HYPERTENSION DIAGNOSTICS INC /MN - Quarter Report: 2012 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

 

(Mark One)

 

Commission File Number:  0-24635

HYPERTENSION DIAGNOSTICS, INC.

(Exact name of Registrant as Specified in its Charter)

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

10501 WAYZATA BOULEVARD, SUITE 102, MINNETONKA, MN	55305
(Address of Principal Executive Offices)	(Zip Code)
952-545-2457
(Registrant’s Telephone Number, Including Area Code)
10275 Wayzata Blvd, Suite 310, Minnetonka, MN  55305
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the registrant:  (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 

YES x NOo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T ( § 232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files).

YES o NO 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. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer o	Accelerated filer o
Non-accelerated filer   o	Smaller reporting company x
(Do not check if a smaller reporting company)

 

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

As of May 11, 2012, there were issued and outstanding 52,388,750 shares of the issuer’s common stock.

HYPERTENSION DIAGNOSTICS, INC.

INDEX TO FORM 10-Q

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Hypertension Diagnostics, Inc.

Forward-Looking Statements

This report may contain “forward-looking” statements, as such term is defined by the Securities and Exchange Commission’s rules, regulations and releases, which represent the current beliefs of our management as well as assumptions made by and information currently available to management, including but not limited to, statements concerning the registrant’s operations, economic performance, financial condition, growth and acquisition strategies, investments, and future operational plans.  For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements.  Without limiting the generality of the foregoing, words such as “may,” “expect,” “believe,” “expect,” “can,” “estimate,” “anticipate,” “intend,” “could,” “might,” “plan,” “predict” or “continue” or the negative or other variations thereof or comparable terminology 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.  

These statements by their nature involve substantial risks and uncertainties, certain of which are beyond the Company’s control, and actual results may differ materially depending on a variety of important factors, including our ability to generate acceptable levels of revenues; negative effect on our stock price resulting from available securities for sale; our need for additional capital; significant business risks associated with the start-up of the Company’s HDI Plastics, Inc. subsidiary business; the illiquidity of our securities on the OTCQB and the related restrictions on our securities relating to “penny stocks” and potential violations by us of federal and state securities laws; uncertainty related to acquisitions; governmental regulation; commercial viability of required raw materials, and any other factors discussed in this and other filings of the Company with the Securities and Exchange commission. We undertake no responsibility to update any forward-looking statement. These forward-looking statements are only made as of the date of this report.  The following should be read in conjunction with the information presented in our Annual Report on Form 10-K for the year ended June 30, 2011, filed with the SEC on September 16, 2011, including but not limited to the “Risk Factors” listed in such report.  

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Hypertension Diagnostics, Inc.

Consolidated Balance Sheet

March 31, 2012

PART I.  FINANCIAL INFORMATION

Item 1.  Consolidated Financial Statements

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Hypertension Diagnostics, Inc.

Consolidated Statement of Operations

March 31, 2012

   

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Hypertension Diagnostics, Inc.

Consolidated Statement of Cash Flows

March 31, 2012

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Hypertension Diagnostics, Inc.

Notes to the Consolidated Financial Statements

March 31, 2012

Note 1.   Basis of Presentation

The accompanying unaudited consolidated financial statements of Hypertension Diagnostics, Inc. (the “Company,” “HDI” “we” or “us”) have been prepared in accordance with the Instructions to Form 10-Q and Regulation S-X, and do not include all the information and notes required by generally accepted accounting principles for complete financial statements.  In the opinion of management, these unaudited financial statements reflect all adjustments, consisting only of normal and recurring adjustments necessary for a fair presentation of the financial statements.  The results of operations for the three and nine months ended March 31, 2012 are not necessarily indicative of the results that may be expected for the full year ending June 30, 2012.  The June 30, 2011 balance sheet was derived from audited financial statements and was adjusted to reflect unaudited adjustments to reclassify discontinued operations, as described in Notes 2 and 3 below.  For further information, refer to the financial statements and notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2011, filed with the SEC on September 16, 2011.  The policies described in that report are used for preparing quarterly reports.

On July 14, 2011, the Company formed HDI Plastics, Inc. (“HDIP” or “Plastics”), as a wholly-owned subsidiary of the Company. HDIP commenced plastic processing operations in October 2011.  HDIP is the principal operating business of the Company.  HDIP is engaged in the processing of recycled plastic material including re-processing into pellet-form for sale to manufacturing customers. (See Note 16.)

Note 2.  Nature of Business and Summary of Significant Accounting Policies:

HDI formerly was in the business of designing, developing, and manufacturing non-invasive medical devices. Commencing October 2011, HDI, through HDIP, is now in the business of collecting, processing, and recycling plastics into usable form for sale to manufacturing customers.  HDIP also acts as a “broker” in arranging and facilitating delivery of recyclable material directly to manufacturing customers.

Discontinued Operations-On August 26, 2011 (the “Effective Date”), the Company closed a definitive Asset Purchase Agreement (the “Agreement”) providing for the sale of selected assets from our medical device business to Cohn Prevention Center, LLC, a Minnesota limited liability company (“CPC”), controlled by Jay Cohn, a director and stockholder of HDI as of the Effective Date. The terms of the Agreement provided for the sale of selected operating assets of the Company’s medical device business (including inventory but excluding cash, accounts receivable, and intellectual property).  The Agreement does not limit the ability of CPC to sell the purchased inventory to any customer or in any market where they can be legally sold.  Additionally, CPC assumed all warranty and on-going product support required by regulatory agencies related to such inventory. As a result of this agreement, and with the sale of selected assets to CPC, we have reclassified our previously reported financial results to exclude those operations affected by the sale. These results are presented on a historical basis as a separate line in our income statements and balance sheets entitled “Discontinued Operations.”  HDI has retained rights to its intellectual property including the rights to royalty payments from CPC.  HDI expects to pursue additional royalty opportunities although there is no assurance it will be successful.  Ongoing royalty income derived from the Company’s intellectual property is reflected as continuing operations.  

