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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



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FORM 10-QSB

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE QUARTERLY PERIOD ENDED March 31, 2002

Commission File Number: 0-24635

HYPERTENSION DIAGNOSTICS, INC.

(Exact name of small business issuer as specified in its charter)


|                         |  |                                     
|------------------------ |  | ------------------------------------
|MINNESOTA                |  | 41-1618036                          
|(State of incorporation) |  | (I.R.S. Employer Identification No.)

2915 WATERS ROAD, SUITE 108
EAGAN, MINNESOTA 55121-1562
(651) 687-9999
(Address of issuers principal executive offices and telephone number)



Check whether the issuer (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  (XBOX) |  | No  (BOX)

The number of shares of Common Stock outstanding as of May 14, 2002 was
6,240,381.

Transitional Small Business Disclosure Format:

|           |  |           
|---------- |  | ----------
|Yes  (BOX) |  | No  (XBOX)





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TABLE OF CONTENTS



|                              |                                                                                               |                                                                                                     |  |  |  |  |  | 
|----------------------------- | --------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | Item 1. Financial Statements                                                                 
|                              |                                                                                               | Balance Sheets  March 31, 2002 and June 30, 2001                                                  
|                              |                                                                                               | Statements of Operations  Three Months and Nine Months Ended March 31, 2002 and 2001, respectively
|                              |                                                                                               | Statements of Cash Flows  Nine Months Ended March 31, 2002 and 2001                               
|                              |                                                                                               | Notes to Financial Statements                                                                      
|                              | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|PART II. OTHER INFORMATION   
|                              | Item 2. Use of Proceeds                                                                      
|                              | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                   



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HYPERTENSION DIAGNOSTICS, INC.

INDEX TO FORM 10-QSB

|                               |                                                                                                    |                                                                                                     |    |          |   | 
|------------------------------ | -------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------- | -- | -------- | - | 
|                               |                                                                                                    |                                                                                                     |    | Page No.
|                               |                                                                                                    |                                                                                                     |    |         
|PART I. FINANCIAL INFORMATION: |                                                                                                    |                                                                                                     |    |         
|                               | Item 1. Financial Statements                                                                       |                                                                                                     |    | 3        |  
|                               |                                                                                                    | Balance Sheets  March 31, 2002 and June 30, 2001                                                   |    |          | 3 | 
|                               |                                                                                                    | Statements of Operations  Three Months and Nine Months Ended
March 31, 2002 and 2001, respectively |    |          | 4 | 
|                               |                                                                                                    | Statements of Cash Flows  Nine Months Ended
March 31, 2002 and 2001                                |    |          | 5 | 
|                               |                                                                                                    | Notes to Financial Statements                                                                       |    |          | 6 | 
|                               | Item 2. Managements Discussion and Analysis of Financial Condition
and Results of      Operations |                                                                                                     |    | 8        |  
|PART II. OTHER INFORMATION:    |                                                                                                    |                                                                                                     |    |         
|                               | Item 2. Use of Proceeds                                                                            |                                                                                                     |    | 15       |  
|                               | Item 6. Exhibits and Reports on Form 8-K                                                           |                                                                                                     |    | 15       |  
|SIGNATURES                     |                                                                                                    |                                                                                                     | 16 |         

2



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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Hypertension Diagnostics, Inc.

