SmartMetric, Inc. - FORM 10-Q - February 19, 2014

Attached files

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EXCEL - IDEA: XBRL DOCUMENT - SmartMetric, Inc.	Financial_Report.xls
EX-31.1 - EXHIBIT 31.1 - SmartMetric, Inc.	v368923_ex31-1.htm
EX-31.2 - EXHIBIT 31.2 - SmartMetric, Inc.	v368923_ex31-2.htm
EX-32.1 - EXHIBIT 32.1 - SmartMetric, Inc.	v368923_ex32-1.htm
EX-32.2 - EXHIBIT 32.2 - SmartMetric, Inc.	v368923_ex32-2.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 December 31, 2013

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

SECURITIES EXCHANGE ACT OF 1934.

For the transition period from to

Commission File No. 000-54853

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 401, Bay Harbor Islands, FL 33154
(Address of principal executive offices)

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

101 Convention Center Drive, Las Vegas, NV 89109

Former Name, former address and former fiscal year, if changed since last report

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 January 15, 2014, there were 162,141,517 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 December 31, 2013 (unaudited) and June 30, 2013	F-1
	Condensed consolidated statements of operations for the three and six months ended December 31, 2013 and 2012 (unaudited) and for the period from December 18, 2002 (inception) through December 31, 2013 (unaudited)	F-2
	Condensed consolidated statements of cash flows for the six months ended December 31, 2013 and 2012 (unaudited) and for the period from December 18, 2002 (inception) through December 31, 2013 (unaudited)	F-3
	Condensed consolidated statements of changes in stockholders’ equity (deficit) for the period December 18, 2002 (inception) through December 31, 2013 (unaudited)	F-4
	Notes to condensed consolidated financial statements (unaudited)	F-7 - F-17
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	5
Item 4.	Controls and Procedures	6

PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	7
Item 1A.	Risk Factors	7
Item 2.	Unregistered sales of equity securities and use of proceeds	7
Item 3.	Defaults Upon Senior Securities	8
Item 4.	Mine Safety Disclosures	8
Item 5.	Other Information	8
Item 6.	Exhibits	8
	Signatures	9

	2

PART I — FINANCIAL INFORMATION

SMARTMETRIC, INC. AND SUBSIDIARY

(A Development Stage Company)

Condensed Consolidated Balance Sheets

	December 31,		June 30,
	2013		2013
	(Unaudited)
Assets
Current assets:
Cash	$	-	$	804,257
Prepaid expenses and other current assets		852,808		799,699

Total current assets		852,808		1,603,956

Other assets:
Patent costs, less accumulated amortization
of $13,875 and $13,125, respectively		1,125		1,875

Total assets	$	853,933	$	1,605,831

Liabilities and Stockholders' Equity

Current liabilities:
Accounts payable and accrued expenses	$	226,715	$	262,648
Liability for stock to be issued		469,455		216,978
Deferred Officer salary		61,681		61,681
Shareholder loan		45,573		21,572
Payroll taxes and related fees		(4,142)		-

Total current liabilities		799,282		562,879

Commitments and contingencies

Stockholders' equity:
Preferred stock, $.001 par value; 5,000,000 shares
authorized, 210,000 and 400,000 shares issued and outstanding, respectively		210		400
Common stock, $.001 par value; 200,000,000 shares
authorized, 161,036,491 and 147,698,950
shares issued and outstanding , respectively		161,036		147,699
Additional paid-in capital		17,568,000		16,859,447
Deficit accumulated during the development stage		(17,674,595)		(15,964,594)

Total Stockholders' equity		54,651		1,042,952

Total liabilities and stockholders' equity	$	853,933	$	1,605,831

See notes to condensed consolidated financial statements.

	F-1

SMARTMETRIC, INC. AND SUBSIDIARY

(A Development Stage Company)

Condensed Consolidated Statement Of Operations

(Unaudited)

									Development
	Six Months		Six Months		Three Months		Three Months		Stage
	Ended		Ended		Ended		Ended		18-Dec-02
	December		December		December		December		(inception) to
	31,		31,		31,		31,		December 31,
	2013		2012		2013		2012		2013

Revenues	$	-	$	-	$	-	$	-	$	-

Expenses:
Officer's salary		95,000		86,667		47,500		44,167		1,567,500
Other general and administrative		1,236,424		2,041,810		579,346		1,220,370		13,009,785
Research and development		378,577		297,048		63,692		211,232		3,035,484

