(Mark One) | |
x | ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2014 | |
OR | |
o | TRANSITION REPORT UNDER TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to |
HEALTH DISCOVERY CORPORATION (Name of Registrant as Specified in its charter) | ||
Georgia | 74-3002154 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
4243 Dunwoody Club Drive Suite 202 Atlanta, Georgia | 30350 | |
(Address of principal executive offices) | (Zip Code) |
(678) 336-5300 |
(Registrant’s telephone number, including area code) |
Securities Registered Pursuant to Section 12 (b) of the Act: |
None |
Securities Registered Pursuant to Section 12 (g) of the Act: |
None |
Large Accelerated Filer | o | Accelerated Filer o | ||
Non-accelerated Filer | o | Smaller Reporting Company x |
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Patent/Application No. | Title | Expiration Date |
U.S. Patent No. 6,128,608 | Enhancing Knowledge Discovery Using Multiple Support Vector Machines | 05/01/2019 |
U.S. Patent No. 6,157,921 | Enhancing Knowledge Discovery Using Support Vector Machines in a Distributed Network Environment | 05/01/2019 |
U.S. Patent No. 6,658,395 | Enhancing Knowledge Discovery from Multiple Data Sets Using Multiple Support Vector Machines. | 05/01/2019 |
U.S. Patent No. 6,714,925 | System for Identifying Patterns in Biological Data Using a Distributed Network. | 05/01/2019 |
U.S. Patent No. 6,760,715 | Enhancing Biological Knowledge Discovery Using Multiple Support Vector Machines. | 05/01/2019 |
U.S. Patent No. 6,789,069 | Method of Identifying Patterns in Biological Systems and Method of Uses. | 05/01/2019 |
U.S. Patent No. 6,882,990 | Method of Identifying Biological Patterns Using Multiple Data Sets. | 05/01/2019 |
U.S. Patent No. 6,944,602 | Spectral Kernels for Learning Machines | 02/19/2023 |
U.S. Patent No. 6,996,549 | Computer-Aided Image Analysis | 04/21/2021 |
U.S. Patent No. 7,117,188 | Methods of Identifying Patterns in Biological Systems and Uses Thereof | 05/01/2019 |
U.S. Patent No. 7,299,213 | Method of Using Kernel Alignment to Extract Significant Features from a Large Dataset | 03/01/2022 |
U.S. Patent No. 7,318,051 | Methods for Feature Selection in a Learning Machine | 02/25/2021 |
U.S. Patent No. 7,353,215 | Kernels and Methods for Selecting Kernels for Use in a Learning Machine | 05/07/2022 |
U.S. Patent No. 7,383,237 | Computer-Aided Image Analysis | 11/04/2019 |
U.S. Patent No. 7,444,308 | Data Mining Platform for Bioinformatics | 08/07/2020 |
U.S. Patent No. 7,475,048 | Pre-Processed Feature Ranking for a Support Vector Machine | 08/07/2020 |
U.S. Patent No. 7,542,947 | Data Mining Platform for Bioinformatics and Other Knowledge Discovery | 08/07/2020 |
U.S. Patent No. 7,542,959 | Feature Selection Using Support Vector Machine Classifier | 05/01/2019 |
U.S. Patent No. 7,617,163 | Kernels and Kernel Methods for Spectral Data | 11/9/2021 |
5 |
Patent/Application No. | Title | Expiration Date |
U.S. Patent No. 7,624,074 | Methods for Feature Selection in a Learning Machine | 08/07/2020 |
U.S. Patent No. 7,921,068 | Data Mining Platform for Knowledge Discovery from Heterogeneous Data Types and/or Heterogeneous Data Sources | 05/20/2022 |
U.S. Patent No. 7,970,718 | Feature Selection and for Evaluating Features Identified as Significant for Classifying Data | 08/07/2020 |
U.S. Patent No. 8,008,012 | Biomarkers Downregulated in Prostate Cancer | 01/24/2022 |
U.S. Patent No. 8,095,483 | Support Vector Machine-Recursive Feature Elimination (SVM-RFE) | 08/07/2020 |
U.S. Patent No. 8,126,825 | Method for Visualizing Feature Ranking of a Subset of Features for Classifying Data Using a Support Vector | 05/20/2022 |
U.S. Patent No. 8,209,269 | Kernels for Identifying Patterns in Datasets Containing Noise or Transformation Invariance | 05/07/2022 |
U.S. Patent No. 8,275,723 | System for Providing Data Analysis Services Using a Support Vector Machine for Processing Data Received from a Remote Source | 05/01/2019 |
U.S. Patent No. 8,293,461 | Biomarkers Downregulated in Prostate Cancer | 01/24/2022 |
U.S. Patent No. 8,463,718 | Support Vector Machine-Based Method for Analysis of Spectral Data | 08/07/2020 |
U.S. Patent No. 8,489,531 | Identification of Co-Regulation Patterns by Unsupervised Cluster Analysis of Gene Expression Data | 05/17/2022 |
