SmartMetric, Inc. - Quarter Report: 2013 March (Form 10-Q)

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, 2013

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

SECURITIES EXCHANGE ACT OF 1934.

For the transition period from to

Commission File No. 000-54853

SMARTMETRIC, INC.

(Exact name of small business issuer as specified in its charter)

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

101 Convention Center Drive, Las Vegas, NV 89109

(Address of principal executive offices)

(305) 495-7190

(Issuer’s telephone number)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	x

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

As of May 6, 2013, there were 135,642,629 shares issued and outstanding of the registrant’s common stock.

INDEX

		Page

PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed consolidated balance sheets as of March 31, 2013 (unaudited) and June 30, 2012	F-1
	Condensed consolidated statements of operations for the three and nine months ended March 31, 2013 and 2012 (unaudited) and for the period from December 18, 2002 (inception) through March 31, 2013 (unaudited)	F-2
	Condensed consolidated statements of cash flows for the nine months ended March 31, 2013 and 2012 (unaudited) and for the period from December 18, 2002 (inception) through March 31, 2013 (unaudited)	F-3
	Condensed consolidated statements of changes in stockholders’ equity (deficit) for the period December 18, 2002 (inception) through March 31, 2013 (unaudited)	F-4
	Notes to condensed consolidated financial statements (unaudited)	F-5 - F-14
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	6
Item 4.	Controls and Procedures	6

PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	8
Item 1A.	Risk Factors	9
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	9
Item 3.	Defaults Upon Senior Securities	9
Item 4.	Mine Safety Disclosures	9
Item 5.	Other Information	9
Item 6.	Exhibits	9
	Signatures	10

SMARTMETRIC, INC. AND SUBSIDIARY

(A Development Stage Company)

Condensed Consolidated Balance Sheets

(Unaudited)

	March 31,			June 30,
	2013			2012
	(unaudited)
Assets
Current assets:
Cash		104,170			889,589
Prepaid expenses and other current assets		1,130,334			749,162

Total current assets		1,234,504			1,638,751

Other assets:
Patent costs, less accumulated amortization of $12,750 and $11,625, respectively		2,250			3,375

Total assets	$	1,236,754		$	1,642,126

Liabilities and Stockholders' Equity

Current liabilities:
Accounts payable and accrued expenses		234,680			132,925
Liability for stock to be issued		501,517			924,392
Deferred Officer salary		67,026			67,026
Shareholder loan		21,422			1,422
Payroll taxes and related fees		-			16,551

Total current liabilities		824,645			1,142,316

Commitments and contingencies

Stockholders' equity:
Preferred stock, $.001 par value; 5,000,000 shares authorized, 400,000 shares issued and outstanding		400			200
Common stock, $.001 par value; 200,000,000 shares authorized, 135,642,629 and 118,974,672 shares issued and outstanding , respectively		135,643			118,975
Additional paid-in capital		15,087,170			11,657,012
Deficit accumulated during the development stage		(14,811,104	)		(11,276,377	)

Total Stockholders' equity		412,109			499,810

Total liabilities and stockholders' equity	$	1,236,754		$	1,642,126

See notes to condensed consolidated financial statements.

F-1

SMARTMETRIC, INC. AND SUBSIDIARY

(A Development Stage Company)

Condensed Consolidated Statements of Operations

(unaudited)

	Nine			Nine			Three			Three			During the
	Months			Months			Months			Months			Development
	Ended			Ended			Ended			Ended			Stage
													December
	March			March			March			March			18, 2002 to
	31,			31,			31,			31,			March 31,
	2013			2012			2013			2012			2013

Revenues	$	-		$	-		$	-		$	-		$	-

Expenses:
Officer's salary		134,167			127,500			47,500			42,500			1,409,167
Other general and administrative		2,759,862			1,653,859			718,052			461,971			11,178,425
Research and development		640,698			232,064			343,650			84,211			2,161,686

