Quarterly Report (10-q)

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934.

For the quarterly period ended September 30, 2017

☐ 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 Parkway, Suite 500, Las Vegas, NV 89169

(Address of principal executive offices)

(702) 990-3687

(Issuer’s telephone number)

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. 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	☒
		Emerging growth company	☐

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

If an emerging growth company, indicate by check mark if the registrant was elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

As of November 9, 2017, there were 235,007,827 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 September 30, 2017 (unaudited) and June 30, 2017	2
	Condensed consolidated statements of operations for the three months ended September 30, 2017 and 2016 (unaudited)	3
	Condensed consolidated statements of cash flows for the three months ended September 30, 2017 and 2016 (unaudited)	4
	Notes to condensed consolidated financial statements (unaudited)	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	16
Item 4.	Controls and Procedures	16

PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	17
Item 1A.	Risk Factors	17
Item 2.	Unregistered sales of equity securities and use of proceeds	17
Item 3.	Defaults Upon Senior Securities	19
Item 4.	Mine Safety Disclosures	19
Item 5.	Other Information	19
Item 6.	Exhibits	19
	Signatures	21

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

In this quarterly report, references to “SmartMetric, Inc.,” “SmartMetric,” “SMME,” “the Company,” “we,” “us,” and “our” refer to SmartMetric, Inc. Also, any reference to “common shares,” or “common stock” refers to our $0.001 par value common stock. Also, any reference to “preferred stock” or “preferred shares” refers to our $0.001 par value Series B Convertible Preferred Stock.

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. These statements relate to our business development plans, timing strategies, expectations, anticipated expense levels, business prospects, business outlook, technology spending and various other matters (including contingent liabilities and obligations and changes in accounting policies, standards and interpretations). These statements express our current intentions, beliefs, expectations, strategies or predictions as well as historical information. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “may,” “will,” “could,” “continue,” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not deemed to represent an all-inclusive means of identifying forward-looking statements as denoted in this Quarterly Report on Form 10-Q. Additionally, statements concerning future matters are forward-looking statements.

Although forward-looking statements in this Quarterly Report on Form 10-Q reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Our future operating results are dependent upon many factors which are outside our control. You should not place undue reliance on forward-looking statements. Forward-looking statements may not be realized due to a variety of factors, including, without limitation, our ability to:

●

manage our business given continuing operating losses and negative cash flows;

●

obtain sufficient capital to fund our operations, development, and expansion plans;

●

manage competitive factors and developments beyond our control;

●

maintain and protect our intellectual property;

●

obtain patents based on our current and/or future patent applications;

●

obtain and maintain other rights to technology required or desirable to conduct or expand our business; and

●

manage any other factors, if any, discussed in the “Risk Factors” section, and elsewhere in this quarterly report.

We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this Quarterly Report on Form 10-Q, except as required by federal securities laws. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this Annual Report, which are designed to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.

SMARTMETRIC INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Item 1. FINANCIAL STATEMENTS

SMARTMETRIC, INC. AND SUBSIDIARY

Consolidated Balance Sheets

(Unaudited)


	September 30, 2017			June 30, 2017

Assets
Current assets:
Cash	$	5,551		$	51,695
Receivables	$	10,400		$	10,400
Prepaid expenses and other current assets		38,482			59,327

Total current assets		54,433			121,422

Other assets:
Patent		200

Total assets	$	54,633		$	121,422

Liabilities and Stockholders’ Deficit

Current liabilities:
Accounts payable and accrued expenses	$	629,988		$	616,897
Liability for stock to be issued		150,743			319,118
Deferred Officer salary		568,348			520,848
Accrued interest payable		10,629			971
Shareholder loan		—			4,800

Total current liabilities		1,359,708			1,462,634

Commitments and contingencies

Stockholders’ deficit:
Preferred stock, $.001 par value; 5,000,000 shares authorized, 610,000 and 410,000 shares issued and outstanding as of September 30, 2017 and June 30, 2017, respectively		610			410
Common stock, $.001 par value; 300,000,000 shares authorized, 234,795,663 and 226,172,799 shares issued and outstanding as of September 30, 2017 and June 30, 2017, respectively		234,796			226,173
Additional paid-in capital		23,063,954			22,778,252
Accumulated deficit		(24,604,435	)		(24,346,047	)

Total stockholders’ deficit		(1,305,075	)		(1,341,212	)

Total liabilities and stockholders’ deficit	$	54,633		$	121,422

See notes to consolidated financial statements.

