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EX-31.2 - CERTIFICATION - Sanomedics, Inc.simh_ex312.htm
EX-10.80 - PROMISSORY NOTE - Sanomedics, Inc.simh_ex1080.htm
EX-31.1 - CERTIFICATION - Sanomedics, Inc.simh_ex311.htm
EX-10.79 - EXCHANGE AND SETTLEMENT AGREEMENT - Sanomedics, Inc.simh_ex1079.htm
EX-10.83 - CONVERTIBLE NOTE A - Sanomedics, Inc.simh_ex1083.htm
EX-10.81 - REPLACEMENT PROMISSORY NOTE - Sanomedics, Inc.simh_ex1081.htm

 

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 SEPTEMBER 30, 2014

 

OR

 

¨

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. 113,672,248 shares of common stock are issued and outstanding as of November 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.

 

19

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

 

23

 

Item 4.

Controls and Procedures.

 

23

 

PART II - OTHER INFORMATION

 
   

Item 1.

Legal Proceedings.

 

24

 

Item 1A.

Risk Factors.

 

25

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

 

26

 

Item 3.

Defaults Upon Senior Securities.

 

27

 

Item 4.

Mine Safety Disclosures.

 

27

 

Item 5.

Other Information.

 

27

 

Item 6.

Exhibits.

 

28

 

 

 
2

  

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 suppliers,

 

 

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,

 

 

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.

 

 
3

 

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 “third quarter of 2014” refers to the three months ended September 30, 2014, the “third quarter of 2013” refers to the three months ended September 30, 2013, and “2013” refers to the year ended December 31, 2013 and “2014” refers to the year ending December 31, 2014..

 

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.

 

 
4

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Sanomedics International Holdings, Inc.

Condensed Consolidated Balance Sheets

 

    September 30,     December 31,  
    2014     2013  
    (Unaudited)     (Audited)  

Assets

         

Current Assets

       

Cash

 

$

40,103

   

$

9,560

 

Accounts receivable

   

30,786

     

19,225

 

Inventories

   

9,184

     

39,060

 

Prepaid expenses

   

682,915

     

612

 
               

Total Current Assets

   

762,988

     

68,457

 
               

Fixed assets, net

   

23,368

     

12,562

 
               

Patents, net

   

13,081

     

16,816

 
               

Deposit

   

7,999

     

7,999

 
               

Total Assets

 

$

807,436

   

$

105,834

 
               

Liabilities and Stockholders’ Deficit

               

Current Liabilities

               

Accrued salaries payable

 

$

348,608

   

$

705,569

 

Accounts payable and other liabilities

   

430,356

     

264,848

 

Accrued interest payable

   

233,904

     

362,284

 

Accrual for contingencies on contract rescission

   

165,669

     

500,000

 

Common stock payable

   

22,500

     

-

 

Convertible notes payable and advances - related parties net of discount, current portion

   

435,161

     

-

 

Convertible notes payable, net of discount

   

2,145,021

     

300,762

 

Derivative liabilities

   

2,617,024

     

1,070,728

 

Due to related parties

   

18,151

     

152,588

 
               

Total Current Liabilities

   

6,416,394

     

3,356,779

 
               

Convertible notes payable and advances- related parties net of discount, net of current portion

   

755,378

     

1,873,123

 
               

Total Liabilities

   

7,171,772

     

5,229,902

 
               

Commitments and Contingencies

               
               

Stockholders’ Deficit

               

Preferred stock, $0.001 par value: 1,000 shares authorized, issued and outstanding as of September 30, 2014 and December 31, 2013, respectively

   

1

     

1

 

Common stock, $0.001 par value: 250,000,000 shares authorized, 23,859,810 and 4,545,119 issued and outstanding as of September 30, 2014 and December 31, 2013, respectively.

   

23,860

     

4,545

 

Additional paid in capital

   

11,546,928

     

8,118,299

 

Stock subscription receivable

 

(20,000

)

 

(20,000

)

Accumulated deficit

 

(17,915,125

)

 

(13,226,913

)

               

Total Stockholders’ Deficit

 

(6,364,336

)

 

(5,124,068

)

               

Total Liabilities and Stockholders' Deficit

 

$

807,436

   

$

105,834

 

 

See accompanying notes to condensed consolidated financial statements

 

 
5

 

Sanomedics International Holdings, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

 

    For the Three Months Ended     For the Nine Months Ended  
    September 30,     September 30,  
    2014     2013     2014     2013  
        (Restated)         (Restated)  
                 

Revenues, net

 

$

83,181

   

$

90,671

   

$

281,002

   

$

211,750

 
                               

Cost of goods sold

   

12,703

     

12,197

     

42,928

     

45,789

 
                               

Gross profit

   

70,478

     

78,474

     

238,074

     

165,961

 
                               

Operating expenses

                               

General and administrative

   

809,641

     

299,679

     

1,941,924

     

753,487

 

Stock compensation

   

29,755

     

93,000

     

328,580

     

348,738

 

Research and development

   

-

     

24,250

     

43,703

     

77,750

 

Depreciation and amortization

   

3,144

     

1,899

     

5,697

     

5,697

 
                               

Total operating expenses

   

842,540

     

418,828

     

2,319,904

     

1,185,672

 
                               

Loss from operations

 

(772,062

)

 

(340,354

)

 

(2,081,830

)

 

(1,019,711

)

                               

Other income (expense)

                               

Amortization of debt discount on convertible notes

 

(465,429

)

 

(87,650

)

 

(1,301,306

)

 

(141,987

)

Derivative expense

 

