**UNITED
      STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C.
      20549**




**FORM
      10-QSB**




x Quarterly
      report under Section 13 or 15(d) of the Securities Exchange Act of
      1934


For
      the quarterly period ended September 30, 2007





o
      Transition report under
      Section 13 or 15(d) of the Exchange Act


For
      the
      transaction period from _________ to _________





Commission
      file number 333-62216




**HEALTH
                  DISCOVERY CORPORATION**
 
 Georgia
              
              74-3002154(State
                  or other jurisdiction of incorporation or
                  organization)
              
              (IRS
                  Employer Identification No.)
 
 2
                  East Bryan Street, Suite #601
                Savannah,
                  Georgia 31401(Address
                  of principal executive offices)912-443-1987(Issuer's
                  telephone number, including area code)(Former
                  name, former address and former fiscal year,
                if
                  changed since the last report)
 
  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 the filing requirements for at least the past 90 days.  Yes [X] No
        [   ]
  Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act).
 Yes
        [  ] No  [X]
  **APPLICABLE
        ONLY TO ISSUERS INVOLVED IN BANKRUPTCY**
 **PROCEEDINGS
        DURING THE PRECEDING FIVE YEARS**
  Check
        whether the registrant filed all documents and reports required to be filed
        by
        Section l2, 13 or 15(d) of the Exchange Act after the distribution of securities
        under a plan confirmed by a court.  Yes [    ] No
        [    ]
   **APPLICABLE
        ONLY TO CORPORATE ISSUERS**
  State
        the
        number of shares outstanding of each of the issuer's classes of common equity,
        as of the latest practicable date: 169,007,206shares
        of common stock, no par value,
        were issued and outstanding
        as ofNovember
        12, 2007.
   Transitional
        Small Business Disclosure Format (Check one): Yes [  ] No [X]
















**TABLE
        OF CONTENTS**
 
 
 PART
                  I
              FINANCIAL
                  INFORMATION
              PageItem
                  1.
              Financial
                  StatementsBalance
                  Sheet
              1Statements
                  of Operations
              2Statements
                  of Cash Flows
              3Notes
                  to Financial Statements
              4Item
                  2.
              Management’s
                  Discussion and Analysis Of
                  Financial
                Condition
                  and Results of Operation
              10Item
                  3.
              Controls
                  and Procedures
              17PART
                  II
              OTHER
                  INFORMATION
              17Item
                  1.
              Legal
                  Proceedings
              17Item
                  2.
              Unregistered
                  Sales of Equity Securities and Use of
                  Proceeds
              18Item
                  5.
              Other
                  Information
              18Item
                  6.
              Exhibits
              19Signatures
              21
    ii
  **HEALTH
        DISCOVERY CORPORATION**
 Balance
        Sheet
 (unaudited)
 Assets
 
 September
                  30,2007Current
                  AssetsCash
              
              $
              2,082,199Accounts
                  Receivable
              
              
              187,500Prepaid
                  Expenses and Other Assets
              
              
              92,626Total
                  Current Assets
              
              
              2,362,325Equipment,
                  Less Accumulated Depreciation of $20,773
              
              
              9,225Other
                  AssetsAccounts
                  Receivable – Long Term
              
              
              112,500Patents,
                  Less Accumulated Amortization of $877,294
              
              
              3,108,500Investments
              
              
              5,000Total
                  Assets
              
              $
              5,597,550Liabilities
                  and Stockholders’ EquityCurrent
                  LiabilitiesAccounts
                  Payable – Trade
              
              $
              158,797Accrued
                  Liabilities
              
              
              246,006Deferred
                  Revenue
              
              ****
              98,819Total
                  Current Liabilities
              
              
              503,622Deferred
                  Revenue – Long Term
              
              
              433,281Accrued
                  Interest Payable
              
              
              6,028Convertible
                  Note Payable
              
              
              49,351Total
                  Liabilities
              
              
              992,282CommitmentsStockholders’
                  EquitySeries
                  A Preferred Stock, Convertible, Stated Value of $0.08 per
                  Share,7,437,184
                  Shares
                  Authorized, Issued and Outstanding
              
              
              594,975Common
                  Stock, No Par Value, 300,000,000 Shares Authorized169,007,206
                  Shares Issued
                  and Outstanding
              
              
              15,300,625Accumulated
                  Deficit
              
              
              (11,290,332
              )Total
                  Stockholders’ Equity
              
              
              4,605,268Total
                  Liabilities and Stockholders' Equity
              
              $
              5,597,550
 
 See
        accompanying notes to financial statements.
  1
 **HEALTH
        DISCOVERY CORPORATION**
 
 Statements
        of Operations
 (unaudited)
 
 Three
                  Months
              
              
              Three
                  Months
              
              
              Nine
                  Months
              
              
              Nine
                  MonthsEnded
              
              
              Ended
              
              
              Ended
              
              
              EndedSeptember 30,
              
              
              September
                  30,
              
              
              September
                  30,
              
              
              September
                  30,2007
              
              
              2006
              
              
              2007
              
              
              2006Revenues:Licensing
              
              $
              17,343
              
              
              $
              20,833
              
              
              $
              39,010
              
              
              $
              195,833Cost
                  of Revenues:Internal
                  Development
              
              
              7,500
              
              
              
              9,480
              
              
              
              18,900
              
              
              
              19,134Gross
                  Profit
              
              
              9,843
              
              
              
              11,353
              
              
              
              20,110
              
              
              
              176,699Operating
                  Expenses:Amortization
              
              
              65,680
              
              
              
              65,680
              
              
              
              197,040
              
              
              
              197,039Professional
                  and Consulting Fees
              
              
              304,352
              
              
              
              178,681
              
              
              
              796,661
              
              
              
              925,946Compensation
              
              
              218,396
              
              
              
              51,587
              
              
              
              540,106
              
              
              
              611,609Other
                  General and Administrative Expenses
              
              
              128,729
              
              
              
              111,859
              
              
              
              362,464
              
              
              
              447,274Total
                  Operating Expenses
              
              
              717,157
              
              
              
              407,807
              
              
              
              1,896,271
              
              
              
              2,181,868Loss
                  From Operations
              
              
              (707,314
              )
              
              
              (396,454
              )
              
              
              (1,876,161
              )
              
              
              (2,005,169
              )Other
                  Income (Expense)Interest
                  Income
              
              
              4,926
              
              
              
              3,946
              
              
              
              14,902
              
              
              
              11,945Litigation
                  Settlement
              
              
              (42,000
              )
              
              
              -
              
              
              
              (42,000
              )
              
              
              -Gains
                  on Restructuring of Accounts Payable
              
              
              -
              
              
              
              20,318
              
              
              
              44,594
              
              
              
              97,864Interest
                  Expense
              
              
              (81,395
              )
              
              
              (79,698
              )
              
              
              (285,509
              )
              
              
              (120,550
              )Total
                  Other Income (Expense)
              
              
              (118,469
              )
              
              
              (55,434
              )
              
              
              (268,013
              )
              
              
              (10,741
              )Net
                  Loss
              
              $
              (825,783
              )
              
              $
              (451,888
              )
              
              $
              (2,144,174
              )
              
              $
              (2,015,910
              )Weighted
                  Average Outstanding Shares
              
              
              129,865,585
              
              
              
              116,220,884
              
              
              
              121,832,264
              
              
              
              115,746,384Loss
                  Per Share
              
              $
              (.01
              )
              
              $
              (.00
              )
              
              $
              (.02
              )
              
              $
              (.02
              )
 
 See
        accompanying notes to financial statements.
  2
 **HEALTH
        DISCOVERY CORPORATION**
 Statements
        of Cash Flows
 (unaudited)
 For
        the
        Nine Months Ended September 30, 2007 and 2006
  Nine
                    Months
                
                
                Nine
                    MonthEnded
                
                
                EndedSeptember
                    30, 2007
                
                
                September
                    30, 2006Cash
                    Flows From Operating ActivitiesNet
                    Loss
                
                $
                (2,144,174
                )
                
                $
                (2,015,910
                )Adjustments
                    to Reconcile Net Loss to Net CashUsed
                    by Operating Activities:Stock
                    Issued in Settlement of Litigation
                
                
                32,000
                
                
                
                -Stock-based
                    Compensation
                
                
                158,187
                
                
                
                250,037Services
                    Exchanged for Warrants
                
                
                226,669
                
                
                
                380,548Services
                    Exchanged for Common Stock
                
                
                -
                
                
                
                61,917Interest
                    Expense Exchanged for Warrants
                
                
                -
                
                
                
                55,400Issuance
                    of Warrants
                
                
                33,756
                
                
                
