================================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   ----------

                                   FORM 10-KSB
                               (AMENDMENT NO. 1)

    FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(D) OF THE
                       SECURITIES AND EXCHANGE ACT OF 1934
(Mark One)
|X|      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
         THE SECURITIES EXCHANGE ACT OF 1934

         For the fiscal year ended December 31, 2004

                                       OR

|_|      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
         THE SECURITIES EXCHANGE ACT OF 1934

         For the transition period from ____________ to ______________

                          Commission File No. 333-62216


                          HEALTH DISCOVERY CORPORATION
             (Exact Name of Registrant as Specified in its Charter)

                  Texas                                  74-3002154
        (State of Incorporation)            (I.R.S. Employer Identification No.)

  1116 South Old Temple Road Lorena, TX                     76655
(Address of principal executive offices)                 (Zip Code)

                                 (512) 583-4500
              (Registrant's telephone number, including area code)

          Securities Registered Pursuant to Section 12 (b) of the Act:
                                      None

          Securities Registered Pursuant to Section 12 (g) of the Act:
                                      None

      Check  whether the issuer:  (1) filed all reports  required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period that the  registrant was required to file such reports),  and (2)
has been subject to such filing  requirements  for the past 90 days.  Yes [X] No
[_]

      Check if there is no disclosure  of delinquent  filers in response to Item
405 of  Regulation  S-B  contained  in  this  form,  and no  disclosure  will be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]

      The issuer had no revenues for its most recent fiscal year.

      The   aggregate   market  value  of  the  voting   common  stock  held  by
non-affiliates  as of March 31, 2005 was approximately  $26,532,463.  There were
98,268,381 shares of common stock outstanding as of March 31, 2005.

      Transitional Small Business Disclosure Format (Check one): Yes ___, No X

================================================================================

<PAGE>

                                     PART I



EXPLANATORY NOTE:

This  Amendment  No. 1 to the Annual  Report on Form 10-KSB of Health  Discovery
Corporation  (the "Company") for the year ended December 31, 2004 has been filed
to reflect  the change of  auditors  for the 2003  fiscal  year and the  related
statements of operations, statements of stockholders' equity, and the statements
of cash flows for the years ended  December 31, 2003 and 2002 and for the period
from  inception  (April 6, 2001) to December  31, 2003. A change of auditors was
required  because the Company's  auditor for the fiscal year ended  December 31,
2003 and the related  statements  of  operations,  statements  of  stockholders'
equity,  and the  statements of cash flows for the years ended December 31, 2003
and 2002 and for the period from inception  (April 6, 2001) to December 31, 2003
resigned and withdrew its audit as the Company's independent auditor.  Except as
set forth in Item 8 and the financial  statements and the related notes thereto,
no  other  amendments  are  being  made to the  Annual  Report  on Form  10-KSB,
including any changes to reflect events  occurring  after the original filing of
our Annual Report on Form 10-KSB or modififications or updates to the disclosure
contained therein.



ITEM 1. DESCRIPTION OF BUSINESS

Our History

We were organized under the name Direct Wireless Communications,  Inc., in April
2001 by Direct Wireless  Corporation,  which licensed to us its technology for a
wireless telephone. In October 2001, Direct Wireless Corporation,  then our sole
shareholder,   pursuant  to  an  effective   registration  statement  under  the
Securities Act of 1933, distributed its entire holdings of our common stock as a
stock dividend to its shareholders. As a result of the dividend, Direct Wireless
Corporation ceased to own any of our equity securities. The negative events that
occurred  over the next several  years in the  communications  industry  made it
difficult for us to fund the  advancement of our  communication  platform.  As a
result,  we made the decision to strategically  change the overall  direction of
our intended business activities.

On September 25, 2003, we acquired all of the assets of The Barnhill Group, LLC,
which was owned by  Stephen D.  Barnhill,  M.D.  Dr.  Barnhill  is a  physician,
trained in laboratory medicine and clinical pathology.  He developed  artificial
intelligence and pattern recognition  computational techniques used in medicine,
genomics, proteomics, diagnostics and drug discovery. Following the acquisition,
Dr.  Barnhill  became our Chief  Executive  Officer and Chairman of our Board of
Directors. Also, immediately following our acquisition of The Barnhill Group and
the change in strategic  direction of the company,  our licensing  rights to the
telecommunications  technology previously granted by Direct Wireless Corporation
were  terminated  and all  payments  due to  Direct  Wireless  Corporation  were
terminated.

Subsequently,  we amended  our  charter  to change our name to Health  Discovery
Corporation.  Direct Wireless  Communications  (DWCM)  officially  became Health
Discovery  Corporation on November 6, 2003, at which time the new trading symbol
(HDVY) became effective.

On August 29, 2003, we signed a binding  letter  agreement to acquire the assets
of Fractal  Genomics,  LLC, a company with patented  Fractal  Genomics  Modeling
software.  Fractal  Genomics  utilized its  technology  to find,  link and model
patterns  of  similarity  hidden in large  amounts of  information,  such as the
clinical databases used for diagnostic and drug discovery.  Fractal Genomics has
applied its  technology  to protein and pathway  discovery  in leukemia and lung
development, which could lead to the identification of novel proteins that could
be used to develop  diagnostic  markers and drug  targets.  Our  acquisition  of
Fractal Genomics was completed December 30, 2003.

In July,  2004 we  began  acquiring  rights  to a  patent  portfolio  containing
patents,  pending patent  applications and related assets.  The patent portfolio
includes  patents  on the use of  Support  Vector  Machines  and  other  machine
learning tools useful for diagnostic and drug discovery.


                                       1
<PAGE>


Our Market

We are positioning ourselves to provide  pharmaceutical and diagnostic companies
with all aspects of "First Phase Biomarker  Discovery" from expert assessment of
the clinical  dilemma  through proper  selection and procurement of high quality
specimens.  In addition,  we aim to provide  proprietary  analytical  evaluation
methods and  state-of-the-art  computational  analysis to produce  relevant  and
accurate clinical data,  producing accurate  biomarker and pathway  discoveries,
resulting  in  patent  protection  of  our  biomarker   discoveries  for  future
development and commercialization.

Developing and  evaluating  new drugs and medical  therapies in less time and at
lower cost is of enormous potential benefit for modern healthcare. Genuinely new
products  must pass a series of both  in-vitro  and in-vivo  testing in order to
demonstrate their safety and effectiveness for a specific clinical  application.
Historically,  the endpoints of these trials were "traditional" ones tied to the
actual  disease  being  evaluated,  such  as  a  decrease  in  mortality  or  an
objective/semi-objective  decrease  in  clinical  symptoms  associated  with the
condition.  In the last 10 to 15 years,  there has been a move by the U.S.  Food
and Drug  Administration  (FDA) to incorporate other endpoints,  including genes
that are biomarkers for the existence or absence of a particular disease,  which
are  nontraditional  findings  that are  related to the  presence  or absence of
disease.  Examples of successful  application  of biomarker  data to therapeutic
evaluation  include the drugs Betaseron for use against  multiple  sclerosis and
Herceptin in the treatment of breast cancer.

The FDA began an  initiative  in 1987  designed to expedite  approval for drugs.
Initially  utilized for drugs that would combat the  devastating  AIDS epidemic,
these initiatives measured alternative factors such as biomarkers to essentially
evaluate the effectiveness of new therapeutics for diseases such as AIDS.

Our goal is to leverage the FDA's expedited  approval  process by producing more
relevant and predictable biomarkers for drug discovery. By speeding up approval,
new and better  medicines and  diagnostic  markers can be developed for patients
worldwide.

Biomarkers   have  long  played  a  significant   role  in  drug  discovery  and
development,  but recent  advances have  signaled the potential for  significant
deepening of their role in terms of both broader  application  within particular
stages of the process and  application  across a broader  spectrum of functions.
Even before the recent  resurgence  of interest in the  subject,  single-analyte
biomarkers  had  already  made  significant   impacts  on  clinical  studies  as
surrogates   for   clinical   endpoints.   Recent   advances  in   discovery  of
multi-component  biomarkers and  single-molecule  markers derived from them show
promise of providing greatly improved clinical  sensitivity and specificity over
their pre-genomic forbears.

One major difficulty with biomarker  discovery  relates to the  accessibility of
patient  samples.  Whereas  tissues  from  animal  models  are  usually  readily
available,  human  tumor  specimens  and human  body fluid  specimens  are often
unavailable  or  inaccessible  for most  common  diseases  of  major  commercial
interest.

Another  major  difficulty  is  developing  new  mathematical  tools  capable of
handling the analysis of the  terabytes of  information  being  generated by the
genomic and proteomic analysis of clinical specimens that must be sifted through
to identify the key biomarkers that will provide  important clues leading to the
identification  of new diagnostic and drug targets,  not only for cancer but for
other medically and commercially important diseases as well.

An additional  difficulty in commercialization of newly discovered biomarkers is
establishing  relationships  at large US medical and cancer  centers to validate
the results in a clinical  setting.  Validation  studies are  required to ensure
that the markers are valid for a large  population.  The  validation  process is
characterized  by proving the  efficacy of the newly  discovered  biomarkers  in
larger sample sets.  Access to these  prestigious  institutions  for  validation
studies can often be difficult to arrange.

Using our established  relationships  with top US medical and cancer centers and
our  computational  technologies,  our  goal  is to  overcome  the  difficulties
encountered  with  biomarker  discovery  and  become the first  company,  to our
knowledge,   to  perform  the  total  process  of  "first-phase"   discovery  by
identifying a particular clinical problem to be solved and performing the entire
process  leading  to  the  identification  of  the  genes  or  proteins  (called
biomarkers),  and the  relationships  among  them  (called  pathways)  that  are



                                       2
<PAGE>

relevant to the solution of the medical problem as described below. This process
will consist of an assessment of the clinical problem,  the determination of the
clinical trial set-up (the number of patients and what medical  conditions  they
represent),  the proper selection and procurement of high quality  specimens for
analysis,  an analytical evaluation of the specimens through laboratory tests to
produce the clinical data, and the mathematical evaluation of the data using our
proprietary pattern recognition techniques such as fractal geometric modeling to
produce an accurate  determination  of the  relevant  genes and proteins and the
manners  in which they  interact.  Once we  discover  these new  biomarkers  and
pathways,  we intend to  immediately  file  patent  applications  to protect the
discoveries such as with the patents filed for our Leukemia discovery.

These patent,  protected  biomarkers and pathways  represent the products of our
company.  After our  discovery  is patent  protected,  the process of selling or
licensing  the  newly  discovered   biomarkers  and  pathways  will  begin.  The
information  will  then  be  sold  or  licensed  to  diagnostic   companies  for
development into new state-of-the-art diagnostic assays and the same information
will be sold or licensed to  pharmaceutical  companies  for further  development
into the next generation of therapeutic targets.

Intellectual  property  is a key asset in  diagnostic  and drug  discovery.  Our
products will be based on intellectual  property,  which includes the discovered
biomarkers and pathways produced through our own internal research programs,  as
well as joint  discovery  efforts with  academic  institutions,  diagnostic  and
pharmaceutical companies worldwide.

Our discovery  process has already been shown to lead to the  identification  of
biomarkers  and  pathways in leukemia and lung  development  and we hope will be
instrumental in diagnosing and treating patients with devastating  diseases like
cancer, heart disease, obesity and AIDS.

Our Technologies

Our goal is to  develop  a  product  line of  newly  discovered  biomarkers  and
pathways,  which will  include  human genes and genetic  variations,  as well as
gene,  protein,  and  metabolite  expression  differences.  In  drug  discovery,
biomarkers can help elicit disease targets and pathways and validate  mechanisms
of drug action.  They may also be  pharmacodynamic  indicators of drug activity,
response and toxicity for use in clinical development.

We will provide  pharmaceutical  and  diagnostic  companies  with all aspects of
"first  phase"  diagnostic  and drug  discovery  from expert  assessment  of the
clinical  dilemma  through  proper  selection  and  procurement  of high quality
specimens.  We will then apply our proprietary analytical evaluation methods and
state-of-the-art   computational  analysis  to  produce  relevant  and  accurate
clinical data, producing accurate biomarker and pathway  discoveries,  resulting
in patent protection of our biomarker discoveries for future development.

Support Vector Machines (SVMs)

         Since their  introduction  in 1995,  SVMs marked the beginning of a new
era in the learning from examples paradigm in artificial intelligence. Rooted in
the  Statistical  Learning  Theory  developed by Vladimir  Vapnik,  SVMs quickly
gained  attention  from the  pattern  recognition  community  due to a number of
theoretical and computational merits.

         The capability of SVMs to discover  hidden  relationships  in a dataset
and to exploit  them in order to make  informed  extrapolations  about future or
unseen data holds a tremendous  potential  for modern  applications  of computer
technology,  particularly  as large  amounts of data are  generated  faster than
current analysis  techniques can process them. The field of machine learning has
traditionally been a branch of artificial intelligence, dealing with the problem
of extracting relevant knowledge from data. Statistics has played a similar role
within  mathematics.  Not  surprisingly,  both fields have  encountered the same
difficulties when analyzing complex  datasets:  nonlinear  relations are hard to
learn, high dimensional spaces carry a high risk of detecting spurious relations
(relations that are just the effect of chance),  and the  computational  cost is
often prohibitive. Previous generation computational technologies such as neural
networks, decision trees and other systems all try to deal with such limitations
by introducing several  approximations and therefore usually produce sub-optimal
solutions.


                                       3
<PAGE>


         Statistical  Learning  Theory,  the  backbone  of SVMs,  provides a new
framework  for  modeling  learning  algorithms,  merges  the  fields of  machine
learning and statistics,  and inspires algorithms that overcome all of the above
difficulties.  A new  generation  of learning  algorithms - or  equivalently  of
statistical  methods - has recently been developed,  based on this theory.  Such
methods  prove  remarkably  resistant to the problems  imposed by noisy data and
high dimensionality.  They are computationally  efficient.  The optimal solution
can  always be  found.  These  methods  have an  inherent  modular  design  that
simplifies their  implementation and analysis and allows the insertion of domain
knowledge.  More importantly,  they come with theoretical guarantees about their
generalization ability.

Creation of the Support Vector Machine

         In the early 1990s,  Vladimir Vapnik,  together with Bernhard Boser and
Isabelle  Guyon  discovered  a new  algorithm  for  implementing  SVM  inductive
inference:  the support  vector  machine.  The key idea was to map input vectors
into a high dimensional  space and to construct in that space hyperplanes with a
large margin (and hence with low capacity).

         The basic idea for making the theory of  statistical  learning began in
the 1960's with the prominent work of Professors  Vapnik and  Chevronenkis  with
the discovery of the VC dimension. The technology for mapping input vectors into
a high dimensional  space was realized by the so-called  kernel trick,  which in
many cases avoids the need to manipulate data in the high dimensional  space. By
1995,  these  ideas had been  extended  to all of the main  function  estimation
problems: pattern classification, regression estimation, density estimation, and
finding  solutions to equations.  Statistical  Learning  Theory and SVMs are now
widely accepted and described in international  research journals and frequently
presented at major scientific meetings around the world.

         There are several reasons for this popularity:

         o        Most  importantly,  in all benchmark  problems,  SVM solutions
                  were among the winners.

         o        These methods do not rely on  heuristics,  but rather on solid
                  mathematical foundations.  Therefore, one can use mathematical
                  tools to  understand  the  behavior  of existing  methods,  to
                  improve them, and to design new methods.

         o        SVM  methods  are very  well  suited to the  analysis  of high
                  dimensional  (even infinite  dimensional)  spaces.  It appears
                  that  high  dimensional   analysis  will  be  crucial  in  the
                  challenging  problems  that  are  emerging  in  areas  such as
                  bioinformatics, image analysis, and information retrieval.

Significant Advantages of Support Vector Machines

         Bioinformatics  is facing new  challenges as the amount of data and its
availability  increase  exponentially.  Data  is  valuable  only  if it  can  be
understood and can help in making  predictions,  in the form,  for instance,  of
early  detection  diagnostics  and  minimizing  new drug  failure  in late stage
trials.  Computer  algorithms  have a critical role to play in annotating  data,
organizing  it,  drawing  attention  to  entries  of  particular  interest,  and
proposing  tentative  data  explanations.  It has always been tempting to seek a
universal  tool  that,  much like the  brain,  has very  broad  data  processing
capabilities.

         Clearly, there is a need not only for powerful data analysis tools, but
also for tools that can be used  effortlessly  by a wider range of people who do
not  necessarily  have a strong  background in  statistics or computer  science.
There is also a need for tools that can be used in a fast, flexible and evolving
fashion,  such that new problems can be treated with previously developed tools.
The race to a real  breakthrough  is measured not only in accuracy,  but also in
development time, cost and ease of next generation improvements.

         We believe that this is why SVMs  represent a  significant  solution to
the challenges of interpreting  diagnostic and drug development  data. They hold
the promise that other techniques,  including  artificial neural networks,  have
failed to provide: optimal and trustworthy performance with easy implementation.


                                       4
<PAGE>

         Prediction accuracy:  Given examples of inputs and outputs, a SVM takes
a previously unseen input (e.g.  measurements of a new patient) and predicts the
output (e.g. disease state).  Statistical  learning theory provides estimates of
the predictive  accuracy,  and SVMs work by directly optimizing these estimates.
As well as having these  performance  guarantees,  the  predictions  of SVMs are
typically more accurate,  in some cases very significantly,  than those of other
methods.

         High-dimensional  data:  SVMs can cope with very large numbers of input
variables.  In processing the output of a mass spectrometer,  for example,  SVMs
can use the full spectrum  directly,  without having to first  manually  extract
relevant peaks. Many other techniques (such as parametric  statistics and neural
networks) cannot cope with so many input variables.

         Data   understanding:   SVMs  have  the  unique   property   that  they
automatically   extract  support  vectors,   which  are  the  borderline  cases.
Exhibiting such borderline cases allows us to identify outliers, to perform data
cleaning,  to find  flaws in  experimental  design,  and to  detect  confounding
factors.  In addition,  the margins of training  examples (how far they are from
the decision  boundary) provide useful  information about the relevance of input
variables and allow the selection of the most predictive variable.

         Computational  efficiency:  Unlike  many  other  machine  learning  and
statistical  methods  (such as neural  networks,  decision  trees,  and Bayesian
methods),   learning  with  SVMs  involves  a  convex  optimization,   which  is
computationally   efficient,  and  leads  to  a  unique  optimum  solution.  The
predictions made by SVM algorithms are also easy to compute because they involve
only the  comparison  of the novel  pattern  with a small subset of the training
patterns (the support vectors).

         Decision understanding:  Unlike other nonlinear multivariate techniques
such  as  neural  networks,  the  predictions  made  by SVMs  are  often  easily
understood since they involve comparisons with the support vectors.

         Modularity:  Separate components of SVMs can be designed separately and
can easily be combined with other techniques.  For instance, the kernel in a SVM
can be designed to incorporate  expert  knowledge about a problem domain,  which
often significantly improves performance.

         Robustness:  SVMs are often  successful  - even with  sparse  data (few
examples), unbalanced data (more examples of one category), redundant data (many
similar  examples),  and  heterogeneous  data  (examples  coming from  different
sources).

In July 2004, our company began  purchasing  certain rights to a portfolio of 71
patents and pending patent  applications,  including patents on the use of SVMs,
and other machine  learning  tools useful for diagnostic and drug discovery (the
"SVM  Portfolio").  The SVM is a data  driven  mathematical  program  that  uses
"machine  learning" to find otherwise hidden  relationships in data and has been
successfully  used for colon cancer gene  selection,  breast  cancer  diagnosis,
leukemia classification, genomic analysis proteomic research and drug discovery.
The patents for the SVM also cover  applications  in a wide  variety of research
endeavors  unrelated to drug  discovery.  One of the issued  patents  includes a
description of a set of colon cancer genes and prostate cancer genes which could
be used for diagnostic testing and drug target identification.  One of the genes
represents a potential vaccine for colon cancer.

Consideration for the rights in the patents and pending patent applications will
be paid over time,  with an initial  payment of $175,394  made on  December  31,
2004,  and five  equal  installments  made  every  four  months.  The  remaining
consideration  is  represented by  convertible  notes in an aggregate  amount of
$1,127,818.  The notes  mature on July 28,  2009,  and may be  converted  at the
election of the  noteholders  until that time into shares of our common stock at
$.17 per share.

Fractal Genomics

Fractal Genomics Modeling

         Fractal Genomics Modeling (FGM) technology is designed to study complex
networks.  A complex  network can be made up of genes inside a living  organism,




                                       5
<PAGE>

web pages on the  Internet,  stocks within a financial  market,  or any group of
objects or processes that appear to be connected together in some intricate way.
Fractal Genomics uses a new approach toward modeling network behavior to rapidly
generate  diagrams and  software  simulations  that  facilitate  prediction  and
analysis of whatever  process is your particular  object of study. Two important
concepts  behind FG  technology  are the  notions  of  scale-free  networks  and
self-similarity.