(125,860

)

 

(38,131,952

)

 

(853,775

)

 

(40,537,459

)

Change in fair value of derivative liabilities

 

(9,350

)

   

39,874,301

     

9,154

     

40,496,638

 

Loss on acquisition rescission

   

-

   

(1,250,000

)

   

-

   

(1,250,000

)

Interest expense

 

(288,690

)

 

(4,588

)

 

(460,457

)

 

(57,703

)

                               

Total other (expense) income

 

(889,329

)

   

400,111

   

(2,606,384

)

 

(1,490,511

)

                               

Net (loss) income before income taxes

 

(1,661,391

)

   

59,757

   

(4,688,214

)

 

(2,510,222

)

Income taxes

   

-

     

-

     

-

     

-

 
                               

Net (loss) income

 

$

(1,661,391

)

 

$

59,757

   

$

(4,688,214

)

 

$

(2,510,222

)

                               

Net (loss) income per share - basic and diluted

 

$

(0.20

)

 

$

0.01

   

$

(0.35

)

 

$

(1.23

)

                               

Weighted average number of shares outstanding during the period - basic and diluted

   

8,486,686

     

4,081,174

     

13,528,789

     

2,045,442

 

 

See accompanying notes to condensed consolidated financial statements

 

 
6

 

Sanomedics International Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

    For the Nine Months Ended  
    September 30,  
    2014     2013  
        (Restated)  

CASH FLOWS FROM OPERATING ACTIVITIES

       

Net loss

 

$

(4,688,214

)

 

$

(2,510,222

)

Adjustments to reconcile net loss to net cash used in operating activities

               

Depreciation and amortization

   

5,697

     

5,697

 

Stock compensation

   

328,580

     

348,738

 

Amortization of debt discount on convertible notes

   

1,301,306

     

141,987

 

Derivative expense

   

853,775

     

40,537,459

 

Change in fair value of derivative liabilities

 

(9,154

)

 

(40,496,638

)

Loss on rescission

   

-

     

1,250,000

 

Refinancing costs for revolving line of credit

   

474,131

     

-

 

Changes in operating assets and liabilities

               

Accounts receivable

 

(11,561

)

   

46,138

 

Inventories

   

29,876

     

850

 

Prepaid expenses and deposits

   

157,697

   

(10,634

)

Accrued salaries payable

   

-

     

119,391

 

Accounts payable and other liabilities

   

270,168

   

(36,161

)

Accrued interest payable

   

136,620

     

71,263

 

Accrual for contingencies on contract rescission

 

(334,331

)

   

-

 

Due to related parties

 

(134,437

)

   

84,872

 

Net Cash Used In Operating Activities

 

(1,619,847

)

 

(447,260

)

               

CASH FLOWS USED FROM INVESTING ACTIVITIES

               

Advances made to Prime Time Medcal

   

-

   

(400,000

)

Purchase of fixed assets

 

(12,768

)

   

-

 

Net Cash Used In Investing Activities

   

(12,768

   

(400,000

               

CASH FLOWS FROM FINANCING ACTIVITIES

               

Proceeds from convertible notes payable and advances - related party

   

838,240

     

539,490

 

Proceeds from common stock subscription

   

22,500

     

-

 

Proceeds from revolving line of credit

   

905,768

       -  

Proceeds from convertible notes payable

   

149,400

     

375,000

 

Payoffs of convertible notes payable

 

(252,750

)

   

-

 
               

Net Cash Provided By Financing Activities

   

1,663,158

     

914,490

 
               

Net change in cash

   

30,543

     

67,230

 
               

Cash - beginning of year

   

9,560

     

26,084

 
               

Cash - end of period

   

40,103

     

93,314

 
               

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

               

Cash paid during the period for:

               

Income taxes

 

-

    $

-

 
               

Interest

 

93,418

   

-

 
               

NON-CASH TRANSACTIONS:

               

Common stock issued to consultants for services

 

29,755

   

-

 

Common stock issued for conversion of debt

 

771,404

   

102,985

 

Common stock issued for acquisition

 

-

   

750,000

 

Accrued salaries payable converted to convertible promissory note-officer

  $

-

    $

703,339

 

Accrued salaries payable converted to common stock

 

211,365

   

-

 

Borrowings under revolving line of credit to convertible notes

 

1,404,899

   

-

 

 

See accompanying notes to condensed consolidated financial statements

 

 
7

 

Sanomedics International Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

September 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 U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulations S-X of the U.S. Securities and Exchange Commission. Accordingly, they do not include all the information and notes required by GAAP for annual financial statements.

 

In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments considered necessary to present fairly the financial position of the Company as of September 30, 2014 and December 31, 2013, and the condensed consolidated results of operations and cash flows for the nine months ended September 30, 2014 and 2013. Due to seasonality, potential changes in economic conditions, interest rate fluctuations and other factors, the results of operations for such interim periods are not necessarily indicative of the results 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), Anovent Inc. (since December 2011) and Biscayne Medical LLC (since July 2014). 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, as amended, 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 nine months ended September 30, 2014 are not necessarily indicative of the results for the full fiscal year.

 

NOTE 2 – RESTATEMENT OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

On March 28, 2014, the Company announced that it would restate its previously issued unaudited condensed consolidated financial statements at September 30, 2013 and for the three and nine months then ended as contained in the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2013. This restatement reverses all balances pertaining to the original recording of the Prime Time Medical, Inc. (“PTM”) acquisition which took place on August 30, 2013.

