UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K

 

(Mark One)

 

☒   ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended June 30, 2017

 

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

 

For the transition period from __ to_______________________________

 

Commission File Number: 0-54853

 

SMARTMETRIC, INC
(Exact name of registrant as specified in its charter)

 

Nevada   05-0543557
(State or other jurisdiction of   (I.R.S. Employer identification No.)
incorporation or organization)    
     
3960 Howard Hughes Parkway, Suite 500, Las Vegas, NV   89109
(Address of principal executive offices)   (Zip Code)
     
Registrant’s telephone number, including area code   (702) 990-3687

 

Securities registered under Section 12(b) of the Exchange Act: None

 

Title of each class   Name of each exchange on which registered
N/A   N/A

 

Securities registered pursuant to section 12(g) of the Act: Common Stock, par value $0.001 per share

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. 

☐   Yes  ☒  No

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  ☐  Yes  ☒  No

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 

☒   Yes  ☐  No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 

  Yes  ☐  No

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

 

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

 

Large accelerated filer  ☐   Accelerated filer ☐
Non-accelerated filer  ☐ (Do not check if a smaller reporting company)   Smaller reporting company  ☒

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). 

☐   Yes  ☒  No

 

The aggregate market value of the voting and non-voting common equity held by non-affiliates was $9,845,641.47 computed by reference to the closing price of the registrant’s common stock as quoted on the OTCQB maintained by OTC Markets, Inc. on December 29, 2016 (which was $0.07 per share). For purposes of the above statement only, all directors, executive officers and 10% shareholders are assumed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for any other purpose.

 

As of September 27, 2017, there are presently 234,795,663 shares of common stock, par value $0.001 issued and outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Portions of the registrant’s definitive proxy statement relating to its 2017 annual meeting of shareholders (the “2017 Proxy Statement”) are incorporated by reference into Part III of this Annual Report on Form 10-K where indicated. The 2017 Proxy Statement will be filed with the U.S. Securities and Exchange Commission within 120 days after the end of the fiscal year to which this report relates.

 

 

 

 

TABLE OF CONTENTS

 

       Page
       
  PART I    
       
Item 1. BUSINESS   4
Item 1A RISK FACTORS   12
Item 1B UNRESOLVED STAFF COMMENTS   16
Item 2. PROPERTIES   16
Item 3. LEGAL PROCEEDINGS   16
Item 4. MINE SAFETY DISCLOSURES   16
       
  PART II    
       
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS ISSUER PURCHASES OF EQUITY SECURITIES   17
Item 6 SELECTED FINANCIAL DATA   18
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   18
Item 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK   20
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA   20
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE   20
Item 9A. CONTROLS AND PROCEDURES   20
Item 9B. OTHER INFORMATION   21
       
  PART III    
       
Item 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE   22
Item 11. EXECUTIVE COMPENSATION   22
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS   22
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE   22
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES   22
       
  PART IV    
       
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES   22

 

2

 

 

FORWARD LOOKING STATEMENTS

 

In this annual report, references to “SmartMetric, Inc.,” “SmartMetric,” “SMME,” “the Company,” “we,” “us,” and “our” refer to SmartMetric, Inc. Also, any reference to “common shares,” or “common stock” refers to our $0.001 par value common stock. Also, any reference to “preferred stock” or “preferred shares” refers to our $0.001 par value Series B Convertible Preferred Stock.

 

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. These statements relate to our business development plans, timing strategies, expectations, anticipated expense levels, business prospects, business outlook, technology spending and various other matters (including contingent liabilities and obligations and changes in accounting policies, standards and interpretations). These statements express our current intentions, beliefs, expectations, strategies or predictions as well as historical information. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “may,” “will,” “could,” “continue,” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not deemed to represent an all-inclusive means of identifying forward-looking statements as denoted in this Annual Report on Form 10-K. Additionally, statements concerning future matters are forward-looking statements.

 

Although forward-looking statements in this Annual Report on Form 10-K reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Our future operating results are dependent upon many factors which are outside our control. You should not place undue reliance on forward-looking statements. Forward-looking statements may not be realized due to a variety of factors, including, without limitation, our ability to:

 

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

 

We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this Annual Report on Form 10-K, except as required by federal securities laws. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this Annual Report, which are designed to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.

 

3

 

 

PART I

 

Item 1. Business

 

Corporate History and Overview

 

SmartMetric, Inc. (“SmartMetric” or the “Company”) was incorporated pursuant to the laws of Nevada on December 18, 2002. SmartMetric is a development stage company engaged in the technology industry. SmartMetric’s main products are a fingerprint sensor activated payments card and security card with a finger sensor and fully functional fingerprint reader embedded inside the card. The SmartMetric biometric cards have a rechargeable battery allowing for portable biometric identification and card activation. This card is referred to as a biometric card or the SmartMetric Biometric Card.

 

The SmartMetric Biometric Technology And Products

 

SmartMetric's founder, C. Hendrick is the originator and inventor of various miniature biometric activated devices including the SmartMetric biometric fingerprint activated payments card with an embedded fully functional fingerprint reader inside the card. The card is the size and thickness of a standard credit card. The SmartMetric biometric payments card provides for high level security for credit and debit cards by adding biometric authentication and activation to EMV chip cards in use around the World. The SmartMetric biometric payments card has been manufactured to be totally interoperable with existing EMV chip card readers, ATM’s as well as banking payments infrastructure. Using the advanced electronic miniaturization by SmartMetric to make it’s biometric credit/debit cards the company has also turned its attention to creating a multi-functional biometric building access control and logical network access card. SmartMetric has also turned its attention to creating a biometric health insurance card with memory for storing a person’s medical files as well as assisting in fighting medical fraud by using the card to provide in-card biometric identity validation.

 

SmartMetric has developed its rechargeable battery powered fingerprint reader that is of a scale that fits "inside" a standard credit or debit card. The cardholder has stored inside the card his or her fingerprint. To activate the card the person swipes the fingerprint sensor, the sensor is connected to an internal microprocessor that manages the fingerprint sensor fingerprint image capture and comparison matching with the pre-stored fingerprint of the cardholder held in the internal electronic memory of the card. The card has a surface mounted EMV chip as found on EMV banking chip cards that is activated or turned on only after a card holders fingerprint has been scanned and verified using the SmartMetric miniature "in-card" biometric scanner.

 

There are over 4.8 billion EMV chip cards used by banks around the world for credit cards, ATM cards and debit cards. SmartMetric sees this existing user base as a natural market for its advanced security biometric activated card technology. SmartMetric plans to market its in-card biometric solution as a replacement to the less secure password or PIN used in current cards to card issuing banks and financial institutions.

 

SmartMetric has completed development of its biometric card. The company is now presenting its card to major card issuing banks throughout the world. Following feedback from potential Bank customers, SmartMetric has incorporated new changes into its card including an indicator light as well as an extended battery life.

 

Following feedback from card issuers the company has modified its product to include an area touch sensor. Replacing the cards previous swipe sensor. This change in the product has been completed and is now being presented to card issuing Banks around the World.

 

Card issuers may take from 3 months up to 12 months of internal trials and test marketing prior to placing orders of consequence with SmartMetric.  

 

The SmartMetric biometric payments card, with a built-in rechargeable battery and EMV banking industry contact interface chip (which activates following a fingerprint match on the card), is the first of its kind in the world.

 

4

 

 

THE SMARTMETRIC BIOMETRIC IN-CARD FINGERPRINT READER PAYMENTS CARD

 

(GRAPHIC)

 

The SmartMetric biometric fingerprint activated card has several functions:

 

  The card holders fingerprint is stored inside the card and NOT on a central computer;
  Interoperable with existing smart card, EMV ATM and Retail Point Of Sale Machines;
  The fingerprint sensor facilitates instant authorization and card user verification;

  Self-powered with its own internal rechargeable battery to allow for fingerprint activation prior to insertion into a card reading device such as an ATM or retail card reading machine;
  In card biometric measurement storage safeguards personal information;
  In card biometric storage permits access, identity and transaction control verification;
     

The SmartMetric Biometric Card contains active and passive components mounted onto a paper-thin circuit board. Reducing a powerful Cortex processor to a very thin component along with many other complex computer components including memory chips. Mounting them on the super thin board. This has required significant innovations in electronic manufacturing processes.

 

The SmartMetric biometric card is also a leading edge solution in the identity and access control market. Unlike a picture-based identification system, the SmartMetric biometric card has been designed to operate exclusively with the registered user. And unlike biometric security systems where the biometric information is stored at a central location, the Company believes that security is significantly increased during the verification process since the biometric information is embedded in the card itself, in a memory chip protected by encryption and no biometric data is travelling over a network. The built-in fingerprint scanner is designed to activate the card. Without a match with the encrypted fingerprint already stored in the card, the SmartMetric Biometric card will not operate.

 

As an online purchasing/credit card, the biometric payments card can help protect against identity theft and related fraudulent crimes that consumers can be exposed to when making purchases over the Internet. Unlike conventional credit cards, which require a consumer to type and deliver sensitive information over the Internet in order to make a purchase, the biometric card is designed to be inserted into a reader that is connected to the USB port of a computer. Using a USB port adapter any customer purchasing information can then only be released from the card when the owner’s finger print unlocks the card. The consumer’s information then travels across the Internet encrypted, minimizing exposure to interception by hackers and identity thieves.

 

5

 

 

SmartMetric believes that its biometric security card, by way of containing information unique to the individual user, protected by the card user’s biometrics, will be useless in the hands of others. Unlike a picture-based identification system, the SmartMetric biometric card has been designed to operate exclusively with the registered user. The fingerprint sensor built into the card has been designed to activate the card. Without a match with the encrypted fingerprint already stored on the card, the biometric Card will not operate.

 

The SmartMetric access control and identity biometric card is a card that authorized persons will carry with them and activate to obtain access. Such activation will take place by placing a finger on a fingerprint sensor on the surface of the card. The SmartMetric biometric cards are designed to be read by both contact and contactless card acceptor devices. For contact card acceptor devices, the device must touch a chip mounted on the surface of the biometric card. This contact allows the card to transmit data to the reading device. For contactless acceptor devices, a radio frequency signal will be sent from the card to a radio frequency signal receiver in the acceptor device. In both types of card reading devices, the activation signal is sent only when there has been a positive match of the persons fingerprint by the cards fingerprint sensor. The card reader devices are standard smartcard readers available from a variety of third parties.

 

The memory and computational capacities of the biometric card are used to store a user's fingerprint(s). The computational capacity is used to process a digitized image from the fingerprint sensor to confirm a match (or no match) with the fingerprint template. Additional computational processes such as increased cryptography will depend on the requirements of specific customers.

 

IN CARD FINGERPRINT MATCHING AND VERIFICATION

 

(GRAPHIC)

 

The SmartMetric Biometric card incorporates a rechargeable, lithium polymer battery. This battery is rechargeable, very thin and has been designed by SmartMetric to fit inside the SmartMetric fingerprint Credit Card sized card.  This battery is manufactured by a third party to SmartMetric’s specifications and is unaffiliated with the Company. This battery is embedded inside the card.

 

6

 

 

Other components needed for manufacture of the SmartMetric Biometric Card include, but are not limited to, sensors, microchips, memory chips and processor chips. The sources and availability of these materials are numerous and readily available, and should not affect the ability of SmartMetric to meet future demand.  However, SmartMetric does re-engineer a number of important components at silicon level to achieve the component size required to fit inside a Credit Card.  Both the supply of memory and processors in silicon wafers may be interrupted at any time based on global silicon supply/demand issues and the re-engineering of silicon by SmartMetric may also cause end component supply problems from time to time which may affect production and sale of the Cards.

 

The biometric card has been designed to offer the option of a built-in radio frequency transmitter for contactless long range access and identity verification.  Another version of the card incorporates a short range RFID contactless chip that is also turned off and on using the card users fingerprint verification on the Card.

 

The thinness form factor of many of the components including the processor itself being an unpackaged wafer of silicon has also resulted in the Company having to develop its own process for mass electronic assembly. The Company was also challenged in the process of encapsulating the electronics in plastic creating the credit card sized biometric fingerprint activated card.

 

Standard credit card manufacturing utilizes machines that require high pressure and high temperature in fusing top and bottom sheets of plastic together thereby encasing any electronics inside the card. Given the complexity of the card’s electronics and vulnerability to an assembly process involving high heat and high pressure, damage to the electronic circuitry was a major challenge for the Company to overcome. Research and development activities of the Company allowed the Company to achieve this ability through a combination of adjusting the pressure and heat required using special polymers together with a trade secret process that protects the silicon that is mounted directly onto the internal electronics circuit board.

 

T he Security Technology Industry 

 

SmartMetric Biometric Multi-Function Security Card

 

SmartMetric has developed a multi-function logical and physical access security card this size and thickness of a standard credit card. Utilizing the small size breakthroughs by the company in its biometric payments card development SmartMetric has successfully developed a biometric security card that can easily fit inside a person’s wallet.

 

As with the biometric payments card, the SmartMetric security card has an internal rechargeable battery that is used to power the cards internal processor used in the biometric fingerprint scan. All functions and operations of the card are subject to a valid fingerprint scan and match of the card user.

 

The main features of the SmartMetric biometric security card are:

 

  1. Logical access smartcard card chip for insertion into a card reader attached to a computer or network
  2. RFID transceiver for physical access i.e. doorways, elevators, etc.
  3. Validation indicator light that glows green immediately following a fingerprint validation
  4. Rechargeable battery to power the card
  5. Size and thickness of a credit card
  6. Changeable security code on reverse of card for additional log on security

 

7

 

 

Biometrics

 

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

 

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

 

• Something known such as a password, PIN or mother's maiden name; • Something carried such as a token, card, or key; or • something physical such as fingerprint, voice pattern, signature motion, facial shape or other biological or behavioral characteristic.  

 

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

 

Biometrics refers to the automatic identification of a person based on his/her physiological or behavioral characteristics. This method of identification is preferred over traditional methods involving passwords and personal identification numbers ("PINs") for various reasons: (i) the person to be identified is required to be physically present at the point of identification to be identification; (ii) identification based on biometric techniques obviates the need to remember a password or carry a token. By replacing PINs, biometric techniques can potentially prevent unauthorized access to or fraudulent use of cellular phones, Biometric cards, desktop PCs, workstations and computer networks. It can be used during transactions conducted via telephone and Internet (e-commerce and e- banking). In automobiles, biometrics could replace keys-less entry devices. The SmartMetric fingerprint activated Credit Card that has the fingerprint encased inside the Credit Card has been developed to replace the less secure PIN’s for Credit and Debit Cards.

 

PINs and passwords may be forgotten, may be hacked and token-based methods of identification, e.g., passports and driver's licenses may be forged, stolen or lost. Various types of biometric systems are being used for real-time identification, with the most popular based on facial recognition and fingerprint matching. Other biometric systems utilize iris and retinal scanning, speech, facial thermograms and hand geometry. Of the biometric options available to work with a Credit or Debit Card, fingerprint scanning is the only biometric methodology that has been successfully reduced in size to fit inside such cards.

 

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

 

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

 

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

 

8

 

 

The physical structure of a card is specified by the International Standards Organization ("ISO"). Generally, it is made up of three elements. The plastic card is the most basic one and has the dimensions of 85.60mm x 53.98 x 0.80mm, with an electronic circuit board inlay and an contact chip that are embedded in the card.

 

The SmartMetric card has been designed so that it conforms to ISO standards. The electronic circuit inlay is a part of, and not distinct from, the biometric card.

 

The communication line between the card and ATM’s and other standard Smart Card reading devices is bi-directional serial transmission, which conforms to ISO standards. Card commands and input data are sent to the chip that responds with status words and output data upon the receipt of these commands and data. Information is sent in half duplex mode (transmission of data is in one direction at a time). This protocol, together with the restriction of the bit rate, is designed to prevent data attack on the card.  Other data protection systems are utilized inside the card including advanced encryption.

 

In general, the size, the thickness and bend requirements for the biometric card were designed to protect the card from being spoiled physically.  

 

Sales and Marketing

 

We plan to market and sell our product to commercial and banking interests in the private sector and governmental agencies.  

 

The company is now actively marketing its biometric EMV chip card to Banks and Financial Institutions within the United States and Europe. The company also has sales representation in Australia and sales and marketing discussions under way with Financial Institutions in the Far East, Latin America and Asia.

 

The company will be exhibiting industry conferences and exhibitions as part of its ongoing sales and marketing efforts

 

There are more than 4.8 Billion EMV chip cards in use by Banks and Financial Institutions around the world according the standards body EMVco.

 

Manufacturing

 

The Company designs and develops its technology. It uses various companies to make and supply components that make up the SmartMetric biometric card. Current production capacity is approximately 250,000 cards per week and this can be substantially increased in co-ordination with our electronics assembler.

 

9

 

 

(GRAPHIC)

 

SmartMetric’s President & CEO in the card lamination factory.

 

Intellectual Property

 

We rely on patents, licenses, trade secrets, trademarks, copyright registrations and non-disclosure agreements to establish and protect our proprietary rights in our technologies and products. A number of Patents are in process (Patents Pending) that cover critical aspects of the engineering and function of the SmartMetric biometric card. The founder of SmartMetric, Chaya Hendrick is the inventor of these patents and has provided SmartMetric with an option over biometric card related pending patents invented by her.

 

Some of the most recent patents pending have not been disclosed on the publicly searchable USPTO database of filed for patents and remain trade secrets within the company. Publishing of such patents pending will be done in due course.

 

Patents  

 

Our technology is also dependent upon unpatented trade secrets. However, trade secrets are difficult to protect. In an effort to protect our trade secrets, we have a policy of requiring our employees, consultants and advisors to execute non-disclosure agreements. The principle shareholder of SmartMetric and technology inventor, C. Hendrick, through various corporate investment vehicles and companies also owns other technologies, patents, and has financial interest in other technology companies. C. Hendrick, under an executed employment agreement is not subject to any restriction on using and owning any technology, methodology, process or invention created by C. Hendrick.

 

Government Regulation

 

There are currently no governmental regulations, which have any bearing on the raw materials or the manufacturing of our payments card products.  United States Federal Departments such as the Department Of Defense have rules and regulations concerning security features of smart cards used as identity or building and cyber access cards.  These regulations stipulate a specific licensing and testing protocol for such cards.  

 

Banking Industry Self Regulation 

 

The EMV chip used in chip cards are subject to licensing and testing by the banking controlled body called EMVco.  EMVco is an acronym standing for Europay, MasterCard and Visa.  These international payments card networks where the founding parties of EMVco. 

 

10

 

 

Individual payments networks such as Visa, Mastercard, Europay, American Express, Union Pay Dinners and JCB all have their own individual licensing and testing standards and processes.  SmartMetric is dealing with one of these significant global payments networks for both licensing, testing and approval.   

 

Payments Network Licensing, Testing and Approvals

 

SmartMetric’s EMV chip and related software are approved from a global payments network. SmartMetric is proceeding with product testing and final approvals for its card to work on a global payment network thereby assuring interoperability and function of the SmartMetric card with Point Of Sale readers and ATM’s around the world.

 

No assurances can be given regarding the timing and ultimate approvals as these are given by the global payments network.  Having stated that the EMV chip used by SmartMetric is now licensed and approved along with the EMV software.  Card type testing is outstanding and yet to be completed

 

Research and Development

 

Our research and development program is focused on ongoing development of new products built on our existing biometric card. We continue to refine our technology and develop further improvements to our biometric card products. We have finalized our first biometric EMV payments card product.  We have also concluded the design and electronic engineering for our soon-to-be released multi-function security and access control biometric cards.   Research and development will continue as the Company continues to innovate and develop new biometric card based products.  Future biometric card based products the company is now working on, include but are not limited to; (a) health insurance card with stored in card medical records  (b) national identity card  (c) drivers licenses.  

 

The company has developed and is continuing to develop its own embedded systems and application software that works with the SmartMetric Biometric Card. This development software and systems and ongoing electronic design and development requires the company to continue to expend time and financial resources on significant software development. Contractor electronic and software engineers are engaged by and working for SmartMetric in Tel Aviv, Israel and Buenos Aires, Argentina.

 

Competition

 

Various potential competitors have announced products similar to that of SmartMetric’s.

 

Employees

 

As of the date of this annual report, we have one full time employee, our CEO and President, Chaya Hendrick.. We primarily use direct contract hires in administration and engineering, as is common in the information technology world.  All work product developed by all of our engineers remains the intellectual property of SmartMetric.  Engineers who work for SmartMetric under contract are primarily based in Tel Aviv, Israel.  Some software engineering is conducted in Buenos Aires, Argentina.

 

Corporate History

 

We were incorporated in the State of Nevada on December 18, 2002 and our principal office is located in Las Vegas, Nevada. Since our inception, we have invested a substantial portion of our efforts and financial resources in the development of our products. We have generated no revenues from the sale of our products and have experienced substantial net operating losses.

 

Where to Find More Information

 

We make our public filings with the SEC, including our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all exhibits and amendments to these reports. These materials are available on the Company’s website at www.smartmetric.com or on the SEC’s web site, http://www.sec.gov . You may also read or copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Alternatively, you may obtain copies of these filings, including exhibits, by writing or telephoning us at:

 

SMARTMETRIC 

3960 Howard Hughes Parkway, Suite 500 

Las Vegas, NV 89109 

Attn: Chief Executive Officer 

Tel: 702 990 3687

 

11

 

 

Item 1A. Risk Factors

 

We have described below a number of uncertainties and risks which, in addition to uncertainties and risks presented elsewhere in this Annual Report, may adversely affect our business, operating results and financial condition. The uncertainties and risks enumerated below as well as those presented elsewhere in this Annual Report should be considered carefully in evaluating us, our business and the value of our securities. The following important factors, among others, could cause our actual business, financial condition and future results to differ materially from those contained in forward-looking statements made in this Annual Report or presented elsewhere by management from time to time.

 

Risks Related to Our Financial Position and Need to Raise Additional Capital

 

We have a limited operating history as a company, and may not be able to effectively operate our business.

