Sanomedics, Inc. - FORM 10-Q

Attached files

file	filename
EX-31.1 - CERTIFICATION - Sanomedics, Inc.	simh_ex311.htm
EX-31.2 - CERTIFICATION - Sanomedics, Inc.	simh_ex312.htm
EX-32.1 - CERTIFICATION - Sanomedics, Inc.	simh_ex321.htm
EXCEL - IDEA: XBRL DOCUMENT - Sanomedics, Inc.	Financial_Report.xls

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2014

¨	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

Commission file number: 000-54167

Sanomedics International Holdings, Inc.

(Exact name of registrant as specified in its charter)

Delaware		27-3320809
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

444 Brickell Avenue, Suite 415, Miami, Florida		33131
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (305) 433-7814

not applicable

(Former name, former address and former fiscal year, if changed since last report)

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

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

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

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

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

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 18,030,724 shares of common stock are issued and outstanding as of August 11, 2014.

TABLE OF CONTENTS

		Page No.
PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements.		5
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.		17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.		21
Item 4.	Controls and Procedures.		21
PART II - OTHER INFORMATION

Item 1.	Legal Proceedings.		22
Item 1A.	Risk Factors.		23
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.		24
Item 3.	Defaults Upon Senior Securities.		25
Item 4.	Mine Safety Disclosures.		25
Item 5.	Other Information.		25
Item 6.	Exhibits.		26

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This report includes forward-looking statements that relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Words such as, but not limited to, “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “targets,” “likely,” “aim,” “will,” “would,” “could,” and similar expressions or phrases identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and future events and financial trends that we believe may affect our financial condition, results of operation, business strategy and financial needs. Forward-looking statements include, but are not limited to, statements about our:

	•	our revenues and profits are not assured,

	•	we may be unable to continue as a going concern,

	•	ability to close the pending acquisition,

	•	our ability to pay our obligations represented by secured notes when they become due,

•

we may not be able to obtain the substantial additional capital we need,

•

cost and quality issues might arise from our dependence on a third-party, sole source Chinese manufacturer,

•

we may be unable to make or successfully integrate acquisitions,

•

we may not be able to compete effectively,

•

our research and development may be unsuccessful; our next generation products may not be developed, or if developed, may fail to win commercial acceptance,

•

we may be unable to develop next generation products if we cannot hire electrical engineers,

•

growth, if any, could be unmanageable,

•

product shortages may arise if our contract manufacturer fails to comply with government regulations,

•

our medical devices may not meet government regulations,

•

current economic conditions may jeopardize our fund-raising efforts,

•

our intellectual property may not be protectable,

•

we face intellectual property risks that may negatively affect our brand names, reputation, revenues, and potential profitability,

•

our trademarks are valuable, and any inability to protect them could reduce the value of our products and brands,

•

product warranties and product liabilities could be costly,

•

we may be unable to replace current management, we may receive unfavorable results in the outcome of any pending lawsuits.

	•	management actions could cause substantial dilution and stock price declines and discourage a takeover,

	•	we are engaged in a number of related party transactions,

•

management could terminate employment, and our operations and viability would be hurt, if we cannot fund the 2010 bonuses and accrued salaries which were earned,

•

our common stock is quoted on the OTC Markets, which may discourage investors from purchasing it more than if it was listed on a national exchange,

•

our common stock is illiquid,

•

the application of the “penny stock” rules could adversely affect transactions in our common stock and could increase transaction cost,

•

the price of our common stock may be very volatile,

•

a significant portion of our outstanding shares are restricted securities and the sale of those shares will depress our stock price

•

as an issuer of a “penny stock,” the protection provided by the Federal securities laws relating to forward looking statements does not apply to us, and

•

we have not paid dividends in the past and do not expect to pay dividends for the foreseeable future. Any return on investment may be limited to the value of our common stock, if any.

You should read thoroughly this report and the documents that we refer to herein with the understanding that our actual future results may be materially different from and/or worse than what we expect. We qualify all of our forward-looking statements by these cautionary statements including those made in Part I. Item 1A. Risk Factors appearing in our Annual Report on Form 10-K and 10-K/A for the year ended December 31, 2013. Other sections of this report include additional factors which could adversely impact our business and financial performance. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events. These forward-looking statements speak only as of the date of this report, and you should not rely on these statements without also considering the risks and uncertainties associated with these statements and our business.

OTHER PERTINENT INFORMATION

Unless specifically set forth to the contrary, when used in this report the terms “we,” “our,” “us,” and similar terms refers to Sanomedics International Holdings, Inc., a Delaware corporation, and our wholly-owned subsidiaries. In addition, the “second quarter of 2014” refers to the three months ended June 30, 2014, the “second quarter of 2013” refers to the three months ended June 30, 2013, and “2013” refers to the year ending December 31, 2013.

Unless specifically set forth to the contrary, the information which appears on our website at www.sanomedics.com and www.thermomedics.com is not part of this report.

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

Sanomedics International Holdings, Inc.

Condensed Consolidated Balance Sheets

	June 30, 2014			December 31, 2013
	(Unaudited)			(Audited)
Assets
Current Assets
Cash	$	7,059		$	9,560
Accounts receivable		47,226			19,225
Inventories		19,747			39,060
Prepaid expense		51,830			612

Total Current Assets		125,862			68,457

Fixed assets, net		24,022			12,562

Patents, net		15,571			16,816

Deposit		7,999			7,999

Total Assets	$	173,454		$	105,834

Liabilities and Stockholders’ Deficit
Current Liabilities
Accrued salaries payable	$	559,973		$	705,569
Accounts payable and other liabilities		442,529			264,848
Accrued interest payable		175,633			362,284
Accrual for contingencies on contract rescission		158,669			500,000
Revolving line of credit		905,768			-
Notes payable - related parties net of discount, current portion		395,426			-
Convertible notes payable, net of discount		243,631			300,762
Derivative liabilities		1,779,510			1,070,728
Due to related parties		18,151			152,588

Total Current Liabilities		4,679,290			3,356,779

Notes payable - related parties net of discount,net of current portion		1,209,633			1,873,123

Total Liabilities		5,888,923			5,229,902

Commitments and Contingencies

Stockholders’ Deficit
Preferred stock, $0.001 par value: 1,000 shares authorized, issued and outstanding as of June 30, 2014 and December 31, 2013, respectively		1			1
Common stock, $0.001 par value: 250,000,000 shares authorized, 12,911,121 and 4,545,119 issued and outstanding as of June 30, 2014 and December 31,2013, respectively.		12,911			4,545
Additional paid in capital		10,545,353			8,118,299
Stock subscription receivable		(20,000	)		(20,000	)
Accumulated deficit		(16,253,734	)		(13,226,913	)

