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




**FORM
      10-QSB**




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


For
      the quarterly period ended June 30, 2007





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


For
      the
      transaction period from _________ to _________





Commission
      file number 333-62216





**HEALTH
                DISCOVERY CORPORATION**(Exact
                name of small business issuer as specified in its
                charter)





Georgia
            
            74-3002154(State
                or other jurisdiction of incorporation or organization)
            
            (IRS
                Employer Identification No.)


2
                    East Bryan Street, Suite #601
                  Savannah,
                    Georgia 31401(Address
                    of principal executive
                    offices)


912-443-1987(Issuer’s
                telephone number, including area
                code)




5501
                        1⁄2 Abercorn Street
                      Savannah,
                        Georgia 31405(Former
                        name, former address and former fiscal year,
                      if
                        changed since the last
                        report)
 Check
          whether the issuer (1) filed all reports required to be filed by Section
          13 or
          15(d) of the Exchange Act during the past 12 months (or for such shorter
          period
          that the registrant was required to file such reports), and (2) has been
          subject
          to the filing requirements for at least the past 90 days. Yes x No o




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 BANKRUPTCYPROCEEDINGS 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**




State
        the
        number of shares outstanding of each of the issuer's classes of common equity,
        as of the latest practicable date: 116,893,384
        shares of common stock, no par value, were issued and outstanding as of August
        11, 2007.


Transitional
      Small Business Disclosure Format (Check one): Yes o No x












**TABLE
      OF CONTENTS**





PART
                I
            FINANCIAL
                INFORMATION
            PageItem
                1.
            Financial
                StatementsBalance
                Sheet
            1Statements
                of Operations
            2Statements
                of Cash Flows
            3Notes
                to Financial Statements
            4Item
                2.
            Management’s
                Discussion andAnalysis
                Of Financial Condition and Results of Operation
            9Item
                3.
            Controls
                and Procedures
            15PART
                II
            OTHER
                INFORMATIONItem
                1.
            Legal
                Proceedings
            16Item
                2.
            Unregistered
                Sales of Equity Securities and Use of
                Proceeds
            16Item
                4.
            Submission
                of Matters to a Vote of Security
                Holders
            17Item
                5.
            Other
                Information
            17Item
                6.
            Exhibits
            18Signatures
            20









**HEALTH
      DISCOVERY CORPORATION**





**Balance
      Sheet**


(unaudited)


Assets
  June
                    30,2007Current
                    AssetsCash
                
                $
                65,558Prepaid
                    Expenses and Other Assets
                
                
                77,298Total
                    Current Assets
                
                
                142,856Equipment,
                    Less Accumulated Depreciation of $18,815
                
                
                11,182Other
                    AssetsPatents,
                    Less Accumulated Amortization of $811,614
                
                
                3,174,180Investments
                
                
                5,000Total
                    Assets
                
                $
                3,333,218Liabilities
                    and Stockholders’ EquityCurrent
                    LiabilitiesAccounts
                    Payable - Trade
                
                $
                318,654Accrued
                    Liabilities
                
                
                199,481Deferred
                    Revenue
                
                
                79,444Total
                    Current Liabilities
                
                
                597,579Accrued
                    Interest Payable
                
                
                205,364Long-Term
                    Debt
                
                
                321,911Convertible
                    Notes Payable
                
                
                665,643Related
                        Party Note Payable, Net of Unamortized Discount of
                        $323,167
                
                
                676,833Total
                    Liabilities
                
                
                2,467,330CommitmentsStockholders’
                    EquityCommon
                    Stock, No Par Value, 300,000,000 Shares Authorized116,493,384Shares Issued and Outstanding
                
                
                11,330,437Accumulated
                    Deficit
                
                
                (10,464,549
                )Total
                    Stockholders’ Equity
                
                
                865,888Total
                    Liabilities and Stockholders' Equity
                
                $
                3,333,218




See
      accompanying notes to financial statements.


1




**HEALTH
      DISCOVERY CORPORATION**




**Statements
      of Operations**


(unaudited)




Three
              
              Three
              
              Six
              
              SixMonths
              
              Months
              
              Months
              
              MonthsEnded
              
              Ended
              
              Ended
              
              EndedJune
                  30,
              
              June
                  30,
              
              June
                  30,
              
              June
                  30,2007
              
              2006
              
              2007
              
              2006Revenues:
 Licensing
              
              $
              10,834
              
              $
              70,000
              
              $
              21,667
              
              $
              175,000Cost
                  of Sales:Internal
                  Development
              
              
              3,900
              
              
              9,654
              
              
              11,400
              
              
              9,654Gross
                  Profit
              
              
              6,934
              
              
              60,346
              
              
              10,267
              
              
              165,346Operating
                  Expenses:Amortization
              
              
              65,680
              
              
              65,679
              
              
              131,360
              
              
              131,359Professional
                  and Consulting Fees
              
              
              322,077
              
              
              174,036
              
              
              492,309
              
              
              747,265Compensation
              
              
              157,555
              
              
              200,724
              
              
              321,710
              
              
              560,022Other
                  General and Administrative Expenses
              
              
              101,831
              
              
              95,204
              
              
              233,735
              
              
              335,415Total
                  Operating Expenses
              
              
              647,143
              
              
              535,643
              
              
              1,179,114
              
              
              1,774,061Loss
                  From Operations
              
              
              (640,209
              )
              
              (475,297
              )
              
              (1,168,847
              )
              
              (1,608,715
              )Other
                  Income (Expense)Interest
                  Income
              
              
              2,989
              
              
              3,169
              
              
              9,976
              
              
              7,999Gains
                  on Restructuring of Accounts Payable
              
              
              -
              
              
              -
              
              
              44,594
              
              
              77,546Interest
                  Expense
              
              
              (102,070
              )
              
              (21,107
              )
              
              (204,114
              )
              
              (40,852
              )Total
                  Other Income (Expense)
              
              
              (99,081
              )
              
              (17,938
              )
              
              (149,544
              )
              
              44,693Net
                  Loss
              
              $
              (739,290
              )
              $
              (493,235
              )
              
              (1,318,391
              )
              $
              (1,564,022
              )Weighted
                  Average Outstanding Shares
              
              
              116,493,384
              
              
              116,113,384
              
              
              116,479,098
              
              
              115,534,813Loss
                  Per Share
              
              $
              (.01
              )
              $
              (.00
              )
              
              (.01
              )
              $
              (.01
              )


See
      accompanying notes to financial statements.