SMARTMETRIC, INC. AND SUBSIDIARY

Consolidated Statements Of Operations

(Unaudited)

	Three Months Ended			Three Months Ended
	September 30, 2017			September 30, 2016

Revenues	$	—		$	—

Expenses:
Officer’s salary		47,500			47,500
Other general and administrative		173,304			196,106
Research and development		16,600			51,845

Total operating expenses		237,404			295,451

Loss from operations before income taxes		(237,404	)		(295,451	)
Gain on accounts payable settlement		—			—
Interest expense		(9,658	)		—
Income taxes		—			—

Net loss	$	(247,062	)	$	(295,451	)

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

Weighted average number of common shares outstanding, basic and diluted		232,824,289			205,525,740

See notes to consolidated financial statements.

SMARTMETRIC, INC. AND SUBSIDIARY

Consolidated Statements Of Cash Flows

(Unaudited)

	Three Months Ended			Three Months Ended
	September 30, 2017			September 30, 2016
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(247,062	)	$	(295,451	)

Adjustments to reconcile net loss to net cash used in operating activities:
					—
Common stock and warrants issued and issuable for services		—			48,214

Changes in assets and liabilities
Decrease in prepaid expenses and other current assets		20,845			—
(Decrease) increase in accounts payable and accrued expenses		13,091			(53,063	)
Increase (decrease) in discounts taken		—			—
Increase in deferred officer’s salary		47,500			31,667
Increase in accrued interest payable		9,658			—

Net cash used in operating activities		(155,968	)		(268,633	)

CASH FLOWS FROM INVESTING ACTIVITIES		—			—

CASH FLOWS FROM FINANCING ACTIVITIES
Loans from related parties		(4,800	)		—
Proceeds from sale of common stock		114,624			151,016
Liability for stock to be issued		—			27,936

Net cash provided by financing activities		109,824			178,952

NET (DECREASE) IN CASH		(46,144	)		(89,681	)

CASH
BEGINNING OF PERIOD		51,695			138,823
END OF PERIOD	$	5,551		$	49,142
Income taxes	$	—		$	—
Interest	$	—		$	—

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Issuance of preferred stock and reduction of additional paid in capital for patent	$	—		$	—
Conversion of Series B Convertible Preferred Stock to Common Stock	$	—		$	—

See notes to consolidated financial statements.

NOTE 1 -

ORGANIZATION AND BASIS OF PRESENTATION

SmartMetric, Inc. (“SmartMetric” or the “Company”) was incorporated pursuant to the laws of Nevada on December 18, 2002. SmartMetric is a development stage company engaged in the technology industry. SmartMetric’s main products are a fingerprint sensor activated payments card and security card with a finger sensor and fully functional fingerprint reader embedded inside the card. The SmartMetric biometric cards have a rechargeable battery allowing for portable biometric identification and card activation. This card is referred to as a biometric card or the SmartMetric Biometric Card.

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 ended September 30, 2017 are not necessarily indicative of the results that may be expected for the year ending June 30, 2018. 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, 2017, as filed with the Securities and Exchange Commission.

Going Concern

As shown in the accompanying condensed consolidated financial statements the Company has sustained recurring losses of $247,062 and $295,451 for the three months ended September 30, 2017 and 2016 respectively, and has an accumulated deficit of $24,604,435 at September 30, 2017. The Company has spent a substantial portion of its time and capital resources 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 product marketing 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

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.

NOTE 2 -

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying disclosures. Actual results may differ from those estimates.

Cash and Cash Equivalents

Cash equivalents are comprised of certain highly liquid investments with maturity of three months or less when purchased. We maintain our cash in bank deposit accounts which, at times, may exceed federally insured limits. We have not experienced any losses in such accounts.

Research and Development

Research and development costs are charged to expense as incurred. Our research and development expenses consist primarily of expenditures for electronics design and engineering, software design and engineering, component sourcing, component engineering, manufacturing, product trials, compensation and consulting costs.

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.

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 September 30, 2017 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 2013. 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.

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.

NOTE 3 -

PREPAID EXPENSES

Prepaid expenses represent the unexpired terms of various consulting agreements 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 -

COMMITMENTS

Lease Agreement

The Company’s main office is located in Las Vegas, Nevada. Rent expense under all leases for the three months ended September 30, 2017 and 2016 was $7,090 and $9,127, respectively.

Related Party Transactions

The Company’s Chief Executive Officer has made cash advances to the Company with an aggregate amount due of $0 and $4,800 at September 30, 2017 and June 30, 2017, respectively. These advances bear interest at the rate of five percent (5%) per annum.