Principles of Consolidation

The Company files consolidated financial statements that include its wholly-owned subsidiary, HDIP. All material intercompany accounts and transactions have been eliminated in consolidation.

Recent Accounting Pronouncements

There were no new accounting standards issued or effective during the three months ended March 31, 2012 that had or are expected to have a material impact on the Company’s results of operations, financial condition, or cash flows.

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Hypertension Diagnostics, Inc.

Notes to the Consolidated Financial Statements

March 31, 2012

Note 3.   Discontinued Operations

On August 26, 2011, (the “Effective Date”), the Company entered into and closed a definitive Asset Purchase Agreement (the “Agreement”) providing for the sale of selected assets of  our medical device business to Cohn Prevention Center, LLC, a Minnesota limited liability company (“CPC”), controlled by Jay Cohn, a director and stockholder of HDI as of the Effective Date. The terms of the Agreement provided for the sale of selected operating assets of the Company’s medical device business (including inventory but excluding cash, accounts receivable, and intellectual property).  The Agreement does not limit the ability of CPC to sell the purchased inventory to any customer or in any market where they can be legally sold.  Additionally, CPC assumed all warranty and on-going product support required by regulatory agencies related to such inventory.

In connection with the Agreement, CPC paid the Company on the Effective Date a cash payment of $125,000 and issued a secured promissory note to the Company in the amount of either $150,000 due in 12 months or $200,000 due in 18 months at the discretion of CPC (See Note 5). Nearly all of the proceeds received on the Effective Date were allocated to cover severance and other costs related to the transactions contemplated by the Agreement. Severance costs included an agreement by the Company to pay to Greg Guettler, its former Chief Operating Officer, nine months’ salary and health benefits. The Company paid Mr. Guettler $119,463 as of March 31, 2012 to fulfill the agreement. Pursuant to the Agreement, CPC agreed to pay to the Company a cash payment of $1,200 upon the sale of each of the first 50 units of inventory sold by CPC within 30 days of receipt of cash from such sale. The Company has agreed to pay Mr. Guettler 10% of the royalty proceeds received by the Company less applicable transaction expenses related to such sales.  The Company has earned royalty income of $3,600 and $18,000 for the three and nine months ended March 31, 2012. The Company has paid $1,440 and accrued an additional $360 in connection with the amount due Greg Guettler for the nine months ended March 31, 2012.

The Company and CPC also entered into a Sublicense Agreement on the Effective Date (the “Sublicense Agreement”), pursuant to which the Company granted to CPC a limited license to use the Company’s intellectual property, technology, and technical know-how related to the Company’s arterial elasticity measurement technology exclusively in CPC clinics and research related exclusively to CPC clinics.  All other applications of the Company’s intellectual property, technology and technical know-how will be retained by the Company for the benefit of the Company.  The Sublicense Agreement also provides that any development of a next generation arterial measurement device, however, would be limited exclusively to use and sale within the CPC network of clinics and to research exclusively related to CPC clinics.

CPC and the Company also entered into a Sublease Agreement as of the Effective Date, which permits CPC to lease the Waters II Suite 108, Eagan, Minnesota facility of the Company during the remaining term of the Company’s lease, which expires October 31, 2014, on the same economic terms as the underlying lease with HDI which remains as an obligation of the Company.

Upon the closing of this transaction, the Company had limited remaining operations related to its medical device business and currently is seeking additional opportunities to license its proprietary technology, intellectual property, technical know-how and other core assets, although there is no assurance these efforts will be successful.

The Company recorded a loss on the sale transaction in the amount of $123,702 in the quarter ended September 30, 2011.

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Hypertension Diagnostics, Inc.

Notes to the Consolidated Financial Statements

March 31, 2012

The Company has not included the results of operations of the former medical device business in the results from continuing operations.  We expect to receive continuing royalties from our licensed technology and are continuing efforts to license and market our intellectual property. Revenue and expenses related to the ongoing licensing activities are reflected as continuing operations. The income (loss) from discontinued operations for the three and nine months ended March 31, 2012, and 2011 consists of the following:

Income from Discontinued Operations	Three months ended March 31,				Nine months ended March 31,
	2012		2011		2012		2011
Revenue, net	$ -		$ 347,181		$ 248,923		$ 1,062,375
Cost of Goods Sold	-		84,766		10,557		215,792
Gross Profit			262,415		238,366		846,583
Operating Expenses	(15,335)		293,810		265,645		850,086
Deferred Compensation expense (benefit)	(393,750)		5,250		165,000		(256,500)
Income (loss) from discontinued operations	(409,085)		(31,395)		(192,279)		252,997
Loss on sale of selected assets to CPC	-		-		(123,702)		-
Net income (loss) from discontinued operations	$ (409,085)		$ (31,395)		$ (315,981)		$ 252,997

The major classes of assets and liabilities of discontinued operations as of  March 31, 2012 and June 30, 2011 were as follows:

Assets and Liabilities of Discontinued Operations
	March 31, 2012			June 30, 2011
Accounts receivable	$ -			$ 4,365
Inventory, net	-			364,952
Prepaid expenses	-			4,873
Current assets of discontinued operations	$ -			$ 374,190
Accrued payroll, vacation, and payroll taxes	$ 37,120			$ 51,253
Deferred Compensation (former CEO)	787,500			622,500
Deferred revenue	-			88,819
Accrued commissions	-			46,500
Accrued royalties	-			17,770
Other accrued expenses	-			36,633
Total liabilities of discontinued operations	$ 824,620			$ 863,475

Note 4. Inventory

Inventory consisted of the following at March 31:

Inventory
	2012		2011
Raw Materials	$ 89,249		$ -
Finished Goods	53,285		-
Total Inventory	$ 142,534		$ -

Note 5.   Notes Receivable – Related Parties

On May 3, 2011, the Company entered into a promissory note agreement with Minot 123, LLC, a North Dakota limited liability company (“Minot”), pursuant to which HDI loaned Minot $125,000 toward the purchase of an office building (“M Building”) located in Minot, North Dakota.  At the time the agreement was entered into, Kenneth W. Brimmer, a director of the Company, was one of the three principals of Minot. On July 13, 2011, the Company exercised its option to receive repayment of the Note and subsequently, in accordance with the repayment terms of the Note, Minot paid to the Company $20,000. The remaining balance on the Note became payable in six monthly payments of $12,500 beginning on August 15, 2011, with the final payment due and payable February 15, 2012. The final payment was received in February 2012 which included $4,900 in accrued interest, and reimbursement of the Company’s legal fees expended in connection with the agreement in the amount of $6,500 which was recorded as other income.

