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 September 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 November 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
6,140,000
 
ii
 

 

 
TABLE OF CONTENTS

4
       
 
4
       
   
4
       
   
5
       
   
6
       
   
7
       
 
 12
       
 
18
       
 
Item 4.
18
       
19
       
 
19
       
  Item 1A.
19
       
 
19
       
 
19
       
 
19
       
 
19
       
 
20
       
 
21
 
iii
 

 

 
 
 
HEALTH DISCOVERY CORPORATION
 
(unaudited)
             
   
September 30,
   
December 31,
 
   
2014
   
2013
 
             
Assets            
Current Assets
           
     Cash
  $ 118,854     $ 71,991  
     Accounts Receivable
    -       80  
     Investment in Available For Sale Securities (Note G)
    524,282       724,000  
                 
          Total Current Assets
    643,136       796,071  
                 
Equipment, Less Accumulated Depreciation of $58,860 and $55,133
    2,025       5,752  
                 
Other Assets
               
     Patents, Less Accumulated Amortization of $2,716,329 and $2,519,290
    1,269,465       1,466,504  
                 
          Total Assets
  $ 1,914,626     $ 2,268,327  
                 
Liabilities and Stockholders’ Equity                
                 
Current Liabilities
               
     Accounts Payable - Trade
  $ 322,818     $ 326,267  
     Accrued Liabilities
    -       2,500  
     Dividends Payable - S/T
    361,543       308,724  
     Deferred Revenue
    288,788       1,024,988  
                 
           Total Current Liabilities
    973,149       1,662,479  
                 
Long Term Liabilities
               
     Deferred Revenue
    159,087       191,628  
                 
           Total Liabilities
    1,132,236       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, 20,000,000 Shares Authorized,
               
        6,140,000 Issued and Outstanding September 30, 2014
               
        2,000,000 Issued and Outstanding December 31, 2013
    307,000       160,000  
     Common Stock, No Par Value, 300,000,000 Shares Authorized
               
       252,557,310 Shares Issued and Outstanding September 30, 2014
               
       252,557,310 Shares Issued and Outstanding December 31, 2013
    26,372,218       26,368,892  
     Accumulated Deficit
    (26,574,730 )     (26,792,574 )
                 
     Total Stockholders’ Equity
    782,390       414,220  
                 
     Total Liabilities and Stockholders’ Equity
  $ 1,914,626     $ 2,268,327  
 
See accompanying notes to financial statements.
 
4
 

 

 
HEALTH DISCOVERY CORPORATION
 
(unaudited)
 
For the Three and Nine Months Ended September 30, 2014 and 2013
 
 
   
Three Months
   
Three Months
   
Nine Months
   
Nine Months
 
   
Ended
   
Ended
   
Ended
   
Ended
 
   
September 30,
   
September 30,
   
September 30,
   
September 30,
 
   
2014
   
2013
   
2014
   
2013
 
Revenues:
                       
     Licensing & Development
  $ 256,247     $ 256,523     $ 773,901     $ 797,222  
                                 
Operating Expenses:
                               
     Amortization
    65,679       65,680       197,039       197,040  
     Professional and Consulting Fees
    26,985       82,427       144,700       580,832  
     Legal Fees
    14,792       116,155       49,171       202,111  
     Research & Development Fees
    23,438       33,668       70,763       92,496  
     Compensation
    62,955       92,374       202,311       416,408  
     Other General and Administrative Expenses
    35,562       63,645       129,803       356,513  
        Total Operating Expenses
    229,411       453,949       793,787       1,845,400  
                                 
     Income (Loss) From Operations
    26,836       (197,426 )     (19,886 )     (1,048,178 )
                                 
Other Income (Expense)
                               
     Unrealized Gain (Loss) on Available for Sale Securities   (Note G)
    87,431       (513,059 )     (57,619 )     (318,400 )
     Realized Gain on Available for Sale Securities (Note G)
    192,783       158,470       295,349       689,982  
     Settlement Expense
    -       (50,000 )     -       (50,000 )
        Total Other Income (Expense)
    280,214       (404,589 )     237,730       321,582  
                                 
Net Income (Loss)
  $ 307,050     $ (602,015 )   $ 217,844     $ (726,596 )
                                 
Preferred Stock Dividends
    17,800       34,335       52,820       102,920  
                                 
Earnings (Loss) Attributable to Common Shareholders
  $ 289,250     $ (636,350 )   $ 165,024     $ (829,516 )
                                 
Weighted Average Outstanding Shares - basic
    252,557,310       234,085,644       252,557,310       233,912,033  
                                 
Earnings (Loss) Per Share - basic
  $ 0.001     $ (0.003 )   $ 0.001     $ (0.004 )
                                 
Weighted Average Outstanding Shares - diluted
    252, 557,310       234,085,644       252, 557,310       233,912,033  
                                 
Earnings (Loss) Per Share - diluted
  $ 0.001     $ (0.003 )   $ 0.001     $ (0.004 )
 
See accompanying notes to financial statements.
 
5
 

 

 
HEALTH DISCOVERY CORPORATION
 
(unaudited)
 
For the Nine Months Ended September 30, 2014 and 2013
   
2014
   
2013
 
Cash Flows From Operating Activities
           
Net Income (Loss)
  $ 217,844     $ (726,596 )
Adjustments to Reconcile Net Income (Loss) to Net Cash
               
Used for Operating Activities:
               
        Stock-based Compensation
    11,511       35,863  
        Services Exchanged for Options
    44,634       53,106  
        Realized Gain on Investments in Available for Sale Securities Measured in Accordance with the Fair Value Option (Note G)
    (295,349 )     (689,982 )
        Unrealized Loss on Investments in Available for Sale Securities Measured in Accordance with the Fair Value Option (Note G)
    57,619       318,400  
        Depreciation and Amortization
    200,766       203,386  
        Decrease (Increase) in Accounts Receivable
    80       (56 )
        Decrease in Deferred Revenue
    (768,741 )     (768,741 )
        (Decrease) Increase in Accounts Payable – Trade
    (3,449 )     179,453  
        Decrease in Accrued Liabilities
    (2,500 )     (55,500 )
                Net Cash Used for Operating Activities
    (537,585 )     (1,450,667 )
                 
Cash Flows From Investing Activities:
               
     Proceeds from Sale of Available for Sale Securities (Note G)
    437,448       1,307,741  
 Purchase of Equipment
    -       (2,336 )
                Net Cash Provided by Investing Activities
    437,448       1,305,405  
                 
Cash Flows From Financing Activities:
               
     Proceeds from Series C Preferred Stock Issuance
    147,000       -  
 Dividends Paid
    -       (9,213 )
                Net Cash Provided by (Used for) Financing Activities
    147,000       (9,213 )
                 
Net Increase (Decrease) in Cash
    46,863       (154,475 )
                 
Cash, at Beginning of Period
    71,991       171,424  
                 
Cash, at End of Period
  $ 118,854     $ 16,949  
 
See accompanying notes to financial statements.
 
