SmartMetric, Inc. - Quarter Report: 2009 September (Form 10-Q)

form10q.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 September 30, 2009

( ) 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 [√] 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:

Large accelerated filer	[ ]	Accelerated filer	[ ]
Non-accelerated filer	[ ]	Smaller reporting company	[√]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [ ] No [√]

As of November 16, 2009, there were 75,546,222 shares issued and outstanding of the registrant’s common stock.

INDEX

		Page

PART I.	FINANCIAL INFORMATION	F-1
Item 1.	Financial Statements	F-2
	Condensed Consolidated Balance Sheets as of September 30, 2009 (unaudited) and June 30, 2009	F-2
	Condensed Consolidated Statements of Operations for the three months ended September 30, 2009 and 2008 (unaudited)	F-3
	Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the period December 18, 2002 (inception) to September 30, 2009 (unaudited)	F-4
	Condensed Consolidated Statements of Cash Flows for the three months ended September 30, 2009 and 2008 (unaudited)	F-6
	Notes to Unaudited Financial Statements	F-7
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. (T).	Controls and Procedures	5

PART II.	OTHER INFORMATION	6
Item 1.	Legal Proceedings	6
Item 1A.	Risk Factors	6
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6
Item 3.	Defaults Upon Senior Securities	7
Item 4.	Submission of Matters to Vote of Security Holders	7
Item 5.	Other Information	7
Item 6.	Exhibits	7
Signatures		8

PART I — FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2009 (UNAUDITED) AND JUNE 30, 2009	F - 2

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 WITH CUMULATIVE TOTALS SINCE DECEMBER 18, 2002 (INCEPTION) (UNAUDITED)	F- -3

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) FOR THE PERIOD DECEMBER 18, 2002 (INCEPTION) TO SEPTEMBER 30, 2009 (UNAUDITED)	F - 4

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 WITH CUMULATIVE TOTALS SINCE DECEMBER 18, 2002 (INCEPTION) (UNAUDITED)	F - 6

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2009 AND 2008	F - 7

F - 1

SMARTMETRIC, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2009 (UNAUDITED) AND JUNE 30, 2009


ASSETS	(unaudited)
	SEPTEMBER 30,			JUNE 30,
	2009			2009
Current Assets:
Cash and cash equivalents	$	-		$	42,519
Prepaid expenses and other current assets		10,954			38,758

Total Current Assets		10,954			81,277

Equipment, net of depreciation of $13,599 and $9,315, respectively		1,193			2,385

Other Assets:
Patent costs, net of amortization of $7,125 and $5,625, respectively		7,500			7,875

Total Other Assets		7,500			7,875

TOTAL ASSETS	$	19,647		$	91,537

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

LIABILITIES
Current Liabilities:
Accounts payable and accrued expenses	$	125,768		$	129,244
Cash overdraft		47,917			-
Payroll tax liabilities, accrued interest and penalties		287,474			240,677
Liability for stock to be issued		243,329			146,454

Total Current Liabilities		704,488			516,375

Total Liabilities		704,488			516,375

STOCKHOLDERS’ EQUITY (DEFICIT)
Preferred stock, $.01 Par Value; 5,000,000 shares authorized
and 0 shares issued and outstanding		-			-
Class A common stock, $.001 Par Value; 50,000,000 shares authorized
and 0 shares issued and outstanding		-			-
Common stock, $.001 Par Value; 100,000,000 shares authorized
and 75,546,222 and 75,546,222 shares issued and outstanding		75,546			75,546
Additional paid-in capital		4,569,388			4,569,388
Deficits accumulated during the development stage		(5,329,775	)		(5,069,772	)

Total Stockholders’ Equity (Deficit)		(684,841	)		(424,838	)

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)	$	19,647		$	91,537

F - 2

SMARTMETRIC, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
WITH CUMULATIVE TOTALS SINCE DECEMBER 18, 2002 (INCEPTION) (UNAUDITED)

							CUMULATIVE
							TOTALS SINCE
	THREE MONTHS ENDED						INCEPTION
	SEPTEMBER 30,						DECEMBER 18,
	2009			2008			2002

OPERATING REVENUES
Revenues	$	-		$	-		$	-

OPERATING EXPENSES

Research and development		27,376			181,392			840,975
Officer's salary		50,000			42,500			815,000
Other general and administrative expenses		176,059			133,649			3,629,344
Total Operating Expenses		253,435			357,541			5,285,319

