SmartMetric, Inc. - Quarter Report: 2010 March (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 March 31, 2010

( ) 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 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 // 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 May 10, 2010, there were 81,836,222 shares issued and outstanding of the registrant’s common stock.

INDEX

		Page

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	F-1

	Consolidated Balance Sheets as of March 31, 2010 and June 30, 2009 (unaudited)	F-1

	Consolidated Statements of Operations for the three and nine months ended March 31, 2010 and 2009 (unaudited)	F-2

	Consolidated Statements of Cash Flows for the nine months ended March 31, 2010 and 2009 (unaudited)	F-3

	Notes to Unaudited Financial Statements	F-8-F-20

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 4T.	Controls and Procedures	5

PART II. OTHER INFORMATION		7

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	7

Item 4.	Removed and Reserved.	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 BALANCE SHEET

(UNAUDITED)

	March 31,			June 30,
	2010			2009

ASSETS
Current assets:
Cash	$	7,353		$	42,519
Prepaid expenses and other current assests	$	10,954		$	38,758
					-
Total current assets		18,307			81,277

Equipment, net accumulated depreciation of
$15,984 and $13,599, respectively		-			2,385

Other assets:
Patent costs, net accumulated amortization
of $8,250 and $7,125, respectively		6,750			7,875

Total assets	$	25,057		$	91,537

LIABILITIES AND STOCKHOLDERS' CAPITAL

Current Liabilities
Accounts payable and accrued expenses	$	231,067		$	129,244
Liability for stock to be issued	$	324,154		$	146,454
Payroll taxes, withholdings, and accrued
interest and penalties		378,052			240,677
Total current liabilities		933,273			516,375

Commitments and Contingencies

Stockholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares
authorized, 200,000 and 0 shares issued and outstanding, respectively		200			-
Class A common stock, $.001 par value; 50,000,000
shares authorized, 0 shares issued and outstanding
Common stock, $.001 par value; 100,000,000 shares
authorized, issued and outstanding 81,976,222 and
74,037,942 shares, respectively		81,976			75,546
Additional paid-in-capital		5,284,258			4,569,388
Deficit accumulated during the development stage		(6,274,650	)		(5,069,772	)

Total stockholders' equity		(908,216	)		(424,838	)

Total liabilities and stockholders' equity	$	25,057		$	91,537


See notes to condensed consolidated financial statements.

F - 1

SMARTMETRIC, INC. AND SUBSIDIARY

(A Development Stage Company)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

		Three Months Ended March 31,						Nine Months Ended March 31,						Cumulative During Development Stage (December 18, 2002 to March 31,
		2010			2009			2010			2009			2010)
REVENUES
	$	-		$	-		$	-		$	-		$	-

Operating expenses:
Officer's salary		17,000			42,500			109,500			127,500			874,500
Other general and administrative		120,854			136,255			1,023,884			432,188			4,477,169
Research and development		17,388			59,518			58,119			242,997			871,718

Total operating expenses		155,242			238,273			1,191,503			802,685			6,223,387

Loss from operations	$	(155,242	)	$	(238,273	)	$	(1,191,503	)	$	(802,685	)	$	(6,223,387	)

Interest income		-			-									657
Interest expense		(3,577	)		(2,089	)		(13,375	)		(5,387	)		(51,920	)


Total other expenses and income		(3,577	)		(2,089	)		(13,375	)		(5,387	)		(51,263	)

Net loss	$	(158,819	)	$	(240,362	)	$	(1,204,878	)	$	(808,072	)	$	(6,274,650	)

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

Weighted average number
of common shares
outstanding,
basic and diluted		80,251,666			73,252,658			78,786,744			71,533,425

See notes to condensed consolidated financial statements.

