SmartMetric, Inc. - Quarter Report: 2014 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, 2014

¨ 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.)

3960 Howard Hughes Pkwy, Suite 500, Las Vegas, NV 89169
(Address of principal executive offices)

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

1150 Kane Concourse, Suite 401, Bay Harbor Islands, FL 33154
(Former name, former address and former fiscal year, if changed since last report

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

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

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

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

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

As of May 15, 2014, there were 165,136,517 shares issued and outstanding of the registrant’s common stock.

INDEX

		Page

PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed consolidated balance sheets as of March 31, 2014 (unaudited) and June 30, 2013	F-1
	Condensed consolidated statements of operations for the three and nine months ended March 31, 2014 and 2013 (unaudited) and for the period from December 18, 2002 (inception) through March 31, 2014 (unaudited)	F-2
	Condensed consolidated statements of cash flows for the nine months ended March 31, 2014 and 2013 (unaudited) and for the period from December 18, 2002 (inception) through March 31, 2014 (unaudited)	F-3
	Condensed consolidated statements of changes in stockholders’ equity (deficit) for the period December 18, 2002 (inception) through March 31, 2014 (unaudited)	F-4
	Notes to condensed consolidated financial statements (unaudited)	F-5 - F-15
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	7
Item 4.	Controls and Procedures	7

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	11

PART I — FINANCIAL INFORMATION

SMARTMETRIC, INC. AND SUBSIDIARY

(A Development Stage Company)

Condensed Consolidated Balance Sheets

	March 31,			June 30,
	2014			2013
	(unaudited)
Assets
Current assets:
Cash	$	62,869		$	804,257
Prepaid expenses and other current assets		337,741			799,699

Total current assets		400,610			1,603,956

Other assets:
Advances to shareholder		24,428			-
Patent costs, less accumulated amortization of $14,250 and $13,125, respectively		750			1,875

Total assets	$	425,788		$	1,605,831

Liabilities and Stockholders' (Deficit) Equity

Current liabilities:
Accounts payable and accrued expenses	$	252,843		$	262,648
Liability for stock to be issued		239,343			216,978
Deferred Officer salary		109,182			61,681
Shareholder loan		-			21,572

Total current liabilities		601,368			562,879

Commitments and contingencies

Stockholders' (deficit) equity:
Preferred stock, $.001 par value; 5,000,000 shares authorized, 210,000 and 400,000 shares issued and outstanding		210			400
Common stock, $.001 par value; 200,000,000 shares authorized, 165,136,517 and 147,698,950 shares issued and outstanding, respectively		165,136			147,699
Additional paid-in capital		18,148,449			16,859,447
Deficit accumulated during the development stage		(18,489,375	)		(15,964,594	)

Total Stockholders' (deficit) equity		(175,580	)		1,042,952

Total liabilities and stockholders' (deficit) equity	$	425,788		$	1,605,831

See notes to condensed consolidated financial statements.

F-1

SMARTMETRIC, INC. AND SUBSIDIARY

(A Development Stage Company)

Condensed Consolidated Statements Of Operations

(Unaudited)

	Nine Months			Nine Months			Three Months			Three Months			Development
	Ended			Ended			Ended			Ended			Stage
													December
	March			March			March			March			18, 2002 to
	31,			31,			31,			31,			March 31,
	2014			2013			2014			2013			2014

Revenues	$	-		$	-		$	-		$	-		$	-

Expenses:
Officer's salary		142,500			134,167			47,500			47,500			1,615,000
Other general and administrative		1,945,214			2,759,862			708,790			718,052			13,718,575
Research and development		437,067			640,698			58,490			343,650			3,093,974

Total operating expenses		2,524,781			3,534,727			814,780			1,109,202			18,427,549

Loss from operations		(2,524,781	)		(3,534,727	)		(814,780	)		(1,109,202	)		(18,427,549	)

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

Loss before income taxes		(2,524,781	)		(3,534,727	)		(814,780	)		(1,109,202	)		(18,489,375	)