LOSS BEFORE OTHER INCOME (EXPENSE)		(253,435	)		(357,541	)		(5,285,319	)


OTHER INCOME (EXPENSE)

Interest expense		(6,568	)		(1,794	)		(45,113	)
Interest income		-			-			657
Total Other Income (expense)		(6,568	)		(1,794	)		(44,456	)

NET LOSS BEFORE PROVISION FOR INCOME TAXES		(260,003	)		(359,335	)		(5,329,775	)
Provision for Income Taxes		-			-			-

NET LOSS APPLICABLE TO COMMON SHARES	$	(260,003	)	$	(359,335	)	$	(5,329,775	)

NET LOSS PER BASIC AND DILUTED SHARES		(0.00	)		(0.01	)

WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING		75,546,222			70,024,531

F - 3

SMARTMETRIC, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE PERIOD DECEMBER 18, 2002 (INCEPTION) THROUGH SEPTEMBER 30, 2009 (UNAUDITED)



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

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

Net loss for the period December 18, 2002 (incpetion)
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	)

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 loans 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	)

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

F - 4

SMARTMETRIC, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

FOR THE PERIOD DECEMBER 18, 2002 (INCEPTION) THROUGH SEPTEMBER 30, 2009 (UNAUDITED)

(CONTINUED)

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	)

Net loss for the period	-		-	-		-	-		-		-		(260,003	)		(260,003	)

Balance September 30, 2009	-	$	-	-	$	-	75,546,222	$	75,546	$	4,569,388	$	(5,329,775	)	$	(684,841	)

F - 5

SMARTMETRIC, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
WITH CUMULATIVE TOTALS SINCE DECEMBER 18, 2002 (INCEPTION) (UNAUDITED)

							CUMULATIVE
	THREE MONTHS ENDED						TOTALS SINCE
	SEPTEMBER 30,						DECEMBER 18,
	2009			2008			2002

CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(260,003	)	$	(359,335	)	$	(5,329,775	)

Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation		1,193			1,071			14,792
Amortization		375			375			7,500
Common stock issued for consulting services		-			-			599,339
Interest accrued on convertible notes payable		-			-			2,400

Changes in assets and liabilities
(Increase) decrease in prepaid expenses		27,803			3,203			(10,955	)
Increase (decrease) in accounts payable and accrued expenses		(3,476	)		87,433			125,768
Increase (decrease) in payroll taxes, accrued interest and penalties		46,797			(25,778	)		287,474
Increase (decrease) in liability for stock to be issued		96,875			-			243,329
Total adjustments		169,567			66,304			1,269,647

Net cash (used in) operating activities		(90,436	)		(293,031	)		(4,060,128	)

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 ACTIVITES
Proceeds from notes payable		-			-			60,000
Loans from related parties		-			-			54,427
Repayments of loans from related parties		-			-			(54,427	)
Stock subscriptions received from private placements		-			26,950			3,006,194
Sale of common stock in public offering		-			-			1,115,472
Increase (decrease) in cash overdraft		47,917			-			47,917
Public offering costs incurred		-			-			(138,471	)

Net cash provided by financing activities		47,917			26,950			4,091,112

NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS		(42,519	)		(266,081	)		-

CASH AND CASH EQUIVALENTS -
BEGINNING OF PERIOD		42,519			266,417			-

CASH AND CASH EQUIVALENTS - END OF PERIOD	$	-		$	336		$	-

CASH PAID DURING THE PERIOD FOR:
Income taxes	$	-		$	-		$	-
Interest expense	$	-		$	1,050		$	28,174

F - 6

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2009 AND 2008 (UNAUDITED)

NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION

The unaudited financial statements included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The financial statements and notes are presented as permitted on Form 10-Q and do not contain information included in the Company’s annual statements and notes. Certain information and footnote disclosure normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these financial statements be read in conjunction with the June 30, 2009 10-K and audited financial statements and the accompanying notes thereto. While management believes the procedures followed in preparing these financial statements are reasonable, the accuracy of the amounts are in some respects dependent upon the facts that will exist, and procedures that will be accomplished by the Company later in the year.