Total operating expenses		1,710,001		2,425,525		690,538		1,475,769		17,612,769

Loss from operations		(1,710,001)		(2,425,525)		(690,538)		(1,475,769)		(17,612,769)

Interest income		-		-		-		-		657
Interest expense		-		-		-		-		(62,483)

Loss before income taxes		(1,710,001)		(2,425,525)		(690,538)		(1,475,769)		(17,674,595)

Income taxes		-		-		-		-		-

Net loss	$	(1,710,001)	$	(2,425,525)	$	(690,538)	$	(1,475,769)	$	(17,674,595)

Net loss per share, basic and diluted	$	(0.01)	$	(0.02)	$	(0.00)	$	(0.01)

Weighted average number of common shares outstanding, basic and diluted		157,945,946		124,265,236		160,086,219		127,586,641

See notes to condensed consolidated financial statements.

	F-2

SMARTMETRIC, INC. AND SUBSIDIARY

(A Development Stage Company)

Condensed Consolidated Statements of Cash Flows

(Unaudited)

					During the
					Development
	Six Months		Six Months		Stage
	Ended		Ended		(December
	December		December		18, 2002) to
	31,		31,		December 31,
	2013		2012		2013
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(1,710,001)	$	(2,425,525)	$	(17,674,595)

Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation		-		-		15,984
Amortization		750		750		13,875
Common stock and warrants issued and issuable for services		479,526		1,760,337		6,391,512
Interest accrued on convertible notes payable		-		-		2,400

Changes in assets and liabilities
(Increase) decrease in prepaid expenses and other current assets		(53,109)		(763,123)		(852,808)
Increase (decrease) in accounts payable and accrued expenses		(35,933)		64,830		226,715
Increase (decrease) in deferred officer's salary payable		-		(15,833)		61,681
Increase (decrease) in payroll taxes and related fees payable		(4,142)		(16,551)		(4,142)

Net cash used in operating activities		(1,322,909)		(1,395,115)		(11,819,378)

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
Loans from related parties		-		-		94,493
Proceeds (repayments) of loans from related parties		24,001		-		(48,920)
Proceeds from sale of common stock		242,174		231,799		11,275,334
Liability for stock to be issued		252,477		356,636		469,455

Net cash provided by financing activities		518,652		588,435		11,850,362

NET (DECREASE) INCREASE IN
CASH		(804,257)		(806,680)		-

CASH
BEGINNING OF PERIOD		804,257		889,589		-

END OF PERIOD	$	-	$	82,909	$	-

CASH PAID DURING THE YEAR FOR:
Income taxes	$	-	$	-	$	-
Interest expense	$	-	$	-	$	62,483

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
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	$	400

See notes to condensed consolidated financial statements.

	F-3

SMARTMETRIC, INC. AND SUBSIDIARY

(A Development Stage Company)

Consolidated Statement of Changes In Stockholders' Equity (Deficit)

For The Period Ended December 31, 2013 with Cumulative Totals Since December 18, 2002 (Inception)

															Deficit
															Accumulated
					Class A				Common				Additional		During
	Preferred Stock				Common Stock				Stock				Paid-in		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)
Total Stockholders' deficit
Net loss for the year		-		-		-		-		-		-		-		(258,355)		(258,355)

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)

	F-4

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

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)

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)		-		-

Net cash (used in) investing activities 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

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

Shares issued of common stock and warrants for cash		-		-		-		-		10,264,030		10,264		1,851,014		-		1,861,278

Shares issued of common stock for services rendered		-		-		-		-		2,225,750		2,226		604,461		-		606,687

Net loss for the year		-		-		-		-		-		-		-		(1,885,040)		(1,885,040)

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		-		-		-		-		13,149,250		13,149		2,240,635		-		2,253,784

Shares issued of common stock and warrants for services rendered		-		-		-		-		4,123,087		4,124		1,226,816		-		1,230,940

Net loss for the period		-		-		-		-		-		-		-		(2,709,913)		(2,709,913)

Balance June 30, 2012		200,000	$	200		-	$	-		118,974,672	$	118,975	$	11,657,012	$	(11,276,377)	$	499,810

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

Shares issued of common stock and warrants for services rendered		-		-		-		-		13,344,760		13,345		2,779,791		-		2,793,136

Shares issued of common stock and warrants for cash		-		-		-		-		15,379,518		15,379		2,422,844		-		2,438,223