U.S. Patent No. 8,543,519 | System and Method for Remote Melanoma Screening | 05/01/2019 |
U.S. Patent No. 8,682,810 | Method and System for Analysis of Flow Cytometry Data Using Support Vector Machines | 02/08/2029 |
Australian Patent No. 764897 | Pre-processing and Post-processing for Enhancing Knowledge Discovery Using Support Vector Machines. | 05/01/2019 |
Canadian Patent No. 2,330,878 | Pre-Processing and Post-Processing for Enhancing Knowledge Discovery Using Support Vector Machines | 05/01/2019 |
European Patent No. 1082646 | Pre-Processing and Post-Processing for Enhancing Knowledge Discovery Using Support Vector Machines | 05/01/2019 |
European Patent No. 2296105 | Pre-Processing and Post-Processing for Enhancing Knowledge Discovery Using Support Vector Machines | 05/01/2019 |
South African Patent No. 00/7122 | Pre-processing and Post-processing for Enhancing Knowledge Discovery Using Support Vector Machines. | 05/01/2019 |
European Patent No. 1192595 | Enhancing Knowledge Discovery from Multiple Data Sets Using Multiple Support Vector Machines. | 05/24/2020 |
Australian Patent No. 779635 | Method of Identifying Patterns in Biological Systems and Method of Uses. | 10/27/2020 |
Canadian Patent No. 2,388,595 | Method of Identifying Patterns in Biological Systems and Method of Uses | 08/07/2020 |
Japanese Patent No. 506462 | Method of Identifying Patterns in Biological Systems and Methods of Uses | 08/07/2020 |
Australian Patent No. 2002243783 | Computer Aided Image Analysis | 01/23/2022 |
Canadian Patent No. 2,435,290 | Computer Aided Image Analysis | 01/23/2022 |
6 |
Patent/Application No. | Title | Expiration Date |
European Patent No.1356421 | Computer Aided Image Analysis | 01/23/2022 |
Japanese Patent No. 3947109 | Computer Aided Image Analysis | 01/23/2022 |
Australian Patent No. 2002253879 | Methods of Identifying Patterns in Biological Systems and Uses Thereof | 01/24/2022 |
Canadian Patent No. 2,435,254 | Methods of Identifying Patterns in Biological Systems and Uses Thereof | 01/24/2022 |
Japanese Patent No. 4138486 | Methods of Identifying Patterns in Biological Systems and Uses Thereof | 01/24/2022 |
European Patent No. 1459235 | Methods of Identifying Patterns in Biological Systems and Uses Thereof | 01/24/2022 |
Japanese Patent No. 5425814 | Method and System for Analysis of Flow Cytometry Data Using Support Vector Machines | 02/08/2029 |
European Patent No. 2373816 | Methods for Screening, Predicting and Monitoring Prostate Cancer | 12/04/2029 |
European Publication No. 2357582 | Method of Identifying Patterns in Biological Systems and Method of Uses | 08/07/2020 |
U.S. Patent Publication No. 2011/0106735 | Recursive Feature Elimination Method Using Support Vector Machines | 05/01/2019 |
U.S. Patent Publication No. 2009/0226915 | Methods for Screening, Predicting and Monitoring Prostate Cancer | 01/24/2022 |
U.S. Patent Publication No. 2013/0297607 | Identification of Pattern Similarities by Unsupervised Cluster Analysis | 05/17/2022 |
Australian Application No. 2009212193 | Method and System for Analysis of Flow Cytometry Data Using Support Vector Machines | 02/08/2029 |
Chinese Application No. 200980110847.2 | Method and System for Analysis of Flow Cytometry Data Using Support Vector Machines | 02/08/2029 |
European Publication No. 22528889 | Method and System for Analysis of Flow Cytometry Data Using Support Vector Machines | 02/08/2029 |
Indian Application No. 5526/CHENP/2010 | Method and System for Analysis of Flow Cytometry Data Using Support Vector Machines | 02/08/2029 |
U.S. Patent Publication No. 2014/0016843 | Computer-Assisted Karyotyping | 06/19/2033 |
European Publication No. 2862113 | Computer-Assisted Karyotyping | 06/19/2033 |
Patent/Application No. | Title | Expiration Date |
U.S. Patent No. 6,920,451 | Method for the Manipulation, Storage, Modeling, Visualization and Quantification of Datasets. | 01/19/2021 |
U.S. Patent No. 7,366,719 | Method for the Manipulation, Storage, Modeling, Visualization and Quantification of Datasets | 01/19/2021 |
7 |
● | develop new diagnostic products before we or our collaborators are able to; |
● | develop diagnostic products that are more effective or cost-effective than those developed by us or our collaborators; or |
