UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549





FORM 10-Q





x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended March 31, 2011ORo
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For 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

(I.R.S. Employerincorporation or organization)

Identification No.)80 SW 8th Street, Suite 2180, Miami, Florida

33180(Address of principal executive offices)

(Zip Code)





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





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  o





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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).


Yes o                       No   o





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 o
Accelerated filer   oNon-accelerated filer   o   (Do not check if a smaller reporting company)
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 o                       No   x





Class

Outstanding at May 14, 2011Common Stock, $0.001 par value per share

13,636,939 shares














1








TABLE OF CONTENTS










PAGEPART I – FINANCIAL INFORMATIONItem 1.
Financial Statements


3Balance Sheets – As of March, 2011 (Unaudited) andDecember 31, 2010


3Statements of Operations –For the Three Months Ended March 31, 2011 and 2010(Unaudited)


4Statements of Cash Flows –For the Three Months Ended March 31, 2011 and 2010(Unaudited)


5Notes to Financial Statements (Unaudited)


6-10Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations


11Item 3.
Quantitative and Qualitative Disclosures about Market Risk


16Item 4.
Controls and Procedures


16Item 4T.
Controls and Procedures


16PART II – OTHER INFORMATIONItem 1.
Legal ProceedingsItem 1A.
Risk Factors


17Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds


17Item 3.
Defaults Upon Senior Securities


17Item 4.
(Removed and Reserved)


17Item 5.
Other Information


17Item 6.
Exhibits


17Signatures



18








2





PART I – FINANCIAL INFORMATION




Item 1.
Financial Statements.




Sanomedics International Holdings, Inc.


Consolidated Balance Sheets




March 31,


December 31,2011


2010(Unaudited)AssetsCurrent AssetsCash in bank

$
7,437


$
2,837Accounts receivable


6,675



7,371Inventory


180,328



193,153Other current assets


-



-Total Current Assets


194,440



203,361Fixed assets, net


25,372



24,201Other assets, Net


47,046



48,824Total Assets

$
266,858


$
276,386Liabilities and Stockholders'Current LiabilitiesAccrued salaries payable


731,381



635,131Accounts payable and other liabilities


54,094



18,090Accrued interest payable


142,062



107,411Short term portion of notes payable - related party


2,091,651



1,925,629Total Current Liabilities


3,019,188



2,686,261Notes payable - related party


-



-Stockholders’ DeficitPreferred stock, $0.001 par value: 1,000 shares authorized,issued and outstanding.


1



1Common stock, $0.001 par value: 250,000,000 shares authorized,13,635,939 issued and outstanding as of March 31, 2011 and December 31, 2010.


13,636



13,636Additional paid in capital


1,426,764



1,426,764Stock subscription receivable


(20,000
)


(20,000
)Accumulated deficit


(4,172,730
)


(3,830,276
)Total Stockholders’ Deficit


(2,752,330
)


(2,409,875
)Total Liabilities and Stockholders' Deficit

$
266,858


$
276,386
   See accompanying notes to financial statements
  3
 
  Sanomedics International Holdings, Inc.
 Consolidated Statements of Operations
 Unaudited


For the Three Months Ended March 31,2011


2010(Unaudited)


(Unaudited)Revenues, net

$
21,940


$
11,140Cost of goods sold


14,899



16,789Gross profit (loss)


7,041



(5,649
)Operating expensesGeneral and administrative


243,387



882,397Research and development


68,170



60,188Depreciation and Amortization


3,287



114Total operating expenses


314,844



942,699Loss from operations


(307,804
)


(948,348
)Other expenseInterest expense


(34,651
)


(11,635
)Total other expense


(34,651
)


(11,635
)Net loss before provision (benefit) for income taxes


(342,454
)


(959,983
)Provision(benefit) for income taxes


-



-Net loss

$
(342,454
)

$
(959,983
)Net loss per share - basic and diluted

$
(0.03
)

$
(0.07
)Weighted average number of shares outstanding during the period - basic and diluted


13,635,939



12,921,985




See accompanying notes to financial statements




4





Sanomedics International Holdings, Inc.
 Consolidated Statements of Cash Flows
 Unaudited


For the Three Months Ended December 31,2011


2010(Unaudited)


(Unaudited)CASH FLOWS FROM OPERATING ACTIVITIESNet loss

$
(342,454
)

$
(959,983
)Adjustments to reconcile net loss to net cash used in operating activitiesDepreciation


3,287



114Stock based compensation


-



734,750Changes in operating assets and liabilitiesAccounts receivable


696



7,243Inventory


12,825



(5,803
)Other current assets


-



(1,978
)Accrued salaries payable


96,250



77,500Accrued interest payable


34,651



11,635Accounts payable and other liabilities


36,003



1,857Net Cash Used In Operating Activities


(158,743
)


