SmartMetric, Inc. - FORM 10-Q

Attached files

file	filename
EX-99.1 - EXHIBIT 99.1 PDF REFERENCE - SmartMetric, Inc.	ex991.pdf
EXCEL - IDEA: XBRL DOCUMENT - SmartMetric, Inc.	Financial_Report.xls
EX-31.1 - EXHIBIT 31.1 - SmartMetric, Inc.	ex311.htm
EX-99.1 - EXHIBIT 99.1 - SmartMetric, Inc.	ex991.htm
EX-31.2 - EXHIBIT 31.2 - SmartMetric, Inc.	ex312.htm
EX-32.2 - EXHIBIT 32.2 - SmartMetric, Inc.	ex322.htm
EX-32.1 - EXHIBIT 32.1 - SmartMetric, Inc.	ex3221.htm

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934.

For the quarterly period ended March 31, 2012

( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934.

For the transition period from to

Commission File No. 333-118801

SMARTMETRIC, INC.
(Exact name of small business issuer as specified in its charter)

Nevada	05-0543557
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

1150 Kane Concourse, Suite 400, Bay Harbor Islands, FL 33154
(Address of principal executive offices)

(305) 495-7190
(Issuer’s telephone number)

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 x 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 x No ¨

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	¨	Smaller reporting company	x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of May 15, 2012, there were 118,724,672 shares issued and outstanding of the registrant’s common stock.

INDEX

		Page

PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed consolidated balance sheets as of March 31, 2012 (unaudited) and June 30, 2011	F-1
	Condensed consolidated statements of operations for the three and nine months ended March 31, 2012 and 2011 (unaudited) and for the period from December 18, 2002 (inception) through March 31, 2012 (unaudited)	F-2
	Condensed consolidated statements of changes in stockholders’ equity (deficit) for the period December 18, 2002 (inception) through March 31, 2012 (unaudited)	F-3
	Condensed consolidated statements of cash flows for the nine months ended March 31, 2012 and 2011 (unaudited) and for the period from December 18, 2002 (inception) through March 31, 2012 (unaudited)	F-7
	Notes to condensed consolidated financial statements (unaudited)	F-8 - F-21
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	9
Item 4.	Controls and Procedures	9

PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	10
Item 1A.	Risk Factors	10
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	10
Item 3.	Defaults Upon Senior Securities	10
Item 4.	Mine Safety Disclosures	10
Item 5.	Other Information	10
Item 6.	Exhibits	10
	Signatures	11

PART I — FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

SMARTMETRIC, INC. AND SUBSIDIARY
(A Development Stage Company)
Condensed Consolidated Balance Sheets
(Unaudited)


	March 31,			June 30,
	2012			2011
	(unaudited)
Assets
Current assets:
Cash	$	826,900		$	272,599
Prepaid expenses and other current assets		121,280			948,750

Total current assets		948,180			1,221,349

Other assets:
Patent costs, less accumulated amortization
of $11,250 and $10,125, respectively		3,750			4,875

Total assets	$	951,930		$	1,226,224

Liabilities and Stockholders' Equity (Deficit)

Current liabilities:
Accounts payable and accrued expenses	$	92,075		$	80,882
Liability for stock to be issued		196,744			1,162,663
Deferred Officer salary		79,026			65,294
Shareholder loan		1,422			12,422
Payroll taxes and related fees		20,296			179,964

Total current liabilities		389,563			1,501,225


Stockholders' equity (deficit):
Preferred stock, $.001 par value; 5,000,000 shares
authorized, 200,000 shares issued and outstanding		200			200
Common stock, $.001 par value; 100,000,000 shares
authorized, issued and outstanding 116,254,798 and
101,702,335 shares, respectively		116,255			101,702
Additional paid-in capital		11,025,799			8,189,561
Deficit accumulated during the development stage		(10,579,887	)		(8,566,464	)

Total stockholders' equity (deficit)		562,367			(275,001	)

Total liabilities and stockholders' equity (deficit)	$	951,930		$	1,226,224

See notes to condensed consolidated financial statements.

F-1

SMARTMETRIC, INC. AND SUBSIDIARY
(A Development Stage Company)
Condensed Consolidated Statements of Operations
(unaudited)


													During the
													Development
													Stage
													(December
	Three Months Ended						Nine Months Ended						18, 2002 to
	March 31,						March 31,						March 31,
	2012			2011			2012			2011			2012

Revenues	$	-		$	-		$	-		$	-		$	-

Expenses:
Officer's salary		42,500			42,500			127,500			127,500			1,232,500
Other general and administrative		461,971			288,305			1,653,859			862,574			7,830,890
Research and development		84,211			251,365			232,064			263,067			1,454,671

Total operating expenses		588,682			582,170			2,013,423			1,253,141			10,518,061

Loss from operations		(588,682	)		(582,170	)		(2,013,423	)		(1,253,141	)		(10,518,061	)

Interest income		-			-			-			-			657
Interest expense		-			(3,314	)		-			(10,411	)		(62,483	)

Loss before income taxes		(588,682	)		(585,484	)		(2,013,423	)		(1,263,552	)		(10,579,887	)

Income taxes		-			-			-			-			-

Net loss	$	(588,682	)	$	(585,484	)	$	(2,013,423	)	$	(1,263,552	)	$	(10,579,887	)

Net loss per share, basic and diluted	$	(0.01	)	$	(0.01	)	$	(0.02	)	$	(0.01	)

Weighted average number of common
shares outstanding, basic and diluted		108,143,668			90,937,957			106,571,596			94,286,702

See notes to condensed consolidated financial statements.

F-2

SMARTMETRIC, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statement of Changes In Stockholders' Equity (Deficit)
For The Period From December 18, 2002 (Inception) Through December 31, 2011


	Preferred Stock				Class A Common Stock				Common Stock				Additional Paid-in			Deficit Accumulated During Development
	Shares		Amount		Shares		Amount		Shares		Amount		Capital			Stage			Total

Balance,
December 18,
2002		-	$	-		-	$	-		-	$	-	$	-		$	-		$	-

Net loss for the
period December
18, 2002
(inception)
through June
30, 2003		-		-		-		-		-		-		-			(60	)		(60	)

Balance
June 30, 2003		-		-		-		-		-		-		-			(60	)		(60	)

Shares issued of
Class A Common
stock		-		-		50,000,000		50,000		-		-		-			-			50,000

Shares issued of
common stock
for cash		-		-		-		-		8,560,257		8,560		77,042			-			85,602

Net loss for the
year		-		-		-		-		-		-		-			(35,978	)		(35,978	)

Balance, June 30,
2004		-		-		50,000,000		50,000		8,560,257		8,560		77,042			(36,038	)		99,564

Costs associated
with sale of
common stock
subject to
possible
rescission		-		-		-		-		-		-		(95,877	)		-			(95,877	)

Net loss for the
year		-		-		-		-		-		-		-			(258,355	)		(258,355	)