 

Our limited staff and operating history means that there is a high degree of uncertainty regarding our ability to:

 

  develop our technologies and proposed products;

  identify, hire and retain the needed personnel to implement our business plan and sell our products;

  Manage our growth and / or successfully scale our business; or

  respond to competition.

 

No assurances can be given as to exactly when, if at all, we will be able to fully develop, and take the necessary steps to derive any revenues from our proposed products.

 

Raising capital may be difficult as a result of our history of losses and limited operating history in our current stage of development.

 

When making investment decisions, investors typically look at a company’s management, earnings and historical performance in evaluating the risks and operations of the business and the business’s future prospects. Our history of losses and relatively limited operating history in our current stage of development makes such evaluation, as well as any estimation of our future performance, substantially more difficult. As a result, investors may be unwilling to invest in us or on terms or conditions which are acceptable. If we are unable to secure additional financing, we may need to materially scale back our business plan and/or operations or cease operations altogether.

 

We are an early-stage company, have no product revenues, are not profitable and may never be profitable.

 

From inception through June 30, 2017, we have raised approximately $23,000,000 million through the sale of our securities. During this same period, we have recorded an accumulated deficit of approximately $24,346,047 million. Our net losses for the two most recent fiscal years ended June 30, 2017, and 2016 were $1,086,091 and $2,227,324, respectively. No sales and have never generated revenues and we anticipate none will be generated for the foreseeable future. We expect to incur significant operating losses for the foreseeable future as we continue the development of our products. Accordingly, we will need additional capital to fund our continuing operations and any expansion plans. Since we do not generate any revenue, the most likely source of such additional capital is the sale of our securities. To the extent that we raise additional capital by issuing equity securities, our stockholders are likely to experience dilution with regard to their percentage ownership of the company, which may be significant. If we raise additional capital by incurring debt, we could incur significant interest expense and become subject to covenants that could affect the manner in which we conduct our business, including securing such debt obligations with our assets.

 

To date, we have generated only losses, which are expected to continue for the foreseeable future.

 

For the years ended June 30, 2017 and 2016, we incurred a net loss of $1,086,091 and $2,227,324, respectively.  We may not be able to achieve expected results, including any guidance or outlook it may provide from time to time.

 

We may continue to incur losses and may be unable to achieve profitability. We cannot assure you that our net losses and negative cash flow will not accelerate and surpass our expectations nor can we assure you that we will ever generate any net income or positive cash flow.

 

We may not be able to continue as a going concern if we do not obtain additional financing by December 31, 2017.

 

Since our inception, we have funded our operations primarily through the sale of our securities. Our cash and cash equivalents balance at June 30, 2017 was $51,695. Based on our current expected level of operating expenditures, we expect to only be able to fund our operations through the second quarter (ending December 31, 2017) of fiscal year ending June 30, 2018, at which time we will need additional capital. Our ability to continue as a going concern is wholly dependent upon obtaining sufficient capital to fund our operations. We have no committed sources of additional capital and our access to capital funding is always uncertain. Accordingly, despite our ability to secure capital in the past, we cannot assure you that we will be able to secure additional capital through financing transactions, including issuance of debt, or through other means. In the event that we are not able to secure additional funding, we may be forced to curtail operations, delay or stop ongoing clinical trials, cease operations altogether or file for bankruptcy.

   

Our auditors have expressed substantial doubt about our ability to continue as a going concern.

   

Our auditors’ report on our June 30, 2017 financial statements expressed an opinion that our capital resources as of the date of their audit report were not sufficient to sustain operations or complete our planned activities for the upcoming year unless we raised additional funds. Our current cash level raises substantial doubt about our ability to continue as a going concern past December 31, 2017. If we do not obtain additional funds by such time, we may no longer be able to continue as a going concern and will cease operation which means that our shareholders will lose their entire investment.

 

We entered into a royalty and licensing agreement with Chaya Hendrick, our CEO, which requires substantial payments by us on an annual basis and additionally in the event gross revenues are derived, which could harm our financial position.

 

Pursuant to a licensing and royalty agreement, entered into on September 11, 2017 by the Company and Chaya Hendrick, our founder and CEO, we received a license to certain patents related to our technologies until the expiration of such patents in exchange for the following : (i) Issuance of 200,000 Series B Convertible Preferred Shares, (ii) 5% of gross revenues derived from the sale of products derived from the patents, and (iii) annual payments beginning at $50,000 per annum, increased by 100% of each previous year (offset against 5% gross revenue royalty payments). We believe these patents are instrumental our business plan and if we are unable to make such required payments under the plan, Chaya Hendrick may terminate the agreement, which may materially impact our business plan. Furthermore, there can be no assurances that we will be able to continue to meet our financial obligations under the terms of the agreement unless we are able to raise additional capital through the sale of our securities or derive revenue from some other source.

 

As of June 30, 2017, we owe Chaya Hendrick, our CEO, $520,848 in deferred salary, of which the failure to pay could result in Chaya Hendrick’s termination of employment, the result of which would materially harm our business.

 

We currently have not paid $520,848 in salary owed to Chaya Hendrick pursuant to Chaya Hendrick’s employment agreement outstanding with us as of June 30, 2017. While Chaya Hendrick continues to support the Company and continues to operate as its CEO, president and chairman of the Board of Directors, there can be no assurances that this will continue if we fail to back salaries and future salary owed. Additionally, as of July 1, 2017, all prior and future deferred salary owed will bear interest at a rate of 7% per annum. In the event Chaya Hendrick terminates employment for lack of payment, the Company believes such loss would cause irreparable harm to our product development, and would materially harm our business prospects. Additionally, there can be no assurances that Chaya would not attempt to foreclose on our assets in order to satisfy such debt obligations.

 

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Risks Relating to our Stage of Development and Business

 

Our potential competitors have significantly greater resources than we have, which may make competing difficult.

 

We compete against numerous companies, many of which have substantially greater resources than we have. Several such competitors have large teams of engineers and scientists that attempt to develop products and technologies similar to ours. Companies such as MaterCard, Visa, Gemalko, Giesecke & Devrient, Oberthur Card Systems, as well as others, have substantially greater financial, research, manufacturing and marketing resources than we do. As a result, such competitors may find it easier to compete in our industry and bring competing products to market.

 

Our business depends upon our ability to keep pace with the latest technological changes, and our failure to do so could make us less competitive in our industry.

 

The market for our services is characterized by rapid change and technological improvements. Failure to respond in a timely and cost-effective way to these technological developments may result in serious harm to our business and operating results. As a result, our success will depend, in part, on our ability to develop and market service offerings that respond in a timely manner to the technological advances of available to our customers, evolving industry standards and changing preferences.

 

Our key personnel and directors are critical to our business, and such key personnel may not remain with our company in the future.

 

We depend on the continued employment of its senior executive officers and other key management and technical contracted personnel. If any of its key personnel were to leave and not be replaced with sufficiently qualified and experienced personnel, our business could be adversely affected. In particular, our current strategy to penetrate the market for contactless logical access identification and transaction solutions is heavily dependent on the vision, leadership and experience of its Chairman and CEO, C. Hendrick.

 

Our continued success will depend, to a significant extent, upon the performance and contributions of our senior management and upon our ability to attract motivate and retain highly qualified management personnel and employees. We depend on our key senior management to effective manage our business in a highly competitive environment. If one or more of our key officers join a competitor or form a competing company, we may experience interruptions in product development, delays in bringing products to market, difficulties in our relationships with customers and loss of additional personnel, which could significantly harm our business, financial condition, operating results and projected growth.

 

Rapid technological changes could make our services or products less attractive.

 

The smart card, biometric identification and personal identification industries are characterized by rapid technological change, frequent new product innovations, changes in customer requirements and expectations and evolving industry standards. If we are unable to keep pace with these changes, our business may be harmed. Products using new technologies, or emerging industry standards, could make our technologies less attractive. If addition, we may face unforeseen problems when developing our products, which could harm our business. Furthermore, our competitors may have access to technologies not available to us, which may enable them to produce products of greater interest to consumers or at a more competitive cost.

 

Sales of our products depend on the development of emerging applications in their target markets and on diversifying and expanding our customer base in new markets and geographic regions, all of which may be financially burdensome or unsuccessful.

 

Our intent is to market and sell our products primarily to the private sector while addressing emerging applications that have not yet reached a stage of mass adoption or deployment. The market for some of these solutions (electronic biometric fingerprinting) is at an early stage of deployment in the private sector compared to other forms of services that try to identify a person through simpler means (by their name, social security number, etc.) Additionally, we have a strategy of expanding sales of existing products into new geographic markets. Our target market initially will begin in South America and Australia. In the event that we are unable to adequately develop our applications or gain traction in these emerging markets, or that the cost of the foregoing is too great, our business may be harmed.

 

Continuing disruption in the global financial markets may adversely impact customers and customer spending patterns.

 

Continuing disruption in the global financial markets as a result of the ongoing global financial uncertainty may cause consumers, businesses and governments to defer purchases in response to tighter credit, decreased cash availability and declining consumer confidence. Accordingly, demand for our products could decrease and differ materially from their current expectations. Further, some of our customers may require substantial financing in order to fund their operations and make purchases from us. The inability of these customers to obtain sufficient credit to finance purchases of our products and meet their payment obligations to us or possible insolvencies of our customers could result in decreased customer demand, an impaired ability for us to collect on outstanding accounts receivable, significant delays in accounts receivable payments, and significant write-offs of accounts receivable, each of which could adversely impact our financial results.

 

Risks Related to Our Intellectual Property

 

If we are not able to adequately protect our intellectual property, we may not be able to compete effectively.

 

Our ability to compete depends in part upon the strength of our proprietary rights in our technologies, brands and content. The efforts we have taken to protect our intellectual property and proprietary rights may not be sufficient or effective at stopping unauthorized use of our intellectual property and proprietary rights. In addition, effective trademark, patent, copyright and trade secret protection may not be available or cost-effective in every country in which our products are made available. There may be instances where we are not able to fully protect or utilize our intellectual property in a manner that maximizes competitive advantage. If we are unable to protect our intellectual property and proprietary rights from unauthorized use, the value of our products may be reduced, which could negatively impact our business. Our inability to obtain appropriate protections for our intellectual property may also allow competitors to enter our markets and produce or sell the same or similar products. In addition, protecting our intellectual property and other proprietary rights is expensive and diverts critical managerial resources. If any of the foregoing were to occur, or if we are otherwise unable to protect our intellectual property and proprietary rights, our business and financial results could be adversely affected. If we are forced to resort to legal proceedings to enforce our intellectual property rights, the proceedings could be burdensome and expensive. In addition, our proprietary rights could be at risk if we are unsuccessful in, or cannot afford to pursue, those proceedings.

 

We may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property rights and we may be unable to protect our rights to, or use of, our technology.

 

Some or all of our patent applications may not issue as patents, or the claims of any issued patents may not afford meaningful protection for our technologies or products. In addition, patents issued to us or our licensors, if any, may be challenged and subsequently narrowed, invalidated or circumvented. Patent litigation is widespread in our industry and could harm our business. Litigation might be necessary to protect our patent position or to determine the scope and validity of third-party proprietary rights. If we choose to go to court to stop someone else from using the inventions claimed in our patents, that individual or company would have the right to ask the court to rule that such patents are invalid and/or should not be enforced against that third party. These lawsuits are expensive and we may not have the required resources to pursue such litigation or to protect our patent rights. In addition, there is a risk that the court might decide that these patents are not valid and that we do not have the right to stop the other party from using the inventions. There is also the risk that, even if the validity of these patents is upheld, the court could refuse to stop the other party on the ground that such other party’s activities do not infringe on our rights contained in these patents.

 

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Furthermore, a third party may claim that we are using inventions covered by their patent rights and may go to court to stop us from engaging in our normal operations and activities, including making or selling our product candidates. These lawsuits are costly and could materially increase our operating expenses and divert the attention of managerial and technical personnel. There is a risk that a court would decide that we are infringing the third party’s patents and would order us to stop the activities covered by the patents. In addition, there is a risk that a court would order us to pay the other party damages for having violated the other party’s patents. It is not always clear to industry participants, including us, which patents cover various types of products or methods of use. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform.

 

Because some patent applications in the United States may be maintained in secrecy until the patents are issued, patent applications in the United States and many foreign jurisdictions are typically not published until eighteen months after filing, and publications in the scientific literature often lag behind actual discoveries, we cannot be certain that others have not filed patent applications for technology covered by our issued patents or that we were the first to invent the technology. Our competitors may have filed, and may in the future file, patent applications covering technology similar to ours. Any such patent application may have priority over our patent applications and could further require us to obtain rights to issued patents covering such technologies.

 

If another party has filed a United States patent application on inventions similar to ours, we may have to participate in an interference or other proceeding in the U.S. Patent and Trademark Office, or the PTO, or a court to determine priority of invention in the United States. The costs of these proceedings could be substantial, and it is possible that such efforts would be unsuccessful, resulting in a loss of our United States patent position with respect to such inventions.

 

Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect on our ability to raise the capital necessary to continue our operations.

 

Risks Relating to Market Approval and Government Regulations

 

We may be unable to comply with our reporting and other requirements under federal securities laws.

 

The Sarbanes-Oxley Act of 2002, as well as related new rules and regulations implemented by the United States Securities and Exchange Commission, or SEC, and the Public Company Accounting Oversight Board, require changes in the corporate governance practices and financial reporting standards for public companies. These laws, rules and regulations, including compliance with Section 404 of the Sarbanes-Oxley Act of 2002 relating to internal control over financial reporting, would be expected to materially increase the Company’s legal and financial compliance costs and make some activities more time-consuming and more burdensome. Presently we qualify as a non-accelerated filer. Accordingly, we are exempt from the requirements of Section 404(b) and our independent registered public accounting firm is not required to audit the design and operating effectiveness of our internal controls and management’s assessment of the design and the operating effectiveness of such internal controls. In the event that we become an accelerated filer, we will be required to expend substantial capital in connection with compliance.

 

We do not have effective internal controls over our financial reporting.

 

Because of our limited resources, management has concluded that our internal control over financial reporting may not be effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Effective internal controls over financial reporting and disclosure controls and procedures are necessary for us to provide reliable financial and other reports and effectively prevent fraud. If we cannot provide reliable financial or SEC reports or prevent fraud, investors may lose confidence in our SEC reports, our operating results and the trading price of our common stock could suffer materially and we may become subject to litigation.

 

Compliance with changing regulation of corporate governance and public disclosure may result in additional expenses and will divert time and attention away from revenue generating activities.

 

Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002 and related SEC regulations, have created uncertainty for public companies and significantly increased the costs and risks associated with accessing the public markets and public reporting. Our management team invests significant time and financial resources to comply with both existing and evolving standards for public companies, which will lead to increased general and administrative expenses and a diversion of management time and attention from developing our business to compliance activities which could have an adverse effect on our business.

 

Our technology relies on our ability to gain the acceptance and approval of large banking / credit card institutions, the failure to do so may materially harm our business.

 

In the event that our SmartMetric BioMetric Card does not gain acceptance / approval amongst the large card issuing institutions in the United States and abroad, our cards will not be provided for use to customers. We currently have no plans to open our own bank / credit card issuing institution and accordingly, we plan to rely on our ability to have our products accepted within the banking / credit card industries. Our failure to do so will have a material impact on our ability to generate revenues and continue to operate our business.

 

Risks Relating to the Development and Manufacturing of Our Products

 

We currently rely on third party manufacturers and suppliers for certain components of our product; with such parties being, to some extent, outside of our control.

 

We currently have limited internal manufacturing capability, and intend to rely on third party contract manufacturers or suppliers for the foreseeable future. Accordingly, factors outside of our control may result in material manufacturing delays and product shortages, which could delay or otherwise negatively impact our manufacturing and product development plans. Should we be forced to manufacture our proposed products, we cannot give any assurance that we would be able to develop internal manufacturing capabilities. In the event that we seek third party suppliers or alternative manufacturers, they may require us to purchase a minimum amount of materials or could require other unfavorable terms. Any such event could materially impact our business prospects and could delay the development and manufacturing of our products. Moreover, we cannot give any assurance that the contract manufacturers or suppliers that we select will be able to supply our products in a timely or cost-effective manner or in accordance with our specifications.

 

We have a limited number of suppliers of key components, and may experience difficulties in obtaining components for which there is significant demand, which would materially impact our business prospects.

 

We rely upon a limited number of suppliers for some key components of our products. Our reliance on a limited number of suppliers may expose us to various risks including, without limitation, an inadequate supply of components, price increases, late deliveries and poor component quality. In addition, some of the basic components we use in our products, such as biometric fingerprint devices and various smart card technologies may at any time be in great demand. This could result in components not being available to us in a timely manner or at all, particularly if larger companies have ordered more significant volumes of those components, or in higher prices being charged for components. Disruption or termination of the supply of components or software used in our products could delay shipments of these products. The following delays / factors from our third party suppliers could have a material adverse effect on our business and operating results and could also damage relationships with current and prospective customers:

 

  Difficulties in staffing;
  Adequate resources of qualified technicians, engineers/assemblers, and programmers;
  Potentially adverse tax consequences;
  Unexpected changes in regulatory requirements;
  Tariffs and other trade barriers;
  Export controls;
  Political and economic instability; and
  Late delivery of our products.

 

We utilize third party manufacturing plants for silicon for the manufacturing our products, which, in the event of growth would need to use large quantities of silicon, for which raw material shortages may occur.

 

While we currently use silicon in our products, and no shortage currently exists of these materials, there can be no assurances that there will not be a shortage in the future, which may materially impact our manufacturing capabilities, growth prospects, and ability to generate revenue in the future.

 

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Risks Related to our Securities

 

Our board of directors has broad discretion to issue additional securities.

 

We are authorized under our certificate of incorporation to issue up to 305,000,000 shares consisting of 300,000,000 shares of common stock and 5,000,000 “blank check” shares of preferred stock. Shares of our blank check preferred stock provide the board of directors with broad authority to determine voting, dividend, conversion, and other rights. As of June 30, 2017, we have issued and outstanding 226,172,799 shares of common stock and 410,000 shares of Series B Preferred Stock that are convertible into 20,500,000 shares of common stock at the election of the holder. Additionally, we have 20,276,399 shares of common stock reserved upon the exercise of outstanding purchase warrants. Accordingly, as of June 30, 2017 we are entitled to issue up to 33,050,802 additional shares of common stock, and 4,959,000 additional shares of “blank check” preferred stock. Our board may generally issue those common and preferred shares, or convertible securities to purchase those shares, without further approval by our shareholders. Any additional preferred shares we may issue could have such rights, preferences, privileges, and restrictions as may be designated from time-to-time by our board, including preferential dividend rights, voting rights, conversion rights, redemption rights and liquidation provisions.

 

It is likely that we will issue additional securities to raise capital in order to further our business plans. It is also likely that we will issue additional securities to directors, officers, employees and consultants as compensatory grants in connection with their services. Any issuances could be made at a price that reflects a discount to, or a premium from, the then-current market price of our common stock. These issuances would dilute the percentage ownership interest of our current shareholders, which would have the effect of reducing your influence on matters on which our stockholders vote, and might dilute the net tangible book value per share of our common stock.

 

Future sales of our common stock could cause our stock price to fall.

 

Transactions that result in a large amount of newly issued shares become readily tradable, or other events that cause current stockholders to sell shares, could place downward pressure on the trading price of our common stock. In addition, the lack of a robust trading market may require a stockholder who desires to sell a large number of shares of common stock to sell the shares in increments over time to mitigate any adverse impact of the sales on the market price of our stock. If our stockholders sell, or the market perceives that our stockholders intend to sell for various reasons, substantial amounts of our common stock in the public market, including shares issued upon the exercise of outstanding warrants, the market price of our common stock could fall. Sales of a substantial number of shares of our common stock may make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate. We may become involved in securities class action litigation that could divert management’s attention and harm our business.

 

During the year ended June 30, 2017 we issued an aggregate of 22,437,633 shares of common stock. All of such common stock will be available for resale pursuant to rule 144 on December 31, 2017, at the latest, provided we continue to comply with our SEC reporting obligations.

 

As of June 30, 2017, we had 226,172,799 shares of common stock and 410,000 shares of Series B Preferred Stock issued and outstanding (not including 200,000 shares of Series B Preferred Stock issued in September 2017). As of June 30, 2017, we had reserved for issuance (i) 20,500,000 shares of our common stock issuable upon the conversion of 410,000 shares of Series B Preferred Stock and (ii) 20,276,399 shares of our common stock issuable upon exercise of outstanding warrants. We cannot predict if future issuances or sales of our common stock, or the availability of our common stock for sale, would harm the market price of our common stock or our ability to raise capital.

 

We have not paid cash dividends in the past and do not expect to pay cash dividends in the foreseeable future.

 

We have never paid cash dividends on our common stock and do not anticipate paying cash dividends on our common stock in the foreseeable future. If we do not pay dividends, our common stock may be less valuable because a return on your investment will only occur if the market price of our common stock appreciates.

 

If securities or industry analysts do not publish research or reports or if they publish unfavorable research or reports, an active market for our common stock may not develop and the price of our common stock could decline.

 

We are a small company which is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume. Even if we come to the attention of such persons, they may be reluctant to follow or recommend an unproven company such as ours until such time as we became more seasoned and viable. Generally, the trading market for a company’s securities depends in part on the research and reports that securities or industry analysts publish. We currently have limited research coverage by securities and industry analysts. As a consequence, there may be periods of time when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer with significant research coverage. We cannot give you any assurance that a broader or more active public trading market for our common stock will develop or if developed, will be sustained, or that current trading levels could be sustained or not diminish. In addition, in the event any analysts downgrades our securities, the price of our shares would likely decline. If one or more of these analysts ceases to cover us or fails to publish regular reports on us, interest in the purchase of our securities could decrease, which could cause the price of our common stock and its trading volume, if any, to decline.

 

Our common stock may be considered a “penny stock,” and may be subject to additional sale and trading regulations that may make it more difficult to sell.

