SmartMetric Inc. (SMME), the maker of biometric identification cards for the banking industry that once brought $13 billion in failed patent infringement claims against Visa and Mastercard International, is down to its last $50,832 and recently had to assign its patents to founder and CEO for $270,000 in back pay.

Las Vegas-based SmartMetric reported net losses of $983,063 and $1,710,001 for the six months ended December 31, 2014 and 2013 respectively, and has an accumulated deficit of $20.3 million as of Dec. 31, 2014

In a recent filing with the Securities and Exchange Commission, the company said “these conditions raise substantial doubt about the company’s ability to continue as a going concern.”

On Feb. 11, the company entered into a security agreement with founder and CEO Chaya Hendrick in which it granted her a continuing security interest in all of the company’s assets until the company repays all loans and accrued but unpaid salary owed to her. The total in loans and accrued but unpaid salary owed to Hendrick is $270,015. 

Meanwhile, SmartMetric is possibly facing $3 million in attorneys fees and costs being sought by Visa and Mastercard in U.S. District Court in the Central District of California as part of SmartMetric’s unsuccessful patent infringement case brought on July 27, 2010.

In October 2013, Judge Michael Fitzgerald ruled that Visa and Mastercard did not infringe on SmartMetric’s patent 6,792,464.

The patent in question is titled “System for Automatic Connection to a Network.”

SmartMetric said in the recent filing that it believes the motion for legal fees “is without merit because SmartMetric filed its suit in good faith, and has litigated the case in an objectively reasonable manner.”

Patrick Bright, a partner with the law firm Wagner Anderson & Bright PC in Glendale, Calif., who represents SmartMetric, couldn’t be reached for comment.

Gary Clark, a partner with the law firm of Sheppard Mullin Richter & Hampton in Los Angeles, who represents VISA and Mastercard, also couldn’t be reached.

Hendrick declined to comment on the expected outcome of Judge Fitzgerald’s ruling or how the company would pay for it.

Hendrick said although the $13 billion claim SmartMetric brought against Visa and Mastercard was a large figure, it “was based on a percentage of the savings from fraud mitigation.”

As such, Hendrick said it was “reasonable and modest” as a percentage of Visa’s and Mastercard’s overall business.

“We’re talking about two of the largest banking card companies in the world.”

Hendrick stressed that SmartMetric’s patents are still valid.

Despite this, however, Hendrick said the company has decided not to pursue more infringement actions and to focus instead on its business of manufacturing biometric cards and bringing the products to market.

Hendrick also declined to comment on the company’s capital raising plans, saying “we are well connected to Wall Street and well satisfied with our connections.”

She said the company has previously funded itself from private placements of equity. She also declined to comment on whether bankruptcy was a possibility.

Shares of SmartMetric currently trade at 5 cents, giving the company a market value of $8.46 million. The shares have traded between 3 cents and 24 cents over the past year

Hendrick founded SmartMetric in 2002 after assigning certain technology created by Applied Cryptography Inc., a company she controlled. The company went public in 2004

In consideration for the assignment of the patent, SmartMetric issued 200,000 shares of Series B convertible preferred stock to Applied Cryptography.

Under the agreement, Applied Cryptography may only convert these shares into common shares after providing 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 the patent is valued at $1 million or more.

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.

The company has said it 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. 

The company also has said it intends to market its biometric payments card directly to banks as well as forging marketing relationships with banking card industry companies.
  
SmartMetric has been hoping to sell its biometric card to banks as a state of the art protection against identity theft and financial fraud for $50 a card. 

“Discussions are being held concerning the offering by banks directly to their banking customers, the SmartMetric biometric protected card as a premium credit/debit card with a monthly premium card fee to the consumer set by the banks between $4.95 to $9.95 per month,” the company said in a filing.

SmartMetric recently put out an alarmist press release about identity theft to try to drum up interest in its biometric cards.

A Feb. 17 press release included the headline “$78 Billion Could Be Lost by Consumers from the Recent Anthem Insurance Data Theft Based on the Direct Link Between Data Theft and Identity Theft—Outdated Security Needs to be Replaced by Biometrics, Says SmartMetric.”

To reach the reporter responsible for this story, please contact Dan Lonkevich at 707 318-7899 or dan@thepatentinvestor.com