F-3

Balance June 30,
2005	-	-	50,000,000		50,000		8,560,257	8,560	(18,835	)	(294,393	)	(254,668	)

Shares issued of
common stock
for cash, net of
offering
costs of $138,509	-	-	-		-		936,112	936	1,197,361		-		1,198,297

Shares issued of
common stock
for services
rendered	-	-	-		-		20,000	20	19,980		-		20,000

Conversion of
loan payable
and accrued
interest to
common shares	-	-	-		-		40,000	40	62,360		-		62,400

Conversion of
Class A common
shares to
common shares	-	-	(50,000,000	)	(50,000	)	50,000,000	50,000	-		-		-

Net loss for the
year	-	-	-		-		-	-	-		(1,225,045	)	(1,225,045	)

Balance June 30,
2006	-	-	-		-		59,556,369	59,556	1,260,866		(1,519,438	)	(199,016	)

Shares issued of
common stock
for cash	-	-	-		-		1,208,887	1,209	759,140		-		760,349

Shares issued of
common stock
for services
rendered	-	-	-		-		191,505	192	(192	)	-		-

Net loss for the
year	-	-	-		-		-	-	-		(1,050,189	)	(1,050,189	)

F-4

Balance June 30,
2007	-	-	-	-	60,956,761	60,957	2,019,814		(2,569,627	)	(488,856	)

Shares issued of
common stock
for cash	-	-	-	-	6,629,634	6,629	1,293,595		-		1,300,224

Shares issued of
common stock
for services
rendered	-	-	-	-	2,327,000	2,327	471,073		-		473,400

Net loss for the
year	-	-	-	-	-	-	-		(1,397,056	)	(1,397,056	)

Balance June 30,
2008	-	-	-	-	69,913,395	69,913	3,784,482		(3,966,683	)	(112,288	)

Transfer of
shares from
temporary equity
to common stock	-	-	-	-	160,837	161	241,095		-		241,256

Shares issued of
common stock
for cash	-	-	-	-	4,412,596	4,413	438,931		-		443,344

Shares issued of
common stock
for services
rendered	-	-	-	-	1,059,394	1,059	104,880		-		105,939

Net loss for the
year	-	-	-	-	-	-	-		(1,103,089	)	(1,103,089	)

Balance June 30,
2009	-	-	-	-	75,546,222	75,546	4,569,388		(5,069,772	)	(424,838	)

Shares issued
for patent	200,000	200	-	-	-	-	(200	)	-		-

Shares issued of
common stock
for cash	-	-	-	-	8,808,000	8,808	431,592				440,400

Shares issued of
common stock
for services
rendered	-	-	-	-	4,858,333	4,858	395,556		-		400,414

Warrants issued
for services							337,750				337,750

Net loss for the
year	-	-	-	-	-	-	-		(1,611,652	)	(1,611,652	)

Balance June 30,
2010	200,000	200	-	-	89,212,555	89,212	5,734,086		(6,681,424	)	(857,926	)

F-5

Shares issued of
common stock and
warrants for cash	-		-	-		-	10,264,030		10,264		2,132,744		-			2,143,008

Shares issued of
common stock
for services
rendered	-		-	-		-	2,225,750		2,226		176,073		-

Net loss for the
year	-		-	-		-	-		-		-		(2,312,656	)		(2,312,656	)

Balance June
30, 2011	200,000		200	-		-	101,702,335		101,702		8,189,561		(8,566,464	)		(275,001	)


Shares issued of
common stock and
warrants for cash	-		-	-		-	2,512,500		2,513		866,612		-			869,125

Net loss for the
period	-		-	-		-	-		-		-		(883,157	)		(883,157	)

Balance September
30, 2011	200,000		200	-		-	104,214,835		104,215		9,056,173		(9,449,621	)		(289,033	)


Shares issued of
common stock and
warrants for cash	-		-	-		-	706,430		706		264,515		-			265,221


Net loss for the
period	-		-	-		-	-		-		-		(541,584	)		(541,584	)

Balance December
31, 2011	200,000		200	-		-	104,921,265		104,921		9,320,688		(9,991,205	)		(565,396	)


Shares issued of
common stock and
warrants for cash	-		-	-		-	10,567,820		10,568		1,602,996		-			1,613,564

Shares issued of
common stock
for services
rendered	-		-	-		-	765,713		766		102,115		-			102,881


Net loss for the
period	-		-	-		-	-		-		-		(588,682	)		(588,682	)

Balance March
31, 2012	200,000	$	200	-	$	-	116,254,798	$	116,255	$	11,025,799	$	(10,579,887	)	$	562,367

F-6

SMARTMETRIC, INC. AND SUBSIDIARY
(A Development Stage Company)
Condensed Consolidated Statements of Cash Flows
(unaudited)



							During the
							Development
							Stage
	NINE MONTHS ENDED						(December
							18, 2002 to
	MARCH 31,						March 31,
	2012			2011			2012

CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(2,013,423	)	$	(1,263,552	)	$	(10,579,887	)

Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation		-			-			15,984
Amortization		1,125			1,125			11,250
Common stock and warrants issued for services		102,881			177,299			2,248,083
Interest accrued on convertible notes payable		-			-			2,400

Changes in assets and liabilities
(Increase) decrease in prepaid expenses		827,470			(5,000	)		(121,280	)
Increase (decrease) in accounts payable and accrued expenses		11,193			(51,556	)		92,075
Increase in deferred officer's salary		13,732			7,952			79,026
Increase (decrease) in payroll taxes,withholdings and accrued interest and penalties		(159,668	)		(51,518	)		20,296

Net cash used in operating activities		(1,216,690	)		(1,185,250	)		(8,232,053	)


CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of equipment		-			-			(15,984	)
Patent costs		-			-			(15,000	)
Net cash used in investing activities		-			-			(30,984	)



CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable		-			-			60,000
Cash overdraft		-			(15,141	)		-
Loans from related parties		-			(7,494	)		74,343
Repayments of loans from related parties		(11,000	)		-			(72,921	)
Proceeds from sale of common stock		1,781,991			344,706			8,831,771
Liability for stock to be issued		-			1,436,756			196,744

Net cash provided by financing activities		1,770,991			1,758,827			9,089,937

NET INCREASE IN
CASH		554,301			573,577			826,900

CASH
BEGINNING OF PERIOD		272,599			-			-

END OF PERIOD	$	826,900		$	573,577		$	826,900

CASH PAID DURING THE YEAR FOR:
Income taxes	$	-		$	-		$	-
Interest expense	$	-		$	10,411		$	34,019

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Issuance of common stock in satisfaction of liability to issue common stock	$	-		$	146,454		$	300,458
Warrants issued for prepaid consulting services	$	-		$	-		$	146,658
Conversion of notes payable and accrued interest to common stock	$	-		$	-		$	62,400
Issuance of preferred stock and reduction of additional paid in capital for patent	$	-		$	-		$	200
Stock issued for prepaid consulting services	$	-		$	-		$	1,124,088

See notes to condensed consolidated financial statements.