Total Stockholders’ Deficit		(5,715,469	)		(5,124,068	)

Total Liabilities and Stockholders' Deficit	$	173,454		$	105,834

See accompanying notes to condensed consolidated financial statements

Sanomedics International Holdings, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
		2014			2013			2014			2013

Revenues, net	$	56,012		$	63,941		$	197,821		$	121,079

Cost of goods sold		11,538			17,021			30,224			33,592

Gross profit		44,474			46,920			167,597			87,487

Operating expenses
General and administrative		536,866			269,676			1,132,282			453,808
Stock compensation		74,825			38,842			298,825			255,738
Research and development		21,194			25,750			43,703			53,500
Depreciation and amortization		654			1,899			2,553			3,798

Total operating expenses		633,539			336,167			1,477,363			766,844

Loss from operations		(589,065	)		(289,247	)		(1,309,766	)		(679,357	)

Other income (expense)
Amortization of debt discount		(356,894	)		(30,898	)		(835,877	)		(54,337	)
Derivative expense		(505,864	)		(2,405,507	)		(727,915	)		(2,405,507	)
Change in fair value of derivatives		(46,093	)		622,337			18,504			622,337
Interest expense		(99,521	)		(27,092	)		(171,767	)		(53,115	)

Total other expense		(1,008,372	)		(1,841,160	)		(1,717,055	)		(1,890,622	)

Net loss before income taxes		(1,597,437	)		(2,130,407	)		(3,026,821	)		(2,569,979	)
Income taxes		-			-			-			-

Net loss	$	(1,597,437	)	$	(2,130,407	)	$	(3,026,821	)	$	(2,569,979	)

Net loss per share - basic and diluted	$	(0.42	)	$	(1.04	)	$	(0.29	)	$	(1.26	)

Weighted average number of shares outstanding during the period - basic and diluted		3,821,545			2,041,010			10,283,252			2,045,442

See accompanying notes to condensed consolidated financial statements

Sanomedics International Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	For the Six Months Ended June 30,
		2014			2013
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(3,026,821	)	$	(2,569,979	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization		2,553			3,798
Stock compensation		298,825			255,738
Amortization of debt discount on convertible notes		835,877			54,337
Derivative expense		727,915			2,830,798
Change in fair value of derivative liabilities		(18,504	)		(1,047,628	)
Changes in operating assets and liabilities
Accounts receivable		(28,001	)		(41,259	)
Inventories		19,313			(147	)
Prepaid expenses and deposits		(51,218	)		(418,809	)
Accrued salaries payable		-			69,392
Accounts payable and other liabilities		323,989			50,951
Accrued interest payable		78,349			66,856
Accrual for contingencies on contract rescission		(341,331	)		-
Due to related parties		(134,437	)		60,859
Net Cash Used In Operating Activities		(1,313,491	)		(685,095	)

CASH FLOWS USED FROM INVESTING ACTIVITIES
Purchase of fixed assets		(12,768	)		-
Net Cash Used In Investing Activities		(12,768	)		-

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from convertible notes payable- related party		595,740			581,492
Proceeds from revolving line of credit, net of payments		905,768			-
Proceeds from convertible notes payable		75,000			150,000
Payoffs of convertible notes payable		(252,750	)		-
Net Cash Provided By Financing Activities		1,323,758			731,492
Net (decrease) increase in cash		(2,501	)		46,397
Cash - beginning of period		9,560			26,084
Cash - end of period	$	7,059		$	72,481

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest	$	93,418		$	-

NON-CASH FINANCING TRANSACTIONS
Common stock issued for conversion of debt	$	1,430,199		$	78,197
Accrued salaries payable converted to convertible promissory note-officer	$	-		$	703,339
Accrued salaries payable converted to common stock	$	145,596		$	-
Accrued interest payable converted to convertible promissory note-related party	$	265,000		$	-

See accompanying notes to condensed consolidated financial statements

Sanomedics International Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

June 30, 2014

(Unaudited)

NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION

Sanomedics International Holdings, Inc. (referred to herein as “we”, “us”, “our” or the “Company”) is a medical technology products and services holding company which through its subsidiaries, designs, develops, markets and distributes non-invasive infrared thermometers principally for healthcare providers.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the United States Securities and Exchange Commission for interim financial information. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows. It is management’s opinion, however, that all material adjustments (consisting of normal recurring adjustments) which are necessary for a fair financial statement presentation have been made. The results for the interim period are not necessarily indicative of the results to be expected for the full year.

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, which include Thermomedics, Inc. (since July 2009) and Anovent, Inc. (since December 2011). All significant inter-company accounts and transactions have been eliminated in consolidation.

The unaudited interim financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K, which contains the audited consolidated financial statements and notes thereto, together with the Management’s Discussion and Analysis, for the fiscal year ended December 31, 2013. The interim results for the three and six months ended June 30, 2014 are not necessarily indicative of the results for the full fiscal year.

NOTE 2 – LIQUIDITY AND GOING CONCERN

The condensed consolidated financial statements have been prepared on a going concern basis, and do not reflect any adjustments related to the uncertainty surrounding our recurring losses or accumulated deficit.

The Company currently has limited revenue and is experiencing recurring losses which have caused an accumulated deficit of $16,253,734 and a working capital deficit of $4,553,428 as of June 30, 2014. These factors raise substantial doubt about its ability to continue as a going concern. Management has financed the Company's operations principally through loans from an affiliate of the Company’s former CEO, who is also one of the principal shareholders. Through June 30, 2014, the Company obtained its liquidity principally from approximately $905,000 of borrowing under a Revolving Line of Credit secured on January 9, 2014 from TCA Global Credit Master Fund, a Cayman Islands limited partnership (“TCA”), and $596,000 of cash advances from a company owned by a former Chairman and CEO and a shareholder of the Company. TCA has asserted a default under the Revolving Line of Credit and filed a lawsuit as described elsewhere herein. The Company may need to continue borrowings from an affiliate of the former Chairman and CEO and the Company's principal shareholder and will also need to raise additional capital. However, management cannot provide any assurances that the Company will be successful in completing this financing and accomplishing any of its plans.

