**UNITED
          STATES**
 **SECURITIES
          AND EXCHANGE COMMISSION**
 **Washington,
          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 **** March
          31,
          2006
 
 [   ]  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)
   
 Texas
                
                74-3002154(State
                    or other jurisdiction of incorporation or organization)
                
                (IRS
                    Employer Identification No.)
  
 5501
                      1⁄2 Abercorn Street
                    Savannah,
                      Georgia
                
                31405(Address
                    of principal executive offices)
                
                (Zip
                    Code)
  912-352-7488(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 such filing requirements for 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: 116,163,384 shares of common stock,
          no par
          value, were issued and outstanding as of May 11, 2006.
   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
              4-7Item
                  2.
              Management’s
                  Discussion andAnalysis
                  of Financial Condition and Results of Operations
              7-9Item
                  4.
              Controls
                  and Procedures
              9PART
                  II
              OTHER
                  INFORMATIONItem
                  1.
              Legal
                  Proceedings
              10Item
                  2.
              Unregistered
                  Sales of Equity Securities and Use of Proceeds
              10-11Item
                  6.
              Exhibits
              12Signatures
              14
 
  
  
 **HEALTH
        DISCOVERY CORPORATION**
 
 Balance
        Sheet
 (unaudited)
 
  
 AssetsMarch
                    31,
                  2006Current
                  AssetsCash
              
              $
              522,910Prepaid
                  Expenses and Other Assets
              
              
              32,731Total
                  Current Assets
              
              
              555,641Equipment,
                  Less Accumulated Depreciation of $8,407
              
              
              11,808Other
                  AssetsPatents,
                  Less Accumulated Amortization of $483,215
              
              
              3,502,579Total
                  Assets
              
              $
              4,070,028Liabilities
                  and Stockholders’ EquityCurrent
                  LiabilitiesAccounts
                  Payable - Trade
              
              $
              357,378Accrued
                  Liabilities
              
              
              139,500Current
                  Portion of Long-Term Debt
              
              
              26,780Total
                  Current Liabilities
              
              
              523,658Convertible
                  Notes Payable
              
              
              665,643Long-Term
                  Debt, Less Current Portion
              
              
              321,911Total
                  Liabilities
              
              
              1,511,212CommitmentsStockholders’
                  EquityCommon
                  Stock, No Par Value, 200,000,000 Shares Authorized115,963,384
                  Shares Issued and Outstanding
              
              
              10,180,002Accumulated
                  Deficit
              
              
              (7,621,186
              )Total
                  Stockholders' Equity
              
              
              2,558,816Total
                  Liabilities and Stockholders' Equity
              
              $
              4,070,028
 
 
 
 
 
 
 
 
 See
        accompanying notes to financial statements.
  1
  **HEALTH
        DISCOVERY CORPORATION**
 Statements
        of Operations
 (unaudited)
 For
        the
        Three Months Ended March 31, 2006 and 2005
 
 2006
              
              2005Revenues:Licensing
              
              $
              105,000
              
              
              -Total
                  Revenues
              
              
              105,000
              
              
              -Cost
                  of Sales:Licensing
              
              
              -
              
              
              -Total
                  Cost of Sales
              
              
              -
              
              
              -Gross
                  Profit
              
              
              105,000
              
              
              -Operating
                  Expenses:Amortization
              
              
              65,680
              
              
              56,819Professional
                  and Consulting Fees
              
              
              573,229
              
              
              448,042Compensation
              
              
              359,298
              
              
              199,543Other
                  General and Administrative Expenses
              
              
              240,211
              
              
              206,364Total
                  Operating Expenses
              
              
              1,238,418
              
              
              910,768Loss
                  From Operations
              
              
              (1,133,418
              )
              
              (910,768
              )Other
                  Income (Expense)Interest
                  Income
              
              
              4,830
              
              
              -Gains
                  on Restructuring of Accounts Payable
              
              
              77,546
              
              
              -Interest
                  Expense
              
              
              (19,745
              )
              
              (17,152
              )Total
                  Other Income (Expense)
              
              
              62,631
              
              
              (17,152
              )Net
                  Loss
              
              $
              (1,070,787
              )
              
              (927,920
              )Weighted
                  Average Outstanding Shares
              
              
              115,063,384
              
              
              85,237,154Loss
                  Per Share
              
              $
              (.01
              )
              
              (.01
              )
 
 
 
 
 
 
 
 
 
 See
        accompanying notes to financial statements.
 