F - 2

SMARTMETRIC, INC. AND SUBSIDIARY

(A Development Stage Company)

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

							Cumulative
							During the
							Development
							Stage
							(December
	Nine Months Ended							18, 2002
	March 31,						to March 31
	2010			2009				2010)
CASH FLOWS FROM OPERATING ACTIVITIES
Reconciliation of net loss to net cash used in operating activities	$	(1,204,878	)	$	(808,072	)	$	(6,274,650	)
Interest accrued on convertible notes payable		-			-			2,400
Common stock issued for consulting services		575,000						1,174,339
Depreciation of equipment		2,385			3,213			15,984
Amortization of patent costs		1,125			1,125			8,250
Changes in Current Assets and Liabilities
Prepaid expenses		27,804			(12,837	)		(10,954	)
Organization costs		-
Accounts payable and accrued expenses		101,823			111,700			231,067
Liability for stock to be issued		177,700			-			324,154
Payroll taxes, withholdings, and accrued		-
interest and penalties		137,375			49,538			378,052


Net Cash Used in Operating Activities		(181,666	)		(655,333	)		(4,151,358	)

CASH FLOWS FROM INVESTING ACTIVITIES
Equipment purchased		-			-			(15,984	)
Patent costs incurred		-			-			(15,000	)

Net Cash Used in Investing Activities		-			-			(30,984	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable		-			-			60,000
Loans from related party		-			-			54,427
Repayment of loans from related party								(54,427	)
Stock subscriptions collected from private placements, net		146,500			405,290			3,152,694
Sale of common stock in public offering		-			-			1,115,472
Public offering costs incurred								(138,471	)

Net cash provided by financing activities		146,500			405,290			4,189,695

NET INCREASE (DECREASE) IN CASH		(35,166	)		(250,043	)		7,353

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

CASH - END OF PERIOD	$	7,353		$	16,374		$	7,353


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for interest	$	13,375		$	1,050		$	41,549
Cash paid during the period for income taxes		-			-			-

See notes to condensed consolidated financial statements.

F - 3

SMARTMETRIC, INC. AND SUBSIDIARY

(A Development Stage Company)

Condensed Consolidated Statements of Changes in Stockholders' Equity

(Unaudited)





												Deficit
												Accumulated			Total
									Additional			During the			Stockholders'
	Class A Common Stock				Common Stock				Paid-In			Development			Equity
	Shares		Amount		Shares		Amount		Capital			Stage			(Deficiency)

Net loss for period
December 18,
2002
(date of
inception)
to June 30, 2003		-	$	-		-	$	-	$	-		$	(60	)	$	(60	)

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

Sale of Class A
common stock in
October 2003 at a price
of $.001 per share		50,000,000		50,000		-		-		-			-			50,000

Sale of Common
stock
from October
2003
to June 2004 at a
price of $.01 per
share		-		-		8,560,257		8,560		77,042			-			85,602

Net loss for year
ended
June 30, 2004		-		-		-		-		-			(35,978	)		(35,978	)

Balances, 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 year
ended
June 30, 2005		-		-		-		-		-			(258,355	)		(258,355	)

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

Sale of Common
stock
from August
2005 to
February 2006 in public
offering at $1.50
per
share, less
offering
costs of $138,471		-		-		743,648		744		976,257			-			977,001

See notes to condensed consolidated financial statements.

F - 4

SMARTMETRIC, INC. AND SUBSIDIARY

(A Development Stage Company)

Condensed Consolidated Statements of Changes in Stockholders' Equity

(Unaudited)

														Deficit
														Accumulated			Total
											Additional			During the			Stockholders'
	Class A Common Stock						Common Stock				Paid-In			Development			Equity
	Shares			Amount			Shares		Amount		Capital			Stage			(Deficiency)

Conversion of
Class A
common stock to
common stock by
related parties in
February and
May 2006		(50,000,000	)		(50,000	)		50,000,000		50,000		-			-			-

Conversion of		-			-			-		-		-			(60	)		(60	)
$60,000
common stock to
loans payable and
accrued interest
to
common stock in
March 2006		-			-			40,000		40		62,360			-			62,400

Shares issued for
services		-			-			20,000		20		19,980			-			20,000

Sale of Units from
May
2006 to June
2006 in		-			-			8,560,257		8,560		77,042			-			85,602
private offering at
$1.15
per Unit less
offering
costs of $38		-			-			192,464		192		221,104			-			221,104

Net loss for year
ended
June 30, 2006		-			-			-		-		-			(1,225,045	)		(1,225,045	)

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

Sale of Units in
private
placements		-			-			1,208,887		1,209		759,140			-			760,349

Shares issues for
services
and adjustments		-			-			191,505		192		(192	)		-			-

Net loss for year
ended
June 30, 2007		-			-			-		-		-			(1,050,189	)		(1,050,189	)

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

See notes to condensed consolidated financial statements.