The Company has accrued the amounts of $568,348 and $520,848 at September 30, 2017 and June 30, 2017, respectively, as deferred officer’s salary, for the difference between the Chief Executive Officer’s annual salary and the amounts paid.

On September 11, 2017, we received a license to certain patents from Chaya Hendrick, our founder and CEO, related to our technologies until the expiration of the patents. As consideration, we issued Chaya Hendrick, or her assigns, (i) 200,000 shares of Series B Convertible Preferred Stock, (ii) a royalty equal to 5% of gross revenues derived from products sold related to the patents, and (iii) certain minimum required payments beginning at $50,000 and doubling each year thereafter. The Series B Preferred Shares may be converted at the election of holder on a basis for 50 common shares for each preferred share at any time or an aggregate of 10,000,000 common shares in exchange for all 200,000 preferred shares.

NOTE 5 -

STOCKHOLDERS’ EQUITY (DEFICIT)

Preferred Stock

As of September 30, 2017, the Company has 5,000,000 shares of preferred stock, par value $0.001, authorized and 610,000 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 preferred stock as Series B Convertible Preferred Stock (“Series B Convertible Preferred Stock”). Effective November 5, 2014, 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 each 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, 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.

NOTE 5 -

STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED)

Class A Common Stock

As of September 30, 2017, 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, authorized. The Articles of Incorporation were amended in 2006 to increase the number of authorized shares to 100,000,000 shares, and in 2009 to increase the number of authorized shares to 200,000,000. As a result of a screener’s error, the Company previously disclosed in its Quarterly Report on Form 10-Q for the quarters ended September 30, 2015 and December 31, 2015 that it increased the number of authorized shares of common stock to 300,000,000. On March 31, 2016, our Board of Directors approved an amendment (the “Amendment”) to the Company’s Articles of Incorporation to increase the total number of shares of authorized capital stock to 305,000,000 shares, par value $0.001 per share, consisting of (i) 300,000,000 shares of Common Stock, up from 200,000,000 shares of Common Stock, and (ii) 5,000,000 shares of Preferred Stock, subject to shareholder approval (the “Proposal”). On March 31, 2016, a majority of the Company’s stockholders approved the Amendment. The Company filed a definitive information statement on Schedule 14C with the Securities and Exchange Commission on May 4, 2016 (the “Information Statement”). The Information Statement was furnished to all of the Company’s shareholders for the purpose of informing them of the action taken by a majority of the Company’s stockholders.

As of September 30, 2017, the Company has 234,795,663 shares of common stock issued and outstanding.

●

During the three months ended September 30, 2016, the Company sold, for net proceeds of $155,991, units consisting of an aggregate of (i) 3,130,000 shares, (ii) warrants to purchase 1,956,250 shares at $0.70 per share, and (iii) warrants to purchase 985,950 shares at $1.00 per share. The warrants expire at various times through January 15, 2018.

●

During the three months ended September 30, 2016, the Company issued an aggregate of 1,669,633 shares for consulting services valued at $84,400, based on the stock price at the time of the respective agreements underlying the services provided.

●

During the three months ended December 31, 2016, the Company sold, for net proceeds of $272,904, units consisting of an aggregate of (i) 5,470,000 shares, (ii) warrants to purchase 3,418,750 shares at $0.70 per share, and (iii) warrants to purchase 1,723,050 shares at $1.00 per share. The warrants expire at various times through January 31, 2018.

●

During the three months ended December 31, 2016, the Company issued an aggregate of 5,000,000 shares for consulting services valued at $550,000 based on the stock price at the time of the respective agreements underlying the services provided.

●

During the three months ended March 31, 2017, the Company sold, for net proceeds of $127,247.50, units consisting of an aggregate of (i) 2,550,000 shares, (ii) warrants to purchase 1,593,750 shares at $0.70 per share, and (iii) warrants to purchase 803,250 shares at $1.00 per share. The warrants expire at various times through September 27, 2018.

●

During the three months ended March 31, 2017, the Company issued an aggregate of 2,423,000 shares of common stock for consulting services valued at $283,955, based on the stock price at the time of the respective agreements underlying the services provided.

●

During the three months ended June 30, 2017, the Company sold, for net proceeds of $242,157, units consisting of an aggregate of (i) 7,450,000 shares, (ii) warrants to purchase 3,031,250 shares at $0.70 per share, and (iii) warrants to purchase 1,527,750 shares at $1.00 per share. The warrants expire at various times through October 20, 2018.