F-7

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Regulations S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of the management of the Company, the accompanying unaudited financial statements contain all the adjustments (which are of a normal recurring nature) necessary for a fair presentation. Operating results for the nine months and three months ended March 31, 2012 are not necessarily indicative of the results that may be expected for the year ending June 30, 2012. For further information, refer to the financial statements and the footnotes thereto contained in the Company’s Annual Report on Form 10-K for the year ended June 30, 2011, as filed with the Securities and Exchange Commission.

Going Concern

As shown in the accompanying condensed consolidated financial statements the Company has incurred recurring losses of $2,013,423 and $1,263,552 for the nine months ended March 31, 2012 and 2011 respectively, and has incurred a cumulative loss of $10,579,887 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 condensed consolidated financial statements do not include any adjustments relating to the carrying amounts of recorded assets or the carrying amounts and classification of recorded liabilities that may be required should the Company be unable to continue as a going concern.

F-8

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Development Stage Company

The Company is considered to be in the development stage as defined in ASC 915-10, "Accounting and Reporting by Development Stage Enterprises". The Company has devoted substantially all of its efforts to the development of its technology. Additionally, the Company has allocated a substantial portion of its time and investment in bringing its services to the market, and the raising of capital.

Principles of Consolidation

The condensed 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 over FDIC insured limits exposes the Company to cash concentration risk. The Company has no cash equivalents.

Fair Value of Financial Instruments

The carrying amounts reported in the condensed consolidated balance sheet for cash, accounts payable, and accrued expenses including payroll withholdings, interest and penalties approximate fair value because of the immediate or short-term maturity of these financial instruments.

ASC 820 defines fair value, provides a consistent framework for measuring fair value under generally accepted accounting principles and expands fair value financial statement disclosure requirements. ASC 820’s valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect our market assumptions. ASC 820 classifies these inputs into the following hierarchy:

F-9

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Level 1 inputs: Quoted prices for identical instruments in active markets.

Level 2 inputs: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3 inputs: Instruments with primarily unobservable value drivers.

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.

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

ASC 740-10 “Accounting for Uncertainty in Income Taxes” (“ASC 740-10”) requires 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 March 31, 2012 no accrual for income taxes is necessary.

Advertising Costs

The Company will expense the cost associated with advertising as incurred.

Equipment

Equipment is stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets 3 - 5 years.

F-10

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Impairment of Long-Lived Assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. The Company does not perform a periodic assessment of assets for impairment in the absence of such information or indicators. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or a significant adverse change that would indicate that the carrying amount of an asset or group of assets is not recoverable. For long-lived assets to be held and used, the Company recognizes an impairment loss only if its carrying amount is not recoverable through its undiscounted cash flows and measures the impairment loss based on the difference between the carrying amount and estimated fair value.

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 condensed 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 compensation expense for its employee stock based compensation under ASC 718-10 “Share-Based Payments” (“ASC 718-10”) and for its nonemployee stock based compensation under ASC 505-50 “Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services” (“ASC 505-50”). The fair value of the option issued is used to measure the transaction, 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 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 2012 and 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-11

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 4 - PATENT COSTS

Patent costs as of March 31, 2012 and June 30, 2011 are summarized as follows:

	Estimated Useful Lives ( Years)		March 31, 2012			June 30, 2011

Legal fees paid in connection with patent Applications		10	$	15,000		$	15,000

Less: accumulated amortization				(11,250	)		(10,125	)
Patent costs, net			$	3,750		$	4,875

Amortization expense was $1,125 and $1,125 for the nine months ended March 31, 2012 and 2011, respectively.

NOTE 5 - COMMITMENTS

Patent License Agreement

Effective August 1, 2004, the Company executed a license agreement with Applied Cryptography, Inc. (“ACI”), a corporation controlled by the Company’s president and the owner of certain technology. Pursuant to the license agreement, the Company has the right to make use of this technology for the purpose of developing software and systems to be used by the Company to provide any or all of the following: 1) secure transactions over the Internet from home and office computers; 2) an automatic method for connecting to remote computers; 3) a method of developing targeted advertising to home and/or office computers; and 4) identity verification and access control as provided for in the patent. Pursuant to this license agreement, ACI is to receive 2% of all revenues generated by the Company on products which utilize this patented technology. The license fee is to be paid within 45 days of the end of each quarter. In the event no revenues are generated through the use of any of the licensed patents during a given quarter, no money shall be owed ACI for such quarter. ACI has the right to rescind the license agreement and reclaim all rights and interest in the patents if certain events, such as the Company’s filing for bankruptcy protection or reorganization, occur. The license agreement remains in effect for the lives of the patents. The Company may utilize the technological applications anywhere in the world without limitation. Upon execution of the Assignment and Assumption Agreement on December 11, 2009 (see Note 6), the Patent License Agreement was terminated.

F-12

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 5 - COMMITMENTS (CONTINUED)

Lease Agreement

The Company leases office space in Bay Harbor Islands, Florida under a month to month agreement, and a manufacturing facility in Buenos Aires, Argentina under a long-term lease agreement. In February 2012, the company entered into a facilities lease for its manufacturing activities. The lease term is from February 1, 2012 through January 31, 2015. Rent expense under all leases for the nine months ended March 31, 2012 and 2011 was $22,890 and $15,600 respectively. Total minimum future rental payments under all leases with terms in excess of one year are as follows:

Year ending June 30,	Amount

2012	$	18,876
2013		77,077
2014		80,931
2015		48,558
Total	$	225,442

Related Party Transactions

The Company’s president has made cash advances to the Company with an aggregate amount due of $1,422 and $12,422 as of March 31, 2012 and June 30, 2011, respectively. These advances bear interest at 5.00% per annum.

The Company has accrued the amount of $79,026 as deferred Officer salary for the difference between its president’s $170,000 annual salary and the cumulative amount paid.

Payroll Taxes

The Company has accrued the sum of $20,296 and $179,964 as of March 31, 2012 and June 30, 2011, respectively, for payroll tax liabilities, inclusive of principal, interest and penalties. This liability resulted from the Company’s inability to pay the federal withholding tax, social security withholding tax and related company portion and the medicare withholding tax and related company portion. The portion of the liability representing past-due payroll taxes, interest and penalties was satisfied on March 30, 2012.

F-13

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 6 - STOCKHOLDERS’ EQUITY (DEFICIT)

Preferred Stock

As of March 31, 2012, the Company has 5,000,000 shares of preferred stock, par value $0.001, authorized and 200,000 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 (see Note 5) 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.