 

The Board of Directors of the Company concluded that the stock purchase agreement of PTM was not legally consummated and therefore consolidation was not appropriate. Accordingly the Company decided to rescind the completed transaction with PTM as if it did not occur, after discovering numerous material irregularities and differences between financial statements reproduced by the Company and the financial statements provided by Mark Miklos (“Seller”), the seller of PTM in connection with the Purchase Agreement.

 

The Company also discovered that the Seller failed to disclose that there were on-going audits with respect to PTM’s Medicare and Medicaid billings for periods prior to the consummation of the transaction. These audits escalated and, as a result, PTM could 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 were estimated to last at least two years. Also, as a result of other Medicare and Medicaid audits for periods prior to the consummation of the transaction,

 

 
8

 

Sanomedics International Holdings, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

September 30, 2014

(Unaudited)

 

NOTE 2 – RESTATEMENT OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(continued)

 

Medicare and Medicaid is demanding reimbursement for products that PTM was paid for prior to the closing of the transaction that were improperly reported. It is estimated that PTM may owe Medicare and Medicaid up to $500,000 in improper payments. In addition, there were approximately $500,000 in accounts receivable that will not be paid to PTM pending the outcome of the audits.

 

On March 13, 2014 the Board concluded that as a result of the foregoing events and Medicare and Medicaid’s constraint on PTM’s business and payment stream, the business could no longer survive and should immediately cease operating.

 

The following tables present the impact of the restatement on the Company’s previously issued condensed consolidated financial statements.

 

Condensed Consolidated Balance Sheets:

 

    September 30, 2013         September 30,  
 

As previously

       

2013

 
 

Reported

   

Adjustments

   

As Restated

 

Current Assets

 

$

1,257,877

   

$

(1,104,652

)

 

$

153,225

 

Fixed Assets

   

95,426

   

( 80,339

)

   

15,087

 

Other Assets

   

3,135,641

   

(3,094,581

)

   

41,060

 
                       

Total Assets

 

$

4,488,944

   

$

(4,279,572

)

 

$

209,372

 
                       
                       

Current Liabilities

 

$

5,334,182

   

$

(3,015,987

)

 

$

2,318,195

 

Total liabilities

   

8,188,621

   

(3,397,504

)

   

4,791,117

 
                       

Total Stockholders’ Deficit

 

$

(3,699,677

)

 

$

( 882,068

)

 

$

(4,581,745

)

 

Condensed Consolidated Statements of Operations:

 

  Three months ended September 30, 2013  
    As previously          
    Reported     Adjustments     As Restated  
             

Revenues, net

 

$

422,827

   

$

( 332,156

)

 

$

90,671

 

Gross profit

   

123,716

   

( 45,242

)

   

78,474

 

Total Operating expenses

   

586,459

   

( 167,631

)

   

418,828

 
                       

Loss from operations

 

( 462,743

)

 

( 122,389

)

 

( 340,354

)

Total other income

   

385,956

     

14,155

     

400,111

 

Net Income (Loss)

 

$

( 76,787

)

 

$

136,544

   

$

59,757

 
                       

Net loss per share-basic and diluted

 

$

( -

)  

$

( 0.01

)

 

$

0.01

 

 

 
9

 

Sanomedics International Holdings, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

September 30, 2014

(Unaudited)

 

NOTE 2 – RESTATEMENT OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-(continued)

 

  Nine months ended September 30, 2013  
    As previously          
    Reported     Adjustments     As Restated  
             

Revenues, net

 

$

543,906

   

$

( 332,156

)

 

$

211,750

 

Gross profit

   

211,204

   

( 45,243

)

   

165,961

 

Total Operating expenses

   

1,353,302

   

( 167,630

)

   

1,185,672

 
                       

Loss from operations

 

(1,142,098

)

 

( 122,387

)

 

(1,019,711

)

Total other income (expense)

 

(1,504,667

)

   

14,156

   

(1,490,511

)

Net Loss

 

$

(2,646,765

)

 

$

136,543

   

$

(2,510,222

)

                       

Net loss per share-basic and diluted

 

$

( 0.16

)

 

$

( 1.07

)

 

$

( 1.23

)

 

Condensed Consolidated Statement of Cash Flows:

 

 

Nine months ended September 30, 2013

 
    As previously          
    Reported     Adjustments     As Restated  
             

Net cash used in operating activities

 

$

(419,161

)

 

$

( 28,099

)

 

$

(447,260

)

                       

Net cash used in investing activities

 

$

(562,302

)

 

$

162,302

   

$

(400,000

)

                       

Net cash provided by financing activities

 

$

1,048,693

   

$

( 134,203

)

 

$

914,490

 
                       

Net increase in cash

 

$

67,230

   

$

-

   

$

67,230

 

  

NOTE 3 – 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 $17,915,125 and a working capital deficit of $5,653,407 as of September 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 third parties including CLSS Holdings LLC (“CLSS”), a company owned by a former officer and a shareholder of the Company. Through September 30, 2014, the Company obtained its liquidity principally from approximately $906,000 of borrowing under a Revolving Line of Credit secured on January 9, 2014 from TCA Global Credit Master Fund (“TCA”), which was assumed by Redwood Management LLC (“Redwood”) on September 23, 2014, and $838,000 of cash advances from CLSS. Management’s plan is to seek equity and/or debt financing. However, management cannot provide any assurances that the Company will be successful in completing this financing and accomplishing any of its plans.

 

 
10

 

Sanomedics International Holdings, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

September 30, 2014

(Unaudited)

 

NOTE 3 – LIQUIDITY AND GOING CONCERN-(continued)

 

The ability of the Company to continue as a going concern is dependent upon its ability to successfully secure other sources of financing 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.