F - 5

SMARTMETRIC, INC. AND SUBSIDIARY

(A Development Stage Company)

Condensed Consolidated Statements of Changes in Stockholders' Equity

(Unaudited)

											Deficit
											Accumulated			Total
									Additional		During the			Stockholders'
	Class A Common Stock				Common Stock				Paid-In		Development			Equity
	Shares		Amount		Shares		Amount		Capital		Stage			(Deficiency)

Sale of Units in
private
placements		-		-		5,239,816		5,239		1,162,187		-			1,167,426

Sale of Units in
private
placements		-		-		1,389,818		1,390		131,408		-			132,798

Shares issued for
services		-		-		2,327,000		2,327		471,073					473,400

Net loss for year
ended
June 30, 2008		-		-		-		-		-		(1,397,056	)		(1,397,056	)

Balances, 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		-		-		4,412,593		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 year
ended
June 30, 2009		-		-		-		-		-		(1,103,089	)		(1,103,089	)

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

See notes to condensed consolidated financial statements.

F - 6

SMARTMETRIC, INC. AND SUBSIDIARY

(A Development Stage Company)

Condensed Consolidated Statements of Changes in Stockholders' Equity

(Unaudited)

																Deficit
																Accumulated			Total
	Series B Convertible												Additional			During the			Stockholders'
	Preferred Stock				Class A Common Stock				Common Stock				Paid-In			Development			Equity
	Shares		Amount		Shares		Amount		Shares		Amount		Capital			Stage			(Deficiency)

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

Shares issued of common
stock for
services rendered		-		-		-		-		3,500,000		3,500		329,000			-			332,500

Warrants issued
for services rendered		-		-		-		-		-		-		242,500						242,500

Net loss for the period
ended
December 31, 2009		-		-		-		-		-		-		-			(1,046,059	)		(1,046,059	)

Balances, December 31,
2009		200,000		200		-		-		79,046,222		79,046		5,140,688			(6,115,831	)		(895,897	)

Shares issued of common
stock for
cash		-		-		-		-		2,930,000		2,930		143,570			-			146,500

Net loss for the period
ended
March 31, 2010		-		-		-		-		-		-		-			(158,819	)		(158,819	)

Balances, March 31,
2010		200,000	$	200		-	$	-		81,976,222	$	81,976	$	5,284,258		$	(6,274,650	)	$	(908,216	)

See notes to condensed consolidated financial statements.

F - 7

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010 (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.

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 - 8

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010 (UNAUDITED)

NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)

Going Concern

As shown in the accompanying condensed consolidated financial statements the Company has incurred recurring losses of $1,204,878 and $808,072 for the nine months ended March 31, 2010 and 2009 respectively, and has incurred a cumulative loss of $6,274,650 since inception (December 18, 2002). In addition, the Company has a working capital deficit in the amount of $914,966 as of March 31, 2010. 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 - 9

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010 (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.

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.

F - 10

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010 (UNAUDITED)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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 - 11

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010 (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.

During March 2010 and 2009, the number of potential common shares excluded from diluted weighted-average number of outstanding shares was 6,123,569 and 6,316,772.

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 at fair value in the financial statements.

F - 12

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010 (UNAUDITED)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Stock-Based Compensation (Continued)

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.

Income Taxes

The Company accounts for income taxes in accordance with ASC 740, Accounting for Income Taxes, as clarified by ASC 740-10, Accounting for Uncertainty in Income Taxes. Under this method, deferred income taxes are determined based on the estimated future tax effects of differences between the financial statement and tax basis of assets and liabilities given the provisions of enacted tax laws. Deferred income tax provisions and benefits are based on changes to the assets or liabilities from year to year. In providing for deferred taxes, the Company considers tax regulations of the jurisdictions in which the Company operates, estimates of future taxable income, and available tax planning strategies. If tax regulations, operating results or the ability to implement tax-planning strategies vary, adjustments to the carrying value of deferred tax assets and liabilities may be required. Valuation allowances are recorded related to deferred tax assets based on the “more likely than not” criteria of ASC 740.

