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SMME > SEC Filings for SMME > Form 10-K/A on 22-Oct-2012All Recent SEC Filings

Show all filings for SMARTMETRIC, INC.

Form 10-K/A for SMARTMETRIC, INC.


22-Oct-2012

Annual Report


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

This discussion should be read in conjunction with our consolidated financial statements included in this Annual Report on Form 10-K/A and the notes thereto, as well as the other sections of this Annual Report on Form 10-K/A, including "Risk Factors" and "Business" sections thereof. This discussion contains a number of forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this Annual Report. Our actual results may materially differ.

Overview

Incorporated in 2002, SmartMetric and its founder and CEO, C. Hendrick, have been engaged in research and development of a biometric security solution which would authenticate the identity of a person in a self-contained credit card-sized device. SmartMetric's Biometric Datacard has been designed to use an on-board finger print sensor which is embedded in the card along with an integrated circuit chip which will provide varying degrees of encrypted memory 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. To date, SmartMetric has had no sales revenues.

The manufacturing of the cards requires that the Company build not only a special factory that meets security conditions but also that the Company manufacture specialized mass production machines that will allow for the specialized manufacturing process required to mount sub micro thin silicon components; along with accredit card plastic manufacturing procedure that operates using low pressure and low heat so as not to harm the internal electronic components.

The Company is currently concentrating on building out its manufacturing facility that will be incorporating SmartMetric's advanced manufacturing processes. The manufacturing facility is now projected to be ready for production. The company may at its discretion for logistical reasons operate its initial manufacturing of plastic fingerprint activated cards in another location other than Buenos Aires, Argentina.

Our ability to continue as a going concern prior to the generation of sales is almost exclusively dependent upon our ability to raise capital, specifically through sales of unregistered securities. The ability to raise capital through private placement sales is very unpredictable, thus greatly influencing the Company's ability to continue as a going concern.

The Company's research and development is being undertaken by contractors working in Israel and Argentina.

SmartMetric does not believe its business is seasonal.

Results of Operations

Comparison of the Year Ended June 30, 2012 and 2011

Revenue and Net Loss

For the fiscal year ended June 30, 2012, there was no revenue and a net loss of $2,709,913. For the year ended June 30, 2011, there was no revenue and a net loss of $1,885,040. This increased loss of $824,873 or 43.8%, resulted primarily from general and administrative costs.

General and Administrative Expenses

General and administrative expenses for the year ended June 30, 2012 were $2,237,532, an increase of $845,997 or 60.8% compared to $1,391,535 for the comparable period in 2011. This increase was primarily attributed to higher legal and professional fees, marketing, contract labor costs and rent partially offset by lower consulting costs.

Research and Development Expenses

Research and development expenses for the year ended June 30, 2012 were $302,381, a decrease of $15,279 or 4.8% compared to $317,660 for the comparable period in 2011. This decrease was primarily attributable to lower engineering costs.

Interest expense

Interest expense for the year ended June 30, 2012 was $0, a decrease of $5,845 from the comparable period in 2011. This decrease was attributable to the Company having satisfied its past due payroll tax liability.

Liquidity and Capital Resources

Cash and Cash Equivalents

Our cash and cash equivalents were $889,589 at June 30, 2012 compared with $272,599 at June 30, 2011. The increase was primarily attributable to the Company raising capital in amounts greater than its operating costs for the period in capital funding.

Net cash used in operating activities

Net cash used in operating activities was $1,342,217 for the year ended June 30, 2012, compared to $2,707,540 for the year ended June 30, 2011, a decrease of $1,365,323 or 50.4% from the comparable period in 2011. The Company is largely dependent on the capital it raises to fund operations. When capital is raised the development process is accelerated, and when cash flows are decreased the Company conserves its cash by delaying development and other operating costs.

Net cash used in investing activities

Net cash used in investing activities was $0 for the year ended June 30, 2012, unchanged from June 30, 2011.

Net cash provided by financing activities

Net cash provided by financing activities was $1,959,207 for the year ended June 30, 2012, as compared to $2.980.139 for the year ended June 30, 2011. The decrease of $1,020,932 or 34.3% was based on the Company successfully raising new capital.

The company continues to be in the development stage. Our ability to bear the costs associated towards bringing the product to market is highly dependent upon capital funding, which is unpredictable and sporadic. We expect to begin mass production of our product in the first quarter of 2013 however this is dependent on a number of factors including the supply of specific silicon based components that may require a modest longer lead time then original planned.

Our consolidated financial statements have been prepared assuming we will continue as a going concern. Assurances cannot be given that adequate financing can be obtained to meet our capital needs. If we are unable to generate profits and are unable to continue to obtain financing to meet our working capital requirements, we will have to sharply curtail our business or cease operations altogether. Our continuation as a going concern is dependent upon our ability to generate sufficient cash flow to meet our obligations on a timely basis, to obtain additional financing and, ultimately, to attain profitability. Presently, the Company is considering various alternatives, including pursuing private placement financings as well as various sales strategies to improve cash from operations, in order to provide for the future working capital needs of the Company. Should the Company not be able to fund its working capital needs through financings or increases in sales, we will be adversely affected and we will have to cease operations.

We may need to raise additional funds through either the licensing or sale of our technologies, products and services or the additional public or private offerings of our securities. There can be no assurance that we will be able to obtain further financing, do so on reasonable terms, or do so on terms that would not substantially dilute our current stockholders' equity interests in us. If we are unable to raise additional funds on a timely basis, or at all, we may not be able to continue our operations.

Contractual Obligations and Off-Balance Sheet Arrangements.

There were no off-balance sheet arrangements as of June 30, 2012 and June 30, 2011.

In connection with an Assignment and Assumption Agreement with Applied Cryptography, Inc. ("ACI"), a corporation controlled by the Company's president and the owner of certain technology, ACI conveyed, assigned and transferred to the Company all of ACI's rights, title and interest in and to its patents (collectively, the "Patent") and delegated to the Company all of its duties and obligations to be performed under the Patent.

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.

In connection with the Assignment and Assumption Agreement, the Company and ACI entered into an option agreement pursuant to which the Company agreed to grant ACI an option to purchase the Patent from the Company for 100,000 shares of Series B Convertible Preferred Stock, only in the event that the Company fails to generate at least $1,000,000 in gross revenues attributable to the Patent at the conclusion of 24 months from the date of the Assignment and Assumption Agreement, December 11, 2011.

The Company did not generate the minimum revenue amount by December 11, 2011. As a result, ACI has the right to exercise its option to purchase the Patent from the Company. If this occurs, the Company may be unable to continue to develop and manufacture the SmartMetric Biometric Datacard without first entering into an arrangement with ACI for the right to use the Patent, the terms of which may be unfavorable to the Company. ACI has given no indication that it intends to exercise its option to purchase the Patent.

Critical accounting policies and estimates

See note 2 in the notes to the financial statements included as part of this Annual Report on Form 10-K/A.

Intangible assets

SmartMetric did not purchase any intangible assets for the years ended June 30, 2012 or June 30, 2011.

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