Income taxes		-			-			-			-			-

Net loss	$	(2,524,781	)	$	(3,534,727	)	$	(814,780	)	$	(1,109,202	)	$	(18,489,375	)

Net loss per share, basic and diluted	$	(0.02	)	$	(0.03	)	$	(0.00	)	$	(0.01	)

Weighted average number of common shares outstanding, basic and diluted		159,722,082			127,364,526			163,349,821			133,700,852

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,
	2014			2013			2014
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(2,524,781	)	$	(3,534,727	)	$	(18,489,375	)

Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		-			-			15,984
Amortization		1,125			1,125			14,250
Common stock and warrants issued and issuable for services		1,029,007			2,175,769			6,940,993
Interest accrued on convertible notes payable		-			-			2,400


Changes in assets and liabilities
(Increase) decrease in prepaid expenses and other current assets		461,958			(381,172	)		(337,741	)
(Increase) decrease in advances to shareholder		(24,428	)		-			(24,428	)
Increase (decrease) in accounts payable and accrued expenses		(9,805	)		101,755			252,843
Increase (decrease) in deferred officer's salary		47,501			-			109,182
Increase (decrease) in payroll taxes and related fees		-			(16,551	)		-

Net cash used in operating activities		(1,019,423	)		(1,653,801	)		(11,515,892	)

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			94,493
Repayments of loans from related parties		(21,572	)		-			(94,493	)
Proceeds from sale of common stock		580,861			1,271,257			11,614,021
Liability for stock to be issued		(281,254	)		(422,875	)		(64,276	)

Net cash provided by financing activities		278,035			868,382			11,609,745

NET (DECREASE) INCREASE IN CASH		(741,388	)		(785,419	)		62,869

CASH
BEGINNING OF PERIOD		804,257			889,589			-

END OF PERIOD	$	62,869		$	104,170		$	62,869

CASH PAID DURING THE PERIOD 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
Conversion of Class A Common Stock to Common Stock	$	-		$	-		$	50,000
Conversion of Series B Convertible Preferred Stock to Common Stock	$	190		$	-		$	190

See notes to condensed consolidated financial statements.

F-3

SMARTMETRIC, INC. AND SUBSIDIARY

(A Development Stage Company)

Consolidated Statement of Changes In Stockholders' Equity (Deficit)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Shares issued of common stock and warrants for services rendered		-			-			-			-			2,134,166		2,134		435,066			-			437,200

Shares issued of common stock and warrants for cash		-			-			-			-			660,000		660		118,040			-			118,700

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

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

Shares issued of common stock and warrants for services rendered		-			-			-			-			2,798,776		2,799		372,350			-			375,149

Shares issued of common stock and warrants for cash		-			-			-			-			1,301,250		1,301		208,099			-			209,400

Net loss for the period		-			-			-			-			-		-		-			(814,780	)		(814,780	)

Balance March 31, 2014		210,000		$	210			-		$	-			165,136,517	$	165,136	$	18,148,449		$	(18,489,375	)	$	(175,580	)

See notes to condensed consolidated financial statements.

F-4

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 -

ORGANIZATION AND BASIS OF PRESENTATION

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

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management of the Company, the accompanying unaudited financial statements contain all the adjustments (which are of a normal recurring nature) necessary for a fair presentation. Operating results for the three-and-nine months ended March 31, 2014 are not necessarily indicative of the results that may be expected for the year ending June 30, 2014. For further information, refer to the financial statements and the footnotes thereto contained in the Company’s Annual Report on Form 10-K for the year ended June 30, 2013, as filed with the Securities and Exchange Commission.

Going Concern

As shown in the accompanying condensed consolidated financial statements the Company has incurred recurring losses of $2,524,781 and $3,534,727 for the nine months ended March 31, 2014 and 2013 respectively, and has incurred a cumulative loss of $18,489,375 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 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-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 condensed consolidated balance sheet for cash, accounts payable, and accrued expenses approximate fair value because of the immediate or short-term maturity of these financial instruments.