                -Accretion
                    of Debt Discount
                
                
                192,361
                
                
                
                -Gains
                    on Restructuring of Accounts Payable
                
                
                (44,594
                )
                
                
                (97,864
                )Depreciation
                    and Amortization
                
                
                203,556
                
                
                
                202,308Refund
                    of Deposit
                
                
                25,759
                
                
                
                -Increase
                    in Accounts Receivable
                
                
                (280,000
                )
                
                
                (20,000
                )Increase
                    in Deferred Revenue
                
                
                430,989
                
                
                
                9,167Increase
                    in Prepaid Expenses and Other Assets
                
                
                (8,198
                )
                
                
                (31,058
                )Decrease
                    in Accounts Payable – Trade
                
                
                (34,538
                )
                
                
                (83,336
                )Increase
                    in Accrued Liabilities
                
                
                185,518
                
                
                
                288,036Net
                    Cash Used by Operating Activities
                
                
                (1,022,709
                )
                
                
                (1,000,755
                )Cash
                    Flows From Investing Activities:Purchase
                    of Equipment
                
                
                (998
                )
                
                
                (502
                )Investment
                    in Joint Venture
                
                
                (5,000
                )
                
                
                -Net
                    Cash Used by Investing Activities
                
                
                (5,998
                )
                
                
                (502
                )Cash
                    Flows From Financing Activities:Repayment
                    of Notes Payable
                
                
                -
                
                
                
                (26,780
                )Proceeds
                    from Sales of Common Stock, Net of Fees
                
                
                2,436,540
                
                
                
                126,400Proceeds
                    from Borrowing
                
                
                -
                
                
                
                1,000,000Net
                    Cash Provided by Financing Activities
                
                
                2,436,540
                
                
                
                1,099,620Net
                    Increase in Cash
                
                
                1,407,833
                
                
                
                98,363Cash,
                    at Beginning of Period
                
                
                674,366
                
                
                
                719,167Cash,
                    at End of Period
                
                $
                2,082,199
                
                
                $
                817,530Stock-Based
                    Investing and Financing Transactions:Common
                    Stock, Series A Preferred Stock, and Warrants Issued inSettlement
                    Of Promissory Notes
                
                $
                1,893,774
                
                
                $
                -Warrants
                    Issued in Restructuring of Accounts Payable
                
                $
                -
                
                
                $
                55,454Supplemental
                    disclosures of cash flow information:Cash
                    Paid for Interest
                
                $
                3,167
                
                
                $
                2,764
  See
        accompanying notes to financial
        statements.
  3
 **HEALTH
        DISCOVERY CORPORATION**
 
 **Notes
        to Financial Statements**
 
 **Note
        A - BASIS OF
        PRESENTATION**
  Health
        Discovery Corporation (the “Company”) is a biotechnology-oriented company that
        has acquired certain patents and has patent pending applications for certain
        machine learning tools used for diagnostic and drug discovery.  The
        Company licenses the use of its patent protected technology and utilizes
        such
        technology internally to develop diagnostic tests, drug monitoring tests
        and
        drug targets for therapeutic use, and sells or licenses such discoveries
        to
        diagnostic or pharmaceutical companies worldwide.
  The
        accounting principles followed by
        the Company and the methods of applying these principles conform with accounting
        principles generally accepted in the United States of America
        (GAAP).  In preparing financial statements in conformity with GAAP,
        management is required to make estimates and assumptions that affect the
        reported amounts in the financial statements.  Actual results could
        differ significantly from those estimates.
  The
        interim financial statements
        included in this report are unaudited but reflect all adjustments which,
        in the
        opinion of management, are necessary for a fair presentation of the financial
        position and results of operations for the interim periods
        presented.  All such adjustments are of a normal recurring
        nature.  The results of operations for the period ended September 30,
        2007 are not necessarily indicative of the results of a full year’s operations
        and should be read in conjunction with the financial statements and footnotes
        included in the Company’s annual report on Form 10-KSB for the year ended
        December 31, 2006.
  ***Recent
        Accounting
        Pronouncements***
  In
        June 2006, the Financial Accounting
        Standards Board (“FASB”) issued FASB Interpretation No. 48,*Accounting for
        Uncertainty in Income
        Taxes – An Interpretation of FASB Statement No. 109*, (“FIN 48”).  FIN 48
        clarifies the accounting for uncertainty in income taxes by prescribing a
        recognition threshold and measurement attribute for the financial statement
        recognition and measurement of a tax position taken or expected to be taken
        in a
        tax return.  This pronouncement is effective for fiscal years
        beginning afterDecember
        15, 2006.  We
        adopted FIN 48 effectiveJanuary 1, 2007.  This
        adoption has not had a
        material impact on our financial statements.
  In
        September 2006, the FASB issued
        Statement No. 157,*Fair
        Value Measurements*,
        (“Statement No. 157”).  This statement provides a single definition of
        fair value, a framework for measuring fair value, and expanded disclosures
        concerning fair value.  Previously, different definitions of fair
        value were contained in various accounting pronouncements creating
        inconsistencies in measurement and disclosures.  This pronouncement is
        effective for fiscal years beginning afterNovember 15, 2007.  We
        do not expect the
        adoption of Statement No. 157 to have a material impact on our financial
        position, results of operations, or cash flows.
  **Note
        B – REVENUE RECOGNITION**
  Revenue
        is generated through the sale or license of patented technology and processes
        and from services provided through development agreements.  These
        arrangements are controlled by contracts that dictate responsibilities and
        payment terms.  The Company recognizes revenues as they are earned
        over the duration of a license agreement or upon the sale of any owned patent
        once all contractual obligations have been fulfilled.  Revenue is
        earned under development agreements in the period the services are
        performed.
  Effective
        July 1, 2007, the Company entered into a patent license and settlement agreement
        with Ciphergen Biosystems, Inc. (“Ciphergen”) in connection with the pending
        litigation styled *Health Discovery Corporation v. Ciphergen Biosystems,
        Inc.* Case No. 07-00285-CRB before the United States District Court for the
        Northern District of California.  The agreement provides Ciphergen a
        license to use certain patents.  In consideration for entering into
        the Agreement, Ciphergen agreed to pay the Company $600,000 over a two-year
        period.  The revenue associated with this settlement was recorded net
        of $130,000 in contingently payable attorney fees as deferred revenue in
        the
        amount of $470,000 and will be recognized over the sixteen year remaining
        life
        of the subject patents.  Deferred revenue represents the unearned
        portion of payments received in advance for licensing agreements.  The
        Company had total unearned revenue of $532,100 as of September 30,
        2007.  Unearned revenue of $98,819 is recorded as current and $433,281
        is classified as long-term.
  4
 **HEALTH
        DISCOVERY CORPORATION**
  **Notes
        to Financial Statements, continued**
  
  **Note
        C - 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 create an anti-dilutive result
        and therefore is not presented.
  **Note
        D -STOCK-BASED EXPENSE**
  Stock-based
        expense included in our net loss for the three months and nine months ended
        September 30, 2007 consisted of $180,858 and $450,612
        respectively in
        compensatory warrants and options for professional consulting services,
        compensation, and settlement of litigation.  Stock-based expense
        included in our net loss for the three months and nine months ended September
        30, 2006 consisted of $186,884 and $772,775 respectively.
  As
        ofSeptember 30, 2007,
        there was approximately $528,558 of
        unrecognized cost related to stock option and warrant grants.  The
        cost is to be recognized over the remaining vesting periods that average
        approximately 4 years.  No options have been granted in
        2007.
  The
        Company granted 2,000,000 options
        during the second quarter of 2006.  The fair value of each option
        granted in 2006 was $0.11 and was estimated on the date of grant using the
        Black-Scholes pricing model with the following assumptions: dividend yield
        at
        0%, risk-free interest rate of 5.00%, an expected life of 10 years, and
        volatility of 133%.  Expected option lives and volatilities used in
        the fair valuation calculations are based on historical data of the Company
        and
        the related expense is recognized on a straight-line basis over the vesting
        period.
  The
        following schedule summarizes stock option activity for the nine months ended
        September 30, 2007 and the twelve months ended December 31, 2006:
  Option
                Shares
              
              Weighted
                Average
                Exercise
                  PriceOutstanding,
                  January 1, 2006
              
              2,500,000
              
              $
              0.08Granted
              
              2,000,000
              
              
              0.11Exercised
              
              (600,000
              )
              
              0.01Forfeited
              
              (400,000
              )
              