These unaudited financial statements reflect all adjustments, including normal recurring adjustments which, in the opinion of management, are necessary to present fairly the operations and cash flows for the periods presented.

SmartMetric, Inc. (the “Company” or “SmartMetric”) was incorporated in the State of Nevada on December 18, 2002. The Company is developing a credit card size plastic card embedded with an integrated circuit chip and biometric fingerprint sensor which provides identification of the user (the “SmartMetric Smart Card”) to market to government agencies, corporations, and organizations interested in identification cards.

Effective July 1, 2009, the Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 105-10, Generally Accepted Accounting Principles – Overall (“ASC 105-10”). ASC 105-10 establishes the FASB Accounting Standards Codification (the “Codification”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with U.S. GAAP. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. All guidance contained in the Codification carries an equal level of authority. The Codification superseded all existing non-SEC accounting and reporting standards. All other non-grandfathered, non-SEC accounting literature not included in the Codification is non-authoritative. The FASB will not issue new standards in the form of Statements, FASB Positions or Emerging Issue Task Force Abstracts. Instead, it will issue Accounting Standards Updates (“ASUs”). The FASB will not consider ASUs as authoritative in their own right. ASUs will serve only to update the Codification, provide background information about the guidance and provide the bases for conclusions on the change(s) in the Codification. References made to FASB guidance throughout this document have been updated for the Codification.

F - 7

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2009 AND 2008 (UNAUDITED)

NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION (CON TINUED)

Going Concern

As shown in the accompanying condensed consolidated financial statements the Company has incurred recurring losses of $260,003 and $359,335 for the three months ended September 30, 2009 and 2008 respectively, and has incurred a cumulative loss of $5,329,775 since inception (December 18, 2002). In addition, the Company has a working capital deficit in the amount of $693,534 as of September 30, 2009. The Company is currently in the development stage and has been spending a majority of their time in the development of their 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 for a reasonable period.

Management believes that the Company’s capital requirements will depend on many factors. These factors include the final phase of development 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 their technology. Additionally, the Company has allocated a substantial portion of their time and investment in bringing their 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.

F - 8

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2009 AND 2008 (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 derivative liabilities, bad debts, 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.

Fair Value of Financial Instruments

The carrying amounts reported in the condensed consolidated balance sheet for cash and cash equivalents, 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.

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 the SmartCard.

Accounts Receivable

The Company when it will conduct business it will extend credit based on an 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 monitors 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 at September 30, 2009. Accounts receivable will generally be due within 30 days and collateral is not required.

F - 9

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2009 AND 2008 (UNAUDITED)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Income Taxes

The Company accounts for income taxes utilizing the liability method. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities, and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

Uncertainty in Income Taxes

In July 2006, ASC 740-10 “Accounting for Uncertainty in Income Taxes” was issued (“ASC 740-10”). This interpretation requires recognition and measurement of uncertain income tax positions using a “more-likely-than-not” approach. ASC 740-10 is effective for fiscal years beginning after December 15, 2006. Management has adopted ASC 740-10 for 2007, and they evaluate their tax positions on an annual basis and have determined that as of September 30, 2009 no additional accrual for income taxes is necessary.

Advertising Costs

The Company expenses the costs associated with advertising as incurred. Advertising expenses for the three months ended September 30, 2009 and 2008 are included in other general and administrative expenses in the condensed consolidated statements of operations.

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.

When assets are retired or otherwise disposed of, the costs and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is recognized in income for the period. The cost of maintenance and repairs is charged to income as incurred; significant renewals and betterments are capitalized. Deduction is made for retirements resulting from renewals or betterments.

Impairment of Long-Lived Assets

Long-lived assets, primarily fixed 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.

F - 10

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2009 AND 2008 (UNAUDITED)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(Loss) Per Share of Common Stock

Basic net (loss) per common share is computed using the weighted average number of common shares outstanding. Diluted earnings per share ("EPS") include additional dilution 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.

