SmartMetric, Inc. - Quarter Report: 2011 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, 2011

( ) 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 May 9, 2011, there were 96,089,928 shares issued and outstanding of the registrant’s common stock.

INDEX

		Page

PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements	F-1
	Condensed consolidated Balance Sheets as of March 31, 2011 (unaudited) and June 30, 2010	F-1
	Condensed consolidated Statements of Operations for the three and nine months ended March 31, 2011 and 2010 and for the period from December 18, 2002 (inception) through March 31, 2011	F-2
	Condensed consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the period December 18, 2002 (inception) to March 31, 2011	F-3
	Condensed consolidated Statements of Cash Flows for the nine months ended March 31, 2011 and 2010 and for the period from December 18, 2002 (inception) through March 31, 2011	F-4
	Notes to Unaudited Condensed Consolidated Financial Statements	F-5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3
Item 3.	Quantitative and Qualitative Disclosures about Market Risk
Item 4.	Controls and Procedures	6

PART II.	OTHER INFORMATION	6
Item 1.	Legal Proceedings
Item 1A.	Risk Factors
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	8
Item 3.	Defaults Upon Senior Securities	8
Item 4.	Removed and Reserved	8
Item 5.	Other Information	8
Item 6.	Exhibits	8
	Signatures	9

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,
	2011			2010
Assets
Current assets:
Cash		573,577			-
Prepaid expenses and other current assets		9,069			4,069

Total current assets		582,646			4,069

Equipment, less accumulated depreciation of
$15,984 and $15,984, respectively		-			-

Other assets:
Patent costs, less accumulated amortization
of $9,750 and $8,625 respectively		5,250			6,375

Total assets	$	587,896		$	10,444

Liabilities and Stockholders' Equity (Deficit)

Current liabilities:
Accounts payable and accrued expenses		109,058			160,614
Liability for stock to be issued		1,590,760			154,004
Cash overdraft		-			15,141
Deferred officer's salary		90,376			82,424
Stockholder loan		12,422			19,916
Payroll taxes, withholdings and accrued
interest and penalties		384,753			436,271

Total current liabilities		2,187,369			868,370

Stockholders' equity (deficit):
Preferred stock, $.001 par value; 5,000,000 shares
authorized, 200,000 shares issued and outstanding		200			200
Common stock, $.001 par value; 200,000,000 shares
authorized, issued and outstanding 96,089,928 and
89,212,555 shares, respectively		96,090			89,212
Additional paid-in capital		6,249,213			5,734,086
Deficit accumulated during the development stage		(7,944,976	)		(6,681,424	)

Total stockholders' (deficit)		(1,599,473	)		(857,926	)

Total liabilities and stockholders (deficit)	$	587,896		$	10,444

See notes to condensed consolidated financial statements.

F-1

SMARTMETRIC, INC. AND SUBSIDIARY

(A Development Stage Company)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)




													Period from
													December 18, 2002
													(Inception) through
	Three Months Ended						Nine Months Ended						March
	March 31,						March 31,							31,
	2011			2010			2011			2010				2011

Revenues	$	-		$	-		$	-		$	-		$	-

Expenses:
Officer's salary		42,500			17,000			127,500			109,500			1,062,500
General and administrative		288,305			120,854			862,574			1,023,884			5,652,070
Research and development		251,365			17,388			263,067			58,119			1,164,014

Total expenses		582,170			155,242			1,253,141			1,191,503			7,878,584

Loss from operations		(582,170	)		(155,242	)		(1,253,141	)		(1,191,503	)		(7,878,584	)

Interest income					-			-			-			657
Interest expense		(3,314	)		(3,577	)		(10,411	)		(13,375	)		(67,049	)

Loss before income taxes		(585,484	)		(158,819	)		(1,263,552	)		(1,204,878	)		(7,944,976	)
Income taxes		-			-			-			-			-

Net loss		(585,484	)		(158,819	)		(1,263,552	)		(1,204,878	)		(7,944,976	)

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

Weighted average common
shares outstanding, basic and diluted		90,937,957			80,251,666			94,286,702			78,786,744

See notes to condensed consolidated financial statements.