2




**HEALTHDISCOVERY
      CORPORATION**





**Statements
      of Cash Flows**


(unaudited)


For
          the
          Six Months Ended June 30, 2007 and 2006
 Six
                      Months
                  
                  Six
                      MonthsEnded
                  
                  EndedJune
                      30,
                    2007
                  
                  June
                      30,
                    2006Cash
                      Flows From Operating Activities:Net
                      Loss
                  
                  $
                  (1,318,391
                  )
                  
                  (1,564,022
                  )Adjustments
                      to Reconcile Net Loss to Net CashUsed
                      by Operating Activities:Stock-based
                      Compensation
                  
                  
                  68,462
                  
                  
                  220,158Services
                      Exchanged for Warrants
                  
                  
                  167,545
                  
                  
                  365,743
 Issuance
                      of Warrants
                  
                  
                  33,756
                  
                  
                  -
 Accretion
                      of Debt Discount
                  
                  
                  138,500
                  
                  
                  -
 Gains
                      on Restructuring of Accounts Payable
                  
                  
                  (44,594
                  )
                  
                  (77,546
                  )Depreciation
                      and Amortization
                  
                  
                  135,918
                  
                  
                  134,868
 Decrease
                      in Accounts Receivable
                  
                  
                  20,000
                  
                  
                  -Decrease
                      in Deferred Revenue
                  
                  
                  (21,667
                  )
                  
                  -Increase
                      in Prepaid Expenses and Other Assets
                  
                  
                  (22,110
                  )
                  
                  (19,312
                  )(Decrease)
                      or Increase in Accounts Payable - Trade
                  
                  
                  125,320
                  
                  
                  220,587Increase
                      in Accrued Liabilities
                  
                  
                  113,451
                  
                  
                  163,717Net
                      Cash Used by Operating Activities
                  
                  
                  (603,810
                  )
                  
                  (555,807
                  )Cash
                      Flows From Investing Activities:Purchase
                      of Equipment
                  
                  
                  (998
                  )
                  
                  (502
                  )Acquisition
                      of Investee
                  
                  
                  (5,000
                  )
                  
                  -Net
                      Cash Used by Investing Activities
                  
                  
                  (5,998
                  )
                  
                  (502
                  )Cash
                      Flows From Financing Activities:Repayment
                      of Notes Payable
                    Proceeds
                      from Sales of Common Stock
                    Proceeds
                      from the Exercise of Options and Warrants
                  
                  
                  -
                    1,000
                    -
                  
                  
                  (26,780)
                    100,000
                    8,000Net
                      Cash Provided by Financing Activities
                  
                  
                  1,000
                  
                  
                  81,220Net
                      Decrease in Cash
                  
                  
                  (608,808
                  )
                  
                  (475,089
                  )Cash,
                      at Beginning of Period
                  
                  
                  674,366
                  
                  
                  719,167Cash,
                      at End of Period
                  
                  $
                  65,558
                  
                  
                  244,078Stock-Based
                      Investing and Financing Transactions:Warrants
                      Issued in Restructuring of Accounts Payable
                  
                  $
                  -
                  
                  
                  55,454Supplemental
                      disclosures of cash flow information:Cash
                      Paid for Interest
                  
                  $
                  1,125
                  
                  
                  1,056


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 June 30, 2007 are not necessarily
        indicative of the results of a full year’s operations and should be read in
        conjunction with the financial statements and footnotes included in the
        Company’s annual report on Form 10-KSB for the year ended December 31,
        2006.
 
 ***Recent
        Accounting Pronouncements***
 
 In
        June
        2006, the Financial Accounting Standards Board (“FASB”) issued FASB
        Interpretation No. 48, *Accounting
        for Uncertainty in Income Taxes - An Interpretation of FASB Statement No.
        109* ,
        (“FIN
        48”). FIN 48 clarifies the accounting for uncertainty in income taxes by
        prescribing a recognition threshold and measurement attribute for the financial
        statement recognition and measurement of a tax position taken or expected
        to be
        taken in a tax return. This pronouncement is effective for fiscal years
        beginning after December 15, 2006. We adopted FIN 48 effective January 1,
        2007.
        This adoption has not had a material impact on our financial
        statements.
 
 In
        September 2006, the FASB issued Statement No. 157, *Fair
        Value Measurements* ,
        (“Statement No. 157”). This statement provides a single definition of fair
        value, a framework for measuring fair value, and expanded disclosures concerning
        fair value. Previously, different definitions of fair value were contained
        in
        various accounting pronouncements creating inconsistencies in measurement
        and
        disclosures. Statement No. 157 applies under those previously issued
        pronouncements that prescribe fair value as a relevant measure of value,
        except
        Statement No. 123(R) and related interpretations and pronouncements that
        require
        or permit measurement similar to fair value but are not intended to measure
        fair
        value. This pronouncement is effective for fiscal years beginning after November
        15, 2007. We do not expect the adoption of Statement No. 157 to have a material
        impact on our financial position, results of operations, or cash
        flows.
  **Note
        B - REVENUE RECOGNITION**
 
 Revenue
        is generated through the sale or license of patented technology and processes
        and from services provided through development agreements. These arrangements
        are controlled by contracts that dictate responsibilities and payment terms.
        The
        Company recognizes revenues as they are earned over the duration of a license
        agreement or upon the sale of any owned patent once all contractual obligations
        have been fulfilled. Revenue is earned under development agreements in the
        period the services are performed. Deferred revenue represents the unearned
        portion of payments received in advance for licensing agreements. The Company
        had unearned revenue of $79,444 as of June 30, 2007.
  4
  **HEALTH
        DISCOVERY CORPORATION**
 
 **Notes
        to Financial Statements, continued**
 
 **Note
        C - NET LOSS PER SHARE**
 
 Basic
        Earnings Per Share (“EPS”) includes no dilution and is computed by dividing
        income or loss available to common shareholders by the weighted average number
        of common shares outstanding for the period. Diluted EPS reflects the potential
        dilution of securities that could share in the earnings or losses of the
        entity.
        Due to the net loss in all periods presented, the calculation of diluted
        per
        share amounts would create an anti-dilutive result and therefore is not
        presented.
 
 **Note
        D -** **STOCK-BASED
        COMPENSATION**
  Stock-based
        expense included in our net loss for the three months and six months ended
        June
        30, 2007 consisted of $145,527 and $269,753 respectively in compensatory warrants and options for professional consulting
        services and compensation. Stock-based expense included in our net loss for
        the
        three months and six months ended June 30, 2006 consisted of $90,314 and
        $585,901 respectively for the issuance of options and warrants.
 
 As
        of
        June 30, 2007, there was approximately $356,918 of unrecognized cost related
        to
        stock option and warrant grants. The cost is to be recognized over the remaining
        vesting periods that average approximately 4 years. No options have been
        granted
        in 2007.
 
 The
        Company granted 2,000,000 options during the second quarter of 2006. The
        fair
        value of each option granted in 2006 was $0.11 and was estimated on the date
        of
        grant using the Black-Scholes pricing model with the following assumptions:
        dividend yield at 0%, risk-free interest rate of 5.00%, an expected life
        of 10
        years, and volatility of 133%. Expected option lives and volatilities used
        in
        the fair valuation calculations are based on historical data of the Company
        and
        the related expense is recognized on a straight-line basis over the vesting
        period.
 
 The
        following schedule summarizes stock option activity for the six months ended
        June 30, 2007 and the twelve months ended December 31, 2006:
 
 Option
              
              Weighted
                AverageShares
              
              Exercise
                  PriceOutstanding,
                  January 1, 2006
              
              
              2,500,000
              
              $
              0.08Granted
              
              
              2,000,000
              
              
              0.11Exercised
              
              
              (600,000
              )
              
              0.01Forfeited
              
              
              (400,000
              )
              
              0.10Outstanding,
                  December 31, 2006
              
              
              3,500,000
              
              $
              0.11Granted
              
              
              -
              
              
              -Exercised
              
              
              -
              
              
              -Forfeited
              
              
              -
              
              
              -Outstanding,
                  June 30, 2007
              
              
              3,500,000
              
              $
              0.11
 
 The
        weighted average remaining life of the outstanding options at June 30, 2007
        is
        8.5 years.
 