Total operating expenses		3,534,727			2,013,423			1,109,202			588,682			14,749,278

Loss from operations		(3,534,727	)		(2,013,423	)		(1,109,202	)		(588,682	)		(14,749,278	)

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

Loss before income taxes		(3,534,727	)		(2,013,423	)		(1,109,202	)		(588,682	)		(14,811,104	)

Income taxes		-			-			-			-			-

Net loss	$	(3,534,727	)	$	(2,013,423	)	$	(1,109,202	)	$	(588,682	)		(14,811,104	)

Net loss per share, basic and diluted	$	(0.03	)	$	(0.02	)	$	(0.01	)	$	(0.01	)

Weighted average number of common shares outstanding, basic and diluted		127,364,526			106,571,596			133,700,852			108,143,668

See notes to condensed consolidated financial statements.

F-2

SMARTMETRIC, INC. AND SUBSIDIARY

(A Development Stage Company)

Condensed Consolidated Statements of Cash Flows

(unaudited)

							During the
	Nine			Nine			Development
	Months			Months			Stage
	Ended			Ended			(December
	March			March			18, 2002) to
	31,			31,			March 31,
CASH FLOWS FROM OPERATING ACTIVITIES		2013			2012			2013
Net loss	$	(3,534,727	)	$	(2,013,423	)	$	(14,811,104	)

Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		-			-			15,984
Amortization		1,125			1,125			12,750
Common stock and warrants issued and issuable for services		2,175,771			102,881			5,263,370
Interest accrued on convertible notes payable		-			-			2,400


Changes in assets and liabilities
(Increase) decrease in prepaid expenses and other current assets		(381,172	)		827,470			(1,130,334	)
Increase in accounts payable and accrued expenses		101,755			11,193			234,680
(Decrease) increase in liability for stock to be issued		(422,875	)		-			501,517
Increase in deferred officer's salary		-			13,732			67,026
Decrease in payroll taxes and related fees		(16,551	)		(159,668	)		-

Net cash used in operating activities		(2,076,674	)		(1,216,690	)		(9,843,711	)

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

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable		-			-			60,000
Loans from related parties		20,000			-			94,343
Repayments of loans from related parties		-			(11,000	)		(72,921	)
Proceeds from sale of common stock		1,271,257			1,781,991			9,897,445

Net cash provided by financing activities		1,291,257			1,770,991			9,978,867

NET (DECREASE) INCREASE IN CASH		(785,417	)		554,301			104,172

CASH
BEGINNING OF PERIOD		889,589			272,599			-

END OF PERIOD	$	104,172		$	826,900		$	104,172

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

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Conversion of notes payable and accrued interest to common stock	$	-		$	-		$	62,400
Issuance of preferred stock and reduction of additional paid in capital for patent	$	200		$	-		$	400

See notes to condensed consolidated financial statements.

F-3

SMARTMETRIC, INC. AND SUBSIDIARY

(A Development Stage Company)

Consolidated Statement of Changes In Stockholders' Equity (Deficit)

For The Period Ended December 31, 2012 with Cumulative Totals Since December 18, 2002 (Inception)

(unaudited)

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

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

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

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

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

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

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

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

Costs associated
with sale of
common stock
subject to
possible
rescission		-		-		-			-			-		-		(95,877	)		-			(95,877	)
Total Stockholders' deficit
Net loss for the
year		-		-		-			-			-		-		-			(258,355	)		(258,355	)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Net cash (used in) investing activities common stock for cash		-		-		-			-			8,808,000		8,808		431,592						440,400

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

Warrants issued
for services																337,750						337,750

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

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

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

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

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

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

Shares issued of
common stock and
warrants for cash		-		-		-			-			13,149,250		13,149		2,240,635			-			2,253,784

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

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

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

Shares issued of
common stock and
warrants for services
rendered		-		-		-			-			3,037,104		3,037		673,123			-			676,160

Shares issued of
common stock and
warrants for cash		-		-		-			-			300,000		300		59,700			-			60,000