 

NOTE 4 – REVOLVING LINE OF CREDIT AND REFINANCING

 

TCA Credit Agreement:

 

On January 9, 2014, we entered into a Senior Secured Revolving Credit Facility Agreement (the "Credit Agreement") with TCA. Pursuant to the Credit Agreement, 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.

 

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 which bore interest at the rate of 11% per annum and matured July 9, 2014. The Note was 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. 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.

 

The Credit Agreement contained negative and financial covenants. The Company was not in compliance with certain of these covenants and on May 12, 2014, TCA provided the Company with a notice of default of the Credit Agreement. 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. 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 in damages, plus pre-judgment interest, attorney’s fees, costs, foreclosure on associated collateral, and the proceeds from any sale of that collateral.

 

Redwood Refinancing:

 

On September 23, 2014, we executed a series of agreements with TCA and Redwood including a certain amendment agreement with Redwood, modifying the Credit Agreement previously entered into with TCA on January 9, 2014. Redwood entered into a Debt Purchase Agreement with TCA related to the TCA obligations. Pursuant to those agreements, Redwood assumed the TCA obligations, including conversion rights of TCA transferred to Redwood. In connection therewith, the Company executed two replacement revolving notes, one for $117,075 and a second for $1,287,824 (the “Notes”). The Notes are convertible at the option of Redwood into shares of our common stock. Refer to Note 5.

 

 
11

  

Sanomedics International Holdings, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

September 30, 2014

(Unaudited)

 

NOTE 4 – REVOLVING LINE OF CREDIT AND REFINANCING- (continued)

 

The foregoing refinancing lifted the pending default status of the TCA obligations and also placed their current litigation proceedings against the Company and certain of its officers in abeyance until the TCA obligations were entirely paid in full.

 

On October 20, 2014, Redwood accelerated the complete payoff of the Note to TCA and, accordingly, the Company was deemed to have satisfied all outstanding debt obligations owed to TCA and all litigation between the Company, its officers and TCA was dismissed.

 

NOTE 5 – CONVERTIBLE NOTES PAYABLE AND ADVANCES –RELATED PARTIES, NET OF DISCOUNTS

 

Convertible notes payable and advances to related parties consists of the following:

 

    September 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.

   

-

     

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)(D)

132,476

-

Secured Convertible Promissory Note-CLSS Holdings LLC, dated May 8, 2014. Notes accrue interest at 8% per annum, due and payable on May 6, 2016 (C)(D)

95,000

-

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)(D)

527,902

-

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 $210,678(B)

   

192,661

     

200,954

 

Total Notes

   

948,039

     

747,491

 

Other advances from CLSS Holdings, LLC, not evidenced by a Promissory Note (A)

   

242,500

     

1,125,632

 
     

1,190,539

     

1,873,123

 

Less: Current portion

   

435,161

     

-

 
   

$

755,378

   

$

1,873,123

 

 

 
12

 

Sanomedics International Holdings, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

September 30, 2014

(Unaudited)

 

NOTE 5 – CONVERTIBLE NOTES PAYABLE AND ADVANCES –RELATED PARTIES, NET OF DISCOUNTS (continued)

 

The secured convertible promissory notes above are collateralized by substantially all the assets of the Company, 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.

 

(A) On February 21, 2014 the Company memorialized advances from CLSS 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 September 30, 2014 and December 31, 2013. On July 25, 2014, the Company issued 2,904,163 shares of restricted common stock in connection with the partial redemption of convertible debt.

 

(C) Through the nine (9) months ended September 30, 2014, convertible notes totaling $667,609 were converted into 5,330,500 shares of common stock at conversion prices ranging from $0.08 to $0.21 per share.

 

(D) Through the nine (9) months ended September 30, 2014, $709,750 was assigned by the holder to eight (8) third parties, which subsequently converted to 3,347,332 shares of common stock at conversion prices ranging from $0.02 to $0.36 per share.

 

NOTE 6 – CONVERTIBLE NOTES PAYABLE, NET OF DISCOUNTS

 

Third party convertible notes payable consists of the following:

 

    September 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 $9,503 and $37,500, respectively (E).

 

$

65,497

   

$

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) (E).

   

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 $4,361 and $97,587 respectively (A)(C).

   

53,237

     

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 $204,693.(A)(B)(C)

   

117,308

     

-

 

 

 
13

 

Sanomedics International Holdings, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

September 30, 2014

(Unaudited)

 

NOTE 6 – CONVERTIBLE NOTES PAYABLE, NET OF DISCOUNTS-(continued)

 

Four (4) convertible promissory notes with interest ranging from 8% to 12% per annum, convertible into common shares at a conversion prices per share of 50% discount to a defined market prices. Maturity ranges through September 11, 2015, net of unamortized discounts of $260,312.(A)(B)(C)

   

101,519

     

-

 

Two (2) convertible promissory notes with interest at 8% per annum, convertible into common shares at a conversion price per share of 15% discount to a defined market price. Matures through August 1, 2015, net of unamortized discount of $124,544 and $ -0-, respectively. (A)

   

 715,456

     

-

 

Convertible promissory note with interest at 12% per annum, convertible into common shares at a conversion price per share of 15% discount to a defined market price. Matures on September 21, 2015, net of unamortized discount of $76,722 and $ -0-, respectively.(A)(D) See Note 4

   

15,353

     

-

 
                 

Convertible promissory note with interest at 12% per annum, convertible into common shares at a conversion price per share of 15% discount to a defined market price. Matures on September 21, 2015, net of unamortized discount of $247,672 and $ -0-, respectively.(A) See Note 4

   

 1,040,151

     

-

 
     

2,145,021

     

300,762

 

Less current portion

   

(2,145,021)

     

(300,762)

 

Long-term portion of convertible debt

 

$

-

   

$

-

 

 

(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 September 30, 2014 and December 31, 2013.