 

Our common stock may be considered a “penny stock.” The principal result or effect of being designated a penny stock is that securities broker-dealers participating in sales of our common stock may be subject to the penny stock regulations set forth in Rules 15g-2 through 15g-9 promulgated under the Exchange Act. For example, Rule 15g-2 requires broker-dealers dealing in penny stocks to provide potential investors with a document disclosing the risks of penny stocks and to obtain a manually signed and dated written receipt of the document at least two business days before effecting any transaction in a penny stock for the investor’s account. Moreover, Rule 15g-9 requires broker-dealers in penny stocks to approve the account of any investor for transactions in such stocks before selling any penny stock to that investor. This procedure requires the broker-dealer to (i) obtain from the investor information concerning his or her financial situation, investment experience and investment objectives; (ii) reasonably determine, based on that information, that transactions in penny stocks are suitable for the investor and that the investor has sufficient knowledge and experience as to be reasonably capable of evaluating the risks of penny stock transactions; (iii) provide the investor with a written statement setting forth the basis on which the broker-dealer made the determination in (ii) above; and (iv) receive a signed and dated copy of such statement from the investor, confirming that it accurately reflects the investor’s financial situation, investment experience and investment objectives. Compliance with these requirements may make it more difficult and time consuming for holders of our common stock to resell their shares to third parties or to otherwise dispose of them in the market or otherwise.

 

Because certain of our stockholders control a significant number of shares of our common stock, they may have effective control or influence over actions requiring stockholder approval.

 

Our directors, executive officers and principal stockholders, and their respective affiliates, beneficially own approximately 33.60% of our outstanding shares of common stock. As a result, these stockholders, acting together, would great influence on the outcome of matters submitted to our stockholders for approval, including the election of directors and any merger, consolidation or sale of all or substantially all of our assets. In addition, these stockholders, acting together, would have strong influence on the management and affairs of our company. Accordingly, this concentration of ownership might harm the market price of our common stock by:

 

  delaying, deferring or preventing a change in corporate control;
  impeding a merger, consolidation, takeover or other business combination involving us; or
  discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us.

 

Failure to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and operating results and stockholders could lose confidence in our financial reporting.

 

Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. If we cannot provide reliable financial reports or prevent fraud, our operating results could be harmed. Failure to achieve and maintain an effective internal control environment, regardless of whether we are required to maintain such controls, could also cause investors to lose confidence in our reported financial information, which could have a material adverse effect on our stock price. The Company’s management assessed the design and operating effectiveness of internal control over financial reporting as of June 30, 2017 based on the framework set forth in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. In connection with the assessment described above, management identified the control deficiencies that represent material weaknesses at June 30, 2017. See “Item 9. Controls and Procedures” for more detailed discussion.

 

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We have not paid dividends on our common stock in the past and do not expect to pay dividends on our common stock for the foreseeable future. Any return on investment may be limited to the value of our common stock.

 

No cash dividends have been paid on our common stock. We expect that any income received from operations will be devoted to our future operations and growth. We do not expect to pay cash dividends on our common stock in the near future. Payment of dividends would depend upon our profitability at the time, cash available for those dividends, and other factors as our board of directors may consider relevant. If we do not pay dividends, our common stock may be less valuable because a return on an investor’s investment will only occur if our stock price appreciates.

 

The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain qualified board members.

 

The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and financial condition. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal controls for financial reporting. For example, Section 404 of the Sarbanes-Oxley Act of 2002 requires that our management report on, and our independent auditors attest to, the effectiveness of our internal controls structure and procedures for financial reporting. Section 404 compliance may divert internal resources and will take a significant amount of time and effort to complete. We may not be able to successfully complete the procedures and certification and attestation requirements of Section 404 by the time we will be required to do so. If we fail to do so, or if in the future our chief executive officer, chief financial officer or independent registered public accounting firm determines that our internal controls over financial reporting are not effective as defined under Section 404, we could be subject to sanctions or investigations by the SEC or other regulatory authorities. Furthermore, investor perceptions of our company may suffer, and this could cause a decline in the market price of our common stock. Irrespective of compliance with Section 404, any failure of our internal controls could have a material adverse effect on our stated results of operations and harm our reputation. If we are unable to implement these changes effectively or efficiently, it could harm our operations, financial reporting or financial results and could result in an adverse opinion on internal controls from our independent auditors. We may need to hire a number of additional employees with public accounting and disclosure experience in order to meet our ongoing obligations as a public company, which will increase costs. Our management team and other personnel will need to devote a substantial amount of time to new compliance initiatives and to meeting the obligations that are associated with being a public company, which may divert attention from other business concerns, which could have a material adverse effect on our business, financial condition and results of operations. In addition, because our management team has limited experience managing a public company, we may not successfully or efficiently manage our transition into a public company.

 

Item 1B. Unresolved Staff Comments.

 

Not Applicable.

 

Item 2. Properties.

 

Our principal office is located at 3960 Howard Hughes Parkway, Suite 500, Las Vegas, Nevada 89109. We currently lease this property at a rate of approximately $1,100 per month We believe that our existing office facility is adequate for our current needs and that additional space will be available if and when needed.

 

Item 3. Legal Proceedings.

 

From time to time we may be a defendant or plaintiff in various legal proceedings arising in the normal course of our business. As of the date of this Annual Report, there are no material pending legal or governmental proceedings relating to us or properties to which we are a party, and, to our knowledge, there are no material proceedings to which any of our directors, executive officers or affiliates are a party adverse to us or which have a material interest adverse to us.

 

Item 4. Mine Safety Disclosures.

 

Not Applicable

 

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PART II

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

 

Market Information

 

Our common stock is quoted on the over-the-counter on the Over-the-Counter (“OTC”) Bulletin Board. The range of high and low bid quotations for the quarters of the last two years ended June 30, 2017 is listed below. The quotations are taken from the OTCQB and OTC Bulletin Board. They reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not necessarily represent actual transactions.

 

    Low     High  
      $       $  
Quarter Ended September 30, 2015     0.03       0.15  
Quarter Ended December 31, 2015     0.07       0.12  
Quarter Ended March 31, 2016     0.02       0.15  
Quarter Ended June 30, 2016     0.06       0.15  
Quarter Ended September 30, 2016     0.04       0.09  
Quarter Ended December 31, 2016     0.06       0.09  
Quarter Ended March 31, 2017     0.06       0.16  
Quarter Ended June 30, 2017     0.06       0.08  

 

As of September 21, 2017, we had 1,088 shareholders of record of our common stock, including the shares held in street name by brokerage firms.

 

Dividends

 

We have never declared or paid any cash dividends on our capital stock and we do not currently anticipate declaring or paying cash dividends on our capital stock in the foreseeable future. We currently intend to retain all of our future earnings, if any, to finance the operation and expansion of our business. Any future determination relating to our dividend policy will be made at the discretion of our board of directors and will depend on a number of factors, including future earnings, capital requirements, financial conditions, future prospects, contractual restrictions and covenants, applicable law and other factors that our board of directors may deem relevant. If we do not pay dividends, a return on your investment will occur only if the market price of our common stock appreciates.

 

Recent Sales of Unregistered Securities

 

The following information is given with regard to unregistered securities sold since July 1, 2014. The following securities were issued in private offerings pursuant to the exemption from registration contained in the Securities Act and the rules promulgated thereunder in reliance on Section 4(2) thereof of the Securities Act of 1933, as amended and Regulation D and Regulation S promulgated thereunder, relating to offers of securities by an issuer not involving any public offering. Where not otherwise stated, all warrants have expired.

 

During the three months ended September 30, 2014, the Company sold, for net proceeds of $307,662, units consisting of an aggregate of (i) 4,893,731 shares, (ii) twenty-four month warrants to purchase 1,375,000 shares at $0.70 per share, and (iii) warrants to purchase 724,500 shares at $1.00 per share.

 

During the three months ended December 31, 2014, the Company sold, for net proceeds of $95,750, units consisting of an aggregate of (i) 1,599,994 shares, (ii) twelve month warrants to purchase 1,187,500 shares at $0.70 per share, and (iii) warrants to purchase 598,500 shares at $1.00 per share.

 

During the three months ended March 31, 2015, the Company sold, for net proceeds of $189,557, units consisting of an aggregate of (i) 4,425,000 shares, (ii) twelve month warrants to purchase 2,375,000 shares at $0.70 per share, and (iii) warrants to purchase 1,197,000 shares at $1.00 per share.

 

During the three months ended June 30, 2015, the Company sold, for net proceeds of $212,934, units consisting of an aggregate of (i) 4,362,500 shares, (ii) twelve month warrants to purchase 2,668,750 shares at $0.70 per share, and (iii) warrants to purchase 1,345,050 shares at $1.00 per share.

 

During the three months ended September 30, 2015, the Company sold, for net proceeds of $214,633, units consisting of an aggregate of (i) 2,150,000 shares, (ii) warrants to purchase 2,687,500 shares at $0.70 per share, and (iii) warrants to purchase 1,354,500 shares at $1.00 per share.

 

During the three months ended December 31, 2015, the Company sold, for net proceeds of $261,477, units consisting of an aggregate of (i) 5,242,000 shares, (ii) warrants to purchase 3,276,250 shares at $0.70 per share, and (iii) warrants to purchase 1,651,230 shares at $1.00 per share.

 

During the three months ended March 31, 2016, the Company sold, for net proceeds of $106,771, units consisting of an aggregate of (i) 2,140,000 shares, (ii) warrants to purchase 1,337,500 shares at $0.70 per share, and (iii) warrants to purchase 674,100 shares at $1.00 per share. The warrants expire at various times through January 15, 2018.

 

During the three months ended June 30, 2016, the Company sold, for net proceeds of $378,784, units consisting of an aggregate of (i) 7,590,000 shares, (ii) warrants to purchase 4,743,750 shares at $0.70 per share, and (iii) warrants to purchase 2,390,850 shares at $1.00 per share. The warrants expire at various times through.

 

During the three months ended September 30, 2016, the Company sold, for net proceeds of $155,991, units consisting of an aggregate of (i) 3,130,000 shares, (ii) warrants to purchase 1,956,250 shares at $0.70 per share, and (iii) warrants to purchase 985,950 shares at $1.00 per share. The warrants expire at various times through January 15, 2018.

 

During the three months ended September 30, 2016, the Company issued an aggregate of 1,669,633 shares for consulting services valued at $84,400, based on the stock price at the time of the respective agreements underlying the services provided.

 

During the three months ended December 31, 2016, the Company sold, for net proceeds of $272,904, units consisting of an aggregate of (i) 5,470,000 shares, (ii) warrants to purchase 3,418,750 shares at $0.70 per share, and (iii) warrants to purchase 1,723,050 shares at $1.00 per share. The warrants expire at various times through January 31, 2018.

 

During the three months ended December 31, 2016, the Company issued an aggregate of 5,000,000 shares for consulting services valued at $550,000 based on the stock price at the time of the respective agreements underlying the services provided.

 

During the three months ended March 31, 2017, the Company sold, for net proceeds of $127,247.50, units consisting of an aggregate of (i) 2,550,000 shares, (ii) warrants to purchase 1,593,750 shares at $0.70 per share, and (iii) warrants to purchase 803,250 shares at $1.00 per share. The warrants expire at various times through September 27, 2018.

 

During the three months ended March 31, 2017, the Company issued an aggregate of 2,423,000 shares of common stock for consulting services valued at $283,955, based on the stock price at the time of the respective agreements underlying the services provided.

 

During the three months ended June 30, 2017, the Company sold, for net proceeds of $242,157, units consisting of an aggregate of (i) 7,450,000 shares, (ii) warrants to purchase 3,031,250 shares at $0.70 per share, and (iii) warrants to purchase 1,527,750 shares at $1.00 per share. The warrants expire at various times through October 20, 2018.

 

On September 11, 2017, we received a license to certain patents from Chaya Hendrick, our founder and CEO, related to our technologies until the expiration of the patents. As consideration, we issued Chaya Hendrick, or her assigns, (i) 200,000 shares of Series B Convertible Preferred Stock, (ii) a royalty equal to 5% of gross revenues derived from products sold related to the patents, and (iii) certain minimum required payments beginning at $50,000 and doubling each year thereafter. The Series B Preferred Shares may be converted at the election of holder on a basis for 50 common shares for each preferred share at any time or an aggregate of 10,000,000 common shares in exchange for all 200,000 preferred shares.

 

17

 

 

Item 6. Selected Financial Data.

 

Not Applicable as we are a smaller reporting company.

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is provided in addition to the accompanying financial statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows. MD&A is organized as follows:

 

  Company Overview - Discussion of our business plan and strategy in order to provide context for the remainder of MD&A.
     
  Critical Accounting Policies - Accounting policies that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results and forecasts.
     
  Results of Operations - Analysis of our financial results comparing the year ended June 30, 2017 and June 30, 2016.
     
  Liquidity and Capital Resources - Liquidity discussion of our financial condition and potential sources of liquidity.

 

Company Overview

 

Business

 

SmartMetric, Inc. was incorporated pursuant to the laws of Nevada on December 18, 2002. “SmartMetric is a development stage company engaged in the technology industry. SmartMetric’s main products are a fingerprint sensor activated payments card and security card with a finger sensor and fully functional fingerprint reader embedded inside the card. The SmartMetric biometric cards have a rechargeable battery allowing for portable biometric identification and card activation. This card is referred to as a biometric card or the SmartMetric Biometric Card.”

 

To date, we have devoted a substantially all of our efforts and financial resources to the development of our SmartMetric BioMetric Card. Since our inception in 2002, we have generated no revenue from product sales and have funded our operations principally through the private sales of our equity securities. We have never been profitable and, as of June 30, 2017, we had an accumulated deficit of approximately $24,346,047. We expect to continue to incur significant operating losses for the foreseeable future as we continue the development of our technologies and advance them to market.

 

Our cash and cash equivalents balance at June 30, 2017 was approximately $51,695, representing 42.6% of total assets. Notwithstanding our recent capital raises, based on our current expected level of operating expenditures, we expect to be able to fund our operations into the quarter beginning January 1, 2018. This period could be shortened if there are any significant increases in spending that were not anticipated or other unforeseen events.

 

We anticipate raising additional cash through the private or public sales of equity or debt securities to continue to fund our operations and the development of our technologies. There is no assurance that financing will be available to us when needed in order to allow us to continue our operations, or if available, on terms acceptable to us. If we do not raise sufficient funds in a timely manner, we may be forced to curtail operations, delay or stop our ongoing clinical trials, cease operations altogether, or file for bankruptcy. We currently do not have commitments for future funding from any source.

 

Going Concern

 

Our auditors’ report on our June 30, 2017 financial statements expressed an opinion that there is a substantial doubt about our ability to continue as a going concern.

 

Critical Accounting Policies

 

We have prepared our financial statements in conformity with accounting principles generally accepted in the United States, which requires management to make significant judgments and estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. We base these significant judgments and estimates on historical experience and other applicable assumptions we believe to be reasonable based upon information presently available. These estimates may change as new events occur, as additional information is obtained and as our operating environment changes. These changes have historically been minor and have been included in the financial statements as soon as they became known. Actual results could materially differ from our estimates under different assumptions, judgments or conditions.

 

All of our significant accounting policies are discussed in Note 2, Summary of Significant Accounting Policies, to our financial statements, included elsewhere in this annual report. We have identified the following as our significant accounting policies and estimates, which are defined as those that are reflective of significant judgments and uncertainties, are the most pervasive and important to the presentation of our financial condition and results of operations and could potentially result in materially different results under different assumptions, judgments or conditions.

 

We believe the following critical accounting policies reflect our more significant estimates and assumptions used in the preparation of our financial statements:

 

Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying disclosures. Actual results may differ from those estimates.

 

Cash and Equivalents - Cash equivalents are comprised of certain highly liquid investments with maturity of three months or less when purchased. We maintain our cash in bank deposit accounts which, at times, may exceed federally insured limits. We have not experienced any losses in such accounts.

 

Research and Development Costs - Research and development costs are charged to expense as incurred. Our research and development expenses consist primarily of expenditures for toxicology and other studies, manufacturing, clinical trials, compensation and consulting costs.

 

18

 

 

Result of Operations

 

Year Ended June 30, 2017 Compared to the Year Ended June 30, 2016

 

Our results of operations have varied significantly from year to year and quarter to quarter and may vary significantly in the future. We did not have revenue during the years ending June 30, 2017 and 2016. We do not anticipate generating any revenues during the year ending June 30, 2018. Net loss for the years ended June 30, 2017 and 2016 were $1,086,091 and $2,227,324, respectively, resulting from the operational activities described below.

 

Operating Expenses

 

Operating expense totaled $1,159,416 and $2,227,324 during the years ended June 30, 2017 and 2016, respectively.  The decrease in operating expenses is the result of the following factors.

             
    Year Ended
June 30,
    Change in 2017
Versus 2016
 
    2017     2016     $     %  
                   
Operating Expenses                                
Research and development   $ 196,454     $ 176,741     $ 19,713       11.2 %
General and administrative    

772,962

      1,860,583      

(1,087,621

)     (58.4 )%
Total operating expense   $

969,416

    $ 2,037,324     $

(1,067,908

)     (52.4 )%

 

Research and Development

 

Research and development expenses totaled $196,454 and $176,741 for the years ended June 30, 2017 and 2016, respectively. The increase of $19,713, or 11.2%, in 2017 compared to 2016 was primarily attributable to an increase in engineering costs.

 

Our research and development expenses consist primarily of expenditures related to engineering.

 

General and Administrative

 

General and administrative expenses totaled $772,962 and $1,860,583 for the years ended June 30, 2017 and 2016, respectively. The decrease of $1,087,621 or 58.4%, in 2017 compared to 2016 was primarily the result of a decrease in consulting expenses.

 

Our general and administrative expenses consist primarily of expenditures related to employee compensation, legal, accounting and tax, other professional services, and general operating expenses.

 

Liquidity and Capital Resources

 

We have incurred losses since our inception in 2002 as a result of significant expenditures for operations and research and development and the lack of any revenue. We have an accumulated deficit of approximately $24,346,047 as of June 30, 2017 and anticipate that we will continue to incur additional losses for the foreseeable future. Through June 30, 2017, we have funded our operations through the private sale of our equity securities and exercise of options and warrants, resulting in gross proceeds of approximately $23 million. Cash and cash equivalents at June 30, 2017 were $51,695.

 

Our auditors’ report on our June 30, 2017 financial statements expressed an opinion that there is a substantial doubt about our ability to continue as a going concern. 

 

We are actively seeking sources of financing to fund our continued operations and research and development programs. To raise additional capital, we may sell shares of equity or debt securities. There can be no assurance that we will be able to complete any financing transaction in a timely manner or on acceptable terms or otherwise. If we are not able to raise additional cash, we may be forced to further delay, curtail, or cease development of our product candidates, or cease operations altogether.

       
    Year Ended
Ended June 30,
 
    2017     2016  
       
Cash at beginning of period   $ 138,823     $ 44,516  
Net cash used in operating activities    

(885,427

)     (786,489 )
Net cash used in investing activities            
Net cash provided by financing activities     798,299       880,796  
Cash at end of period   $ 51,695     $ 138,823  

 

19

 

 

Net Cash Used in Operating Activities

 

Net cash used in operating activities was $885,427 and $786,489 for the years ended June 30, 2017 and 2016, respectively. The increase of $98,938 in cash used during 2017 compared to 2016 was primarily attributable to higher consulting and legal expenses.

 

Net Cash Used in Investing Activities

 

Cash used in investing activities was $0 and $0 for years ended June 30, 2017 and 2016, respectively.

 

Net Cash Provided by Financing Activities

 

During the year ended June 30, 2017, we received net proceeds of $798,299 from the sales of our securities, compared to $880,796 for the year ended June 30, 2016. The decrease was due to reduced private placement sales. We are actively seeking sources of financing to fund our continued operations and research and development programs.

 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

 

Not Applicable.

 

Item 8. Financial Statements and Supplementary Data.

 

Our audited consolidated financial statements for the fiscal years ended June 30, 2017 and 2016, together with the reports of the independent registered public accounting firms thereon and the notes thereto, are presented beginning at page F-1.

 

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

 

Effective April 20, 2017, we dismissed Daszkal Bolton, LLP as our independent registered public accounting firm. Effective April 20, 2017, we retained AMC Auditing, LLC as our new independent registered public accounting firm.

 

During the two most recent fiscal years, and any subsequent interim period preceding the dismissal of Daszkal Bolton, there were no disagreements on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement(s), if not resolved to the satisfaction of Daszkal Bolton, would have caused it to make reference to the subject matter of disagreement(s)s in connection with its report.

 

Item 9A. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

We maintain “disclosure controls and procedures,” as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

 

As of June 30, 2017, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective in ensuring that information required to be disclosed by us in our periodic reports is recorded, processed, summarized and reported, within the time periods specified for each report and that such information is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

Management’s Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act. Our management is also required to assess and report on the effectiveness of our internal control over financial reporting in accordance with section 404 of the Sarbanes-Oxley of 2002 (“section 404”). Management assessed the effectiveness of our internal control over financial reporting as of June 30, 2017. In making this assessment we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. During our assessment of the effectiveness of internal control over financial reporting as of June 30, 2017, management identified significant deficiencies related to (i) the U.S. GAAP expertise of our internal accounting staff, (ii) our internal audit functions and (iii) a lack of segregation of duties within accounting functions. Management believes that these deficiencies amount to a material weakness. Therefore, our internal controls over financial reporting were ineffective as of June 30, 2017.

 

Management of the Company believes that these material weaknesses are due to the small size of the Company’s accounting staff. The small size of the Company’s accounting staff may prevent adequate controls in the future, such as segregation of duties, due to the cost/benefit of such remediation. To mitigate the current limited resources and limited employees, we rely heavily on direct management oversight of transactions, along with the use of external legal and accounting professionals. As we grow, we expect to increase our number of employees, which will enable us to implement adequate segregation of duties within the internal control framework.

 

20

 

 

We believe that the foregoing steps will remediate the deficiencies identified above, and we will continue to monitor the effectiveness of these steps and make any changes that our management deems appropriate. However, as of June 30, 2017, these steps have not been completed.