The ability of the Company to continue as a going concern is dependent upon continued financial commitments from related parties and eventually secure other sources of financing in addition to those funds provided by its affiliate and attain profitable operations. The accompanying condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Sanomedics International Holdings, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

June 30, 2014

(Unaudited)

NOTE 3 – REVOLVING LINE OF CREDIT

On January 9, 2014, we entered into a Senior Secured Revolving Credit Facility Agreement (the "Credit Agreement") with TCA. Pursuant to the Credit Agreement, of which we and our subsidiaries are parties as borrowers, TCA extended to us a $5 million revolving credit facility. An initial credit line of $2,300,000 was provided by TCA at closing, with $1,000,000 funded on the date of closing and the remaining $1,300,000 representing funding for pending acquisitions. As of the date hereof, we are not a party to any pending acquisition for which TCA has approved and to which these funds could be used.

The amounts borrowed pursuant to the Credit Agreement are evidenced by a Revolving Note (the "Note") from us and certain of our subsidiaries in the principal amount of $1,000,000. The amount of principal due at June 30, 2014 was $905,768, net of deposits of $94,232 held in lockbox by TCA belonging to the Company. The outstanding balance bears interest at the rate of 11% per annum and matured July 9, 2014. The Note is convertible at the option of TCA into shares of our common stock at a variable conversion price equal to 85% of the lowest daily trading volume weighted average price of our common stock during the five business days preceding the conversion date, however to date the holder has not opted to convert the Note into Company stock.

The Credit Agreement contains negative covenants prevent the Company from entering into any new indebtedness, or become liable, whether as endorser, guarantor, surety for any debt or obligation of any other person, or otherwise consummate any transaction or series of transactions involving the issuance of debt securities of the Company, except for its obligations incurred in the ordinary course of business.

The Credit Agreement also contains financial covenants, which consist of: (1) positive EBITDA to be maintained at all times and, (2) the Company shall have cash flow and revenue projections that are not less than 75% of the cash flow and revenue projections as shown on the financial projections provided by the Company to TCA as part of TCA’s due diligence. As of June 30, 2014, the Company was not in compliance with certain covenants associated with the Credit Agreement. At closing we also paid TCA an equity advisory fee of $160,000 which was paid through the issuance of 134,454 shares of our common stock.

On May 12, 2014, TCA provided the Company with a notice of default of the Credit Agreement. The Company had ten (10) days from the date of notice to cure the alleged defaults. Management is attempting to refinance this obligation with alternative lenders or provide a settlement with TCA. On May 21, 2014, the Company, along with several other entities, filed a Complaint in the Circuit Court of the 17th Judicial Circuit in and for Broward County, Florida, against TCA for breach of contract and unjust enrichment. The Company alleges in the Complaint that TCA loaned $1 million to the Company pursuant to a Credit Agreement that provided for a revolving credit facility of up to $5 million. As alleged in the Complaint, the Credit Agreement provides that all of the Company’s revenues are to be re-directed to a lock-box account controlled solely by TCA. TCA would then pay itself fees and interest, and distribute the remaining revenues to the Company. The Company alleges that TCA breached the Credit Agreement by failing to distribute any of the lock-box revenues collected. The Company further alleges that TCA breached the Credit Agreement by unreasonably withholding approval of an acquisition target and failing to disburse $1.3 million in funds earmarked for the acquisition. The Company seeks damages, return of the moneys owed to the Company, and costs against TCA. On July 1, 2014, TCA filed a separate action against the Company, two officers of the Company, and its wholly owned subsidiaries, claiming that the Company has defaulted on the note, and seeking at least $901,142 (and perhaps as much as $1,112,983) in damages, plus pre-judgment interest, attorney’s fees, costs, foreclosure on associated collateral, and the proceeds from any sale of that collateral. The Company intends to defend against these claims vigorously. The Company has filed a Motion to consolidate the two lawsuits relating to the TCA Credit Agreement.

Sanomedics International Holdings, Inc.

Notes to Condensed Consolidated Financial Statements (continued)
June 30, 2014
(Unaudited)

NOTE 3 – REVOLVING LINE OF CREDIT-(continued)

In the event we are unsuccessful in negotiating a settlement with TCA or obtaining alternative financing to satisfy the obligations to TCA under the Credit Agreement, TCA could seek to foreclose on our assets. In that event, we would be unable to continue our business as it is presently conducted and our ability to continue as a going concern is in jeopardy.

NOTE 4 – NOTES PAYABLE –RELATED PARTIES

Notes payable to related parties consists of the following:

	June 30, 2014		December 31, 2013
Secured Convertible Promissory Note - CLSS Holdings, LLC, dated September 30, 2010. Note accrued interest at 9% per annum. (D)	$	-	$	50,000
Secured Convertible Promissory Note - CLSS Holdings, LLC, dated March 12, 2011. Note accrued interest at 9% per annum. (D)		-		66,750
Secured Convertible Promissory Note - CLSS Holdings, LLC, dated September 30, 2011. Note accrued interest at 9% per annum. (D)		-		95,000
Secured Convertible Promissory Note - CLSS Holdings, LLC, dated March 12, 2011. Note accrued interest at 8% per annum., (D)		-		334,787
Five (5) Secured Convertible Promissory Notes-CLSS Holdings LLC, dated February 21, 2014. Notes accrue interest at 8% per annum, due and payable on March 1, 2016 (C)		346,089		-
Secured Convertible Promissory Note-CLSS Holdings LLC, dated February 21, 2014. Notes accrue interest at 8% per annum, due and payable on May 6, 2016 (C)		265,000		-
Two (2) Secured Convertible Promissory Notes-CLSS Holdings LLC, dated June 30, 2014. Note accrues interest at 8% per annum, due and payable on June 1, 2016 (C)		598,544		-
Convertible Promissory Note - Officer dated June 17, 2013. Note accrues interest at 9% per annum, due and payable on March 30, 2015, net of discount of $307,913(B)		395,426		200,954
Total Notes		1,605,059		747,491
Other advances from CLSS Holdings, LLC, not evidenced by a Promissory Note (A)		-		1,125,632
		1,605,059		1,873,123
Less: Current portion		395,426		-
	$	1,209,633	$	1,873,123

The secured convertible promissory notes above are collateralized by substantially all the assets of the Company, subordinated to the TCA security interest, and are convertible, at the holder's option, into common shares of the Company at a fixed conversion price ranging from $0.25 to $0.50 per share. CLSS Holdings, LLC (“CLSS Holdings”) is wholly owned by the Company's former CEO and a shareholder of the Company.

Sanomedics International Holdings, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

June 30, 2014

(Unaudited)

NOTE 4 – NOTES PAYABLE –RELATED PARTIES-(continued)

(A) On February 21, 2014, the Company memorialized the advances from CLSS Holdings into various convertible promissory notes, accruing interest at 9% and matures March 1, 2016.