              0.10Outstanding,
                  December 31, 2006
              
              3,500,000
              
              $
              0.11Granted
              
              -
              
              
              -Exercised
              
              -
              
              
              -Forfeited
              
              -
              
              
              -Outstanding,
                  September 30, 2007
              
              3,500,000
              
              $
              0.11
 
  The
        weighted average remaining life of the outstanding options at September 30,
        2007
        is 8.25 years.
  There
        were 2,625,000 options exercisable at September 30, 2007.  The
        exercisable options have a weighted average exercise price of $0.11 and a
        weighted average remaining life of 8.25 years.
  5
  **HEALTH
        DISCOVERY CORPORATION**
  **Notes
        to Financial Statements, continued**
  
  **Note
        D -STOCK-BASED EXPENSE, continued**
  Information
        about warrants outstanding at September 30, 2007 is summarized
        below:
  **Exercise
                    Prices**
                
                **Number**
                  **Outstanding**
                
                **Weighted-**
                  **Average**
                  **Remaining**
                  **Contractual**
                  **Life   (years)**
                
                **Number**
                  **Exercisable**
                
                **Weighted**
                  **Average**
                  **Remaining**
                  **Contractual
                    Life**
                  **(years)
                    of**
                  **Exercisable**
                  **Warrants**$0.01
                
                600,000
                
                1
                
                600,000
                
                1$0.08
                
                3,300,000
                
                3
                
                300,000
                
                3$0.10
                
                1,425,750
                
                2
                
                1,325,750
                
                2$0.11
                
                1,500,000
                
                2
                
                1,500,000
                
                2$0.12
                
                150,000
                
                2
                
                150,000
                
                2$0.13
                
                5,500,000
                
                3
                
                3,667,000
                
                2$0.14
                
                52,138,822
                
                3
                
                52,138,822
                
                3$0.15
                
                1,000,000
                
                2
                
                1,000,000
                
                2$0.16
                
                10,000,000
                
                2
                
                10,000,000
                
                2$0.19
                
                51,538,822
                
                3
                
                51,538,822
                
                3$0.20
                
                500,000
                
                1
                
                500,000
                
                1$0.22
                
                500,000
                
                1
                
                500,000
                
                1$0.24
                
                32,546,250
                
                1
                
                32,546,250
                
                1$0.35
                
                15,235,000
                
                .1
                
                15,235,000
                
                .1Total
                
                175,934,644
                
                
                
                171,001,644
   On
        February 1, 2007, the Company issued in the aggregate 15,235,000 warrants
        to
        purchase common stock of the Company (the “Warrants”) to certain institutional
        investors and individual accredited investors.  The Warrants vested
        immediately and had an exercise price of $0.35 per share.  The
        Warrants expired on November 1, 2007.  On February 1, 2007, an equal
        number of warrants issued to the same institutional and individual investors
        and
        with substantially similar terms expired.  The fair value of these
        warrants was approximately $33,755 and they were recorded as expense on the
        issue date.
   Also
        on
        February 1, 2007, the Company issued 500,000 warrants to consultants, which
        vested immediately, and have an exercise price of
        $0.14.  Additionally, the Company issued 100,000 warrants to a
        consultant, which vest over a period of ten months, and have an exercise
        price
        of $0.14.  Together, these warrants were valued at $49,068 and expire
        on December 31, 2009.
   During
        the second quarter of 2007, the Company issued 500,000 immediately vesting
        warrants to consultants with an exercise price of $0.11.  These
        warrants expire on December 31, 2009, and were valued at
        $19,815.  They were charged to expense upon issuance.
  6
  **HEALTH
        DISCOVERY CORPORATION**
  **Notes
        to Financial Statements, continued**
  **Note
        D -STOCK-BASED EXPENSE, continued**
  During
        the third quarter of 2007, the Company issued 60,750 warrants, which expire
        on
        December 31, 2008, to a vendor as payment for professional services
        rendered.  These warrants had an exercise price of $0.10 and were
        fully vested upon issuance.  The fair value of $1,719 was recorded as
        expense.  The Company also issued 300,000 warrants with an exercise
        price of $0.08 to a former employee as part of a termination
        agreement.  These warrants, which expire after three years, vested
        immediately and had a fair value of $13,869.  This amount was recorded
        as compensation expense.  Two new directors were each awarded
        1,500,000 warrants which vest over three years and expire in six
        years.  These warrants have an exercise price of $0.08 and had an
        aggregate fair market value of $197,374.  These warrants will be
        charged as directors’ fees over the vesting period.
  The
        Company also issued warrants in connection with the sale of common stock
        effective September 7, 2007.  Each purchaser of common stock received
        one warrant exercisable at $0.14 (the “Tranche 1 Warrants”) and one warrant
        exercisable at $0.19 (the “Tranche 2 Warrants”) for each share of common stock
        purchased or converted from debt.  All these warrants vested
        immediately, expire three years from the date of issuance, and are subject
        to
        call rights based upon the trading value of the Company’s stock.  With
        respect to the Tranche 1 Warrants, if the Company’s stock trades for an amount
        in excess of $0.17 for thirty (30) consecutive days, then 50% of the warrants
        may be called by the Company.  With respect to the Tranche 2 Warrants,
        if the Company’s stock trades for an amount in excess of $0.24 for thirty (30)
        consecutive days, then 50% of the warrants may be called by the
        Company.  The Tranche 1 warrants, if exercised, may result in the
        issuance of up to 51,538,832 shares of the Company’s common stock, at an
        exercise price of $0.14 per share, and the Tranche 2 warrants, if exercised,
        may
        result in the issuance of up to 51,538,832 shares of Company common stock
        at an
        exercise price of $0.19 per share.  These warrants were valued at
        $0.005 each resulting in $515,388 of common stock proceeds being allocated
        to
        the fair value of the warrants and credited to equity.
  **Note
        E – GAIN ON RESTRUCTURING OF ACCOUNTS PAYABLE**
  On
        March
        1, 2007, the Company recorded a gain on accounts payable restructuring of
        $44,594 pursuant to the agreement made in the third quarter of 2006 deferring
        some payments until certain conditions were met or eliminating the liability
        if
        these conditions did not occur.
  **Note
        F - PATENTS**
  The
        Company has acquired a group of patents related to biotechnology and certain
        machine learning tools used for diagnostic and drug discovery. Legal costs
        associated with patent acquisitions****and the application
        process for new patents are also capitalized as patent assets. The Company
        has
        recorded as other assets $3,108,500 in patents and patent related costs,
        net of
        $877,294 in accumulated amortization, at September 30, 2007.
  Amortization
        charged to operations for the nine months ended September 30, 2007 and 2006
        was
        approximately $197,040 in both years.  The weighted average
        amortization period for patents is 14 years.  Estimated amortization
        expense for the next five years is $263,120 per year.
  **Note
        G – INVESTMENTS**
  On
        March
        27, 2007, the Company and an investment partner formed SVM Capital LLC as
        an
        equity investment for purposes of utilizing SVMs as a quantitative investment
        management technique.  The Company owns 42.5% of the membership
        interests.  Accordingly, the investment is presented using the equity
        method of accounting.
  **Note
        H – STOCKHOLDERS’ EQUITY**
  In
        January 2007, the Company issued 100,000 shares of stock for warrants exercised
        at $0.01 each.  Proceeds of $1,000 were recorded in capital
        stock.  In July 2007, the Company increased the number of authorized
        shares from 200,000,000 to 300,000,000.
  7
 **HEALTH
        DISCOVERY CORPORATION**
  **Notes
        to Financial Statements, continued**
  **Note
        H – STOCKHOLDERS’ EQUITY, continued**
  In
        July
        2007, the Company issued 575,000 shares of common stock valued at $46,000
        to a
        former employee as part of a termination agreement.  The Company also
        issued 400,000 shares of common stock valued at $32,000 as part of a litigation
        settlement in July 2007.
  Effective
        September 7, 2007, the Company issued 31,937,500 shares of restricted common
        stock in return for $2.55 million in cash.  The stock is restricted
        from resale as the stock has not been registered.  Each purchaser of
        common stock also received one warrant to acquire an equal number of shares
        at
        $0.14 and one warrant to acquire an equal number of shares at
        $0.19.  The common shares were valued at $0.07 each and the warrants
        were valued at $0.005 each for a total of $0.08.
  The
        Company also issued 19,601,323 shares of common stock and 7,737,184 shares
        of
        Series A Preferred Stock in a conversion of secured debt to
        equity.  The amount of debt converted to common stock and warrants was
        $1.6 million and the amount of debt converted to Series A Preferred Stock
        was
        $594,975.  Each share of common stock issued in the conversion was
        accompanied by one warrant to acquire an equal number of shares of common
        stock
        at $0.14 and one warrant to acquire an equal number of shares of common stock
        at
        $0.19.
   **Converted**
                  **Debt**
                