In connection with the Asset Purchase Agreement between HDI and Cohn Prevention Centers, LLC (See Note 3), Cohn paid HDI on the Effective Date a cash payment of $125,000 and issued a non-interest bearing secured promissory note due to HDI in the amount of either $150,000 in 12 months or $200,000 in 18 months, at the discretion of CPC.  The promissory note is reflected at an imputed discount rate of 15% based upon the amount due 12 months following the Effective Date, and is reflected as a net note receivable of $127,500.  The balance of the Note at March 31, 2012 is $140,967 after including $13,467 of accreted accrued interest.

Note 6.  Property and Equipment

Property and Equipment are as follows:

	March 31,
	2012		2011
Equipment	$ 672,383		$ -
Leasehold Improvements	93,235		-
Office Furniture	2,315		-
Software	5,608		-
Vehicles	11,984		-
Less accumulated depreciation	(67,560)		-
Total equipment	$ 717,965		$ -

The Company placed these assets for the recycled plastics processing business into service as of October 1, 2011; as a result, depreciation for the three months and nine months ended March 31, 2012 was $37,603 and $67,560, respectively. The Company entered into a sale-leaseback agreement relating to some of its equipment during the quarter ended March 31, 2012. (See Note 12)

Note 7.   Litigation and Contingencies

The Company is involved in various legal actions in the ordinary course of its business.  On March 28, 2012, HDIP received a Notice of Violation related to its sole processing facility located at 5330 Fleming Court, Austin, Texas, from the City of Austin Code Compliance Department.  The Notice of Violation alleges violations of Austin’s City Code and failures to obtain required permits and a Certificate of Occupancy based upon the current use of the processing facility. The violation primarily relates to the electrical design and capacity of the building. The Notice of Violation required HDIP to vacate the processing facility until such alleged violations are cured.  HDIP unsuccessfully attempted to negotiate temporary permits allowing it to continue operations while it addresses the alleged violations identified in the Notice of Violation.  On March 29, 2012, HDIP temporarily ceased processing operations at the processing facility.  On April 2, 2012, HDIP notified approximately 70 of its employees working at the facility of their termination pending satisfactory resolution of the violations identified by the City of Austin.  The employees were paid their outstanding vacation pay, however, no severance was paid. At this time, HDIP cannot estimate the length of time in which the facility will remain inoperable.

Based upon an estimate from an electrical contractor, the Company estimates the cost to bring the facility into compliance with the City of Austin Building Code requirements to be approximately $75,000. It has not been determined at this time whether the Company or the landlord is responsible for the cost of the electrical upgrade. The Company is not able to estimate the total cost of the shutdown of its processing operations and is not able to determine if and when it will resume operations. The Company is also not able to determine the amount of time it will take to return to normal production and sales activity.  

Note 8.  Stock Options

The Company regularly grants stock options to individuals under various plans as described in Note 7 to the Financial Statements set forth in the Company’s Annual Report on Form 10-K for the year ended June 30, 2011, filed with the SEC on September 16, 2011.  The Company recognizes share-based payments, as compensation costs for transactions, including grants of employee stock options, to be recognized in the financial statements.  Stock-based compensation expense is measured based on the fair value of the equity or liability instrument issued.  Share-based compensation arrangements may include: stock options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans.  The Company measures the cost of employee services received in exchange for stock options based on the grant-date fair value of the award, and expenses the cost over the period in which the employee is required to provide services for the award.  The Company uses the Black-Scholes option-pricing model that meets the fair value objective.

During the three and nine months ended March 31, 2012 and the three and nine months ended March 31, 2011, there were no stock options granted. The Company recognized compensation expense of $0, and $87,125 for the three and nine months ended March 31, 2012, and $34,125 and $95,745 for the three and nine months ended March 31, 2011, which were related to options previously granted.

Note 9.

Deferred Compensation

The Company is a party to a Deferred Equity Compensation Agreement with its former CEO, Mark N. Schwartz (the “Agreement”), whereby the Company granted 225,000 phantom shares of its common stock to Mr. Schwartz for every

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Hypertension Diagnostics, Inc.

Notes to the Consolidated Financial Statements

March 31, 2012

month of employment for the period January 1, 2010 through September 30, 2011. Mr. Schwartz resigned as the Company’s CEO effective September 22, 2011 and as a result, agreed as of October 1, 2011 that no additional phantom shares will be granted him under the Agreement. Under the agreement, a cash payment will be made equal to the price per share of the Company’s common stock times the number of phantom shares accrued at the earliest of certain events to occur.

The Company has accrued a total deferred compensation liability of $787,500 at March 31, 2012, which is the fair market value of 13,125,000 phantom shares outstanding as of March 31, 2012.  Due to the changes in the price of the Company’s common stock from the beginning of the quarter to the end of the quarter (decrease from $0.09 to $ 0.06), the Company recorded a net compensation (benefit) expense of ($393,750) and $165,000 for the three and nine month periods ended March 31, 2012, respectively. For the three and nine month periods ended March 31, 2011, the Company recorded a net compensation (benefit) expense of $5,250 and ($256,500), respectively.  An increase in the Company’s common stock price would cause an increase in the deferred compensation, while a decrease in the Company’s stock price would cause a decrease in the deferred compensation liability. Expenses related to the Deferred Compensation arrangement with its former CEO are accounted for as part of Discontinued Operations.

