HEALTH DISCOVERY CORP - Quarter Report: 2011 June (Form 10-Q)

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FORM 10-Q

 

x	QUARTERLY REPORT  PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2011
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.)
2 East Bryan Street Suite 610 Savannah, Georgia 31401 (Address of principal executive offices)
912-443-1987 (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 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):

 

 

 

 

Class:	Outstanding as of August 15, 2011
Common Stock, no par value	230,725,747
Series A Preferred Stock	0
Series B Preferred Stock	17,527,675

 

 

 

Assets
		June 30,				December 31,
		2011				2010
		(unaudited)
Current Assets
Cash		$	2,108,372			$	3,295,630
Accounts Receivable			-				334,988
Prepaid Expenses and Other Assets			84,355				172,034
Total Current Assets		$	2,192,727			$	3,802,652
Equipment, Less Accumulated Depreciation of $32,018 and $27,397			22,652				23,475
Other Assets
Deferred Charges			48,252				51,740
Patents, Less Accumulated Amortization of $1,862,492 and $1,731,132			2,123,302				2,254,662
Total Assets		$	4,386,933			$	6,132,529
Liabilities and Stockholders' Equity
Current Liabilities
Accounts Payable – Trade (Note H)		$	178,186			$	820,126
Accrued Liabilities			38,025				122,152
Dividends Payable – Special			21,245				22,760
Deferred Revenue			114,035				114,035
Total Current Liabilities		$	351,491			$	1,079,073
Long Term Liabilities
Deferred Revenue			774,846				831,863
Dividends Payable			248,504				189,819
Total Liabilities		$	1,374,841			$	2,100,755
Stockholders' Equity
Series B Preferred Stock, Convertible 20,625,000 Shares Authorized, 17,527,675 Issued and Outstanding		$	1,490,015			$	1,490,015
Common Stock, No Par Value, 300,000,000 Shares Authorized 230,725,747 Shares Issued and Outstanding June 30, 2011 229,475,747 Shares Issued and Outstanding December 31, 2010			25,594,834				25,593,728
Accumulated Deficit			(24,072,757	)			(23,051,969	)
Total Stockholders' Equity		$	3,012,092			$	4,031,774
Total Liabilities and Stockholders' Equity		$	4,386,933			$	6,132,529

 

 

 

 

		Six Months				Six Months
		Ended				Ended
		June 30, 2011				June 30, 2010
Cash Flows From Operating Activities
Net Loss		$	(1,020,788	)		$	(3,868,361	)
Adjustments to Reconcile Net Loss to Net Cash Used for Operating Activities:
Stock-based Compensation			-				13,876
Services Exchanged for Warrants and Options			74,777				68,449
Gain on Payables Restructuring (NoteH)			(483,658	)			-
(Increase) Decrease in Deferred Charges			3,488				(44,892	)
Depreciation and Amortization			135,981				135,398
(Increase) Decrease in Accounts Receivable			334,988				(86,482	)
(Increase) Decrease in Recoverable Development Costs			96,249				(13,388	)
Decrease in Interest Receivable			-				34
Increase (Decrease) in Deferred Revenue			(57,017	)			458,980
Increasein Prepaid Expenses and Other Assets			(8,569	)			(84,544	)
Increase (Decrease) in Accounts Payable – Trade			(158,283	)			68,908
Increase (Decrease) in Accrued Liabilities			(84,127	)			1,931,668
Net Cash Used for Operating Activities			(1,166,959	)			(1,420,354	)
Cash Flows From Investing Activities:
Purchase of Certificates of Deposit			-				(1,379,606	)
Purchase of Equipment			(3,798	)			(5,164	)
Net Cash Used for Investing Activities			(3,798	)			(1,384,770	)
Cash Flows From Financing Activities:
Proceeds from the Exercise of Warrants			-				3,039,522
Dividends Paid			(16,501	)			(99,164	)
Net Cash Provided by Financing Activities			(16,501	)			2,940,358
Net Increase (Decrease) in Cash			(1,187,258	)			135,234
Cash, at Beginning of Period			3,295,630				2,328,912
Cash, at End of Period		$	2,108,372			$	2,464,146
Supplemental Disclosures of Cash Flow Information:
Cash Paid for Interest		$	-			$	159

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2010			Option and Warrant Shares				Weighted Average Exercise Price
Outstanding, January 1, 2010				100,615,177			$	0.16
Granted				21,875,000			$	0.22
Exchanged				(32,527,776	)		$	0.17
Exercised				(34,387,903	)		$	0.17
Expired un-exercised				(18,949,498	)		$	0.18
Outstanding, December 31, 2010				36,625,000			$	0.16
2011
Granted				4,000,000			$	0.12
Exercised				--				--
Forfeited				(1,000,000	)		$	0.15
Outstanding, June 30, 2011				39,625,000			$	0.15

 