 There
        were 2,500,000 options exercisable at June 30, 2007. The exercisable options
        have a weighted average exercise price of $0.11 and a weighted average remaining
        life of 8.5 years.
 
 5
 **HEALTH
        DISCOVERY CORPORATION**
 
 **Notes
        to Financial Statements, continued**
 
 **Note
        D -** **STOCK-BASED
        COMPENSATION, continued**
 
 Information
        about warrants outstanding at June 30, 2007 is summarized below:
 
 **Exercise
                  Prices**
              **Number**
                **Outstanding**
              **Weighted-**
                **Average**
                **Remaining**
                **Contractual**
                **Life
                  (years)**
              **Number**
                **Exercisable**
              **Weighted**
                **Average**
                **Remaining**
                **Contractual
                  Life**
                **(years)
                  of**
                **Exercisable**
                **Warrants**$0.01
              600,000
              1
              600,000
              1$0.10
              1,365,000
              2
              1,265,000
              2$0.11
              1,500,000
              2
              1,000,000
              2$0.12
              150,000
              2
              150,000
              2$0.13
              5,500,000
              3
              3,667,000
              2$0.14
              600,000
              2.5
              550,000
              2.5$0.15
              1,000,000
              2
              1,000,000
              2$0.16
              10,000,000
              2
              10,000,000
              2$0.20
              500,000
              1
              500,000
              1$0.22
              500,000
              1
              500,000
              1$0.24
              32,546,250
              1
              32,546,250
              1$0.35
              15,235,000
              .25
              15,235,000
              .25Total
              68,496,250
              
              67,013,250
  On
          February 1, 2007, Health Discovery Corporation (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 have an exercise price of
          $0.35
          per share. The Warrants expire 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 is approximately $33,755 and they were recorded as expense on
          the issue
          date.
  Also
          in
          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. The expense is being recorded
          as the
          warrants vest.
  The
          Company also issued 500,000 immediately vesting warrants to consultants
          with an
          exercise price of $0.11. These warrants expire December 31, 2009 and were
          valued
          at $19,815. They were charged to expense as compensatory warrants upon
          issuance.
 **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. Additionally,
        legal costs associated with patent acquisitions **** and
        the
        application process for new patents are also capitalized as a part of patents.
        The Company has recorded as other assets $3,174,180 in patents and patent
        related costs, net of $811,614 in accumulated amortization, at June 30,
        2007.
  Amortization
          charged to operations for the six months ended June 30, 2007 and 2006 was
          approximately $131,360 in both years. The weighted average amortization
          period
          for patents is 14 years. Estimated amortization expense for the next five
          years
          is $263,120 per year.
 6
  **HEALTH
        DISCOVERY CORPORATION**
 
 **Notes
        to Financial Statements, continued**
 
 
 **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 50% of the membership interests.
        Accordingly, the investment is presented using the equity method of
        accounting.
  **Note
        H - STOCKHOLDERS’ EQUITY**
 
 In
        January 2007, the Company issued 100,000 shares of stock for warrants exercised
        at $0.01 each. Proceeds of $1,000 were recorded in capital stock. In July
        2007,
        the Company increased the number of authorized shares from 200,000,000 to
        300,000,000.
 
 **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. In addition, management has successfully
        negotiated agreements with its debt holders, which resulted in the deferral
        of
        cash payments on debt until October 2008. Management has instituted a cost
        reduction program whereby the salaries of company employees, including senior
        management, have been reduced or deferred. 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**
  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. In connection with the settlement, a license agreement was
          entered into with Ciphergen providing a license to use certain of the Company’s
          patents and processes until expiration of such patents in return for a
          net
          licensing fee of approximately $450,000.
  On
          August 15, 2007, the Company entered into a Securities Purchase Agreement
          (the "Purchase Agreement") with several institutions and accredited
          individuals and have non-binding commitments from other individuals for
          the
          private issuance of shares of our restricted common stock at an offering
          price of $ 0.08 per share (the "Private Placement").  If the Company
          is able to secure binding commitments for the Minimum Amount (as defined
          below) and the Private Placement closes, the Company will receive between
          $1,500,000 (the “Minimum Amount”) and $2,500,000 (the “Maximum Amount”) in
          cash and up to $2,153,900 of previously issued and outstanding
          indebtedness, which includes all accrued yet unpaid interest on such
          indebtedness, will be converted in the transaction.  In addition, each
          purchaser of common shares, including those purchasers converting indebtedness,
          will be granted a warrant to acquire an equal number of restricted common
          shares at a fixed price of $0.14 per share and a warrant to acquire an
          equal
          number of restricted common shares at a fixed price of $0.19 per share,
          each
          exercisable until September 2010. At the Maximum Amount, 58,173,746 shares
          of our common stock would be issued, and the warrants could result in
          the issuance of up to 116,347,492 additional restricted common shares upon
          exercise and the payment of the aggregate exercise price of
          $19,197,336.
  7
  The
          transaction contemplated by the Purchase Agreement is expected
          to close in September 2007. The closing of the transaction is subject to
          the following conditions: the representations and warranties of the Company
          and
          the Purchasers set forth in the Purchase Agreement must be true and correct
          in
          all material respects as of August 15, 2007 and as of the closing date;
          the
          Company and the Purchasers must have performed, satisfied and complied
          in all
          material respects with all covenants, agreements and conditions required
          by the
          Purchase Agreement to be performed, satisfied or complied with by the Company
          and the Purchasers at or before the closing date; no statute, rule, regulation,
          executive order, decree, ruling or injunction shall have been enacted,
          entered,
          promulgated or endorsed by any court or governmental authority of competent
          jurisdiction which prohibits the consummation of any of the transactions
          contemplated by the Purchase Agreement; all required approvals, if any,
          shall
          have been obtained; at least the Minimum Amount shall have been subscribed
          for;
          the managers and employees of the Company shall have executed a management
          lockup agreement prohibiting the public sale of Company stock for a period
          of
          two years; the sales to the Purchasers shall not result in gross cash proceeds
          to the Company of greater than the Maximum Amount; no Material Adverse
          Effect
          (as defined in the Purchase Agreement) shall have occurred or been threatened
          (and no condition, event or development shall have occurred or been threatened
          involving a prospective Material Adverse Effect) in respect of the Company
          or
          any of its subsidiaries between the date of the Purchase Agreement and
          the
          closing date; and from August 15, 2007, to the closing date, trading in
          the
          Common Stock shall not have been suspended by the SEC or the Company’s principal
          trading market (except for any suspension of trading of limited duration
          agreed
          to by the Company, which suspension shall be terminated prior to the closing),
          and, at any time prior to the closing date, trading in securities generally
          as
          reported by Bloomberg L.P. shall not have been suspended or limited, or
          minimum
          prices shall not have been established on securities whose trades are reported
          by such service, or on any trading market, nor shall a banking moratorium
          have
          been declared either by the United States or New York State authorities
          nor
          shall there have occurred any material outbreak or escalation of hostilities
          or
          other national or international calamity of such magnitude in its effect
          on, or
          any material adverse change in, any financial market which, in each case,
          in the
          reasonable judgment of each Purchaser, makes it impracticable or inadvisable
          to
          purchase the shares and the warrants at the closing. While we are confident
          that
          this transaction will be finalized, there is a risk that either party will
          not
          be able to satisfy the conditions to closing that that the transaction
          will not
          be consummated.
  As
          a
          result of the Private Placement, the Company will have completely
          restructured its balance sheet and cash position.  After the closing
          of the Private Placement, the Company will have reduced outstanding indebtedness
          to $647,422, including outstanding accounts payable, and have a cash balance
          of
          approximately $2,591,000.  In satisfaction of the conditions set forth
          in the Amendments to the Employment Agreements for Dr. Barnhill and
          Mr. Furth, their salaries will revert to their prior levels.  
Currently, the Company is in default on the notes representing the indebtedness
          to be converted in the Private Placement because cash balances fell below
          the required minimum amount. Converting this debt, however, will eliminate
          the
          risk that the noteholders will accelerate the indebtedness, making the
          notes
          immediately due and payable.
 In
          connection with the closing of the Private Placement, the Company also
          plans to
          increase the size of the Board of Directors and add two additional outside
          directors, who will participate as investors in the Private
          Placement.
 8
  **Item
        2.****Management’s
        Discussion and Analysis of Financial Condition and Results of
        Operations**
 **Subsequent
          Events and Developments**
  Effective
          July 1, 2007, the Company entered into a patent license and settlement
          agreement
          with Ciphergen Biosystems, Inc. (“Ciphergen”) in connection with the pending
          litigation styled *Health
          Discovery Corporation v. Ciphergen Biosystems, Inc.* Case No.
          07-00285-CRB, before the United States District Court for the Northern
          District
          of California. In
          consideration for entering into the Agreement, Ciphergen agreed to pay
          the
          Company $600,000 over a two-year period. The
          patent license and settlement agreement is attached to this Quarterly Report
          on
          Form 10-QSB as Exhibit 10.10. For additional details regarding this settlement
          and the patent license and settlement agreement, see Part II Item I of
          this
          Quarterly Report on Form 10-QSB and Exhibit 10.10.
  Also
          effective July 1, 2007, the Company relocated its corporate offices to
          downtown
          Savannah, Georgia. The company committed to a three-year lease at a rental
          rate
          of $1,678 per month.
 