                
                **Common**
                  **Stock**
                  **19,601,323**
                  **Shares**
                
                
                **Common**
                  **Stock**
                  **Warrants**
                  **@0.14**
                  **19,601,323**
                
                
                **Common**
                  **Stock**
                  **Warrants**
                  **@$0.19**
                  **19,601,323**
                
                
                **Common**
                  **Stock**
                  **Total**
                
                
                **Preferred**
                  **Stock**
                  **7,737,184**
                  **Shares****Term
                    Debt**
                
                $
                321,911
                
                
                $
                157,167
                
                
                
                11,226
                
                
                
                11,226
                
                
                
                179,619
                
                
                
                142,292**Convertible
                    Debt**
                
                $
                616,292
                
                
                $
                220,068
                
                
                
                15,719
                
                
                
                15,719
                
                
                
                251,506
                
                
                
                364,786**Promissory
                    Note
                    Payable**
                
                $
                1,000,000
                
                
                $
                875,000
                
                
                
                62,500
                
                
                
                62,500
                
                
                
                1,000,000
                
                
                
                -**Accrued
                    Interest**
                
                $
                224,878
                
                
                $
                119,859
                
                
                
                8,561
                
                
                
                8,561
                
                
                
                136,981
                
                
                
                87,896**Total
                    Debt**
                
                $
                2,163,081
                
                
                
                1,372,094
                
                
                
                98,006
                
                
                
                98,006
                
                
                
                1,568,106
                
                
                
                594,974**Promissory
                    Note
                    Payable****Discount
                    Unaccreted**
                
                $
                (269,307
                )
                
                $
                (235,644
                )
                
                
                (16,832
                )
                
                
                (16,832
                )
                
                
                (269,308
                )
                
                
                -**Increase
                    in
                    Equity**
                
                $
                1,893,774
                
                
                $
                1,136,450
                
                
                
                81,174
                
                
                
                81,174
                
                
                
                1,298,798
                
                
                
                594,974
   ***Series
        A Preferred Stock***
  The
        shares of Series A Preferred Stock may be converted into common stock of
        the
        Company at any time and from time to time, and without the payment of additional
        consideration.  The Series A Preferred Stock must be converted into
        common stock of the Company when the trading value of the common stock of
        the
        Company exceeds $0.12 per share for a period of 30 consecutive calendar
        days.  The holder of the Series A Preferred Stock has the right to
        receive dividends, the right to vote on matters presented to the common
        stockholders, and a preference right in the event of liquidation in an amount
        equal to $594,975, which is the amount of debt converted, plus any declared
        but
        unpaid dividends.  The Company has a right to redeem the shares of
        Series A Preferred stock upon the fifth anniversary of the issue date at
        a
        redemption price of $0.08 per share.
  **Note
        I – LITIGATION SETTLEMENT**
  On
        June
        19, 2007, the Company entered into a settlement agreement (the “Settlement
        Agreement”) among Bill G. Williams, Shirley K. Williams, and Automated Shrimp
        Corporation (collectively, the “Defendants”), Stephen Barnhill as Third-Party
        Defendant, and Baptist Community Services, Tim Holloway, Guadalupe Family
        Limited Partnership, and Gerald Easterling as Intervenors in connection with
        the
        pending litigation styled *Health Discovery Corporation v. Williams et
        al.*, filed in the District Court of McLennan County, State of Texas, Civil
        Action File No. 10-04-00012-CV.  Pursuant to the terms of the
        Settlement Agreement, each party agreed to voluntarily dismiss with prejudice
        any and all claims it has against each and every other party.  In
        consideration for entering into the Settlement Agreement, the Company agreed
        to
        issue in the aggregate 400,000 shares of Company common stock valued at $32,000
        to the Defendants and pay the defendants an aggregate $10,000.
  8
  **HEALTH
        DISCOVERY CORPORATION**
  **Notes
        to Financial Statements, continued**
  **Note
        J – 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.  Limited 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 control certain costs and
        obtain new contracts to eventually attain a profitable level of
        operations.
  The
        Companyis licensing the technology underlying
        several of its patents and providing supporting services related to the
        application of such technology that is resulting in ongoing
        revenue.  The Company has recently raised $2.55 million in cash
        through a common stock offering and additionally converted $2.2 million of
        secured debt to equity.  Based on these developments, management
        believes revenue generation will continue, additional licensing agreements
        will
        be obtained in the near-term, and non-revenue generating costs will be
        controlled.
  **Note
        K – SUBSEQUENT EVENTS AND DEVELOPMENTS**
  On
        November 1, 2007, warrants to purchase an aggregate of 15,235,000 shares
        of the
        Company’s common stock with an exercise price of $0.35 expired.
 
 On
        November 6, 2007, the Company and Dr. Stephen Barnhill, the Company’s Chief
        Executive Officer, entered into an amendment (the “Amendment”) to Dr. Barnhill’s
        employment agreement whereby Dr. Barnhill’s salary was increased to $300,000 per
        year.  This increase in salary is effective as of September 7,
        2007.
 