(B) This note is convertible at a conversion price equal to the discount in the average of the lowest three closing bid prices of the common stock during the 10 day trading days prior to conversion. The embedded conversion features resulted in a derivative liability which has been measured using the Monte Carlo valuation method at June 30, 2014 and December 31, 2014.

(C) On January 28, 2014 and March 24, 2014, convertible notes totaling $596,967 were converted into 4,466,020 shares of common stock at conversion prices of $0.10 and $0.21 per share.

(D) Through the six months ended June 30, 2014, $546,537 was assigned by the holder to five (5) third parties, which subsequently converted to 985,643 shares of common stock.

NOTE 5 – CONVERTIBLE NOTES PAYABLE

Third party convertible notes payable consists of the following:

	June 30,			December 31,
	2014			2013

Convertible promissory note with interest at 9% per annum, convertible into common shares at fixed price of $0.50 per share. Matures on August 24, 2014, net of unamortized discount of $18,878 and $37,500, respectively.	$	56,122		$	37,500

Seven (7) convertible promissory notes with interest ranging from 6% to 12% per annum, convertible into common shares at prices ranging from 10% to 50% discount to defined market prices. Maturity ranges through October 25, 2014, net of unamortized discounts of $-0- and $229,907, respectively (A)(B).		36,500			151,519

Two (2) convertible promissory notes with interest at 12% per annum (zero interest first 90 days) plus a 10% original discount interest, convertible into common shares at a conversion price per share of 30% discount to a defined market price. Matures through December 9, 2014, net of unamortized discount of $10,439 and $97,587 respectively (A)(C).		47,159			111,743

Seven (7) convertible promissory notes with interest ranging from 8% to 12% per annum, convertible into common shares at prices ranging from 25% to 70% discount to defined market prices. Maturity ranges through March 31, 2015, net of unamortized discounts of $268,150.(A)(B)(C)		103,850			-

		243,631			300,762
Less current portion		(243,631	)		( 300,762	)
Long-term portion of convertible debt	$	-		$	-

Sanomedics International Holdings, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

June 30, 2014

(Unaudited)

NOTE 5 – CONVERTIBLE NOTES PAYABLE-(continued)

(A) These convertible promissory notes are generally convertible at a conversion price equal to the discount to the average of the lowest three closing bid prices of the common stock during the 10 trading days prior to conversion. The embedded conversion features resulted in a derivative liability which has been measured using the Monte Carlo valuation method at June 30, 2014 and December 31, 2013.

(B) During the period ended June 30, 2014, six (6) convertible notes totaling $258,275 were converted into 1,163,254 shares of common stock.

In accordance with ASC 470-20 Debt with Conversion and Other Options, at time of issuance the Company allocated $752,326 and $828,906 of the derivative liability as discounts against the convertible notes. The discounts are being amortized to interest expense over the term of the notes using the effective interest method. The Company recorded $835,877 and $54,337 of interest expense pursuant to the amortization of the note discounts for the six months ended June 30, 2014 and 2013, respectively.

NOTE 6 – DERIVATIVE LIABILITIES

The Company analyzed the related party convertible note-officer and convertible promissory notes referred to in Notes 4 and 5 based on the provisions of ASC 815-15 and determined that the conversion options of the convertible notes qualify as embedded derivatives and requires the recognition of derivative liabilities.

For the derivative instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then revalued at each reporting date. The Company estimates the fair value of the embedded derivatives using a Monte Carlo simulation valuation model that combines expected cash outflows with market-based assumptions regarding risk-adjusted yields, stock price volatility, probability of a change of control and the trading information of our common stock into which the notes are convertible, as appropriate to value the derivative instruments at inception and subsequent valuation dates and the value is reassessed at the end of each reporting period, in accordance with FASB ASC Topic 815-15.

The aggregate fair value of derivative liabilities as of June 30, 2014 and December 31, 2013 amounted to $1,779,510 and $1,070,728, respectively. The net increase of $708,782 in the fair value of the derivative liabilities from 2013 has been reflected as unamortized discount of $605,380 reflected in the convertible notes payable to officer and third parties, the amortization of debt discount of $835,877 and the change in fair value of the derivatives between the respective periods is included in other income (expenses) amounting to $18,504.

Sanomedics International Holdings, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

June 30, 2014

(Unaudited)

NOTE 7 – COMMITMENTS AND CONTINGENCIES

TCA Litigation

On May 21, 2014, the Company, along with several other entities, filed a Complaint in the Circuit Court of the 17th Judicial Circuit in and for Broward County, Florida, against TCA for breach of contract and unjust enrichment. The Company alleges in the Complaint that TCA loaned $1 million to the Company pursuant to a Credit Agreement that provided for a revolving credit facility of up to $5 million. As alleged in the Complaint, the Credit Agreement provides that all of the Company’s revenues are to be re-directed to a lock-box account controlled solely by TCA. TCA would then pay itself fees and interest, and distribute the remaining revenues to the Company. The Company alleges that TCA breached the Credit Agreement by failing to distribute any of the lock-box revenues collected. The Company further alleges that TCA breached the Credit Agreement by unreasonably withholding approval of an acquisition target and failing to disburse $1.3 million in funds earmarked for the acquisition. The Company seeks damages, return of the moneys owed to the Company, and costs against TCA. On July 1, 2014, TCA filed a separate action against the Company, two officers of the Company, and its wholly owned subsidiaries, claiming that the Company has defaulted on the note, and seeking at least $901,142 (and perhaps as much as $1,112,983) in damages, plus pre-judgment interest, attorney’s fees, costs, foreclosure on associated collateral, and the proceeds from any sale of that collateral. The Company intends to defend against these claims vigorously. The Company has filed a Motion to consolidate the two lawsuits relating to the TCA Credit Agreement.

JMJ Litigation

On May 29, 2014, Justin Keener d/b/a JMJ Financial (“JMJ”) filed a Complaint against the Company in the Circuit Court of the 11th Judicial Circuit in and for Miami-Dade County, Florida. In the Complaint, JMJ alleges that the Company breached a convertible promissory note dated June 17, 2013, pursuant to which JMJ provided $150,000 to the Company on or about June 19, 2013, and an additional $50,000 to the Company on or about December 12, 2013. JMJ alleges that on February 4, 2014, it agreed to accept $280,000 in satisfaction of the note. JMJ alleges that the Company paid $186,667 to JMJ on February 19, 2014. JMJ alleges that the Company has breached the promissory note by failing to repay the purported outstanding amount of the note either through conversion into the Company’s common stock or through cash payment, and seeks an award of damages (including but not limited to purported lost profits and opportunity costs relating to an inability to convert and thereafter sell the Company’s shares), interest, attorneys’ fees, and costs. On July 21, 2014, the Company filed its Answer, Affirmative Defenses, and Counterclaim against JMJ. As affirmative defenses, the Company asserts, among others, that JMJ is not entitled to the relief requested because the promissory note at issue charges usurious interest rates in violation of Florida’s usury laws, and because JMJ’s claims for lost profits are speculative. The Company also asserts counter-claims for Declaratory Relief (seeking an order that the promissory note is usurious under Florida law and the entire debt and conversion rights thus are unenforceable) and for usury (seeking damages for all moneys paid pursuant to the promissory note, reasonable attorneys’ fees, and costs). The Company intends to defend against these claims vigorously.