In connection with the Assignment and Assumption Agreement, the Company and ACI entered into an option agreement pursuant to which the Company agreed to grant ACI an option to purchase the Patent from the Company for 100,000 shares of Series B Convertible Preferred Stock, only in the event that the Company fails to generate at least $1,000,000 in gross revenues attributable to the Patent at the conclusion of 24 months from the date of the Assignment and Assumption Agreement, December 11, 2011.

F-14

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 6 - STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED)

As of December 11, 2011, the Company has not generated the minimum revenue amount under the Assignment and Assumption Agreement. As a result, ACI has the right to exercise its option to purchase the Patent from the Company. If ACI exercises its option to purchase the Patent, the Company may be unable to continue to develop and manufacture the SmartMetric Biometric Datacard without first entering into an arrangement with ACI for the right to use the Patent, the terms of which may be unfavorable to the Company. As of March 31, 2012 ACI has given no intention that it intends to exercise its option to purchase the patent.

In accordance with Staff Accounting Bulletin (“SAB”) topic 5G “Transfers of Non-monetary Assets by Promoters and Shareholders” the Company has determined that the Patent has no value at this point and has recorded the transaction to issue the 200,000 shares of Series B Convertible Preferred Stock at $0.

Class A Common Stock

As of March 31, 2012, the Company has 50,000,000 shares of Class A common stock, par value $0.001, authorized and no shares issued and outstanding. The Company in October 2003 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 February and May 2006.

Common Stock

The Company was incorporated on December 18, 2002, with 45,000,000 shares, par value $0.001. In 2006, the Company amended their articles of incorporation to increase the 45,000,000 shares to 100,000,000 shares. In 2009, the Company further increased the authorized shares to 200,000,000.

As of March 31, 2012, the Company has 116,254,798 shares of common stock issued and outstanding.

From October 2003 to June 2004, the Company issued 8,560,257 shares to investors at $0.01 for $85,602.

From August 2005 to February 2006, the Company sold a total of 743,648 shares of common stock at $1.50 per share in its public offering resulting in gross proceeds of $1,115,472. The net proceeds to the Company after deducting $138,471 in offering costs, was $977,001.

From May 2006 to June 2006, the Company sold a total of 192,464 units at $1.15 per Unit in private placements resulting in gross proceeds of $221,334 and net proceeds of $221,296. Each unit consisted of one share of common stock and one warrant exercisable for 12 months from the date of issue into one share of common stock at $1.50 per share.

F-15

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 6 - STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED)

Common Stock (Continued)

In July 2006, the Company sold a total of 56,522 units at $1.15 per Unit in private placements resulting in net proceeds of $65,000. In August and September 2006, the Company sold a total of 128,377 units at prices ranging between $0.60 to $0.79 per unit in private placements resulting in net proceeds of $83,558. In the three months ended December 31, 2006, the Company sold a total of 344,115 units at prices ranging from $0.48 to $1.00 per unit in private placements resulting in net proceeds of $229,284. In the six months ended March 31, 2007, the Company sold a total of 297,228 Units at prices ranging from $0.55 to $1.00 per unit in private placements resulting in net proceeds of $200,641. In the three months ended June 30, 2007, the Company sold a total of 382,645 units at prices ranging from $0.36 to $0.56 per unit in private placements resulting in net proceeds of $181,866. Each unit consisted of one share of common stock and one warrant exercisable for 12 months from the date of issue into one share of common stock at $1.50 per share.

In the year ended June 30, 2007, the Company also authorized the issuance of a total of 82,893 Units to various parties for services rendered relating to the public offering and the private placements and a total of 108,612 shares of common stock to various parties relating to the financings.

In the three months ended September 30, 2007, the Company sold a total of 903,813 units at prices ranging from $0.30 to $0.34 per unit in private placements resulting in net proceeds of $297,633. In the three months ended December 31, 2007, the Company sold a total of 332,500 units at prices ranging from $0.20 to $0.25 per unit in private placements resulting in net proceeds of $64,284. In the three months ended March 31, 2008, the Company sold a total of 1,042,300 units at a price of $0.20 per unit in private placements resulting in net proceeds of $207,967. In the three months ended June 30, 2008, the Company sold a total of 2,961,203 units at prices ranging from $0.20 to $0.25 per unit in private placements resulting in net proceeds of $597,542. Each unit consisted of one share of common stock and one warrant exercisable for 12 months from the date of issue into one share of common stock at $1.00 per share.

On March 25, 2008, the Company sold 200,000 shares of its common stock at a price of $0.10 per share resulting in net proceeds of $20,000. In the year ended June 30, 2008, the Company sold 1,189,818 shares of its common stock at prices ranging from $0.07 to $0.13 per share resulting in net proceeds of $112,798.

In the three months ended September 30, 2007, the Company authorized the issuance of a total of 80,000 shares, valued at $24,000 to non-officer directors of the Company for services rendered.

On January 14, 2008, the Company issued a total of 2,107,000 shares of its common stock, valued at $421,400 to its attorney and two consultants for services rendered. On February 26, 2008, the Company issued 140,000 shares of common stock, valued at $28,000 to its attorney for services rendered.

F-16

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 6 - STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED)

Common Stock (Continued)

In the year ended June 30, 2009, the Company issued 1,059,394 shares of stock for services rendered valued at $105,939; 662,027 shares of common stock in private placements at prices ranging from $0.08 to $0.10 resulting in net proceeds of $49,587; and 3,750,569 units at a price of $0.10 resulting in net proceeds of $393,757. Each unit consisted of one share of common stock and one warrant exercisable for 12 months from the date of issue into one share of common stock at $1.00 per share.

In the year ended June 30, 2010, the Company has received $154,004 of stock subscriptions for 1,540,040 shares which has been recorded as a liability for stock to be issued. In addition, the Company issued 3,000,000 shares of common stock for investor relations services on November 9, 2009 at a value of $300,000 ($0.10 per share), and 525,000 shares for consulting services on December 15, 2009 at a value of $34,125 ($0.065 per share). The Company issued 1,333,333 shares of common stock for legal services on April 28, 2010 at a value of $66,289 ($0.05 per share). The related expense is included in other general and administrative expenses in the consolidated statement of operations. The company issued 44,795 units in private placements at a price of $0.05 per share and $10.00 per unit, representing 8,959,000 shares and net proceeds of $446,750.

In the three months ended September 30, 2010, the Company sold 8,737 units (representing 1,747,513 shares and 436,850 warrants) during the three month period ending September 30, 2010, at prices ranging from $10.00 to $20.00 per Unit. Each unit consisted of 200 shares of common stock and 50 warrants exercisable for 12 months from the date of issue into one share of common stock at $0.50 per share. In addition, the Company sold 625,000 shares of common stock in a private placement at a price of $0.04 per share.

