UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C.  20549
   FORM
10-Q
  x
              Quarterly
      report under Section 13 or 15(d) of the Securities Exchange Act of
      1934For
      the quarterly period endedMarch 31,
      2008
   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
                (Exact
      name of small business issuer as specified in its
  charter)
 
 Georgia
                (State
      or other jurisdiction of incorporation or organization)
              74-3002154
                (IRS
      Employer Identification No.)
 
 2
      East Bryan Street, Suite #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)
  Indicate
by check mark whether the registrant:  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to the filing
requirements for at least the past 90 days.  Yes x No o
  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See definition of “accelerated filer and large accelerated
filer” in Rule 12b-2 of the Exchange Act.  (check one):
  Large
      Accelerated Filer o
              Non-Accelerated
      Filer oAccelerated
      Filer o
              Smaller
      Reporting Company x
  Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
 Yes o No x
  APPLICABLE
ONLY TO 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 o No o
  
  APPLICABLE
ONLY TO CORPORATE ISSUERS
  Indicate
the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 169,007,206 shares of common stock,
no par value, were issued and outstanding as of May 9, 2008; 7,437,184 shares of
Series A Preferred Stock with a stated value of $0.08 per share were issued and
outstanding as of May 9, 2008.
  
  TABLE
OF CONTENTS
 
 
 PART
      I
              FINANCIAL
      INFORMATIONItem
      1.
              Financial Statements
              1Balance 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 Operations
              9Item 4T.
              Controls and Procedures.
              13PART II
              OTHER INFORMATION
              14Item 5.
              Other Information
              14Item 6.
              Exhibits.
              14Signatures
              15
 
 ii
  PART
I
 FINANCIAL
INFORMATION
 
 Item
1.  Financial Statements
  HEALTH
DISCOVERY CORPORATION
 Balance
Sheet (unaudited)
  Assets
 March 31,
                
                
                December 31,2008
                
                
                2007Current
      AssetsCash
                
                $
                1,315,841
                
                
                $
                1,648,439Accounts
      Receivable
                
                
                112,500
                
                
                
                112,500Prepaid
      Expenses and Other Assets
                
                
                26,699
                
                
                
                33,829Total
      Current Assets
                
                
                1,455,040
                
                
                
                1,794,768Equipment,
      Less Accumulated Depreciation of $21,837 and $22,402
                
                
                6,278
                
                
                
                7,596Other
      AssetsAccounts
      Receivable – Long Term
                
                
                112,500
                
                
                
                112,500Patents,
      Less Accumulated Amortization of $1,008,654 and $942,974
                
                
                2,977,140
                
                
                
                3,042,820Total
      Assets
                
                $
                4,550,958
                
                
                $
                4,957,684Liabilities and Stockholders’
      EquityCurrent
      LiabilitiesAccounts
      Payable – Trade
                
                $
                128,685
                
                
                $
                61,173Accrued
      Liabilities
                
                
                208,823
                
                
                
                239,589Deferred
      Revenue
                
                
                62,708
                
                
                
                62,708Total
      Current Liabilities
                
                
                400,216
                
                
                
                363,470Deferred
      Revenue – Long Term
                
                
                438,038
                
                
                
                453,715Total
      Liabilities
                
                
                838,254
                
                
                
                817,185CommitmentsStockholders’
      EquitySeries
      A Preferred Stock, Convertible, Stated Value of $0.08 per
      Share,7,437,184
      Shares Authorized, Issued and Outstanding
                
                
                594,975
                
                
                
                594,975Common
      Stock, No Par Value, 300,000,000 Shares Authorized169,007,206
      Shares Issued and Outstanding
                
                
                15,519,566
                
                
                
                15,390,609Accumulated
      Deficit
                
                
                (12,401,837
                )
                
                
                (11,845,085
                )Total
      Stockholders’ Equity
                
                
                3,712,704
                
                
                
                4,140,499Total
      Liabilities and Stockholders' Equity
                
                $
                4,550,958
                
                
                $
                4,957,684
 
 See
accompanying notes to financial statements.
 1
  HEALTH
DISCOVERY CORPORATION
 
 Statements
of Operations
 (unaudited)
 
 Three
      Months
              
              
              Three
      MonthsEnded
              
              
              EndedMarch
      31,
              
              
              March
      31,2008
              
              
              2007Revenues:Licensing
              
              $
              15,677
              
              
              $
              10,833Cost
      of Revenues:
 Internal
      Development
              
              
              3,600
              
              
              
