SMARTMETRIC, INC. AND SUBSIDIARY

ConsolidatedCondensed consolidated Statements Of Cash Flows

(Unaudited)

See

The accompanying notes toare an integral part of these condensed consolidated financial statements.

SMARTMETRIC, INC. AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(UNAUDITED)

NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION

SmartMetric, Inc. (“SmartMetric”(the “Company” or the “Company”“SmartMetric”) was incorporated pursuant toin the lawsState of Nevada on December 18, 2002. SmartMetricSmartMetric’s main product is a development stage company engaged in the technology industry. SmartMetric’s main products are a fingerprint sensor activated payments card and a securitysensor-activated credit/debit card with a finger sensor onboard the card and fully functional fingerprint reader embedded inside the card. The SmartMetric biometric cards have a built-in rechargeable battery allowing for portable biometric identification and card activation. This card ismay be referred to as a biometric credit and or debit card or the SmartMetric Biometric Card.credit card. SmartMetric has completed development of its card along with pre-mass manufacturing cards and is now in the final stages of production of its credit/debit biometric card. The release of this card is imminent.

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 sixthree months ended December 31, 2017September 30, 2023 are not necessarily indicative of the results that may be expected for the year ending June 30, 2018.2024. 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, 2017,2023, as amended, as filed with the Securities and Exchange Commission on October 13, 2017,2023. The consolidated balance sheet as amended on October 27, 2017.of June 30, 2023, has been derived from the audited financial statements at that date, but does not include all the information and footnotes required by US GAAP for complete financial statements.

Going Concern

As shown in the accompanying condensed consolidated financial statements the Company has sustained recurring losses of $509,227$170,671 and $607,153$292,347 for the sixthree months ended December 31, 2017September 30, 2023 and 2016 respectively,2022, and has an accumulated deficit of $24,866,599$31,602,110, 31,602,108 and $31,431,438 at December 31, 2017.   The Company has spent a substantial portion of its timeSeptember 30, 2023 and capital resources in the development of its technology.June 30, 2023, respectively.

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 within one year of the date of this filing. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. COVID-19 has had an impact on SmartMetric’s final card production. While the delays are primarily due to supply line disruption, the Company is confident that these delays will be short-lived based on advice from our manufacturing partners, manufacturing alternatives and alternative supply lines that are being put into place by the Company.

Management believes that the Company’s capital requirements will depend on many factors. These factors include product marketing and distribution. The management plans include equity sales and borrowing in order to fund the operations.

There are no assurances that the Company will be able to achieve the level of revenues adequate to generate sufficient cash flow from operations to support the Company’s working capital requirements. To the extent that funds generated are insufficient, the Company will have to raise additional working capital. No assurance can be given that additional financing will be available, or if available, will be on terms acceptable to the Company. If adequate working capital is not available, the Company may not continue its operations.

As of 2023, the Company has seen its electronics assembly move forward following delays in 2020, 2021 and 2022. During the span of these past three years, SmartMetric was adversely impacted in its product development of and production plans for its biometric credit card product.

Principles of Consolidation

The condensed consolidated financial statements do not include any adjustments relating to the carrying amountsaccounts of recordedthe Company and its wholly owned subsidiary, SmartMetric Australia Pty. Ltd. All significant intercompany accounts and transactions have been eliminated in consolidation. SmartMetric Australia Pty Ltd., having no assets or the carrying amountsbank accounts and classification of recorded liabilities that may be required should the Company be unable to continueno operations, has been voluntarily dissolved as a going concern.corporation.

Principles of ConsolidationNOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted accounting principlesin the United States of America requires management to make estimates and assumptions that affect the reported amounts reported inof assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and accompanying disclosures.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 maycould 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 RecognitionRecent Accounting Pronouncements

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

Accounts Receivable

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

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 December 31, 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 asexpect the statuteadoption of limitations does not begin untilrecently issued accounting pronouncements to have a significant impact on the returns are filed.Company’s results of operations, financial position or cash flow.