Under the terms of Mr. Schwartz’s original employment agreement, payment of the deferred compensation benefit would 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 was to 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.  Mr. Schwartz and the Company modified the original Agreement on December 31, 2011, whereby Mr. Schwartz agreed to eliminate the requirement for a cash payment as of a date certain pursuant to the Agreement. This deferred compensation is classified as a long-term liability with no definitive payout date specified. The Company and Mr. Schwartz are continuing to negotiate some sort of permanent settlement to satisfy both parties.

Note 10. Common Share Issuance to CEO

Effective February 10, 2012, the Company agreed to issue 9,062,907 common shares to Kenneth W. Brimmer its CEO and director.  The shares were issued for services rendered in connection with the initial acquisition of the plant and equipment, lease negotiations, and employee recruitment related to development of HDIP. The shares are restricted from sale for a three year period following issuance. The fair value of the shares totaling $215,697 (calculated by taking the Company’s common stock trading price on February 9, 2012 of $0.028, less a marketability discount of 15%) was recorded as compensation expense during the quarter ended March 31, 2012.

Note 11.  Line of Credit

On October 10, 2011, HDI Plastics, Inc. entered into an Accounts Receivable Discount line facility with Charter Capital Holdings, L.P.  (“Charter”). Under the terms of the full-recourse financing agreement, which is guaranteed by HDI, Charter advances to HDIP and amount equal to 80% of eligible pledged receivables up to a total advance of $1 million. Charter retains a priority and perfected security interest in all accounts receivable and inventory of HDI Plastics, Inc.  The financing cost under the agreement is 0.59% for each 10-day period or an approximate annualized interest cost of approximately 21.25%. The Company began borrowing under this facility in November 2011.  For the quarter ended March 31, 2012, aggregate advances under the facility were $2,182,155 based upon $2,727,694 in receivables. The outstanding balance as of  March 31, 2012 is principal of $630,184 plus accrued interest of $11,427 for a total of $641,611.

Note 12. Sale-Leaseback Transaction

In March 2012, the Company entered into a sale-leaseback arrangement relating to some of its equipment. Under the terms of the arrangement, the Company’s trailers, forklifts, scale, truck, and elimination system which had a carrying amount of $121,272 were sold to KLC Financial, Inc. (“KLC”) for $121,272 in cash. The Company then leased the equipment back under a 3-year capital lease that required a down payment equal to two monthly lease payments and 34 additional monthly payments in the amount of $4,248. The property continues to be reported on the Company’s balance sheet, and depreciation expense is continued to be recognized. The lease agreement is recorded as a sale-leaseback obligation on the balance sheet. At March 31, 2012, the leased equipment had a cost of $121,272 and accumulated depreciation of $5,797. Depreciation of assets leased under capital leases is included in depreciation expense.

The following is a schedule by years of future minimum lease payments required under the lease together with their present value as of March 31, 2012:

Year ending June 30,
2012		$12,744
2013		50,974
2014		50,974
2014		25,485
Total minimum lease payments		140,177
Less amount representing interest		(30,364)
Present value of minimum lease payments		109,813
Less current maturities		33,831
Long-term portion		$75,982

Note 13.   Net Income (Loss) Per Share

Basic net income (loss) per share is computed using the weighted average number of common shares outstanding during each period.  Diluted net income (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.  

The following table provides a reconciliation of the numerators and denominators used in calculating basic and diluted earnings per share at March 31, 2012 and 2011.

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Hypertension Diagnostics, Inc.

Notes to the Consolidated Financial Statements

March 31, 2012

[1]	At March 31, 2012 and 2011, there were 611,390 shares of Series A Convertible Preferred Stock outstanding. Using the preferred stock conversion ratio of 12:1, the common stock equivalents attributable to these preferred shares are 7,336,680 at March 31, 2012 and 2011.
[2]	At March 31, 2012, there were common stock equivalents attributable to outstanding stock options of 8,352,914 common shares and 7,141,914 common shares at March 31, 2011. All of the remaining stock options at March 31, 2012 and 2011 would not be common stock equivalents under the treasury stock method.
[3]	At March 31, 2012 and 2011, there were common stock equivalents of  30,407,208 and 18,498,636 common shares attributable to warrants, respectively. The warrants expire at various times through December 16, 2016, and have an exercise price of $.07 to $.30 per share. The warrants would not be common stock equivalents at March 31, 2012 and 2011 using the treasury stock method.

Hypertension Diagnostics, Inc.

Notes to the Consolidated Financial Statements

March 31, 2012

Note 14.

   Outstanding Share Purchase Warrants

In February 2010, the Company modified the exercise price on all of the Preferred Stock Warrant B from $2.64 to $1.68 and on all of the Common Stock Warrant B from $0.22 to $0.14.  In July 2010, the Company agreed to extend the modification to March 31, 2012, to encourage exercising of these warrants in order for the Company to receive additional funding.  No additional expense was recorded for this extension due to the warrants being originally connected to a capital raise.  On July 22, 2011, HDI agreed to extend the warrant expiration to December 31, 2012.  No additional expense was recorded for this warrant extension.  During the nine months ended March 31, 2011, the Company received $30,000 in cash proceeds for the exercise of common and preferred stock warrants of 122,127 and 7,680 shares, respectively. There were no warrants exercised during the nine months ended March 31, 2012.