 

(B) Through the period ended September 30, 2014, six (6) convertible notes totaling $375,057 were converted into 3,570,790 shares of common stock.

 

(C) Through the period ended September 30, 2014, three (3) convertible notes totaling $252,750 were paid.

 

(D) On September 29, 2014, $25,000 of debt was converted into 896,539 shares of common stock.

 

(E) Pending conversion of debt to common stock at request of debt holder.

 

In accordance with ASC 470-20 Debt with Conversion and Other Options, at time of issuance the Company allocated $1,708,608 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 $1,301,306 and $54,337 of interest expense pursuant to the amortization of the note discounts for the nine months ended September 30, 2014 and 2013, respectively.

 

 
14

 

Sanomedics International Holdings, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

September 30, 2014

(Unaudited)

 

NOTE 7– DERIVATIVE LIABILITIES

 

The Company analyzed the related party convertible note-officer and convertible promissory notes referred to in Notes 5 and 6 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 September 30, 2014 and December 31, 2013 amounted to $2,617,024 and $1,070,728, respectively. The net increase of $1,546,296 in the fair value of the derivative liabilities from 2013 has been reflected as unamortized discount of $1,138,484 reflected in the convertible notes payable to officer and third parties, the amortization of debt discount of $1,301,306 and the change in fair value of the derivatives between the respective periods is included in other income (expenses) amounting to $9,154.

 

NOTE 8 – COMMITMENTS AND CONTINGENCIES

 

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. 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 all moneys paid on the Note by the Company to JMJ must be returned to the Company) and for usury (seeking damages for all moneys paid pursuant to the promissory note, reasonable attorneys’ fees, and costs). On August 29, 2014, JMJ filed a Motion to Dismiss the Company’s Counterclaim, arguing that the transactions at issue are not subject to Florida’s usury laws, and further arguing that the Company cannot maintain a claim for usury because no interest was paid on the note. The Company intends to defend against JMJ’s claims, and pursue its claims, vigorously.

 

 
15

 

Sanomedics International Holdings, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

September 30, 2014

(Unaudited)

 

NOTE 8 – COMMITMENTS AND CONTINGENCIES-(continued)

 

Prime Time Medical Litigation

 

After assuming control of the acquisition of PTM in August 2013, the Company discovered that the Seller failed to disclose that there were on-going audits with respect to PTM’s Medicare and Medicaid billings for periods prior to the consummation of the transaction. These audits have escalated and, as a result, PTM 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 PTM was paid prior to the closing of the transaction that were improper. It is estimated that PTM 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 PTM 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 the Seller in connection with the Stock Purchase Agreement, coupled with the foregoing events and Medicare and Medicaid’s constraint on PTM’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 PTM.

 

As a result of discoveries of fraud and misrepresentations in the acquisition of PTM described above, on March 18, 2014, the Company filed a lawsuit against the Seller 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 the Seller 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 litigation filed by the Seller was transferred to Miami Dade County and subsequently, on October 14, 2014, transferred by administrative judge to the same division as the Company’s litigation against the Seller. The Company has filed a Motion to consolidate the two lawsuits.

 

The Company believes there is no merit to the Seller’ 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, alleging 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.

 

 
16

 

Sanomedics International Holdings, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

September 30, 2014

(Unaudited)

 

NOTE 9 – COMMON STOCK

 

On January 16, 2014, a former officer 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 for a share price of $0.10 per share, the Company issued 3,142,270 shares of restricted common stock to various existing individual shareholders designated by the owner of CLSS.

 

On February 21, 2014, the Company converted a Convertible Note due to CLSS for $282,740 into 1,323,750 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 150,000 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, 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.

 

On June 11, 2014, the Company issued 584,724 shares of restricted common stock to a former officer and a shareholder at a price per share of $0.25 in settlement of $145,596 of unpaid and accrued salaries.

 

From July 1, 2014 through September 30, 2014, the Company issued a total of 2,430,722 shares of restricted common stock to a former officer and shareholder at prices per share ranging from $0.04 to $0.25 in settlement of $211,365 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.

 

 
17

 

Sanomedics International Holdings, Inc.

Notes to Condensed Consolidated Financial Statements (continued)

September 30, 2014

(Unaudited)

 

NOTE 9 – COMMON STOCK- (continued)

 

On August 29, 2014 and September 17, 2014, the Company issued a total of 400,000 shares of restricted common stock to two (2) consultants as payment for financial and investor relations services.

 

On August 29, 2014, the Company converted a portion of Convertible Note due to CLSS for $313,000 into 864,480 shares restricted at a price per share of $0.082.

 

From July 1, 2014 through September 30, 2014, the Company issued a total of 4,349,324 shares to six (6) parties in connection with the conversion of convertible debt held.

 

NOTE 10 – SUBSEQUENT EVENTS

 

Third Party Debt Financing:

 

(a) On October 24, 2014, we entered into two (2) convertible debentures (the “Debentures”) with Redwood and REDWOOD FUND II, LLC in the principal amounts of $189,375 and $63,125, respectively. On October 27, 2014, Redwood funded the Company an initial tranche of $125,000 pursuant to the terms thereof, with the remaining $127,500 balance to be funded in one week after execution. The principal sum of the Debentures carries a 1% original issue discount from the stated principal amounts. The maturity date of the Debentures plus interest at 13% per annum is April 24, 2015 or such earlier date as the Debentures are required or permitted to be repaid as provided in the Debentures agreement.