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 netIn accordance with FASB ASC 260, “Earnings Per Share,” the basic loss per common share is computed usingby dividing the loss attributable to common stockholders by the weighted average number of common shares outstanding.  The calculation of diluted earningsoutstanding during the period. Basic net loss per share (“EPS”) includes considerationexcludes the dilutive effect of dilution arising fromstock options or warrants and convertible notes. Diluted net earnings (loss) per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents, such as stock issuable pursuant to theconsisting of shares that might be issued upon exercise of common stock options and warrants. CommonIn periods where losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive. As of September 30, 2023 and 2022, 215,935,352 and 32,872,852 dilutive shares were not included inexcluded from the computationcalculation of diluted earningsloss per common share, on the consolidated statement of operations due to the fact that the Company reported a net losswith all dilutive shares being common stock warrants at September 30, 2023 and to do so2022, as their effect would be anti-dilutiveanti-dilutive.

Stock-Based Compensation

The Company records stock-based compensation in accordance with ASC 718, Compensation – Stock Compensation and ASC 505-50, Equity-Based Payments to Non-Employees. All transactions in which goods or services are the consideration received for the periods presented.

Stock-Based Compensation

The Company measures expenseissuance of equity instruments are accounted for issuances of stock-based compensation to employees and others at fair value of the stock and warrants issued, as this is more reliable thanbased on the fair value of the servicesconsideration received complete. Theor the fair value of the equity instrument issued, whichever is charged directlymore reliably measurable. Equity instruments issued to compensation expenseemployees and additional paid-in capital.the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued and are recognized over the employees required service period, which is generally the vesting period.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Fair value of financial instruments

The Company measures fair value in accordance with ASC 820 - Fair Value Measurements. ASC 820 defines fair value and establishes a three-level valuation hierarchy for disclosures of fair value measurements. ASC 820 establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, ASC 820 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by ASC 820 are:

Level 1 - Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2 - Inputs (other than quoted market prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.

Level 3 - Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. Valuation of instruments includes unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.

As defined by ASC 820, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale, which was further clarified as the price that would be received to sell an asset or paid to transfer a liability (“an exit price”) in an orderly transaction between market participants at the measurement date.

The reported fair values for financial instruments that use Level 2 and Level 3 inputs to determine fair value are based on a variety of factors and assumptions. Accordingly, certain fair values may not represent actual values of the Company’s financial instruments that could have been realized as of September 30, 2023 or that will be recognized in the future, and do not include expenses that could be incurred in an actual settlement. The carrying amounts of the Company’s financial assets and liabilities, such as cash, accounts receivable, receivables from related parties, prepaid expenses and other, accounts payable, accrued liabilities, and related party and third-party notes payables approximate fair value due to their relatively short maturities. The Company’s notes payable to related parties approximate the fair value of such instrument based upon management’s best estimate of terms that would be available to the Company for similar financial arrangements at September 30, 2023.

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,andPrepaid expenses at September 30, 2023 were valued based on the stock price or computed warrant value at the time of the respective agreements.$5,417.

NOTE 4 - COMMITMENTS AND CONTINGENCIES

Lease Agreement

The Company’s main office is located in Las Vegas, Nevada. Rent expense under all leases for the sixthree months ended December 31, 2017September 30, 2023 and 20162022 was $15,938$1,945 and $17,955,$2,428 respectively. The Company maintains only one office. This office is in Las Vegas, NV and is a month-to-month lease.

Related Party Transactions

The Company’s Chief Executive Officer has made cash advances to the Company with an aggregate amount dueAs of $0 and $4,800 at December 31, 2017September 30, 2023 and June 30, 2017, respectively. These advances bear interest at2023, the rate of five percent (5%) per annum.

The Company has accrued the amounts of $615,848$785,142 and $520,848 at December 31, 2017 and June 30, 2017,$769,309, respectively, as deferred officer’sOfficer’s salary for the difference between the Chief Executive Officer’spresident’s annual salary and the amounts paid.

As a result of shareholder loans and deferred officer salary, the Company has accrued a balance of $319,550 and $305,949 as interest payable as of September 30, 2023 and June 30, 2023.

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 SharesStock 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.

Preferred Stock

As of December 31, 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 hasStock.

Our CEO maintains an employment agreement that stipulates 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.$190,000 annual salary. This agreement is still in effect.

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.Litigation

Class A Common Stock

As of December 31, 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 “InformationStatement”). 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 December 31, 2017, the Company has 242,245,327 shares of common stock issued and outstanding.