Sanomedics International Holdings, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

June 30, 2014

(Unaudited)

NOTE 7 – COMMITMENTS AND CONTINGENCIES-(continued)

Prime Time Medical Litigation

After assuming control of the acquisition of Prime Time in August 2013, the Company discovered that the Seller of Prime Time (“Miklos”) failed to disclose that there were on-going audits with respect to Prime Time’s Medicare and Medicaid billings for periods prior to the consummation of the transaction. These audits have escalated and, as a result, Prime Time can no longer invoice Medicare and Medicaid for any products or services and be paid for such products and services until the outcome of the audits which could last at least two years. Also, as a result of other Medicare and Medicaid audits for periods prior to the consummation of the transaction, Medicare and Medicaid are demanding payments for products that Prime Time was paid prior to the closing of the transaction that were improper. It is estimated that Prime Time may owe Medicare and Medicaid up to $500,000 in improper payments and at least another $500,000 in accounts receivable that will not be paid to Prime Time pending the outcome of the audits. On March 13, 2014, after discovering numerous material differences between financial statements reproduced by the Company and the financial statements provided by Miklos in connection with the Stock Purchase Agreement, coupled with the foregoing events and Medicare and Medicaid’s constraint on Prime Time’s business and payment stream, the Board of Directors of the Company determined that the business could no longer survive and thus opted to pursue a rescission of the completed transaction with Prime Time.

As a result of discoveries of fraud and misrepresentations in the acquisition of Prime Time described above, on March 18, 2014, the Company filed a lawsuit against Mark R. Miklos in Miami-Dade County, Florida Case No.14007055CA01, alleging breach of contract, fraud in the inducement, fraudulent misrepresentation, unjust enrichment, conversion, breach of fiduciary duty and damages. The company is seeking judgment against the Seller, restitution, rescission of the Purchase Agreement and Employment Agreement and return of all moneys paid to the Seller.

On March 19, 2014 the Company was served with a lawsuit filed by Mark Miklos against the Company and Anovent, Inc. in Hillsborough County, Florida Case No. 14-CA-2520 DIV K, alleging the following: breach of the Employment Agreement entered into with the Company; improper notice of termination; breach of the Short Term Note for $850,000; breach of Promissory Notes A and B for $500,000 each, and further includes an action to foreclose a security interest in personal property and intangibles as a result of the alleged defaults of the Notes and rights under the Security Agreement. The Company believes there is no merit to Mr. Miklos’ lawsuit and intends to defend itself aggressively.

Exergen Litigation

On May 21, 2013, Exergen Corporation commenced legal action in the United States District Court for the District of Massachusetts against the Company, alleged infringement of certain intellectual property through the Company’s sale of the Caregiver Thermometer, as well as the Company's prior sales of its talking non-contact thermometer. Exergen is seeking various types of relief, including damages and an injunction against further alleged infringement of the intellectual property. On September 3, 2013, the Company filed its answer to Exergens’ complaint and asserted counterclaims and affirmative defenses for non-infringement and invalidity of the asserted patents. The Company believes the alleged claim of infringement is without merit and will vigorously defend its rights to market and sell the thermometers.

Other Litigation

From time to time, the Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm its business.

Sanomedics International Holdings, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

June 30, 2014

(Unaudited)

NOTE 8 – COMMON STOCK

On January 16, 2014, the former CEO and shareholder assigned 650 shares of preferred stock from his holdings of 750 shares allocating 452 shares to two (2) members of management, 100 shares to its Chairman of the Board and 98 shares to a family member.

On January 28, 2014, in exchange for a reduction of debt of the Company owed to CLSS Holdings for a share price of $0.10 per share, the Company issued 3,142,278 shares of restricted common stock to various existing individual shareholders designated by the owner of CLSS Holdings.

On February 21, 2014, the Company converted a Convertible Note due to CLSS Holdings for $282,740 into 1,313,750 shares restricted at a price per share of $0.2136.

On January 21, 2014, and, in connection with a Securities Purchase Agreement and convertible promissory note in the principal amount of $50,000, the Company converted the note into a total of 160,000 shares of the Company’s common stock at a conversion price of $0.03 per share.

On February 28, 2014, the Company issued 107,656 shares of common stock to two (2) parties as commissions on the TCA lending financing.

During January 21, 2014 to March 28, 2014, the Company issued a total of 868,921 shares of restricted common stock to four (4) companies in connection with the conversion of convertible debt held.

On March 28, 2014, the Company issued 134,454 shares of common stock as payment of advisory fee to TCA in connection with the TCA lending facility.

From April 1, 2014 to June 30, 2014, the Company issued a total of 869,333 shares of common stock to six (6) companies in connection with the conversion of convertible debt held.

On April 28, 2014 and May 16, 2014, the Company converted a total of $362,353 portions of a Convertible Note due CLSS totaling $539,491 into 1,152,394 shares restricted at a prices ranging from $0.25 to $0.45.

During April and May 2014, pursuant to portions of Convertible Notes due to CLSS, Holdings the holder assigned to three (3) third parties the principal amounts totaling $140,000.. These three notes were converted on April 24, 2014, May 5, 2014 and May 21, 2014 into a total of 400,000 shares.

On June 9, 2014 the Company issued 182,500 shares of restricted common stock at a price of $0.41 per share to a third party as payment for services related to investor relations.

Sanomedics International Holdings, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

June 30, 2014

(Unaudited)

NOTE 9 – SUBSEQUENT EVENTS

Third Party Debt Financing

On July 8, 2014, a portion of a convertible note originally for $265,000 held by CLSS Holdings, was purchased and assigned to a third party lender for $85,000. The convertible promissory note carries interest at 9% per annum, convertible into common shares at fixed price of $0.50 per share and matures on July 7, 2015. On July 11, 2014, a conversion for $20,217 resulted in a share issuance of 175,000 shares.