Net loss for the period		-		-		-		-		-		-		-		(4,688,217)		(4,688,217)

Balance June 30, 2013		400,000	$	400		-	$	-		147,698,950	$	147,699	$	16,859,447	$	(15,964,594)	$	1,042,952

Shares issued for patent		(190,000)		(190)		-		-		9,500,000		9,500		(9,310)		-		-

Shares issued of common stock and warrants for services rendered		-		-		-		-		130,875		131		19,669		-		19,800

Shares issued of common stock and warrants for cash		-		-		-		-		912,500		912		145,088		-		146,000

Net loss for the period		-		-		-		-		-		-		-		(1,019,463)		(1,019,463)

Balance September 30, 2013		210,000	$	210		-	$	-		158,242,325	$	158,242	$	17,014,894	$	(16,984,057)	$	189,289

Shares issued of common stock and warrants for services rendered		-		-		-		-		1,595,000		1,595		338,305		-		339,900

Shares issued of common stock and warrants for cash		-		-		-		-		1,199,166		1,199		214,801		-		216,000

Net loss for the period		-		-		-		-		-		-		-		(690,538)		(690,538)

Balance December 31, 2013		210,000	$	210		-	$	-		161,036,491	$	161,036	$	17,568,000	$	(17,674,595)	$	54,651

See notes to condensed consolidated financial statements.

	F-6

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 Regulation 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 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 three and six months ended December 31, 2013 are not necessarily indicative of the results that may be expected for the year ending June 30, 2014. 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, 2013, as filed with the Securities and Exchange Commission.

Going Concern

As shown in the accompanying condensed consolidated financial statements the Company has sustained losses of $1,710,001 and $2,425,525 for the six months ended December 31, 2013 and 2012 respectively, and has incurred a cumulative loss of $17,674,595 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.

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 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.

	F-7

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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 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:

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.

	F-8

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Accounts Receivable

The Company will extend credit based on its evaluation of the customers’ financial condition, generally without requiring collateral. Exposure to losses on receivables is expected to vary by customer due to the financial condition of each customer. The Company will monitor exposure to credit losses and maintains allowances for anticipated losses considered necessary under the circumstances. The Company has not recorded any receivables, and therefore no allowance for doubtful accounts.

Uncertainty in Income Taxes

GAAP requires the recognition and measurement of uncertain income tax positions using a “more-likely-than-not” approach. Management evaluates Company tax positions on an annual basis and has determined that as of December 31, 2013 no accrual for uncertain income tax positions is necessary.

The Company files income tax returns in the United States ("U.S.") federal jurisdiction. Generally, the Company is no longer subject to U.S. federal examinations by tax authorities for fiscal years prior to 2009. The Company does not file in any other jurisdiction and remains open for audit for all tax years as the statute of limitations does not begin until the returns are filed.

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 economic useful lives of the assets ranging from 3 - 5 years.

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 consolidated statement of operations due to the fact that the Company reported a net loss and to do so would be anti-dilutive for the periods presented.

Stock-Based Compensation

The Company measures expense for issuances of stock-based compensation to employees and others at fair value of the stock and warrants issued, as this is more reliable than the fair value of the services received. The fair value is measured at the value of the Company’s common stock on the date that the commitment for performance by the counterparty has been reached or the counterparty’s performance obligation is complete. The fair value of the equity instrument is charged directly to compensation expense and additional paid-in capital.

F-9

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Reclassifications

Certain amounts in the 2013 condensed consolidated financial statements have been reclassified for comparative purposes to conform to the presentation in the current year condensed consolidated financial statements. These reclassifications had no effect on previously reported results.

NOTE 3 - PREPAID EXPENSES

Prepaid expenses represent the unexpired terms of various consulting agreements and expire through September 2014, as well as advance rental payments. The Company issued common stock and warrants as consideration for the consulting services, and were valued based on the stock price or computed warrant value at the time of the respective agreements.

NOTE 4 - PATENT COSTS

Patent costs as of December 31, 2013 and June 30, 2013 are summarized as follows:

	Estimated Useful Lives (Years)		December 31, 2013		June 30, 2013

Legal fees paid in connection with patentApplications		10	$	15,000	$	15,000

Less: accumulated amortization				(13,875)		(13,125)
Patent costs, net			$	1,125	$	1,875

Amortization expense was $750 for the six months ended December 31, 2013 and 2012, 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.

