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, 2014 | ||
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) | ||
(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, 2014 |
| Common Stock, no par value | 252,557,310 |
| Series A Preferred Stock | 0 |
| Series B Preferred Stock | 8,827,500 |
| Series C Preferred Stock | 5,116,667 |
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HEALTH DISCOVERY CORPORATION
(unaudited)
| June 30, | December 31, | |||||||
| 2014 | 2013 | |||||||
Assets | ||||||||
| Current Assets | ||||||||
| Cash | $ | 21,212 | $ | 71,991 | ||||
| Accounts Receivable | - | 80 | ||||||
Investment in Available For Sale Securities (Note G) | 514,600 | 724,000 | ||||||
| Total Current Assets | 535,812 | 796,071 | ||||||
| Equipment, Less Accumulated Depreciation of $57,757 and $55,133 | 3,128 | 5,752 | ||||||
| Other Assets | ||||||||
| Patents, Less Accumulated Amortization of $2,650,650 and $2,519,290 | 1,335,144 | 1,466,504 | ||||||
| Total Assets | $ | 1,874,084 | $ | 2,268,327 | ||||
Liabilities and Stockholders’ Equity | ||||||||
| Current Liabilities | ||||||||
| Accounts Payable - Trade | $ | 349,293 | $ | 326,267 | ||||
| Accrued Liabilities | 2,500 | 2,500 | ||||||
| Dividends Payable - S/T | 343,744 | 308,724 | ||||||
| Deferred Revenue | 534,188 | 1,024,988 | ||||||
| Total Current Liabilities | 1,229,725 | 1,662,479 | ||||||
| Long Term Liabilities | ||||||||
| Deferred Revenue | 169,934 | 191,628 | ||||||
| Total Liabilities | 1,399,659 | 1,854,107 | ||||||
| Stockholders’ Equity | ||||||||
| Series B Preferred Stock, Convertible, | ||||||||
| 20,625,000 Shares Authorized, 8,827,500 Issued and Outstanding | 677,902 | 677,902 | ||||||
| Series C Preferred Stock, Convertible, 16,500,000 Shares Authorized, | ||||||||
| 5,116,667 Issued and Outstanding June 30, 2014 | 307,000 | 160,000 | ||||||
| 2,000,000 Issued and Outstanding December 31, 2013 | ||||||||
| Common Stock, No Par Value, 300,000,000 Shares Authorized | ||||||||
| 252,557,310 Shares Issued and Outstanding June 30, 2014 | ||||||||
| 252,557,310 Shares Issued and Outstanding December 31, 2013 | 26,371,303 | 26,368,892 | ||||||
| Accumulated Deficit | (26,881,780 | ) | (26,792,574 | ) | ||||
| Total Stockholders’ Equity | 474,425 | 414,220 | ||||||
| Total Liabilities and Stockholders’ Equity | $ | 1,874,084 | $ | 2,268,327 | ||||
See accompanying notes to financial statements.