The following is a reconciliation of the computation for basic and diluted EPS:

	September 30, 2009			September 30, 2008

Net loss	$	(260,003	)	$	(359,335	)

Weighted-average common shares
Outstanding (Basic)		75,546,222			70,024,531

Weighted-average common stock
Equivalents
Stock options		-			-
Warrants		3,667,569			4,362,953
Weighted-average commons shares
Outstanding (Diluted)		79,213,791			74,387,484

Stock-Based Compensation

In 2006, the Company adopted the provisions of ASC 718-10, “Share-Based Payments” (“ASC 718-10”). ASC 718-10 requires that compensation cost related to share-based payment transactions be recognized in the financial statements. Share-based payment transactions within the scope of ASC 718-10 include stock options, restricted stock plans, performance-based awards, stock appreciation rights, and employee share purchase plans. The provisions of ASC 718-10 are effective for small business issuers beginning as of the next interim period after December 15, 2005.

F - 11

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2009 AND 2008 (UNAUDITED)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Stock-Based Compensation (Continued)

The Company has elected to use the modified-prospective approach method. Under that transition method, the calculated expense in 2006 is equivalent to compensation expense for all awards granted prior to, but not yet vested as of July 1, 2006, based on the grant-date fair values. Stock-based compensation expense for all awards granted after July 1, 2006 is based on the grant-date fair values. The Company recognizes these compensation costs, net of an estimated forfeiture rate, on a pro rata basis over the requisite service period of each vesting tranche of each award. The Company considers voluntary termination behavior as well as trends of actual option forfeitures when estimating the forfeiture rate.

The Company measures compensation expense for its non-employee 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.

Segment Information

The Company follows the provisions of ASC 280-10, "Disclosures about Segments of an Enterprise and Related Information”. This standard requires that companies disclose operating segments based on the manner in which management disaggregates the Company in making internal operating decisions. The Company only operates in one reporting segment as of September 30, 2009 and for the three months ended September 30, 2009 and 2008.

Reclassifications

Certain balances for the three months ended September 30, 2008 have been reclassified to conform with the presentation for the three months ended September 30, 2009. The reclassifications have had no effect on the net loss for the three months ended September 30, 2008.

F - 12

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2009 AND 2008 (UNAUDITED)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Recent Accounting Pronouncements

In September 2006, ASC issued 820, “Fair Value Measurements.” ASC 820 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosure about fair value measurements. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007. Early adoption is encouraged. The adoption of ASC 820 did not have a material impact on the consolidated financial statements.

In February 2007, ASC issued 825-10, “The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of ASC 320-10” (“ASC 825-10”) which permits entities to choose to measure many financial instruments and certain other items at fair value at specified election dates. A business entity is required to report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. This statement is expected to expand the use of fair value measurement. ASC 825-10 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years.

In December 2007, ASC issued ASC 810-10-65, “Non-controlling Interests in Consolidated Financial Statements” (“ASC 810-10-65”). ASC 810-10-65 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, changes in a parent’s ownership of a non-controlling interest, calculation and disclosure of the consolidated net income attributable to the parent and the non-controlling interest, changes in a parent’s ownership interest while the parent retains its controlling financial interest and fair value measurement of any retained non-controlling equity investment.

ASC 810-10-65 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. The adoption of ASC 810-10-65 did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

F - 13

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2009 AND 2008 (UNAUDITED)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Recent Accounting Pronouncements (Continued)

In December 2007, the Company adopted ASC 805, Business Combinations (“ASC 805”), ASC 805 retains the fundamental requirements that the acquisition method of accounting be used for all business combinations and for an acquirer to be identified for each business combination. ASC 805 defines the acquirer as the entity that obtains control of one or more businesses in the business combination and establishes the acquisition date as the date that the acquirer achieves control. ASC 805 will require an entity to record separately from the business combination the direct costs, where previously these costs were included in the total allocated cost of the acquisition. ASC 805 will require an entity to recognize the assets acquired, liabilities assumed, and any non-controlling interest in the acquired at the acquisition date, at their fair values as of that date. ASC 805 will require an entity to recognize as an asset or liability at fair value for certain contingencies, either contractual or non-contractual, if certain criteria are met. Finally, ASC 805 will require an entity to recognize contingent consideration at the date of acquisition, based on the fair value at that date. This will be effective for business combinations completed on or after the first annual reporting period beginning on or after December 15, 2008. Early adoption of this ASC is not permitted and the ASC is to be applied prospectively only. The adoption of ASC 805 did not have a material effect on the Company’s consolidated financial position, results of operations or cash flows.