Balance Sheets

|                                                                                                                  |                                   |                               |                                                                                                                                              |             |           |           |          |             |          |           | 
|----------------------------------------------------------------------------------------------------------------- | --------------------------------- | ----------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------- | ----------- | --------- | --------- | -------- | ----------- | -------- | --------- | 
|                                                                                                                  |                                   |                               |                                                                                                                                              |             | March 31, |           | June 30,
|                                                                                                                  |                                   |                               |                                                                                                                                              |             | 2002      |           | 2001    
|                                                                                                                  |                                   |                               |                                                                                                                                              |             |           |           |         
|Assets                                                                                                            |                                   |                               |                                                                                                                                              |             |           |           |          |            
|Current Assets:                                                                                                   |                                   |                               |                                                                                                                                              |             |           |           |          |            
|                                                                                                                  | Cash and cash equivalents         |                               | $                                                                                                                                            | 2,559,701   |           |           | $        | 3,885,064   |         
|                                                                                                                  | Accounts receivable               |                               |                                                                                                                                              | 112,332     |           |           |          | 46,017      |         
|                                                                                                                  | Interest receivable               |                               |                                                                                                                                              | 2,667       |           |           |          | 8,436       |         
|                                                                                                                  | Inventory                         |                               |                                                                                                                                              | 1,430,111   |           |           |          | 1,298,178   |         
|                                                                                                                  | Prepaids and other current assets |                               |                                                                                                                                              | 191,335     |           |           |          | 9,679       |         
|                                                                                                                  |                                   |                               |                                                                                                                                              |             |           |           |         
|                                                                                                                  |                                   |                               | Total Current Assets                                                                                                                         |             |           | 4,296,146 |          |             |          | 5,247,374 | 
|                                                                                                                 
|Property and Equipment:                                                                                           |                                   |                               |                                                                                                                                              |             |           |           |          |            
|                                                                                                                  |                                   | Leasehold improvements        |                                                                                                                                              |             | 17,202    |           |          |             | 17,202   |          
|                                                                                                                  |                                   | Furniture and equipment       |                                                                                                                                              |             | 1,084,781 |           |          |             | 841,933  |          
|                                                                                                                  |                                   | Less accumulated depreciation |                                                                                                                                              |             | (457,843  | )         |          |             | (309,567 | )        
|                                                                                                                  |                                   |                               |                                                                                                                                              |             |           |           |         
|                                                                                                                  |                                   |                               | 644,140                                                                                                                                      |             |           |           | 549,568  |            
|Patents, net of accumulated amortization of $40,305
and $35,205 at March 31, 2002 and June 30, 2001,
respectively |                                   |                               | 5,100                                                                                                                                        |             |           |           | 10,200   |            
|Other Assets                                                                                                      |                                   |                               | 6,730                                                                                                                                        |             |           |           | 6,730    |            
|                                                                                                                  |                                   |                               |                                                                                                                                              |             |           |           |         
|                                                                                                                  |                                   |                               | Total Assets                                                                                                                                 |             | $         | 4,952,116 |          |             | $        | 5,813,872 | 
|                                                                                                                  |                                   |                               |                                                                                                                                              |             |           |           |         
|Liabilities and Shareholders Equity                                                                              |                                   |                               |                                                                                                                                              |             |           |           |          |            
|Current Liabilities:                                                                                              |                                   |                               |                                                                                                                                              |             |           |           |          |            
|                                                                                                                  | Accounts payable                  |                               | $                                                                                                                                            | 112,958     |           |           | $        | 238,797     |         
|                                                                                                                  | Accrued payroll and payroll taxes |                               |                                                                                                                                              | 213,494     |           |           |          | 192,593     |         
|                                                                                                                  | Other accrued expenses            |                               |                                                                                                                                              | 10,627      |           |           |          | 48,697      |         
|                                                                                                                  |                                   |                               |                                                                                                                                              |             |           |           |         
|                                                                                                                  |                                   |                               | Total Current Liabilities                                                                                                                    |             |           | 337,079   |          |             |          | 480,087   | 
|                                                                                                                 
|Convertible Notes Payable                                                                                         |                                   |                               | 2,000,000                                                                                                                                    |             |           |           |         |            
|                                                                                                                 
|Shareholders Equity:                                                                                             |                                   |                               |                                                                                                                                              |             |           |           |          |            
|                                                                                                                  | Preferred Stock, $.01 par value:  |                               |                                                                                                                                              |             |           |           |          |             |         
|                                                                                                                  |                                   |                               | Authorized
shares  5,000,000
Issued and outstanding shares  none                                                                           |             |           |           |          |             |          |           | 
|                                                                                                                  | Common Stock, $.01 par value:     |                               |                                                                                                                                              |             |           |           |          |             |         
|                                                                                                                  |                                   |                               | Authorized
shares  25,000,000
Issued and outstanding shares  5,920,829 and 5,684,329
    at March 31, 2002 and June 30, 2001, respectively |             |           | 59,208    |          |             |          | 56,843    | 
|                                                                                                                  | Additional paid-in capital        |                               |                                                                                                                                              | 18,798,497  |           |           |          | 16,527,165  |         
|                                                                                                                  | Deferred compensation             |                               |                                                                                                                                              | (381,093    | )         |           |          | (11,870     | )       
|                                                                                                                  | Accumulated deficit               |                               |                                                                                                                                              | (15,861,575 | )         |           |          | (11,238,353 | )       
|                                                                                                                  |                                   |                               |                                                                                                                                              |             |           |           |         
|                                                                                                                  |                                   |                               | Total Shareholders Equity                                                                                                                   |             |           | 2,615,037 |          |             |          | 5,333,785 | 
|                                                                                                                  |                                   |                               |                                                                                                                                              |             |           |           |         
|                                                                                                                  |                                   |                               | Total Liabilities and Shareholders Equity                                                                                                   |             | $         | 4,952,116 |          |             | $        | 5,813,872 | 
|                                                                                                                  |                                   |                               |                                                                                                                                              |             |           |           |         

See accompanying notes.

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Hypertension Diagnostics, Inc.

Statements of Operations

|                                     |                                     |              |                |           |                    |            |                   |         |         |           |            |           |         |            |            |           |           |            |  
|------------------------------------ | ----------------------------------- | ------------ | -------------- | --------- | ------------------ | ---------- | ----------------- | ------- | ------- | --------- | ---------- | --------- | ------- | ---------- | ---------- | --------- | --------- | ---------- | -
|                                     |                                     |              |                |           | Three Months Ended |            | Nine Months Ended
|                                     |                                     |              |                |           | March 31           |            | March 31         
|                                     |                                     |              |                |           |                    |            |                  
|                                     |                                     |              |                |           | 2002               |            | 2001              |         | 2002    |           | 2001      
|                                     |                                     |              |                |           |                    |            |                   |         |         |           |           
|Revenue                              |                                     | $            | 95,100         |           |                    | $          | 303,500           |         |         | $         | 419,308    |           |         | $          | 1,956,804  |          
|Cost of Sales                        |                                     |              | 12,327         |           |                    |            | 64,250            |         |         |           | 75,903     |           |         |            | 435,862    |          
|                                     |                                     |              |                |           |                    |            |                   |         |         |           |           
|                                     |                                     | Gross Profit |                |           | 82,773             |            |                   |         | 239,250 |           |            |           | 343,405 |            |            |           | 1,520,942 |           
|                                    
|Expenses:                            |                                     |              |                |           |                    |            |                   |         |         |           |            |           |         |            |            |          
|                                     | Research and development            |              |                |          |                    |            |                   | 73,504  |         |           |            | 40,827    |         |            |            | 204,208   |          
|                                     | Selling, general and administrative |              |                | 1,400,451 |                    |            |                   | 968,011 |         |           |            | 4,971,909 |         |            |            | 2,576,871 |          
|                                     |                                     |              |                |           |                    |            |                   |         |         |           |           
|                                     |                                     |              | Total Expenses |           |                    | 1,400,451  |                   |         |         | 1,041,515 |            |           |         | 5,012,736  |            |           |           | 2,781,079  |  
|                                     |                                     |              |                |           |                    |            |                   |         |         |           |           
|Operating Loss                       |                                     |              | (1,317,678     | )         |                    |            | (802,265          | )       |         |           | (4,669,331 | )         |         |            | (1,260,137 | )        
|                                    
|Other Income (Expense):              |                                     |              |                |           |                    |            |                   |         |         |           |            |           |         |            |            |          
|                                     | Interest income                     |              |                | 6,637     |                    |            |                   | 45,136  |         |           |            | 47,863    |         |            |            | 157,198   |          
|                                     | Interest expense                    |              |                | (1,754    | )                  |            |                   |        |         |           |            | (1,754    | )       |            |            |          |          
|                                     |                                     |              |                |           |                    |            |                   |         |         |           |           
|                                     |                                     |              | Net Loss       |           | $                  | (1,312,795 | )                 |         | $       | (757,129  | )          |           | $       | (4,623,222 | )          |           | $         | (1,102,939 | )
|                                     |                                     |              |                |           |                    |            |                   |         |         |           |           
|Basic and Diluted Net Loss per Share |                                     | $            | (.22           | )         |                    | $          | (.14              | )       |         | $         | (.79       | )         |         | $          | (.21       | )        
|Weighted Average Shares Outstanding  |                                     |              | 5,920,829      |           |                    |            | 5,318,060         |         |         |           | 5,824,236  |           |         |            | 5,267,086  |          

See accompanying notes.

