HYPERTENSION DIAGNOSTICS INC /MN - Annual Report: 2009 (Form 10-K)

form10-k.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

x	ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended June 30, 2009

o	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 0-24635

Hypertension Diagnostics, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Minnesota (State or Other Jurisdiction of Incorporation or Organization)	41-1618036
	(I.R.S. Employer
	Identification No.)

2915 Waters Road, Suite 108, Eagan, Minnesota 55121

(Address of Principal Executive Offices, including Zip Code)

Registrant’s Telephone Number: (651) 687-9999

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered under Section 12(g) of the Exchange Act:

Title of Each Class Title of Each Class Name of Each Exchange on Which Registered

Common Stock ($.01 par value) Redeemable Class B Warrant OTC Bulletin Board

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes o No x

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o

Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

The aggregate market value of voting Common Stock held by non-affiliates of the Registrant, based upon the average of the closing bid and asked price of Common Stock on the OTC Bulletin Board system on September 17, 2009 of $0.17 was approximately $4,698,000.

There were 40,963,088 shares of the issuer’s common stock, $.01 par value per share, outstanding as of September 18, 2009.

DOCUMENTS INCORPORATED BY REFERENCE

None.

Hypertension Diagnostics, Inc.

Annual Report on Form 10-K

For the Year Ended June 30, 2009

INDEX

PART I	2

ITEM 1. Business	2
ITEM 2. Properties	22
ITEM 3. Legal Proceedings	22
ITEM 4. Submission of Matters to a Vote of Security Holders	22

PART II	23

ITEM 5. Market for Common Equity and Related Stockholder Matters and Issuer Purchaser of
Equity Securities	23
ITEM 6. Selected Financial Data	23
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
ITEM 8. Financial Statements and Supplementary Data	30
ITEM 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	47
ITEM 9(T). Controls and Procedures	47
ITEM 9B. Other Information	48

PART III	48

ITEM 10 Directors, Executive Officers and Corporate Governance	48
ITEM 11 Executive Compensation	51
ITEM 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	53
ITEM 13. Certain Relationships and Related Transactions	54
ITEM 14. Principal Accountant Fees and Services	55

PART IV	55

ITEM 15. Exhibits, Financial Statement Schedules	55

SIGNATURES	58

Forward-Looking Statements

This Annual Report and our public documents to which we refer contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. In addition, we may make forward-looking statements orally in the future by or on behalf of the Company. When used, the words “believe,” “expect,” “can,” “estimate,” “anticipate” and similar expressions are intended to identify forward-looking statements. We caution readers not to place undue reliance on any forward-looking statements and to recognize that the statements are not predictions of actual future results. Actual results could differ materially from those anticipated in the forward-looking statements due to the risks and uncertainties set forth herein under the caption “Risk Factors,” as well as others not now anticipated.

These risks and uncertainties include, without limitation: our ability to develop a business model to timely generate acceptable levels of revenues; negative effect on our stock price resulting from available securities for sale; our need for additional capital; our dependence on our CVProfilor® DO-2020; the availability of third-party reimbursements for the use of our products; increased market acceptance of our products; our marketing strategy may result in lower revenues; the illiquidity of our securities on the OTC Bulletin Board and the related restrictions on our securities relating to “penny stocks” potential violations by us of federal and state securities laws; the availability of integral components for our products; our ability to develop distribution channels; increased competition; changes in government regulation; health care reforms; exposure to potential product liability; our ability to protect our proprietary technology; regulatory restrictions pertaining to data privacy issues in utilizing the CDMF; and the ability to manufacture our products on a commercial scale and in compliance with regulatory requirements.

PART I

Introduction

We were incorporated under the laws of the state of Minnesota on July 19, 1988. We are engaged in the design, development, manufacture and marketing of proprietary devices that non-invasively measure both large and small artery elasticity. Vascular compliance or arterial elasticity has been investigated for many years and clinical studies suggest that a lack of arterial elasticity is an early indicator of vascular disease. Our product provides important cardiovascular parameters which we believe provide clinically beneficial information useful in screening patients who may be at risk for future cardiovascular disease, provide assistance to physicians with their diagnosis of patients’ cardiovascular disease, and allow for monitoring the effectiveness of various treatments of patients with diagnosed cardiovascular disease.

ITEM 1. Business

We are currently marketing three products:

CVProfilor® DO-2020 CardioVascular Profiling System. The CVProfilor® DO-2020 System has been approved by the Food and Drug Administration, or FDA, and is being marketed to primary care physicians and other health care professionals within the United States. These physicians and other health care professionals can purchase the CVProfilor® DO-2020 directly from us, lease it through a third-party capital lease, or rent it from us on a “per-patient-tested” rental basis.

Utilizing our Central Data Management Facility, or CDMF, we are able to track utilization of the CVProfilor® DO-2020 System in each physician’s office and medical clinic and to invoice our physician customers based on the number of CardioVascular Profile Reports (CVProfile™ Reports) which they generate each month.

HDI/PulseWave™CR-2000 Research CardioVascular Profiling System. The CR-2000 Research System is being marketed worldwide “for research purposes only” to clinical research investigators for the purpose of collecting data in cardiovascular studies. Further, because the CR-2000 Research System bears the CE Mark and meets the European Union Medical Device Directive, physicians may use the CR-2000 Research System with patients in a clinical setting in the European Union.

CVProfilor® MD-3000 CardioVascular Profiling System. The CVProfilor® MD-3000 System is the international version of the CVProfilor® DO-2020 System designed for physicians outside the United States. The CVProfilor® MD-3000 System has a CE Mark that allows it to be marketed within European Union countries.

Background of Business

Cardiovascular Disease

Cardiovascular disease is the primary cause of heart attacks and strokes and is the leading cause of death worldwide. The disease can manifest itself in many ways, including: hypertension or high blood pressure, coronary artery disease leading to heart attacks, peripheral artery disease, arteriosclerosis (hardening of the arteries) or atherosclerosis (plaque which progressively blocks arteries), aneurysm, stroke, kidney failure, retinopathy and sudden death.

According to the American Heart Association's (“AHA”) Heart Disease and Stroke Statistics -- 2009 Update, in 2008, more than 864,480 Americans died from heart disease-related conditions, such as heart attack, high blood pressure, stroke, heart failure, and congenital heart defects. Heart disease-related illnesses have been the country's deadliest conditions for more than a century. Based on 2006 data, the American Heart Association estimates that more than 80 million Americans have heart disease, including 38.1 million people aged 60 or older. The AHA predicts that this number is expected to skyrocket as the nation ages, affecting 40 million Americans aged 65 and older by the year 2010. Heart disease also kills more than 151,000 Americans per year under the age of 65. Besides the human toll, heart disease is also financially costly. In 2009, it is estimated that cardiovascular disease costs America more than $475 billion in direct and indirect costs, the AHA estimates.

Hypertension, typically defined as blood pressure measuring 140 mmHg or greater systolic pressure and/or 90 mmHg or greater diastolic pressure, is extremely common. Worldwide, 600 million people with high blood pressure are at risk of heart attack, stroke, and cardiac failure. According to the American Heart Association, in 2009 an estimated 73.6 million individuals, or 1 in 3 adults in the United Sates aged 18 or older have hypertension. Almost a third of this population is not aware that it has hypertension. Among individuals receiving treatment, nearly 55% have uncontrolled hypertension. In other words, approximately 55% of these individuals are not being properly treated for their high blood pressure and, therefore, face significantly higher increased risk for advanced heart and kidney disease and the occurrence of strokes. According to the 2007 National, Heart, Lung, and Blood Institute report, during the past ten years, the age-adjusted death rate from hypertension increased 25%, and more than $100 billion is spent in the United States each year on hypertension and its associated complications.

In recognition of the health risks posed by high blood pressure, the AHA issued guidelines that classify individuals with systolic blood pressure between 120-139 mmHg or diastolic blood pressure between 80-89 mmHg as “prehypertensive.” The AHA estimates that an additional 53 to 82 million American adults over the age of 18 have “prehypertension.” Prehypertensive individuals are believed to be at significant risk for developing hypertension and they have a much greater risk of cardiovascular events or dying from cardiovascular disease within 10 years than people with lower or normal blood pressure levels.

Currently, hypertension is diagnosed when an individual crosses an established blood pressure threshold. In recognition of the fact that hypertension-related cardiovascular disease is a complex process that begins before blood pressure values reach levels currently used to define hypertension, the Hypertension Working Group of the American Society of Hypertension, proposed in 2005 that the medical definition of hypertension be changed to: “Hypertension is a progressive cardiovascular syndrome arising from complex and interrelated etiologies. Early markers of the syndrome are often present before blood pressure elevation is observed; therefore, hypertension cannot be classified solely by discrete blood pressure thresholds. Progression is strongly associated with functional and structural cardiac and vascular abnormalities that damage the heart, kidneys, brain, vascular, and other organs and lead to premature morbidity and death.” The Hypertension Working Group recommends improving clinical care for individuals with hypertension through the coordination of two important goals: lowering blood pressure and protecting the heart, blood vessels and target organs of the patient, simultaneously.

According to the National Institutes of Health, or NIH, National Heart, Lung, and Blood Institute’s, or NHLBI, Framingham Heart Study, middle-aged and elderly people face a 90% risk of developing hypertension during their remaining years. Moreover, an estimated 73% of the 23.6 million U.S. adults with diabetes have hypertension or borderline hypertension. According to the Centers for Disease Control and Prevention, another 57 million American adults have pre-diabetes, a condition that occurs when a person’s blood glucose levels are higher than normal but not high enough for a diagnosis of diabetes. The American Diabetes Association, or ADA, predicts that the number of new U.S. cases of diagnosed diabetes is expected to increase by one million people per year. The ADA believes that people with diabetes are two to four times more likely to have hypertension, two to four times more likely to experience a stroke, and cardiovascular disease is the major cause of diabetes-related deaths. The WHO estimates that 176 million people have diabetes worldwide. India tops the list having 31 million people with diabetes, the largest number of people with diabetes in the world. Overall, hypertension and diabetes are major contributors to cardiovascular death worldwide and continue to grow in size. For example, only one-third of the people over 35 years of age in Beijing and Shanghai, China have normal blood pressure, and 30% of Chinese adults have high blood pressure, one of the highest rates of hypertension in the world.

Hypertension can easily go undetected and has been called the “silent killer” because it usually produces no clinical symptoms until after it has already seriously damaged the heart, kidneys, brain and/or other vital organs. Hypertension damages the arteries, leading to pathological changes in the tissues and organs supplied by these damaged arteries. It accelerates the development of atherosclerosis in large blood vessels and in the arteries supplying blood to the brain, heart, kidneys and legs. Atherosclerosis is the formation of plaque and the accumulation of fatty deposits lining the walls of arteries, or endothelium, which affect blood flow. The endothelium helps to maintain the flexibility or elasticity of the artery and normally inhibits the accumulation of lipid and cellular deposits on the wall of the artery. Abnormal function of the endothelium and the associated structural changes in the blood vessel wall result in a progressive loss of elasticity of the arteries. Detection of this loss in elasticity can identify individuals with abnormal arterial structure and function, often long before plaque formation can cause morbid cardiovascular events such as heart attacks or strokes. Further, demonstration of normal arterial structure and function might suggest that an individual does not have early atherosclerosis and therefore may not need aggressive risk factor management, despite poor life styles such as obesity, smoking or inactivity.

There is no simple, clinically applicable method to detect the presence of atherosclerosis prior to plaque obstruction of the arteries leading to heart attack, stroke, angina and other cardiovascular diseases. We believe there have been widespread, global efforts at identification of individuals exhibiting the risk factors associated with atherosclerosis and intervention through lifestyle modification, medical therapy, surgical procedures and medication. We believe the problem with this approach is two-fold: (a) patients without traditional risk factors will not be identified even though up to many of the atherosclerotic clinical events occur in such individuals; and (b) patients who have one or more risk factors may be subjected to intensive and prolonged therapy even though they may not have the atherosclerotic process which the therapy is designed to inhibit.

The Clinical Problem

Cardiovascular specialists spend considerable effort on evaluating heart function, including the clinical use of electrocardiograms (ECGs), echocardiograms and stress tests, but have been unable to assess the functional and structural abnormality of the arteries prior to the late phase of arterial obstruction due to atherosclerosis. In addition, due to the fact that hypertension increases one’s risk for developing cardiovascular disease, physicians put considerable effort into blood pressure measurements even though it, too, is an insensitive and nonspecific means of assessing the underlying condition of the blood vessels. Traditionally, a patient’s arterial blood pressure is obtained clinically by using a sphygmomanometer, that is, an upper-arm blood pressure cuff device. Despite these attempts to identify patients at risk for cardiovascular disease studies show that blood pressure is not necessarily well correlated with actual cardiovascular events. Therefore, focusing on blood pressure levels alone to determine cardiovascular risk may not catch those with actual disease.

Although an elevated blood pressure is associated with a higher risk for cardiovascular events, the elevated blood pressure is not the disease, but merely a relatively crude marker for the likelihood of disease. Furthermore, blood pressure itself is highly variable from moment to moment and day to day in almost all individuals. Elevated serum cholesterol levels, especially an increase in the low-density lipoproteins/high-density lipoproteins (LDL/HDL) ratio, also are associated with a higher risk for morbid cardiovascular events, but this measurement does not identify blood vessel disease directly. Instead, a high LDL/HDL ratio is yet another risk factor (such as smoking or lack of exercise) that might increase the risks associated with blood vessel disease. Various medical techniques such as radiology, magnetic resonance imaging (MRI), computerized tomography (CT) scans and ultrasonography also are not useful in obtaining information about the elasticity of small and/or very small arteries, or arterioles, which are the first blood vessels to become altered with hypertension and other cardiovascular diseases.

The degree of arterial elasticity is related to the condition of the blood vessels, and with declining elasticity comes an increase in the incidence of vascular disease. We believe declining elasticity in the arterial wall precedes the development of overt coronary artery disease by many months and even years. Therefore, the “premature stiffening” of the small arteries and arterioles appears to be an early and sensitive clinical marker for cardiovascular disease, even in patients who have no clinical evidence of traditional risk factors for vascular disease. Further, clinical research data published globally has shown that patients with heart failure, coronary artery disease, hypertension and diabetes all exhibit a loss or reduction of arterial elasticity.

More women die of cardiovascular disease each year than men. According to the NIH Women's Ischemia Syndrome Evaluation (“WISE”) report released in 2006, women have a form of heart disease that is fundamentally different and harder to diagnose then in men. Standard cardiovascular disease diagnostic techniques such as treadmill stress tests and coronary angiography designed to show large coronary artery stenosis is not useful in women where the plaque appears more likely to spread evenly through the artery wall. Coronary angiography might be missing a sizeable portion of women in terms of estimating the risk for cardiovascular disease. Half or more of women who present with findings suggesting ischemia have dysfunction at the microvascular level and this dysfunction appears linked to adverse outcomes. Therefore, women appear to be strong candidates for CVProfilor testing.

The Company’s Products

Our products capture blood pressure waveform data produced by the beating heart and analyze it in order to provide an assessment of systemic arterial elasticity for both large and very small arteries.

Blood pressure waveform data is produced each time the heart cycles through a complete heartbeat. As the heart contracts pushing a volume of blood into the arteries, pressure within the arteries rise. As the aortic valve closes after the heart has ejected this volume of blood, blood pressure within the arteries falls prior to the next heartbeat. The complete cycle forms a pressure curve or waveform, which reflects the degree or amount of arterial elasticity. Subtle changes in arterial elasticity introduce changes within the entire arterial system that are reflected in this blood pressure waveform or shape. This “blood pressure waveform” or “pulse contour analysis” methodology provides an independent assessment of the elasticity or flexibility of the large arteries which expand briefly as they act as conduits for blood ejected by the heart, and of the small arteries and the arterioles which produce oscillations or reflections in response to the pressure wave generated during each heart beat. The degree of arterial elasticity is related to the condition of the blood vessels and with declining elasticity comes an increase in the incidence of cardiovascular disease.

Incorporating this physiological phenomenon associated with blood pressure waveforms, Drs. Jay N. Cohn and Stanley M. Finkelstein, Professors at the University of Minnesota Medical School in Minneapolis, Minnesota, and two of our Company’s founders, developed a clinically useful procedure for determining a measure of elasticity for both large and small arteries. Our products use patented and proprietary software programs and algorithms to analyze the contour of the blood pressure waveform so that the arterial elasticity can be determined. The measure of elasticity of the large arteries is called a C1-large artery elasticity index and in the small arteries the measure is called the C2-small artery elasticity index.

The Products

We currently have designed, developed and are marketing three products:

- HDI/PulseWave™ CR-2000 Research CardioVascular Profiling System

- CVProfilor® DO-2020 CardioVascular Profiling System

- CVProfilor® MD-3000 CardioVascular Profiling System

Our products painlessly and non-invasively collect 30 seconds of blood pressure waveform data from the patient. The products analyze this data by means of an embedded computer and then generate a CardioVascular Profile Report or CVProfile™ Report using an external printer. The Report contains several clinically useful parameters, which permit a physician to screen patients for underlying vascular disease. All of our products have four primary components: (a) a custom designed, non-invasive Arterial PulseWave™ Sensor which is positioned over the radial artery at the wrist by means of a special apparatus; (b) an upper-arm blood pressure cuff connected via a hose to an oscillometric blood pressure module within the device; (c) a device enclosure which contains a computer, a high resolution touch-screen display and other electronics and software programs; and (d) an external printer.

HDI/PulseWave™ CR-2000 Research CardioVascular Profiling System

The CR-2000 Research System, first promoted during December of 1998, is currently being marketed worldwide. In the European Union, the CR-2000 Research System bears the CE Mark (CE 0086) which allows it to be marketed in the European Union for clinical research purposes. Further, because the CR-2000 Research System also meets the European Union Medical Device Directive, physicians may use the CR-2000 Research System with patients in a clinical setting in the European Union. In the U.S., the CR-2000 Research System is not recognized as a medical device and it is being marketed “for research purposes only” to clinical research investigators for the purpose of collecting data in cardiovascular studies. We have not submitted, and do not intend to submit, an application for the CR-2000 Research System to the FDA for clearance to market it as a medical device for use on patients in the U.S.

The CR-2000 Research System non-invasively collects 30 seconds of blood pressure waveform data, performs an analysis of the digitized blood pressure waveforms, and generates a Research CardioVascular Profile Report that contains 15 cardiovascular parameters (some report parameters are displayed on the screen and the entire report is generated by an external printer). An electronic RS-232 computer output port is standard on all CR-2000 Research Systems so that research scientists and clinical investigators can download the Research CardioVascular Profile Report parameters and waveform data directly to computer systems within their medical centers and research institutions.

The CR-2000 Research System is being marketed worldwide to pharmaceutical firms, research investigators at academic medical research centers, government institutes conducting a wide range of cardiovascular disease research and, in the European Union, to physicians for use in clinical research.

Five drug manufacturers have permitted the public disclosure of their use of our HDI/PulseWave™ CR-2000 Research CardioVascular Profiling System in their multi-site clinical research trials: Alteon, Inc.; AstraZeneca, LP; Parke-Davis; Pfizer, Inc. and Solvay Pharmaceuticals, Inc. Pfizer released the results of the AVALON trial in 2005, which showed the benefits of its new drug, Caduet, on improving arterial elasticity in as short as eight weeks. Our CR-2000 Research System was first introduced into the initial 2-year phase of the NHLBI Multi-Ethnic Study of Atherosclerosis, or MESA, research trial in May of 2000. After several years of preparatory efforts, the NHLBI publicly announced the 10-year multicenter study on September 14, 2000. The MESA trial is a prospective clinical study attempting to identify clinically useful markers or parameters for predicting cardiovascular disease before the onset of signs or symptoms. The trial has been designed to be a 10-year investigation of more than 6,000 men and women of many ethnic backgrounds residing throughout the U.S. Each study participant has had his or her C1-large artery elasticity or C-2 small artery elasticity index determined and recorded. Over the remainder of the trial, enrollees will be followed to determine changes in subclinical disease as well as cardiovascular disease morbidity and mortality.

CVProfilor® DO-2020 CardioVascular Profiling System

On November 1, 2000, the FDA granted us clearance to market the CVProfilor® DO-2020 System as a medical device in the U.S. The CVProfilor® DO-2020 System is currently being promoted to physicians specializing in internal medicine, general and family practice, cardiology, endocrinology, nephrology and to other primary care physicians throughout the U.S.

The CVProfilor® DO-2020 System non-invasively collects 30 seconds of blood pressure waveform data, performs an analysis of the digitized blood pressure waveforms, and generates a CVProfile™ Report. The CVProfile™ Report, printed in the physician’s office using the printer provided as part of the System, contains information on blood pressure (systolic, diastolic and mean arterial pressure), heart rate, pulse pressure, body surface area, body mass index, and both C1-large and C2-small artery elasticity indices. A brief medical history of the patient is recorded by the user of the System and an internal modem transmits this history and all of the CVProfile™ Report results to our Central Data Management Facility, or CDMF.

Reimbursement will always vary considerably by the patient’s medical necessity, by physician, by provider, by geography and by provider coverage plans, making the process of obtaining reimbursement for the CVProfilor® DO-2020 by current physician customers an important component of our product marketing.

CVProfilor® MD-3000 CardioVascular Profiling System

An international version of our product, the CVProfilor® MD-3000 CardioVascular Profiling System, was introduced in 2002. The CVProfilor® MD-3000 System is designed for use in physicians’ offices outside the United States to non-invasively assess the health of patients’ large and small arteries for the early detection and management of vascular disease.

