You should read the following discussion of our financial condition and results of operations in conjunction with our condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year endedJune 30, 2021 , as filed with theSecurities and Exchange Commission . In addition to our historical condensed consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q, particularly in Part II, Item 1A, "Risk Factors."
Overview
SmartMetric, Inc. is a company engaged in the biometric technology industry.SmartMetric has secured a patent covering technology that involves connection to networks using data cards (smart cards and EMV cards). In addition,SmartMetric holds the sole license to issued patents covering features of its biometric fingerprint activated cards.SmartMetric's main product is a fingerprint sensor activated payments card with a finger sensor and fully functional fingerprint reader embedded inside the card. The cards have a rechargeable battery allowing for portable biometric identification and card activation. These cards are herein sometimes referred to as a biometric card or the SmartMetric Biometric card. To date, we have devoted a substantially all of our efforts and financial resources to the development of our 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 ofMarch 31, 2021 , we had an accumulated deficit of approximately$28,878,841 . 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 atMarch 31, 2021 was approximately$10,325 representing 20.5% 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 2023. 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
The condensed consolidated financial statements do not include any adjustments relating to the carrying amounts of recorded assets or the carrying amounts and classification of recorded liabilities that may be required should the Company be unable to continue as a going concern. As shown in the accompanying consolidated financial statements the Company has incurred recurring losses of$1,399,499 for the nine month period endingMarch 31, 2022 and has incurred a cumulative loss of$30,269,453 since our inception inDecember 18, 2022 . The Company is currently in the development stage and has spent a substantial portion of its time in the development of its technology. 17
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 beyond calendar year 2023. The Company maintains sufficient cash to continue as a going concern throughout all of calendar year 2022.
Management believes that the Company's capital requirements will depend on many factors. These factors include the final phase of development and mass production being successful as well as product implementation and distribution.
The consolidated financial statements do not include any adjustments relating to the carrying amounts of recorded assets or the carrying amounts and classification of recorded liabilities that may be required should the Company be unable to continue as a going concern.
Effect of Covid-19
InDecember 2019 , an outbreak of a novel strain of coronavirus originated inWuhan, China ("COVID-19") and has since spread worldwide, including to the Unites States, posing public health risks that have reached pandemic proportions (the "COVID-19 Pandemic"). COVID-19 poses a threat to the health and economic wellbeing of our employees, customers and vendors. Like most businesses world-wide, the COVID-19 Pandemic has impacted the Company financially. Further, the COVID-19 Pandemic, has had an impact onSmartMetric's final card production. While the delays are due to supply line disruption, the Company is confident that these delays will be short-lived based on advice from our manufacturing partners, manufacturing alternatives and alternative supply lines that are being put into place by the Company. However, management cannot presently predict the scope and severity with which COVID-19 will impact our business, financial condition, results of operations and cash flows.SmartMetric's commitment to the health and safety of its employees remains our first priority. Our rigorous precautionary measures include the formation of global and regional response teams that maintain contact with authorities and experts to actively manage the situation, restrictions on company travel, quarantine protocols for employees who may have had exposure or have symptoms, frequent disinfecting of our locations and other measures designed to help protect employees, customers and suppliers. We expect to continue these measures until the COVID-19 pandemic is adequately contained for our business. In the near-term, our operating results are going to be challenged due to this crisis. We continue to manage our cost structure to meet the uncertain demand, while making additional cost reductions as needed. Our customers' businesses are subject to the fluctuations in global economic cycles and conditions and other business risk factors which may impact their ability to operate their businesses. The performance and financial condition of our customers may cause us to alter our business terms or to cease doing business with a particular customer. Further, the potential impact of the COVID-19 Pandemic on their businesses could adversely impact our customers' ability to pay us for work performed, increasing our future estimate of credit losses.