●

During the three months ended September 30, 2017, the Company sold for cash 2,500,000 shares of common stock and warrants to purchase: (i) 937,500 shares at $0.70 per share, (ii) 500,000 shares at $0.20 per share, (iii) 472,500 shares at $1.00 per share and (iv) 252,000 shares at $0.50 per share for net proceeds of $114,625. The warrants expire at various times through September 28, 2019

●

During the three months ended September 30, 2017, the Company issued 362,864 shares of common stock for consulting services valued at $21,825, based on the stock price at the time of the respective agreements underlying the services provided.

NOTE 5 -

STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED)

Warrants

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

In July 2015, as consideration for a consulting agreement, the Company issued warrants to purchase 300,000 shares of its common stock at an exercise price of $0.01 per share. The warrants are fully vested and exercisable for five-years. The Company valued the warrants using the Black-Scholes method with the following criteria: stock price of $0.14; volatility 150%; term 5 years; and risk-free rate of 1.71%. The criteria yielded a per-warrant value of $0.14, resulting in a total value of $42,000 for the 300,000 warrants. The Company recorded the charge to consulting expense over the three-month term of the consulting agreement. During the three months ended September 30, 2016, the Company recorded a charge of $35,000 to consulting expense, which is included in other general and administrative expenses in the condensed consolidated statement of operations.

In April 2016, as partial consideration for consulting services rendered, the Company authorized to be issued warrants to purchase 1,000,000 shares of its common stock at an exercise price of $0.03 per share (“$0.03 Warrants”), and 2,000,000 warrants to purchase shares of its common stock at an exercise price of $0.08 per share (“$0.08 Warrants,” and, together with the $0.03 Warrants, the “Warrants”). The Warrants are fully vested and exercisable for three-years. The Company valued the Warrants using the Black-Sholes option pricing model with the following criteria: stock price of $0.11; volatility 136%; term 3 years; and risk-free rate of 0.92%. The criteria yielded a per-warrant value of $0.10 for the $0.03 Warrants, and a per-warrant value of $0.09 for the $0.08 Warrants, resulting in a total value of $280,000 for the Warrants. The expense has been included in other general and administrative expenses in the consolidated statement of operations.

As of September 30, 2017 and June 30, 2017, the following is a breakdown of the warrant activity:

September 30, 2017:

Outstanding - June 30, 2017				20,276,399
Issued				2,162,000
Exercised				—
Expired				—
Outstanding - September 30, 2017				22,438,399

June 30, 2017:

Outstanding - June 30, 2016	12,540,199
Issued	15,040,000
Exercised	—
Expired	(7,303,800	)
Outstanding - June 30, 2017	20,276,399

NOTE 5 -

STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED)

At September 30, 2017, all of the 22,438,399 warrants are vested and (i) 19,138,399 warrants expire at various times prior to September 2019, (ii) 3,000,000 warrants expire in September 2019, (iii) and 300,000 warrants expire in July 2020.

NOTE 6 -

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 7 -

LITIGATION

From time to time we may be a defendant or plaintiff in various legal proceedings arising in the normal course of our business. As of the date of this Annual Report, there are no material pending legal or governmental proceedings relating to us or properties to which we are a party, and, to our knowledge, there are no material proceedings to which any of our directors, executive officers or affiliates are a party adverse to us or which have a material interest adverse to us.

NOTE 8 -

SUBSEQUENT EVENTS

On October 12, 2017, the board of directors of the Company approved the SmartMetric, Inc. 2017 Equity Compensation Plan whereby 23,500,000 shares of common stock were authorized for issuance under the plan to employees, directors and consultants. The plan permits the grant of incentive stock options, nonstatutory stock options, restricted stock, stock appreciation rights, restricted stock units, performance units, performance shares and other stock based awards.

On November 8, 2017, the Company issued 212,164 shares of common stock in exchange for the cancellation of an outstanding invoice of $15,000 to a consultant.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

SmartMetric, Inc. (“SmartMetric” or the “Company”) was incorporated pursuant to the laws of Nevada on December 18, 2002. SmartMetric is a development stage company engaged in the technology industry. SmartMetric has an issued patent covering technology that involves connection to networks using data cards (smart cards and EMV cards). SmartMetric has in addition, five issued patents covering features of its biometric fingerprint activated cards. SmartMetric’s main products are a fingerprint sensor activated payments card and security card with a finger sensor and fully functional fingerprint reader embedded inside the card. The cards have a rechargeable battery allowing for portable biometric identification and card activation. This card is referred to as a biometric card or the SmartMetric Biometric Card.