In March 2008, the ASC issued ASC 815, “Disclosures about Derivative Instruments and Hedging Activities” (“ASC 815”). ASC 815 requires enhanced disclosures about an entity’s derivative and hedging activities. These enhanced disclosures will discuss: how and why an entity uses derivative instruments; how derivative instruments and related hedged items are accounted for and its related interpretations; and how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. ASC 815 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company does not believe that ASC 815 will have an impact on their results of operations or financial position.

In April 2008, the ASC issued ASC 350, “Determination of the Useful Life of Intangible Assets”. This amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under ASC 350. The guidance is used for determining the useful life of a recognized intangible asset shall be applied prospectively to intangible assets acquired after adoption, and the disclosure requirements shall be applied prospectively to all intangible assets recognized as of, and subsequent to, adoption. The Company does not believe ASC 350 will materially impact their financial position, results of operations or cash flows.

F - 14

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2009 AND 2008 (UNAUDITED)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Recent Accounting Pronouncements (Continued)

Effective April 1, 2009, the Company adopted ASC 855, Subsequent Events (“ASC 855”). ASC 855 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It requires disclosure of the date through which an entity has evaluated subsequent events and the basis for that date – that is, whether that date represents the date the financial statements were issued or were available to be issued. This disclosure should alert all users of financial statements that an entity has not evaluated subsequent events after that date in the set of financial statements being presented. Adoption of ASC 855 did not have a material impact on the Company’s results of operations or financial condition. The Company has evaluated subsequent events through November 19, 2009, the date the financial statements were issued.

Effective July 1, 2009, the Company adopted FASB ASU No. 2009-05, Fair Value Measurement and Disclosures (Topic 820) (“ASU 2009-05”). ASU 2009-05 provided amendments to ASC 820-10, Fair Value Measurements and Disclosures – Overall, for the fair value measurement of liabilities. ASU 2009-05 provides clarification that in circumstances in which a quoted market price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using certain techniques. ASU 2009-05 also clarifies that when estimating the fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of a liability. ASU 2009-05 also clarifies that both a quoted price in an active market for the identical liability at the measurement date and the quoted price for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of the asset are required for Level 1 fair value measurements. Adoption of ASU 2009-05 did not have a material impact on the Company’s results of operations or financial condition.

Other ASU’s that have been issued or proposed by the FASB ASC that do not require adoption until a future date and are not expected to have a material impact on the financial statements upon adoption.

F - 15

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2009 AND 2008 (UNAUDITED)

NOTE 3 - EQUIPMENT

Equipment as of September 30, 2009 (unaudited) and June 30, 2009 were as follows:

	Estimated Useful Lives (Years)		September 30, 2009			June 30, 2009

Computer equipment	3 - 5	$	15,984		$	15,984

Less: accumulated depreciation			(14,791	)		(13,599	)
Equipment, net		$	1,193		$	2,385

There was $1,192 and $696 charged to operations for depreciation expense for the three months ended September 30, 2009 and 2008, respectively.

NOTE 4 - PATENT COSTS

Patent costs as of September 30, 2009 (unaudited) and June 30, 2009 were as follows:

	Estimated Useful Lives (Years)		September 30, 2009			June 30, 2009

Computer equipment	10	$	15,000		$	15,000

Less: accumulated depreciation			(7,500	)		(7,125	)
Equipment, net		$	7,500		$	7,875

There was $375 and $375 charged to operations for amortization expense for the three months ended September 30, 2009 and 2008, respectively.

NOTE 5 - COMMON STOCK SUBJECT TO POSSIBLE RESCISSION

On November 3, 2004, the Company deposited $102,311 from the sale of a total of 68,207 shares of common stock to investors at a price of $1.50 per share. The net proceeds to the Company, after deducting $44,052 in costs relating to this private placement for fees paid to an unrelated third party, was $58,259.

On January 30, 2005, the Company closed a second private placement which resulted in the sale of a total of 92,630 shares of common stock to investors at a price of $1.50 per share, or $138,945 gross proceeds. The net proceeds to the Company, after deducting $51,825 in costs relating to this private placement for fees paid to an unrelated third party, was $87,120.