Net loss for the
period		-		-		-			-			-		-		-			(949,756	)		(949,756	)

Balance September
30, 2012		200,000	$	200		-		$	-			122,311,776	$	122,312	$	12,389,835		$	(12,226,133	)	$	286,214

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

Shares issued of
common stock and
warrants for services
rendered		-		-		-			-			4,520,788		4,521		1,012,455			-			1,016,976

Shares issued of
common stock and
warrants for cash		-		-		-			-			1,195,000		1,195		237,805			-			239,000

Net loss for the
period		-		-		-			-			-		-		-			(1,475,769	)		(1,475,769	)

Balance December
31, 2012		400,000	$	400		-		$	-			128,027,564	$	128,028	$	13,639,895		$	(13,701,902	)	$	66,421

Shares issued of
common stock and
warrants for services
rendered		-		-		-			-			5,500,000		5,500		1,094,500			-			1,100,000

Shares issued of
common stock and
warrants for cash		-		-		-			-			2,115,065		2,115		352,775			-			354,890

Net loss for the
period		-		-		-			-			-		-		-			(1,109,202	)		(1,109,202	)

Balance March
31, 2013		400,000	$	400		-		$	-			135,642,629	$	135,643	$	15,087,170		$	(14,811,104	)	$	412,109

See notes to condensed consolidated financial statements.

F-4

PART I — FINANCIAL INFORMATION

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION

SmartMetric, Inc. (the “Company” or “SmartMetric”) was incorporated in the State of Nevada on December 18, 2002. SmartMetric’s main product is a fingerprint sensor activated card with a finger sensor onboard the card and a built-in rechargeable battery for portable biometric identification. This card may be referred to as a biometric card or the SmartMetric Biometric Datacard. SmartMetric has completed development of its card along with pre mass manufacturing cards but has not yet begun to mass manufacture the biometric fingerprint activated cards.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management of the Company, the accompanying unaudited financial statements contain all the adjustments (which are of a normal recurring nature) necessary for a fair presentation. Operating results for the three months and nine months ended March 31, 2013 are not necessarily indicative of the results that may be expected for the year ending June 30, 2013. 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, 2012, as filed with the Securities and Exchange Commission.

Going Concern

As shown in the accompanying condensed consolidated financial statements the Company has incurred recurring losses of $3,534,727 and $2,013,423 for the nine months ended March 31, 2013 and 2012 respectively, and has incurred a cumulative loss of $14,811,104 since inception (December 18, 2002). The Company is currently in the development stage and has spent a substantial portion of its time in the development of its technology.

There is no guarantee that the Company will be able to raise enough capital or generate revenues to sustain its operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

Management believes that the Company’s capital requirements will depend on many factors. These factors include the final phase of development and mass production being successful as well as product implementation and distribution.

The condensed consolidated financial statements do not include any adjustments relating to the carrying amounts of recorded assets or the carrying amounts and classification of recorded liabilities that may be required should the Company be unable to continue as a going concern.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Development Stage Company

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

Principles of Consolidation

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

F-5

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates, including, but not limited to, those related to income taxes and contingencies. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid debt instruments and other short-term investments with an initial maturity of three months or less to be cash equivalents. Any amounts of cash in financial institutions over FDIC insured limits exposes the Company to cash concentration risk. The Company has no cash equivalents.

Fair Value of Financial Instruments

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

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

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

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

Level 3 inputs: Instruments with primarily unobservable value drivers.

Research and Development

The Company annually incurs costs on activities that relate to research and development of new technology and products. Research and development costs are expensed as incurred.

Revenue Recognition

The Company has not recognized revenues to date. The Company anticipates recognizing revenue in accordance with the contracts it enters into for the sale and distribution of its products.

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.