 

A material weakness (within the meaning of PCAOB auditing standard No. 5) is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the company’s financial reporting.

 

Our management is aware of the material weaknesses in our internal control over financial reporting, and has acknowledged the increased possibility of errors existing in our financial statements as of June 30, 2017. The reportable conditions and other areas of internal control over financial reporting identified by us as needing improvement have cause an increased possibility of a material misstatement of our financial statements, however we are not aware of any instance where such reportable conditions or other identified areas of weakness have resulted in a material misstatement or omission in any report we have filed with or submitted to the Commission. Accordingly, while we believe that our financial controls were ineffective, we do not believe there to be any material misstatements in our financial statements at June 30, 2017.

 

This Annual Report on Form 10-K does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only management’s report in this Annual Report on Form 10-K.

 

Limitations on Controls

 

Management does not expect that the Company’s disclosure controls and procedures or the Company’s internal control over financial reporting will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. The Company’s disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives and the Company’s chief executive officer and chief financial officer have concluded that the Company’s disclosure controls and procedures are effective at that reasonable assurance level.

 

Changes in Internal Controls

 

During the fiscal year ended June 30, 2017, there have been no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting

 

Item 9B.   Other Information.

 

On September 11, 2017, we entered into a licensing and royalty agreement with Chaya Hendrick, our founder and CEO, whereby we received a license to certain patents related to our technologies until the expiration of such patents in exchange for the following : (i) the Issuance to Chaya Hendrick of 200,000 Series B Convertible Preferred Shares, (ii) the payment of 5% of gross revenues derived from the sale of products derived from the patents in the future, and (iii) annual payments beginning at $50,000 per annum, increased by 100% of each previous year (offset against 5% gross revenue royalty payments) for the duration of the term of the agreement. The agreement continues until (i) the terms of the licensed patents expire, (ii) we terminate the agreement with notice to Chaya Hendrick, or (iii) Chaya Hendrick terminates the agreement pursuant to a material breach of our duties or payments contained thereunder.

 

On July 1, 2017, we entered into an employment agreement with Chaya Hendrick, our CEO. Pursuant to the terms of the agreement Chaya Hendrick will receive (i) an annual salary of $190,000 per annum, adjusted at the end of each year at the discretion of the board of directors, but at minimum an increase of 10% annually; additionally, any unpaid salary during this and prior employment agreements shall bear a cumulative interest rate of 7% per annum; and (ii) an incentive management fee equal to $50,000 and increasing by 25% per annum upon manufacturing of the Company’s first product. Chaya Hendrick will additionally receive other customary vacation, holiday and insurance commensurate with the Company’s past policies and practices as well as an automobile allowance of an automobile of a gross purchase price not to exceed $60,000, replaceable at minimum, every two years. The agreement may only be terminated by the Company for cause, and in such case, the Company will be obligated to pay an additional $350,000 in severance.

 

21

 

 

PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

The information required by this Item is set forth under the heading “Directors, Executive Officers and Corporate Governance” in our 2017 Proxy Statement to be filed with the SEC in connection with the solicitation of proxies for our 2017 Annual Meeting of Shareholders (“2017 Proxy Statement”) and is incorporated herein by reference. Such Proxy Statement will be filed with the SEC within 120 days after the end of the fiscal year to which this report relates. The information required by this item regarding delinquent filers pursuant to Item 405 of Regulation S-K will be included under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” in the 2017 Proxy Statement and is incorporated herein by reference.

 

Item 11. EXECUTIVE COMPENSATION

 

The information required by this Item is set forth under the headings “Director Compensation” and “Executive Compensation” of our 2017 Proxy Statement and is incorporated herein by reference.

 

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

 

The information required by this Item is set forth under the headings “Beneficial Owners of Shares of Common Stock” and “Equity Compensation Plan Information” of our 2017 Proxy Statement and is incorporated herein by reference.

 

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

The information required by this Item is set forth under the heading “Certain Relationships and Related Transactions” of our 2017 Proxy Statement and is incorporated herein by reference.

 

Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

 

The information required by this Item is set forth under the heading “Independent Registered Public Accounting Firm” of our 2017 Proxy Statement and is incorporated herein by reference.

 

Item 15. Exhibits, Financial Statements Schedules

 

  1. Financial Statements: See “Index to Financial Statements” in Part II, Item 8 of this Form 10-K.

 

  2. Exhibits: The exhibits listed in the accompanying index to exhibits are filed or incorporated by reference as part of this Form 10-K.

 

Certain of the agreements filed as exhibits to this Form 10-K contain representations and warranties by the parties to the agreements that have been made solely for the benefit of the parties to the agreement. These representations and warranties:

 

  may have been qualified by disclosures that were made to the other parties in connection with the negotiation of the agreements, which disclosures are not necessarily reflected in the agreements;

 

  may apply standards of materiality that differ from those of a reasonable investor;

 

  and were made only as of specified dates contained in the agreements and are subject to later developments.

 

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time, and investors should not rely on them as statements of fact.

 

22

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  SMARTMETRIC, INC.
   
 Date: October 13, 2017 By:  /s/ C Hendrick
    C. Hendrick
    President, Chief Executive Officer and Chairman (Principal Executive Officer)

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Name   Title   Date
/s/ C Hendrick   Chief Executive Officer and Director (principal executive officer)   October 13, 2017
C. Hendrick        
         
/s/ Jay Needelman   Chief Financial Officer (principal financial and accounting officer) and Director   October 13, 2017
Jay Needelman        
         
/s/ Elizabeth Ryba   Director   October 13, 2017
Elizabeth Ryba        

 

23

 

 

SMARTMETRIC INC. AND SUBSIDIARY  

CONSOLIDATED FINANCIAL STATEMENTS  

YEARS ENDED JUNE 30, 2017 AND 2016  

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

     
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS   F-1
     
CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2017 AND 2016   F-3
     
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED JUNE 30, 2017 AND 2016   F-4
     
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JUNE 30, 2017 AND 2016   F-5
     
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT FOR THE YEARS ENDED JUNE 30, 2017 AND 2016   F-6
     
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   F-7

 

24

 

 

Report of Independent Registered Public Accounting Firm

 

To the Board of Directors and Stockholders of  

Smartmetric, Inc.

 

We have audited the accompanying balance sheet of Smartmetric, Inc. as of June 30, 2017 and the related statements of operations, stockholders’ equity (deficit), and cash flows for the year ended June 30, 2017. Smartmetric, Inc.’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Smartmetric, Inc. as of June 30, 2017, and the results of its operations and its cash flows for the year ended June 30, 2017 in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has no revenues, has negative working capital at June 30, 2017, has incurred recurring losses and recurring negative cash flow from operating activities, and has an accumulated deficit which raises substantial doubt about its ability to continue as a going concern. Management’s plans concerning these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ AMC Auditing

 

AMC Auditing

Las Vegas, Nevada

October 12, 2017

 

F- 1  

 

 

Report of Independent Registered Public Accounting Firm

  

To the Board of Directors and Stockholders
Smartmetric, Inc. and Subsidiary

  

We have audited the accompanying consolidated balance sheets of Smartmetric, Inc. and Subsidiary (the “Company”) as of June 30, 2016 and 2015, and the related consolidated statements of operations, stockholders’ deficit and cash flows for each of the years in the two-year period ended June 30, 2016. The Company’s management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

 

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

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Smartmetric, Inc. and Subsidiary as of June 30, 2016 and 2015, and the results of its operations and its cash flows for each of the years in the two-year period ended June 30, 2015 in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has sustained recurring losses, has negative cash flows from operations, and has not generated any revenues to this point. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in this regard are described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

  

/s/ Daszkal Bolton LLP

Boca Raton, Florida

September 28, 2016

 

F- 2  

 

  

SMARTMETRIC, INC. AND SUBSIDIARY
Consolidated Balance Sheets

    June 30,     June 30,  
    2017     2016  
             
Assets                
Current assets:                
Cash   $ 51,695     $ 138,823  
Receivables     10,400        
Prepaid expenses and other current assets     59,327       14,417  
                 
Total current assets     121,422       153,240  
                 
Other assets:                
                 
Total assets   $ 121,422     $ 153,240  
                 
Liabilities and Stockholders’ Deficit                
                 
Current liabilities:                
Accounts payable and accrued expenses   $ 616,897     $ 656,587  
Liability for stock to be issued     319,118       1,206,268  
Deferred Officer salary     520,848       394,181  
Accrued interest payable     971        
Shareholder loan     4,800       22,300  
                 
Total current liabilities     1,462,634       2,279,336  
                 
Commitments and contingencies                
                 
Stockholders’ deficit:                
Preferred stock, $.001 par value; 5,000,000 shares authorized, 410,000 and 410,000 shares issued and outstanding     410       410  
Common stock, $.001 par value; 300,000,000 shares authorized, 226,172,799 and 203,735,166 shares issued and outstanding , respectively     226,173       203,735  
Additional paid-in capital     22,778,252       20,924,635  
Accumulated deficit     (24,346,047 )     (23,254,876 )
                 
Total stockholders’ deficit     (1,341,212 )     (2,126,096 )
                 
Total liabilities and stockholders’ deficit   $ 121,422     $ 153,240  

See notes to consolidated financial statements.

F- 3  

 

 

SMARTMETRIC, INC. AND SUBSIDIARY
Consolidated Statements Of Operations

    Twelve Months     Twelve Months  
    Ended     Ended  
    June     June  
    30,     30,  
    2017     2016  
             
Revenues   $     $  
                 
Expenses:                
Officer’s salary     190,000       190,000  
Other general and administrative     772,962       1,860,583  
Research and development     196,454       176,741  
                 
Total operating expenses     1,159,416       2,227,324  
                 
Loss from operations before income taxes     (1,159,416 )     (2,227,324 )
Gain on accounts payable settlement     74,296        
Interest expense     (971 )      
Income taxes            
                 
Net loss   $ (1,086,091 )   $ (2,227,324 )
                 
Net loss per share, basic and diluted   $ (0.00 )   $ (0.01 )
               
Weighted average number of common shares outstanding, basic and diluted     217,274,788       192,882,517  

See notes to consolidated financial statements.

F- 4  

 

 

SMARTMETRIC, INC. AND SUBSIDIARY
Consolidated Statements Of Cash Flows

    Twelve Months     Twelve Months  
    Ended     Ended  
    June     June  
    30,     30,  
CASH FLOWS FROM OPERATING ACTIVITIES   2017     2016  
Net loss   $ (1,086,091 )   $ (2,227,324 )
               
Adjustments to reconcile net loss to net cash used in operating activities:                
                 
Common stock and warrants issued and issuable for services     185,525       1,019,069  
                 
Changes in assets and liabilities                
Increase in prepaid expenses and other current assets     (55,310 )     70,000  
Decrease in advances to shareholder     (17,500 )     8,340  
(Decrease) increase in accounts payable and accrued expenses     (39,690 )     216,760  
Increase in deferred officer’s salary     126,667       126,666  
Increase in accrued interest payable     972        
                 
Net cash used in operating activities     (885,427 )     (786,489 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES                
             
                 
                 
CASH FLOWS FROM FINANCING ACTIVITIES                
Proceeds from sale of common stock     798,299       961,665  
Liability for stock to be issued           (80,869 )
                 
Net cash provided by financing activities     798,299       880,796  
                 
NET (DECREASE) IN                
CASH     (87,128 )     94,307  
                 
CASH                
BEGINNING OF YEAR     138,823       44,516  
                 
END OF YEAR   $ 51,695     $ 138,823  
Interest   $     $  
                 
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES                
Issuance of preferred stock and reduction of additional paid in capital for patent   $     $  
Conversion of Series B Convertible Preferred Stock to Common Stock   $     $  

See notes to consolidated financial statements.

F- 5  

 

   

SMARTMETRIC, INC. AND SUBSIDIARY

Consolidated Statements of Changes In Stockholders’ Equity (Deficit)

                                                         
                Class A     Common           Additional              
    Preferred Stock     Common Stock     Stock           Paid-in     Accumulated        
    Shares     Amount     Shares     Amount     Shares     Amount     Capital     Deficit     Total  
                                                         
Balance June 30, 2015   410,000     $ 410         $       186,407,814     $ 186,408     $ 19,865,824     $ (21,027,553 )   $ (974,911 )
                                                                     
Shares issued of common stock and warrants for services rendered                         1,044,520       1,044       103,570             104,614  
                                                                     
Shares issued of common stock and warrants for cash                         16,282,832       16,283       955,241             971,524  
                                                                     
Net loss for the period                                           (2,227,324 )     (2,227,324 )
                                                                     
Balance June 30, 2016   410,000     $ 410         $       203,735,166       203,735       20,924,635       (23,254,876 )   $ (2,126,096 )
                                                                     
Shares issued of common stock and warrants for services rendered                         9,352,633       9,352       1,200,802             1,210,154  
                                                                     
Shares issued of common stock and warrants for cash                         13,085,000       13,085       652,815             665,900  
                                                                     
To adjust for prior year expense                                           (5,080 )        
                                                                     
Net loss for the period                                           (1,086,091 )     (1,086,091 )
                                                                     
Balance June 30, 2017   410,000     $ 410         $     $ 226,172,799     $ 226,173     $ 22,778,252     $ (24,346,047 )   $ (1,341,212 )

 

See notes to consolidated financial statements.

 

F- 6  

 

 

SMARTMETRIC INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION

 

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

 

Going Concern

 

As shown in the accompanying consolidated financial statements the Company has incurred recurring losses of $1,086,091 and $2,227,324 for the years ended June 30, 2017 and 2016 respectively, and has incurred a cumulative loss of $24,346,047 since inception (December 18, 2002).   The Company is currently in the development stage and has spent a substantial portion of its time in the development of its technology.

 

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

 

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

 

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

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  

Principles of Consolidation

 

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, SmartMetric Australia Pty. Ltd.  All significant intercompany accounts and transactions have been eliminated in consolidation.

 

Use of Estimates

 

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

 

Cash and Cash Equivalents

 

The Company considers all highly liquid debt instruments and other short-term investments with an initial maturity of three months or less to be cash equivalents.  Any amounts of cash in financial institutions which exceed FDIC insured limits exposes the Company to cash concentration risk. The Company had no cash equivalents at June 30, 2017 and 2016.

 

Research and Development

 

The Company annually incurs costs on activities that relate to research and development of new technology and products.  Research and development costs are expensed as incurred.

 

Revenue Recognition

 

The Company has not recognized revenues to date.  The Company anticipates recognizing revenue in accordance with the contracts it enters into for the sale and distribution of its products.

 

F- 7  

 

 

SMARTMETRIC INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (CONTINUED)

 

Accounts Receivable

 

The Company will extend credit based on its evaluation of the customers’ financial condition, generally without requiring collateral.  Exposure to losses on receivables is expected to vary by customer due to the financial condition of each customer.  The Company will monitor exposure to credit losses and maintains allowances for anticipated losses considered necessary under the circumstances.  The Company has not recorded any receivables, and therefore no allowance for doubtful accounts.

  

Uncertainty in Income Taxes

 

GAAP requires the recognition and measurement of uncertain income tax positions using a “more-likely-than-not” approach.   Management evaluates Company tax positions on an annual basis and has determined that as of June 30, 2017 no accrual for uncertain income tax positions is necessary.

 

Advertising Costs

 

The Company expenses advertising costs as incurred.

 

Loss Per Share of Common Stock

 

Basic net loss per common share is computed using the weighted average number of common shares outstanding.  The calculation of diluted earnings per share (“EPS”) includes consideration of dilution arising from common stock equivalents, such as stock issuable pursuant to the exercise of stock options and warrants.  Common stock equivalents were not included in the computation of diluted earnings per share on the consolidated statement of operations due to the fact that the Company reported a net loss and to do so would be anti-dilutive for the periods presented.

 

Stock-Based Compensation

 

The Company measures expense for issuances of stock-based compensation to employees and others at fair value of the stock and warrants issued, as this is more reliable than the fair value of the services received. The fair value is measured at the value of the Company’s common stock on the date that the commitment for performance by the counterparty has been reached or the counterparty’s performance obligation is complete. The fair value of the equity instrument is charged directly to compensation expense and additional paid-in capital.

 

NOTE 3 - PREPAID EXPENSES

 

Prepaid expenses represent the unexpired terms of various consulting agreements and expire through June 2017, as well as advance rental payments.  These consulting agreements were entered into for the issuance of common stock and warrants and were valued based on the stock price or computed warrant value at the time of the respective agreement.

 

F- 8  

 

 

SMARTMETRIC INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 4 - COMMITMENTS

 

Lease Agreement

 

The Company utilizes office in Las Vegas, NV on a short-term lease basis. The Company’s main office is located in Las Vegas, NV. Rent expense for the years ended June 30, 2017 and 2016 was $35,880 and $33,689, respectively.

 

Related Party Transactions

 

The Company’s Chief Executive Officer has made cash advances to the Company with an aggregate amount due of $4,800 and $22,300 as of June 30, 2017 and 2016, respectively. These advances bear interest at 5.00% per annum.

 

As of June 30, 2017 and June 30, 2016, the Company has accrued the amounts of $520,848 and $394,181, respectively, as deferred Officer’s salary for the difference between the president’s annual salary and the amounts paid.

  

NOTE 5 - STOCKHOLDERS’ EQUITY (DEFICIT)

 

Preferred Stock

 

As of June 30, 2017, the Company has 5,000,000 shares of preferred stock, par value $0.001, authorized and 410,000 shares issued and outstanding.

 

On December 11, 2009, the Company filed a Certificate of Designation with the State of Nevada, to designate 500,000 shares of the preferred stock to be designated as Series B Convertible Preferred Stock (“Series B Convertible Preferred Stock”).

 

Each share of Series B Convertible Preferred Stock has a par value of $0.001, and a stated value equal to $5.00 (“Stated Value”). Holders of the Series B Convertible Preferred Stock are entitled to receive dividends or other distributions with the holders of the common stock of the Company on an as converted basis when, as, and if declared by the directors of the Company. Holders of the Series B Convertible Preferred Stock are entitled to convert all or any one (1) share of the Series B Convertible Preferred Stock into fifty (50) shares of common stock.

 

Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary (“liquidation”), holders of the Series B Convertible Preferred Stock are entitled to receive out of the assets, whether capital or surplus, of the Company an amount equal to the Stated Value, pro rata with the holders of the common stock.

 

On December 11, 2009, the Company entered into an Assignment and Assumption Agreement with ACI (the “assignment and Assumption Agreement”). In accordance with the Assignment and Assumption Agreement, ACI conveyed, assigned and transferred to the Company all of ACI’s rights, title and interest in and to the Patent and delegated to the Company all of its duties and obligations to be performed under the Patent; and the Company hereby accepts the assignment of all of ACI’s rights, title and interest to the Patent and the rights and delegation of duties and obligations and agrees to be bound by and to assume such duties and obligations.

 

In consideration for the assignment of the Patent, the Company issued 200,000 shares of Series B Convertible Preferred Stock. ACI may only convert these shares into common shares (in accordance with the conversion terms noted herein) upon delivering to the Company, a third-party valuation of the assigned Patent conducted by a nationally qualified accounting firm or IP law firm mutually agreed upon between the Company and ACI, indicating that such Patent is valued at a minimum of $1,000,000.

 

On November 12, 2012, the Company issued 200,000 shares of its Series B Convertible Preferred Stock to ACI in consideration for ACI’s patent relating to the Medical Keyring Device.

 

In July 2013, ACI elected to convert 190,000 shares of Series B Convertible Preferred Stock, issued in 2012, into 9,500,000 shares of the Company’s common stock.

 

During September 2013, the Company acquired license rights to ACI’s BioCentric Cloud Device technology in consideration of the Company’s issuance to ACI of 200,000 shares of its Series B Convertible Preferred Stock. Effective November 5, 2014, the Company increased the number of preferred shares designated as Series B, and accordingly, the shares were issued to ACI on November 10, 2014.

 

In accordance with Staff Accounting Bulletin (“SAB”) topic 5G “Transfers of Non-Monetary Assets by Promoters and Shareholders” the Company recorded these transactions at ACI’s carrying basis of the Patents, which was $0.

 

F- 9  

 

 

SMARTMETRIC INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 5 - STOCKHOLDERS’ EQUITY (DEFICIT)   (CONTINUED)

 

Class A Common Stock

 

As of June 30, 2017, the Company has 50,000,000 shares of Class A common stock, par value $0.001, authorized and no shares issued and outstanding. In October 2003, the Company issued 50,000,000 shares of Class A common stock at par value ($50,000). These shares were converted into 50,000,000 shares of common stock in 2006.

 

Common Stock and Warrants

 

The Company was incorporated on December 18, 2002, with 45,000,000 authorized shares of Common Stock, par value $0.001. The articles of incorporation were amended in 2006 to increase the number of authorized shares to 100,000,000 common shares, again in 2009 to increase the number of authorized shares to 200,000,000 common shares, and again on June 8, 2016 to increase the number of authorized common shares to 300,000,000.

 

As of June 30, 2017, the Company had 226,172,799 shares of common stock issued and outstanding.

 

During the three months ended September 30, 2015, the Company sold, for net proceeds of $214,633, units consisting of an aggregate of (i) 2,150,000 shares, (ii) warrants to purchase 2,687,500 shares at $0.70 per share, and (iii) warrants to purchase 1,354,500 shares at $1.00 per share.

 

During the three months ended December 31, 2015, the Company sold, for net proceeds of $261,477, units consisting of an aggregate of (i) 5,242,000 shares, (ii) warrants to purchase 3,276,250 shares at $0.70 per share, and (iii) warrants to purchase 1,651,230 shares at $1.00 per share.

 

During the three months ended March 31, 2016, the Company sold, for net proceeds of $106,771, units consisting of an aggregate of (i) 2,140,000 shares, (ii) warrants to purchase 1,337,500 shares at $0.70 per share, and (iii) warrants to purchase 674,100 shares at $1.00 per share. The warrants expire at various times through January 15, 2018.