F-2

SMARTMETRIC, INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

FOR THE PERIOD DECEMBER 18, 2002 (INCEPTION) THROUGH MARCH 31, 2011


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Warrants issued
for services																337,750						337,750

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

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

Shares issued of
common stock and
warrants for cash		-		-		-			-			5,651,623		5,652		339,054			-			344,706

Shares issued of
common stock
for services
rendered		-		-		-			-			1,225,750		1,226		176,073			-			177,299

Net loss for the
period		-		-		-			-			-		-		-			(1,263,552	)		(1,263,552	)

Balance March
31, 2011		200,000	$	200		-		$	-			96,089,928	$	96,090	$	6,249,213		$	(7,944,976	)	$	(1,599,473	)

See notes to condensed consolidated financial statements.

F-3

SMARTMETRIC, INC. AND SUBSIDIARY

(A Development Stage Company)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


							PERIOD FROM
							DECEMBER 18, 2002
							(INCEPTION)
	NINE MONTHS ENDED						THROUGH
	MARCH 31,						MARCH 31,
	2011			2010				2011

CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(1,263,552	)	$	(1,204,878	)	$	(7,944,976	)

Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation		-			2,385			15,984
Amortization		1,125			1,125			9,750
Common stock and warrants issued for consulting services		177,299			575,000			1,514,802
Interest accrued on convertible notes payable		-			-			2,400

Changes in assets and liabilities
(Increase) decrease in prepaid expenses		(5,000	)		27,804			(9,069	)
Increase (decrease) in accounts payable and accrued expenses		(51,556	)		101,823			109,058
Increase in deferred Officer's salary		7,952			-			90,376
Increase (decrease) in payroll taxes, accrued interest and penalties		(51,518	)		137,375			384,753

Net cash used in operating activities		(1,185,250	)		(359,366	)		(5,826,922	)


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


CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable		-			-			60,000
Increase in liability for stock to be issued		1,436,756			177,700			1,590,760
Increase (decrease) in cash overdraft		(15,141	)		-			-
Loans from related parties		-			-			74,343
Repayments of loans from related parties		(7,494	)		-			(61,921	)
Proceeds from issuance of common stock and warrants from private placements		344,706			146,500			3,791,300
Sale of common stock in public offering		-			-			1,115,472
Public offering costs incurred		-			-			(138,471	)

Net cash provided by financing activities		1,758,827			324,200			6,431,483

NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS		573,577			(35,166	)		573,577

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

CASH AND CASH EQUIVALENTS-END OF PERIOD	$	573,577		$	7,353		$	573,577

CASH PAID DURING THE YEAR FOR:
Income taxes	$	-		$	-		$	-
Interest expense	$	10,411		$	13,375		$	28,174

See notes to condensed consolidated financial statements.

F-4

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION

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.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Regulations S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of the management of the Company, the accompanying unaudited financial statements contain all the adjustments (which are of a normal recurring nature) necessary for a fair presentation. Operating results for the nine months and three months ended March 31, 2011 are not necessarily indicative of the results that may be expected for the year ending June 30, 2011. For further information, refer to the financial statements and the footnotes thereto contained in the Company’s Annual Report on Form 10-K for the year ended June 30, 2010, as filed with the Securities and Exchange Commission.

F-5

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -

ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)

Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company is currently in the development stage and has been spending a majority of its time and capital in the development of its technology. Since inception, the Company has continuing losses from its development stage activities, negative working capital and an accumulated deficit, which raises substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

NOTE 2 -

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Development Stage Company

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

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, SmartMetric Australia Pty. Ltd. All significant intercompany accounts and transactions have been eliminated in consolidation.

F-6

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 amount of cash in financial institutions over FDIC insured limits exposes the Company to cash concentration risk. The Company’s cash balance exceeded the insured limit by $323,577 and $0 at March 31, 2011 and June 30, 2010, respectively.

Fair Value of Financial Instruments

The carrying amounts reported in the 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, products and manufacturing processes. 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 will extend credit based on its evaluation of the customers’ financial condition, generally without requiring collateral. Exposure to losses on receivables is expected to vary by customer due to the financial condition of each customer. The Company will monitor exposure to credit losses and maintains allowances for anticipated losses considered necessary under the circumstances. The Company has not recorded any receivables, and therefore no allowance for doubtful accounts at March 31, 2011 and June 30, 2010.