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

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

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

Level 3 inputs: Instruments with primarily unobservable value drivers.

Research and Development

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

Revenue Recognition

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

F-6

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 2 -

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Accounts Receivable

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

Uncertainty in Income Taxes

GAAP requires the recognition and measurement of uncertain income tax positions using a “more-likely-than-not” approach. Management evaluates Company tax positions on an annual basis and has determined that as of March 31, 2014 no accrual for uncertain income tax positions is necessary.

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

Advertising Costs

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

Equipment

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

Impairment of Long-Lived Assets

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

Loss Per Share of Common Stock

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

Stock-Based Compensation

The Company measures expense for issuances of stock-based compensation to employees and others at fair value of the stock and warrants issued, as this is more reliable than the fair value of the services received complete. The fair value of the equity instrument is charged directly to compensation expense and additional paid-in capital.

F-7

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Reclassifications

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

NOTE 3 -

PREPAID EXPENSES

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

NOTE 4 -

PATENT COSTS

Patent costs as of March 31, 2014 and June 30, 2013 are summarized as follows:

	Estimated Useful Lives ( Years)		March 31, 2014			June 30, 2013

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

Less: accumulated amortization				(14,250	)		(13,125	)
Patent costs, net			$	750		$	1,875

Amortization expense was $1,125 for the nine months ended March 31, 2014 and 2013, respectively.

NOTE 5 -

COMMITMENTS

Patent License Agreement

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

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

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

F-8

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Lease Agreement

In February 2012, the company entered into a facilities lease in Buenos Aires, Argentina for its manufacturing activities. The lease term is from March 1, 2012 through January 31, 2015. The Company also utilizes offices in Australia, Israel and Las Vegas, Nevada. The Company’s main office is located in Las Vegas, Nevada. Rent expense under all leases for the nine months ended March 31, 2014 and 2013 was $76,769 and $82,486 respectively. Total minimum future rental payments under all leases with terms in excess of one year are as follows:

Year ending June 30,	Amount

2014	$	26,337
2015		48,558
Total	$	187,297

Related Party Transactions

The Company has made cash advances to its Chief Executive Officer with an aggregate amount due the Company of $24,428 at March 31, 2014. At June 30, 2013, the Company owed its Chief Financial Officer $21,572 for cash advances made to the Company. These advances bear interest at the rate of five percent (5%) per annum.

The Company has accrued $109,182 and $61,682 at March 31, 2014 and June 30, 2013, respectively, for accrued but unpaid Officer salary, for amounts owed to the Company’s Chief Executive Officer.

F-9

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 6 -

STOCKHOLDERS’ EQUITY (DEFICIT)

Preferred Stock

As of March 31, 2014, the Company has 5,000,000 shares of preferred stock, par value $0.001, authorized and 210,000 shares issued and outstanding.

On December 11, 2009, the Company filed a Certificate of Designation with the State of Nevada, to designate 500,000 shares of the preferred stock to be designated as Series B Convertible Preferred Stock (“Series B Convertible Preferred Stock”). On September 3, 2013, the number of shares designated as Series B Convertible Preferred Stock was increased to 1,000,000 shares.

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

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

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

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

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

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

F-10

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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

Class A Common Stock

As of March 31, 2014, 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, 2014, the Company has 165,136,517 shares of common stock issued and outstanding.

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

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

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

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

F-11

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 6 -

STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED)

Common Stock (Continued)

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

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

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

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

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

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

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

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

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

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

F-12

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 6 -

STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED)

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

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

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

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

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

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

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

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

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

During the three months ended December 31, 2013, the Company issued 2,134,166 shares for consulting services, valued based on the stock price at the time of the respective agreements underlying the services provided.

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

During the three months ended March 31, 2014, the Company sold for cash 2,120,000 shares and twenty-four month warrants to purchase: (i) 4,240,000 shares at $0.70 per share, and (ii) 2,136,960 shares at $1.00 per share, for net proceeds of $338,687.