 On
          July
          12, 2007, the Company, formerly a Texas corporation, completed its
          reincorporation in Georgia by effecting a conversion in the Company’s legal
          domicile from Texas to Georgia. The Company’s business, assets, liabilities, net
          worth and headquarters were unchanged as a result of the conversion, and
          the
          directors and officers of the Company prior to the conversion continued
          to serve
          the Company after the conversion. In connection with the conversion, the
          Company’s shares were converted on a one-for-one basis.
 
 The
          conversion was approved by the shareholders holding at least two-thirds
          of the
          outstanding common shares of the Company at the reconvened special meeting
          of
          the shareholders held on June 13, 2007. Articles of Conversion were filed
          with
          the Secretaries of State of Texas and Georgia on July 12, 2007 to effect
          the
          reincorporation.
  9
  In
          connection with the conversion and as approved by the shareholders, the
          Company
          filed Articles of Incorporation in the State of Georgia, which increased
          the
          number of authorized shares of common stock, no par value, from two hundred
          million (200,000,000) shares to three hundred million (300,000,000) shares
          and
          authorized thirty million (30,000,000) shares of preferred stock, no par
          value,
          with the rights and preferences to be determined by the Company’s Board of
          Directors prior to issuance. The Company also amended and restated its
          Bylaws.
          The Articles of Incorporation and Bylaws were submitted to the shareholders
          and
          were approved on June 13, 2007. The foregoing amendments to the Company’s
          Articles of Incorporation and Bylaws were effective on July 12,
          2007.
 
 In
          accordance with the Company’s revenue generation plan, and as previously
          disclosed on the Current Report on Form 8-K filed on August 3, 2007, the
          Company
          entered into a license agreement with Clarient, Inc. on July 31, 2007.
          Under the
          terms of the license agreement, the Company grants to Clarient the right
          to use
          four biomarkers and several patents for its research in developing a test
          to
          differentiate clinically significant prostate cancer from other prostate
          conditions using biopsied prostate tissue. In consideration of granting
          the
          license to Clarient, Clarient shall pay to the Company thirty percent (30%)
          of
          the net proceeds received by Clarient or one of its affiliates with respect
          to
          all tests developed during the term of the license agreement. The Company
          anticipates that this license agreement will generate revenue by
          mid-2008.
  On
          August 15, 2007, we entered into a Securities Purchase Agreement (the
          "Purchase Agreement") with several institutions and accredited individuals
          and have non-binding commitments from other individuals for the private
          issuance
          of shares
          of
          our restricted common stock at an offering price of $ 0.08 per share 
(the "Private Placement") .  If we are able to secure binding
          commitments for the Minimum Amount (as defined below) and the Private Placement
          closes, we will receive between $1,500,000 (the "Minimum Amount") and
          $ 2,500,000 (the
          "Maximum Amount") in cash and up to $2,153,900 of our previously issued and outstanding indebtedness, which includes
          all accrued yet unpaid interest on such indebtedness, will be converted
          in the
          transaction.  In addition, each purchaser of our common shares
          including those purchasers converting indebtedness will be granted a
          warrant to acquire an equal number of restricted common shares at a fixed
          price
          of $0.14 per share and a warrant to acquire an equal number of restricted
          common
          shares at a fixed price of $0.19 per share, each exercisable
          until September 2010. At the Maximum Amount, we will issue 58,173,746
          shares of our common stock, and the warrants could result in the issuance
          of up to 116,347,492 additional restricted common shares upon exercise and the payment of the
          aggregate exercise price of $19,197,336.  A copy of the Purchase
          Agreement is attached to this Quarterly Report on Form 10-QSB as Exhibit
          10.11.  The shares and the warrants will be 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.
  We
          anticipate that the transaction contemplated by the Purchase Agreement
          will
          close in September 2007. The closing of the transaction is subject to the
          following conditions: the representations and warranties of the Company
          and the
          Purchasers set forth in the Purchase Agreement must be true and
          correct in all material respects as of August 15, 2007 and as of the closing
          date; the Company and the Purchasers must have performed, satisfied and
          complied in all material respects with all covenants, agreements and conditions
          required by the Purchase Agreement to be performed, satisfied or complied
          with by the Company and the Purchasers at or before the closing date; no
          statute, rule, regulation, executive order, decree, ruling or injunction
          shall
          have been enacted, entered, promulgated or endorsed by any court or governmental
          authority of competent jurisdiction which prohibits the consummation of
          any of
          the transactions contemplated by the Purchase Agreement; all required
          approvals, if any, shall have been obtained; at least the Minimum
          Amount shall have been subscribed for; the managers and employees of the
          Company shall have executed a management lockup agreement prohibiting the
          public
          sale of Company stock for a period of two years; the sales to the Purchasers
          shall not result in gross cash proceeds to the Company of greater than
          the
          Maximum Amount; no Material Adverse Effect (as defined in the Purchase
          Agreement) shall have occurred or been threatened (and no condition, event
          or
          development shall have occurred or been threatened involving a prospective
          Material Adverse Effect) in respect of the Company or any of its subsidiaries
          between the date of the Purchase Agreement and the closing date; and from
          August 15, 2007 to the closing date, trading in the Common Stock shall
          not have
          been suspended by the SEC or the Company’s principal trading market (except for
          any suspension of trading of limited duration agreed to by the Company,
          which
          suspension shall be terminated prior to the closing), and, at any time
          prior to
          the closing date, trading in securities generally as reported by Bloomberg
          L.P.
          shall not have been suspended or limited, or minimum prices shall not have
          been
          established on securities whose trades are reported by such service, or
          on any
          trading market, nor shall a banking moratorium have been declared either
          by the
          United States or New York State authorities nor shall there have occurred
          any
          material outbreak or escalation of hostilities or other national or
          international calamity of such magnitude in its effect on, or any material
          adverse change in, any financial market which, in each case, in the reasonable
          judgment of each Purchaser, makes it impracticable or inadvisable to purchase
          the shares and the warrants at the closing. While we are confident that
          this
          transaction will be finalized, there is a risk that either party will not
          be
          able to satisfy the conditions to closing that that the transaction will
          not be
          consummated.
  10
  As
          a
          result of the Private Placement, we will have completely restructured our
          balance sheet and cash position.  After the closing of the Private
          Placement, we expect to have reduced our outstanding indebtedness **** to $647,422**,** including outstanding accounts payable, and have a cash balance of approximately $2,591,000 .  In
          satisfaction of the conditions set forth in the Amendments to the
          Employment Agreements for Dr. Barnhill and Mr. Furth, their salaries
          will revert to their prior levels. Currently, the Company is in default
          on the
          notes representing the indebtedness to be converted in the Private Placement
          because our cash balance fell below the required minimum amount. Converting
          this
          debt, however, will eliminate the risk that the noteholders will accelerate
          the
          indebtedness, making the notes immediately due and payable.
  In
          connection with the closing of the Private Placement, we also plan to increase
          the size of our Board of Directors and add two additional outside directors,
          who
          we expect to participate as investors in the Private Placement. We are
          very
          excited about these two individuals becoming members of our Board of Directors
          and  believe that the guidance, advice and contacts they bring will greatly
          benefit the Company as we continue to execute our business plan with a
          completely recapitalized balance sheet.
  Over
            the
            past quarter, HDC has been granted three new foreign patents. The Korean
            Patent
            Office has issued HDC’s patent covering a tiered arrangement of SVMs that
            provides for the analysis of multiple data sets, such as distinct data
            types, to
            produce a single output. Counterparts of this patent are issued in nine
            other
            countries including the U.S. The Japanese Patent Office has granted a
            patent
            covering HDC’s SVM-based image analysis technology. Finally, the European Patent
            Office has granted a new patent covering the use of the FGM technology
            for
            analysis of data for recognition of patterns.
 