 The
        Company also awarded Dr. Barnhill a bonus in the gross amount of $50,000,
        in
        recognition of his extraordinary efforts on the Company’s behalf.
  9
 **Item
        2.  Management’s Discussion and Analysis of Financial
        Condition and Results of Operations**
  **Corporate
        Overview**
  Our
        Company is a pattern recognition
        company that uses advanced mathematical techniques to analyze large amounts
        of
        data to uncover patterns that might otherwise be undetectable.  Our
        Company operates primarily in the emerging field of molecular diagnostics
        where
        such tools are critical to scientific discovery.  Our primary business
        consists of licensing our intellectual property and working with prospective
        customers on the development of varied products that utilize pattern recognition
        tools.  We also endeavor to develop our own product line of newly
        discovered biomarkers and pathways thatinclude 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 all
        phases of 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 derive relevant and
        accurate clinical data, producing accurate biomarker and pathway discoveries,
        resulting in patent protection of our biomarker discoveries for future
        development and commercialization.
   **Events
        and
        Developments**
  Effective
        July 1, 2007, the Company entered into a patent license and settlement agreement
        with Ciphergen Biosystems, Inc. (“Ciphergen”) in connection with the pending
        litigation styled *Health Discovery Corporation v. Ciphergen Biosystems,
        Inc.* Case No. 07-00285-CRB, before the United States District Court for
        the
        Northern District of California (the “Ciphergen Litigation”).  In
        consideration for entering into the Agreement, Ciphergen agreed to pay the
        Company $600,000 over a two-year period.  The patent license and
        settlement agreement is attached to this Quarterly Report on Form 10-QSB
        as
        Exhibit 10.10.  For additional details regarding this settlement and
        the patent license and settlement agreement, see Part II Item I of this
        Quarterly Report on Form 10-QSB and Exhibit 10.10.
  Also
        effectiveJuly
        1, 2007, the Company relocated
        its corporate
        offices to downtownSavannah,Georgia.  The
        company committed to a
        three-year lease at a rental rate of $1,678 per month.
  On
        July
        12, 2007, the Company, formerly a Texas corporation, completed its
        reincorporation in Georgia by effecting a conversion in the Company’s legal
        domicile from Texas to Georgia.  The Company’s business, assets,
        liabilities, net worth and headquarters were unchanged as a result of the
        conversion, and the directors and officers of the Company prior to the
        conversion continued to serve the Company after the conversion.  In
        connection with the conversion, the Company’s shares were converted on a
        one-for-one basis.  The conversion was approved by the shareholders
        holding at least two-thirds of the outstanding common shares of the Company
        at
        the reconvened special meeting of the shareholders held on June 13,
        2007.  Articles of Conversion were filed with the Secretaries of State
        of Texas and Georgia on July 12, 2007 to effect the
        reincorporation.  In connection with the conversion and as approved by
        the shareholders, the Company filed Articles of Incorporation in the State
        of
        Georgia, which increased the number of authorized shares of common stock,
        no par
        value, from two hundred million (200,000,000) shares to three hundred million
        (300,000,000) shares and authorized thirty million (30,000,000) shares of
        preferred stock, no par value, with the rights and preferences to be determined
        by the Company’s Board of Directors prior to issuance.  The Company
        also amended and restated its Bylaws.  The Articles of Incorporation
        and Bylaws were submitted to the shareholders and were approved on June 13,
        2007.
  In
        accordance with the Company’s revenue generation plan, and as previously
        disclosed on the Current Report on Form 8-K filed on August 3, 2007, the
        Company
        entered into a license agreement with Clarient, Inc. on July 31,
        2007.  Under the terms of the license agreement, the Company grants to
        Clarient the right to use four biomarkers and several patents for its research
        in developing a test to differentiate clinically significant prostate cancer
        from other prostate conditions using biopsied prostate tissue. In consideration
        of granting the license to Clarient, Clarient shall pay to the Company thirty
        percent (30%) of the net proceeds received by Clarient or one of its affiliates
        with respect to
        all
        tests developed during the term of the license agreement.  The Company
        believes that this license agreement will begin to generate revenue sometime in fiscal year
        2008.
  10
 On
        September 7, 2007, pursuant to that certain Securities Purchase Agreement,
        dated
        as of August 15, 2007, the Company completed the sale to accredited
        institutional and individual investors of restricted common stock and warrants
        to acquire restricted common stock for $2,555,000 in cash and the conversion
        of
        approximately $1,568,100 of the Company’s outstanding indebtedness into
        restricted common stock and warrants to acquire restricted common stock (the
        “Private Placement”).  Under the terms of the sale and conversion, the
        Company issued 51,538,823 shares of restricted common stock.  In
        addition, each purchaser of common stock was granted a warrant to acquire
        an
        equal number of shares of restricted common stock at a fixed price of $0.14
        per
        share until September 2010, and a warrant to acquire an equal number of shares
        of restricted common stock at a fixed price of $0.19 per share until September
        2010.  These warrants could result in the issuance of up to
        103,077,646 additional shares of restricted common stock upon exercise and
        the
        payment of the aggregate exercise price of approximately
        $17,007,812.  The Company has also effected conversions from an
        additional secured debt holder concerning $594,975 in outstanding principal
        and
        accrued interest which was converted to shares of Series A Preferred
        Stock.  Neither the shares sold pursuant to the private placement nor
        the shares issuable upon the exercise of the warrants will be immediately
        registered under either federal or state securities laws and must be held
        for at
        least one year from the time they are issued or until a registration statement
        covering such securities is declared effective by the Securities and Exchange
        Commission.  The Company has agreed to file a registration statement
        within 45 days of the filing of the Company’s Annual Report on Form 10-KSB for
        the fiscal year ended December 31, 2007, and to attempt to have that
        registration statement declared effective thereafter.
  As
        a
        result of the Private Placement, we have restructured our balance sheet and
        cash
        position.  After the closing of the Private Placement as of September 30,
        2007, we have reduced our outstanding interest-bearing indebtedness to $49,351,
        and have a cash balance of $2,082,199.   The closing of the
        Private Placement also resulted in satisfaction of the conditions for
        increase in salaries set forth in the Amendments to the
        Employment Agreements for Dr. Barnhill and Mr. Furth.  As a
        result, their salaries reverted to their prior levels.
  In
        connection with the closing of the Private Placement, we increased the size
        of
        our Board of Directors with two additional outside directors: Dr. Richard
        E.
        Caruso, Ph.D. and Jimmy M. Woodward.   Dr. Caruso is the founder
        and Chairman of Integra LifeSciences Corporation (NASDAQ: IART), and Mr.
        Woodward is the former Senior Vice President and Chief Financial Officer
        of
        Flowers Foods, Inc. (NYSE: FLO).We believe that the
        guidance, advice and contacts these additional directors bring will greatly
        benefit the Company as we continue to execute our business plan with a
        recapitalized balance sheet.
  In
        the third quarter, HDC was granted
        three (3) new foreign patents.  The Korean Patent Office issued HDC’s
        patent covering a tiered arrangement of SVMs that provides for the analysis
        of
        multiple data sets, such as distinct data types, to produce a single
        output.  Counterparts of this patent are issued in nine other
        countries,including theU.S.The
        Japanese Patent Office
        granted a patent covering HDC’s SVM-based image analysis
        technology.  Finally, the European Patent Office granted a new patent
        covering the use of the FGM technology for analysis ofdata for recognition
        of
        patterns.
  In
        the fourth quarter to date, HDC has
        received Notices of Allowance or acceptance for six (6)
        newU.S.and foreign patents.  The U.S.
        Patent and Trademark Office has issued Notices of Allowance
        in four (4) of HDC’s pending patent applications, three (3) covering
        several SVM-based methods of feature and kernel selection,
        and one (1) covering use of the
        FGM technology for visualization of patterns within data.  The
        SVM-based methods, which may be used as alternatives to or in conjunction
        with HDC’s patented RFE-SVM method, are based on the work of a number of the
        world’s leading authorities on learning machines and pattern recognition. 
In addition, IP Australia, the Australian patent office, has issued Notices
        of
        Acceptance of two (2) of HDC’s pending applications covering the use of RFE-SVM
        for identifying determinative genes for diagnosing and monitoring disease,
        including prostate disease biomarkers identified using the method, and SVM-based
        image analysis.
  **Operational
        Activities**
  Negotiations
        with a large European
        pharmaceutical company to develop a companion diagnostic test using our
        discovered biomarkers as surrogates in the last phase of a clinical trial
        for
        its new drug to treat BPH (enlarged prostate) remain delayed due to the
        prospect’s internal consolidation issues.  Based on the prospect’s
        representations, we believe that discussions regarding this prospective
        opportunity will resume sometime in 2008.
  We
        have entered into a research
        agreement with a leading biotech company to develop an SVM-based diagnostic
        test
        to help interpret flow cell cytometry data for a particular medical
        condition.  Our science team’s analysis of provided data demonstrates
        a successful proof of concept for presentation to our partner in the fourth
        quarter of 2007.  If our partner accepts our conclusions,we hope to obtainsimilar work on diseases such as
        leukemia and lymphoma that are far more prevalent.
  11
  We
        have advanced discussions with a
        large international healthcare company.  Our objective is licensing
        and product development using SVMs in diagnostic radiology, including
        mammography, PET scans, CT scans, MRI and other radiological
        images.  We own a number of SVM patents in this field that webelieveare very important.
  We
        have also initiated dialogue with
