March 3, 2005
By facsimile to (212) 480-0717 and U.S. Mail
Mr. Colin Hendrick
President and Chief Executive Officer
SmartMetric, Inc.
67 Wall Street, 22nd Floor
New York, NY 10005
RE: SmartMetric, Inc.
Pre-effective Amendments 1 and 2 to Registration Statement on
Form SB-2
Filed February 3 and 10, 2005
Annual Report on Form 10-KSB for the fiscal year ended June 30,
2004
and
Subsequent Exchange Act Reports
File No. 333-118801
Dear Mr. Hendrick:
We reviewed the filings and have the comments below.
1. We note disclosure in MD&A that SmartMetric sold 68,207 shares
of
common stock at $1.50 per share in October and November 2004 after
filing the registration statement for a public offering of up to
four
million shares of its common stock on September 3, 2004. Further,
we
note disclosure under "Recent Sales of Unregistered Securities"
that
SmartMetric relied upon the Securities Act`s section 4(2)
exemption
for the October and November 2004 transactions. Using the five
factor test, provide us SmartMetric`s analysis why the October and
November 2004 transactions should not be integrated with
SmartMetric`s registered public offering of up to four million
shares
of its common stock. For guidance, you may wish to refer to
Release
33-4552, November 6, 1962, and Rule 502(a) of Regulation D under
the
Securities Act.
Table of Contents
2. Refer to prior comment 11. As requested previously, show the
page
number of the prospectus` various sections or subdivisions in the
next amendment to the registration statement. See Item 502(a) of
Regulation S-B. If necessary, revise the page numbers in the
final
prospectus.
Risk Factors
3. Refer to the sixth risk factor. We understand that the Over-
the-
Counter Bulletin Board is operated by NASD, not Nasdaq. Revise to
remove the suggestion that SmartMetric`s shares will be traded on
Nasdaq.
4. Reconcile disclosure in the seventh risk factor that
SmartMetric
expects to seek an additional $2 million to $3 million within 12
to
24 months after completion of the offering depending on how much
money it raises in the offering with disclosure in "Use of
Proceeds"
and disclosure under "Production of SmartCards" that SmartMetric
will
need $4 million to proceed with its plan of operation for the next
12
months.
5. Disclosure in the tenth risk factor, MD&A, and the financial
statements` note 8 that SmartMetric has licensed "patent-pending"
technology is inconsistent with disclosure in the fifteenth risk
factor and elsewhere that a patent was granted on September 14.
2004.
Revise.
6. We note the response to prior comment 30. Since it appears
that
the amount of securities that may be purchased may be material,
provide risk factor disclosure.
Summary Financial Information
7. Correct the line item "net income (loss)" for the six months
ended
December 31, 2003 as it appears that the amount should be
($1,061).
Management`s Discussion and Analysis of Financial Condition
Plan of Operation
8. The plan of operation discussion assumes that SmartMetric will
sell the maximum offering. Discuss also with specificity
SmartMetric`s plan of operation assuming that SmartMetric sells
only
the minimum offering amount. For example, will the minimum
offering
amount be sufficient to cover SmartMetric`s costs of completing
the
prototype, beginning marketing, and covering working capital for
12
months? What amount is needed to accomplish these objectives?
9. Expand the discussion to indicate how much it will cost to
complete the SmartCard`s prototype.
Completion of Prototype
10. Update the disclosure that SmartMetric expects its SmartCard`s
prototype to be complete in the first quarter of 2005. Is this
completion date still realistic?
11. Disclose the significant terms of the agreement with the
engineering firm hired to design and manufacture a model of the
SmartCard.
Production of SmartCards
12. Disclosure in the first paragraph that SmartMetric "will begin
to
search" for one or more manufacturing facilities when it has
obtained
the completed prototype of the card is inconsistent with
disclosure
in the fourth paragraph that SmartMetric has located several
manufacturing facilities. Reconcile these apparent
inconsistencies,
and explain what SmartMetric means when it says that it has
"located"
several facilities. Does this mean that SmartMetric has simply
identified these facilities as possible manufacturers that it will
approach? Have any of these facilities expressed any interest in
manufacturing the SmartCards? Is SmartMetric in negotiations with
any of the facilities?