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Hypertension Diagnostics, Inc.

Statements of Cash Flows

|                                                                            |                                                             |                                                  |            |                   |            |      |            |        |            |  
|--------------------------------------------------------------------------- | ----------------------------------------------------------- | ------------------------------------------------ | ---------- | ----------------- | ---------- | ---- | ---------- | ------ | ---------- | -
|                                                                            |                                                             |                                                  |            | Nine Months Ended
|                                                                            |                                                             |                                                  |            | March 31         
|                                                                            |                                                             |                                                  |            |                  
|                                                                            |                                                             |                                                  |            | 2002              |            | 2001
|                                                                            |                                                             |                                                  |            |                   |            |     
|Operating Activities:                                                       |                                                             |                                                  |            |                   |            |      |            |       
|Net loss                                                                    |                                                             | $                                                | (4,623,222 | )                 |            | $    | (1,102,939 | )     
|Adjustments to reconcile net loss to net
cash used in operating activities: |                                                             |                                                  |            |                   |            |      |            |       
|                                                                            | Value of stock options granted in lieu
of cash compensation |                                                  |            | 1,861,877         |            |      |            | 53,505 |           
|                                                                            | Depreciation                                                |                                                  |            | 148,276           |            |      |            | 80,826 |           
|                                                                            | Amortization                                                |                                                  |            | 5,100             |            |      |            | 5,100  |           
|                                                                            | Change in operating assets and liabilities:                 |                                                  |            |                   |            |      |            |        |           
|                                                                            |                                                             | Accounts receivable                              |            |                   | (66,315    | )    |            |        | 50,963     |  
|                                                                            |                                                             | Interest receivable                              |            |                   | 5,769      |      |            |        | (3,549     | )
|                                                                            |                                                             | Inventory                                        |            |                   | (367,662   | )    |            |        | (108,632   | )
|                                                                            |                                                             | Prepaids and other current assets                |            |                   | (181,656   | )    |            |        | (13,113    | )
|                                                                            |                                                             | Other assets                                     |            |                   |           |      |            |        |           |  
|                                                                            |                                                             | Accounts payable                                 |            |                   | (125,839   | )    |            |        | 60,652     |  
|                                                                            |                                                             | Accrued payroll and payroll taxes                |            |                   | 20,901     |      |            |        | (61,332    | )
|                                                                            |                                                             | Other accrued expenses                           |            |                   | (38,070    | )    |            |        | 27,706     |  
|                                                                            |                                                             |                                                  |            |                   |            |     
|                                                                            |                                                             | Net cash used in operating activities            |            |                   | (3,360,841 | )    |            |        | (1,010,813 | )
|                                                                           
|Investing Activities:                                                       |                                                             |                                                  |            |                   |            |      |            |       
|Purchase of property and equipment                                          |                                                             |                                                  | (7,120     | )                 |            |      | (43,010    | )     
|                                                                            |                                                             |                                                  |            |                   |            |     
|                                                                            |                                                             | Net cash used in investing activities            |            |                   | (7,120     | )    |            |        | (43,010    | )
|                                                                           
|Financing Activities:                                                       |                                                             |                                                  |            |                   |            |      |            |       
|Issuance of Common Stock                                                    |                                                             |                                                  | 42,598     |                   |            |      | 2,100,358  |       
|Proceeds from issuance of notes payable                                     |                                                             |                                                  | 2,000,000  |                   |            |      |           |       
|                                                                            |                                                             |                                                  |            |                   |            |     
|                                                                            |                                                             | Net cash provided by financing activities        |            |                   | 2,042,598  |      |            |        | 2,100,358  |  
|                                                                            |                                                             |                                                  |            |                   |            |     
|Net increase (decrease) in cash and cash equivalents                        |                                                             |                                                  | (1,325,363 | )                 |            |      | 1,046,535  |       
|                                                                            |                                                             | Cash and cash equivalents at beginning of period |            |                   | 3,885,064  |      |            |        | 4,018,745  |  
|                                                                            |                                                             |                                                  |            |                   |            |     
|Cash and cash equivalents at end of period                                  |                                                             | $                                                | 2,559,701  |                   |            | $    | 5,065,280  |       
|                                                                            |                                                             |                                                  |            |                   |            |     

See accompanying notes.

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Hypertension Diagnostics, Inc.
Notes to Financial Statements

March 31, 2002



|1. |  | Interim Financial Information                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-QSB 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 months and nine months ended March 31, 2002 are not necessarily
indicative of the results that may be expected for the full year ending
June 30, 2002. The June 30, 2001 balance sheet was derived from audited
financial statements. For further information, refer to the financial
statements and notes included in the Companys Annual Report on Form
10-KSB for the fiscal year ended June 30, 2001. The policies described
in that report are used for preparing quarterly reports.                                                                                                                                                                                                                         
|  
|2. |  | Consulting Agreement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  
|   |  | On July 9, 2001, the Company entered into a Consulting Agreement (the
Agreement) for investor communications and public relations consulting
services with Redwood Consulting, LLC (Redwood), a full service
investor relations firm based in Marin County, California. In
consideration for the consulting services to be provided, on July 9, 2001
the Company issued 200,000 shares of Common Stock with a fair market
value of $6.02 per share on the date of issuance and warrants to purchase
300,000 shares of Common Stock. Under the warrant agreements, warrant
holders can purchase an aggregate of 100,000 shares of Common Stock at
$5.00 per share, an aggregate of 100,000 shares at $7.50 per share and an
aggregate of 100,000 shares at $10.00 per share. The warrant agreements
expire in July 2004. The Company has determined the fair value of the
Agreement to be $2,129,000, which amount will be expensed as the services
are provided. For the three months and nine months ended March 31, 2002,
the Company recognized $355,000 and $1,775,000, respectively, of expense
associated with the Agreement. The fair value of the issued shares and
warrants was arrived at based upon the following methods:

|         |  |   |  |  |  |                                                                                                         
|-------- |  | - |  |  |  | --------------------------------------------------------------------------------------------------------
|Shares   |  |  |  |  |  | Last Sales price ($6.02) of the Companys Common
Stock on July 9, 2001 (The Nasdaq SmallCap Market); and
|        
|Warrants |  |  |  |  |  | The Black-Scholes option pricing model                                                                  



|3. |  | Convertible Notes Payable                                                                                                                                                                                                                                                           
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | On March 27, 2002 (the Closing Date), the Company placed $2,000,000 in
convertible debt through a private placement to five investors consisting
of three-year 8% Convertible Notes in the aggregate principal amount of
$2,000,000. The 8% Convertible Notes are convertible into