F-7

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 -

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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 evaluates the Company’s tax positions on an annual basis and has determined that as of March 31, 2011 no additional accrual for income taxes is necessary.

Advertising Costs

The Company will expense the cost associated with advertising as incurred. Advertising expense will be 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, generally 3 - 5 years.

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-8

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.

Stock-Based Compensation

The Company measures compensation expense for its employee stock-based compensation under ASC 718-10, “Share-Based Payments” (“ASC 718-10”) and for its 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.

F-9

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 -

EQUIPMENT

Equipment as of March 31, 2011 (unaudited) and June 30, 2010 were as follows:


	Estimated Useful Lives ( Years)		March 31, 2011			June 30, 2010

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

Less: accumulated depreciation				(15,984	)		(15,984	)
Equipment, net			$	0		$	0

There was $0 and $0 charged to operations for depreciation expense for the three months ended March 31, 2011 and 2010, respectively, and $0 and $2,385 for the nine months ended March 31, 2011 and 2010, respectively.

NOTE 4 -

PATENT COSTS

Patent costs as of March 31, 2011 (unaudited) and June 30, 2010 were as follows:

	Estimated Useful Lives ( Years)		March 31, 2011			June 30, 2010

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

Less: accumulated amortization				(9,750	)		(8,625	)
Patent costs, net			$	5,250		$	6,375

There was $375 charged to operations for amortization expense in the three months ended March 31, 2011 and 2010, and $1,125 in the nine months ended March 31, 2011 and 2010.

F-10

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 -

COMMITMENTS

Patent License Agreement

Effective August 1, 2004, the Company executed a license agreement with Applied Cryptography, Inc. (“ACI”), a corporation controlled by the Company’s president and the owner of certain technology. Pursuant to the license agreement, the Company has the right to make use of this technology for the purpose of developing software and systems to be used by the Company to provide any or all of the following: 1) secure transactions over the Internet from home and office computers; 2) an automatic method for connecting to remote computers; 3) a method of developing targeted advertising to home and/or office computers; and 4) identity verification and access control as provided for in the patent. Pursuant to this license agreement, ACI will receive 2% of all revenues generated by the Company on products which utilize this patented technology. The license fee is payable within 45 days of the end of each 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 the Patent License Agreement was terminated.

Employment Agreement

Effective July 1, 2004, the Company executed a one-year employment agreement with its chief executive officer (“CEO”), 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 CEO 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. Rent expense was $3,900 and $1,800 for the three months ended March 31, 2011 and 2010, respectively, and $15,600 and $16,200 for the nine month period ended March 31, 2011 and 2010, respectively.

Related Party Transactions

The CEO currently holds his shares in the Company through ACI. ACI does not engage in any transactions with the Company.

Effective in November 2010, the Company entered into a license agreement with SmartDatatel, a company majority owned by ACI. SmartDatatel has licensed certain patent rights and other confidential information in a patent developed by the Company. The Company does not intend to use such patent rights in its current or anticipated future operations. A license fee of 5,000,000 shares of the common stock of SmartDatatel was received. In addition SmartDatatel is obligated to pay a royalty equal to five percent of revenues resulting from the use of the licensed patent rights. The Company has recorded no value for these shares as the consideration for these shares had no recorded value.

The Company has accrued the amount of $12,422 and $19,916 at March 31, 2011 and June 30, 2010, respectively, for various loans to the Company from our CEO. These loans contain terms of repayment over one year at an interest rate of 5.00% per annum. There is no formal agreement related to these loans.

The Company has accrued the amount of $90,376 and $82,424 at March 31, 2011 and June 30, 2010, respectively, as deferred officer’s salary for the difference between the CEO’s $170,000 per year contractual salary and the amount he has been paid through those dates.

Payroll Taxes

The Company has accrued the sum of $384,753 and $436,271 at March 31, 2011 and June 30, 2010, respectively, for payroll tax liability, inclusive of principal, interest and penalties. This is the result of the Company’s inability to pay the federal withholding tax, Social Security withholding and Medicare withholding from its employees’ salaries. Subsequent to March 31, 2011, the Company made an additional payment of $150,000 to further reduce this liability.

