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 1934 |
For the quarterly period ended June 30, 2013 |
| or |
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the transaction period from _____________ to _____________ |
| Commission file number 333-62216 |
HEALTH DISCOVERY CORPORATION (Exact name of registrant as specified in its charter) | |
Georgia (State or other jurisdiction of incorporation or organization) | 74-3002154 (IRS Employer Identification No.) |
4243 Dunwoody Club Drive Suite 202 |
| Atlanta, Georgia 30350 |
| (Address of principal executive offices) |
| 678-336-5300 |
| (Registrant’s telephone number, including area code) |
620 County Road Hanson, Massachusetts 02341 |
(Former name, former address and former fiscal year, if changed since the 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 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 the filing requirements for at least 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 (§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 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 definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (check one):
| Large Accelerated Filer o | Non-Accelerated Filer o |
| (do not check if a smaller reporting company) | |
| Accelerated Filer o | 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
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
| Class: | Outstanding as of August 14, 2013 |
| Common Stock, no par value | 234,085,644 |
| Series A Preferred Stock | 0 |
| Series B Preferred Stock | 17,027,675 |
| ii |
| TABLE OF CONTENTS | ||||
| PART I -- FINANCIAL INFORMATION | 2 | |||
| Item 1. | Unaudited Financial Statements | 2 | ||
| Balance Sheet | 2 | |||
| Statements of Operations | 3 | |||
| Statements of Cash Flows | 4 | |||
| Notes to Financial Statements | 5 | |||
| Item 2. | Managements’s Discussion and Analysis of Financial Condition and Results of Operations | 9 | ||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 15 | ||
| Item 4. | Controls and Procedures | 15 | ||
| PART II -- OTHER INFORMATION | 16 | |||
| Item 1. | Legal Proceedings | 16 | ||
| Item 1A.Risk Factors | 16 | |||
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 16 | ||
| Item 3. | Defaults Upon Senior Securities | 16 | ||
| Item 4. | Mine Safety Disclosure | 16 | ||
| Item 5. | Other Information | 16 | ||
| Item 6. | Exhibits | 17 | ||
| SIGNATURES | 18 | |||
| iii |
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
HEALTH DISCOVERY CORPORATION
Balance Sheets
(unaudited)
| Assets | ||||||||
| June 30, | December 31, | |||||||
| 2013 | 2012 | |||||||
| Current Assets | ||||||||
| Cash | $ | 21,574 | $ | 171,424 | ||||
| Accounts Receivable | 185 | 90 | ||||||
| Investment in Available For Sale Securities (Note G) | 1,447,499 | 1,716,160 | ||||||
| Total Current Assets | 1,469,258 | 1,887,674 | ||||||
| Equipment, Less Accumulated Depreciation of $51,575 and $47,219 | 9,310 | 11,329 | ||||||
| Other Assets | ||||||||
| Patents, Less Accumulated Amortization of $2,387,930 and $2,256,571 | 1,597,864 | 1,729,224 | ||||||
| Total Assets | $ | 3,076,432 | $ | 3,628,227 | ||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current Liabilities | ||||||||
| Accounts Payable - Trade | $ | 194,349 | $ | 139,790 | ||||
| Accrued Liabilities | 2,500 | 55,500 | ||||||
| Deferred Revenue | 1,024,988 | 1,024,988 | ||||||
| Total Current Liabilities | 1,221,837 | 1,220,278 | ||||||
| Long Term Liabilities | ||||||||
| Deferred Revenue | 704,122 | 1,216,616 | ||||||
| Dividends Payable | 514,918 | 455,546 | ||||||
| Total Liabilities | 2,440,877 | 2,892,440 | ||||||
| Stockholders’ Equity | ||||||||
| Series B Preferred Stock, Convertible, | ||||||||
| 20,625,000 Shares Authorized, 17,027,675 Issued and Outstanding | 1,490,015 | 1,490,015 | ||||||
| Common Stock, No Par Value, 300,000,000 Shares Authorized | ||||||||
| 234,085,644 Shares Issued and Outstanding June 30, 2013 | ||||||||
| 233,773,144 Shares Issued and Outstanding December 31, 2012 | 25,287,776 | 25,263,426 | ||||||
| Accumulated Deficit | (26,142,236 | ) | (26,017,654 | ) | ||||
| Total Stockholders’ Equity | 635,555 | 735,787 | ||||||
| Total Liabilities and Stockholders’ Equity | $ | 3,076,432 | $ | 3,628,227 | ||||
See accompanying notes to financial statements.
| 2 |
HEALTH DISCOVERY CORPORATION
Statements of Operations
(unaudited)
For the Three and Six Months Ended June 30, 2013 and 2012
| Three Months | Three Months | Six Months | Six Months | |||||||||||||
| Ended | Ended | Ended | Ended | |||||||||||||
| June 30, | June 30, | June 30, | June 30, | |||||||||||||
| 2013 | 2012 | 2013 | 2012 | |||||||||||||
| Revenues: | ||||||||||||||||
| Licensing & Development | $ | 256,560 | $ | 276,437 | $ | 540,699 | $ | 562,066 | ||||||||
| Operating Expenses: | ||||||||||||||||
| Amortization | 65,680 | 65,680 | 131,360 | 131,360 | ||||||||||||
| Professional and Consulting Fees | 219,322 | 122,710 | 498,404 | 341,469 | ||||||||||||
| Legal Fees | 46,801 | 33,518 | 85,956 | 64,691 | ||||||||||||
| Research and Development Fees | 23,678 | 37,220 | 58,829 | 73,150 | ||||||||||||
| Compensation | 158,009 | 368,331 | 324,035 | 659,148 | ||||||||||||
| Other General and Administrative Expenses | 178,534 | 190,050 | 292,867 | 449,086 | ||||||||||||
| Total Operating Expenses | 692,024 | 817,509 | 1,391,451 | 1,718,904 | ||||||||||||
| Loss From Operations | (435,464 | ) | (541,072 | ) | (850,752 | ) | (1,156,838 | ) | ||||||||
| Other Income | ||||||||||||||||
Realized Gain on Available for Sale Securities (Note G) | 261,061 | - | 531,511 | - | ||||||||||||
Unrealized (Loss) Gain on Available for Sale Securities (Note G) | (264,991 | ) | 13,600 | 194,659 | 367,200 | |||||||||||
| Interest Income | - | 212 | - | 992 | ||||||||||||
| Total Other (Loss) Income | (3,930 | ) | 13,812 | 726,170 | 368,192 | |||||||||||
| Net Loss | $ | (439,394 | ) | $ | (527,260 | ) | $ | (124,582 | ) | $ | (788,646 | ) | ||||
| Preferred Stock Dividends | 34,380 | 34,585 | 68,585 | 419,432 | ||||||||||||
| Loss Attributable to Common Shareholders | $ | (473,774 | ) | $ | (561,845 | ) | $ | (193,167 | ) | $ | (1,208,078 | ) | ||||
| Weighted Average Outstanding Shares | 233,877,311 | 231,966,477 | 233,825,227 | 231,633,143 | ||||||||||||
| Loss Per Share (basic and diluted) | $ | (0.002 | ) | $ | (0.002 | ) | $ | (0.001 | ) | $ | (0.005 | ) | ||||
See accompanying notes to financial statements.