 

During the three months ended June 30, 2016, the Company sold, for net proceeds of $378,784, units consisting of an aggregate of (i) 7,590,000 shares, (ii) warrants to purchase 4,743,750 shares at $0.70 per share, and (iii) warrants to purchase 2,390,850 shares at $1.00 per share. The warrants expire at various times through.

 

During the three months ended September 30, 2016, the Company sold, for net proceeds of $155,991, units consisting of an aggregate of (i) 3,130,000 shares, (ii) warrants to purchase 1,956,250 shares at $0.70 per share, and (iii) warrants to purchase 985,950 shares at $1.00 per share. The warrants expire at various times through January 15, 2018.

 

During the three months ended September 30, 2016, the Company issued an aggregate of 1,669,633 shares for consulting services valued at $84,400, based on the stock price at the time of the respective agreements underlying the services provided.

 

During the three months ended December 31, 2016, the Company sold, for net proceeds of $272,904, units consisting of an aggregate of (i) 5,470,000 shares, (ii) warrants to purchase 3,418,750 shares at $0.70 per share, and (iii) warrants to purchase 1,723,050 shares at $1.00 per share. The warrants expire at various times through January 31, 2018.

 

During the three months ended December 31, 2016, the Company issued an aggregate of 5,000,000 shares for consulting services valued at $550,000 based on the stock price at the time of the respective agreements underlying the services provided.

 

During the three months ended March 31, 2017, the Company sold, for net proceeds of $127,247.50, units consisting of an aggregate of (i) 2,550,000 shares, (ii) warrants to purchase 1,593,750 shares at $0.70 per share, and (iii) warrants to purchase 803,250 shares at $1.00 per share. The warrants expire at various times through September 27, 2018.

 

During the three months ended March 31, 2017, the Company issued an aggregate of 2,423,000 shares of common stock for consulting services valued at $283,955, based on the stock price at the time of the respective agreements underlying the services provided.

 

During the three months ended June 30, 2017, the Company sold, for net proceeds of $242,157, units consisting of an aggregate of (i) 7,450,000 shares, (ii) warrants to purchase 3,031,250 shares at $0.70 per share, and (iii) warrants to purchase 1,527,750 shares at $1.00 per share. The warrants expire at various times through October 20, 2018.

 

F- 10  

 

 

SMARTMETRIC INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 5 - STOCKHOLDERS’ EQUITY (DEFICIT)   (CONTINUED)

 

In July 2015, as consideration for a consulting agreement, the Company issued warrants to purchase 300,000 shares of its common stock at an exercise price of $0.01 per share. The warrants are fully vested and exercisable for five-years. The Company valued the warrants using the Black-Sholes option pricing model with the following criteria: stock price of $0.14; volatility 150%, term 5 years; and risk-free rate of 1.71%. The criteria yielded a per-warrant value of $0.14, resulting in a total value of $42,000 for the 300,000 warrants. The expense has been included in other general and administrative expenses in the consolidated statement of operations.

 

In April 2016, as partial consideration for consulting services rendered, the Company authorized to be issued warrants to purchase 1 million shares of its common stock at an exercise price of $0.03 per share (“$0.03 warrants”), and 2 million warrants to purchase shares of its common stock at an exercise price of $0.08 per share (“$0.08 warrants”). The warrants are fully vested and exercisable for three-years. The Company valued the warrants using the Black-Sholes option pricing model with the following criteria: stock price of $0.11; volatility 136%, term 3 years; and risk-free rate of 0.92%. The criteria yielded a per-warrant value of $0.10 for the $0.03 warrants, and a per-warrant value of $0.09 for the $0.08 warrants, resulting in a total value of $280,000 for the 3 million warrants. The expense has been included in other general and administrative expenses in the consolidated statement of operations.

 

Warrant Activity:

 

As of June 30, 2017 and 2016, the following is a breakdown of the activity:

 

June 30, 2017:

 

Outstanding - beginning of year     12,540,199  
Issued    

15,040,000

 
Exercised      
Expired    

(7,303,800

)
         
Outstanding - end of year    

20,276,399

 

 

June 30, 2016:

 

Outstanding - beginning of year     29,475,626  
Issued     21,415,680  
Exercised      
Expired     (38,351,107 )
         
Outstanding - end of year     12,540,199  

 

At June 30, 2017, all of the 20,276,399 warrants are vested, 16,976,399 warrants expire at various times through October 2018, 3,000,000 warrants expire in September 2019, and 300,000 warrants expire in July 2020.

 

NOTE 6 -          INCOME TAXES

 

Deferred income taxes are determined using the liability method for the temporary differences between the financial reporting basis and income tax basis of the Company’s assets and liabilities. Deferred income taxes are measured based on the tax rates expected to be in effect when the temporary differences are included in the Company’s tax return. Deferred tax assets and liabilities are recognized based on anticipated future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax bases.  The Company recognizes interest and penalties related to income tax matters as a component of income tax expense.

   

At June 30, 2017 and 2016, deferred tax assets consist of the following:

 

    2017     2016  
Net operating loss carryforward   $ 6,779,967     $ 6,544,717  
Warrant issuances     -       192,990  
Deferred officer compensation     177,088       134,022  
Other     1,281       1,632  
Valuation allowance     (6,958,336 )     (6,873,361 )
    $ -     $ -  

 

A reconciliation of the activity related to the liability for gross unrecognized tax benefits related to uncertain tax positions during fiscal 2017 and 2016 is as follows:

 

    Year ended June 30,  
    2017     2016  
Balance as of beginning of fiscal year   $ 192,990     $ 0  
Increases (decreases) related to current and prior year positions     (192,990 )     192,990  
Balance as of June 30,   $ 0     $ 192,990  

  

F- 11  

 

 

SMARTMETRIC INC. AND SUBSIDIARY

  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 6 -          INCOME TAXES  (CONTINUED)

 

At June 30, 2017, the Company had a net operating loss carryforwards in the amount of approximately $19.9 million available to offset future taxable income through 2036, which will begin to expire in 2022. The Company established valuation allowances equal to the full amount of the deferred tax assets due to the uncertainty of the utilization of the operating losses in future periods. A reconciliation of the Company’s effective tax rate as a percentage of income before taxes and federal statutory rate for the period ended June 30, 2017 and 2016 is summarized as follows:

 

    2017     2016  
Tax on income before income tax     34.00 %     34.00 %
Effect of non-temporary differences     (0.04 )%     (0.05 )%
Effect of prior year items     - %       -%
Effect of temporary differences     - %     (0.33)  %
Change in valuation allowance     (33.96 )%     (33.62 )%
      0.00 %     0.00 %

 

The total amount of unrecognized tax benefits can change due to tax examination activities, lapse of applicable statutes of limitations and the recognition and measurement criteria under the guidance related to accounting for uncertainty in income taxes.  The Company does not believe any significant increases or decreases will occur within the next twelve months.

 

The Company files income tax returns in the United States ("U.S.") federal jurisdiction.  Generally, the Company is no longer subject to U.S. federal examinations by tax authorities for fiscal years prior to 2013.  The Company does not file in any other jurisdiction and remains open for audit for all tax years as the statute of limitations does not begin until the returns are filed.

 

NOTE 7 - LITIGATION

 

From time to time we may be a defendant or plaintiff in various legal proceedings arising in the normal course of our business.   We know of no material, active, pending or threatened proceeding against us or our subsidiaries, nor are we, or any subsidiary, involved as a plaintiff or defendant in any material proceeding or pending litigation.

 

NOTE 8 - SUBSEQUENT EVENTS

 

On September 11, 2017, we received a license to certain patents from Chaya Hendrick, our founder and CEO, related to our technologies until the expiration of the patents. As consideration, we issued Chaya Hendrick, or her assigns, (i) 200,000 shares of Series B Convertible Preferred Stock, (ii) a royalty equal to 5% of gross revenues derived from products sold related to the patents, and (iii) certain minimum required payments beginning at $50,000 and doubling each year thereafter. The Series B Preferred Shares may be converted at the election of holder on a basis for 50 common shares for each preferred share at any time or an aggregate of 10,000,000 common shares in exchange for all 200,000 preferred shares.

 

On July 1, 2017, we entered into an employment agreement with Chaya Hendrick, our CEO. Pursuant to the terms of the agreement Chaya Hendrick will receive (i) an annual salary of $190,000 per annum, adjusted at the end of each year at the discretion of the board of directors, but at minimum an increase of 10% annually; additionally, any unpaid salary during this and prior employment agreements shall bear a cumulative interest rate of 7% per annum; and (ii) an incentive management fee equal to $50,000 and increasing by 25% per annum upon manufacturing of the Company’s first product. Chaya Hendrick will additionally receive other customary vacation, holiday and insurance commensurate with the Company’s past policies and practices as well as an automobile allowance of an automobile of a gross purchase price not to exceed $60,000, replaceable at minimum, every two years. The agreement may only be terminated by the Company for cause, and in such case, the Company will be obligated to pay an additional $350,000 in severance.

 

F- 12  

 

 

 

INDEX TO EXHIBITS

 

            Incorporated by Reference
        Filed/                
Exhibit       Furnished       Exhibit        
No.   Description   Herewith   Form   No.    File No.   Filing Date
                         
3.01(i)   Articles of Incorporation of SmartMetric, Inc. filed 12/18/02       SB-2   3.1   333-118801   9/3/04
                         
3.02(i)   Amendment to Articles of Incorporation dated 12/11/09       8-K   3.1   333-118801   12/18/09
                         
3.03(i)   Amendment to Articles of Incorporation dated June 8, 2016       10-K   3.5   000-54853   9/28/16
                         
3.04(i)   Certificate of Designation of Series B Preferred Stock       8-K   3.2   333-118801   12/18/09
                         
3.05(i)   Amendment to Certificate of Designation of Series B Preferred Stock dated 11/5/14       10-Q   3.1   000-54853   11/14/14
                         
3.06(i)   Amendment to Certificate of Designation of Series B Preferred Stock dated 6/8/16       10-K   3.4   000-54853   9/28/16
                         
3.07(ii)   Amended and Restated Bylaws of SmartMetric       8-K   3.1   000-54853   4/26/16
                         
4.01   Common Stock Certificate Specimen       SB-2   4.1   333-118801   9/3/04
                         
4.02   Form of Warrant issued to May 2013 Investor       8-K   4.1   000-54853   5/28/13
                         
4.03   Form of Warrant issued to investors between 2015 – 2017   *                
                         
10.01**   Assignment and Assumption Agreement dated 11/12/12 with Applied Cryptography       8-K   10.1   000-54853   11/16/12
                         
10.02   Subscription Agreement with May 2013 Investor       8-K   10.1   000-54853   5/28/13
                             

 

 

10.03**   Employment Agreement dated July 1, 2012 with Chaya Hendrick and Addendum dated 9/30/15       8-K   10.8  

000-54853

 

  10/5/15
                         
10.04**   Assignment and Assumption dated 9/3/13 with Applied Cryptography   *                
                         
10.05   Form of Securities Purchase Agreement with investors used between 2015 - 2017   *                
                         
10.06**   Employment Agreement with Chaya Hendrick dated July 1, 2017   *                
                         
10.07**   Issued Patent License and Royalty Agreement dated 9/11/17 with Chaya Hendrick   *                
                         
14.01   SmartMetric Code of Ethics     SB-2   16.1   333-118801   9/3/04
                       
21.01   Subsidiaries of the Registrant     S-B/A   21.1   333-118801   2/3/05
                             
23.01   Consent of AMC Auditing, LLC   *                
                         
31.1 / 31.2   Certification of the Principal Executive Officer and Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002     *              
                                               

32.1 / 32.2   Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. § 1350  

*

 

               
                         
101.INS   XBRL Instance Document   *                
                         
101.SCH   XBRL Taxonomy Extension Schema   *                
                         
101.CAL   XBRL Taxonomy Extension Calculation Linkbase   *                
                         
101.DEF   XBRL Taxonomy Extension Definition Linkbase   *                
                         
101.LAB   XBRL Taxonomy Extension Label Linkbase   *                
                         

 

 

101.PRE   XBRL Taxonomy Extension Presentation Linkbase                  

 

* Filed herein

** Management contracts or compensation plans or arrangements in which directors or executive officers are eligible to participate.

 

 

 

Exhibit 4.03

 

THE WARRANT REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES TO BE ISSUED UPON ITS EXERCISE HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE “SECURITIES ACT”) OR APPLICABLE STATE SECURITIES LAWS (THE "STATE ACTS") AND SHALL NOT BE SOLD OR TRANSFERRED UNLESS SUCH SALE OR TRANSFER HAS BEEN REGISTERED UNDER THE SECURITIES ACT AND STATE ACTS, OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS IS AVAILABLE, THE AVAILABILITY OF WHICH MUST BE ESTABLISHED TO THE SATISFACTION OF THE COMPANY.

 

COMMON STOCK PURCHASE WARRANT

 

Warrant  No. ______ Number of Shares: ______

 

SMARTMETRIC, INC.

COMMON STOCK, PAR VALUE $.001 PER SHARE

VOID AFTER 5:00 P.M. EASTERN STANDARD TIME

ON           , ____

(____ years from the date of investment)

 

 

This Warrant is issued to _____________________ (“Holder”) by SmartMetric, Inc., a Nevada corporation (hereinafter with its successors called the “Company”).

 

For value received and subject to the terms and conditions hereinafter set out, Holder is entitled to purchase from the Company at an exercise price of $______ per share,______________ (___) fully paid and nonassessable shares of common stock, par value $0.001 per share (“Common Shares”) of the Company. Such purchase price per Common Share, adjusted from time to time as provided herein, is referred to as the “Purchase Price.” Any purchase of the Offering of Units by SmartMetric, Inc., shall be entitled to receive the same number of Warrants, as evidenced hereby. For each Unit purchase for $______, Holders shall receive _______ shares of the Company’s Common Stock, and warrants to purchase ______ Warrants exercisable at $_____ per share with an exercise period of ___ years from the date of the investment .

 

1.       The Holder may exercise this Warrant, in whole or in part, upon surrender of this Warrant, with the exercise form annexed hereto duly executed, at the office of the Company, or such other office as the Company shall notify the Holder in writing, together with a certified or bank cashier’s check payable to the order of the Company in the amount of the Purchase Price times the number of Common Shares being purchased.

 

2.       The person or persons in whose name or names any certificate representing Common Shares is issued hereunder shall be deemed to have become the holder of record of the Common Shares represented thereby as of the close of business on the date on which this Warrant is exercised with respect to such shares, whether or not the transfer books of the Company shall be closed. Until such time as this Warrant is exercised or terminates, the Purchase Price payable and the number and character of securities issuable upon exercise of this Warrant are subject to adjustment as hereinafter provided.

 

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3.       Unless previously exercised, this Warrant shall expire at 5:00 p.m. Eastern Standard Time, on _________, ____ which shall be deemed to be the date of this Warrant, and shall be void thereafter or can be extended at the Company’s discretion (“Expiration Date”).

 

4.        Intentionally Omitted.

 

5.       Subject to any stockholder approval required to increase the number of Common Shares authorized under the Company’s Articles of Incorporation, the Company covenants that it will at all times reserve and keep available a number of its authorized Common Shares, free from all preemptive rights, which will be sufficient to permit the exercise of this Warrant. The Company further covenants that such shares as may be issued pursuant to the exercise of this Warrant will, upon issuance, be duly and validly issued, fully paid and nonassessable and free from all taxes, liens, and charges.

 

6.       If the Company subdivides its outstanding Common Shares, by split-up or otherwise, or combines its outstanding Common Shares, the Purchase Price then applicable to shares covered by this Warrant shall forthwith be proportionately decreased in the case of a subdivision, or proportionately increased in the case of a combination.

 

7.       If (a) the Company reorganizes its capital, reclassifies its capital stock, consolidates or merges with or into another corporation (but only if the Company is not the surviving corporation and no longer has more than a single shareholder) or sells, transfers or otherwise disposes of all or substantially all its property, assets, or business to another corporation, and (b) pursuant to the terms of such reorganization, reclassification, merger, consolidation, or disposition of assets, shares of common stock of the successor or acquiring corporation, or any cash, shares of stock, or other securities or property of any nature whatsoever (including warrants or other subscription or purchase rights) in addition to or in lieu of common stock of the successor or acquiring corporation (“Other Property”), are to be received by or distributed to the holders of Common Shares, then (c) Holder shall have the right thereafter to receive, upon exercise of this Warrant, the same number of shares of common stock of the successor or acquiring corporation and Other Property receivable upon such reorganization, reclassification, merger, consolidation, or disposition of assets as a holder of the number of Common Shares for which this Warrant is exercisable immediately prior to such event. At the time of such reorganization, reclassification, merger, consolidation or disposition of assets, the successor or acquiring corporation shall expressly assume the due and punctual observance and performance of each and every covenant and condition of this Warrant to be performed and observed by the Company and all the obligations and liabilities hereunder, subject to such modifications as may be deemed appropriate (as determined by resolution of the Board of Directors of the Company) in order to adjust the number of shares of the common stock of the successor or acquiring corporation for which this Warrant is exercisable. For purposes of this section, “common stock of the successor or acquiring corporation” shall include stock of such corporation of any class which is not preferred as to dividends or assets over any other class of stock of such corporation and which is not subject to redemption and shall also include any evidences of indebtedness, shares of stock, or other securities which are convertible into or exchangeable for any such stock, either immediately or upon the arrival of a specified date or the happening of a specified event and any warrants or other rights to subscribe for or purchase any such stock. The foregoing provisions of this section shall similarly apply to successive reorganizations, reclassifications, mergers, consolidations, or disposition of assets.

 

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8.       If a voluntary or involuntary dissolution, liquidation or winding up of the Company (other than in connection with a merger or consolidation of the Company) is at any time proposed during the term of this Warrant, the Company shall give written notice to the Holder at least thirty days prior to the record date of the proposed transaction. The notice shall contain: (1) the date on which the transaction is to take place; (2) the record date (which must be at least thirty days after the giving of the notice) as of which holders of the Common Shares entitled to receive distributions as a result of the transaction shall be determined; (3) a brief description of the transaction; (4) a brief description of the distributions, if any, to be made to holders of the Common Shares as a result of the transaction; and (5) an estimate of the fair market value of the distributions. On the date of the transaction, if it actually occurs, this Warrant and all rights existing under this Warrant shall terminate.

 

9.       In no event shall any fractional Common Share of the Company be issued upon any exercise of this Warrant. If, upon exercise of this Warrant as an entirety, the Holder would, except as provided in this Section 8, be entitled to receive a fractional Common Share, then the Company shall issue the next higher number of full Common Shares, issuing a full share with respect to such fractional share. If this Warrant is exercised at one time for less than the maximum number of Common Shares purchasable upon the exercise hereof, the Company shall issue to the Holder a new warrant of like tenor and date representing the number of Common Shares equal to the difference between the number of shares purchasable upon full exercise of this Warrant and the number of shares that were purchased upon the exercise of this Warrant.

 

10.     No adjustments in the Purchase Price shall be required unless such adjustment would require an increase or decrease of at least five cents in such price, provided however, that any adjustments which by reason of this Section 10 are not required to be made shall be carried forward and taken into account in any subsequent adjustment.

 

11.     Whenever the Purchase Price is adjusted, as herein provided, the Company shall promptly deliver to the Holder a certificate setting forth the Purchase Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.

 

12.     If at any time prior to the expiration or exercise of this Warrant, the Company shall pay any dividend or make any distribution upon its Common Shares or shall make any subdivision or combination of, or other change in its Common Shares, the Company shall cause notice thereof to be mailed, first class, postage prepaid, to Holder at least thirty full business days prior to the record date set for determining the holders of Common Shares who shall participate in such dividend, distribution, subdivision, combination or other change. Such notice shall also specify the record date as of which holders of Common Shares who shall participate in such dividend or distribution is to be determined. Failure to give such notice, or any defect therein, shall not affect the legality or validity of any dividend or distribution.

 

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13.     The Company will maintain a register containing the names and addresses of the Holder and any assignees of this Warrant. Holder may change its address as shown on the warrant register by written notice to the Company requesting such change. Any notice or written communication required or permitted to be given to the Holder may be delivered by confirmed facsimile or telecopy or by a recognized overnight courier, addressed to Holder at the address shown on the warrant register.

 

14.     This Warrant has not been registered under the Securities Act of 1933, as amended (the “Securities Act”), or any state securities laws (“State Acts”) or regulations in reliance upon exemptions under the Securities Act, and exemptions under the State Acts. Subject to compliance with the Securities Act and State Acts, this Warrant and all rights hereunder are transferable in whole or in part, at the office of the Company at which this Warrant is exercisable, upon surrender of this Warrant together with the assignment hereof properly endorsed.

 

15.     In case this Warrant shall be mutilated, lost, stolen, or destroyed, the Company may issue a new warrant of like tenor and denomination and deliver the same (a) in exchange and substitution for and upon surrender and cancellation of any mutilated Warrant, or (b) in lieu of any Warrant lost, stolen, or destroyed, upon receipt of evidence satisfactory to the Company of the loss, theft or destruction of such Warrant (including a reasonably detailed affidavit with respect to the circumstances of any loss, theft, or destruction) and of indemnity with sufficient surety satisfactory to the Company.

 

16.     Unless a current registration statement under the Securities Act, shall be in effect with respect to the securities to be issued upon exercise of this Warrant, the Holder, by accepting this Warrant, covenants and agrees that, at the time of exercise hereof, and at the time of any proposed transfer of securities acquired upon exercise hereof, the Company may require Holder to make such representations, and may place such legends on certificates representing the Common Shares issuable upon exercise of this Warrant, as may be reasonably required in the opinion of counsel to the Company to permit such Common Shares to be issued without such registration.

 

17.     This Warrant does not entitle Holder to any of the rights of a stockholder of the Company.

 

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18.     Nothing expressed in this Agreement and nothing that may be implied from any of the provisions hereof is intended, or shall be construed, to confer upon, or give to, any person or corporation other than the parties to this Agreement any covenant, condition, stipulation, promise, or agreement contained herein, and all covenants, conditions, stipulations, promises and agreements contained herein shall be for the sole and exclusive benefit of the parties hereto and their respective successors and assigns.