F-11

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 -

STOCKHOLDERS’ EQUITY (DEFICIT)

Preferred Stock

As of March 31, 2011, the Company has 5,000,000 shares of preferred stock, par value $0.001, authorized , and 200,000 shares issued and outstanding.

On December 11, 2009, the Company filed a Certificate of Designation with the State of Nevada, to designate 500,000 shares of the preferred stock to be designated as Series B Convertible Preferred Stock (“Series B Convertible Preferred Stock”).

Each share of Series B Convertible Preferred Stock has a par value of $0.001, and a stated value equal to $5.00 (“Stated Value”). Holders of the Series B Convertible Preferred Stock are entitled to receive dividends or other distributions with the holders of the common stock of the Company on an as converted basis when, as, and if declared by the directors of the Company. Holders of the Series B Convertible Preferred Stock are entitled to convert all or any one (1) share of the Series B Convertible Preferred Stock into fifty (50) shares of common stock.

Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary (“liquidation”), holders of the Series B Convertible Preferred Stock are entitled to receive out of the assets, whether capital or surplus, of the Company an amount equal to the Stated Value, pro rata with the holders of the common stock.

On December 11, 2009, the Company entered into an Assignment and Assumption Agreement with ACI (the “Assignment and Assumption Agreement”). In accordance with the Assignment and Assumption Agreement, ACI conveyed, assigned and transferred to the Company all of ACI’s rights, title and interest in and to the Patent and delegated to the Company all of its duties and obligations to be performed under the Patent.

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

F-12

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 -

STOCKHOLDERS’ EQUITY (DEFICIT)

Class A Common Stock

As of March 31, 2011, 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, 2011, the Company has 96,089,928 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-13

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 -

STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED)

Common Stock (Continued)

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

In the three months ended September 30, 2007, the Company sold a total of 903,813 Units at prices ranging from $0.30 to $0.34 per Unit in private placements resulting in net proceeds of $297,633. In the 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 year ended June 30, 2010, the Company has received $154,004 of stock subscriptions for 1,540,040 shares which has been recorded as a liability for stock to be issued. In addition, the Company issued 3,000,000 shares of common stock for investor relations services on November 9, 2009 at a value of $300,000 ($0.10 per share), and 525,000 shares for consulting services on December 15, 2009 at a value of $34,125 ($0.065 per share). The Company issued 1,333,333 shares of common stock for legal services on April 28, 2010 at a value of $66,289 ($0.05 per share). The related expense is included in other general and administrative expenses in the consolidated statement of operations. The company issued 44,795 units in private placements at a price of $0.05 per share and $10.00 per unit, representing 8,959,000 shares and net proceeds of $446,750.

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

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

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

F-14

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 -

STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED)

Warrants

The Company granted from time to time warrants with a terms of one-year through February 28, 2011 and six months subsequent to February 28, 2011, 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 has been issued on March 31, 2010 (the “March warrants”). The October warrants expire October 25, 2012, and have strike prices as follows: 1,000,000 at $0.10 per share; 1,000,000 at $0.15 per share; and 500,000 at $0.20 per share. The March warrants expire March 29, 2013, and have strike prices as follows: 500,000 at $0.20 per share; 1,000,000 at $0.25 per share; and 1,000,000 at $0.30 per share. For the nine months ended March 31, 2011, the following is a breakdown of the shares purchasable pursuant to the exercise of warrants:

Outstanding - July 1, 2010	7,239,750
Issued	1,699,028
Exercised	-
Expired	(1,621,000	)

Outstanding - March 31, 2011	7,317,778

All warrants are immediately exercisable. Of the 7,317,778 warrants outstanding, 2,317,778 warrants expire at various times through March 31, 2012, 2,500,000 warrants expire on October 25, 2012 and 2,500,000 warrants expire on March 31, 2013. The Company valued the October warrants using the Black-Scholes method with the following criteria: stock price $0.10; strike price $0.10, $0.15 and $0.20 (as noted above); volatility 249.75%; and interest rate 0.34%. The criteria yielded option values of $0.097 and $0.096, resulting in a value of $242,500 for the 2,500,000 warrants. The criteria used to value the 2,500,000 warrants for the March 2010 tranche was: stock price $0.04; strike price $0.20, $0.25 and $0.30 (as noted above); volatility 266% and interest rate of 5.0%. The criteria yielded option values of $0.0383, $0.0381 and $0.0380, resulting in a value of $95,250 for the 2,500,000 warrants. The expense has been included in other general and administrative expenses in the consolidated statement of operations for the nine months ended March 31, 2010.