F-6

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Uncertainty in Income Taxes

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

Advertising Costs

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

Equipment

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

Impairment of Long-Lived Assets

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

Loss Per Share of Common Stock

Basic net loss per common share is computed using the weighted average number of common shares outstanding. The calculation of diluted earnings per share ("EPS") includes consideration of dilution arising from common stock equivalents, such as stock issuable pursuant to the exercise of stock options and warrants. Common stock equivalents were not included in the computation of diluted earnings per share on the consolidated statement of operations due to the fact that the Company reported a net loss and to do so would be anti-dilutive for the periods presented.

Stock-Based Compensation

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

Reclassifications

Certain amounts in the 2012 condensed consolidated financial statements have been reclassified for comparative purposes to conform to the presentation in the current year condensed consolidated financial statements. These reclassifications had no effect on previously reported results.

F-7

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 3 - PREPAID EXPENSES

Prepaid expenses represent the unexpired terms of various consulting agreements and expire through September 2014, as well as advance rental payments. These consulting agreements were entered into for the issuance of common stock and warrants and were valued based on the stock price or computed warrant value at the time of the respective agreement.

NOTE 4 - PATENT COSTS

Patent costs as of March 31, 2013 and June 30, 2012 are summarized as follows:

	Estimated Useful Lives ( Years)		March 31, 2013			June 30, 2012

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

Less: accumulated amortization				(12,750	)		(11,625	)
Patent costs, net			$	2,250		$	3,375

Amortization expense was $1,125 for the nine months ended March 31, 2013 and 2012, respectively.

NOTE 5 - COMMITMENTS

Patent License Agreement

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

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

Lease Agreement

In February 2012, the Company entered into a facilities lease in Buenos Aires, Argentina for its manufacturing activities. The lease term is from March 1, 2012 through January 31, 2015. The Company also utilizes offices in Australia, Israel and Las Vegas, Nevada. The Company’s main office is located in Las Vegas, Nevada. Rent expense under all leases for the nine months ended March 31, 2013 and 2012 was $82,486 and $22,890 respectively. Total minimum future rental payments under all leases with terms in excess of one year are as follows:

Year ending June 30,	Amount

2013	$	19,269
2014		80,931
2015		48,558
Total	$	148,758

F-8

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Related Party Transactions

The Company’s president has made cash advances to the Company with an aggregate amount due of $21,422 and $1,422 as of March 31, 2013 and June 30, 2012, respectively. These advances bear interest at 5.00% per annum.

As of both March 31, 2013 and June 30, 2012, the Company has accrued the amount of $67,026, as deferred Officer salary for the difference between the president’s annual salary and the amounts paid.

NOTE 6 - STOCKHOLDERS’ EQUITY (DEFICIT)

Preferred Stock

As of March 31, 2013, the Company has 5,000,000 shares of preferred stock, par value $0.001, authorized and 400,000 shares issued and outstanding.

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

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

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

On December 11, 2009, the Company entered into an Assignment and Assumption Agreement with ACI (the “assignment and Assumption Agreement”). In accordance with the Assignment and Assumption Agreement, ACI conveyed, assigned and transferred to the Company all of ACI’s rights, title and interest in and to the Patent (see Note 5) and delegated to the Company all of its duties and obligations to be performed under the Patent; and the Company hereby accepts the assignment of all of ACI’s rights, title and interest to the Patent and the rights and delegation of duties and obligations and agrees to be bound by and to assume such duties and obligations.

In consideration for the assignment of the Patent, the Company issued 200,000 shares of Series B Convertible Preferred Stock. ACI may only convert these shares into common shares (in accordance with the conversion terms noted herein) upon delivering to the Company, a third party valuation of the assigned Patent conducted by a nationally qualified accounting firm or IP law firm mutually agreed upon between the Company and ACI, indicating that such Patent is valued at a minimum of $1,000,000.

In connection with the Assignment and Assumption Agreement, the Company and ACI entered into a 24 month 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. As of December 11, 2011, ACI did not exercise its option to purchase back the patent within the 24 month option period, and Smartmetric owns, outright, all rights, title and interest in the patent.

