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SANOMEDICS INTERNATIONAL HOLDINGS, INC - 10-K/A - Management's Discussion and Analysis of Financial Condition and Results of Operations.

April 30, 2014

OVERVIEW

We design, develop and market medical diagnostic equipment for healthcare providers. We are capitalizing on the growing trend of expanded hospital caregivers, assisted living and long term care. We are focused on delivering improved outcomes and preventative practices to control healthcare costs while being an innovative bridge between the healthcare provider and their patient.

Caregiver® Thermometer is the first clinically validated non-contact thermometer for the healthcare providers market, which include hospitals, physician's offices, medical clinics and nursing homes and other long-term care institutions and acute care hospitals. Thermomedics line of Professional Non-Contact Thermometers ( Caregiver® ) is the first of its kind. Our Caregiver® thermometer with TouchFree™ technology is less likely to transmit infectious disease than those devices that require even a minimum of contact.

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.. 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) collectability 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.

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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 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

· Current inventory levels - we have approximately 2,200 units remaining as of December 31, 2013. We are attempting to sell the remaining units as quickly and efficiently as possible in order to make room for our second generation professional product. · Product life cycles -We are marketing our Caregiver line of thermometers



Stock-Based Compensation

The Company applies the fair value method of Accounting Standards Codification ("ASC") 718, Share Based Payment, 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, 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. 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.

ASC 740 contains a two-step approach to recognizing and measuring uncertain tax positions. This first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount which is more than 50% likely of being realized upon ultimate settlement. The Company considers many factors when evaluating and estimating its tax positions and tax benefits, which may require periodic adjustments and which may not accurately anticipate actual outcomes.

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, 2013 and 2012. The Company's tax returns for the years 2010 through 2013 remain subject to examination by tax jurisdictions as of December 31, 2013.

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RESULTS OF OPERATIONS

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

Year Ended December 31, 2013 2012 Net sales revenue 100.0 % 100.0 % Costs and expenses: Cost of goods sold 22.4 60.0 General and administrative 435.6 998.4 Research and development 42.3 160.2 Stock compensation 286.9 484.1 Depreciation and amortization 3.6 9.7 790.8 1,652.5 Loss from operations (690.8 ) (1,612.4 ) Other income (expense): Amortization of debt discount (172.1 ) - Derivative expense (15,757.7 ) - Change in fair value of derivatives 15,725.6 - Loss on write-down of disposed patents ( 5.7 ) - Loss on rescission (678.7 ) - Other income - 14.3 Interest expense (56.2 ) (262.2 ) Loss before provision for income taxes (1,635.6 ) (1,860.4 ) Provision for income taxes - - Net loss (1,635.6 )% (1,860.4 )% Results of Operations



Year Ended December 31, 2013 compared to the year Ended December 31, 2012

Revenues: Revenues for the year ended December 31, 2013 were approximately $264,000 as compared to approximately $96,000 for the year ended December 31, 2012, an increase of 175%. This increase is attributable to the continued sales and launching of our new professional models.

Cost of Revenues: Cost of revenues, which consist of product, shipping and other costs totalled approximately $59,000 for the year ended December 31, 2013 as compared to $57,000 of such costs during the same period in 2012. This marginal change in cost of revenues reflects the lower unit prices of the new professional models.

Gross Profit: Gross profit was approximately $205,000 for the year ended as compared to a gross profit of approximately $38,000 for the year ended December 31, 2012. The 2013 increase of $167,000 was primarily the result of the lower unit prices of the new professional models.

Operating Expenses: Operating expenses consist of general and administrative expenses, stock compensation, depreciation and amortization and research and development. For the year ended December 31, 2013, operating expenses totalled approximately $2.1 million as compared to approximately $1.6 million for the same period in 2012. The approximate $.5 million increase (28.6%) was primarily a result of increased professional fees and additional stock compensation expense of approximately $.4 million (-76.5%).

Net Loss: Net loss for the year ended December 31, 2013 was approximately $4.3 million compared to approximately $1.8 million for the year ended December 31, 2012, an increase of approximately $2.5 million (143.0%) primarily as a result of the, loss from rescission and write-off the prior Prime Time Medical acquisition $1.8 million and impact from operating expenses as described above.