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HEALTH DISCOVERY CORPORATION
(unaudited)
For the Three and Six Months Ended June 30, 2014 and 2013
| Three Months | Three Months | Six Months | Six Months | |||||||||||||
| Ended | Ended | Ended | Ended | |||||||||||||
| June 30, | June 30, | June 30, | June 30, | |||||||||||||
| 2014 | 2013 | 2014 | 2013 | |||||||||||||
| Revenues: | ||||||||||||||||
| Licensing & Development | $ | 256,295 | $ | 256,560 | $ | 517,654 | $ | 540,699 | ||||||||
| Operating Expenses: | ||||||||||||||||
| Amortization | 65,680 | 65,680 | 131,360 | 131,360 | ||||||||||||
| Professional and Consulting Fees | 25,798 | 219,322 | 117,715 | 498,404 | ||||||||||||
| Legal Fees | 17,698 | 46,801 | 34,379 | 85,956 | ||||||||||||
| Research & Development Fees | 23,887 | 23,678 | 47,325 | 58,829 | ||||||||||||
| Compensation | 60,826 | 158,009 | 139,356 | 324,035 | ||||||||||||
| Other General and Administrative Expenses | 50,556 | 178,534 | 94,241 | 292,867 | ||||||||||||
| Total Operating Expenses | 244,445 | 692,024 | 564,376 | 1,391,451 | ||||||||||||
| Income (Loss) From Operations | 11,850 | (435,464 | ) | (46,722 | ) | (850,752 | ) | |||||||||
| Other Income (Expense) | ||||||||||||||||
Unrealized (Loss) Gain on Available for Sale Securities (Note G) | (74,250 | ) | (264,991 | ) | (145,050 | ) | 194,659 | |||||||||
Realized Gain on Available for Sale Securities (Note G) | 49,486 | 261,061 | 102,566 | 531,511 | ||||||||||||
| Total Other Income (Expense) | (24,764 | ) | (3,930 | ) | (42,484 | ) | 726,170 | |||||||||
| Net Loss | $ | (12,914 | ) | $ | (439,394 | ) | $ | (89,206 | ) | $ | (124,582 | ) | ||||
| Preferred Stock Dividends | 17,607 | 34,380 | 35,020 | 68,585 | ||||||||||||
| Loss Attributable to Common Shareholders | $ | (30,521 | ) | $ | (473,774 | ) | $ | (124,226 | ) | $ | (193,167 | ) | ||||
| Weighted Average Outstanding Shares | 252,557,310 | 233,877,311 | 252,557,310 | 233,825,227 | ||||||||||||
| Loss Per Share (basic and diluted) | $ | (0.000 | ) | $ | (0.002 | ) | $ | (0.000 | ) | $ | (0.001 | ) | ||||
See accompanying notes to financial statements.
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HEALTH DISCOVERY CORPORATION
(unaudited)
For the Six Months Ended June 30, 2014 and 2013
| 2014 | 2013 | |||||||
| Cash Flows From Operating Activities | ||||||||
| Net Loss | $ | (89,206 | ) | $ | (124,582 | ) | ||
| Adjustments to Reconcile Net Loss to Net Cash | ||||||||
| Used for Operating Activities: | ||||||||
| Stock-based Compensation | 7,675 | 35,863 | ||||||
| Services Exchanged for Options | 29,756 | 57,072 | ||||||
Realized Gain on Investments in Available for Sale Securities Measured in Accordance with the Fair Value Option (Note G) | (102,566 | ) | (531,511 | ) | ||||
Unrealized Loss (Gain) on Investments in Available for Sale Securities Measured in Accordance with the Fair Value Option (Note G) | 145,050 | (194,659 | ) | |||||
| Depreciation and Amortization | 133,984 | 135,715 | ||||||
| Decrease (Increase) in Accounts Receivable | 80 | (95 | ) | |||||
| Decrease in Deferred Revenue | (512,494 | ) | (512,494 | ) | ||||
| Increase in Accounts Payable – Trade | 23,026 | 54,559 | ||||||
| Decrease in Accrued Liabilities | - | (53,000 | ) | |||||
| Net Cash Used for Operating Activities | (364,695 | ) | (1,133,132 | ) | ||||
| Cash Flows From Investing Activities: | ||||||||
Proceeds from Sale of Available for Sale Securities (Note G) | 166,916 | 994,830 | ||||||
| Purchase of Equipment | - | (2,336 | ) | |||||
| Net Cash Provided by Investing Activities | 166,916 | 992,494 | ||||||
| Cash Flows From Financing Activities: | ||||||||
| Proceeds from Series C Preferred Stock Issuance | 147,000 | - | ||||||
| Dividends Paid | - | (9,212 | ) | |||||
| Net Cash Provided by (Used for) Financing Activities | 147,000 | (9,212 | ) | |||||
| Net Decrease in Cash | (50,779 | ) | (149,850 | ) | ||||
| Cash, at Beginning of Period | 71,991 | 171,424 | ||||||
| Cash, at End of Period | $ | 21,212 | $ | 21,574 | ||||
See accompanying notes to financial statements.