Recent Developments
Issuance of Commitment Shares, Notes and Warrants to
OnJanuary 27, 2022 , we entered into separate securities purchase agreements with three investors, for the sale and issuance to each investor of: (i) a promissory note in the aggregate principal amount of$250,000 , (ii) a common stock purchase warrant to purchase 12,500,000 shares of the Company's common stock, and (iii) a commitment fee in the form of 12,500,000 shares of the Company's common stock. 18
Mast Hill Equity Purchase Agreement and Registration Rights Agreement to
OnMarch 8, 2022 , we entered into an equity purchase agreement withMast Hill Fund, L.P. ("Mast Hill"), pursuant to which, upon the terms and subject to the conditions thereof, Mast Hill is committed to purchase, shares of our common stock at an aggregate price of up to$5,000,000 over the course of its term. Additionally, in connection with the execution of the equity purchase agreement, the Company issued Mast Hill five (5) common stock purchase warrants, respectively, for the purchase of (i) 500,000 shares of common stock, (ii) 1,000,000 shares of common stock, (iii) 1,000,000 shares of common stock, (iv) 2,500,000 shares of common stock, and (v) 62,500,000 shares of the Company's common stock at the Exercise Price (as such term is defined in each warrant) per share then in effect. The Company also entered into a registration rights agreement whereby the Company shall (i) file with theUnited States Securities and Exchange Commission (the "SEC") a registration statement within forty-five (45) days of the date of such agreement; and (ii) have the registration statement declared effective by the Commission within ninety (90) days after the date the registration statement is filed with theSEC (or at the earliest possible date if prior to ninety (90) calendar days from the date hereof), and any amendment declared effective by theSEC at the earliest possible date.
Issuance of Commitment Shares, Note, and Warrant to
OnMarch 15, 2022 , we entered into a securities purchase agreement withMast Hill Fund, L.P. (the "Mast Hill") with respect to the sale and issuance to the Mast Hill of: (i) a promissory note in the aggregate principal amount of$250,000 , (ii) a common stock purchase warrant to purchase up to an aggregate of 12,500,000 shares of the Company's common stock, and (iii) 12,500,000 shares of common stock. Critical Accounting Policies We have prepared our financial statements in conformity with accounting principles generally accepted inthe 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 the Company's significant accounting policies are discussed in Note 2, Summary of Significant Accounting Policies, to our financial statements, included above in this Quarterly Report. We have identified the following as our significant accounting policies and estimates, which are defined as those that are reflective of significant judgments and uncertainties, are the most pervasive and important to the presentation of our financial condition and results of operations and could potentially result in materially different results under different assumptions, judgments or conditions.
We believe the following critical accounting policies reflect our more significant estimates and assumptions used in the preparation of our financial statements:
Development Costs Research and development costs are charged to expense as incurred. Our research and development expenses consist primarily of expenditures for electronics design and engineering, software design and engineering, component sourcing, component engineering, manufacturing, product trials, compensation and consulting costs. Due to the small size of the Company's research & development staff as well as the lack of any long term research and development-related contracts, we do not believe that the use of this critical accounting estimate will have a material impact on the results of financial operations. 19 Results of Operations
Comparison of the Three Months Ended
Our results of operations have varied significantly from year to year and quarter to quarter and may vary significantly in the future. We did not have revenue for the three months endingMarch 31, 2022 and 2021. Net loss for the three months endedMarch 31, 2022 and 2021 were$304,826 and$213,122 , respectively, resulting from the operational activities described below.
Operating Expenses
Operating expense totaled$284,202 and$199,225 during the three months endedMarch 31, 2022 and 2021, respectively. The increase in operating expenses is the result of higher consulting expenses and legal expenses. Quarter Ended Change in 2022 March 31, Versus 2021 2022 2021 $ % Operating expense Officer salary$ 47,500 $ 47,500 $ -0 - -0- % Research and development 44,551 16,822 27,729 164.8 % General and administrative 192,151 134,903 57,248 42.4 % Total operating expense$ 284,202 $ 199,225 $ 84,977 42.7 %
Research and Development
Research and development expenses totaled$44,551 and$16,822 for the three months endedMarch 31, 2022 and 2021, respectively. The increase of$27,729 , or 164.8%, in 2022 compared to 2021 was primarily attributable to increased engineering expenses. Our research and development expenses consist primarily of expenditures related to engineering.