Share Issuances

During July 2014 and through August 13, 2014, the Company issued a total of 551,811 shares to three (3) parties in connection with the conversion of convertible debt held.

On July 15 and August 4, 2014 the Company issued a total of 1,464,533 shares of restricted common stock to its former CEO and shareholder at a price per share ranging from $0.07 to $0.25 in settlement of $175,132 of unpaid and accrued salaries.

On July 25, 2014, the Company issued 2,904,163 shares of restricted common stock to an officer of the Company in connection with the partial conversion of convertible stock held.

Management has evaluated the subsequent events through August 19, 2014, the date at which the condensed consolidated financial statements were available for issue.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our financial condition and results of operations for the three months and six months ended June 30, 2014 and 2013 should be read in conjunction with the financial statements and the notes to those statements that are included elsewhere in this report. 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 Cautionary Notice Regarding Forward-Looking Statements appearing earlier in this report together with Part II, Item 1 of this report and Item 1A. Risk Factors, and the Business section in our Annual Report on Form 10-K for the year ended December 31, 2013, as amended, and our subsequent filings with the SEC. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.

OVERVIEW

We are a medical technology holding company that focuses on game changing products, services and ideas a place where physicians, entrepreneurs, and medical companies can work together to drive innovative technologies through concept, development, and ultimately commercialization. We plan to grow our existing business organically and through strategic acquisitions specifically relating to medical diagnostic equipment, healthcare staffing, and other related and innovative medical products, services and technology businesses.

Thermomedics, Inc. designs, develops and markets medical diagnostic equipment for professional healthcare providers. Our products are professionally designed for use in a wide range of medical settings, providing nearly instantaneous diagnostic information.

During the 2013 and through this 2014 quarter our focus has been to continue the introduction and selling of our second generation product line. We are also pursuing the growth of our business through strategic acquisitions in innovative medical device companies and/or healthcare related service operating businesses that can be rolled into our operations. We will also seek acquisitions and development opportunities related to other aspects of the sleep apnea space.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingent assets and liabilities. We believe the critical accounting policies in Note 1 to the audited consolidated financial statements for the year ended December 31, 2013 appearing in our Annual Report on Form 10-K, as amended, provide information the affect of our more significant judgments and estimates used in the preparation of our consolidated financial statements. Actual results may differ from these estimates under different assumptions and conditions.

RESULTS OF OPERATIONS

The following table summarizes our consolidated operating results as a percentage of net sales revenue for the periods indicated:

	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
	Unaudited			Unaudited			Unaudited			Unaudited
Revenues, net		100	%		100	%		100	%		100	%

Costs and Expenses as a percentage of net revenues:
Cost of goods sold		21	%		27	%		15	%		28	%
Gross margin (loss)		79	%		73	%		85	%		72	%
General and administrative		958	%		421	%		573	%		375	%
Stock compensation		134	%		61	%		151	%		211	%
Research and development		38	%		40	%		22	%		44	%
Depreciation and amortization		1	%		3	%		1	%		3	%

Loss from operations		-1,052	%		-452	%		-662	%		-561	%
Other income(expense):
Amortization of debt discount		-637	%		-48	%		-422	%		-45	%
Derivative expense		-903	%		-3,765	%		-368	%		-1,987
Change in fair value of derivatives		-82	%		973	%		9	%		514	%
Interest expense		-178	%		-42	%		-87	%		-44	%

Net loss		-2,852	%		-3,332	%		-1,530	%		-2,123

Three Months Ended June 30, 2014 compared to the Three Months Ended June 30, 2013

Revenues, net: Our net revenues decreased modestly during the second quarter of 2014 from the comparable periods in 2013, as we continue launch of our new professional model the “Caregiver” compared to the sales of our previous first generation products.

Cost of goods sold: Cost of goods sold consists of product, shipping and other costs. Cost of goods sold as a percentage of revenues, net decreased in the second quarter of 2014 as compared to the first quarter of 2013 due to better lower pricing of the newer professional models during the 2014 period as compared to a mix of product models bearing a higher cost. We anticipate our costs of goods sold as a percentage of revenues, net will remain the same throughout the balance of 2014, although there are no assurances that it will.

Operating Expenses: Operating expenses consist of general and administrative expenses, stock compensation, research and development and depreciation and amortization. For the second quarter of 2014, operating expenses increased primarily as a result of increases in debt issue cost associated with new borrowings, legal and professional fees and commission expense. Overall, our operating expenses increased 88% in the second quarter of 2014 from the second quarter of 2013. These changes reflect increases in general and administrative expenses as well as non-cash stock based compensation, offset by decreases in research and development expenses in the 2014 period.

Other income (expense): Other expense decreased in the 2014 period from the comparable 2013 period. The decrease is primarily attributable to a decrease in derivative expenses associated with conversion prices of convertible note, partially offset by unrealized gains on the fair value of derivatives based upon changes in the market price of the underlying security. We are required to recognize the non-cash gains and losses under GAAP which can materially impact our financial statements from period to period. Additionally the increase in other expenses was attributed to the amortization of discount on the convertible debt and interest expense from the new borrowings.

Six Months Ended June 30, 2014 compared to the Six Months Ended June 30, 2013

Revenues, net: Our net revenues increased substantially for the six months ended June 30, 2014 from the comparable periods in 2013, as a result of the continued selling and marketing of our new professional model the “Caregiver” compared to the sales of our previous first generation products.

Cost of goods sold: Cost of goods sold as a percentage of revenues, net decreased in the six months ended June 30, 2014 from the comparable period in 2013 due to the favorable pricing of the newer professional models .We anticipate our costs of goods sold as a percentage of revenues, net will remain the same throughout the balance of 2014, although there are no assurances that it will.

Operating Expenses: The approximate $710,000 increase in operating expenses for the six months ended June 30, 2014 from the comparable 2013 period was primarily as a result of increases in debt issue cost associated with new borrowings, legal and professional fees and commission expense. Overall, our operating expenses increased 93% for the six months ended June 30, 2014 as compared to 2013. These changes reflect increases in general and administrative expenses as well as non-cash stock based compensation, offset slightly by decreases in research and development expenses in the 2014 period.

Other income (expense): Other income (expense) decreased modestly in the 2014 period from the comparable 2013 period. The decrease is primarily attributable to a decrease in derivative expenses associated with conversion prices of convertible note, offset by unrealized gains on the fair value of derivatives based upon changes in the market price of the underlying security. We are required to recognize the non-cash gains and losses under GAAP which can materially impact our financial statements from period to period. Additionally the decrease in other income (expense) was attributed to the amortization of discount on the convertible debt and interest expense from the new borrowings.