F-15

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 and our ability to continue as a going concern;

· the actions and initiatives of current and potential competitors;

· investor sentiment; and

· our reputation.

We do not undertake any responsibility to publicly release any revisions to these forward-looking statements to take into account events or circumstances that occur after the date of this report. 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 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 September 2011.

The Company will contract outside silicon and component fabrication plants to manufacture specific components to its specifications. Assembly and creation of the sub-micro circuit boards are outsourced to different vendors. The final card assembly will be undertaken by SmartMetric, Inc.

We currently have two full time employees, including Colin Hendrick, our President and Chief Executive Officer.

SmartMetric does not believe its business is seasonal.

Results of Operations

Comparison of the Nine Months Ended December 31, 2011 and 2010

Revenue and Net Loss

For the nine months ended March 31, 2011, there was no revenue and a net loss of $1,263,552. For the nine months ended March 31, 2010, there was no revenue and a net loss of $1,204,878. This increased loss of $58,674 or 4.9 % resulted primarily from higher research and development costs, partially offset by lower general and administrative expenses.

General and Administrative Expenses

General and administrative expenses for the nine months ended March 31, 2011 were $862,574, a decrease of $161,310 or 15.8% compared to $1,023,884 for the comparable period in 2010. The decrease was primarily attributable to decreased payroll expenses, partially offset by increased consulting costs.

Research and Development Expenses

Research and development expenses for the nine months ended March 31, 2011 were $263,067, an increase of $204,948 or 352.6% compared to $58,119 for the comparable period in 2010. The increase was primarily attributable to higher engineering costs in the development of the production process, and partially offset by reduced engineering costs for the card as the card nears completion of its development.

Interest Expense

Interest expense for the nine months ended March 31, 2011 was $10,411 compared to $13,375 for the comparable period in 2010, a decrease of $2,964, or 22.2%. The decrease was primarily attributable to reduced interest on the reduced past due payroll tax liabilities.

Income Tax Expense

Income tax for the nine months ended March 31, 2011 was $0, unchanged from the comparable period in 2010. There was no income tax expense in either period due to losses in both periods and the Company being unable to recognize the net benefit of income tax loss carryforwards due to the uncertainty of realization of such benefits.

Comparison of the Three Months Ended March 31, 2011 and 2010

Revenue and Net Loss

For the three months ended March 31, 2011, there was no revenue and a net loss of $585,484. For the three months ended March 31, 2010, there was no revenue and a net loss of $158,819. This increased loss of $426,665 or 268.6% resulted primarily from higher research and development expenses and higher general and administrative expenses.

General and Administrative Expenses

General and administrative expenses for the three months ended March 31, 2011 were $288,305, an increase of $167,451 or 138.6% compared to $120,854 for the comparable period in 2010. The increase was primarily attributable to higher capital raising, travel and consulting costs.

Research and Development Expense

Research and development expenses for the three months ended March 31, 2011 were $251,365, an increase of $233,977 or 1,345.6% compared to $17,388 for the comparable period in 2010. The increase was primarily attributable to higher engineering costs in the development of the production process.

Interest Expense

Interest expense for the three months ended March 31, 2011 was $3,314 compared to $3,577 for the comparable period in 2010. The decrease was primarily attributable to reduced interest on the reduced past due payroll tax liabilities owed.

Income Tax Expense

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

Liquidity and Capital Resources

The Company is a development stage company and has spent a majority of resources and time in developing its technology. There is no guarantee that the Company can continue to raise enough capital or generate revenues to sustain its operations. These conditions raise a substantial doubt about the Company’s ability to continue as a going concern. Management believes that the Company’s capital requirements will depend on a number of factors including the final phase of product development and the development of its production process as well as product implementation and distribution. The consolidated financial statements do not include any adjustments relating to the carrying amounts of recorded assets or the carrying amount and classification of recorded liabilities that may be required should the Company be unable to continue as a going concern.