Note 15.   Subordinated Debt Offering

In December 2011, the Company commenced a private placement offering of 14.5% Five Year Subordinated Notes with Warrants to its existing preferred shareholders, directors of the Company and certain other accredited investors. The notes are issued by HDIP and are guaranteed by the Company.  Interest is payable monthly in cash. The offering was completed February 10, 2012 and resulted in the issuance of $833,600 in notes and five-year warrants to purchase an aggregate of 11,908,572 shares of the Company’s common stock with an exercise price of $.07 per share. The notes are due five years from the closing date at 105% of face value. The total estimated value of the warrants using the Black-Scholes Pricing Model, based on a volatility rate of 153% and a relative fair value of $ 0.03 was $252,393and was recorded as a debt discount to the notes. The discount is being amortized over the term of the debt using the effective interest method. The remaining exercise period as of March 31, 2012 is 4.75 years. The Company recognized $37,635 of total interest in the three months ended March 31, 2012. The Notes may be prepaid by the Company in accordance with the following schedule below at the redemption prices (expressed in percentages of principal amount to be repaid), plus unpaid accrued interest to the date of payment:

Loan Year	Redemption Price
1	125%
2	120%
3	115%
4	110%
Maturity	105%

The following table summarizes the subordinated debt balance at March 31, 2012:

Gross proceeds received		$ 833,600
Less value assigned to warrants		(252,393)
		581,207
Add: amortization of debt discount		12,620
Interest accreted to redemption price		2,084
		$ 595,911

Note 16.  Acquisition of Assets

HDI Plastics, Inc.

On September 22, 2011, HDIP entered into a lease agreement with Flemtex Properties Corp., a Delaware corporation, for space totaling 104,291 square feet at Suite 100, 5330 Fleming Court, Austin, Texas (the “Lease”). The leased space includes 89,452 square feet of warehouse/manufacturing space and 14,839 square feet of office space. Under the terms of the Lease, HDIP pays rent and CAM charges of approximately $33,650 per month. The lease payments over the 64 months of the initial term of the Lease total $2,154,000. The lease payments are guaranteed by HDI.

On September 26, 2011, the Company entered into a definitive Tri-Party Sales Agreement (“Agreement”) providing for the purchase of selected manufacturing assets from Compass Bank (the “Bank”), and the purchase of certain manufacturing assets and inventory from Cycled Plastics, LTD., a limited partnership (“CP”). In connection with the purchase of the assets, HDI agreed to pay the Bank a cash payment of $250,000. Additionally, HDI agreed to pay $25,000 at closing to CP and to make future payments of $130,000 to CP for equipment. The total purchase price of the selected assets was $405,000. In September 2011, the Company paid CP approximately $29,000 for initial inventory. The $250,000 was paid to Compass Bank on October 7, 2011. No payments have been made nor are they currently due on the $155,000 due CP as of March 31, 2012.

Note 17.    Other Related Party Transactions

The HDI Corporate office sub-leases space from STEN Corporation for $500 per month. Kenneth Brimmer, the Company’s Chief Executive Officer and a director of the Company, is the Chief Executive Officer and director of STEN Corporation. STEN Corporation’s lease ends in April 2014.

HDIP sells processed recycled materials in the form of pelletized resin to various manufacturing companies. In December 2011, HDIP sold 16,300 pounds of processed polymer to Stencor Company, LLC, a contract molding manufacturing company 85% owned by Kenneth Brimmer, for a purchase price of $8,492. The purchase price for the resin represented a price similar to sales of similar material to unrelated parties. HDIP expects to continue sales to Stencor from time-to-time.

In January 2012, HDIP purchased a 2004 Dodge Pick-up truck from Halvorsen Motors; a used retail car business owned 50% by Kenneth Brimmer, for a purchase price of $11,984. The truck is used by the Company for sales and deliveries. The Company does not anticipate purchasing any additional vehicles in the near future.

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Hypertension Diagnostics, Inc.

Notes to the Consolidated Financial Statements

March 31, 2012

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Historically, we were engaged in the design, development, manufacture and marketing of proprietary medical devices. On August 26, 2011, the Company entered into and consummated an Asset Purchase Agreement providing for the sale of selected assets of the medical device business of the Company to Cohn Prevention Center, LLC (“CPC”). The terms of the Agreement provided for the sale of selected operating assets of the Company’s medical device business (including inventory but excluding cash, accounts receivable, and intellectual property).  We remain engaged in marketing the core technology developed by HDI in an effort to obtain licensing and/or royalty income from such technology.

During the final quarter of fiscal 2011, we considered strategic alternatives given our limited capital, the challenges associated with marketing its medical devices, the effect of health care reform on reimbursement, and the need to develop the next generation of medical devices. As a result of this review, we concluded to change our business and exit the medical device business and pursue an opportunity in the plastic recycling and processing business. To facilitate the new direction, the Company formed HDI Plastics on July 14, 2011 and began pursuing negotiations to lease manufacturing space and purchase processing equipment.

In October 2011, HDI Plastics, a wholly owned subsidiary of the Company, began processing operations in Austin, Texas. HDI processes post-consumer and post-industrial thermoplastic waste material into clean, reusable resin sold to manufacturers of plastic products. HDI Plastics is also engaged in “toll” processing of customer plastic material for a fee and in brokerage sales of recycled plastic material.

On March 28, 2012, HDIP received a Notice of Violation related to its sole processing facility located at 5330 Fleming Court, Austin, Texas, from the City of Austin Code Compliance Department.  The Notice of Violation alleges violations of Austin’s City Code and failures to obtain required permits and a Certificate of Occupancy based upon the current use of the processing facility. The violation primarily relates to the electrical design and capacity of the building. The Notice of Violation required HDIP to vacate the processing facility until such alleged violations are cured.  HDIP unsuccessfully attempted to negotiate temporary permits allowing it to continue operations while it addresses the alleged violations identified in the Notice of Violation.  On March 29, 2012, HDIP temporarily ceased processing operations at the processing facility.  On April 2, 2012, HDIP notified approximately 70 of its employees working at the facility of their termination pending satisfactory resolution of the violations identified by the City of Austin.  The employees were paid their outstanding vacation pay, however, no severance was paid. At this time, HDIP cannot estimate the length of time in which the facility will remain inoperable.