 

19.     The provisions and terms of this Warrant shall be construed in accordance with the laws of the State of New York.

 

IN WITNESS WHEREOF, this Warrant has been duly executed by the Company as of the __ day of _________, _____.

 

 

SMARTMETRIC, INC.

     
  By:  
              Chaya Coleena. Hendrick
              Chief Executive Officer

 

5

 

 

FORM OF EXERCISE

 

Date: ____________________

To: SmartMetric, Inc.

 

The undersigned hereby elects to purchase ______________ shares of Warrant Stock of the Company pursuant to the terms of the attached Warrant to Purchase Common Stock, and tenders herewith payment of the Warrant Price in full, together with all applicable transfer taxes, if any.

 

Payment shall take the form of lawful money of the United States.

 

Please issue a certificate or certificates representing said shares of Warrant Stock in the name of the undersigned or in such other name as is specified below:

 

 

 

The shares of Warrant Stock shall be delivered to the following DWAC Account Number, if permitted, or by physical delivery of a certificate to:

 

 

 

 

 

 

 

Accredited Investor . The undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of 1933, as amended.

 

[SIGNATURE OF HOLDER]

 

Name of Investing Entity:  

 

Signature of Authorized Signatory of Investing Entity:  

 

Name and Title of Authorized Signatory:  

 

Date:  

 

 

 

ASSIGNMENT

  

For Value Received, the undersigned hereby sells, assigns and transfers unto the assignee(s) set forth below the within Warrant certificate, together with all right, title and interest therein, and hereby irrevocably constitutes and appoints ___________________________________ attorney, to transfer the said Warrant on the books of the within-named Company with respect to the number of Common Shares set forth below, with full power of substitution in the premises.

 

    Social Security or        
    other Identifying        
Name(s) of   Number(s) of       No. of
Assignee(s)   Assignee(s)   Address   Shares

  

Dated:    

 

     
    Signature
     
    NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE WARRANT IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATSOEVER.
     
     
    Print Name and Title

  

 

 

Exhibit 10.04

 

ASSIGNMENT AND ASSUMPTION AGREEMENT

 

This Assignment and Assumption Agreement (this Agreement ) is made as of September 3, 2013 by and between SmartMetric, Inc., a Nevada corporation ( Assignee ), and Applied Cryptography, Inc., a Nevada corporation ( Assignor ).

 

W I T N E S S E T H:

 

WHEREAS , the Assignor is the designer and creator of certain product designs, specifically the trademarked BioCentric Cloud (the Biocentric Cloud or the Product ); and

 

WHEREAS , the Biocentric Cloud is being offered to SmartMetric, Inc. as a fully developed and engineered device that provides individuals with a personal accessible, but completely secure, record of their private information (banking, passwords, documents, codes, identification, etc.) for portable, self-contained, guaranteed private, electronic records storage and delivery.

 

WHEREAS , Assignor desires to assign to Assignee all of Assignor s rights, title and interest in and to the Product, and Assignee is willing to accept assignment of such rights and obligations.

 

NOW, THEREFORE , in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which the parties acknowledge, Assignor and Assignee, intending to be legally bound, hereby agree as follows:

 

1.      Defined Terms; Interpretation . Except as otherwise set forth herein, capitalized terms used herein have the meanings assigned to them in the License Agreement.

 

2.      Assignment and Assumption . Effective as of the date hereof, (a) Assignor hereby conveys, assigns, and transfers to Assignee, its successors and permitted assigns, all of Assignor s rights, title and interest in and to the fully engineered product, the related business plan, and delegates to Assignee all of its duties and obligations to be performed, or arising on or after the date hereof under the Product, and (b) Assignee hereby accepts the above assignment of all of Assignor s rights, title and interest to the Product and the rights and delegation of duties and obligations and agrees to be bound by and to assume such duties and obligations. Assignee s representatives shall be responsible for preparing any documents that Assignee records to perfect its right, title and interest in the Product in any jurisdiction. Not later than ninety (90) days after the date of this Agreement, Assignee shall provide Assignor with any documents requiring Assignor s signature suitable for recording.

 

3.      Consideration. In consideration for the assignment of the Biocentric Cloud as set forth in Section 2, the Assignee shall issue the Assignor 200,000 shares of the Assignee s Series B Preferred Stock (the Shares ), the receipt and sufficiency of which the parties acknowledge.

 

 

 

 

4.      Representations and W arranties of Assignor . Assignor represents and warrants to Assignee as of the date hereof and as of the Closing Date that:

 

a.     Assignor has the legal right and requisite power and authority to make and enter into this Agreement, and to perform its obligations hereunder and to comply with the provisions hereof. The execution, delivery and performance of this Agreement by Assignor has been duly authorized by all necessary Assignee action on its part. The execution, delivery and performance of this Agreement by Assignor does not and will not contravene the charter, bylaws or other organizational documents of Assignor. This Agreement has been duly executed and delivered by Assignor and constitute the valid and binding obligation of Assignor enforceable against it in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, moratorium or other similar laws affecting the rights of creditors generally and except that the availability of equitable remedies, including specific performance, is subject to the discretion of the court before which any proceeding therefor may be brought.

 

b.     The execution, delivery and performance of this Agreement by Assignor and the compliance by Assignor with the provisions hereof, do not and will not (with or without notice or lapse of time, or both) conflict with, or result in any violation of, or default under, or give rise to any right of termination, cancellation or acceleration of any obligation under any loan or credit agreement, note, bond, mortgage, indenture, lease or other agreement, instrument, permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to Assignor or any of its properties or assets, other than any such conflicts, violations, defaults, or other effects which, individually or in the aggregate, do not and will not prevent, restrict or impede Assignor s performance of its obligations under and compliance with the provisions of this Agreement and the other transaction documents executed in connection herewith.

 

c.     No consent, approval, order or authorization of, or registration, declaration or filing with, any governmental or regulatory authority or any other person or entity (other than any of the foregoing which have been obtained and, at the date in question, are then in effect) is required under existing laws as a condition to the execution, delivery or performance of this Agreement by Assignor.

 

d.     Assignor understands that the Shares are restricted securities and have not been registered under the Securities Act of 1933, as amended (the Securities Act ) or any applicable state securities law and is acquiring the Shares as principal for its own account and not with a view to or for distributing or reselling such Shares or any part thereof in violation of the Securities Act or any applicable state securities law, has no present intention of distributing any of such Securities in violation of the Securities Act or any applicable state securities law and has no direct or indirect arrangement or understandings with any other persons to distribute or regarding the distribution of such Shares (this representation and warranty not limiting such Purchaser s right to sell the Securities pursuant to the Registration Statement or otherwise in compliance with applicable federal and state securities laws) in violation of the Securities Act or any applicable state securities law. Such Purchaser is acquiring the Securities hereunder in the ordinary course of its business

 

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e.     Assignor, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Shares, and has so evaluated the merits and risks of such investment.

 

f.     Assignor, as of the date hereof, is, and on each date on which it converts Shares it will be either: (i) an accredited investor as defined in Rule 501(a) under the Securities Act or (ii) a qualified institutional buyer as defined in Rule 144A(a) under the Securities Act.

 

5.     Representations and Warranties of Assignee . Assignee represents and warrants to Assignor as of the date hereof and as of the Closing Date that:

 

a.     Assignee has the legal right and requisite power and authority to make and enter into this Agreement, and to perform its obligations hereunder and to comply with the provisions hereof. The execution, delivery and performance of this Agreement by Assignee have been duly authorized by all necessary corporate action on its part. The execution, delivery and performance of this Agreement by Assignee does not and will not contravene the charter, bylaws or other organizational documents of Assignee. This Agreement has been duly executed and delivered by Assignee and constitutes the valid and binding obligation of Assignee enforceable against it in accordance with its terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, moratorium or other similar laws affecting the rights of creditors generally and except that the availability of equitable remedies, including specific performance, is subject to the discretion of the court before which any proceeding therefor may be brought.

 

b.     The execution, delivery and performance of this Agreement by Assignee and the compliance by Assignee with the provisions hereof and thereof, do not and will not (with or without notice or lapse of time, or both) conflict with, or result in any violation of, or default under, or give rise to any right of termination, cancellation or acceleration of any obligation under any loan or credit agreement, note, bond, mortgage, indenture, lease or other agreement, instrument, permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to Assignee or any of its properties or assets, other than any such conflicts, violations, defaults, or other effects which, individually or in the aggregate, do not and will not prevent, restrict or impede Assignee s performance of its obligations under and compliance with the provisions of this Agreement and the other transaction documents executed in connection herewith.

 

c.     No consent, approval, order or authorization of, or registration, declaration or filing with, any governmental or regulatory authority or any other person or entity (other than any of the foregoing which have been obtained and, at the date in question, are then in effect) is required under existing laws as a condition to the execution, delivery or performance of this Agreement and the Station Purchase Agreement by Assignee.

 

6.      Further Assurances . Each party to this Agreement agrees to execute, acknowledge, deliver, file and record, and to cause to be executed, acknowledged, delivered, filed and recorded, such further certificates, instruments, and documents and to do, and cause to be done, all such other acts and things, as may be required by law, or as may, in the reasonable opinion of the other party hereto, be necessary or advisable to carry out the purposes of this Agreement.

 

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7.     Binding Effect ; Amendments . This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective legal representatives, successors and assigns. No modification, amendment or waiver of any provision of, or consent or approval required by, this Agreement, nor any consent to or approval of any departure herefrom, shall be effective unless it is in writing and signed by the party against whom enforcement of any such modification, amendment, waiver, consent or approval is sought.

 

8.      Governing Law . All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of , without regard to the principles of conflicts of law thereof. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in New York County, New York for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery). Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each party irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. If either party shall commence an action or proceeding to enforce any provisions of the documents contemplated herein, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorney s fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.

 

9.      Assignment . Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by Assignee without the prior written consent of Assignor, such consent to be in its sole and absolute discretion. Without the consent of Assignee, Assignor may assign its rights and obligations under this Agreement to any other party or parties; provided that Assignor shall not thereby be released of its obligations hereunder.

 

10.   Severability . If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

 

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11.    Notices . Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified in this Section prior to 6:30 p.m. (New York City time) on a Business Day, (ii) the Business Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified in this Agreement later than 6:30 p.m. (New York City time) on any date and earlier than 11:59 p.m. (New York City time) on such date, (iii) the Business Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given.

 

12.    Entire Agreement . The Agreement contains the entire understanding of the parties with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules

 

13.   Survival . The representations, warranties, agreements and covenants contained herein shall survive the Closing.

 

14.   No Waiver . The waiver by any party of the breach of any of the terms and conditions of, or any right under, this Agreement shall not be deemed to constitute the waiver of any other breach of the same or any other term or condition or of any similar right. No such waiver shall be binding or effective unless expressed in writing and signed by the party giving such waiver.

 

15.   Execution . This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature page were an original thereof.

 

[Remainder of page intentionally left blank; signature page follows]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Assignment and Assumption Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

 

  ASSIGNOR:
     
  APPLIED CRYTPOGRAPHY, INC.
     
  By: /s/ Chaya Coleena Hendrick  
  Name:  Chaya Coleena Hendrick
  Title:    President
     
  ASSIGNEE:
     
  SMARTMETRIC, INC.
     
  By:  
  Name:  Jay Needleman
  Title:    CFO and Director

 

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Exhibit 10.5  

 

THIS SUBSCRIPTION AGREEMENT IS EXECUTED IN RELIANCE UPON (1) THE EXEMPTION PROVIDED BY SECTION 4(2) AND REGULATION D, RULE 506 FOR TRANSACTIONS NOT INVOLVING A PUBLIC OFFERING UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR (2) THE EXEMPTION TO AN OFFERING OF SECURITIES IN AN OFFSHORE TRANSACTION TO PERSONS WHO ARE NOT U.S. PERSONS (AS DEFINED HEREIN) PURSUANT TO RULE 903 OF REGULATION S (“REGULATION S”) PROMULGATED UNDER THE SECURITIES ACT THIS OFFERING IS BEING MADE TO ACCREDITED INVESTORS AND/OR TO NON-U.S. PERSONS PURSUANT TO RULE 903 OF REGULATION S PROMULGATED UNDER THE SECURITIES ACT. NONE OF THE SECURITIES TO WHICH THIS SUBSCRIPTION RELATES HAVE BEEN REGISTERED UNDER THE SECURITIES ACT, OR ANY U.S. STATE SECURITIES LAWS, AND, UNLESS SO REGISTERED, NONE MAY BE OFFERED OR SOLD, DIRECTLY OR INDIRECTLY, EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF REGULATION D OR REGULATION S UNDER THE SECURITIES ACT, PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN EACH CASE ONLY IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. IN ADDITION, HEDGING TRANSACTIONS INVOLVING THE SECURITIES MAY NOT BE CONDUCTED UNLESS IN ACCORDANCE WITH THE SECURITIES ACT.

 

SMARTMETRIC, INC.

 

SUBSCRIPTION AGREEMENT

 

SUBSCRIPTION AGREEMENT (“Subscription Agreement”) made as of this ___ day of _____, ____ between SmartMetric, Inc., a Nevada corporation (the “Company”), and the undersigned (the “Subscriber”).

 

WHEREAS, the Company is offering securities in a private offering (the “Offering”) of ___ Units (the “Units”), each Unit consisting of: (i) _____ shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”); (ii) ______ Common Stock Purchase Warrants exercisable at $___ per share (“Warrants” and collectively with the Units and Common Stock, the “Securities”) for aggregate gross proceeds of $___________ (the “Offering”). Each Unit will be sold at a negotiated price of $_______ per Unit (the “Unit Purchase Price”). Each Warrant is exercisable until _________, ____. Fractional Units are available upon request. The Securities being subscribed for pursuant to this Subscription have not been registered under the Securities Act. The offer of the Securities and, if this Subscription is accepted by the Company, the sale of Securities, is being made in reliance upon Section 4(2) and/or Rule 506 of Regulation D of the Securities Act or Rule 903 of Regulation S promulgated under the Securities Act; and

 

WHEREAS, the Subscriber desires to purchase that number of Units set forth set forth opposite such Subscriber’s name on such signature page hereto on the terms and conditions hereinafter set forth.

 

NOW, THEREFORE, in consideration of the premises and the mutual representations and covenants hereinafter set forth, the parties hereto do hereby agree as follows:

 

I. SUBSCRIPTION FOR SECURITIES; COVENANTS OF THE COMPANY

 

1.1       Subscription for Securities. Subject to the risk factors set forth in the Company’s annual report file with the SEC on the disclosures set forth in the more recent public 10K filed on ___________.

 

[INSERT LINK TO 10-K]

 

The Subscriber hereby irrevocably subscribes for and agrees to purchase from the Company, and the Company agrees to sell to the Subscriber, such number of Units as is set forth on the signature page hereof. The purchase price is payable by wire transfer to the Company in accordance with the wire instructions set forth on Exhibit B attached hereto.

 

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1.2       Offering Period. The Shares will be offered for sale until the earlier of (i) the date upon which subscriptions for the Maximum Offering offered hereunder have been accepted, (ii) ________, __, _____ (subject to the right of the Company to extend the offering for up to an additional 90 days without further notice to investors), or (iii) the date upon which the Company elect to terminate the Offering (the “Termination Date”). The Offering is being conducted on a “best-efforts” basis.

 

1.3       Closing. The Company may hold an initial closing (“Initial Closing”) at any time after thereceipt of accepted subscriptions from qualified investors for the Minimum Offering , prior to the Termination Date. After the Initial Closing, subsequent closings with respect to additional Securities may take place at any time prior to the Termination Date as determined by the Company, with respect to subscriptions accepted prior to the Termination Date (each such closing, together with the Initial Closing, being referred to as a “Closing”). The last Closing of the Offering, occurring on or prior to the Termination Date, shall be referred to as the “Final Closing”. Any subscription documents or funds received after the Final Closing will be returned, without interest or deduction. In the event that the any Closing does not occur prior to the Termination Date, all amounts paid by the Subscriber shall be returned to the Subscriber, without interest or deduction.

 

1.4       Stockholder Approval. The Company shall use its best efforts to file a proxy or information statement with the Securities and Exchange Commission as soon as practicable and use its best efforts to obtain such approvals of the Company’s stockholders and issue all of the shares of Common Stock and the Warrant Shares (as defined below) in accordance with Nevada law and any applicable rules or regulations of any national securities exchange and/or over-the-counter trading platform on which the Company’s Common Stock is traded and/or quoted.

 

II. REPRESENTATIONS AND WARRANTIES OF THE SUBSCRIBER

 

The Subscriber represents and warrants to the Company, with the intent that the Company will rely thereon, that:

 

2.1       Accredited Investor or Non-U.S. Person The Subscriber is either (i) an “accredited investor” as such term is defined in Rule 501 of Regulation D promulgated under the Securities Act, it is able to bear the economic risk of any investment in the Securities and the information furnished in the accompanying investor questionnaire, which is attached hereto as Exhibit A-1 , is accurate and complete in all material respects or (ii) it is not a U.S. Person (a “Reg S Person”), and the representations contained in the information furnished in the accompanying investor questionnaire, which is attached hereto as Exhibit A-2 , is accurate and complete in all material respects.

 

2.2       Reliance on Exemptions. The Subscriber acknowledges that the Offering has not been reviewed by the Securities and Exchange Commission (the “Commission”) or any state agency because it is intended to be an offering exempt from the registration requirements of the Securities Act and state securities laws. The Subscriber understands that the Company is relying in part upon the truth and accuracy of, and the Subscriber’s compliance with the representations, warranties, agreements, acknowledgments and understandings of the Subscriber set forth herein in order to determine the availability of such exemptions and the eligibility of the Subscriber to acquire the Securities.

 

2.3       Investment Purpose. The Subscriber is purchasing the Securities as principal for its own account, and, in the case of a Non-U.S. Person, not for the account or benefit of, directly or indirectly, any U.S. Person. The Subscriber is purchasing the Securities for investment purposes only and not with an intent or view towards further sale or distribution (as such term is used in Section 2(11) of the Securities Act) thereof, and has not pre-arranged any sale with any other purchaser and has no plans to enter into any such agreement or arrangement. If the Subscriber is a Non-U.S. Person, such Subscriber has no intention to distribute either directly or indirectly any of the Units in the United States or to U.S. Persons.

 

2.4       Risk of Investment. The Subscriber recognizes that the purchase of the Securities involves a high degree of risk in that: (a) an investment in the Company is highly speculative and only investors who can afford the loss of their entire investment should consider investing in the Company and the Securities; (b) transferability of the Securities is limited; and (c) the Company may require substantial additional funds to operate its business and subsequent equity financings will dilute the ownership and voting interests of Subscriber.

 

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2.5       No Registration. The Securities have not been registered under the Securities Act or any state securities laws and may not be transferred, sold, assigned, hypothecated or otherwise disposed of unless registered under the Securities Act and applicable state securities laws or unless an exemption from such registration is available (including, without limitation, under Rule 144 of the Securities Act, as such rule may be amended, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect (“Rule 144”)). The Subscriber represents and warrants and hereby agrees that all offers and sales of the Units shall be made only pursuant to such registration or to such exemption from registration.

 

2.6       Prior Investment Experience. The Subscriber is sufficiently experienced in financial and business matters to be capable of evaluating the merits and risks of its investments, and to make an informed decision relating thereto, and to protect its own interests in connection with the purchase of the Shares.

 

2.7       Information. The Subscriber acknowledges careful review of this Agreement, the Memorandum, including the Warrant and all other exhibits thereto (collectively, the “Offering Documents”) as well as the Company’s filings with the Commission, as required pursuant to the Securities and Exchange Act of 1934, as amended (the “Exchange Act”) which are available on the Internet at www.sec.gov , all of which the undersigned acknowledges have been provided to the undersigned. The undersigned has been given the opportunity to ask questions of, and receive answers from, the Company concerning the terms and conditions of this Offering and the Offering Documents and to obtain such additional information, to the extent the Company possesses such information or can acquire it without unreasonable effort or expense, necessary to verify the accuracy of same as the undersigned reasonably desires in order to evaluate the investment. The undersigned understands the Offering Documents, and the undersigned has had the opportunity to discuss any questions regarding any of the Offering Documents with its counsel or other advisor. Notwithstanding the foregoing, the only information upon which the undersigned has relied is that set forth in the Offering Documents. The undersigned has received no representations or warranties from the Company, its employees, agents or attorneys in making this investment decision other than as set forth in the Offering Documents. The undersigned does not desire to receive any further information.

 

2.8       Investment Decision. In making the decision to invest in the Securities the Subscriber has relied solely upon the information provided by the Company in the Offering Materials. To the extent necessary, the Subscriber has retained, at its own expense, and relied upon appropriate professional advice regarding the investment, tax and legal merits and consequences of this Agreement and the purchase of the Securities hereunder. The Subscriber disclaims reliance on any statements made or information provided by any person or entity in the course of Subscriber’s consideration of an investment in the Securities other than the Offering Materials.

 

2.9       No Representations. The Subscriber hereby represents that, except as expressly set forth in the Offering Documents, no representations or warranties have been made to the Subscriber by the Company or any agent, employee or affiliate of the Company, and in entering into this transaction the Subscriber is not relying on any information other than that contained in the Offering Documents and the results of independent investigation by the Subscriber.

 

2.10     Tax Consequences. The Subscriber acknowledges that the Offering may involve tax consequences and that the contents of the Offering Documents do not contain tax advice or information. The Subscriber acknowledges that it must retain its own professional advisors to evaluate the tax and other consequences of an investment in the Securities.

 

2.11     No Recommendation or Endorsement. The Subscriber understands that no federal, state or other regulatory authority has passed on or made any recommendation or endorsement of the Units. Furthermore, the foregoing authorities have not confirmed the accuracy or determined the adequacy of this Agreement or the Memorandum. Any representation to the contrary is a criminal offense.