 Within
            the past month, the U.S. Patent and Trademark Office has issued Notices
            of
            Allowance in three of HDC’s pending patent applications, two covering several
            SVM-based methods of feature section, and one covering use of the FGM
            technology
            for visualization of patterns within data. The SVM-based methods, which
            may be
            used as alternatives to or in conjunction with HDC’s patented RFE-SVM method,
            are based on the work of a number of the world’s leading authorities on learning
            machines and pattern recognition. In
            addition, IP Australia, the Australian patent office, has issued Notices
            of
            Acceptance of two of HDC’s pending applications covering the use of RFE-SVM for
            identifying determinative genes for diagnosing and monitoring disease,
            including
            prostate disease biomarkers identified using the method, and SVM-based
            image
            analysis.
  **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.
  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.
  **Three
        Months Ended June 30, 2007 Compared with Three Months Ended June 30,
        2006**
  **Revenue**
  For
        the
        three months ended June 30, 2007, revenue was $10,834 compared with $70,000
        for
        the three months ended June 30, 2006. Revenue is recognized for licensing
        and
        development fees over the period earned.
  **Cost
        of Sales and Gross Margin**
  Internal
        development costs of $3,900 were recorded as cost of sales for the second
        quarter 2007 compared with $9,654 for the second quarter of 2006. Cost of
        sales
        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 sales.
  **Operating
        and Other Expenses**
  Amortization
        expense was $65,680 and $65,679 for the second quarter of 2007 and 2006
        respectively. Amortization expense relates primarily to the costs associated
        with filing patent application and acquiring rights to the patents.
  Professional
        and consulting fees totaled $322,077 for the second quarter of 2007 compared
        with $174,036 for the second quarter of 2006. The increase is due to higher
        legal and patent maintenance expense plus the issuance of warrants to
        consultants.
  Compensation
        of $157,555 for the second quarter of 2007 was lower than the $200,724 reported
        for the second quarter of 2006. The reduction in compensation is due primarily
        to salary reductions.
  11
 Other
        general and administrative expenses increased to $101,831 for the second
        quarter
        of 2007 compared to $95,204 for the second quarter of 2006. This increase
        was
        due to slightly higher investor relations and compliance costs.
  **Loss
        from Operations**
  The
        loss
        from operations for the second quarter of 2007 was $640,209 compared to $475,297
        for the second quarter of 2006. This increased loss was due to reduced revenue
        and increased costs as discussed previously.
 
 **Other
        Income and Expense**
 
 Interest
        income was $2,989 for the second quarter of 2007 compared to $3,169 in 2006.
        Interest income decreased because the Company had less cash on hand to
        invest throughout the second quarter of 2007.
  Interest
        expense was $102,070 in the second quarter of 2007 compared with $21,107
        in the
        second quarter of 2006. This increase was due to the higher interest rate
        associated with the renegotiated promissory notes, interest due on the
        promissory note secured in September 2006, and accretion of $69,250 related
        to
        the discount recorded for the warrants issued along with the September 2006
        promissory note.
  **Net
        Loss**
  The
        net
        loss for the second quarter of 2007 was $739,290 compared to $493,235 for
        the
        second quarter of 2006. The increased loss was due to the increased loss
        from
        operations and the increased interest expense.
 
 Net
        loss
        per share was $0.01 for the second quarter of 2007 and $0.00 for the second
        quarter of 2006.
  **Six
        Months Ended June 30, 2007 Compared with Six Months Ended June 30,
        2006**
  **Revenue**
  For
        the
        six months ended June 30, 2007, revenue was $21,667 compared with $175,000
        for
        the six months ended June 30, 2006. Revenue is recognized for licensing and
        development fees over the period earned.
  **Cost
        of Sales and Gross Margin**
  Internal
        development costs of $11,400 and $9,654 were recorded as cost of sales for
        the
        six months ended June 30, 2007 and 2006 respectively. Cost of sales 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 sales.
  **Operating
        and Other Expenses**
  Amortization
        expense was $131,360 and $131,359 for the six months ended June 30, 2007
        and
        2006 respectively. Amortization expense relates primarily to the costs
        associated with filing patent application and acquiring rights to the
        patents.
  Professional
        and consulting fees totaled $492,309 for the six months ended June 30, 2007
        compared with $747,265 for the comparable period in 2006. These fees, related
        to
        legal, accounting and scientific activities, were lower in 2007 because of
        efforts to control costs related to regulatory filing activity, patent
        protection efforts, general corporate legal and accounting work, and fewer
        warrants issued to consultants and service providers.
  Compensation
        of $321,710 for the first six months of 2007 was lower than the $560,022
        reported for the first six months of 2006. The reduction in compensation
        is due
        primarily to options granted in 2006 totaling $190,322 included as compensation
        and the salary reduction program.
  12
  Other
        general and administrative expenses decreased to $233,735 for the six months
        ended June 30, 2007 compared to $335,415 for the six months ended June 30,
        2006.
        This decrease was largely due to ongoing cost containment efforts undertaken
        since mid-2006.
  **Loss
        from Operations**
  The
        loss
        from operations for the six months ended June 30, 2007 was $1,168,847 compared
        to $1,608,715 for the six months ended June 30, 2006. This smaller loss was
        largely due to ongoing cost reduction efforts as previously discussed,
        unfavorably offset by reduced revenue.
 