General and Administrative
General and administrative expenses totaled$192,151 and$134,903 for the three months endedMarch 31, 2022 and 2021, respectively. The increase of$57,248 , or 42.4%, in 2022 compared to 2021 was primarily the result of an increase in consulting and legal expenses. Our general and administrative expenses consist primarily of expenditures related to employee compensation, legal, accounting and tax, other professional services, and general operating expenses.
Other Expense
Other income (expense) totaled
Quarter Ended Change in 2022 March 31, Versus 2021 2022 2021 $ % Gain (loss) on change in derivatives 326,919 -0- 326,919 100.0 % Gain on PPP loan forgiveness -0- -0- -0- -0- Interest Expense (22,673 ) (13,897 ) (8,776 ) (63.2 )% Total other (income) expense$ 304,246 $ (13,897 ) $ 318,143 2,289.3 % 20 Interest income (expense)
We had net interest expense of$22,673 in the three months endedMarch 31, 2022 compared to ($13,897 ) net interest expense for the three months endedMarch 31, 2021 . The increase of ($8,776 ) was attributable to higher deferred officer salary.
Gain (loss) on change in derivatives
We had a gain (loss) on change in derivatives of$326,919 in the three months endedMarch 31, 2022 compared to a$0 gain (loss) on change in derivatives for the three months endedMarch 31, 2021 .
Gain on PPP loan forgiveness
We recognized
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$30,269,453 as ofMarch 31, 2022 and anticipate that we will continue to incur additional losses for the foreseeable future. ThroughMarch 31, 2022 , we have funded our operations through the private sale of our equity securities and exercises of options and warrants, resulting in gross proceeds of approximately$27.5 million from inception throughMarch 31, 2022 . Nine Months Ended Change in 2022 March 31, Versus 2021 2022 2021 $ % Cash at beginning of period$ 10,325 $ 71,377 $ (61,052 ) (85.6 )%
Net cash used in operating activities (812,852 ) (425,620 ) (387,232 ) (91.0 )% Net cash used in investing activities - - - - Net cash provided by financing activities 1,109,257 375,837
733,420 195.1 % Cash at end of period$ 306,730 $ 21,594 $ 285,136 1320.4 %
Net cash used in operating activities was$812,852 and$425,620 for the nine months endedMarch 31, 2022 and 2021, respectively. The increase of$387,232 in cash used during 2022 compared to 2021 was primarily attributable to an increase in consultant costs and legal expenses.
Cash used in investing activities was
21
Net Cash Provided by Financing Activities
During the nine months endedMarch 31, 2022 , net cash provided by financing activities was$1,109,257 , compared to$375,837 for the nine months endedMarch 31, 2021 . The increase of$733,420 was due to higher sales of the Company's securities in private placements. We continue to seek funding through private placement sales of equity to fund our continued operations, sales and marketing and ongoing research and development programs.
Equity Financing Agreement
Issuance of Commitment Shares, Notes and Warrants to
OnJanuary 27, 2022 , we entered into separate securities purchase agreements with three investors, for the sale and issuance to each investor of: (i) a promissory note in the aggregate principal amount of$250,000 , (ii) a common stock purchase warrant to purchase 12,500,000 shares of the Company's common stock, and (iii) a commitment fee in the form of 12,500,000 shares of the Company's common stock.