During the three months ended March 31, 2014, the Company issued 2,798,776 shares for consulting and legal services, valued based on the stock price at the time of the respective agreements underlying the services provided.

F-13

SMARTMETRIC INC. AND SUBSIDIARY

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Warrants

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

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

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

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

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

As of March 31, 2014 and June 30, 2013, the following is a breakdown of the Company’s warrant activity:

NOTE 6 -

STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED)

March 31, 2014:

Outstanding - June 30, 2013	21,757,578
Issued	7,552,326
Exercised	-
Expired	(7,910,078	)
Outstanding - March 31, 2014	21,399,826

June 30, 2013:

Outstanding - June 30, 2012	18,802,820
Issued	16,507,578
Exercised	-
Expired	(13,552,820	)

Outstanding - June 30, 2013	21,757,578

At March 31, 2014, all of the 21,399,826 warrants are vested and 15,149,826 warrants expire at various times through March 31, 2016, 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.

F-14

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, 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.	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:
3.	An award to the Company of its costs; and
4.	Such other relief as the Court may deem just and proper.

In the prior Visa and MasterCard Case and AMEX case, the Court excluded “contactless” credit card/pay system from the scope of the ‘464 patent claims.. In the August 2012 Case, the Company charged that VISA and MasterCard’s EMV debit/credit card systems infringe the ‘464 Patent. These systems do allow for physical insertion of an EMV/credit card into a recess of a data card reader.

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

VISA and MasterCard have, subsequent to our lodging an appeal, asked the District Court to award them attorneys' fees and costs approximating $3 million. SmartMetric is opposing this request, which SmartMetric believes is without merit because SmartMetric filed its suit in good faith, and has litigated the case in an objectively reasonable manner. SmartMetric expects the issue to be argued on December 9, 2013, and decided then, or soon thereafter.

VISA and MasterCard have, subsequent to our lodging our motion in the Federal Circuit Court, filed a motion in the District Court to award attorneys' fees and costs. SmartMetric has opposed this motion, which SmartMetric believes is without merit because SmartMetric filed its suit in good faith, and has litigated the case in an objectively reasonable manner.

SmartMetric has filed motions asking the Federal Circuit Court to find that both Visa Inc. and MasterCard do in fact infringe the SmartMetric Patent and further asking the Court to agree that the defendants should pay 25% of the savings that accrue as a result of using the technology in dispute.

SmartMetric’s opening brief was filed on December 23, 2013 in the Federal Circuit Court. Defendants have filed their opposition in response to our motions. It is expected that oral argument before the Court will be heard in July with an anticipated ruling handed down in either August or September, 2014. All of these dates are indications only and await scheduling advice from the Court.

F-15

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, 2013 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 reportable sales revenues.

Products

Biometric Fingerprint Activated Payments and Identity Cards:

Prior plans called for the manufacturing of the SmartMetric biometric cards after the Company built not only a special factory that meets security conditions of the card companies but also that the Company configure specialized mass production machines that would allow for the specialized manufacturing process required to laminate sub micro thin silicon components that are mounted on a circuit board in order to create SmartMetric biometric credit and debit cards.

The Company has now developed a pre-lamination encasing technique that provides protection of the card components against heat and pressure experienced during the card plastic lamination process and as well protecting the card with a thin hardened impervious coating of its circuit board in order to thwart reverse engineering by those who would seek to copy SmartMetric’s electronics and design.

With the newly developed “pre-lamination encasing” the Company is now able to safely outsource mass plastic card manufacturing to contract card manufacturers. Thereby saving SmartMetric significant capital and lead times in achieving high volume manufacturing.

The Company intends to market its biometric payments card directly to banks as well as forging marketing relationships with banking card industry Companies.