 

All principal and accrued interest on the Debentures is convertible into shares of the Company’s common stock at the election of the holder thereof at any time at a conversion price equal to 65% of the lowest traded volume weighted average price (“VWAP”) during the 10 trading days prior to conversion.

 

(b) On October 24, 2014, a convertible note originally for $213,612 held by a third party, was purchased and assigned to a new third party lender for $254,916. The convertible promissory note carries interest at 8% per annum, convertible into common shares at a conversion price equal to 62.5% of the lowest traded VWAP price during the 10 trading days prior to conversion and matures on May 23, 2015.

 

Share Issuances:

 

During October 1, 2014 and November 3, 2014, the Company issued a total of 31,399,803 shares to five (5) parties in connection with the conversion of $287,951 in convertible debt held.

 

On October 6, 2014 and November 10, 2014 the Company issued a total of 3,613,425 shares of restricted common stock to a former officer and shareholder at a prices ranging from $0.02 to $0.04 in settlement of $96,164 of unpaid and accrued salaries.

 

During October, 2014 through November 10, 2014, the Company issued 18,612,912 shares to a Company owned by a former officer and shareholder in connection with the conversion of $193,782 in convertible debt held.

 

From October 1, 2014 to November 10, 2014 the Company issued Redwood a total of 34,222,678 shares in connection with the conversion of $451,982 in convertible debt held.

 

Management has evaluated the subsequent events through November 14, 2014, the date at which the condensed consolidated financial statements were available for issue. 

 

 
18

  

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 nine months ended September 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.

 

 
19

  

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 September 30,

Nine Months Ended

September 30,
          Restated           Restated  
    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

   

15

%

     

13

%

   

15

%

     

22

%

Gross margin

   

85

%

     

87

%

   

85

%

     

78

%

General and administrative

   

973

%

     

331

%

   

691

%

     

356

%

Stock compensation

   

36

%

     

103

%

   

117

%

     

165

%

Research and development

   

0

%

 

 

 

27

%

   

16

%

     

37

%

Depreciation and amortization

   

4

%

     

2

%

   

2

%

     

3

%

                                   

Loss from operations

   

-928

%

     

-375

%

   

-741

%

     

-482

%

Other income(expense):

                                   

Amortization of debt discount on convertible notes

   

-560

%

     

-97

%

   

-463

%

     

-67

%

Derivative expense

   

-151

%

     

-42,055

%

   

-304

%

     

-19,144

%

Change in fair value of derivative liabilities

   

-11

%

     

43,977

%

   

3

%

     

19,125

%

Loss on acquisition rescission

   

0

%

 

 

 

1,379

     

0

%

 

 

 

-590

%

Interest expense

   

-347

%

     

-5

%

   

-164

%

     

-27

%

                                   

Net loss

   

-1,997

%

     

66

%

   

-1,668

%

     

-1,185

%

 

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

 

Revenues, net: Our net revenues decreased modestly during the third 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 increased modestly in the third quarter of 2014 as compared to the first quarter of 2013 due to the stabilization of pricing of the newer professional models during the 2014 period as compared to a mix of product models in 2013 bearing a slightly lower 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.

 

 
20

 

Operating Expenses: Operating expenses consist of general and administrative expenses, stock compensation, research and development and depreciation and amortization. For the third 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 170% in the third quarter of 2014 from the third quarter of 2013. These changes are reflective primarily of increases in general and administrative expenses, offset by decreases in research and development expenses and stock compensation in the 2014 period.

 

Other income (expense): Other expense increased in the 2014 period from the comparable 2013 period. The increase is primarily attributable to a net increase 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.

 

Nine Months Ended September 30, 2014 compared to the Nine Months Ended September 30, 2013

 

Revenues, net: Our net revenues increased substantially for the nine months ended September 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 nine months ended September 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 $1.1 million increase in operating expenses for the nine months ended September 30, 2014 from the comparable 2013 period was primarily a result of increases in debt issue cost associated with new borrowings, legal and professional fees and commission expense. Overall, our operating expenses increased 104% for the nine months ended September 30, 2014 as compared to 2013. These changes reflect increases in general and administrative expenses and stock based compensation, offset slightly by decreases in research and development expenses in the 2014 period.

 

Other income (expense): Other income (expense) increased approximately $1.1 million in the 2014 period from the comparable 2013 period. The increase is primarily attributable to an increase in the amortization of debt discounts from increased borrowings and net increase in 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 increase in interest expense from the new borrowings.

 

Financial Condition

 

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

 

Assets: At September 30, 2014, as compared to December 31, 2013, our current assets increased by approximately $695,000 and our total assets increased by approximately $702,000. The increase in current assets is primarily attributable to increases in prepaid expenses, primarily retainers for legal services in connection with the Exergen litigation.

 

Liabilities: At September 30, 2014, our current liabilities increased by approximately $3,060,000 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 $1,844,000 in convertible promissory notes from other third party lenders, which accordingly, also resulted in an increase of approximately $1,546,000 in non-cash derivative liabilities. Our long-term liabilities decreased primarily as a result of the lesser borrowing demand from related parties and increased conversions of debt into equity.

