HYPERTENSION DIAGNOSTICS INC /MN - Quarter Report: 2010 November (Form 10-Q)

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended September 30, 2010
	or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from          to

MINNESOTA (State of incorporation)

41-1618036 (I.R.S. Employer Identification No.)

	Large accelerated filer 		Accelerated filer 
	Non-accelerated filer 		Smaller reporting company x

YES  NO x

 

		Page No
PART I.	FINANCIAL INFORMATION:
Item 1.	Financial Statements
	Balance Sheets – September 30, 2010 (unaudited) and June 30, 2010	4
	Statements of Operations (unaudited) – Three Months Ended September 30, 2010 and 2009	5
	Statements of Cash Flows (unaudited) – Three Months Ended September 30, 2010 and 2009	6
	Notes to Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10
Item 4.	Controls and Procedures	15
PART II.	OTHER INFORMATION:
Item 6.	Exhibits	15
	SIGNATURES	16
	CERTIFICATIONS	17

 

 

 

 

			September 30,		June 30,
			2010		2010
Assets
Current Assets:
Cash and cash equivalents			$       889,425		$    1,053,648
Accounts receivable			23,372		38,073
Inventory, net			454,691		442,005
Prepaids and other current assets			12,198		4,986
Total Current Assets			1,379,686		1,538,712
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		162,351
Total Property and Equipment			931,929		931,929
Less accumulated depreciation and amortization			(930,908)		(930,591)
Property and Equipment, net			1,021		1,338
Other Assets			6,530		6,530
Total Assets			$    1,387,237		$    1,546,580
Liabilities and Shareholders' Equity (Deficit)
Current Liabilities:
Accounts payable			$          16,767		$          14,090
Accrued vacation, payroll and payroll taxes			73,518		82,369
Deferred revenue			62,197		72,202
Accrued commissions			29,625		110,500
Other accrued expenses			29,053		27,438
Total Current Liabilities			211,160		306,599
Long Term Liabilities:    Deferred compensation			938,250		1,316,250
Deferred revenue, less current portion			60,174		70,549
Total Long Term Liabilities			998,424		1,386,799
Shareholders' Equity (Deficit):
Series A Convertible Preferred Stock, $.01 par value:
Authorized shares--5,000,000
Issued and outstanding shares--718,673 and 710,993
at September 30, 2010 and June 30, 2010, respectively;
each share of preferred stock is convertible into 12 shares
of common stock at the option of the holder (aggregate
liquidation preference $8,844,181 and $8,419,333 at
September 30, 2010 and June 30, 2010, respectively)			7,187		7,110
Common Stock, $.01 par value:
Authorized shares--150,000,000
Issued and outstanding shares--42,038,447 and 41,916,320
at September 30, 2010 and June 30, 2010, respectively			420,384		419,163
Additional paid-in capital			27,910,227		27,851,275
Accumulated deficit			(28,160,145)		(28,424,366)
Total Shareholders' Equity (Deficit)			177,653		(146,818)
Total Liabilities and Shareholders' Equity (Deficit)			$     1,387,237		$     1,546,580
See accompanying notes.

				Three Months Ended September 30,
					2010		2009
Revenue:
Equipment sales					$       211,000		$       254,235
Equipment rental					12,852		25,161
Service/contract income					33,356		22,679
					257,208		302,075
Cost of Sales:
Cost of sales					37,854		50,622
Inventory obsolescence allowance					-		(17,838)
Net Cost of Sales					37,854		32,784
Gross Profit					219,354		269,291
Expenses:
Selling, general and administrative					(40,564)		1,050,841
Total Expenses					(40,564)		1,050,841
Operating income (loss)					259,918		(781,550)
Other Income:
Interest income					1,995		-
Miscellaneous income					2,308		1,483
Total Other Income					4,303		1,483
Net income (loss) before income taxes					264,221		(780,067)
Income taxes					-		-
Net income (loss)					$       264,221		$    (780,067)
Net Income (loss) per Common Share:
Basic					$           0.01		$         (0.02)
Diluted					$           0.01		$         (0.02)
Weighted Average Common Shares Outstanding:
Basic					41,995,526		40,973,711
Diluted					50,619,552		40,973,711
See accompanying notes.

 
 

	Three Months Ended September 30,
		2010		2009
Operating Activities:
Net income(loss)		$     264,221		$    (780,067)
Adjustments to reconcile net income(loss) to net
cash provided by(used in) operating activities:
Deferred stock based compensation expense		(378,000)		763,875
Depreciation		317		1,440
Stock options expense		30,250		22,875
Change in operating assets and liabilities:
Accounts receivable		14,701		36,719
Inventory		(12,686)		(9,919)
Prepaids and other current assets		(7,212)		(7,011)
Accounts payable		2,677		(3,734)
Accrued payroll and payroll taxes		(8,851)		26,452
Deferred revenue		(20,380)		35,155
Accrued commissions		(80,875)		-
Other accrued expenses		1,615		180,245
Net cash provided by (used in) operating activities		(194,223)		266,030
Financing Activities:
Proceeds from exercise of warrants		30,000		-
Net increase(decrease) in cash and cash equivalents		(164,223)		266,030
Cash and cash equivalents at beginning of period		1,053,648		697,918
Cash and cash equivalents at end of period		$         889,425		$      963,948
See accompanying notes.