● | patent protect other intellectual property rights that would limit our ability to develop and commercialize our technology by limiting the ability to use, ours, or our collaborators’, diagnostic products. |
8 |
9 |
· payments of milestones, license fees or research payments under the terms of our increasing number of external alliances; |
· changes in the demand for our products and services; |
· the nature, pricing and timing of products and services provided to our collaborators; |
· acquisition, licensing and other costs related to the expansion of our operations; |
· reduced capital investment for extended periods; |
· losses and expenses related to our investments in joint ventures and businesses; |
· regulatory developments or changes in public perceptions relating to the use of genetic information and the diagnosis and treatment of disease based on genetic information; and |
· changes in intellectual property laws that affect our rights in genetic information that we sell and license. |
· variations in our actual or anticipated operating results; |
· sales of substantial amounts of our stock; |
· announcements about us or about our competitors, including technological innovation or new products or services; |
· litigation and other developments related to our patents or other proprietary rights or those of our competitors; |
· conditions in the life sciences, pharmaceuticals or genomics industries; and |
· Governmental regulation and legislation. |
10 |
11 |
12 |
13 |
14 |
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· be found to be toxic or ineffective; |
· fail to receive necessary regulatory approvals; |
· be difficult or impossible to manufacture on a large scale; |
· be uneconomical to market; |
· fail to be developed prior to the successful marketing of similar products by competitors; or |
· be impossible to market because they infringe on the proprietary rights of third parties or compete with superior products marketed by third parties. |
16 |
17 |
High | Low | |||||||
First Quarter 2013 | $ | 0.05 | $ | 0.03 | ||||
Second Quarter 2013 | $ | 0.06 | $ | 0.03 | ||||
Third Quarter 2013 | $ | 0.05 | $ | 0.03 | ||||
Fourth Quarter 2013 | $ | 0.04 | $ | 0.02 |
High | Low | |||||||
First Quarter 2014 | $ | 0.04 | $ | 0.02 | ||||
Second Quarter 2014 | $ | 0.04 | $ | 0.02 | ||||
Third Quarter 2014 | $ | 0.03 | $ | 0.01 | ||||
Fourth Quarter 2014 | $ | 0.02 | $ | 0.01 |
18 |
As a smaller reporting company, we are not required to provide the information required by this item. |
19 |
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· the asset’s ability to continue to generate income from operations and positive cash flow in future periods; |
· loss of legal ownership or title to the asset; |
· significant changes in our strategic business objectives and utilization of the asset(s); and |
· the impact of significant negative industry or economic trends. |
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Page | |
F-1 | |
F-3 | |
F-4 | |
F-5 | |
F-6 | |
F-7 |
26 |
Effective December 19, 2014, the Company approved the dismissal of Hancock Askew & Co., LLP (“Hancock Askew”) as the Company’s independent registered public accounting firm. Hancock Askew had been the Company’s independent registered public accounting firm since September 21, 2006.
Hancock Askew’s report on the financial statements of the Company as of and for the fiscal years ended December 31, 2012 and 2013 did not contain any adverse opinion or a disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles, except their report dated March 31, 2014 on the Company’s consolidated financial statements as of December 31, 2013 which contained an explanatory paragraph regarding the substantial doubt about the Company’s ability to continue as a going concern.
During the Company’s two most recent fiscal years and through December 19, 2014 (i) there were no disagreements with Hancock Askew on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which, if not resolved to Hancock Askew’s satisfaction, would have caused Hancock Askew to make reference to the subject matter in connection with their reports on the Company’s financial statements for such years; and (ii) there were no reportable events, within the meaning set forth in Item 304(a)(1)(v) of Regulation S-K.