| 3 |
HEALTH DISCOVERY CORPORATION
Statements of Cash Flows
(unaudited)
For the Six Months Ended June 30, 2013 and 2012
| 2013 | 2012 | |||||||
| Cash Flows From Operating Activities | ||||||||
| Net Loss | $ | (124,582 | ) | $ | (788,646 | ) | ||
| Adjustments to Reconcile Net Loss to Net Cash | ||||||||
| Used for Operating Activities: | ||||||||
| Stock-based Compensation | 35,863 | 100,000 | ||||||
| Services Exchanged for Options | 57,072 | 57,906 | ||||||
Realized Gain on Investments in Available for Sale Securities Measured in Accordance with the Fair Value Option (Note G) | (531,511 | ) | - | |||||
Unrealized Gain on Investments in Available for Sale Securities Measured in Accordance with the Fair Value Option (Note G) | (194,659 | ) | (367,200 | ) | ||||
| Increase in Deferred Charges | - | (227,714 | ) | |||||
| Depreciation and Amortization | 135,715 | 136,493 | ||||||
| Increase in Accounts Receivable | (95 | ) | (308 | ) | ||||
| (Decrease) Increase in Deferred Revenue | (512,494 | ) | 452,183 | |||||
| Decrease in Prepaid Expenses and Other Assets | - | 31,250 | ||||||
| Increase (Decrease) in Accounts Payable – Trade | 54,559 | (99,701 | ) | |||||
| Decrease in Accrued Liabilities | (53,000 | ) | (5,500 | ) | ||||
| Net Cash Used by Operating Activities | (1,133,132 | ) | (711,237 | ) | ||||
| Cash Flows From Investing Activities: | ||||||||
Proceeds from Sale of Available for Sale Securities (Note G) | 994,830 | - | ||||||
| Purchase of Equipment | (2,336 | ) | (3,878 | ) | ||||
| Net Cash Provided by (Used for) Investing Activities | 992,494 | (3,878 | ) | |||||
| Cash Flows From Financing Activities: | ||||||||
| Dividends Paid | (9,212 | ) | - | |||||
| Net Cash Used for Financing Activities | (9,212 | ) | - | |||||
| Net Decrease in Cash | (149,850 | ) | (715,115 | ) | ||||
| �� | ||||||||
| Cash, at Beginning of Period | 171,424 | 890,326 | ||||||
| Cash, at End of Period | $ | 21,574 | $ | 175,211 | ||||
Supplemental Cash Flow Information Non-cash Transactions: Acquisition Fair Value of Available for Sale Securities Recorded as an Investment and as Deferred Revenue | - | $ | 1,944,800 | |||||
See accompanying notes to financial statements.
| 4 |
HEALTH DISCOVERY CORPORATION
Notes to Financial Statements
Note A - BASIS OF PRESENTATION
Health Discovery Corporation (the “Company”) is a technology-oriented company that has acquired patents and has patent pending applications for certain machine learning tools, primarily pattern recognition techniques using advanced mathematical algorithms to analyze large amounts of data thereby uncovering patterns that might otherwise be undetectable. Such machine learning tools are currently in use for diagnostics, but are also marketed for other applications. The Company licenses the use of its patented protected technology and may provide services to develop specific learning tools under development agreements or to sell to third parties.
The accounting principles followed by the Company and the methods of applying these principles conform with accounting principles generally accepted in the United States of America (GAAP). In preparing financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amounts in the financial statements. Actual results could differ significantly from those estimates.
The interim financial statements included in this report are unaudited but reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of the financial position and results of operations for the interim periods presented. All such adjustments are of a normal recurring nature. The results of operations for the three and six month periods ended June 30, 2013 are not necessarily indicative of the results of a full year’s operations and should be read in conjunction with the financial statements and footnotes included in the Company’s annual report on Form 10-K for the year ended December 31, 2012.
Recent Accounting Pronouncements
In February 2013, the FASB issued an amendment which requires disclosure of amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present either on the face of the statement of operations or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required to be reclassified to net income in its entirety in the same reporting period. For amounts not reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures that provide additional detail about those amounts. This guidance is effective prospectively for annual and interim periods beginning after December 15, 2012. The Company adopted this guidance in its first quarter of 2013 reporting period which did not have an impact on the financial statements.
Note B – REVENUE RECOGNITION
Revenue is generated through the sale or license of patented technology and processes and from services provided through development agreements. These arrangements are generally governed by contracts that dictate responsibilities and payment terms. The Company recognizes revenues as they are earned over the duration of a license agreement or upon the sale of any owned patent once all contractual obligations have been fulfilled. If a license agreement has an undetermined or unlimited life, the revenue is recognized over the remaining expected life of the patents. Revenue is recognized under development agreements in the period the services are performed.
The Company treats the incremental direct cost of revenue arrangements, which consists principally of employee bonuses, as deferred charges and these incremental direct costs are amortized to expense using the straight-line method over the same term as the related deferred revenue recognition.