  2
  **HEALTH
        DISCOVERY CORPORATION**
 
 Statements
        of Cash Flows
 (unaudited)
 For
        the
        Three Months Ended March 31, 2006 and 2005
 
 March
                  31,
                2006
              
              
              
              March
                  31,
                2005Cash
                  Flows From Operating Activities:Net
                  Loss
              
              $
              (1,070,787
              )
              
              
              
              
              (927,920
              )Adjustments
                  to Reconcile Net Loss to Net CashUsed
                  by Operating Activities:Noncash
                  Compensation
              
              
              190,322
              
              
              
              
              
              -Securities
                  Exchanged for Warrants
              
              
              305,265
              
              
              
              
              
              -Services
                  Exchanged for Common Stock
              
              
              -
              
              
              
              
              
              75,000Gains
                  on Restructuring of Accounts Payable
              
              
              (77,546
              )
              
              
              
              
              -Depreciation
                  and Amortization
              
              
              67,427
              
              
              
              
              
              57,778Increase
                  in Employee Advances
              
              
              -
              
              
              
              
              
              (3,500
              )Increase
                  in Prepaid Expenses and Other Assets
              
              
              (15,023
              )
              
              
              
              
              (2,706
              )Increase
                  (Decrease) in Accounts Payable - Trade
              
              
              222,406
              
              
              
              
              
              (109,761
              )Increase
                  in Accrued Liabilities
              
              
              76,181
              
              
              
              
              
              24,049Net
                  Cash Used by Operating Activities
              
              
              (301,755
              )
              
              
              
              
              (887,060
              )Cash
                  Flows From Investing Activities:Purchase
                  of Equipment
              
              
              (502
              )
              
              
              
              
              (5,882
              )Amounts
                  Paid to Acquire Patents
              
              
              -
              
              
              
              
              
              (3,223
              )Net
                  Cash Used by Investing Activities
              
              
              (502
              )
              
              
              
              
              (9,105
              )Cash
                  Flows From Financing Activities:Repayments
                  of Notes Payable
              
              
              -
              
              
              
              
              
              (62,500
              )Proceeds
                  from Sales of Common Stock, Net
                Proceeds
                  from Exercise of Stock Options
              
              
              100,000
                6,000
              
              
              
              
              
              1,926,000
                -Net
                  Cash Provided by Financing Activities
              
              
              106,000
              
              
              
              
              
              1,863,500Net
                  Increase (Decrease) in Cash
              
              
              (196,257
              )
              
              
              
              
              967,335Cash,
                  at Beginning of Period
              
              
              719,167
              
              
              
              
              
              163,477Cash,
                  at End of Period
              
              $
              522,910
              
              
              
              
              
              1,130,812Non-Cash
                  Investing and Financing Transactions:Stock
                  Issued for Professional and Consulting Services
              
              $
              -
              
              
              
              
              
              75,000Non-cash
                  Compensation Warrants and Options
              
              $
              495,587
              
              
              
              
              
              -Non-cash
                  Stock Issuance Costs
              
              $
              -
              
              
              
              
              
              127,076Warrants
                  Issued in Restructuring of Accounts Payable
              
              $
              55,454
              
              
              
              
              
              -Supplemental
                  disclosures of cash flow information:Cash
                  Paid for Interest
              
              $
              -
              
              
              
              
              
              2,774
  
 
 
 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 rights to patents and has patent pending applications
        for
        certain machine learning tools used for diagnostic and drug discovery. The
        Company licenses the use of its patented protected technology or may develop
        specific learning tools to sell to third parties. The
        Company was reported on as a development stage corporation through December
        31,
        2004.
 
 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, 2006 are not necessarily
        indicative of the results of a full year’s operations. For further information,
        refer to the financial statements and footnotes included in the Company’s annual
        report on Form 10-KSB for the year ended December 31, 2005.
 
 **RECLASSIFICATIONS**
 
 Certain
        amounts from 2005 have been reclassified to conform to the presentation used
        in
        2006.
 
 **Note
        B - NET LOSS PER SHARE**
 
 Basic
        Earnings Per Share (“EPS”) includes no dilution and is computed by dividing
        income or loss available to common shareholders by the weighted average number
        of common shares outstanding for the period. Diluted EPS reflects the potential
        dilution of securities that could share in the earnings or losses of the
        entity.
        Due to the net loss in all periods presented, the calculation of diluted
        per
        share amounts would result in an anti-dilutive result and therefore is not
        presented.
 