              7,500Gross
      Profit
              
              
              12,077
              
              
              
              3,333Operating
      Expenses:Amortization
              
              
              65,679
              
              
              
              65,680Professional
      and Consulting Fees
              
              
              153,850
              
              
              
              170,232Compensation
              
              
              197,186
              
              
              
              164,155Other
      General and Administrative Expenses
              
              
              169,543
              
              
              
              131,904Total
      Operating Expenses
              
              
              586,258
              
              
              
              531,971Loss
      From Operations
              
              
              (574,181
              )
              
              
              (538,638
              )Other
      Income (Expense)Interest
      Income
              
              
              17,742
              
              
              
              6,987Gains
      on Restructuring of Accounts Payable
              
              
              -
              
              
              
              44,594Interest
      Expense
              
              
              (312
              )
              
              
              (102,044
              )Total
      Other Income (Expense)
              
              
              17,430
              
              
              
              (50,463
              )Net
      Loss
              
              $
              (556,751
              )
              
              $
              (579,101
              )Weighted
      Average Outstanding Shares
              
              
              169,007,206
              
              
              
              116,468,384Loss
      Per Share
              
              $
              (.00
              )
              
              $
              (.00
              )
 
 See
accompanying notes to financial statements.
 2
  HEALTH
DISCOVERY CORPORATION
 Statements
of Cash Flows
 (unaudited)
 For the
Three Months Ended March 31, 2008 and 2007
 Three
      Months
              
              
              Three
      MonthsEnded
              
              
              EndedMarch 31, 2008
              
              
              March 31, 2007Cash
      Flows From Operating ActivitiesNet
      Loss
              
              $
              (556,751
              )
              
              $
              (579,101
              )Adjustments
      to Reconcile Net Loss to Net CashUsed
      by Operating Activities:Stock-based
      Compensation
              
              
              23,169
              
              
              
              38,606Services
      Exchanged for Warrants
              
              
              105,788
              
              
              
              52,875Issuance
      of Warrants
              
              
              -
              
              
              
              33,756Accretion
      of Debt Discount
              
              
              -
              
              
              
              69,250Gains
      on Restructuring of Accounts Payable
              
              
              -
              
              
              
              (44,594
              )
 Depreciation
      and Amortization
              
              
              66,997
              
              
              
              68,183Decrease
      in Interest Receivable
              
              
              251
              
              
              
              -Increase
      in Accounts Receivable
              
              
              -
              
              
              
              20,000Decrease
      in Deferred Revenue
              
              
              (15,677
              )
              
              
              (10,833
              )Decrease
      (Increase) in Prepaid Expenses and Other Assets
              
              
              6,878
              
              
              
              (5,636
              )(Decrease)
      Increase in Accounts Payable – Trade
              
              
              67,513
              
              
              
              (13,032
              )(Decrease)
      Increase in Accrued Liabilities
              
              
              (30,766
              )
              
              
              77,782Net
      Cash Used by Operating Activities
              
              
              (332,598
              )
              
              
              (292,744
              )Cash
      Flows From Investing Activities:Purchase
      of Equipment
              
              
              -
              
              
              
              (298
              )Investment
      in Joint Venture
              
              
              -
              
              
              
              (5,000
              )Net
      Cash Used by Investing Activities
              
              
              -
              
              
              
              (5,298
              )Cash
      Flows From Financing Activities:Proceeds
      from Sales of Common Stock, Net of Fees
              
              
              -
              
              
              
              1,000Net
      Cash Provided by Financing Activities
              
              
              -
              
              
              
              1,000Net
      Decrease in Cash
              
              
              (332,598
              )
              
              
              (297,042
              )Cash,
      at Beginning of Period
              
              
              1,648,439
              
              
              
              674,366Cash,
      at End of Period
              
              $
              1,315,841
              
              
              $
              377,324Supplemental
      disclosures of cash flow information:Cash
      Paid for Interest
              