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HEALTH DISCOVERY CORPORATION
Note A - BASIS OF PRESENTATION
Health Discovery Corporation (the “Company”) is a biotechnology-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 and drug discovery, 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 to 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 months ended June 30, 2014 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, 2013.
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 $704,122 as of June 30, 2014. Unearned revenue of $534,188 is recorded as current and $169,934 is classified as long-term.
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, 2014 consisted of $18,716 and $37,431 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, 2013 was $64,846 and $92,935 respectively.
As of June 30, 2014, there was $155,282 of unrecognized cost related to stock option and warrant grants. The cost is to be recognized over the remaining vesting periods that average approximately 2.25 years.
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HEALTH DISCOVERY CORPORATION
Notes to Financial Statements, continued
Note D – STOCK-BASED COMPENSATION AND OTHER EQUITY BASED PAYMENTS, continued
There were no grants or exercises of stock options and warrants for the three months ended June 30, 2014. There was a forfeiture of 750,000 warrants due to an expiration of a previously awarded warrant for a director during the second quarter of 2014. As of June 30, 2014, there were 12,750,000 option and warrant shares outstanding with a weighted average exercise price of $0.05.
The following schedule summarizes combined stock option and warrant information for the six months ended June 30, 2014.
Option and Warrant Shares | Weighted Average Exercise Price | |||||||
| Outstanding, December 31, 2013 | 13,500,000 | $ | 0.05 | |||||
| Granted | - | - | ||||||
| Exercised | - | - | ||||||
| Forfeited | - | - | ||||||
| Expired un-exercised | (750,000 | ) | $ | 0.08 | ||||
| Outstanding, June 30, 2014 | 12,750,000 | $ | 0.05 | |||||
The following schedule summarizes combined stock option and warrant information as of June 30, 2014:
| Exercise Prices | Number Outstanding | Weighted- Average Remaining Contractual Life (years) | Number Exercisable | Weighted Average Remaining Contractual Life (years) of Exercisable Warrants and Options | ||||
| $0.027 | 3,000,000 | 9.00 | 500,000 | 9.00 | ||||
| $0.036 | 7,750,000 | 9.25 | 3,041,668 | 9.25 | ||||
| $0.040 | 1,000,000 | 3.50 | 1,000,000 | 3.50 | ||||
| $0.050 | 1,000,000 | 3.50 | 1,000,000 | 3.50 | ||||
| Total | 12,750,000 | 5,541,668 |
The weighted average remaining life of all outstanding warrants and options at June 30, 2014 are 8.3 years. As of June 30, 2014, the aggregate net intrinsic value of all options and warrants outstanding is $12,000, based on the market closing price of $0.03 on June 30, 2014, less exercise prices.
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 $1,335,144 in patents and patent related costs, net of $2,650,650 in accumulated amortization, at June 30, 2014. Amortization charged to operations for the three and six months ended June 30, 2014 and 2013, was $65,680 and $131,360 respectively. Estimated amortization expense for the next five years is $262,720 per year through 2018 and $152,907 in 2019.
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HEALTH DISCOVERY CORPORATION
Notes to Financial Statements, continued
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 will convert into Common Stock of the Company in the fourth quarter of 2014, which is the fifth anniversary of the date of issuance.
The Series B Preferred Stock has accrued 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 $343,744 as of June 30, 2014 and $308,724 as of December 31, 2013. The Company plans to satisfy the accrued dividend for the Series B Preferred Stock in the fourth quarter of 2014.
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. No special dividends are accrued for the Series B Preferred Stock special dividend as of June 30, 2014 and December 31, 2013.
No dividend payment will be made if, after the payment of such dividend, the Company would not be able to pay its debts as they become due in the usual course of business, or the Company’s total assets would be less than the sum of its total liabilities plus the amount that would be needed, if the Company were to be dissolved, to satisfy the preferential rights upon the dissolution to shareholders whose preferential rights are superior to those receiving the dividend.