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

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

F-9

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Class A Common Stock

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

Common Stock

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

As of March 31, 2013, the Company has 135,642,629 shares of common stock issued and outstanding.

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

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

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

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

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

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

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

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

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

F-10

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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

Common Stock (Continued)

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

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

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

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

In the year ended June 30, 2012, the Company sold 271.054 units (representing 13,552,820 shares of stock and twelve month warrants to purchase an additional 13,552,820 shares at $0.80 per share), for net proceeds of $2,208,459. In addition, the Company issued 3,278,213 shares of common stock for legal and consulting services at a value of $972,006. In addition, during the three months ended June 30, 2012, the Company authorized to be issued 3,881,978 shares for services. These shares ranged in value from $0.05 to $0.26.

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

During the three months ended September 30, 2012, the Company authorized to be issued 4,379,122 shares for legal and consulting services valued at $627,899.

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

During the three months ended December 31, 2012, the Company authorized to be issued 5,575,000 shares for consulting services valued at $1,115,000.

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

Warrants

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

In October 2009, the Company executed a warrant agreement with an investor relations company for 5,000,000 warrants to be issued in two tranches. The first tranche of 2,500,000 warrants (the “October warrants”) has been issued in October 2009, and the second tranche of 2,500,000 warrants has been issued on March 31, 2010 (the “March warrants”). The October warrants, which were initially set to expire October 25, 2012 but have been extended by the Company to expire on October 25, 2014, have strike prices as follows: 1,000,000 at $0.10 per share; 1,000,000 at $0.15 per share; and 500,000 at $0.20 per share. The March warrants, which were initially set to expire March 29, 2013 but have been extended by the Company to expire on March 29, 2015, have strike prices as follows: 500,000 at $0.20 per share; 1,000,000 at $0.25 per share; and 1,000,000 at $0.30 per share.

F-11

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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

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

In connection with the extension of the above referenced warrants, the Company assigned a value of $364,077 using the Black-Scholes option pricing model. The Company recorded the charge to consulting expenses, included as a component of other general and administrative expenses, during the nine months ended March 31, 2013.

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

As of March 31, 2013 and June 30, 2012, the following is a breakdown of the activity:

March 31, 2013:

Outstanding – beginning of period	18,802,820
Issued	6,410,078
Exercised	-
Expired	(11,417,820	)
Outstanding – end of period	13,795,078

June 30, 2012:

Outstanding - beginning of year	8,279,028
Issued	13,802,820
Exercised	-
Expired	(3,279,028	)

Outstanding - end of year	18,802,820

At March 31, 2013, all of the 13,795,078 warrants are vested and 7,545,078 warrants expire at various times through March 31, 2014, 250,000 warrants expire on May 8, 2014, 1 million warrants expire on June 20, 2014, 2.5 million warrants expire on October 25, 2014, and 2.5 million warrants expire on March 29, 2015. The Company valued the May 2012 warrants using the Black-Scholes method with the following criteria: stock price of $0.26; strike price of $0.50; volatility 148% and interest rate of 0.27%. The criteria yielded an option value of $0.16 resulting in a value of $39,266 for the 250,000 warrants. The expense has been included in other general and administrative expenses in the consolidated statement of operations.

F-12

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 7 - INCOME TAXES

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

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

NOTE 8 - LITIGATION

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

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

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

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

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

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

The Company has served a claim for damages and paid up royalty for an aggregate amount of $13.4 billion in connection with its patent infringement litigation against Mastercard and Visa, Inc.

The Company intends to continue to vigorously pursue its infringement claim in the Visa and MasterCard case.

F-13

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 9 - SUBSEQUENT EVENTS

On May 7, 2013, ACI has elected to convert 190,000 shares of its Series B Preferred Stock into shares of common stock, par value $0.001 per share (the “Common Stock”), of the Company. The number of shares of Common Stock to be issued is 9,500,000, with a value of $950,000. ACI may convert these shares at any time during 2013. As of the date of this filing, the Board of Directors approved the conversion.

