The following discussion of the financial condition and results of operation of the Company for the fiscal years ended June 30, 2009 and 2008 should be read in conjunction with the selected financial data, the financial statements and the notes to those statements that are included elsewhere in this registration statement. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Risk Factors, Cautionary Notice Regarding Forward-Looking Statements and Business sections in this registration statement. We use terms such as "anticipate," "estimate," "plan," "project," "continuing," "ongoing," "expect," "believe," "intend," "may," "will," "should," "could," and similar expressions to identify forward-looking statements.

General

Incorporated in 2002, SmartMetric and its founder and CEO, Colin Hendrick, have been engaged in research and development of a biometric security solution which would authenticate the identity of a person in a self-contained credit card-sized device. SmartMetric's biometric card has been designed to use an on-board finger print sensor which is imbedded in the card along with an integrated circuit chip which will provide one gigabyte of memory capacity. SmartMetric has recently completed a prototype of its card but has not yet begun to manufacture the biometric cards utilizing its licensed technology. To date, SmartMetric has had no sales revenues.

A prototype of our biometric card was completed in February 2005 and we have been adjusting and developing software for the card since that date. The finished product will be the prototype or model for our biometric cards, which will be manufactured upon receipt of customer orders. We are in the process of revising some of the engineering of the prototype so as to decrease the size of the circuitry contained in the card. We expect that the revised prototype will be completed by January 2010.

We expect to outsource manufacturing of our biometric cards once we have sales orders. We do not intend to purchase any plants or significant equipment. Because SmartMetric does not own or rent a manufacturing facility, we will enter into a contract with a manufacturing facility to produce our biometric cards. Although we have engaged in preliminary negotiations with two potential manufacturers, no contract has been signed.

We currently have three full time employees, including Colin Hendrick, our President and Chief Executive Officer. Once we have begun to generate sales, we intend to hire additional employees.

SmartMetric does not believe its business is seasonal in any way.

Results of Operations

Comparison of the Year Ended June 30, 2009 and 2008

Revenue and Net Income (Loss)

For the fiscal year ended June 30, 2009, there were $0 sales revenues and a net loss of $1,103,089. For the year ended June 30, 2008, there were $0 sales revenues and a net loss of $1,397,056. This decreased loss of $293,967 or 21% is the result largely of reduced administrative expenses.

General and administrative expenses for the year ended June 30, 2009 were $677,189, a decrease of $446,757or 40% compared to $1,123,946 for the comparable period in 2008. The decrease was primarily attributable to lower consultation expenses.

Research and Development Expenses

Research and development expenses for the year ended June 30, 2009 were $250,436, a increase of $165,269 or 194% compared to $85,167 for the comparable period in 2008. The increase was primarily attributable to a re-working of the prototype to decrease its size.

Interest Expenses

There was $5,464 interest expense for the year ended June 30, 2009 compared to $17,943 for the comparable period in 2008, a decrease of $12,479 or 70%. The decrease was primarily attributable to less debt service.

Income Tax Expenses

Income tax for the year ended June 30, 2009 was $0, unchanged from June 30, 2008.

Liquidity and Capital Resources

Cash and Cash Equivalent

Our cash and cash equivalents were $266,417 at the beginning of the year ended June 30, 2009 and decreased to $42,519 by the end of such period, an decrease of $223,898 or 84%. The decrease was attributable to the $667,242 net cash used in operating activities offset by the $443,344 net cash provided by financing activities.

Net cash used in operating activities

Net cash used by operating activities was $667,242 for the year ended June 30, 2009, compared to $1,039,341 for the same period in 2008. The difference was primarily due to a lower net loss and increases in operating liabilities in 2009.

Net cash used in investing activities

Net cash used in investing activities was $0 for the year ended June 30, 2009, unchanged from June 30, 2008.

Net cash provided by financing activities

Net cash provided in financing activities was $443,344 for the year ended June 30, 2009, compared to $1,300,224 for the same period in 2008. The difference was primarily attributable to lower sales of common stock in 2009.

Contractual Obligations and Off-Balance Sheet Arrangements.

We have certain fixed contractual obligations and commitments that include future estimated payments. Changes in our business needs, cancellation provisions, changing interest rates, and other factors may result in actual payments differing from the estimates. We cannot provide certainty regarding the timing and amounts of payments. We have presented below a summary of the most significant assumptions used in our determination of amounts presented in the tables, in order to assist in the review of this information within the context of our financial position, results of operations, and cash flows.

The following table (in thousands) summarizes our contractual obligations as of June 30, 2009, and the effect these obligations are expected to have on our liquidity and cash flows in future periods.

                                    Less Than      1 to 3
                       Totals        1 Year         Years        Thereafter
Capital expenditures   $     0     $         0     $     0         0         -

The financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Management makes these estimates using the best information available at the time the estimates are made; however actual results could differ materially from those estimates (See Note 2 in the Notes to Financial Statements).

Intangible assets

SmartMetric did not purchase any intangible assets for the year ended June 30, 2009.

New Financial Accounting Pronouncements

There have been no new financial accounting pronouncements that have or are expected to have a material effect on our financial statements.