6



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|   |  | Common Stock of the Company at a conversion price initially set at 80% of
the average of the closing bid prices of the Companys Common Stock for
the five trading days preceding the Closing Date. As of March 27, 2002,
the conversion price was $2.5072. The conversion price is subject to
downward adjustment if the closing bid price of the Companys Common
Stock is less than the initial conversion price for any twenty
consecutive trading days (which has occurred). The conversion price is adjusted downward
to an amount that equals 80% of the average of the closing bid prices of the Companys
Common Stock for the last five trading days of any such twenty consecutive
trading day period. In connection with the
private placement, the Company also issued to the investors five-year
warrants to purchase an aggregate of 250,000 shares of the Companys
Common Stock. The warrants have an exercise price of 115% of the closing
bid price of the Companys Common Stock as of the Closing Date, that is
$3.3925 as of March 27, 2002. The Company intends to use the proceeds
from the private placement as working capital.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|4. |  | Subsequent Event                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|  
|   |  | On April 30, 2002, the Company announced that its Registration Statement
on Form S-3 filed on April 19, 2002 was declared effective at 10:00 a.m.
Washington, D.C. time by the Securities and Exchange Commission. The
Registration Statement relates to the registration of 1,970,000 shares of
the Companys Common Stock, of which 1,850,000 shares are issuable to
certain investors upon conversion of notes and exercised warrants issued
in connection with the Companys $2,000,000 convertible debt private
placement completed on March 27, 2002. On May 8, 2002, one of the
investors converted $114,700 of principal of its Note into 103,000 shares
of our Common Stock. On May 10, 2002, another investor converted
$198,300 of principal and $1,912 of interest related to its Note into
206,149 shares of our Common Stock. On May 13, 2002 another investor
converted $10,000 of principal and $103 of interest related to its Note into 10,403 shares
of our Common Stock.                                                                                                                                                             

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

Forward-Looking Statements

This report contains 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, will, can, estimate,
anticipate and similar expressions are intended to identify forward-looking
statements. We wish to 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 in our 2001 Annual Report on Form 10-KSB under the
caption Risk Factors, as well as others not now anticipated. These risks and
uncertainties include, without limitation, our ability to generate revenue; our
need for additional capital; the availability of third-party reimbursements for
physicians utilization of our CVProfilor® DO-2020 System; market acceptance of our products; the
ability to operate and maintain the Central Data Management Facility (CDMF)
on a commercial scale; regulatory restrictions pertaining to data privacy
issues in utilizing the CDMF; the ability to manufacture our products on a
commercial scale and in compliance with regulatory requirements; 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; and our ability
to protect our proprietary technology. We undertake no responsibility to
update any forward-looking statement.

Forward-looking statements involve risks and uncertainties, including
those discussed under Risk Factors, that could cause actual results to differ
materially from those anticipated. Because actual results may differ, readers
are cautioned not to place undue reliance on these forward-looking statements.

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. 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. We are currently marketing two versions of our
Product: the HDI/PulseWave CR-2000 Research CardioVascular Profiling System
and the CVProfilor® DO-2020 CardioVascular Profiling System. We also plan to
market the CVProfilor® MD-3000 CardioVascular Profiling System in the near
future. The CR-2000 Research System is being marketed worldwide, has a medical
device CE Mark (CE0123) which allows it to be marketed as a medical device in
the European Union and is being marketed for research purposes only in the
United States (that is, not for screening, diagnosing, or monitoring the
treatment of patients). The CVProfilor® DO-2020 System is being marketed to
primary care physicians and other health care professionals on a
per-patient-tested rental basis. 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
physician customers on the number of CardioVascular Profile Reports (CVProfile
Reports) which they generate each month. We anticipate that marketing the
CVProfilor® DO-2020 System under a per-patient-tested rental program (as
opposed to a capital sale approach) will allow us to accelerate the rate of
Product acceptance in the medical marketplace and should allow physician usage
fees to eventually generate the majority of our revenue. The CVProfilor®
MD-3000 System will provide physicians outside the United States with important
cardiovascular parameters, which we believe will 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 patient cardiovascular diseases, and allow
for monitoring the effectiveness of various treatments of patients with
diagnosed cardiovascular disease. The CVProfilor®

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MD-3000 System requires that
we obtain a CE Mark in order for it to be marketed within European Union
countries and will require certain regulatory approval for it to be marketed in
other countries throughout the world.

Results of Operations

As of March 31, 2002, we had an accumulated deficit of $(15,861,575),
attributable primarily to research and development and general and
administrative expenses. Until we are able to generate significant revenues
from our activities, we expect to continue to incur operating losses.