13. Elaborate on what SmartMetric means when it says that it
believes
available cash and sources of liquidity are sufficient to begin
operations in a "limited capacity." Disclosure elsewhere suggests
that SmartMetric will be unable to complete its prototype and
begin
marketing until it has received proceeds of this offering.
14. Since the technology upon which SmartMetric relies was
developed
and is owned indirectly by Mr. Colin Hendrick, discuss the nature
of
SmartMetric`s research and development costs. To the extent that
Mr.
Hendrick is the recipient of these amounts, disclose this in the
registration statement.
Business
15. Disclosure in this section`s second paragraph that Mr. Colin
Hendrick "has created" the SmartMetric biometric card appears
inconsistent with disclosure elsewhere that SmartMetric has yet to
produce a prototype of the card using the licensed technology.
Revise or advise.
16. Disclosure in this section`s second paragraph that Mr. Colin
Hendrick has applied for a United States and international patent
for
the biometric card and the technology in the card and that both
patents are pending is inconsistent with disclosure in the same
paragraph that a patent was granted for the technology on
September
14, 2004. Revise.
17. Clarify the need for and expected cost of additional research
and
development in this section`s third paragraph.
18. Refer to "The SmartMetric Biometric Card," "Fingerprint
Sensor,"
and "The SmartMetric SmartCard" subsections. Revise these
subsections to make the disclosure clear at the outset of each
subsection that SmartMetric is developing a credit card size
plastic
card embedded with an integrated circuit chip and biometric
fingerprint sensor and has not yet completed a prototype of the
card.
As drafted, a reader might conclude that the card exists.
The SmartMetric Biometric Card
19. To avoid confusion about how SmartMetric`s product works,
clarify
how the card will be used. For example, will the card be
installed
at secure points of access at a customer`s place of business so
that
an authorized person would touch the card for fingerprint
verification and access? Or is it a card that authorized persons
would carry with them and swipe to obtain access? What sort of
"card
acceptor device" that is referred to elsewhere in the registration
statement is required? Is the "card acceptor device" also in
development? How will the memory and computational capacities of
the
card be used?
Fingerprint Sensor
20. Disclosure in the first paragraph states that the fingerprint
sensor designed by Mr. Colin Hendrick is licensed to SmartMetric.
Clarify whether the fingerprint sensor is distinct from the
technology licensed to SmartMetric by Applied Cryptology, Inc., or
whether the fingerprint sensor and the technology are integrated
into
the SmartCard itself. If the fingerprint sensor is a separate
item,
clarify whether a prototype of the fingerprint sensor exists, the
degree to which product design has progressed, and whether further
engineering is necessary.
21. We note the response to prior comment 42. Clarify whether the
battery will be integrated into the card, or whether the battery
must
be purchased separately. If the battery will be integrated into
the
card or sold with the card, identify the third party manufacturer
of
the battery, and discuss any arrangements or agreements that
SmartMetric has with the manufacturer to supply it with batteries.
Otherwise, clarify that the battery must be purchased separately.
The SmartMetric SmartCard
22. Disclosure in the third paragraph that the printed circuit in
the
SmartMetric SmartCard conforms to ISO standard 7816/3 appears
inconsistent with disclosure elsewhere that SmartMetric has yet to
produce a prototype of the card. If the printed circuit is
distinct
from the card, explain how the printed circuit is distinct from
the
card. Clarify whether a prototype of the printed circuit exists,
the
degree to which product design has progressed, and whether further
engineering is necessary.
Competition
23. Clarify what the phrase "This is similar to SmartMetric`s
technology" means.
24. Clarify that SmartMetric does not have "an untested product"
because SmartMetric has yet to produce a prototype of a product.