The SmartMetric Biometric Technology And Products

SmartMetric’s founder, Chaya Hendrick is the originator and inventor of various miniature biometric activated devices including the SmartMetric biometric fingerprint activated payments card with an embedded fully functional fingerprint reader inside the card the size and thickness of a standard credit card. The SmartMetric biometric payments card provides for high level security for credit and debit cards by adding biometric authentication and activation to the new EMV chip cards now in use around the world. More than 4.8 Billion EMV chip debit and credit cards are now in use globally. The SmartMetric biometric payments card has been manufactured to be totally interoperable with the EMV chip card readers and banking infrastructure. Using the advanced electronic miniaturization by SmartMetric to make its biometric credit/debit cards the Company has also turned its attention to creating a multi-functional biometric, identity, building access control and logical network access card.

SmartMetric has also turned its attention to creating a biometric health insurance card with memory for storing a person’s medical files aiding travelers with medical conditions to have transportable medical files protected by their biometrics. Also assisting in fighting medical fraud by using the card to provide in-card biometric identity verification.

SmartMetric has developed its rechargeable battery powered fingerprint reader that is of a scale that fits “inside” a standard credit or debit card. The cardholder has stored inside the card his or her fingerprint. To activate the card the person swipes the fingerprint sensor, the sensor is connected to an internal microprocessor that manages the fingerprint sensor fingerprint image capture and comparison matching with the pre-stored fingerprint of the cardholder held in the internal electronic memory of the card. The card has a surface mounted EMV chip as found on EMV banking chip cards that is activated or turned on only after a card holders fingerprint has been scanned and verified using the SmartMetric miniature “in-card” biometric scanner.

There are over 4.8 billion EMV chip cards used by banks around the world for credit cards, ATM cards and debit cards. SmartMetric sees this existing user base as a natural market for its advanced security biometric activated card technology. SmartMetric plans to market its in-card biometric solution as a replacement to the less secure password or PIN used in current cards to card issuing banks and financial institutions.

SmartMetric has completed development of its biometric card. Modifications were undertaken to enhance cost effective mass production which has resulted in the Company replacing its fingerprint sensor component. This modification has been completed. Following the cards’ modifications the final card is now available to payment card networks for final testing and approval. It should be noted that all approvals for operating on a payments network are at the sole discretion of the respective payments networks themselves. Having said that there exist a number of payments networks around the world and the Company has options with whom it works with going forward. The Company is now presenting its card to major card issuing banks throughout the world. Following feedback from potential Bank customers, SmartMetric has incorporated new changes into its card including an indicator light as well as an extended battery life.

In Card Fingerprint Matching and Verification

The SmartMetric Biometric card incorporates a rechargeable lithium polymer battery. This battery is rechargeable, very thin and has been designed by SmartMetric to fit inside the SmartMetric fingerprint Credit Card sized card. This battery is manufactured by a third party to SmartMetric’s specifications and is unaffiliated with the Company. This battery is embedded inside the card.

The Security Technology Industry – Multi-Function Security Card

SmartMetric has developed a multi-function logical and physical access security card the size and thickness of a standard credit card. Utilizing the small size breakthroughs by the Company in its biometric payments card developments SmartMetric has moved forward with a biometric multifunction security, identity and secure access card that can easily fit inside a person’s wallet.

As with the biometric payments card, the SmartMetric security card has an internal rechargeable battery that is used to power the cards internal processor used in performing a biometric fingerprint scan. All functions and operations of the card are subject to a valid fingerprint scan and match of the card user’s fingerprint.

Biometrics

Biometric technologies identify users by electronically capturing a specific biological or behavioral characteristic of that individual, such as a fingerprint or voice or facial feature, and creating a unique digital identifier from that characteristic. Because this process relies on largely unalterable human characteristics, positive identification can be achieved independent of any information possessed by the individual seeking authorization.

We plan to market and sell our product to commercial and banking interests in the private sector and governmental agencies. The company is now actively marketing its biometric EMV chip card to banks and financial institutions within the United States, Asia, Latin America and Europe.

SmartMetric continues to actively promote its biometric card through exhibiting in industry specific conferences and exhibitions. Focusing on specific national and international conferences and exhibitions is proving a highly effective method of exposing and presenting our products to a large number of industry decision makers. SmartMetric is developing a network of distributors and resellers and various parts of the World to aid and assist in product sales and marketing efforts.

The Company contracts outside silicon and component fabrication plants to manufacture specific components to SmartMetric’s specifications. Creation of the sub-micro circuit boards are designed and developed by SmartMetric with the final production of these boards outsourced, assembly of components on the board are sourced, designed and procured by SmartMetric with mass assembly of the components onto the SmartMetric circuit board done by a third party contract assembler. Current production capacity is approximately 1 million cards a month with production being able to be substantially upscaled on relative short notice.