Series C Preferred Stock
In the fourth quarter of 2013, the Board of Directors authorized issuing Series C Preferred Shares and the Company began to receive funding for the Series C Preferred Shares. As of December 31, 2013 2,000,000 shares were issued and the Company received net proceeds of $160,000. As of June 30, 2014 the Company issued a total of 5,116,667 preferred shares and received total net proceeds of $307,000. The Series C Preferred Shares feature $0.08 warrants and $0.08 contingency warrants. The contingency warrants will be issued only if the company has not attained profitability by the end of the first quarter 2016. The holders must exercise fifty percent of the warrants if the market price for the Company’s common stock is $0.20 for a period of thirty consecutive calendar days. The holders must also exercise fifty percent of the warrants if the market price for the Company’s common stock is $0.30 for a period of thirty consecutive calendar days. The warrants were valued at $0.025 each using the Black Scholes Method.
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HEALTH DISCOVERY CORPORATION
Notes to Financial Statements, continued
Note F – STOCKHOLDERS’ EQUITY, continued
The goal is to raise a maximum of $1,000,000 funds via this funding. This funding is anti-dilutive because the purchase price is significantly higher than the current 180-day average share price. The Series C Preferred Stock has not been registered under either federal or state securities laws and must be held until a registration statement covering such securities is declared effective by the Securities and Exchange Commission or an applicable exemption applies.
The Series C 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 C Preferred Stock must be converted into Common Stock of the Company either by the demand by the shareholder or at the fifth anniversary of the date of issuance.
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 its shares held in NeoGenomics’ common stock that were acquired resulting from 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 measured at fair value using the fair value option.
The Company’s investment in NeoGenomics’ common stock is recorded on the accompanying balance sheets under the caption Investment in Available for Sale Securities. The carrying value of this investment on the date of acquisition approximated $1,945,000. The change in fair value from December 31, 2013 to June 30, 2014 was a net loss of $42,484 for the remaining 155,000 shares held and is classified as other expense under the captions Realized and Unrealized (Loss) Gain on Available for Sale Securities in the accompanying statements of operations. The 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, 2014 fair value of the investment of $514,600 is for the remaining shares held and is calculated using the closing stock price of the NeoGenomics common stock at the end of the reporting period.
As of June 30, 2014 the Company held 155,000 shares of NeoGenomics stock as compared to 200,000 shares as of December 31, 2013. The initial 1,360,000 shares were acquired in January 2012 as a result of the NeoGenomics Master License Agreement.
Note H – 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 in the process of negotiating a potential consent order with the FTC to resolve the matter.
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.
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HEALTH DISCOVERY CORPORATION
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 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 Support Vector Machines along with Recursive Feature Elimination (SVM-RFE), as well as biomarkers that we discovered by applying our SVM and SVM-RFE 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 numerous 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. In the beginning, we 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; licensing of the SVM and SVM-RFE technologies directly to diagnostic companies; and, the potential 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.
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HEALTH DISCOVERY CORPORATION
Management’s Discussion and Analysis, continued
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.
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 NeoGenomics’ 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 NeoGenomics’ 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 will 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 Cytogenetic 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 Cytogenetic 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 “Cytogenetic Interpretation System”, and a “Flow Cytometry Interpretation System.” NeoGenomics is currently under the second of its one-year extension terms of the license.
If NeoGenomics Laboratories has not generated $5 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 NeoGenomics.
Plasma Test for Prostate Cancer
NeoGenomics is developing a test for prostate cancer under the direction of Dr. Maher Albitar using the genes patented by HDC. The test is performed on blood plasma and urine rather than only prostate tissue biopsies. NeoGenomics recently announced that a publication has been released regarding Phase I of the test’s development. Additionally, NeoGenomics completed Phase II of the prostate test validation. The results were largely the same as those published regarding Phase I. While further validation work needs to be completed, NeoGenomics continues to be encouraged about the potential for this new test. This test, which uses HDC’s patented technology, is available for ordering for patients who want to participate in NeoGenomics’ ongoing clinical trial agreement. NeoGenomics is planning a full launch of this prostate test in 2015.
