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

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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.

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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.

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THE SMARTMETRIC BIOMETRIC IN-CARD FINGERPRINT READER PAYMENTS CARD

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.

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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

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.

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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.

The 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

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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.

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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.

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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. 

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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

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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.

14

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

16

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.