F - 16

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2009 AND 2008 (UNAUDITED)

NOTE 5 - COMMON STOCK SUBJECT TO POSSIBLE RESCISSION (CONTINUED)

Since the private placements referred to in the preceding paragraphs occurred after the filing of the Company’s registration statement on Form SB-2 on September 3, 2004 and before its effectiveness on August 12, 2005, the related investors may have had rescission rights under the federal securities laws. Accordingly, the Company classified the $241,256 as temporary equity and the related costs of $95,877 as a deduction from stockholders’ equity (deficit).

The Company believes that the statute of limitations for claiming rescission ran on August 12, 2008 (three years from the date the shares were offered to the public). To date, none of the investors has made a claim for rescission. The Company has reclassified the temporary equity to permanent equity in the year ended June 30, 2009.

NOTE 6 - COMMITMENTS

PATENT LICENSE AGREEMENT

Effective August 1, 2004, the Company executed a license agreement with Applied Cryptology, 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 will receive 2% of all revenues generated by the Company on products which utilize this patented technology. The license fee will 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 may 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. This license agreement will remain in effect for the lives of the patents. The Company may utilize the technological applications anywhere in the world without limitation.

Employment Agreement

Effective July 1, 2004, the Company executed a one-year employment agreement with its president, which in June 2005 was renewed for one-year to June 30, 2006. Pursuant to the employment agreement, the president received an annual salary of $170,000. The employment agreement has not been renewed in writing however, the president continues to serve the Company and is being paid the same annual salary of $170,000.

Lease Agreement

The Company leases office space in Bay Harbor Islands, Florida under a month to month agreement at a monthly rental of $4,815 per month. Rent expense for the three months ended September 30, 2009 and 2008 was $7,900 and $22,245, respectively.

F - 17

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2009 AND 2008 (UNAUDITED)

NOTE 7 - STOCKHOLDERS’ EQUITY (DEFICIT)

Preferred Stock

As of September 30, 2009, the Company has 5,000,000 shares of preferred stock, par value $0.01, authorized and no shares issued and outstanding. There have been no issuances of preferred stock since the Company’s inception.

Class A Common Stock

As of September 30, 2009, 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.

As of September 30, 2009, the Company has 75,546,222 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 three 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 - 18

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2009 AND 2008 (UNAUDITED)

NOTE 8 - 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 three months ended June 30,2 008, 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 three months ended September 30, 2009, the Company has not issued any shares of stock and has received $96,875 of stock subscriptions for 972,000 shares which has been recorded as a liability for stock to be issued.

F - 19

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2009 AND 2008 (UNAUDITED)

NOTE 8 - STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED)

Warrants

The Company granted from time to time warrants in connection with private placements at various prices as noted herein. Each warrant is exercisable for 12 months from the date of issue into one share of common stock at various prices. As of September 30, 2009 and 2008, the following is a breakdown of the activity:

September 30, 2009:

Outstanding - beginning of period	3,750,569
Issued	-
Exercised	-
Expired	(83,000	)

Outstanding - end of period	3,667,569

September 30, 2008:

Outstanding - beginning of period	5,239,816
Issued	26,950
Exercised	-
Expired	(903,813	)

Outstanding - end of period	4.362,953

The 3,667,569 warrants outstanding at September 30, 2009, expire at various times through September 30, 2010.

The warrant agreements contain no clauses regarding adjustments to exercise price, net settlement provisions, registration rights or liquidated damages clauses.

NOTE 9 - PROVISION FOR INCOME TAXES

Deferred income taxes are determined using the liability method for the temporary differences between the financial reporting basis and income tax basis of the Company’s assets and liabilities. Deferred income taxes are measured based on the tax rates expected to be in effect when the temporary differences are included in the Company’s tax return. Deferred tax assets and liabilities are recognized based on anticipated future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax bases.