Self-Similar (Fractal) Structure

         If it were  possible  to look at a section of a network  in detail,  it
would be possible to find an even  smaller  section  that  resembles  the entire
network.  This structural  property,  where the parts can resemble the whole, is
referred to as self-similarity  and structures of this sort are sometimes called
fractals.  Self-similar  structures  have  been  found to exist in many  complex
networks.

Scale-Free Networks

The structural property of self-similarity does not mean that if you look at the
hubs or nodes in the networks that they will all look  basically the same.  Some
nodes have a single  branch  leading to another  node,  where  other  nodes have
branches  into a large  number of other  nodes.  Using the example of an airline
routing  network,  many more links (branches) will connect to a large city which
is a major hub then to a minor,  small town airport.  So,  although there may be
structural  similarities  between the parts and the whole,  the individual nodes
can be quite different. This has been found to be a common trait in many complex
networks.  Because of this feature,  it is very difficult to measure or assign a
"scale" to what a typical node looks like in these networks.

For the most  part,  this is not the case in the  mathematical  world of complex
networks. There may be a few nodes with a thousand links, several with a hundred
links,  and many with only one. In comparison,  if human height were distributed
in a similar  way,  it would not be uncommon to see people over 100 feet tall in
everyday  life and people over a mile high would exist.  Because it is difficult
to assign a single  scale to look at nodes with links  distributed  in this way,
these kinds of networks they are called scale-free.

The  acquisition  of  Fractal  Genomics  brought  us a fully  functional  patent
protected computational tool, which is now known as the Health Discovery Fractal
Genomics Modeling (FGM) technology. This technology is designed to study complex
biological networks such as genomic and proteomic pathways in disease. A complex
network can be made up of genes or proteins inside a living  organism.  FGM uses
this new approach toward modeling network behavior to rapidly generate  diagrams
and software simulations that facilitate  prediction and analysis of genomic and
proteomic data to facilitate diagnostic and drug discovery.

The FGM modeling process starts out by creating a special  mathematical  surface
(the FGM  surface)  where  every  point on the surface can be used to generate a
network model with varying degrees of scale-free and fractal  properties.  Using
user-supplied  clinical data,  models which best match the behavior of each node
are selected and represented by a point on the FGM surface.  These  point-models
are then linked,  compared, and combined to generate diagrams, which reflect the
behavior of genes or proteins in the entire network

The end result of the FGM modeling  process is biomarker  and pathway  discovery
diagrams  that  represent  nodes in the network and  directions  of causality or
"flow" through the network such as which genes or proteins are  "turning-on"  or
"turning -off" other precursor and successor genes or proteins in the biological
system.  FGM  derived  diagrams  expedite  forecasting,  analysis,  and study of
complex system behavior by clearly  displaying all hubs,  links, and flow in the
network. With this knowledge,  diagnostic companies can use the newly identified
biomarkers to create  state-of-the-art  tests to identify key genes and proteins
involved  in certain  diseases  and  pharmaceutical  companies  can  explore new
therapeutic  drug targets designed to interrupt  ("turn-off")  genes or proteins
with undesirable effects or promote ("turn-on") genes or proteins with desirable
effects.

In addition, as a result of the Fractal Genomics  acquisition,  we are preparing
to begin  validation  studies,  at MD Anderson  Cancer  Center,  of the recently
discovered  and patent  protected set of leukemia  genes,  discovered  using the
newly acquired FGM technique,  which was shown to separate  ALL-T-cell  leukemia
from ALL-B-cell leukemia with 100% accuracy. This gene set, now our intellectual



                                       6
<PAGE>

property,  was originally  presented to the medical and scientific  world by Dr.
Herbert Fritsche,  Chairman of our Scientific  Advisory Board, a world-renowned,
expert in cancer markers and Professor at MD Anderson Cancer Center, at the 31st
Meeting of the International Society for Oncodevelopmental  Biology and Medicine
(ISOBM) in Edinburgh, United Kingdom.

To date, our FGM technology has been successfully used to analyze databases from
MD Anderson Cancer Center, St. Jude Children's  Hospital,  Stanford  University,
the  University  of Miami and the Alvin J. Siteman  Cancer  Center at Washington
University.

OUR CORPORATE STRATEGY

Our goal is to  develop  a  product  line of  newly  discovered  biomarkers  and
pathways,  which will  include  human genes and genetic  variations,  as well as
gene,  protein,  and  metabolite  expression  differences.  In  drug  discovery,
biomarkers can help elicit disease targets and pathways and validate  mechanisms
of drug action.  They may also be  pharmacodynamic  indicators of drug activity,
response and toxicity for use in clinical development.

We intend to provide pharmaceutical and diagnostic companies with all aspects of
"first  phase"  diagnostic  and drug  discovery  from expert  assessment  of the
clinical  dilemma  through  proper  selection  and  procurement  of high quality
specimens.  We will then apply our proprietary analytical evaluation methods and
state-of-the-art   computational  analysis  to  produce  relevant  and  accurate
clinical data, producing accurate biomarker and pathway  discoveries,  resulting
in patent protection of our biomarker discoveries for future development.

"First  Phase  Biomarker  Discovery"  is  based on the  belief  that in order to
discover the most clinically relevant  biomarkers,  the computational  component
must begin at the inception of the clinical  dilemma to be solved.  This pathway
includes several critical levels of  decision-making  - all of which are part of
our business strategy.

First Level of Discovery - Assess the Clinical Dilemma

Is the desired biomarker or pathway to be identified related to early diagnosis,
metastasis,  treatment response or some other aspect of a given disease process?
Based  on the  clinical  question  to be  answered  along  with  the  incidence,
prevalence  and nature of the particular  disease,  we will establish a clinical
study with the appropriate number of necessary  specimens.  We expect that these
studies will provide  statistically  significant  results once the biomarker and
pathway discovery is completed.

Second Level of Discovery - Properly  Identify and Procure the Most Relevant and
Professionally Collected Specimens

Based on the clinical dilemma to be solved, does the appropriate  clinical trial
require blood,  serum,  aspirate fluid, tissue or some other clinically relevant
specimen?  Once the correct decision is made, we will contractually  procure the
specimens necessary for the discovery from highly reputable institutions,  where
we believe  proper  collection  and  informed  consent are  completed  under the
strictest scientific protocol.

Third Level of Discovery - Analyze the Specimens

The  clinical  specimens  must then be  analyzed  and  converted  into  relevant
clinical data. We will determine which analytical  method is appropriate for the
most  successful  biomarker and pathway  discovery.  The techniques we currently
expect to use include mass  spectroscopy,  MALDI,  SELDI, DNA methylation,  gene
chip analysis, 2-D Gel Electrophoresis,  as well as other proprietary techniques
developed  by  companies   and   academic   institutions   with  which  we  have
relationships.  We will  constantly  monitor  improvements  in these  techniques
worldwide.



                                       7
<PAGE>

Fourth Level of Discovery - Analyze  the Data

The data generated from the  analytical  component must then be  computationally
analyzed for the discovery of new  biomarkers,  patterns among those  biomarkers
and  causality   pathways.   We  will  decide  which  of  the  current   leading
computational algorithms,  such as our FGM techniques,  are best suited to solve
the particular  clinical dilemma in question.  The data is then  computationally
analyzed,  and the  new  biomarkers  and  pathways  are  discovered  and  patent
protected.

Fifth Level of Discovery - Protect the Discovery

When a biomarker is discovered, we will immediately file a provisional patent to
protect the discovery for future  licensing.  Some of these  discoveries will be
licensed to  diagnostic  companies  for use in the  diagnosis of diseases or for
measuring the state or status of a disease.  Other  discoveries will be licensed
to  pharmaceutical  companies to be used for  discovering or evaluating new drug
targets.

Sixth  Level of  Discovery - Evaluate  the  Clinical  and Utility of  Discovered
Biomarkers

Biomarkers  uncovered  through  the  first  five  stages  of  discovery  will be
subsequently validated independently in larger, clinically relevant populations.
Clinical  validity of a biomarker  is  confirmed by its presence in the clinical
condition in question and its ability to  differentiate  one disease  state from
another,  or a diseased  state from a healthy  state.  We believe  that  markers
validated  by  our  processes   will   provide:   vastly   improved   diagnostic
capabilities;  may identify  potential  therapeutic  targets for  pharmaceutical
intervention  (e.g.  membrane  signaling  proteins and inhibitors);  and markers
suitable for monitoring disease progression following therapeutic  intervention.
Application of clinically  validated  biomarkers in such a manner will result in
improved   individual   patient  care  and  the  advancement  of  the  field  of
personalized  medicine.  This unique  approach to  biomarker  discovery  and its
additional  validation  in relevant  clinical  samples  advances the  commercial
potential of  biomarkers  we uncover to  diagnostic  and  therapeutic  partners.
Integration  of the six  levels  of  biomarker  discovery  results  in  improved
efficiencies  in translation of this  information  into commercial and medically
valuable products.

Our Strategic Agreements

In keeping with our corporate goal of building strong partnerships for biomarker
discovery,  we have signed four biomarker discovery agreements in less than five
months  with  strong  academic  centers  of  excellence  in the  United  States,
including  MD  Anderson  Cancer  Center and  Stanford  University.  All of these
agreements include either joint ownership in any biomarker or pathway discovered
or rights to an exclusive  worldwide license to our discovery.  Once we secure a
contract with an academic  institution for biomarker and pathway  discovery with
commercialization rights, we begin negotiating these commercialization rights to
our discoveries with diagnostic and pharmaceutical companies worldwide.

In October 2003 we signed our first Agreement with M.D.  Anderson Cancer Center.
With this agreement we will analyze a gene  expression  database to identify new
biomarkers and pathways involved in leukemia.  Under the terms of the agreement,
M.D.  Anderson,  has granted us a first option to obtain an exclusive  worldwide
royalty-bearing commercial license to commercialize any discovered biomarkers or
pathways we identify.

In January  2004 we entered  into our second  Biomarker  and  Pathway  Discovery
Agreement with The University of Texas,  M.D.  Anderson Cancer Center in Houston
Texas. Under the terms of the agreement,  The University of Texas, M.D. Anderson
Cancer  Center,  has again  granted  us a first  option  to obtain an  exclusive
worldwide  royalty-bearing  commercial  license to commercialize  any discovered
prostate  cancer   biomarkers  or  pathways   identified  by  us  utilizing  our
proprietary FGM  computational  techniques.  This second  collaboration  with MD
Anderson Cancer Center will give us access to a new systems biology approach for
data  analysis for new biomarker and pathway  discovery in prostate  cancer.  We
intend to use the  findings of this study to develop new  diagnostic  approaches
for prostate cancer and improve the clinical management of these patients.  U.S.
Cancer Statistics:  2000 Incidence recently released by the Department of Health
and Human Services  shows that prostate  cancer is the leading cancer overall in
men in the United States and according to the National  Institutes of Health, in
1997, the estimated  number of new cases of prostate cancer in the United States
is 209,900,  and the estimated number of deaths from the disease is 41,800.  The



                                       8
<PAGE>

current  market for prostate  cancer  testing with PSA, the biomarker  currently
used to diagnose prostate cancer, is estimated to be approximately  $350 million
annually around the world.

In March 2004 we entered into an agreement  with Stanford  University to use our
proprietary and patent  protected FGM  computational  techniques to identify new
patterns  of  biomarkers  in  lymphatic   insufficiency   and  its  response  to
therapeutic lymphangiogenesis. According to the agreement, ownership of Research
Program  Inventions  conceived,  discovered  or  reduced to  practice  under the
Research  Program  will be  determined  based  on  inventorship.  As  such,  any
invention  discovered using our analytical tools on this Stanford  database will
be jointly owned by Stanford and us.

According  to the World  Health  Organization,  lymphedema  affects  250 million
people worldwide. Others estimate that one in every twenty-five will suffer from
some form of lymphedema  during their lifetime.  The M.D. Anderson Cancer Center
in Houston, Texas reports that approximately 15% of all women with breast cancer
will develop  lymphedema  over the course of their lifetime and that  lymphedema
resulting from prostate cancer is on the rise.

In March 2004 we signed an agreement  with The University of Miami to use Health
Discovery  Corporations  proprietary  and  patent  protected  FGM  computational
techniques to identify new patterns of biomarkers in AIDS Related  Dementia.  It
is hoped that this newly discovered  information will allow physicians to better
understand  the  pathogenesis  of AIDS  Related  Dementia and will assist in the
diagnosis  and  treatment of this  devastating  disease.  Under the terms of the
Agreement,  The  University  of Miami  has  granted  us joint  ownership  on any
product,  invention,  discovery or new use arising out of or developed utilizing
our unique computational methods.

In September of 2004,  we entered into an agreement  with Dr.  Thomas  Stamey of
Stanford  University  Medical Center to analyze what is thought by Dr. Stamey to
be the most comprehensive prostate cancer gene chip data base in the world. This
data base consists of Affymetrix gene chips  containing  25,000 prostate related
genes. This data is from 92 patient representing 9 classes of prostate disease -
from BPH through all grades of prostate cancer. Using this data base, we hope to
identify  new  biomarkers  for  prostate  cancer.  We will  also use our  patent
protected  computational  techniques  such as Support Vector Machine and Fractal
Genomics  Modeling to analyze this data to determine the most relevant  proteins
to be used for  diagnostics and drug targets.  All  discoveries  will be jointly
owned by us and Dr.  Stamey with us having a  world-wide  exclusive  license for
commercialization.

Employees

On  December  31,  2004,  we had 5 full time  employees.  We do not  expect  any
significant  change  in the  number of  employees  over the next 12  months.  We
consider our employee relations to be good, and we have no collective bargaining
agreements with any employees.

Website Address

Our  corporate  website  address is  www.HealthDiscoveryCorp.com.  From the home
page,  select the "Display SEC Filings" tab followed by "SEC Filings." This is a
direct link to our filings with the Securities and Exchange  Commission ("SEC"),
including but not limited to our Annual Report of Form 10-KSB, quarterly reports
on Form  10-QSB and current  reports on Form 8-K,  and any  amendments  to these
reports. These reports are accessible soon after we file them with the SEC.

Governmental Regulation

Our  business  plan  involves  "First  Phase  Biomarker  Discovery".  This early
discovery process does not involve any governmental regulations or approvals. If
we are successful in licensing our discoveries to other companies, FDA approvals
may be required before the ultimate product may be sold to consumers.  Companies
licensing our  discoveries or  technologies  will be  responsible  for all costs
involved  in  such  approvals.  If we are  not  successful  in  licensing  these
discoveries  and choose to take these  discoveries to market  ourselves,  we may
then be subject to applicable FDA  regulations  and would then bear the costs of
such approvals.


                                       9
<PAGE>

We know of no governmental  regulations  that will affect the companies  current
operations or products.

Intellectual Property

In  connection  with  the  SVM  Acquisition,  we  obtained  rights  to the  "SVM
portfolio"  which currently  consists of twelve patents which were or have since
issued as well as 62 other patent  applications  which are pending in the US and
elsewhere in the world. The issued patents to date are:

U.S. Pat. No. 6,760,715: Enhancing biological knowledge discovery using multiple
support vector machines.

U.S. Pat. No.  6,714,925:  System for  identifying  patterns in biological  data
using a distributed network.

U.S. Pat. No. 6,658,395:  Enhancing  knowledge discovery from multiple data sets
using multiple support vector machines.

U.S. Pat. No. 6,427,141:  Enhancing  knowledge  discovery using multiple support
vector machines.

U.S. Pat. No.  6,157,921:  Enhancing  knowledge  discovery  using support vector
machines in a distributed network environment.

U.S. Pat. No. 6,128,608:  Enhancing  knowledge  discovery using multiple support
vector machines.

U.S. Patent No. 6,789,069:  Method of Identifying Patterns in Biological Systems
and Method of Uses.

U.S. Patent No. 6,882,990  (issues  4/19/05):  Method of Identifying  Biological
Patterns Using Multiple Data Sets.

Australian  Patent  No.  AU  764897:   Pre-processing  and  Post-processing  for
Enhancing Knowledge Discovery Using Support Vector Machines.

South African  Patent No. ZA 00/7122:  Pre-processing  and  Post-processing  for
Enhancing Knowledge Discovery Using Support Vector Machines.

Australian  Patent No. AU 780050:  Enhancing  Knowledge  Discovery from Multiple
Data Sets Using Multiple Support Vector Machines.

Australian  Patent No. AU 779635:  Method of Identifying  Patterns in Biological
Systems and Method of Uses.

In conjunction with the Fractal Genomics acquisition,  we obtained the rights to
the following patents. One of these patent applications has been allowed and the
others are pending.

U. S. Application No. 09/766,247  (Application allowed and pending issuance):  A
METHOD FOR THE MANIPULATION, STORAGE, MODELING, VISUALIZATION AND QUANTIFICATION
OF DATASETS

U. S.  Application  No.  10/887,624:  METHOD FOR  IDENTIFYING  BIOMARKERS  USING
FRACTAL GENOMICS MODELING U. S. Application No.: 10/932,920: METHOD FOR STUDYING
CELLULAR CHRONOMICS AND CAUSAL RELATIONSHIPS OF GENES USING
FRACTAL GENOMICS MODELING

WO Application No.  04/22157:  METHOD FOR IDENTIFYING  BIOMARKERS  USING FRACTAL
GENOMICS MODELING

WO Application No.: 04/28576: METHOD FOR STUDYING CELLULAR CHRONOMICS AND CAUSAL
RELATIONSHIPS OF GENES USING FRACTAL GENOMICS MODELING


                                       10
<PAGE>

U. S.  Application  No.:  10/959,844:  A METHOD FOR THE  MANIPULATION,  STORAGE,
MODELING, VISUALIZATION AND QUANTIFICATION OF DATASETS

U. S.  Application  No.:  10/920,035:  METHOD FOR IDENTIFYING  BIOMARKERS  USING
FRACTAL  GENOMICS  MODELING  WO  Application  No.:  01/01863:   METHOD  FOR  THE
MANIPULATION, STORAGE, MODELING, VISUALIZATION AND QUANTIFICATION OF DATASETS

EP Application No.: 01942746.7: METHOD FOR THE MANIPULATION,  STORAGE, MODELING,
VISUALIZATION AND QUANTIFICATION OF DATASETS

Competition

Health Discovery  Corporation's main  service/product is "First-Phase  Biomarker
Discovery".  While there are numerous companies that perform individual steps in
this  process,  we  know  of  no  other  company  that  performs  all  steps  in
"First-Phase Biomarker Discovery. Competing companies in the biomarker discovery
arena have made numerous  promising  discoveries  but have failed to bring fully
validated  biomarkers to market.  We feel that by performing and controlling all
steps of this process, we can eliminate the problems these companies have had in
validating  their  findings,  and  thus,  produce  fully  validated,  marketable
biomarkers.

Our Support Vector Machine (SVM)  technology and Fractal Genomic  Modeling (FGM)
technology  give us a distinct  advantage over competing  technologies.  Neither
classical   statistical   analysis  nor  neural   networks  (the  two  competing
technologies)  can handle the large amounts of inputs necessary to produce fully
validated biomarkers.

Research and Development

Our past  Research  and  Development  costs have been  minimal due to the unique
relationships  we have  maintained  with the members of our scientific  team and
their institutions.  Our total R&D costs have consisted solely of the consultant
fees paid to Dr. Stamey,  Dr. Vapnik,  Dr. Hong, Dr. Guyon. These fees consisted
of $172,460 in cash and $100,000 in stock for a total 2004 R&D cost of $272,460.
As of December  31,  2004,  $60,000 of the stock for  compensation  had not been
issued and the expense was accrued in 2004. There were no R&D costs in 2003.

                                  RISK FACTORS

         This document  contains certain  forward-looking  statements within the
meaning of the  Private  Securities  Litigation  Reform  Act of 1995  including,
without limitation,  all statements,  other than statements of historical facts,
that address  activities,  events or  developments  that we expect or anticipate
will or may occur in the future, including the successful  implementation of our
services,  business  strategies  and  measures  to  implement  such  strategies,
competitive  strengths,  expansion  and growth of our business  and  operations,
references  to  future  success  and  other  such  matters  are  forward-looking
statements and are based on the beliefs of,  assumptions made by and information
currently  available  to  our  management.   The  words  "expect,"   "estimate,"
"anticipate," "believe," "intend," "plan" and similar expressions and variations
thereof   are   intended   to   identify   forward-looking    statements.   Such
forward-looking  statements may involve uncertainties and other factors that may
cause the  actual  results  and  performance  of our  company  to be  materially
different  from  future  results  or  performance  expressed  or implied by such
statements.