ASC 740-10 requires that the Company recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the “more-likely-than-not” threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.

F - 13

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010 (UNAUDITED)

NOTE 3 - EQUIPMENT

Equipment as of March 31, 2010 (unaudited) and March 31, 2009 (unaudited) were as follows:


	Estimated Useful Lives ( Years)		March 31, 2010			June 30, 2009

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

Less: accumulated depreciation				(15,984	)		(13,599	)
Equipment, net			$	-		$	2,385

There was $2,385 and $3,213 charged to operations for depreciation expense for the nine months ended March 31, 2010 and 2009, respectively.

NOTE 4 - PATENT COSTS

Patent costs as of March 31, 2010 (unaudited) and March 31, 2009 (unaudited) were as follows:

	Estimated Useful Lives ( Years)		March 31, 2010			June 30, 2009

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

Less: accumulated amortization				(8,250	)		(7,125	)
Patent costs, net			$	6,750		$	7,875

There was $750 and $750 charged to operations for amortization expense for the nine months ended March 31, 2010 and 2009, 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 - 14

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010 (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. Upon execution of the Assignment and Assumption Agreement on December 11, 2009 (see Note 7), the Patent License Agreement was terminated.

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 $1,800 per month for the nine months ended March 31, 2010. Rent expense for the nine months ended March 31, 2010 and 2009 was $16,200 and $61,925, respectively.

F - 15

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010 (UNAUDITED)

NOTE 7 - STOCKHOLDERS’ EQUITY (DEFICIT)

Preferred Stock

As of March 31, 2010, the Company has 5,000,000 shares of preferred stock, par value $0.001, authorized and no 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 will have a par value of $0.001, and a stated value equal to $5.00 (“Stated Value”). Holders of the Series B Convertible Preferred Stock shall be 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 shall be 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 shall be 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 conveys, assigns and transfers to the Company all of ACI’s rights, title and interest in and to the Patent (see Note 6) and delegates 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 has issued 200,000 shares of Series B Convertible Preferred Stock. ACI may only convert these shares into common shares in accordance with the conversion terms noted herein upon delivering to the Company, a third party valuation of the assigned Patent conducted by a nationally qualified accounting firm or IP law firm mutually agreed upon between the Company and ACI, indicating that such Patent is valued at a minimum of $1,000,000.

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

In accordance with SAB topic 5G "Tranfers of non monetary assets by promoters or shareholders" the patent is valued at the historical cost basis ($0) of the shareholder.

F - 16

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010 (UNAUDITED)

NOTE 7 - STOCKHOLDERS’ EQUITY (DEFICIT)

Class A Common Stock

As of March 31, 2010, the Company has 50,000,000 shares of Class A common stock, par value $0.001, authorized and no shares issued and outstanding. The Company in October 2003 issued 50,000,000 shares of Class A common stock at par value ($50,000). These shares were converted into 50,000,000 shares of common stock in February and May 2006.

Common Stock

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

As of March 31, 2010, the Company has 81,976,222 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 nine 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 nine 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 nine 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 - 17

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010 (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 six 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 nine 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 year 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 30,2 008, 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 nine months ended March 31, 2010, the Company has received $324,154 of stock subscriptions for 3,241,540 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 500,000 shares for consulting services on December 15, 2009 at a value of $32,500 ($0.065 per share).