6
 

 

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 nine months ended September 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 $447,875 as of September 30, 2014.  Unearned revenue of $288,788 is recorded as current and $159,087 is classified as long-term.
 
Note C - NET (LOSS) INCOME 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 for the three and nine month periods ended September 30, 2013 the calculation of diluted per share amounts would create an anti-dilutive result and therefore are not presented in the following table.
 
7
 

 

 
HEALTH DISCOVERY CORPORATION
 
Notes to Financial Statements, continued
 
Note C - NET (LOSS) INCOME PER SHARE, continued
 
The following is an analysis of the basic and diluted earnings per common share computations for the three and nine months ended September 30, 2014:
 
   
Three months ended
September 30, 2014
   
Nine months ended
September 30, 2014
 
Basic:
           
Net income attributable to common shareholders
  $ 289,250     $ 165,024  
Basic weighted average common shares outstanding
    252,557,310       252,557,310  
Basic earnings per common share
  $ 0.001     $ 0.001  
                 
Diluted:
               
Net income attributable to common shareholders
  $ 289,250     $ 165,024  
Basic weighted average common shares outstanding
    252,557,310       252,557,310  
                 
Effect of dilutive securities:
               
Conversion of options and warrants
    -       -  
Conversion of preferred shares to common shares
    -       -  
Diluted weighted average common shares outstanding
    252,557,310       252,557,310  
Diluted earnings per common share
  $ 0.001     $ 0.001  
 
During the three and nine month periods ended September 30, 2014, 18,890,000 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. In addition, for the three and nine month periods ended September 30, 2014, 14,967,500 in convertible preferred stock was not included in the diluted earnings per common share calculation because to do so would have had an antidilutive effect.
 
Note D - STOCK-BASED COMPENSATION AND OTHER EQUITY BASED PAYMENTS
 
Stock-based expense included in our net income for the three months and nine months ended September 30, 2014 consisted of $18,714 and $56,145 respectively for stock options granted to officers and directors.  Stock-based expense included in our net loss for the three months and nine months ended September 30, 2013 consisted of a credit of $3,967 and a charge of $88,969 respectively for stock options granted to officers and directors.  The credit was related to options being forfeited prior to their vesting schedule where expense had been previously recorded.

As of September 30, 2014, there was approximately $138,000 of unrecognized cost related to stock option and warrant grants.  The cost is to be recognized over the remaining vesting periods that average approximately 2.0 years.  

There were no grants or exercises of stock options and warrants for the three months ended September 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 September 30, 2014, there were 18,890,000 option and warrant shares outstanding with a weighted average exercise price of $0.034.
 
8
 

 

 
HEALTH DISCOVERY CORPORATION

Notes to Financial Statements, continued

Note D – STOCK-BASED COMPENSATION AND OTHER EQUITY BASED PAYMENTS, continued


The following schedule summarizes combined stock option and warrant information for the nine months ended September 30, 2014.

   
Option and
 Warrant
Shares
   
Weighted
Average
Exercise Price
 
Outstanding, December 31, 2013
    13,500,000     $ 0.050  
                 
Granted
    6,140,000     $ 0.030  
Exercised
    -       -  
Forfeited
    -       -  
Expired un-exercised
    (750,000 )   $ 0.080  
Outstanding, September 30, 2014
    18,890,000     $ 0.034  

The following schedule summarizes combined stock option and warrant information as of September 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       8.75       1,000,000       8.75  
$0.036
    7,750,000       9.00       3,041,668       9.00  
$0.040
    1,000,000       3.25       1,000,000       3.25  
$0.030
    6,140,000       9.25       6,140,000       9.25  
$0.050
    1,000,000       3.25       1,000,000       3.25  
Total
    18,890,000               12,181,668          

The weighted average remaining life of all outstanding warrants and options at September 30, 2014 is 8.5 years.  As of September 30, 2014, the aggregate net intrinsic value of all options and warrants outstanding is zero, based on the market closing price of $0.02 on September 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 are capitalized as patent assets. The Company has recorded as other assets $1,269,465 in patents and patent related costs, net of $2,716,329 in accumulated amortization, at September 30, 2014. Amortization charged to operations for the three months ended September 30, 2014 and 2013, were $65,679 and $65,680 respectively. Amortization expensed for the nine months ended September 30, 2014 and 2013 were $197,039 and $197,040 respectively. Estimated amortization expense for the next five years is $262,720 per year through 2018 and $152,907 in 2019.
 
9
 

 

 
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 accrues dividends at the rate of 10% of the Series B Original Issue Price per year, which shall be satisfied by the fifth anniversary of the issuance of such shares of the Series B Preferred Stock (the “Original Issue Date”) by the Company’s issuance of the number of shares of Common Stock equal to such accrued dividends divided by the average closing price of the Company’s Common Stock as reported on the Over-the-Counter-Bulletin Board or other exchange on which the Company’s Common Stock trades during the prior ten business days or by the payment of cash, as the Company may determine in its sole discretion. Dividends have been accrued for the Series B Preferred Stock in the amount of $361,543 as of September 30, 2014 and $308,724 as of December 31, 2013. Given the Company’s limited cash position and limited amount of available common stock, the Company is evaluating the best method to satisfy the accrued dividend.

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 September 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 the issuance of Series C Preferred Shares in private placement transactions. As of December 31, 2013 2,000,000 shares had been issued and the Company received net proceeds of $160,000. As of September 30, 2014 the Company had issued a total of 6,140,000 preferred shares and received total net proceeds of $307,000. The Series C Preferred Shares are accompanied by $0.03 warrants and $0.03 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.
 