         The cautionary  statements set forth in this "Risk Factors" section and
elsewhere in this annual report identify  important factors with respect to such
forward-looking  statements,  including certain risks and  uncertainties,  which
could cause  actual  results to differ  materially  from those  expressed  in or
implied by such  forward-looking  statements.  Among others,  factors that could
adversely affect actual results and performance  include failure to successfully
develop a profitable  business,  delays in identifying and enrolling  customers,




                                       11
<PAGE>

and the  inability to retain a significant  number of customers.  All written or
oral  forward-looking  statements  attributable to us are expressly qualified in
their entirety by the foregoing cautionary statement.

Risks Related to Our Business

We are a developing business and a high-risk company.

         We are a high-risk company in a volatile  industry.  In September 2003,
we completely changed the focus of our business from wireless telecommunications
to  biotechnology.  Consequently,  we  have  no  history  on  which  to  base an
evaluation of our business and prospects.  Thus, investors should recognize that
an investment in our company is risky and highly  speculative.  Health Discovery
is a developing  business,  and its prospects must be considered in light of the
risks,  uncertainties,  expenses  and  difficulties  frequently  encountered  by
companies in their early stages of development. Failure to implement and execute
our business and marketing strategy  successfully,  to provide superior customer
service,  to respond to competitive  developments  and to integrate,  retain and
motivate  qualified  personnel  could  have a  material  adverse  effect  on our
business,  results of operations and financial  condition.  We must successfully
overcome  these and other business  risks.  If our efforts are  unsuccessful  or
other  unexpected  events occur,  purchasers of the Common Stock offered  hereby
could lose their entire investment.

We  expect  to  incur  future  losses,  and  we may  never  achieve  or  sustain
profitability.

         We have never generated any revenue, and we expect to continue to incur
net losses and  negative  cash flows in the future due in part to high  research
and  development  expenses,  including  enhancements  to  our  technologies  and
investments in new technologies.  We cannot assure you that we will ever achieve
profitability.  Even  if we do  achieve  profitability,  we may  not be  able to
sustain or increase profitability.

Our  business  is  difficult  to evaluate  because we have a limited  history of
operations.

         Since our reorganization in 2003, our focus and our business model have
been continually evolving. Accordingly, we have a history of operations in which
there is insufficient information to identify any historical pattern. Even if we
could discern such a pattern,  the rapidly evolving nature of the  biotechnology
and  pharmaceutical  industries  would make it very  difficult  to identify  any
meaningful  information  in  such  short  a  history.  Therefore,  it is also be
difficult  to make any  projections  about the  future of our  operations.  This
difficulty may result in our shares trading below their value.

We will have negative operating income and may never become profitable.

         Our  operating  expenses are expected to exceed our income for the next
six to nine months and thus our capital will be decreased to pay these operating
expenses.  If we ever become profitable,  of which there is no assurance that we
can, from time to time our operating  expenses  could exceed our income and thus
our capital will be decreased to pay these operating expenses.

Our operating  results are unpredictable  and may fluctuate  significantly  from
period to  period,  which may cause our stock  price to  decline  and  result in
losses to investors.

         Our  operating  results  may vary from period to period due to numerous
factors, many of which are outside our control, including the number, timing and
acceptance of our services. Factors that may cause our results to vary by period
include:

      o     changes in the demand for our products and services;

      o     the nature,  pricing and timing of products and services provided to
            our collaborators;

      o     acquisition,  licensing  and other costs related to the expansion of
            our operations, including operating losses of acquired businesses;

      o     reduced capital investment for extended periods;

      o     losses and expenses related to our investments in joint ventures and
            businesses;

      o     regulatory developments or changes in public perceptions relating to
            the use of genetic  information  and the  diagnosis and treatment of
            disease based on genetic information;

      o     changes  in  intellectual  property  laws that  affect our rights in
            genetic  information  that we sell;  and

                                       12
<PAGE>

      o     payments of milestones,  license fees or research payments under the
            terms of our increasing number of external alliances.

         Research and development  costs  associated with our  technologies  and
services, as well as personnel costs,  marketing programs and overhead,  account
for a substantial  portion of its operating  expenses.  These expenses cannot be
adjusted  quickly in the short term.  If revenues of the business  decline or do
not grow as  anticipated,  we may not be able to reduce our  operating  expenses
accordingly.  Failure to achieve  anticipated  levels of revenue could therefore
significantly harm our operating results for a particular period.

We may fail to meet our debt obligations.

         If our cash flow and capital  resources  are  insufficient  to fund our
debt  obligations  incurred in connection  with recent  acquisitions,  we may be
forced to sell assets, seek additional equity or debt capital or restructure our
debt.  In  addition,  any  failure to make  scheduled  payment of  interest  and
principal on our outstanding notes or any other indebtedness could result in our
creditors  exercising remedies on the notes and taking some or all of our assets
or  could  otherwise  harm  our  ability  to incur  additional  indebtedness  on
acceptable  terms. We cannot assure you that our cash flow and capital resources
will be  sufficient  for payment of interest  and  principal  on our debt in the
future,  including  payments on any  outstanding  notes, or that any alternative
methods would be successful or would permit us to meet our debt obligations.

Our stock price has been, and is likely to continue to be, highly volatile.

         Our stock price has,  since  September 1, 2003,  traded as high as $.60
and as low as $.06.  Our stock  price  could  fluctuate  significantly  due to a
number of factors beyond our control, including:

      o     variations in our actual or anticipated operating results;

      o     sales of substantial amounts of our stock;

      o     announcements   about  us  or  about  our   competitors,   including
            technological innovation or new products or services;

      o     litigation  and other  developments  related to our patents or other
            proprietary rights or those of our competitors;

      o     conditions  in  the  life  sciences,   pharmaceuticals  or  genomics
            industries; and

      o     governmental regulation and legislation.

         In  addition,  the stock  market in  general,  and the  market for life
sciences and technology companies in particular,  have experienced extreme price
and volume fluctuations  recently.  These fluctuations often have been unrelated
or disproportionate to the operating performance of these companies. These broad
market and industry  factors may decrease the market price of our common  stock,
regardless of our actual operating performance.

         In the past,  companies that have experienced  volatility in the market
prices  of  their  stock  have  been  the  object  of  securities  class  action
litigation.  If we became the object of securities class action  litigation,  it
could result in substantial costs and a diversion of management's  attention and
resources, which could affect our profitability.

Our  approach of  incorporating  ideas and methods  from  mathematics,  computer
science and physics  into the  disciplines  of biology,  organic  chemistry  and
medicine  is  novel  and may  not be  accepted  by our  potential  customers  or
collaborators.

         We intend to create a fully integrated  biomarker  discovery company to
provide  pharmaceutical and diagnostic  companies worldwide with new, clinically
relevant and economically  significant biomarkers.  We are a drug and diagnostic
discovery  company,  which  incorporates  ideas and  methods  from  mathematics,
computer science and physics into the disciplines of biology,  organic chemistry
and medicine.  Our objective is to  significantly  increase the  probability  of
success of drug  discovery  and  diagnostic  development.  Our  approach and the
products and  technologies  derived from our approach are novel.  Our  potential
customers  and  collaborators  may be  reluctant  to  accept  our new,  unproven
technologies,  and our  customers  may prefer to use  traditional  services.  In
addition,  our approach may prove to be ineffective or not as effective as other
methods.



                                       13
<PAGE>

Our products and technologies may prove to be ineffective if, for instance, they
fail to  account  for  the  complexity  of the  life  processes  that we are now
attempting  to model.  If our  customers  or  collaborators  do not  accept  our
products or technologies  and/or if our technologies prove to be ineffective our
business may fail or we may never become profitable.

Even if our  computational  technologies  are effective as research tools, we or
our customers may be unable to develop or commercialize new drugs,  therapies or
other products based on them.

         Even if our computational technologies perform their intended functions
as research tools, our customers may be unable to use the discoveries  resulting
from them to produce  new drugs,  therapies,  diagnostic  products or other life
science products.  Despite recent  scientific  advances in the life sciences and
our improved understanding of biology, the roles of genes and proteins and their
involvement in diseases and in other life processes is not well understood. Only
a few  therapeutic  products based on the study of and  discoveries  relating to
genes or proteins have been developed and  commercialized.  If our customers are
unable to use our discoveries to make new drugs or other life science  products,
our business may fail or we may never become profitable.

Our  newly   acquired  SVM   Portfolio   utilizes   technology   covered  by  an
earlier-issued patent, and if we lose the rights to use that patent, our ability
to exploit certain aspects of our SVM technology will be impaired.

         Our newly  acquired SVM Portfolio  utilizes  technology  covered by the
original  hyperplane  patent  (Pat.  No.  5,649,068)  invented by members of our
Scientific  Advisory  Board and owned by Lucent  Technologies,  Inc. - GRL Corp.
("Lucent"). We have obtained an assignment of a pre-existing patent license from
Lucent.  If Lucent were to terminate  the license,  it is possible that we would
not be able to use portions of the Support Vector Machine technology.

The industries in which we are active are evolving rapidly, and we may be unable
to keep pace with changes in technology.

         The  pharmaceutical  and biotechnology  industries are characterized by
rapid technological  change. This is especially true of the data-intensive areas
of such  technologies.  Our future  success will largely depend on maintaining a
competitive position in the field of drug,  therapeutics and diagnostic products
discovery. If we fail to keep pace with changes in technology, our business will
be materially harmed. Rapid technological development may result in our products
or  technologies  becoming  obsolete.  This may occur even before we recover the
expenses  that we incurred in  connection  with  developing  those  products and
technologies.  Products or services  offered by us could become  obsolete due to
the  development  of less  expensive  or  more  effective  drug  or  diagnostics
discovery technologies. We may not be able to make the necessary enhancements to
our technologies to compete successfully with newly emerging technologies.

We face intense competition and if we are unable to compete  successfully we may
never achieve profitability.

         The markets for our products and services are very competitive,  and we
expect  our  competition  to  increase  in the  future.  Although  we  have  not
identified  one company that  provides the full suite of services that we do, we
compete  with  entities in the U.S.  and  elsewhere  that  provide  products and
services for the analysis of genomic information and information relating to the
study of proteins (proteomic  information) or that commercialize novel genes and
proteins.  These include genomics,  pharmaceutical and biotechnology  companies,
academic and research  institutions  and  government  and other  publicly-funded
agencies.  We may not be able to  successfully  compete  with current and future
competitors.   Many  of  our  competitors  have  substantially  greater  capital
resources,  research  and  development  staffs,  facilities,  manufacturing  and
marketing experience, distribution channels and human resources than we do. This
may allow these  competitors to discover or to develop products in advance of us
or of our customers.

         Some of our competitors,  especially academic and research institutions
and government and other publicly funded agencies, may provide for free services
or data similar to the  services  and data that we provide for a fee.  Moreover,
our competitors  may obtain patent and other  intellectual  property  protection
that would limit our rights or our  customers'  and partners'  ability to use or
commercialize  our  discoveries,  products  and  services.  If we are  unable to
compete  successfully  against existing or potential  competitors,  we may never
achieve profitability.


                                       14
<PAGE>

Our management may be unable to address our potential growth.

         We anticipate  that once operations  commence,  a period of significant
expansion will be required to address  potential growth in our customer base and
market  opportunities.  This  expansion  will place a significant  strain on our
management,  operational and financial resources.  To manage the expected growth
of our  operations,  we will be required to improve  existing and  implement new
operational  systems,  procedures and controls,  and to expand, train and manage
our  employee  base.  There can be no  assurance  that our  current  and planned
personnel,  systems,  procedures  and  controls  will be adequate to support our
future operations, that management will be able to hire, train, retain, motivate
and manage the required  personnel  or that we will be able to identify,  manage
and  exploit  existing  and  potential   strategic   relationships   and  market
opportunities.  Our failure to manage growth  effectively  could have a material
adverse effect on our business, results of operations and financial condition.

If our business cannot enter into strategic  alliances or licensing  agreements,
we may be unable to develop and commercialize our technologies into new products
and services or continue to commercialize existing products or services.

         We may be unable to maintain or expand existing strategic  alliances or
establish additional alliances or licensing  arrangements  necessary to continue
to develop and commercialize  products, and any of those arrangements may not be
on  terms  favorable  to the  business.  In  addition,  current  or  any  future
arrangements  may be  unsuccessful.  If we are unable to obtain or maintain  any
third  party  license  required  to sell or  develop  our  products  or  product
enhancements,  we may  choose to obtain  substitute  technology  either  through
licensing  from another  third party or by developing  the necessary  technology
ourselves.  Any  substitute  technology  may be of lower  quality or may involve
increased cost,  either of which could  adversely  affect our ability to provide
our products competitively and harm our business.

         We also depend on collaborators  for the development and manufacture of
complex  instrument  systems and chemicals and other  materials that are used in
laboratory experiments. We cannot control the amount and timing of resources our
collaborators  devote  to our  products.  We may not be able  to  enter  into or
satisfactorily   retain   these   research,    development   and   manufacturing
collaborations and licensing agreements,  which could reduce our growth and harm
our competitive position.

We may not be able  to find  business  partners  to  develop  and  commercialize
product candidates deriving from our discovery activities.

         Our strategy for the  development and  commercialization  of diagnostic
markers and therapeutic  proteins depends on the formation of  collaborations or
licensing relationships with third parties that have complementary  capabilities
in  relevant  fields.   Potential  third  parties  include   pharmaceutical  and
biotechnology companies,  diagnostic companies,  academic institutions and other
entities. We cannot assure you that we will be able to form these collaborations
or license our  discoveries  or that these  collaborations  and licenses will be
successful.

Our  dependence  on  licensing  and other  collaboration  agreements  with third
parties subjects us to a number of risks.

         We may not be able to  enter  into  licensing  or  other  collaboration
agreements  on terms  favorable to us.  Collaborators  may typically be afforded
significant  discretion  in  electing  whether  to  pursue  any of  the  planned
activities.   In  most  cases,   our   collaborators   or  licensees  will  have
responsibility  for  formulating and  implementing  key strategic or operational
plans. Decisions by our collaborators or licensees on these key plans, which may
include  development,   clinical,  regulatory,  marketing  (including  pricing),
inventory management and other issues, may prevent successful  commercialization
of the product or otherwise affect our profitability.

         In  addition,  we may not be able to  control  the amount and timing of
resources our collaborators devote to the product candidates,  and collaborators
may  not  perform  their   obligations  as  expected.   Additionally,   business
combinations or changes in a collaborator's  or a licensee's  business  strategy
may negatively  affect its  willingness  or ability to complete its  obligations
under the  arrangement  with us.  Furthermore,  our  rights in any  intellectual
property  or  products  that may result  from our  collaborations  may depend on
additional investment of money that we may not be able or willing to make.


                                       15
<PAGE>


         Potential  or  future   collaborators   may  also  pursue   alternative
technologies,  including  those of our  competitors.  Disputes  may  arise  with
respect to the ownership of rights to any  technology or product  developed with
any future collaborator.  Lengthy  negotiations with potential  collaborators or
disagreements between us and our collaborators may lead to delays or termination
in the  research,  development  or  commercialization  of product  candidates or
result  in  time-consuming  and  expensive  litigation  or  arbitration.  If our
collaborators   pursue   alternative   technologies   or  fail  to   develop  or
commercialize  successfully  any product  candidate to which they have  obtained
rights from us, our business,  financial condition and results of operations may
be significantly harmed.

If we are  unable  to hire or  retain  key  personnel  or  sufficient  qualified
employees, we may be unable to successfully operate our business.

         Our business is highly  dependent  upon the  continued  services of our
Chief Executive Officer,  President,  Board of Directors and Scientific Advisory
Board.  While  members of our senior  management  are parties to  employment  or
consulting  agreements and  non-competition  and non-disclosure  agreements,  we
cannot  assure you that  these key  personnel  and  others  will not leave us or
compete  with us,  which could  materially  harm our  financial  results and our
ability to compete. The loss, incapacity or unavailability for any reason of any
of these individuals could have a material adverse effect upon our business,  as
well as our  relationships  with our  potential  customers.  We do not carry key
person  life  insurance  on any  member of our senior  management.  Furthermore,
competition  for highly  qualified  personnel  in our  industry  and  geographic
locations is intense.  Our business would be seriously  harmed if we were unable
to retain our key  employees,  or to attract,  integrate  or retain other highly
qualified personnel in the future.

If our  access to tissue  samples  or to genomic  data or other  information  is
restricted, or if this data is faulty, our business may suffer.

         To  continue  to  build  our  technologies  and  related  products  and
services,  we need  access  to third  parties'  scientific  and  other  data and
information.  We also need access to normal and diseased  human and other tissue
samples and biological materials.  We may not be able to obtain or maintain such
access on commercially  acceptable terms. Some of our suppliers could become our
competitors and discontinue  selling  supplies to us.  Information and data from
these suppliers could contain errors or defects that could corrupt our databases
or the  results  of our  analysis  of the  information  and data.  In  addition,
government  regulation in the United States and other  countries could result in
restricted  access  to,  or use of,  human and other  tissue  samples.  Although
currently we do not face significant problems in obtaining access to tissues, if
we lose access to sufficient numbers or sources of tissue samples, or if tighter
restrictions  are imposed on our use of the  information  generated  from tissue
samples, our business may suffer.

The sales cycle for some of our  products  and  services  is lengthy.  We expend
substantial  funds and  management  effort  with no  assurance  of  successfully
selling our products or services.

         Our ability to obtain  customers for our platforms,  tools and services
depends in large upon the perception that our  technologies  can help accelerate
their efforts in drug and diagnostics discovery. Our ability to obtain customers
for our therapeutic or diagnostic  product candidates  significantly  depends on
our ability to validate and prove that each such  product  candidate is suitable
for our  claimed  therapeutic  or  diagnostic  purposes.  Our  ability to obtain
customers will also depend on our ability to  successfully  negotiate  terms and
conditions  for such  arrangements.  The  sales  cycle for our  therapeutic  and
diagnostic  product  candidates  is typically  lengthy and may take more than 12
months.

An inability to protect our  proprietary  data,  technology or products may harm
our competitive position.

         If we do not adequately  protect the intellectual  property  underlying
our products  and  services,  competitors  may be able to develop and market the
same or  similar  products  and  services.  This  would  erode  our  competitive
advantage.  In addition, the laws of some countries do not protect or enable the
enforcement  of  intellectual  property  to the same  extent  as the laws of the
United States.


                                       16
<PAGE>

         We use contractual  obligations to protect a significant portion of our
confidential  and  proprietary   information  and  know-how.   This  includes  a
substantial  portion of the knowledge base from which we develop a large portion
of our  proprietary  products  and  services.  However,  these  measures may not
provide  adequate   protection  for  our  trade  secrets  or  other  proprietary
information   and   know-how.   Customers,   employees,   scientific   advisors,
collaborators  or consultants may still disclose our proprietary  information in
violation of their  agreements  with us, and we may not be able to  meaningfully
protect our trade secrets against this disclosure.

         In addition,  we have applied for patents covering some aspects of some
of our  technologies  and predicted genes and proteins we have discovered  using
these  technologies.  To date, we have not been granted any patents.  We plan to
continue to apply for patents covering parts of our technologies and discoveries
as we deem appropriate, but cannot assure you that we will be able to obtain any
patents. The patent positions of biotechnology companies are generally uncertain
and involve  complex legal and factual  questions.  Legislative  changes  and/or
changes in the  examination  guidelines  of  governmental  patents  offices  may
negatively affect our ability to obtain patent protection for certain aspects of
our intellectual property, especially with respect to genetic discoveries.

Litigation or other  proceedings or third party claims of intellectual  property
infringement could prevent us, or our customers or collaborators, from using our
discoveries or require us to spend time and money to modify our operations.

         If we  infringe  patents or  proprietary  rights of third  parties,  or
breach  licenses that we have entered into with regard to our  technologies  and
products,  we could experience  serious harm. If litigation is commenced against
us for intellectual property rights infringement, we may incur significant costs
in litigating,  whether or not we prevail in such litigation.  These costs would
also include diversion of management and technical personnel to defend ourselves
against  third  parties or to enforce our patents  (once issued) or other rights
against  others.  In addition,  parties  making claims against us may be able to
obtain  injunctive  or other  equitable  relief that could prevent us from being
able to further develop or commercialize. This could also result in the award of
substantial  damages  against  us.  In  the  event  of  a  successful  claim  of
infringement  against  us, we may be  required  to pay damages and obtain one or
more licenses from third parties. If we are not able to obtain these licenses at
a reasonable cost, if at all, we could encounter delays in product introductions
while we attempt  to develop  alternative  methods or  products.  Defense of any
lawsuit  or  failure  to obtain  any of these  licenses  could  prevent  us from
commercializing available products.

The scope of patents we receive may not provide us with  adequate  protection of
our intellectual property, which would harm our competitive position.

         Any issued  patents  that cover our  proprietary  technologies  may not
provide us with  substantial  protection  or be  commercially  beneficial to the
business.  The issuance of a patent is not  conclusive as to its validity or its
enforceability.  Federal  courts  may  invalidate  these  patents  or find  them
unenforceable.  Competitors may also be able to design around our patents. If we
are  unable  to  protect  our  patented  technologies,  we may  not be  able  to
commercialize our  technologies,  products or services and our competitors could
commercialize our technologies.