During November 2012, the Company acquired license rights to ACI's Medical Keyring Device technology in consideration of the Company's issuance to ACI of 200,000 shares of its Series B Convertible Preferred Stock.

During September 2013, the Company acquired license rights to ACI's BioCentric Cloud Device technology in consideration of the Company's intent to issue to ACI of 200,000 shares of its Series B Convertible Preferred Stock. As of the filing date, the Company has not increased its amount of Series B Convertible Preferred Stock shares and, accordingly, these shares have not been issued.

F-10

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Lease Agreement

In February 2012, the company entered into a facilities lease in Buenos Aires, Argentina for its manufacturing activities. The lease term is from March 1, 2012 through January 31, 2015. The Company also utilizes offices in Australia, Israel and Las Vegas, Nevada. The Company’s main office is located in Bay Harbor Islands, Florida. Rent expense under all leases for the six months ended December 31, 2013 and 2012 was $50,841 and $55,903 respectively. Total minimum future rental payments under all leases with terms in excess of one year are as follows:

Year ending June 30,	Amount

2014	$	40,465
2015		48,558
Total	$	187,297

Related Party Transactions

The Company’s president has made cash advances to the Company with an aggregate amount due of $45,573 and $21,572 at December 31, 2013 and June 30, 2013, respectively. These advances bear interest at 5.00% per annum.

The Company has accrued $61,681 at December 31, 2013 and June 30, 2013 for accrued but unpaid Officer salary.

	F-11

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 6 - STOCKHOLDERS’ EQUITY (DEFICIT)

Preferred Stock

As of December 31, 2013, the Company has 5,000,000 shares of preferred stock, par value $0.001, authorized and 210,000 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.

On November 12, 2012, the Company issued 200,000 shares of its Series B Convertible Preferred Stock to ACI in consideration for ACI’s patent relating to the Medical Keyring Device.

In July 2013, ACI elected to convert 190,000 shares of Series B Convertible Preferred Stock, issued in 2012, into 9,500,000 shares of the Company’s common stock.

	F-12

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

In accordance with Staff Accounting Bulletin (“SAB”) topic 5G “Transfers of Non-monetary Assets by Promoters and Shareholders” the Company recorded these transactions at ACI’s carrying basis of the Patents, which was $0.

Class A Common Stock

As of December 31, 2013, the Company has 50,000,000 shares of Class A common stock, par value $0.001, authorized and no shares issued and outstanding. In October 2003, the Company issued 50,000,000 shares of Class A common stock at par value ($50,000). These shares were converted into 50,000,000 shares of common stock in 2006.

Common Stock

The Company was incorporated on December 18, 2002, with 45,000,000 shares of Common Stock, par value $0.001. The articles of incorporation were amended in 2006 to increase the number of authorized shares to 100,000,000 shares, and again in 2009 to increase the number of authorized shares to 200,000,000.

As of December 31, 2013, the Company has 161,036,491 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. 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.

	F-13

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, 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.

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 year ended June 30, 2011, the Company sold 34,030 units (representing 8,216,262 shares of stock and warrants to purchase an additional 2,279,028 shares), for net proceeds of 1,999,200. In addition, the Company issued 2,225,750 shares of common stock for legal and consulting services at a value of $460,029.

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 year ended June 30, 2012, the Company sold 271.05 units (representing 13,552,850 shares of stock and warrants to purchase an additional 13,552,850 shares), for net proceeds of $2,208,459. In addition, the Company issued 3,278,213 shares of common stock for legal and consulting services at a value of $972,006.

During the three months ended June 30, 2012, the Company authorized the issuance of 3,881,978 shares for services. These shares ranged in value from $0.05 to $0.26.

	F-14

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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

During the three months ended September 30, 2012, the Company sold 860,000 shares and twelve month warrants to purchase an additional 860,000 shares at $0.80 per share for net proceeds of $171,758.

During the three months ended September 30, 2012, the Company authorized the issuance of 4,379,122 shares for legal and consulting services valued at $627,899, based on the stock price at the time of the respective agreements underlying the services provided.

During the three months ended December 31, 2012, the Company sold for cash 200,000 shares and twelve month warrants to purchase an additional 200,000 shares at $0.80 per share. The Company also sold for cash 125,000 shares and twelve month warrants to purchase an additional 125,000 shares at $0.50 per share. Total net proceeds received was $60,041.