Going Concern

Our auditors’ report on our June 30, 2017 financial statements expressed an opinion that there is a substantial doubt about our ability to continue as a going concern.

Critical Accounting Policies

We have prepared our financial statements in conformity with accounting principles generally accepted in the United States, which requires management to make significant judgments and estimates 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 expenses during the reporting period. We base these significant judgments and estimates on historical experience and other applicable assumptions we believe to be reasonable based upon information presently available. These estimates may change as new events occur, as additional information is obtained and as our operating environment changes. These changes have historically been minor and have been included in the financial statements as soon as they became known. Actual results could materially differ from our estimates under different assumptions, judgments or conditions.

All of our significant accounting policies are discussed in Note 2, Summary of Significant Accounting Policies, to our financial statements, included elsewhere in this annual report. We have identified the following as our significant accounting policies and estimates, which are defined as those that are reflective of significant judgments and uncertainties, are the most pervasive and important to the presentation of our financial condition and results of operations and could potentially result in materially different results under different assumptions, judgments or conditions.

We believe the following critical accounting policies reflect our more significant estimates and assumptions used in the preparation of our financial statements:

Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying disclosures. Actual results may differ from those estimates.

Cash and Equivalents - Cash equivalents are comprised of certain highly liquid investments with maturity of three months or less when purchased. We maintain our cash in bank deposit accounts which, at times, may exceed federally insured limits. We have not experienced any losses in such accounts.

Research and Development Costs - Research and development costs are charged to expense as incurred. Our research and development expenses consist primarily of expenditures for electronics design and engineering, software design and engineering, component sourcing, component engineering, manufacturing, product trials, compensation and consulting costs.

Results of Operations

Comparison of the Three Months Ended September 30, 2017 and 2016

Our results of operations have varied significantly from year to year and quarter to quarter and may vary significantly in the future. We did not have revenue for the three months ending September 30, 2017 and 2016, and we do not anticipate generating any revenues during the year ending June 30, 2018. Net loss for the three months ended September 30, 2017 and 2016 were $247,062 and $295,451, respectively, resulting from the operational activities described below.

Operating Expenses

Operating expense totaled $237,404 and $295,451 during the three months ended September 30, 2017 and 2016, respectively. The decrease in operating expenses is the result of the following factors.


	Quarter Ended September 30, 2017				Change in 2017 Versus 2016
	2017		2016		$			%

Operating Expenses
Research and development	$	16,600	$	51,845	$	35,245	)		(68	)%
General and administrative		220,804		243,606		(22,802	)		(9.4	)%
Total operating expense	$	237,404	$	295,451	$	(58,047	)		(19.6	)%

Research and Development

Research and development expenses totaled $16,600 and $51,845 for the three months ended September 30, 2017 and 2016, respectively. The decrease of $35,245, or 68%, in 2017 compared to 2016 was primarily attributable to decreased engineering expenses. Our research and development expenses consist primarily of expenditures related to engineering.

General and Administrative

General and administrative expenses totaled $220,804 and $243,606 for the three months ended September 30, 2017 and 2016, respectively. The decrease of $22,802 or 9.4%, in 2017 compared to 2016 was primarily the result of a decrease in consulting expense. Our general and administrative expenses consist primarily of expenditures related to employee compensation, legal, accounting and tax, other professional services, and general operating expenses.

Other Income (Expense)

Other income (expense) totaled $9,658 and $0 for the three months ended September 30, 2017 and 2016, respectively.


	Quarter Ended September 30, 2017				Change in 2017 Versus 2016
	2017		2016		$			%

Interest Expense		9,658		—		(9,658	)		(100	)%
Total operating expense	$	9,658	$	—	$	(9,658	)		(100	)%

Interest income (expense)

We had net interest expense of $9,658 in the three months ended September 30, 2017 compared to no net interest expense for the three months ended September 30, 2016. The increase of $9,658 was attributable to interest expenses related to accrued but unpaid salary of our CEO pursuant to an amended and restated employment agreement entered into on July 1, 2017.

Liquidity and Capital Resources

We have incurred losses since our inception in 2002 as a result of significant expenditures for operations and research and development and the lack of any revenue. We have an accumulated deficit of approximately $24,604,435 as of September 30, 2017 and anticipate that we will continue to incur additional losses for the foreseeable future. Through September 30, 2017, we have funded our operations through the private sale of our equity securities and exercise of options and warrants, resulting in gross proceeds of approximately $23 million. Cash and cash equivalents at September 30, 2017 were $5,551.