         Our business also relies on a combination of trade secrets,  copyrights
and trademarks,  non-disclosure  agreements and other contractual provisions and
technical  measures  to  protect  our  intellectual  property  rights.  While we
generally require employees, collaborators,  consultants and other third parties
to enter into  confidentiality  agreements where  appropriate,  it is not always
possible to enforce these arrangements.

         Monitoring the unauthorized use of our technology is difficult, and the
steps we have taken may not  prevent  unauthorized  use of our  technology.  The
disclosure or misappropriation of our intellectual property for any of the above
reasons  could  harm our  ability to  protect  our  rights  and our  competitive
position.



                                       17
<PAGE>

Risks Related to Our Industry

There  are  many  risks of  failure  in the  development  of  drugs,  therapies,
diagnostic products and other life science products. These risks are inherent to
the development and commercialization of these types of products.

         Risks of failure are an inseparable  from the process of developing and
commercializing  drugs,  therapies,  diagnostic  products and other life science
products. These risks include the possibility that any of these products will:

      o     be found to be toxic or ineffective;

      o     fail to receive necessary regulatory approvals;

      o     be difficult or impossible to manufacture on a large scale;

      o     be uneconomical to market;

      o     fail to be developed  prior to the  successful  marketing of similar
            products by competitors; or

      o     be  impossible to market  because they  infringe on the  proprietary
            rights of third parties or compete with superior  products  marketed
            by third parties.

We are dependent on our customers'  commercialization of our discoveries. Any of
these risks could materially harm our business and financial results.

The  trend  towards   consolidation  in  the  pharmaceutical  and  biotechnology
industries may adversely affect us.

         The trend towards consolidation in the pharmaceutical and biotechnology
industries  may  negatively  affect us in  several  ways.  These  consolidations
usually involve larger companies  acquiring smaller companies,  which results in
the remaining  companies having greater  financial  resources and  technological
capabilities,  thus  strengthening  competition  in the  industry.  In addition,
continued  consolidation  may result in fewer  customers  for our  products  and
services.

We may be subject to  product  liability  claims if  products  derived  from our
products or services harm people.

         We may be held  liable if any  product  that is made  with the use,  or
incorporation  of,  any of our  technologies  or data  causes  harm or is  found
otherwise  unsuitable.  These risks are inherent in the development of genomics,
functional genomics and pharmaceutical  products. If we are sued for any harm or
injury caused by products  derived from our services or products,  our liability
could exceed our total assets. In addition,  such claims could cause us to incur
substantial costs and subject us to negative publicity even if we prevail in our
defense of such claims.

Our business and the products  developed by our  collaborators and licensees may
be subject to governmental regulation.

         Any new therapy or  diagnostic  product  that may be  developed  by our
collaborators  or by our licensees  will have to undergo a lengthy and expensive
regulatory review process in the United States and other countries before it can
be  marketed.  It may be  several  years,  or  longer,  before  any  therapy  or
diagnostic product that is developed by using our technologies,  will be sold or
will provide us with any  revenues.  This may delay or prevent us from  becoming
profitable. Changes in policies of regulatory bodies in the United States and in
other  countries  could  increase the delay for each new therapy and  diagnostic
product.  Even if regulatory  approval is obtained,  a product on the market and
its  manufacturer  are subject to  continuing  review.  Discovery of  previously
unknown problems with a product may result in withdrawal of the product from the
market.

         Although  we intend to become  involved in the  clinical  phases in the
future,  we still  expect to rely mainly on  collaborators  or  licensees of our
discovery  activities to file  regulatory  approval  applications  and generally
direct  the  regulatory  review  process.  We  cannot  be  certain  whether  our
collaborators  or licensees will be able to obtain  marketing  clearance for any
product that may be developed on a timely basis, if at all. If our collaborators
or licensees fail to obtain required  governmental  clearances,  it will prevent
them from marketing  therapeutic or diagnostic  products until  clearance can be
obtained,  if at all. This will in turn reduce our chances of receiving  various
forms of payments,  including those relating to sales of marketed therapeutic or
diagnostic products by our collaborators or licensees.


                                       18
<PAGE>


The law  applicable  to us may change in a manner  that  negatively  affects our
prospects.

         We must comply with various legal requirements,  including requirements
imposed by federal and state  securities and tax laws.  Should any of those laws
change over the term of our existence, the legal requirements to which we may be
subject could differ materially from current requirements,  which could increase
the cost of doing business or preclude us from undertaking  certain parts of our
business plan, would result in adverse consequences.

If ethical and other concerns  surrounding the use of genetic information become
widespread, there may be less demand for our products and services.

Genetic  testing has raised ethical  issues  regarding  confidentiality  and the
appropriate uses of the resulting information.  For these reasons,  governmental
authorities  may call for limits on or regulation of the use of genetic  testing
or  prohibit  testing  for  genetic   predisposition   to  various   conditions,
particularly  for those that have no known cure.  Any of these  scenarios  could
reduce the  potential  markets for our  technologies  in the field of predictive
drug response, which could materially harm our business and financial results.

ITEM 2. DESCRIPTION OF PROPERTY.

We do not own any real property.  We do lease 735 square feet of office space in
Savannah  Georgia,  on a month to month  basis for a cost of $837.90 per month..
Our  administrative  office  is  located  at the  personal  office  of our Chief
Administrative  Officer,  Robert S. Braswell IV, 1116 S. Old Temple Road Lorena,
Texas 76655,  telephone no. (512) 583-4500.  Our principal  executive  office is
currently located at 6709 Waters Avenue, Savannah,  Georgia 31406, telephone no.
(800) 965-3198.

ITEM 3. LEGAL PROCEEDINGS.

On May 25, 2004, we filed suit in the District Court of McLennan County,  Texas,
against  Bill G.  Williams,  Shirley K.  Williams,  W. Steven  Walker,  Jerry W.
Petermann  and a company  controlled by Mr.  Williams.  In this action we allege
that an aggregate of 7,000,000 shares of our common stock (4,900,000 after a 7-1
stock split)  issued to Mr.  Williams,  Mr.  Walker and Mr.  Petermann  were not
issued in compliance with Texas law and we sought to restrain the defendants and
persons  acting on their  behalf or in concert with them from selling any shares
of our stock.  We also  requested  that the Court  declare we were  permitted to
cancel  the  shares  issued  to the  defendants  and  sought  monetary  damages,
attorney's fees and costs of the action.

In June  2004,  Jerry W.  Petermann  agreed to return to the  company  1,000,000
shares of the company  stock,  which were canceled upon return to the company as
full and final settlement of the claims brought in the afore mentioned  lawsuit.
In addition, in June 2004, Robert S. Braswell IV agreed to return to the company
2,100,000 shares of the company stock, all of which were canceled upon return to
the company.

In July 2004,  W. Steven Walker Esq.,  former  general  council,  an officer and
director of the  company,  agreed to settle with the company and return  366,000
shares of our common  stock,  which was all of the shares then owned by him, and
he  will  no  longer  be a party  to the  suit.  Accordingly,  only  the  shares
originally  issued to Mr.  Williams  are  subject to the suit,  and the  company
believes he controls approximately 2.1 million shares of our common stock.

After  several  rulings at the District  Court,  on August 25, 2004 the Court of
Appeals  for the Tenth  District  of the State of Texas  granted  our appeal and
entered  an  order,  remanding  the  case  to  the  original  trial  judge  with
instructions  to issue a temporary  injunction  to preserve  the status quo. The
injunction  will remain until a judgment in the case becomes  final or the court
otherwise  instructs.  The injunction requires the remaining  defendants,  their
agents, employees, affiliates, any person or entity they control, and any person
acting in concert  with them to (i) stop and refrain  from  selling or otherwise
disposing of any share of our common  stock;  and (ii) deposit into the registry
of the District Court all shares of our common stock they now own or hold. Costs
of the appeal  were  assessed  against  the  Respondents.  The  defendants  have
asserted several counter claims against the company.


                                       19
<PAGE>


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No matter  was  submitted  during the  fourth  quarter of the fiscal  year ended
December 31, 2004 to a vote of  shareholders  of Health  Discovery  Corporation,
through the solicitation of proxies or otherwise.

                                     PART II

ITEM 5.  MARKET  FOR  COMMON  EQUITY,  RELATED  STOCKHOLDER  MATTERS,  AND SMALL
BUSINESS ISSUER  PURCHASES OF EQUITY  SECURITIES.

Our common stock is traded on the OTC Bulletin  Board under the symbol  HDVY.OB.
The range of bids for our common stock, as reported on Bloomberg.com during each
quarter of the last two fiscal years was as follows.  These  quotations  reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions.

                                        High Bid               Low Bid
                                        --------               -------

First quarter 2003                      $ .07                   $ .025

Second quarter 2003                     $ .045                  $ .02

Third quarter 2003                      $ .15                   $ .02

Fourth Quarter 2003                     $ .60                   $ .06

First Quarter 2004                      $ .48                   $ .15

Second Quarter 2004                     $ .30                   $ .11

Third Quarter 2004                      $ .22                   $ .145

Fourth quarter 2004                     $ .40                   $ .17

At December  31,  2004,  there were  approximately  307 holders of record of our
common stock.

We have not paid any cash dividends  since  inception,  and we do not anticipate
paying any cash  dividends in the  foreseeable  future.  We currently  intend to
retain future  earnings,  if any, to support the  development  and growth or our
business.  Payment of future dividends, if any, will be at the discretion of our
board of directors and will depend upon our earnings,  our financial  condition,
and opportunities for growth and expansion.

Drs.  Vapnick and Stamey were each issued our common stock, no par value,  equal
to $10,000 per month in 2004,  beginning  in August.  Beginning  in August 2005,
each will be issued an amount of stock  equal to $15,000  per month,  payable in
accordance with our customary payment policies. For the August-September  period
of 2004,  Drs.  Vapnick  and Stamey  were each issued  108,186  shares.  For the
October-December  period of 2004,  Drs.  Vapnick  and  Stamey  were each  issued
127,286  shares  which  were  accrued  for in 2004 and  issued in 2005.  For the
January-March  period of 2005, Drs.  Vapnick and Stamey were each issued 130,515
shares.

On September  15, 2003 we completed  the sale of 2,750,000  shares of restricted
common stock to qualified individual investors at a price of $0.02 per share for
a total of $55,000.  The  securities  issued in the private  placement  were not
registered  under the  Securities  Act of 1933,  as amended,  and until they are
registered the securities may not be offered or sold in the United States absent
registration or the availability of an applicable  exemption from  registration.
The shares were offered and sold in reliance upon exemptions  from  registration
pursuant to Section  4(2) under the  Securities  Act of 1933,  as  amended,  and




                                       20
<PAGE>

Regulation D promulgated  thereunder.  Based on the information provided by each
of the investors,  all investors qualify as accredited  investors (as defined by
Rule 501 under the  Securities  Act of 1933,  as amended).  The company  filed a
registration statement on September 15, 2003 and agreed that should the company,
before  September  15,  2005,  propose  for  itself  or any  other  person,  the
registration  under the Act of any securities of the company on Form S-1, S-2 or
S-3, the company  shall  include in any such  Registration  Statement and in any
related underwriting  agreements,  if the qualified investors so requests,  such
securities of the investors.


On  July  31,  2004 we  completed  the  private  sale of  15,235,000  shares  of
restricted common stock to individual  accredited investors at an offering price
of $ 0.10 per share for a total of $1,523,500.  Under the terms of the sale, the
company issued 15,235,000 restricted common shares. In addition,  each purchaser
of common  shares was granted a warrant to acquire an equal number of restricted
common shares at a fixed price of $0.35 per share,  excercisable  until February
2007.  This  could  result  in  the  issuance  of  up to  15,235,000  additional
restricted common shares upon exercise. We entered into purchase agreements with
each of the  investors,  the form of which is attached as Exhibit 10.6.  Neither
the shares sold pursuant to the private  placement nor the shares  issuable upon
the exercise of the warrants  will be registered  under either  federal or state
securities  laws and must be held for at least  one year  from the time they are
issued. The securities issued in the private placement were not registered under
the  Securities  Act of 1933,  as  amended,  and until they are  registered  the
securities  may not be offered or sold in the United States absent  registration
or the availability of an applicable exemption from registration. The shares and
the warrants,  the form of which is attached as Exhibit  10.7,  were offered and
sold in reliance  upon  exemptions  from  registration  pursuant to Section 4(2)
under the  Securities  Act of 1933,  as amended,  and  Regulation D  promulgated
thereunder.  Based on the  information  provided by each of the  investors,  all
investors  qualify as  accredited  investors  (as  defined by Rule 501 under the
Securities Act of 1933, as amended).

On March 9,  2005,  we  completed  the  private  sale of  18,609,375  shares  of
restricted  common  stock to  certain  institutional  investors  and  individual
accredited  investors  at an  offering  price of $0.16  per share for a total of
$2,977,500.  For every share of common stock purchased,  each investor  received
warrants to purchase one share of the company's common stock at $0.24 per share,
exercisable  until December 31, 2008. This could result in the issuance of up to
18,609,375  additional  restricted common shares upon exercise.  We entered into
purchase agreements with each of the investors, the form of which is attached as
Exhibit 10.8.  Under each agreement,  the company agreed to use its best efforts
to file a registration  statement to register the shares of common stock and the
shares  underlying the warrants issued and sold to the investors by May 9, 2005,
and to use its best efforts to cause the  registration  statement to be declared
effective July 6, 2005. The securities  issued in the private placement were not
registered  under the  Securities  Act of 1933,  as amended,  and until they are
registered the securities may not be offered or sold in the United States absent
registration or the availability of an applicable  exemption from  registration.
The shares and the warrants, the form of which is attached as Exhibit 10.9, were
offered and sold in  reliance  upon  exemptions  from  registration  pursuant to
Section 4(2) under the  Securities  Act of 1933,  as amended,  and  Regulation D
promulgated  thereunder.  Based  on the  information  provided  by  each  of the
investors, all investors qualify as accredited investors (as defined by Rule 501
under the Securities Act of 1933, as amended).

We paid a cash  fee of  approximately  $309,350,  agreed  to issue  warrants  to
acquire  1,024,992  shares of common stock and agreed to issue 53,561  shares of
common stock to placement agents for assisting us in these two private sales. As
of December 31, 2004, these warrants had not yet been issued

In the fourth  quarter of 2003, the company issued 450,000 shares to consultants
to the company, including members of the company's scientific advisory board. In
the first quarter of 2004,  the company issued 100,000 shares to a member of the
company's  scientific  advisory board. In the third quarter of 2004, the company
issued 106,000 shares to  consultants to the company,  including  members of the
company's  scientific  advisory  board.  All of  these  issuances  were  made in
reliance upon  exemptions from  registration  pursuant to Section 4(2) under the
Securities Act of 1933, as amended.


                                       21
<PAGE>


ITEM 6. Management's Discussion and Analysis or Plan of Operation

Cash Requirements

As of April 15, 2005,  the company  currently  had  approximately  $1,100,000 in
cash. Recurring monthly operating expenses,  including salaries, are expected to
be $127,053.  The final two payments of $62,500 on the note  resulting  from the
acquisition  of Fractal  Genomics  Corporation  are due in July 2005 and October
2005.  Scheduled payments of $175,394  (including  interest) on a note resulting
from the acquisition of the SVM Portfolio will be due on April 30, 2005,  August
31,  2005,  January  31,  2005,  and April 30,  2006.  The  company  anticipates
acquiring the remaining  interests of the SVM portfolio in the second quarter of
2005,  which will require a payment of $249,000.  In addition,  we estimate that
marketing and conference  expenses of approximately  $30,000 will be incurred in
April, May, and June of 2005.

Product R&D

During the  remainder of 2005,  we plan to focus on one or more of the following
initiatives.  Management's time and fiscal resources will be allocated among the
projects based on  management's  judgment as to when  discoveries in these areas
can be achieved and the possibility of securing revenue from those  discoveries.
Management  cannot  guarantee  that any  discovery  will  result from any of the
following  projects  or that the  company  could  obtain  revenue  from any such
discovery.  Further, new initiatives may arise that management believes would be
more beneficial to the company. Initially, the five initiatives are:

Circulating  Tumor Cell  Analysis - The  company  is  attempting  to use SVMs to
analyze digitized images of blood cells to identify circulating tumor cells. The
company believes this project can be completed with current  salaried  personnel
and equipment.  We expect no significant additional costs to be incurred on this
project during 2005.

Prostate  Cancer  Diagnostics - The company has identified  biomarkers that have
the  potential  to be useful in the  diagnosis  of  prostate  cancer with a much
higher  degree of accuracy  than  existing  tests,  including  the PSA test.  In
addition,  these  biomarkers  appear  to allow us to  differentiate  high  grade
prostate cancer from the less serious low grade prostate cancer. This project is
in the  final  validation  phase.  We plan to  spend  approximately  $50,000  to
complete  this  final  validation,  which it expects  to  complete  by the third
quarter of 2005.

BPH Drug Target - While  performing our analysis of prostate cancer specimens to
discover a new biomarker for diagnosing  prostate cancer, we discovered a number
of genes that  appear to be over  expressed  in patients  with Benign  Prostatic
Hyperplasia  (BPH).  Upon validation of this  discovery,  we plan to license the
discovery to a pharmaceutical company. This set of biomarkers could be used as a
drug  target by the  pharmaceutical  company to develop a new drug to treat BPH.
All research and development related to this project will be done in conjunction
with  the  prostate  cancer  diagnostic  project.  No  additional  expenses  are
expected.

Breast Cancer  (lymphangiogenesis)  - In March 2004 we entered into an agreement
with Stanford University to use our FGM computational techniques to identify new
patterns  of  biomarkers  in  lymphatic   insufficiency   and  its  response  to
therapeutic  lymphangiogenesis.  This project will be completed  with  in-house,
salaried  personnel.  We expect no significant  additional  costs to be incurred
before completion of this project.

Differential  Diagnosis  for  Leukemia  - The  company  will be  validating  our
discovery of a set of leukemia genes that have been shown to separate ALL-T-cell
leukemia  from  ALL-B-cell  leukemia  with  100%  accuracy.  We  expect to incur
approximately $50,000 in costs to complete this validation.

Employees

At  December  31,  2004,  the company  had 5 full time  employees.  We expect no
significant staffing changes in the next 12 months.



                                       22
<PAGE>

Revenue Plan

The company currently has no revenue.  The company anticipates to derive revenue
from the following sources:

SVM / FGM patent  licensing.  The company believes that a significant  number of
companies are utilizing our  technology  without having first obtained a license
from us. We plan to actively pursue these license agreements in the 2005.

Diagnostic  Biomarkers.  The  company is  currently  having  validation  testing
performed  on several of its  discoveries.  If the testing  confirms the initial
discoveries,  the company plans to license the newly discovered  biomarkers to a
national reference laboratory.

Therapeutic  Markers.  The company has identified  seven  potential  therapeutic
targets,  which if  validated  by  third  parties  could  lead to  licensing  or
collaborative  arrangements  with larger  pharmaceutical  companies  for further
development.

Additional Funding Requirement

We believe we have sufficient cash to continue  operations through August,  2005
based on our current cash flows. Therefore, our continued operations will depend
on the production of revenue and/or the receipt of additional funding.

We have not realized any earned  income since  inception.  While we have entered
into  agreements to perform  analyses of clinical  data using our  computational
technologies,   we  will  earn  income  from  those   efforts   only  after  the
identification, patenting, and licensing of new biomarkers.

Based on the current  resources  available to us, we will need additional equity
or debt  financing or we will need to generate  revenues  through  licensing our
products or providing services to others or entering into strategic alliances to
be able to sustain our operations until we can achieve  profitability,  if ever.
These matters raise  substantial  doubt about our ability to continue as a going
concern.

We do not have any off-balance sheet arrangements.

ITEM 7. FINANCIAL STATEMENTS.

Financial statements appear beginning on page F-1 of this Report.

ITEM  8.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE.


On December 15, 2004,  we were  notified by NASDAQ that our previous  certifying
audit firm,  Darilek & Butler,  CPA ("Darilek & Butler") had not registered with
the Public Company Accounting  Oversight Board (PCAOB) as required under Section
102 of the  Sarbanes/Oxley  Act at the time  our 2003  10-KSB  was  filed.  This
failure to be registered  resulted in our 10-KSB being  classified as "filing is
deficient"  according to the NASDAQ filing  rules.  We were advised by Darilek &
Butler that they  attempted  to apply for  registration  with the PCAOB.  Due to
Darilek & Butler's delay in achieving PCAOB approval, we engaged Clyde Bailey PC
("Bailey")  to provide the audit for the fiscal year ended  December 31, 2003 to
be included in the amended  Form 10-KSB,  which we filed on January 7, 2005.  We
engaged Bailey solely to complete the audit of such fiscal year.