During the three months ended December 31, 2012, the Company authorized the issuance of 5,575,000 shares for consulting services valued at $1,115,000, based on the stock price at the time of the respective agreements underlying the services provided.

During the three months ended March 31, 2013, the Company sold for cash 4,131,328 shares and twelve month warrants to purchase an additional 4,131,328 shares at $0.50 per share for net proceeds of $672,380.

During the three months ended June 30, 2013, the Company sold for cash 10,097,331 shares and twelve month warrants to purchase an additional 10,097,331 shares at $0.50 per share for net proceeds of $1,499,793.

During the three months ended September 30, 2013, the Company sold for cash 515,367 shares and twelve month warrants to purchase an additional 515,367 shares at $0.50 per share for net proceeds of $123,474.

During the three months ended September 30, 2013, the Company issued 130,875 shares for consulting services, valued based on the stock price at the time of the respective agreements underlying the services provided.

During the three months ended December 31, 2013, the Company issued 1,595,000 shares for consulting services, valued at $339,900, based on the stock price at the time of the respective agreements underlying the services provided.

During the three months ended December 31, 2013, the Company sold for cash 660,000 shares and twelve month warrants to purchase an additional 660,000 shares at $0.50 per share for net proceeds of $118,700.

Warrants

From time to time the Company granted warrants in connection with private placements of securities, as described herein.

In October 2009, 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, which were initially set to expire October 25, 2012 but have been extended by the Company to expire on October 25, 2014, 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, which were initially set to expire March 29, 2013 but have been extended by the Company to expire on March 29, 2015, 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.

In June 2011, the Company issued warrants to purchase 1,000,000 shares of its common stock at an exercise price of $0.50 per share as partial consideration for a consulting agreement. These warrants were initially set to expire on June 3, 2012 but have been extended by the Company to expire on June 3, 2014.

In connection with the extension of the above referenced warrants, the Company assigned a value of $364,077 using the Black-Scholes option pricing model. The Company recorded the charge to consulting expenses, included as a component of other general and administrative expenses, during the six months ended December 31, 2012.

In May 2012, the Company issued warrants to purchase 250,000 shares of its common stock at an exercise price of $0.50 per share, as partial consideration for a consulting agreement for public relations services. The warrants expire in May 2014.

As of December 31, 2013 and June 30, 2013, the following is a breakdown of the activity:

	F-15

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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

December 31, 2013:

Outstanding - beginning of period		21,757,578
Issued		515,366
Exercised		-
Expired		(860,000)

Outstanding - end of period		21,412,944

June 30, 2013:

Outstanding - beginning of year		18,802,820
Issued		16,507,578
Exercised		-
Expired		(13,552,820)

Outstanding - end of year		21,757,578

At December 31, 2013, all of the 21,412,944 warrants are vested and 15,162,944 warrants expire at various times through December 31, 2014, 250,000 warrants expire on May 8, 2014, 1 million warrants expire on June 20, 2014, 2.5 million warrants expire on October 25, 2014, and 2.5 million warrants expire on March 29, 2015.

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.

	F-16

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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 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, 2012, 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 “August 2012 Case”). The Company is seeking the following relief from MasterCard and Visa:

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;

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:

An award to the Company of its costs; and

Such other relief as the Court may deem just and proper.

In the prior Visa and MasterCard Case and AMEX case, the Court excluded “contactless” credit card/pay system from the scope of the ‘464 patent claims. In the August 2012 Case, the Company charged that VISA and MasterCard’s EMV debit/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.

The Company has presented a claim for damages and a paid up royalty in the amount of $13.4 billion in connection with its patent infringement litigation against MasterCard and Visa, Inc. In October 2013, the Court held that the Defendants did not infringe on the ‘464 Patent. The Company believes this ruling is in error and has appealed the ruling.

VISA and MasterCard have, subsequent to our lodging an appeal, asked the Court to award them attorneys' fees and costs approximating $3 million. SmartMetric is opposing this request, which SmartMetric believes is without merit because SmartMetric filed its suit in good faith, and has litigated the case in an objectively reasonable manner. SmartMetric expects the issue to be dealt with following the ruling on its motions for a finding of infringement and a finding of an equitable prepaid royalty against the defendants Visa, Inc. and MasterCard International which is currently before the Federal Circuit Court.