(134,665
)CASH FLOWS USED FROM INVESTING ACTIVITIESPurchase of fixed assets


(1,730
)


-Purchase of intangible assets


(949
)


(15,740
)Net Cash Used In Investing Activities


(2,679
)


(15,740
)CASH FLOWS FROM FINANCING ACTIVITIESIncrease in notes payable - related party


166,022



148,500Proceeds from sale of common stock


-



13,699Net Cash Provided By Financing Activities


166,022



162,199Net increase in cash


4,600



11,795Cash - beginning of period


2,837



779Cash - end of period

$
7,437


$
12,574Supplemental Disclosure of Cash Flow InformationCash paid during the period for:Income taxes

$
-


$
-Interest

$
-


$
-


See accompanying notes to financial statements




5







Sanomedics International Holdings, Inc.


Notes to Financial Statements


March 31, 2011


(Unaudited)


Note 1 Basis of Presentation





The accompanying unaudited 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) have been made which are necessary for a fair financial statement presentation. The results for the interim period are not necessarily indicative of the results to be expected for the full year.





The unaudited interim financial statements should be read in conjunction with the Company’s annual report on Form 10K, which contains the audited financial statements and notes thereto, together with the Management’s Discussion and Analysis, for the fiscal year ended December 31, 2010.  The interim results for the three months ended March 31, 2011 and 2010 are not necessarily indicative of the results for the full fiscal year.





NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Principles of Consolidation





All significant intercompany accounts and transactions have been eliminated in consolidation.





Liquidity and Going Concern





The 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 incurring losses. 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 CEO, who is also one of the principal shareholders.  It is the Company's intent to continue to obtain funds in this manner unless and until it can raise funds through the sale of equity securities. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.





Since its inception , the Company has obtained its liquidity principally from approximately $1.6 million principal amount of cash advances from an affiliate of Craig Sizer, the Chairman and CEO and one of the Company's principal shareholders.  The Company has executed promissory notes totaling approximately $1.5 million as of March 31, 2011, with CLSS Holdings, LLC (“CLSS”).  (See Note 3) .





The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing in addition to those funds provided by Mr. Sizer's affiliate and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.





Use of Estimates





The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.





Cash Equivalents





For purposes of reporting cash flows, the Company considers all short-term investments with an original maturity of three months or less to be cash equivalent.








6







NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)





Revenue Recognition





Certain product sales are subject to rights of return.  Such rights include the right to return defective items within 30 days and with certain large accounts a right to return unsold product.  For products sold where the buyer has the right to return the product, the Company recognizes revenue at the time of sale only if (1) the Company’s price to the buyer is substantially fixed or determinable at the date of sale, (2) the buyer has paid the Company, or the buyer is obligated to pay the seller and the obligation is not contingent on resale of the product, (3) the buyer’s obligation to the Company would not be changed in the event of theft or physical destruction or damage of the product, (4) the buyer acquiring the product for resale has economic substance apart from that provided by the seller, (5) the Company does not have significant obligations for future performance to directly bring about resale of the product by the buyer, and (6) the amount of future returns can be reasonably estimated. The Company recognizes such product revenues when either it has met all the above criteria, including the ability to reasonably estimate the right of return of unsold items, or when it can reasonably estimate that the return privilege has expired.





Product Sales —  Revenue from sales of the Company’s products is recorded when title and risk of loss have passed to the buyer and provided the criteria for revenue recognition are met. The Company sells its products to individual consumers and resellers upon receipt of a written order. The Company has a limited return policy for defective items that requires thecustomer to give the Company notice within 30 days after receipt of the product; however, such risk is passed to the manufacturer and therefore the Company recognizes revenue at the time of delivery without providing any reserve. For sales made by certain large accounts with a right to return unsold items, the Company provides for a reserve for the estimated amount of unsold items.





Concentration of Credit Risk





Financial instruments which subject the Company to concentrations of credit risk include cash and cash equivalents. The Company maintains its cash in well-known banks selected based upon management's assessment of the banks’ financial stability. Balances may periodically exceed the $250,000 federal depository insurance limit; however, the Company has not experienced any losses on deposits. The Company extends credit based on an evaluation of the customer's financial condition, without collateral. Exposure to losses on receivables is principally dependent on each customer's financial condition. The Company monitors its exposure for credit losses and maintains allowances for anticipated losses, as required.