 **Other
        Income and Expense**
 
 Interest
        income was $9,976 for the six months ended June 30, 2007 compared to $7,990
        in
        2006. Interest income increased because the Company had more cash on hand
        to
        invest.
  Interest
        expense was $204,114 for the six months ended June 30, 2007 compared with
        $40,852 in 2006. This increase was due to the higher interest rate associated
        with the renegotiated promissory notes, interest due on the promissory note
        secured in September 2006, and accretion of $138,500 related to the discount
        recorded for the warrants issued along with the September 2006 promissory
        note.
  **Net
        Loss**
  The
        net
        loss for the six months ended June 30, 2007 was $1,318,391 compared to
        $1,564,022 for the comparable period in 2006. The reduced loss was due to
        the
        diminished loss from operations, unfavorably offset by the increased interest
        expense.
 
 Net
        loss
        per share was $0.01 for the six months ended June 30, 2007 and
        2006.
  **Liquidity
        and Capital Resources**
  At
        June
        30, 2007, the Company had $65,558 in available cash. Cash used by operating
        activities was $603,810. This was due primarily to the net loss of $1,323,345;
        however, net non-cash charges and adjustments of $719,535 favorably impacted
        the
        computation of the net cash used. Cash used by investment activities was
        $5,998
        due to the acquisition of assets and the investment made in SVM Capital LLC.
        Net
        cash provided by financing activities was $1,000 due to the cash received
        from
        sale of common stock resulting from the exercise of warrants.
  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.
  The
        following table summarizes the due dates of our contr actual
        obligations. The Company had no long term lease agreements in effect as of
        June
        30, 2007.
  Total
              
              Less
                  than
                1
                  Year
              
              1-3
                YearsAccrued
                  Interest Payable
              
              $
              205,364
              
              $
              -
              
              $
              205,364Accounts
                  Payable Deferred
              
              
              173,353
              
              
              173,353
              
              
              -Deferred
                  Compensation
              
              
              60,000
              
              
              60,000
              
              
              -Term
                  Debt
              
              
              321,911
              
              
              -
              
              
              321,911Convertible
                  Notes Payable
              
              
              665,643
              
              
              -
              
              
              665,643Promissory
                  Note
              
              
              1,000,000
              
              
              -
              
              
              1,000,000Total
              
              $
              2,426,271
              
              $
              233,353
              
              $
              2,192,918
   13
  The
        Company formed SVM Capital LLC as an equity investment in the first quarter
        of 2007 for purposes of utilizing SVM pattern recognition as a quantitative
        investment management tool.
  The
        Company, in an effort to preserve cash, to enable the Company to continue
        its
        operations, and as a condition to a loan from a director, negotiated a
        restructuring of certain of its accounts payable with selected vendors,
        primarily its legal and professional vendors. In September 2006, two vendors
        reduced their outstanding balances by $37,190, or 50%, in settlement of the
        full
        liability for a cash payment of $37,190. This settlement was recorded as
        a gain
        on restructuring. Several other vendors agreed to extend the payment terms
        and
        defer collection on outstanding amounts for an indefinite period of time.
        The
        Company currently expects to pay such amounts in three to six months upon
        increases in revenues and or additional equity or debt financing, although
        none
        of those events is certain. The total amount of accounts payable deferred
        in
        September 2006 was $170,966. The Company also issued 300,000 warrants to
        these
        vendors with an exercise price of $0.10 per share. The fair value of these
        warrants on the grant date was $16,872 and was recorded as an expense in
        connection with the restructuring. The deferred payments to the vendors has
        not
        been discounted as the date of payment is not certain.
  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
        in
        2005 and 2006 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 below. The Company has
        implemented a cash conservation plan that includes salary deferrals and
        reductions, reduction in consulting payments, negotiated settlements with
        creditors whereby the Company substituted equity instruments for amounts
        owed,
        and a heightened scrutiny of all potential expenditures.
  As
        described above in Subsequent Events and Developments, the Company entered
        into an agreement with several institutions and accredited investors for
        the
        private issuance of securities. As a result of this investment, the
        Company expects to receive up to $ 2,500,000 in cash
        and will reduce its outstanding indebtedness to $647,422 .
        The
        Company will use the proceeds of this financing to sustain its operations
        and to
        continue to pursue licensing opportunities.
  **Operational
        Activities**
  Negotiations
        with a large European pharmaceutical company to develop a companion diagnostic
        test using our discovered biomarkers as surrogates in the last phase of a
        clinical trial for its new drug to treat BPH (enlarged prostate) have been
        delayed due to the prospect’s internal consolidation issues. Based on the
        prospect’s representations, we believe that discussions regarding this
        prospective opportunity will resume sometime in 2008.
 
 We
        have
        entered into a research agreement with a leading biotech company to develop
        an
        SVM-based diagnostic test to help interpret flow cell cytometry data for
        a
        particular medical condition. Our science team’s analysis of partial data
        provided demonstrates a successful proof of concept. If our partner accepts
        our
        conclusions, it opens a portal to similar work on diseases such as leukemia
        and
        lymphoma that are far more prevalent.
 
 We
        have
        advanced discussions with a large international healthcare company we have
        long
        pursued. Our objective is licensing and product development using SVMs in
        diagnostic radiology, including mammography, PET scans, CT scans, MRI and
        other
        radiological images. We own a number of SVM patents in this field that we
        think
        are very important.
 
 We
        have
        received inquiry from a European molecular diagnostics company about the
        applicability of our RFE-SVM pattern recognition technology to MicroRNA
        expression signature discovery and to circulating tumor cells to identify
        micro-metastasis in blood.
 