              $
              312
              
              
              $
              549
 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 March 31, 2008
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, 2007.
  Recent
Accounting Pronouncements
  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 after November 15, 2007.  Certain
provisions of SFAS No. 157 are effective for the company beginning in the first
quarter of 2008.  The adoption of SFAS No. 157 for financial assets
and liabilities in the first quarter of 2008 did not have a material effect on
the Company’s results of operations and financial position.  The
Company is currently evaluating the impact of adoption of SFAS No. 157 for
non-financial assets and liabilities on its results of operations and financial
position.
  In
February 2007, FASB issued Statement of Financial Accounting Standards No. 159,
“Fair Value Option for
Financial Assets and Financial Liabilities” (“SFAS No. 159”), which
permits entities to choose to measure many financial instruments and certain
other items at fair value that are not currently required to be measured at fair
value.  The objective of SFAS No. 159 is to improve financial
reporting by providing entities with the opportunity to mitigate volatility in
reported earnings caused by measuring related assets and liabilities differently
without having to apply complex hedge accounting provisions.  SFAS No.
159 was effective for the Company beginning in the first quarter of
2008.  The adoption of SFAS No. 159 did not have a material impact in
the Company’s financial position, results of operations or cash flows in the
first quarter of 2008.
  In
December 2007, FASB issued Statement of Financial Accounting Standards No. 141
(revised 2007), “Business
Combinations” (“SFAS No. 141(R)”), which continues the evolution toward
fair value reporting and significantly changes the accounting for acquisitions
that close beginning in 2009, both at the acquisition date and in subsequent
periods.  SFAS No. 141(R) introduces new accounting concepts and
valuation complexities, and many of the changes have the potential to generate
greater earnings volatility after the acquisition.  SFAS No. 141(R)
applies to acquisitions on or after January 1, 2009 and will impact the
Company’s reporting prospectively only.
  In
December 2007, FASB issued Statement of Financial Accounting Standards No. 160,
“Noncontrolling Interests in
Consolidated Financial Statements – an amendment of ARB No. 51” (“SFAS
No. 160”), which requires companies to measure an acquisition of noncontrolling
(minority) interest at fair value in the equity section of the acquiring
entity’s balance sheet.  The objective of SFAS No. 160 is to improve
the comparability and transparency of financial data as well as to help prevent
manipulation of earnings.  The changes introduced by the new standards
are likely to affect the planning and execution, as well as the accounting and
disclosure, of merger transactions.  The effective date to adopt SFAS
No. 160 for the Company is January 1, 2009.  The adoption of SFAS No.
160 is not expected to have a material effect on its results of operations and
financial position.
  4
  HEALTH
DISCOVERY CORPORATION
 
 Notes
to Financial Statements
 
  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 $500,747 as of March 31, 2008.  Unearned revenue
of $62,708 is recorded as current and $438,038 is classified as
long-term.
  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 ended March 31, 2008
consisted of $128,957 in compensatory warrants and options for professional
consulting services and compensation.  Stock-based expense included in
our net loss for the three months ended March 31, 2007 consisted of
$116,736.
  As of
March 31, 2007 and March 31, 2008, there was approximately $239,452 and
$398,562, repectively, of unrecognized cost related to stock option and
warrant grants.  The cost is to be recognized over the remaining
vesting periods that average approximately 1.5 years.  No options or
warrants have been granted in 2008.
  5
  HEALTH
DISCOVERY CORPORATION
  Notes
to Financial Statements, continued
  
  Note D -STOCK-BASED EXPENSE,
continued
  The
following schedule summarizes stock option activity for the three months ended
March 31, 2008 and the twelve months ended December 31, 2007:
  Option
                Shares
              
              
              Weighted
                Average
                Exercise PriceOutstanding,
      January 1, 2007
              
              
              3,500,000
              
              
              $
              0.11Granted
              
              
              -
              
              
              
              -Exercised
              
              
              -
              
              
              
              -Forfeited
              
              
              -
              
              
              
              -Outstanding,
      December 31, 2007
              
              
              3,500,000
              
              
              $
              0.11Granted
              
              
              -
              
              
              
              -Exercised
              
              
              -
              
              
              
              -Forfeited
              
              
              -
              
              
              
              -Outstanding,
      March 31, 2008
              
              
              3,500,000
              
              
              $
              0.11
 
 The
weighted average remaining life of the outstanding options at March 31, 2008 is
7.80 years.
  There
were 3,000,000 options exercisable at March 31, 2008.  The exercisable
options have a weighted average exercise price of $0.11 and a weighted average
remaining life of 7.80 years.  The aggregate intrinsic value of
options outstanding is zero at March 31, 2008.
  Information
about warrants outstanding at March 31, 2008 is summarized below:
  Three
      Months Ended
              