In the three months ended December 31, 2010, the Company sold 18,855 units (representing 3,770,953 shares and 942,772 warrants) during the three month period ending December 31, 2010, at prices ranging from $26.00 to $245.00 per unit for net proceeds of $1,205,769. Each unit consisted of 200 shares of common stock and 50 warrants exercisable for twelve months from date of issue into one share of common stock at $0.50 per share. The Company sold 587,110 shares of common stock in private placement resulting in net proceeds of $41,000. In addition, the Company issued 1,225,750 shares of common stock for legal and consulting services, at a value of $177,299 (0.145 per share).

From January 1, 2011 to February 28, 2011, the Company sold 3,908 units (representing 781,617 shares and warrants to purchase 195,406 shares), at prices ranging from $53.66 to $96.00 per unit for net proceeds of $336,622. Each unit consisted of 200 shares of common stock and 50 warrants exercisable for 12 months from the date of issue into one share of common stock at $0.50 per share. Effective March 1, 2011, the Company changed its units to consist of 25,000 shares and one six-month warrant to purchase an additional 25,000 shares at $0.80 per share. The Company sold 4.96 of these units during March, 2011 at a price of $10,000 per Unit for net proceeds of $49,437.

F-17

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 6 - STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED)

Common Stock (Continued)

During the three month period ending June 30, 2011, the Company sold 25 units (representing 580,000 shares and warrants to purchase 585,000 shares), at prices ranging from $6,000 to $10,000 per unit for net proceeds of $213,850. Certain units consisted of 25,000 shares and one six month warrant to purchase an additional 25,000 shares at $0.80 per share. Other units consisted of 6,000 shares and a twelve month warrant to purchase 6,000 shares at $0.80 per share. In addition, the Company has incurred a liability to issue shares for legal and other services of $874,624 ($0.0541 to $0.42636 per share).

In the three months ended June 30, 2011, the Company issued 1,000,000 shares of common stock for services rendered at a value of $282,730 (0.28273 per share).

In the three months ended September 30, 2011, the Company issued 2,512,500 shares for legal and consulting services valued at $869,125. These issued shares represent legal services of $27,767 in the current period and satisfaction of the liability to issue 1,000,000 shares with an aggregate value of $841,358.

During the three months ended September 30, 2011, the Company sold 66.894 units representing 3,344,721 shares and twelve month warrants to purchase an additional 3,344,721 shares at $0.80 per share for net proceeds of $668,113. Each unit was offered at $10,000 and consisted of 50,000 shares and one twelve month warrant to buy an additional 50,000 shares at $0.80 per share.

During the three months ended December 31, 2011 the Company sold 11.5 units representing 575,000 shares and twelve month warrants to purchase an additional 575,000 shares at $0.80 per share for net proceeds of $114,800. Each unit was offered at $10,000 and consisted of 50,000 shares and one twelve month warrant to buy an additional 50,000 shares at $0.80 per share.

In the three months ended March 31, 2012, the Company issued 765,713 shares for legal and consulting services valued at $102,881.

During the three months ended March 31, 2012, the Company sold 149.96 units representing 7,498,099 shares and twelve month warrants to purchase an additional 7,498,099 shares at $0.80 per share for net proceeds of $999,059. Units were offered at $5,000 and $10,000 and consisted of 50,000 shares and one twelve month warrant to purchase an additional 50,000 shares at $0.80 per share.

Warrants

The Company granted from time to time warrants with terms of one-year and of six months in connection with private placements at various prices as noted herein.

The Company issued warrants to purchase 1,000,000 shares of its common stock at an exercise price of $0.50 per share in June 2011 as partial consideration for a consulting agreement. These warrants expire on June 3, 2012.

F-18

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 6 - STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED)

Warrants (Continued)

In addition, the Company executed a warrant agreement with an investor relations company for 5,000,000 warrants to be issued in two tranches. The first tranche of 2,500,000 warrants (the “October warrants”) has been issued in October 2009, and the second tranche of 2,500,000 warrants has been issued on March 31, 2010 (the “March warrants”). The October warrants expire October 25, 2012, and have strike prices as follows: 1,000,000 at $0.10 per share; 1,000,000 at $0.15 per share; and 500,000 at $0.20 per share. The March warrants expire March 29, 2013, and have strike prices as follows: 500,000 at $0.20 per share; 1,000,000 at $0.25 per share; and 1,000,000 at $0.30 per share. As of December 31, 2011 and June 30, 2011, the following is a breakdown of the activity:

March 31, 2012:

Outstanding - beginning of period	8,279,028
Issued	11,417,820
Exercised	-
Expired	(2,099,068	)

Outstanding - end of period	17,597,780

June 30, 2011:

Outstanding - beginning of period	7,239,750
Issued	3,279,028
Exercised	-
Expired	(2,239,750	)

Outstanding - end of period	8,279,028

At March 31, 2012, all of the 17,597,780 warrants are vested and 12,597,780 warrants expire at various times through March 31, 2013; 2,500,000 warrants expire on October 25, 2012 and 2,500,000 warrants expire on March 31, 2013. The Company valued the June 2011 warrants using the Black-Scholes method with the following criteria: stock price $0.28; strike price $0.50; volatility 178.82% and interest rate 0.18%. The criteria yielded an option value of $0.15 resulting in a value of $146,658. The Company valued the October warrants using the Black-Scholes method with the following criteria: stock price $0.10; strike price $0.10, $0.15 and $0.20 (as noted above); volatility 249.75%; and interest rate 0.34%. The criteria yielded option values of $0.097 and $0.096, resulting in a value of $242,500 for the 2,500,000 warrants. The criteria used to value the 2,500,000 warrants for the March 2010 tranche was: stock price $0.04; strike price $0.20, $0.25 and $0.30 (as noted above); volatility 266% and interest rate of 5.0%. The criteria yielded option values of $0.0383, $0.0381 and $0.0380, resulting in a value of $95,250 for the 2,500,000 warrants. The expense has been included in other general and administrative expenses in the consolidated statement of operations.

F-19

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 7 - INCOME TAXES

The Company provides for income taxes at the end of each interim period based on the estimated effective tax rate for the full fiscal year. Cumulative adjustments to the Company’s estimate are recorded in the interim period in which a change in the estimated annual effective rate is determined.

The Company has estimated its effective tax rate to be 0%, based primarily on losses incurred and the uncertainty of realization of the tax benefit of such losses.

NOTE 8 - LITIGATION

On July 27, 2010, the Company filed a second amended complaint (the “Visa and Mastercard Complaint”) in the United States District Court, Central District of California (the “Court”), Case No. 2:10-cv-01864, against MasterCard, Inc. and Visa, Inc. alleging patent infringement on the Company’s patent, U.S. Patent 6,792,464 (the “’464 Patent”) (the “Visa and Mastercard Case”).

On December 7, 2010, the Company filed a complaint (the “AMEX Complaint”) in the Court, Case No. CV10-9371 JHN (MANx), against American Express Company (“AMEX”) alleging patent infringement on the 464 Patent (the “AMEX Case”).