On August 2, 2004, we retained Porter Keadle Moore,  LLP ("Porter Keadle Moore")
as our  certifying  accountants  to  replace  Darilek & Butler  and to audit all
successive  periods  beginning  January 1,  2004.  The  determination  to change
certifying  accountants was made by our Board of Directors.  This  determination
was made because the former  certifying  accountants are located in San Antonio,
Texas, and our principal activities are now located in Savannah, Georgia.




                                       23
<PAGE>


The former certifying  accountant's  reports on our financial statements for the
past two years,  except for  expressing  substantial  doubt as to the  company's
ability  to  continue  as a going  concern,  contained  no  adverse  opinion  or
disclaimer of opinion.  No modifications were made for uncertainty,  audit scope
or accounting principles.

On July 12,  2005,  the  Company  was  informed  by Bailey that it was no longer
providing  audit  services to any company in any capacity.  Accordingly,  Bailey
resigned and withdrew its audit as the Company's  independent auditor for fiscal
year 2003 and the related statements of operations,  statements of stockholders'
equity,  and the  statements of cash flows for the years ended December 31, 2003
and 2002 and for the period from inception (April 6, 2001) to December 31, 2003.

Bailey submitted audit reports on the Company's financial  statements for fiscal
year 2003 and the related statements of operations,  statements of stockholders'
equity,  and the  statements of cash flows for the years ended December 31, 2003
and 2002 and for the period from inception (April 6, 2001) to December 31, 2003.
The submitted audit reports did not contain any adverse opinions, disclaimers of
opinions or other  modifications or  qualifications.  Bailey did not, during the
applicable periods,  advise the Company of any of the enumerated items described
in Item 304(a)(1) of Regulation S-B.

Since the Company  engaged Porter Keadle Moore to audit all  successive  periods
beginning January 1, 2004, the Company's  financial  statements covering periods
beginning  January 1, 2004 are not affected by Bailey's  withdrawal and were not
be re-audited.

There were no disagreements  with Bailey on any matter of accounting  principles
or practices,  financial statement disclosures,  or auditing scope or procedure,
which  disagreements,  if not resolved to the satisfaction of Bailey, would have
caused Bailey to make reference  thereto in, or in connection  with, its reports
on financial statements for the periods covered by Bailey's audit.

On August  11,  2005,  the  Company  engaged  Porter  Keadle  Moore to perform a
re-audit of the Company's  financial  statements for fiscal year 2003. Darilek &
Butler re-issued its audit of the Company's financial statements for fiscal year
2002, and for the period between the Company's  inception and December 31, 2002.
Darilek & Butler is the Company's original auditor for such time periods.

The Company did not consult  Porter  Keadle  Moore or Darilek & Butler  prior to
their  engagement  regarding (i) the  application of accounting  principles to a
specified transaction, either completed or proposed nor (ii) any matter that was
either the  subject of a  disagreement  (as  defined  in Item  304(a)(1)(iv)  of
Regulation S-B and the related instructions to that Item).

We have had no  disagreements  with our  former  certifying  accountants  on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure.


ITEM 8A. CONTROLS AND PROCEDURES.

As of the end of the period covered by this report (the "Evaluation  Date"),  we
carried out an evaluation,  under the supervision and with the  participation of
our  management,  including  our Chief  Executive  Officer and President and our
Chief  Administrative  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 Chief  Executive  Officer  and our  Chief  Administrative
Officer  concluded that, as of the Evaluation Date, our disclosure  controls and
procedures were effective under Rule 13a-15.

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.


                                       24
<PAGE>


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.

ITEM 8B. OTHER INFORMATION.

None.

                                    PART III

ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT .

Our executive officers and directors are:

<TABLE>
<CAPTION>
Name                               Age       Position

<S>                                <C>       <C>
Stephen D. Barnhill, M.D.          45        Chief Executive Officer and Chairman of the Board

David Cooper, M.D., Ph.D.          54        President and Chief Medical Officer, Director
                                             Chief Administrative Officer, Director, Secretary and Treasurer,

Robert S. Braswell, IV             49        Director

Hong Zhang, Ph.D.                  44        Senior Vice President, Computational Medicine
</TABLE>

Stephen D. Barnhill, M.D., has been our Chief Executive Officer, Chairman of the
Board and Medical  Director since  November,2003.  He is a physician  trained in
laboratory medicine and clinical pathology. He has developed and used artificial
intelligence,  pattern-recognition  and  computational  techniques  in Medicine,
Genomics, Proteomics, Diagnostics and Drug Discovery.

Dr.  Barnhill  is or has been a Fellow  of the  American  College  of  Physician
Inventors,  the  American  College of  International  Physicians,  the  American
Medical Association,  the American College of Physician Executives, the American
Association  of Artificial  Intelligence,  the American  College of Managed Care
Medicine,  the  Association  of Clinical  Scientists,  the  American  Society of
Contemporary  Medicine and Surgery,  the American  Society of Law,  Medicine and
Ethics,  the Southern  Medical  Society,  the American  Federation  for Clinical
Research and the National Federation of Catholic Physicians.

Dr. Barnhill  founded the Barnhill  Clinical  Laboratories in 1988 and served as
Chairman,  CEO,  President  and  Medical  Director.  This  Laboratory  was later
acquired  by  Corning-Metpath  in 1989 and  after the  acquisition  he served as
Medical  Director  of  this  Clinical   Laboratory  until  1992.  This  Clinical
Laboratory,  now owned by Quest  Diagnostics,  continues  to be the  largest and
busiest Clinical Laboratory in the Savannah Georgia area.

In 1992, Dr. Barnhill founded National Medical Specialty Laboratories and served
as Chairman, CEO, President,  and Medical Director. This Research Laboratory was
founded to utilize  pattern-recognition  mathematics and artificial intelligence
techniques in cancer  diagnosis.  Dr.  Barnhill is an inventor on the very first
patents  issued by the United States Patent and Trademark  Office for the use of
neural networks in medicine. This company was acquired by Horus Therapeutics;  a
New  York  based  pharmaceutical  company.  Dr.  Barnhill  served  as  Executive
Vice-President  and  Chairman  of  the  Scientific   Advisory  Board  for  Horus
Therapeutics  until 1998.  Johnson & Johnson  later  acquired the Horus  patents
invented by Dr. Barnhill.

In 1999,  Dr.  Barnhill  founded and served as  Chairman,  President  and CEO of
Barnhill  BioInformatics,   Inc.  Barnhill  BioInformatics,  Inc.  later  became
Barnhill  Genomics,  Inc.  and BioWulf  Technologies,  LLC and raised over $13.5
Million in Private Placement  funding.  The primary focus of these Companies was
to   utilize   the   next    generation   of   artificial    intelligence    and
pattern-recognition  techniques,  known as support vector machines,  to identify
genes that cause  cancer.  Dr.  Barnhill is the sole  inventor on the very first




                                       26
<PAGE>

patents  issued by the United States Patent and Trademark  Office for the use of
support vector machines in medicine.  From the summer of 2000 until he organized
The Barnhill Group L.L.C.,  in the summer of 2003, Dr.  Barnhill was not engaged
in any professional  activities as the result of a non-compete  agreement signed
by Dr Barnhill when he left the employment of Barnhill Genomics, Inc.

David Cooper,  M.D.,  Ph.D.,  is our  President and Chief Medical  Officer and a
member of the Board of Directors as of October 30, 2003. For the past four years
Dr. Cooper has devoted his time to significant  national and international  work
aimed at bringing the new technologies of genomics and molecular  biology closer
to patient care. In this time he consulted and held  positions  with a number of
biotechnology  and  genomics  companies   including  Qiagen  (Hilden,   Germany)
Sequenom, Inc. (San Diego, CA and Hamburg,  Germany), Samsung Advanced Institute
of  Technology  (Suwon,   Korea),   DynaMetrix  (Stockholm,   Sweden),   Pluvita
Corporation  (Bethesda,  MD), diaDexus (Santa Clarita,  CA), SomaLogic (Boulder,
CO), LumiCyte (Freemont,  California),  GeneLogic (Gaithersburg,  MD), NimbleGen
Systems  Iceland,  LLC.  (Reykjavik,   Iceland),  Gentra  Systems  (Minneapolis,
Minnesota).  and The  Marshfield  Clinic  (Marshfield,  WI).  Currently  besides
continuing  as  President  of his own  consulting  group,  David L.  Cooper  and
Associates.  In addition he serves on the Scientific  Advisory  Boards of Gentra
Systems  (Minneapolis,   Minnesota)  and  Redpath  Integrated  Pathology,   Inc.
(Pittsburgh, Pennsylvania).

Dr.  Cooper  served as the former  Chief  Science  Officer  and Chief  Operating
Officer  of  Quest  Diagnostics,  Nichols  Institute,  in San  Juan  Capistrano,
California.  While at Quest  Diagnostics,  Dr.  Cooper  coordinated  the Nichols
Institute's move to an ISO 9001 company, expanded their HIV and genetic testing,
and reorganized the Nichols Institute Research and Test Development efforts into
a clinical  specialty  focus. Dr. Cooper also assisted in opening new markets in
Asia,  South America and Europe for Quest  Diagnostics,  Nichols  Institute.  He
served as Vice  President and Chief Science  Officer at diaDexus in Santa Clara,
California and Chief Medical  Officer of NimbleGen  Systems.  While at NimbleGen
Systems,  Dr.  Cooper  established  NimbleGen  Systems of  Iceland,  LLC,  which
currently  manufactures custom DNA arrays and related services to the scientific
research  marketplace  worldwide.  Dr.  Cooper also served as Senior  Scientific
Advisor to Visible Genetics, Inc. of Toronto, Canada, where he assisted with the
development of the FDA approved Tru-Gene HIV genotyping system.

In  academia,  Dr.  Cooper held  tenured  pathology  faculty  positions  at Duke
University Medical Center and the University of Pittsburgh Medical Center. While
at the  University  of  Pittsburgh,  he founded the first  division of Molecular
Pathology  in the United  States,  assisted in founding  and served as the first
chair of the Association for Molecular Pathology,  and was editor and founder of
Molecular  Diagnosis -- a journal devoted to the  understanding of human disease
through the clinical  application  of  molecular  biology.  His academic  honors
include  the  prestigious  Lichfield  Lectureship,  Oxford  University,  Oxford,
England.  Dr.  Cooper  is the  author of more than 100  scientific  and  medical
publications  in  molecular  diagnostics  and  the  development  of  novel  gene
therapies  which were  supported by numerous  grants  including  grants from the
National Institutes of Health, the American Cancer Society and the Department of
Defense Breast Cancer Initiative.

Robert  S.  Braswell  IV is our  Chief  Administrative  Officer,  Secretary  and
Treasurer.  Mr.  Braswell  served as our  President  from  April  2001 until the
acquisition of the Barnhill Group LLC, when he assumed his current positions. As
its President,  he guided the creation of Direct  Wireless  Communications  Inc.
(DWCI)  and  oversaw  all  administrative  functions  for both  DWCI and  Direct
Wireless  Corporation.  Mr.  Braswell  served as  President  of Direct  Wireless
Corporation  since  December  1999 and a member of its Board of Directors  since
January 1999. Prior to holding these positions,  Mr. Braswell was an independent
businessman  engaged in  business  evaluations,  real estate  development,  home
construction  while  running  a  working  ranch  operation.  His  administrative
experience  comes from eighteen years  experience in the common carrier  freight
business,  working for Central Freight Lines, Inc. from 1974-1992.  Mr. Braswell
graduated  from the  University  of Houston in 1983 with a Bachelor  of Business
Administration in Organizational Behavior Management.

Hong Zhang,  Ph.D.  is our Senior Vice  President,  Computational  Medicine.  As
visiting  faculty at Johns Hopkins  University,  Dr Zhang lectured at the Center
for  Biomarker  Discovery on  Bioinformatics:  Peak  Detection  Methods for Mass
Spectral Data.  Currently a Yamacraw  Associate  Professor at Armstrong Atlantic
University,  Dr. Zhang was the Vice  President and CIO for a neural  network and
computer assisted medical diagnostic systems company that employs neural network
and  mathematical/statistical  preprocessing  techniques.  In this position, Dr.
Zhang was  involved in digital  image  processing  and pattern  recognition  for
medical image  processing as well as software design and programming for support




                                       27
<PAGE>

vector  machine  applications.  Dr Zhang was a professor  in the  Department  of
Mathematical  Sciences  at  Purdue  University  from  1989 to 1996.  He has held
numerous academic positions,  including Adjunct Associate  Professor,  Associate
Professor  with Tenure,  and Assistant  Professor.  He was a visiting  Associate
Professor in 1995 in the  Department  of Biometry at the Medical  University  of
South Carolina.

Throughout  his academic  career,  Dr. Zhang has  consulted on many software and
analytical  development  projects  for Union  Switch and Signal,  Inc.,  General
Electric  Company,  and the  Department  of  Pharmacology  at the  University of
Pittsburgh.  Dr.  Zhang has  published  numerous  articles  on the use of neural
networks in the detection of cancers.  He has been published in more than twenty
medical and technical journals.  Dr. Zhang received a Ph.D.,  Mathematics at the
University of Pittsburgh,  1989,  M.A.,  Mathematics,  University of Pittsburgh,
1986, M.S.E.E.,  Electrical Engineering,  University of Pittsburgh,  1984, B.S.,
Computer Science, Fudan University, 1982. Dr. Zhang's numerous awards and honors
include:  National  Cancer  Institute SBIR Grant,  1999,  2000;  Purdue Research
Foundation Summer Faculty Grant,  1993; IPFW Summer Research Grant, 1992; Andrew
Mellon Fellowship,  1986-1987; Andrew Mellon Fellowship, 1985-1986; First Place,
Fudan University Mathematics Competition, 1979.

The  directors  named  above will  serve  until the next  annual  meeting of our
shareholders.  Absent an employment agreement,  officers hold their positions at
the pleasure of the Board of Directors.

We do not have a  separately-designated  standing  audit  committee.  The entire
board of directors is acting as our audit  committee  and no  individual  on our
Board of  Directors  possesses  all of the  attributes  of an  "audit  committee
expert." In forming our Board of Directors,  we sought out individuals who would
be able to guide our operations  based on their business  experience,  both past
and  present,   or  their  education.   Responsibility  for  our  operations  is
centralized within management, which is comprised of four people. We rely on the
assistance of others, such as our accountant (not our auditor),  to help us with
the preparation of our financial information.  We recognize that having a person
who possesses all of the attributes of an audit committee financial expert would
be a valuable addition to our Board of Directors.  However,  we are not, at this
time, able to compensate  such a person and therefore,  we may find it difficult
to attract such a candidate.

The Board of Directors  does not have a policy with regard to the  consideration
of candidates to the Board  recommended by  stockholders.  The Board has made no
determination as to whether or not such a policy should be adopted. The Board of
Directors will consider candidates recommended by stockholders. To be considered
for  nomination  by the  Board  of  Directors  at the  next  annual  meeting  of
shareholders,  Chairman of the Board must receive shareholder recommendations at
least 120  calendar  days before the  anniversary  date of the  company's  proxy
statement for the previous  year's annual meeting.  To recommend a candidate,  a
shareholder  should  send the  candidate's  name,  age,  credentials  (including
principal  occupation and employment),  contact  information and the candidate's
consent to be  considered to the Chairman of the Board in care of the company at
its principal executive office address.  The shareholder should also provide the
shareholder's contact information,  describe the shareholder's relationship with
the  candidate,  and include a statement as to the number of Common Shares owned
by the shareholder and the length of time such Common Shares have been owned.


                                       28
<PAGE>


ITEM 10. EXECUTIVE COMPENSATION.

Summary Compensation Table

The following table sets forth various  elements of  compensation  for our Named
Executive Officers for each of the last three calendar years:

<TABLE>
<CAPTION>
---------------------- -------------------- -------------------- --------------------
                                                                 Securities
Name and Principal                                               Underlying Options
Position               Year                 Salary ($)           (#)
---------------------- -------------------- -------------------- --------------------
<S>                    <C>                  <C>                  <C>
Stephen D. Barnhill,
M.D.                   2004                 $337,500
Chief Executive        2003                 $50,000
Officer                2002                 ---
---------------------- -------------------- -------------------- --------------------
David Cooper           2004                 $110,000
President and Chief    2003                 ---                  $3,000,000
Medical Officer        2002                 ---
---------------------- -------------------- -------------------- --------------------
Robert S. Braswell,
IV                     2004                 $81,666
Chief Administrative   2003                 $11,666
Officer                2002                 ---
---------------------- -------------------- -------------------- --------------------
Hong Zhang, Ph.D.
Senior Vice
President,             2004                 $40,000
Computational          2003                 ---
Medicine               2002                 ---
---------------------- -------------------- -------------------- --------------------
</TABLE>

Director Compensation

Because all of our current  directors are employed by the company,  they are not
separately  compensated  for their  service as directors  because  their current
compensation levels cover all of their expected duties,  including those related
to the Board of Directors.

Employment Agreements

We entered into a five year  employment  agreement with Dr. Stephen  Barnhill on
September 15, 2003 regarding Dr. Barnhill's  employment as President and Medical
Director.  The agreement will automatically  renew for successive one-year terms
unless  either  party gives notice to the other party of its intent not to renew
within a thirty day period prior to the end of the then current term.  Under the
terms of the agreement,  Dr. Barnhill receives an initial base salary of $25,000
per month,  which is subject to adjustment at least  annually.  Dr.  Barnhill is
eligible  to  be  reimbursed  monthly  for  reasonable  and  necessary  business
expenses,  to participate  in an Incentive  Stock Option Plan (as defined in the
agreement)  and for  other  benefits  maintained  by us.  Dr.  Barnhill  will be
entitled to 10 paid  vacation  days during the  calendar  year.  Dr.  Barnhill's
employment may be terminated  without prior written  notice for cause,  in which
case we will  make a lump sum  payment  equal to the sum of (i)  accrued  unpaid
wages,  (ii)  unreimbursed  expenses  properly  incurred  prior  to the  date of
termination  and (iii) the value of all accrued  unpaid  vacation  pay, less any
amounts he owes to us. If Dr. Barnhill terminates the Barnhill  Agreement,  then
he will  receive the same  benefits as if he was  terminated  for cause.  If Dr.
Barnhill terminates the Barnhill  Agreement,  other than for cause, then we will


                                       29
<PAGE>

give two (2) weeks notice of  termination,  or in our sole  discretion,  two (2)
weeks wages in lieu of notice.  The agreement also  generally  provides that Dr.
Barnhill will keep  confidential  information  confidential and that he will not
compete  with us in our business  nor solicit our  customers or employees  for a
period of 12 months  following  termination  of  employment.

We entered  into an  employment  agreement  with Dr. David Cooper on November 1,
2003 regarding Dr. Cooper's  employment as President and Chief Medical  Officer.
The  employment  commenced  at signing and will  continue  until  terminated  in
accordance  with his  agreement.  Either  we or Dr.  Cooper  can  terminate  Dr.
Cooper's  employment at any time by notice to the other.  Dr. Cooper agrees that
he will not  terminate  his  employment  upon less than sixty  (60) days'  prior
notice. As compensation for his employment,  Dr. Cooper was issued non-qualified
stock options to acquire 3,000,000 shares of our common stock. In addition,  Dr.
Cooper will be entitled to be reimbursed  for all actual,  reasonable and direct
expenses incurred by him in the performance of his duties.  Dr. Cooper will have
the right to participate in any and all employee benefit programs established or
maintained by us, including without  limitation,  such medical and dental plans,
retirement,  pension and profit sharing plans as we may established from time to
time. Upon  termination of his employment for whatever  reason,  Dr. Cooper will
observe all post-employment  covenants set forth in his agreement.  Dr. Cooper's
agreement  also  generally  provides  that he will  not  compete  with us in our
business  nor  solicit  our  customers  or  employees  for a period  of one year
following termination of employment.

Code of Ethics

The  company  has  adopted a Code of Ethics  applicable  to its Chief  Executive
Officer and Chief Administrative  Officer.  This Code of Ethics is posted on our
website at www.HealthDiscoveryCorp.com.

ITEM 11.  SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT AND
RELATED  STOCKHOLDER   MATTERS.

The following table sets forth information  concerning the beneficial  ownership
of our common stock as of March 31, 2005 by (i) each of our directors, (ii) each
of our  executive  officers,  (iii)  each  person  who is  known to us to be the
beneficial  owner of more than five percent of our common stock, and (iv) all of
our  executive  officers and  directors as a group.  Other than Dr.  Barnhill no
person is known to us to own shares of our  common  stock with 5% or more of the
voting power of our company.  At March 31, 2005,  there were  98,268,381  shares
outstanding.