10
 

 

 
HEALTH DISCOVERY CORPORATION

Notes to Financial Statements, continued
 
Note F – STOCKHOLDERS’ EQUITY, continued

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. If the Company were to be dissolved, the Series C Preferred Stock receives preferential treatment versus Common Stock.

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 September 30, 2014 was a net gain of $237,730 and is classified as other income under the captions Realized and Unrealized Gain (Loss) on Available for Sale Securities in the accompanying statements of operations. The change in fair value from December 31, 2012 to September 30, 2013 was $371,582 and is classified as other income under the captions Realized and Unrealized Gain (Loss) on Available for Sale Securities for the nine months ended September 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 September 30, 2014 fair value of the investment of $524,282 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 September 30, 2014 the Company held 100,630 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

Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
Corporate Overview
 
Our Company is a pattern recognition company that uses advanced mathematical techniques to analyze large amounts of data to uncover patterns that might otherwise be undetectable.  The Company operates primarily in the field of molecular diagnostics where such tools are critical to scientific discovery.  The terms artificial intelligence and machine learning are sometimes used to describe pattern recognition tools.
 
HDC’s mission is to use its patents, intellectual prowess, and clinical partnerships principally to identify patterns that can advance the science of medicine, as well as to advance the effective use of our technology in other diverse business disciplines, including the high-tech, financial, and healthcare technology markets.
 
Our historical foundation lies in the molecular diagnostics field where we have made a number of discoveries that play a 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.  

NeoGenomics License

On January 6, 2012, we entered into a Master License Agreement (the “NeoGenomics License”) with NeoGenomics Laboratories, Inc. (“NeoGenomics Laboratories”), a wholly owned subsidiary of NeoGenomics, Inc. (“NeoGenomics”).  Pursuant to the terms of the NeoGenomics License, we granted to NeoGenomics Laboratories and its affiliates an exclusive worldwide license to certain of our patents and know-how to use, develop and sell products in the fields of laboratory testing, molecular diagnostics, clinical pathology, anatomic pathology and digital image analysis (excluding non-pathology-related radiologic and photographic image analysis) relating to the development, marketing production or sale of any “Laboratory Developed Tests” or LDTs or other products used for diagnosing, ruling out, predicting a response to treatment, and/or monitoring treatment of any or all hematopoietic and solid tumor cancers excluding cancers affecting the retina and breast cancer. We retain all rights to in-vitro diagnostic (IVD) test kit development.
 
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HEALTH DISCOVERY CORPORATION
 
Management’s Discussion and Analysis, continued
 
Upon execution of the NeoGenomics License, NeoGenomics Laboratories paid us $1,000,000 in cash and NeoGenomics issued to us 1,360,000 shares of 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 several of 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 has announced that it has completed Phase II of the prostate test validation, which 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 by patients who want to participate in NeoGenomics’ ongoing clinical trial agreement. NeoGenomics is planning a full launch of this prostate test in 2015.

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.
 
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HEALTH DISCOVERY CORPORATION
 
Management’s Discussion and Analysis, continued
 
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. Earlier this year, 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 several investment groups to advance SVMC’s strategic goals.  

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 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.
 
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HEALTH DISCOVERY CORPORATION
 
Management’s Discussion and Analysis, continued
 
Three Months Ended September 30, 2014 Compared with Three Months Ended September 30, 2013
 
Revenue
 
For the three months ended September 30, 2014, revenue was $256,247 compared with $256,523 for the three months ended September 30, 2013.  The revenue earned during the third quarter of 2014 and 2013 is entirely related to the licensing revenue recognition for the NeoGenomics License.
 
Operating and Other Expenses
 
Amortization expense was approximately $65,680 for both the three months ended September 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 $26,985 for the three months ended September 30, 2014, compared with $82,427 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 and the elimination of certain patent filing and maintenance costs.
 
Legal fees decreased over the three-month period with fees totaling $14,792 during the three months ended September 30, 2014 and $116,155 during the same period in 2013.  The decrease in legal fees is primarily related to matters pertaining to the FTC Demand matter, that occurred in the three-month period ended September 30, 2013 and did not reoccur in the three-month period ended September 30, 2014.
 
Research and development expense was $23,438 for the three months ended September 30, 2014, and $33,668 for the same period in 2013. This expense is associated with our development costs associated with the NeoGenomics relationship.
 
Compensation expense of $62,955 for the three months ended September 30, 2014 was lower than the $92,374 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 $35,562 for the three months ended September 30, 2014, compared to $63,645, for the same period in 2013.  This decrease was due to the reduction of expenses related to travel expenses and a reduction in all non-essential costs by management. 
 
Income (Loss) from Operations
 
The income from operations for the three months ended September 30, 2014 was $26,836, compared to a loss from operations of $197,426 for the three months ended September 30, 2013. Income from operations was reported as a result of lower costs primarily associated with professional and consulting fees, compensation and other general and administrative expenses.
 
Other Income and Expense
 
The Company received a portion of the NeoGenomics license fee in NeoGenomics stock in January 2012.  The Company has chosen to measure the gain or loss on the value of this asset using the fair value option method.  During the three month period ended September 30, 2014, the change in the NeoGenomics stock fair value increased by $280,214, which is recorded as other income in the statements of operations.  During the same three month period in 2013, the change in the NeoGenomics stock fair value decreased by $354,589. Additionally, during the three month period ended September 30, 2013, the Company entered into a settlement agreement with a former CEO, Steve Barnhill, and recognized a $50,000 charge associated with Mr. Barnhill.
 
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HEALTH DISCOVERY CORPORATION
 
Management’s Discussion and Analysis, continued
 
Net Income (Loss)
 
The net income for the three months ended September 30, 2014 was $307,050, compared to a loss of $602,015 for the three months ended September 30, 2013.  The change was due primarily to decreased operating expenses and the change in NeoGenomics stock fair value.
 
The earnings attributable to common shareholders was $289,250 for the three months ended September 30, 2014 compared to a loss of $636,350 in the three months ended September 30, 2013. The change is related to lower expenses related to the Company’s efforts to control costs and the increase in the stock price of NeoGenomics.
 
Basic and diluted earnings per share was $0.001 for the three-month period ended September 30, 2014 compared to a loss per share of $0.003 for the quarterly period ended September 30, 2013.
 