F-14

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

Cautionary Notice Regarding Forward-Looking Statements

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

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

The forward-looking statements included herein are based on current expectations that involve a number of risks and uncertainties set forth under “Risk Factors” in our Annual Report on Form 10-K as of and for the year ended June 30, 2012 and other periodic reports filed with the United States Securities and Exchange Commission (“SEC”). Accordingly, to the extent that this Report contains forward-looking statements regarding the financial condition, operating results, business prospects or any other aspect of the Company, please be advised that the Company’s actual financial condition, operating results and business performance may differ materially from that projected or estimated by the Company in forward-looking statements. We do not undertake any responsibility to publicly release any revisions to these forward-looking statements to take into account events or circumstances that occur after the date of this Report, except as required by law. Additionally, we do not undertake any responsibility to update you on the occurrence of any unanticipated events which may cause actual results to differ from those expressed or implied by any forward-looking statements.

Overview

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

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

The Company is currently concentrating on building out its manufacturing facility that will be incorporating SmartMetric’s advanced manufacturing processes. We expect to begin mass production of our product in the last quarter of 2013 however this is dependent on a number of factors including the supply of specific silicon based components that may require a modest longer lead time then original planned.

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

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

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

SmartMetric does not believe its business is seasonal.

Results of Operations

Comparison of the Nine Months Ended March 31, 2013 and 2012

Revenue and Net Loss

For the nine months ended March 31, 2013, there was no revenue and a net loss of $3,534,727. For the nine months ended March 31, 2012, there was no revenue and a net loss of $2,013,423. This increased loss of $1,521,304 or 75.6% resulted primarily from higher general and administrative expenses.

General and Administrative Expenses

General and administrative expenses for the nine months ended March 31, 2013 were $2,759,862, an increase of $1,106,003 or 66.9% compared to $1,653,859 for the comparable period in 2012. This increase was primarily attributed to larger consulting expenses.

Research and Development Expenses

Research and development expenses for the nine months ended March 31, 2013 were $640,698, an increase of $408,634 or 176.1% compared to $232,064 for the comparable period in 2012. This increase was primarily attributable to higher engineering expenses.

Income Tax Expense

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

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

Revenue and Net Loss

For the three months ended March 31, 2013, there was no revenue and a net loss of $1,109,202. For the three months ended March 31, 2012, there was no revenue and a net loss of $588,682. This increased loss of $520,520, or 88.4% resulted primarily from higher general and administrative expenses, with higher research and development expenses contributing to a lesser extent.

General and Administrative Expenses

General and administrative expenses for the three months ended March 31, 2013 were $718,052, an increase of $256,081or 55.4% compared to $461,971for the comparable period in 2012. This increase was primarily attributed to higher consulting expenses.

Research and Development Expenses

Research and development expenses for the three months ended March 31, 2013 were $343,650, an increase of $259,439 or 308.1% compared to $84,211 for the comparable period in 2012. This increase was primarily attributable to higher engineering expenses.

Income Tax Expense

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

Liquidity and Capital Resources

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

At March 31, 2013, the Company had an accumulated deficit of $14,811,104 and it is likely that the Company will incur additional losses in the future. While we have funded our operations since inception from operations and through private placements of equity securities, there can be no assurance that adequate financing will continue to be available to us and, if available, on terms that are favorable to us.

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

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

Cash

Our cash balance was $104,170 at March 31, 2013 compared with $889,589 at June 30, 2012. The decrease was primarily attributable to higher general and administrative expenses and no revenues.

Net cash used in operating activities

Net cash used in operating activities was $2,076,674 for the nine months ended March 31, 2013, an increase of $859,984 or 70.7% from the comparable period in 2012. The Company is largely dependent on the capital it raises to fund operations. When capital is raised the development process is accelerated, and when cash flows are decreased the Company conserves its cash by delaying development and other operating costs.