Three Months Ended March 31, 2002 Compared to Three Months Ended March 31, 2001

The following is a summary of our Revenue and Cost of Sales for the three
months ended March 31, 2002 and 2001, respectively:

|              |  |                                   |        |  |       |           |        |        |                    |   |        | 
|------------- |  | --------------------------------- | ------ |  | ----- | --------- | ------ | ------ | ------------------ | - | ------ | 
|              |  | Three Months Ended March 31, 2002 |       
|              |  |                                   |       
|              |  |                                   |        |  |       | Equipment |        |        | CVProfilor®DO-2020 |  
|              |  | Total                             |        |  | Sales |           |        | Rental |                   
|              |  |                                   |        |  |       |           |        |        |                   
|Revenue       |  | $                                 | 95,100 |  |       | $         | 50,453 |        |                    | $ | 44,647 | 
|Cost of Sales |  |                                   | 12,327 |  |       |           | 7,116  |        |                    |   | 5,211  | 
|              |  |                                   |        |  |       |           |        |        |                   
|Gross Profit  |  | $                                 | 82,773 |  |       | $         | 43,337 |        |                    | $ | 39,436 | 
|              |  |                                   |        |  |       |           |        |        |                   

|              |  |                                   |         |  |       |           |         |        |                    |   |   | 
|------------- |  | --------------------------------- | ------- |  | ----- | --------- | ------- | ------ | ------------------ | - | - | 
|              |  | Three Months Ended March 31, 2001 |        
|              |  |                                   |        
|              |  |                                   |         |  |       | Equipment |         |        | CVProfilor®DO-2020 |  
|              |  | Total                             |         |  | Sales |           |         | Rental |                   
|              |  |                                   |         |  |       |           |         |        |                   
|Revenue       |  | $                                 | 303,500 |  |       | $         | 303,500 |        |                    | $ |  | 
|Cost of Sales |  |                                   | 64,250  |  |       |           | 64,250  |        |                    |   |  | 
|              |  |                                   |         |  |       |           |         |        |                   
|Gross Profit  |  | $                                 | 239,250 |  |       | $         | 239,250 |        |                    | $ |  | 
|              |  |                                   |         |  |       |           |         |        |                   

Total Equipment Sales Revenue for the three months ended March 31, 2002
was $50,453, compared to $303,500 for the three months ended March 31, 2001.
This decrease is mainly due to our focus away from solely the sales of CR-2000 Research
Systems to a combination of CR-2000 Research System sales and rental revenue from the placement of CVProfilor® DO-2020 Systems generating revenue on a
per-patient-tested rental program. Although we continue to balance sales of
the CR-2000 Research Systems with the placement of CVProfilor® DO-2020 Systems,
the majority of our time and attention is now, and it is expected to continue
to be, focused on expanding CVProfilor® DO-2020 System placements and
attempting to increase its utilization in U.S. physicians medical offices and
clinics and seeking to increase third party reimbursements for such
utilization. This shift in our strategic focus began in the fourth quarter of
fiscal year 2001. Full implementation of the placement of CVProfilor® DO-2020
Systems and satisfactory utilization by physicians of those systems placed has
taken more time and resources than originally anticipated due to delays in
obtaining 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 placed. We have commenced focusing
our resources on specific regional markets which we believe are more likely to generate higher
levels of acceptance of the CVProfilor® DO-2020 Systems by physicians and a greater
amount of reimbursements by third party payors to such physicians.

We believe this approach is the most
effective method of both increasing placements of CVProfilor® DO-2020 Systems
and increasing the physician utilizations of such systems placed.

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For the three months ended March 31, 2002, we recognized Revenue for the
CVProfilor® DO-2020 per-patient-tested rental program of $44,647. The per
test fee is recognized as Revenue when we determine that collectibility is
probable, which currently is upon cash receipt.

Total expenses for the three months ended March 31, 2002 were $1,400,451
compared to $1,041,515 for the three months ended March 31, 2001. None of the
$1,400,451 and approximately 7% of the $1,041,515 total expenses were related
to research and development expenses. A further breakdown of research and
development expenses is as follows:

|                                                                                             |                                         |   |                    |   |      |   |        |        | 
|-------------------------------------------------------------------------------------------- | --------------------------------------- | - | ------------------ | - | ---- | - | ------ | ------ | 
|                                                                                             |                                         |   | Three Months Ended
|                                                                                             |                                         |   | March 31          
|                                                                                             |                                         |   |                   
|                                                                                             |                                         |   | 2002               |   | 2001
|                                                                                             |                                         |   |                    |   |     
|Design and development of prototype devices and other
enhancements and improvements          |                                         | $ |                   |   |      | $ | 55,669 |       
|Recognized compensation cost for value of stock options
granted in lieu of cash compensation |                                         |   |                   |   |      |   | 17,835 |       
|                                                                                             |                                         |   |                    |   |      |   |       
|                                                                                             | Total research and development expenses |   | $                  |  |      |   | $      | 73,504 | 
|                                                                                             |                                         |   |                    |   |      |   |       

The following is a summary of the major categories included in selling,
general and administrative expenses:

|                                                             |                                                    |   |                    |           |      |   |         |         | 
|------------------------------------------------------------ | -------------------------------------------------- | - | ------------------ | --------- | ---- | - | ------- | ------- | 
|                                                             |                                                    |   | Three Months Ended
|                                                             |                                                    |   | March 31          
|                                                             |                                                    |   |                   
|                                                             |                                                    |   | 2002               |           | 2001
|                                                             |                                                    |   |                    |           |     
|Wages, related expenses and benefits                         |                                                    | $ | 242,164            |           |      | $ | 233,746 |        
|Patents and related expenses                                 |                                                    |   | 3,314              |           |      |   | 17,577  |        
|Outside consultants                                          |                                                    |   | 443,065            |           |      |   | 50,130  |        
|Rent-building/equipment and
utilities                        |                                                    |   | 29,331             |           |      |   | 24,374  |        
|Insurance-general and directors/officers liability           |                                                    |   | 18,421             |           |      |   | 14,348  |        
|Selling, marketing and promotion, including applicable wages |                                                    |   | 296,099            |           |      |   | 432,698 |        
|Legal and audit/accounting fees                              |                                                    |   | 34,774             |           |      |   | 23,924  |        
|Royalties                                                    |                                                    |   | 2,853              |           |      |   | 9,105   |        
|Depreciation and amortization                                |                                                    |   | 47,400             |           |      |   | 29,356  |        
|Convertible debt offering expenses                           |                                                    |   | 234,140            |           |      |   |        |        
|Other-general and administrative                             |                                                    |   | 48,890             |           |      |   | 132,753 |        
|                                                             |                                                    |   |                    |           |      |   |        
|                                                             | Total selling, general and administrative expenses |   | $                  | 1,400,451 |      |   | $       | 968,011 | 
|                                                             |                                                    |   |                    |           |      |   |        

Our number of employees increased from fifteen in the three months ended
March 31, 2001 to seventeen in the three months ended March 31, 2002.