On December 19, 2014, the Company approved the engagement of Frazier & Deeter, LLC (“Frazier & Deeter”), to serve as the Company’s independent registered public accounting firm for the 2014 fiscal year. As a result, effective December 22, 2014 (the “Engagement Date”), the Company engaged Frazier & Deeter as the Company’s independent registered public accounting firm and formally engaged Frazier & Deeter as the Company’s independent public accountant on the Engagement Date.
During the years ended December 31, 2012 and December 31, 2013, and during the subsequent interim period through December 19, 2014, the Company did not consult with Frazier & Deeter regarding (i) the application of accounting principles to a specified transaction, either completed or proposed, (ii) the type of audit opinion that might be rendered on the Company’s financial statements by Frazier & Deeter, in either case where written or oral advice provided by Frazier & Deeter would be an important factor considered by the Company in reaching a decision as to any accounting, auditing or financial reporting issues or (iii) any other matter that was the subject of a disagreement between us and our former auditor or was a reportable event (as described in Items 304(a)(1)(iv) or Item 304(a)(1)(v) of Regulation S-K, respectively).
27 |
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Our executive officers, directors are: | ||
Name | Age | Position |
Henry S. Kaplan | 72 | Director |
Kevin Kowbel | 44 | Chairman and Interim Chief Executive Officer |
Mark A. Moore, Ph.D. | 69 | Vice President, Product Development |
William F. Quirk, Jr. | 72 | Director |
Eric R. Winger | 73 | Director |
Hong Zhang, Ph.D. | 51 | Senior Vice President, Computational Medicine |
29 |
30 |
Name and Principal Position | Year | Salary ($) | Bonus ($) | All Other Compensation ($) | Total | ||||||||||||
Kevin Kowbel | 2014 | $ | - | $ | - | $ | - | $ | - | ||||||||
Chairman & Interim Chief Executive Officer | 2013 | $ | - | $ | - | $ | - | $ | - | ||||||||
Mark A. Moore, Ph.D. | 2014 | $ | 43,500 | $ | - | $ | 8,771 | (1 | ) | $ | 52,271 | ||||||
Vice President, Product Development | 2013 | $ | 104,385 | $ | - | $ | 1,462 | (1 | ) | $ | 105,847 | ||||||
Hong Zhang, Ph.D. | 2014 | $ | 56,000 | $ | - | $ | 6,578 | (1 | ) | $ | 62,578 | ||||||
Senior Vice President, Computational Medicine | 2013 | $ | 117,538 | $ | - | $ | 1,096 | (1 | ) | $ | 118,634 | ||||||
John A. Norris | 2014 | $ | - | $ | - | $ | - | (2 | ) | $ | - | ||||||
Former Chief Executive Officer | 2013 | $ | 187,019 | $ | - | $ | 39,058 | (2 | ) | $ | 226,077 | ||||||
(1) | Represents costs associated with stock options. | |||||||||||||
(2) | Represents health insurance premiums and reimbursed healthcare costs of $3,195 and $35,863 in costs associated with stock options. |
Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price | Option Expiration Date | |||||||||||
Mark A. Moore, Ph.D. | - | 1,000,000 | $ | 0.036 | October 21, 2023 | ||||||||||
Hong Zhang, Ph.D. | - | 750,000 | $ | 0.036 | October 21, 2023 | ||||||||||
John A. Norris | 1,000,000 | - | $ | 0.050 | December 18, 2017 |
31 |
Name | Fees Earned or Paid in Cash ($) | Option Awards ($) | Total($) | ||||||||||
Henry S. Kaplan (1) | $ | - | $ | 10,021 | $ | 10,021 | |||||||
Kevin Kowbel (2) | $ | - | $ | - | $ | - | |||||||
William F. Quirk, Jr. (3) | $ | - | $ | 13,157 | $ | 13,157 | |||||||
Eric R. Winger (1) | $ | - | $ | 10,021 | $ | 10,021 |
(1) | 1,500,000 options granted on July 25, 2013. | |
(2) | 1,500,000 options granted on July 25, 2013 and returned August 2, 2013 | |
(3) | 1,500,000 options granted on October 21, 2013. |
Name and Address of Beneficial Owner | Amount and Nature of Beneficial Owner | Percent of Class (1) | |||
Henry S. Kaplan, Director | 563,000 | (2) | * | ||
Kevin Kowbel, Chairman and Interim Chief Executive Officer | 675,000 | * | |||
Mark A. Moore, Ph.D., Vice President, Product Development | 1,677,334 | (3) | * | ||
William F. Quirk, Jr., Director | 14,946,222 | (4) | 5.7% | ||
Eric R. Winger, Director | 501,000 | (2) | * | ||
Hong Zhang, Ph.D., Senior Vice President, Computational Medicine | 250,000 | (5) | * | ||