Based upon an estimate from an electrical contractor, the Company estimates the cost to bring the facility into compliance with the City of Austin Building Code requirements to be approximately $75,000. It has not been determined at this time whether the Company or the landlord is responsible for the cost of the electrical upgrade. The Company is not able to estimate the total cost of the shutdown of its processing operations and is not able to determine if and when it will resume operations. The Company is also not able to determine the amount of time it will take to return to normal production and sales activity.  

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.

Principles of Consolidation.  During the quarter ended September 30, 2011, HDI finalized a purchase agreement to acquire machinery and equipment to begin operations in Austin, Texas as HDI Plastics (“HDIP”), with processing operations commencing in October 2011. The Company files consolidated financial statements that include its wholly-owned subsidiary HDIP. All material intercompany accounts and transactions have been eliminated in consolidation.

Revenue Recognition. Beginning October 2011, HDI Plastics began selling finished goods to manufacturers in the form of pelletized resin and clean shredded and ground plastics material. These sales are recorded as revenue at the time the product is shipped and invoiced to the customer. The Company also engages in “toll” processing of customer-owned material for a service fee. These service fees are recorded as plastic processing revenue at the time the product is shipped back to the customer.  In addition, the Company engages in brokerage transactions of plastic material where goods are delivered to a customer without HDIP taking physical possession of the product at its processing facility, although HDIP assumes ownership of the material. The net profit from “brokerage” transactions is recorded as revenue at the time it is shipped to the customer and invoiced. Brokered sales are recorded as revenue net of the cost of the brokered material.

Inventories and Related Reserve for Obsolete Inventory.  Inventories are valued at the lower of cost based upon the average cost of raw material purchased during the month including an allocation of manufacturing overhead, or market. Typically, the Company holds material for less than 45 days. The nature of the Company’s inventory does not result in obsolescence of either processed or unprocessed material. Inventory on hand at the end of the period is reviewed to determine the need for a reserve for or write-off and dispose of any material which is not

13

Hypertension Diagnostics, Inc.

Notes to the Consolidated Financial Statements

March 31, 2012

useable.  The need for a reserve is based on management’s review of inventories on hand compared to estimated future usage and sales.  As of March 31, 2012 and June 30, 2011, there was no reserve for obsolete inventory.

Recent Accounting Pronouncements

There were no new accounting standards issued or effective during the three months ended March 31, 2012 that had or are expected to have a material impact on the Company’s results of operations, financial condition, or cash flows.

Results of Operations

As of March 31, 2012, we had an accumulated deficit of $29,238,098. Until we are able to generate significant revenue from our plastics processing business, we expect to continue to incur operating losses.  As of March 31, 2012, we had cash and cash equivalents of $382,035. In February 2012, we raised $833,600 in the form of 14.5% subordinated notes, (see Note 15 to the Consolidated Financial Statements.) We anticipate that these funds, less our anticipated operating costs, will allow us to pursue our business development strategy for at least the next twelve months following March 31, 2012.

Three Months Ended March 31, 2012 Compared to Three Months Ended March 31, 2011

Revenue- The Company earned $1,840,529 and $0 in revenue from continuing operations in the quarters ended March 31, 2012 and 2011, respectively. The revenue consisted of $3,240 of royalty income and $1,837,289 of plastic processing income from HDIP. HDIP commenced operations in October 2011. Therefore, there was no continuing operations income for the same period in 2011.

Net revenues from our new plastics recycling business were comprised of the following:

	Three Months Ended
	March 31
	2012		2011
Sales – Non-toll	$   1,604,942		$              -
Sales – Toll Processing	197,610
Prepaid discounts	(1,408)
Net processing revenue	1,801,144
Sales - Brokered	248,735
Less Brokered Purchases and Freight	(212,590)
Net Brokered Revenue	36,145
Net revenue-Plastics	$1,837,289		$             -

Cost of Goods Sold- Cost of goods sold for continuing operations for the three months ended March 31, 2012 were $1,624,477, or 88.3% of revenue. Cost of goods sold is comprised of the processed material generated from the operations of HDIP. Cost of goods sold primarily included $765,122 in direct materials, $358,686 in wages, $36,535 in equipment depreciation, and $87,577 in rent.

Expenses- Total selling, general and administrative expenses for continuing operations for the three months ended March 31, 2012 were $566,892 compared to $72,258 for the three months ended March 31, 2011.

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Hypertension Diagnostics, Inc.

Notes to the Consolidated Financial Statements

March 31, 2012

Wages, related expenses and benefits increased from $0 to $433,424 for the three months ended March 31, 2012 and 2011, respectively, due to HDI Plastic’s various administrative personnel and stock compensation expense of $215,697 for Kenneth Brimmer relating to the initial acquisition of the plant and equipment, lease negotiations, and employee recruitment related to development of HDIP.

Legal and audit/accounting fees increased from $4,950 to $32,134 for the three months ended March 31, 2012 and 2011, respectively, a 649% increase due to the activities of various SEC filings.

Stock option expense was $0 and $34,125 for the three months ended March 31, 2012 and 2011, respectively. This expense is based on the grant date fair value related to stock options that vested during the three months ended March 31, 2012 and March 31, 2011.  The decrease in expense is a result of the previous options having been fully vested.

Interest expense increased from $0 to $69,197 for the three months ended March 31, 2011 and 2012, respectively. The increase in the interest expense is related to the accounts receivable credit line facility with Charter Capital Holdings, L.P., the subordinated note agreements, and the sale-leaseback agreement with KLC Financial.

Our net loss from continuing operations was $403,480 for the three months ended March 31, 2012, compared to net loss from continuing operations of $70,778 for the three months ended March 31, 2011. The primary reason for the large increase in the loss was due to the start-up of the new plastics business during the prior quarter.  For the three months ended March 31, 2012, basic net loss per share from continuing operations was $(0.01), based on weighted average common shares outstanding of 48,305,462.  For the three months ended March 31, 2011, basic net loss per share per continuing operations was $0.00 based on weighted average common shares outstanding of 43,150,475.