Nine Months Ended September 30, 2014 Compared with Nine Months Ended September 30, 2013
 
Revenue
 
For the nine months ended September 30, 2014, revenue was $773,901 compared with $797,222 for the nine months ended September 30, 2013.  Revenue is recognized for licensing and development fees over the period earned.  The revenue earned is entirely related to the licensing revenue recognition for the NeoGenomics License.
 
Operating and Other Expenses
 
Amortization expense was $197,039 for the nine months ended September 30, 2014 and 197,040 for the nine months ended September 30, 2013. Amortization expense relates primarily to the costs associated with filing patent application and acquiring rights to the patents.
 
Professional and consulting fees were $144,700 for the nine months ended September 30, 2014 compared with $580,832 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 $49,171 during the nine months ended September 30, 2014 compared to $202,111 during the same period in 2013.  The reduction was attributed to legal costs incurred in 2013 related to matters pertaining to the Company’s previous CEO, Steve Barnhill.
 
Research and Development fees were $70,763 for the nine months ended September 30, 2014 and $92,496 for the same period in 2013. This expense for research and development relates primarily to work completed under the NeoGenomics License.
 
Compensation expense of $202,311 for the nine months ended September 30, 2014 was less than the $416,408 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 $129,803 for nine months ended September 30, 2014 compared to $356,513 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. 
 
Loss from Operations
 
The loss from operations for the nine months ended September 30, 2014 was $19,886 compared to $1,048,178 for the period ended September 30, 2013. This reduction in loss from operations was due to lower compensation, professional and consulting fees, and general and administration costs. Furthermore, the Company’s overall disciplined approach to control costs has contributed to the significant reduction in loss from operations.
 
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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.  The Company has chosen to measure the gain or loss on the value of this asset using the fair value option method.  During the nine month period ended September 30, 2014, the NeoGenomics stock fair value increased by $237,730, which is recorded as other income in the statements of operations.  During the same period in 2013, the NeoGenomics stock increased by $371,582. Additionally, during the nine month period ended September 30, 2013, the Company entered into a settlement agreement with a former CEO, Steve Barnhill, and recognized a $50,000 charge associated with Mr. Barnhill.
 
Net Income (Loss)
 
The net income for the nine months ended September 30, 2014 was $217,844 compared to a loss of $726,596 for the nine months ended September 30, 2013.  This reversal from a net loss to net income was due to lower operating expenses and the Company’s efforts to control costs.
 
The net income attributable to common shareholders was $165,024 for the nine months ended September 30, 2014 compared to a loss of $829,516 in the nine months ended September 30, 2013.
 
Basic and diluted earnings per share was $0.001 for the nine month period ended September 30, 2014 compared to a loss per share of $0.004 for the nine month period ended September 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 September 30, 2014, the Company had $118,854 in cash and total current liabilities of $973,149.  The primary amount of current liabilities relates to $361,543 in dividends payable. 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.

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 September 2015. The Company continues to explore various means to raise capital, either via debt or equity offerings
 
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HEALTH DISCOVERY CORPORATION
 
Management’s Discussion and Analysis, continued
 
Off-Balance Sheet Arrangements
 
The Company has no off-balance sheet arrangements that provide financing, liquidity, market or credit risk support or involve leasing, hedging or research and development services for our business or other similar arrangements that may expose us to liability that is not expressly reflected in the financial statements.
 
Forward-Looking Statements
 
This Report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 12E of the Securities Exchange Act of 1934, including or related to our future results, certain projections and business trends. Assumptions relating to forward-looking statements involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. When used in this Report, the words “estimate,” “project,” “intend,” “believe,” “expect” and similar expressions are intended to identify forward-looking statements. Although we believe that assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate, and we may not realize the results contemplated by the forward-looking statement. Management decisions are subjective in many respects and susceptible to interpretations and periodic revisions based on actual experience and business developments, the impact of which may cause us to alter our business strategy or capital expenditure plans that may, in turn, affect our results of operations. In light of the significant uncertainties inherent in the forward-looking information included in this Report, you should not regard the inclusion of such information as our representation that we will achieve any strategy, objective or other plans. The forward-looking statements contained in this Report speak only as of the date of this Report as stated on the front cover, and we have no obligation to update publicly or revise any of these forward-looking statements. These and other statements, which are not historical facts, are based largely on management’s current expectations and assumptions and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those contemplated by such forward-looking statements. These risks and uncertainties include, among others, the failure to successfully develop a profitable business, delays in identifying customers, and the inability to retain a significant number of customers, as well as the risks and uncertainties described in “Risk Factors” section to our Annual Report for the fiscal year ended December 31, 2013.
 
Item 3.   Quantitative and Qualitative Disclosures about Market Risk
 
Not Applicable.
 
Item 4.   Controls and Procedures
 
As of the end of the period covered by this report (the “Evaluation Date”), we carried out an evaluation regarding the fiscal quarter ended September 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.
 
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HEALTH DISCOVERY CORPORATION

The Company’s management is also responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  As of the Evaluation Date, no changes in the Company’s internal control over financial reporting occurred that have materially affected or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Our Annual Report on Form 10-K contains information regarding a material weakness in our internal control over financial reporting as of December 31, 2013 due to an inadequate segregation of duties resulting from our small number of employees.
 
 
Item 1.    Legal Proceedings
 
 None.

Item 1A. Risk Factors
 
In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 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 September 30, 2014, the Company had $118,854 in cash and cash equivalents and total current liabilities of $973,149.  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.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds
 
 None.

Item 3.    Defaults upon Senior Securities
 
 Not applicable.

Item 4. Mine Safety Disclosures

 Not applicable.

Item 5.    Other Information
 None.

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HEALTH DISCOVERY CORPORATION

Item 6.    Exhibits
 
The following exhibits are attached hereto or incorporated by reference herein (numbered to correspond to Item 601(a) of Regulation S-K, as promulgated by the Securities and Exchange Commission) and are filed as part of this Form 10-Q:
 
3.1
Articles of Incorporation. Registrant incorporates by reference Exhibit 3.1 to Form 8-K filed July 18, 2007.
 
3.1(a)
Articles of Amendment to Articles of Incorporation.  Registrant incorporates by reference Exhibit 99.1 to Form 8-K filed October 10, 2007.
 