All executive officers and directors as a group (6 persons) | 18,612,556 | 6.3% |
* | Less than 1% | |
(1) | The percentage assumes the exercise by the stockholder or group named in each row of all options or warrants for the purchase of our Common Stock held by such stockholder or group and exercisable within 60 days as of March 31, 2015. | |
(2) | Includes 500,000 options granted in July 2013, which are exercisable within 60 days of March 31, 2015 | |
(3) | Includes 333,334 options granted in October 2013, which are exercisable within 60 days of March 31, 2015. | |
(4) | Includes 500,000 options granted in October 2013, which are exercisable within 60 days of March 31, 2015. | |
(5) | Includes 250,000 options granted in October 2013, which are exercisable within 60 days of March 31, 2015 |
32 |
A Number of securities to be issued upon exercise of outstanding options, warrants and rights | B Weighted- average exercise price of outstanding options, warrants and rights | C Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in Column A) | ||||||||||
Equity compensation plans approved by security holders | - | - | - | |||||||||
Equity compensation plans not approved by security holders | 19,390,000 | $.034 | - | |||||||||
Total | 19,390,000 | $.034 | - |
2014 | 2013 | |||||||
Audit Fees | $ | 65,840 | $ | 70,241 | ||||
Audit-Related Fees | $ | - | $ | - | ||||
Tax Fees | $ | 5,425 | $ | 7,600 | ||||
Sub-Total | $ | 71,265 | $ | 77,841 | ||||
All Other Fees | $ | - | $ | - | ||||
Total Fees | $ | 71,265 | $ | 77,841 |
33 |
34 |
(1) Financial Statements - all financial statements of the Company as set forth under Item 8 of this Report. |
(2) Financial Statement Schedules - As a smaller reporting company we are not required to provide the information required by this item. |
(b) | The following exhibits are attached hereto or incorporated by reference herein (numbered to correspond to Item 601(b) of Regulation S-K, as promulgated by the Securities and Exchange Commission) and are filed as part of this Form 10-K: |
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. |
10.1 | 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. |
23.1 | Consent of Frazier & Deeter, LLC. Filed herewith. |
23.2 | Consent of Hancock Askew & Co. LLP. Filed herewith. |
31.1 | Rule 13a-14(a)/15(d)-14(a) Certification of Chief Executive Officer, Principal Financial Officer, and Principal Accounting Officer. Filed herewith. |
32.1 | Section 1350 Certification of Chief Executive Officer, Principal Financial Officer, and Principal Accounting Officer. Filed herewith. |
35 |
HEALTH DISCOVERY CORPORATION | |||
By: | /s/ Kevin Kowbel | ||
Chairman, Interim Chief Executive Officer, | |||
Principal Financial Officer, and Principal Accounting Officer | |||
Date: March 31, 2015 |
Name | Title | Date | |
/s/ Kevin Kowbel | Chairman, Interim Chief Executive Officer, Principal Financial | March 31, 2015 | |
Kevin Kowbel | Officer, and Principal Accounting Officer | ||
/s/ Henry S. Kaplan | Director | March 31, 2015 | |
Henry S. Kaplan | |||
/s/ William F. Quirk, Jr. | Director | March 31, 2015 | |
William F. Quirk, Jr. | |||
/s/ Eric R. Winger | Director | March 31, 2015 | |
Eric R. Winger |
36 |
F-1 |
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Health Discovery Corporation
Atlanta, Georgia
We have audited the accompanying balance sheets of Health Discovery Corporation as of December 31, 2013 and, the related statements of operations, changes in stockholders' equity, and cash flows for the year then ended. These financial statements are the responsibility of the management of Health Discovery Corporation. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Health Discovery Corporation as of December 31, 2013 and the results of its operations and its cash flows for the year ended December 31, 2013, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note L to the financial statements, the Company has incurred recurring losses from operations that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note L. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter.