Inventories





Inventories are stated at the lower of cost (on a first-in, first-out basis) or market value. The stated cost is comprised of finished goods of non-invasive thermometers.  Reserves, if necessary, are recorded to reduce inventory to market value based on assumptions about consumer demand, current inventory levels and product life cycles for the various inventory items. These assumptions are evaluated quarterly and are based on the Company’s business plan and from feedback from customers and the product development team; however, as the Company has a fairly limited operating history, estimates can vary significantly.





Reserves for Warranty





The Company records a reserve at the time product revenue is recorded based on historical rates.  The reserve is reviewed during the year and is adjusted, if appropriate, to reflect new product offerings or changes in experience. Actual warranty claims are tracked by product line. The warranty reserve was approximately $1,000 at March 31, 2011 and December 31, 2010.





Fixed Assets





Fixed assets are stated at cost, less accumulated depreciation. Depreciation is provided principally on the straight-line method over the estimated useful lives of the assets, which is generally 3 to 10 years. The cost of repairs and maintenance is charged to expense as incurred. Expenditures for property betterments and renewals are capitalized. Upon sale or other disposition of a depreciable asset, cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in other income or expense.





The Company will periodically evaluate whether events and circumstances have occurred that may warrant revision of the estimated useful lives of fixed assets or whether the remaining balance of fixed assets should be evaluated for possible impairment. The Company  uses an estimate of the related undiscounted cash flows over the remaining life of the fixed assets in measuring their recoverability.








7








2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)





Advertising Costs





Advertising costs are expensed as incurred.





Shipping and Handling





Costs incurred by the Company for shipping and handling are included in costs of revenues.





Income Taxes





The Company accounts for income taxes under ASC 740, formerly Financial Accounting Standards No. 109 "Accounting for Income Taxes". Under ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period, which includes the enactment date.





In June 2006, the Financial Accounting Standards Board issued FASB Interpretation No. 48 (FIN-48), Accounting for Uncertainty in Income Taxes--An interpretation of FASB Statement No. 109 and codified into ASC 740. FIN-48 clarifies the accounting for uncertainty in income taxes recognized in an entity's financial statements in accordance with Statement of Financial Accounting Standards No.109, Accounting for Income Taxes. This Interpretation prescribed a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. In addition, FIN-48 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Company adopted the provisions of FIN-48 and they had no impact on its financial position, results of operations, and cash flows.





Based on its evaluation, the Company has concluded that there are no significant uncertain tax positions requiring recognition in its financial statements. The Company's evaluation was performed for the tax years ended December 31, 2010 and 2009 for U.S. Federal Income Tax, for the State of Florida Corporate Income Tax, the years which remain subject to examination by major tax jurisdictions as of December 31, 2010 and 2009.





Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.





Research and Development Expense





Costs related to research and development, which primarily consists of salaries and benefits, stock compensation and consulting, are charged to expense as incurred





Patents





We capitalize external costs, such as filing fees and associated attorney fees, incurred to obtain issued patents and patent license rights. We expense costs associated with maintaining and defending patents subsequent to their issuance in the period incurred. We amortize capitalized patent costs for internally generated patents on a straight-line basis over five to  ten years, which represents the estimated useful lives of the patents. The estimated useful life for internally generated patents is based on our assessment of such factors as the length of license agreements, if any, for such patents and the expected product life of the product. We assess the potential impairment to all capitalized net patent costs when events or changes in circumstances indicate that the carrying amount of our patents  may not be recoverable. As of March 31, 2011 and December 31, 2010, patents totaled $47,046 and $48,824, respectively, net of accumulated amortization of $2,727 and $0, respectively.








8





2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)





Basic and Diluted Net Loss Per Share





The Company computes net income (loss) per share in accordance with ASC Topic 260, Earning per Share, formerly Statement of Accounting Standards SFAS No. 128, "Earnings per Share", which requires presentation of both basic and diluted earnings per share ("EPS") on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) before and after discontinued operations, by the weighted average number of common shares outstanding (denominator) during the period, including contingently issuable shares where the contingency has been resolved. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted loss per share excludes all dilutive potential shares as their effect is anti-dilutive. For the three months ended March 31, 2011 and 2010, outstanding stock options, warrants, and shares issuable upon conversion of convertible notes were anti-dilutive because of net losses, and, as such, their effect has not been included in the calculation of diluted net loss per share. Potentially dilutive shares of 17.6 million and 13.7 million, respectively, have been excluded from the denominator in the computation of diluted EPS for three months ended March 31, 2011 and 2010, respectively, because they are anti-dilutive.