Facilities
25. Refer to prior comment 47. Disclosure that SmartMetric will
look
for new office space after the public offering`s successful
completion is inconsistent with disclosure in the financial
statements` note 8 that SmartMetric will start paying rent for the
space provided by Mr. Colin Hendrick after the public offering`s
successful completion. Revise or advise.
26. We note the disclosure that SmartMetric executed a lease
agreement in November 2004. File the agreement as an exhibit to
the
registration statement. See Item 601(b)(10) of Regulation S-B.
Description of Securities
27. Since the terms of the class A common stock and the common
stock
are identical, explain why SmartMetric has a separate class of
common
stock. Since it appears that the class A common and the common
stock
vote together as a single class on all matters, the reason for the
two classes is even less apparent. Also address the other aspects
of
the class A common and the common stock that are required to be
disclosed by Item 202 of Regulation S-B, including rights to
dividends, preemption rights, and any other material rights of
stockholders.
28. Clarify whether the statement that SmartMetric`s current
shareholders will own 99.4% of the common shares after the minimum
offering and 93.6% of the common shares after the maximum offering
assumes that the selling shareholders will sell all of the shares
registered for resale.
Selling Shareholders
29. Refer to prior comment 50. Disclose here how the selling
shareholders acquired the shares of SmartMetric`s common stock
being
offered for resale. We note the disclosure under "Certain
Relationships and Related Transactions."
30. Refer to prior comment 54. As requested previously, indicate
by
footnote or otherwise the natural person or persons having sole or
shared investment control over the securities held by the non-
reporting entities listed in the table. For example, refer to
Byarmi
Pty Ltd and Zek Equity CIO Zeichner, Ellman & Krause LLP in pre-
effective amendment 2. Refer to telephone interpretation 4S. in
the
Regulation S-K section of the March 1999 supplement to our "Manual
of
Publicly Available Telephone Interpretations" that is available on
the Commission`s website at www.sec.gov.
31. It is unclear why footnote (41) appears with the name of
Kenneth
Bain in the table. We note the disclosure in footnote (42). It
is
unclear why footnote (39) appears with the name of James Willis in
the table. Revise.
32. The table and footnote (51) in pre-effective amendment 2 only
identify 500,000 shares of class A common stock that are being
offered for resale by Eisman Levine Lehrhaupt & Kakoyiannis PC.
Since three million shares of class A common stock are being
registered for resale, revise the table to include and identify
the
holders of the remaining 2,500,000 shares of class A common stock.
Consolidated Balance Sheets
33. We note that at December 31, 2004 you have patent costs of
$15,000 capitalized on your balance sheet. Revise your
disclosures
to clarify the nature of the patent costs that you have
capitalized.
Provide the disclosures required by paragraphs 44 and 45 of SFAS
142.
Address whether this patent relates to the patent applied for by
and
granted to Mr. Colin Hendrick, SmartMetric`s chief executive
officer.
It would appear to us that any amount paid to Mr. Hendrick in
excess
of his direct costs to acquire the patent should be recognized as
compensation to Mr. Hendrick as SmartMetric`s chief executive
officer.
Notes to Consolidated Financial Statements
34. We note that you have removed the financial information
included
in the audited notes to the financial statements for the year
ended
June 30, 2004 and the period of December 18, 2002 through June 30,
2003 that were disclosed as part of the SB-2 filed on September 3,
2004. Since these periods are still presented and are required in
the registration statement, re-insert the financial information
covered by these audited periods similar to what was provided in
the
initial SB-2 filing. Also, where you have provided updated note
disclosure related to the six months ended December 31, 2004,
indicate that this information is "unaudited."
35. Interim financial statements must include all adjustments
which
in the opinion of management are necessary to make the financial
statements not misleading. To the extent that this has been done,
include in your notes to the consolidated financial statements an
affirmative statement that the financial statements have been
adjusted as outlined in instruction 2 to Item 310(b) of Regulation
S-
B.