Similar to the CVProfilor® DO-2020 System, the CVProfilor® MD-3000 System provides physicians with the ability to immediately print a CVProfile™ Report in their office containing patient specific information on blood pressure (systolic, diastolic and mean arterial pressure), heart rate, pulse pressure, body surface area, body mass index, and both C1-large and C2-small artery elasticity indices. Due to fundamental differences in physician reimbursement, patient data transfer regulations and telephone communication technologies, the CVProfilor® MD-3000 System is being marketed to physicians through distributors as a capital purchase item and does not contain technology which allows the telephonic transmission of data to a Central Data Management Facility. To date, there have been no commercial sales of the MD-3000 to physician or research customers.

CardioVascular Profile (CVProfile™) Report

The Research CardioVascular Profile Report currently generated by the CR-2000 Research System presents the following parameters:

- 1.5 Second Blood Pressure Waveform Graph - Pulse Pressure - Estimated Stroke Volume Index

- Large Artery Elasticity Index - Pulse Rate - Estimated Cardiac Output

- Small Artery Elasticity Index - Estimated Cardiac Ejection Time - Estimated Cardiac Index

- Systolic Blood Pressure - Estimated Stroke Volume - Total Vascular Impedance

- Diastolic Blood Pressure - Body Surface Area - Systemic Vascular Resistance

- Mean Arterial Pressure - Body Mass Index

The CVProfile™ Report currently generated by the CVProfilor® DO-2020 System and the CVProfilor® MD-3000 System presents the following parameters:

- 1.5 Second Blood Pressure Waveform Graph - Mean Arterial Pressure

- C1-Large Artery Elasticity Index - Pulse Pressure

- C2-Small Artery Elasticity Index - Pulse Rate

- Systolic Blood Pressure - Body Mass Index

- Diastolic Blood Pressure - Body Surface Area

Potential Beneficial Medical Outcomes for Patients and Payers

Basic and applied research findings suggest that the arterial elasticity indices can be used to determine the “clinical age” of the body’s arteries and that these values, when viewed in combination with a medical history, physical examination and/or other tests, may provide a meaningful picture of the vascular health for patients of about 15 years of age and older. The C1-large and C2-small artery elasticity indices are of particular clinical importance in such evaluations. These indices indicate the elasticity or flexibility of the patient’s arteries throughout the body, which we believe to be beneficial in assessing vascular disease. These indices also provide valuable information to physicians in screening patients who may be at risk for underlying vascular disease and thereby may have a potential for future life-threatening cardiovascular events.

Clinical research investigators have evaluated thousands of “normal” subjects, as well as many who have cardiovascular disease. They have summarized their data in order to establish the approximate “reference range” for arterial elasticity and other cardiovascular parameters. Patients with normal blood pressure values have been identified who exhibit “premature stiffening” of their small and very small arteries or arterioles. Without the benefit of a CVProfile™ Report, such patients would be considered “clinically normal and asymptomatic.” Thus, we believe that the CVProfilor® DO-2020 System and the CVProfilor® MD-3000 System may help physicians identify such patients and encourage them to modify their lifestyle and/or intervene therapeutically by prescribing medication much earlier in the progression of cardiovascular disease.

Further, physicians using our CVProfilor® DO-2020 System have indicated to us that the products are useful in evaluating patients with elevated blood pressure in order to decide who requires immediate and aggressive treatment versus those who might merely need to institute lifestyle changes. This would be an important clinical distinction, which cannot be easily determined in medical practice today.

Not only is arterial elasticity becoming an increasingly important clinical parameter in the identification of cardiovascular disease, but also developing and selecting optimal drug therapy. Research suggests that a drug’s effect on arterial elasticity is potentially an important consideration in selecting optimal drug therapy because many cardiovascular drugs exert their primary and secondary effects on blood pressure, vessel size and/or vascular wall integrity. Thus, drugs that favorably impact or enhance arterial elasticity may play a significant clinical role in reducing patient morbidity and mortality.

Published Articles: Clinical Research Update

Many scientific articles have been published in peer-reviewed medical journals which utilized either the CR-2000 Research System or the CVProfilor® DO-2020 System. We have over 300 abstracts and articles in our bibliography, all of which generally address our technology, our methodology, the relationship of arterial elasticity to cardiovascular disease, and/or the benefits of blood vessel elasticity assessment. More than half of these peer-reviewed, published articles and abstracts reference the utilization of the CVProfilor® DO-2020 System or the HDI/PulseWave™ CR-2000 Research System in their data collection. We believe the inclusion of our products in these publications provides credibility to our technology and the utility of our products in screening for cardiovascular disease.

MARKETING, SALES AND DISTRIBUTION

Because of the magnitude and impact cardiovascular disease has on the population, we believe that our products offer a significant opportunity for providing a more accurate, cost-effective and efficient means with which to screen, risk-stratify and manage patients who may have underlying vascular disease and/or who have been diagnosed with cardiovascular disease.

The Research Market

The CR-2000 Research System is being marketed worldwide to pharmaceutical firms, research investigators at academic medical research centers, and government institutes conducting clinical research trials relating to cardiovascular disease and treatment. These organizations are in the business of gathering large amounts of cardiovascular data from human research subjects, non-invasively. The CR-2000 Research System has been certified to carry a CE Mark for Europe and it is being marketed for research purposes only to clinical research investigators for the purpose of collecting data in cardiovascular studies. Further, because the CR-2000 Research System also meets the European Union Medical Device Directive, physicians may use the CR-2000 Research System with patients in a clinical setting in the European Union.

We believe that the CR-2000 Research System provides an innovative means for gathering additional data and information during such critical clinical research endeavors. The clinical research market is diverse, with global pharmaceutical companies, the U.S. federal and foreign governments and medical device manufacturers funding the vast majority of these research endeavors. Therefore, we have been pursuing the following three markets for the CR-2000 Research System:

Pharmaceutical Companies. Pharmaceutical firms often seek new ways to gather additional data and information non-invasively from human subjects engaged in clinical research trials and we actively market to pharmaceutical companies for the inclusion of our CR-2000 Research System in their clinical research trials relating to drugs for the treatment of cardiovascular disease.

Academic Centers. Universities throughout the world conduct clinical research trials, which are financially supported with grants from governmental agencies, disease management foundations and private sponsors. Universities with research centers conducting clinical trials in the areas of preventative cardiology, nephrology and epidemiology are a particular target market for our CR-2000 Research System.

The U.S. Government. The National Institutes of Health, the Veterans’ Affairs Medical Centers, the Agency for Health Care Policy and Research, and the Centers for Disease Control and Prevention often conduct large-scale research projects and clinical trials that represent a significant market opportunity for the CR-2000 Research System.

As of June 30, 2009, the CR-2000 Research System was being utilized in 32 countries throughout the world and users have contributed many of the articles in our bibliography of over 300 published abstracts, articles and presentations that reference either our CR-2000 Research System or our pulse contour analysis methodology. These references not only reinforce the scientific and clinical merit of our arterial waveform analysis methodology, but they broaden the medical community’s understanding of, as well as the clinical application of, employing large and, especially, small artery elasticity indices as early and sensitive markers for the presence of vascular disease in patients.

To date, five pharmaceutical firms and the National Institutes of Health/National Heart, Lung, and Blood Institute, the largest governmental clinical research agency, and the Centers for Disease Control, have allowed us to publicly discuss their use of the CR-2000 Research System for use in multi-site clinical trials.

• Alteon, Inc. used the CR-2000 Research System as part of its Advanced Glycosylation End products (A.G.E.) ‘Crosslink Breaker’ ALT-711 drug trial;

• AstraZeneca, LP used the CR-2000 Research System to obtain additional data in its Trial Of Preventing Hypertension, or TROPHY, study which was designed to investigate whether or not early treatment of subjects with high blood pressure can prevent or at least delay the onset of clinically detectable hypertension;

• The Centers for Disease Control used the CR-2000 Research System to study the effects of pollution on the vasculature;

• The National Institutes of Health/National Heart, Lung, and Blood Institute used the CR-2000 Research System as one of the primary investigative clinical endpoints for its Multi-Ethnic Study of Atherosclerosis, or MESA, research trial which is a ten-year, multi-site prospective clinical study involving approximately 6,000 subjects of varied ethnic background in an attempt to identify clinically useful procedures for predicting cardiovascular disease;

• Parke-Davis used the CR-2000 Research System for a multi-site cardiovascular drug research trial as part of their ongoing clinical research investigations;

• Pfizer, Inc. used the CR-2000 Research System for a North American cardiovascular drug research trial, AVALON, to study the arterial elasticity impact of their combination drug, Caduet, a combination of Norvasc and Lipitor; and

• Solvay Pharmaceuticals, Inc. chose the CR-2000 Research System for a multi-site cardiovascular drug trial.

The inclusion of the CR-2000 Research System in these important pharmaceutical research trials provide credibility and promote awareness of our blood pressure waveform analysis technology in the global medical marketplace.

The Practicing Physician Market

The CVProfilor® DO-2020 CardioVascular Profiling System is designed for use by physicians, other health care professionals and trained medical personnel. As of 2007, American Medical Association estimates indicate that there are more than 950,000 licensed physicians actively working in the U.S., about 350,000 of which are included in our target market as potential users of the CVProfilor® DO-2020 System as follows:

• Approximately 346,000 physicians specializing in internal medicine, general and family practice physicians (that is, primary care physicians);

• Approximately 4,000 non-interventional cardiovascular disease specialists.

Our current market focus is toward internists, primary care physicians and other health care providers who can use our product for the cardiovascular risk-stratification of their hypertensive and diabetic patients, and who are directly involved in screening patients for potential underlying vascular disease.

Marketing Strategy

Our primary objective is to establish the CardioVascular Profiling products as the standard for identifying and monitoring patients with cardiovascular disease.

HDI/PulseWave™ CR-2000 Research System

The CR-2000 Research System, originally launched during December of 1998, is currently being marketed worldwide through international distributors outside the U.S. We continue to identify and manage independent medical distribution firms for marketing our technology internationally. As of June 30, 2009, the established end-user price in the U.S. for the CR-2000 Research System was approximately $28,000;.

The CR-2000 Research System has a CE Mark which allows it to be marketed throughout the European Union for clinical research purposes. Further, because the CR-2000 Research System also meets the European Union Medical Device Directive, physicians may use the CR-2000 Research System with patients in a clinical setting in the European Union. In the U.S., the CR-2000 Research System is not recognized as a medical device and it is being marketed “for research purposes only” to clinical research investigators for the purpose of collecting data in cardiovascular studies.

CVProfilor® DO-2020 System

On November 1, 2000, we obtained clearance from the FDA to market the CVProfilor® DO-2020 System in the U.S. for use by physicians and other health care providers to non-invasively screen patients for the presence of vascular disease. On March 16, 2001, we announced that a controlled launch of our FDA cleared CVProfilor® DO-2020 System was underway with the objective of validating pricing, marketing and reimbursement expectations within our U.S. target market of internal medicine, family practice and cardiology physicians prior to implementing a nationwide launch.

In the United States, the CVProfilor® DO-2020 System is being marketed to physicians under four pricing structures. Physicians may:

- purchase a new CVProfilor® DO-2020 System for $29,500;

- purchase a refurbished CVProfilor® DO-2020 System for approximately $25,000;

- rent the CVProfilor® DO-2020 System for a period of one year and pay a $45 per-patient-tested fee, subject to a minimum monthly fee of $675.

- purchase a rented CVProfilor® DO-2020 System for a reduced price dependant upon the amount of cumulative rental payments made to HDI.

The majority of our revenue is derived from sales of the CVProfilor® to physicians. A smaller number of physicians prefer to rent the CVProfilor® either as a means of a short-term trial or a long-term capital conservation strategy. For those that prefer to rent, we offer a per-patient-tested program that invoices physicians monthly based on the number of patients tested each month subject to a minimum monthly rental fee. We are no longer using a direct sales force to call on prospective customers. Currently, we use a network of independent distributors and representatives who are not employees of the company and who sell complementary medical devices to primary care physicians.

CVProfilor® MD-3000 System

Following the introduction of the CVProfilor® MD-3000 System in June 2002, we began introducing the product to our international distributors to market it to cardiovascular specialists, cardiologists and primary care physicians for use in screening, diagnosing and monitoring the treatment of patients with cardiovascular disease within international markets.

The MD-3000 System is offered to distributors who re-sell it in their territory. Our distributors have the right to set the selling price of the MD-3000 System within their assigned territory. We prefer distributors to also distribute complementary cardiovascular or general medical products and that have the ability to designate specialist support for marketing the MD-3000 System. To date, there have been no commercial sales of the MD-3000 to physician or research customers.

Engineering

We provide ongoing technical support for our products. We contract with external hardware and software engineering firms for special projects in support of our products.

Production

We have been producing CR-2000 Research Systems within our manufacturing facility since November 1998 and DO-2020 Physician Systems since March 2001. The design, development and integration of all of the components necessary to fabricate and manufacture our products were undertaken on our behalf by a contract engineering firm. According to testing performed at TÜV Product Service, Inc., the CR-2000 Research System has been found to be in full compliance with all electromagnetic immunity and emissions requirements, and with the requirements for displaying the CE Mark. The CVProfilor® DO-2020 System was also evaluated by Underwriters Laboratories, Inc., and the System complies with the UL electrical safety standard.

Both our CR-2000 Research CardioVascular Profiling System and our MD-3000 System display the “CE” mark, indicating that they are approved for sale throughout the European Union and that the products comply with applicable electrical and mechanical safety standards.

Currently, we manufacture all versions of the CardioVascular Profiling System within our facility located in Eagan, Minnesota, using a complete quality system approach in compliance with the FDA’s Quality System Regulations (QSR), and international standards 93/42/EEC, Council Directive Concerning Medical Devices (MDD), and the Canadian Medical Device Regulations (CMDR) . Further, our manufacturing facility has been certified as being in compliance with the ISO-13485: 2003 standard by BSI Product Services. Despite having a small production staff, we believe that we can accommodate current requirements and should be able to meet anticipated future needs to manufacture, test, package, and ship all products within our in-house facility.

Competition

Competition in the medical device industry is intense and many of our competitors have substantially greater financial, manufacturing, marketing, distribution and technical resources than we do. We compete directly with manufacturers of standard blood pressure cuff devices (sphygmomanometers), as well as many established companies manufacturing more elaborate and complex medical instruments.

We are aware of a number of firms that are developing or have developed products that provide a measurement arterial compliance or elasticity or a clinical surrogate for it and which may be viewed as competitive alternatives to our products. These firms include: Alam Medical (formerly Colson/Dupont Medical), Pantin, France; AtCor Medical Pty Ltd. (formerly PWV Medical, Ltd.), based in Sydney, Australia; Colin Medical Technology Corporation, Kyoto, Japan (acquired by Omron Healthcare Co. Ltd., in June of 2005); CareFusion (formerly Cardinal Health, formerly Viasys, formerly Micro Medical); Basingstoke, United Kingdom, Endothelix, Inc., Houston, Texas; Enverdis GmbH Medial Solutions, Jena, Germany; FMS Finapres Medical Systems (formerly TNO Biomedical Instrumentation), Amsterdam, Netherlands; Fukuda Denshi, Tokyo, Japan; HealthSTATs International, Singapore; HB Hanybul Meditech, Jeonju, Korea; Hemonix, Inc., Beverton, Oregon; International Medical Device Partners, or IMDP, Las Vegas, Nevada; Itamar Medical, Ltd., Caesarea, Israel; Meridian Co., Ltd., Seoul, Korea; Novacor, Paris, France; Omron Healthcare, Inc., Bannockburn, Illinois, a subsidiary of Omron Corporation, Kyoto, Japan; Pie Medical Imaging bv, Maastricht, The Netherlands; Pulse Metric, Inc., or PMI, San Diego, California; Specaway Pty. Ltd., St. Pauls, New South Wales, Sydney, Australia; TensioMed, Ltd., Budapest, Hungary, and Vasocor, Inc., Charleston, North Carolina.

AtCor’s Medical Pty Ltd’s, the SphygmoCor System, FDA cleared on February 1, 2002, is indicated for use in those patients where information related to the ascending aortic pressure is desired, but in the opinion of the physician, the risks of an invasive intra-arterial pressure recording procedure are too great. The SphygmoCor System provides a derived ascending aortic blood pressure waveform and a range of central arterial indices.

Colin Medical Instruments Corp. received FDA clearance on July 9, 2002, for a monitor that is designed to assist in the detection of peripheral vascular diseases. In addition to measuring blood pressure, heart rate, pulse wave and heart sounds, the device is capable of calculating ankle-brachial index and pulse wave velocity. This device is used on adult patients only. Colin Medical Technology, (formerly Colin Medical Instruments Corp), a division of the Carlyle Group, was acquired by the Omron Corporation.

IMDP’s device, the CardioVision MS-2000, requires the purchase of a separate personal computer (and the use of special software), which needs to be connected to the device in order to have a working system. Further, this device only provides an elasticity measurement of the large artery directly under an upper-arm blood pressure cuff.

Itamar Medical Ltd.’s Endo-PAT 2000, FDA cleared on November 12, 2003, is a non-invasive device intended for use as a diagnostic aid in the detection of coronary artery endothelial dysfunction (positive or negative) using a reactive hyperemia procedure and is not intended to be used as a screening test in the general population.

Meridian Medical, Inc.’s device, the Digital Pulse Analyzer or DPA, also known as the McPulse, uses an optoelectronic sensor finger probe to observe changes in pressure and heart rate and to provide information on arterial wall stiffness. Meridian Medical, Inc. is the North American distribution office of Meridian Co., Ltd. located in Seoul, Korea. Meridian received FDA clearance to market the McPulse on February 19, 2003.

Omron Healthcare, Inc.’s HEM-9000AI analyzes pulse waves derived from the radial artery to produce a measurement of augmentation index, an index that is linked to large artery stiffness, i.e., late stage vascular disease. Omron Healthcare, Inc., the U.S. division of Omron Corporation, Kyoto, Japan, received FDA clearance to market the HEM-900AI on October 28, 2005.

Pulse Metric, Inc., manufactures the DynaPulse®, a monitor which has only been cleared by the FDA for determining standard blood pressure measurements. However, the device can output blood pressure data to a computer which can then forward the data to PMI’s facilities in San Diego where it is analyzed to determine certain parameters including total or large artery compliance or elasticity. It has been determined that PMI has not been cleared by the FDA to generate these parameters since the FDA does not regulate such centralized computer operations.

Vasocor, Inc.’s device measures blood pressure values and heart pulse rates based on segmental measurement and provides an indication of arterial compliance. Vasocor, Inc.’s device received FDA clearance on January 23, 2002, however, the company filed for bankruptcy in February 2003.

Government Regulation

Medical devices, such as our CVProfilor® DO-2020 System, are subject to strict regulation by state and federal authorities, including the Food and Drug Administration, or FDA, and comparable authorities in certain states. In addition, our sales and marketing practices are subject to regulation by the United States Department of Health and Human Services pursuant to federal anti-kickback laws, and are also subject to similar state laws.

Under the Federal Food, Drug and Cosmetic Act, or the FDCA, and its relevant amendments and acts (1976 Medical Device Amendments, 1990 Safe Medical Devices Act, 1992 Medical Device Amendments, 1997 FDA Modernization Act, and 2002 Medical Device User Fee and Modernization Act) and the regulations promulgated thereunder, manufacturers of medical devices are required to comply with rules and regulations concerning the design, testing, manufacturing, packaging, labeling and marketing of medical devices. Medical devices intended for human use are classified into three categories (Classes I, II and III), depending upon the degree of regulatory control to which they will be subject. Our products are considered Class II devices.

If a Class II device is substantially equivalent to an existing device that has been continuously marketed since the effective date of the 1976 Amendments, FDA requirements may be satisfied through a Premarket Notification Submission (510(k)) under which the applicant provides product information supporting its claim of substantial equivalence. In a 510(k) Submission, the FDA may also require that it be provided with clinical test results demonstrating the safety and efficacy of the device. The process of obtaining clearances or approvals from the FDA and other applicable regulatory authorities can be expensive, uncertain and time consuming, frequently requiring several years from the commencement of clinic trials or submission of data to regulatory acceptance. On November 1, 2000, our 510(k) submission was granted clearance by the FDA to market our CVProfilor® DO-2020 System. Our CVProfilor® DO-2020 System is the only one of our products marketed in the U.S. for the treatment of patients. Our CR-2000 Research System is not marketed in the U.S. for the treatment of patients – it is marketed “for research purposes only” to clinical research investigators for the purpose of collecting data in cardiovascular studies.

As a manufacturer of a medical device, we are also subject to certain other FDA regulations, and our manufacturing processes and facilities are subject to continuing review by the FDA to ensure compliance with these regulations. We believe that our manufacturing and quality control procedures conform to the requirements of FDA regulations. FDA clearances and approvals often include significant limitations on the intended uses for which a product may be marketed. FDA enforcement policy strictly controls and prohibits the promotion of cleared or approved medical devices for non-approved or “off-label” uses. In addition, product clearances or approvals may be withdrawn for failure to comply with regulatory standards or the occurrence of unforeseen problems following initial marketing.

Medical device laws are also in effect in many of the countries outside of the United States in which we do business. These laws range from comprehensive device approval and quality system requirements for some or all of our medical device products to simple requests for product data or certifications. The number and scope of these requirements are increasing. In June 1998, the European Union Medical Device Directive became effective. All medical devices must meet the Medical Device Directive standards and receive CE Mark certification to be sold in the European Union. CE Mark certification involves a comprehensive quality system audit and review of product data by the notified body in Europe. Both our CVProfilor® MD-3000 and our CR-2000 Research System have been through this assessment and bear the CE Mark. Other countries have similar requirements based on conformance to quality standards consistent with our ISO-13485 certification and/or the FDA’s Quality System Regulations.