 **Note
        C -** **STOCK-BASED
        COMPENSATION**
  Effective
        January 1, 2006, we adopted the provisions of Statement of Financial Accounting
        Standards (“SFAS”) No. 123(R), *Share-Based
        Payment* (“SFAS
        No. 123(R)”) using the modified prospective transition method provided for under
        the standard. SFAS 123(R) establishes accounting for stock-based awards
        exchanged for employee services. Accordingly, stock-based compensation cost
        is
        measured at grant date, based on the fair value of the award, and is recognized
        as expense over the employee’s requisite service period. We had previously
        applied Accounting Principles Board (“APB”) Opinion No. 25, *Accounting
        for Stock Issued to Employees* ,
        and
        related interpretations and provided the required pro forma disclosures of
        SFAS
        No. 123.
  The
        following table illustrates the effect on net loss and loss per share if
        the
        Company had applied the fair value recognition provisions of SFAS No. 123, *Accounting
        for Stock-Based Compensation* ,
        to
        stock-based employee compensation for periods presented prior to the Company’s
        adoption of Statement 123(R):
  4
   
 **HEALTH
        DISCOVERY CORPORATION**
 
 **Notes
        to Financial Statements, continued**
 
 **Note
        C -** **STOCK-BASED
        COMPENSATION, continued**
 
 Three
                  months endedMarch
                  31, 2005Net
                  loss as reported
              
              $
              (927,920
              )Deduct:
                  Stock-based Expense
                Determined
                  Under Fair Value Based
                Method
                  for Employee Stock Options
              
              
              -Proforma
                  Net Loss
              
              $
              (927,920
              )Stock-based
                  Expense Included in Net Loss
              
              $
              75,000Loss
                  Per Share:Basic
                  - As Reported
              
              $
              (.01
              )Basic
                  - Proforma
              
              $
              (.01
              )
 
 Stock-based
        expense included in our net loss for the three months ended March 31, 2006
        consisted of $495,587 in compensatory warrants and options. Stock-based expense
        included in our net loss for the three months ended March 31, 2005 consisted
        of
        $75,000 for the issuance of common stock to consultants for
        services.
 
 As
        of
        March 31, 2006, there was approximately $659,000 of unrecognized cost related
        to
        stock option and warrant grants. The cost is expected to be recognized over
        the
        remaining vesting period of approximately 2 years.
 
 The
        Company granted 2,000,000 options during the first 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. No options were granted in the first quarter of 2005.
 
 The
        following schedule summarizes stock option activity for the first quarter
        of
        2006:
 
 Option
              
              Weighted
                AverageShares
              
              Exercise
                  PriceOutstanding,
                  December 31, 2005
              
              
              2,500,000
              
              $
              0.08Granted
              
              
              2,000,000
              
              
              0.11Exercised
              
              
              (600,000
              )
              
              0.01Forfeited
              
              
              (400,000
              )
              
              0.10Outstanding,
                  March 31, 2006
              
              
              3,500,000
              
              $
              0.11
 
 The
        weighted average remaining life of the outstanding options at March 31, 2006
        is
        10 years.
 
 There
        were 1,500,000 options exercisable at March 31, 2006. The exercisable options
        have a weighted average exercise price of $0.11 and a weighted average remaining
        life of 10 years.
 
 Information
        about warrants outstanding at March 31, 2006 is summarized
        below:
  5
  
 **HEALTH
        DISCOVERY CORPORATION**
 
 **Notes
        to Financial Statements, continued**
 
 **Note
        C -** **STOCK-BASED
        COMPENSATION, continued**
 
 
 **Exercise
                  Prices**
              
              **Number**
                **Outstanding**
              
              **Weighted-**
                **Average**
                **Remaining**
                **Contractual
                  Life (years)**
              
              **Number**
                **Exercisable**
              
              **Weighted
                  Average Remaining Contractual Life (years) of**
                **Exercisable****Warrants**$0.01
              