              
              Twelve
      Months EndedMarch
      31
              
              
              December
      31Number
      of warrants issued
              
              2008
              
              
              2007Outstanding
      beginning of period
              
              
              159,099,644
              
              
              
              68,796,250Issued
              
              
              -
              
              
              
              122,773,394Exercised
              
              
              -
              
              
              
              (100,000
              )Expired
      un-exercised
              
              
              (100,000
              )
              
              
              (32,370,000
              )Outstanding
      end of the period
              
              
              158,999,644
              
              
              
              159,099,644
 
 6
  HEALTH
DISCOVERY CORPORATION
  Notes
to Financial Statements, continued
  Note D -STOCK-BASED EXPENSE,
continued
  Exercise Prices
              
              
              Number
                Outstanding
              
              
              Weighted-
                Average
                Remaining
                Contractual
                Life (years)
              
              
              Number
                Exercisable
              
              
              Weighted
                Average
                Remaining
                Contractual
      Life
                (years)
      of
                Exercisable
                Warrants$0.01
              
              
              
              400,000
              
              
              0.5
              
              
              
              400,000
              
              
              0.5$0.08
              
              
              
              1,800,000
              
              
              4.0
              
              
              
              591,687
              
              
              4.0$0.10
              
              
              
              1,425,750
              
              
              1.0
              
              
              
              1,400,750
              
              
              1.0$0.11
              
              
              
              1,500,000
              
              
              1.3
              
              
              
              1,500,000
              
              
              1.3$0.12
              
              
              
              150,000
              
              
              1.0
              
              
              
              150,000
              
              
              1.0$0.13
              
              
              
              5,500,000
              
              
              2.0
              
              
              
              5,125,000
              
              
              2.0$0.14
              
              
              
              52,138,822
              
              
              2.4
              
              
              
              52,138,822
              
              
              2.4$0.15
              
              
              
              1,000,000
              
              
              1.0
              
              
              
              1,000,000
              
              
              1.0$0.16
              
              
              
              10,000,000
              
              
              1.2
              
              
              
              10,000,000
              
              
              1.2$0.19
              
              
              
              51,538,822
              
              
              2.5
              
              
              
              51,538,822
              
              
              2.5$0.20
              
              
              
              500,000
              
              
              1.0
              
              
              
              500,000
              
              
              1.0$0.22
              
              
              
              500,000
              
              
              0.4
              
              
              
              500,000
              
              
              0.4$0.24
              
              
              
              32,546,250
              
              
              0.8
              
              
              
              32,546,250
              
              
              0.8Total
              
              
              
              158,999,644
              
              
              
              
              