 

2.12     No General Solicitation. The Subscriber represents that the Subscriber was not induced to invest by any form of general solicitation or general advertising including, but not limited to, the following: (a) any advertisement, article, notice or other communication published in any newspaper, magazine or similar media or broadcast over the news or radio; and (b) any seminar or meeting whose attendees were invited by any general solicitation or advertising.

 

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2.13     No Directed Selling Efforts. If the Subscriber is a non-U.S. Person, the Subscriber has not acquired the Units as a result of, and will not itself engage in, any “directed selling efforts” (as defined in Regulation S under the Securities Act) in the United States in respect of the Units which would include any activities undertaken for the purpose of, or that could reasonably be expected to have the effect of, conditioning the market in the United States for the resale of the Units; provided, however, that the Subscriber may sell or otherwise dispose of the Units pursuant to registration thereof under the Securities Act and any applicable state and provincial securities laws or under an exemption from such registration requirements;

 

2.14     No Plan or Scheme. If the Subscriber is a non-U.S. Person, the Subscriber acknowledges that the statutory and regulatory basis for the exemption from U.S registration requirements claimed for the offer of the Units, although in technical compliance with Regulation S, would not be available if the offering is part of a plan or scheme to evade the registration provisions of the Securities Act or any applicable state or provincial securities laws;

 

2.15     The Subscriber. The Subscriber (i) if a natural person, represents that the Subscriber has reached the age of 21 and has full power and authority to execute and deliver this Agreement and all other related agreements or certificates and to carry out the provisions hereof and thereof; (ii) if a corporation, partnership, or limited liability company or partnership, or association, joint stock company, trust, unincorporated organization or other entity, represents that such entity was not formed for the specific purpose of acquiring the Units, such entity is duly organized, validly existing and in good standing under the laws of the state of its organization, the consummation of the transactions contemplated hereby is authorized by, and will not result in a violation of state law or its charter or other organizational documents, such entity has full power and authority to execute and deliver this Subscription and all other related agreements or certificates and to carry out the provisions hereof and thereof and to purchase and hold the Securities, the execution and delivery of this Subscription has been duly authorized by all necessary action, this Agreement has been duly executed and delivered on behalf of such entity and is a legal, valid and binding obligation of such entity; or (iii) if executing this Agreement in a representative or fiduciary capacity, represents that it has full power and authority to execute and deliver this Subscription in such capacity and on behalf of the subscribing individual, ward, partnership, trust, estate, corporation, or limited liability company or partnership, or other entity for whom the Subscriber is executing this Agreement, and such individual, partnership, ward, trust, estate, corporation, or limited liability company or partnership, or other entity has full right and power to perform pursuant to this Subscription and make an investment in the Company, and represents that this Subscription constitutes a legal, valid and binding obligation of such entity. The execution and delivery of this Agreement will not violate or be in conflict with any order, judgment, injunction, agreement or controlling document to which the Subscriber is a party or by which it is bound;

 

2.16     Legends. The Subscriber consents to the placement of a legend on any certificate or other document evidencing the Securities and, when issued, the shares of Common Stock issuable upon exercise of the Warrant (the “Warrant Shares”) that such securities have not been registered under the Securities Act or any state securities or “blue sky” laws and setting forth or referring to the restrictions on transferability and sale thereof contained in this Agreement. The Subscriber is aware that the Company will make a notation in its appropriate records with respect to the restrictions on the transferability of such Securities. The legend to be placed on each certificate shall be in form substantially similar to the following:

 

For U.S. Persons:

 

THESE SECURITIES HAVE BEEN ISSUED PURSUANT TO THE EXEMPTION FROM THE REGISTRATION PROVISIONS UNDER THE SECURITIES ACT OF 1933, AS AMENDED PROVIDED BY RULE 506 OF REGULATION D UNDER SUCH ACT AND/OR SECTION 4(2) OF SUCH ACT. THESE SECURITIES CANNOT BE TRANSFERRED, OFFERED, OR SOLD UNLESS THE SECURITIES ARE REGISTERED UNDER THE SECURITIES ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT IS AVAILABLE.

 

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For Non-U.S. Persons:

 

THESE SECURITIES WERE ISSUED IN AN OFFSHORE TRANSACTION TO PERSONS WHO ARE NOT U.S. PERSONS (AS DEFINED HEREIN) PURSUANT TO REGULATION S UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “1933 ACT”). ACCORDINGLY, NONE OF THE SECURITIES TO WHICH THIS CERTIFICATE RELATES HAVE BEEN REGISTERED UNDER THE 1933 ACT, OR ANY U.S. STATE SECURITIES LAWS, AND, UNLESS SO REGISTERED, NONE MAY BE OFFERED OR SOLD IN THE UNITED STATES (AS DEFINED HEREIN) OR, DIRECTLY OR INDIRECTLY, TO U.S. PERSONS (AS DEFINED HEREIN) EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE 1933 ACT AND IN EACH CASE ONLY IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. IN ADDITION, HEDGING TRANSACTIONS INVOLVING THE SECURITIES MAY NOT BE CONDUCTED UNLESS IN ACCORDANCE WITH THE 1933 ACT. “UNITED STATES” AND “U.S. PERSON” ARE AS DEFINED BY REGULATION S UNDER THE 1933 ACT.

 

The legend set forth above shall be removed and the Company shall issue a certificate without such legend to the holder of the Securities upon which it is stamped, if (a) such Securities are being sold pursuant to a registration statement under the Securities Act, (b) such holder delivers to the Company an opinion of counsel, in a reasonably acceptable form, to the Company that a disposition of the Securities is being made pursuant to an exemption from such registration, or (c) such holder provides the Company with reasonable assurance that a disposition of the Securities may be made pursuant to the Rule 144 under the Securities Act without any restriction as to the number of securities acquired as of a particular date that can then be immediately sold.

 

2.17      Address. The Subscriber hereby represents that the address of the Subscriber furnished by the Subscriber at the end of this Subscription Agreement is the undersigned’s principal residence if the Subscriber is an individual or its principal business address if it is a corporation or other entity.

 

2.18      Foreign Subscriber. If the Subscriber is not a United States person, such Subscriber hereby represents that it has satisfied itself as to the full observance of the laws of its jurisdiction in connection with any invitation to subscribe for the Securities or any use of this Subscription Agreement, including: (a) the legal requirements within its jurisdiction for the purchase of the Securities; (b) any foreign exchange restrictions applicable to such purchase; (c) any governmental or other consents that may need to be obtained; and (d) the income tax and other tax consequences, if any, that may be relevant to the purchase, holding, redemption, sale or transfer of the Securities. Such Subscriber’s subscription and payment for, and its continued beneficial ownership of the Securities, will not violate any applicable securities or other laws of the Subscriber’s jurisdiction.

 

2.19      Survival. The representations and warranties of the Subscriber contained herein will be true at the date of execution of this Agreement by the Subscriber and as of the Closing Date in all material respects as though such representations and warranties were made as of such times and shall survive the Closing Date and the delivery of the Units. The Subscriber agrees that it will notify and supply corrective information to the Company immediately upon the occurrence of any change therein occurring prior to the Company’s issuance of the Units.

 

III. REPRESENTATIONS BY THE COMPANY

 

The Company represents and warrants to the Subscriber, except as set forth in the disclosure schedules attached hereto:

 

3.1        Organization. The Company is duly organized and validly existing in good standing under the laws of the jurisdiction of its organization. The Company has full power and authority to own, operate and occupy its properties and to conduct its business as presently conducted, and is registered or qualified to do business and in good standing in each jurisdiction in which the nature of the business conducted by it or the location of the properties owned or leased by it requires such qualification and where the failure to be so qualified would have a material adverse effect upon the Company’s financial condition (a “Material Adverse Effect”), and no proceeding has been instituted in any such jurisdiction revoking, limiting or curtailing, or seeking to revoke, limit or curtail, such power and authority or qualification.

 

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3.2        Due Authorization and Valid Issuance. The Company has all requisite power and authority to execute, deliver and perform its obligations under the Offering Documents, and when executed and delivered by the Company will constitute legal, valid and binding agreements of the Company enforceable against the Company in accordance with their terms, except as rights to indemnity and contribution may be limited by state or federal securities laws or the public policy underlying such laws, and except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ and contracting parties’ rights generally, and except as enforceability may be subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).

 

3.3        Noncontravention. The execution and delivery of the Offering Documents, the issuance and sale of the Securities under the Offering Documents, the fulfillment of the terms of the Offering Documents, and the consummation of the transactions contemplated thereby will not (i) conflict with or constitute a violation of, or default (with the passage of time or otherwise) under (1) any material bond, debenture, note or other evidence of indebtedness, lease, contract, indenture, mortgage, deed of trust, loan agreement, joint venture or other agreement or instrument to which the Company is a party or by which it or any of its properties are bound, (2) the charter, bylaws or other organizational documents of the Company or any subsidiary or (3) any law, administrative regulation, ordinance or order of any court or governmental agency, arbitration panel or authority applicable to the Company or its properties, except for any such conflicts, violations or defaults that are not reasonably likely to have a Material Adverse Effect, or (ii) result in the creation or imposition of any lien, encumbrance, claim, security interest or restriction whatsoever upon any of the material properties or assets of the Company or an acceleration of indebtedness pursuant to any obligation, agreement or condition contained in any material bond, debenture, note or any other evidence of indebtedness, indenture, mortgage, deed of trust or any other agreement or instrument to which the Company is a party or by which it is bound or to which any of the material property or assets of the Company is subject. No consent, approval, authorization or other order of, or registration, qualification or filing with, any regulatory body, administrative agency, or other governmental body in the United States or any other person is required for the execution and delivery of the Offering Documents and the valid issuance and sale of the Securities to be sold pursuant to the Offering Documents, other than such as have been made or obtained, and except for any post-closing securities filings or notifications required to be made under federal or state securities laws.

 

3.4        No Violation. The Company is not (a) in violation of its charter, bylaws or other organizational document; (b) in violation of any law,

 

IV.        INDEMNIFICATION

 

4.1        The Subscriber agrees to indemnify and hold harmless the Company, Placement Agent and all Selected Dealers and Finders against and in respect of any and all loss, liability, claim, damage, deficiency, and all actions, suits, proceedings, demands, assessments, judgments, costs and expenses whatsoever (including, but not limited to, attorneys’ fees reasonably incurred in investigating, preparing, or defending against any litigation commenced or threatened or any claim whatsoever through all appeals) arising out of or based upon any false representation or warranty or breach or failure by the Subscriber to comply with any covenant, representation or other provision made by it herein or in any other document furnished by it in connection with this Agreement, provided, however, that such indemnity, shall in no event exceed the net proceeds received by the Company from the Subscriber as a result of the sale of Units to the Subscriber.

 

4.2        The Company agrees to indemnify and hold harmless the Subscriber against and in respect of any and all loss, liability, claim, damage, deficiency, and all actions, suits, proceedings, demands, assessments, judgments, costs and expenses whatsoever (including, but not limited to, attorneys’ fees reasonably incurred in investigating, preparing, or defending against any litigation commenced or threatened or any claim whatsoever through all appeals) arising out of or based upon any false representation or warranty or breach or failure by the Company to comply with any covenant, representation or other provision made by it herein or in any other document furnished by it in connection with this Agreement.

 

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V.         MISCELLANEOUS

 

5.1       Notice. Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Subscription Agreement must be in writing and will be deemed to have been delivered: (a) upon receipt, when delivered personally, (b) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party), or (c) one (1) business day after deposit with an overnight courier service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be:

 

To the Company:

 

SmartMetric, Inc.

 

3960 Howard Hughes Pkwy, Suite 500,

 

Las Vegas, NV 89169

 

Attention: C. Hendrick

 

(786) 664-0642

 

With a copy to (which shall not constitute notice):

 

[_________]

 

If to the Subscriber, to its address and facsimile number set forth at the end of this Subscription Agreement, or to such other address and/or facsimile number and/or to the attention of such other person as specified by written notice given to the Company five (5) days prior to the effectiveness of such change. Written confirmation of receipt (a) given by the recipient of such notice, consent, waiver or other communication, (b) mechanically or electronically generated by the sender’s facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission, or (c) provided by an overnight courier service shall be rebuttable evidence of personal service, receipt by facsimile or receipt from an overnight courier service in accordance with clause (a), (b) or (c) above, respectively.

 

5.2       Entire Agreement; Amendment; Waiver. This Agreement supersedes all other prior oral or written agreements between the Subscriber, the Company, their affiliates and persons acting on their behalf with respect to the matters discussed herein, and this Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor the Subscriber makes any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be amended or waived other than by an instrument in writing signed by the Company and the holders of at least a majority of the Securities then outstanding (determined on an as exercised to common stock basis) (or if prior to the closing, the Subscribers purchasing at least a majority of the Securities to be purchased at the closing). No such amendment shall be effective to the extent that it applies to less than all of the holders of the Securities then outstanding.

 

5.3       Severability. If any provision of this Subscription Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Subscription Agreement in that jurisdiction or the validity or enforceability of any provision of this Subscription Agreement in any other jurisdiction.

 

7  

 

 

5.4       Governing Law; Jurisdiction; Waiver of Jury Trial. All questions concerning the construction, validity, enforcement and interpretation of this Subscription Agreement shall be governed by the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New York. Each party hereby irrevocably submits to the non-exclusive jurisdiction of the state and federal courts sitting in New York County, New York for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address for such notices to it under this Subscription Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each party hereby irrevocably waives any right it may have, and agrees not to request, a jury trial for the adjudication of any dispute hereunder or in connection with or arising out of this Subscription Agreement or any transaction contemplated hereby.

 

5.5       Headings. The headings of this Subscription Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Subscription Agreement.

 

5.6       Successors And Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns. The Company shall not assign this Subscription Agreement or any rights or obligations hereunder without the prior written consent of the holders of at least a majority the Securities then outstanding, except by merger or consolidation. The Subscriber shall not assign its rights hereunder without the consent of the Company, which consent shall not be unreasonably withheld.

 

5.7       No Third Party Beneficiaries. This Subscription Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person.

 

5.8       Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.

 

5.9       Legal Effect. The Subscriber acknowledges that: (a) it has read this Agreement and the exhibits hereto; and (b) it understands the terms and consequences of this Agreement and is fully aware of its legal and binding effect.

 

5.10     No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.

 

5.11     Independent Legal Advice. The parties hereto acknowledge that they have each received independent legal advice with respect to the terms of this Agreement and the transactions contemplated herein or have knowingly and willingly elected not to do so

 

5.12     Counterparts. This Agreement may be executed in two or more counterparts each of which shall be deemed an original, but all of which shall together constitute one and the same instrument. In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.

 

[Signature page follows.]

 

8  

 

 

NUMBER OF UNITS ________________ X $______________ = $________________ (the “Purchase Price”)

 

         
Signature   Signature (if purchasing jointly)
     
         
Name Typed or Printed   Name Typed or Printed
     
         
Title (if Subscriber is an Entity)   Title (if Subscriber is an Entity)
     
         
Entity Name (if applicable)   Entity Name (if applicable
     
         
Address   Address
     
         
City, State and Zip Code   City, State and Zip Code
     
         
Telephone-Business   Telephone-Business
     
         
Telephone-Residence   Telephone-Residence
     
         
Facsimile-Business   Facsimile-Business
     
         
Facsimile-Residence   Facsimile-Residence
         
Tax ID # or Social Security #   Tax ID # or Social Security #
Name in which securities should be issued:     
         
Dated:                                                            , 20__      
         
This Subscription Agreement is agreed to and accepted as of ________________, 20__.
         
SmartMetric, Inc.      

 

By:        
Name: C. Hendrick      
Title: President and Chief Executive Officer      

 

9  

 

 

CERTIFICATE OF SIGNATORY

 

(To be completed if Securities are

being subscribed for by an entity)

 

I, ____________________________, am the ____________________________ of __________________________________________ (the “Entity”).

 

I certify that I am empowered and duly authorized by the Entity to execute and carry out the terms of the Subscription Agreement and to purchase and hold the Securities (including the Warrant Shares), and certify further that the Subscription Agreement has been duly and validly executed on behalf of the Entity and constitutes a legal and binding obligation of the Entity.

 

IN WITNESS WHEREOF, I have set my hand this ________ day of _________________, 20__

 

     
    (Signature)

 

10

 

Exhibit 10.06

 

EXECUTIVE EMPLOYMENT AGREEMENT

 

This Executive Employment Agreement (“Agreement”) is made and effective as of July 1, 2017, by and between SmartMetric, Inc. (“Company”) and M/s. Chaya Coleena Hendrick (“Executive”).

 

NOW, THEREFORE, the parties hereto agree as follows:

 

Employment.

 

Company hereby agrees to continue to employ Executive as its President & CEO and Executive hereby accepts such employment in accordance with the terms of this Agreement. In the event of any conflict or ambiguity between the terms of this Agreement and terms of employment applicable to regular employees, the terms of this Agreement shall control.

 

Duties of Executive .

 

The duties of Executive shall include the performance of all of the duties typical of the office held by Executive as described in the bylaws of the Company and such other duties and projects as may be assigned, if any, by the board of directors of the Company. Executive shall devote her majority of productive time, ability and attention to the business of the Company and shall perform all duties in a professional, ethical and businesslike manner. Executive is permitted, during the term of this Agreement, directly or indirectly to engage in other businesses, either as an employee, employer, consultant, principal, officer, director, advisor, or in any other capacity, either with or without compensation, without the prior written consent of Company. In addition to the duties described herein, Executive is also authorized and directed to do the following:

 

To manage the day to day business of SmartMetric, Inc. overseeing and managing all aspects including but not limited to product development, marketing, sales, distribution, hiring and all responsibilities normally undertaken by a Company President and Chief Executive Officer.

 

It is recognized and accepted by the Company that Executive has other businesses that she owns, operates and or manages, and while spending the bulk of her time working on the business of SmartMetric, Inc., is free without limitation to pursue her other business activities.

 

It is further noted that Executive holds inventions independent to the Company, SmartMetric, Inc. and is free to initiate, write, invent and or create inventions separate of SmartMetric, Inc. and SmartMetric, Inc. may have no claim or economic interest in any patents, inventions or new products unless expressly sold or licensed to SmartMetric, Inc. by the employee. It is recognized that the employee is free to invent and register new Patents and Trademarks that will remain the sole property of the inventor and or its assignees or purchasers.

 

Compensation.

 

Executive will be paid compensation during this Agreement as follows:

 

A. A base salary of $190,000.00 One Hundred and Ninety Thousand Dollars per year, payable in installments according to the Company’s regular payroll schedule. The base salary shall be adjusted at the end of each year of employment at the discretion of the board of directors or at a minimum increase of 10% per year. Any unpaid salary during this and prior employment agreements shall bear a cumulative interest rate of 7% per annum. To defer payment of compensation is at the sole discretion of the executive and such deferment does not convey an agreement not to be paid such compensation.

 

B. An incentive management fee equal to $50,000.00 beginning with the Company’s year-end of June 30, 2012 and each fiscal year thereafter during the term of this Agreement and subsequent new agreements. The incentive management fee payment shall be made within thirty (30) days after the Company has manufactured its first product. The incentive management fee shall increase by 25% per annum calculated at the conclusion of each calendar year and shall be based on the continued manufacturing and sales of product by SmartMetric, Inc.

 

C. The incentive management fee, may at the executive’s sole discretion be paid to the executives associated company Applied Cryptography Inc., or any other company the executive so directs.

 

 

 

 

Benefits.

 

A. Holidays. Executive will be entitled to at least all public holidays paid holidays each calendar year and 14 personal days. Company will notify Executive on or about the beginning of each calendar year with respect to the holiday schedule for the coming year. Personal holidays, if any, will be scheduled in advance subject to requirements of Company. Such holidays must be taken during the calendar year and cannot be carried forward into the next year. Executive is not entitled to any personal holidays during the first six months of employment.

 

B. Vacation. Following the first six months of employment, Executive shall be entitled to 4 Weeks paid vacation each year.

 

C. Sick Leave. Executive shall be entitled to sick leave and emergency leave according to the regular policies and procedures of Company. Additional sick leave or emergency leave over and above paid leave provided by the Company, if any, shall be granted at the discretion of the board of directors.

 

D. Medical and Group Life Insurance. Company agrees to include Executive in the group medical and hospital plan of Company and provide group life insurance for Executive at no charge to Executive in the amount of $1,000,000.00 during this Agreement. Executive shall be responsible for payment of any federal or state income tax imposed upon these benefits.

 

E. Pension and Profit Sharing Plans. Executive shall be entitled to participate in any pension or profit sharing plan or other type of plan adopted by Company for the benefit of its officers and/or regular employees.

 

F. Automobile. Company will provide to Executive an automobile of Executive’s choice at a gross purchase price not to exceed $60,000.00. Company agrees to replace the automobile with a new one at Executive’s request no more often than once every two years. Company will pay all automobile operating expenses incurred by Executive in the performance of an Executive’s company duties. Company will procure and maintain in force an automobile liability policy for the automobile with coverage, including Executive, in the minimum amount of $1,000,000 combined single limit on bodily injury and property damage.

 

G. Expense Reimbursement. Executive shall be entitled to reimbursement for all reasonable expenses, including travel and entertainment, incurred by Executive in the performance of Executive’s duties. Executive will maintain records and written receipt as required by the Company policy. The company shall pay the Executive all relocation costs, living costs, motor vehicle purchase/lease or rental costs including insurances and accommodation expenses for time spent in Buenos Aires, Argentina while overseeing and managing the establishment of the Company’s business in Argentina. The company will provide accommodation in any other place that the executive may need to reside from time to time while her conducting the business of the company. Any additional costs associated with safety precautions for the executive while living in Argentina will be paid for by the company. Any illness contracted while on company time spent in a foreign country shall be covered and paid for by the Company.

 

Term and Termination.