Note 3. Deferred Offering Costs
36. Disclose the nature of your deferred offering costs. It is
unclear to us that audit fees are direct offering costs. Audit
fees
are a recurring cost of being a public company and should be
recorded
as a period cost. Refer to SAB Topic 5A.
Note 5. Stockholders` Equity
37. Clarify the nature of the private placement costs, and
indicate
whether any amounts paid were to related parties.
Note 7. Planned Public Offering
38. Refer to prior comments 5 and 9. Revise the disclosure here
to
conform to disclosures elsewhere that SmartMetric is offering on a
best efforts basis a minimum of 333,333 shares and a maximum of
four
million shares of common stock and that selling shareholders are
offering 11,628,484 shares of common stock, three million of which
are class A common stock.
Recent Sales of Unregistered Securities
39. Identify the nine persons to whom SmartMetric sold 68,207
shares
in October and November 2004. See Item 701(b) of Regulation S-B.
Explain also how the offering was conducted, what materials and
communications were used, and what relationship, if any,
SmartMetric
had with the purchasers of the shares before filing the
registration
statement. It is our position that the filing of a registration
statement, in this case, the SB-2 on September 3, 2004,
constitutes a
general and public solicitation for the sale of shares of
SmartMetric`s common stock.
Exhibits
40. Refer to prior comment 63. As requested previously, include
an
exhibit index immediately before the exhibits. See Item 601(a)(2)
of
Regulation S-B.
Exhibit 4.6
41. Footnote (2) under "Item 27. Exhibits" states that the form of
escrow agreement was filed on September 3, 2004. Since a new form
of
escrow agreement was filed on February 3, 2005, revise the
footnote
in the next amendment to the registration statement.
42. Refer to prior comment 32. The proviso in section 2(d) of the
escrow deposit agreement appears inconsistent with the requirement
of
Rule 10b-9 that SmartMetric "promptly refund" the escrowed funds
if
it does not sell the minimum number of shares within the offering
period. As noted previously, we have taken the position that
"promptly" means the next business day or as soon as possible
after
the offering`s termination. Revise.
43. Confirm that schedule A to the exhibit is the schedule 1
specified in the fifth whereas clause.
Exhibit 5.1
44. Refer to prior comment 5. Revise the legality opinion to
indicate that three million of the shares being offered by the
selling shareholders are class A common stock. Also clarify that
counsel consents to being named as such in the registration
statement
under "Legal Matters."
Exhibit 10.1, License Agreement between SmartMetric and Applied
Cryptology, Inc.
45. Refer to prior comment 66. SmartMetric did not file exhibit A
to
the exhibit. Since SmartMetric does not intend to apply for an
order
granting confidential treatment, refile the exhibit in its
entirety.
46. As requested previously, confirm that no information is
deleted
from section 6.C.(i) of the exhibit.
47. Confirm that schedule A to the exhibit is the exhibit B
specified
in the first whereas clause.
48. Schedule A to the exhibit states that the issue date of U.S.
patent no. 6,325,285 is September 14, 2004. Tell us why schedule
A
to exhibit 10.1 that was filed on September 3, 2004 states that
the
issue date of U.S. patent no. 6,325,285 is December 4, 2001.
Exhibit 10.3, Agreement between SmartMetric and ISI
49. Refer to prior comment 66. SmartMetric did not refile the
exhibit and has not filed attachment A to the exhibit. Since
SmartMetric does not intend to apply for an order granting
confidential treatment, refile the exhibit in its entirety.
50. This agreement refers to a "Nondisclosure Agreement" that
SmartMetric entered into with ISI in August 2003. Tell us what
consideration SmartMetric has given to filing this agreement as an
exhibit to the registration statement. If the agreement is not
material, explain to us why that is the case.
Exhibit 23.2
51. Refer to prior comment 67. As noted previously, SmartMetric`s
independent public accountant must consent also to the use of his
name under "Experts" in the prospectus. See Rule 436 of
Regulation C
under the Securities Act, and revise. We note the disclosure
under
"Experts."