Cash and Cash Equivalents

Our cash and cash equivalents was $-0- at the beginning of the nine months ended March 31, 2011 and increased to $573,577 by the end of such period, an increase of $573,577, or 100.00%. The increase was primarily attributable to the Company raising capital in amounts greater than it operating costs for the period.

Net cash used in operating activities

Net cash used in operating activities was $1,185,250 for the nine months ended March 31, 2011, an increase of $825,884 or 229.8% from the comparable period in 2010. The Company is largely dependent on the capital it raises to fund operations. When capital is raised the development process is accelerated, and when cash flows are decreased the Company conserves its cash by delaying development and other operating costs.

Net cash used in investing activities

Net cash used in investing activities was $0 for nine months ended March 31, 2011, unchanged from March 31, 2010.

Net cash provided by financing activities

Net cash provided by financing activities was $1,758,827 for the nine months ended March 31, 2011, an increase of $1,434,627, or 442.5%, from the comparable period in 2010. This increase was based on the Company successfully raising new capital.

Contractual Obligations and Off-Balance Sheet Arrangements.

There were no contractual obligations as of March 31, 2011 and June 30, 2010.

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 nine months ended March 31, 2011.

Item 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

N/A.

Item 4.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15 of the Exchange Act, our management, including our Chief Executive Offer and our Chief Financial Officer evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2011.

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 material weaknesses in internal control over financial reporting described below, our disclosure controls and procedures were not effective as of March 31, 2011.

Changes in Internal Control over Financial Reporting

In order to correct the foregoing material weaknesses, 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 ofMay 23, 2011. 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 material weaknesses 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, 2011. 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, 2011.

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 July 27, 2010, the Company filed a second amended complaint (the “Visa and Mastercard Complaint”) in the United States District Court, Central District of California (the “Court”), Case No. 2:10-cv-01864, against MasterCard, Inc. and Visa, Inc. (collectively, the “Defendants”) alleging patent infringement on the Company’s patent, U.S. Patent 6,792,464 (the “’464 Patent”). On August 12, 2010, Defendants filed a Joint Motion to Dismiss the Company’s Amended Complaint. On September 16, 2010, the Court denied Defendants’ Motion to Dismiss. On November 10, 2010, the Company and Defendants filed a joint stipulation to continue deadline for filing joint scheduling report to the Court (the “Stipulation”) to postpone the deadline for filing the joint scheduling report from November 10, 2010 to November 30, 2010. On November 30, 2010 the parties filed their Rule 26(f) Joint Scheduling Order (the collectively, the “Visa and Mastercard Action”).On December 7, 2010, the Company filed a complaint (the “AMEX Complaint”) in the Court, Case No. CV10-9371 JHN (MANx), against American Express Company (“AMEX”) alleging patent infringement on the ’464 Patent. On January 21, 2011, the Company and AMEX filed a joint stipulation to the Court for each of the pending cases to be consolidated and proceed together on the same briefing schedule laid out under the Visa and Mastercard Action.

Item 1A. RISK FACTORS

Not Applicable.

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

In the three months ended March 31, 2011, the Company sold 3,913 Units (representing 905,617 shares and 195,650 warrants) during the three month period ending March 31, 2011, at prices ranging from $10.00 to $10,000 per Unit, or net proceeds of $386,059. Certain Units consisted of 200 shares of common stock and 50 warrants exercisable for twelve months from date of issue into one share of common stock at $0.50 per share. During the three months ended March 31, 2011, the Units were changed to consist of 25,000 shares and one six month warrant to purchase an additional 25,000 shares at $0.80 per share. During the three months ended March 31, 2011, the Company sold both types of Units.

Unless otherwise noted in this section, with respect to the sale of unregistered securities referenced above, all transactions were exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended (the "1933 Act"), and Regulation S promulgated under the 1933 Act. In each instance, the purchaser had access to sufficient information regarding SmartMetric so as to make an informed investment decision. More specifically, we had a reasonable basis to believe that each purchaser was an "accredited investor" as defined in 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 March 31, 2011 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: May23, 2011	By:	/s/ Colin Hendrick
		Colin Hendrick, President


Dated: May 23, 2011	By:	/s/ Jay Needelman
		Jay Needelman , Chief Financial Officer