SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





_____________________




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, 2008








Commission
File Number:  0-24635











HYPERTENSION
DIAGNOSTICS, INC.


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








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








2915
WATERS ROAD, SUITE 108


EAGAN,
MINNESOTA 55121-3528


(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
      x
            No
       ̈








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




Yes
       ̈
            No
      x


The number
of shares of Common Stock outstanding as of May 13, 2008 was 39,774,812..





Transitional
Small Business Disclosure Format:




Yes
       ̈
            No
      x








1








HYPERTENSION
DIAGNOSTICS, INC.





INDEX TO
FORM 10-QSB





Page No.PART I.
            FINANCIAL INFORMATION:Item 1.
            Financial StatementsBalance Sheets – March 31, 2008
      (unaudited) and June 30, 2007
            4Statements of Operations (unaudited) – Three
      Months and Nine Months Ended March 31, 2008 and 2007
            5Statements of Cash Flows (unaudited) – Nine
      Months Ended March 31, 2008 and 2007
            6Notes to Financial Statements
            7Item 2.
            Management’s Discussion and Analysis of Financial
      Condition and Results of Operations
            10Item 3A(T).
            Controls and Procedures
            20PART II.
            OTHER INFORMATION:Item 6.
            Exhibits
            20SIGNATURES
            21CERTIFICATIONS
            22











2





Forward-Looking
Statements





This report contains forward-looking
statements that are based on the current beliefs of our management as well as
assumptions made by and information currently available to
management.  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
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 2007 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 develop a business
model to timely generate acceptable levels of revenues; the control exercised by
the Schwartz Group; negative effect on our stock price resulting from available
securities for sale; our need for additional capital; our dependence on our
CVProfilor® DO-2020; the availability of third-party reimbursements for the use
of our products; increased market acceptance of our products; our marketing
strategy potentially resulting in lower revenues; the illiquidity of our
securities on the OTC Bulletin Board and the related restrictions on our
securities relating to “penny stocks”; potential violations by us of federal and
state securities laws; the availability of integral components for our products;
our ability to develop distribution channels; increased competition; changes in
government regulation; health care reforms; exposure to potential product
liability; our ability to protect our proprietary technology; regulatory
restrictions pertaining to data privacy issues in utilizing our Central Data
Management Facility; and the ability to manufacture our products on a commercial
scale and in compliance with regulatory requirements.  We undertake no
responsibility to update any forward-looking statement. These forward-looking
statements are only made as of the date of this report.  In addition
to the risks we have articulated above, changes in market conditions, changes in
our business and other factors may result in different or increased risks to our
business in the future that are not foreseeable at this time.




3






PART I.  FINANCIAL INFORMATION


Item
1.  Financial Statements


Hypertension Diagnostics, Inc.


Balance
Sheets




March
      31,
                2008
              
              
              June
      30,
                2007Assets
              
              (Unaudited)
              
              
              (Audited)Current
      Assets:Cash
      and cash equivalents
              
              $
              1,155,788
              
              
              $
              1,376,632Accounts
      receivable
              
              
              24,250
              
              
              
              293,997Inventory
              
              
              294,818
              
              
              
              288,208Prepaids
      and other current assets
              
              
              21,497
              
              
              
              17,988Total
      Current Assets
              
              
              1,496,353
              
              
              
              1,976,825Property
      and Equipment:Leasehold
      improvements
              
              
              17,202
              
              
              
              17,202Furniture
      and equipment
              
              
              1,109,875
              
              
              
              1,119,264Less
      accumulated depreciation and amortization
              
              
              (1,110,215
              )
              
              
              (1,099,436
              )16,862
              
              
              
              37,030Other
      Assets
              
              
              6,530
              
              
              
              6,530Total
      Assets
              
              $
              1,519,745
              
              
              $
              2,020,385Liabilities
      and Shareholders' EquityCurrent
      Liabilities:Accounts
      payable
              
              $
              13,446
              
              
              $
              17,700Accrued
      payroll and payroll taxes
              
              
              593,554
              
              
              
              490,324Deferred
      revenue
              
              
              26,137
              
              
              
              16,503Deposits
      from Customers
              
              
              310
              
              
              
              30,125Other
      accrued expenses
              
              
              6,320
              
              
              
              27,472Total
      Current Liabilities
              
              
              639,767
              
              
              
              582,124Deferred
      Revenue, less current portion
              
              
              21,620
              
              
              