              
              1,400,000
              
              
              1
              
              
              800,000
              
              
              1$0.08
              
              
              600,000
              
              
              1
              
              
              600,000
              
              
              1$0.10
              
              
              365,000
              
              
              3
              
              
              365,000
              
              
              3$0.11
              
              
              500,000
              
              
              3
              
              
              500,000
              
              
              3$0.12
              
              
              150,000
              
              
              3
              
              
              150,000
              
              
              3$0.13
              
              
              5,500,000
              
              
              5
              
              
              2,500,000
              
              
              3$0.15
              
              
              1,000,000
              
              
              3
              
              
              1,000,000
              
              
              3$0.20
              
              
              500,000
              
              
              2
              
              
              500,000
              
              
              2$0.22
              
              
              500,000
              
              
              3
              
              
              500,000
              
              
              3$0.24
              
              
              32,546,250
              
              
              3
              
              
              32,546,250
              
              
              3$0.35
              
              
              15,235,000
              
              
              1
              
              
              15,235,000
              
              
              1
  During
        2006, the Company issued 2,600,000 warrants to consultants and others for
        services with a weighted-average exercise price of $0.13 per share. A total
        of
        $258,724 was recorded as Paid in Capital for Compensatory Warrants. The warrants
        became exercisable upon issuance.
  The
        Company issued 3,000,000 warrants to two directors with an exercise price
        of
        $0.13 per share. A total of $29,625 was recorded as Paid in Capital for
        Compensatory Warrants. The warrants vest at a rate of 500,000 warrants (250,000
        warrants for each director) after satisfactory completion of each 6 months
        of
        service until 3 years of service has been completed. The expense is being
        recorded over the service period.
  The
        Company issued 1,000,000 warrants to a director with an exercise price of
        $0.15
        per share in conjunction with a common stock sale. The Company has ascribed
        no
        value to the warrants associated with the common stock sale described in
        Note
        E.
  The
        Company issued 765,000 warrants to three of its service providers with a
        weighted-average exercise price of $0.11 in settlement of certain accounts
        payable due to the service providers. The Company recorded a total of $55,454
        as
        Paid in Capital for Compensatory Warrants and recognized total gains of $77,546
        as a result of the restructuring the accounts payable amounts.
  In
        addition, the Company recorded a total of $16,916 during 2006 as Paid in
        Capital
        for Compensatory Warrants associated with previous warrant grants that have
        not
        fully vested. The expense is being recorded over the service
        period.
  **Note
        D - PATENTS**
 
 The
        Company has acquired a group of patents related to biotechnology and certain
        machine learning tools used for diagnostic and drug discovery. Additionally,
        legal costs associated with patent acquisitions and the application process
        are
        also capitalized as a part of patents. The Company has recorded $3,502,579
        in
        patents and patent related costs, net of accumulated amortization, at March
        31,
        2006.
 
 Amortization
        charged to operations for the quarters ended March 31, 2006 and 2005 was
        $65,680
        and $56,819, respectively. The weighted average amortization period for patents
        is 14 years. Estimated amortization expense for the next five years is $262,575
        per year.
  **Note
          E - STOCKHOLDERS’ EQUITY**
 
 During
          the first quarter of 2006, the Company issued 600,000 shares of its common
          stock
          upon the exercise of stock options. Proceeds from the exercise totaled
          $6,000.
 6
 **HEALTH
          DISCOVERY CORPORATION**
 
 **Notes
          to Financial Statements, continued**
  **Note
        E - STOCKHOLDERS’ EQUITY, continued**
 
 In
        addition, the Company sold 1,000,000 shares of its common stock to one of
        its
        directors for $100,000. The shares were sold for $.10 per share which was
        the
        closing price of the stock on the date of the sale. As part of the purchase,
        the
        director also received warrants to purchase an additional 100,000 shares
        of the
        Company’s common stock at a fixed price of $.15 per
 
 share
        until December 2008. No portion of the proceeds was assigned to the value
        of the
        warrants because the exercise price of the warrants exceeded the market value
        of
        the underlying common stock on the date of purchase.
 