                                       30
<PAGE>


<TABLE>
<CAPTION>
----------------------------------------- -------------------------------------- -------------------------------------
           Name and Position                        Number of Shares                     Percent of Class (1)
                                                   Beneficially Owned
----------------------------------------- -------------------------------------- -------------------------------------
<S>                                       <C>                                    <C>
Dr. Stephen D. Barnhill
Chairman of the Board,
Chief Executive Officer and Chief
Medical Officer, Director
2 Springfield Place
Savannah, GA 37411                        29,825,564 (2)                         30.01%
----------------------------------------- -------------------------------------- -------------------------------------
David Cooper, M.D., Ph.D.
President
Chief Medical Officer Director
5842 Tree Line Drive
Madison, Wisconsin 53711                  1,200,000 (3)                          1.21%
----------------------------------------- -------------------------------------- -------------------------------------
Robert S. Braswell IV
Chief Administrative Officer
Director, Secretary and Treasurer
One Chaparral Place
Lorena, TX 76655                          1,593,263 (4)                          1.6%
----------------------------------------- -------------------------------------- -------------------------------------
Hong Zhang
22 Black hawk Trail
Savannah Georgia 31411                           ---                                -
----------------------------------------- -------------------------------------- -------------------------------------
All executive officers and directors as
a group (four persons)                    32,618,827                             32.82%
----------------------------------------- -------------------------------------- -------------------------------------
</TABLE>

----------
* Less than 1% of outstanding shares.

(1)      The  percentage of our common stock  beneficially  owned was calculated
         based on 98,268,381 shares of common stock issued and outstanding as of
         March 31, 2005. The percentage  assumes the exercise by the shareholder
         or group named in each row of all options or warrants  for the purchase
         of our common stock held by such  shareholder or group and  exercisable
         within 60 days as of March 31, 2005.

(2)      These shares are held by Barnhill  Group LLC,  which is wholly owned by
         Dr. Barnhill.

(3)      Includes  1,000,000  options and 100,000 warrants to purchase shares of
         common stock of which all are fully vested.

(4)      Includes  490,486 shares owned by Mr. Braswell  individually and 11,667
         shares  owned by Mr.  Braswell and his wife as joint  tenants,  226,676
         shares  owned  by  Mr.  Braswell's  wife,  140,000  shares  owned  by a
         corporation controlled by Mr. Braswell, and 413,324 shares owned by his
         minor children and 311,110  shares held in trust in which Mr.  Braswell
         has a one-third future contingent interest, but is not a trustee.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

On August 15, 2003, we entered into an agreement with Dr.  Stephen  Barnhill and
The Barnhill Group, LLC to purchase the assets of The Barnhill Group,  LLC. As a
part of the agreement, The Barnhill Group, LLC received 29,825,564 shares of our
common  stock.  The asset  acquisition  agreement was completed on September 25,
2003.  The  restricted  shares of our common  stock were issued to The  Barnhill
Group LLC on August 26, 2003. As a result of this transaction, we acquired a 49%
interest  in  Fractal  Genomics.  Dr.  Barnhill  currently  serves  as our Chief
Executive Officer and the Chairman of our Board of Directors.

On August 29, 2003,  we signed a binding  letter of agreement to acquire all the
assets of Fractal Genomics, a company founded by Mr. Sandy Shaw, in exchange for
3,825,000 shares of our common stock and 51% of $500,000 less relevant expenses.
As a result of the acquisition,  Dr. Barnhill  receives 49% of the $500,000 less
relevant  expenses.  Our acquisition of the assets was completed on December 30,
2003. Mr. Shaw previously served as our Vice President, Fractal Technology.


                                       31
<PAGE>

We currently  sub-lease  our  principle  executive  office  space from  Savannah
Conservatory  of Dance,  a company owned by the wife of Dr. Stephen D. Barnhill.
Our rent on this 735 sq ft office is $837.90  per month and is rented on a month
to month basis.





                                       32
<PAGE>

ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K.

(A) EXHIBITS.  The following  exhibits are attached  hereto or  incorporated  by
reference  herein  (numbered to correspond to Item 601(a) of Regulation  S-B, as
promulgated  by  the  Securities  and  Exchange  Commission):

3.1      Articles of Incorporation. Registrant incorporates by reference Exhibit
         3.1 to Registration  Statement on Form SB-2, File No. 333-62216,  filed
         June 4, 2001.

3.1(a)   Articles  of   Amendment  to  Articles  of   Incorporation   Registrant
         incorporates  by  reference   Exhibit  2.2  to  Form10-QSB,   File  No.
         333-62216, filed November 14, 2001.

3.1(b)   Articles of Amendment to Articles of Incorporation  changing Registrant
         name from Direct  Wireless  Communications,  Inc., to Health  Discovery
         Corporation.  Registrant  incorporates by reference  Exhibit 3.1 (b) to
         form 10-KSB File No. 333-62216 filed March 3, 2004.

3.2      By-Laws.   Registrant   incorporates   by  reference   Exhibit  3.2  to
         Registration Statement on Form SB-2, File No. 333-62216,  filed June 4,
         2001.

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, File No. 333-62216, filed June 4, 2001.

4.1(b)   Copy of Specimen  Certificate  for shares of common  stock.  Registrant
         incorporates  by  reference  Exhibit  4.1 (b) to form  10-KSB  File No.
         333-62216 filed March 30, 2004.

4.2      Excerpt from By-Laws.  Registrant incorporates by reference Exhibit 4.2
         to Registration Statement on Form SB-2, File No. 333-62216,  filed June
         4, 2001.

4.2(A)   Corrected Article 3.02 of By-Laws. Registrant incorporates by reference
         Exhibit  4.2(A) to Amendment  No. 2 to  Registration  Statement on Form
         SB-2, File No. 333-62216, filed August 15, 2001.

4.3(a)*  Non Qualified  stock option  agreements  dated October 30, 2003 between
         registrant  and David  Cooper.  Registrant  incorporates  by  reference
         Exhibit  4.3(a) to form  10-KSB,  File No.  333-62216,  filed March 30,
         2004.

10.1     Asset purchase  agreement  between  registrant dated September 15, 2003
         and Barnhill Group LLC.  Registrant  incorporates by reference  Exhibit
         10.2 to form 10-KSB, File No. 333-62216, filed March 30, 2004.

10.2     Asset purchase agreement between registrant dated December 30, 2003 and
         Fractal Genomics LLC. Registrant incorporates by reference Exhibit 10.3
         to form 10-KSB, File No. 333-62216, filed March 30, 2004.

10.3*    Employment Agreement with Stephen Barnhill.  Registrant incorporates by
         reference Exhibit 10.3 to form 10-KSB, File 333-62216,  filed April 19,
         2005.

10.4*    Employment  Agreement  with David Cooper.  Registrant  incorporates  by
         reference Exhibit 10.4 to form 10-KSB, File 333-62216,  filed April 19,
         2005.

10.5     Form of Asset Purchase agreement between the registrant and the sellers
         of the SVM Portfolio and related  assets.  Registrant  incorporates  by
         reference Exhibit 10.5 to form 10-KSB, File 333-62216,  filed April 19,
         2005.


                                       33
<PAGE>

10.6     Form of  Securities  Purchase  Agreement.  Registrant  incorporates  by
         reference Exhibit 10.6 to form 10-KSB, File 333-62216,  filed April 19,
         2005.


10.7     Form of Warrant.  Registrant  incorporates by reference Exhibit 10.7 to
         form 10-KSB, File 333-62216, filed April 19, 2005.


10.8     Form of  Securities  Purchase  Agreement.  Registrant  incorporates  by
         reference Exhibit 10.8 to form 10-KSB, File 333-62216,  filed April 19,
         2005.


10.9     Form of Warrant.  Registrant  incorporates by reference Exhibit 10.9 to
         form 10-KSB, File 333-62216, filed April 19, 2005.


16       Letter  by  Clyde  Bailey,   P.C.,   regarding   change  in  certifying
         accountant.  Registrant  incorporates by reference Exhibit 16.1 to Form
         8-K, File No. 333-62216, filed July 18, 2005.

31       Rule 13a-14(a)/15(d)-14(a) Certifications of Chief Executive Officer.

31.1     Rule  13a-14(a)/15(d)-14(a)   Certifications  of  Chief  Administrative
         Officer.

32       Section 1350 Certification of Chief Executive Officer.

32.1     Section 1350 Certification of Chief Administrative Officer.

* The  indicated  exhibit  is a  compensatory  plan  required  to be filed as an
  exhibit to this Form 10-KSB

(B) REPORTS ON FORM 8-K.

On December  15,  2004,  we filed a current  report on Form 8-K pursuant to Item
8.01 Other Events.


                                       34
<PAGE>

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES.

         The  following  table  sets  forth  fees  for  professional  audit  and
quarterly review services  rendered by Porter Keadle and Moore LLP, for the year
ended  December 31, 2004,  and services  rendered by Darilek Butler and Company,
for the year ended 2003, as well as fees billed for other  services  rendered by
Darilek Butler and Company, during those periods.

                                         2004         2003
                                       -------       -------

              Audit Fees               $47,300       $19,428

              Audit-Related Fees            --            --

              Tax Fees                      --            --
                                       -------       -------

                   Sub-Total           $47,300       $19,428
                                       -------       -------

              All Other Fees                --       $   125
                                       -------       -------

                       Total Fees      $47,300       $19,553
                                       =======       =======

---------------
         The services provided by the independent  auditors were pre-approved by
the Board of Directors of the company to the extent  required  under  applicable
law. The Board of Directors of the company  requires  pre-approval  of all audit
and allowable non-audit services.


                                       35
<PAGE>

                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) 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)

                                       By: /s/Stephen D. Barnhill M.D.,
                                          Chief Executive Officer
                                       -----------------------------------------
                                       (Signatures and Title)

                                       Stephen D. Barnhill M.D., Chief Executive
                                       Officer
Dated: September 27, 2005
Savannah, Georgia

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
Name                                      Title                                  Date
<S>                                       <C>                                    <C>
/S/Stephen D. Barnhill M.D.               Principal Executive Officer,           September 27, 2005
---------------------------               Chairman
Stephen D. Barnhill M.D.

/S/Robert S. Braswell IV                  Principal Financial and Accounting     September 27, 2005
------------------------                  Officer, Director
Robert S. Braswell IV

/S/David Cooper                           President and Medical Director,        September 27, 2005
---------------                           Director
David Cooper M.D., P.H.D.
</TABLE>


                                       36
<PAGE>


                                    EXHIBITS

                                INDEX TO EXHIBITS


31       Rule 13a-14(a)/15(d)-14(a) Certifications of Chief Executive Officer.

31.1     Rule  13a-14(a)/15(d)-14(a) Certifications of Chief Administrative
         Officer.

32       Section 1350 Certification of Chief Executive Officer.

32.1     Section 1350 Certification of Chief Administrative Officer.

                                       E-1

<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To the Board of Directors and Stockholders
Health Discovery Corporation


We have audited the accompanying balance sheets of Health Discovery  Corporation
(a development  stage  corporation)  (the "Company"),  (formerly Direct Wireless
Communications,  Inc.)  as of  December  31,  2004  and  2003,  and the  related
statements of operations,  changes in stockholders'  equity,  and the cash flows
for the years then ended and for the period  from  inception  (April 6, 2001) to
December  31,  2004,  except  that  we did not  audit  the  Company's  financial
statements  for the period from  inception  (April 6, 2001) to December 31, 2002
which were audited by other  auditors,  whose report is dated February 25, 2003,
who  expressed  an  unqualified  opinion on those  statements.  These  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audit.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of the Company as of December 31,
2004 and 2003 and the results of its operations and its cash flows for the years
then ended in conformity with accounting  principles  generally  accepted in the
United States of America.

The accompanying  financial  statements have been prepared  assuming the Company
will  continue  as a going  concern.  As  discussed  in Note L to the  financial
statements, the Company is in the organization stage and has not fully commenced
operations.  The Company has  suffered  recurring  losses  from  operations  and
negative  working  capital  that raise  substantial  doubt  about its ability to
continue as a going concern.  Management's  plans in regard to these matters are
described in Note L. The  financial  statements  do not include any  adjustments
relating  to the  recoverability  of  reported  asset  amounts  or the amount of
liabilities that might result from the outcome of this uncertainty.

As  discussed  in  Note M,  management  engaged  us to  re-audit  the  financial
statements of Health Discovery Corporation as of and for the year ended December
31, 2003.  As a result of the audit  certain 2003  adjustments  were recorded by
management. Accordingly, the 2004 financial statements were corrected to reflect
these adjustments.


/s/ Porter Keadle Moore, LLP


Atlanta, Georgia
September 22, 2005



                                      F-1
<PAGE>



                           DARILEK, BUTLER & CO., P.C.
                         2702 N. Loop 1604 E., Suite 202
                            San Antonio, Texas 78232
                               210-979-0055 phone
                                210-979-0058 fax



                           INDEPENDENT AUDITORS'REPORT


The Board of Directors
Direct Wireless Communications, Inc.
San Antonio, Texas



We  have   audited   the   accompanying   balance   sheet  of  Direct   Wireless
Communications,  Inc. (a Development  Stage Company) as of December 31, 2002 and
the related  statements of income and cash flows for the year ended December 31,
2002 and the period from inception  (April 6, 2001) to December 31, 2002.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audit.

We conducted our audit in accordance with auditing standards  generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audit  provides  a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of Direct Wireless Communications,
Inc. as of December  31,  2002 and the  results of its  operations  and its cash
flows for the initial period then ended in conformity with accounting principles
generally accepted in the United States of America, consistently applied.


"DARILEK, BUTLER & CO., P.C."

San Antonio, Texas
February 25, 2003



                                      F-2
<PAGE>


<TABLE>
<CAPTION>
                          HEALTH DISCOVERY CORPORATION
            (FORMERLY KNOWN AS DIRECT WIRELESS COMMUNICATIONS, INC.)
                          (A DEVELOPMENT STAGE COMPANY)

                                 BALANCE SHEETS

                           DECEMBER 31, 2004 AND 2003

                                                       Assets
                                                       ------

                                                                                                   2004            2003
                                                                                                -----------    -----------
<S>                                                                                             <C>            <C>
Current Assets

     Cash                                                                                       $   163,477    $    76,589
                                                                                                -----------    -----------

          Total Current Assets                                                                      163,477         76,589
                                                                                                -----------    -----------

Equipment, Less Accumulated Depreciation of $1,719                                                    6,371           --

Other Assets
     Patents, Less Accumulated Amortization of $166,438 and $23,831                               3,340,339      1,340,940
                                                                                                -----------    -----------

          Total Assets                                                                          $ 3,510,187    $ 1,417,529
                                                                                                ===========    ===========




LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities
     Accounts Payable - Trade                                                                   $   234,685    $     5,587
     Accrued Liabilities                                                                            183,797          5,495
     Current Portion of Long-Term Debt                                                              697,491        250,000
                                                                                                -----------    -----------

          Total Current Liabilities                                                               1,115,973        261,082

Convertible Notes Payable                                                                         1,127,818           --
Long-Term Debt, Less Current Portion                                                                173,576        250,000
                                                                                                -----------    -----------

          Total Liabilities                                                                       2,417,367        511,082
                                                                                                -----------    -----------

Commitments and Contingencies

Stockholders' Equity
    Common Stock, No Par Value, 200,000,000 Shares Authorized
         Issued and Outstanding 78,767,464 and 66,576,128 Shares, Respectively                    3,788,442      2,092,742
         Paid for but Not Issued 5,434,375 Shares                                                   695,761           --
    Deficit Accumulated During Development Stage                                                 (3,391,383)    (1,186,295)
                                                                                                -----------    -----------

          Total Stockholders' Equity                                                              1,092,820        906,447
                                                                                                -----------    -----------

          Total Liabilities and Stockholders' Equity                                            $ 3,510,187    $ 1,417,529
                                                                                                ===========    ===========



See accompanying notes to financial statements and independent auditors'reports.
</TABLE>

                                      F-3
<PAGE>

<TABLE>
<CAPTION>
                                                HEALTH DISCOVERY CORPORATION
                                  (FORMERLY KNOWN AS DIRECT WIRELESS COMMUNICATIONS, INC.)
                                                (A DEVELOPMENT STAGE COMPANY)

                                                  STATEMENTS OF OPERATIONS

                                              FOR THE YEARS ENDED DECEMBER 31,
                                       2004 AND 2003 AND THE PERIOD FROM APRIL 6, 2001
                                          (DATE OF INCEPTION) TO DECEMBER 31, 2004


                                                                                                              April 6, 2001
                                                                                Year Ended     Year Ended    (Inception) to
                                                                              December 31,    December 31,    December 31,
                                                                                  2004            2003            2004
                                                                              ----------      ----------      ------------
<S>                                                                           <C>             <C>             <C>
Revenues
     Capital Loss on Sale of Assets                                           $       --      $       --      $        (20)
     Dividend Income                                                                  --              --                64
     Miscellaneous Income                                                               15              50             405
                                                                              ------------    ------------    ------------

Total Revenues                                                                          15              50             449
                                                                              ------------    ------------    ------------

Expenses
     Administrative Fees                                                             6,890          15,300          57,609
     Amortization                                                                  142,607          23,831         166,438
     License Fees                                                                    1,697          16,260         242,497
     Outside Services                                                                 --            76,625          80,841
     Professional and Consulting Fees                                              830,835          57,270       1,472,432
     Compensation                                                                  862,560          80,667         943,227
     Other General and Administrative Expenses                                     360,514          37,509         428,788
                                                                              ------------    ------------    ------------

          Total Expenses                                                         2,205,103         307,462       3,391,832
                                                                              ------------    ------------    ------------

Net Loss                                                                      $ (2,205,088)   $   (307,412)   $ (3,391,383)
                                                                              ============    ============    ============

Weighted Average Outstanding Shares                                             73,950,073      33,776,646      34,246,701

Loss Per Share                                                                $       (.03)   $      (0.01)   $    (.09)




See accompanying notes to financial statements and independent auditors' reports.
</TABLE>


                                      F-4
<PAGE>


<TABLE>
<CAPTION>

                                                   HEALTH DISCOVERY CORPORATION
                                     (FORMERLY KNOWN AS DIRECT WIRELESS COMMUNICATIONS, INC.)
                                                   (A DEVELOPMENT STAGE COMPANY)

                                           STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                            FOR THE PERIOD FROM APRIL 6, 2001 (DATE OF INCEPTION) TO DECEMBER 31, 2004

                                                               Common Stock
                                           ---------------------------------------------------
                                             Issued and Outstanding     Paid for but Not Issued        Deficit            Total
                                           ------------------------      ----------------------  Accumulated During   Stockholders'
                                            Shares           Amount        Shares       Amount     Development Stage     Equity
                                            ------           ------        ------       ------     -----------------     ------

<S>                                       <C>           <C>             <C>         <C>            <C>                <C>
Contributed Services                            --      $    15,019          --     $      --      $      --          $    15,019
Stock Issued for Cash                      2,001,650        168,645          --            --             --              168,645
Stock Issued as a Dividend to
  Shareholders of
  Direct Wireless Corporation             10,138,975           --            --            --             --                 --
Stock Issued to Officers of
  Direct Wireless Corporation              7,100,000           --            --            --             --                 --
Stock Issued for Services                  2,213,995        315,496          --            --             --              315,496
Stock Held In Escrow                          77,500           --            --            --             --                 --
Cash Received for Sale of
    Escrowed Shares                           22,500          9,335          --            --             --                9,335
Net Loss                                        --             --            --            --         (523,115)          (523,115)
                                          ----------    -----------     ---------   -----------    -----------        -----------

Balance - December 31, 2001               21,554,620        508,495          --            --         (523,115)           (14,620)
Contributed Services                            --           20,400          --            --             --               20,400
Stock Issued for Cash                        467,500         87,810          --            --             --               87,810
Stock Issued for Services                  3,598,444        248,100          --            --             --              248,100
Stock Held in Escrow                       3,179,500           --            --            --             --                 --
Cash Received for Sale of
   Escrowed Shares                         1,020,500         24,280          --            --             --               24,280
Net Loss                                        --             --            --            --         (355,768)          (355,768)
                                          ----------    -----------     ---------   -----------    -----------        -----------

Balance - December 31, 2002               29,820,564        889,085          --            --         (878,883)            10,202

Contributed Services                            --           15,300          --            --             --               15,300
Stock Issued for Cash                      2,750,000         55,000          --            --             --               55,000
Stock Issued for Services                    355,000         26,150          --            --             --               26,150
Paid in Capital for
   Compensatory Options                         --           54,000          --            --             --               54,000
Stock Issued for Patents                  33,650,564        864,261          --            --             --              864,261
Stock Held in Escrow                      (3,257,000)          --            --            --             --                 --
Cash Received for Sale of
    Escrowed Shares                        3,257,000        188,946          --            --             --              188,946
Net Loss                                        --             --            --            --         (307,412)          (307,412)
                                          ----------    -----------     ---------   -----------    -----------        -----------

Balance - December 31, 2003               66,576,128      2,092,742          --            --       (1,186,295)           906,447