        several other important industry players in the healthcare field, including
        a
        proposed project with one of the world’s largest pharmaceutical companies, a
        marketing arrangement with one of the world’s largest generic drug
        manufacturers, and other prospective partnership opportunities with additional
        companies and research institutions.
  In
        addition to traditional license and
        development agreements, we are expanding our approach to monetizing our
        intellectual property.  In the first quarter of 2007, we formed an
        equity investment, SVM Capital, LLC, with Atlantic Alpha Strategies, LLC
        to
        apply our SVM pattern recognition tools to quantitative investment
        analysis.  We believe that research efforts to date show promise in
        developing computer-based investment and hedging techniques.  The
        specific goal is to substantially reduce investment risk while providing
        superior, but not necessarily outsized, returns for comparable asset
        classes.  If SVM Capital can advance the predictive art sufficiently,
        the ultimate business objective is to create one or more funds that would
        appeal
        to conservative and risk-averse investors.  We believe that there are
        many “quant funds” successfully using different mathematics-based techniques,
        including neural networks, to assist in the investment decision-making process
        by uncovering patterns that might otherwise be impossible or too time-consuming
        to discern.  To the best of our knowledge, none use SVM-based
        models.  In broad terms, if SVM Capital can replicate in this arena
        the consistent superiority SVMs have shown, for example, over neural networks
        in
        hundreds of medical field studies, it could achieve an advantaged and
        patent-protected position in quantitative-based investments in equities,
        debt
        instruments, currencies and commodities.
  While
        we have a number of negotiations
        in process with potential licensing partners, there is a possibility that
        we
        will be unable to reach agreement with any party, that the negotiations continue
        but are not finalized, or that those that may be finalized do not provide
        the
        economic returns that we expect.
   **Three
        Months Ended September 30, 2007 Compared with Three Months Ended September
        30,
        2006**
   **Revenue**
  For
        the
        three months ended September 30, 2007, revenue was $17,343 compared with
        $20,833
        for the three months ended September 30, 2006.  Revenue is recognized
        for licensing and development fees over the period earned.
  Effective
        July 1, 2007, the Company entered into a patent license and settlement agreement
        with Ciphergen in connection with the Ciphergen Litigation.  In
        consideration for entering into the Agreement, Ciphergen agreed to pay the
        Company $600,000 over a two-year period.  The revenue associated with
        this settlement was recorded net of attorney fees as deferred revenue in
        the
        amount of $470,000 and will be recognized over the sixteen year remaining
        life
        of the subject patents.
  **Cost
        of Revenues and Gross Margin**
  Internal
        development costs of $7,500 were recorded as cost of sales for the third
        quarter
        2007 compared with $9,480 for the third quarter of 2006.  Cost of
        revenues includes all direct costs, primarily wages and research fees,
        associated with the acquisition and development of patents and processes
        sold.  All direct costs, including some professional fees associated
        with licensing negotiations, are also included in cost of revenues.
  12
  **Operating
        and Other Expenses**
  Amortization
        expense was $65,680 for both the third quarter of 2007 and
        2006.  Amortization expense relates primarily to the costs associated
        with filing patent application and acquiring rights to the patents.
  Professional
        and consulting fees totaled $304,352 for the third quarter of 2007 compared
        with
        $178,681 for the third quarter of 2006.  The increase is due to higher
        litigation related legal and patent maintenance expense.
  Compensation
        of $218,396 for the third quarter of 2007 was higher than the $51,587reported
        for the third
        quarter of 2006.  The compensation in 2006 was reduced by a reversal
        of accrued wages forfeited as part of a cost-reduction in the amount of
        $143,200.
  Other
        general and administrative expenses increased to $128,729 for the third quarter
        of 2007 compared to $111,859 for the third quarter of 2006.  This
        increase was due to slightly higher investor relations and compliance
        costs.
  **Loss
        from Operations**
  The
        loss
        from operations for the third quarter of 2007 was $707,314 compared to $396,454
        for the third quarter of 2006.  This increased loss was due to
        increased costs as discussed previously.
  **Other
        Income and Expense**
  Interest
        income was $4,926 for the third quarter of 2007 compared to $3,946 in
        2006.  Interest income increased because the Company had more cash on
        hand to invest throughout the third quarter of 2007.
  The
        quarter ended September 30, 2007 includes a charge for settlement of litigation
        of $42,000, which consists of $10,000 in cash and $32,000 of Company
        stock.
  Interest
        expense was $81,395 in the third quarter of 2007 compared with $79,698 in
        the
        third quarter of 2006.  This increase was due to the higher interest
        rate associated with the renegotiated promissory notes being in effect for
        the
        entire reporting period.
  **Net
        Loss**
  The
        net
        loss for the third quarter of 2007 was $825,783 compared to $451,888 for
        the
        third quarter of 2006.  The increased loss was due to the increased
        loss from operations and the litigation settlement.
  Net
        loss
        per share was $0.01 for the third quarter of 2007 and $0.00 for the third
        quarter of 2006.
  13
  **Nine
        Months Ended September 30, 2007 Compared with Nine Months Ended September
        30,
        2006**
   **Revenue**
  For
        the
        nine months ended September 30, 2007, revenue was $39,010 compared with $195,833
        for the nine months ended September 30, 2006.  Revenue is recognized
        for licensing and development fees over the period earned.
  Effective
        July 1, 2007, the Company entered into a patent license and settlement agreement
        with Ciphergen in connection with the Ciphergen Litigation.  In
        consideration for entering into the Agreement, Ciphergen agreed to pay the
        Company $600,000 over a two-year period.  The revenue associated with
        this settlement was recorded net of attorney fees as deferred revenue in
        the
        amount of $470,000 and will be recognized over the sixteen year remaining
        life
        of the subject patents.
  **Cost
        of Revenue and Gross Margin**
  Internal
        development costs of $18,900 and $19,134 were recorded as cost of revenues
        for
        the nine months ended September 30, 2007 and 2006, respectively.  Cost
        of revenues includes all direct costs, primarily wages and research fees,
        associated with the acquisition and development of patents and processes
        sold.  All direct costs, including some professional fees associated
        with licensing negotiations, are also included in cost of revenues.
  **Operating
        and Other Expenses**
  Amortization
        expense was $197,040 and $197,039 for the nine months ended September 30,
        2007
        and 2006, respectively.  Amortization expense relates primarily to the
        costs associated with filing patent application and acquiring rights to the
        patents.
  Professional
        and consulting fees totaled $796,661 for the nine months ended September
        30,
        2007 compared with $925,946 for the comparable period in 2006.  These
        fees, related to legal, accounting and scientific activities, were lower
        in 2007
        because of continued efforts to control costs related to regulatory filing
        activity, patent protection efforts, general corporate legal and accounting
        work, and fewer warrants issued to consultants and service
        providers.
  Compensation
        of $540,106 for the first nine months of 2007 was lower than the $611,609
        reported for the first nine months of 2006.  The reduction in
        compensation is due primarily to options granted in 2006 totaling $190,322
        included as compensation.
  Other
        general and administrative expenses decreased to $362,464 for the nine months
        ended September 30, 2007 compared to $447,274 for the nine months ended
        September 30, 2006.  This decrease was largely due to ongoing cost
        containment efforts.
  **Loss
        from Operations**
  The
        loss
        from operations for the nine months ended September 30, 2007 was $1,876,161
        compared to $2,005,169 for the nine months ended September 30,
        2006.  This smaller loss was largely due to ongoing cost reduction
        efforts as previously discussed, unfavorably offset by reduced
        revenue.
  **Other
        Income and Expense**
  Interest
        income was $14,902 for the nine months ended September 30, 2007 compared
        to
        $11,945 in 2006.  Interest income increased because the Company had
        more cash on hand to invest.
  14
  In
        2007,
        a litigation settlement of $42,000 was recorded.
  Interest
        expense was $285,509 for the nine months ended September 30, 2007 compared
        with
        $120,550 in 2006.  This increase was due to the higher interest rate
        associated with the renegotiated promissory notes, interest due on the
        promissory note secured in September 2006, and accretion related to the discount
        recorded for the warrants issued along with the September 2006 promissory
        note.
  A
        gain on
        restructuring accounts payable of $44,594 was recorded in 2007 compared to
        $97,864 in 2006.
  **Net
        Loss**
  The
        net
        loss for the nine months ended September 30, 2007 was $2,144,174 compared
        to
        $2,015,910 for the comparable period in 2006.  The reduced loss was
        due to the diminished loss from operations, unfavorably offset by the litigation
        settlement.
  Net
        loss
        per share was $0.02 for the nine months ended September 30, 2007 and
        2006.
  **Liquidity
        and Capital Resources**
  At
        September 30, 2007, the Company had $2.1 million in available
        cash.  Cash used by operating activities year to date was
        $1,022,709.  This was due primarily to the net loss of $2,144,174;
        however, net non-cash charges and adjustments of $1,121,465 favorably impacted
        the computation of the net cash used.  Cash used by investment
        activities was $5,998 due to the acquisition of assets and the investment
        made
        in SVM Capital LLC.  Net cash provided by financing activities was
        $2,436,540, net of $64,460 in fees, due to the cash received from sale of
        common
stock and from the exercise
        of warrants.
  A
        portion
        of our cash will be used to satisfy the Company’s remaining outstanding debt
        obligations related to the acquisition of the SVM assets and fees due to
        professionals for services performed.
  The
        following table summarizes the due dates of our contractual obligations.
  Total
              