 **Item
        2.**  **Management’s
        Discussion and Analysis of Financial Condition and Results of
        Operations**
  **Corporate
        Overview**
  Our
        Company is uniquely positioned in the field of pattern recognition technology.
        Through the application of our patent protected technology, HDC is a
        biology-oriented biomarker and pathway discovery company providing all aspects
        of *First-Phase
        Biomarker Discovery* .
        Our
        primary business consists of licensing that 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.
  We
        intend
        to provide pharmaceutical and diagnostic companies with all aspects of first
        phase diagnostic and drug discovery, from expert assessment of the clinical
        dilemma through proper selection and procurement of high quality specimens. We
        will then apply our proprietary analytical evaluation methods and
        state-of-the-art computational analysis to derive relevant and accurate clinical
        data, producing accurate biomarker and pathway discoveries, resulting in
        patent
        protection of our biomarker discoveries for future development.
  *First
        Phase Biomarker Discovery* is based
        on the belief that in order to discover the most clinically relevant biomarkers,
        the computational component must begin at the inception of the clinical dilemma
        to be solved. This process includes several critical levels of decision-making
        -
        all of which are part of our business strategy.
  We
        intend
        to produce more relevant and predictable biomarkers for drug discovery so
        that
        new and better medicines and diagnostic markers can be developed for patients
        worldwide.
  **Three
        Months Ended March 31, 2006 Compared with Three Months Ended March 31,
        2005**
  **Revenue**
  For
        the
        three months ended March 31, 2006, revenue was $105,000 compared with no
        revenue
        for the three months ended March 31, 2005, which was reported as a developmental
        stage company. Revenue was recognized for licensing and development
        fees.
  **Cost
        of Sales and Gross Margin**
  No
        expenses attributable to cost of sales was recorded for 2006. Cost of sales
        includes all direct costs associated with the acquisition and development
        of
        patents and processes sold. All direct costs, primarily professional fees
        associated with licensing negotiations, are also included in cost of sales.
        No
        such direct costs were incurred during the first quarter of 2006.
   7
   **Operating
        and Other Expenses**
  Amortization
        expense was $65,680 for the first quarter of 2006 compared with $56,819 for
        the
        first quarter of 2005. This increase was due to amortization being charged
        in
        2006 for intangibles acquired during 2005.
  Professional
        and consulting fees totaled $573,229 for the first quarter of 2006 compared
        with
        $448,042 for the first quarter of 2005. These fees, related to legal, accounting
        and scientific activities, were higher in 2006 because of increased regulatory
        filing activity, patent protection efforts, and general corporate legal and
        accounting work. The amount for 2006 includes $275,641 in compensatory warrants
        issued to consultants for services.
  Compensation
        of $359,298 for the first quarter of 2006 was higher than the $199,543 reported
        for the first quarter of 2005. This increase was due to the implementation
        of
        SFAS 123(R) favorably offset by a reduction of $17,000 in salaries due to
        reduced headcount.
  Other
        general and administrative expenses increased from $206,364 for the first
        quarter of 2005 to $240,211 for the first quarter of 2006. This increase
        is
        largely due to the extensive sales, marketing, and promotional efforts expended
        throughout the first quarter of 2006.
  **Loss
        from Operations**
  The
        loss
        from operations for the first quarter of 2006 was $1,133,418 compared to
        $910,768 for the first quarter of 2005. The increased loss was due to the
        factors enumerated above.
  **Other
        Income and Expense**
  Interest
        income was $4,830 for the first quarter of 2006. No interest income was earned
        in 2005.
  A
        gain on
        the restructuring of accounts payable of $77,546 was recorded in the first
        quarter of 2006 to reflect common stock warrants issued in payment of
        liabilities. No such amount was recorded in the comparable 2005
        period.
  Interest
        expense was $19,745 in 2006 compared with $17,152 in the first quarter of
        2005.
        This increase was due to interest being charged in 2006 for the debt assumed
        in
        2005, as well as the higher interest rate associated with the renegotiated
        promissory notes.
  **Net
        Loss**
  The
        net
        loss for the first quarter of 2006 was $1,070,787 compared to $927,920 for
        the
        first quarter of 2005. The increased loss was due to the higher loss from
        operations, offset favorably by the increased other income.
 
 Net
        loss
        per share was $0.01 for the first quarter of 2006 and 2005. The larger net
        loss
        in 2006 compared to that in 2005 was offset by the increased average number
        of
        shares outstanding in 2006.
  **Liquidity
        and Capital Resources**
  At
        March
        31, 2006, the Company had $522,910 in available cash. Cash used by operating
        activities was $301,775. This was due primarily to the net loss of $1,070,787;
        however non-cash charges of $563,014 favorably impacted the computation of
        the
        net cash used. Cash used by investment activities was $502 due to the
        acquisition of assets. Net cash provided by financing activities was $106,000
        due to the proceeds from the sale of common stock and the exercise of stock
        options.
  A
        portion
        of our cash will be used to satisfy the Company’s outstanding debt obligations
        related to the acquisition of the SVM assets and fees due to professionals
        for
        services performed. Scheduled payments of $26,780 on notes resulting from
        the
        acquisition of the SVM Portfolio were paid on May 11, 2006.
   8
   The
        following table summarizes the due dates of our contractual obligations.
        The
        Company has no long term lease agreements in effect as of March 31,
        2006.
  Total
                
                Less
                    than
                  1
                    Year
                
                1-3
                  YearsConvertible
                    Notes Payable
                
                $
                665,643
                
                $
                -
                
                $
                665,643Term
                    Debt
                
                
                348,691
                
                
                26,780
                
                
                321,911Total
                
                $
                1,014,334
                
                $
                26,780
                
                $
                987,554
   The
        Company has relied primarily on equity funding plus debt financing for liquidity
        during its developmental phase that ended in 2005. The Company produced sales,
        licensing, and developmental revenue in 2005 and 2006 and must continue to
        do so
        in order to generate sufficient cash to continue operations. Our plan to
        have
        sufficient cash to support operations is comprised of generating revenue
        through
        licensing our significant patent portfolio, providing services related to
        those
        patents, and obtaining additional equity or debt financing. We have been
        and
        continue to be in meaningful discussions with a variety of parties, which
        if
        successful, will result in significant revenue. We have implemented a cash
        conservation plan that includes salary deferrals, reduction in consulting
        payments, negotiated settlements with creditors whereby we substituted equity
        instruments for amounts owed, and a heightened scrutiny of all potential
        expenditures.
  Should
        it
        prove necessary, the Company may also consider such alternatives as raising
        additional equity through private placements and/or debt offerings. Although
        this raises doubt with respect to our ability to operate as a going concern,
        the
        Company believes that it has sufficient capability to operate through the
        next
        twelve months.
  **Off-Balance
        Sheet Arrangements**
  We
        have
        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
        Statement**
 