MedicalKeyring:

In the last quarter of 2013 the Company released on a small release basis, its MedicalKeyring product. The release was via limited radio advertising in New York with the focus on testing the market for the product and radio advertising directing interested consumers to the company website for information and product purchasing. The Company received interest from the advertising with orders placed on its website. The numbers of orders placed however were insignificant but did show that there was interest in the product. With a small number of users feedback of the product was obtained which in turn has confirmed the functional use and benefit of the product as a portable storage device of a person’s medical files while protecting these files with the SmartMetric fingerprint activation technology. Experience was also gained in respect of the functionality of the products software that in turn has lead us to undertake further work on developing and improving the products internal software and interface. The Company has decided to focus its engineering development resources on its Biometric payments card product at this point in time rather than spreading its development resources across two new product releases. After discussions with a major United States retailer, the Company has decided to now begin selling the MedicalKeyring in either the last quarter of 2014 of the beginning of 2015. In the meantime discussions are taking place with Health Fund industry companies in respect of offering the MedicalKeyring to consumers.

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.

Research & Development:

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

Sales & Marketing:

SmartMetric anticipates selling its biometric card to banks as a state of the art protection against identity theft and financial fraud for $50.00 a card. The company plans to have the card released to the public through banks and financial institutions as a special anti-fraud and anti-identity theft premium card that is offered to their banking customers.

Discussions are being held concerning the offering by banks directly to their banking customers, the SmartMetric biometric protected card as a premium credit/debit card with a monthly premium card fee to the consumer set by the banks between $4.95 to $9.95 per month.

The SmartMetric cards made for use in the financial services industry are EMV chip cards that have the chip in an off state that is turned on after the card user touches the fingerprint reader sensor. The cards are designed to be fully operative with existing point of sale machines and ATM’s that take EMV chip cards.

There has been in excess of 1.6 billion EMV chip cards already issued globally. The first phase of marketing and sales by SmartMetric will be concentrated on regions around the World that already have significant EMV credit and debit card adoption.

The Company is developing a fingerprint activated identity verification and verified entry card based on the Company’s development of its banking EMV chip card. The Company foresees a great deal of opportunity in the security and identity validation industries from both Government and Business customers

SmartMetric does not believe its business is seasonal.

Results of Operations

Comparison of the Nine Months Ended March 31, 2014 and 2013

Revenue and Net Loss

For the nine months ended March 31, 2014, there was no revenue and a net loss of $2,524,781. For the nine months ended March 31, 2013, there was no revenue and a net loss of $3,534,727. This decreased loss of $1,009,946 or 28.6% resulted primarily from lower general and administrative expenses.

General and Administrative Expenses

General and administrative expenses for the nine months ended March 31, 2014 were $1,945,214, a decrease of $814,648 or 29.5% compared to $2,759,862 for the comparable period in 2013. This decrease was primarily attributed to lower consulting expenses.

Research and Development Expenses

Research and development expenses for the nine months ended March 31, 2014 were $437,067 a decrease of $203,631 or 31.8% compared to $640,698 for the comparable period in 2013. This decrease was primarily attributable to lower engineering expenses.

Income Tax Expense

Income tax expense for the nine months ended March 31, 2014 was $0, unchanged from the comparable period in 2013.

Comparison of the Three Months Ended March 31, 2014 and 2013

Revenue and net loss

For the three months ended March 31, 2014, there was no revenue and a net loss of $814,780. For the three months ended March 31, 2013, there was no revenue and a net loss of $1,109,202. This decreased loss of $294,422 or 26.5% resulted primarily from lower research and development costs.

General and Administrative Expenses

General and administrative expenses for the three months ended March 31, 2014 were $708,790, a decrease of $9,262 or 1.3% compared to $718,052 for the comparable period in 2013. This decrease was primarily attributed to lower consulting expenses.

Research and Development Expenses

Research and development expenses for the three months ended March 31, 2014 were $58,490 a decrease of $285,160 or 83.0% compared to $343,650 for the comparable period in 2013. This decrease was primarily attributable to lower engineering expenses.

Income Tax Expense

Income tax expense for the three months ended March 31, 2014 was $0, unchanged from the comparable period in 2013.