              
              Less
                  than
                1
                  Year
              
              
              More
                  than 1 YearAccrued
                  Interest Payable
              
              $
              6,028
              
              
              $
              -
              
              
              $
              6,028Deferred
                  Compensation
              
              
              69,500
              
              
              
              12,000
              
              
              
              57,500Convertible
                  Notes Payable
              
              
              49,351
              
              
              
              -
              
              
              
              49,351Office
                  Lease
              
              
              55,327
              
              
              
              20,118
              
              
              
              35,209Total
              
              $
              180,206
              
              
              $
              32,118
              
              
              $
              148,088
 
  The
        Company, in an effort to preserve cash, to enable the Company to continue
        its
        operations, and as a condition to a loan from a director, negotiated a
        restructuring of certain of its accounts payable with selected vendors,
        primarily its legal and professional vendors.  In September 2006, two
        vendors reduced their outstanding balances by $37,190, or 50%, in settlement
        of
        the full liability for a cash payment of $37,190.  This settlement was
        recorded as a gain on restructuring.  Several other vendors agreed to
        extend the payment terms and defer collection on outstanding amounts for
        an
        indefinite period of time.  The Company currently expects to pay such
        amounts in three to six months upon increases in revenues and or additional
        equity or debt financing, although none of those events is
        certain.  The total amount of accounts payable deferred in September
        2006 was $170,966.  The Company also issued 300,000 warrants to these
        vendors with an exercise price of $0.10 per share.  The fair value of
        these warrants on the grant date was $16,872 and was recorded as an expense
        in
        connection with the restructuring.  The deferred payments to the
        vendors have all been paid, with the exception of $44,594, which was recorded
        as
        a gain on payables restructuring.
  15
 On
        March
        1, 2007, the Company recorded a gain on accounts payable restructuring of
        $44,594 pursuant to the agreement made in the third quarter of 2006 deferring
        some payments until certain conditions were met or eliminating the liability
        if
        these conditions did not occur.
  The
        Company has relied primarily on equity funding plus debt financing for
        liquidity.  The Company produced sales, licensing, and developmental
        revenue starting in late 2005 and must continue to do so in order to generate
        sufficient cash to continue operations.  The Company’s plan to have
        sufficient cash to support operations is comprised of generating revenue
        through
        licensing its significant patent portfolio, providing services related to
        those
        patents, and obtaining additional equity or debt financing.  The
        Company has been and continues to be in meaningful discussions with a variety
        of
        parties, which if successful, may result in significant revenue, as further
        described above.  In the meantime, the Company maintains a vigilant
        cash conservation program.
  On
        September 7, 2007, pursuant to that certain Securities Purchase Agreement
        dated
        as of August 15, 2007, the Company completed the sale to accredited
        institutional and individual investors of restricted common stock and warrants
        to acquire restricted common stock for $2,555,000 in cash and the conversion
        of
        approximately $1,568,100 of the Company’s outstanding indebtedness into
        restricted common stock and warrants to acquire restricted common
        stock.  Under the terms of the sale and conversion, the Company issued
        51,538,823 shares of restricted common stock.  In addition, each
        purchaser of common stock was granted a warrant to acquire an equal number
        of
        shares of restricted common stock at a fixed price of $0.14 per share until
        September 2010, and a warrant to acquire an equal number of shares of restricted
        common stock at a fixed price of $0.19 per share until September
        2010.  These warrants could result in the issuance of up to
        103,077,646 additional shares of restricted common stock upon exercise and
        the
        payment of the aggregate exercise price of approximately
        $17,007,812.  Neither the shares sold pursuant to the private
        placement nor the shares issuable upon the exercise of the warrants will
        be
        immediately registered under either federal or state securities laws and
        must be
        held for at least one year from the time they are issued or until a registration
        statement covering such securities is declared effective by the Securities
        and
        Exchange Commission.  The Company has agreed to file a registration
        statement within 45 days of the filing of the Company’s Annual Report on Form
        10-KSB for the fiscal year ended December 31, 2007, and to have that
        registration statement declared effective thereafter.
  The
        Company has also effected conversions of $594,975 in outstanding principal
        and
        accrued interest, which debt was converted to shares of Series A Preferred
        Stock.
  **Subsequent
        Events**
  OnNovember
        6, 2007, the Company and Dr.
        Stephen Barnhill,
        the Company’s Chief Executive Officer, entered into an amendment (the
“Amendment”) to Dr. Barnhill’s employment agreement whereby Dr. Barnhill’s
        salary was increased to $300,000 per year.  This increase in salary is
        effective as ofSeptember
        7, 2007, and any portion of
        this increase not paid sinceSeptember 7, 2007will be paid to Dr.
        Barnhill.  The Company also awarded Dr. Barnhill a bonus in the gross
        amount of $50,000 in recognition of his extraordinary efforts on behalf of
        the
        Company.
  **Off-Balance
        Sheet Arrangements**
  The
        Company has no off-balance sheet arrangements that provide financing, liquidity,
        market or credit risk support or involve leasing, hedging or research and
        development services for our business or other similar arrangements that
        may
        expose us to liability that is not expressly reflected in the financial
        statements.
  **Forward-Looking
        Statements**
  This
        Report contains certain forward-looking statements within the meaning of
        Section
        27A of the Securities Act of 1933 and Section 12E of the Securities Exchange
        Act
        of 1934, including or related to our future results, certain projections
        and
        business trends. Assumptions relating to forward-looking statements involve
        judgments with respect to, among other things, future economic, competitive
        and
        market conditions and future business decisions, all of which are difficult
        or
        impossible to predict accurately and many of which are beyond our control.
        When
        used in this Report, the words “estimate,” “project,” “intend,” “believe,”
“expect” and similar expressions are intended to identify forward-looking
        statements. Although we believe that assumptions underlying the forward-looking
        statements are reasonable, any of the assumptions could prove inaccurate,
        and we
        may not realize the results contemplated by the forward-looking statement.
        Management decisions are subjective in many respects and susceptible to
        interpretations and periodic revisions based on actual experience and business
        developments, the impact
        of
        which may cause us to alter our business strategy or capital expenditure
        plans
        that may, in turn, affect our results of operations. In light of the significant
        uncertainties inherent in the forward-looking information included in this
        Report, you should not regard the inclusion of such information as our
        representation that we will achieve any strategy, objective or other plans.
        The
        forward-looking statements contained in this Report speak only as of the
        date of
        this Report as stated on the front cover, and we have no obligation to update
        publicly or revise any of these forward-looking statements. These and other
        statements, which are not historical facts are based largely on management’s
        current expectations and assumptions and are subject to a number of risks
        and
        uncertainties that could cause actual results to differ materially from those
        contemplated by such forward-looking statements. These risks and uncertainties
        include, among others, the failure to successfully develop a profitable
        business, delays in identifying customers, and the inability to retain a
        significant number of customers, as well as the risks and uncertainties
        described in “Risk Factors” section to our Annual Report for the fiscal year
        ended December 31, 2006, filed on March 30, 2007.
  16
  **Item
        3.  Controls and Procedures.**
  As
        of September 30, 2007 (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 Principal Financial Officer, of the effectiveness of the
        design and operation of our disclosure controls and procedures pursuant to
        Rule
        13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange
        Act”).  Based upon this evaluation, our Chief Executive Officer and
        our Principal Financial 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.
  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.
  **PART
        II—OTHER INFORMATION**
  **Item
        1.  Legal Proceedings.**
  On
        June
        19, 2007, the Company entered into a settlement agreement (the “Settlement
        Agreement”) among Bill G. Williams, Shirley K. Williams, and Automated Shrimp
        Corporation (collectively, the “Defendants”), Stephen Barnhill as Third-Party
        Defendant, and Baptist Community Services, Tim Holloway, Guadalupe Family
        Limited Partnership, and Gerald Easterling as Intervenors in connection with
        the
        pending litigation styled *Health Discovery Corporation v. Williams et
        al.*, filed in the District Court of McLennan County, State of Texas, Civil
        Action File No. 10-04-00012-CV. Pursuant to the terms of the Settlement
        Agreement, as amended, each party agreed to voluntarily dismiss with prejudice
        any and all claims it has against each and every other party. In consideration
        for entering into the Settlement Agreement, the Company agreed to issue in
        the
        aggregate 400,000 shares of Company common stock to the Defendants and to
        pay
        the Defendants an aggregate of $10,000.
  Effective
        as of July 1, 2007, the Company entered into a patent license and settlement
        agreement (the “License Agreement”) with Ciphergen in connection with the
        Ciphergen Litigation. Pursuant to the terms of the License Agreement, each
        party
        agreed to voluntarily dismiss with prejudice any and all claims it has against
        the other party. Additionally, the Company agreed to grant Ciphergen a narrowly
        focused license to use the Company’s SVM technology for the analysis
        of mass spectrometry data generated only by Ciphergen or a research
        collaborator working specifically on Ciphergen's behalf using
        Ciphergen’s proprietary SELDI-based mass spectrometers.  Pursuant
        to Article III of the License Agreement, neither Ciphergen nor their
        research collaborators are permitted to use the Company’s SVM
        technology on any other type of molecular diagnostic data for biomarker
        discovery other than SELDI-based mass spectrometry data. Ciphergen’s
        limited license of the Company’s SVM technology does not allow Ciphergen to
        analyze any other molecular diagnostic data such as genomic
        data, gene chip data, DNA methylation data, histologic or radiologic imaging
        data, clinical data and the like, all of which are fields of use where the
        SVM
        technology have shown success and are the subject of additional licensing
        opportunities for the Company. In fact, Ciphergen may not use the Company’s SVM
        technology even on proteomic data unless the data is specifically produced
        on
        Ciphergen’s SELDI mass spectrometer and only when analyzed by Ciphergen or a
        research collaborator working primarily on Ciphergen’s
        behalf.  Furthermore, Ciphergen's customers have an implied license to
        utilize the Company's SVM patents that will allow them to continue
        using SELDI instruments with Ciphergen's Associated Software (which is
        defined in the License Agreement as Ciphergen’s ProteinChip® Software,
        Biomarker PatternsTM Software, and CiphergenExpressTM Software).   The
        License Agreement does not, however,
        give Ciphergen's customers any right to use the Company’s
        SVM technology apart from their use of the Associated
        Software, but rather expressly excludes the addition or substitution
        of third party-based SVM technology to or for the Associated
        Software.  Finally, the Company agreed not to sue Bio-Rad for its
        manufacture, offer for sale, sale, use and importation of SELDI-based mass
        spectrometers when used with the Ciphergen Associated Software noted
        earlier.  Bio-Rad has no right to use the Company’s SVM
        technology apart from the SELDI-based mass spectrometers and Associated Software
        and the SELDI instrumentation business that Bio-Rad acquired from
        Ciphergen.  The License Agreement expressly excludes the addition or
        substitution of third party-based SVM technology to or for the Associated
        Software.
  17
  **Item
        2.  Unregistered Sales of Equity Securities and Use of
        Proceeds.**
  During
        the first quarter of 2007, the
        Company issued 100,000 shares of stock for warrants exercised at $0.01
        each.  Proceeds of $1,000 were recorded in capital
        stock.  No stock was issued during the second quarter of
        2007.
  During
        the second quarter, the Company issued an aggregate of 500,000 warrants to
        purchase an equal number of shares of the Company’s common stock to three
        members of the Company’s Scientific Advisory Board for providing advisory
        services to the Company beyond which was expected in his capacity as a
        Scientific Advisory Board member. These warrants vest immediately and have
        an
        exercise price of $0.11 per share.
  In
        July
        2007, the Company issued 575,000 shares of common stock to a former employee
        as
        part of a termination agreement.  The Company also issued 400,000
        shares of common stock as part of a litigation settlement in July
        2007.
  Effective
        September 7, 2007, the Company issued 31,937,500 shares of common stock in
        return for $2.55 million in cash.  Each purchaser of common stock also
        received one warrant to acquire an equal number of shares at $0.14 and one
        warrant to acquire an equal number of shares at $0.19.  The common
        shares were valued at $0.07 each and the warrants were valued at $0.005 each
        for
        a total of $0.08.
  The
        Company also issued 19,601,323 shares of common stock and 7,737,184 shares
        of
        Series A Preferred Stock in a conversion of secured debt to
        equity.  The amount of debt converted to common stock was $1.6 million
        and the amount of debt converted to Series A Preferred Stock was
        $594,975.  Each share of common stock issued in the conversion was
        accompanied by one warrant to acquire an equal number of shares at $0.14
        and one
        warrant to acquire an equal number of shares at $0.19.
  Each
        of
        these issuances was made in reliance upon exemptions from registration pursuant
        to Section 4(2) under the Securities Act of 1933, as amended.
  **Item
          5.  Other Information.**
 