Stock Issued for Cash                     15,235,000      1,499,900          --            --             --            1,499,900
Stock Issued for Services                    422,372         78,800          --            --             --               78,800
Cancellation of Common Stock              (3,466,036)          --            --            --             --                 --
Paid in Capital for
   Compensatory Warrants                        --          117,000          --            --             --              117,000
Stock Paid for but Not Issued                   --             --       5,434,375       695,761           --               695,761
Net Loss                                        --             --            --            --       (2,205,088)       (2,205,088)
                                          ----------    -----------     ---------   -----------    -----------        -----------


Balance - December 31, 2004               78,767,464    $ 3,788,442     5,434,375   $   695,761    $(3,391,383)       $ 1,092,820
                                          ==========    ===========     =========   ===========    ===========        ===========




See accompanying notes to financial statements and independent auditors' reports.
</TABLE>


                                                                             F-5
<PAGE>


<TABLE>
<CAPTION>
                                               HEALTH DISCOVERY CORPORATION
                                 (FORMERLY KNOWN AS DIRECT WIRELESS COMMUNICATIONS, INC.)
                                              (A DEVELOPMENT STAGE COMPANY)

                                                 STATEMENTS OF CASH FLOWS

                                             FOR THE YEARS ENDED DECEMBER 31,
                                     2004 AND 2003 AND THE PERIOD FROM APRIL 6, 2001
                                         (DATE OF INCEPTION) TO DECEMBER 31, 2004


                                                                                                          From Inception
                                                                            Year Ended       Year Ended  (April 6, 2001)
                                                                           December 31,     December 31,  to December 31,
                                                                               2004             2003          2004
                                                                            -----------    -----------    -----------

<S>                                                                         <C>            <C>            <C>
Cash Flows From Operating Activities
Net Loss                                                                    $(2,205,088)   $  (307,412)   $(3,391,383)
Adjustments to Reconcile Net Loss to Net Cash
   Used by Operating Activities:
            Noncash Compensation                                                117,000         54,000        171,000
            Administrative Expenses Settled by Common Stock                        --           15,300         50,719
            Services Exchanged for Common Stock                                  78,800         26,150        668,546
            Depreciation and Amortization                                       144,326         23,831        168,157
            Increase in Accounts Payable - Trade                                229,098         15,710        234,685
            Increase in Accrued Liabilities                                     132,313          5,495        132,808
                                                                            -----------    -----------    -----------

         Net Cash Used by Operating Activities                               (1,503,551)      (166,926)    (1,965,468)
                                                                            -----------    -----------    -----------

Cash Flows From Investing Activities:
   Purchase of Equipment                                                         (8,090)          --           (8,090)
   Amounts Paid to Acquire Patents                                             (166,529)          (510)      (167,039)
                                                                            -----------    -----------    -----------

          Net Cash Used by Investing Activities                                (174,619)          (510)      (175,129)
                                                                            -----------    -----------    -----------

Cash Flows From Financing Activities:
   Repayments of Notes Payable                                                 (476,592)          --         (476,592)
   Proceeds from Sales of Common Stock, Net                                   2,241,650        243,946      2,780,666
                                                                            -----------    -----------    -----------

           Net Cash Provided by Financing Activities                          1,765,058        243,946      2,304,074
                                                                            -----------    -----------    -----------

 Net Increase in Cash                                                            86,888         76,510        163,477

Cash, at Beginning of Period                                                     76,589             79           --
                                                                            -----------    -----------    -----------


Cash, at End of Period                                                      $   163,477    $    76,589    $   163,477
                                                                            ===========    ===========    ===========


Non-Cash Investing and Financing Transactions:
   Patents Purchased Using Debt                                             $ 1,975,477    $   500,000    $ 2,475,477
   Stock Issued for Professional and Consulting Services                    $    78,800    $    26,150    $   668,546
   Stock Issued for Patents                                                 $      --      $   864,261    $   864,261
   Non-cash Compensation Warrants                                           $   117,000    $        --    $   117,000
   Non-cash Stock Issuance Costs                                            $    45,989    $        --    $    45,989



See accompanying notes to financial statements and independent auditors' reports.
</TABLE>



                                                           F-6
<PAGE>





                          HEALTH DISCOVERY CORPORATION
            (FORMERLY KNOWN AS DIRECT WIRELESS COMMUNICATIONS, INC.)
                          (A DEVELOPMENT STAGE COMPANY)

                          NOTES TO FINANCIAL STATEMENTS



NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
----------------------------------------------------

NATURE OF OPERATIONS AND DESCRIPTION OF DEVELOPMENT STAGE ACTIVITIES

Health Discovery Corporation (formerly known as Direct Wireless  Communications,
Inc.)  (the  "Company")  has been in the  development  stage  since  the date of
incorporation  on April 6,  2001.  The  Company  was  primarily  engaged  in the
activity of developing  technology for a wireless  telephone  system until 2003,
when it decided to abandon its efforts in the  telecommunications  industry  and
acquired new  technologies  in the  biotechnology  industry.  During  2003,  the
Company acquired the assets of the Barnhill Group, LLC and Fractal Genomics, LLC
in pursuit of its  biotechnology  focus as discussed in Note D. During 2004, the
Company continued pursuit of its biotechnology focus by acquiring certain rights
to patents and patent pending  applications  for certain machine  learning tools
used for diagnostic and drug discovery.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States of America requires  management to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities,  disclosure of contingent assets and liabilities at the date of the
financial  statements and the reported  amounts of revenues and expenses  during
the period.  Accordingly,  actual  results  could  differ from those  estimates.
Significant  estimates  that  are  particularly  suspectible  to  change  in the
near-term  include the valuation of non-cash  consideration for services and the
recoverability of the patents.

PATENTS

Patents are amortized over their remaining legal lives, that range from 15 to 20
years,  from the date  they are  acquired  or  approved.  Legal  costs  directly
associated  with the patent  acquisitions  and the  application  process for new
patents are capitalized when incurred and are being amortized over the remaining
legal life of the related  patent.  If the applied for patents are  abandoned or
are not issued,  the Company  will  expense  the  capitalized  legal costs as an
impairment charge.

The carrying  value of patents is reviewed  for  impairment  whenever  events or
changes  in  circumstances   indicate  that  the  carrying  amount  may  not  be
recoverable.  As of December  31, 2004,  the Company does not believe  there has
been any impairment of its intangible assets.

INCOME TAXES

The Company accounts for income using the liability method.  Deferred tax assets
and   liabilities  are  recognized  for  future  tax  benefits  or  consequences
attributable to temporary  differences  between the financial statement carrying
amounts of  existing  assets and  liabilities  and their  respective  tax bases.
Deferred  tax  assets and  liabilities  are  measured  using  enacted  tax rates
expected  to apply to  taxable  income  for the years in which  those  temporary
differences  are expected to be recovered or settled.  A valuation  allowance is
provided  for  significant  deferred  tax assets when it is more likely than not
that such assets will not be realized through future operations.

In the event the future tax  consequences  of differences  between the financial
reporting bases and tax bases of the Company's assets and liabilities  result in
deferred tax assets,  an evaluation of the  probability of being able to realize
the future benefits  indicated by such assets is made. A valuation  allowance is
provided  for the portion of the  deferred  tax asset whenit is more likely than
not that some portion or all of the deferred tax asset will not be realized.  In
assessing the realizabilty of the deferred tax assets,  management considers the
scheduled reversals of deferred tax liabilities, projected future taxable income
and tax planning strategies.



                                      F-7
<PAGE>




                          HEALTH DISCOVERY CORPORATION
            (FORMERLY KNOWN AS DIRECT WIRELESS COMMUNICATIONS, INC.)
                          (A DEVELOPMENT STAGE COMPANY)

                    NOTES TO FINANCIAL STATEMENTS, CONTINUED



NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
--------------------------------------------------------------

STOCK-BASED COMPENSATION
------------------------

The Company accounts for its stock based  compensation under the intrinsic value
method prescribed in Accounting  Principles Board (APB) No. 25,  "Accounting for
Stock Issued to Employees." Had the Company used the fair-value-based  method of
accounting  for the stock  option  plan  prescribed  by SFAS No. 123 and charged
compensation  expense  against  income over the vesting period based on the fair
value of options at the date of grant, net loss and loss per share for the years
ended December 31, 2004 and 2003:

<TABLE>
<CAPTION>
                                                                                     From Inception
                                                                                      (April 6,
                                                                                        2001 to
                                                                                      December 31,
                                                       2004             2003             2004)
                                                    -----------      -----------      -----------

<S>                                                 <C>              <C>              <C>
       Net loss as reported                         $(2,205,088)     $  (307,412)     $(3,391,383)

       Deduct: Stock-based Expense

             Determined Under Fair Value Based
             Method for:
                        Employee Stock Options          (32,000)         (60,000)         (92,000)
                                                    -----------      -----------      -----------

       Proforma Net Loss                            $(2,237,088)     $  (367,412)     $(3,483,383)
                                                    ===========      ===========      ===========

       Stock-based Expense Included in Net Loss     $   195,800      $    80,150      $   275,950
                                                    ===========      ===========      ===========


       Loss Per Share:

             Basic - As Reported                    $      (.03)     $      (.01)     $      (.09)

             Basic - Proforma                       $      (.03)     $      (.01)     $      (.09)

</TABLE>

There were no options granted in 2004

Stock-based  expense  included  in  the  2004  net  loss  includes  $117,000  in
compensatory  warrants and $78,800 in stock issued to consultants  for services.
Stock-based  expense  in the 2003  net loss  includes  $80,150  in  compensatory
options. No stock-based expense was incurred in 2002 or 2001.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial  instruments consist of cash, accounts payable,  accrued
expenses and long-term debt.  Pursuant to SFAS No. 107,  "Disclosures about Fair
Value of  Financial  Instruments,"  the Company is required to estimate the fair
value of all  financial  instruments  at the  balance  sheet  date.  The Company
considers  the carrying  values of its  financial  instruments  in the financial
statements to approximate their fair value.



                                      F-8
<PAGE>


                          HEALTH DISCOVERY CORPORATION
            (FORMERLY KNOWN AS DIRECT WIRELESS COMMUNICATIONS, INC.)
                          (A DEVELOPMENT STAGE COMPANY)

                    NOTES TO FINANCIAL STATEMENTS, CONTINUED



NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
--------------------------------------------------------------

NET LOSS PER SHARE

Basic  Earnings  Per Share  ("EPS")  includes  no  dilution  and is  computed by
dividing income or loss available to common shareholders by the weighted average
number of common  shares  outstanding  for the period.  Diluted EPS reflects the
potential  dilution of securities  that could share in the earnings or losses of
the entity.  Due to the net loss in all periods  presented,  the  calculation of
diluted per share amounts would result in an anti-dilutive  result and therefore
is not  presented.  Potentially  dilutive  shares at December  31, 2004 and 2003
include the following:

                                                2004             2003
                                              ---------       ---------

                 Stock options                3,000,000       5,500,000
                 Warrants                     6,134,375               -
                 Convertible notes            6,634,224               -
                                              ---------       ---------


                                             15,768,599       5,500,000
                                             ==========       =========


Subsequent  to December  31,  2004,  the  Company  sold or  otherwise  issued an
additional  25,180,625 shares of restricted common stock as described in Note K.
Each  of  those  shares  had  an  associated  warrant  that  would  have  been a
potentially dilutive share.

ISSUANCE OF EQUITY INSTRUMENTS FOR NON-CASH CONSIDERATION

All issuances of the Company's  equity  instruments for non-cash  consideration,
which primarily  pertain to services  rendered by consultants  and others,  have
been assigned a per share amount  equaling either the market value of the shares
issued  or the  value  of  consideration  received,  whichever  is more  readily
determinable.


CONCENTRATIONS OF CREDIT RISK

The Company  maintains  its cash  balances at  financial  institutions  that are
insured by the Federal Deposit  Insurance  Corporation  ("FDIC") up to $100,000.
From time-to-time,  the Company's cash balances exceed the amount insured by the
FDIC.  Management  believes  the risk of loss of cash  balances in excess of the
insured limit to be low. At December 31, 2004, all  individual  cash balances at
financial institutions were less than $100,000.


RECENT ACCOUNTING PRONOUNCEMENTS

In December  2004,  the FASB issued SFAS No.  153,  "Exchanges  of  Non-Monetary
Assets",  an  amendment  of  APB  Opinion  29,  "  Accounting  for  Non-Monetary
Transactions."  The  amendments  made by SFAS No. 153 are based on the principle
that exchanges of non-monetary assets should be measured based on the fair value
of the assets exchanged.  Further, the amendments eliminate the narrow exception
for non-monetary  exchanges of similar  productive assets and replaces it with a
broader  exception  for  exchanges  of  non-monetary  assets  that  do not  have
"commercial  substance."  The  provisions  in SFAS  No.  153 are  effective  for
non-monetary  asset exchanges  occurring in fiscal periods  beginning after June
15, 2005. Early application is permitted,  and companies must apply the standard
prospectively.  The  Company  adopted  this  statement  on January 1, 2005.  The
adoption of the statement  should not cause a significant  change in the current
manner in which the Company accounts for its exchanges of non-monetary assets.

The FASB  has  issued  SFAS  No.  123(R),  "Share-Based  Payment."  The new rule
requires that the compensation cost relating to share-based payment transactions
be recognized in the financial  statements.  That cost will be measured based on
the fair value of the equity or liability  instruments  issued.  This  statement
precludes the  recognition  of  compensation  expense under APB Opinion No. 25's
intrinsic  value  method.  The Company will be required to apply SFAS No. 123(R)
beginning  January 1, 2006. The Company does not believe that the impact of SFAS
No. 123(R) will be materially  different  from the amounts  presented in the pro
forma disclosures.



                                      F-9
<PAGE>




                          HEALTH DISCOVERY CORPORATION
            (FORMERLY KNOWN AS DIRECT WIRELESS COMMUNICATIONS, INC.)
                          (A DEVELOPMENT STAGE COMPANY)

                    NOTES TO FINANCIAL STATEMENTS, CONTINUED



NOTE B - RELATED PARTY TRANSACTIONS
-----------------------------------

Direct Wireless Corporation provided office space and administrative services to
the Company  until  September  30, 2003.  The  estimated  value for the services
provided  totaled  $50,719  since  inception  and  is  recorded  as  contributed
administrative services in the accompanying financial statements.

As a result of the agreements between Barnhill,  LLC and Fractal Genomics,  LLC,
the Company's  Chief  Executive  Officer  receives 49% of each note payment,  or
$30,625 plus  interest per payment,  made to Fractal  Genomics,  LLC from Health
Discovery Corporation that is more fully described in Note D.

As of September  15, 2005,  the Company has agreed to lease a new location to be
used as the principle  executive  office from a company owned by the wife of the
Company's  Chief  Executive  Officer.  The term of the new  principle  executive
office space will be  month-to-month  and the rent expense  associated with this
lease will be $1,036 per month.  Prior to September  15,  2005,  the Company had
been leasing its  principle  executive  office space from a company owned by the
wife of the Company's Chief Executive  Officer and its term was  month-to-month.
Rent expense  associated with this lease was $838 per month.  Rent expense under
this lease arrangement  amounted to approximately  $10,000 in 2004. There was no
rent expense related to this lease in 2003 and prior years.

NOTE C - PATENTS
----------------

The Company has acquired a group of patents related to biotechnology and certain
machine  learning tools used for diagnostic  and drug  discovery.  Additionally,
legal costs associated with patent  acquisitions and the application process are
also capitalized as a part of patents.  The Company has recorded  $3,364,156 and
$1,364,757 in patents and patent related costs, net of accumulated amortization,
at December 31, 2004 and 2003.

Amortization  charged to  operations  for the years ended  December 31, 2004 and
2003 and from the period from April 6, 2001 (date of  inception) to December 31,
2004, was $142,607,  $23,831 and $166,438,  respectively.  The weighted  average
amortization period for patents is 15 years.  Estimated amortization expense for
the next five years is $228,500 per year.

NOTE D - ACQUISITIONS
---------------------

On August 26,  2003,  the Company  acquired the assets of Barnhill  Group,  LLC,
which  consisted  of  patents  and  related  rights,  through  the  issuance  of
29,825,564  common  shares  of  the  Company  (then  known  as  Direct  Wireless
Communications, Inc.). The purchase of Barnhill Group, LLC's assets was recorded
at  $596,511,  which was the market  value of the  shares  issued at the date of
acquisition.

On September 30, 2003,  the Company  acquired the patents,  patent  rights,  all
pending intellectual  property of Fractal Genomics,  LLC through the issuance of
3,825,000   common  shares  of  the  Company  (then  known  as  Direct  Wireless
Communications,  Inc.).  In addition to the common stock  shares  issued for the
acquisition of Fractal Genomics,  LLC's assets,  the Company agreed to execute a
note for  $500,000  payable  in  $62,500  quarterly  installments  to the seller
beginning  on January 1, 2004 through  October 1, 2005.  The purchase of Fractal
Genomics,  LLC's assets was recorded at $767,750,  which was the market value of
the shares issued at the date of acquisition plus the amount of the note.

On July 30, 2004,  the Company  acquired  certain  rights to patents and patents
pending  applications for certain machine learning tools used for diagnostic and
drug  discovery.  The rights to these assets were purchased from unrelated third
parties for a  combination  of  non-interest  bearing notes payable and interest
bearing  notes  payable  that  are  convertible  to  common  stock.   Under  the
non-interest  bearing note payable, an initial cash payment of $175,394 was paid
to the sellers on December  30,  2004 and four  additional  payments of $175,394
will be made four months from the date of the initial  payment and every  fourth
month  thereafter until $876,970 has been paid. The Company has imputed interest
on the non-interest bearing note payments using a rate of 3.16 %, which resulted
in a liability that amounts to $847,659.  For the interest bearing notes payable
that are  convertible  to common  stock,  the  sellers  received  notes  payable
amounting to $1,127,818  that bear interest at 3.16 % and are  convertible  into
6,634,221  shares of common stock (at $.17 per share) until maturity on July 28,
2009.  The  agreements  place certain  limitations  on the selling of the common
stock shares  during  certain  periods after  conversion.  The purchase of these
patents and patents pending  applications was recorded at $1,975,477,  which was
the estimated present value of the notes issued at the date of acquisition.



                                      F-10
<PAGE>



                          HEALTH DISCOVERY CORPORATION
            (FORMERLY KNOWN AS DIRECT WIRELESS COMMUNICATIONS, INC.)
                          (A DEVELOPMENT STAGE COMPANY)

                    NOTES TO FINANCIAL STATEMENTS, CONTINUED




NOTE D - ACQUISITIONS, CONTINUED
--------------------------------

On May 6, 2005 the Company  acquired  the  remaining  interest in a portfolio of
patents  from a group of  unrelated  third  parties.  The cost of the  remaining
interest  consisted of a cash payment of  $270,856;  the issuance of  promissory
notes totaling $37,871 and convertible notes totaling $147,401.  The convertible
notes were  converted by the holders  immediately  upon issuance in exchange for
867,065 shares of common stock.

The entire  purchase  price for each of these  acquisitions  was assigned to the
acquired  patents  since no other net assets were  acquired and the patents were
the sole interest of the acquirer.

NOTE E - LICENSE FEES EXPENSE-LICENSE AGREEMENT
-----------------------------------------------

Effective  April 30, 2001,  the Company  entered into a license  agreement  with
Direct Wireless Corporation. The Company had agreed to pay $10,000,000 under the
terms of the license agreement as the Company gains money from the sale or sales
of  sub-licenses  for the United  States.  The  Company had also agreed to pay a
percentage of all fees collected from licensed products to Direct Wireless under
the terms of the agreement.

As a result of the  acquisition  of  Barnhill  Group,  LLC and the change in the
strategic direction of the Company, the license agreement was canceled in 2003.

Effective  September  26,  2004,  the  Company  was  assigned  a patent  license
agreement  with  Lucent  Technologies  GRL  Corporation  ("Lucent").  The patent
license  agreement was  associated  with the patents acquired July 30, 2004, The
Company  agreed to pay royalty fees to Lucent in the amount of the greater of an
annual  fee of  $10,000  or at the rate of five  percent  (5%) on each  licensed
product which is sold, leased, or put into use by the Company,  until cumulative
royalties  equal $40,000 and at the rate of one percent (1%)  subsequently.  The
license granted will contine for the entire unexpired term of Lucent's  patents.
On August 30, 2004,  the Company paid  approximately  $20,000 in royalty fees to
Lucent.  Total fees of $18,886 were  capitalized as part of the acquisition cost
of the patents acquired, the balance of $1,667 was expensed as a license fee.

NOTE F - INCOME TAXES
---------------------

The Company's  effective  tax rate differs from the federal and state  statutory
rates due to the valuation allowance recorded for the deferred tax asset due. An
allowance  has been  provided for by the Company  which reduced the tax benefits
accrued by the  Company  for its net  operating  losses and other  deferred  tax
attributes to zero, as management cannot determine when, or if, the tax benefits
derived  from these  operating  losses and other  deferred tax  attributes  will
materialize.  At December 31,  2004,  the Company had net  operating  loss carry
forwards totaling approximately  $3,300,000,  which will expire in various years
beginning in 2021.