/s/ Hancock Askew & Co., LLP
Savannah, Georgia
March 31, 2014
F-2 |
December 31, | December 31, | |||||||
2014 | 2013 | |||||||
Assets | ||||||||
Current Assets | ||||||||
Cash | $ | 7,642 | $ | 71,991 | ||||
Accounts Receivable | 1,969 | 80 | ||||||
Investment in Available For Sale Securities (Note J) | 362,373 | 724,000 | ||||||
Total Current Assets | 371,984 | 796,071 | ||||||
Equipment, Less Accumulated Depreciation of $59,765 and $55,133 at December 31, 2014 and December 31, 2013, respectively | 1,120 | 5,752 | ||||||
Other Assets | ||||||||
Patents, Less Accumulated Amortization of $2,782,009 and $2,519,290 at December 31, 2014 and December 31, 2013, respectively | 1,203,785 | 1,466,504 | ||||||
Total Assets | $ | 1,576,889 | $ | 2,268,327 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Current Liabilities | ||||||||
Accounts Payable - Trade | $ | 239,910 | $ | 326,267 | ||||
Accrued Liabilities | - | 2,500 | ||||||
Dividends Payable | 373,346 | 308,724 | ||||||
Deferred Revenue | 43,388 | 1,024,988 | ||||||
Total Current Liabilities | 656,644 | 1,662,479 | ||||||
Long Term Liabilities | ||||||||
Deferred Revenue | 148,240 | 191,628 | ||||||
Total Liabilities | 804,884 | 1,854,107 | ||||||
Stockholders’ Equity | ||||||||
Series B Preferred Stock, Convertible, 20,625,000 Shares Authorized, | ||||||||
No Shares Outstanding at December 31, 2014 | ||||||||
8,827,500 Issued and Outstanding at December 31, 2013 | - | 677,902 | ||||||
Series C Preferred Stock, Convertible, 20,000,000 Shares Authorized, | ||||||||
6,640,000 Issued and Outstanding December 31, 2014 | ||||||||
2,000,000 Issued and Outstanding December 31, 2013 | 332,000 | 160,000 | ||||||
Common Stock, No Par Value, 300,000,000 Shares Authorized | ||||||||
261,384,810 Shares Issued and Outstanding December 31, 2014 | ||||||||
252,557,310 Shares Issued and Outstanding December 31, 2013 | 27,055,938 | 26,368,892 | ||||||
Accumulated Deficit | (26,615,933 | ) | (26,792,574 | ) | ||||
Total Stockholders’ Equity | 772,005 | 414,220 | ||||||
Total Liabilities and Stockholders’ Equity | $ | 1,576,889 | $ | 2,268,327 |
F-3 |
HEALTH DISCOVERY CORPORATION |
Statements of Operations |
For the Years Ended December 31, 2014 and 2013 |
2014 | 2013 | |||||||
Revenues: | ||||||||
Licensing & Development | $ | 1,032,127 | $ | 1,053,607 | ||||
Operating Expenses: | ||||||||
Amortization | 262,719 | 262,719 | ||||||
Professional and Consulting Fees | 161,600 | 714,701 | ||||||
Legal Fees | 58,950 | 269,961 | ||||||
Research & Development Fees | 99,200 | 115,934 | ||||||
Compensation | 249,475 | 524,144 | ||||||
Other General and Administrative Expenses | 161,735 | 418,221 | ||||||
Total Operating Expenses | 993,679 | 2,305,680 | ||||||
Income (Loss) From Operations | 38,448 | (1,252,073 | ) | |||||
Other Income (Expense) | ||||||||
Unrealized Loss on Available for Sale Securities (Note J) | (199,894 | ) | (288,600 | ) | ||||
Realized Gain on Available for Sale Securities (Note J) | 338,087 | 815,753 | ||||||
Settlement Expense (Note G) | - | (50,000 | ) | |||||
Total Other Income | 138,193 | 477,153 | ||||||
Net Income (Loss) | 176,641 | (774,920 | ) | |||||
Preferred Stock Dividends | 64,622 | 137,256 | ||||||
Net Income (Loss) Attributable to Common Stockholders | $ | 112,019 | $ | (912,176 | ) | |||
Weighted Average Outstanding Shares - basic and diluted | 253,292,935 | 235,494,741 | ||||||
Earnings (Loss) Per Share (basic and diluted) | $ | 0.0004 | $ | (0.0040 | ) |
F-4 |
Preferred Shares C | Preferred Shares B | Common Shares | Preferred Amount C | Preferred Amount B | Common Amount | Accumulated Deficit | Total Stockholders’ Equity | |||||||||||||||||||||||||