 
3.1(b)
Articles of Amendment to Articles of Incorporation.  Registrant incorporates by reference Exhibit 3.1(b) to Form 10-K filed March 31, 2009.
 
 
3.1(c)
Amended and Restated Articles of Amendment to Articles of Incorporation.  Registrant incorporates by reference Exhibit 3.1 to Form 10-Q filed November 16, 2009.
 
3.1(d)
Amended and Restated Articles of Amendment to Articles of Incorporation dated November 14, 2014.  Filed herewith.
 
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: November 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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EXHIBIT 3.1 (d)

AMENDED AND RESTATED
ARTICLES OF AMENDMENT TO
ARTICLES OF INCORPORATION
OF HEALTH DISCOVERY
CORPORATION
 
 
1.
The name of the corporation is Health Discovery Corporation.

 
2.
The Articles of Incorporation of Health Discovery Corporation are hereby amended to insert a new Section 2C – Series C Preferred Stock, as follows:


Section 2C. Series C Preferred Stock

1.
Designation.
 
The shares of such series shall be designated as Series C Preferred Stock (the “Series C Preferred Stock”) and the number of shares constituting the Series C Preferred Stock shall be 20,000,000.

2.
Dividend Rights.
 
The holders of Series C Preferred Stock (“Series C Holders”) will share pari passu with the holders of common stock (“Common Stock”) in dividends payable to shareholders.

3.
Voting Rights.
 
Each share of Series C Preferred Stock shall be entitled to vote on all matters submitted to a vote of the shareholders of the Corporation and each share shall have a number of votes equal to the same number of shares of Common Stock into which it is then convertible. Except as otherwise provided herein, in any other amendment to the Articles of Incorporation of the Corporation creating a series of Preferred Stock or any similar stock, or by law, the holders of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Common Stock and any other capital stock of the Corporation having general voting rights shall vote together as one class on all matters submitted to a vote of shareholders of the Corporation.

4.
Liquidation Rights.
 
(a)           Payments to Holders of Series C Preferred Stock. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, subsequent to the payment of the Series A Liquidation Amount to the Series A Holders, the holders of shares of Series C Preferred Stock then outstanding shall be entitled to be paid out of the assets available for distribution to its shareholders (on a pari passu basis with the holders of Series B Preferred Stock or any other class or series of stock ranking on liquidation on a parity with the Series C Preferred Stock), and before any payment shall be made to the holders of Common Stock or any other class or series of stock ranking on liquidation junior to the Series C Preferred Stock (such Common Stock and other stock being collectively referred to as “Junior Stock”) by reason of their ownership thereof, an amount equal to the greater of (i) $0.05 per share (the “Series C Original Issue Price”) or (ii) such amount per share as would have been payable had each such share been converted into Common Stock pursuant to Section 5 immediately prior to such liquidation, dissolution or winding up (the amount payable pursuant to this sentence is hereinafter referred to as the “Series C Liquidation Amount”). If upon any such liquidation, dissolution or winding up of the Corporation the remaining assets available for distribution to its shareholders shall be insufficient to pay the holders of shares of Series C Preferred Stock and any class or series of stock ranking on liquidation on a parity with the Series C Preferred Stock the full aforesaid preferential amount to which they shall be entitled, the holders of shares of Series C Preferred Stock and any class or series of stock ranking on liquidation on a parity with the Series C Preferred Stock shall share ratably in any distribution of the remaining assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full.
 
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(b)          Payments to Holders of Junior Stock. After the payment of all preferential amounts required to be paid to the Series C Holders and any other class or series of stock of the Corporation ranking on liquidation senior to or on a parity with the Series C Preferred Stock, the holders of shares of Junior Stock then outstanding shall be entitled to receive the remaining assets of the Corporation available for distribution to its shareholders as otherwise set forth in this Articles of Incorporation.

(c)          Deemed Liquidation Events.

(i)     The following events shall be deemed to be a liquidation of the Corporation for purposes of this Section 4 (a “Deemed Liquidation Event”), unless the holders of a majority of the Series C Preferred Stock elect otherwise by written notice given to the Corporation at least five (5) days prior to the effective date of any such event:

(A)    a merger, consolidation or share exchange in which

(1)     the Corporation is a constituent party, or

(2)     a subsidiary of the Corporation is a constituent party and the Corporation issues shares of its capital stock pursuant to such merger, consolidation or share exchange, except any such merger, consolidation or share exchange involving the Corporation or a subsidiary in which the shares of capital stock of the Corporation outstanding immediately prior to such merger, consolidation or share exchange continue to represent, or are converted or exchanged for shares of capital stock which represent, immediately following such merger, consolidation or share exchange at least a majority, by voting power, of the capital stock of (1) the surviving or resulting corporation or (2) if the surviving or resulting corporation is a wholly owned subsidiary of another corporation immediately following such merger, consolidation or share exchange, the parent corporation of such surviving or resulting corporation (provided that, for the purpose of this Subsection 4(c)(i), all shares of Common Stock issuable upon exercise of options outstanding immediately prior to such merger, consolidation or share exchange or upon conversion of any securities convertible into Common Stock outstanding immediately prior to such merger, consolidation or share exchange shall be deemed to be outstanding immediately prior to such merger, consolidation or share exchange and, if applicable, converted or exchanged in such merger, consolidation or share exchange on the same terms as the actual outstanding shares of Common Stock are converted or exchanged); or
 
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(B)    the sale, lease, transfer or other disposition, in a single transaction or series of related transactions, by the Corporation or any subsidiary of the Corporation of all or substantially all the assets of the Corporation and its subsidiaries taken as a whole, except where such sale, lease, transfer or other disposition is to a wholly owned subsidiary of the Corporation.

(ii)     The Corporation shall not have the power to effect any transaction constituting a Deemed Liquidation Event pursuant to Subsection 4(c)(i)(A)(I) above unless the agreement or plan of merger, consolidation or share exchange provides that the consideration payable to the shareholders of the Corporation shall be allocated among the holders of capital stock of the Corporation in accordance with Subsections 4(a) and 4(b) above.