              12,118Shareholders'
      Equity:Series
      A Convertible Preferred Stock, $.01 par value:Authorized
      shares--5,000,000Issued
      and outstanding shares--851,931 and 855,545 at March31,
      2008 and June 30, 2007, respectively; each share ofpreferred
      stock convertible into 12 shares of common stockat
      the option of the holder (aggregate liquidation preference$3,249,065
      and $2,817,818 at March 31, 2008 andJune
      30, 2007, respectively)
              
              
              8,519
              
              
              
              8,555Common
      Stock, $.01 par value:Authorized
      shares--150,000,000Issued
      and outstanding shares--39,674,348 and 39,630,980at
      March 31, 2008 and June 30, 2007, respectively
              
              
              396,743
              
              
              
              396,310Additional
      paid-in capital
              
              
              27,575,011
              
              
              
              27,503,608Accumulated
      deficit
              
              
              (27,121,915
              )
              
              
              (26,482,330
              )Total
      Shareholders' Equity
              
              
              858,358
              
              
              
              1,426,143Total
      Liabilities and Shareholders' Equity
              
              $
              1,519,745
              
              
              $
              2,020,385See
      accompanying notes.


4






Hypertension Diagnostics, Inc.





Statements
of Operations


(Unaudited)




Three
      Months Ended
              
              
              Nine
      Months EndedMarch
      31
              
              
              March
      312008
              
              
              2007
              
              
              2008
              
              
              2007Revenue:Equipment
      sales
              
              $
              46,191
              
              
              $
              404,800
              
              
              $
              229,826
              
              
              $
              1,214,606Equipment
      rental
              
              
              32,029
              
              
              
              57,955
              
              
              
              113,814
              
              
              
              198,540Service/contract
      income
              
              
              25,044
              
              
              
              6,396
              
              
              
              51,638
              
              
              
              27,213103,264
              
              
              
              469,151
              
              
              
              395,278
              
              
              
              1,440,359Cost
      of Sales
              
              
              19,772
              
              
              
              13,899
              
              
              
              34,213
              
              
              
              47,474Gross
      Profit
              
              
              83,492
              
              
              
              455,252
              
              
              
              361,065
              
              
              
              1,392,885Selling,
      general and administrative expenses
              
              
              442,372
              
              
              
              546,672
              
              
              
              1,039,394
              
              
              
              1,933,632Gain
      on sale of property and equipment
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (8,099
              )Total
      Expense
              
              
              442,372
              
              
              
              546,672
              
              
              
              1,039,394
              
              
              
              1,925,533Operating
      Income (Loss)
              
              
              (358,880
              )
              
              
              (91,420
              )
              
              
              (678,329
              )
              
              
              (532,648
              )Interest
      income
              
              
              10,055
              
              
              
              14,472
              
              
              
              38,744
              
              
              
              42,215Net
      Income (Loss)
              
              $
              (348,825
              )
              
              $
              (76,948
              )
              
              $
              (639,585
              )
              
              $
              (490,433
              )Basic
      and Diluted Net Loss per Share
              
              $
              (.01
              )
              
              $
              (.00
              )
              
              $
              (.02
              )
              
              $
              (.01
              )Weighted
      Average Shares Outstanding - Basic
              
              
              39,674,348
              
              
              
              39,542,020
              
              
              
              39,663,461
              
              
              
              39,850,795Weighted
      Average Shares Outstanding - Diluted
              
              
              39,674,348
              
              
              
              39,542,020
              
              
              
              39,663,461
              
              
              
              39,850,795See
      accompanying notes.


5





Hypertension Diagnostics, Inc.




Statements
of Cash Flows


(Unaudited)




Nine
      Months EndedMarch
      312008
              
              
              2007Operating
      Activities:Net
      loss
              
              $
              (639,585
              )
              
              $
              (490,433
              )Adjustments
      to reconcile net loss to netcash
      used in operating activities:CEO
      stock based compensation expense
              
              
              118,125
              
              
              
              73,500Depreciation
              
              
              20,168
              
              
              
              36,890Net
      book value of disposed rental assets
              
              
              -
              
              
              
              3,337Gain
      on sale of property and equipment
              
              
              -
              
              
              
              (8,099
              )Stock
      options expense
              
              
              71,800
              
              
              
              114,390Change
      in operating assets and liabilities:Accounts
      receivable
              
              
              269,747
              
              
              
              24,289Inventory
              
              
              (6,610
              )
              