Our auditors’ report on our June 30, 2017 financial statements expressed an opinion that there is a substantial doubt about our ability to continue as a going concern.

We are actively seeking sources of financing to fund our continued operations and research and development programs. To raise additional capital, we may sell shares of equity or debt securities. There can be no assurance that we will be able to complete any financing transaction in a timely manner or on acceptable terms or otherwise. If we are not able to raise additional cash, we may be forced to further delay, curtail, or cease development of our product candidates, or cease operations altogether.

	Three months ended September 30,						Change in 2017 versus 2016
	2017			2016			$			%

Cash at beginning of period	$	51,695		$	138,823		$	(87,128	)		(62.8	)%
Net cash used in operating activities		(155,968	)		(268,633	)		112,665			(41.9	)%
Net cash used in investing activities		—			—			—			—
Net cash provided by financing activities		109,824			178,952			69,128			(38.6	)%
Cash at end of period	$	5,551		$	49,142		$	(43,591	)		(88.7	)%

Net Cash Used in Operating Activities

Net cash used in operating activities was $155,968 and $268,633 for the three months ended September 30, 2017 and 2016, respectively. The decrease of $112,665 in cash used during 2017 compared to 2016 was primarily attributable to decrease in consultant costs.

Net Cash Used in Investing Activities

Cash used in investing activities was $0 and $0 for the three months ended September 30, 2017 and 2016, respectively.

Net Cash Provided by Financing Activities

During the three months ended September 30, 2017, we received net proceeds of $109,824 from the sales of our securities, compared to $178,952 for the three months ended September 30, 2016. The decrease was due to reduced private placement sales. We are actively seeking sources of financing to fund our continued operations and research and development programs.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are not required to provide the information required by this item as we are considered a smaller reporting company, as defined by Rule 229.10(f)(1).

ITEM 4. 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 (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.

As of September 30, 2017, 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, 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.

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 September 30, 2017, 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. 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.

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in Part I, Item 1A in our Annual Report on Form 10-K for the year ended June 30, 2017 and our subsequent filings with the Securities and Exchange Commission, which could materially affect our business, financial condition or future results. These cautionary statements are to be used as a reference in connection with any forward-looking statements. The factors, risks and uncertainties identified in these cautionary statements are in addition to those contained in any other cautionary statements, written or oral, which may be made or otherwise addressed in connection with a forward-looking statement or contained in any of our subsequent filings with the Securities and Exchange Commission.

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

The following information is given with regard to unregistered securities sold since July 1, 2014. The following securities were issued in private offerings pursuant to the exemption from registration contained in the Securities Act and the rules promulgated thereunder in reliance on Section 4(2) thereof of the Securities Act of 1933, as amended and Regulation D and Regulation S promulgated thereunder, relating to offers of securities by an issuer not involving any public offering. Where not otherwise stated, all warrants have expired.

●

During the three months ended September 30, 2014, the Company sold, for net proceeds of $307,662, units consisting of an aggregate of (i) 4,893,731 shares, (ii) twenty-four month warrants to purchase 1,375,000 shares at $0.70 per share, and (iii) warrants to purchase 724,500 shares at $1.00 per share.

●

During the three months ended December 31, 2014, the Company sold, for net proceeds of $95,750, units consisting of an aggregate of (i) 1,599,994 shares, (ii) twelve month warrants to purchase 1,187,500 shares at $0.70 per share, and (iii) warrants to purchase 598,500 shares at $1.00 per share.

●

During the three months ended March 31, 2015, the Company sold, for net proceeds of $189,557, units consisting of an aggregate of (i) 4,425,000 shares, (ii) twelve month warrants to purchase 2,375,000 shares at $0.70 per share, and (iii) warrants to purchase 1,197,000 shares at $1.00 per share.

●

During the three months ended June 30, 2015, the Company sold, for net proceeds of $212,934, units consisting of an aggregate of (i) 4,362,500 shares, (ii) twelve month warrants to purchase 2,668,750 shares at $0.70 per share, and (iii) warrants to purchase 1,345,050 shares at $1.00 per share.

●

During the three months ended September 30, 2015, the Company sold, for net proceeds of $214,633, units consisting of an aggregate of (i) 2,150,000 shares, (ii) warrants to purchase 2,687,500 shares at $0.70 per share, and (iii) warrants to purchase 1,354,500 shares at $1.00 per share.

●

During the three months ended December 31, 2015, the Company sold, for net proceeds of $261,477, units consisting of an aggregate of (i) 5,242,000 shares, (ii) warrants to purchase 3,276,250 shares at $0.70 per share, and (iii) warrants to purchase 1,651,230 shares at $1.00 per share.