On June 20, 2011, the Court entered a judgment of non-infringement in both the Visa and Mastercard Case and the AMEX Case based on the Court’s construction of certain of the disputed phrases of the asserted claims of the 464 Patent (the “Judgment”).

On June 30, 2011, the Company filed a Notice of Appeal to the Judgment in the AMEX Case against what the Company believes to be erroneous definition and limitations placed on the 464 patent as a result of wrongful interpretation. On July 1, 2011, the Company filed a Notice of Appeal to the Judgment in the Visa and Mastercard Case against what the Company believes to be erroneous interpretation of definitions and limitations placed on the 464 patent by the Court.

On August 29, 2011, the Company filed a complaint in the United States District Court, Central District of California, against Master Card, Inc. (“MasterCard”) and Visa, Inc. (“Visa”) alleging patent infringement on the 464 patent. The Company is seeking the following relief from MasterCard and Visa:

1.	For an order pursuant to 35 U.S.C. section 271 declaring that both MasterCard and Visa have infringed one or more claims of the ‘464 Patent;
2.	A preliminary and permanent injunction against both MasterCard and Visa prohibiting each of them from further infringement of the ‘464 Patent;
3.	An award of actual damages the Company has suffered by reason of the infringement charged in the complaint in an amount not less than a reasonable royalty on both MasterCard’s and Visa’s infringement of the ‘464 Patent:
4.	An award to the Company of its costs; and
5.	Such other relief as the Court may deem just and proper.

F-20

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 8 - LITIGATION (CONTINUED)

In the earlier actions against VISA, MasterCard, and American Express, the United States District Court mandated the Company to narrow its complaint exclusively to patent infringement from Defendants’ revenues from “contactless” credit card/pay systems. In its Company’s Second Amended Complaint , the Court stated:

MasterCard and Visa are infringing … the ‘464 patent in this judicial district by selling, offering to sell and using contactless card systems, namely, VI’s Paywave and MC’s PayPass, that use data cards that, when passed near to a reader, establish connection to a network (the “Systems”), that infringe at least claims 1 and 14 of the ‘464 patent.

That action excluded physical insertion of a credit card into a recess of a data card reader. In the recent action, the Company charged that Defendants’ “contact” and “contact/contactless” credit card systems infringe the ‘464 patent. These systems do allow for physical insertion of an EMV/credit card into a recess of a data card reader, therefore presenting a distinguishing infringement issue. That legal outcome avails the Company the opportunity to pursue its infringement claims against all systems that require or permit the physical insertion of a chip-bearing card into a recess of a data card reader.

The Company intends to continue to vigorously pursue its infringement claim in the Visa and Mastercard Case.

F-21

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

Cautionary Notice Regarding Forward-Looking Statements

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

We make certain forward-looking statements in this report. Statements concerning our future operations, prospects, strategies, financial condition, future economic performance (including growth and earnings), demand for our services, and other statements of our plans, beliefs, or expectations, including the statements contained under the captions “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business,” as well as captions elsewhere in this document, are forward-looking statements. In some cases these statements are identifiable through the use of words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can”, “could,” “may,” “should,” “will,” “would,” and similar expressions. The forward-looking statements we make are not guarantees of future performance and are subject to various assumptions, risks, and other factors that could cause actual results to differ materially from those suggested by these forward-looking statements. Because such statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by the forward-looking statements. Indeed, it is likely that some of our assumptions will prove to be incorrect. Our actual results and financial position will vary from those projected or implied in the forward-looking statements and the variances may be material. You are cautioned not to place undue reliance on such forward-looking statements. These risks and uncertainties, together with the other risks described from time to time in reports and documents that we file with the Securities and Exchange Commission (the “SEC”) should be considered in evaluating forward-looking statements.

The nature of our business makes predicting the future trends of our revenue, expenses, and net income difficult. Thus, our ability to predict results or the actual effect of our future plans or strategies is inherently uncertain. The risks and uncertainties involved in our business could affect the matters referred to in any forward-looking statements and it is possible that our actual results may differ materially from the anticipated results indicated in these forward-looking statements. Important factors that could cause actual results to differ from those in the forward-looking statements include, without limitation, the following:

· the effect of political, economic, and market conditions and geopolitical events;

· legislative and regulatory changes that affect our business;

· the availability of funds and working capital and our ability to continue as a going concern;

· the actions and initiatives of current and potential competitors;

· investor sentiment; and

· our reputation.

We do not undertake any responsibility to publicly release any revisions to these forward-looking statements to take into account events or circumstances that occur after the date of this Report, except as required by law. Additionally, we do not undertake any responsibility to update you on the occurrence of any unanticipated events which may cause actual results to differ from those expressed or implied by any forward-looking statements.

The following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes thereto as filed with the SEC and other financial information contained elsewhere in this Report.

Overview

Incorporated in 2002, SmartMetric and its founder and CEO, C. Hendrick, have been engaged in research and development of a biometric security solution which would authenticate the identity of a person in a self-contained credit card-sized device. SmartMetric’s Biometric Datacard has been designed to use an on-board finger print sensor which is imbedded in the card along with an integrated circuit chip which will provide varying degrees of encrypted memory. SmartMetric has completed development of its card along with pre mass manufacturing cards but has not yet begun to mass manufacture the biometric fingerprint activated cards. To date, SmartMetric has had no revenues.

The manufacturing of the cards requires that the Company build not only a special factory that meets security conditions but also that the Company manufacture specialized mass production machines that will allow for the specialized manufacturing process required to mount sub micro thin silicon components; along with a credit card plastic manufacturing procedure that operates using low pressure and low heat so as not to harm the internal electronic components.

The Company is currently concentrating on building out its manufacturing facility that will be incorporating SmartMetric’s advanced manufacturing processes. The Company believes that it has now raised sufficient capital to purchase the specialized machinery needed in its factory facility in Buenos Aires.

Our ability to continue as a going concern prior to the generation of sales is almost exclusively dependent upon our ability to raise capital, specifically through sales of unregistered securities. The ability to raise capital through private placement sales is very unpredictable, thus greatly influencing the Company’s ability to continue as a going concern.

We currently have one full time employee, C. Hendrick, our President and Chief Executive Officer. Once we have begun to generate sales, we intend to hire additional employees. While the Company has a small full-time workforce it employs a team of engineers in various locations as contract engineers. Our chief engineering is centered in both Israel and Silicon Valley, California. Our team of contract engineers has been working on our advanced electronics along with our machinery engineering. We have the ability to use more than 20 highly specialized contract engineers when needed, but we are not obligated to utilize more engineering services than we require at any time. In addition to contract engineers the Company engages contract administrative support workers.

SmartMetric does not believe its business is seasonal.

Results of Operations

Comparison of the Nine Months Ended March 31, 2012 and 2011

Revenue and Net Loss

For the nine months ended March 31, 2012, there was no revenue and a net loss of $2,013,423. For the nine months ended March 31, 2011, there was no revenue and a net loss of $1,263,552. This increased loss of $749,871 or 59.3% resulted primarily from higher general and administrative expenses, partially offset by lower research and development expenses.