Stock Based Compensation





The Company applies the fair value method of ASC 718, Share Based Payment, formerly Statement of Financial Accounting Standards ("SFAS") No. l23R "Accounting for Stock Based Compensation", in accounting for its stock based compensation. This standard states that compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period, if any. As the Company does not have sufficient, reliable and readily determinable values relating to its common stock, the Company has used the stock value pursuant to its most recent private sale of stock by an affiliate of our CEO, for purposes of valuing stock based compensation. The Company believes that the market price of the Company's stock is not indicative of value as the stock is not widely held and trades infrequently.




NOTE 3 – NOTES PAYABLE -RELATED PARTY





Notes payable consists of the following:

March 31,

2011


December 31,

2010Secured Convertible Promissory Note - CLSS Holdings, LLC, dated September 8, 2009.  Note accrues interest at 9% per annum, due and payable on August 1, 2011

$
407,151


$
407,151Secured Convertible Promissory Note - CLSS Holdings, LLC, dated December 7, 2009.  Note accrues interest at 9% per annum, due and payable on August 1, 2011


117,164



117,164Secured Convertible Promissory Note - CLSS Holdings, LLC, dated April 6, 2010.  Note accrues interest at 9% per annum, due and payable on August 1, 2011


245,116



245,116Secured Convertible Promissory Note - CLSS Holdings, LLC, dated June 30, 2010.  Note accrues interest at 9% per annum, due and payable on August 1, 2011


223,500



223,500Convertible Promissory Note - Craig Sizer dated June 30, 2010, Note accrues interest at 7.5% per annum due and payable on August 1, 2011


225,000



225,000Convertible Promissory Note - Keith Houlihan dated June 30, 2010, Note accrues interest at 7.5% per annum due and payable on August 1, 2011


239,994



239,994Secured Convertible Promissory Note - CLSS Holdings, LLC, dated September 30, 2010.  Note accrues interest at 9% per annum, due and payable on October 1, 2011


181,000



181,000Secured Convertible Promissory Note - CLSS Holdings, LLC, dated September 30, 2010.  Note accrues interest at 9% per annum, due and payable on March 11, 2012


367,000



–Total Notes


2,005,925



1,638,925Other advances from CLSS Holdings, Inc, LLC, not evidenced by a promissory Note


85,726



286,7042,091,651


$
1,925,629Less: Current portion


2,091,651



1,925,629$
–


$
–





The secured convertible promissory notes above are secured 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.   CLSS Holdings, LLC is wholly owned by the Company's CEO who also is a principal shareholder of the Company.





On June 30, 2010, the Company evidenced its obligations to pay accrued salaries to its Chief Executive Officer and its President in the amount of $225,000 and $239,994, respectively, by issuing promissory notes.  The notes are due on August 1, 2011 bearing an interest rate of 7.5% per annum. At the executives’ option, the notes can be converted into common shares at a fixed conversion price $0.50 per share.





As of March 31, 2010 and December 31, 2010, interest accrued on the notes amounted to $142,062 and $107,411, respectively.








9





The above notes, with the exception of the March 11, 2011 note,  were amended on December 20, 2010 to remove the variable component of the notes which allowed for the conversion of the above notes into common shares of the Company at the lesser of $0.25 or a 45% discount to the average closing bid price of its common stock for the three trading days prior to the conversion. There was no beneficial conversion feature associated with these notes as the variable and fixed conversion price of these notes were in excess of the fair market value of the Company's common stock.





On March 10, 2011, the Company and an affiliate of Craig Sizer agreed to extend the maturity dates of the Secured Promissory Notes dated September 8, 2009, December 7, 2009, April 6, 2010 and June 30, 2010 to August 1, 2011.





Maturities of notes payable for the years subsequent to December 31, 2010 are as follows:





Year

Amount2011


1,638,9252012


367,000Thereafter


–$
2,005,925





NOTE 4 – COMMITMENTS AND CONTINGENCIES





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.





The Company has employment agreements with three executive officers: the President, the Chief Executive Officer and the Chief Technology Officer.  The President and Chief Executive Officer have deferred their salary and all three have deferred their bonuses until such time as the Company receives financing and or there is a change of control. As of March 31, 2011, the Company has deferred approximately $429,000 in salaries and $302,000 in bonuses under these agreements.











10











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





The following discussion highlights the principal factors that have affected our financial condition, results of operations, liquidity and capital resources for the periods described. This discussion should be read in conjunction with our Consolidated Financial Statements and the related notes in Item 8 of this report. This discussion contains forward-looking statements. Please see “Cautionary Note Regarding Forward-Looking Statements” for the risks, uncertainties and assumptions associated with these forward-looking statements.