F - 18

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010 (UNAUDITED)

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

Warrants

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

March 31, 2010:

Outstanding - beginning of period	5,332,569
Issued	2,500,000
Exercised	-
Expired	(918,000	)

Outstanding - end of period	6,914,569

March 31, 2009:

Outstanding - beginning of period	5,239,816
Issued	1,785,000
Exercised	-
Expired	(1,236,313	)

Outstanding - end of period	5,788,503

Of the 5,332,569 warrants outstanding, they all vest immediately and 2,832,569 warrants expire at various times through March 31, 2010, and the remaining 2,500,000 warrants expire October 25, 2012. The Company valued the October warrants using the black-scholes method with the following criteria: stock price $0.10; strike price $0.10, $0.15 and $0.20 (as noted above); volatility 249.75%; and interest rate 0.34%. The criteria yielded option values of $0.097 and $0.096, resulting in a value of $242,500 for the 2,500,000 warrants.

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

F - 19

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010 (UNAUDITED)

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.

At March 31, 2010, deferred tax assets consist of the following:

Net operating losses	$	1,204,878

Valuation allowance		( 1,204,878	)
	$	-

At March 31, 2010, the Company had a net operating loss carryforward in the amount of $6,274,650 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 March 31, 2010 and 2009 is summarized as follows:

	2010			2009

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	%

Pursuant to section 382 and 383 of the Internal Revenue Code, annual use of any of the Company's net operations loss or credit carry forwards may be limited if cumulative changes in ownership of more than 50% occur during any three year period.

F - 20

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 October 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 March 31, 2010 and 2009

Revenue and Net Income (Loss)

For the three months ended March 31, 2010, there was $0 sales revenue and a net loss of $158,819. For the three months ended March 31, 2009, there was $0 sales revenue and a net loss of $240,362. This decreased loss of $81,543 or 33.9% resulted primarily from decreased general and administrative costs .

General and Administrative Expenses

General and administrative expenses for the three months ended March 31, 2010 were $120,854 a decrease of $15,401 or 11.3% compared to $136,255 for the comparable period in 2009. The decrease was primarily attributable to reduced office expenses.

Research and Development Expenses

Research and development expenses for the three months ended March 31, 2010 were $17,388, a decrease of $42,130 or 70.8% compared to $59,518 for the comparable period in 2009. The decrease was primarily attributable to reduced technology costs as the prototype nears completion.

Interest Expenses

Interest expense for the three months ended March 31, 2010 was $3,577 compared to $2,089 for the comparable period in 2009, an increase of $1,488 or 40.4%. The increase was primarily attributable to increased payroll tax penalties.

Income Tax Expenses

Income tax for the three months ended March 31, 2010 was $0, unchanged from March 31, 2009.

Comparison of the Nine Months Ended March 31, 2009 and 2008

Revenue and Net Income (Loss)

For the nine months ended March 31, 2010, there was $0 sales revenue and a net loss of $1,204,878. For the nine months ended March 31, 2009, there was $0 sales revenue and a net loss of $808,072. This increased loss of $396,806 or 49.1% resulted primarily from increased general and administrative expenses.

General and Administrative Expenses

General and administrative expenses for the nine months ended March 31, 2010 were $1,023,884 an increase of $591,696 or 136.9% compared to $432,188 for the comparable period in 2009. The increase was primarily attributable to consulting costs.

Research and Development Expenses

Research and development expenses for the nine months ended March 31, 2010 were $58,119, a decrease of $184,878 or 76.1% compared to $242,997 for the comparable period in 2009. The decrease was primarily attributable to lower technology costs as the prototype nears completion.

Interest Expenses

Interest expense for the nine months ended March 31, 2010 was $13,375 compared to $5,387 for the comparable period in 2009, an increase of $7,988 or 148.3%. The increase was primarily attributable to increased payroll tax penalties.

Income Tax Expenses

Income tax for the nine months ended March 31, 2010 was $0, unchanged from March 31, 2009.

Liquidity and Capital Resources

The Company is a development stage company and has spent a majority of resources and time into developing their 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 for a reasonable period. Management believes that the Company’s capital requirements will depend on a number of factors including the final phase of product development as well as product implementation and distribution. The Company expects to continue to fund its operations through debt and/of equity financing.

Cash and Cash Equivalent

Our cash and cash equivalents were $42,519 at the beginning of nine months ended March 31, 2010 and decreased to $7,353 by the end of such period, a decrease of $35,166 or 82.7%. The decrease was primarily attributable to decreased funding compared to other periods.