Mast Hill Equity Purchase Agreement and Registration Rights Agreement to
OnMarch 8, 2022 , we entered into an equity purchase agreement withMast Hill Fund, L.P. ("Mast Hill"), pursuant to which, upon the terms and subject to the conditions thereof, Mast Hill is committed to purchase, shares of our common stock at an aggregate price of up to$5,000,000 over the course of its term. Additionally, in connection with the execution of the equity purchase agreement, the Company issued Mast Hill five (5) common stock purchase warrants, respectively, for the purchase of (i) 500,000 shares of common stock, (ii) 1,000,000 shares of common stock, (iii) 1,000,000 shares of common stock, (iv) 2,500,000 shares of common stock, and (v) 62,500,000 shares of the Company's common stock at the Exercise Price (as such term is defined in each warrant) per share then in effect. The Company also entered into a registration rights agreement whereby the Company shall (i) file with theUnited States Securities and Exchange Commission (the "SEC") a registration statement within forty-five (45) days of the date of such agreement; and (ii) have the registration statement declared effective by the Commission within ninety (90) days after the date the registration statement is filed with theSEC (or at the earliest possible date if prior to ninety (90) calendar days from the date hereof), and any amendment declared effective by theSEC at the earliest possible date.
Issuance of Commitment Shares, Note, and Warrant to
OnMarch 15, 2022 , we entered into a securities purchase agreement withMast Hill Fund, L.P. (the "Mast Hill") with respect to the sale and issuance to the Mast Hill of: (i) a promissory note in the aggregate principal amount of$250,000 , (ii) a common stock purchase warrant to purchase up to an aggregate of 12,500,000 shares of the Company's common stock, and (iii) 12,500,000 shares of common stock. 22
Comparison of the Nine Months Ended
Our results of operations have varied significantly from year to year and quarter to quarter and may vary significantly in the future. We did not have revenue for the nine months endingMarch 31, 2022 and 2021. Net loss for the nine months endedMarch 31, 2022 and 2021 were$1,766,124 and$896,786 , respectively, resulting from the operational activities described below.
Operating Expenses
Operating expense totaled$1,207,582 and$624,867 during the nine months endedMarch 31, 2022 and 2021, respectively. The increase in operating expenses is the result of higher consulting expenses and legal expenses. Nine Months Ended Change in 2022 March 31, Versus 2021 2022 2021 $ % Operating expense Officer salary$ 142,500 $ 142,500 $ -0 - -0- % Research and development 113,446 60,761 52,685 86.7 %
General and administrative 951,636 421,606 530,030 125.7 % Total operating expense$ 1,207,582 $ 624,867 $ 582,715 93.3 %
Research and Development
Research and development expenses totaled$113,446 and$60,761 for the nine months endedMarch 31, 2022 and 2021, respectively. The increase of$52,685 , or 86.7%, in 2022 compared to 2021 was primarily attributable to increased engineering expenses. Our research and development expenses consist primarily of expenditures related to engineering.
General and Administrative
General and administrative expenses totaled$951,636 and$421,606 for the nine months endedMarch 31, 2022 and 2021, respectively. The increase of$530,030 or 125.7%, in 2022 compared to 2021 was primarily the result of an increase in consulting and legal expenses. Our general and administrative expenses consist primarily of expenditures related to employee compensation, legal, accounting and tax, other professional services, and general operating expenses.
Other Expense
Other income (expense) totaled
Nine Months Ended Change in 2022 March 31, Versus 2021 2022 2021 $ % Gain (loss) on change in derivatives (110,449 ) (62,465 ) (47,984 ) (76.8 )% Gain on PPP loan forgiveness 20,832 - 20,832 - Interest Expense (102,300 ) (45,879 ) (56,421 ) (24.6 )% Total other (income) expense$ (191,917 ) $ (108,344 ) $ (83,573 ) (77.1 )% 23 Interest income (expense)
We had net interest expense of$102,300 in the nine months endedMarch 31, 2022 compared to$45,879 net interest expense for the nine months endedMarch 31, 2021 . The increase of$56,421 was attributable to higher deferred officer salary.
Gain (loss) on change in derivatives
We had a loss on change in derivatives of
Gain on PPP loan forgiveness
We recognized
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