OVERVIEW





We design, develop, market and sell a line of non-contact infrared thermometers principally for consumer home healthcare for children and, under the “ThermoPet” brand name, for pet dogs.  Our research efforts are focused on a second generation product with improved accuracy, and if our development is successful we intend to introduce our second generation product line into the consumer market as well as launch it commercially into the “professional” market (medical and veterinary professionals and institutions), a market in which we conducted limited test-marketing during 2010.





For the three months ended March 31, 2010 and 2011, our thermometer for pet dogs accounted for 55.4% and 20.2%, respectively, of all thermometer unit sales and 56.9% and 31.8%, respectively, of our gross revenues of $11,140 and $21,940, respectively.  For the three months ended March 31, 2010 and 2011, our thermometer for children accounted for 38.7% and 78.4%, respectively, of all thermometer unit sales and 34.8% and 62.9%, respectively, of our gross revenues of $11,140 and $21,940, respectively.  For the three months ended March 31, 2011, test-marketing of our “professional” model accounted for 1.4% of unit sales and 5.9% of gross revenues.   We market our products principally on the Internet on Amazon.com and in the online catalogs of Frontgate.com (ThermoPet model only), and Hammacher.com (ThermoPet model only), Amazon and Hammacher.com accounted for 33.3% and  23.6% of our total sales for the three months ended March 31, 2011.  We have agreements with a distributor, commissioned independent sales representatives, and resellers.





Critical Accounting Policies and Estimates





The methods, estimates and judgments we use in applying our accounting policies have a significant impact on the results we report in our financial statements and which we discussed above in this Item 2. Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. We believe our critical accounting policies are those described below.





Revenue Recognition





The Company recognizes revenue at the time the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the fee is fixed or determinable; and (4) collectibility is reasonably assured.





Certain product sales are subject to rights of return. Such rights include the right to return defective items within 30 days and with certain large accounts a right to return unsold product.  For products sold where the buyer has the right to return the product, the Company recognizes revenue at the time of sale only if (1) the Company’s price to the buyer is substantially fixed or determinable at the date of sale, (2) the buyer has paid the Company, or the buyer is obligated to pay the seller and the obligation is not contingent on resale of the product, (3) the buyer’s obligation to the Company would not be changed in the event of theft or physical destruction or damage of the product, (4) the buyer acquiring the product for resale has economic substance apart from that provided by the seller, (5) the Company does not have significant obligations for future performance to directly bring about resale of the product by the buyer, and (6) the amount of future returns can be reasonably estimated. The Company recognizes such product revenues when either it has met all the above criteria, including the ability to reasonably estimate future returns, when it can reasonably estimate that the return privilege has expired.





Product Sales —  Revenue from sales of the Company’s products is recorded when title and risk of loss have passed to the buyer and provided the criteria for revenue recognition are met. The Company sells its products to individual consumers and resellers upon receipt of a written order. The Company has a limited return policy for defective items that requires that the customer give the Company notice within 30 days after receipt of the product; however, such risk is passed to the manufacturer and therefore, the Company recognizes revenue at the time of delivery without providing any reserve. For sales made by certain large accounts with a right to return unsold items, the Company provides for a reserve for the estimated amount of unsold items.


Inventories








11







Inventories are stated at the lower of cost (on a first-in, first-out basis) or market value. The stated cost is comprised of finished goods of non-invasive medical devices. Reserves, if necessary, are recorded to reduce inventory to market value based on assumptions about consumer demand, current inventory levels and product life cycles for the various inventory items, as follows:





·
Consumer demand – our products have only recently come to market, with the first sale in September 2009, Marketing efforts have been limited during 2010 due to our limited financial resources and the expected redesign of our product line in 2011 via our second generation models.  We do not want to deplete our inventory of current products too quickly in order to avoid an out-of-stock condition before our new line is ready.  We anticipate that we will reduce our retail price to sell the remaining inventory in bulk sometime prior to the expected release of our new line in 2011.  We anticipate that the discounted price will be well above our cost.





·
Current inventory levels – we have approximately 11,750 units remaining as of March 31, 2011. We sold 833 units January 1, 2011 to March 31, 2011, which is a fairly consistent sales rate over the preceding quarter.  At this rate, we have approximately 48 months of inventory on hand.  However, as noted above, it is our intent is to sell the remainder at a discount, but above cost, prior to our new product line becoming available.





·
Product life cycles – although we are redesigning our current line of products, we still consider them readily marketable consumer products.





Stock-Based Compensation





The Company applies the fair value method of ASC 718, Share Based Payment, formerly Statement of Financial Accounting Standards ("SFAS") No. l23R "Accounting for Stock Based Compensation", in accounting for its stock based compensation. This standard states that compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period, if any. As the Company does not have sufficient, reliable and readily determinable values relating to its common stock, the Company has used the stock value pursuant to its most recent private sale of stock for purposes of valuing stock based compensation. The Company believes that the market price of the Company's stock is not indicative of value as the stock is not widely held and trades infrequently.