 

A. The Initial Term of this Agreement shall commence on July 1, 2012 and it shall continue in effect for a period of 60 months. Thereafter, the Agreement shall be renewed upon the mutual agreement of Executive and Company. This Agreement and Executive’s employment may be terminated at Company’s discretion during the Initial Term, provided that Company shall pay to Executive an amount equal to payment at Executive’s base salary rate for the remaining period of Initial Term, plus an amount equal to $350,000.00 of Executive’s base salary.

 

B. This Agreement and Executive’s employment may be terminated by Company only by cause, and provided that in such case, Executive shall be paid $350,000.00 of Executive’s then applicable base salary. In the event of such a termination by cause, Executive shall be entitled to receive any incentive salary payment or any other compensation then in effect, prorated or otherwise.

 

C. This Agreement may be terminated by Executive at Executive’s discretion by providing at least thirty (30) days prior written notice to Company. In the event of termination by Executive pursuant to this subsection.

 

D. In the event that Executive is in breach of any material obligation owed Company in this Agreement, habitually neglects the duties to be performed under this Agreement, excepting in the case of illness, engages in any conduct which is criminally dishonest, then the Company may terminate this Agreement upon thirty (30) days’ notice to Executive.

 

E. In the event Company is acquired, or is the non-surviving party in a merger, or sells all or substantially all of its assets, this Agreement shall not be terminated and Company agrees to use its best efforts to ensure

 

 

 

 

No Attachment.

 

Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge, or hypothecation or to execution, attachment, levy, or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall be null, void and of no effect; provided, however , that nothing in this Section shall preclude the assumption of such rights by executors, administrators or other legal representatives of the Executive or her estate and their conveying any rights hereunder to the person or persons entitled thereto.

 

Costs of Enforcement.

 

In the event of the commencement of any legal proceeding, if instituted by the Company or the Executive, relating to the interpretation or enforcement of any provision of this Agreement, the Company shall reimburse the Executive her costs and expenses (including attorneys’ fees and expenses), unless the Company prevails on every material issue in the proceeding.

 

Binding Agreement; No Assignment.

 

This Agreement shall be binding upon, and shall inure to the benefit of, the Executive and the Company and their respective permitted successors, assigns, heirs, beneficiaries and representatives. This Agreement is personal to the Executive and may not be assigned by her. This Agreement may not be assigned by the Company except (a) in connection with a sale of all or substantially all of its assets or a merger or consolidation of the Company, or (b) to an entity that is a subsidiary or affiliate of the Company. Any attempted assignment in violation of this Section shall be null and void.

 

Notices.

 

Any notice required by this Agreement or given in connection with it, shall be in writing and shall be given to the appropriate party by personal delivery or by certified mail, postage prepaid, or recognized overnight delivery services;

 

If to Company:

 

SmartMetric, Inc.

 

350 Howard Hughes Parkway, Suite 500, Las Vegas, NV, 89169 U.S.A.

 

If to Executive:

 

Ms. Chaya Coleena Hendrick, 145 East Harmon Avenue, Las Vegas, NV. 89109 U.S.A.

 

Final Agreement.

 

This Agreement supersedes all prior understandings or agreements on the subject matter hereof. This Agreement may be modified only be a further writing that is duly executed by both parties. Not withstanding all compensation accrued and not yet paid under prior executive employment agreements shall be payable on demand of the executive.

 

Governing Law . This Agreement shall be construed and enforced in accordance with the laws of the State Nevada, USA.

 

Headings.

 

Headings used in this Agreement are provided for convenience only and shall not be used to construe meaning or intent.

 

No Assignment.

 

Neither this Agreement nor any or interest in this Agreement may be assigned by Executive without the prior express written approval of Company, which may be withheld by Company at Company’s absolute discretion.

 

Severability.

 

If any term of this Agreement is held by a court of competent jurisdiction to be invalid or unenforceable, then this Agreement, including all of the remaining terms, will remain in full force and effect as if such invalid or unenforceable term had never been included.

 

 

 

 

Arbitration.

 

The parties agree that they will use their best efforts to amicably resolve any dispute arising out of or relating to this Agreement. Any controversy, claim or dispute that cannot be so resolved shall be settled by final binding arbitration in accordance with the rules of the American Arbitration Association and judgment upon the award rendered by the arbitrator or arbitrators may be entered in any court having jurisdiction thereof. Any such arbitration shall be conducted in Nevada, or such other place as may be mutually agreed upon by the parties. Within fifteen (15) days after the commencement of the arbitration, each party shall select one person to act arbitrator, and the two arbitrators so selected shall select a third arbitrator within ten (10) days of their appointment. Each party shall bear its own costs and expenses and an equal share of the arbitrator’s expenses and administrative fees of arbitration.

 

IN WITNESS WHEREOF , the parties hereto have executed this Agreement as of the date first above written and resolved and consented as a majority resolution of the Board of Directors of SmartMetric, Inc.

 

 
Jay Needelman,  
Board Member/Director & CFO  
SmartMetric, Inc.  
   
Elizabeth Nightingale  
Board Member/Director  
SmartMetric, Inc.  
   
Chaya Coleena Hendrick ,  
Board Member/Director  
SmartMetric, Inc.  
   
Chaya Coleena Hendrick ,  
Executive/Company CEO & President
SmartMetric, Inc.  

 

 

Exhibit 10.7

 

 

ISSUED PATENT LICENSE AND ROYALTY AGREEMENT

 

Effective as of September 11, 2017 (“Effective Date”), Chaya Coleena Hendrick, an individual having a place of residence at 145 East Harmon Avenue, Apt 19620, Las Vegas, Nevada 89109, United States (“HENDRICK”), and SmartMetric. Inc., a Nevada corporation having a principal place of business at 3960 Howard Hughes Parkway, Suite 500, Las Vegas, Nevada, 89169 United States (“LICENSEE”), agree as follows:

 

WHEREAS, HENDRICK is the inventor and owns all right, title and interest in and to the Invention and the Licensed Issued Patent(s), which Invention is in the field of fingerprint biometric activated cards.

 

WHEREAS, HENDRICK desires to have the Invention perfected and marketed at the earliest possible time in order that products resulting therefrom may be available for public use and benefit.

 

WHEREAS, LICENSEE desires a license under said Invention and/or Licensed Issued Patent(s) to develop, manufacture, use, and sell the Licensed Products and Related Services in the Licensed Field of Use.

 

WHEREAS, HENDRICK is willing to grant an exclusive license under the License Patent in accordance with the terms and conditions set forth in this Agreement.

 

WHEREAS, LICENSEE is willing to pay to HENDRICK a Patent Royalty in accordance with the terms and conditions set forth in this Agreement.

 

NOW, THEREFORE, in consideration of the mutual promises, terms and conditions hereinafter set forth, the parties hereby agree as follows:

 

1. DEFINITIONS

 

“Agreement” means this Issued Patent License and Royalty Agreement.

 

“Invention” means the system and methods defined in the Licensed Issued Patent(s).

 

“Licensed Field of Use” means all fields of use.

 

“Licensed Patent” means Letters Patent issued to HENDRICK named and known as, “Smart card, Smart card with a chip and finger-print sensor, Smart card with a chip and finger-print sensor”, Smart card with a fingerprint sensor, Issued Patent Numbers D776,664 D786,355 D788,847 D791,772 by the United States Patent and Trademark Office and including any divisions, continuations, or reissue thereof.

 

“Licensed Products and Related Services” means any product and/or service, or part thereof, in the Licensed Field of Use, the manufacture, use, offer for sale, sale, or import of which: (a) is covered by a valid claim of an issued, unexpired Licensed Patent directed to the Invention. A claim of an issued, unexpired Licensed Patent shall be presumed to be valid unless and until it has been held to be invalid by a final judgment of a court of competent jurisdiction from which no appeal can be or is taken.

 

“LICENSEE” means LICENSEE and its Affiliates. “Affiliate” means any person, corporation, or other business entity which controls, is controlled by, or is under common control with LICENSEE; and for this purpose, “control” of a corporation means the direct or indirect ownership of more than fifty percent (50%) of its voting stock, and “control” of any other business entity means the direct or indirect ownership of greater than a fifty percent (50%) interest in the income of such entity.

 

 

 

2. LICENSE GRANT

 

HENDRICK hereby grants to LICENSEE exclusive rights to the Licensed Issued Patent(s), in the Licensed Field of Use, to make, have made, use, offer for sale, sell, lease, rent and export Licensed Products and Related Services for a term commencing as of Effective Date and ending on the expiration of the last to expire of the Licensed Patents(s).

 

Transfer or sublicensing of the Licensed Issued Patent(s) by LICENSEE is prohibited under the terms of this Agreement, except where HENDRICK has approved, in her sole discretion, such transfer or sublicensing by separate written agreement.

 

Future Expenses – All future expenses in respect of the Licensed Patent shall be paid by LICENSEE during the term of this Agreement.

 

Patent Maintenance Fees - All maintenance costs for issued Licensed Patents shall be paid by LICENSEE during the term of this Agreement. LICENSEE shall have the right to notify HENDRICK that it has no further interest in any particular patent requiring prosecution or maintenance payments, and HENDRICK may then elect to make the maintenance payments himself or abandon the patent.

 

3. COMMERCIAL APPLICATION (DILIGENCE)

 

LICENSEE agrees to use all reasonable efforts and diligence to proceed with the development, manufacture, and or sublicensing of the Licensed Products and Related Services, and to diligently develop markets for the Licensed Products and Related Services.

 

4. PATENT LICENSE FEE, ROYALTIES AND QUARTERLY REPORTS

 

Patent License: For the issuance of 200,000 Series B preferred shares of the Company (“Series B Shares”) to the Executive or her nominee, the Executive hereby grants the Company a perpetual license subject to the terms and conditions of this agreement, to the patent aforementioned as “licensed patent”.

 

Patent Royalty: As further consideration for the grant of exclusive rights to the Licensed Patent, LICENSEE will pay to HENDRICK or her nominee five (5) percent of the gross revenues derived from the use, offer for sale, sell, lease, rent and export of Licensed Products and Related Services (the “Patent Royalty”).

 

Annual Minimum Patent Royalty Amounts - The grant of exclusive rights to the Licensed Patent is subject to an “Annual Minimum Patent Royalty Payment” of $50,000 for the initial one (1) year period commencing upon the issuance of a United States patent in respect of HENDRICK’s United States issued Patents, “Smart card, Smart card with a chip and finger-print sensor, Smart card with a chip and finger-print sensor, Smart card with a fingerprint sensor”, I ssued Patent Numbers D776,664 D786,355 D788,847 D791,772 (the “Initial Term”). The Annual Minimum Patent Royalty Payment in subsequent years shall increase by one hundred (100) percent from the previous one (1) year period. For greater certainty, the Annual Minimum Patent Royalty Payment in the 2nd year will be $ 100,000. LICENSEE shall, at the commencement of the Initial Term and each subsequent one (1) year renewal term (if applicable), make the Annual Minimum Patent Royalty Payment to HENDRICK. HENDRICK shall draw against the Annual Minimum Patent Royalty Payment for any and all Patent Royalties due to HENDRICK for the period for which the Annual Minimum Patent Royalty Payment was made.

 

 

 

 

 

Quarterly Patent Royalty Reports – LICENSEE agrees to provide HENDRICK, within thirty (30) days after the end of each calendar quarter and within ten (10) days after the expiration or termination of this Agreement, a report of the gross revenues derived from the use, offer for sale, sell, lease, rent and export of Licensed Products and Related Services, by country (if applicable) (“Quarterly Patent Royalty Reports”). LICENSEE shall commence providing HENDRICK such Quarterly Patent Royalty Reports within thirty (30) days following the end of the first calendar quarter in the Initial Term. The Quarterly Patent Royalty Reports will quantify the gross revenues derived from the use, offer for sale, sell, lease, rent and export of Licensed Products and Related Services, by country (if applicable), accrued during the previous quarter explaining the basis for such calculations. In the calendar quarter in which LICENSEE has exhausted the Annual Minimum Patent Royalty Payment, LICENSEE shall include with the Quarterly Patent Royalty Report payment for all Patent Royalties accrued for the immediately preceding quarter that are in excess of the Annual Minimum Patent Royalty Payment. Unless otherwise instructed by HENDRICK, these payments will be made by check directly to HENDRICK or her nominee at the address set out in Section 8.

 

Auditable Records – LICENSEE shall keep true, accurate and consistent records containing regular entries relating to the gross revenues derived from the use, offer for sale, sell, lease, rent and export of Licensed Products and Related Services, by country (if applicable). These records shall be available for examination during normal business hours by accountants representing HENDRICK, who shall be entitled to perform an audit and to make copies and extracts and to receive any explanations that may reasonably be requested. HENDRICK is responsible for payment of the accountant’s fee, except that LICENSEE shall be responsible for such fees in the event an examination discloses a discrepancy in HENDRICK’s favor of more than five (5) percent of the payment of total fees due under this Agreement.

 

5. NEGATION OF WARRANTIES

 

Nothing in this Agreement is or shall be construed as:

 

A warranty or representation by HENDRICK as to the validity or scope of any Licensed Patent;

 

A warranty or representation that anything made, used, sold, or otherwise disposed of under any license granted in this Agreement, is or will be free from infringement of patents, copyrights, and other rights of third parties;

 

An obligation to bring or prosecute actions or suits against third parties for infringement;

 

Granting by implication, estoppel, or otherwise any licenses or rights under patents or other rights of HENDRICK or other persons other than Licensed Patents, regardless of whether such patents or other rights are dominant or subordinate to any Licensed Patent; or

 

An obligation to furnish any technology or technological information other than the Licensed Patent.

 

Except as expressly set forth in this Agreement, HENDRICK MAKES NO REPRESENTATIONS AND EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED. THERE ARE NO EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR THAT THE USE OF THE LICENSED PRODUCTS AND/OR RELATED SERVICES WILL NOT INFRINGE ANY PATENT, COPYRIGHT, TRADEMARK, OR OTHER RIGHTS OR ANY OTHER EXPRESS OR IMPLIED WARRANTIES.

 

 

 

6. INDEMNITY

 

LICENSEE agrees to indemnify, hold harmless, and defend HENDRICK against any and all claims for death, illness, personal injury, property damage, and improper business practices arising out of the manufacture, use, sale, or other disposition of the Invention, the Licensed Patent, or the Licensed Product and Related Services by LICENSEE.

 

NEITHER PARTY SHALL BE LIABLE TO THE OTHER, ITS CUSTOMERS, THE USERS OF ANY LICENSED PRODUCTS AND RELATED SERVICES, OR ANY THIRD PARTIES FOR ANY DIRECT, CONSEQUENTIAL, INCIDENTAL, INDIRECT, PUNITIVE OR SPECIAL DAMAGES WHATSOEVER, INCLUDING, WITHOUT LIMITATION, ANY DAMAGE OR INJURY TO BUSINESS EARNINGS, PROFITS OR GOODWILL SUFFERED BY ANY PERSON ARISING FROM ANY USE OF THE LICENSED PATENTS, LICENSED PRODUCTS AND RELATED SERVICES, REGARDLESS OF WHETHER SUCH LIABILITY IS BASED ON BREACH OF CONTRACT, TORT, STRICT LIABILITY, BREACH OF WARRANTIES, INFRINGEMENT OF INTELLECTUAL PROPERTY, FAILURE OF ESSENTIAL PURPOSE OR OTHERWISE, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

 

7. TERMINATION

 

LICENSEE may terminate this Agreement by giving HENDRICK notice in writing at least thirty (30) days in advance of the Effective Date of termination selected by LICENSEE.

 

HENDRICK may terminate this Agreement immediately in the event LICENSEE is in breach of Sections 2 or 4, specifically in respect of the payment of the Annual Minimum Patent Royalty Payment, any Patent Royalties or other expenses in respect of the Licensed Patent.

 

HENDRICK may terminate this Agreement effective upon written notice to LICENSEE in the event LICENSEE materially breaches this Agreement and such breach remains uncured for thirty (30) days following written notice of such breach, unless such breach is incurable in which event termination shall be immediate upon receipt of written notice.

 

HENDRICK may terminate this Agreement by written notice if LICENSEE: (a) becomes insolvent; (b) files a petition, or has a petition filed against it, under any laws relating to insolvency, and the related insolvency proceedings are not dismissed within sixty (60) days after the filing of such petition; (c) enters into any voluntary arrangement for the benefit of its creditors; (d) appoints, or has appointed on its behalf, a receiver, liquidator or trustee of any of such party’s property or assets; or (e) ceases to carry on business in the ordinary course.

 

The effect of termination or expiration of this Agreement is that the license granted under Section 2 shall revert back to HENDRICK.

 

Surviving any termination or expiration are any cause of action or claim of LICENSEE or HENDRICK, accrued or to accrue, because of any breach or default by the other party; and the provisions of Sections 4, 5 and 6; and any other provisions that by their nature are intended to survive.

 

8. SEVERABILITY

 

If any provision of this Agreement or the application thereof is held invalid, the invalidity shall not affect other provisions or applications of the Agreement which can be given effect without the invalid provisions or applications and to this end the provisions of this Agreement are declared to be severable.

 

 

 

9. MISCELLANEOUS

 

Marking – Prior to the issuance of patents on the Invention, LICENSEE agrees, when practical and consistent with LICENSEE’s practices, to mark the Licensed Products and Related Services (or their containers or labels) made, sold, or otherwise disposed of by it under the license granted in this Agreement with the words “Patent Pending”, and following the issuance of one or more patents, with the numbers of the Licensed Patent.

 

Names and Marks – Each party agrees not to identify the other party in any promotional advertising or other promotional materials to be disseminated to the public or any portion thereof, without the other party’s prior written consent. Either party may disclose the existence of this Agreement.

 

Infringement by Others: Protection of Patents – LICENSEE shall promptly inform HENDRICK of any suspected infringement of any Licensed Patent by a third party.

 

Sublicense – LICENSEE may not grant sublicenses.

 

Assignment – LICENSEE may not assign this Agreement.

 

Dispute Resolution – The parties hereto agree to resolve any dispute or disagreements, excluding any dispute relating to patent validity or infringement, which may arise during the course of this Agreement as follows:

 

First, HENDRICK and LICENSEE’s senior management will meet to attempt in good faith to resolve such dispute or disagreement;

 

If no resolution is reached, either party may request a one-day meeting with a mediator;

 

If no resolution is reached by mediation, such dispute or disagreement will be submitted for binding arbitration pursuant to the rules of Arbitration in the State of Nevada

 

Notices – Notices will be given by (a) certified mail (b) fax, (c) courier service, or (d) electronic mail (e-mail). Certified mail or courier service notice is effective on the earlier of 5 days from being deposited for delivery or the date on the mail or courier receipt. Fax and e-mail notice are effective when the sender receives confirmation that the fax was sent or the e-mail received. A party will send notice to the following mail or e-mail address or another address about which the party gives thirty (30) days prior written notice:

 

TO HENDRICK:

 

Attention: CHAYA HENDRICK
145 East Harmon Avenue, Apt. 19620
Las Vegas, Nevada, 89109 USA
Email: chaya@smartmetric.com

 

TO LICENSE:

 

Attention: Jay Needelman
3960 Howard Hughes Parkway, Suite 500
Las Vegas, Nevada, 89169 USA
Email: jay@smartmetric.com

 

 

 

Scope of Agreement – This Agreement constitutes the entire Agreement between the parties pertaining to the subject matter hereof. No representative of HENDRICK or LICENSEE has been authorized to make any representation, warranty, or promise not contained herein.

 

Applicable Law – This Agreement shall be governed by the laws of the State of Nevada, USA.

 

IN WITNESS WHEREOF , the parties hereto have executed this Agreement as of the date first above written and resolved and consented as a majority of the Board of Directors of SmartMetric, Inc.

 

LICENSEE

   
Jay Needelman,  
Board Member/Director & CFO  
SmartMetric, Inc.  

 

 
Elizabeth Nightingale  
Board Member/Director  
SmartMetric, Inc.  

 

 
Chaya Coleena Hendrick,  
Board Member/Director/CEO  
SmartMetric, Inc.  

 

PATANTEE / HENDRICK

 

 
Chaya Coleena Hendrick,  
Patentee  
Letters Patent Inventor  

 

 

Exhibit 23.01

 

 

 

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

We consent to the use, in the statement on Form 10K of Smartmetric, Inc., of our report dated October 12, 2017 on our audit of the financial statements of Smartmetric, Inc. as of June 30, 2017, and the related statements of operations, stockholders’ equity and cash flows for the year ended June 30, 2017.

 

 

/s/ AMC Auditing

 

AMC Auditing

Las Vegas, Nevada

October 12, 2017

 

 

 

Exhibit 31.1

 

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

 

I, C. Hendrick, certify that:

 

1. I have reviewed this annual report on Form 10-K of SmartMetric, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

 

  a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b)  any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.  

 

Dated: October 13, 2017 By: /s/ C Hendrick
    C. Hendrick
    Chief Executive Officer
    (principal executive officer)

 

 

 

Exhibit 31.2

 

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

 

I, Jay Needelman, certify that:

 

1. I have reviewed this annual report on Form 10-K of SmartMetric, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

 

  a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.  

 

Dated: October 13, 2017 By: /s/ Jay Needelman
    Jay Needelman, CPA
    Chief Financial Officer
    (principal financial and accounting officer )

 

 

 

Exhibit 32.1

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Annual Report of SmartMetric, Inc. (the “Company”) on Form 10-K for the period ended June 30, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, C Hendrick, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 1350 of the Sarbanes-Oxley Act of 2002, that:

 

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
   
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

 

The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. section 1350 and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

 

Dated: October 13, 2017 By: /s/ C Hendrick
    C. Hendrick
    Chief Executive Officer
    (principal executive officer)

 

 

 

Exhibit 32.2

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Annual Report of SmartMetric, Inc. (the “Company”) on Form 10-K for the period ended June 30, 2017, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jay Needelman, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350 of the Sarbanes-Oxley Act of 2002, that:

 

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities   Exchange Act of 1934; and
   
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

 

The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. section 1350 and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

 

Dated: October 13, 2017 By: /s/ Jay Needelman
    Jay Needelman, CPA
    Chief Financial Officer
    (principal financial and accounting officer)