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SMME > SEC Filings for SMME > Form 10-Q on 19-Nov-2013All Recent SEC Filings

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Form 10-Q for SMARTMETRIC, INC.


19-Nov-2013

Quarterly Report


Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

Cautionary Notice Regarding Forward-Looking Statements

In this quarterly report on Form 10-Q ("Report"), references to "SmartMetric," "SMME," "the Company," "we," "us," and "our" refer to Smartmetric, Inc.

The following discussion should be read in conjunction with our condensed consolidated financial statements and other financial information appearing elsewhere in this quarterly report. In addition to historical information, the following discussion and other parts of this quarterly report contain forward-looking statements. You can identify these statements by forward-looking words such as "plan," "may," "will," "expect," "intend," "anticipate," believe," "estimate" and "continue" or similar words. Forward-looking statements include information concerning possible or assumed future business success or financial results. You should read statements that contain these words carefully because they discuss future expectations and plans, which contain projections of future results of operations or financial condition or state other forward-looking information. We believe that it is important to communicate future expectations to investors. However, there may be events in the future that we are not able to accurately predict or control. Accordingly, we do not undertake any obligation to update any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.

The forward-looking statements included herein are based on current expectations that involve a number of risks and uncertainties set forth under "Risk Factors" in our Annual Report on Form 10-K as of and for the year ended June 30, 2012 and other periodic reports filed with the United States Securities and Exchange Commission ("SEC"). Accordingly, to the extent that this Report contains forward-looking statements regarding the financial condition, operating results, business prospects or any other aspect of the Company, please be advised that the Company's actual financial condition, operating results and business performance may differ materially from that projected or estimated by the Company in forward-looking statements. We do not undertake any responsibility to publicly release any revisions to these forward-looking statements to take into account events or circumstances that occur after the date of this Report, except as required by law. Additionally, we do not undertake any responsibility to update you on the occurrence of any unanticipated events which may cause actual results to differ from those expressed or implied by any forward-looking statements.

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. We expect to begin mass production of our product by February 2014, 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.

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 Three Months Ended September 30, 2013 and 2012

Revenue and Net Loss

For the three months ended September 30, 2013, there was no revenue and a net loss of $1,019,463. For the three months ended September 30, 2012, there was no revenue and a net loss of $949,756. This increased loss of $69,707 or 7.3% resulted primarily from higher research and development expenses.

General and Administrative Expenses

General and administrative expenses for the three months ended September 30, 2013 were $657,078, a decrease of $164,362 or 20.0% compared to $821,440 for the comparable period in 2012. This decrease was primarily attributed to lower consulting expenses.

Research and Development Expenses

Research and development expenses for the three months ended September 30, 2013 were $314,885, an increase of $229,069 or 266.9% compared to $85,816 for the comparable period in 2012. This increase was primarily attributable to higher engineering expenses.

Income Tax Expense

Income tax expense for the nine months ended September 30, 2013 was $0, unchanged from the comparable period in 2012.

Liquidity and Capital Resources

The Company is a development stage company and has spent a majority of resources and time in developing its technology. There is no guarantee that the Company can continue to raise enough capital or generate revenues to sustain its operations. These conditions raise a substantial doubt about the Company's ability to continue as a going concern. Management believes that the Company's capital requirements will depend on a number of factors including the final phase of product development and the development of its production process 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 amount and classification of recorded liabilities that may be required should the Company be unable to continue as a going concern.

At September 30, 2013, the Company had an accumulated deficit of $16,984,057 and it is likely that the Company will incur additional losses in the future. While we have funded our operations since inception from operations and through private placements of equity securities, there can be no assurance that adequate financing will continue to be available to us and, if available, on terms that are favorable to us.

We believe that we will require additional financing to carry out our intended objectives during the next twelve months. There can be no assurance, however, that such financing will be available or, if it is available, that we will be able to structure such financing on terms acceptable to us and that it will be sufficient to fund our cash requirements until we can reach a level of profitable operations and positive cash flows. If we are unable to obtain the financing necessary to support our operations, we may be unable to continue as a going concern.

A downturn in the United States stock and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing. Further, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our shares of common stock or the debt securities may cause us to be subject to restrictive covenants. There is a risk of dilution whenever the Company sells securities to raise capital. If additional financing is not available or is not available on acceptable terms, we will have to curtail our operations.

Cash

Our cash balance was $161,074 at September 30, 2013 compared with $804,257 at June 30, 2013. The decrease was primarily attributable to higher general and administrative expenses and no revenues.

Net cash used in operating activities

Net cash used in operating activities was $906,131 for the three months ended September 30, 2013, an increase of $391,787 or 76.2% from the comparable period in 2012. 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 three months ended September 30, 2013, unchanged from the comparable period in 2012.

Net cash provided by financing activities

Net cash provided by financing activities was $262,948 for the three months ended September 30, 2013, an increase of $27,695 or 11.8% from the comparable period in 2012. The increase was based on higher private placement equity shares.

Contractual Obligations and Off-Balance Sheet Arrangements.

There were no off-balance sheet arrangements as of September 30, 2013 and June 30, 2013.

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.

Critical accounting policies and estimates

The condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require us 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 periods. Management makes these estimates using the best information available at the time the estimates are made; however actual results could differ materially from those estimates.

Intangible assets

During September 2013, the Company acquired license rights to ACI's BioCentric Cloud Device technology in consideration of the Company's intent to issue to ACI of 200,000 shares of its Series B Convertible Preferred Stock. As of the filing date, the Company has not increased its amount of Series B Convertible Preferred Stock shares and, accordingly, these shares have not been issued.

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