Net cash provided by operating activities

Net cash used in operating activities was $181,666 for the nine months ended March 31, 2010, an decrease of $473,667 or 72.3%from the comparable period in 2009.

Net cash used in investing activities

Net cash used in investing activities was $0 for nine months ended March 31, 2010, unchanged from $0 from March 31, 2009.

Net cash provided by financing activities

Net cash provided by financing activities was $146,500 for the nine months ended March 31, 2010, a decrease of $258,790 or 63.9%, from the comparable period in 2009.

Contractual Obligations and Off-Balance Sheet Arrangements.

As of May 21, 2010, the Company has no current contractual obligations or commitments.

Critical accounting policies and estimates

Share-Based Compensation

We account for share-based awards in accordance with the Compensation-Stock Compensation Topic of FASB ASC 718, associated with the accounting for share-based compensation arrangements with employees and directors. These pronouncements require that equity-based compensation cost be measured at the grant date (based upon an estimate of the fair value of the compensation granted) and recorded to expense over the requisite service period, which generally is the vesting period. Accordingly, we estimate the value of employee stock options using a Black-Scholes option pricing model, where the assumptions necessary for the calculation of fair value include expected term and expected volatility, which are subjective and represent management’s best estimate based on the characteristics of the options granted.

Fair Value of Financial Instruments

Pursuant to a new accounting standard adopted in 2008, fair value is defined as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” The standard also establishes a three-tiered fair value hierarchy that prioritizes inputs to valuation techniques used in fair value calculations. The three levels of inputs are defined as Level 1 (unadjusted quoted prices for identical assets or liabilities in active markets), Level 2 (inputs that are observable in the marketplace other than those inputs classified in Level 1) and Level 3 (inputs that are unobservable in the marketplace). The Company’s financial assets and liabilities measured at fair value on a recurring basis consist of its investment securities and derivative financial instruments.

Intangible assets

SmartMetric did not purchase any intangible assets for the three months ended March 31, 2010.

Item 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

None.

Item 4T.

CONTROLS AND PROCEDURE

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 March 31, 2010.

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 March 31, 2010.

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 May 21, 2010. 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 all timely filings 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 aware of the material weaknesses in our internal control over financial reporting, however nothing has come to the attention of management that causes them to believe that any material inaccuracies or errors exist in our financial statements as of March 31, 2010. The reportable conditions and other areas of internal control over financial reporting identified by us as needing improvement have not resulted in a material misstatement of our financial statements. Nor are we aware of any instance where such reportable conditions or other identified areas of weakness have resulted in a material misstatement or omission in any report we have filed with or submitted to the Commission. Accordingly, even though material weaknesses in internal controls exist, management believes there to be no material inaccuracies or errors in the Company’s financial statements as of March 31, 2010.

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

On March 15, 2010, the Company filed a complaint in the United States District Court, Central District of California (the “Court”), Case No. CV10-01864, against MasterCard, Inc. (“MasterCard”) and Visa, Inc. (“Visa” and collectively with MasterCard, the “Defendants”), alleging patent infringement on the Company’s patent, U.S. Patent 6,792,464 (the “’464 Patent”). The Company is seeking the following relief from the Court against MasterCard and Visa:

a)	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;
b)	A preliminary and permanent injunction against both MasterCard and Visa prohibiting each of them from further infringement of the ‘464 Patent;

c)	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;
d)	An award to the Company of its costs; and

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

Item 1A. RISK FACTORS

Not Applicable.

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

The Company sold 14,560 units of unregistered securities during the three month period ending March 31, 2010, at a price of $10 per unit. Each unit consisted of 200 shares, with an additional 50 warrants to purchase one share per warrant.

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. REMOVED AND RESERVED

None.

Item 5. OTHER INFORMATION

There were no matters required to be disclosed on Form 8-K during the three months ended March 31, 2010 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: May 24, 2010	By:	/s/ Colin Hendrick
		Colin Hendrick, President


Dated: May 24, 2010	By:	/s/ Jay Needelman
		Jay Needelman , Chief Financial Officer