              
              157,391,331
 
  During
the first quarter of 2008, no warrants were issued and 100,000 unexercised
warrants expired.
  The
Company fully vested a 1,500,000 warrant grant for a retiring director by
accelerating the vesting of 375,000 warrants exercisable at $0.13.  A
charge of $44,438 was recorded as directors’ fees.
  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.
  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 acquisitionsand the application
process for new patents are also capitalized as patent assets. The Company has
recorded as other assets $2,997,140 in patents and patent related costs, net of
$1,008,654 in accumulated amortization, at March 31, 2008.
  7
  HEALTH
DISCOVERY CORPORATION
  Notes
to Financial Statements, continued
  Note F – PATENTS,
continued
  Amortization
charged to operations for the three months ended March 31, 2008 and 2007 was
approximately $65,680.  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 45% of the membership interest
and has significant influence with the operation of the entity but it not
considered the primary beneficiary.  Accordingly, the investment is
presented using the equity method of accounting.  The Company’s
initial investment was $5,000.  Equity in the loss of SVM Capital LLC
for 2007 was $5,000.  The resultant net value was zero at March 31,
2008.  The Company has no contractual obligation to fund this
venture.
  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.  No capital stock was issued in the first quarter of
2008.
  Note I – 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
Company is 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 J – SUBSEQUENT EVENTS
AND DEVELOPMENTS
  In May
2008, HDC entered into a letter of intent with  DCL Medical
Laboratories LLC, a full-service clinical reference laboratory focused on
women’s health, for the joint development of an SVM-based computer assisted
diagnostic test for the analysis of cervical cells. There was no initial
investment by the Company.  Future investment will be limited to certain
administrative costs.  If a lab test becomes operational, the Company will
be entitled to royalties as such tests are performed that utilize the Company's
technology and patents.
  8
  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 that include human genes and genetic variations, as well as gene,
protein, and metabolite expression differences.  In drug discovery,
biomarkers can help elicit disease targets and pathways and validate mechanisms
of drug action.  They may also be pharmacodynamic indicators of drug
activity, response and toxicity for use in clinical development and
commercialization.
  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.
  Operational
Activities
  The
Company actively markets its technology and related developmental expertise to
several prospects in the healthcare field, including some of the world’s largest
corporations in the pharmaceutical, biotech, and life sciences
industries.  Given the scope of some of these prospects, the sales
cycle can be quite long, but management believes that these marketing efforts
will produce favorable results.
  In May
2008 we entered into a letter of intent with DCL Medical Laboratories LLC, a
full-service clinical laboratory focused on women’s health, for the joint
development of an SVM-based computer assisted diagnostic test for the analysis
of cervical cells.  Through the application of the advanced technology
of pattern recognition, this new SVM-based system is intended to further improve
the sensitivity of the Pap test and augment the recent improvements of computer
guided screening that have already significantly improved detection
rates.  In addition, images and interpretative data from this new
SVM-based system may now be transmitted electronically, thus allowing remote
review and collaborative interpretation.
  On July
31, 2007, we announced our alliance and licensing agreement with Clarient, Inc.
for development of a new molecular diagnostic test for prostate cancer based on
our discovered prostate cancer biomarker signature.  Under the terms
of that agreement, Clarient, Inc. obtained an exclusive license to the biomarker
signature in exchange for HDC’s 30% royalty interest from all reimbursements of
the test once commercialized.  An initial clinical validation study
was recently completed by Clarient, which demonstrated very high success rate
for identifying the presence of grade three or higher prostate cancer cells in
prostate cancer tissue.  The results of the initial validation study
indicated that the test correctly identified genomic evidence of prostate cancer
cells in every tissue specimen known to be positive for prostate cancer (at a
100% sensitivity rate), and correctly identified specimens that did not have
prostate cancer as negative (at an 80% specificity rate).  HDC and
Clarient will now move to phase two of the clinical trial with the hope of
achieving the statistical significance necessary to validate these very
successful initial results and the ability to commercialize a test.
  In
December 2007, we received our first royalty proceeds related to our licensing
agreement with Bruker Daltonics, which was originally announced in August,
2006.  The royalties relate to Bruker Daltonics’ sales of its
ClinProToolsTM
clinical proteomics product line for its mass spectrometers, which contains
HDC’s SVM technology.  Bruker launched its ClinProToolsTM at
approximately the same time as the license with HDC.  While the
initial royalty was relatively small, it represents HDC’s first royalty check
from this relationship and offers the opportunity of future royalties for the
life of the patents related to future sales of the Bruker product.
  9
  Management
believes that our 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 has resulted in a successful proof of
concept.  These findings were presented during the first quarter of
2008 and the due diligence process has accelerated to confirm our findings for
that particular condition and determine other applications within flow
cytometry.
  We have
advanced discussions with two large international healthcare companies with
respect to diagnostic imaging opportunities.  Our objective is
licensing and product development using SVMs and FGMs in diagnostic radiology,
including mammography, PET scans, CT scans, MRI and other radiological
images.  In addition, given the scope of these two prospects, we
believe we can demonstrate the computational power of our SVM technology
analyzing combined data from imaging, proteomics, and genomics.  We
own a number of SVM and FGM patents in this field that we believe are very
important.
  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 post-acquisition integration issues.  Based on
the prospect’s representations, we hope that discussions regarding this
prospective opportunity will resume sometime in 2008. We have also initiated
discussions to bring this opportunity to other pharmaceutical companies with new
BPH drugs in clinical development.
  We have
advanced our dialogue with several other important industry players in the
healthcare field and, in certain situations, related to the field of anatomic
pathology imaging, 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.  We
also continue to pursue development opportunities with our existing licensing
customers.
  We have
also advanced discussions with a company regarding the use of the SVM patents,
patent applications and all other technology that the Company has or has rights
to, which can be used for breast cancer diagnosis and treatment.  We
remain engaged in discussions related to this development effort with one of our
directors.  If we reach an agreement, we anticipate that research and
development will result in the creation and commercialization of tests that will
be used in the diagnosis and treatment of breast cancer.
 