              
              41,644Prepaids
      and other current assets
              
              
              (3,509
              )
              
              
              (632
              )Accounts
      payable
              
              
              (4,254
              )
              
              
              (41,464
              )Accrued
      payroll and payroll taxes
              
              
              (14,895
              )
              
              
              (15,166
              )Deferred
      revenue
              
              
              19,136
              
              
              
              (178
              )Other
      accrued expenses
              
              
              (50,967
              )
              
              
              13,576Net
      cash provided by operating activities
              
              
              (220,844
              )
              
              
              (248,346
              )Investing
      Activities:Purchase
      of property and equipment
              
              
              -
              
              
              
              (5,286
              )Proceeds
      from disposal of property and equipment
              
              
              -
              
              
              
              8,099Net
      cash provided by investing activities
              
              
              -
              
              
              
              2,813Financing
      Activities:Redemption
      of Common Stock
              
              
              -
              
              
              
              (46,000
              )Net
      cash used in financing activities
              
              
              -
              
              
              
              (46,000
              )Net
      decrease in cash and cash equivalents
              
              
              (220,844
              )
              
              
              (291,533
              )Cash
      and cash equivalents at beginning of period
              
              
              1,376,632
              
              
              
              1,722,913Cash
      and cash equivalents at end of period
              
              $
              1,155,788
              
              
              $
              1,431,380See
      accompanying notes.






6








Hypertension Diagnostics, Inc.


Notes to
Financial Statements


March 31,
2008





1. Interim
      Financial Information





The
accompanying unaudited financial statements of Hypertension Diagnostics, Inc.
(the “Company” or “HDI”) 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, 2008 are not necessarily indicative of the results that
may be expected for the full year ending June 30, 2008.  The June 30,
2007 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,
2007.  The policies described in that report are used for preparing
quarterly reports.





2.Recent Accounting
      Pronouncements





The
Financial Accounting Standards Board has published FASB Interpretation (FIN) No.
48 (FIN No. 48), “Accounting for Uncertainty in Income Taxes,” to address the
noncomparability in reporting tax assets and liabilities resulting from a lack
of specific guidance in FASB Statement of Financial Accounting Standards (SFAS)
No. 109 (SFAS No. 109), “Accounting for Income Taxes,” on the uncertainty in
income taxes recognized in an enterprise’s financial
statements.  Specifically, FIN No. 48 prescribes (a) a consistent
recognition threshold and (b) a measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be
taken in a tax return, and provides related guidance on de-recognition,
classification, interest, and penalties, accounting in interim periods,
disclosure, and transition.  FIN No. 48 applies to fiscal years
beginning after December 15, 2006, with earlier adoption
permitted.  The Company adopted FIN No. 48 in the first quarter of
fiscal year 2008 and the adoption did not have a material impact on the
consolidated financial statements.





SFAS 161





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





3. Litigation





The Company is involved in various
legal actions in the ordinary course of its business.  Although the
outcome of any such legal actions cannot be predicted, management believes that
there are no pending legal proceedings against or involving the Company for
which the outcome is likely to have a material adverse effect upon the Company’s
financial position or results of operations.








7





Hypertension
Diagnostics, Inc.


Notes to
Financial Statements


March 31,
2008





4. Stock
Options




Share-Based Payment Accounting
for Stock-Based Compensation, Accounting for Stock Issued to
Employees,  During the
three months and nine months ended March 31, 2008, there were 0 and 15,000 stock
options granted, respectively.  During the three months and nine
months ended March 31, 2007, there were 50,000 and 2,535,000 stock options
granted, respectively.  The Company recognized compensation expense of
$22,875 and $71,800 (earnings per share is zero) for the three months and nine
months ending March 31, 2008, respectively, and compensation expense of $29,875
and $114,390 for the three months and nine months ending March 31, 2007,
respectively, related to the options granted previously.  The Company
estimates the expense for the remainder of fiscal year 2008 to be approximately
$22,875 based on the value of options outstanding on March 31, 2008 that will
vest during the remainder of fiscal year 2008.  The following are
estimated expenses for future fiscal years ended June 30: 2009 - $91,500; 2010 -
$45,750.  These estimates do not include any expense for options that
may be granted and vest in the future.