 

 
21

 

Liquidity and Capital Resources

 

At September 30, 2014 our cash on hand was approximately $40,000. At September 30, 2014, we had a working capital deficit of $5,653,407 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 $4.2 million principal amount of cash advances from CLSS, a company owned by a former officer and one of our shareholders. The Company has executed promissory notes totaling approximately $755,000 as of September 30, 2014 with CLSS. 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. Additionally since 2013 we have also had to rely upon third party lending as an additional source of capital. As of September 30, 2014, the total of the third party debt borrowings, net of discount, was $2,145,021 as compared to $300,762 as of December 31, 2013. The increase primarily consisted of $1,055,504 due to Redwood. During October 2014, the third party debt borrowings have been reduced by approximately $1,000,000 through common stock share conversions.

 

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 $2,900,000 in secured obligations between Redwood and the related parties which mature in July 2015 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 October 31, 2014, the debt to Redwood and the related parties was reduced by approximately $1,000,000 from debt conversions to equity.

 

At September 30, 2014, we had approximately $40,000 in cash on hand; and unless and until we increase our sales, receive additional financing from third parties or capital from stock offerings, which we may never achieve, in the absence of on-going cash infusions, 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 nine months ended September 30, 2014

 

    Nine Months Ended September 30,  
   

2014

   

2013

 
              (Restated)  

Net cash used in operating activities

 

$

(1,619,847

)

 

$

(447,260

)

Net cash used in investing activities

 

$

(12,768

)

 

$

(400,000

)

Net cash provided by financing activities

 

$

1,663,158

   

$

914,490

 

 

Operating Activities

 

Our total cash used by operating activities increased 262% for the nine months ended September 30, 2014, compared to the nine months ended September 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.

 

 
22

 

Investing Activities

 

During the 2014 period we used cash for additional tooling of molds for accessories to our thermometer. In the 2013 period we also invested cash in the purchase of a new acquisition in which the purchase contract was rescinded.

 

Financing Activities

 

Our total cash provided for financing activities increased by 82% for the nine months ended September 30, 2014 compared to the nine months ended September 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, 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. 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.

 

 
23

 

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.

 

Exergen Corporation

 

On May 21, 2013, Exergen Corporation commenced legal action in the United States District Court for the District of Massachusetts against the Company, alleging 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.

 

Prime Time Medical and Mark Miklos

 

After assuming control of the acquisition of PTM in August 2013, the Company discovered that the Seller of PTM (“Miklos”) failed to disclose that there were on-going audits with respect to PTM’s Medicare and Medicaid billings for periods prior to the consummation of the transaction. These audits had escalated and, as a result, PTM could 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 reimbursements for products that PTM was paid prior to the closing of the transaction that were improper. It is estimated that PTM 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 PTM 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 PTM’s business and payment stream, the Board of Directors of the Company decided that the business could no longer survive and thus opted to pursue a rescission of the completed transaction with PTM.

 

As a result of discoveries of fraud and misrepresentations in the acquisition of PTM 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 litigation filed by Miklos was transferred to Miami Dade County and subsequently, on October 14, 2014, transferred by administrative judge to the same division as the Company’s litigation against Mr. Miklos. The Company has filed a Motion to consolidate the two lawsuits.

 

 
24

 

The Company believes there is no merit to Mr. Miklos’ lawsuit and intends to defend itself aggressively.

 

Justin Keener d/b/a JMJ Financial

 

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.

 

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 for breach of contract and unjust enrichment. 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 in damages, plus pre-judgment interest, attorney’s fees, costs, foreclosure on associated collateral, and the proceeds from any sale of that collateral.

 

On October 17, 2014, we executed an additional series of agreements with TCA and Redwood including a certain amendment agreement with Redwood, modifying the Credit Agreement previously entered into with TCA on January 9, 2014. Redwood entered into a debt purchase agreement with TCA related to the TCA obligations. Pursuant to those agreements, Redwood assumed the TCA obligations, including conversion rights. In connection therewith SIMH executed a Replacement Revolving Note for $1,225,154 (the “Note”). The Note is convertible at the option of Redwood into shares of our common stock.

 

On October 20, 2014, Redwood accelerated the complete payoff of the Note to TCA and, accordingly, the Company was deemed to have satisfied all outstanding debt obligations owned to TCA and all litigation with TCA was dismissed.

 

Item 1A. Risk Factors.

 

Please see the risk factors disclosed in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2013, as amended, filed with the SEC.

 

 
25

 

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

 

On July 8, 2014, a portion of a convertible note originally for $265,000 held by CLSS 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. 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

 

From July 1, 2014 to September 30, 2014, the Company issued a total of 4,174,324 shares to six (6) parties in connection with the conversion of convertible debt held, as follows:

 

Date:

  Shares Issued:  

July 16, 2014

 

200,000

 

July 16, 2014

   

43,478

 

August 11, 2014

   

133,333

 

August 20, 2014

   

285,714

 

August 20, 2014

   

200,000

 

September 4, 2014

   

358,974

 

September 8, 2014

   

250,000

 

September 15, 2014

   

153,061

 

September 19, 2014

   

686,275

 

September 22, 2014

   

86,206

 

September 24, 2014

   

152,173

 

September 26, 2014

   

300,000

 

September 29, 2014

   

428,571

 

September 29, 2014

   

896,539

 

 

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.

 

From July 1, 2014 through September 30, 2014, the Company issued a total of 2,430,722 shares of restricted common stock to a former officer and shareholder at prices per share ranging from $0.04 to $0.25 in settlement of $211,365 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 25, 2014, and August 29, 2014, the Company issued 2,904,163 and 864,480 shares, respectively, of restricted common stock at a price per share of $0.10 and $0.082 to CLSS in connection with the partial conversion of convertible stock held. 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 August 29, 2014 and September 17, 2014, the Company issued 150,000 and 250,000 shares of restricted common stock at prices of $0.08 and $0.07 per share, respectively, to two (2) consultants as payment for financial and investor relations services. 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 October, 2014 and November 3, 2014, the Company issued a total of 31,399,803 shares to five (5) parties in connection with the conversion of $287,951 in 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.