 In
January 2007, SVM Capital, LLC was formed as a joint venture between HDC and
Atlantic Alpha Strategies, LLC (“Atlantic Alpha”) to explore and exploit the
potential applicability of our SVM technology to quantitative investment
management techniques.  Atlantic Alpha has over thirty years of
experience in commodity and futures trading.  SVM Capital has made
significant progress since the formation of the joint venture.  The
SVM technology is now working well with dynamic time series for S&P data
accumulated over the past fifty-eight years.  The latest SVM-derived
models generated by SVM Capital have successfully outperformed the static buy-and-hold model both in
increased returns as well as in reduced risk.  Once the stability of
these models is confirmed, SVM Capital intends to apply the models to a wide
range of financial asset classes such as interest rates, currencies, metals and
petroleum products.  The joint venture partners plan to apply the
investment model either in a single fund or a fund of funds.  SVM
Capital will charge a management fee and a performance fee for managing client
assets.  Depending on the level of its success, this venture can be
profitable given its reliance on cost effective use of computer technology and
ready access to efficient trading platforms. The initial investment was $5,000
and was subsequently written off as the Company recorded its share of the losses
of this venture.  The Company has no further funding commitment for this
venture.
  While we
have a number of negotiations in process, 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
return that we expect.
  10
  Three
Months Ended March 31, 2008 Compared with Three Months Ended March 31,
2007
  Revenue
  For the
three months ended March 31, 2008, revenue was $15,677 compared with $10,833 for
the three months ended March 31, 2007.  Revenue is recognized for
licensing and development fees over the period earned.
  Cost
of Revenues and Gross Margin
  Internal
development costs of $3,600 were recorded as cost of sales for the first quarter
2008 compared with $7,500 for the first quarter of 2007.  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 $65,679 and $65,680 for the first quarter of 2008 and 2007,
respectively.  Amortization expense relates primarily to the costs
associated with filing patent application and acquiring rights to the
patents.
  Professional
and consulting fees totaled $153,850 for the first quarter of 2008 compared with
$170,322 for the first quarter of 2007.  The decrease is due to lower
fees, primarily accounting, incurred for 2008.
  Compensation
of $197,186 for the first quarter of 2008 was higher than the $164,155 reported
for the first quarter of 2007.  Compensation increased because of the
restoration of salary decreases and medical insurance increases.
  Other
general and administrative expenses increased to $169,543 for the first quarter
of 2008 compared to $131,904 for the first quarter of 2007.  This
increase was due to the accelerated vesting of a former director’s
warrants.
  Loss
from Operations
  The loss
from operations for the first quarter of 2008 was $574,181 compared to $538,638
for the first quarter of 2007.  This increased loss was due to
increased costs as discussed previously.
  Other
Income and Expense
  Interest
income was $17,742 for the first quarter of 2008 compared to $6,987 in
2007.  Interest income increased because the Company had more cash on
hand to invest throughout the first quarter of 2008.
  Interest
expense was $312 in the first quarter of 2008 compared with $102,044 in the
first quarter of 2007.  This decrease reflects the elimination of debt
in the fourth quarter of 2007.
  Net
Loss
  The net
loss for the first quarter of 2008 was $556,751 compared to $579,101 for the
first quarter of 2007.  The decreased loss was due to the increase in
other income year over year.
  Net loss
per share was $0.00 for both the first quarter of 2008 and 2007.
  Liquidity
and Capital Resources
  At March
31, 2008, the Company had $1.5 million in available cash.  Cash used
by operating activities year to date was $332,598.  This was due
primarily to the net loss of $556,751; however, net non-cash charges and
adjustments of $246,503 favorably impacted the computation of the net cash
used.  Cash used by investment activities was zero.  Net
cash provided by financing activities was zero.
  11
  The
following table summarizes the due dates of our contractual
obligations.
  Total
              
              
              Less
      than
                1 Year
              
              
              More than 1 YearDeferred
      Compensation
              
              $
              63,500
              
              
              $
              63,500
              
              
              $
              -Office
      Lease
              
              
              47,803
              
              
              
              21,247
              
              
              