Income Taxes





The Company accounts for income taxes under ASC 740, formerly Financial Accounting Standards No. 109 "Accounting for Income Taxes". Under ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period, which includes the enactment date.





In June 2006, the Financial Accounting Standards Board issued FASB Interpretation No. 48 (FIN-48), Accounting for Uncertainty in Income Taxes--An interpretation of FASB Statement No. 109 and codified into ASC 740. FIN-48 clarifies the accounting for uncertainty in income taxes recognized in an entity's financial statements in accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. This Interpretation prescribed a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. In addition, FIN-48 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Company adopted the provisions of FIN-48 and they had no impact on its financial position, results of operations, and cash flows.





Based on its evaluation, the Company has concluded that there are no significant uncertain tax positions requiring recognition in its financial statements. The Company's evaluation was performed for the tax years ended December 31, 2010 for U.S. Federal Income Tax, for the State of Florida Corporate Income Tax, the years which remain subject to examination by major tax jurisdictions as of December 31, 2010.








12





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 March 31,2011


2010Net sales revenue


100.0
%


100.0
%Costs and expenses:Cost of goods sold


67.9



150.7Research and development


310.7



540.3Selling, general and administrative


1,109.4



7,921.0Depreciation and Amortization


15.0



1.01,503.0



8,613.0Loss from operations


(1,403.0
)


(8,513.0
)Other income (expense):Interest expense


(157.9
)


(104.4
)Loss before provision for income taxes


(1,560.9
)


(8,617.4
)Provision for income taxes


—



—Net loss


(1,560.9
) %


(8,617.4
) %





Results of Operations








Three Months Ended March 31, 2010 compared to the Three Months Ended March 31, 2010





Revenues:  Revenues for the three months ended March  31, 2011 were approximately $22,000 as compared to approximately $11,000 for the three months ended March 31, 2010.  The increase was attributable to increase product awareness with online retailers.





Cost of Revenues: Cost of revenues, which consist of product, shipping and other costs, totaled approximately $15,000 for the three months ended March 31, 2011 as compared to $17,000 of such costs during the same period in 2010.   The decrease is primarily a result of a decrease in costs of shipping and customs offset by higher sales volumes which increased costs of revenues.





Gross Profit: Gross profit was approximately $7,000 for the three months ended as compared to a gross loss of approximately $6,000 during the same period in 2010, due primarily to the reasons stated above. The loss in the prior year was a result of costs relating to shipping the Company's products to the US from its manufacturer in China.





Operating Expenses: Operating expenses consist of general and administrative expenses, stock compensation, depreciation, research and development, and selling expenses. For the three months ended March 31, 2011, operating expenses totaled approximately $243,000 as compared to approximately $882,000 for the same period in 2010.  The approximate $639,000 decrease was primarily a result of the absence of additional stock compensation expense of approximately $735,000, offset by higher salary  accruals for key executives and increases in professional fees.





Net Loss: Net loss for the three months ended March 31, 2011 was approximately $342,000 compared to approximately $960,000 for the three months ended March 31, 2010 a decrease of approximately $618,000 primarily as a result of a decrease in operating expenses as described above.





13








Financial Condition





March 31, 2011 (unaudited) compared to December 31, 2010





Assets.  At March 31, 2011 as compared December 31, 2010 our total assets decreased by approximately $10,000 or 3.4%, to approximately $267,000. This was primarily attributable to an decrease of approximately $13,000 in inventory offset by a $4,000 increase in cash.





Liabilities.  At March 31, 2011, our total liabilities increased by approximately $333,000 or 12.4%, to approximately $3.0 million, attributable primarily to an increase of approximately $166,000 in borrowings from an affiliate of Craig Sizer, our Chairman and CEO and principal shareholder, increases of approximately $96,000 in accrued salaries and bonuses owed to our Management as of March 31, 2010 and an increase in accounts payable and other liabilities of approximately $36,000





Stockholders’ Deficit.  At March 31, 2011, our stockholders’ deficit increased by approximately $342,000 , or 14.2%, to approximately $2.8 million, primarily due to our net loss of approximately $342,000.





Liquidity and Capital Resources





At March 31, 2011 our cash on hand was only $7,437.