 
 

1.	Basis of Presentation

2.          Recent Accounting Pronouncements

 

 

 

			September 30,			September 30,
			2010			2009
	Basic earnings (loss) per share calculation:
	Net income (loss) to common shareholders	$	264,221		$	(780,067)
	Weighted average of common shares outstanding		41,995,526			40,973,711
	Basic net earnings (loss) per share	$	.01		$	(.02)
	Diluted earnings (loss) per share calculation:
	Net income (loss) to common shareholders	$	264,221		$	(780,067)
	Weighted average of common shares outstanding		41,995,526			40,973,711
	Series A Convertible Preferred Stock (1)		8,624,076			-
	Stock Options (2)		-			-
	Warrants (3)		-			-
	Diluted weighted average common shares outstanding		50,619,602			40,973,711
	Diluted net income (loss) per share	$	.01		$	(.02)

(1)	At September  30, 2010, there were 718,673 shares of  Series A Convertible Preferred Stock outstanding and 728,248 at September 30, 2009. Using the preferred stock conversion ratio of 12:1, the common  stock equivalents attributable to these preferred shares are 8,624,076 at September 30, 2010 and 8,738,976 at September 30, 2009.  These common stock equivalents were anti-dilutive at September 30, 2009 and therefore have been excluded from diluted earnings per share.
(2)	At September 30, 2010, there were common stock equivalents attributable to outstanding stock options of 7,141,914 common shares and 6,010,342 common shares at September 30, 2009. The stock options are anti-dilutive at September 30, 2009, due to the loss, and therefore have been excluded from diluted earnings per share. The stock options are anti-dilutive as of September 30, 2010 have been excluded from diluted earnings per share due to their exercise price being above the current trading price.
(3)	At September 30, 2010 and 2009, there were common stock equivalents of 18,498,636 and 19,248,639 common shares attributable to warrants, respectively.  The warrants expire on September 30, 2011, and have an exercise price of $.14 to $.30 per share. The warrants are anti- dilutive at September 30, 2010 and 2009 due to their exercise price being above the current trading price, and therefore have been excluded from diluted earnings per share.

 

 

·

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. 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 on a purchase or lease basis.  Some Systems previously marketed under a “per-patient-tested rental basis remain in use although we no longer offer that option in our current marketing. Utilizing our Central Data Management Facility, we are able to track rental unit utilization of the CVProfilor® DO-2020 System in each physician’s office and medical clinic and to invoice our physician customers on the number of CardioVascular Profile Reports (CVProfile™ Reports) which they generate each month.

 

Recent Accounting Pronouncements

 

				Three Months Ended September 30, 2010
				Equipment		Equipment		Service/
		Total		Sales		Rental		Contract
Revenue		$257,208		$211,000		$12,852		$33,356
Cost of Sales		37,854		33,227		1,165		3,462
Gross Profit		$219,354		$177,773		$11,687		$29,894
				Three Months Ended September 30, 2009
				Equipment		Equipment		Service/
		Total		Sales		Rental		Contract
Revenue		$302,075		$254,235		$25,161		$22,679
Cost of Sales		32,784		27,591		2,731		2,462
Gross Profit		$269,291		$226,644		$22,430		$20,217

 
 

 
 

		Three Months Ended
		September 30
	2010		2009
Wages, expenses, benefits before deferred compensation	$88,839		$139,919
Deferred compensation…...………………………………............................................................................	(378,000)		763,875
Outside consultants…………………………………………………............................................................	92,872		8,055
Rent (building/equipment) and utilities……………………………….......................................................	11,397		13,226
Insurance-general and directors/officers liability……………………......................................................	5,006		4,830
Selling, marketing and promotion, including applicable wages…….......................................................	68,375		49,990
Legal and audit/accounting fees……………………………………..........................................................	18,213		25,913
Depreciation and amortization………………………………………..........................................................	317		1,440
Stock option expense……………………………………………….............................................................	30,250		22,875
Other-general and administrative…………………………………….........................................................	22,167		20,718
Total selling, general and administrative expenses………….......................................................	$(40,564)		$1,050,841

 
 

 

	Three Months Ended September 30,
Net cash provided by (used in) operating activities:	2010	2009
—  Net income(loss), as adjusted for non-cash items (expenses associated with deferred stock based compensation, depreciation, and stock option expense)	$    (83,212)	$     8,123
—  (Increase) Decrease in accounts receivable: –  (A)The increase in the collection of outstanding customer balances from unit sales, and less sales at quarter end.	(A)  14,701	(A)   36,719
—  Increase (Decrease) in accrued payroll and payroll taxes: –  (B)Expense amounts that relate to the amount of accrued vacation, accrued payroll, and accrued payroll taxes.	(B)   (8,851)	(B)  26,452

—  (Increase) Decrease in inventory: –  (C)We sell mostly reconditioned units, and only replenish inventory for items that are needed to build new units.	(C)   12,686	(C)   9,919
—  Increase (Decrease) in deferred revenue: –  (D)Cash received from warranty maintenance contracts, is amortized over the length of the contract.	(D)   (20,380)	(D)   35,155
—  Increase (Decrease) in accrued commissions:     –  (E)Expense amounts related to commissions paid to our third-party              distributors.	(E)  (80,875)	(E)            -

 
 

 
 

 
 

31.1	Certification of Chief Executive Officer pursuant to

31.2	Certification of Chief Financial Officer pursuant to

32	Certificate pursuant to 18 U.S.C. § 1350

HYPERTENSION DIAGNOSTICS, INC.

By /s/ Mark N. Schwartz

Mark N. Schwartz

Chief Executive Officer