SmartMetric’s opening brief on appeal was filed in the Federal Circuit Court in December 2013. If Defendants file their reply brief by the end of March 2014 as agreed, it is expected that a hearing of oral argument of the appeal before the Court will be heard in June or July 2014.

	F-17

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.

The following discussion should be read in conjunction with our condensed consolidated financial statements and other financial information appearing elsewhere in this quarterly report. In addition to historical information, the following discussion and other parts of this quarterly report contain forward-looking statements. You can identify these statements by forward-looking words such as “plan,” “may,” “will,” “expect,” “intend,” “anticipate,” believe,” “estimate” and “continue” or similar words. Forward-looking statements include information concerning possible or assumed future business success or financial results. You should read statements that contain these words carefully because they discuss future expectations and plans, which contain projections of future results of operations or financial condition or state other forward-looking information. We believe that it is important to communicate future expectations to investors. However, there may be events in the future that we are not able to accurately predict or control. Accordingly, we do not undertake any obligation to update any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.

The forward-looking statements included herein are based on current expectations that involve a number of risks and uncertainties set forth under “Risk Factors” in our Annual Report on Form 10-K as of and for the year ended June 30, 2012 and other periodic reports filed with the United States Securities and Exchange Commission (“SEC”). Accordingly, to the extent that this Report contains forward-looking statements regarding the financial condition, operating results, business prospects or any other aspect of the Company, please be advised that the Company’s actual financial condition, operating results and business performance may differ materially from that projected or estimated by the Company in forward-looking statements. 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.

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 embedded 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 sales 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 accredit 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. We expect to begin mass production of our product by February 2014, however this is dependent on a number of factors including the supply of specific silicon based components that may require a modest longer lead time then original planned.

The company may at its discretion for logistical reasons operate its initial manufacturing of plastic fingerprint activated cards in another location other than Buenos Aires, Argentina.

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.

The Company’s research and development is being undertaken by contractors working in Israel and Argentina.

SmartMetric does not believe its business is seasonal.

	3

Results of Operations

Comparison of the Three Months Ended December 31, 2013 and 2012

Revenue and Net Loss

For the three months ended December 31, 2013, there was no revenue and a net loss of $690,538. For the three months ended December 31, 2012, there was no revenue and a net loss of $1,475,769. This decreased loss of $785,231 or 53.2% resulted primarily from lower general and administrative expenses.

General and Administrative Expenses

General and administrative expenses for the three months ended December 31, 2013 were $579,346, a decrease of $641,024 or 52.5% compared to $1,220,370 for the comparable period in 2012. This decrease was primarily attributed to lower consulting expenses.

Research and Development Expenses

Research and development expenses for the three months ended December 31, 2013 were $63,692, a decrease of $147,540 or 69.8% compared to $211,232 for the comparable period in 2012. This decrease was primarily attributable to lower engineering expenses.

Income Tax Expense

Income tax expense for the three months ended December 31, 2013 was $0, unchanged from the comparable period in 2012.

Comparison of the Six Months Ended December 31, 2013 and 2012

Revenue and Net Loss

For the six months ended December 31, 2013, there was no revenue and a net loss of $1,710,001. For the six months ended December 31, 2012, there was no revenue and a net loss of $2,425,525. This decreased loss of $715,524 or 29.5% resulted primarily from lower general and administrative expenses.

General and Administrative Expenses

General and administrative expenses for the six months ended December 31, 2013 were $1,236,424, a decrease of $805,386 or 39.4% compared to $2,041,810 for the comparable period in 2012. This decrease was primarily attributed to lower consulting expenses.

Research and Development Expenses

Research and development expenses for the six months ended December 31, 2013 were $378,577, an increase of $81,529 or 27.4% compared to $297,048 for the comparable period in 2012. This increase was primarily attributable to higher engineering expenses.

Income Tax Expense

Income tax expense for the six months ended December 31, 2013 was $0, unchanged from the comparable period in 2012.

Liquidity and Capital Resources

The Company is a development stage company and has spent a majority of resources and time in developing its technology. There is no guarantee that the Company can continue to raise enough capital or generate revenues to sustain its operations. 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 December 31, 2013, the Company had an accumulated deficit of $17,674,595 and it is likely that the Company 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.

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. There is a risk of dilution whenever the Company sells securities to raise capital. If additional financing is not available or is not available on acceptable terms, we will have to curtail our operations.