Federal, state and foreign regulations regarding the manufacture and sale of healthcare products and medical devices are subject to future change. We cannot predict what material impact, if any, these changes might have on our business. Future changes in regulations or enforcement policies could impose more stringent requirements on us, compliance with which could adversely affect our business. These changes may relax certain requirements, which could prove beneficial to our competitors and thus adversely affect our business. In addition, regulations of the FDA and state, federal and foreign laws and regulations depend heavily on administrative interpretations, and we cannot assure that future interpretations made by the FDA, or other regulatory authorities, with possible retroactive effect, will not adversely affect us. In addition to the regulations directly pertaining to us and our products, many of our health care provider customers and potential customers are subject to extensive regulation and governmental oversight. Regulatory changes in the healthcare industry that adversely affect the business of our customers could have a material adverse effect on our business, financial condition and results of operations. Failure to comply with the FDA and any applicable regulatory requirements could result in, among other things, civil and criminal fines, product recalls, detentions, seizures, injunctions and criminal prosecutions. Further, we can give no assurance that we will be able to obtain additional necessary regulatory clearances or approvals in the U.S., or internationally, on a timely basis, if ever. Delays in the receipt of, or failure to receive, these clearances or approvals, or failure to comply with existing or future regulatory requirements would have a material adverse effect on our business, financial condition and results of operations.

Reimbursement

Physician reimbursement is an important aspect in the CVProfilor® DO-2020 System’s success. Without adequate levels of reimbursement, physicians may be reluctant to even try the CVProfilor® DO-2020 System. There is no assurance that adequate third party reimbursement for the CVProfilor® DO-2020 System will be sustainable at present, or in the future.

The Centers for Medicare & Medicaid Services, or CMS, a division of the U.S. Department of Health and Human Services, or HHS, has established three levels of coding for health care products and services as follows:

• Level I, Current Procedural Terminology, or CPT, codes for physicians’ services;

• Level II, National Codes for supplies and certain services; and

• Level III, local codes.

The coding system applicable to the CVProfilor® DO-2020 System is Level I. Insurers require physicians to report their services using the CPT coding system.

Having achieved FDA 510(k) clearance to market the CVProfilor® DO-2020 System, we are able to petition the American Medical Association, or AMA, for a recommendation on whether the CVProfilor® DO-2020 System fits within any existing CPT codes or whether it requires a new code application or code revision. In the event the AMA determines that none of the existing CPT codes are appropriate for the CVProfilor® DO-2020 System, we believe that it may take two or more years to obtain a CVProfilor® DO-2020 System technology-specific CPT code. During this time, physicians may be required to use a “miscellaneous” code for patient billing purposes, although the level of reimbursement they receive, if any, will depend on each individual payer’s assessment of the procedure. Our inability to obtain third party reimbursement and/or direct patient payment for the CVProfilor® DO-2020 System would have a material adverse effect on our business.

Many physicians using the CVProfilor® DO-2020 System are obtaining reimbursement under an existing CPT code. The level of physician reimbursement varies considerably by provider, by patient and by clinic. Reimbursement will always vary considerably by the patient’s medical necessity, by physician, by provider, by geography and by provider coverage plans, making the process of obtaining reimbursement for the CVProfilor® DO-2020 by current physician customers an important component of our success in marketing our products.

Reimbursement associated with physician utilization of our CVProfilor® MD-3000 System will be dependent on the health care policies of the country in which our CVProfilor® MD-3000 System is being used. Each country regulates health care coverage, service delivery and payment for services performed in a different manner. Therefore, we need to rely on our international distributors to understand the reimbursement policies within their geography and to position the CVProfilor® MD-3000 System consistent with those policies.

Reimbursement is not a factor in the marketing of our HDI/PulseWave™ CR-2000 Research System as our sales of this product are to firms who do not use it in patient care. Rather, the CR-2000 Research System is purchased by entities that utilize it to measure changes in human research subjects and, therefore, typically fund the acquisition of our CR-2000 Research System as part of the total research study cost.

Patents and Proprietary Technology

Our success depends, in part, on our ability to maintain patent protection for our products and processes, to preserve our trade secrets and to operate without infringing the property rights of others. We are the exclusive assignee of eleven issued U.S. patents, six of which expire on March 20, 2018, three of which expire on September 10, 2019, one of which expires on August 1, 2022 and one of which expires on October 23, 2010. As part of an overall strategy to concentrate on protection of key technologies, we have abandoned one patent in Germany, France, Great Britain, and Hong Kong as not being part of our strategic plan, rather than continuing to pay yearly annuity taxes to maintain a patent in these countries.

We also have obtained an exclusive license to utilize the intellectual property described within several U.S. patents from the Regents of the University of Minnesota. The license for these patents expires concurrently with the expiration date of the last of these patents to expire, which is currently expected to be May 31, 2011, although some of the patents expire December 8, 2010. Additionally, we have obtained an exclusive license from the University of Minnesota with respect to five foreign issued patents: one, issued in Japan, is currently expected to expire August 22, 2009, and one in each of Hong Kong, France, Germany, and the United Kingdom are all currently expected to expire November 21, 2011.

These 23 licensed or assigned patents relate to our blood pressure waveform analysis procedures, our cardiovascular profiling technology and/or the non-invasive determination of cardiac output. Included in these patents are six U.S. issued patents relating to the design, configuration and manufacturing of our Sensor, which is a key component of our products. The Sensor is manufactured for us by Apollo Research Corp., or Apollo.

One or more patent applications relating to our U.S. issued patents are currently pending in the United States. We can give no assurance that our current patents and licenses will provide a competitive advantage, that the pending applications will result in patents being issued, or that our competitors will not design around any patents or licenses issued to us.

We intend to rely to the fullest extent possible on trade secrets, proprietary “know-how” and our ongoing endeavors involving product improvement and enhancement. We can give no assurance that nondisclosure agreements and invention assignment agreements, which we have or will execute, will protect our proprietary information and know-how or will provide adequate remedies in the event of unauthorized use or disclosure of that information, or those others will not be able to independently develop that information.

University of Minnesota Research and License Agreement

On September 23, 1988, we entered into a Research and License Agreement, or the License Agreement, with the University of Minnesota, or the University, pursuant to which the University granted to us an exclusive, worldwide license under the patents that relate to our products for diagnostic, therapeutic, monitoring and related uses. The License Agreement is subject to any rights retained by the U.S. government, pursuant to U.S. law and regulations, in the patents and licensed technologies in connection with any U.S. government funding of the University’s research of the license technology. The License Agreement expires with the last to expire of the patents related to the licensed technology (currently expected to be May 31, 2011). We also have the right to grant sub-licenses under the University’s patents.

In consideration of the License Agreement, we conducted expanded clinical trials of arterial compliance technology and are continuing to use our best efforts to develop commercial medical devices. We must pay a royalty on revenue from commercialization of our products (or future products, which incorporate the licensed arterial compliance technology), in the amount of three percent (3%) of gross revenue (less certain reductions, such as damaged and returned goods).

Employees and Consultants

As of June 30, 2009, we employed 4 full-time employees, and 1 part-time employee, none of whom are engaged in sales positions. We believe that our employee relations are good.

From time to time, we may engage consultants to provide various services. We currently engage consultants and independent contractors and have ongoing consultant relationships with several experts including the following:

• experts in quality systems, regulatory affairs and FDA matters;

• software and hardware engineering consultants, and

• Jay N. Cohn, M.D., as our Chief Medical Consultant;

We may retain additional consultants as necessary to accommodate our need for experts in selected areas of product-related endeavors and other business matters.

ITEM 1A. RISK FACTORS

The following are important factors that could cause actual results to differ materially from those anticipated in any forward-looking statements made by or on behalf of the Company.

Risks Related to Our Business

We are presently generating only minimal revenue. We cannot assure you that we will ever be able to generate significant revenue, attain or maintain profitable operations, or successfully implement our business plan or current development opportunities. As of June 30, 2009, we had an accumulated deficit of $27,434,607 attributable primarily to selling, general and administrative expenses. Until we are able to generate significant revenue from our business activities, we expect to continue to incur operating losses and will need to find sources of significant, immediate additional capital to offset such losses to continue operations.

We are currently marketing three products: the HDI/PulseWave™ CR-2000 Research CardioVascular Profiling System, the CVProfilor® DO-2020 CardioVascular Profiling System and the CVProfilor® MD-3000 CardioVascular Profiling System. While we expect the CVProfilor® DO-2020 System to generate the majority of our revenue in the future, to date it has generated only minimal revenue. Marketing and distribution activities have commenced in the U.S., as well as internationally, for the CR-2000 Research System, but the revenue we derive from the CR-2000 has been insufficient to make our operations profitable. The CVProfilor® MD-3000 system, the international version of our CVProfilor® DO-2020 System, was released in June 2002 and has to date, not generated any commercial sales to physician or research customers.

The likelihood of our success must be considered in view of the expenses, difficulties and delays we have encountered, and may encounter in the future, as well as the competitive environment in which we operate. Our profitability is dependent in large part on gaining market acceptance of our products, developing distribution channels, maintaining the capacity to manufacture and sell our products efficiently and successfully, and the continuation of third party reimbursement. We cannot assure you that we will successfully meet any or all of these goals.

We may need additional capital in the future to continue our business. Until such time as our products generate sufficient revenue to fund our operations, we will continue to require additional capital to continue our business, the receipt of which cannot be assured. Currently, we have a monthly burn rate, where expenditures exceed revenue, of approximately $40,000. We believe that we have sufficient capital derived from the proceeds of our prior securities offerings and cash flow from existing operations to meet our needs for the next 12 months after June 30, 2009. We do not expect revenue generated by our products to be sufficient to meet our capital needs during the next twelve months. Our ability to execute our business strategy, including marketing of our products, placing equipment in physicians’ offices and establishing and maintaining an inventory of system components beyond June 30, 2009, depends to a significant degree on our ability to obtain sufficient and timely future financing. Our current monthly burn rate may increase.

Our long-term capital needs are subject to our ability to raise additional capital and to generate adequate revenue from our products, neither of which can be assured. We may seek additional funds through an additional offering of our equity securities or by incurring additional indebtedness. We cannot assure you that any additional funds will be available or that sufficient funds will be available to us or that funds will be available in a timely way. Additional funds may not be available on terms acceptable to us or our security holders. Any future capital that is available may be raised on terms that are dilutive to our security holders.

Our success is mainly dependent upon a single product, the CVProfilor® DO-2020 System. On November 1, 2000, we obtained FDA approval to market the CVProfilor® DO-2020 System. We have developed a plan for the marketing of the CVProfilor® DO-2020 System and expect the CVProfilor® DO-2020 System to generate the majority of our revenue. However, we cannot assure you that our marketing plan will be successfully implemented or ultimately generate significant revenue, if any. To date, we have generated only minimal sale or rental revenue from the CVProfilor® DO-2020 System. Further, even if we successfully market the product, we must be able to manufacture a reliable product and deliver that product to our distributor or customer in a timely fashion. Because we lack extensive manufacturing and marketing experience with this product, we cannot assure you that we will be successful in producing, marketing or placing the CVProfilor® DO-2020 System. Sales of CVProfilor® DO-2020 Systems have taken more time and resources than originally anticipated due to delays in obtaining market acceptance, consistent and satisfactory levels of third party reimbursements to physicians utilizing the CVProfilor® DO-2020 Systems and delays in integrating the CVProfilor® DO-2020 Systems into the clinic operations in which they are sold. Further, higher than expected manufacturing, marketing and distribution costs, lower than expected reimbursement levels, lower than expected usage by physicians, and/or other competitive forces may require us to alter our pricing or marketing structure in a manner that could have a material and adverse effect on us. In May of 2005, we introduced a rent-to-own program, whereby rental customers (those using the CVProfilor® DO-2020 System on a per-patient-tested basis) could purchase their used equipment at a price lower than the price for purchasing a new System by applying a portion of their collected rental payments toward the buy-down of the used equipment price. The sale of used equipment or conversion of rental customers to owners, while initially strong, has slowed down considerably as fewer rental customers remain from which to generate conversion revenues. Our ability to sell new customers on purchasing the system outright has been more challenging than originally anticipated.

Because we have a new product, the uncertainty of market acceptance of our product and/or the clinical application of the technology will affect our business. Our financial performance depends upon the extent to which our products are accepted by research investigators (regarding the CR-2000 Research System) as being useful, and by physicians and other health care providers as being effective, reliable and safe for use in screening patients for underlying vascular disease (regarding the CVProfilor® DO-2020 System) and for use in screening, diagnosing and monitoring the treatment of patients with vascular disease (regarding the CVProfilor® MD-3000 System). Third party reimbursement to physicians is a complex matter and varies region-by-region. If the CVProfilor® DO-2020 System fails to achieve market acceptance due to lack of appropriate third party reimbursement to physicians, the failure of arterial elasticity parameters to be perceived as reliable and clinically beneficial or any other factors which cause a lack of acceptance by physicians, we will likely be forced to cease operations.

We are unable to predict how our products will be accepted by the market, if at all, or if accepted, what the demand for them could be. Achieving market acceptance requires that we educate the marketplace about the anticipated benefits associated with the use of our products and also requires us to obtain and disseminate additional data acceptable to the medical community as evidence of our product’s clinical benefits. We believe that because our products represent a new approach for evaluating vascular disease, there has been a greater reluctance to accept our products than would occur with products utilizing more traditional technologies or methods of diagnosis. This has resulted, and may continue to result, in longer sales cycles and slower revenue growth than anticipated. We cannot assure you that we will be successful in educating the marketplace about our products or that available data concerning these benefits will create a demand by the research or medical community for our products. We cannot assure you that our services will be profitable to, or become generally accepted by, physicians. To date, the rate of physician utilization has developed more slowly than we anticipated and is generally lower than we anticipated. In addition, our products are premised on the medical assumption that a loss of arterial elasticity is an indicator of the early onset of vascular disease. While we believe, based on many clinical research studies and trials, that the loss of arterial elasticity is indeed an indicator for the early onset of vascular disease, we cannot assure you that our claims will be fully accepted by the medical community, if at all.

Our physician customers are dependent upon the availability of third party reimbursement to the physician and/or direct patient payment. Medicare and certain of the private health coverage insurers and other payer organizations may not provide or consistently provide reimbursement for our products. The availability of third party reimbursement for our medical products and services may affect the physician’s decision to use our products and services.

As a result, our financial performance may be impacted by the availability of reimbursement, if any, for the cost of our products from government payers, private health coverage insurers and other payer organizations. Our experience has shown that reimbursement for the cost associated with the CVProfilor® DO-2020 System varies significantly by the patient’s medical necessity, by physician, by provider, by geography and by provider coverage plans. Not only must the procedure utilizing our products be recognized as a valid medical diagnostic procedure, the payer must offer coverage for the procedure. Further, even if the payer offers coverage, the amount of reimbursement will vary and may or may not be sufficient to cover the cost of the use of our product by the physician. Because of the complex interactions between these factors, we estimate that consistent reimbursement for the costs associated with our product will not be available for several years, if ever. Further, we cannot assure you that adequate third party reimbursement will be available for the CVProfilor® DO-2020 System. If we cannot sustain adequate reimbursement from third parties, we would depend upon direct patient payment for our revenue. We cannot assure you that patients will be willing to pay for our products at prices, which will generate revenue for us, if at all. Our product user’s inability to obtain adequate third party reimbursement and/or direct patient payment for the CVProfilor® DO-2020 System would have a material adverse effect on our business, financial condition and results of operations. Several payers have a coverage policy that identifies the CVProfilor® as “experimental and investigational.” BCBS of Alabama and Tennessee, Aetna, Harvard Pilgrim HealthCare, United Healthcare and John Deere Health (acquired by UHC) have issued coverage policies that identify the CVProfilor as “experimental and investigational.”

We have not been successful in growing our sales force. The process of finding qualified direct sales reps who can convey the clinical and economic value proposition to prospective customers has proved difficult. Additionally, the Company has experienced high turnover in its direct sales force. Currently we do not have any dedicated sales reps directly employed by the Company. The Company is searching for a partner or partners with an established regional/national sales force or regional/national distribution network serving the primary care market with whom the CVProfilor product can be integrated into the partner’s existing cardiovascular disease product platform. The Company believes that this is the best strategy for broadening distribution and increasing sales of the CVProfilor. No assurances can be given that the Company will identify a suitable partner or partners or that the Company will consummate mutually satisfactory arrangements with a partner or partners.

We operate in an intensely competitive market. Competition from medical devices, or other medical measures, that are used to screen patients for cardiovascular disease is intense and likely to increase. We compete with manufacturers of, for example, non-invasive blood pressure monitoring equipment and instruments, and may compete with manufacturers of other non-invasive devices. In addition, our products will also compete with traditional blood pressure testing by means of a standard sphygmomanometer, which, as a stand-alone product, is substantially less expensive than our products. Many of our competitors and potential competitors have substantially greater capital resources, name recognition, research and development experience, and more extensive regulatory, manufacturing and marketing capabilities than we do. Many of these competitors offer well-established, broad product lines and ancillary services that we do not offer. Some of our competitors have long-term or preferential supply arrangements with physicians, medical clinics, pharmaceutical firms, and hospitals, and other purchasing organizations which may act as a barrier to market entry for our products. In addition, other large health care companies or medical instrument firms may enter the non-invasive vascular product market in the future. Competing companies may succeed in developing products that are more efficacious or less costly than any that we may produce, and these companies also may be more successful than we are in producing, marketing or obtaining third party reimbursement for their new or existing products. Competing companies may also introduce competitive pricing pressures that may adversely affect our sales levels and margins. As a result, we cannot assure you that we will be able to compete successfully with existing or new competitors.

We depend upon sub-assembly contract manufacturers. To date, we have relied on independent contractors for the fabrication of sub-assemblies and major product components used in the production of all versions of our products. For our products to be financially successful, they must be manufactured in accordance with strict regulatory requirements, in commercial quantities, at appropriate quality levels and at acceptable costs. To date, our products have been manufactured in limited quantities and not on a large commercial scale. As a result, we cannot assure you that we will not encounter difficulties in obtaining reliable and affordable contract manufacturing assistance and/or in scaling up our manufacturing capabilities. This may include problems involving production yields, per-unit manufacturing costs, quality control, component supply and shortages of qualified manufacturing personnel. In addition, we cannot assure you that we will not encounter problems relating to integration of components if changes are made in the configuration of the present products. Any of these difficulties, as well as others related to these, could result in our inability to satisfy any customer demand for our products in a cost-effective and efficient manner and therefore would likely have a material adverse affect on our business, financial condition and results of operations.

We depend upon a limited number of suppliers for several key components; failure to obtain certain key components could materially affect our business. By way of example, we currently obtain our Arterial PulseWave™ Sensor, or the Sensor (which is the subject of six of our U.S. issued patents) through a manufacturing services agreement with Apollo Research Corp., or Apollo, our sole supplier of this component. In January 2001, we were advised by Apollo that they could not assure us that they will continue business operations beyond a month-to-month basis. At that time we placed a large order with Apollo, sufficient to supply our needs for several years. We are now at the point where we need to re-order Sensors for inventory. Apollo indicates that they can continue to meet our production needs for the Sensor in the near term. Similarly, we were also advised by Omron Colin Medical Corp., our sole supplier of our M1000 Blood Pressure Monitor, that they would be unable to continue to supply us with our M1000 Blood Pressure Monitor. We currently have an inventory of such monitors, which we believe would be sufficient for 1-2 years of production. If we exhaust our inventory of the Sensor or the Blood Pressure Monitor for manufacture of our existing products and are not able to obtain supply of this component from an alternative supplier, or if we are not able to timely bring to market the new versions of our products utilizing the new monitor or Sensor before exhausting our inventory, we may be forced to suspend our manufacture of our products or delay or cancel shipments to customers which would have a material adverse effect upon our business. If the components are not available for our needs, our products may be unavailable to sell to customers, customers may lose confidence in our products and us, and we may need to make new regulatory applications to reflect changes in product manufacturing with a new component, if available. If we are unable to obtain an adequate supply of components meeting our standards of reliability, accuracy and performance, we would be materially adversely affected.

We lack significant sales and distribution channels. We commenced marketing of the HDI/PulseWave™ CR-2000 Research System in December 1998 and currently have not developed an international distribution network. We commenced marketing of the CVProfilor® DO-2020 System in March 2001 and have yet to generate any significant revenue based on placements of it or from unit sales. We have not yet developed a nationwide distribution network for our products. Currently, we do not have any dedicated sales reps directly employed by the Company. Even as we enter into agreements with distributors and/or independent representatives, we cannot assure you that the distributors or independent representatives will devote the resources necessary to provide effective sales and promotional support for our products. Our ability to expand product sales will largely depend on our ability to develop relationships with distributors or independent representatives who are willing to devote the resources necessary to provide effective sales and promotional support, and to educate, train and service both a sales force and the medical community in its entirety. We cannot assure you that we will be able to accomplish any or all of these objectives. We also cannot assure you that our financial condition will allow us to withstand sales cycles of the length that may be necessary to assure market acceptance for our CR-2000, DO-2020 or MD-3000 Systems.

Our financial results and the market price of our securities are subject to significant fluctuations, which may affect the price of our securities. Our quarterly results and the market price of our securities may be subject to significant fluctuations due to numerous factors, such as variations in our revenue, earnings and cash flow, the ability to meet market expectations, the availability of product components, market acceptance, changes in price, terms or product mix, changes in manufacturing costs or the introduction of new products by us or our competitors. Our inability to successfully market the CVProfilor® DO-2020 System will adversely affect our financial results which may have an adverse effect on the market price of our securities. We cannot assure you that we will ever generate significant revenue or that our revenue or net income will ever improve on a quarterly basis or that any improvements from quarter to quarter will be indicative of future performance. In addition, our expenses may not match revenue on a quarterly basis, and a delay in future revenue would adversely affect our operating results.