Balance – December 31, 2012 | - | 17,340,175 | 233,773,144 | $ | - | $ | 1,307,628 | $ | 25,445,813 | $ | (26,017,654 | ) | $ | 735,787 | ||||||||||||||||||
Series C Preferred Stock Issued | 2,000,000 | - | - | 160,000 | - | - | - | 160,000 | ||||||||||||||||||||||||
Stock-based Compensation Expense for Directors and Consultants | - | - | - | - | - | 124,889 | - | 124,889 | ||||||||||||||||||||||||
Share-based Compensation Expense for Employees | - | - | - | - | - | 30,855 | - | 30,855 | ||||||||||||||||||||||||
Series B Preferred Stock Dividend Paid with Common Stock | - | - | 10,271,491 | - | - | 274,865 | - | 274,865 | ||||||||||||||||||||||||
Series B Preferred Stock Annual Dividend | - | - | - | - | - | (137,256 | ) | - | (137,256 | ) | ||||||||||||||||||||||
Series B Preferred Stock Exchanged for Common Stock | - | (8,512,675 | ) | 8,512,675 | - | (629,726 | ) | 629,726 | - | - | ||||||||||||||||||||||
Net Loss | - | - | - | - | - | - | (774,920 | ) | (774,920 | ) | ||||||||||||||||||||||
Balance - December 31, 2013 | 2,000,000 | 8,827,500 | 252,557,310 | $ | 160,000 | $ | 677,902 | $ | 26,368,892 | (26,792,574 | ) | $ | 414,220 | |||||||||||||||||||
Series C Preferred Stock Issued | 4,640,000 | - | - | 172,000 | - | - | - | 172,000 | ||||||||||||||||||||||||
Stock-based Compensation Expense for Directors and Consultants | - | - | - | - | - | 58,416 | - | 58,416 | ||||||||||||||||||||||||
Share-based Compensation Expense for Employees | - | - | - | - | - | 15,350 | - | 15,350 | ||||||||||||||||||||||||
Series B Preferred Stock Dividend Paid with Common Stock | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Series B Preferred Stock Annual Dividend | - | - | - | - | - | (64,622 | ) | - | (64,622 | ) | ||||||||||||||||||||||
Series B Preferred Stock Exchanged for Common Stock | - | (8,827,500 | ) | 8,827,500 | - | (677,902 | ) | 677,902 | - | - | ||||||||||||||||||||||
Net Income | - | - | - | - | - | - | 176,641 | 176,641 | ||||||||||||||||||||||||
Balance - December 31, 2014 | 6,640,000 | - | 261,384,810 | $ | 332,000 | $ | - | $ | 27,055,938 | $ | (26,615,933 | ) | $ | 772,005 |
F-5 |
HEALTH DISCOVERY CORPORATION |
Statements of Cash Flows |
For the Years Ended December 31, 2014 and 2013 |
2014 | 2013 | |||||||
Cash Flows From Operating Activities | ||||||||
Net Income (Loss) | $ | 176,641 | $ | (774,920 | ) | |||
Adjustments to Reconcile Net Income (Loss) to Net Cash | ||||||||
Used for Operating Activities: | ||||||||
Stock-based Compensation for Employees | 15,350 | 30,855 | ||||||
Stock-based Compensation for Directors and Consultants | 58,416 | 124,889 | ||||||
Realized Gain on Investments in Available for Sale Securities Measured in Accordance with the Fair Value Option (Note J) | (338,087 | ) | (815,753 | ) | ||||
Unrealized Loss on Investments in Available for Sale Securities Measured in Accordance with the Fair Value Option (Note J) | 199,894 | 288,600 | ||||||
Depreciation and Amortization | 267,351 | 270,633 | ||||||
(Decrease) Increase in Accounts Receivable | (1,889 | ) | 10 | |||||
Decrease in Deferred Revenue | (1,024,988 | ) | (1,024,988 | ) | ||||
(Decrease) Increase in Accounts Payable – Trade | (86,357 | ) | 186,476 | |||||
Decrease in Accrued Liabilities | (2,500 | ) | (53,000 | ) | ||||
Net Cash Used for Operating Activities | (736,169 | ) | (1,767,198 | ) | ||||
Cash Flows From Investing Activities: | ||||||||
Proceeds from Sale of Available for Sale Securities (Note J) | 499,820 | 1,519,313 | ||||||
Purchase of Equipment | - | (2,336 | ) | |||||