Deferred revenue represents the unearned portion of payments received in advance for licensing and development agreements. The Company had total unearned revenue of $1,729,110 as of June 30, 2013. Unearned revenue of $1,024,988 is recorded as current and $704,122 is classified as long-term.
| 5 |
HEALTH DISCOVERY CORPORATION
Notes to Financial Statements, continued
Note C - NET INCOME (LOSS) PER SHARE
Basic Earnings Per Share (“EPS”) includes no dilution and is computed by dividing income or loss available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution of securities that could share in the earnings or losses of the entity. Due to the net loss in all periods presented the calculation of diluted per share amounts would create an anti-dilutive result and therefore is not presented.
Note D - STOCK-BASED COMPENSATION AND OTHER EQUITY BASED PAYMENTS
Stock-based expense included in our net loss for the three months and six months ended June 30, 2013 consisted of $64,846 and $92,935 respectively for stock options granted to officers and directors. Stock-based expense included in our net loss for the three months and six months ended June 30, 2012 was $128,953 and $157,906 respectively.
As of June 30, 2013, there was $166,589 of unrecognized cost related to stock option and warrant grants. The cost is to be recognized over the remaining vesting periods that average approximately 2.5 years.
As a part of his consulting agreement with the Company, Dr. Herbert Fritsche was awarded an option to purchase 1,000,000 shares of the Company’s common stock. The options vest immediately, have an exercise price of $0.04, and expire on February 1, 2018. The fair value of each option granted is $0.029 and was estimated on the date of grant using the Black-Scholes pricing model with the following assumptions: dividend yield at 0%, risk-free interest rate of 1.91%, an expected life of 5 years, and volatility of 97%. The value of these options is $29,454, and this amount was charged as an expense in the second quarter 2013.
In connection with their appointment to the Board of Directors, on February 28, 2013, the Company granted to Mr. David Eckoff, Mr. Sumio “Sumi” Takeichi and Dr. John Norris each an option to purchase 1,500,000 shares of the Company’s common stock. The options vest 250,000 shares every six months, have an exercise price of $0.032, and expire on February 28, 2023. The fair value of each option granted is $0.023 and was estimated on the date of grant using the Black-Scholes pricing model with the following assumptions: dividend yield at 0%, risk-free interest rate of 1.97%, an expected life of 5 years, and volatility of 96%. The aggregate computed value of these options is $105,010, and this amount will be charged as an expense over the three-year vesting period.
In connection with his appointment to the Board of Directors on May 14, 2013, the Company granted to Secretary Mineta an option to purchase 1,500,000 shares of the Company’s common stock. The options vest 250,000 shares every six months, have an exercise price of $0.048, and expire on May 10, 2023. The fair value of each option granted is $0.035 and was estimated on the date of grant using the Black-Scholes pricing model with the following assumptions: dividend yield at 0%, risk-free interest rate of 1.91%, an expected life of 5 years, and volatility of 97%. The value of these options is $53,017, and this amount will be charged as an expense over the three-year vesting period.
The following schedule summarizes combined stock option and warrant information for the six months ended June 30, 2013 and the twelve months ended December 31, 2012:
| 2012 | Option and Warrant Shares | Weighted Average Exercise Price | ||||||
| Outstanding, January 1, 2012 | 30,291,667 | $ | 0.16 | |||||
| Granted | 1,000,000 | $ | 0.05 | |||||
| Exercised | (473,334 | ) | $ | 0.07 | ||||
| Forfeited | (3,000,000 | ) | $ | 0.12 | ||||
| Expired un-exercised | (15,568,333 | ) | $ | 0.21 | ||||
| Outstanding, December 31, 2012 | 12,250,000 | $ | 0.10 | |||||
| 2013 | ||||||||
| Granted | 7,000,000 | $ | 0.04 | |||||
| Exercised | - | - | ||||||
| Forfeited | (5,000,000 | ) | $ | 0.08 | ||||
| Expired un-exercised | - | - | ||||||
| Outstanding, June 30, 2013 | 14,250,000 | $ | 0.08 | |||||
| 6 |
HEALTH DISCOVERY CORPORATION
Notes to Financial Statements, continued
The following schedule summarizes combined stock option and warrant information as of June 30, 2013:
| Exercise Prices | Number Outstanding | Weighted- Average Remaining Contractual Life (years) | Number Exercisable | Weighted Average Remaining Contractual Life (years) of Exercisable Warrants and Options | ||||||||||||
| $0.03 | 4,500,000 | 9.50 | - | 4.75 | ||||||||||||
| $0.04 | 1,000,000 | 4.75 | 1,000,000 | 4.75 | ||||||||||||
| $0.05 | 2,500,000 | 4.50 | 1,000,000 | 4.50 | ||||||||||||
| $0.08 | 2,750,000 | 0.50 | 2,750,000 | 0.50 | ||||||||||||
| $0.12 | 1,000,000 | 2.75 | 1,000,000 | 2.75 | ||||||||||||
| $0.19 | 2,500,000 | 7.25 | 2,500,000 | 7.25 | ||||||||||||
| Total | 14,250,000 | 8,250,000 | ||||||||||||||
The weighted average remaining life of all outstanding warrants and options at June 30, 2013 are 7 years. As of June 30, 2013, the aggregate net intrinsic value of all options and warrants outstanding is $636,237.
Note E - PATENTS
The Company has acquired and developed a group of patents related to biotechnology and certain machine learning tools used for diagnostic and drug discovery. Legal costs associated with patent acquisitions and the application processes for new patents are also capitalized as patent assets. The Company has recorded as other assets $1,597,864 in patents and patent related costs, net of $2,387,930 in accumulated amortization, at June 30, 2013. Amortization charged to operations for the three and six months ended June 30, 2013, was $65,680 and $131,360 respectively. Estimated amortization expense for the next five years is $262,720 per year.
Note F – STOCKHOLDERS’ EQUITY
Series B Preferred Stock
The Company sold to individual investors a total of 19,402,675 shares of Series B Preferred Stock for $1,490,015, net of associated expenses, in 2009.