In addition, the stock markets are experiencing significant price and volume fluctuations, resulting from a variety of factors both identifiable and unidentifiable, including general global market conditions, comparative prices of U.S. and foreign currency, changes in the national or global political environment, risk of war or other unrest, public confidence in the stock markets, regulation of or by the stock markets and the performance of certain industries. These significant market price and volume fluctuations result in change in the market prices of the stocks of many companies that may not have been directly related to the operating performance of those companies. These broad market fluctuations may result in the market price of our common stock falling abruptly and significantly or remaining significantly depressed.

Our stock is thinly traded, which causes small volumes of purchases or sales of our stock to impact our stock price significantly. Significant fluctuations in our stock price may adversely impact our ability to raise additional capital and adversely impact the exercise of warrants which is a potential source of additional capital for the Company.

If we do not adapt to rapid technological change, our business will suffer. The medical device market is characterized by intensive development efforts and rapidly advancing technology. Our success will largely depend upon our ability to anticipate and keep pace with advancing technology and competitive innovations. We cannot assure you that we will be successful in identifying, developing and marketing new products or in enhancing our existing product. In addition, we cannot assure you that new products or alternative screening and diagnostic techniques will not be developed that will render our current or planned products obsolete or inferior. Rapid technological development by competitors may result in our products becoming obsolete before we recover a significant portion of our research, development and commercialization expenses.

We are subject to product liability exposure and have limited insurance coverage. We face an inherent business risk of exposure to product liability claims in the event that the use of our products is alleged to have resulted in adverse clinical events. We have obtained a general liability insurance policy that covers potential product liability claims up to $1 million per incident and $2 million aggregate per year. We cannot assure you that liability claims will not be excluded from these policies, will not exceed the coverage limits of these policies, or that the insurance will continue to be available on commercially reasonable terms, or at all. Consequently, a product liability claim or other claim with respect to uninsured liabilities or in excess of insured liabilities would have a material adverse effect on our business, financial condition and results of operations.

Failure to effectively manage the growth of our business would have an adverse effect on our business. In an effort to curtail our expenses and conserve our working capital, we have reduced the number of our employees. The execution of our business plan will likely place increasing demands on our existing management and operations. Our future growth and profitability will depend on our ability to increase our employee base, particularly our sales staff. We must successfully attract, train, motivate, manage and retain new employees and continue to improve our operational, financial and management information systems. We cannot assure you that we will be able to effectively manage any expansion of our business. Our inability to effectively manage our growth could have a material adverse effect on our business, financial condition and results of operations.

We depend upon key personnel and we must hire and retain qualified personnel to be successful. We are highly dependent on a limited number of key management personnel, particularly our Chief Executive Officer and Chairman, Mark N. Schwartz, our President and Secretary, Greg H. Guettler. We do not have key-person life insurance on these key personnel. Our future success will depend on our ability to attract and retain highly qualified personnel. We compete for qualified personnel with other companies, academic institutions, government entities and organizations. We cannot assure you that we will be successful in hiring or retaining qualified personnel. We also depend upon consultants for services related to important aspects of our business, such as marketing, regulatory compliance and payer reimbursement. We compete with other companies and organizations for the services of qualified consultants. The loss of key personnel or the availability of consultants, or an inability to hire or retain qualified personnel or consultants, could have a material adverse effect on our business, financial condition and results of operations.

We have a limited number of personnel and the loss of one or more of them may adversely affect our operations. We currently employ four full time and one part time employee and engage the services of several consultants. The loss of one or more of our employees, even if they are not key employees, could result in the interruption of our operations and adversely affect our financial condition and results. There is no assurance that we will be able to timely employ replacement personnel or engage the temporary services of consultants in the event that we suffer the loss of one or more of our employees.

If we are unable to protect our proprietary technology, our business will suffer. Our success depends, in part, on our ability to maintain patent protection for our products and processes, to preserve our trade secrets and to operate without infringing the property rights of others. We are the exclusive assignee of eleven issued U.S. patents, and we have obtained an exclusive license to utilize the intellectual property described within several other U.S. patents from the Regents of the University of Minnesota. Additionally, there are several issued patents which also describe technology involving our products and which may offer us some further protection. Twenty-three patents relate to our blood pressure waveform analysis procedures, our cardiovascular profiling technology, and/or the non-invasive determination of cardiac output.

The validity and breadth of claims coverage in medical technology patents involve complex legal and factual questions and, therefore, may be highly uncertain. We cannot assure you that our current patents and licenses will provide a competitive advantage, that the pending applications will result in patents being issued, or that our competitors will not design around any patents or licenses issued to us. In addition, we cannot assure you that any agreements with employees or consultants will protect our proprietary information and “know-how” or provide adequate remedies in the event of unauthorized use or disclosure of our information, or that others will not be able to develop this information independently. We cannot assure you that allegations of infringement of the proprietary rights of third parties will not be made, or that if made, the allegations will not be sustained if litigated. There has been substantial litigation regarding patent and other intellectual property rights in the medical device industry. Litigation may be necessary to enforce patents issued to us, to protect trade secrets or “know-how” we own, to defend us against claimed infringement of the rights of others or to determine the ownership, scope or validity of our proprietary rights and the rights of others. Any of these claims may require us to incur substantial litigation expenses and to divert substantial time and effort of management personnel. An adverse determination in litigation involving the proprietary rights of others could subject us to significant liabilities to third parties, could require us to seek licenses from third parties, and could prevent us from manufacturing, selling or using our products. The occurrence of this litigation or the effect of an adverse determination in any of this type of litigation could have a material adverse effect on our business, financial condition and results of operations.

Risks Related to Government Regulation

Our business and our products are subject to extensive regulation by both U.S. and foreign governments. Our CVProfilor® DO-2020 System, which is classified as a medical device in the U.S., is subject to regulation by U.S. federal and state authorities and by foreign governments in the countries in which we sell this product. Further, our CVProfilor® MD-3000, the international version of our CVProfilor® DO-2020 intended for use by physicians outside of the U.S., is subject to regulation by the foreign governments in the countries in which we sell this product.

Regulation in the United States. Under various amendments to the Federal Food, Drug and Cosmetic Act, or the FDCA, and related regulations, manufacturers of medical devices are required to comply with very specific rules and regulations concerning the design, testing, manufacturing, packaging, labeling and marketing of medical devices. Failure to comply with the FDCA and any applicable regulatory requirements could result in, among other things, civil and criminal fines, product recalls, detentions, seizures, injunctions and criminal prosecutions.

Our CVProfilor® DO-2020 System was cleared for marketing in the U.S. by the Food and Drug Administration, or the FDA. FDA enforcement policy strictly prohibits the promotion of cleared or approved medical devices for non-approved or “off-label” uses. In addition, the FDA may withdraw product clearances if the CVProfilor® DO-2020 System fails to comply with regulatory standards or if we encounter unforeseen problems following initial marketing. In order to obtain FDA clearance for our product, the facilities and manner in which we operate and do business must adhere to a quality system and in this regard, we are presently ISO-13485:2003 registered. Failure to receive future necessary regulatory clearances or approvals or a lengthy approval process would have a material adverse effect on our business, financial condition and results of operations.

Our level of revenue and profitability as a medical device company may be affected by the efforts of government and third party payers to contain or reduce the costs of health care through various means. In the U.S., there have been, and we expect that there will continue to be, a number of federal, state and private proposals to control health care costs. These proposals may contain measures intended to control public and private spending on health care as well as to provide universal public access to the health care system. If enacted, these proposals may result in a substantial restructuring of the health care delivery system. Significant changes in the nation’s health care system are likely to have a substantial impact over time on the manner in which we conduct our business and could have a material adverse effect on our business, financial condition and results of operations.

Regulation by Foreign Governments. As a part of our marketing strategy, we are pursuing commercialization of our products in international markets. Our products are subject to regulations that vary from country to country. Although we believe that the CR-2000 and the MD-3000 products can be exported without us having obtained FDA clearance for the marketing of the products in the U.S., there is no assurance that the FDA may not take a contrary position, in which case we could not export our products without first obtaining FDA clearance of the products for marketing in the U.S., which would be an expensive and time consuming process. Export sales of our products may be subject to general U.S. export regulations.

We cannot assure you that foreign regulatory clearances or approvals will be granted on a timely basis, if ever, or that we will not be required to incur significant costs in obtaining or maintaining our foreign regulatory clearances or approvals. The process of obtaining foreign regulatory approvals in certain countries can be lengthy and require the expenditure of large resources. We cannot assure you that we will be able to meet export requirements or obtain necessary foreign regulatory approvals for our products on a timely basis or at all.

In order to obtain a CE Mark for our product (which is required to sell the product in the UK and the European Union), the facilities and manner in which we operate and do business must adhere to a quality system and in this regard, we are presently ISO-13485 registered. Further, because both the HDI/PulseWave™ CR-2000 Research System and the CVProfilor® MD-3000 System display the CE mark, they must conform to European Council Directive 93/42/EEC regarding Medical Devices.

Delays in receipt of or failure to receive foreign clearances or approvals, or failure to comply with existing or future regulatory requirements and quality system regulations, would have a material adverse effect on our business, financial condition and results of operations.

Changes in state and federal laws relating to confidentiality of patient medical records could limit our customers’ ability to use services associated with our product. The Health Insurance Portability and Accountability Act of 1996, or HIPAA, mandates the adoption of national standards for the transmission of certain types of medical information and the data elements used in such transmissions to insure the integrity and confidentiality of such information. On December 20, 2000, the Secretary of Health and Human Services promulgated regulations to protect the privacy of electronically transmitted or maintained, individually identifiable health information. We believe that our products and our CDMF are in compliance with the regulations under HIPAA and with the rules under HIPAA for electronic healthcare transmissions and code sets used in those transmissions. We may be required to incur additional expenses in order to comply with any amendments to these requirements. In addition, the success of our compliance efforts may also be dependent on the success of healthcare participants in complying with the standards.

Further, some state laws could restrict our ability to transfer patient information gathered from our products. Such restrictions would decrease the value of our applications to our customers, which could materially harm our business. The confidentiality of patient records and the circumstances under which records may be released for inclusion in our CDMF databases are subject to substantial regulation by state governments. These state laws and regulations govern both the disclosure and the use of confidential patient medical record information. In addition to HIPAA, legislation governing the dissemination of medical record information has been proposed at the state level. This legislation may require holders of this information to implement security measures. Such legislation might require us to make substantial expenditures to implement such measures.

Future regulatory requirements may materially impact our business. Federal, state and foreign regulations regarding the manufacture and sale of healthcare products and diagnostic devices are subject to future change. We cannot predict what material impact, if any, these changes might have on our business. Future changes in regulations or enforcement policies could impose more stringent requirements on us, compliance with which could adversely affect our business. These changes may relax some requirements, which could prove beneficial to our competitors and thus adversely affect our business. In addition, regulations of the FDA and state and foreign laws and regulations depend heavily on administrative interpretations. We cannot assure you that future interpretations made by the FDA, or other regulatory authorities, with possible retroactive effect, will not adversely affect our business, financial condition and results of operations.

We cannot assure you that we will be able to obtain necessary regulatory clearances or approvals in the United States or internationally on a timely basis, if at all. Delays in the receipt of, or failure to receive, these clearances or approvals, or failure to comply with existing or future regulatory requirements would have a material adverse effect on our business, financial condition and results of operations.

Regulations extending to our contractors and customers affect the manufacture and sale of our products. We and the design and manufacturing vendors with whom we contract are subject to regulation by the FDA relating to the design and manufacture of the CVProfilor® DO-2020 System. This regulation includes, but is not limited to, required compliance with the FDA’s Quality System Regulation, or QSR, and equivalent state and foreign regulations. Our failure, or the failure of any of these vendors, to comply with applicable regulations may subject us or one or more of the vendors, or the medical device designed and produced for and by us, to regulatory action. A regulatory action could threaten or cut off our source of supply or cause the FDA to order the removal of the CVProfilor® DO-2020 System from the market. While we believe we could locate and qualify other sources to design or manufacture necessary components, supply interruptions in the meantime may have a materially adverse effect on our business, financial condition and results of operations.

In addition to the regulations directly pertaining to us and our products, many of our potential customers are subject to extensive regulation and governmental oversight. Regulatory changes in the healthcare industry that adversely affect the business of our customers could have a material adverse effect on our business, financial condition and results of operations.

Other Risks

Our ability to obtain additional financing requires approval of the Series A Preferred Stockholders. We issued shares of Series A Convertible Preferred Stock and common stock to a group of investors in the August 2003 and February 2004 Placements, in the aggregate. As a result of the voting rights inherent in the Series A Preferred Stock and common stock and certain provisions of the Shareholders’ Agreement, we will be prohibited from making certain changes to our capital structure and business practices. Further, we may not enter into certain transactions without the consent of the holders of a majority of the Series A Preferred Stock purchased in these Offerings. In addition, our Articles of Incorporation provide that our Board of Directors is divided into three classes, with each class elected in successive years for a term of three years. This provision of our Articles of Incorporation and the concentration of ownership following the Offering may have the effect of delaying or preventing a change in control of us or changes in our Board of Directors or management.

Our securities are illiquid and will be subject to rules relating to “penny stocks.” On March 17, 2003, we requested that our securities be withdrawn from The Nasdaq SmallCap Market. Since March 21, 2003, our securities have been quoted on the OTC Bulletin Board under the symbols “HDII.OB” for our common stock. Our Redeemable Class B Warrant, “HDIIZ.OB” expired on December 15, 2006. There can be no assurance that any market will continue to exist for our securities, or that our securities may be sold without a significant negative impact on the price per share.

Furthermore, our securities are subject to the rules promulgated under the Securities Exchange Act of 1934 relating to “penny stocks.” These rules require brokers who sell securities that are subject to the rules, and who sell to other than established customers and institutional accredited investors, to complete required documentation, make suitability inquiries of investors and provide investors with information concerning the risks of trading in the security. Consequently, an investor would likely find it more difficult to buy or sell our securities in the open market.

Our stock prices may be depressed and our shareholders may experience significant dilution upon the exercise of certain outstanding warrants, which may be affected by the actual or perceived sales of a significant number of our securities in the public market. As of September 18, 2009, there were 40,963,088 shares of our common stock issued and outstanding. Of these outstanding shares, all shares are either freely tradable or eligible for sale under either Rule 144 or Rule 144(k).

As of September 18, 2009, we have a total of 24,905,596 shares of common stock, which may be issued upon exercise of the following options or warrants:

§	3,038,342 shares of our common stock purchasable through the exercise of options granted under our 2003 Stock Plan;

§	263,000 shares of our common stock purchasable through the exercise of options granted under our 1995 Long-Term Incentive and Stock Option Plan;

§	854,000 shares of our common stock purchasable through the exercise of options granted under our 1998 Stock Option Plan;

§	1,830,000 shares of our common stock purchasable through the exercise of options granted under our 2005 Stock Option Plan;

§	25,000 shares of our common stock purchasable through the exercise of other outstanding options, exercisable at a per share exercise price of $0.16; and

§	10,768,974 shares of our common stock issuable upon exercise of the Warrants sold in the August 2003 and February 2004 Placements, and 8,126,280 additional shares of our common stock issuable upon conversion of the Series A Convertible Preferred Stock underlying the Warrants.

As of September 18, 2009, we also have 8,934,432 shares of our common stock issuable upon conversion of our 744,536 outstanding shares of Series A Convertible Preferred Stock.

Moreover, we have registered all the shares of our common stock issuable through our 1995 Long-Term Incentive and Stock Option Plan and 750,000 shares of our common stock issuable through our 1998 Stock Option Plan. We have also registered 287,500 shares purchasable through the exercise of all other outstanding options and warrants.

At any time our common stock trades at prices in excess of the exercise or conversion price of the options or warrants, it is possible that the holders of those options or warrants may exercise their conversion or purchase privileges. If any of these events occur, the number of shares of our outstanding common stock could increase substantially. This increase, in turn, could dilute future earnings per share, if any, and could depress the market value of our common stock.

We cannot predict the extent to which the dilution, the availability of a large amount of shares for sale, and the possibility of additional issuances and sales of our common stock will negatively affect the trading price of our common stock or the liquidity of our common stock.

We do not intend to pay cash dividends on our common stock. We have never paid cash dividends on our common stock and do not anticipate paying any cash dividends on our common stock in the foreseeable future. We anticipate that profits, if any, received from operations will be devoted to our future operations.

We are subject to certain provisions, which could impede takeovers by third parties even if such a change of control might be beneficial to our shareholders. We have established three classes of directors with staggered terms of office, supermajority voting requirements for business combinations, and the right of the Board of Directors to issue, without shareholder approval, preferred stock on terms set by the Board. We are also subject to certain terms of Minnesota law that could have the effect of delaying, deterring or preventing a change of control, including Sections 302A.671 and 302A.673 of the Minnesota Business Corporation Act, which prohibits a Minnesota corporation from engaging in any business combination with any interested shareholder for a period of four years from the date when the person became an interested shareholder unless certain conditions are met.

Minnesota law and our Articles of Incorporation impose limitations on the liability of our directors to our shareholders. Our Articles of Incorporation provide, among other things, that directors, including a person deemed to be a director under applicable law, are not to be personally liable to us or our shareholders for monetary damages for breach of fiduciary duty as a director, except to the extent provided by applicable law (i) for any breach of the director's duty of loyalty to us or our shareholders, (ii) for acts or omissions, not in good faith or that involve intentional misconduct or a knowing violation of law, (iii) under Sections 302A.559 or 80A.23 of the Minnesota Business Corporation Act, as amended, (iv) for any transaction from which the director derived an improper personal benefit, or (v) for any act or omission occurring prior to the date that the applicable articles became effective. Our Articles further provide that if the Minnesota Business Corporation Act hereafter is amended to authorize the further elimination or limitation of the liability of directors, then the liability of our directors will be eliminated or limited to the fullest extent permitted by the Minnesota Business Corporation Act, as so amended.

ITEM 2. Properties

On October 24, 1997, we entered into a non-cancelable operating lease agreement for approximately 6,900 square feet of commercial office and light assembly space at The Waters Business Park in Eagan, Minnesota, a location in close proximity to the Minneapolis/Saint Paul International Airport and within a 20 minute drive to the downtown area of both Saint Paul and Minneapolis. Effective August 11, 2006, the term of this operating lease was extended for forty-eight (48) months from November 1, 2006 to October 31, 2010. The monthly gross rent, including basic operating expenses, is approximately $6,700. We believe that this facility should be adequate for our currently anticipated requirements for the term of the lease.

ITEM 3. Legal Proceedings

Although we have been involved in various legal actions in the ordinary course of our business, currently we are not aware of any pending legal proceedings against or involving us.

ITEM 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of our shareholders during the fourth quarter of the fiscal year ended June 30, 2009.

PART II

ITEM 5. Market for Common Equity, Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities

Since March 21, 2003, our common stock has been traded on the Over-the-Counter Bulletin Board under the symbol “HDII.OB”. As of September 18, 2009, there were: (i) 162 shareholders of record of our common stock, without giving effect to determining the number of shareholders who hold shares in “street name” or other nominee status; (ii) 100 holders of our Series A Convertible Preferred Stock, which is convertible into 8,934,432 shares of our common stock; and (iii) 40,963,088 outstanding shares of our common stock, of which all shares are either freely tradable or eligible for sale under Rule 144 or Rule 144(k).

The following table sets forth, for the fiscal quarters indicated, the high and low closing prices of our common stock as reported by the Over-the-Counter Bulletin Board. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.

	Stock Price

	High	Low
Fiscal 2009
First Quarter	$0.04	$0.035
Second Quarter	0.06	0.03
Third Quarter	0.02	0.02
Fourth Quarter	0.03	0.03

Fiscal 2008
First Quarter	$0.20	$0.10
Second Quarter	0.19	0.07
Third Quarter	0.12	0.07
Fourth Quarter	0.11	0.03

Dividend Policy

We have never paid cash dividends and have no plans to do so in the foreseeable future. Our future dividend policy will be determined by our Board of Directors and will depend upon a number of factors, including our financial condition and performance, our cash needs and expansion plans, income tax consequences, and the restrictions that applicable laws and our credit arrangements then impose.

Recent Sales of Unregistered Securities

Option Grants

During the fiscal year ended June 30, 2009, there were no options granted to purchase shares of common stock to our employees, pursuant to our various Stock Plans.

ITEM 6. Selected Financial Data

As a smaller reporting company, we are not required to provide the information required by this item.

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

We are engaged in the design, development, manufacture and marketing of proprietary medical devices that we believe non-invasively detect subtle changes in the elasticity of both large and small arteries. We are currently marketing three products: the HDI/PulseWave™ CR-2000 Research CardioVascular Profiling System, the CVProfilor® DO-2020 CardioVascular Profiling System and the CVProfilor® MD-3000 CardioVascular Profiling System.

The CR-2000 Research System is being marketed worldwide “for research purposes only” to clinical research investigators for the purpose of collecting data in cardiovascular and pharmaceutical studies. Further, because the CR-2000 Research System bears the CE Mark and meets the European Union Medical Device Directive, physicians may use the CR-2000 Research System with patients in a clinical setting in the European Union.

In the U.S., the CVProfilor® DO-2020 System is being marketed to primary care physicians and other health care professionals as a capital sale item and on a “per-patient-tested” rental basis. It can also be leased. Utilizing our Central Data Management Facility (the “CDMF”), we are able to track utilization of the CVProfilor® DO-2020 System in each physician’s office and medical clinic and to invoice our rental physician customers on the number of CardioVascular Profile Reports (CVProfile™ Reports) which they generate each month.

The CVProfilor® MD-3000 System is being marketed through distributors to physicians outside the United States. These distributors purchase the product from us and then re-sell it to end-user physicians in their territory. The CVProfilor® MD-3000 System has a CE Mark that allows it to be marketed within European Union countries. The CVProfilor® MD-3000 may require certain regulatory approval for it to be marketed in other countries throughout the world. To date, there have been no commercial sales of the MD-3000 to physician or research customers.