(iii)    In the event of a Deemed Liquidation Event pursuant to Subsection 4(c)(i)(A)(II) or (B) above, if the Corporation does not effect a dissolution of the Corporation under the Georgia Business Corporation Code within 60 days after such Deemed Liquidation Event, then (A) the Corporation shall deliver a written notice to each Series C Holder no later than the 60th day after the Deemed Liquidation Event advising such holders of their right (and the requirements to be met to secure such right) pursuant to the terms of the following clause (B) to require the redemption of such shares of Series C Preferred Stock, and (B) if the holders of at least a majority of the then outstanding shares of Series C Preferred Stock so request in a written instrument delivered to the Corporation not later than 75 days after such Deemed Liquidation Event, the Corporation shall use the consideration received by the Corporation for such Deemed Liquidation Event (net of any retained liabilities associated with the assets sold or technology licensed, as determined in good faith by the Board of Directors of the Corporation) (the “Net Proceeds”) to redeem, to the extent legally available therefor, on the 90th day after such Deemed Liquidation Event (the “Liquidation Redemption Date”), all outstanding shares of Series C Preferred Stock at a price per share equal to the Series C Liquidation Amount. In the event of a redemption pursuant to the preceding sentence, if the Net Proceeds are not sufficient to redeem all outstanding shares of Series C Preferred Stock, or if the Corporation does not have sufficient lawfully available funds to effect such redemption, the Corporation shall redeem a pro rata portion of each holder’s shares of Series C Preferred Stock to the fullest extent of such Net Proceeds or such lawfully available funds, as the case may be, and, where such redemption is limited by the amount of lawfully available funds, the Corporation shall redeem the remaining shares to have been redeemed as soon as practicable after the Corporation has funds legally available therefor. Prior to the distribution or conversion provided for in this Subsection 4(c)(iii), the Corporation shall not expend or dissipate the consideration received for such Deemed Liquidation Event, except to discharge expenses incurred in the ordinary course of business.
 
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(iv)   The amount deemed paid or distributed to the holders of capital stock of the Corporation upon any such merger, consolidation, sale, transfer, other disposition or redemption shall be the cash or the value of the property, rights or securities paid or distributed to such holders by the Corporation or the acquiring person, firm or other entity. The value of such property, rights or securities shall be determined in good faith by the Board of Directors of the Corporation.

5.
Optional Conversion Rights.
 
(a) The holders of the Series C Preferred Stock shall have conversion rights as follows (the “Conversion Rights”):

 
(i)
Right to Convert. Each share of Series C Preferred Stock shall be convertible, at the option of the holder thereof, so long as there are a sufficient number of unissued and unreserved shares of Common Stock outstanding to allow for the exercise of all of the Corporation’s outstanding derivative securities, the Series A Preferred Stock, the Series B Preferred Stock, and the Series C Preferred Stock, and without the payment of additional consideration by the holder thereof, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing $0.05 by the Series C Conversion Price (as defined below) in effect at the time of conversion. The “Series C Conversion Price” shall initially be equal to the Series C Original Issue Price. Such initial Series C Conversion Price, and the rate at which shares of Series C Preferred Stock may be converted into shares of Common Stock, shall be subject to adjustment as provided below. In the event of a liquidation, dissolution or winding up of the Corporation or a Deemed Liquidation Event, the Conversion Rights shall terminate at the close of business on the last full day preceding the date fixed for the payment of any such amounts distributable on such event to the holders of Series C Preferred Stock.
 
(ii)           Mechanics of Optional Conversion.

(A)   In order for a holder of Series C Preferred Stock to voluntarily convert shares of Series C Preferred Stock into shares of Common Stock, such holder shall surrender the certificate or certificates for such shares of Series C Preferred Stock (or, if such registered holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate), at the office of the transfer agent for the Series C Preferred Stock (or at the principal office of the Corporation if the Corporation serves as its own transfer agent), together with written notice that such holder elects to convert all or any number of the shares of the Series C Preferred Stock represented by such certificate or certificates and, if applicable, any event on which such conversion is contingent. Such notice shall state such holder’s name or the names of the nominees in which such holder wishes the certificate or certificates for shares of Common Stock to be issued. If required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by a written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or his, her or its attorney duly authorized in writing. The close of business on the date of receipt by the transfer agent of such certificates (or lost certificate affidavit and agreement) and notice (or by the Corporation if the Corporation serves as its own transfer agent) shall be the time of conversion (the “Conversion Time”), and the shares of Common Stock issuable upon conversion of the shares represented by such certificate shall be deemed to be outstanding of record as of such date. The Corporation shall, as soon as practicable after the Conversion Time, issue and deliver at such office to such holder of Series C Preferred Stock, or to his, her or its nominees, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled, together with cash in lieu of any fraction of a share.
 
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(B)    All shares of Series C Preferred Stock which shall have been surrendered for conversion as herein provided shall no longer be deemed to be outstanding and all rights with respect to such shares, including the rights, if any, to receive notices and to vote, shall immediately cease and terminate at the Conversion Time, except only the right of the holders thereof to receive shares of Common Stock in exchange therefor and to receive payment of any dividends declared but unpaid thereon. Any shares of Series C Preferred Stock so converted shall be retired and cancelled and shall not be reissued as shares of such series, and the Corporation (without the need for shareholder action) may from time to time take such appropriate action as may be necessary to reduce the authorized number of shares of Series C Preferred Stock accordingly.

(C)    Upon any such conversion, no adjustment to the Series C Conversion Price shall be made for any declared but unpaid dividends on the Series C Preferred Stock surrendered for conversion or on the Common Stock delivered upon conversion.

(b)         Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of the Series C Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the fair market value of a share of Common Stock as determined in good faith by the Board of Directors of the Corporation. Whether or not fractional shares would be issuable upon such conversion shall be determined on the basis of the total number of shares of Series C Preferred Stock the holder is at the time converting into Common Stock and the aggregate number of shares of Common Stock issuable upon such conversion.

(c)         Adjustment for Stock Splits and Combinations. If the Corporation shall at any time or from time to time after the date that the first share of Series C Preferred Stock is issued (the “Original Series C Issue Date”) effect a subdivision of the outstanding Common Stock, the Series C Conversion Price in effect immediately before that subdivision shall be proportionately decreased. Conversely, if the Corporation shall at any time or from time to time after the Original Series C Issue Date combine the outstanding shares of Common Stock into a smaller number of shares, the Series C Conversion Price in effect immediately before the combination shall be proportionately increased. Any adjustment under this Section 5(c) shall become effective at the close of business on the date the subdivision or combination becomes effective.
 