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HEALTH DISCOVERY CORPORATION
Management’s Discussion and Analysis, continued
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, specially trained technicians perform most of the analysis manually. 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. The Company and NeoGenomics have spent a considerable amount of time using SVM Technology to create significant improvement in cytogenetic analysis. NeoGenomics is currently beta testing this co-developed technology within their facilities. One of the goals with this technology is for NeoGenomics to sub-license this technology after successful internal testing and validation. Per the license agreement, HDC will receive a portion of the sub-license revenue generated by NeoGenomics.
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 and work has begun on the further development of this technology.
SVM Capital, LLC
In January 2007, SVM Capital, LLC (“SVM Capital” or “SVMC”) 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. .
In November 2012 Atlantic Alpha began auditable formal live trading with internal capital provided by SVM Capital by applying SVM technology to quarterly fundamental corporate data such as sales, earnings and projected earnings. The SVM algorithm is utilized to select U.S. stocks which are expected to outperform or underperform in the next quarter based on current data while at the same time rendering superior portfolio risk metrics. This application of SVM technology allows the creation of a variety of equity portfolios. In the fourteen months ending June 30, 2014, the three key portfolios, large-cap long, large-cap long/short and mid-cap long/short rose approximately 53%, 28% and 38%, respectively. On June 30, 2014, the decision was made to liquidate the small-cap long and mid-cap long/short investments as the discussions outlined below have indicated that prospective seed investors are only interested in the large-cap long/short stock portfolio.
SVM Capital’s immediate goal is to secure a “seed investor”, i.e. an “anchor tenant” for whom to manage money, which may then lead to capital allocations from other investors. The seed investor may be an institution, family office or individual. To this end, SVM Capital is working both independently and with one or more intermediaries. The long-term strategy is to create quantitative portfolios in other financial markets such as foreign stock markets, debt instruments and commodities. SVM Capital may also consider licensing its technology or using other methods that may lead to monetization. SVM Capital also placed first in its division in the “Battlefin” quant strategy international contest that ended in March 2014. This accomplishment has contributed to the credibility of SVM Capital’s quantitative investment algorithms in discussions with four investment groups to advance SVMC’s strategic goals. SVMC is working to complete at least one transaction by December31, 2014.
A thorough exposition of SVM Capital may be found on the appropriate link on the Company’s web page.
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HEALTH DISCOVERY CORPORATION
Management’s Discussion and Analysis, continued
Intellectual Property Developments
Currently, the Company holds the exclusive rights to 65 issued U.S. and foreign patents covering uses of SVM, SVM-RFE and FGM technology for discovery of knowledge from large data sets. The Company also has 15 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.
Intel
The Company’s patent application that was submitted to provoke an interference with Intel’s Patent No. 7,685,077 remains pending, and interference proceedings have yet to be initiated. The Company continues to evaluate the best approach to this matter that will allow protection of the patent in the most cost efficient manner possible.
Three Months Ended June 30, 2014 Compared with Three Months Ended June 30, 2013
Revenue
For the three months ended June 30, 2014, revenue was $256,295 compared with $256,560 for the three months ended June 30, 2013. The revenue earned during the second quarter of 2014 and 2013 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, 2014 and 2013. Amortization expense relates primarily to the costs associated with filing patent applications and acquiring rights to the patents.
Professional and consulting fees totaled $25,798 for the three months ended June 30, 2014, compared with $219,322 for the same 2013 period. These fees consist primarily of patent filing and maintenance costs, professional fees, and accounting fees. The decrease was due to the elimination of professional services provided to the Company, specifically consulting fees paid to a former management consultant.
Legal fees decreased over the three-month period with fees totaling $17,698 during the three months ended June 30, 2014 and $46,801 during the same period in 2013. The decrease in legal fees is primarily related to matters pertaining to the Company’s previous CEO, Steve Barnhill, that occurred in the three-month period ended June 30, 2013 and did not reoccur in the three-month period ended June 30, 2014.