 Finally,
        we have been in continuing discussions with a few clinical labs to provide
        commercial outlets for biomarker-based clinical tests to be developed and
        wholly
        or partly owned by us. With one or more such partners, we may be able to
        market
        tests directly to physicians. The selection of any particular clinical lab
        partner may be incorporated into a specific license and product development
        deal.
  In
          addition to traditional license and development agreements, we are expanding
          our
          approach to monetizing our intellectual property. In the first quarter of
          2007, we formed an equity investment, SVM Capital, LLC, with Atlantic Alpha
          Strategies, LLC to apply our SVM pattern recognition tools to quantitative
          investment analysis. We believe that research efforts to date show promise
          in
          developing computer-based investment and hedging techniques. The specific
          goal
          is to substantially reduce investment risk while providing superior, but
          not
          necessarily outsized, returns for comparable asset classes. If SVM Capital
          can
          advance the predictive art sufficiently, the ultimate business objective
          is to
          create one or more funds that would appeal to conservative and risk-averse
          investors. We believe that there are many “quant funds” successfully using
          different mathematics-based techniques, including neural networks, to assist
          in
          the investment decision-making process by uncovering patterns that might
          otherwise be impossible or too time-consuming to discern. To the best of
          our
          knowledge, none use SVM-based models. In broad terms, if SVM Capital can
          replicate in this arena the consistent superiority SVMs have shown, for
          example,
          over neural networks in hundreds of medical field studies, it could achieve
          an
          advantaged and patent-protected position in quantitative-based investments
          in
          equities, debt instruments, currencies and commodities.
  While
          we
          have a number of negotiations in process with potential funding sources
          and
          licensing partners, there is a possibility that we will be unable to reach
          agreement with any party, that the negotiations continue but are not finalized
          or that those that may be finalized do not provide the economic returns
          that we
          expect. The Company is also considering such alternatives as raising additional
          equity through private placements and/or debt offerings.
  If
          the
          Company consummates a successful private placement, debt offering, or licensing
          arrangement, the Company believes that it will have sufficient cash to
          sustain
          operations through at least the next twelve months. If, however, the Company
          is
          not able to generate higher levels of revenue or consummate a successful
          private
          placement, the Company believes that there is doubt with respect to our
          ability
          to operate as a going concern and whether the Company will have sufficient
          cash
          to operate during the next twelve months.
  **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.
  14
  **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 risks and uncertainties described
        in
“Risk Factors” section to our Annual Report for the fiscal year ended December
        31, 2006, filed on March 30, 2007.
  **Item
        3. Controls and Procedures.**
 
 As
        of
        June 30, 2007 (the “Evaluation Date”), we carried out an evaluation, under the
        supervision and with the participation of our management, including our Chief
        Executive Officer and President and our Principal Financial Officer, of the
        effectiveness of the design and operation of our disclosure controls and
        procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934,
        as
        amended (the “Exchange Act”). Based upon this evaluation, our Chief Executive
        Officer and our Principal Financial Officer concluded that, as of the Evaluation
        Date, our disclosure controls and procedures were effective under Rule
        13a-15.
  Because
        of the inherent limitations in all control systems, no evaluation of controls
        can provide absolute assurance that the Company’s disclosure controls and
        procedures will detect or uncover every situation involving the failure of
        persons within the Company to disclose material information otherwise required
        to be set forth in the Company’s periodic reports.
  The
        Company’s management is also responsible for establishing and maintaining
        adequate internal control over financial reporting to provide reasonable
        assurance regarding the reliability of financial reporting and the preparation
        of financial statements for external purposes in accordance with generally
        accepted accounting principles. As of the Evaluation Date, no changes in
        the
        Company’s internal control over financial reporting occurred that have
        materially affected, or are reasonably likely to materially affect, the
        Company’s internal control over financial reporting.
  15
  **PART
        II—OTHER INFORMATION**
 
 **Item
        1. Legal Proceedings.**
 
 On
        June
        19, 2007, the Company entered into a settlement agreement (the “Settlement
        Agreement”) among Bill G. Williams, Shirley K. Williams, and Automated Shrimp
        Corporation (collectively, the “Defendants”), Stephen Barnhill as Third-Party
        Defendant, and Baptist Community Services, Tim Holloway, Guadalupe Family
        Limited Partnership, and Gerald Easterling as Intervenors in connection with
        the
        pending litigation styled *Health
        Discovery Corporation v. Williams et al.* ,
        filed
        in the District Court of McLennan County, State of Texas, Civil Action File
        No.
        10-04-00012-CV. Pursuant to the terms of the Settlement Agreement, as amended,
        each party agreed to voluntarily dismiss with prejudice any and all claims
        it
        has against each and every other party. In consideration for entering into
        the
        Settlement Agreement, the Company agreed to issue in the aggregate 400,000
        shares of Company common stock to the Defendants and to pay the Defendants
        an
        aggregate of $10,000.
 
 Effective
        as of July 1, 2007, the Company entered into a patent license and settlement
        agreement (the “License Agreement”) with Ciphergen 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. Pursuant to the terms of the License Agreement, each party
        agreed to voluntarily dismiss with prejudice any and all claims it has against
        the other party. Additionally, the Company agreed to grant Ciphergen a narrowly
        focused license to use the Company’s SVM
        technology for
        the
        analysis of mass spectrometry data generated only by Ciphergen or a
        research collaborator working specifically on Ciphergen's behalf using
        Ciphergen’s proprietary SELDI-based mass spectrometers.  Pursuant
        to Article III of the License Agreement, neither Ciphergen nor their
        research collaborators are permitted to use the Company’s SVM
        technology on any other type of molecular diagnostic data for biomarker
        discovery other than SELDI-based mass spectrometry data. Ciphergen’s
        limited license of the Company’s SVM technology does not allow Ciphergen to
        analyze any other molecular diagnostic data such as genomic data, gene chip
        data, DNA methylation data, histologic or radiologic imaging data, clinical
        data
        and the like, all of which are fields of use where the SVM technology have
        shown
        success and are the subject of additional licensing opportunities for the
        Company. In fact, Ciphergen may not use the Company’s SVM technology even on
        proteomic data unless the data is specifically produced on Ciphergen’s SELDI
        mass spectrometer and only when analyzed by Ciphergen or a research collaborator
        working primarily on Ciphergen’s behalf. Furthermore, Ciphergen's customers have
        an implied license to utilize the Company's SVM patents that will allow
        them to continue using SELDI instruments with Ciphergen's Associated
        Software (which is defined in the License Agreement as
        Ciphergen’s ProteinChip® Software, Biomarker PatternsTM Software, and
        CiphergenExpressTM Software).   The License Agreement does not,
        however, give Ciphergen's customers any right to use the
        Company’s SVM technology apart from their use of the Associated
        Software, but rather expressly excludes the addition or substitution
        of third party-based SVM technology to or for the Associated Software. Finally,
        the Company agreed not to sue Bio-Rad for its manufacture, offer for sale,
        sale,
        use and importation of SELDI-based mass spectrometers when used with the
        Ciphergen Associated Software noted earlier.  Bio-Rad has no
        right to use the Company’s SVM technology apart from the SELDI-based mass
        spectrometers and Associated Software and the SELDI instrumentation business
        that Bio-Rad acquired from Ciphergen.  The License Agreement expressly
        excludes the addition or substitution of third party-based SVM technology
        to or
        for the Associated Software.
 
 **Item
        2. Unregistered Sales of Equity Securities and Use of
        Proceeds.**
 
 During
        the second quarter, the Company issued an aggregate of 500,000 warrants to
        purchase an equal number of shares of the Company’s common stock to three
        members of the Company’s Scientific Advisory Board for providing advisory
        services to the Company beyond which was expected in his capacity as a
        Scientific Advisory Board member. These warrants vest immediately and have
        an
        exercise price of $0.11 per share. Each of these issuances were made in reliance
        upon exemptions from registration pursuant to Section 4(2) under the Securities
        Act of 1933, as amended.
 