 On
          November 13, 2007, Jimmy Woodward resigned from the Board of Directors
          of the
          Company for personal reasons.
  18
  **Item
        6.  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) and are filed as part of this Form
        SB-2:
   3.1
              Articles
                  of Incorporation. Registrant incorporates by reference Exhibit
                  3.1 to
                  Current Report on Form 8-K filed July 18,
                  2007.
   3.1(a)
              Articles
                  of Amendment to Articles of Incorporation.  Registrant
                  incorporates by reference Exhibit 99.1 to Current Report on Form
                  8-K filed
                  October 10, 2007.
   3.2
              By-Laws.
                  Registrant incorporates by reference Exhibit 3.2 to Current Report
                  on Form
                  8-K filed July 18, 2007.
   4.1
              Copy
                  of Specimen Certificate for shares of common stock. Registrant
                  incorporates by reference Exhibit 4.1 to Registration Statement
                  on Form
                  SB-2, filed June 4, 2001.
   4.1(b)
              Copy
                  of Specimen Certificate for shares of common stock. Registrant
                  incorporates by reference Exhibit 4.1 (b) to Form 10-KSB, filed
                  March 30,
                  2004.
   10.1
              Employment
                  Agreement with Stephen Barnhill. Registrant incorporates by reference
                  Exhibit 10.3 to Form 10-KSB, filed April 19, 2005.
                  *
   10.1(a)
              First
                  Amendment to Employment Agreement with Stephen
                  Barnhill.  Registrant incorporates by reference Exhibit 99.2 to
                  Form 8-K, filed January 3, 2006.
   10.1(b)
              Second
                  Amendment to Employment Agreement with Stephen
                  Barnhill.  Registrant incorporates by reference Exhibit 99.3 to
                  Form 8-K, filed September 1, 2006.
   10.1(c)
              Third
                  Amendment to Employment Agreement with Stephen Barnhill, dated
                  as of
                  August 1, 2007.  Registrant incorporates by reference Exhibit
                  10.1(c) to Form 10-QSB filed August 16,
                  2007.
   10.1(d)
              Fourth
                  Amendment to Employment Agreement with Stephen
                  Barnhill.  Registrant incorporates by reference Exhibit 99.1 to
                  Current Report on Form 8-K filed September 10,
                  2007.
   10.1(e)
              Fifth
                  Amendment to Employment Agreement with Stephen
                  Barnhill.  Registrant incorporates by reference Exhibit 99.1 to
                  Current Report on Form 8-K filed November 6,
                  2007.
   10.2
              Form
                  of Warrant.  Registrant incorporates by reference Exhibit 10.7
                  to Form 10-KSB, filed April 19,
                  2005.
   10.3
              Form
                  of Warrant.  Registrant incorporates by reference Exhibit 10.9
                  to Form 10-KSB, filed April 19,
                  2005.
   10.4
              Employment
                  Agreement with Daniel R. Furth, dated as of December 5,
                  2005.  Registrant incorporates by reference Exhibit 10.11 to
                  Form SB-2/A, filed December 14,
                  2005.
   10.4(a)
              First
                  Amendment to Employment Agreement with Daniel R. Furth, dated as
                  of August
                  1, 2007.  Registrant incorporates by reference Exhibit 10.4(a)
                  to Form 10-QSB filed August 16,
                  2007.
   10.4(b)
              Second
                  Amendment to Employment Agreement with Daniel R.
                  Furth.  Registrant incorporates by Reference to Exhibit 99.2 to
                  Current Report on Form 8-K filed September 10,
                  2007.
   10.5
              Employment
                  Agreement with Robert S. Braswell IV, dated as of January 1,
                  2006.  Registrant incorporates by reference Exhibit 99.1 to Form
                  8-K, filed February 2, 2006.
   10.6
              Form
                  of Amendment to Promissory Note. Registrant incorporates by reference
                  Exhibit 99.1 to Form 8-K, filed January 3,
                  2006.
   10.7
              Promissory
                  Note by the Company in favor of William F. Quirk,
                  Jr.  Registrant incorporates by reference Exhibit 99.1 to Form
                  8-K, filed September 5, 2006.
   19
   10.8
              Warrant
                  by the Company in favor of William F. Quirk, Jr.  Registrant
                  incorporates by reference Exhibit 99.2 to Form 8-K, filed September
                  5,
                  2006.
   10.9
              Form
                  of Second Amendment to Promissory Note.  Registrant incorporates
                  by reference Exhibit 99.4 to Form 8-K, filed September 5,
                  2006.
   10.10
              Patent
                  License and Settlement Agreement by and between the Company and
                  Ciphergen
                  Biosystems, Inc. dated as of July 1, 2007.  Registrant
                  incorporates by reference Exhibit 10.10 to Form 10-QSB filed August
                  16,
                  2007.
   10.11
              Securities
                  Purchase Agreement by and between the Company and the investors
                  listed on
                  Schedule A and Schedule B dated as of August 14,
                  2007.  Registrant incorporates by reference Exhibit 10.11 to
                  Form 10-QSB filed August 16, 2007.
   31.1
              Rule
                  13a-14(a)/15(d)-14(a) Certifications of Chief Executive
                  Officer.
   31.2
              Rule
                  13a-14(a)/15(d)-14(a) Certifications of Principal Financial
                  Officer.
   32.1
              Section
                  1350 Certification of Chief Executive
                  Officer.
   32.2
              Section
                  1350 Certification of Principal Financial
                  Officer.
    20
 
  SIGNATURES
 
 In
            accordance with the requirement of the Exchange Act, the Registrant caused
            this
            report to be signed on its behalf by the undersigned, thereunto duly
            authorized.
  Health
                    Discovery CorporationRegistrantDate:
                    November 14,
                    2007
                  /s/ Stephen
                    D. Barnhill
                    M.D.Printed
                    Name: Stephen D. Barnhill M.D.Title:
                    Chief Executive Officer
 Date:
                    November 14,
                    2007
                  /s/
                    Daniel R.
                    FurthPrinted
                    Name: Daniel R. FurthTitle:
                      Executive Vice President / Principal Financial
                    Officer/Secretary
 
 
 21