SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 12 Months Ended |
Dec. 31, 2014 |
Accounting Policies [Abstract] | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | Note A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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DESCRIPTION OF BUSINESS |
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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 patent protected technology and may provide services to develop specific learning tools under development agreements or to sell to third parties. |
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USE OF ESTIMATES |
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The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Accordingly, actual results could differ from those estimates. Significant estimates that are particularly susceptible to change in the near-term include the valuation of share-based compensation and consideration for services and the recoverability of the patents. |
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REVENUE RECOGNITION |
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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. |
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CASH |
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Cash and cash equivalents include cash and funds invested in money market accounts with financial institutions. |
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ACCOUNTS RECEIVABLE |
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Trade accounts receivable for licensing fees and development services are recorded at net contract value based upon the written agreement with the customer. In certain cases, accounts receivable may include royalties receivable from customers based upon those customers estimated sales of the products or diagnostic tests containing patented processes and technologies. The Company considers amounts past due based on the related terms of the agreement and reviews its exposure to amounts receivable based upon collection history and specific customer credit analysis. The Company provides an allowance for doubtful amounts if collectability is no longer reasonably assured. As of December 31, 2014 and 2013, all amounts receivable are considered fully collectable and no allowance for doubtful accounts was recorded. |
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EQUIPMENT |
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Equipment, which consists of office furniture, computer equipment, and leasehold improvements, are stated at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, which range from 3 to 10 years. Leasehold improvements are amortized using the straight-line method over the estimated useful lives of the assets or the term of the lease, whichever is shorter. |
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PATENTS |
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Initial costs paid to purchase patents are capitalized and amortized using the straight line method over the remaining life of the patent. The Company capitalizes the external costs and filing fees associated with obtaining patents on its new discoveries and amortizes these costs using the straight-line method over the shorter of the legal life of the patent or its economic life, generally 17 years, beginning on the date the patent is issued. Annual patent maintenance costs and annual license and renewal registration fees are expensed as period costs. If the applied for patents are abandoned or are not issued, the Company will expense the capitalized costs to date in the period of abandonment or earlier if abandonment appears probable. The carrying value of patents is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. As of December 31, 2014, the Company does not believe there has been any impairment of its patents. |
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INVESTMENTS |
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The Company uses the equity method to account for its equity investments in ventures for which it has 50% or less ownership and the ability to exercise significant influence over operating and financial policies, but does not control. The Company uses the cost method to account for its investments in companies that it does not control and for which it does not have the ability to exercise significant influence over operating and financial policies. |
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INCOME TAXES |
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The Company accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for future tax benefits and expenses or consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income for the years in which those temporary differences are expected to be recovered or settled. |
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In the event the future tax consequences of differences between the financial reporting bases and tax bases of the Company’s assets and liabilities result in deferred tax assets, an evaluation is made of the probability of being able to realize the future benefits indicated by such assets is made. A valuation allowance is provided for the portion of the deferred tax asset when it is more likely than not that some portion or all of the deferred tax asset will not be realized. In assessing the probability of realizing the deferred tax assets, management considers the scheduled reversals of deferred tax liabilities, projected future taxable income, and tax planning strategies. |
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STOCK-BASED COMPENSATION |
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Stock-based compensation cost is measured at grant date, based on the fair value of the award, and is recognized as expense over the requisite service period. |
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Valuation and Amortization Method – The fair value awards of stock that do not contain a market condition target are estimated on the grant date using the Black-Scholes option-pricing model. The fair value of options that contain a market condition, such as a specified hurdle price, is estimated on the grant date using a probability weighted fair value model similar to a lattice valuation model. Both the Black-Scholes and the probability weighted valuation models require assumptions and estimates of expected volatility, expected life, expected dividend yield and expected risk-free interest rates. |
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Expected Term – The expected term of the award represents the period that the Company’s stock-based awards are expected to be outstanding and was determined based on historical experience, giving consideration to the contractual terms of the stock-based awards, vesting schedules, and forfeitures due to departure prior to the end of the vesting schedule. |
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Expected Volatility – Volatility is a measure of the amounts by which a financial variable such as stock price has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period. The Company uses the historical volatility, employing a prior period equivalent to the expected term to estimate expected volatility. |
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Risk-Free Interest Rate – The Company bases the risk-free interest rate used in the Black-Scholes valuation method on the implied yield currently available on U.S. Treasury zero-coupon issues with a remaining term equivalent to the expected term of a stock award. |
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RESEARCH AND DEVELOPMENT EXPENSE |
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The Company’s research and development costs are expensed as incurred and consist of expenses paid to consultants and external laboratories and related primarily to the costs of co-development studies, clinical trials, and projects undertaken. The R&D costs were $99,200 in 2014 and $115,934 in 2013. |
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FAIR VALUE OF FINANCIAL INSTRUMENTS |
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The Company’s financial instruments consist of cash, available for sale securities, accounts receivable, accounts payable and accrued expenses. The Company considers the carrying values of its financial instruments in the financial statements to approximate their fair value due to the short-term nature of such items. Refer to Note J for discussion regarding the valuation of the Company’s investment in available for sale securities. |
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NET INCOME (LOSS) PER SHARE |
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Basic Earnings Per Share (“EPS”) includes no dilution and is computed by dividing income or loss available to common stockholders 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. |
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Due to the net loss for the twelve-month period ended December 31, 2013, the calculation of diluted per share amounts would create an anti-dilutive result and therefore are not presented in the following table. Potentially dilutive shares at December 31, 2013, include options and warrants outstanding of 13,500,000. |
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The following is an analysis of the basic and diluted earnings per common share computations for the year ended December 31, 2014: |
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| | Year ended | |
31-Dec-14 |
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Basic: | | | |
Net income attributable to common stockholders | | $ | 112,019 | |
Basic weighted average common shares outstanding | | | 253,292,935 | |
Basic earnings per common share | | $ | 0.0004 | |
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Diluted: | | | | |
Net income attributable to common stockholders | | $ | 112,019 | |
Basic weighted average common shares outstanding | | | 253,292,935 | |
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Effect of dilutive securities: | | | | |
Conversion of options and warrants | | | - | |
Conversion of preferred shares to common shares | | | 6,640,000 | |
Diluted weighted average common shares outstanding | | | 259,932,935 | |
Diluted earnings per common share | | $ | 0.0004 | |
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During the twelve-month period ended December 31, 2014, 19,390,000 outstanding stock options and warrants were not included in the computation of diluted earnings per common share because to do so would have an antidilutive effect. Please refer to Note H regarding detail for outstanding stock options. |
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CONCENTRATIONS OF CREDIT RISK |
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The Company maintains its cash balances at financial institutions that are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 per account. From time-to-time, the Company’s cash balances exceed the amount insured by the FDIC. Management believes the risk of loss of cash balances in excess of the insured limit to be low. |
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RECENT ACCOUNTING PRONOUNCEMENTS |
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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 adoption of this guidance did not have a material impact on our financial results. |