NOTE G - NOTES PAYABLE AND CONVERTIBLE NOTES PAYABLE
----------------------------------------------------

<TABLE>
<CAPTION>
Notes payable consist of the following:                                                                 2004            2003
                                                                                                      ---------      ---------
<S>                                                                                                   <C>            <C>
     Note payable to individuals, bearing interest at 6% payable in quarterly installments
        of  $62,500 with a final payment due on October 1, 2005                                       $ 187,500      $ 500,000

     Notes payable to individuals, with imputed interest computed at 3.16 % with
        installments due every fourth month with a final payment due February 28, 2006                  683,567        _______

                                                                                                        871,067        500,000
     Less current maturities                                                                           (697,491)      (250,000)
                                                                                                      ---------      ---------

                                                                                                      $ 173,576      $ 250,000
                                                                                                      =========      =========
</TABLE>

Convertible  notes in an aggregate amount of $1,127,818 mature on July 28, 2009,
and may be  converted at the  election of the  noteholders  until that time into
shares of the  Company's  Common  Stock at $.17 per share.  A total of 6,634,224
shares  may be  issued  upon the  conversion  of the  notes.  In  addition,  the
noteholders  are  further  limited  to not sell more  than 10% of such  holder's
shares in any calendar quarter after the minimum holding period has expired. The
convertible notes bear interest at a rate of 3.16%.


                                      F-11
<PAGE>



                          HEALTH DISCOVERY CORPORATION
            (FORMERLY KNOWN AS DIRECT WIRELESS COMMUNICATIONS, INC.)

                          (A DEVELOPMENT STAGE COMPANY)

                    NOTES TO FINANCIAL STATEMENTS, CONTINUED



NOTE G - NOTES PAYABLE AND CONVERTIBLE NOTES PAYABLE, CONTINUED
---------------------------------------------------------------

All of the Company's debt is collateralized by specific patents in the Company's
patent portfolio.

During 2005,  certain  convertible note holders elected to convert their debt to
shares of the Company's  stock.  The conversion  reduced the debt by $609,576 in
exchange for 3,585,741 shares of common stock.


NOTE H - COMMITMENTS
--------------------

Certain security purchase  agreements,  as discussed in note K, may obligate the
Company to issue additional shares and warrants to purchase the Company's common
stock.

The Company has entered  into  employment  agreements  with its Chief  Executive
Officer, President and Chief Medical Officer and the Director of Operations. The
employment agreement with the Company's Chief Executive Officer is for a term of
five years  beginning  September 15, 2003.  The  employment  agreement  with the
Company's  President and Chief Medical  Officer will continue until  terminated,
which can occur at any time by notice, provided that the Company's President and
Chief Medical  Officer will not terminate  his  employment  upon less than sixty
(60) days' prior written  notice.  The agreements  provide for base salaries and
other perquisites commensurate with their employment.

The employment  agreement with the Company's Director of Operations commenced on
June 16, 2004 and ended on August 1, 2005, when the parties elected to terminate
the agreement.

As of December  31,  2004,  the Company  contractually  agreed to issue upon the
fulfillment  of certain  conditions  200,000  shares of common stock and 700,000
warrants to purchase the Company's common stock at an exercise price of $.01 per
share to  members  of the  Company's  Scientific  Advisory  Board  for  services
performed.  In  addition,  the  Company  contractually  agreed to issue upon the
fulfillment  of certain  conditions  500,000  warrants to purchase the Company's
common stock at an exercise price of $.01 per share to a consultant for services
performed.  Warrants to purchase 200,000 shares vested in 2004 and the remaining
1,000,000  vest during 2005 and 2006. The shares vested in 2004. The Company has
issued or will issue the  contractually  agreed shares upon the  fulfillment  of
certain conditions as they are satisfied in 2005 and 2006.

In 2005, the Company  committed to issue an additional  200,000 shares of common
stock and 300,000 warrants to purchase the Company's common stock at an exercise
price of $.01 per share to members of the Company's  Scientific  Advisory  Board
for services  performed.  All of the committed  shares and warrants vest in 2006
and will be issued upon vesting.

NOTE I - STOCK OPTIONS
----------------------

On October 30, 2003, the Company approved 8,000,000 shares of common stock to be
reserved solely for issuance and delivery upon the exercise of option grants.

At  December  31, 2004 and 2003,  the Company has options to purchase  3,000,000
shares of common stock outstanding as follows:



                                      F-12
<PAGE>



                          HEALTH DISCOVERY CORPORATION
            (FORMERLY KNOWN AS DIRECT WIRELESS COMMUNICATIONS, INC.)

                          (A DEVELOPMENT STAGE COMPANY)


                    NOTES TO FINANCIAL STATEMENTS, CONTINUED



NOTE I - STOCK OPTIONS, CONTINUED
---------------------------------

<TABLE>
<CAPTION>
                               NUMBER OF      EXERCISE
   2004      GRANT DATE          SHARES        PRICE     VESTING
   ----      ----------        ---------      --------
<S>                  <C>         <C>           <C>                <C>
             October 2003        600,000       $ .01      October 2003
             October 2003      2,400,000       $ .10      400,000 shares each in November 2004, 2005 and 2006 with
                                                          the remaining based on performance.

                               NUMBER OF      EXERCISE
   2003      GRANT DATE          SHARES        PRICE     VESTING
   ----      ----------        ---------      --------
             October 2003      1,900,000       $ .10     400,004 shares in November 2004, 400,000 shares each in
                                                         November 2005 and 2006 with the remaining based on
                                                         performance.
              October 2003        600,000       $ .01    October 2003
              October 2003        600,000       $ .01    October 2003
              October 2003      2,400,000       $ .10    400,000 shares each in November 2004, 2005 and 2006 with
                                                         the remaining based on performance.
</TABLE>

These  options  were awarded to an employee of the Company and expire in October
2013.

The  following  schedule  summarizes  stock option  activity for the period from
April 6, 2001 (date of inception) to December 31, 2004:

<TABLE>
<CAPTION>
                                                         Number of Stock         Weighted-Average
                                                            Options              Exercise Price
                                                            -------              --------------

<S>                     <C>                                 <C>                     <C>
              Granted - 2003                                5,500,000               $ .08
              Forfeited - 2004                             (2,500,000)              $ .08
                                                           ----------

              Outstanding at December 31, 2004              3,000,000               $ .08
                                                            =========
</TABLE>


A former employee forfeited  2,500,000 during 2004. There were 1,200,000 options
with a weighted average exercise price of $.06 exercisable at December 31, 2004.
The weighted average remaining life of the options is 8 years.

The estimated  weighted  average fair value of options  granted  during 2003 was
$.08 per share.  The fair value of options  granted  under the  Company's  fixed
stock  option  plan  during  2003 was  estimated  on the date of grant using the
Black-Scholes   option-pricing   model  with  the  following   weighted  average
assumptions  used:  expected  dividend yield of 0%, expected  volatility of 80%;
weighted  average  risk-free  interest  rate of 4.30% and an  expected  weighted
average life of ten years.



                                      F-13
<PAGE>


                         HEALTH DISCOVERY CORPORATION

            (FORMERLY KNOWN AS DIRECT WIRELESS COMMUNICATIONS, INC.)
                          (A DEVELOPMENT STAGE COMPANY)

                    NOTES TO FINANCIAL STATEMENTS, CONTINUED



NOTE J - WARRANTS
-----------------

There were no warrants outstanding at December 31, 2003. Information about
warrants outstanding at December 31, 2004 is summarized below:

<TABLE>
<CAPTION>
                                                               APPROXIMATE WEIGHTED-AVERAGE
                                                                      REMAINING
        EXERCISE PRICES               NUMBER OUTSTANDING        CONTRACTUAL LIFE (YEARS)
        ---------------               ------------------        ------------------------

             
                              <C>                          <C>
             $.01                             100,000                      1
             $.08                             600,000                      2
             $.24                           5,434,375                      4
             $.35                          15,235,000                      2
             $.24                             218,746                      4

</TABLE>

The $.01 and $.08  warrants were issued to  consultants  and others for services
rendered on behalf of the Company and are currently exercisable. Amounts related
to these  warrants  have  been  included  in Paid in  Capital  for  Compensatory
Warrants in the Statement of Changes in Stockholders' Equity.

The $.35  Warrants  were issued in  conjunction  with Round 1 Private  Placement
described in Note J. The $.24 Warrants relate to the Round 2 Private  Placement.
While the funds have been received for the Round 2 Private Placement, the shares
and the related  warrants  have not been  issued.  In  addition to the  Warrants
listed above,  the Company has committed to issue  consultants  218,746 Warrants
for assistance in selling the Company's common stock.  During 2005, all of these
shares and Warrants have been issued.

The Company has  ascribed no value to the Warrants  associated  with the Private
Placements that are described in Note K.

During 2005, the Company issued  1,000,000  warrants to consultants for services
rendered on behalf of the Company and are  currently  exercisable.  The exercise
prices  are $.20 per share for  500,000 of the  warrants  and $.22 per share for
500,000  warrants.  The Company  recorded  $120,000 of  consulting  expense upon
issuance of the warrants.

NOTE K - STOCKHOLDERS' EQUITY
-----------------------------

2003 PRIVATE PLACEMENT
----------------------

During 2003, the Company offered sale of restricted stock to qualified investors
through a private placement offering.  A total of 2,750,000 shares were sold for
$.02 per share.

2003 SALE OF ESCROW SHARES
--------------------------

During  2003,  the  Company  received  proceeds  of  $188,946  from  the sale of
3,257,000 shares of common stock.

2003 STOCK ISSUED IN ACQUISITIONS
---------------------------------

As discussed in Note D, the Company issued  33,560,564 shares of common stock in
connection  with the  acquisition  of the assets of the  Barnhill  Group LLC and
Fractal Genomics, LLC. The shares were valued at $864,261 based on quoted market
prices.


                                      F-14
<PAGE>



                          HEALTH DISCOVERY CORPORATION
            (FORMERLY KNOWN AS DIRECT WIRELESS COMMUNICATIONS, INC.)
                          (A DEVELOPMENT STAGE COMPANY)

                    NOTES TO FINANCIAL STATEMENTS, CONTINUED



NOTE K - STOCKHOLDERS' EQUITY, CONTINUED
----------------------------------------

PRIVATE PLACEMENT - ROUND 1

From  February  through  July  2004,  the  Company  offered  for sale  shares of
restricted stock to accredited  investors through a private offering.  The price
of the  restricted  stock was $.10 per share.  A total of 15,235,000  restricted
common  shares  were  issued to  accredited  investors  for  $1,499,900,  net of
issuance  cost of $23,600.  The issuance  cost  consisted of $22,400 in cash and
3,429 in common shares valued at $1,200,  paid to consultants  for assistance in
selling the Company's  common  stock.  The value of Company stock was based on a
contractual  agreement of $.35 per share. In addition,  each purchaser of shares
of common stock was granted a warrant to acquire an equal  number of  restricted
common  shares at a fixed  price of $0.35  per share  until  February  2007.  No
portion of the proceeds  was  assigned to the value of the warrants  because the
exercise price of the warrant exceeded the market value of the underlying common
stock on the date of purchase.

PRIVATE PLACEMENT - ROUND 2

From November 2004 through  March 2005,  the Company  offered for sale shares of
restricted stock to accredited  investors through a private offering.  The price
of the  restricted  stock was $.16 per share.  In  addition,  each  purchaser of
shares of common  stock was  granted a warrant  to  acquire  an equal  number of
restricted  common  shares at a fixed  price of $0.24 per share  until  December
2008.  No portion of the  proceeds  were  assigned to the value of the  warrants
because the  exercise  price of the  warrant  exceeded  the market  value of the
underlying  common  stock on the date of  purchase.  As of December  31, 2004, a
total of 5,434,375  restricted  common shares were sold to accredited  investors
for $695,761,  net of issuance costs of $173,739. The issuance cost consisted of
$128,950 in cash,  218,746 warrants,  each entitling the holder to buy one share
of the  Company's  common stock for $0.24 valued at $32,812 and 34,277 shares of
common  stock  valued at $11,977  which was paid or accrued to  consultants  for
assistance  in selling the Company's  common stock As of December 31, 2004,  the
common shares and related warrants had not been issued to the purchasers and are
recorded as common  shares  purchased  and not issued on the  Company's  balance
sheet. The value of Company stock was derived based on a contractual arrangement
of $.35 per  share.  The  values  of the  warrants  were  calculated  using  the
Black-Scholes option-pricing model.


On March 10, 2005, the Company  finalized a sale of shares of restricted  common
stock to  accredited  investors  through  a private  offering.  The price of the
restricted  stock was $.16 per share. In addition,  each purchaser of the shares
of common stock  received a warrant to acquire an equal number of common  shares
at a fixed  price of $0.24 per share  until  December  2008.  No  portion of the
proceeds was assigned to the value of the warrants because the exercise price of
the warrant exceeded the market value of the underlying common stock on the date
of  purchase.  A total of  13,018,750  restricted  common  shares  were  sold to
accredited  investors for  $1,798,944,  net of issuance  costs of $284,056.  The
issuance cost consisted of $157,000 in cash,  806,250  warrants,  each entitling
the holder to buy one share of the  Company's  common  stock for $0.24 valued at
$120,938,  and 17,480  shares of common stock valued at $6,118 which was paid or
accrued to consultants for assistance in selling the Company's common stock. The
value of Company stock was derived based on a  contractual  arrangement  of $.35
per share.  The values of the warrants were calculated  using the  Black-Scholes
option-pricing model.





                                      F-15
<PAGE>




                          HEALTH DISCOVERY CORPORATION
            (FORMERLY KNOWN AS DIRECT WIRELESS COMMUNICATIONS, INC.)
                          (A DEVELOPMENT STAGE COMPANY)

                    NOTES TO FINANCIAL STATEMENTS, CONTINUED



NOTE K- STOCKHOLDERS' EQUITY, CONTINUED
---------------------------------------

PRIVATE PLACEMENT - ROUND 2, CONTINUED

During 2005, the Company  extended its  fundraising  efforts through the sale of
common stock to accredited  investors through a private placement.  The price of
the restricted  stock was $.16 per share.  In addition,  each purchaser of stock
shares was  granted a warrant to acquire an equal  number of  restricted  common
shares at a fixed price of $0.24 per share until  December  2008.  No portion of
the  proceeds  was  assigned to the value of the  warrants  because the exercise
price of the warrant exceeded the market value of the underlying common stock on
the date of purchase. As of September 22, 2005, a total of 12,093,750 restricted
common shares were sold to accredited investors for $1,818,294,  net of issuance
costs of $116,706.  The  issuance  cost  consisted  of $70,300 in cash,  287,500
warrants,  each  entitling the holder to buy one share of common stock for $0.24
valued at $43,125,  and 9,375 shares of common stock valued at $3,281, which was
paid or accrued to consultants  for  assistance in selling the Company's  common
stock. The value of Company stock was derived based on a contractual arrangement
of $.35 per  share.  The  values  of the  warrants  were  calculated  using  the
Black-Scholes option-pricing model.

Under the Round 2 Private Placements, the Company agreed to use its best efforts
to file a registration  statement to register the shares of common stock and the
shares  underlying the warrants issued and sold to the investors by May 9, 2005,
and to use its best efforts to cause the  registration  statement to be declared
effective  within  120 days of March  10,  2005.  As a result of  provisions  in
certain of the Round 2 Private Placement documents, on August 7 and September 6,
2005,  68,125  shares of the  Company's  common  stock and  68,125  warrants  to
purchase  the  Company's  common stock were issued to certain  shareholders  who
acquired in the aggregate 6,812,500 shares in Round 2 Private Placement for each
date as a result of the  registration  statement not becoming  effective by such
date. The additional  number of shares and warrants is based upon one percent of
the number of shares and warrants purchased by such participants for each 30-day
period beginning on the 121st day until the  registration  statement is declared
effective.  Beginning September 7, 2005, the number of shares and warrants to be
issued will  increase  from one  percent to two  percent for each 30-day  period
until the registration  statement is declared  effective.  In addition,  certain
shareholders who purchased  6,812,500 shares of the Company's common stock, have
anti-dilution rights until the registration statement has been effective for 365
days. If the Company sells shares of the Company's  common stock at a price less
than $.16 per share or issues warrants to purchase the Company's common stock at
an exercise price less than $.24 per share, certain shareholders will receive an
amount of shares  or  warrants  at no cost so that  those  shareholders  have no
diluted effect from the sales of common stock or warrant  issuances.  No expense
is recorded upon the issuance of the additional shares.


SHARES ISSUED IN EXCHANGE FOR SERVICES

During 2003, the Company  issued 355,000 common stock shares to consultants  and
others for  services.  The shares were  granted at the fair market  value of the
services  provided.  Total  consulting  expense of $26,150 was  recorded for the
issuance.

During 2004, the Company  issued 222,372 common stock shares to consultants  for
services.  The shares  were  granted at the fair  market  value of the  services
provided.  Total consultant expense of $41,800 was recorded for the issuance. In
addition,  under a consulting  agreement,  the Company was obligated to issue an
additional  $60,000 of shares  (amounting to 254,572  shares) to  consultants at
December  31,  2004.  The expense is accrued for at December 31, 2004 in accrued
expenses on the Company's balance sheet and a corresponding charge to consultant
expense in the statement of  operations.  Warrants with a fair value of $117,000
were issued to  consultants  and others for services  performed on behalf of the
Company, and are included in the Statement of Changes in Stockholders' Equity.

The Company issued  200,000 shares of the Company's  common stock in 2004 to two
individuals  who  have  agreed  to serve on the  Company's  Scientific  Advisory
Committee.  The market  value of the shares at the time of issuance  was $37,000
and was recorded as compensation expense in the statement of operations.


During 2005, the Company issued 1,197,620 common stock shares to consultants for
services.  The shares  were  granted at the fair  market  value of the  services
provided as determined by the consultants.  Total consultant expense of $202,867
was recorded for the issuances in 2005.





                                      F-16
<PAGE>

                          HEALTH DISCOVERY CORPORATION
            (FORMERLY KNOWN AS DIRECT WIRELESS COMMUNICATIONS, INC.)
                          (A DEVELOPMENT STAGE COMPANY)

                    NOTES TO FINANCIAL STATEMENTS, CONTINUED



NOTE K- STOCKHOLDERS' EQUITY, CONTINUED
---------------------------------------

STOCK CANCELLATION
------------------

During 2004,  certain  officers and former officers and former  directors of the
Company  surrendered  3,466,036 shares of the Company's common stock because the
issuance of the shares was not properly authorized.  The shares were immediately
cancelled, and the Company gave no consideration for these shares.

NOTE L - GOING CONCERN
----------------------

The  accompanying  financial  statements  have been prepared in conformity  with
principles of accounting  applicable to a going concern,  which contemplates the
realization of assets and the liquidation of liabilities in the normal course of
business. No operating revenue has been derived since inception, and the Company
has not yet generated sufficient working capital to support its operations.  The
Company's  ability to  continue  as a going  concern is  dependent,  among other
things,  on its  ability  to reduce  certain  costs,  obtain new  contracts  and
additional financing and eventually, attain a profitable level of operations.

The Company has  recently  entered  into joint  ventures  with  several  leading
medical schools and research  facilities.  Additionally,  validation  testing is
currently being performed on several of the Company's discoveries. Assuming that
the testing  confirms the initial  discoveries,  the Company plans to market the
discoveries. In addition, the Company plans to license the technology underlying
several  of its  patents  and to  provide  supporting  services  related  to the
application of such technology. Based on these developments, management believes
revenue  generation  will  commence  in the  near-term.  As noted in Note K, the
Company raised additional  capital  subsequent to December 31, 2004 and may from
time-to-time, raise additional capital.

NOTE M - PREVIOUSLY ISSUED 2004 AUDITED FINANCIAL STATEMENTS
------------------------------------------------------------

During 2005,  the Company  engaged an accounting  firm to re-audit the Company's
2003 financial  statements.  As a result of the audit,  management  recorded two
adjustments  to the 2003  financial  statements.  The  first  adjustment,  which
amounted to $23,817, was made to record amortization expense for certain patents
that were acquired in 2003.  The second  adjustment,  which amounted to $54,000,
was made to  record  compensation  expense  for a stock  option  grant  that was
granted at an exercise  price less than the fair market  value of the  Company's
stock at the time of grant. The impact on the 2004 financial  statements,  which
were previously issued with a report dated April 17, 2005, is as follows:


                                               PRIOR TO         AFTER
                                               --------         -----

                                             RESTATEMENT     RESTATEMENT
                                             -----------     -----------

                 Patents                      $3,364,156      $3,340,339
                 Common Stock                  3,734,442       3,788,442
                 Accumulated Deficit          (3,313,566)     (3,391,383)
                 Net Loss                     (2,205,088)     (2,205,088)




                                      F-17