F - 20

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2009 AND 2008 (UNAUDITED)

NOTE 9 - PROVISION FOR INCOME TAXES (CONTINUED)

At September 30, 2009, deferred tax assets consist of the following:

Net operating losses	$	1,812,124

Valuation allowance		(1,812,124	)

	$	-

At September 30, 2009, the Company had a net operating loss carryforward in the amount of $5,329,775 available to offset future taxable income through 2029. The Company established valuation allowances equal to the full amount of the deferred tax assets due to the uncertainty of the utilization of the operating losses in future periods. A reconciliation of the Company’s effective tax rate as a percentage of income before taxes and federal statutory rate for the periods ended September 30, 2009 and 2008 is summarized as follows:

	2009		2008

Federal statutory rate	(34.0	%)	(34.0	%)

State income taxes, net of federal benefits	3.3		3.3

Valuation allowance	30.7		30.7
	0	%	0	%

NOTE 10 - FAIR VALUE MEASUREMENTS

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.

F - 21

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

Cautionary Notice Regarding Forward-Looking Statements

In this quarterly report (“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. We intend such forward-looking statements to be covered by the safe harbor provisions contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and in Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). 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 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;

· 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. 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, Colin 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 card 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 one gigabyte of memory capacity. SmartMetric has recently completed a prototype of its card but has not yet begun to manufacture the biometric cards utilizing its licensed technology. To date, SmartMetric has had no sales revenues.

A prototype of our biometric card was completed in February 2005 and we have been adjusting and developing software for the card since that date. The finished product will be the prototype or model for our biometric cards, which will be manufactured upon receipt of customer orders. We are in the process of revising some of the engineering of the prototype so as to decrease the size of the circuitry contained in the card. We expect that the revised prototype will be completed by January 2010.

We expect to outsource manufacturing of our biometric cards once we have sales orders. We do not intend to purchase any plants or significant equipment. Because SmartMetric does not own or rent a manufacturing facility, we will enter into a contract with a manufacturing facility to produce our biometric cards. Although we have engaged in preliminary negotiations with two potential manufacturers, no contract has been signed.

We currently have three full time employees, including Colin Hendrick, our President and Chief Executive Officer. Once we have begun to generate sales, we intend to hire additional employees.

SmartMetric does not believe its business is seasonal in any way.

Results of Operations

Comparison of the Three Months Ended September 30, 2009 and 2008

Revenue and Net Income (Loss)

For the three months ended September 30, 2009, there was $0 sales revenue and a net loss of $260,003. For the three months ended September 30, 2008, there was $0 sales revenue and a net loss of $359,335. This decreased loss of $99,332 or 27.6% resulted primarily from lower research and development costs .

General and Administrative Expenses

General and administrative expenses for the three months ended September 30, 2009 were $176,059, an increase of $42,410 or 31.7% compared to $133,649 for the comparable period in 2008. The increase was primarily attributable to increased promotional and travel costs.

Research and Development Expenses

Research and development expenses for the three months ended September 30, 2009 were $27,376, an decrease of $154,016 or 84.9% compared to $181,392 for the comparable period in 2008. The decrease was primarily attributable to the prototype nearing completion.

Interest Expenses

Interest expense for the three months ended September 30, 2009 was $6,568 compared to $1,794 for the comparable period in 2008, an increase of $4,774 or 266.1%. The increase was primarily attributable to interest accrued and/or paid to the Internal Revenue Service relating to payroll taxes.

Income Tax Expenses

Income tax for the three months ended September 30, 2009 was $0, unchanged from September 30, 2008.

Liquidity and Capital Resources

Cash and Cash Equivalent

Our cash and cash equivalents were $42,519 at the beginning of three months ended September 30, 2009 and decreased to ($47,917) by the end of such period, a decrease of $90,436 or 212%. The decrease was primarily attributable to increased travel costs and a bank overdraft.

Net cash provided by operating activities

Net cash used in operating activities was $90,436 for the three months ended September 30, 2009, an decrease of $202,595 or 69.1% from the comparable period in 2008.

Net cash used in investing activities

Net cash used in investing activities was $0 for three months ended September 30, 2009, unchanged from September 30, 2008.

Net cash provided by financing activities

Net cash provided by financing activities was $47,917 for the three months ended September 30, 2009, an increase of $20,967 or 77.8%, from the comparable period in 2008.

Contractual Obligations and Off-Balance Sheet Arrangements.

We have certain fixed contractual obligations and commitments that include future estimated payments. Changes in our business needs, cancellation provisions, changing interest rates, and other factors may result in actual payments differing from the estimates. We cannot provide certainty regarding the timing and amounts of payments. We have presented below a summary of the most significant assumptions used in our determination of amounts presented in the tables, in order to assist in the review of this information within the context of our financial position, results of operations, and cash flows.