              26,556Total
              
              $
              111,303
              
              
              $
              84,747
              
              
              $
              26,556
 
  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.
  Subsequent
Events
  In May,
2008, the Company announced that the U.S. Patent and Trademark Office issued two
new patents to the Company.  One of the patents claims a method for
analysis of any type of data that has a structure.  The second patent
covers additional feature selection techniques that can be used to successfully
identify the most important pieces of information needed to solve complex
pattern-recognition problems.  With the issuance of these two patents,
the Company now holds the exclusive rights to 30 issued U.S. and foreign patents
covering uses of SVM and FGM technology for discovery of knowledge from large
data sets.
  In May,
2008, HDC entered into a letter of intent with  DCL Medical
Laboratories LLC, a full-service clinical reference laboratory focused on
women’s health, for the joint development of an SVM-based computer assisted
diagnostic test for the analysis of cervical cells.  Through the
application of the advancing technology of pattern recognition, this new
SVM-based system is intended to further improve the sensitivity of the Pap test
and augment the recent improvements in computer guided screening that have
already significantly improved detection rates. In addition, images and
interpretative data from this new SVM-based system may now be transmitted
electronically, thus allowing remote review and collaborative
interpretation.
  On July
31, 2007, we announced our alliance and licensing agreement with Clarient, Inc.
for development of a new molecular diagnostic test for prostate cancer based on
our discovered prostate cancer biomarker signature.  Under the terms
of that agreement, Clarient, Inc. obtained an exclusive license to the biomarker
signature in exchange for HDC’s 30% royalty interest from all reimbursements of
the test once commercialized.  An initial clinical validation study
was recently completed by Clarient, which demonstrated a very high success rate
for identifying the presence of grade three or higher prostate cancer cells in
prostate cancer tissue. The results of the initial validation study indicated
that the test correctly identified genomic evidence of prostate cancer cells in
every tissue specimen known to be positive for prostate cancer (at a 100%
sensitivity rate), and correctly identified specimens that did not have prostate
cancer as negative (at an 80% specificity rate).  HDC and Clarient
will now move to phase two of the clinical trial process with the hope of
achieving the statistical significance necessary to validate these very
successful initial results and the ability to commercialize a test.
  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.
  12
  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, 2007, filed on March 31, 2008.
  Item
4T.  Controls and Procedures.
  As of
March 31, 2008 (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 to
provide reasonable assurance that information required to be disclosed in the
reports that are filed or submitted under the Exchange Act is recorded,
processed, summarized, and reported within the time periods specified by the
Securities and Exchange Commission’s rules and forms and that our disclosure
controls and procedures are designed to ensure that information required to be
disclosed in the reports that we file or submit under the Exchange Act is
accumulated and communicated to our management including our Chief Executive
Officer and Principal Financial Officer, as appropriate to allow timely
decisions regarding required disclosure.
  Because
of the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that the Company’s disclosure controls and
procedures will detect or uncover every situation involving the failure of
persons within the company to disclose material information otherwise required
to be set forth in the Company’s periodic reports.
  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.
  13
  PART
II—OTHER INFORMATION
  Item
5.  Other Information.
 
 On
May 13, 2008, we filed a registration statement on Form S-1 as required by the
terms of the private placement we completed in September, 2007 (the "Private
Placement") and first disclosed on Form 8-K, dated September 10,
2007.  The registration statement covers51,538,822
shares of our common stock if warrants with an exercise price of $0.14 per share
are exercised and 51,538,822 shares of our common stock if warrants with an
exercise price of $0.19 per share are exercised.  All of the warrants
are currently outstanding and were issued in the Private
Placement.  We will not receive any proceeds from any shares
ultimately sold pursuant to the registration statement.However, we will receive cash upon the exercise of
the warrants of$17,007,811.26
if all of the warrants are exercised.  The exercise price of the
warrants is fixed, subject to adjustments for stock splits or
combinations.
  Item
6.  Exhibits.
  The
following exhibits are attached hereto or incorporated by reference herein
(numbered to correspond to Item 601(a) of Regulation S-K, as promulgated by the
Securities and Exchange Commission) and are filed as part of this Form
10-Q:
  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.
  14
  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:
      May 15, 2008
              /s/ Stephen D. Barnhill
M.D.Printed
      Name: Stephen D. Barnhill M.D.Title:
      Chief Executive OfficerDate:
      May 15, 2008
              /s/ Daniel R. FurthPrinted
      Name: Daniel R. FurthTitle:
      Executive Vice President / Principal FinancialOfficer/Secretary
   15