Exercise Prices				Number Outstanding				Weighted- Average Remaining  Contractual Life (years)				Number Exercisable				Weighted Average Remaining Contractual Life (years) of Exercisable Warrants and Options
$	0.08				12,250,000				3.50				12,250,000				3.50
$	0.13				2,500,000				.50				2,500,000				.50
$	0.12				4,000,000				4.50				-				-
$	0.17				6,875,000				1.00				6,875,000				1.00
$	0.19				2,500,000				9.50				2,500,000				9.50
$	0.25				10,000,000				1.50				10,000,000				1.50
$	0.26				1,500,000				3.50				500,000				3.50
Total					39,625,000								34,625,000

 

 

 

Amortization charged to operations for the three and six months ended June 30, 2011, and 2010were $65,680 and $131,360 respectively. Estimated amortization expense for the next five years is $262,720 per year.

 

 

 

 

 

 

 

 

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.

 

 

 

 

 

 

 

SVM Capital, LLC was formed as a joint venture between HDC and Atlantic Alpha Strategies, LLC (“Atlantic Alpha”) to explore and exploit the potential applicability of our SVM technology to quantitative investment management techniques.  Atlantic Alpha’s management has over thirty years of experience in commodity and futures trading.   Atlantic Alpha reports that the SVM technology is now working well with dynamic time series for S&P data accumulated over the past fifty-eight years as well as a limited pilot program of real-time trading activity, and that the latest SVM-derived models generated by SVM Capital have successfully outperformed the static buy-and-hold model both in increased returns as well as in reduced risk.  After more than 2 years of successful live trading, Atlantic Alpha has now deployed the SVM K-2 model to over 30 securities.  These include nation ETF’s, large cap equities and commodities.  Atlantic Alpha is now exclusively trading SVM’s K-2 model and will begin offering this technology to the public via a new fund which began trading in January 2011.  Research on the K-3 model is underway.  The K-3 model will add a “context” for each security traded.  This context will represent knowledge of how similar securities are trading.  In this way, the K-3 model will insure that each security will not be analyzed by SVM technology in isolation.  In more than two and a half years of live trading, SVM Capital’s live trading outperforms the S&P500 with approximately one half of the risk.  HDC owns a 45% equity position in SVM Capital.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As previously discussed, the Company negotiated a settlement with a service provider (see Note H).  As a result, the Company realized an increase in other income and expense (gain on payables restructuring) of $483,656.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

HEALTH DISCOVERY CORPORATION

 

 

 

 

 

 

 

 

 

 

 

 

 

 

		Total				1 Year Or Less				More Than 1 Year
Accrued Compensation		$	26,000			$	26,000			$	-
Office Lease			204,160				40,140				164,020
Total		$	230,160			$	66,140			$	164,020

 

 

 

 

 

 

 

 

 

 

As of the fiscal quarter ended June 30, 2011 (the “Evaluation Date”), we carried out an evaluation  under the supervision and with the participation of our management, including our 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.

 

 

Our Annual Report on Form 10-K contains information regarding a material weakness in our internal control over financial reporting as of December 31, 2010 due to an inadequate segregation of duties due to the small number of employees.  The Company anticipates that this material weakness will be satisfactorily addressed in the near future.

 

 

 

 

 

 

 

 

 

 

3.1	Articles of Incorporation. Registrant incorporates by reference Exhibit 3.1 to Form 8-K filed July 18, 2007.

 

3.1(a)

Articles of Amendment to Articles of Incorporation.  Registrant incorporates by reference Exhibit 99.1 to Form 8-K filed October 10, 2007.

 

3.1(b)

Articles of Amendment to Articles of Incorporation.  Registrant incorporates by reference Exhibit 3.1(b) to Form 10-K filed March 31, 2009.

 

3.1(c)

Amended and Restated Articles of Amendment to Articles of Incorporation.  Registrant incorporates by reference Exhibit 3.1 to Form 10-Q filed November 16, 2009.

 

3.2	By-Laws. Registrant incorporates by reference Exhibit 3.2 to Form 8-K filed July 18, 2007.

 

4.1	Copy of Specimen Certificate for shares of Common Stock. Registrant incorporates by reference Exhibit 4.1 to Registration Statement on Form SB-2 filed June 4, 2001.

 

4.1(a)

Copy of Specimen Certificate for shares of Common Stock. Registrant incorporates by reference Exhibit 4.1 (b) to Form 10-KSB filed March 30, 2004.

 

4.1(b)

Copy of Specimen Certificate for shares of Series A Preferred Stock.  Registrant incorporates by reference Exhibit 4.1(b) to Form 10-K filed March 31, 2008.

 

4.1(c)

Copy of Specimen Certificate for shares of Series B Preferred Stock.  Registrant incorporates by reference Exhibit 4.1(c) to Form 10-K filed March 31, 2009.

 

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.

 

101*	The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011 formatted in XBRL (Extensible Business Reporting Language): (i) Balance Sheets; (ii) Statements of Operations; (iii) Statements of Cash Flows.