Exhibit 99.1
52. Disclosure that a check or money order is "payable to the
order
of SMARTMETRIC AND SIGNATURE BANK, AS ESCROW AGENT" is
inconsistent
with disclosure in section 1(a)(i) of exhibit 4.6 that SmartMetric
will have checks received from subscribers made "payable to the
order
of Signature Bank, as Escrow Agent for SmartMetric, Inc." Revise.
Signatures
53. Refer to prior comment 69. As noted previously, SmartMetric`s
principal financial officer and controller or principal accounting
officer also must sign the registration statement. Further, any
person who occupies more than one of the specified positions, for
example, principal financial officer and controller or principal
accounting officer, must indicate each capacity in which he signs
the
registration statement. See instructions 1 and 2 for signatures
on
Form SB-2, and revise.
September 30, 2004 and December 31, 2004 10-QSBs
Item 3. Controls and Procedures
54. Amend the September 30, 2004 and December 31, 2004 10-QSBs to
state when the evaluation of your disclosure controls and
procedures
were performed as provided in Item 307 of Regulation S-B.
55. Also revise Item 3 in both 10-QSBs to disclose whether there
were
any changes in your internal controls over financial reporting
identified in connection with the evaluation of your disclosure
controls and procedures as stated in Item 308(c) of Regulation S-
B.
Closing
File amendments to the SB-2 and the September 30, 2004 and
December 31, 2004 10-QSBs in response to the comments. To
expedite
our review, you may wish to provide us three marked courtesy
copies
of the amendments. Include with the filings any supplemental
information requested and a cover letter tagged as correspondence
that keys the responses to the comments. If you think that
compliance with any of the comments is inappropriate, provide the
basis in the letter. We may have additional comments after review
of
the amendments, the responses to the comments, and any
supplemental
information.
We urge all persons responsible for the accuracy and adequacy
of
the disclosure in the registration statement reviewed by us to
ensure
that they have provided all information investors require for an
informed decision. Since SmartMetric and its management are in
possession of all facts relating to the disclosure in the
registration statement, they are responsible for the adequacy and
accuracy of the disclosures that they have made.
If SmartMetric requests acceleration of the registration
statement`s effectiveness, SmartMetric should furnish a letter at
the
time of the request, acknowledging that:
* Should the Commission or the staff acting by delegated authority
declare the registration statement effective, it does not
foreclose
the Commission from taking any action on the filing.
* The action of the Commission or the staff acting by delegated
authority in declaring the registration statement effective does
not
relieve SmartMetric from its full responsibility for the adequacy
and
accuracy of the registration statement`s disclosures.
* SmartMetric may not assert our comments and the declaration of
the
registration statement`s effectiveness as a defense in any
proceeding
initiated by the Commission or any person under the United States`
federal securities laws.
The Commission`s Division of Enforcement has access to all
information that you provide us in our review of the registration
statement or in response to our comments on the registration
statement.
We will consider a written request for acceleration of the
registration statement`s effectiveness under Rule 461 of
Regulation C
under the Securities Act as confirmation that those requesting
acceleration are aware of their responsibilities under the
Securities
Act and the Exchange Act as they relate to the proposed public
offering of the securities specified in the registration
statement.
We will act on the request and by delegated authority grant
acceleration of the registration statement`s effectiveness.
You may direct questions on accounting comments to Dale
Welcome,
Staff Accountant, at (202) 942-2871 or Jeanne K. Baker, Assistant
Chief Accountant, at (202) 942-1835. You may direct questions on
other comments and disclosure issues to Edward M. Kelly, Senior
Counsel, at (202) 942-1978 or me at (202) 942-1950.
Very truly yours,
Pamela A. Long
Assistant Director
cc: Andrea I. Weinstein, Esq.
Schonfeld & Weinstein, L.L.P.
80 Wall Street, Suite 815
New York, NY 10005
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Mr. Colin Hendrick
March 3, 2005
Page 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
DIVISION OF
CORPORATION FINANCE