During 2009, 2010 and 2011 we obtained our liquidity principally from approximately $1.6 million principal amount of cash advances from an affiliate of Craig Sizer, our Chairman and CEO and one of our principal shareholders.  The Company has executed promissory notes totaling approximately $1.5 million as of March 31, 2011, with CLSS Holdings, LLC (“CLSS”). Each note (a) bears 9% annual interest (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 $0.25 except for our September 30, 2010 and March 11, 2011 notes for $181,000 and $367,000, which are convertible at a fixed price of $.50 per share, and is not prepayable by us, and (b) is subject to a security agreement under which all of our assets secure our loan repayment obligation.  The notes made on or before September 30, 2010 originally were  due and payable between March 7, 2011 and October 1, 2011 and thus primarily classified as current as of March 31, 2011; however, by amendments made on March 10, 2011, the maturities (March 7, 2010 and April 6, 2010) of the 2009 notes and the April and June 2010 notes were extended to August 1, 2011, so our 2009 and 2010 CLSS notes now mature on August 1, 2011 (approximately $1,000,000) or October 1, 2011 (approximately $200,000).  On March 10, 2011, we also executed a one-year, $367,000 promissory note to evidence additional advances made by CLSS since October 1, 2010, and the related security agreement; the note and security agreement each has similar terms to those described above except that the note is convertible at a fixed price of $.50 per share and its default interest rate is 15% per year.





Although we intend to increase our revenue by engaging in more aggressive sales, marketing and advertising activity designed to increase awareness of our products, we still need substantial additional capital to finance our business activities on an ongoing basis, as our revenue is insufficient to fund our operations.





Mr. Sizer has advised us that, absent the Company completing a debt or equity financing, he intends, through his affiliate, to provide additional loans to us of up to an additional $800,000, which is sufficient cash for an additional 12 months of operations at our current burn rate of approximately $65,000 per month.  We have not yet taken any steps to initiate any debt or equity financing, so we are relying on Mr. Sizer for additional funding.  However, even though Mr. Sizer is our CEO and our controlling shareholder and has been funding us for approximately two years, his verbal statement of intent to have his affiliate provide additional funding to us is not a binding agreement and therefore it is not legally enforceable and cannot be relied upon.  In the absence of a cash infusion by Mr. Sizer’s affiliate, based on our current sales rate, our current cash on hand would be depleted by the end of May 2011 and our ability to conduct business would be materially adversely effected.





Even if we do receive additional financing through Mr. Sizer, we still will require  substantial additional funds to finance our business activities on an ongoing basis. Following the completion of the Securities and Exchange Commission’s review of our form 10 Registration Statement we intend to seek substantial additional funds to finance our business activities on an ongoing basis.   However, we do not have any commitments or arrangements with any person or entity to obtain any equity or debt financing, and there can be 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.  We also intend to seek to have our common stock listed on the OTC Bulletin Board, which we believe would make it easier for us to raise capital from institutional investors and others. However, we do not have any commitments or arrangements to obtain any additional equity capital, and there can be no assurance that the additional financing we require would be available on reasonable terms, if at all.  The unavailability of additional financing could require us to delay, scale back or terminate our acquisition efforts as well as our own business activities, which would have a material adverse effect on our company and its viability and prospects.








14





Summary of Cash Flow for the three months ended March 31, 2011





Our cash flows for the year ended March 31, 2011 and 2010 were as follows:





Three Months Ended March 31,2011


2010Net cash (used) by operating activities

$
(158,743
)

$
(134,665
)Net cash (used) by investing activities


(2,679
)


(15,740
)Net cash  provided by financing activities

$
166,022


$
162,199





Operating Activities





Our total cash used by operating activities increased by approximately $24,000 or 17.8% to approximately $159,000 for the year ended December 31, 2010, compared to approximately $135,000 for the three months ended March 31, 2010. The increase is primarily due to the increased loss, excluding non-cash items.





Investing Activities





Our total cash used by investing activities decreased by approximately $13,000, to  approximately $3,000 for the three months ended March 31, 2011, compared to approximately $16,000 for the three months  March 31, 2010. The decrease is due to less capitalized intangible patent assets, put into service during the period as compared to the same period a year ago.





Financing Activities





Our total cash provided for financing activities increased by approximately $4,000, or 2.4%, to approximately $166,000 for the three months ended  March 31, 2011, compared to approximately $162,000 for the three months ended March 31, 2010. The increase is primarily due to an increase in funds borrowed from an affiliate of Craig Sizer, our Chairman and CEO and principal shareholder, offset by a decrease in proceeds of approximately $14,000 from the sale of our common stock to an affiliate of one of our distributors.





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.











15











Cautionary Note Regarding Forward Looking Statements





This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including its liquidity.  Forward-looking statements can be identified by words such as “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,” “expects” and similar references to future periods.





Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions.  Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict.  Our actual results may differ materially from those contemplated by the forward-looking statements.  We caution you therefore against relying on any of these forward-looking statements.  They are neither statements of historical fact nor guarantees or assurances of future performance.  Important factors that could cause actual results to differ materially from those in the forward-looking statements include the conditions of the global credit and capital markets.





Further information on our risk factors is contained in our filings with the SEC, including our 2010 annual report on Form 10-K filed on April 14, 2011.  Any forward-looking statement made by us in this report speaks only as of the date on which it is made.  Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them.  We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.




Item 3.
Quantitative and Qualitative Disclosures About Market Risk.





Not applicable to smaller reporting companies.





Item 4.
Controls and Procedures.





Not applicable to smaller reporting companies.





Item 4T.
Controls and Procedures.





Disclosure Controls. We carried out an evaluation with the participation of our Principal Executive Officer and Principal Financial Officer, required by Rule 13a-15 of the Securities Exchange Act of 1934 (the “Exchange Act”) of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act.  Based on their evaluation, our management has concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.





Changes in Internal Controls Over Financial Reporting.  There were no changes in our internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.











16





PART II – OTHER INFORMATION





Item 1.
Legal Proceedings.





We are not currently a party in any legal proceeding or governmental proceeding nor are we currently aware of any pending legal proceeding or governmental proceeding proposed to be initiated against us except as described below. There are no proceedings in which any of our current directors, executive officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to us.





On October 26, 2010, we filed a complaint against American Scientific Resources, Incorporated and Kidz-Med, Inc. (collectively “American Scientific”) in the United Stated District Court, Southern District of Florida. On November 18, 2010, American Scientific filed its answer, affirmative defenses and counterclaim. On December 9, 2010, we answered American Scientific’s counterclaim.  On January 27, 2010, we filed an amended complaint adding as defendants Christopher F. Tirotta (American Scientific’s CEO), Rycom Electron Technology Limited and another company.  On February 7, 2011, American Scientific answered our amended complaint and asserted affirmative defenses and a counterclaim, and on February 28, 2011 we answered.





In our amended complaint, we allege that American Scientific, a competitor selling non-contact thermometers for human use, wrongfully obtained proprietary non-contact infrared thermometer technology from us and used this technology to manufacture its own thermometers through Rycom, in violation of the exclusive manufacturing agreement we have with Rycom and in violation of an issued U.S. design patent that we hold, and that Rycom wrongfully manufactured and sold thermometers to American Scientific.  We asserted claims of patent infringement, false designation of origin and trade dress infringement under Federal law. We also asserted claims for intentional interference with contract, intentional interference with business relationship, conversion, and breach of contract under Florida state law. We are seeking a permanent injunction to prevent Rycom’s continued manufacture and distribution of American Scientific’s thermometers, and for money damages. If we succeed on our claim of willful and deliberate violation of our patent, we may be entitled to treble damages.





American Scientific has denied any wrongdoing, and has asserted as a defense that Rycom independently developed the disputed thermometer technology and design, that Rycom has valid European, Chinese and U.S. design patents on the thermometers it manufactured, and that we obtained our U.S. design patent fraudulently. American Scientific seeks to have our subject United States design patent declared invalid and unenforceable, and in its counterclaim it seeks compensation for its attorneys’ fees.  We have not yet served our amended complaint on Rycom.





The Court has ordered  the matter submitted to mediation and on March 14, 2011 a mediator was designated.  This case is in the pre-discovery stage.  A declaration by the Court that our design patent is invalid or unenforceable could have a material and adverse effect on our business.








Item 1A.                      Risk Factors.




Not applicable to smaller reporting companies.





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





None





Item 3.
Defaults Upon Senior Securities.





None





Item 4.
(Removed and Reserved).








Item 5.
Other Information.





None








Item 6.
Exhibits.








Exhibit



Incorporated by Reference

Filed or Furnished#

Exhibit Description

Form

Date

Number

Herewith31.1

Certification of Principal Financial Officer (Section 302)







Filed31.2

Certification of Principal Financial Officer (Section 302)







Filed32.1

Certification of Principal Executive Officer and Principal Financial Officer (Section 906)







Furnished








Copies of this report (including the financial statements) and any of the exhibits referred to above will be furnished at no cost to our shareholders who make a written request to Sanomedics International Holdings Inc.,80 SW 8th Street, Suite 2180, Miami, Florida, 33180.








17





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.May 16, 2011

/s/ Craig SizerCraig SizerChief Executive Officer

(Principal Executive Officer)May 16, 2011

/s/ Steven L. RelisSteven L. RelisChief Financial Officer

(Principal Financial Officer)