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Outside consultants expense increased from $50,130 for the three months
ended March 31, 2001 to $443,065 for the three months ended March 31, 2002.
Included in the $443,065 expense amount is a non-cash expense charge
of $355,000 relating to our July 9, 2001 Consulting Agreement with Redwood
Consultants, LLC. The fair value of that agreement ($2,129,000) is being
expensed as services are provided.

Selling, marketing and promotion expense decreased from $432,698 for the
three months ended March 31, 2001 to $296,099 for the three months ended March
31, 2002. This category includes wages and commissions paid by us relating to
our sales and marketing efforts as well as travel and convention expenses.

Interest income was $6,637 and $45,136 for the three months ended March
31, 2002 and 2001, respectively.

Net loss was $(1,312,795) for the three months ended March 31, 2002 compared to
a net loss of $(757,129) for the three months ended March 31, 2001. For the
three months ended March 31, 2002, basic and diluted net loss per share was
$(.22), based on weighted average shares outstanding of 5,920,829. For the
three months ended March 31, 2001, basic and diluted net loss per share was
$(.14), based on weighted average shares outstanding of 5,318,060.

Nine Months Ended March 31, 2002 Compared to Nine Months Ended March 31, 2001

The following is a summary of our Revenue and Cost of Sales for the nine
months ended March 31, 2002 and 2001, respectively:

|              |  |                                  |         |  |       |           |         |        |                    |   |        | 
|------------- |  | -------------------------------- | ------- |  | ----- | --------- | ------- | ------ | ------------------ | - | ------ | 
|              |  | Nine Months Ended March 31, 2002 |        
|              |  |                                  |        
|              |  |                                  |         |  |       | Equipment |         |        | CVProfilor®DO-2020 |  
|              |  | Total                            |         |  | Sales |           |         | Rental |                   
|              |  |                                  |         |  |       |           |         |        |                   
|Revenue       |  | $                                | 419,308 |  |       | $         | 344,304 |        |                    | $ | 75,004 | 
|Cost of Sales |  |                                  | 75,903  |  |       |           | 65,621  |        |                    |   | 10,282 | 
|              |  |                                  |         |  |       |           |         |        |                   
|Gross Profit  |  | $                                | 343,405 |  |       | $         | 278,683 |        |                    | $ | 64,722 | 
|              |  |                                  |         |  |       |           |         |        |                   

|              |  |                                  |           |  |       |           |           |        |                    |   |   | 
|------------- |  | -------------------------------- | --------- |  | ----- | --------- | --------- | ------ | ------------------ | - | - | 
|              |  | Nine Months Ended March 31, 2001 |          
|              |  |                                  |          
|              |  |                                  |           |  |       | Equipment |           |        | CVProfilor®DO-2020 |  
|              |  | Total                            |           |  | Sales |           |           | Rental |                   
|              |  |                                  |           |  |       |           |           |        |                   
|Revenue       |  | $                                | 1,956,804 |  |       | $         | 1,956,804 |        |                    | $ |  | 
|Cost of Sales |  |                                  | 435,862   |  |       |           | 435,862   |        |                    |   |  | 
|              |  |                                  |           |  |       |           |           |        |                   
|Gross Profit  |  | $                                | 1,520,942 |  |       | $         | 1,520,942 |        |                    | $ |  | 
|              |  |                                  |           |  |       |           |           |        |                   

Total Equipment Sales Revenue for the nine months ended March 31, 2002 was
$344,304, compared to $1,956,804 for the nine months ended March 31, 2001.
This decrease is mainly due to our focus away from solely the sales of
CR-2000 Research
Systems to a combination of CR-2000 Research System sales and rental revenue from the placement of CVProfilor® DO-2020 Systems generating revenue on a
per-patient-tested rental program. Although we continue to balance sales of
the CR-2000 Research Systems with the placement of CVProfilor® DO-2020 Systems,
the majority of our time and attention is now, and it is expected to continue
to be, focused on expanding CVProfilor® DO-2020 System placements and
attempting to increase its utilization in U.S. physicians medical offices and
clinics and seeking to increase third party reimbursements for such
utilization. This shift in our strategic focus began in the fourth quarter of
fiscal year 2001. Full implementation of the placement of CVProfilor® DO-2020
Systems and satisfactory utilization by physicians of those systems placed has
taken more time and resources than originally anticipated due to delays in
obtaining consistent and satisfactory levels of third party reimbursements to
physicians utilizing the CVProfilor® DO-2020 Systems and delays in

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integrating the CVProfilor® DO-2020 Systems into the
clinic operations in which they are placed. We have commenced focusing
our resources on specific regional markets which we believe are more likely to
generate higher levels of acceptance of the CVProfilor® DO-2020 Systems by
physicians and a greater amount of reimbursements by third party payors to
such physicians. We believe this approach is the most
effective method of both increasing placements of CVProfilor® DO-2020 Systems
and increasing the physician utilizations of such systems placed.

For the nine months ended March 31, 2002, we recognized Revenue for the
CVProfilor® DO-2020 per-patient-tested rental program of $75,004. The per
test fee is recognized as Revenue when we determine that collectibility is
probable, which currently is upon cash receipt.

Total expenses for the nine months ended March 31, 2002 were $5,012,736
compared to $2,781,079 for the nine months ended March 31, 2001.
Approximately .8% of the $5,012,736 and 7% of the $2,781,079 total expenses were related to
research and development expenses. A further breakdown of research and
development expenses is as follows:

|                                                                                             |                                         |   |                   |        |      |   |         |         | 
|-------------------------------------------------------------------------------------------- | --------------------------------------- | - | ----------------- | ------ | ---- | - | ------- | ------- | 
|                                                                                             |                                         |   | Nine Months Ended
|                                                                                             |                                         |   | March 31         
|                                                                                             |                                         |   |                  
|                                                                                             |                                         |   | 2002              |        | 2001
|                                                                                             |                                         |   |                   |        |     
|Design and development of prototype devices and other
enhancements and improvements          |                                         | $ | 28,957            |        |      | $ | 150,703 |        
|Recognized compensation cost for value of stock options
granted in lieu of cash compensation |                                         |   | 11,870            |        |      |   | 53,505  |        
|                                                                                             |                                         |   |                   |        |      |  
|                                                                                             | Total research and development expenses |   | $                 | 40,827 |      |   | $       | 204,208 | 
|                                                                                             |                                         |   |                   |        |      |  