Net cash used in investing activities

Net cash used in investing activities was $0 for the nine months ended March 31, 2013, unchanged from the comparable period in 2012.

Net cash provided by financing activities

Net cash provided by financing activities was $868,382 for the nine months ended March 31, 2013, a decrease of $902,609 or 51.0% from the comparable period in 2012. The decrease was attributable to fewer private placements of equity shares.

Contractual Obligations and Off-Balance Sheet Arrangements.

There were no off-balance sheet arrangements as of March 31, 2013 and June 30, 2012.

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

ACI did not exercise its option to purchase the patent back from Smartmetric within the 24 month option period, and Smartmetric owns, outright, all rights, title and interest in the patent.

Critical accounting policies and estimates

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

Intangible assets

SmartMetric issued 200,000 of its series B convertible preferred shares to ACI during the period in exchange for the Medical Keyring patent.

Item 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our exposure to market risk for changes in interest rates relates primarily to our short-term investments; thus, fluctuations in interest rates would not have a material impact on the fair value of these investments. At March 31, 2013, we had approximately $104,170 in cash and cash equivalents. A hypothetical 5% increase or decrease in either short term or long term interest rates would not have a material impact on our earnings or loss, or the fair market value or cash flows of these instruments.

Item 4.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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

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

Changes in Internal Control over Financial Reporting

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

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

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

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

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

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

Limitations on Controls

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

Changes in Internal Controls

During the three months ended March 31, 2013, there have been no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting

PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

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

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

On June 30, 2011, the Company filed a Notice of Appeal to the Judgment in the AMEX Case against what the Company believes to be erroneous definition and limitations placed on the ‘464 Patent as a result of wrongful interpretation. On July 1, 2012, the Company filed a Notice of Appeal to the Judgment in the Visa and Mastercard Case against what the Company believes to be erroneous interpretation of definitions and limitations placed on the ‘464 Patent by the Court.

On August 29, 2011, the Company filed a complaint in the United States District Court, Central District of California, against Master Card, Inc. (“MasterCard”) and Visa, Inc. (“Visa”) alleging patent infringement on the ‘464 Patent (the “August 2012 Case”). The Company is seeking the following relief from MasterCard and Visa:

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

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

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

The prior Visa and Mastercard Case and AMEX case excluded physical insertion of a credit card into a recess of a data card reader. In the August 2012 Case, the Company charged that Defendants’ “contact” and “contact/contactless” credit card systems infringe the ‘464 Patent. These systems do allow for physical insertion of an EMV/credit card into a recess of a data card reader, therefore presenting a distinguishing infringement issue. This distinction allows the Company the opportunity to pursue its infringement claims against all systems that require or permit the physical insertion of a chip-bearing card into a recess of a data card reader.

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

The Company has served a claim for damages and paid up royalty for an aggregate amount of $13.4 billion in connection with its patent infringement litigation against Mastercard and Visa, Inc.

Item 1A. RISK FACTORS

Not Applicable.

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

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

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

Item 3. DEFAULTS UPON SENIOR SECURITIES

None.

Item 4. MINE SAFETY DISCLOSURES

N/A.

Item 5. OTHER INFORMATION

There were no matters required to be disclosed on Form 8-K during the three months ended March 31, 2013 which were not disclosed on such form.

Item 6. EXHIBITS

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

Exhibit No.		Description

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

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

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

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

EX-101.INS		XBRL Instance Document*

EX-101.SCH		XBRL Taxonomy Extension Schema Document*

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

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

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

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

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

SIGNATURE

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

	SMARTMETRIC, INC.

Dated: May 15, 2013	By:	/s/ C. Hendrick
		C. Hendrick, President, Chief Executive Officer and Chairman (Principal Executive Officer)

Dated: May 15, 2013	By:	/s/ Jay Needelman
		Jay Needelman, Chief Financial Officer (Principal Financial Officer)