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Financial Condition

December 31, 2013 compared to December 31, 2012

Assets. At December 31, 2013 our total assets increased by approximately $16,000 or 17.0%, to approximately $106,000. This was primarily attributable to increases of approximately $ 11,000 in accounts receivable and $37,000 in inventory offset by depreciation and patent write-down of approximately $24,000 and the use of $17,000 in cash.

Liabilities. At December 31, 2013, our total liabilities increased by approximately $2 million or 61.0%, to approximately $5.3 million, attributable primarily to the increase of derivative liabilities embedded in convertible debt of approximately $1.1 million , $.5 million from increased borrowings and related interest from an affiliate of Craig Sizer, our former Chairman and CEO and principal shareholder and Keith Houlihan, our President into equity, and $.5 million accrual for contingencies on rescission of Prime Time Medical prior acquisition.

Stockholders' Deficit. At December 31, 2013, our stockholders' deficit increased by approximately $2 million, or 61.9%, to approximately $5.2 million, primarily due to our net loss of approximately $4.3 million offset by an increase of approximately $2.4 million in paid-in capital resulting from the issuance of stock to consultants, the Prime Time Medical acquisition and from the conversion of third party debt.

Liquidity and Capital Resources

At December 31, 2013, our cash on hand was approximately $10,000. At April 10, 2014, our cash on hand was approximately $125,000.

Since our inception in 2009, we obtained our liquidity principally from approximately $3.5 million principal amount of cash advances from an affiliate of Craig Sizer, our former Chairman and CEO and one of our principal shareholders. The Company has executed promissory notes and advances totalling approximately $1.4 million as of December 31, 2013, with CLSS Holdings, LLC ("CLSS"). Each note (a) bears annual interest of between 7.5 and 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 between $0.25 and $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. All of the notes mature March 15, 2015. The maturity dates of these notes have been extended by CLSS in the past, but there is no assurance that these will be further extended.

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.

During 2012 we raised $330,500 in a private placement and have engaged a broker-dealer and member of FINRA to assist us in raising additional funding. However, there are no assurances we will be successful in raising the additional capital and such funding will result in a material and substantial dilution of the equity interests of our current shareholders. At April 10, 2014, we had approximately $125,000 in cash on hand; and unless and until we receive additional financing from third parties, which we may never achieve, in the absence of on-going cash infusions on an as needed basis by Mr. Sizer's affiliate we would be unable to continue to operate.

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Even if we are successful in raising the equity financing noted above will require substantial additional funds to finance our business activities and acquisition strategy on an ongoing basis. We have only limited 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. See Item 1A, Risk Factors - We May Be Unable to Continue as a Going Concern; and - The Substantial Additional Capital We Need May Not Be Obtainable, and Item 13, Certain Relationships and Related Transactions, and Director Independence - Transactions with Related Persons - Borrowings.

We also intend to have our common stock quoted 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.

Summary of Cash Flow for the year ended December 31, 2013 and 2012

Our cash flows for the years ended December 31, 2013 and 2012, were as follows:

Years Ended December 31, 2013 2012



Net cash (used) by operating activities $ (782,014 )$ (692,556 ) Net cash (used) by investing activities $ (540,000 ) $ - Net cash provided by financing activities $ 1,305,490$ 718,640

Operating Activities

Our total cash used by operating activities increased by approximately $89,000 or 13% to approximately $782,000 for the year ended December 31, 2013, compared to approximately $693,000 for the year ended December 31, 2012. The increase is primarily due to the increases in accounts receivable, inventory and interest accruals, partially offset from decreases in officer salary accruals, compared to the year ended December 31, 2012.

Investing Activities

Our total cash used by investing activities increased by approximately $540,000, or 100% for the year ended December 31, 2013, compared to approximately $ -0- for the year ended December 31, 2012 because of the cash funds paid for the Prime Time Medical acquisition which was subsequently rescinded.

Financing Activities

Our total cash provided by financing activities increased by approximately $586,000, or 82%, to approximately $1,3 million for the year ended December 31, 2013, compared to approximately $719,000 for the year ended December 31, 2012. The increase is primarily due to approximately $766,000 raised from the issuance of convertible notes with third parties and approximately $539,000 borrowed from an affiliate of Craig Sizer, our former Chairman and CEO and principal shareholder.

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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.

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