The following is a summary of the major categories included in selling,
general and administrative expenses:

|                                                             |                                                    |   |                   |           |      |   |           |           | 
|------------------------------------------------------------ | -------------------------------------------------- | - | ----------------- | --------- | ---- | - | --------- | --------- | 
|                                                             |                                                    |   | Nine Months Ended
|                                                             |                                                    |   | March 31         
|                                                             |                                                    |   |                  
|                                                             |                                                    |   | 2002              |           | 2001
|                                                             |                                                    |   |                   |           |     
|Wages, related expenses and benefits                         |                                                    | $ | 890,756           |           |      | $ | 689,464   |          
|Patents and related expenses                                 |                                                    |   | 30,791            |           |      |   | 53,030    |          
|Outside consultants                                          |                                                    |   | 1,958,564         |           |      |   | 121,485   |          
|Rent-building/equipment and utilities                        |                                                    |   | 96,893            |           |      |   | 69,547    |          
|Insurance-general and directors/officers liability           |                                                    |   | 51,971            |           |      |   | 40,829    |          
|Selling, marketing and promotion, including applicable wages |                                                    |   | 1,175,297         |           |      |   | 1,026,985 |          
|Legal and audit/accounting fees                              |                                                    |   | 161,176           |           |      |   | 131,833   |          
|Royalties                                                    |                                                    |   | 12,579            |           |      |   | 58,704    |          
|Depreciation and amortization                                |                                                    |   | 143,093           |           |      |   | 85,926    |          
|Convertible debt offering expenses                           |                                                    |   | 234,140           |           |      |   |          |          
|Other-general and administrative                             |                                                    |   | 216,649           |           |      |   | 299,068   |          
|                                                             |                                                    |   |                   |           |      |  
|                                                             | Total selling, general and administrative expenses |   | $                 | 4,971,909 |      |   | $         | 2,576,871 | 
|                                                             |                                                    |   |                   |           |      |  

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Our number of employees increased from fifteen in the nine months ended
March 31, 2001 to seventeen in the nine months ended March 31, 2002.

Outside consultants expense increased from $121,485 for the nine months
ended March 31, 2001 to $1,958,564 for the nine months ended March 31, 2002.
Included in the $1,958,564 expense amount is a non-cash expense
charge of $1,775,000 relating to our July 9, 2001 Consulting Agreement with Redwood
Consultants, LLC. The fair value of that agreement ($2,129,000) is being
expensed as services are provided.

Selling, marketing and promotion expense increased from $1,026,985 for the
nine months ended March 31, 2001 to $1,175,297 for the nine months ended March
31, 2002. This category includes wages and commissions paid by us relating to
our sales and marketing efforts as well as travel and convention expenses.

Interest income was $47,863 and $157,198 for the nine months ended March
31, 2002 and 2001, respectively.

Net loss was $(4,623,222) and $(1,102,939) for the nine months ended March 31,
2002 and 2001, respectively. For the nine months ended March 31, 2002, basic
and diluted net loss per share was $(.79), based on weighted average shares
outstanding of 5,824,236. For the nine months ended March 31, 2001, basic and
diluted net loss per share was $(.21), based on weighted average shares
outstanding of 5,267,086.

Liquidity and Capital Resources

Cash and cash equivalents had a net decrease of $1,325,363 for the nine
months ended March 31, 2002. The significant elements of this change were as
follows: net cash used in operating activities net loss, as adjusted for
non-cash items, of $2,607,969; increase in accounts receivable  $66,315;
increase in inventory  $367,662; increase in prepaids and other current assets
- $181,656; decrease in accounts payable  $125,839; net cash provided by
financingactivities  proceeds from issuance of notes payable  $2,000,000.
For the nine months ended March 31, 2001, cash and cash equivalents had a net
increase of $1,046,535. The significant elements of this change were as
follows: net cash used in operating activities net loss, as adjusted for
non-cash items, of $963,508; decrease in accounts receivable  $50,963;
increase in inventory  $108,632; net cash provided by
financing activities
issuance of Common Stock  $2,100,358.

In July 1998, we completed our initial public offering (IPO) in which we
sold 2,250,000 units at $4.125 per unit, each unit consisting of one share of
Common Stock and one Redeemable Class A Warrant (the Class A Warrants). In
August 1998, the underwriter exercised in full an overallotment option to
purchase an additional 337,500 units. Total net proceeds from the IPO were
$9,188,414. On January 23, 2001, we commenced an offering of up to 2,752,192
Redeemable Class B Warrants enabling holders to purchase one share of our $.01
par value Common Stock (the Class B Warrants). As an incentive to exercise
our outstanding Class A Warrants, we offered the Class B Warrants to those
holders of the Class A Warrants who properly exercised a Class A Warrant in the
offering period. The offering period began January 23, 2001, and expired at
5:00 p.m. Central Time, March 26, 2001. We raised $1,964,371 (net of offering
expenses of $73,062) in connection with the offering of the Class B Warrants
and the exercise of 395,618 Class A Warrants at $5.15 per share of Common Stock
and issued 395,618 Class B Warrants. On March 23, 2001, we announced that
effective that day the exercise price of the Class B Warrants had been reduced from $9.00 to $5.85 per share of Common
Stock issuable upon exercise of the Class B Warrant. The Class B Warrants
expire on January 23, 2006. The Class B Warrants are redeemable by us for $.01
per Class B Warrant at any time the closing bid price of our Common Stock
exceeds $13.50 (subject to adjustment) for 5 consecutive trading days, as
reported by The Nasdaq SmallCap Market. The Class B Warrants were approved for
listing by The Nasdaq SmallCap Market and began trading on March 7, 2001 under
the symbol HDIIZ.