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, 2014, the Company had an accumulated deficit of $18,489,375 and it is likely that the Company will incur additional losses in the future. While we have funded our operations since inception from operations and through private placements of equity securities, there can be no assurance that adequate financing will continue to be available to us and, if available, on terms that are favorable to us.

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

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

Cash

Our cash balance was $62,869 at March 31, 2014 compared with $804,257 at June 30, 2013. 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 $1,019,423 for the nine months ended March 31, 2014, a decrease of $634,378, or 38.4% from the comparable period in 2013. 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, 2014, unchanged from the comparable period in 2013.

Net cash provided by financing activities

Net cash provided by financing activities was $278,035 for the nine months ended March 31, 2014, a decrease of $590,347 or 68.0% from the comparable period in 2013. The decrease was based on lower private placement equity shares.

Contractual Obligations and Off-Balance Sheet Arrangements.

There were no off-balance sheet arrangements as of March 31, 2014 and June 30, 2013.

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

Critical accounting policies and estimates

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

Intangible assets

SmartMetric issued 200,000 of its Series B Convertible Preferred Stock to ACI during the period in exchange for the Medical Keyring Device. The Company acquired license rights to ACI's BioCentric Cloud Device technology in consideration of the Company's obligation to issue to ACI of 200,000 shares of its Series B Convertible Preferred Stock.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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, 2014, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective in ensuring that information required to be disclosed by us in our periodic reports is recorded, processed, summarized and reported, within the time periods specified for each report and that such information is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

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

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

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

We believe that the foregoing steps will remediate the deficiencies identified above, and we will continue to monitor the effectiveness of these steps and make any changes that our management deems appropriate. However, as of March 31, 2014, 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, 2014. 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, 2014.

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 nine months ended March 31, 2014, there have been no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.

PART II. OTHER INFORMATION

Item 1.

LEGAL PROCEEDINGS

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

For an order pursuant to 35 U.S.C. section 271 declaring that both MasterCard and Visa have infringed one or more claims of the ‘464 Patent;

An award of actual damages the Company has suffered by reason of the infringement charged in the complaint in an amount not less than a reasonable royalty on both MasterCard’s and Visa’s infringement of the ‘464 Patent:

An award to the Company of its costs; and

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

In the prior Visa and MasterCard Case and AMEX case, the Court excluded “contactless” credit card/pay system from the scope of the ‘464 patent claims. In the August 2012 Case, the Company charged that VISA and MasterCard’s EMV debit/credit card systems infringe the ‘464 Patent. These systems do allow for physical insertion of an EMV/credit card into a recess of a data card reader.

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

SmartMetric has filed motions asking the Federal Circuit Court to find that both Visa and MasterCard do in fact infringe the SmartMetric Patent and further asking the Court to agree that the defendants should pay 25% of the savings that accrue as a result of using the technology in dispute.

SmartMetric’s opening brief was filed on December 23, 2013 in the Federal Circuit Court. Defendants have filed their opposition in response to our motions. It is expected that oral argument before the Court will be heard in July with an anticipated ruling handed down in either August or September 2014. All of these dates are indications only and await scheduling advice from the Court.

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, 2014 without registering the securities under the Securities Act:

During the three months ended March 31, 2014, the Company sold for cash 2,120,000 shares and twenty-four month warrants to purchase an additional 6,376,960 shares as follows: (i) 4,240,000 shares at $0.70 per share, and (ii) 2,136,960 shares at $1.00 per share, for net proceeds of $338,687.

During the three months ended March 31, 2014, the Company issued 1,980,026 shares for consulting services.

Unless otherwise noted in this section, with respect to the sale of unregistered securities referenced above, all transactions were exempt from registration pursuant to Section 4(a)(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, 2014 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

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 20, 2014	By:	/s/ C. Hendrick
		C. Hendrick, President, Chief Executive Officer and Chairman (Principal Executive Officer)

Dated: May 20, 2014	By:	/s/ Jay Needelman
		Jay Needelman, Chief Financial Officer (Principal Financial Officer)