 This
        Report contains statements which constitute forward-looking statements within
        the meaning of Section 27A of the Securities Act of 1933 and Section 21E
        of the
        Securities Exchange Act of 1934. These statements appear in a number of places
        in this Report and include all statements regarding the intent, belief or
        current expectations of the Company, its directors or its officers with respect
        to, among other things: (i) the Company’s financing plans; (ii) trends affecting
        the Company’s financial condition or results of operations; (iii) the Company’s
        growth strategy and operating strategy; and (iv) the declaration and payment
        of
        dividends. Investors are cautioned that any such forward-looking statements
        are
        not guarantees of future performance and involve risks and uncertainties,
        and
        that actual results may differ materially from those projected in the
        forward-looking statements as a result of various factors discussed herein
        and
        those factors discussed in detail in the Company’s other filings with the
        Securities and Exchange Commission.
 
 **Item
        4. Controls and Procedures.**
 
 As
        of
        March 31, 2006 (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.
   9
   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
        May
        25, 2004, we filed suit in the District Court of McLennan County, Texas,
        against
        Bill G. Williams, Shirley K. Williams, W. Steven Walker, Jerry W. Petermann
        and
        a company controlled by Mr. Williams. In this action we allege that an aggregate
        of 700,000 shares of our common stock (4,900,000 after a 7-1 stock split)
        issued
        to Mr. Williams, Mr. Walker, Mr. Braswell and Mr. Petermann were not issued
        in
        compliance with Texas law and we sought to restrain the defendants and persons
        acting on their behalf or in concert with them from selling any shares of
        our
        stock. We also requested that the Court declare we were permitted to cancel
        the
        shares issued to the defendants and sought monetary damages, attorney’s fees and
        costs of the action.
  In
        June
        2004, Jerry W. Petermann agreed to return to the Company 1,000,000 shares
        of the
        Company stock, which were canceled upon return to the Company as full and
        final
        settlement of the claims brought in the aforementioned lawsuit. In addition,
        in
        June 2004, Robert S. Braswell IV agreed to return to the Company 2,100,000
        shares of the company stock, all of which were canceled upon return to the
        Company.
  In
        July
        2004, W. Steven Walker Esq., former general counsel, an officer and director
        of
        the Company, agreed to settle with the Company and return 366,036 shares
        of our
        common stock, which was all of the shares then owned by him, and he will
        no
        longer be a party to the suit. Accordingly, only the shares originally issued
        to
        Mr. Williams are subject to the suit, and the Company believes he controls
        approximately 2.1 million shares of our common stock.
  After
        several rulings at the District Court, on August 25, 2004 the Court of Appeals
        for the Tenth District of the State of Texas granted our appeal and entered
        an
        order, remanding the case to the original trial judge with instructions to
        issue
        a temporary injunction to preserve the status quo. The injunction will remain
        until a judgment in the case becomes final or the court otherwise instructs.
        The
        injunction requires the remaining defendants, their agents, employees,
        affiliates, any person or entity they control, and any person acting in concert
        with them to (i) stop and refrain from selling or otherwise disposing of
        any
        share of our common stock, and (ii) deposit into the registry of the District
        Court all shares of our common stock they now own or hold. Costs of the appeal
        were assessed against the Respondents. The defendants have asserted several
        counter claims against the Company, including a derivative action, and have
        brought third-party claims against several current officers of the
        Company.
  **Item
        2. Unregistered Sales of Equity Securities and Use of
        Proceeds.**
 