Research and development expense was $23,887 for the three months ended June 30, 2014, and $23,678 for the same period in 2013. This expense is associated with our development costs associated with the NeoGenomics relationship and was relatively constant over both periods.
Compensation expense of $60,826 for the three months ended June 30, 2014 was lower than the $158,009 reported for the comparable 2013 period. The decrease is attributed to the elimination of the Company’s former CEO, John Norris.
Other general and administrative expense decreased to $50,556 for the three months ended June 30, 2014, compared to $178,534, for the same period in 2013. This decrease was due to the reduction of expenses related to director’s fees, reduced travel expenses and a reduction in all non-essential costs by the new leadership beginning in August 2013.
Income (Loss) from Operations
The income from operations for the three months ended June 30, 2014 was $11,850, compared to a loss from operations of $435,464 for the three months ended June 30, 2013. This reduction was due to lower costs primarily associated with professional and consulting fees, compensation and other general and administrative expenses.
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HEALTH DISCOVERY CORPORATION
Management’s Discussion and Analysis, continued
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, 2014, the change in the NeoGenomics stock fair value decreased by $24,764, which is recorded as other expense in the statements of operations. During the same three month period in 2013, the change in the NeoGenomics stock fair value decreased by $3,930.
Net Loss
The net loss for the three months ended June 30, 2014 was $12,914, compared to a loss of $439,394 for the three months ended June 30, 2013. The change was due primarily to decreased operating expenses.
The loss attributable to common shareholders was $30,521 for the three months ended June 30, 2014 compared to a loss of $473,774 in the three months ended June 30, 2013. The change is related to lower expenses related to the Company’s efforts to control costs.
Loss per share was $0.000 for the three-month period ended June 30, 2014 compared to a loss per share of $0.002 for the quarterly period ended June 30, 2013.
Six Months Ended June 30, 2014 Compared with Six Months Ended June 30, 2013
Revenue
For the six months ended June 30, 2014, revenue was $517,654 compared with $540,699 for the six months ended June 30, 2013. 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, 2014 and 2013. Amortization expense relates primarily to the costs associated with filing patent application and acquiring rights to the patents.
Professional and consulting fees were $117,715 for the six months ended June 30, 2014 compared with $498,404 for the same 2013 period. The decrease was due to the elimination of professional services provided to the Company, specifically consulting fees paid to a former management consultant.
Legal fees totaled $34,379 during the six months ended June 30, 2014 compared to $85,956 during the same period in 2013. The reduction was related to legal costs in the first half 2013 related to matters pertaining to the Company’s previous CEO, Steve Barnhill.
Research and Development fees were $47,325 for the six months ended June 30, 2014 and $58,829 for the same period in 2013. This expense for research and development relates primarily to work completed under the NeoGenomics License.
Compensation expense of $139,356 for the six months ended June 30, 2014 was less than the $324,035 reported for the comparable 2013 period. The decrease is attributed to the elimination of the Company’s former CEO, John Norris.
Other general and administrative expenses decreased to $94,241 for six months ended June 30, 2014 compared to $292,867 in 2013. This decrease was due to the reduction of expenses related to director’s fees, reduced travel expenses and a reduction in all non-essential costs by the new leadership beginning in August 2013.
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HEALTH DISCOVERY CORPORATION
Management’s Discussion and Analysis, continued
Loss from Operations
The loss from operations for the six months ended June 30, 2014 was $46,722 compared to $850,752 for the period ended June 30, 2013. This reduction in loss from operations was due to lower compensation and general and administration costs. Furthermore, the Company’s overall disciplined approach to control costs has contributed to the signification reduction in loss from operations.
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, 2014, the NeoGenomics stock fair value decreased by $42,484, which is recorded as other expense in the statements of operations. During the same period in 2013, the NeoGenomics stock increased by $726,170.
Net Loss
The net loss for the six months ended June 30, 2014 was $89,206 compared to $124,582 for the six months ended June 30, 2013. The decreased net loss was due to lower operating expenses and the Company’s efforts to control costs.