General and Administrative Expenses

General and administrative expenses for the nine months ended March 31, 2012 were $1,653,859, an increase of $791,285 or 91.7% compared to $862,574 for the comparable period in 2011. The increase was primarily attributable to higher professional fees, largely funded through the issuance of common stock and higher promotional, contract labor and rent costs. Because the SmartMetric Biometric Datacard is nearing production, the Company has expended additional resources in promotion and market awareness of the Company and its Biometric Datacard.

Research and Development Expenses

Research and development expenses for the nine months ended March 31, 2012 were $232,064, a decrease of $31,003 or 11.8% compared to $263,067 for the comparable period in 2011. The decrease was primarily attributable to lower engineering costs in the development of the production process. As mentioned above, the Company has made increasing use of specialized contract engineers on an as needed basis. The Company believes this arrangement provides the technological and specialized skills required at lowest cost to the Company. Research and development expenses will vary by quarter and year to date period based on the Company’s cash position and its success in raising new capital.

Interest Expense

Interest expense for the nine months ended March 31, 2012 was $0 compared to $10,411 for the comparable period in 2011, a decrease of $10,411, or 100.0%. The decrease was primarily attributable to reduced interest on the reduced past due payroll tax liabilities. Because of the past negotiations in the effort to satisfy the outstanding payroll tax liabilities, the interest and penalties on the past due liability were included in other general and administrative expenses as the amounts were settled together with the interest and penalty element losing their character. The liability for past-due payroll taxes, interest and penalties was satisfied on March 30, 2012.

Income Tax Expense

Income tax for the nine months ended March 31, 2012 was $0, unchanged from the comparable period in 2011. There was no income tax expense in either period due to losses in both periods and the Company being unable to recognize the net benefit of income tax loss carryforwards due to the uncertainty of realization of such benefits.

Comparison of the Three Months Ended March 31, 2012 and 2011

Revenue and Net Loss

For the three months ended March 31, 2012, there was no revenue and a net loss of $588,682. For the three months ended March 31, 2011, there was no revenue and a net loss of $585,484. This increased loss of $3,198 or 0.5% resulted primarily from increased general and administrative expenses partially offset by lower research and development expenses.

General and Administrative Expenses

General and administrative expenses for the three months ended March 31, 2012 were $461,971, an increase of $173,666 or 60.2% compared to $288,305 for the comparable period in 2011. The increase was primarily attributable to increased consulting and professional fees largely funded by the issuance of common stock, contract labor and rent, partially offset by reduced travel and penalties on the past due payroll tax liability. The liability for past-due payroll taxes, interest and penalties was satisfied on March 30, 2012.

Research and Development Expense

Research and development expenses for the three months ended March 31, 2012 were $84,211, a decrease of $167,154 or 66.5% compared to $251,365 for the comparable period in 2011. The decrease was primarily attributable to lower engineering costs that related primarily to in the development of the production process in 2012. In the comparable period of 2011, the Company received significant proceeds from private placements of its securities and accelerated it research and development costs relative to the development of the SmartMetric Biometric Datacard. As mentioned above, the Company has made increasing use of specialized contract engineers on an as needed basis. The Company believes this arrangement provides the technological and specialized skills required at lowest cost to the Company. Research and development expenses will vary by quarter and year to date period based on the Company’s cash position and its success in raising new capital.

Interest Expense

Interest expense for the three months ended March 31, 2012 was $0 compared to $3,314 for the comparable period in 2011, a decrease of $3,314 or 100.0%. The decrease was primarily attributable to reduced interest on the reduced past due payroll tax liabilities. Because of the past negotiations in the effort to satisfy the outstanding payroll tax liabilities, the interest and penalties on the past due liability were included in other general and administrative expenses as the amounts were settled together with the interest and penalty element losing their character. The liability for past-due payroll taxes, interest and penalties was satisfied on March 30, 2012.

Income Tax Expense

Income tax for the three months ended March 31, 2012 was $0, unchanged from the previous period. There was no income tax expense in either period due to losses in both periods and the Company being unable to recognize the net benefit of income tax loss carryforwards due to the uncertainty of realization of such benefits.

Liquidity and Capital Resources

The Company is a development stage company and has spent a majority of resources and time in developing its technology. These conditions raise a substantial doubt about the Company’s ability to continue as a going concern. Management believes that the Company’s capital requirements will depend on a number of factors including the final phase of product development and the development of its production process as well as product implementation and distribution. The consolidated financial statements do not include any adjustments relating to the carrying amounts of recorded assets or the carrying amount and classification of recorded liabilities that may be required should the Company be unable to continue as a going concern.

At March 31, 2012, we had an accumulated deficit of $10,579,887 and it is likely that we will incur additional losses in the future. While we have funded our operations since inception from operations and through private placements of equity securities, there can be no assurance that adequate financing will continue to be available to us and, if available, on terms that are favorable to us.

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

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

Cash and Cash Equivalents

Our cash and cash equivalents was $272,599 at the beginning of the nine months ended March 31, 2012 and increased to $826,900 by the end of such period, an increase of $554,301, or 203.3%. The increase was primarily attributable to the Company raising capital in amounts greater than its operating costs for the period.

Net cash used in operating activities

Net cash used in operating activities was $1,216,690 for the nine months ended March 31, 2012, an increase of $31,440 or 2.7% from the comparable period in 2011. The Company is largely dependent on the capital it raises to fund operations. When capital is raised the development process is accelerated, and when cash flows are decreased the Company conserves its cash by delaying development and other operating costs.

Net cash used in investing activities

Net cash used in investing activities was $0 for nine months ended March 31, 2012, unchanged from March 31, 2011.

Net cash provided by financing activities

Net cash provided by financing activities was $1,770,991 for the nine months ended March 31, 2012, an increase of $12,164, or 0.7%, from the comparable period in 2011. This increase was negligible. The Company’s rate of raising capital had slowed for the first six months of the period due to the lower stock price and accelerated in the last three months of the period concurrent with a recovery in the Company’s stock price.

Contractual Obligations and Off-Balance Sheet Arrangements.

There were no off-balance sheet arrangements as of March 31, 2012 and June 30, 2011.

In connection with an Assignment and Assumption Agreement with Applied Cryptography, Inc. (“ACI”), a corporation controlled by the Company’s president and the owner of certain technology, ACI conveyed, assigned and transferred to the Company all of ACI's rights, title and interest in and to its patents (collectively, the “Patent”) and delegated to the Company all of its duties and obligations to be performed under the Patent.

The Company did not generate the minimum revenue amount by December 11, 2011. As a result, ACI has the right to exercise its option to purchase the Patent from the Company. If this occurs, the Company may be unable to continue to develop and manufacture the SmartMetric Biometric Datacard without first entering into an arrangement with ACI for the right to use the Patent, the terms of which may be unfavorable to the Company. ACI has given no indication that it intends to exercise its option to purchase the Patent.