Nine months Ended March 31, 2012 Compared to Nine months Ended March 31, 2011

Revenue- The Company earned $3,039,301 and $0 in revenue from continuing operations in the nine months ended March 31, 2012 and 2011, respectively. The revenue consisted of $16,320 of royalty income and $3,022,981 of plastic processing income from HDIP. There was no continuing operation’s income for the same period in 2011.

Cost of Goods Sold- Cost of goods sold for continuing operations ended March 31, 2012 was $2,859,479 or 94.1% of revenue. Cost of goods sold is comprised of the processed material generated from the operations of HDIP. Cost of goods as a percentage of income is expected to decrease as operations at HDIP stabilize and suitably trained personnel are put into place. Cost of goods sold for the nine months ended March 31, 2012 primarily included $1,165,616 in direct materials, $657,691 in salaries and wages, depreciation of $66,185, rent of $194,606, and utilities of $106,050. Other costs included rental equipment, warehouse supplies, workmen’s comp insurance and other costs associated with the processing business.

15

Hypertension Diagnostics, Inc.

Notes to the Consolidated Financial Statements

March 31, 2012

Expenses- Total selling, general and administrative expenses for continuing operations for the nine months ended March 31, 2012 were $1,021,553 compared to $282,495 for the nine months ended March 31, 2011. The following is a summary of the major categories included in selling, general and administrative expenses:

	Nine months Ended
	March 31
	2012		2011
Legal	$ 48,502		$ -
Accounting	56,935		32,717
Insurance	38,745		-
Payroll and related taxes	430,832		-
Compensation Expense-CEO	215,697
Travel & Meals and Entertainment	7,588		-
Outside Consulting	1,290		120,139
Rent	31,340		-
Utilities	21,967		-
Merchant Processing Fees	3,741		9,629
Stock Option Expense	87,125		95,744
Other G & A Expenses	77,791		24,266
Total selling, general and administrative expenses	$ 1,021,553		$ 282,495

Wages, related expenses and benefits increased from $0 to $430,832 for the nine months ended March 31, 2012 as compared to the same period one year ago. The primary reason for the increase was due to the start-up of HDI Plastics in October 2011 and the discontinuation of the medical device business in August 2011.

Legal and audit/accounting fees increased from $32,717 to $105,437 for the nine months ended March 31, 2012 as compared to the same period one year ago. The increase was due to the sale of selected assets to CPC, the assignment of lease at the Waters Road address, purchase of selected assets from Cycled Plastics, Ltd,. and timing of invoices for the June 30, 2011 financial statement audit.

Compensation expense in the amount of $215,697 was recorded in the quarter ended March 31, 2012 for the fair value of shares issued to CEO Kenneth Brimmer for services rendered in connection with the initial acquisition and other start-up costs related to the development of HDIP. (See Note 10)

Stock option expense was $87,125 and $95,744 for the nine months ended March 31, 2012 and 2011, respectively. This expense is based on the grant date fair value related to stock options that vested during the nine months ended March 31, 2012 and March 31, 2011.

The decrease in outside consulting expenses from $120,139 in 2011 to $1,290 in 2012 was due to the diminishing need for outside sources due to the change in business.

Our net loss from continuing operations was $904,063 for the nine months ended March 31, 2012, compared to net loss from continuing operations of $272,347 for the nine months ended March 31, 2011.  The primary reason for the large increase in the loss was due to the start-up of the plastics business during the 2^nd quarter. For the nine months ended March 31, 2012, basic and diluted net loss per share from continuing operations was $(0.02), based on weighted average common shares outstanding of 44,973,644 .  For the nine months ended March 31, 2011, basic net loss per share from continuing operations was $(0.01) based on weighted average common shares outstanding of 42,455,200.

 

16

Hypertension Diagnostics, Inc.

Notes to the Consolidated Financial Statements

March 31, 2012

Liquidity and Capital Resources

Cash and cash equivalents had a net decrease of $371,786 and $231,534 for the nine months ended March 31, 2012 and March 31, 2011, respectively.  The significant elements of these changes were as follows:

		Nine months Ended March 31
		2012		2011
Net cash provided by (used in) operating activities:
Net loss from continuing operations		$ (904,063)		$ (272,347)
Non-cash stock option expense		$ 87,125		95,745
Increase in inventory related to the new recycled
plastics processing business.		$ (142,534)		$ -
Increase in accounts receivable related to the new recycled
plastics processing business.		$ (1,089,778)
Increase in accounts payable that relate to continuing				$ -
operations		$ 202,053
Increase in accrued expenses relating to continuing operations		$ 180,980		$ -
Increase in deferred rent		$ 92,749
Net cash provided by Investing activities:
Purchase of equipment and other fixed assets in setting
up HDIP for operations		$ (630,525)		$ -
Payment received on note receivable		$ 125,000		$ -
Net cash provided by financing activities:
Proceeds from sale of warrants		-		$ 30,000
Factoring line of credit agreement with Charter Capital		$ 630,184		$ -
Proceeds from subordinated debt offering		$ 833,600		-
Proceeds from KLC Financial for equipment lease		$ 109,813		-
Other:
Activity related to discontinued operations		$ (91,311)		$ (58,445)

As of March 31, 2012, we had cash and cash equivalents of $382,035 which, combined with our credit facility with Charter Capital, we expect will allow us to operate as a going concern for at least the next twelve months following March 31, 2012. The Company estimates the cost of completing the required electrical repairs of the processing facility to be approximately $75,000. However, the company is not able to determine the total costs resulting from the shutdown of its processing facility and the amount of cash required to resume production. Given the uncertainties surrounding resuming production, it is likely the Company will need to raise additional capital.