The following table (in thousands) summarizes our contractual obligations as of September 30, 2009, and the effect these obligations are expected to have on our liquidity and cash flows in future periods.

		Totals				Less Than 1 Year				1 to 3 Years				Thereafter
Capital expenditures		$	0			$	0			$	0				0				—

Critical accounting policies and estimates

The 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 three months ended September 30, 2009.

Item 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

N/A.

Item 4T.

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 Offer and our Chief Financial Officer evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2009.

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 Securities 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 significant deficiencies in internal control over financial reporting described below, our disclosure controls and procedures were not effective as of September 30, 2009.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act. Our management is also required to assess and report on the effectiveness of our internal control over financial reporting in accordance with section 404 of the Sarbanes-Oxley of 2002 (“section 404”). Management assessed the effectiveness of our internal control over financial reporting as of September 30, 2009. In making this assessment we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. During our assessment of the effectiveness of internal control over financial reporting as of September 30, 2009, management identified significant deficiencies related to (i) the U.S. GAAP expertise of our internal accounting staff, (ii) our internal audit functions and (iii) a lack of segregation of duties within accounting functions. These deficiencies have, on occasion, prevented us from timely filing of our 8-K and 10-K. However, management believes that these deficiencies do not amount to a material weakness. Therefore our internal controls over financial reporting were effective as of September 30, 2009.

We became a reporting company in December 2002. We began preparing to be in compliance with the internal control obligations, including section 404, for our fiscal year ending June 30, 2003, with an accounting staff that was relatively inexperienced in working for a U.S. public company. During most of our first fiscal year, our internal accounting staff was primarily engaged in insuring compliance with accounting and reporting requirements to meet U.S. GAAP requirements. As a result, with the exception of certain additional persons hired towards the end of fiscal year ending June 30, 2003 to address these deficiencies, including the hiring of our Chief Financial Officer, our current internal accounting department responsible for financial reporting of the Company, on a consolidated basis, is relatively new to U.S. GAAP and the related internal control procedures required of U.S. public companies. Although our accounting staff is professionally trained in accounting requirements and procedures required by U.S. GAAP, management has determined that they require additional training and assistance in U.S. GAAP matters. Management has determined that our internal audit function is also deficient due to insufficient qualified resources to perform internal audit functions.

Changes in Internal Control over Financial Reporting

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

We have committed to the establishment of effective internal audit functions, however, due to the scarcity of qualified candidates with extensive experience in U.S. GAAP reporting and accounting in the region, we were not able to hire sufficient internal audit resources as of November 19, 2009. However, we will increase our search for qualified candidates with assistance from recruiters and through referrals.

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 separate individuals, and will ensure the timely filing of our 8-K and 10-K in the future.

We believe that the foregoing steps will remediate the deficiency identified above, and we will continue to monitor the effectiveness of these steps and make any changes that our management deems appropriate.

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 not aware of any material weaknesses in our internal control over financial reporting, and 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 September 30, 2009. 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, we believe that our financial controls were effective. These deficiencies, as stated above, have on occasion cause late filing of our 8-K, 10-Q and 10-K.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements or prevent late required quarterly filing with the SEC. Projections of any evaluations of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or the degree of compliance with the policies and procedures may deteriorate.

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.

PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

None. Notwithstanding the foregoing, the Company intends to protect its patents and to vigorously pursue actions against defendants that infringe on any of its intellectual property rights.

Item 1A. RISK FACTORS

Not Applicable.

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

None.

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 D or 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" as defined in Regulation D or Regulation S of the 1933 Act and otherwise had the requisite sophistication to make an investment in SmartMetric's securities.

Item 3. DEFAULTS UPON SENIOR SECURITIES

None.

Item 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

Item 5. OTHER INFORMATION

There were no matters required to be disclosed on Form 8-K during the three months ended September 30, 2009 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

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

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

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: November 23, 2009	By:	/s/ Colin Hendrick
		Colin Hendrick, President (Principal Executive Officer)


Dated: November 23, 2009	By:	/s/ Jay Needelman
		Jay Needelman , Chief Financial Officer (Principal Financial and Accounting Officer)