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(d)         Adjustment for Common Stock Dividends and Distributions. If the Corporation at any time or from time to time after the Original Series C Issue Date makes, or fixes a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution to holders of Common Stock payable in additional shares of Common Stock, in each such event the Series C Conversion Price that is then in effect shall be decreased as of the time of such issuance or, in the event such record date is fixed, as of the close of business on such record date, by multiplying the Series C Conversion Price then in effect by a fraction (1) the numerator of which is the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and (2) the denominator of which is the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution; provided, however, that if such record date is fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Series C Conversion Price shall be recomputed accordingly as of the close of business on such record date and thereafter the Series C Conversion Price shall be adjusted pursuant to this Section 5(d) to reflect the actual payment of such dividend or distribution.

(e)          Adjustment for Reclassification, Exchange and Substitution. If at any time or from time to time after the Original Series C Issue Date, the Common Stock issuable upon the conversion of the Series C Preferred Stock is changed into the same or a different number of shares of any class or classes of stock, whether by recapitalization, reclassification or otherwise (other than a subdivision or combination of shares or stock dividend or a reorganization, merger, consolidation or sale of assets provided for elsewhere in this Section 5), in any such event each holder of Series C Preferred Stock shall have the right thereafter to convert such stock into the kind and amount of stock and other securities and property receivable in connection with such recapitalization, reclassification or other change with respect to the maximum number of shares of Common Stock into which such shares of Series C Preferred Stock could have been converted immediately prior to such recapitalization, reclassification or change, all subject to further adjustments as provided herein or with respect to such other securities or property by the terms thereof.

(f)           Reorganizations, Mergers, Consolidations or Sales of Assets. If at any time or from time to time after the Original Series C Issue Date, there is a capital reorganization of the Common Stock (other than a recapitalization, subdivision, combination, reclassification, exchange or substitution of shares provided for elsewhere in this Section 5), as a part of such capital reorganization, provision shall be made so that the holders of the Series C Preferred Stock shall thereafter be entitled to receive upon conversion of the Series C Preferred Stock the number of shares of stock or other securities or property of the Corporation to which a holder of the maximum number of shares of Common Stock deliverable upon conversion would have been entitled in connection with such capital reorganization, subject to adjustment in respect of such stock or securities by the terms thereof. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 5 with respect to the rights of the holders of Series C Preferred Stock after the capital reorganization to the end that the provisions of this Section 5 (including adjustment of the Series C Conversion Price then in effect and the number of shares issuable upon conversion of the Series C Preferred Stock) shall be applicable after that event and be as nearly equivalent as practicable.
 
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(g)         Certificate of Adjustment. In each case of an adjustment or readjustment of the Series C Conversion Price for the number of shares of Common Stock or other securities issuable upon conversion of the Series C Preferred Stock, the Corporation, at its expense, shall compute such adjustment or readjustment in accordance with the provisions hereof and prepare a certificate showing such adjustment or readjustment, and shall mail such certificate, by first class mail, postage prepaid, to each registered holder of Series C Preferred Stock at the holder’s address as shown in the Corporation’s books. The certificate shall set forth such adjustment or readjustment, showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (1) the consideration received or deemed to be received by the Corporation for any additional shares of Common Stock issued or sold or deemed to have been issued or sold, (2) the Series C Conversion Price at the time in effect, (3) the number of additional shares of Common Stock issued or sold or deemed to have been issued or sold, and (4) the type and amount, if any, of other property which at the time would be received upon conversion of the Series C Preferred Stock.

(h)         Notices of Record Date. Upon (i) any taking by the Corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, or (ii) any voluntary or involuntary dissolution, liquidation or winding up of the Corporation, any Deemed Liquidation Event, or any redemption, the Corporation shall mail to each holder of Series C Preferred Stock at least ten (10) days prior to the record date specified therein a notice specifying (1) the date on which any such record is to be taken for the purpose of such dividend or distribution and a description of such dividend or distribution, (2) the date on which any such voluntary or involuntary dissolution, liquidation or winding up, Deemed Liquidation Event, or redemption is expected to become effective, and (3) the date, if any, that is to be fixed for determining the holders of record of Common Stock (or other securities) that shall be entitled to exchange their shares of Common Stock (or other securities) for securities or other property deliverable upon such voluntary or involuntary dissolution, liquidation or winding up, Deemed Liquidation Event, or redemption.

6.
Mandatory Conversion.
 
(a)          Subject to and in compliance with the provisions of Section 5 and this Section 6, at the election of the Corporation at any time on or after the fifth anniversary of the Series C Original Issue Date each share of Series C Preferred Stock will be converted into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing $0.05 by the Series C Conversion Price in effect at the time of conversion. No payment of additional consideration by the holder thereof shall be required upon such conversion.

(b)         All holders of record of shares of Series C Preferred Stock shall be given written notice of the mandatory conversion and the place designated for mandatory conversion of all such shares of Series C Preferred Stock pursuant to this Section 6. Such notice need not be given in advance. Such notice shall be sent by first class or registered mail, postage prepaid, or given by electronic communication in compliance with the provisions of the Georgia Business Corporation Code, to each record holder of Series C Preferred Stock. Upon receipt of such notice, each holder of shares of Series C Preferred Stock shall surrender his, her or its certificate or certificates for all such shares to the Corporation at the place designated in such notice, and shall thereafter receive certificates for the number of shares of Common Stock to which such holder is entitled pursuant to this Section 6(b). Upon such conversion, all outstanding shares of Series C Preferred Stock shall be deemed to have been converted into shares of Common Stock, which shall be deemed to be outstanding of record, and all rights with respect to the Series C Preferred Stock so converted, including the rights, if any, to receive notices and vote (other than as a holder of Common Stock) will terminate, except only the rights of the holders thereof, upon surrender of their certificate or certificates therefore, to receive certificates for the number of shares of Common Stock into which such Series C Preferred Stock has been converted, and payment of any declared but unpaid dividends thereon. If so required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or by his, her or its attorney duly authorized in writing. As soon as practicable after the mandatory conversion and the surrender of the certificate or certificates for Series C Preferred Stock, the Corporation shall cause to be issued and delivered to such holder, or on his, her or its written order, a certificate or certificates for the number of full shares of Common Stock issuable on such conversion in accordance with the provisions hereof and cash as provided in Subsection 5(b) in respect to any fraction of a share of Common Stock otherwise issuable upon such conversion.
 