 

 
26

 

On October 6, 2014 the Company issued 1,194,781 shares of restricted common stock to a former officer and shareholder at a price of $0.04 in settlement of $47,791 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 October 6, 2014 and November 10, 2014 the Company issued a total of 3,613,425 shares of restricted common stock to a former officer and shareholder at a prices ranging from $0.02 to $0.04 in settlement of $96,164 of unpaid and accrued salaries.

 

During October, 2014, through November 10, 2014, the Company issued 18,612,912 shares to a Company owned by a former officer and shareholder in connection with the conversion of $193,782 in convertible debt held. 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.

 

From October 1, 2014 to November 10, 2014 the Company issued Redwood a total of 34,222,678 shares in connection with the conversion of $451,982 in 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.

 

Item 3. Defaults Upon Senior Securities.

 

None

 

Item 4. Mine Safety Disclosures.

 

Not applicable to our company’s operations.

 

Item 5. Other Information.

 

June 30, 2014, $440,000 convertible promissory notes to Devlin Law Firm LLC with interest at 8% per annum, convertible into common shares at a conversion price per share of 15% discount to a defined market price. Matures through August 1, 2015.

 

August 12, 2014, $35,000 Convertible promissory notes to Beaufort Capital Partners LLC with interest at 12% per annum, convertible into common shares at a conversion prices per share of 50% discount to a defined market prices. Maturity ranges through September 11, 2015.

 

August 29, 2014, $30,000 Convertible promissory notes to Beaufort Capital Partners LLC with interest at 12% per annum, convertible into common shares at a conversion prices per share of 50% discount to a defined market prices. Maturity ranges through September 11, 2015.

 

September 11, 2014, $50,000 Convertible promissory notes to Coventry Enterprises LLC with interest at 8% per annum, convertible into common shares at a conversion prices per share of 50% discount to a defined market prices. Maturity ranges through September 11, 2015.

 

September 11, 2014, $50,000 Convertible promissory notes to Coventry Enterprises LLC with interest at 8% per annum, convertible into common shares at a conversion prices per share of 50% discount to a defined market prices. Maturity ranges through September 11, 2015.

 

September 22, 2014, $117,074.91 Convertible promissory note to Redwood Management LLC with interest at 12% per annum, convertible into common shares at a conversion price per share of 15% discount to a defined market price. Matures on September 21, 2015.

 

September 22, 2014, $1,287,824.09 Convertible promissory to TCA Global Credit Master Fund note with interest at 12% per annum, convertible into common shares at a conversion price per share of 15% discount to a defined market price. Matures on September 21, 2015.

 

 
27

 

September 30, 2014, $400,000 convertible promissory notes to Devlin Law Firm LLC with interest at 8% per annum, convertible into common shares at a conversion price per share of 15% discount to a defined market price. Matures through August 1, 2015.

 

On October 24, 2014, a convertible note originally for $213,612 held by DebentureVisions Opportunity Fund LLC, was purchased and assigned to a new third party lender, RDW Capital, LLC for $254,916. The convertible promissory note carries interest at 8% per annum, convertible into common shares at a conversion price equal to 62.5% of the lowest traded VWAP price during the 10 trading days prior to conversion and matures on May 23, 2015.

  

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*

 

 

10.72

 

Amendment Agreement dated September 22, 2014 between Sanomedics International Holdings, Inc. and Redwood Management LLC (previously filed)

 

 

10.73

 

Replacement Revolving Note A dated September 22, 2014 to TCA Global Credit Master Fund, LP (previously filed)

 

 

10.74

 

Replacement Revolving Note B dated September 22, 2014 to TCA Global Credit Master Fund, LP (previously filed)

 

 

10.75

 

Amendment Agreement dated October 17, 2014 Sanomedics International Holdings, Inc. and Redwood Management LLC (previously filed)

 

 

10.76

 

Replacement Revolving Note A-3 dated October 17, 2014 to TCA Global Credit Master Fund, LP (previously filed)

 

 

10.77

 

$189,375 Debenture dated October 24, 2014 payable to Redwood Management LLC (previously filed)

     

10.78

 

$63,125 Debenture dated October 24, 2014 payable to Redwood Fund II, LLC (previously filed)

     

10.79

 

$35,000 Securities Exchange and Settlement Agreement dated August 25, 2014 with Beaufort Capital Partners LLC*

 

 

10.80

 

$30,000 Promissory Note dated August 12, 2014 with Beaufort Capital Partners LLC*

 

 

10.81

 

$50,000 Replacement Promissory Note dated September 11, 2014 to Coventry Enterprises LLC*

 

 

10.82

 

$50,000 Promissory Note dated September 11, 2014 to Coventry Enterprises LLC*

 

 

10.83

 

$440,000 Convertible Note A dated June 30, 2014 to Devlin Law Firm LLC*

 

 

10.84

 

$400,000 Convertible Note dated September 30, 2014 to Devlin Law Firm LLC*

     

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

 

 
28

 

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.

     

November 14, 2014

By:

/s/ Keith Houlihan

 
   

Keith Houlihan, President

     

November 14, 2014

By:

/s/ David C. Langle

 
   

David C. Langle, Chief Financial Officer

 

 

29