Financial Condition

June 30, 2014 (unaudited) compared to December 31, 2013

Assets: At June 30, 2014, as compared to December 31, 2013, our current assets increased by approximately $57,000 and our total assets increased by approximately $68,000. The increase in current assets is primarily attributable to increases in prepaid expenses, primarily retainers for legal services.

Liabilities: At June 30, 2014, our current liabilities increased by approximately $1,323,000 from December 31, 2013. This increase is attributable primarily due to the increased borrowing of a $1,000,000 Revolving Line of Credit from TCA and the inclusion of $395,000 current portion of convertible promissory notes due to an officer and director and former CEO of the Company. Our long-term liabilities decreased primarily as a result of the lesser borrowing demand from related parties resulting from the new TCA borrowing and other third party lenders.

Liquidity and Capital Resources

At June 30, 2014 our cash on hand was approximately $7,100. At June 30, 2014, we had a working capital deficit of $4,553,428 as compared to a working capital deficit of $3,288,322 at December 31, 2013.

Since our inception in 2009, we obtained our liquidity principally from approximately $4.0 million principal amount of cash advances from CLSS Holdings, LLC (“CLSS Holdings”) a company owned by our former Chairman and CEO and one of our shareholders. The Company has executed promissory notes totaling approximately $1.1 million as of June 30, 2014, with CLSS Holdings. Each note (a) bears annual interest ranging from 8.0% to 9.0% (20% upon the occurrence, and during the continuance, of an event of default), is convertible into our common stock at a fixed conversion price of $0.50, and is not pre-payable by us, and (b) is subject to a security agreement under which all of our assets secure our loan repayment obligation.

Our net revenues are not sufficient to pay our operating expenses and satisfy our obligations as they become due. Although we expect that our revenues will continue to increase from both our historic operations, there are no assurances our revenues will increase to a level to fund our needs. In addition, even if we succeed in substantially increasing our revenues, we still need substantial additional capital to pay our obligations as they become due and finance our business activities on an ongoing basis, We have approximately $2,500,000 in secured obligations between TCA and the related parties which mature in July 2014 and through March 2016, respectively, which are secured by substantially all of our assets, and we do not have sufficient funds to pay those obligations. In May 2014 TCA has asserted that we are in default under the terms of the loan agreements and we have until May 22, 2014 to cure that default. We are attempting to refinance this obligation with other lenders. If we are unsuccessful in either negotiating a settlement with TCA or refinancing this obligation, TCA, which has a first position security interest, could seek to foreclose on all of our assets. If it were successful, we would be unable to continue our business as it is presently conducted and investors could lose their entire investments in our company.

At June 30, 2014, we had approximately $7,100 in cash on hand; and unless and until we receive additional financing from third parties, which we may never achieve, in the absence of on-going cash infusions on an as needed basis by CLSS Holdings, we would be unable to continue to operate. If we are unable to pay our obligations as they become due, the related parties who are holders of the secured notes could seek to foreclose on our assets. In that event, we would be unable to continue our business and operations as they are now conducted and investors could lose their entire investments in our company.

Even if we are successful in raising the equity financing noted above we will require substantial additional funds to finance our business activities and acquisition strategy on an ongoing basis. There is no assurance that the additional financing we require would be available on reasonable terms, if at all; and if available, any such financing likely would result in a material and substantial dilution of the equity interests of our current shareholders. The unavailability of such additional financing could require us to delay, scale back or terminate our business activities, which would have a material adverse effect on our viability and prospects.

Summary of Cash Flow for the six months ended June 30, 2014

	Six Months Ended June 30,
	2014			2013

Net cash used in operating activities	$	(1,313,491	)	$	(685,095	)
Net cash used in investing activities	$	( 12,768	)	$	-
Net cash provided by financing activities	$	1,323,758		$	731,492

Operating Activities

Our total cash used by operating activities increased 92% for the six months ended June 30, 2014, compared to the six months ended June 30, 2013. The increase is primarily due to increases in non-cash impact primarily associated with expenses associated with embedded liabilities on convertible debt and prepaid expenses, offset by the decreases in accrued salaries and other liabilities.

Investing Activities

During the 2014 period we used cash for additional tooling of molds for accessories to our thermometer. We did not use any cash for investing activities in the 2013 period.

Financing Activities

Our total cash provided for financing activities increased by 81% for the six months ended June 30, 2014 compared to the six months ended June 30, 2013. The increase is primarily due to the additional Revolving Line of Credit borrowing from TCA and increases in net proceeds of notes issued to related parties and third parties.

Current Commitments for Expenditures

Our current cash commitments for expenditures are mainly operational and SEC compliance in nature. We seek to use current revenue to pay vendors for materials for contracts, for payroll, and related employment expenditures (i.e. benefits).

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, and results of operations, liquidity or capital expenditures.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable to smaller reporting companies.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures. We maintain “disclosure controls and procedures” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934. In designing and evaluating our disclosure controls and procedures, our 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 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. Based on their evaluations as of the end of the period covered by this report, our President, who serves as our Principal Executive Officer, and our Chief Financial Officer have concluded that our disclosure controls and procedures were not effective such that the information

relating to our company, required to be disclosed in our Securities and Exchange Commission reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) is accumulated and communicated to our management, including our Principal Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure, as a result of our failure to timely file several Current Reports on Form 8-K. Subsequent to the end of the period, we expect to institute enhanced procedures to ensure that we comply with the proper reporting procedures in future periods.

Changes in Internal Control over Financial Reporting. There have been no changes in our internal control over financial reporting during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

The Company is subject to the various legal proceedings and claims discussed below as well as certain other claims that have not been resolved and that have arisen in the ordinary course of business. In the opinion of management, there was not at least a reasonable possibility that the Company may have incurred a material loss, or a material loss in excess of a recorded accrual, with respect to loss contingencies. However, the outcome of legal proceedings and claims brought against the Company is subject to significant uncertainty. Therefore, although management considers the likelihood of such an outcome to be remote, if one or more of these legal matters were resolved against the Company in a reporting period for amounts in excess of management’s expectations, the Company’s consolidated financial statements for the reporting period could be materially adversely affected. See the risk factor “If TCA should seek to foreclose on our assets, we would be unable to continue our business.” in Part II, Item 1A of this 10-Q under the heading “Risk Factors”.