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On March 27, 2002, we placed $2,000,000 in convertible debt through a
private placement of 8% Convertible Notes in the aggregate principal amount of
$2,000,000 and warrants to purchase 250,000 shares of our Common Stock. As of
March 31, 2002, we have cash and cash equivalents of $2,559,701, and anticipate
that these funds, in conjunction with revenue anticipated to be earned from placements of
our CVProfilor®DO-2020 Systems, anticipated sales of our CR-2000 Research
Systems, as well as anticipated operating cost reductions, are
estimated to allow us to pursue our business development strategy for
approximately the next twelve months. We are currently implementing a plan to
conserve cash through reductions in selling, general and administrative
expenses to improve working capital management. We are also seeking additional
financing for working capital and are considering all possible financing
alternatives, the receipt of which cannot be assured. Our business plan and
financing needs are subject to change depending on, among other things, market
conditions, materially increasing the revenue generated by our CVProfilor®
DO-2020 System and other cash flow from operations. 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. Further, our efforts to
raise additional funds may be hampered by covenants and restrictions relating
to the 8% Convertible Notes private placement, which, for example, prohibit for
a period of 120 days from April 30, 2002 our raising additional working capital
through sales of our equity securities, except under certain conditions.

Although not assured, and subject to market conditions,
we may raise additional funds over a period of time from the
exercise of the 2,356,073 Class A Warrants currently outstanding which were
issued in connection with our 1998 initial public offering. Each Class A
Warrant entitles the holder to purchase one share of our Common Stock at an
exercise price of $5.15 per Class A Warrant, subject to adjustment. The Class A
Warrants are subject to redemption by us for $.01 per Class A Warrant at any
time commencing October 21, 1998, provided that the closing bid price of our
Common Stock exceeds $6.50 (subject to adjustment) for 14 consecutive trading
days. The Class A Warrants expire on July 22, 2002.

On April 5, 2002, we filed a registration statement with the Securities
and Exchange Commission, which has yet to be declared effective, in connection
with a proposed offering of up to 2,356,073 Class B Warrants. A Class B Warrant entitles
each holder to purchase one share of our $.01 par value Common Stock at an exercise
price of $5.85 per Class B Warrant, subject to adjustment. As a
possible incentive to holders to exercise the outstanding Class A Warrants, we
may offer the Class B Warrants to those holders of the Class A Warrants
properly exercising a Class A Warrant during the offering period. This disclosure does not
constitute an offer of any of the securities encompassed in such registration statement.
The terms of
the offering, including the reduction of the respective exercise prices of the
Class A Warrants and the Class B Warrants, will be determined later, assuming
we proceed forward with the proposed offering. We are analyzing market
conditions. Our decision to proceed forward with this proposed offering is subject to the
results of our analysis. The amounts, if any, that we derive from the exercise
of such Class A Warrants during the proposed offering period will be used in connection with our development
opportunities, business plan activities and/or working capital requirements.

14



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##### Table of Contents






PART II. OTHER INFORMATION




Item 2. Use of Proceeds

The following table sets forth our use of the net proceeds from our
initial public offering, from July 28, 1998 through March 31, 2002:

|                                     |  |   |           | 
|------------------------------------ |  | - | --------- | 
|Central Data Management Facility     |  | $ | 318,194   | 
|Purchase of property and equipment   |  |   | 579,027   | 
|Selling, marketing and promotion     |  |   | 3,185,619 | 
|Wages, related expenses and benefits |  |   | 2,638,663 | 
|Outside consultants                  |  |   | 586,174   | 
|Inventory                            |  |   | 1,880,737 | 
|                                     |  |   |          
|                                     |  | $ | 9,188,414 | 
|                                     |  |   |          




Item 6. Exhibits and Reports on Form 8-K



|(a) |  | The following Exhibits are furnished pursuant to Item 601 of Regulation
S-B:
|--- |  | ----------------------------------------------------------------------------
|   
|    |  | None                                                                        
|   
|(b) |  | Reports on Form 8-K.                                                        
|

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The Company filed a Current Report on Form 8-K on March 19, 2002 (File No.
0-24635) regarding the Companys consent to the release of certain restrictions
imposed by that certain Letter Agreement (the Agreement) dated as of October
19, 2001 between the Company and each of The Anthony D. and Leslie T. Altavilla
Revocable Trust, Jens Dalsgaard and Jeff Lamberson (collectively, the
Shareholders). Under the Agreement, the Shareholders were prohibited,
without the consent of the Company, from transferring or otherwise disposing of
an aggregate of 100,000 shares of the Companys Common Stock until July 9,
2002. As a result of the Companys consent, an aggregate of 30,000 shares of
Common Stock will be transferable by the Shareholders as of March 15, 2002 and
an aggregate of 10,000 additional shares of Common Stock will be transferable
by the Shareholders as of each of April 15, 2002, May 15, 2002 and June 15,
2002. No other terms of the Agreement have been modified. The 100,000 shares
of the Companys Common Stock subject to the Agreement were registered on a
Registration Statement on Form S-3 (File No. 333-72118).

The Company filed a Current Report on Form 8-K on March 28, 2002 (File No.
0-24635) regarding the completion of a private placement to five investors
consisting of three-year 8% Convertible Notes in the aggregate principal amount
of $2,000,000. The 8% Convertible Notes are convertible into Common Stock of
the Company at a conversion price initially set at 80% of the average of the
closing bid prices of the Companys Common Stock for the five trading days
preceding the closing date. The conversion price is subject to downward
adjustment if the closing bid price of the Companys Common Stock is less than
the initial conversion price for twenty consecutive trading days. In
connection with the private placement, the Company also issued to the investors
five-year warrants to purchase an aggregate of 250,000 shares of the Companys
Common Stock. The warrants have an exercise price of 115% of the closing bid
price of the Companys Common Stock as of the closing date.




SIGNATURES

In accordance with the requirements of the Exchange Act, the Registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.



| |  |  |  |                                                                              
| |  |  |  | -----------------------------------------------------------------------------
| |  |  |  | HYPERTENSION DIAGNOSTICS, INC                                                
|
|
| |  |  |  | By /s/ James S. Murphy                                                       
| |  |  |  | James S. Murphy                                                              
| |  |  |  | Senior Vice President, Finance and
Administration and Chief Financial Officer
| |  |  |  | (principal financial officer)                                                

Date:     May 15, 2002

16