The net loss attributable to common shareholders was $124,226 for the six months ended June 30, 2014 compared to $193,167 in the six months ended June 30, 2013.
Net loss per share was $0.000 for the six-month period ended June 30, 2014 and $0.001 for the six-month period ended June 30, 2013.
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, 2014, the Company had $21,212 in cash and total current liabilities of $1,229,725. The primary amount of current liabilities relates to $534,118 in deferred revenue. Additionally, we continue to sell our NeoGenomics Stock in order to fund operations. Although the NeoGenomics Stock has increased in value, 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. 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.
The Company has relied primarily on the sale of NeoGenomics stock as well as 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.
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HEALTH DISCOVERY CORPORATION
Management’s Discussion and Analysis, continued
As previously disclosed, the Company initially took 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. Subsequently, the new Board and management team took steps necessary to substantially improve the prior burn. They have been successful in this endeavor and the burn rate has been reduced to approximately $50,000 per month. Nevertheless, the Company still will need additional financing in order to continue operations beyond June 2015. The Company continues to explore various means to raise capital, either via debt or equity offerings
The following table summarizes the due dates of our contractual obligations.
| Total | 1 Year Or Less | More Than 1 Year | ||||||||||
| Accrued Liabilities | $ | 2,500 | $ | 2,500 | - | |||||||
| Total | $ | 2,500 | $ | 2,500 | - | |||||||
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, 2013.
Not Applicable.
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HEALTH DISCOVERY CORPORATION
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, 2014, under the supervision and with the participation of our management, including our Interim Chief Executive Officer, who is also serving as our Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 under the 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.
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, 2013 due to an inadequate segregation of duties resulting from our small number of employees.
None.
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, 2013, 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, 2013 filed with the SEC on March 31, 2014.
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, 2014, the Company had $21,212 in cash and cash equivalents and total current liabilities of $1,229,725. Although the NeoGenomics Stock has increased in value compared to the acquisition date, a decrease in the price of NeoGenomics stock would have a significant impact on our operations. 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. Accordingly, a decline in the price of NeoGenomics stock adversely affects our reported net income.
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HEALTH DISCOVERY CORPORATION
In the quarter ended June 30, 2014, the Company made the following sales of shares of Series C Preferred Stock:
Date of Sale | Title of Securities | Number of Shares Sold | Consideration Paid |
| May 1, 2014 | Series C Preferred Stock | 283,333 | $17,000.00 |
| May 14, 2014 | Series C Preferred Stock | 500,000 | $30,000.00 |
The issuance and sale of these securities was exempt from the registration and prospectus delivery requirements of the Securities Act of 1933 by virtue of Section 4(2) and Rule 506 of Regulation D. The sale did not involve a public offering or general solicitation and was limited to accredited investors. No commissions were paid on the issuance and sale of the shares. The Series C Preferred Shares feature $0.08 warrants and $0.08 contingency warrants. The contingency warrants will be issued only if the company has not attained profitability by the end of the first quarter 2016. The holders must exercise fifty percent of the warrants if the market price for the Company’s common stock is $0.20 for a period of thirty consecutive calendar days. The holders must also exercise fifty percent of the warrants if the market price for the Company’s common stock is $0.30 for a period of thirty consecutive calendar days. The shares of Series C Preferred Stock are convertible at the option of the holder, without an additional payment into shares of common stock, on a 1-for-1 ratio (subject to anti-dilution adjustments). The shares of Series C Preferred Stock must be converted into common stock on the fifth anniversary of the issuance date.
Not applicable.
Not applicable.
None.
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. |
| 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 Officer. Filed herewith. |
| 32.1 | Section 1350 Certifications of Chief Executive Officer and Principal Financial Officer. Filed herewith. |
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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, 2014 | By: | /s/ Kevin Kowbel | |
| Printed Name: Kevin Kowbel | |||
| Title: Interim Chief Executive Officer, Principal Financial Officer, and Principal Accounting Officer | |||
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