Critical Accounting Policies

The financial statements are prepared in accordance with accounting principles generally accepted in the U.S., which requires us to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying financial statements and related footnotes. In preparing these financial statements, management has made its best estimates and judgments of certain amounts included in the financial statements, giving due consideration to materiality. We do not believe there is a great likelihood that materially different amounts would be reported related to the accounting policies described below. However, application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates.

Revenue Recognition. We recognize revenue in accordance with U.S. Securities and Exchange Commission’s Staff Accounting Bulletin (SAB) No. 104, “Revenue Recognition.” Pursuant to SAB No. 104, the Company recognizes revenue from the sale of equipment at the time of shipment to a customer or distributor. Shipment occurs only after receipt of a valid purchase order. Payments from customers and distributors are either made in advance of shipment or within a short time frame after shipment. In the case of sales to distributors, such payment is not contingent upon resale of the product to end users. Shipping and handling costs are included as cost of equipment sales. At the time of shipment, all of the criteria for recognition set forth in SAB No. 104 have been met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the selling price is fixed or determinable and collectability is reasonably assured.

Equipment rental revenue, whether from the minimum monthly fee or from the per-patient-tested fee, is recognized when all of the criteria for recognition set forth in SAB No. 104 have been met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the selling price is fixed or determinable and collectability is reasonably assured.

In the case of either a sale or rental of our product, there are no post-shipment obligations which affect the timing of revenue recognition. Neither customers nor distributors have a right to return or exchange our product. Warranty repairs on all of the above are handled on a repair or replacement basis, at our discretion. Further, there is no installation of our product; it is ready to use when plugged into an electrical outlet and no specialized knowledge is required to ready it for use. For these reasons, we have concluded that our revenue recognition policy is appropriate and in accordance with SAB No. 104.

Allowance for Doubtful Accounts. Accounts receivable are reviewed to determine the need for an allowance for amounts that may become uncollectible in the future. The necessity of an allowance is based on management’s review of accounts receivable balances and historic write-offs.

Inventories and Related Allowance for Excess and Obsolete Inventory. Inventories are valued at the lower of cost or market and reviewed to determine the need for an allowance for excess and obsolete inventories. The need for an allowance is based on management’s review of inventories on hand compared to estimated future usage and sales.

Research and Development. For the fiscal year ended June 30, 2009 and June 30, 2008, we did not incur any research and development costs.

Deferred Revenue. The Company has warranty maintenance contracts with its customers ranging from 1 to 3 years to provide replacement parts to its customers. The Company requires full payment in advance and these cash deposits are recorded as deferred revenue. The Company recognizes the deferred revenue on a quarterly basis. The Company has recorded a total of $80,608 and $56,123 as deferred revenue at June 30, 2009 and 2008. The Company recognizes as current portion deferred revenue the amount that it will recognize over the next 12 months; $48,246 as of June 30, 2009 and $30,598 as of June 30, 2008. The remaining amount of deferred revenue is recognized as long-term deferred revenue; $32,362 as of June 30, 2009 and $25,525 as of June 30, 2008.

Income Taxes. We account for income taxes under the liability method pursuant to the provisions of Statement of Financial Accounting Standards No. 109 “Accounting for Income Taxes” (SFAS 109). Deferred income taxes are recognized for tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year end, based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable earnings. Valuation allowances are established when necessary to reduce deferred tax assets to the amount that is more likely than not to be realized. The effect of changes in tax rates is recognized in the period in which the rate change occurs.

On July 1, 2007, we adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48). FIN 48 clarifies when tax benefits should be recorded in financial statements, requires certain disclosures of uncertain tax matters and indicates how any tax reserves should be classified in a balance sheet. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement with the relevant tax authority.

Stock-Based Compensation. The Company regularly grants options to individuals under various plans. FASB Statement No. 123 (revised 2004), Share-Based Payment (“FAS 123(R)”) requires that the compensation cost relating to share-based payment transactions, including grants of employee and director stock options, be recognized in the financial statements. That cost will be measured based on the fair value of the equity or liability instrument issued. FAS 123(R) covers a wide range of share-based compensation arrangements including stock options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. The effect of the Statement is to require entities to measure the cost of employee services received in exchange for stock options based on the grant-date fair value of the award, and to recognize the cost over the period the employee is required to provide services for the award. FAS 123(R) permits entities to use any option-pricing model that meets the fair value objective in the Statement. The fair value of options granted during fiscal year 2008 was estimated using the Black-Scholes option pricing model.

Fiscal	Risk-Free	Expected Dividend	Expected	Expected
Year Ended	Interest Rate	Yield	Life	Volatility
June 30, 2009	N/A	None	5 years	N/A
June 30, 2008	4.50%	None	5 years	180.71%

No stock options were granted during fiscal year 2009. Dividend yield and expected volatility are estimated using historical amounts that are anticipated to be consistent with current values. Expected life of option is based on the life of the option agreements. Risk-free interest rate is determined using the U.S. treasury rate.

As of June 30, 2009, there was $45,750 of total unrecognized compensation costs related to the outstanding stock options, which is expected to be recognized over a weighted average period of 0.5 years.

Results of Operations

As of June 30, 2009, we had an accumulated deficit of $27,434,607, attributable primarily to selling, general and administrative expenses. Until we are able to generate significant revenue from our activities, we expect to continue to incur operating losses. As of June 30, 2009, we had cash and cash equivalents of $697,918. We anticipate that these funds, in conjunction with revenue anticipated to be earned from placements and sales of our CVProfilor® DO-2020 Systems, anticipated sales of our CR-2000 Research Systems, anticipated operating cost reductions, as well as anticipated proceeds from the exercise by holders of stock purchase warrants to purchase our common stock and Series A Preferred Stock, will allow us to pursue our business development strategy for at least the next twelve months following June 30, 2009.

Fiscal Year Ended June 30, 2009 Compared to Fiscal Year Ended June 30, 2008

The following is a summary of our Revenue and Cost of Sales for the fiscal years ended June 30, 2009 and 2008, respectively:

		Fiscal Year Ended June 30, 2009
			Equipment	Equipment	Service/
	Total		Sales	Rental	Contract

Revenue	$ 503,175		$ 332,687	$ 86,863	$ 83,625
Cost of Sales	10,991		9,199	0	1,792
Gross Profit	$ 492,184		$ 323,488	$ 86,863	$ 81,833


		Fiscal Year Ended June 30, 2008
			Equipment	Equipment	Service/
	Total		Sales	Rental	Contract

Revenue	$ 554,454		$ 342,305	$ 150,786	$ 61,363
Cost of Sales	44,329		26,250	12,850	5,229
Gross Profit	$ 510,125		$ 316,055	$ 137,936	$ 56,134

Total Equipment Sales Revenue for the fiscal year ended June 30, 2009 was $332,687, compared to $342,305 for the fiscal year ended June 30, 2008, a 2.8% decrease.

For the fiscal year ended June 30, 2009, we recognized revenue for the CVProfilor® DO-2020 System “per-patient-tested” rental program of $86,863, compared to $150,787 for the fiscal year ended June 30, 2008, a 42.4% decrease. As we use the rental model primarily as a means of generating trial with a hopeful move to a sale, renters will not, in the majority of cases, remain in the rental mode as long as they did previously. This will result in lower rental revenues.

For the fiscal year ended June 30, 2009, Service/Contract income was $83,625, compared to $61,363 for the fiscal year ended June 30, 2008, a 36.3% increase. This increase was a result of an increase in warranty maintenance agreements sold.

At June 30, 2003, inventory which principally consists of raw materials had been written down to estimated net realizable value to account for quantities in excess of those expected to be sold currently. The results of operations for the fiscal year ended June 30, 2003 included a corresponding charge to Cost of Sales of $850,000 related to this write-down. As inventory is sold relating to Equipment Sales Revenue, a portion of this Inventory Reserve Allowance is recorded as an offset to Cost of Sales pertaining to these sales. As of June 30, 2009, the Inventory Reserve Allowance balance is $412,481. The Inventory Reserve Allowance is adjusted on a quarterly basis. The following table shows the effect of this adjustment for the periods indicated:

	Fiscal Year Ended June 30
	2009	2008
Cost of Sales …………………………………………………	$ 52,895	$ 102,082
Inventory Reserve Allowance.. ……………………………	(41,904)	(57,753)
Cost of Sales, as reported ………………………………….	$ 10,991	$ 44,329

Cost of Sales was lower in fiscal year 2009 compared to fiscal year 2008 largely because in 2008 130 sensors held in inventory failed to meet specifications and were scrapped, resulting in an inventory write down that increased cost of sales by approximately $20,250. In fiscal year 2009, there was no significant inventory write down of sensors. Additionally, the mix of new versus reconditioned units was lower in fiscal year 2009 compared to fiscal year 2008. New units have a significantly higher cost of sales than refurbished units. The total cost of sales for new units sold in fiscal year 2009 compared to fiscal year 2008 was lower by $8,715. The remaining difference in cost of sales between fiscal year 2009 and 2008 was a result higher average cost of sales for refurbished units in 2008 compared to 2009.

Total selling, general and administrative expenses for the fiscal year ended June 30, 2009 were $753,768 compared to $1,259,874 for the fiscal year ended June 30, 2008, a 40.2% decrease. The following is a summary of the major categories included in selling, general and administrative expenses:

		Fiscal Year Ended June 30		Change from Prior Year
	2009		2008	Dollar	Percent

Wages, related expenses and benefits……………………………….	$ 311,706		$ 722,474	$ (410,768)	-56.86%
Patents and related expenses…...……………………………………	-		6,194	(6,194)	-100.00%
Outside consultants…………………………………………………..	26,782		52,484	(25,702)	-48.97%
Rent (building/equipment) and utilities…………………………………	88,361		94,069	(5,708)	-6.07%
Insurance-general and directors/officers liability…………………..	26,706		35,622	(8,916)	-25.03%
Selling, marketing and promotion…….	11,644		10,642	1,002	9.42%
Legal and audit/accounting fees…………………………………	84,497		88,506	(4,009)	-4.53%
Royalties………………………………………………………….	12,490		14,707	(2,217)	-15.07%
Depreciation and amortization………………………………………	8,484		10,505	(2,021)	-19.24%
Stock option expense…………………………………………………….	91,500		94,675	(3,175)	-3.35%
Other-general and administrative………………………………….	91,598		129,996	(38,398)	-29.54%
Total selling, general and administrative expenses………..	$ 753,768		$ 1,259,874	$ (506,106)	-40.17%

Wages, related expenses and benefits decreased from $722,474 to $311,706 for the fiscal years ended June 30, 2008 and June 30, 2009, respectively, a 56.9% decrease. Included in the $311,706 expense amount for the fiscal year ended June 30, 2009 is an accrued compensation non-cash benefit of $225,750 that relates to an adjustment to the estimated value of the phantom shares due our chief executive officer as part of his compensation for services provided to us. Included in the $722,474 expense amount for the fiscal year ended June 30, 2008 is an accrued compensation non-cash charge of $68,250 that relates to the estimated amount due our chief executive officer as part of his compensation for services provided to us. Because the Company’s stock price decreased during the twelve month period ending June 30, 2009, this expense category was negative or produced a benefit of $225,750.

Outside consultants expense decreased from $52,484 for the fiscal year ended June 30, 2008 to $26,782 for the fiscal year ended June 30, 2009, a 49.0% decrease. A breakdown of outside consultant expense for fiscal years 2009 and 2008 is provided below:

	Fiscal Year Ended June 30		Change from Prior Year
	2009	2008	Dollar	Percent
Outside Consultants Expense
SOX/404 Consulting	$3,675	$22,700	$(19,025)	-83.81%
Engineering Consulting	625	930	(305)	-32.80%
IT Systems Administration	5,012	7,419	(2,407)	-32.44%
Quality Systems & Regulatory	16,965	17,723	(758)	-4.28%
Software Development	340	2,048	(1,708)	-83.40%
Accounting & Tax	165	1,524	(1,359)	-89.17%
Other	0	140	(140)	-83.81%
Total Outside Consultants Expense	$26,782	$52,484	($25,702)	-48.97%

Selling, marketing and promotion expense increased from $10,642 for the fiscal year ended June 30, 2008 to $11,644 for the fiscal year ended June 30, 2009, a 9.4% increase. This category includes commission expense relating to our distributor’s sales and marketing efforts, as well as travel and convention expenses.

Legal and audit/accounting fees decreased from $88,506 to $84,497 for the fiscal years ended June 30, 2008 and 2009, respectively, a 4.5% decrease.

Other – general and administrative expenses decreased from $129,996 for the fiscal year ended June 30, 2008 to $91,598 for the fiscal year ended June 30, 2009, respectively, a 29.5% decrease. A breakdown of Other – general and administrative expense for fiscal years 2009 and 2008 is provided below:

	Fiscal Year Ended June 30		Change from Prior Year
	2009	2008	Dollar	Percent
Stock Transfer Agent/Registrar Fees	$ 2,579	$ 12,606	$ (10,027)	-79.54%
Telephone	13,719	23,265	(9,546)	-41.03%
Postage/Delivery/Courier	1,318	7,895	(6,577)	-83.31%
Licenses & Fees	3,581	7,039	(3,458)	-49.13%
SEC Filings Expense	2,477	5,561	(3,084)	-55.46%
Warehouse Supplies - Reserve Allowance	(17,807)	(14,821)	(2,986)	20.15%
Office Supplies	3,370	5,952	(2,582)	-43.38%
State Income Taxes	4,599	6,788	(2,189)	-32.25%
Payroll Expense - (Paychex)	3,944	5,162	(1,218)	-23.60%
Trash Removal	1,151	1,635	(484)	-29.60%
Repairs & Maintenance	8,556	8,812	(256)	-2.91%
Computer Software/Supplies	2,209	2,145	64	2.98%
Bank Charges - Credit Cards	5,777	5,256	521	9.91%
Meals & Entertainment	1,902	1,270	632	49.76%
Auto Expense/Parking	5,029	3,917	1,112	28.39%
Warehouse Supplies	25,579	23,733	1,846	7.78%
Travel - Other	17,723	15,843	1,880	11.87%
Meetings	3,443	1,168	2,275	194.78%
All other components	2449	6,770	(4,321)	-63.83%
Total Other-general & administrative	$ 91,598	$ 129,996	$ (38,398)	-29.54%

Interest income was $13,144 and $45,912 for the fiscal years ended June 30, 2009 and 2008, respectively. This decrease was a result of the reduced bank deposit rates and declining cash balances during the period.

Net loss was $248,440 and $703,837 for the fiscal years ended June 30, 2009 and 2008, respectively. For the fiscal year ended June 30, 2009, basic and diluted net loss per share was $(.01), based on weighted average shares outstanding of 40,722,471. For the fiscal year ended June 30, 2008, basic and diluted net loss per share was $(.02), based on weighted average shares outstanding of 39,690,323.

Liquidity and Capital Resources

Cash and cash equivalents had a net decrease of $383,950 and a net decrease of $294,764 for the years ended June 30, 2009 and June 30, 2008, respectively. The significant elements of these changes were as follows:

	Fiscal Year Ended June 30
Net cash provided by / (used in) operating activities:	2009	2008
— Net loss, as adjusted for non-cash items (expenses associated with deferred stock based compensation, depreciation, and stock option expense)	$(373,542)	$(516,759)
— (Increase) / Decrease in accounts receivable:	(A) (16,500)	(A) 267,997
– (A) The decrease in sales directly affects the decrease in accounts receivable
— (Increase) / Decrease in inventory:	(B) 12,612	(B) (3,277)
– (B) We sell mostly reconditioned units, and only replenish inventory for items that are needed to build new units.
— Increase / (Decrease) in accrued vacation, payroll and payroll taxes – (C) Expense amounts that relate to the amount of accrued vacation, accrued payroll , and accrued payroll taxes	(C) ( 33,782)	(C) 30,963
— Increase / (Decrease) in deferred revenue: – (D) Cash received from warranty maintenance contracts, and is amortized over the length of the contract.	(D) 24,485	(D) 27,502

The Company had no investing or financing activities for the years ended June 30, 2009 and 2008.

We have incurred operating losses and have not generated positive cash flow from operations. As of June 30, 2009, we had an accumulated deficit of $27,434,607.

As of June 30, 2009, we had cash and cash equivalents of $697,918 and anticipate that these funds, in conjunction with anticipated sales of our CVProfilor® DO-2020 Systems, anticipated sales of our CR-2000 Research Systems, and anticipated operating cost reductions, will allow us to pursue our business development strategy for at least the next twelve months following June 30, 2009.

Our current marketing strategy focuses on selling the CVProfilor® DO-2020 System to physicians who treat patients with hypertension and diabetes. We believe these physicians have the greatest interest in, and use for, our product. The most critical factor in our ability to increase revenue rests in our ability to expand our network of independent distributors selling the CVProfilor® DO-2020 System.

The existence, timing and extent of reimbursement of physicians for the use of our CVProfilor® DO-2020 affects the availability of our working capital. Reimbursement will always vary considerably by the patient’s medical necessity, by physician, by provider, by geography and by provider coverage plans, making the process of obtaining reimbursement for the CVProfilor® DO-2020 by current physician customers an important component of our product’s success. To the extent that reimbursement is unavailable or inadequate, physicians will be less likely to purchase the CVProfilor® DO-2020.

No assurance can be given that additional working capital will be obtained in a timely manner or on terms and conditions acceptable to us or our shareholders. Our financing needs are based upon management estimates as to future revenue and expense. Our business plan and our financing needs are also subject to change based upon, among other factors, market conditions, and our ability to materially increase the sales of our CVProfilor® DO-2020 System. Our efforts to raise additional funds may be hampered by the fact that our securities are quoted on the OTC Bulletin Board, are illiquid and are subject to the rules relating to penny stocks.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

ITEM 8. Financial Statements and Supplementary Data

Financial Statements

Hypertension Diagnostics, Inc.

Years Ended June 30, 2009 and 2008

Contents

Report of Independent Registered Public Accounting Firm……………………………………………..31

Report of Former Independent Registered Public Accounting Firm.…………………………………...32

Audited Financial Statements

Balance Sheets………………………………………………………………………………………... 33

Statements of Operations……………………………………………………………………………..34

Statements of Shareholders’ Equity…………………………………………………………………35

Statements of Cash Flows…………………………………………………………………………….36

Notes to Financial Statements………………………………………………………………………. 37

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Audit Committee, Shareholders and Board of Directors of

Hypertension Diagnostics, Inc.

We have audited the accompanying balance sheet of Hypertension Diagnostics, Inc. (the “Company”) as of June 30, 2009 and the related statements of operations, shareholders’ equity and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of its internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Hypertension Diagnostics, Inc as of June 30, 2009, and the results of its operations and its cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.

/s/ Carver Moquist & O’Connor, LLC

Edina, Minnesota

September 8, 2009

REPORT OF FORMER INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Audit Committee, Shareholders and Board of Directors of

Hypertension Diagnostics, Inc.

We have audited the accompanying balance sheets of Hypertension Diagnostics, Inc. (the “Company”) as of June 30, 2008, and the related statements of operations, shareholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of its internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Hypertension Diagnostics, Inc as of June 30, 2008, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

/s/ Baker Tilly Virchow Krause, LLP

Minneapolis, Minnesota

September 25, 2008

Hypertension Diagnostics, Inc.

Balance Sheets

	June 30,
	2009	2008
Assets
Current Assets:
Cash and cash equivalents	$ 697,918	$ 1,081,868
Accounts receivable, net	42,500	26,000
Inventory, net	278,873	291,485
Prepaids and other current assets	3,237	9,026
Total Current Assets	1,022,528	1,408,379

Property and Equipment:
Leasehold improvements	17,202	17,202
Furniture and equipment	172,052	172,052
Computer & electronic equipment	580,324	580,324
Equipment rental units	162,351	357,499
Total Property and Equipment	931,929	1,127,077
Less accumulated depreciation and amortization	(928,200)	(1,114,200)
Property and Equipment, net	3,729	12,877

Other Assets	6,530	6,530
Total Assets	$ 1,032,787	$ 1,427,786

Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable	$ 16,343	$ 19,997
Accrued vacation, payroll and payroll taxes	47,579	81,361
Deferred revenue	48,246	30,598
Deposits from customers	970	970
Other accrued expenses	6,746	6,104
Deferred compensation	220,500	446,250
Total Current Liabilities	340,384	585,280

Long Term Liabilities:
Deferred revenue, less current portion	32,362	25,525
Total Long Term Liabilities	32,362	25,525

Shareholders' Equity:
Series A Convertible Preferred Stock, $.01 par value:
Authorized shares--5,000,000
Issued and outstanding shares--744,536 and 843,559
at June 30, 2009 and 2008, respectively; each share of
preferred stock convertible into 12 shares of common
stock at the option of the holder (aggregate liquidation
preference $7,422,487 and $6,874,954 at June 30, 2009
and 2008, respectively)	7,445	8,436
Common Stock, $.01 par value:
Authorized shares--150,000,000
Issued and outstanding shares-- 40,963,088 and 39,774,812
at June 30, 2009 and 2008, respectively	409,631	397,748
Additional paid-in capital	27,677,572	27,596,964
Accumulated deficit	(27,434,607)	(27,186,167)
Total Shareholders' Equity	660,041	816,981
Total Liabilities and Shareholders' Equity	$ 1,032,787	$ 1,427,786

See accompanying notes.

Hypertension Diagnostics, Inc.

Statements of Operations

	Year Ended June 30,
	2009	2008

Revenue:
Equipment sales	$ 332,687	$ 342,305
Equipment rental	86,863	150,786
Service/contract income	83,625	61,363
	503,175	554,454
Cost of Sales:
Cost of Sales	52,895	102,082
Inventory Reserve Allowance	(41,904)	(57,753)
Net Cost of Sales	10,991	44,329
Gross Profit	492,184	510,125

Expenses:
Selling, general and administrative	753,768	1,259,874
Total Expenses	753,768	1,259,874
Operating Loss	(261,584)	(749,749)

Other Income:
Interest income	13,144	45,912
Total Other Income	13,144	45,912
Net loss before income taxes	(248,440)	(703,837)
Income taxes	-	-
Net loss before income taxes	$ (248,440)	$ (703,837)


Basic and Diluted Net Loss per Share	$ (.01)	$ (.02)
Weighted Average Shares Outstanding	40,722,471	39,690,323


See accompanying notes.