 During
        the first quarter of 2007, the Company issued 100,000 shares of stock for
        warrants exercised at $0.01 each. Proceeds of $1,000 were recorded in capital
        stock. No stock was issued during the second quarter of 2007.
  16
  In
        connection with the Settlement Agreement described above, the Company agreed
        to
        issue in the aggregate 400,000 shares of Company common stock to the Defendants.
        These shares were issued in July 2007.
  **Item
        4. Submission of Matters to a Vote of Security
        Holders.**
 
 On
        May
        22, 2007, the Company held a special meeting of the shareholders of the Company.
        The shareholders elected the following directors to serve until their successors
        are duly elected and qualified: Stephen D. Barnhill, M.D., William F. Quirk,
        Jr., and William M. Goldstein. Dr. Barnhill received 104,652,034 votes for
        his
        election to the board of directors, and 3,305,684 votes abstained. Mr. Quirk
        received 104,449,620 votes for his election to the board of directors, and
        3,508,098 votes abstained. Mr. Goldstein received 104,652,034 votes for his
        election to the board of directors, and 3,305,684 votes abstained.
 
 At
        the
        May 22 meeting, the shareholders of the Company voted in favor of increasing
        the
        number of authorized shares of common stock from 200,000,000 to 300,000,000
        as
        follows: 96,617,471 for, 10,820,624 against, and 519,623 abstain. The
        shareholders also voted to adjourn the meeting to allow for further solicitation
        of proxies with respect to the proposal to change the state of incorporation
        and
        to authorize 30,000,000 shares of blank check preferred stock, as follows:
        100,006,840 for, 7,224,626 against, and 726,252 abstain.
 
 On
        June
        13, 2007, the Company reconvened its special meeting of the shareholders
        of the
        Company previously held on May 22, 2007. At the June 13 meeting, the
        shareholders voted for the authorization of 30,000,000 shares of preferred
        stock
        with preferences to be determined at the time of issuance as follows: 79,697,113
        for, 7,748,150 against, and 443,132 abstain. The shareholders also voted
        in
        favor of the change in the state of incorporation from Texas to Georgia as
        follows: 81,793,927 for, 4,173,654 against, and 1,910,814 abstain.
 
 **Item
        5. Other Information.**
 
 (a)
 Effective
        on August 1, 2007, the Company entered into an amendment to the employment
        agreement with Stephen D. Barnhill, M.D. (the “Barnhill Amendment”). Under the
        Barnhill Amendment, Dr. Barnhill agreed to defer a portion of his salary
        until
        the Company received a cash infusion, through the sale of Company securities
        or
        otherwise, of at least $1,500,000. Dr. Barnhill also agreed to forfeit this
        deferral amount if he terminates his employment with the Company or if he
        is
        fired for cause, as that term is defined in his employment
        agreement.
 
 Effective
        on August 1, 2007, the Company entered into an amendment to the employment
        agreement with Daniel R. Furth (the “Furth Amendment”). Under the Furth
        Amendment, Mr. Furth agreed to defer a portion of his salary until the Company
        received a cash infusion, through the sale of Company securities or otherwise,
        of at least $1,500,000. Mr. Furth also agreed to forfeit this deferral amount
        if
        he terminates his employment with the Company or if he is fired for cause,
        as
        that term is defined in his employment agreement.
  17




**Item
      6.Exhibits.**




The
        following exhibits are attached hereto or incorporated by reference herein
        (numbered to correspond to Item 601(a) of Regulation S-B, as promulgated
        by the
        Securities and Exchange Commission) and are filed as part of this Form
        SB-2:
  3.1
              
              Articles
                  of Incorporation. Registrant incorporates by reference Exhibit
                  3.1 to
                  Current Report on Form 8-K filed July 18, 2007.3.2
              
              By-Laws.
                  Registrant incorporates by reference Exhibit 3.2 to Current Report
                  on Form
                  8-K filed July 18, 2007.4.1
              
              Copy
                  of Specimen Certificate for shares of common stock. Registrant
                  incorporates by reference Exhibit 4.1 to Registration Statement
                  on Form
                  SB-2, filed June 4, 2001.4.1
                  (b)
              
              Copy
                  of Specimen Certificate for shares of common stock. Registrant
                  incorporates by reference Exhibit 4.1 (b) to Form 10-KSB, filed
                  March 30,
                  2004.10.1
              
              Employment
                  Agreement with Stephen Barnhill. Registrant incorporates by reference
                  Exhibit 10.3 to Form 10-KSB, filed April 19, 2005. *10.1(a)
              
              First
                  Amendment to Employment Agreement with Stephen Barnhill. Registrant
                  incorporates by reference Exhibit 99.2 to Form 8-K, filed January
                  3,
                  2006.10.1(b)
              
              Second
                  Amendment to Employment Agreement with Stephen Barnhill. Registrant
                  incorporates by reference Exhibit 99.3 to Form 8-K, filed September
                  1,
                  2006.10.1(c)
              
              Third
                  Amendment to Employment Agreement with Stephen Barnhill, dated
                  as of
                  August 1, 2007. (filed herewith)10.2
              
              Form
                  of Warrant. Registrant incorporates by reference Exhibit 10.7 to
                  Form
                  10-KSB, filed April 19, 2005.10.3
              
              Form
                  of Warrant. Registrant incorporates by reference Exhibit 10.9 to
                  Form
                  10-KSB, filed April 19, 2005.10.4
              
              Employment
                  Agreement with Daniel R. Furth, dated as of December 5, 2005. Registrant
                  incorporates by reference Exhibit 10.11 to Form SB-2/A, filed December
                  14,
                  2005.10.4(a)
              
              First
                  Amendment to Employment Agreement with Daniel R. Furth, dated as
                  of August
                  1, 2007. (filed herewith)10.5
              
              Employment
                  Agreement with Robert S. Braswell IV, dated as of January 1, 2006.
                  Registrant incorporates by reference Exhibit 99.1 to Form 8-K,
                  filed
                  February 2, 2006.10.6
              
              Form
                  of Amendment to Promissory Note. Registrant incorporates by reference
                  Exhibit 99.1 to Form 8-K, filed January 3, 2006.10.7
              
              Promissory
                  Note by the Company in favor of William F. Quirk, Jr. Registrant
                  incorporates by reference Exhibit 99.1 to Form 8-K, filed September
                  5,
                  2006.10.8
              
              Warrant
                  by the Company in favor of William F. Quirk, Jr. Registrant incorporates
                  by reference Exhibit 99.2 to Form 8-K, filed September 5,
                  2006.10.9
              
              Form
                  of Second Amendment to Promissory Note. Registrant incorporates
                  by
                  reference Exhibit 99.4 to Form 8-K, filed September 5,
                  2006.10.10
              
              Patent
                  License and Settlement Agreement by and between the Company and
                  Ciphergen
                  Biosystems, Inc. dated as of July 1, 2007 (filed
                  herewith)
  18
  10.11
              
              Securities
                  Purchase Agreement by and between the Company and the investors
                  listed on
                  Schedule A and Schedule B dated as of August 15, 2007 (filed
                  herewith)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.




19




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:
              August
              16, 2007
            
            /s/ Stephen
              D. Barnhill M.D.Printed
              Name: Stephen D. Barnhill M.D.Title:
              Chief Executive Officer Date:
              August
                16, 2007
            
            /s/
              Daniel R.
              FurthPrinted
              Name: Daniel R. FurthTitle:
              Executive
              Vice President / Principal Financial
              Officer/Secretary








20