 On
        September 15, 2003 we completed the sale of 2,750,000 shares of restricted
        common stock to individual accredited investors at a price of $0.02 per share
        for a total of $55,000. The securities issued in the private placement were
        not
        registered under the Securities Act of 1933, as amended, and until they are
        registered the securities may not be offered or sold in the United States
        absent
        registration or the availability of an applicable exemption from registration.
        The shares were offered and sold in reliance upon exemptions from registration
        pursuant to Section 4(2) under the Securities Act of 1933, as amended, and
        Regulation D promulgated thereunder. Based on the information provided by
        each
        of the investors, all investors qualify as accredited investors (as defined
        by
        Rule 501 under the Securities Act of 1933, as amended). The Company filed
        a
        registration statement on September 15, 2003 and agreed that should the Company,
        before September 15, 2005, propose for itself or any other person, the
        registration under the Act of any securities of the Company on Form S-1,
        S-2 or
        S-3, the Company shall include in any such Registration Statement and in
        any
        related underwriting agreements, if the investors so requests, such securities
        of the investors.
   10
  In
        the
        fourth quarter of 2003, the Company issued 450,000 shares to consultants
        to the
        Company, including members of the Company’s scientific advisory board. In 2004,
        the Company issued 422,372 shares for services, including members of the
        Company’s scientific advisory board. In 2005, the Company issued 2,039,453
        shares to consultants and members of the scientific advisory board, 308,133
        shares in settlement of liabilities, 3,585,741 shares to noteholders who
        exchanged their notes for stock and 540,000 shares in accordance with the
        penalty provisions of the stock purchase agreement as amended February 25,
        2005.
        In December 2005, two consultants who had previously received shares for
        work
        performed rescinded 1,580,532 shares. All of these issuances were made in
        reliance upon exemptions from registration pursuant to Section 4(2) under
        the
        Securities Act of 1933, as amended.
  On
        July
        31, 2004, we completed the private sale of 15,235,000 shares of restricted
        common stock to individual accredited investors at an offering price of $
        0.10
        per share for a total of $1,523,500. Under the terms of the sale, the Company
        issued 15,235,000 restricted common shares. In addition, each purchaser of
        common shares was granted a warrant to acquire an equal number of restricted
        common shares at a fixed price of $0.35 per share, exercisable until February
        2007. This could result in the issuance of up to 15,235,000 additional
        restricted common shares upon exercise. We entered into purchase agreements
        with
        each of the investors, the form of which is attached as Exhibit 10.6. Neither
        the shares sold pursuant to the private placement nor the shares issuable
        upon
        the exercise of the warrants will be registered under either federal or state
        securities laws and must be held for at least one year from the time they
        are
        issued. The securities issued in the private placement were not registered
        under
        the Securities Act of 1933, as amended, and until they are registered the
        securities may not be offered or sold in the United States absent registration
        or the availability of an applicable exemption from registration. The shares
        and
        the warrants, the form of which is attached as Exhibit 10.7, were offered
        and
        sold in reliance upon exemptions from registration pursuant to Section 4(2)
        under the Securities Act of 1933, as amended, and Regulation D promulgated
        thereunder. Based on the information provided by each of the investors, all
        investors qualify as accredited investors (as defined by Rule 501 under the
        Securities Act of 1933, as amended).
  On
        March
        9, 2005, we completed the private sale of 30,703,125 shares of restricted
        common
        stock to certain institutional investors and individual accredited investors
        at
        an offering price of $0.16 per share for a total of $4,912,500. For every
        share
        of common stock purchased, each investor received warrants to purchase one
        share
        of the Company’s common stock at $0.24 per share, exercisable until December 31,
        2008. This could result in the issuance of up to 30,703,125 additional
        restricted common shares upon exercise. We entered into purchase agreements
        with
        each of the investors, the form of which is attached as Exhibit 10.8. Under
        each
        agreement, the Company agreed to use its best efforts to file a registration
        statement to register the shares of common stock and the shares underlying
        the
        warrants issued and sold to the investors by May 9, 2005, and to use its
        best
        efforts to cause the registration statement to be declared effective July
        6,
        2005. Shares
        totaling 540,000 were issued in the fourth quarter of 2005 under the penalty
        provisions of the agreement. The securities issued in the private placement
        were
        not registered under the Securities Act of 1933, as amended, and until they
        are
        registered the securities may not be offered or sold in the United States
        absent
        registration or the availability of an applicable exemption from registration. The
        shares and the warrants, the form of which is attached as Exhibit 10.9, were
        offered and sold in reliance upon exemptions from registration pursuant to
        Section 4(2) under the Securities Act of 1933, as amended, and Regulation
        D
        promulgated there under. Based on the information provided by each of the
        investors, all investors qualify as accredited investors (as defined  by
        Rule
        501 under the Securities Act of 1933, as amended). Subsequently on March
        10,
        2005, we filed registration statement No. 333-124750 for 18,609,375 shares
        of
        restricted common stock and the equivalent number of warrants.
  On
        December 14, 2005, the Company filed registration statement 333-124750
        registering 31,622,749 shares of common stock and 32,638,436 shares of common
        stock underlying warrants with the Securities and Exchange Commission, and
        the
        Securities and Exchange Commission declared the registration statement effective
        on December 20, 2005.
 