Hypertension Diagnostics, Inc.

Statements of Shareholders’ Equity

							Additional
		Preferred Stock			Common Stock		Paid-in	Accumulated
	Shares		Amount	Shares		Amount	Capital	Deficit	Total
Balance at June 30, 2007………….	855,545		$ 8,555	39,630,980		$ 396,310	$ 27,503,608	$ (26,482,330)	$ 1,426,143
Conversion of Preferred Stock
into Common Stock ……………	(11,986)		(119)	143,832		1,438	(1,319)	-	-
Normal vesting of outstanding
stock options ………………………	-		-	-		-	94,675	-	94,675
Net loss……………………………..	-		-	-		-	-	(703,837)	(703,837)
Balance at June 30, 2008………….	843,559		$ 8,436	39,774,812		$ 397,748	$ 27,596,964	$ (27,186,167)	$ 816,981
Conversion of Preferred Stock
into Common Stock ……………	(99,023)		(991)	1,188,276		11,883	(10,892)	-	-
Normal vesting of outstanding
stock options ………………………	-		-	-		-	91,500	-	91,500
Net loss……………………………..	-		-	-		-	-	(248,440)	(248,440)
Balance at June 30, 2009………….	744,536		$ 7,445	40,963,088		$ 409,631	$ 27,677,572	$ (27,434,607)	$ 660,041

See accompanying notes.

Hypertension Diagnostics, Inc.

Statements of Cash Flows


		Year Ended June 30,
	2009		2008
Operating Activities:
Net loss	$ (248,440)		$ (703,837)
Adjustments to reconcile net loss to net
cash used in operating activities:
Deferred stock based compensation expense	(225,750)		68,250
Depreciation	9,148		23,355
Loss on disposal of rental units	-		798
Stock options expense	91,500		94,675
Change in operating assets and liabilities:
Accounts receivable	(16,500)		267,997
Inventory	12,612		(3,277)
Prepaids and other current assets	5,789		8,962
Accounts payable	(3,654)		2,297
Accrued payroll and payroll taxes	(33,782)		(30,963)
Deferred revenue	24,485		27,502
Other accrued expenses	642		(50,523)
Net cash used in operating activities	(383,950)		(294,764)


Net increase/(decrease) in cash and cash equivalents	(383,950)		(294,764)
Cash and cash equivalents at beginning of period	1,081,868		1,376,632
Cash and cash equivalents at end of period	$ 697,918		$ 1,081,868


See accompanying notes.

1. Organization and Significant Accounting Policies

Description of Business

Hypertension Diagnostics, Inc. (the “Company”) was formed on July 19, 1988 to develop, design and market a cardiovascular profiling system. The Company does not review financial information in a disaggregated manner, and as a result the Company does not report separate segments.

Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less at the time of purchase to be cash equivalents. The Company maintains cash in financial institutions. The balances, at times, may exceed federally insured limits.

Accounts Receivable

The Company reviews customers’ credit history before extending unsecured credit. Accounts receivable are reviewed to determine the need for an allowance for amounts that may become uncollectible in the future. The necessity of an allowance is based on management’s review of accounts receivable balances and historic write-offs. Invoice terms can vary from at date of shipment to net 30 days. The Company does not accrue interest on past due accounts receivable. The Company writes off receivables when they are deemed uncollectible after all collection attempts have failed. The Company has determined that an allowance for doubtful accounts is not necessary as of June 30, 2009 and 2008.

Inventory

Inventories are valued at the lower of cost (first-in, first-out method) or market and principally consist of raw materials. Market value encompasses consideration of all business factors including price, contract terms and usefulness. The Company reviews inventory on a regular basis and provides for slow-moving, obsolete or unusable inventories by reducing inventory to its estimated useful or scrap value. A reserve for potential obsolescence was $412,481 and $454,384 for the fiscal years ending June 30, 2009 and 2008.

Property and Equipment

Property and equipment are stated at cost. Improvements are capitalized, while repair and maintenance costs are charged to operations when incurred. Depreciation is computed principally using the straight-line method. Estimated useful lives for leasehold improvements are the shorter of the lease term or estimated useful life and 5-7 years for furniture and equipment, computer and electronic equipment and equipment rental units.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Fair Value of Financial Instruments

The Company’s financial instruments are recorded on its balance sheet. The carrying amounts for cash, accounts receivable, accounts payable, and accrued expenses approximate fair value due to the immediate or short-term maturity of these financial instruments.

Impairment of Long-Lived Assets

The Company will record impairment losses on long-lived assets used in operations when indicators of impairment are present and the undiscounted future cash flows estimated to be generated by those assets are less than the assets’ carrying amount. To date, no such losses have been recognized.

Shipping and Handling Costs

The Company records all amounts billed to customers in a sales transaction related to shipping and handling as sales. The Company records costs related to shipping and handling in cost of sales.

Legal Costs

The Company expenses legal costs related to lawsuits as incurred.

1. Organization and Significant Accounting Policies (Continued)

Revenue Recognition

Equipment Sales Revenue is recognized at the time of shipment to a customer or distributor. Shipment occurs only after receipt of a valid purchase order. Payments from customers and distributors are either received in advance of shipment or within a short time frame after shipment. In the case of sales to distributors, such payment is not contingent upon resale of the product to end users. Shipping and handling costs are included as cost of equipment sales. At the time of shipment, all of the criteria for recognition set forth in Staff Accounting Bulletin (SAB) No. 104 have been met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the selling price is fixed or determinable and collectability is reasonably assured.

In the case of either a sale or rental of the Company’s product, there are no post-shipment obligations except for warranty maintenance contracts which affect the timing of revenue recognition. Neither customers nor distributors have a right to return or exchange product. Warranty repairs on all of the above are handled on a repair or replacement basis, at the Company’s discretion. Further, there is no installation of the product; it is ready to use when plugged into an electrical outlet and no specialized knowledge is required to ready it for use. For these reasons, the Company believes its revenue recognition policy is appropriate and in accordance with SAB No. 104.

The Company has warranty maintenance contracts with its customers ranging from 1 to 3 years to provide replacement parts to its customers. These contracts are considered multiple element arrangements. When a sale involves multiple elements, revenue is allocated to each respective element in accordance with Emergining Issues Task Force (“EITF) 0021, Accounting for Revenue Arrangements with Multiple Deliverables. The Company requires full payment in advance and these cash deposits are recorded as deferred revenue. The Company recognizes the deferred revenue on a quarterly basis. The Company recognizes as current portion deferred revenue the amount that it will recognize over the next 12 months. The remaining amount of deferred revenue is recognized as long-term deferred revenue.

Research and Development Costs

All research and development costs are charged to expense as incurred. The Company incurred no research and development costs for the fiscal years ended June 30, 2009, and June 30, 2008, respectively.

Income Taxes

We account for income taxes under the liability method pursuant to the provisions of Statement of Financial Accounting Standards No. 109 “Accounting for Income Taxes” (SFAS 109). Deferred income taxes are recognized for tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year end, based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable earnings. Valuation allowances are established when necessary to reduce deferred tax assets to the amount that is more likely than not to be realized. The effect of changes in tax rates is recognized in the period in which the rate change occurs.

FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48). FIN 48 clarifies when tax benefits should be recorded in financial statements, requires certain disclosures of uncertain tax matters and indicates how any tax reserves should be classified in a balance sheet. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement with the relevant tax authority.

Net Loss Per Share

Basic net loss per share is computed using the weighted average number of common shares outstanding during each period. Diluted net loss per share would normally include the dilutive effect of common shares potentially issuable upon the exercise of stock options, warrants, or the conversion of preferred stock. However, since the Company reported losses for all periods presented, all potential common shares have been excluded from the calculation of diluted net loss per share, as the effect would have been anti-dilutive.

1.	Organization and Significant Accounting Policies (Continued)

Stock-Based Compensation

The Company regularly grants options to individuals under various plans. FASB Statement No. 123 (revised 2004), Share-Based Payment (“FAS 123(R)”) requires that the compensation cost relating to share-based payment transactions, including grants of employee and director stock options, be recognized in the financial statements. That cost will be measured based on the fair value of the equity or liability instrument issued. FAS 123(R) covers a wide range of share-based compensation arrangements including stock options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. The effect of the Statement is to require entities to measure the cost of employee services received in exchange for stock options based on the grant-date fair value of the award, and to recognize the cost over the period the employee is required to provide services for the award. FAS 123(R) permits entities to use any option-pricing model that meets the fair value objective in the Statement.

Recent Accounting Pronouncements

In June 2008, the FASB issued FSP No. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities. This guidance states that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are participating securities and should be included in the computation of earnings per share using the two-class method outlined in SFAS No. 128, Earnings per Share. The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock and participating security according to dividends declared and participation rights in undistributed earnings. The adoption of this new guidance on July 1, 2009 should not have an effect on the Company's reported earnings per share.

In April 2008, the FASB issued FASB Staff Position (FSP) No. FAS 142-3, Determination of the Useful Life of Intangible Assets. This guidance addresses the determination of the useful life of intangible assets which have legal, regulatory or contractual provisions that potentially limit a company's use of an asset. Under the new guidance, a company should consider its own historical experience in renewing or extending similar arrangements. The Company is required to apply the new guidance to intangible assets acquired after December 31, 2008.

In February 2008, the FASB issued FASB Staff Position FAS 157-2 ("FSP FAS 157-2") "Effective Date of FASB Statement No. 157" which delays the effective date of SFAS No. 157 for non-financial assets and non-financial liabilities that are recognized or disclosed in the financial statements on a nonrecurring basis to fiscal years beginning after November 15, 2008. These non-financial items include assets and liabilities such as reporting units measured at fair value in a goodwill impairment test and non-financial assets acquired and non-financial liabilities assumed in a business combination. The Company has not applied the provisions of SFAS No. 157 to its non-financial assets and non-financial liabilities in accordance with FSP FAS 157-2. The Company does not expect FAS 157-2 to have an impact to the financial statements or reported earnings per share.

During March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (SFAS No. 161). SFAS No. 161 is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. SFAS No. 161 also improves transparency about the location and amounts of derivative instruments in an entity’s financial statements; how derivative instruments and related hedged items are accounted for under Statement 133; and how derivative instruments and related hedged items affect its financial position, financial performance, and cash flows. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. We do not believe the adoption of SFAS No. 161 will have a material effect on our results of operations or financial position.

In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification TM and the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162” (“SFAS 168”), which establishes the FASB Accounting Standards Codification as the source of authoritative accounting principles recognized by the FASB to be applied in the preparation of financial statements in conformity with generally accepted accounting principles. SFAS 168 explicitly recognizes rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under federal securities laws as authoritative GAAP for SEC registrants. SFAS 168 will become effective in the first quarter of fiscal year 2010 and will not have a material impact on the Company’s consolidated financial statements.

1. Organization and Significant Accounting Policies (Continued)

In May 2009, the Financial Accounting Standards Board issued Statement 165, Subsequent Events, to incorporate the accounting and disclosure requirements for subsequent events into U.S. generally accepted accounting principles. Statement 165 introduces new terminology, defines a date through which management must evaluate subsequent events, and lists the circumstances under which an entity must recognize and disclose events or transactions occurring after the balance-sheet date. The Company adopted Statement 165 as of June 30, 2009, which was the required effective date. The Company evaluated its June 30, 2009 financial statements for subsequent events through September 18, 2009, the date the financial statements were available to be issued. The Company is not aware of any subsequent events which would require recognition or disclosure in the financial statements.

2. Inventory

At June 30, 2009 and June 30, 2008 inventory consisted of the following:

		June 30
	2009		2008
Raw materials……..………………………………………..	$ 676,981		$ 724,364
Finished goods…………………………………………….	14,373		21,505
Inventory reserve allowance……...………………………	(412,481)		(454,384)
Total Inventory…………………………………………….	$ 278,873		$ 291,485

3. Deferred Compensation Expense

On January 13, 2005, the Company entered into an employment agreement with its CEO whereby the Company agreed to grant 125,000 shares of its common stock to its CEO for every month of employment for the period January 1, 2005 through December 31, 2005. In accordance with this agreement, on March 31, 2006, the Company issued 1,500,000 shares of its common stock to its CEO for the calendar year 2005 period. The fair market value of the shares at that date was $420,000.

On June 5, 2006, the Company entered into another employment agreement for the period January 1, 2006 through December 31, 2006, whereby it accrued 175,000 phantom shares of its common stock per month payable to its CEO. A cash payment will be made to the CEO equal to the price per share of the Company’s common stock times the number of phantom shares accrued at the earliest of certain Event Dates (as defined below). The Company extended the employment agreement for the period January 1, 2007 through December 31, 2007, January 1, 2008 through December 31, 2008 and January 1, 2009 through December 31, 2009, whereby it will continue to accrue 175,000 phantom shares of its common stock per month payable to its CEO. Accordingly, the Company has accrued a compensation liability of $446,250 at June 30, 2008, which is the fair market value of 5,250,000 phantom shares accrued through June 30, 2008 relating to this provision. As of June 30, 2009, the Company has accrued a compensation liability of $220,500 which is the fair market value of 7,350,000 shares accrued through June 30, 2009 relating to this employment agreement. Due to the changes in the trading price at June 30, 2009 of the Company’s common stock, the Company recorded a net benefit of $225,750 and a net expense of $68,250 for the fiscal year ended June 30, 2009 and June 30, 2008 respectively. The benefit for the twelve month period ended June 30, 2009 is a result of the decrease in the Company’s stock price.

Per the terms of the employment agreement, payment of the deferred compensation benefit will occur upon one of the following events: i) execution of a definitive agreement resulting in a change of control of the Company’s common stock; ii) termination of employment; iii) death of the CEO; or iv) no later than January 1, 2012. Upon one of these events, a cash payment over 24 months will be made to the CEO equal to the trading price per share of the Company’s common stock times the number of phantom stock shares accrued to date. At June 30, 2009 and 2008 the deferred compensation accrual was $220,500 and $446,250.

4. Income Taxes

The income tax provision consists of the following for the years ended June 30:

	2009		2008
Current tax provision	$	-	$	-
Deferred tax provision		155,000		48,000
Valuation allowance		(155,000)		(48,000)
Total income tax provision	$	-	$	-

Reconciliation of the statutory federal income tax rate to the Company’s effective tax rate is as follows:

	2009	2008
Federal tax at statutory rate	(34.0)%	(34.0)%
State income taxes	(6.0)	(6.0)
Change in valuation allowance	40.0	40.0
Effective income tax rate	— %	— %

At June 30, 2009, the Company has estimated net operating loss carryforwards totaling approximately $20,980,000 for federal income tax purposes and $10,906,000 for state income tax purposes. Loss carry forwards will begin to expire in fiscal year 2010.

No benefit has been recorded for such carryforwards due to continued operating losses, and utilization in future years may be limited under Section 382 of the Internal Revenue Code if significant ownership changes have occurred.

In 2008, the Company filed with the Internal Revenue Service (IRS) to change its tax year end from May 31st to June 30th in order to match the Company’s fiscal year end. The IRS approved the change to a June 30th tax year end in January 2009.

Components of deferred tax assets are as follows:

		June 30
	2009		2008
Loss carry forwards………………………………………..	$7,824,000		$7,533,000
Inventory reserve …………………………………………	140,000		182,000
Deferred compensation …………………………………..	75,000		179,000
Accrued vacation………………………………………….	10,000
Less valuation allowance…………………………………	(8,049,000)		(7,894,000)
Net deferred tax assets…………………………………..	$-		$-

The Company adopted the provisions of FIN 48 on July 1, 2007. As of the date of adoption, the Company had no unrecognized tax benefits. The adoption of FIN 48 did not result in an adjustment to retained earnings. The Company will recognize interest and penalties related to unrecognized tax benefits as a component of income tax expense. The Company had recognized no interest or penalties upon the adoption of FIN 48.

At June 30, 2009 the Company has no unrecognized tax benefits or associated interest and penalties. The Company does not expect any significant increases or decreases to its unrecognized tax benefits within twelve months of this reporting date.

5.	Shareholders’ Equity

Description of Series A Preferred Stock

On August 28, 2003, the Company designated 4,177,275 shares of the Company’s 5,000,000 authorized shares of preferred stock as Series A Convertible Preferred Stock (the “Series A Preferred Stock”) pursuant to a Certificate of Designation, Preferences and Rights with respect to the Series A Preferred Stock (the “Certificate of Designation”). Each share of the Series A Preferred Stock is initially convertible into twelve (12) shares of the Company’s common stock, subject to adjustment as provided in the Certificate of Designation for customary anti-dilution adjustments and issuances below the conversion price in effect, initially ranging from $0.14 to $0.22 per share from three issuances ranging from an original purchase price of $1.68 to $2.64 . The Series A Preferred Stock is convertible into shares of the Company’s common stock at any time. Further, the Series A Preferred Stock will

5.	Shareholders’ Equity (continued)

automatically be converted into the Company’s common stock upon sale of all or substantially all of the Company’s assets, a consolidation or merger. Each share of the Series A Preferred Stock shall entitle its holder to vote on all matters voted on by holders of the Company’s common stock on an as-if converted basis. With each share of preferred stock issued in each of the three tranches, the holder was granted a warrant, exercisable into Series A Preferred Stock at $2.04, $2.64, and $3.60 per share, respectively.

In addition, so long as any shares of the Series A Preferred Stock are outstanding, the Company may not, without the approval of the majority of the holders of the Series A Preferred Stock then outstanding, take certain corporate actions, as described in the Certificate of Designation. Upon any liquidation, the holders of the Series A Preferred Stock are entitled to receive out of the Company’s assets a liquidation preference equal to an internal rate of return on the adjusted stated value of the Series A Preferred Stock (currently $1.68 per share) equal to 20%. Any assets remaining after this initial distribution shall be distributed to the holders of the Company’s common stock and the Series A Preferred Stock on an as-if converted basis. As of June 30, 2009 and 2008, the value of this liquidation preferences was $7,422,487 and $6,874,954, respectively.

Conversion of Preferred Stock into Common Stock

During the fiscal years ended June 30, 2009 and 2008, certain holders of the Company’s Series A Convertible Preferred Stock elected to convert their shares into shares of the Company’s common stock at a conversion rate of twelve (12) shares of common stock for each share of Series A Convertible Preferred Stock. An aggregate of 99,023 shares of Series A Convertible Preferred Stock were converted into an aggregate of 1,188,276 shares of common stock for the fiscal year ended June 30, 2009 and an aggregate of 11,986 shares of Series A Convertible Preferred Stock were converted into an aggregate of 143,832 shares of common stock for the fiscal year ended June 30, 2008.

The following is a summary of the outstanding stock purchase warrants that were issued in connection with our preferred stock placements in August 2003 and February 2004 as of June 30, 2009:

	Warrant A		Warrant B		Warrant C
	Preferred	Common	Preferred	Common	Preferred	Common
	$2.04	$.17	$2.64	$.22	$3.60	$.30

August 2003 Placement	-	-	89,810	1,428,171	410,198	6,523,233
Exercised during fiscal 2008	-	-	-	-	-	-
Expired during fiscal 2008	-	-	-	-	-	-

Outstanding Balance, June 30, 2008	-	-	89,810	1,428,171	410,198	6,523,233
Exercised during fiscal 2009	-	-	-	-	-	-
Expired during fiscal 2009	-	-	-	-	-	-
Outstanding Balance, June 30, 2009	-	-	89,810	1,428,171	410,198	6,523,233

Expiration Date	-	-	09/30/10	09/30/10	09/30/10	09/30/10



February 2004 Placement	-	-	94,496	1,502,702	82,686	1,314,868
Exercised during fiscal 2008	-	-	-	-	-	-
Expired during fiscal 2008	-	-	-	-	-	-
Outstanding Balance, June 30, 2008	-	-	94,496	1,502,702	82,686	1,314,868
Exercised during fiscal 2009			-	-	-	-
Expired during fiscal 2009	-	-	-	-	-	-
Outstanding Balance, June 30, 2009	-	-	94,496	1,502,702	82,686	1,314,868

Expiration Date	-	-	09/30/10	09/30/10	09/30/10	09/30/10

In June 2009, the Company extended the above warrants through September 30, 2010 to encourage exercising of these warrants for the Company to receive additional funding. No compensation was recorded for this extension due to the warrants were originally connected to a capital raise.

6. Stock Options

During 1995, the Company adopted the Hypertension Diagnostics, Inc. 1995 Long-Term Incentive and Stock Option Plan (“the 1995 Option Plan”) that includes both incentive stock options and nonqualified stock options to be granted to employees, directors, officers, consultants and advisors of the Company. The maximum number of shares reserved under the Plan is 400,000 shares. The Board of Directors establishes the terms and conditions of all

stock option grants, subject to the 1995 Option Plan and applicable provisions of the Internal Revenue Code. Incentive stock options must be granted at an exercise price not less than the fair market value of the common stock on the grant date. The options granted to participants owning more than 10% of the Company’s outstanding voting

common stock must be granted at an exercise price not less than 110% of fair market value of the common stock on the grant date. The options expire on the date determined by the Board of Directors but may not extend more than ten years from the grant date while incentive stock options granted to participants owning more than 10% of the Company’s outstanding voting stock expire five years from the grant date. At September 22, 2005, the 1995 Option Plan terminated, at which time there were 2,500 shares available for grant.