The Series B Preferred Stock may be converted into Common Stock of the Company at the option of the holder, without the payment of additional consideration by the holder, so long as the Company has a sufficient number of authorized shares to allow for the exercise of all of its outstanding warrants and options. The Shares of Series B Preferred Stock must be converted into Common Stock of the Company upon the demand by the Company after the fifth anniversary of the date of issuance.
The Series B Preferred Stock accrues dividends at the rate of 10% of the Series B Original Issue Price per year, which shall be satisfied by the fifth anniversary of the issuance of such shares of the Series B Preferred Stock (the “Original Issue Date”) by the Company’s issuance of the number of shares of Common Stock equal to such accrued dividends divided by the average closing price of the Company’s Common Stock as reported on the Over-the-Counter-Bulletin Board or other exchange on which the Company’s Common Stock trades during the prior ten business days or by the payment of cash, as the Company may determine in its sole discretion. Dividends have been accrued for the Series B Preferred Stock in the amount of $455,546 as of December 31, 2012 and $514,918 as of June 30, 2013.
Subject to the limitations set forth in the Amended and Restated Articles of Amendment to Articles of Incorporation and applicable law, as long as the Series B Preferred Stock remain outstanding, the Company is required to pay the holders of the Series B Preferred Stock a special dividend equal to 15% of Company Net Revenue collected beginning with the Original Issue Date and ending on the date the Series B Preferred Stock cease to be outstanding (the “Cash Bonus”). Company Net Revenue include, but is not limited to, revenue derived from development fees, license fees and royalties paid to the Company and revenue collected as a result of the sale of any asset of the Company or distributions from SVM Capital, LLC (each a “Revenue Contract”), reduced by the amount of any out-of-pocket costs or expenses that are directly related to obtaining, negotiating or documenting the Revenue Contracts and the performance of such Revenue Contracts, but does not include the proceeds of any capital infusions from the exercise of outstanding options or warrants or as a result of any capital raise undertaken by the Company. At any time following the Original Issue Date, the Company may satisfy the special dividend right in its entirety if the aggregate payments made to the Series B Holders are equal to that value which provides an internal annual rate of return of twenty percent (20%) on the Series B Preferred Stock. The maximum Cash Bonus to be paid each year shall be the aggregate Series B Original Issue Price, and no amounts in excess of such amount shall accrue or carry-over to subsequent years. No special dividends are accrued for the Series B Preferred Stock special dividend as of June 30, 2013 and December 31, 2012.
| 7 |
HEALTH DISCOVERY CORPORATION
Notes to Financial Statements, continued
Note G – INVESTMENT IN AVAILABLE FOR SALE SECURITIES
The Company has elected the fair value option in accordance with ASC 825, Financial Instruments, as it relates to the 1,360,000 shares of NeoGenomics common stock that were acquired under the NeoGenomics Master License Agreement executed on January 6, 2012. Management made the election for the fair value option related to this investment because it believes the fair value option for the NeoGenomics common stock provides a better measurement from which to compare financial statements from reporting period to reporting period. No other financial assets or liabilities are fair valued using the fair value option.
The Company’s investment in NeoGenomics common stock is recorded on the accompanying balance sheets as of June 30, 2013 under the caption Investment in Available for Sale Securities. The carrying value of this investment on the date of acquisition was approximately $1,945,000. The net change in fair value from December 31, 2012 to June 30, 2013 was $726,170 and is classified as other income under the captions Realized and Unrealized Gain on Available for Sale Securities for the six months ended June 30, 2013 in the accompanying statements of operations. The Company classifies its investment as an available for sale security presented as a trading security on the balance sheet and the fair value is considered a Level 1 investment in the fair value hierarchy. The June 30, 2013 fair value of the investment of $1,447,499 is based on the closing stock price of the NeoGenomics common stock at the end of the reporting period.
Note H – SUBSEQUENT EVENTS
On July 31, 2013, the Board of Directors (the “Board”) of Health Discovery Corporation increased the size of the Board of Directors to seven directors. Mr. William Quirk was appointed to the Board of Directors to fill the open position. Mr. Quirk was appointed by a unanimous vote of the directors present at the meeting. Messrs. Kaplan, Kowbel, Norris, and Winger all voted for Mr. Quirk’s appointment.
The Board voted on Friday, August 2, 2013, to terminate the employment agreement of Mr. John Norris, its CEO. The termination took effect immediately.
The Company also did not renew the consulting agreement with Mr. Robert Kelly, which expired by its terms on July 31, 2013.
The Company also announces that Mr. Kevin Kowbel, the new Chairman of the Board of Directors, will serve as interim Chief Executive Officer without pay. Further, Mr. Kowbel submitted his entire allotment of director options to the Company for cancellation so that they can be used as necessary to execute company business. Lastly, Mr. Kowbel will not seek reimbursement; or back pay, for costs related to his performing in the position of Interim Chief Executive Officer for as long as it takes the Company to return to profitability. Mr Kowbel’s is willing to hold the position at zero cost to the Company for as long as necessary and without the requirement to be compensated for his efforts at any time in the future.
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HEALTH DISCOVERY CORPORATION
Notes to Financial Statements, continued
Note I – COMMITMENTS
On July 17, 2013, the Company received a Civil Investigative Demand (the "Demand") from the Federal Trade Commission of the United States of America (the "FTC") relating to the Company's MelApp software application. In the Demand, the FTC has requested information relating to potentially unfair or deceptive acts or practices related to (i) false advertising and (ii) consumer privacy and data security, in violation of Trade Commission Act, 15 U.S.C. Sections 45 and 42. The Company is gathering information requested by the FTC in accordance with the terms of the Demand.
From time to time, the Company is subject to various claims primarily arising in the normal course of business. Although the outcome of these matters cannot be determined, the Company does not believe it is probable that any such claims will result in material costs and expenses.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Corporate Overview
Our Company is a pattern recognition company that uses advanced mathematical techniques to analyze large amounts of data to uncover patterns that might otherwise be undetectable. The Company operates primarily in the field of molecular diagnostics where such tools are critical to scientific discovery. The terms artificial intelligence and machine learning are sometimes used to describe pattern recognition tools.