 In
        January 2006, Mr. David Cooper was issued 600,000 shares of the Company’s common
        stock in exchange for exercising his options, which had an exercise price
        of
        $0.01. On March 31, 2006, Mr. William Quirk purchased 1,000,000
        shares of the Company’s common stock with accompanying warrants to acquire an
        equal number of shares. The purchase price for the common shares was $.10
        per
        share, and the exercise price of the warrants is $0.15 per share. All
        of
        these issuances were made in reliance upon exemptions from registration pursuant
        to Section 4(2) under the Securities Act of 1933, as amended.
   11
  **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
                    Registration Statement on Form SB-2,  filed June 4, 2001.3.1
                    (a)
                Articles
                    of Amendment to Articles of Incorporation Registrant incorporates
                    by
                    reference Exhibit 2.2 to Form 10-QSB, filed November 14, 2001.3.1(b)
                Articles
                    of Amendment to Articles of Incorporation changing Registrant
                    name from
                    Direct Wireless Communications, Inc., to Health Discovery Corporation.
                    Registrant incorporates by reference Exhibit 3.1 (b) to form
                    10-KSB, filed
                    March 3, 2004.3.2
                By-Laws.
                    Registrant incorporates by reference Exhibit 3.2 to Registration
                    Statement
                    on Form SB-2, filed June 4, 2001.4.1
                Copy
                    of Specimen Certificate for shares of common stock. Registrant
                    incorporates by reference Exhibit 4.1 to Registration Statement
                    on Form
                    SB-2, 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, 2004.4.2
                Excerpt
                    from By-Laws. Registrant incorporates by reference Exhibit 4.2
                    to
                    Registration Statement on Form SB-2,  filed June 4, 2001.4.2(A)
                Corrected
                    Article 3.02 of By-Laws. Registrant incorporates by reference
                    Exhibit
                    4.2(A) to Amendment No. 2 to Registration Statement on Form
                    SB-2, filed August 15, 2001.4.3(a)
                Non
                    Qualified stock option agreements dated October 30, 2003 between
                    registrant and David Cooper. Registrant incorporates by reference
                    Exhibit
                    4.3(a) to form 10-KSB, filed March 30, 2004.10.1
                Asset
                    purchase agreement between registrant dated September 15, 2003
                    and
                    Barnhill Group LLC. Registrant incorporates by reference Exhibit
                    10.2 to
                    form 10-KSB, filed March 30, 2004.10.2
                Asset
                    purchase agreement between registrant dated December 30, 2003
                    and Fractal
                    Genomics LLC. Registrant incorporates by reference Exhibit 10.3
                    to Form
                    10-KSB, File No. 333-62216, filed March 30, 2004.10.3
                Employment
                    Agreement with Stephen Barnhill. Registrant incorporates by reference
                    Exhibit 10.3 to form 10-KSB, filed April 19, 2005.
                    *10.4
                Employment
                    Agreement with David Cooper. Registrant incorporates by reference
                    Exhibit
                    10.4 to form 10-KSB, filed April 19, 2005. *10.5
                Form
                    of Asset Purchase agreement between the registrant and the sellers
                    of the
                    SVM Portfolio and related assets. Registrant incorporates by
                    reference
                    Exhibit 10.5 to form 10-KSB, filed March 30, 2004.10.6
                Form
                    of Securities Purchase Agreement. Registrant incorporates by
                    reference
                    Exhibit 10.6 to form 10-KSB, filed April 19, 2005.10.7
                Form
                    of Warrant. Registrant incorporates by reference Exhibit 10.7
                    to form
                    10-KSB, filed April 19, 2005.10.8
                Form
                    of Securities Purchase Agreement. Registrant incorporates by
                    reference
                    Exhibit 10.8 to form 10-KSB, filed April 19,
                    2005.
 10.9
                Form
                    of Warrant. Registrant incorporates by reference Exhibit 10.9
                    to form
                    10-KSB, filed April 19, 2005.10.10
                Form
                    of Amendment to Securities Purchase Agreement. Registrant incorporates
                    by
                    reference Exhibit 10.10 to form SB-2/A, filed December 14,
                    2005.10.11
                Employment
                    Agreement with David R. Furth, dated as of December 5, 2005.
                    Registrant
                    incorporates by reference Exhibit 10.11 to form SB-2/A, filed
                    December 14,
                    2005.10.12
                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.
  12
  10.13
                Form
                    of Amendment to Promissory Note. Registrant incorporates by reference
                    Exhibit 99.1 to form 8-K, filed January 3, 2006.31
                Rule
                    13a-14(a)/15(d)-14(a) Certifications of Chief Executive
                    Officer.31.1
                Rule
                    13a-14(a)/15(d)-14(a) Certifications of Principal Financial
                    Officer.32
                Section
                    1350 Certification of Chief Executive Officer.32.1
                Section
                    1350 Certification of Principal Financial
                    Officer.
 
   13
  
 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 Corporation
 Registrant
 
 Date:
        May
        15, 2006    /s/
        Stephen D. Barnhill M.D.
 Printed Name: Stephen D. Barnhill M.D.
 Title: Chief Executive Officer
 
 Date:
        May
        15, 2006    /s/
        Daniel R. Furth
 Printed Name: Daniel R. Furth
 Title: Chief Financial Officer / Secretary
 
       14