A summary of outstanding options under the 1995 Option Plan is as follows:

		Weighted Average	Aggregate
	Options	Exercise Price	Intrinsic
	Outstanding	Per Share	Value

Balance at June 30, 2007…………………….	365,000	$0.54
Granted…………………………………….	-	-
Exercised…………………………………….	-	-
Canceled/forfeited…………………………	(102,000)	1.51
Balance at June 30, 2008…………………….	263,000	0.17
Granted…………………………………….	-	-
Exercised…………………………………….	-	-
Canceled/forfeited…………………………	-	-
Balance at June 30, 2009…………………….	263,000	$0.17	$0

At June 30, 2009, there were 263,000 options outstanding having exercise prices between $0.165 and $0.57 that had been granted under the 1995 Option Plan. The outstanding options had a weighted average remaining contractual life of 5.45 years. The number of options exercisable as of June 30, 2009 and 2008 were 263,000 at weighted average exercise prices of $0.17 per share, respectively.

On May 1, 1998, the Board of Directors approved the 1998 Stock Option Plan (the “1998 Option Plan”), under which stock options may be granted to employees, consultants and independent directors of the Company, up to a maximum of 750,000 shares. Stock options may be either qualified or nonqualified for income tax purposes. On December 10, 2001, shareholders of the Company approved an amendment to the Company’s 1998 Option Plan to increase the number of shares reserved under the 1998 Option Plan from 750,000 to 1,250,000. Under the terms of the 1998 Option Plan, incentive stock options must be granted at an exercise price not less than the fair market value of the common stock on the grant date. The options granted to participants owning more than 10% of the Company’s outstanding voting common stock must be granted at an exercise price not less than 110% of the fair market value of the common stock on the grant date. The options expire on the date determined by the Board of Directors but may not extend more than ten years from the grant date while incentive stock options granted to participants owning more than 10% of the Company’s outstanding voting stock expire five years from the grant date. The 1998 Option Plan is administered in a similar manner to the 1995 Option Plan. The 1998 Option Plan expired in May 2008.

6. Stock Options (Continued)

A summary of outstanding options under the 1998 Option Plan is as follows:


		Weighted Average	Aggregate
	Options	Exercise Price	Intrinsic
	Outstanding	per Share	Value

Balance at June 30, 2007………………….	1,069,000	$ 1.40
Granted…………………………………….	-	-
Exercised…………………………………….	-	-
Canceled/forfeited…………………………	(45,000)	0.25
Balance at June 30, 2008………………….	1,024,000	1.45
Granted…………………………………….	-	-
Exercised…………………………………….	-	-
Canceled/forfeited…………………………	(170,000)	3.34
Expired………………………………………		2.51
Balance at June 30, 2009………………….	854,000	$ 1.08	$0

At June 30, 2009, there were 854,000 options outstanding having exercise prices between $0.165 and $6.12 that had been granted under the 1998 Option Plan. The outstanding options had a weighted average remaining contractual life of 3.63 years. The number of options exercisable as of June 30, 2009 and 2008 were 854,000 and 1,024,000, respectively, at weighted average exercise prices of $1.08 and $1.45 per share, respectively. At May 1, 2008, the 1998 Option Plan terminated. At June 30, 2009, there were 250,000 shares available for grant that had expired.

On October 31, 2003, the Board of Directors approved the 2003 Stock Plan (the “2003 Option Plan”), under which stock options, stock appreciation rights, restricted stock and deferred stock may be granted to employees, consultants and independent directors of the Company. On November 10, 2005, the Board of Directors approved the following amendments to the 2003 Option Plan: 1) changed the definition of the term “Stock” to exclude Series A Convertible Preferred Stock; 2) changed the Shares Reserved for Issuance to exclude six million (6,000,000) shares of Series A Convertible Preferred Stock; and 3) eliminated the annual automatic grant of stock options to non-employee directors. Stock options granted may be either qualified or nonqualified for income tax purposes. Up to a maximum of 4,000,000 shares of common stock may be issued under the 2003 Option Plan. Under the terms of the 2003 Option Plan, incentive stock options must be granted at an exercise price not less than the fair market value of the common stock on the grant date. The options granted to participants owning more than 10% of the Company’s outstanding voting stock must be granted at an exercise price not less than 110% of the fair market value of the common stock on the grant date. The options expire on the date determined by the Board of Directors but may not extend more than ten years from the grant date while incentive stock options granted to participants owning more than 10% of the Company’s outstanding voting stock expire five years from the grant date. The 2003 Option Plan is administered in a similar manner to the 1995 and 1998 Option Plans.

A summary of outstanding options under the 2003 Option Plan is as follows:


	Shares		Weighted Average	Aggregate
	Available	Options	Exercise Price	Intrinsic
	for Grant	Outstanding	per Share	Value

Balance at June 30, 2007………………….	266,658	3,733,342	$ 0.18
Granted…………………………………….	(15,000)	15,000	0.11
Exercised…………………………………….	-	-	-
Canceled/forfeited…………………………	510,000	(510,000)	0.18
Balance at June 30, 2008………………….	761,658	3,238,342	0.19
Granted…………………………………….	-	-	-
Exercised…………………………………….	-	-	-
Canceled/forfeited…………………………	200,000	(200,000)	0.12
Balance at June 30, 2009………………….	961,658	3,038,342	$ 0.19	$0

6. Stock Options (Continued)

At June 30, 2009, there were 3,038,342 options outstanding having exercise prices between $0.11 and $0.20 that had been granted under the 2003 Option Plan. The outstanding options had a weighted average remaining contractual life of 4.92 years. The number of options exercisable as of June 30, 2009 and 2008 were 3,038,342 and 3,238,342, respectively, at weighted average exercise prices of $0.19 per share, respectively.

On November 10, 2005, the Board of Directors approved the 2005 Stock Plan (the “2005 Option Plan”), under which stock options, stock appreciation rights, restricted stock and deferred stock may be granted to employees, consultants and independent directors of the Company. Stock options granted will be nonqualified for income tax purposes. Up to a maximum of 6,000,000 shares of common stock may be issued under the 2005 Option Plan. The options granted to participants owning more than 10% of the Company’s outstanding voting stock must be granted at an exercise price not less than 110% of the fair market value of the common stock on the grant date. The options

expire on the date determined by the Board of Directors but may not extend more than ten years from the grant date. The 2005 Option Plan is administered in a similar manner to the 1995, 1998 and 2003 Option Plans.

A summary of outstanding options under the 2005 Option Plan is as follows:


	Shares		Weighted Average	Aggregate
	Available	Options	Exercise Price	Intrinsic
	for Grant	Outstanding	per Share	Value

Balance at June 30, 2007………………….	4,140,000	1,860,000	$ 0.16
Granted…………………………………….	-	-	-
Exercised…………………………………….	-	-	-
Canceled/forfeited…………………………	30,000	(30,000)	0.16
Balance at June 30, 2008………………….	4,170,000	1,830,000	0.16
Granted…………………………………….	-	-	-
Exercised…………………………………….	-	-	-
Canceled/forfeited…………………………	-	-	-
Balance at June 30, 2009………………….	4,170,000	1,830,000	$ 0.16	$0

At June 30, 2009, there were 1,830,000 options outstanding having an exercise price of $0.16 that had been granted under the 2005 Option Plan. The outstanding options had a weighted average remaining contractual life of

7.42 years. The number of options exercisable as of June 30, 2009 and 2008 were 1,830,000, respectively.

At June 30, 2009 and 2008, the Company had also granted a total of 25,000 options outside the 1995 Option Plan, the 1998 Option Plan, the 2003 Option Plan and the 2005 Option Plan. These options have an exercise price of $0.16 and a weighted average remaining contractual life of 1.78 and 2.78 years as of June 30, 2009 and 2008, respectively. The aggregate intrinsic value of these options was $0 at June 30, 2009. These options were granted at an exercise price not less than the fair market value of the common stock on the date of grant. The entire options, were granted for consulting services provided to the Company. The fair value of these services were estimated using the Black-Scholes option pricing model and were expensed as services were provided. The number of non-Plan options exercisable at June 30, 2009 and 2008 were 25,000 at weighted average exercise price of $.16, respectively. There were no non-Plan options granted during the years ended June 30, 2009 and 2008, respectively.

The fair value of options granted during fiscal year 2008 was estimated using the Black-Scholes option pricing model.


	Risk-Free	Expected Dividend	Expected	Expected
Fiscal Year Ended	Interest Rate	Yield	Life	Volatility
June 30, 2009	N/A	None	5 years	N/A
June 30, 2008	4.50%	None	5 years	180.71%

No stock options were granted during fiscal year 2009Dividend yield and expected volatility are estimated using historical amounts that are anticipated to be consistent with current values. Expected life of option is based on the life of the option agreements. Risk-free interest rate is determined using the U.S. treasury rate.

6. Stock Options (Continued)

As of June 30, 2009 and 2008, the Company recognized $91,500 and $94,675 of stock option expense. As of June 30, 2009, there was $45,750 of total unrecognized compensation costs related to the outstanding stock options, which is expected to be recognized over a weighted average period of 0.5 years.

7. Earnings (Loss) Per Share

The following table provides a reconciliation of the numerators and denominators used in calculating basic and diluted earnings per share for the years ended June 30, 2009 and 2008:

		2009		2008
Basic earnings (loss) per share calculation:
Net income (loss) to common shareholders	$	(248,440)	$	(703,837)
Weighted average of common shares outstanding		40,722,471		39,690,323
Basic net earnings (loss) per share	$	(0.01)	$	(0.02)

Diluted earnings (loss) per share calculation:
Net income (loss) to common shareholders	$	(248,440)	$	(703,837)
Weighted average of common shares outstanding		40,722,471		39,690,323
Series A Convertible Preferred Stock (1)		-		-
Stock Options (2)		-		-
Warrants (3)		-		-
Diluted weighted average common shares outstanding		40,722,471		39,690,323
Diluted net income (loss) per share	$	(0.01)	$	(0.02)

(1)	At June 30, 2009, there were 744,536 shares of Series A Convertible Preferred Stock outstanding and 843,559 at June 30, 2008. Using the preferred stock conversion ratio of 12:1, the common stock equivalents attributable to these preferred shares are 8,934,432 at June 30, 2009 and 10,122,708 at June 30, 2008. These common stock equivalents are anti-dilutive at June 30, 2009 and 2008 and therefore have been excluded from diluted earnings per share.
(2)	At June 30, 2009, there were common stock equivalents attributable to outstanding stock options of 6,010,342 common shares and 6,380,342 common shares at June 30, 2008. The stock options are anti-dilutive at June 30, 2009 and 2008 and therefore have been excluded from diluted earnings per share.
(3)	At June 30, 2009 and 2008, there were common stock equivalents of 18,895,254 common shares attributable to warrants. The warrants expire on September 30, 2010, and have an exercise price of $.22 to $.30 per share. The warrants are anti- dilutive for the years-ended June 30, 2009 and 2008 and therefore have been excluded from diluted earnings per share.

8. License Agreement

In September 1988, the Company entered into a license agreement with the Regents of the University of Minnesota (the “Regents”), whereby the Company was granted a license to utilize certain technology developed by the Regents. Under the license agreement, the Company is required to pay royalties on net product revenue containing the technology licensed from the Regents. In the first two years after execution of the agreement, royalties were 1% of net revenue, and for the third and fourth years were 1.5% of net revenue. Beginning in the fifth year, and continuing through the termination of the agreement, royalties were 2% of net revenue, and 3% if the Regents obtained a United States patent on any of the technology covered under the agreement, which occurred. Termination occurs with the expiration of the last patent, or ten years after the date of the first commercial product revenue, if no patent exists. Since the Regents have filed seven U.S. patents, the last of which expires on December 28, 2010, the agreement with the Regents will expire on December 28, 2010. Royalties expense was $12,490 and $14,707 in fiscal years 2009 and 2008, respectively.

9. Employee Benefit Plan

The Company maintains a Simplified 401(k) qualified retirement plan, which is funded by elective salary deferrals by employees. The Plan covers substantially all employees meeting minimum eligibility requirements. The Plan requires mandatory contributions by the Company. The Company makes contributions on behalf of qualifying contributing participants making elective deferrals in an amount equal to 100% of the elective deferral, not to exceed 3% of employee’s compensation. The matching contributions expense amounted to $9,735 and $14,456 in fiscal years 2009 and 2008, respectively. Effective, January 1, 2010, the Company will no longer provide any matching contributions.

10. Commitments

The Company entered into a non-cancelable operating lease agreement for approximately 6,900 square feet of office/warehouse space. Effective August 11, 2006, the term of this operating lease was extended for forty-eight (48) months from November 1, 2006 to October 31, 2010. Rent expense was $77,095 and $81,930 in fiscal years 2009 and 2008, respectively.

The following is a schedule of future minimum lease payments due as of June 30, 2009:

Year ending June 30:
2010………………………………………………………………………………...................................................			77,876
2011………………………………………………………………………………...................................................			26,268
			$ 104,144

11. Significant Customers and Credit Risk

Revenue from the Company’s products is concentrated among specific customers in the same industry. The Company generally does not require collateral. No customers accounted for more than 10% of total revenue in the years ended June 30, 2009 and 2008, respectively. At each June 30, 2009 and 2008, two customers and one customer accounted for 100% of outstanding accounts receivable.

12. Quarterly Financial Data (unaudited, in thousands, except per share data)

	First	Second	Third	Fourth
Fiscal Year Ended	Quarter	Quarter	Quarter	Quarter
June 30, 2009:
Revenue	$ 136	$ 137	$ 65	$ 165
Gross Profit	132	134	65	161
Net income (Loss)	122	(191)	(19)	(160)
Basic and Diluted
Net income (Loss) per Share	.00	(.00)	(.00)	(.00)

June 30, 2008:
Revenue	$ 146	$ 146	$ 103	$ 159
Gross Profit	144	133	83	149
Net income (Loss)	(456)	165	(349)	(64)
Basic and Diluted
Net income (Loss) per Share	(.01)	.00	(.01)	(.00)

13. Litigation

Although we have been involved in various legal actions in the ordinary course of our business, currently we are not aware of any pending legal proceedings against or involving us.

ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

As reported in the Form 8-K filing on June 11, 2009, we dismissed our former auditor and engaged Carver Moquist & O’Connor, LLC as our independent auditor, which became effective June 9, 2009. We have not had any disagreements with our current or former auditors.

ITEM 9A(T). Controls and Procedures

(a) Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer, Mark N. Schwartz, and our Manager of Finance and Accounting, Mark O’Neill, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined under Rule 13a-15(e) and 15d-15(e) promulgated under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based upon that review, our Chief Executive Officer and Manager of Finance and Accounting have concluded that, as of the evaluation date, our disclosure controls and procedures were operating effectively for gathering, analyzing and disclosing the information that we are required to disclose in the reports we file under the Securities Exchange Act of 1934, within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Manager of Finance and Accounting, in a manner that allows for timely decisions regarding required disclosures.

(b) Management’s Annual Report on Internal Controls Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934, as amended). Our internal control system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles.

Under the supervision and with the participation of management, including our Chief Executive Officer and Manager of Finance and Accounting, our management assessed the design and operating effectiveness of internal control over financial reporting as of June 30, 2009 based on criteria established in “Internal Control-Integrated Framework” issued by the Committee of the Sponsoring Organizations of the Treadway Commission (“COSO”).

Based on this assessment, management concluded that our internal controls over financial reporting were effective as of June 30, 2009.

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.

There have been no significant changes in our internal control over financial reporting that occurred during the year ended June 30, 2009, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. Other Information

None.

PART III

ITEM 10. Directors and Executive Officers of the Registrant

Our Articles of Incorporation and Bylaws provide that the Board of Directors is classified into three classes, Class I, II and III, with the members of each class to serve (after an initial transition period) for a staggered term of three years. Messrs. Leitner and Stern were each designated as a Class I director; Mr. Guettler was designated as a Class II director; and Messrs. Brimmer and Schwartz and Dr. Cohn were each designated as a Class III director. While the terms of each class have expired, pursuant to the Company’s Bylaws each director shall serve until their successor has been duly elected.

Name	Age	Position	Director Since

Larry Leitner (1) (2)	56	Director	2003
Alan Stern (1) (2)	54	Director	2003
Greg H. Guettler	55	President, Secretary and Director	1997
Mark N. Schwartz	53	Chief Executive Officer and Chairman of the Board of Directors	2003
Kenneth W. Brimmer(1) (2)	54	Director	1995
Jay N. Cohn, M.D.	79	Director	1988

(1)	Member of the Audit Committee

(2)	Member of the Compensation Committee

Larry Leitner – Mr. Leitner is a founding partner of Specialty Commodities, Inc., an international commodities importing, trading, and distribution company established in 1987 with offices and warehouses in Los Angeles, California and Fargo, North Dakota. Specialty Commodities, Inc. is one of the largest importers and distributors of nuts, dried fruits, seeds, and grains, supplying the snack food, health, food, bakery and bird food industries in North America and Europe. Since March 2001, Mr. Leitner has also been a partner in Suntree, LLC, a California manufacturer, roaster and packager of nuts and dried fruits established in 1996, supplying major supermarkets and club stores in the United States. He received his Bachelor of Science degree from North Dakota State University.

Alan Stern – Mr. Stern is a founding partner of Specialty Commodities, Inc., an international commodities importing, trading, and distribution company established in 1987 with offices and warehouses in Los Angeles, California and Fargo, North Dakota. Specialty Commodities, Inc. is one of the largest importers and distributors of nuts, dried fruits, seeds and grains, supplying the snack food, health food, bakery and bird food industries in the North America and Europe. Since March 2001, Mr. Stern has also been a partner in Suntree, LLC, a California manufacturer, roaster and packager of nuts and dried fruits established in 1996, supplying major supermarkets and club stores in the United States. He received his Bachelor of Arts degree from the City of London School of Business Studies (City University).

Greg H. Guettler – Mr. Guettler has been our President and a Director since September 1997. Mr. Guettler has more than 25 years of experience in sales, marketing and management positions within the medical industry. Prior to joining us, from May 1983 to September 1997, Mr. Guettler was a senior manager at Universal Hospital Services, Inc., or UHS, a nationwide provider of medical devices and “per-use” device management services to the health care industry. During his 14 years at UHS, Mr. Guettler held positions as Director of National and Strategic Accounts where he led a national accounts sales team, as Director of Alternate Care and Specialty Product Promotions where he was responsible for the development of UHS’s alternate care business unit and the nationwide distribution of new medical products, and as Marketing Manager where he was responsible for company-wide marketing and planning. Additionally, Mr. Guettler has held territory, sales, sales management, product management, marketing and business development positions for the American Red Cross Blood Services. Mr. Guettler holds a Bachelor of Arts degree from the University of St. Thomas in St. Paul, Minnesota (1977) and a Master of Business Administration degree (M.B.A.) from the University of St. Thomas Graduate School of Management in St. Paul, Minnesota (1983).

Mark N. Schwartz – Mr. Schwartz has been our Chief Executive Officer and Chairman of our Board since September 2003. From November 1999 to August 2003, Mr. Schwartz was Chief Financial Officer and served on the Board of Directors of DDD Group plc, a digital media company focused on developing 3D technology for the corporate and consumer markets, which is publicly traded on the London Stock Exchange’s Alternative Investment Market, or AIM. While at DDD, Mr. Schwartz was responsible for arranging the listing and initial public offering of DDD on AIM. Previously, he founded and was Chief Financial Officer of Bodega Latina Corporation, a Latino oriented grocery retailer operating warehouse supermarkets in the Los Angeles area with sales of approximately $200 million. From 1982 to 1985, Mr. Schwartz was an investment banker at Credit Suisse First Boston and Donaldson Lufkin & Jenrette, where he secured, structured and negotiated the first round of institutional financing for Starbucks Coffee and also served on their Board of Directors. He received a Bachelor of Arts degree in economics and political science from Claremont McKenna College and a Masters of Business Administration degree with honors from Harvard Business School.

Kenneth W. Brimmer – Mr. Brimmer was elected to our Board of Directors in November 1995, and served as the Chairman of our Board from June 5, 2000 to August 28, 2003. Since 1998, Mr. Brimmer has served as a director, and since February 2000 has served as the Chairman of the Board of Directors, of STEN Corporation, a publicly-traded, diversified business and as the CEO of the company since October 2003. Since December 2001, Mr. Brimmer has also served as Chief Manager of Brimmer Company, LLC. From April 2002 until June 2003, he served as Chairman and Director of Active IQ Technologies, Inc. and was Chief Executive Officer from April 2000 until December 2001. Previously, Mr. Brimmer was President of Rainforest Cafe, Inc. from April 1997 until April 2000 and was Treasurer of Rainforest Café from its inception during 1995 until April 2000. Mr. Brimmer was employed by Grand Casinos, Inc. and its predecessor from October 1990 until April 1997. Mr. Brimmer currently serves as a member of the Board of Directors of New York Stock Exchange listed Landry’s Restaurants, Inc. Mr. Brimmer is a member of the Board of Directors of Vioquest Pharmaceuticals, Inc. and Entrx Corporation and is Chairman of the Board of Directors of Spectre Gaming, Inc. Mr. Brimmer holds a Bachelor of Arts degree in accounting from Saint John’s University in Collegeville, Minnesota (1977).

Jay N. Cohn, M.D. – Dr. Cohn has served as a member of our Board of Directors since our inception in July 1988. Since 1974, Dr. Cohn has been employed by the University of Minnesota Medical School as a Professor of Medicine and he was Head of its Cardiovascular Division from 1974 through 1997. Dr. Cohn discovered that arterial elasticity indices could be determined from blood pressure waveforms in the late 1970’s and he is a co-inventor of the pulse contour analysis technology used in our CardioVascular Profiling System Products. Dr. Cohn is our Chief Medical Consultant and has been a consultant to several pharmaceutical firms both in the U.S. and overseas. He became the Chairman of our Scientific and Clinical Advisory Board during 1996. Dr. Cohn is a past President of the American Society of Hypertension, the International Society of Hypertension and the Heart Failure Society of America, and is a member of some 17 professional societies. He is a former editor-in-chief of the Journal of Cardiac Failure, has authored more than 600 scientific articles, is a member of the editorial board of 15 professional journals and is co-editor of the textbook, Cardiovascular Medicine. Dr. Cohn also serves as Chairman of the Board of Directors of Cohn Prevention Centers (CPC), a development stage company intending to create a nationwide network of clinics providing cardiovascular health assessment. Dr. Cohn received his M.D. degree from Cornell University (1956).