HDC’s mission is to use its patents, intellectual prowess, and clinical partnerships principally to identify patterns that can advance the science of medicine, as well as to advance the effective use of our technology in other diverse business disciplines, including the high-tech, financial, and healthcare technology markets.
Our historical foundation lies in the molecular diagnostics field where we have made a number of discoveries that play a critical role in developing more personalized approaches to the diagnosis and treatment of certain diseases. However, our SVM assets in particular have broad applicability in many other fields. Intelligently applied, HDC’s pattern recognition technology can be a portal between enormous amounts of otherwise undecipherable data and truly meaningful discovery.
Our Company’s principal asset is its intellectual property which includes advanced mathematical algorithms called Support Vector Machines (SVM) and Fractal Genomic Modeling (FGM), as well as biomarkers that we discovered by applying our SVM and FGM techniques to complex genetic and proteomic data. Biomarkers are biological indicators or genetic expression signatures of certain disease states. Our intellectual property is protected by more than 90 patents that have been issued or are currently pending around the world.
Our business model has evolved over time to respond to business trends that intersect with our technological expertise and our capacity to professionally manage these opportunities. We initially sought only to use our SVMs internally in order to discover and license our biomarker signatures to various diagnostic and pharmaceutical companies. Today, our commercialization efforts include: utilization of our discoveries and knowledge to help develop diagnostic and prognostic predictive tests; licensure of the SVM and FGM technologies directly to diagnostic companies; and, the formation of new ventures with domain experts in other fields where our pattern recognition technology holds commercial promise.
Operational Activities
The Company markets its technology and related developmental expertise to prospects in the healthcare, biotech, and life sciences industries. Given the scope of some of these prospects, the sales cycle can be quite long, but management believes that these marketing efforts may produce favorable results in the future.
NeoGenomics License
On January 6, 2012, we entered into a Master License Agreement (the “NeoGenomics License”) with NeoGenomics Laboratories, Inc. (“NeoGenomics Laboratories”), a wholly-owned subsidiary of NeoGenomics, Inc. (“NeoGenomics”). Pursuant to the terms of the NeoGenomics License, we granted to NeoGenomics Laboratories and its affiliates an exclusive worldwide license to certain of our patents and know-how to use, develop and sell products in the fields of laboratory testing, molecular diagnostics, clinical pathology, anatomic pathology and digital image analysis (excluding non-pathology-related radiologic and photographic image analysis) relating to the development, marketing production or sale of any “Laboratory Developed Tests” or LDTs or other products used for diagnosing, ruling out, predicting a response to treatment, and/or monitoring treatment of any or all hematopoietic and solid tumor cancers excluding cancers affecting the retina and breast cancer. We retain all rights to in-vitro diagnostic (IVD) test kit development.
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HEALTH DISCOVERY CORPORATION
Management’s Discussion and Analysis, continued
Upon execution of the NeoGenomics License, NeoGenomics Laboratories paid us $1,000,000 in cash and NeoGenomics issued to us 1,360,000 shares of NeoGenomic’s common stock, par value $0.001 per share, which had a market value of $1,945,000 using the closing price of $1.43 per share for NeoGenomic’s common stock on the OTC Bulletin Board on January 6, 2012. In addition, the NeoGenomics License provides for milestone payments in cash or stock, based on sublicensing revenue and revenue generated from products and services developed as a result of the NeoGenomics License. Milestone payments would be in increments of $500,000 for every $2,000,000 in GAAP revenue recognized by NeoGenomics Laboratories up to a total of $5,000,000 in potential milestone payments. After $20,000,000 in cumulative GAAP revenue has been recognized by NeoGenomics Laboratories, we will receive a royalty of (i) 6.5% (subject to adjustment under certain circumstances) on net revenue generated from all Licensed Uses except for the Cytogenetics Interpretation System and the Flow Cytometry Interpretation System and (ii) a royalty of 50% of net revenue (after the recoupment of certain development and commercialization costs) that NeoGenomics Laboratories derives from any sublicensing arrangements it may put in place for the Cytogenetics Interpretation System and the Flow Cytometry Interpretation System.
NeoGenomics Laboratories agreed to use it best efforts to commercialize certain products within one year of the date of the license, subject to two one-year extensions per product if needed, including a “Plasma Prostate Cancer Test”, a “Pancreatic Cancer Test”, a “Colon Cancer Test”, a “Cytogenetics Interpretation System”, and a “Flow Cytometry Interpretation System.” In January 2013, NeoGenomics informed the Company of its intent to continue under the terms of the license and therefore extend the license for the first of its one-year extensions.
If NeoGenomics Laboratories has not generated $5.0 million of net revenue from products, services and sublicensing arrangements within five years, we may, at our option, revoke the exclusivity with respect to any one or more of the initial licensed products, subject to certain conditions.
The Company believes our relationship with NeoGenomics is instrumental in our medical and diagnostic testing development. We further believe the majority, if not all, of our applications in the medical field will be done in conjunction with the NeoGenomics License.
Plasma Test for Prostate Cancer
NeoGenomics is developing a Blood Test for Prostate Cancer under the direction of Dr. Maher Albitar using the genes patented by HDC. NeoGenomics recently announced that a publication has been submitted for the test and expects a launch of this test in the first half of 2014.
Cytogenetic Analysis
Cytogenetic analysis is the science of studying chromosomes. Microscopic evaluation of individual chromosomes remains the first step in the evaluation of the human genome. Cytogenetic analysis is performed on almost all patients with hematopoietic diseases (blood cancers such as leukemia and lymphoma) and on a significant number of patients with solid tumors. The collected data is useful for diagnosis, prognosis and monitoring of diseases. Currently most of the analysis is performed manually by specially trained technicians. The work is labor-intensive and subjective. Computer automation of this work could significantly reduce cost and improve the quality of the test.
NeoGenomics is currently working on development, validation and commercialization of this new image analysis tool for cytogenetic analysis under the direction of Dr. Maher Albitar.
Flow Cytometry
Management believes that our efforts to develop an SVM-based diagnostic test to help interpret flow cell cytometry data for myelodysplastic syndrome (pre-leukemia) has resulted in a successful proof of concept. The Company, along with NeoGenomics, is now capable of completing development, final validation and commercialization of the new diagnostic test for the interpretation of flow cytometry data. This test has been licensed to NeoGenomics for final development.