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 December 31, 2017 and June 30, 2017, the following is a breakdown of the warrant activity:

December 31, 2017:

June 30, 2017:

At December 31, 2017, all of the 25,164,399 warrants are vested and (i) 24,026,399 warrants expire at various times prior to December 2019, (ii) 3,000,000 warrants expire in September 2019, (iii) and 300,000 warrants expire in July 2020.

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.

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 Quarterly 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 5 - DEBT

On April 17, 2020, we received funds under the Paycheck Protection Program (the “PPP”), a part of the CARES Act. The loan was serviced by Chase Bank, and the application for these funds required us to, in good faith, certify that the current economic uncertainty made the loan necessary to support our ongoing operations. We used the funds for payroll and related costs. The receipt of these funds, and the forgiveness of the loan attendant to these funds, was dependent on our ability to adhere to the forgiveness criteria. The loan bore interest at a rate of 0.98% per annum and had a maturity date of April 6, 2022, with the first payment being deferred until April 17, 2021. Under the terms of the PPP, certain amounts could be forgiven if they were used in accordance with the CARES Act. The Company applied for forgiveness of this loan as of October 2021, and forgiveness was granted by the Small Business Administration. Therefore, the loan is considered paid in full.

On March 5, 2020, the Company issued a $35,00010% convertible note to GHS Investments, LLC, in relation to an equity financing agreement (see Note 6). The note was due on December 5, 2020, and is convertible at a rate of $0.0175 per share which resulted in a discount from the beneficial conversion feature totaling $5,000. As of March 31, 2023, the note had been paid in full.

NOTE 5 - DEBT (CONTINUED)

On July 23, 2021, the Company entered into a securities purchase agreement with AJB Capital Investments, LLC (“AJB”) with respect to the sale and issuance of: (i) a commitment fee in the amount of $250,000 in the form of 12,500,000 shares of the Company’s common stock (the “Commitment Fee Shares”), (ii) a promissory note in the aggregate principal amount of $300,000 (the “Note”), (iii) common stock purchase warrants to purchase up to an aggregate of 10,000,000 shares of the common stock (the “Warrants”), and (iv) 5,000 shares of the Company’s Series D Convertible Preferred Stock. The Note and Warrants were issued on July 23, 2021. The Commitment Fee Shares were issued at a value of $250,000, the Note was issued in a principal amount of $300,000 for a purchase price of $270,000, resulting in an original issue discount of $30,000; the Warrants were issued, with an initial exercise price of $0.05 per share, subject to adjustment; and 5,000 Series D Shares were issued to be converted into the shares of common stock of the Company solely in the event of default under the securities purchase agreement. The aggregate cash subscription amount received by the Company from AJB for the issuance of the Commitment Fee Shares, Note and Warrants was $253,000, due to a reduction in the $270,000 purchase price as a result of broker, legal, and transaction fees. On February 2, 2022, the Company repaid the amounts due AJB.

On January 27, 2022, the Company entered into a securities purchase agreement with Talos Victory Fund, LLC (“TVF”). The Company issued TVF a 10% promissory note in the principal amount of $250,000 (the “Note”) and a warrant (the “Warrant”) to purchase 12,500,000 shares of the Company’s common stock, $0.001 par value per share (“Common Stock”). In connection with the agreement, the Company authorized the issuance of 12,500,000 common share warrants to TVF (“Warrant Shares”).

On January 27, 2022, the Company entered into a securities purchase agreement with Firstfire Global Opportunities Fund (“Firstfire”). The Company issued Firstfire a 10% promissory note in the principal amount of $250,000 (the “Note”) and a warrant (the “Warrant”) to purchase 12,500,000 shares of the Company’s common stock, $0.001 par value per share (“Common Stock”). In connection with the agreement, the Company authorized the issuance of 12,500,000 common share warrants to Firstfire (“Warrant Shares”).

On January 27, 2022, the Company entered into a securities purchase agreement with Mast Hill Fund, LP (“Mast Hill”). The Company issued Mast Hill a 10% promissory note in the principal amount of $250,000 (the “Note”) and a warrant (the “Warrant”) to purchase 12,500,000 shares of the Company’s common stock, $0.001 par value per share (“Common Stock”). In connection with the agreement, the Company authorized the issuance of 12,500,000 common share warrants to Mast Hill (“Warrant Shares”).