sought. There are no promises, representations, inducements or statements between the parties other than those that are expressly contained herein. Executive acknowledges that he is entering into this Agreement of his own free will and accord, and with no duress, that he has been represented and fully advised by competent counsel in entering into this Agreement, that he has read it and that he understands it and its legal consequences. No parol or other evidence may be admitted to alter, modify or construe this Agreement, which may be altered, modified or amended only by a writing signed by the parties hereto.
 
(e)       Severability; Reformation . In the event that one or more of the provisions of this Agreement shall become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby. In the event that any of Sections 6(a), (b) or (c) is not enforceable in accordance with its terms, Executive and the Company agree that such Section shall be reformed to make such Section enforceable in a manner which provides the Company the maximum rights permitted at law.
 
(f)       Waiver . Waiver by any party hereto of any breach or default by the other party of any of the terms of this Agreement shall not operate as a waiver of any other breach or default, whether similar to or different from the breach or default waived. No waiver of any provision of this Agreement shall be implied from any course of dealing between the parties hereto or from any failure by either party hereto to assert its or his rights hereunder on any occasion or series of occasions.
 
(g)       Notices . Any notice required or desired to be delivered under this Agreement shall be in writing and shall be delivered personally against receipt, by courier service or by registered mail, return receipt requested, and shall be effective upon actual receipt by the party to which such notice shall be directed, and shall be addressed as follows (or to such other address as the party entitled to notice shall hereafter designate in accordance with the terms hereof):
 
  (i) If to the Company, to:
 

 
SmartMetric Inc.
 
67 Wall Street, 22 nd Floor
 
New York, New York 10005
 
  (ii) If to Executive, to:
 

 
Colin Hendrick
 
314 Brooklyn Avenue
 
Brooklyn, New York 11213
 
(h)       Excise Tax Limit . Notwithstanding anything in this Agreement to the contrary, in the event it shall be determined that any payment or distribution by the Company or any other person or entity to or for the benefit of Executive is a “parachute payment” (within the meaning of Section 280G of the Internal Revenue Code, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise) (a “ Payment ”) in connection with, or arising out of, his employment with the Company or a change in ownership or effective control of the Company (within the meaning of Section 280G of the Internal Revenue Code, and would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code) (the “ Excise Tax ”), the Payments shall be reduced to the extent necessary so that such remaining Payment would not be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code.
 
(i)       Headings . Headings to paragraphs in this Agreement are for the convenience of the parties only and are not intended to be part of or to affect the meaning or interpretation hereof.
 
(j)       Counterparts . This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.
 
(k)       Withholding . Any payments provided for herein shall be reduced by any amounts required to be withheld by the Company from time to time under applicable Federal, State or local income or employment tax laws or similar statutes or other provisions of law then in effect.
 
(l)       Arbitration; Legal Fees . Except as provided in this Agreement any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in New York, New York in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator’s award in any court having jurisdiction. The Company shall reimburse Executive for all reasonable legal fees and costs and other fees and expenses which Executive may incur in respect of any dispute or controversy arising under or in connection with this Agreement; provided , however , that the Company shall not reimburse any such fees, costs and expenses if the fact finder determines that the action brought by Executive was frivolous or in the event judgment is entered against Executive.
 
(m)       GOVERNING LAW . THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK .


 
     



IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer, and Executive has hereunto set his hand as of the day and year first above written.



 
SMARTMETRIC, INC.
   
 
By: /s/ Colin Hendrick
 
Name: Colin Hendrick
 
Title: President and CEO
   
 
EXECUTIVE
   
 
/s/ Colin Hendrick
 
Colin Hendrick
 


     





Certificate of Registration
on Change of Name

This is to certify that

SMARTMICROCHIP AUSTRALIA PTY LTD

Australian Company Number 100 170 867

did on the twenty-second day of November 2002 change its name to

SMARTMETRIC AUSTRALIA PTY LTD

Australian Company Number 100 170 867

The company is a proprietary company.

The Company is limited by shares.

The company is registered under the Corporations Act of 2001 and
is taken to be registered in New South Wales and the date
of commencement of registration is the tenth day of April, 2002.


Issued by the
Australian Securities and Investments Commission
on this twenty-second day of November, 2002.


/s/ David Knott
David Knott
Chairman

  
     

 







Certificate of Registration
Of a Company

This is to certify that

SMARTMICROCHIP AUSTRALIA PTY LTD

Australian Company Number 100 170 867

is a registered company under the Corporations Act 2001 and
is taken to be registered in New South Wales.

The company is limited by shares.

The company is a proprietary company.

The day of commencement of registration is
the tenth day of April 2002.







Issued by the
Australian Securities and Investment Commission
on this tenth day of April, 2002.




/s/ David Knott
David Knott
Chairman


MICHAEL T. STUDER CPA P.C.
45 Church Street
Freeport, NY 11520
Phone: (516) 378-1000
Fax: (516) 546-6220




CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT

To the Board of Directors
SmartMetric Inc.

I consent to the use in this Registration Statement on Form SB-2 of my report included herein dated August 25, 2004, except for Note 4, 5, 7, and 8, as to which the date is January 5, 2005, relating to the consolidated financial statements of SmartMetric Inc. and subsidiary.





Freeport, New York
/s/ Michael T. Studer CPA P.C.
February 2, 2005
Michael T. Studer CPA P.C.
 
 
 
 
 

SMARTMETRIC, INC.
SUBSCRIPTION AGREEMENT

NAME:

ADDRESS:

1. I hereby subscribe for ___________ shares of SMARTMETRIC at a price of $1.50 per share, and enclose herein a check or money order payable to the order of SMARTMETRIC AND SIGNATURE BANK, AS ESCROW AGENT in the amount of $____________ to cover the aggregate subscription price.

2. I understand that SMARTMETRIC reserves the right to reject, in whole or in part, any offer to subscribe, in its discretion, for any reason whatsoever, and that no subscription may be withdrawn once made.

3. I hereby acknowledge receipt of SMARTMETRIC’s Prospectus.

4. I understand that in the event this subscription is accepted, in whole or in part, my money shall be held in escrow until the minimum offering of $499,999.50 (Four Hundred Ninety-Nine Thousand Dollars and Fifty Cents) has been sold.

5. In the event the minimum offering is not sold, all funds held in escrow shall be returned to investors, with interest thereon.

6. In the event the minimum offering is sold, the certificates representing the shares I am purchasing shall be registered in the name printed below and delivery will be made to the address printed below.



 
 
Print Name
Signature(s)
   
 
 
Print Street Address
City, State, Zip Code
   
 
 
S.S. # or Tax I.D. #
Area Code, Telephone Number
   

PLEASE RETURN THIS FORM WITH A CHECK MADE PAYABLE TO SMARTMETRIC AND SIGNATURE BANK, AS ESCROW AGENT IN THE AMOUNT LISTED ABOVE TO: Schonfeld & Weinstein, L.L.P., 80 Wall Street, Suite 815, New York, New York 10005