Exergen Corporation

Prime Time Medical and Mark Miklos

Justin Keener d/b/a JMJ Financial

TCA Global Credit Master Fund, LP

On May 21, 2014, the Company, along with several other entities, filed a Complaint in the Circuit Court of the 17th Judicial Circuit in and for Broward County, Florida, against TCA Global Credit Master Fund, LP (“TCA”) for breach of contract and unjust enrichment. The Company alleges in the Complaint that TCA loaned $1 million to the Company pursuant to a Credit Agreement that provided for a revolving credit facility of up to $5 million. As alleged in the Complaint, the Credit Agreement provides that all of the Company’s revenues are to be re-directed to a lock-box account controlled solely by TCA. TCA would then pay itself fees and interest, and distribute the remaining revenues to the Company. The Company alleges that TCA breached the Credit Agreement by failing to distribute any of the lock-box revenues collected. The Company further alleges that TCA breached the Credit Agreement by unreasonably withholding approval of an acquisition target and failing to disburse $1.3 million in funds earmarked for the acquisition. The Company seeks damages, return of the moneys owed to the Company, and costs against TCA. On July 1, 2014, TCA filed a separate action against the Company, two officers of the Company, and its wholly owned subsidiaries, claiming that the Company has defaulted on the note, and seeking at least $901,142 (and perhaps as much as $1,112,983) in damages, plus pre-judgment interest, attorney’s fees, costs, foreclosure on associated collateral, and the proceeds from any sale of that collateral. The Company intends to defend against these claims vigorously. The Company has filed a Motion to consolidate the two lawsuits relating to the TCA Credit Agreement.

Item 1A. Risk Factors.

Please see the risk factors disclosed in Item 1A of our Annual Report on Form 10-K for year ended December 31, 2013, as amended, filed with the SEC. In addition, new risk factors may emerge from time to time, including:

If TCA should seek to foreclose on our assets, we would be unable to continue our business.

On May 12, 2014, TCA issued us a notice of default of the Credit Agreement and on July 1, 2014 filed a related lawsuit. The Company has 10 days from the date of notice to cure the alleged defaults. Management is attempting to refinance this obligation with alternative lenders. In the event we are unsuccessful in either negotiating a settlement with TCA or obtaining alternative financing to satisfy the obligations to TCA under the Credit Agreement, TCA could seek to foreclose on our assets. In that event, we would be unable to continue our business as it is presently conducted, our ability to continue as a going concern is in jeopardy and investors would likely lose their entire investment in our Company.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

From April 1, 2014 and through June 30, 2014, the Company issued a total of 869,333 shares to six (6) parties in connection with the conversion of convertible debt in the amount of $247,219 held. The recipients were accredited investors and the issuances were exempt from registration under the Securities Act of 1933 in reliance on an exemption provided by Section 3(a)(9) of that act.

On May 16, 2014, the Company converted $194,000 portions of two (2) Convertible Notes due to CLSS Holdings for $611,991 into 778,000 shares restricted at a price per share of $0.25. The recipient was an accredited investor and the issuance was exempt from registration under the Securities Act of 1933 in reliance on exemptions provided by Section 3(a)(9) of that act.

On June 9, 2014 the Company issued 182,500 shares of restricted common stock at a price of $0.41 per share to a public relations firm as settlement of services related to investor relations. The recipients were accredited or otherwise sophisticated investors who had access to financial and business information concerning the Company. The issuances were exempt from registration under the Securities Act of 1933 in reliance on exemptions provided by Section 4a(2) of that act.

During April and May 2014, pursuant to portions of Convertible Notes due to CLSS and sold to three (3) third parties by the original holder in the principal amounts totaling $140,000 pursuant to three (3) separate Debt Purchase and Assignment Agreements. The reassigned notes carried the same terms as the original with interest at 7.5% per annum, a note conversion into common shares at a fixed conversion price of $0.50 per share, and a maturity date of March 30, 2015. These three notes were converted on April 24, 2014, May 5, 2014 and May 21, 2014 into a total of 400,000 shares. The recipients were accredited investors and the issuances were exempt from registration under the Securities Act of 1933 in reliance on an exemption provided by Section 3(a)(9) of that act.

On June 11, 2014, the Company issued 584,724 shares of restricted common stock to its former CEO and a shareholder at a price per share of $0.25 in settlement of $145,596 of unpaid and accrued salaries. The issuances were exempt from registration under the Securities Act of 1933 in reliance on exemptions provided by Section 4a(2) of that act.

On July 8, 2014,a portion of a convertible note originally for $265,000 held by CLSS Holdings LLC was purchased and assigned to a third party lender for $85,000. The convertible promissory note carries interest at 9% per annum, convertible into common shares at fixed price of $0.50 per share and matures on July 7, 2015, On July 11, 2014, a conversion for $20,217 resulted in a share issuance of 175,000 shares.

During July 2014 and through August 13, 2014, the Company issued a total of 551,811 shares to three (3) parties in connection with the conversion of convertible debt held. The recipients were accredited investors and the issuances were exempt from registration under the Securities Act of 1933 in reliance on an exemption provided by Section 3(a)(9) of that act.

On July 15 and August 4, 2014 the Company issued a total of 1,464,533 shares of restricted common stock to its former CEO and a shareholder at a price per share of ranging from $0.07 to $0.25 in settlement of $175,132 of unpaid and accrued salaries. The issuances were exempt from registration under the Securities Act of 1933 in reliance on exemptions provided by Section 4a(2) of that act.

Item 3. Defaults Upon Senior Securities.

On May 12, 2014 we received a notice of default under the terms of the Credit Agreement with TCA asserting that we had failed to use the required lockbox and the occurrence of an adverse change in our financial condition. TCA provided us until 10 days to cure the defaults, after which it would enforce its rights under the Credit Agreement. Management is attempting to refinance this obligation with alternative lenders. See Item 1A. – Risk Factors.

Item 4. Mine Safety Disclosures.

Not applicable to our company’s operations.

Item 5. Other Information.

None

Item 6. Exhibits.

No.		Description

31.1		Rule 13a-14(a)/ 15d-14(a) Certification of Principal Executive Officer*

31.2		Rule 13a-14(a)/ 15d-14(a) Certification of Principal Financial and Accounting officer *

32.1		Section 1350 Certifications of President and Chief Financial Officer*

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 **

101.PRE		XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE **

___________

* filed herewith

** In accordance with Regulation S-T, the XBRL-formatted interactive data files that comprise Exhibit 101 in this Quarterly Report on Form 10-Q shall be deemed “furnished” and not “filed”.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Sanomedics International Holdings, Inc.

August 19, 2014	By:	/s/ Keith Houlihan
		Keith Houlihan, President

	By:	/s/ David C. Langle
		David C. Langle, Chief Financial Officer

Attached files

Sanomedics, Inc. Reports

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