Net Cash Provided by Investing Activities | 499,820 | 1,516,977 | ||||||
Cash Flows From Financing Activities: | ||||||||
Proceeds from Series C Preferred Stock Issuance | 172,000 | 160,000 | ||||||
Dividends Paid | 0 | (9,212 | ) | |||||
Net Cash Provided by Financing Activities | 172,000 | 150,788 | ||||||
Net Decrease in Cash | (64,349 | ) | (99,433 | ) | ||||
Cash, at Beginning of Period | 71,991 | 171,424 | ||||||
Cash, at End of Period | $ | 7,642 | $ | 71,991 |
F-6 |
F-7 |
F-8 |
Year ended December 31, 2014 | ||||
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 | ||
Diluted: | ||||
Net income attributable to common stockholders | $ | 112,019 | ||
Basic weighted average common shares outstanding | 253,292,935 | |||
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 |
F-9 |
2015 | $ | 43,388 | ||
2016 | 43,388 | |||
2017 | 43,388 | |||
2018 | 43,388 | |||
2019 | 18,076 | |||
Total expected future annual amortization | $ | 191,628 |
2014 | 2013 | |||||||
Cost of Patents | $ | 3,985,794 | $ | 3,985,794 | ||||
Accumulated Amortization | (2,782,009 | ) | (2,519,290 | ) | ||||
Patents, Net of Amortization | $ | 1,203,785 | $ | 1,466,504 |
F-10 |
2014 | 2013 | |||||||
Deferred tax assets: | ||||||||
Net operating losses | $ | 7,877,660 | $ | 7,682,814 | ||||
Deferred revenue | 65,154 | 413,649 | ||||||
Charitable contributions | - | 510 | ||||||
Depreciation and amortization | - | - | ||||||
Stock compensation | 55,991 | 54,655 | ||||||
Deferred tax asset | 7,998,805 | 8,151,628 | ||||||
Deferred tax liabilities: | ||||||||
Depreciation and amortization | (4,007 | ) | (4,007 | ) | ||||
Unrealized gain | (80,956 | ) | (148,920 | ) | ||||
Deferred tax liability | (84,963 | ) | (152,927 | ) | ||||
Net deferred tax asset | 7,913,842 | 7,998,701 | ||||||
Less valuation allowance | (7,913,842 | ) | (7,998,701 | ) | ||||
Net deferred taxes | $ | - | $ | - |
F-11 |
2014 | 2013 | |||||||
Total expense (benefit) computed by: | ||||||||
Applying the U.S. Federal statutory rate | (34 | )% | (34 | )% | ||||
State income taxes, net of federal tax benefit | (3 | )% | (3 | )% | ||||
Valuation allowance | 37 | % | 37 | % | ||||
Effective tax rate | - | - |
F-12 |
Number of Warrants and Options Issued | 2014 | Weighted Average Exercise Price | 2013 | Weighted Average Exercise Price | ||||||||||||
Outstanding beginning of year | 13,500,000 | $ | 0.050 | 12,250,000 | $ | 0.100 | ||||||||||
Granted | 6,640,000 | $ | 0.030 | 17,750,000 | $ | 0.040 | ||||||||||
Exercised | - | $ | - | - | $ | - | ||||||||||
Forfeited | - | $ | - | (8,500,000 | ) | $ | 0.120 | |||||||||
Expired un-exercised | (750,000 | ) | $ | 0.080 | (8,000,000 | ) | $ | 0.080 | ||||||||
Outstanding end of the year | 19,390,000 | $ | 0.034 | 13,500,000 | $ | 0.050 | ||||||||||
Exercisable December 31 | 13,723,335 | $ | 0.034 | 4,750,000 | $ | 0.040 |
Exercise Prices | Number Outstanding | Weighted- Average Remaining Contractual Life (years) | Number Exercisable | Weighted Average Remaining Contractual Life (years) of Exercisable Warrants | |||||||||||||
$0.027 | 3,000,000 | 8.50 | 1,000,000 | 8.50 | |||||||||||||
$0.030 | 6,640,000 | 9.50 | 6,640,000 | 9.50 | |||||||||||||
$0.036 | 7,750,000 | 8.75 | 4,083,335 | 8.75 | |||||||||||||
$0.040 | 1,000,000 | 3.00 | 1,000,000 | 3.00 | |||||||||||||
$0.050 | 1,000,000 | 3.00 | 1,000,000 | 3.00 | |||||||||||||
Total | 19,390,000 | 13,723,335 |
F-13 |
2014 | 2013 | |||||||
Director and consultant option expenses | $ | 58,416 | $ | 124,889 | ||||
Employee option expenses | 15,350 | 30,855 | ||||||
Total stock compensation expenses | $ | 73,766 | $ | 155,744 |
F-14 |
F-15 |
F-16 |