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HEALTH DISCOVERY CORPORATION
Management’s Discussion and Analysis, continued
SVM Capital, LLC
In January 2007, SVM Capital, LLC (“SVM Capital”) was formed as a joint venture between HDC and Atlantic Alpha Strategies, LLC (“Atlantic Alpha”) to explore and exploit the potential applicability of our SVM technology to quantitative investment management techniques. Atlantic Alpha’s management has over thirty years of experience in commodity and futures trading. Atlantic Alpha reports that the SVM technology is now working well in two distinct investment areas.
First, it is being applied to price data. Utilizing open, high, close, low and volume SVM utilizes an 85 dimensional space to make future predictions. This price driven model is using fifty exchange traded funds (ETFs) which give it a global perspective. Much testing and refinement of this model has been accomplished and is being used for trading by Atlantic Alpha.
Second, Atlantic Alpha is applying SVM technology to quarterly fundamental corporate data such as sales, earning and projected earnings. SVM technology is utilized to separate stocks that should outperform and underperform in the next quarter based on current data.
The Company is actively marketing the SVM Capital product to potential institutional users of the technology. An example of this effort is the recent partnership SVM Capital formed with Lucena Research, LLC (“Lucena”) to further develop and commercialize the technology in the field of financial markets. This transaction allows for SVM Capital to recognize eighty percent of the revenue generated from the SVM improved products offered by Lucena.
Retinalyze
In early 2012, Retinalyze, LLC, a joint venture of which the Company owns fifty percent, launched Retinalytics SVMTM, to assist Ophthalmologists and Optometrists in the Detection of Macular Degeneration. While the first Retinalytics SVMTM product released focuses on age-related macular degeneration, the Company continues to improve the service and also develop a second product using fundoscopic images of retinal vessels to assist eye care professionals in the detection of Alzheimer’s disease.
The volume of images processed thus far have been significantly less than expected and revenues to date from Retinalytics SVMTM have been negligible. The Company continues to evaluate options to improve the product with the goal of solving this slower than expected adoption issue, thereby allowing the analysis of a higher volume of scans. In addition, the Company is evaluating all options related to the product, along with the existing partnership, with the goal of optimal commercialization of this technology.
Intellectual Property Developments
Currently, the Company holds the exclusive rights to 62 issued U.S. and foreign patents covering uses of SVM and FGM technology for discovery of knowledge from large data sets. Two new U.S. patents were granted during the 3rd Quarter of 2013, including Patent No. 8,489,531, relating to cluster analysis of gene expression data, and Patent No. 8,463,718, for a SVM-based method for analysis of spectral data. New continuation applications were filed prior to issue of the new patents. In addition, new U.S. and international applications were filed covering the company’s latest developments in computer-assisted karyotyping using SVMs. With these new applications, the Company has 21 pending U.S. and foreign patent applications covering uses of the SVM technology as well as biomarkers and diagnostic methods that have been discovered using the SVM technology. The reduction in the total number of issued and pending patents during the past year resulted from the Company’s decision to allow certain foreign patents issued and/or filed in countries that were deemed to have lower strategic value to lapse. This in turn reduced the Company’s total expenses for patent maintenance.
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HEALTH DISCOVERY CORPORATION
Management’s Discussion and Analysis, continued
Intel
In October 2012, the US Patent and Trademark Office (“USPTO”) issued a reexamination certificate for Intel’s U.S. Patent No. 7,685,077, which issued in 2010 with claims covering SVM-RFE. The reexamination certificate confirms the patentability of the claims as amended during the reexamination proceedings. The Company submitted a request to the USPTO to initiate interference proceedings once the reexamination certificate was issued and subsequently received a final rejection in the application that was filed to provoke the interference. A response referring to these decisions has been submitted to the USPTO, but the USPTO has yet to act on this response.
Three Months Ended June 30, 2013 Compared with Three Months Ended June 30, 2012
Revenue
For the three months ended June 30, 2013, revenue was $256,560 compared with $276,437 for the three months ended June 30, 2012. The revenue earned during the second quarter of 2013 and 2012 is primarily related to the licensing revenue recognition for the NeoGenomics License.
Operating and Other Expenses
Amortization expense was $65,680 for both the three months ended June 30, 2013 and 2012. Amortization expense relates primarily to the costs associated with filing patent applications and acquiring rights to the patents.
Professional and consulting fees totaled $219,322 for the three months ended June 30, 2013, compared with $122,710 for the same 2012 period. The increase is due primarily to former employees converting to consultants and the hiring of an additional consultant.
Legal fees increased over the three month period with fees totaling totaled $46,801 during the three months ended June 30, 2013 and $33,518 during the same period in 2012. The increase in legal fees primarily relates to legal issues in connection with management changes.
Research and development expense was $23,678 for the three months ended June 30, 2013, and $37,220 for the same period in 2012. This reduction in expense for research and development is related primarily to work completed under the Retinalyze, LLC launch in 2012, which did not recur in 2013.
Compensation expense of $158,009 for the three months ended June 30, 2013 was lower than the $368,331 reported for the comparable 2012 period. The decrease is attributed to the conversion of certain employees to consultants.
Other general and administrative expense decreased to $178,534 for the three months ended June 30, 2013, compared to $190,050, for the same period in 2012. This decrease was due to the elimination of expenses related to investor relation charges, and by reduced travel expenses.
Loss from Operations
The loss from operations for the three months ended June 30, 2013 was $435,464, compared to $541,072 for the three months ended June 30, 2012. This reduction was due to lower costs primarily associated with compensation and other general and administrative expenses.
Other Income and Expense
The Company received a portion of the NeoGenomics license fee in NeoGenomics stock in January 2012. The Company has chosen to measure the gain or loss on the value of this asset using the fair value option method. During the three month period ending June 30, 2013, the change in the NeoGenomics stock fair value decreased by $3,930, which is recorded as other expense in the statements of operations. During the same three month period in 2012, the change in the NeoGenomics stock fair value increased by $13,600.