Cash

Our cash balance was $0 at December 31, 2013 compared with $804,257 at June 30, 2013. The decrease was primarily attributable to higher general and administrative expenses and no revenues.

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Net cash used in operating activities

Net cash used in operating activities was $1,322,909 for the six months ended December 31, 2013, a decrease of $72,706, or 5.2% from the comparable period in 2012. 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 the six months ended December 31, 2013, unchanged from the comparable period in 2012.

Net cash provided by financing activities

Net cash provided by financing activities was $518,652 for the six months ended December 31, 2013, a decrease of $69,783 or 11.9% from the comparable period in 2012. The decrease was based on lower private placement equity shares.

Contractual Obligations and Off-Balance Sheet Arrangements.

There were no off-balance sheet arrangements as of December 31, 2013 and June 30, 2013.

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.

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 issued 200,000 of its series B convertible preferred shares to ACI during the period in exchange for the BioCentric Cloud patent. During September 2013, the Company acquired license rights to ACI's BioCentric Cloud Device technology in consideration of the Company's intent to issue to ACI of 200,000 shares of its Series B Convertible Preferred Stock. As of the filing date, the Company has not increased its amount of Series B Convertible Preferred Stock shares and, accordingly, these shares have not been issued.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our exposure to market risk for changes in interest rates relates primarily to our short-term investments; thus, fluctuations in interest rates would not have a material impact on the fair value of these investments. At December 31, 2013, we had approximately $0 in cash and cash equivalents. A hypothetical 5% increase or decrease in either short term or long term interest rates would not have a material impact on our earnings or loss, or the fair market value or cash flows of these instruments.

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Item 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain "disclosure controls and procedures," as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

We carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, as of December 31, 2013, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective in ensuring that information required to be disclosed by us in our periodic reports is recorded, processed, summarized and reported, within the time periods specified for each report and that such information is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

In order to correct the foregoing deficiencies, we plan to take the following remediation measures:

We have committed to the establishment of effective internal audit functions, however, due to the limited resources of the Company and the limited operations, 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.

We believe that the foregoing steps will remediate the deficiencies identified above, and we will continue to monitor the effectiveness of these steps and make any changes that our management deems appropriate. However, as of December 31, 2013, these steps have not been completed.

A material weakness (within the meaning of PCAOB auditing standard No. 5) is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the company’s financial reporting.

Our management is aware of the material weaknesses in our internal control over financial reporting, and has acknowledged the increased possibility of errors existing in our financial statements as of December 31, 2013. The reportable conditions and other areas of internal control over financial reporting identified by us as needing improvement have cause an increased possibility of a material misstatement of our financial statements, however we are not aware of any instance where such reportable conditions or other identified areas of weakness have resulted in a material misstatement or omission in any report we have filed with or submitted to the Commission. Accordingly, while we believe that our financial controls were ineffective, we do not believe there to be any material misstatements in our financial statements at December 31, 2013.

Limitations on Controls

Management does not expect that the Company's disclosure controls and procedures or the Company's internal control over financial reporting will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. The Company's disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives and the Company's chief executive officer and chief financial officer have concluded that the Company's disclosure controls and procedures are effective at that reasonable assurance level.

Changes in Internal Controls

During the six months ended December 31, 2013, 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

From time to time we may be a defendant or plaintiff in various legal proceedings arising in the normal course of our business. Except as described below, we know of no material, active, pending or threatened proceeding against us or our subsidiaries, nor are we, or any subsidiary, involved as a plaintiff or defendant in any material proceeding or pending litigation.

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;

An award to the Company of its costs; and

Such other relief as the Court may deem just and proper.

In the prior Visa and MasterCard Case and AMEX case, the Court excluded “contactless” credit card/pay system from the scope of the ‘464 patent claims.. In the August 2012 Case, the Company charged that VISA and MasterCard’s EMV debit/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.

Item 1A. RISK FACTORS

Not Applicable.

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

The following summarizes the securities that we sold during the three months ended December 31, 2013 without registering the securities under the Securities Act:

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During the three months ended December 31, 2013, the Company issued 1,595,000 shares for consulting services.

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 December 31, 2013 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)

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

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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: February 19, 2014	By:	/s/ C. Hendrick
		C. Hendrick, President, Chief Executive Officer and Chairman (Principal Executive Officer)

Dated: February 19, 2014	By:	/s/ Jay Needelman
		Jay Needelman, Chief Financial Officer (Principal Financial Officer)

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