●

During the three months ended March 31, 2016, the Company sold, for net proceeds of $106,771, units consisting of an aggregate of (i) 2,140,000 shares, (ii) warrants to purchase 1,337,500 shares at $0.70 per share, and (iii) warrants to purchase 674,100 shares at $1.00 per share. The warrants expire at various times through January 15, 2018.

●

During the three months ended June 30, 2016, the Company sold, for net proceeds of $378,784, units consisting of an aggregate of (i) 7,590,000 shares, (ii) warrants to purchase 4,743,750 shares at $0.70 per share, and (iii) warrants to purchase 2,390,850 shares at $1.00 per share. The warrants expire at various times through January 15, 2018.

●

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

ITEM 5. OTHER INFORMATION

On October 12, 2017, the board of directors of the Company approved the SmartMetric, Inc. 2017 Equity Compensation Plan whereby 23,500,000 shares of common stock were authorized for issuance under such plan to employees, directors and consultants. The plan permits the grant of incentive stock options, nonstatutory stock options, restricted stock, stock appreciation rights, restricted stock units, performance units, performance shares and other stock based awards.

ITEM 6. EXHIBITS

INDEX TO EXHIBITS

Incorporated by Reference

Filed/

Exhibit

Furnished

Exhibit

No.

Description

Herewith

Form

No.

File No.

Filing Date

3.01(i)

Articles of Incorporation of SmartMetric, Inc. filed 12/18/02

SB-2

3.1

333-118801

9/3/04

3.02(i)

Amendment to Articles of Incorporation dated 12/11/09

8-K

3.1

333-118801

12/18/09

3.03(i)

Amendment to Articles of Incorporation dated June 8, 2016

10-K

3.5

000-54853

9/28/16

3.04(i)

Certificate of Designation of Series B Preferred Stock

8-K

3.2

333-118801

12/18/09

3.05(i)

Amendment to Certificate of Designation of Series B Preferred Stock dated 11/5/14

10-Q

3.1

000-54853

11/14/14

3.06(i)

Amendment to Certificate of Designation of Series B Preferred Stock dated 6/8/16

10-K

3.4

000-54853

9/28/16

3.07(ii)

Amended and Restated Bylaws of SmartMetric

8-K

3.1

000-54853

4/26/16

4.01

Common Stock Certificate Specimen

SB-2

4.1

333-118801

9/3/04

4.02

Form of Warrant issued to May 2013 Investor

8-K

4.1

000-54853

5/28/13

4.03

Form of Warrant issued to investors between 2015 – 2017

8-K

4.03

000-54853

10/13/17

4.04**

SmartMetric, Inc. 2017 Equity Compensation Plan

4.05**

Form of Option Grant under 2017 Equity Compensation Plan

4.06**

Form of Restricted Stock Grant under 2017 Equity Compensation Plan

4.07**

Form of Restricted Stock Unit Grant under 2017 Equity Compensation Plan

10.01**

Assignment and Assumption Agreement dated 11/12/12 with Applied Cryptography

8-K

10.1

000-54853

11/16/12

10.02

Subscription Agreement with May 2013 Investor

8-K

10.1

000-54853

5/28/13

10.03**

Employment Agreement dated July 1, 2012 with Chaya Hendrick and Addendum dated 9/30/15

8-K

10.8

000-54853

10/5/15

10.04**

Assignment and Assumption dated 9/3/13 with Applied Cryptography

10-K

10.04

000-54853

10/13/17

10.05

Form of Securities Purchase Agreement with investors used between 2015 - 2017

10-K

10.05

000-54853

10/13/17

10.06**

Employment Agreement with Chaya Hendrick dated July 1, 2017

10-K

10.06

000-54853

10/13/17

10.07**

Issued Patent License and Royalty Agreement dated 9/11/17 with Chaya Hendrick

10-K

10.07

000-54853

10/13/17

31.1 / 31.2

Certification of the Principal Executive Officer and Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1 / 32.2

Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. § 1350

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema

101.CAL

XBRL Taxonomy Extension Calculation Linkbase

101.DEF

XBRL Taxonomy Extension Definition Linkbase

101.LAB

XBRL Taxonomy Extension Label Linkbase

SIGNATURE

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

	SMARTMETRIC, INC.

Dated: November 14, 2017	By:	/s/ C. Hendrick
		C. Hendrick, President, Chief Executive Officer and Chairman (Principal Executive Officer)

Dated: November 14 , 2017	By:	/s/ Jay Needelman
		Jay Needelman, Chief Financial Officer (Principal Financial Officer)