Critical accounting policies and estimates

The condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made; however actual results could differ materially from those estimates.

Intangible assets

SmartMetric did not purchase any intangible assets for the nine months ended March 31, 2012 or March 31, 2011.

Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

N/A.

Item 4.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15 of the Exchange Act, our management, including our Chief Executive Officer and our Chief Financial Officer evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2012.

Disclosure controls and procedures refers to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC 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 recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating and implementing possible controls and procedures.

Management conducted its evaluation of disclosure controls and procedures under the supervision of our Chief Executive Officer and Chief Financial Officer. Based on that evaluation, we have concluded that because of material weaknesses in internal control over financial reporting described below, our disclosure controls and procedures were not effective as of March 31, 2012.

Changes in Internal Control over Financial Reporting

In order to correct the foregoing material weaknesses, we have taken the following remediation measures:

1)	We have committed to the establishment of effective internal audit functions, however, due to the limited resources of the Company, we plan to defer the establishment of an effective internal audit function until our product is ready for production and sale.

Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, we will implement procedures to ensure that the initiation of transactions, the custody of assets and the recording of transactions will be performed by capable individuals, and will ensure all timely filing of our 10-Qs and 10-K in the future.

We believe that the foregoing steps will remediate the material weaknesses 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 March 31, 2012, 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, however nothing has come to the attention of management that causes them to believe that any material inaccuracies or errors exist in our financial statements as of March 31, 2012. The reportable conditions and other areas of internal control over financial reporting identified by us as needing improvement have not resulted in a material misstatement of our financial statements. Nor are we 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, even though material weaknesses in internal controls exist, management believes there to be no material inaccuracies or errors in the Company’s financial statements as of March 31, 2012.

Limitations on Controls

Management does not expect that our disclosure controls and procedures or our 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.

Changes in Internal Controls

During the fiscal quarter ended March 31, 2012, 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

PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

On August 29, 2011, the Company filed a complaint in the United States District Court, Central District of California, against Master Card, Inc. (“MasterCard”) and Visa, Inc. (“Visa”) alleging patent infringement on the 464 patent (the “August 2011 Case”). The Company is seeking the following relief from MasterCard and Visa:

1.	For an order pursuant to 35 U.S.C. section 271 declaring that both MasterCard and Visa have infringed one or more claims of the ‘464 Patent;
2.	A preliminary and permanent injunction against both MasterCard and Visa prohibiting each of them from further infringement of the ‘464 Patent;
3.	An award of actual damages the Company has suffered by reason of the infringement charged in the complaint in an amount not less than a reasonable royalty on both MasterCard’s and Visa’s infringement of the ‘464 Patent:
4.	An award to the Company of its costs; and
5.	Such other relief as the Court may deem just and proper.

In the earlier actions against VISA, MasterCard, and AMEX (“collectively the “Defendants”), the Court mandated the Company to narrow its complaint exclusively to patent infringement from Defendants’ revenues from “contactless” credit card/pay systems. The Court stated:

The prior Visa and Mastercard Case and AMEX case excluded physical insertion of a credit card into a recess of a data card reader. In the August 2011 Case, the Company charged that Defendants’ “contact” and “contact/contactless” credit card systems infringe the ‘464 patent. These systems do allow for physical insertion of an EMV/credit card into a recess of a data card reader, therefore presenting a distinguishing infringement issue. This distinction allows the Company the opportunity to pursue its infringement claims against all systems that require or permit the physical insertion of a chip-bearing card into a recess of a data card reader.

On April 11, 2012, the United States Court of Appeals for the Federal Circuit (the “Appeals Court”) affirmed the Judgment of the Court in the Visa and Mastercard Case and the AMEX case. While the Appeals Court affirmed the Judgment, it stated that the Court erroneously limited the definition of network service providers even though its construction of “insertion of said data card into said data card reader” was correct. Moreover, the Court stated that it saw no reason why a data card that communicates with a card reader using an embedded antenna cannot also be inserted into a data card reader to immediately trigger an application program. A copy of the decision of the Appeals Court is attached hereto as Exhibit 99.1.

The Company intends to vigorously pursue its infringement claim in the August 2011 Case.

Item 1A. RISK FACTORS

Not Applicable.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

In the three months ended March 31, 2012, the Company issued 765,713 shares for legal and consulting services rendered.

Unless otherwise noted in this section, with respect to the sale of unregistered securities referenced above, all transactions were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended (the "1933 Act"), and Regulation S promulgated under the 1933 Act. In each instance, the purchaser had access to sufficient information regarding SmartMetric so as to make an informed investment decision. More specifically, we had a reasonable basis to believe that each purchaser was an "accredited investor" and otherwise had the requisite sophistication to make an investment in SmartMetric's securities.

Item 3. DEFAULTS UPON SENIOR SECURITIES

None.

Item 4. MINE SAFETY DISCLOSURES

N/A.

Item 5. OTHER INFORMATION

There were no matters required to be disclosed on Form 8-K during the three months ended March 31, 2012 which were not disclosed on such form.

Item 6. EXHIBITS

The following exhibits are attached to this Form 10-Q and made a part hereof.

Exhibit No.		Description

31.1		Certification of SmartMetric’s Chief Executive Officer pursuant to Rule13a- 14(a) of the Securities Exchange Act of 1934, as amended

31.2		Certificate of SmartMetric’s Chief Financial Officer pursuant to Rule13a- 14(a) of the Securities Exchange Act of 1934, as amended

32.1		Certification of SmartMetric’s Chief Executive Officer required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended and Section 1350 of Chapter 63 of Title 18 the United States Code (18 U.S.C. 1350)

32.2		Certification of SmartMetric’s Chief Financial Officer required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended and Section 1350 of Chapter 63 of Title 18 the United States Code (18 U.S.C. 1350)

99.1		Decision of United States Court of Appeals for the Federal Circuit, dated April 11, 2012.

EX-101.INS		Xbrl Instance Document*

EX-101.SCH		Xbrl Taxonomy Extension Schema Document*

EX-101.CAL		Xbrl Taxonomy Extension Calculation Linkbase Document*

EX-101.DEF		Xbrl Taxonomy Extension Definition Linkbase Document*

EX-101.LAB		Xbrl Taxonomy Extension Labels Linkbase Document*

EX-101.PRE		Xbrl Taxonomy Extension Presentation Linkbase Document*

* The XBRL related information in Exhibit 101 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.

SIGNATURE

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	SMARTMETRIC, INC.

Dated: May 15, 2012	By:	/s/ C. Hendrick
		C. Hendrick, President (Principal Executive Officer)


Dated: May 15, 2012	By:	/s/ Jay Needelman
		Jay Needelman, Chief Financial Officer (Principal Financial Officer)

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