It is not possible to determine if the Company will be successful in raising additional capital or predict the terms, including potential dilution that might be entered into in conjunction raising additional capital.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

Our exposure to market risks is limited to changes in interest rates. We do not use derivative financial instruments as part of an overall strategy to manage risk.

Item 4.  Controls and Procedures.

( )

Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, Kenneth W. Brimmer, and Marilee Douda, our Secretary and Manager of Finance and Accounting, 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 Chief Financial Officer and Manager of Finance and Accounting have concluded that, as of the evaluation date, our disclosure controls and procedures were not operating effectively for gathering, analyzing and disclosing the information that we are required to disclose in the reports we file under the Securities and Exchange Act of 1934 within the time periods specified in the SEC’s rules, and that such information is accumulated and communicated to our management, including our CEO and CFO in a manner that allows for timely decisions regarding timely disclosures.

 

(b) Changes in Internal Control Over Financial Reporting

 

17

Hypertension Diagnostics, Inc.

Notes to the Consolidated Financial Statements

March 31, 2012

The Company is currently in the process of assessing, changing, and updating its internal controls over financial reporting in connection with the Company’s sale of its medical device business and commencement of the recycled plastics processing business in October 2011. Until we are able to test the operating effectiveness of remediated internal controls and ensure the effectiveness of our disclosure controls and procedures, any material weaknesses may materially adversely affect our ability to report accurately our financial condition and results of operations in the future in a timely and reliable manner. As we review and evaluate internal control systems to allow management to report on the sufficiency of our internal controls, we cannot assure you that we will not discover additional weaknesses in our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1A.

Risk Factors

 

The risk factors set forth in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2011 filed with the SEC on September 16, 2011 contain important factors that could cause our actual business and financial results to differ materially from those contained in forward-looking statements made in this Quarterly Report on Form 10-Q or elsewhere by management from time to time. Investors are encouraged to review and read such risk factors in relation to the statements herein.

Item 2. Unregistered Sales of Equity Securities and use of Proceeds

See Item 5. below.

Item 5.    Other Information

Unregistered Sales of Equity Securities

In December 2011, the Company commenced a private placement offering of 14.5% Five Year Subordinated Notes with Warrants to its existing preferred shareholders, directors of the Company and certain other accredited investors. The notes are issued by HDIP and are guaranteed by the Company.  Interest is payable monthly in cash.  An initial closing of the offering was completed February 10, 2012 and resulted in the issuance of $833,600 in notes and five-year warrants to purchase an aggregate of 11,051,429 shares of the Company’s common stock with an exercise price of $.07 per share. The notes are due five years from the closing date at 105% of face value. The Notes may be prepaid by the Company in accordance with the following schedule below at the redemption prices (expressed in percentages of principal amount to be repaid), plus unpaid accrued interest to the date of payment:

Loan Year	Redemption Price
1	125%
2	120%
3	115%
4	110%
Maturity	105%

In connection with the offering, no underwriters were utilized and no commissions were paid. The Company and HDIP relied upon the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended, for such issuance.

Effective February 10, 2012, the Company agreed to issue 9,062,907 common shares to Kenneth W. Brimmer its CEO and director.  The shares were issued for services rendered in connection with the initial acquisition of the plant and equipment, lease negotiations, and employee recruitment related to development of HDIP. The shares are restricted from sale for a three year period following issuance. The estimated fair value of the shares totaling $215,697 (calculated by taking the Company’s common stock trading price on February 9, 2012 of $0.028, less a marketability discount of 15%) was recorded as an expense during the quarter ended March 31, 2012.

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Item 6.

Exhibits

(a)

The following Exhibits are furnished pursuant to Item 601 of Regulation S-K:

2.1

Asset Purchase Agreement dated August 24, 2011 by and between HDI and Cohn Prevention Centers, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed August 31, 2011).

2.2

Tri-Party Sale Agreement dated September 23, 2011 by and among HDI Plastics, Inc., Compass Bank and Cycled Plastics, Ltd. (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed September 26, 2011).

3.1

Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form SB-2 (File No. 333-53025) filed on May 19, 1998).

3.2

Bylaws (incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form SB-2 (File No. 333-53025) filed on May 19, 1998).

10.1

Sublease Agreement dated August 2011 by and between HDI and Cohn Prevention Centers, LLC (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed August 31, 2011).

10.2

Sublicense Agreement dated August 2011 by and between HDI and Cohn Prevention Centers, LLC (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed August 31, 2011).

10.3

Retention and Separation Agreement by and between HDI and Greg Guettler (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed August 31, 2011).

10.4

Lease Agreement dated September 20, 2011 by and between HDI Plastics, Inc., a wholly owned subsidiary of HDI, and Flemtex Properties Corp. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed September 26, 2011).

10.5

Purchase and Sale Agreement/Security Agreement dated October 11, 2011 among Charter Capital Holdings LP, HDIP Plastics Inc., and the Company (incorporated by reference to Exhibit 5.1 to the Company’s Quarterly Report on Form 10-Q dated February 14, 2012).

10.6*

Commercial Lease agreement by and between KLC Financial, Inc., HDI Plastics, Inc., and the Company.

31.1*

Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*

Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS*

XBRL Instance Document**

101.CAL*

XBRL Taxonomy Extension Calculation Linkbase Document**

101.DEF*

XBRL Taxonomy Extension Definition Linkbase Document**

101.LAB*

XBRL Taxonomy Extension Label Linkbase Document**

101.PRE*

XBRL Taxonomy Extension Presentation Linkbase Document**

101.SCH*

XBRL Taxonomy Extension Schema Document**

*

Filed herewith

**

In accordance with Rule 406T of Regulation S-T, this information deemed not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has caused duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

HYPERTENSION DIAGNOSTICS, INC.

By /s/ Kenneth W. Brimmer

Kenneth W. Brimmer

Chief Executive Officer and Chief Financial Officer

Date:  May 15, 2012

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