(a)	Significant Employees

Mark P. O’Neill – Mr. O’Neill was hired as our Manager of Finance and Accounting in March 2007. Previously, Mr. O’Neill served as our Accounting Manager from August 2004 to June 2006, and also served as a consultant to us from December 2006 to February 2007. From February 1994 to April 2004, Mr. O’Neill was the accounting manager for the Minnesota State Bar Association, Continuing Legal Education Division.

(b) Family Relationships

There are no family relationships among any of our directors and executive officers. There are no family relationships among our officers, directors, or persons nominated for such positions.

No officer, director, or persons nominated for these positions, and no promoter or significant employee of our corporation has been involved in legal proceedings that would be material to an evaluation of our management.

(d)	Audit Committee

The Board of Directors has an Audit Committee currently comprised of Kenneth W. Brimmer, Larry Leitner and Alan Stern. Kenneth W. Brimmer is serving on our audit committee as an audit committee financial expert. The Audit Committee operates under an Audit Committee Charter, adopted effective June 5, 2000, amended and restated on October 31, 2003 and on May 9, 2008. Each of the members of the Audit Committee is an independent director as defined by The Nasdaq Stock Market, Inc. listing standards. The Audit Committee of the Board of Directors is responsible for the selection and approving the compensation of the independent auditors, providing independent, objective oversight of our financial reporting system by overseeing and monitoring management’s and the independent auditors’ participation in the financial reporting process.

(e)	Compensation Committee

The Board of Directors has a Compensation Committee currently comprised of Kenneth W. Brimmer, Larry Leitner and Alan Stern. Each of the members of the Compensation Committee is an independent director as defined by The Nasdaq Stock Market, Inc. listing standards. The Compensation Committee of the Board of Directors is responsible for recommending compensation programs for our executive management and equity-based compensation for employees, officers, and consultants.

Code of Ethics

We adopted a code of ethics that applies to our principal chief executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions (the "Code of Ethics"). A copy of the Code of Ethics can be obtained, and will be provided to any person without charge, upon written request to the Company’s Secretary at the Company’s headquarters address. The Code of Ethics is also available on our website, located at www.hypertensiondiagnostics.com.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) requires our directors and executive officers and beneficial holders of more than 10% of our common stock to file with the Commission initial reports of ownership and reports of changes in ownership of our equity securities. As of the date of this Report, we believe that all reports needed to be filed have been filed in a timely manner for the year ended June 30, 2009. In making this statement, we have relied solely on copies of any reporting forms received by us.

ITEM 11. Executive Compensation

The following table sets forth the cash and non-cash compensation for the years indicated earned by or awarded to (i) each individual serving as our principal executive officer during our last completed fiscal year (ii) each other individual that served as our executive officer at the end of our last completed fiscal year, and (iii) any individual whose total compensation exceeded $100,000 during the last completed fiscal year but was not an executive officer at the end of such last completed fiscal year (the “Named Executives”).

Summary Compensation Table

Name and Principal Position	Year	Salary	Bonus		Stock Awards		Option Awards	Non-Equity Incentive Plan Compensation	Nonqualified Deferred Compensation Earnings	All Other Compensation ($)	Total ($)
(a)	(b)	(c)	(d)		(e)		(f)	(g)	(h)	(i)	(j)
Mark Schwartz	2009	112,000			63,000	(2)					$175,000
Chief Executive Officer	2008	109,231	5,563	(1)	178,500	(2)					$293,294
Greg H. Guettler	2009	181,000									$181,000
President and Secretary	2008	178,000	5,625	(3)							$183,625

(1)	Represents a discretionary bonus paid to Mr. Schwartz as determined by the Company’s compensation committee.

(2)	Amount of Stock Award reflects the value of the Phantom Stock of 2,100,000 shares awarded each year to Mr. Schwartz pursuant to the Deferred Equity Incentive Agreement multiplied by the closing stock price at the end of each fiscal year, $0.03 at June 30, 2009, and $0.085 at June 30, 2008.

(3)	Represents a discretionary bonus paid to Mr. Guettler as determined by the Company’s compensation committee.

The following table sets forth information concerning outstanding equity awards held by Named Executive Officers and Employees at June 30, 2009.

Outstanding Equity Awards At Fiscal Year-End

	Option Awards						Stock Awards
Name	Number of Securities Underlying Unexercised Options Exercisable	Number of Securities Underlying Unexercised Options Unexercisable	Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options	Option Exercise Price	Option Expiration Date	Number of Shares or Units of Stock That Have Not Vested	Market Value of Shares or Units of Stock That Have Not Vested	Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested	Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested
	(#)	(#)	(#)	($)		(#)	($)	(#)	($)
(a)	(b)	(c)	(d)	(e)	(f)	(g)	(h)	(i)	(j)
Mark N. Schwartz								7,350,000	$220,500
								(1)	(2)
Greg H. Guettler	171,080			0.165	12/15/14
	25,000			1.000	06/11/12
	150,000			0.180	05/29/13
	63,786			0.165	12/15/14
	400,000			0.200	12/17/13
	424,943			0.165	12/15/14
	150,000			0.200	08/03/16

(1)	Amount of Equity Incentive Plan Awards reflects the total number of Phantom Stock shares accumulated by Mr. Schwartz since inception of the Deferred Equity Incentive Agreement effective January 1, 2006.

(2)	Market Value of Unearned Shares reflects the value of the accumulated Phantom Stock shares multiplied by the closing stock price at the end of each fiscal year.

Employment Agreement

In connection with the August 2003 Private Placement, we entered into an employment agreement dated August 28, 2003 with Mr. Schwartz to serve as our Chief Executive Officer and Chairman of the Board. Pursuant to such employment agreement, Mr. Schwartz was provided a monthly salary of $6,000 cash. Effective March 1, 2005, the Compensation Committee of the Board of Directors approved an increase in the monthly cash salary from $6,000 to $7,000. Effective March 27, 2006, the Compensation Committee approved an increase in the monthly cash salary from $7,000 to $8,333. Effective September 10, 2007, the compensation Committee approved an increase in the monthly cash salary from $8,333 to $9,333. In addition, the employment agreement provides that a bonus or incentive compensation to be paid in shares of our common stock shall be approved by the Compensation Committee

On June 5, 2006, we entered into a Deferred Equity Incentive Agreement (the “Agreement”) with Mr. Schwartz. The effective date of this Agreement is January 1, 2006. Under the terms and conditions of this Agreement, the Company shall grant to Mr. Schwartz certain equity incentive compensation units (“Units”) that would: (1) have a current value related to the net value of our voting common stock; (2) increase or decrease with any future changes in the value of that stock; (3) be payable in cash only upon certain events; and (4) be payable in 2010 without regards to events. For the period January 1, 2009 through December 31, 2009, we will grant to Mr. Schwartz one hundred seventy-five thousand (175,000) Units per month. For the fiscal year ending June 30, 2009, the Company has accrued $225,750 in stock compensation benefit relating to the Agreement.

On September 10, 2007, the Compensation Committee approved for Mr. Greg Guettler an increase in the monthly cash salary from $14,000 to $15,083. Effective September 10, 2008 the Compensation Committee approved a bonus agreement with Mr. Guettler which provides him with a $181,000 cash bonus if certain objectives are reached by the Company. The objectives have not been met.

Compensation of Directors

Members of our Board of Directors receive no cash compensation for such service. In December 2003, each of the following directors had been granted nonqualified options to purchase 300,000 shares of our common stock at an exercise price of $0.20 per share: Kenneth W. Brimmer; Jay N. Cohn; Alan Stern; Larry Leitner; and Steven Gerber.

Pursuant to our 2003 Stock Option Plan, each non-employee director was to be granted a non-qualified five-year stock option to purchase 100,000 shares of our common stock for each year of service. Under the terms of this plan, each option will be granted at the commencement of each year and will vest in full on the first anniversary of the date of grant, provided that the director continues to serve as our director on such date. Following the August Placement, we granted each of Messrs. Brimmer, Cohn, Stern, Leitner and Gerber, our directors, an option to purchase 300,000 shares of our common stock (for an aggregate of options to purchase 1,500,000 shares of our common stock) at an exercise price of $0.25 per share, which would vest annually in equal increments over a three-year period in accordance with the terms of our 2003 Stock Option Plan. On December 18, 2003, each director agreed to waive their rights to receive such options and agreed to accept new options to acquire 300,000 shares of our common stock at an exercise price of $0.20 per share, which options would vest annually in equal increments over a three-year period and expire after a period of ten years. On November 28, 2006, an option to purchase 480,000 shares of our common stock was granted to Jay Cohn and an option to purchase 450,000 shares each was granted to Alan Stern, Larry Leitner and Ken Brimmer at an exercise price of $0.16 per share, which would vest annually in equal increments over a three year period in accordance with the terms of our 2005 Stock Option Plan. The exercise price of future stock option grants will be determined by our Board of Directors.

ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Equity Compensation Plan Information

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted-average exercise price of outstanding options, warrants and rights	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)
	(a)		(b)	(c)
Equity compensation plans approved by shareholders	1995 Plan: 1998 Plan: 2003 Plan:	263,000 854,000 3,038,342	$0.17 $1.08 $0.19	0 0 961,658
	2005 Plan:	1,830,000	$0.16	4,170,000
Equity compensation plans not approved by shareholders	Other:	25,000	$0.16	0
Total		6,010,342	$0.38	5,381,658

Of the 25,000 shares of our common stock to be issued upon exercise of options granted pursuant to equity compensation plans not approved by shareholders, these shares were granted on April 12, 2001 as non-qualified stock options to individuals providing services to us at fair market value as of the date of grant. These options expire 10 years from the date of grant and are fully vested.

Security Ownership - Certain Beneficial Owners

Beneficial ownership is shown as of September 18, 2009 for shares held by (i) each person or entity known to us to be the beneficial owner of more than 5% of our issued and outstanding shares of common stock based solely upon a review of filings made with the Commission and our knowledge of the issuances by us, (ii) each of our directors, (iii) our Chief Executive Officer and our two other most highly compensated officers whose compensation exceeded $100,000 during the fiscal year ended June 30, 2009, or the Named Executive Officers, and (iv) all of our current directors and executive officers as a group. Unless otherwise indicated, the persons listed below have sole voting and investment power with respect to the shares and may be reached at 2915 Waters Road, Suite 108, Eagan, Minnesota 55121.

Beneficial Owner	Class	Shares	Shares Presently Acquirable Within 60 Days (1)	Total	Percentage of Class Beneficially Owned

Mark N. Schwartz (2) (3)	Common	5,290,483	606,606	5,897,089	14.19%
	Preferred	0	38,145	38,145	4.87%
	Combined	5,290,483	1,064,346	6,354,829	12.62%

Larry Leitner (2)	Common	1,297,082	1,172,829	2,469,911	5.86%
	Preferred	61,440	28,160	89,600	11.60%
	Combined	2,034,362	1,510,749	3,545,111	7.06%

Alan Stern (2)	Common	1,138,859	1,307,161	2,446,020	5.79%
	Preferred	60,294	36,608	96,902	12.41%
	Combined	1,862,387	1,746,457	3,608,844	7.17%

Greg H. Guettler (2) (3)	Common	45,356	1,407,202	1,452,558	3.43%
	Preferred	1,280	1,408	2,688	0.36%
	Combined	60,716	1,424,098	1,484,814	2.97%

Jay N. Cohn (2)	Common	1,198,764	1,606,185	2,804,949	6.59%
	Preferred	68,829	42,240	111,069	14.12%
	Combined	2,024,712	2,113,065	4,137,777	8.21%

Kenneth W. Brimmer (2)	Common	196,992	1,172,684	1,369,676	3.25%
	Preferred	8,960	9,856	18,816	2.49%
	Combined	304,512	1,290,956	1,595,468	3.19%

All Officers and Directors	Common	9,167,536	7,272,666	16,440,202	34.08%
as a Group (6 individuals)	Preferred	200,803	156,417	357,220	39.65%
	Combined	11,577,172	9,149,670	20,726,842	40.03%

Marten Hoekstra	Common	4,159,707	1,119,538	5,279,245	12.54%
	Preferred	0	70,399	357,220	8.64%
	Combined	4,159,707	1,964,320	6,124,027	12.07%

[Missing Graphic Reference]

(1)

Shares of common stock subject to options and warrants that are currently exercisable or exercisable within 60 days are deemed to be beneficially owned by the person holding the options and warrants for computing such person’s percentage, but are not treated as outstanding for computing the percentage of any other person.

(2)

Director.

(3)	Named Executive Officer.

ITEM 13. Certain Relationships and Related Transactions

None.

ITEM 14. Principal Accountant Fees and Services

The following is a summary of the fees billed to us by Virchow, Krause & Company, LLP (“VK”) for professional services rendered for the years ended June 30, 2009 and 2008 and fees billed to us and agreed upon fees to be billed to us by Carver Moquist & O’Connor, LLC (“CMO”) for professional services rendered for the year ended June 30, 2009:

	2009		2008
Service	VK	CMO	VK
Audit Fees	$28,315	$21,500	$67,200
Audit Related Fees	3,200	-0-	-0-
Tax Fees	-0-	-0-	-0-
All other Fees	-0-	-0-	-0-
TOTAL	$53,015		$67,200

Audit fees consist of the aggregate fees billed for professional services rendered for the audit of our annual financial statements, the reviews of the financial statements included in our Forms 10-Q and for any other services that are normally provided by VK and CMO in connection with our statutory and regulatory filings or engagements.

Audit related fees consist of the aggregate fees billed for professional services rendered for assurance and related services that were reasonably related to the performance of the audit or review of our financial statements that were not otherwise included in Audit Fees.

Tax fees consist of the aggregate fees billed for professional services rendered for tax compliance, tax advice and tax planning. These services include assistance regarding federal, state and local tax compliance and consultation in connection with various transactions and acquisitions.

All other fees consist of the aggregate fees billed for products and services provided by VK and CMO and not otherwise included in Audit Fees, Audit Related fees or Tax Fees.

The policy of our Audit Committee is to review and pre-approve both audit and non-audit services to be provided by the independent auditors (other than with de minimis exceptions permitted by the Sarbanes-Oxley Act of 2002). This duty may be delegated to one or more designated members of the Audit Committee with any such approval reported to the committee at its next regularly scheduled meeting. Approval of non-audit services shall be disclosed to investors in periodic reports required by section 13(a) of the Securities Exchange Act of 1934, as amended. All of the fees paid to VK and CMO were pre-approved by the audit committee.

No services in connection with appraisal or valuation services, fairness opinions or contribution-in-kind reports were rendered by VK and CMO. Furthermore, no work of VK and CMO with respect to its services rendered to us was performed by anyone other than VK or CMO.

PART IV

ITEM 15 Exhibits, Financial Statement Schedules

(a)	Financial Statements

Report of Independent Registered Public Accounting Firm.………………………………………………..31

Report of Former Independent Registered Public Accounting Firm.………………………………………32

Audited Financial Statements

Balance Sheets………………………………………………………………………………………..........33

Statements of Operations……………………………………………………………………………........34

Statements of Shareholders’ Equity……………………………………………………………………..35

Statements of Cash Flows…………………………………………………………………………….......36

Notes to Financial Statements…………………………………………………………………………....37

(b)

Exhibits

3.1	Articles of Incorporation	Exhibit 3.1 of the Company’s Registration Statement on Form SB-2 (File No. 333-53025) filed on May 19, 1998, or the 1998 Registration Statement
3.2	Bylaws	Exhibit 3.2 of the Company’s 1998 Registration Statement.
3.3	Articles of Amendment of Incorporation dated June 2, 1998	Exhibit 3.3 of the Company’s 1998 Registration Statement.
4.1	Specimen of common stock Certificate	Exhibit 4.1 of the Company’s 1998 Registration Statement.
4.2	Specimen of Redeemable Class B Warrant Certificate	Exhibit 4.6 of Registration Statement on Form S-3 (File No. 333-53200) as dated January 4, 2001 and as subsequently amended.
4.4	Amendment No. 1 dated October 17, 2002 to Amended and Restated Class B Warrant Agreement between Hypertension Diagnostics, Inc. and Mellon Investor Services, LLC.	Exhibit 4.2 of Current Report on Form 8-K dated October 17, 2002.

4.8	Form of Common Stock Purchase Warrant issued dated March 27, 2002.	Exhibit 10.3 of the Current Report on Form 8-K dated March 27, 2002.

4.11	Certificate of Designation, Preferences and Rights of Series A Convertible Preferred Stock	Exhibit 4.1 of the Company’s Current Report on Form 8-K dated August 28, 2003, or the August 8-K
4.13	Form of Common Stock Warrant originally issued August 28, 2003.	Exhibit 4.7 of the August 8-K.
4.14	Form of Preferred Stock Purchase Warrant originally issued August 28, 2003.	Exhibit 4.6 of the August 8-K.
4.15	Registration Rights Agreement dated as of August 28, 2003 among Hypertension Diagnostics, Inc. and the Purchaser parties thereto.	Exhibit 4.4 of the August 8-K.
4.16	Shareholders’ Agreement dated as of August 28, 2003 by and among Hypertension Diagnostics, Inc. and the holders of Hypertension Diagnostics, Inc. Series A Convertible Preferred Stock.	Exhibit 4.5 of the August 8-K.
4.17	Form of Irrevocable Proxy executed in connection with the Securities Purchase Agreement dated as of August 28, 2003.	Exhibit 4.8 of the August 8-K.
4.18	Form of Irrevocable Proxy dated August 4, 2003 executed by Messrs. Brimmer, Cohn, Guettler, Murphy and Dr. Chesney.	Exhibit 4.10 of the August 8-K.
9.1	Voting Agreement dated as of August 28, 2003 by and among the holders of Hypertension Diagnostics, Inc. Series A Convertible Preferred Stock.	Exhibit 4.3 of the August 8-K.
10.1	1995 Long-Term Incentive and Stock Option Plan *	Exhibit 10.1 of the Company’s 1998 Registration Statement.
10.2	1998 Stock Option Plan *	Exhibit 10.2 of the Company’s 1998 Registration Statement.
10.3	Form of Stock Option Agreement for 1998 Stock Option Plan *	Exhibit 10.3 of the Company’s 1998 Registration Statement.

10.5	Research and License Agreement between the Company and the Regents of the University of Minnesota, dated September 23, 1998	Exhibit 10.4 of the Company’s 1998 Registration Statement.

10.8	Manufacturing Services Agreement between Apollo Research Corporation and the Company, dated May 14, 1998	Exhibit 10.13 of the Company’s 1998 Registration Statement.
10.15	Letter Agreement dated February 21, 2001 by and between Hypertension Diagnostics, Inc. and Apollo Research Corporation, M. Terry Riggs and Randy Thorton	Exhibit 10.14 of the Company’s Annual Report on Form 10-KSB for the year ended June 30, 2003.
10.16	Employment Agreement between Mark Schwartz and the Company, dated August 28, 2003*	Exhibit 10.16 of the Company’s Annual Report on Form 10-KSB for the year ended June 30, 2004
10.17	Deferred Equity Incentive Agreement between Mark N. Schwartz and the Company, dated June 5, 2006*	Filed Herewith.
10.18	2003 Stock Option Plan*	Exhibit 10.1 of the Company’s 2006 Form S-8 Registration Statement
10.19	2005 Stock Option Plan*	Exhibit 10.2 of the Company’s 2006 Form S-8 Registration Statement
23.1	Consent of Independent Registered Public Accounting Firm	Filed Herewith.
23.2	Consent of Former Independent Registered Public Accounting Firm	Filed Herewith.
31.1	Certification of Chief Executive Officer pursuant to 13a-14 and 15d-14 of the Exchange Act	Filed Herewith.
31.2	Certification of Chief Financial Officer pursuant to 13a-14 and 15d-14 of the Exchange Act	Filed Herewith.
32.1	Certificate pursuant to 18 U.S.C. § 1350	Filed Herewith.
32.2	Certificate pursuant to 18 U.S.C. § 1350	Filed Herewith.

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

HYPERTENSION DIAGNOSTICS, INC.

/s/ MARK N. SCHWARTZ

MARK N. SCHWARTZ, Chief Executive Officer

(Principal executive officer)

Dated: September 18, 2009

In accordance with the requirements of the Exchange Act, this report has been signed below on behalf of the registrant and in the capacities indicated on September 14, 2009.

Each person whose signature appears below constitutes and appoints Mark N. Schwartz and Mark O’Neill as his true and lawful attorneys-in-fact and agents, each acting alone, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K and to file the same, with all exhibits thereto, and other documents in connection therewith, with the U.S. Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, each acting alone, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all said attorneys-in-fact and agents, each acting alone, or his substitute or substitutes, may lawfully do or cause to be done by virtue thereof.

Signature	Title

/s/ MARK N. SCHWARTZ Mark N. Schwartz	Chairman of the Board of Directors, Chief Executive Officer (Principal executive officer)

/s/ LARRY LEITNER	Director
Larry Leitner

/s/ ALAN STERN	Director
Alan Stern
/s/ KENNETH W. BRIMMER	Director
Kenneth W. Brimmer

/s/ GREG H. GUETTLER	President, Secretary, and Director
Greg H. Guettler

/s/ JAY N. COHN	Director
Jay N. Cohn

/s/ MARK O’NEILL	Manager of Finance and Accounting
Mark O’Neill	(Principal financial officer)