There was no interest income for the three months ended June 30, 2013, compared to $212 in 2012. Interest income decreased because the Company had less cash on hand to invest throughout the 2013 period.
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HEALTH DISCOVERY CORPORATION
Management’s Discussion and Analysis, continued
Net Loss
The net loss for the three months ended June 30, 2013 was $439,394, compared to a loss of $527,260 for the three months ended June 30, 2012. The change was due primarily to decreased operating expenses.
The loss attributable to common shareholders was $473,774 for the three months ended June 30, 2013 compared to a loss of $561,845 in the three months ended June 30, 2012. The change is related to lower expenses related to the Company’s attempt to control costs.
Loss per share was $0.002 for both the three month period ended June 30, 2013 and for the quarterly period ended June 30, 2012.
Six Months Ended June 30, 2013 Compared with Six Months Ended June 30, 2012
Revenue
For the six months ended June 30, 2013, revenue was $540,699 compared with $562,066 for the six months ended June 30, 2012. Revenue is recognized for licensing and development fees over the period earned. The revenue earned is almost entirely related to the licensing revenue recognition for the NeoGenomics License.
Operating and Other Expenses
Amortization expense was $131,360 for both the six months ended June 30, 2013 and 2012. Amortization expense relates primarily to the costs associated with filing patent application and acquiring rights to the patents.
Professional and consulting fees were $498,404 for the six months ended June 30, 2013 compared with $341,469 for the same 2012 period. The increase is due primarily to former employees converting to consultants and the hiring of an additional consultant.
Legal fees totaled $85,956 during the six months ended June 30, 2013 compared to $64,691 during the same period in 2012. The increase in legal fees primarily relates to legal issues in connection with management changes.
Research and Development fees were $58,829 for the six months ended June 30, 2013 and $73,150 for the same period in 2012. This decrease relates primarily to the completion of work related to the launch of the Retinalyze product.
Compensation expense of $324,035 for the six months ended June 30, 2013 was less than the $659,148 reported for the comparable 2012 period. Compensation was reduced as several employees converted to consultant status instead of employees.
Other general and administrative expenses decreased to $292,867 for six months ended June 30, 2013 compared to $449,086 in 2012. This reduction was due to a one-time bonus for a business development consultant in 2012, the elimination of investor relation fees, and less travel to investor trade shows.
Loss from Operations
The loss from operations for the six months ended June 30, 2013 was $850,752 compared to $1,156,838 for the period ended June 30, 2012. This reduction in loss from operations was due to lower general and administration costs.
Other Income and Expense
The Company received a portion of the NeoGenomics license fee in NeoGenomics stock. The Company has chosen to measure the gain or loss on the value of this asset using the fair value option method. During the six month period ending June 30, 2013, the NeoGenomics stock fair value increased by $726,170, which is recorded as other income in the statements of operations. During the same period in 2012, the NeoGenomics stock increased by 367,200.
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HEALTH DISCOVERY CORPORATION
Management’s Discussion and Analysis, continued
There was no interest income during the six month period ended June 30, 2013 compared to $992 for the six months ended June 30, 2012. Interest income decreased because the Company had less cash on hand to invest throughout the 2013 period.
Net Loss
The net loss for the six months ended June 30, 2013 was $124,582 compared to $788,646 for the six months ended June 30, 2012. The decreased net loss was due to lower operating expenses and the increased gains recognized on NeoGenomics Stock.
The net loss attributable to common shareholders was $193,167 for the six months ended June 30, 2013 compared to $1,208,078 in the six months ended June 30, 2012.
Net loss per share was $0.001 for the six month period ended June 30, 2013 and $0.005 for the six month period ended June 30, 2012.
Liquidity and Capital Resources
Our ability to continue as a going concern is dependent upon our licensing arrangements with third parties, achieving profitable operations, obtaining additional financing and successfully bringing our technologies to the market. The outcome of these matters cannot be predicted at this time. Our financial statements have been prepared on a going concern basis and do not include any adjustments to the amounts and classifications of the assets and liabilities that might be necessary should we be unable to continue in business.
If the going concern assumption was not appropriate for our financial statements then adjustments would be necessary in the carrying value of assets and liabilities, the reported expenses and the balance sheet classifications used. Such adjustments may be material.
At June 30, 2013, the Company had $21,574 in cash and cash equivalents and total current liabilities of $1,221,837. The primary amount of current liabilities relates to $1,024,988 in deferred revenue. Additionally, we continue to sell our NeoGenomics Stock in order to fund operations. Although the NeoGenomics Stock has increased in value compared to the acquisition date, the number of shares and amount of cash we can generate from the sale of NeoGenomics Stock is subject to fluctuating market and price conditions and the value of NeoGenomics stock has declined since June 30, 2013. As a result we do not believe we have sufficient resources to meet all of our current obligations unless the Company is able to secure revenue via licensing activity or other forms of fund raising either in the debt or equity markets. None of these options are definitive and there can be no assurances the Company will be successful in these financing efforts.
As previously disclosed, the Company has taken steps to reduce its expenditures in order to reduce the “burn rate” of cash to approximately $185,000 per month. These steps included reducing expenses and allocating our remaining cash reserves for our operational requirements at a reduced level. In addition, the recent changes in management mentioned in Note H – Subsequent Events, will allow the monthly expenditures to be reduced further.
The Company has relied primarily on equity and debt financing for liquidity. The Company must increase revenues in order to generate sufficient cash to continue operations. The Company’s plan to have sufficient cash to support operations is comprised of selling its NeoGenomics Stock, generating revenue through licensing its significant patent portfolio, providing services related to those patents, and obtaining additional equity or debt financing. The Company has been unable to generate significant revenue, as further described above. As a result, the Company has implemented a cash conservation program.
The following table summarizes our contractual obligations.
| Total | 1 Year Or Less | More Than 1 Year | ||||||||||
| Office Lease | $ | 10,080 | $ | 10,080 | $ | - | ||||||
| Total | $ | 10,080 | $ | 10,080 | $ | - | ||||||
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HEALTH DISCOVERY CORPORATION
Management’s Discussion and Analysis, continued
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements that provide financing, liquidity, market or credit risk support or involve leasing, hedging or research and development services for our business or other similar arrangements that may expose us to liability that is not expressly reflected in the financial statements.