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(c)         All certificates evidencing shares of Series C Preferred Stock which are required to be surrendered for conversion in accordance with the provisions hereof shall, from and after the mandatory conversion, be deemed to have been retired and cancelled and the shares of Series C Preferred Stock represented thereby converted into Common Stock for all purposes, notwithstanding the failure of the holder or holders thereof to surrender such certificates on or prior to such date. Such converted Series C Preferred Stock may not be reissued as shares of such Series, and the Corporation may thereafter take appropriate action (without the need for shareholder action) as may be necessary to reduce the authorized number of shares of Series C Preferred Stock accordingly.

7.
Ranking.
 
(a)         With respect to dividend rights, the Series C Preferred Stock shall rank junior to the Series A Preferred Stock and Series B Preferred Stock, and pari passu with the holders of Common Stock.

(b)        With respect to distribution of assets on liquidation, dissolution, or winding up of the Corporation, the Series C Preferred Stock shall rank junior to the Series A Preferred Stock, pari passu with the Series B Preferred Stock, and senior to any other stock of the Corporation, including Common Stock.

8.
General Provisions.
 
(a)         Registration of Transfer. The Corporation shall keep at its principal office a register for the registration of the Series C Preferred Stock. Upon the surrender of any certificate representing Series C Preferred Stock at such place, the Corporation shall, at the request of the record holder of such certificate, execute and deliver (at the Corporation’s expense) a new certificate or certificates in exchange therefor representing in the aggregate the number of shares represented by the surrendered certificate. Each such new certificate shall be registered in such name and shall represent such number of shares as is requested by the holder of the surrendered certificate and shall be substantially identical in form to the surrendered certificate.

(b)         Replacement. Upon receipt of evidence reasonably satisfactory to the Corporation of the ownership and the loss, theft, destruction or mutilation of any certificate evidencing shares of Series C Preferred Stock, and in the case of any such loss, theft or destruction, upon receipt of indemnity reasonably satisfactory to the Corporation (provided that if the holder is a financial institution or other institutional investor its own agreement shall be satisfactory), or in the case of any such mutilation upon surrender of such certificate, the Corporation shall (at its expense) execute and deliver in lieu of such certificate a new certificate of like kind representing the number of shares of such class represented by such lost, stolen, destroyed or mutilated certificate and dated the date of such lost, stolen, destroyed or mutilated certificate.
 
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(c) Notices. Any notice required by the provisions of this Article shall be in writing and shall be deemed effectively given: (i) upon personal delivery to the party to be notified, (ii) when sent by confirmed telex or facsimile if sent during normal business hours of the recipient; if not, then on the next business day, (iii) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (iv) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All notices to shareholders shall be addressed to each holder of record at the address of such holder appearing on the books of the Corporation.

(d)         No Dilution or Impairment. The Corporation shall not amend the Articles of Incorporation or participate in any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, for the purpose of avoiding or seeking to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation.

(e)         No Reissuance of Series C Preferred Stock. Any shares of Series C Preferred Stock which is redeemed or otherwise acquired (by purchase or otherwise) by the Corporation will be canceled and not be reissued, sold or transferred.

(f)          Stock to be Issued Upon Conversion. The Corporation covenants that all shares of Common Stock which shall be so issued shall be duly and validly issued and fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof, and, without limiting the generality of the foregoing, the Corporation covenants that it will from time to time take all such action as may be requisite to assure that the par value per share of the Common Stock is at all times equal to or less than the lowest applicable Series C Conversion Price in effect at the time. The Corporation will take all such action as may be necessary to assure that all such shares of Common Stock may be so issued without violation of any applicable law or regulation, or of any requirement of any national securities exchange upon which the Common Stock may be listed.

(g)         Issue Tax. The issuance of certificates for shares of Common Stock upon conversion of Series C Preferred Stock shall be made without charge to the holders thereof for any issuance tax in respect thereof, provided that the Corporation shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the holder of Series C Preferred Stock that is being converted, in which case no such issuance or delivery shall be made unless and until the person or entity requesting such issuance has paid to the Corporation the amount of any such tax or has established, to the satisfaction of the Corporation, that such tax has been paid.

3.           These Amended and Restated Articles of Amendment were adopted by the Board of Directors of the Corporation on July 11, 2014.

4.           Pursuant to authority vested in the Board of Directors of the Corporation by its Articles of Incorporation and pursuant to the provisions of Section 14-2-602 of the Georgia Business Corporation Code, the Board of Directors of the Corporation adopted these Amended and Restated Articles of Amendment.
 
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IN WITNESS WHEREOF, the Corporation has caused these Amended and Restated Articles of Amendment to be executed by its duly authorized officer this 14th day of  November, 2014.
         
 
HEALTH DISCOVERY CORPORATION
         
    By: ­/s/ Kevin Kowbel  
      KEVIN KOWBEL
      Chairman of the Board of Directors
 
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EXHIBIT 31.1

CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Kevin Kowbel, certify that:

1.             I have reviewed this quarterly report on Form 10-Q of Health Discovery Corporation (the “Registrant”);

2.             Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.             Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4.             As the Registrant’s sole certifying officer. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f)) for the Registrant and have:

a)           designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;

b)           designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed under my supervision, 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;

c)           evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)           disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting;

5.             The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent functions):

e)           all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

f)           any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
 
   
Date: November 14, 2014
/s/ Kevin Kowbel  
  Kevin Kowbel  
  Interim Chief Executive Officer, Principal Financial Officer and Principal Accounting Officer  

 

 




EXHIBIT 32.1

CERTIFICATIONS PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
The undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that this Quarterly Report on Form 10-Q for the period ended September 30, 2014 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
Date: November 14, 2014
/s/ Kevin Kowbel
 
 
Kevin Kowbel
 
 
Interim Chief Executive Officer, Principal Financial Officer, and Principal Accounting Officer
 
 
 

 

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