Forward-Looking Statements
This Report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 12E of the Securities Exchange Act of 1934, including or related to our future results, certain projections and business trends. Assumptions relating to forward-looking statements involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. When used in this Report, the words “estimate,” “project,” “intend,” “believe,” “expect” and similar expressions are intended to identify forward-looking statements. Although we believe that assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate, and we may not realize the results contemplated by the forward-looking statement. Management decisions are subjective in many respects and susceptible to interpretations and periodic revisions based on actual experience and business developments, the impact of which may cause us to alter our business strategy or capital expenditure plans that may, in turn, affect our results of operations. In light of the significant uncertainties inherent in the forward-looking information included in this Report, you should not regard the inclusion of such information as our representation that we will achieve any strategy, objective or other plans. The forward-looking statements contained in this Report speak only as of the date of this Report as stated on the front cover, and we have no obligation to update publicly or revise any of these forward-looking statements. These and other statements which are not historical facts are based largely on management’s current expectations and assumptions and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those contemplated by such forward-looking statements. These risks and uncertainties include, among others, the failure to successfully develop a profitable business, delays in identifying customers, and the inability to retain a significant number of customers, as well as the risks and uncertainties described in “Risk Factors” section to our Annual Report for the fiscal year ended December 31, 2012.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not Applicable.
Item 4. Controls and Procedures
As of the end of the period covered by this report (the “Evaluation Date”), we carried out an evaluation regarding the fiscal quarter ended June 30, 2013, under the supervision and with the participation of our management, including our Chief Executive Officer, who also served as our Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 underthe Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon this evaluation, our management concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the reports that are filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms and that our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management including our Chief Executive Officer, as appropriate, to allow timely decisions regarding required disclosure.
Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that the Company’s disclosure controls and procedures will detect or uncover every situation involving the failure of persons within the Company to disclose material information otherwise required to be set forth in the Company’s periodic reports.
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HEALTH DISCOVERY CORPORATION
The Company’s management is also responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. As of the Evaluation Date, no changes in the Company’s internal control over financial reporting occurred that have materially affected or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Our Annual Report on Form 10-K contains information regarding a material weakness in our internal control over financial reporting as of December 31, 2012 due to an inadequate segregation of duties resulting from our small number of employees.
PART II — OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2012, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. Except as set forth below, there were no material changes from the risk factors as previously disclosed in our Annual Report for the fiscal year ended December 31, 2012 filed with the SEC on March 29, 2013.
Our Ability to Meet Our Cash Needs and Our Net Income Would be Adversely Affected by a Decline in the Stock Price of NeoGenomics Stock
We rely on the sale of the NeoGenomics Stock that we received in January 2012 as a license fee in order to fund operations. The Company would be adversely affected by a decrease in the market price of NeoGenomics Stock. At June 30, 2013, the Company had $21,574 in cash and cash equivalents and total current liabilities of $1,221,837. Although the NeoGenomics Stock has increased in value compared to the acquisition date, the decrease in the price of NeoGenomics stock from June 30, 2013 through August 13, 2013, has resulted in decrease of approximately of $504,160 in Investment in Available for Sale Securities during that period. The number of shares and amount of cash we can generate from the sale of NeoGenomics Stock is subject to fluctuating market and price conditions.
In addition, the Company has chosen to measure the gain or loss on the value of this asset using the fair value option method. Acoordingly, a decline in the price of NeoGenomics stock adversely affects our reported net income.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
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Item 6. Exhibits
The following exhibits are attached hereto or incorporated by reference herein (numbered to correspond to Item 601(a) of Regulation S-K, as promulgated by the Securities and Exchange Commission) and are filed as part of this Form 10-Q:
| 3.1 | Articles of Incorporation. Registrant incorporates by reference Exhibit 3.1 to Form 8-K filed July 18, 2007. |
| 3.1(a) | Articles of Amendment to Articles of Incorporation. Registrant incorporates by reference Exhibit 99.1 to Form 8-K filed October 10, 2007. |
| 3.1(b) | Articles of Amendment to Articles of Incorporation. Registrant incorporates by reference Exhibit 3.1(b) to Form 10-K filed March 31, 2009. |
| 3.1(c) | Amended and Restated Articles of Amendment to Articles of Incorporation. Registrant incorporates by reference Exhibit 3.1 to Form 10-Q filed November 16, 2009. |
| 3.2 | By-Laws. Registrant incorporates by reference Exhibit 3.2 to Form 8-K filed July 18, 2007. |
| 4.1 | Copy of Specimen Certificate for shares of Common Stock. Registrant incorporates by reference Exhibit 4.1 to Registration Statement on Form SB-2, filed June 4, 2001. |
| 4.1(a) | Copy of Specimen Certificate for shares of Common Stock. Registrant incorporates by reference Exhibit 4.1 (b) to Form 10-KSB, filed March 30, 2004. |
| 4.1(b) | Copy of Specimen Certificate for shares of Series A Preferred Stock. Registrant incorporates by reference Exhibit 4.1(b) to Form 10-K filed March 31, 2008. |
| 4.1(c) | Copy of Specimen Certificate for shares of Series B Preferred Stock. Registrant incorporates by reference Exhibit 4.1(c) to Form 10-K filed March 31, 2009. |
| 10.27 | License Agreement, dated January 6, 2012, between Health Discovery Corporation and NeoGenomics Laboratories, Inc. Registrant incorporates by reference Exhibit 10.27 to Form 8-K filed on January 12, 2012. |
| 31.1 | Rule 13a-14(a)/15(d)-14(a) Certifications of Chief Executive Officer and Principal Financial Offier. Filed herewith. |
| 32.1 | Section 1350 Certifications of Chief Executive Officer and Principal Financial Officer. Filed herewith. |
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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.
| Health Discovery Corporation | ||
| Registrant |
| Date: August 14, 2013 | By: | /s/ Kevin Kowbel | |
| Printed Name: Kevin Kowbel | |||
| Title: Interim Chief Executive Officer, Principal Financial Officer, and Principal Accounting Officer | |||
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