The fair
value of the options granted during the three months and nine months ended March
31, 2008 and 2007, was estimated using the Black-Scholes option pricing model
with the following weighted average assumptions:





Expected
            Expected
            ExpectedThree Months
      Ended
            Interest
      Rate
            Dividend
      Yield
            Life
            VolatilityMarch
      31, 2008
            N/A
            N/A
            N/A
            N/AMarch
      31, 2007
            4.50%
            None
            5
      years
            149.69%


.


Nine Months
      EndedMarch
      31, 2008
            4.50%
            None
            5
      years
            180.71%March
      31, 2007
            4.50%
            None
            2-5
      years
            138.07-151.94%








Dividend
Yield and Expected Volatility are estimated using historical amounts that are
anticipated to be consistent with current values.  Expected Life of an
option is based on the life of the option agreements.  Risk-free
Interest Rate is determined using the U.S. treasury rate.





As of March 31, 2008,there was $160,125 of
total unrecognized compensation costs related to the outstanding stock options,
which is expected to be recognized over a weighted average period of 1.50
years.








8








Hypertension
Diagnostics, Inc.


Notes to
Financial Statements


March 31,
2008





5. Stock Based
Compensation





The
Company has entered into a Deferred Equity Compensation Agreement with its CEO,
Mark N. Schwartz (the “Agreement”), whereby the Company will grant 175,000
phantom shares of its common stock to its CEO for every month of employment for
the period January 1, 2006 through December 31, 2008.  A cash payment
will be made to the CEO equal to the price per share of the Company’s common
stock times the number of phantom shares accrued at the earliest of certain
Event Dates (as defined in the Agreement).  Accordingly, the Company
has accrued a compensation liability of $496,125 at March 31, 2008, which is the
fair market value of 4,725,000 phantom shares granted as of March 31, 2008
pursuant to the Agreement.  Due to phantom shares granted and the
changes in the price of the Company’s common stock, the Company recorded an
expense of $118,125 in compensation cost for the three months and nine months
ended March 31, 2008, compared to compensation expense of $68,250 and $73,500
for the three months and nine months ended March 31, 2007,
respectively.  An increase in the Company’s common stock price would
cause an increase in the compensation cost for Stock Based Compensation, while a
decrease in the Company’s stock price would cause a decrease in the compensation
cost.  Therefore, the expense that the Company recorded for the three
months ended March 31, 2008 results from an increase in the Company’s stock
price and phantom shares granted from the prior period ending December 31, 2007
to the period ending March 31, 2008.  On the last trading day of the
period ending December 31, 2007, the Company’s stock price was $0.09 per share,
and on the last trading day of the period ending March 31, 2008, the Company’s
stock price was $0.105 per share.





6. Net Loss Per
Share





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





7. Exercise Dates
      of Warrants





On March
19, 2008, the Company agreed to extend from March 31, 2008 to December 31, 2008,
the exercise date of its outstanding remaining 50% Warrant B warrants to
purchase shares of its common stock, $0.01 par value per share, and Series A
Convertible Preferred Stock, $0.01 par value per share, which were initially
exercisable on or before June 23, 2006 and were granted in connection with the
Company’s private offering which closed on August 28, 2003.





Additionally,
on March 19, 2008, the Company agreed to extend from March 31, 2008 to December
31, 2008, the exercise date of its outstanding Warrant B warrants to purchase
shares of its common stock, $0.01 par value per share, and Series A Convertible
Preferred Stock, $0.01 par value per share (collectively, the “February B
Warrants”), granted in connection with the Company’s private offering, which
closed on February 9, 2004.   For those holders who exercise at
least fifty percent (50%) of their February B Warrants by December 31, 2008, the
Company has agreed to further extend the exercise date of the remaining February
B Warrants held by such holders to June 30, 2009.





Also on
March 19, 2008, the Company agreed to extend from August 28, 2008 to September
30, 2009, the expiration of the exercise date of its Warrant C warrants to
purchase shares of its common stock, $0.01 par value per share, and Series A
Convertible Preferred Stock, $0.01 par value per share, which were granted
in connection with HDI’s private offering which closed on August 28,
2003.




9






Hypertension
Diagnostics, Inc.


Notes to
Financial Statements


March 31,
2008




7.          Exercise
Dates of Warrants (continued)





The
Company also agreed on March 19, 2008 to extend from February 9, 2009 to March
31, 2010, the expiration of the exercise date of its Warrant C warrants to
purchase shares of its common stock, $0.01 par value per share and Series A
Convertible Preferred Stock, $0.01 par value per share, which were granted in
connection with HDI’s private offering which closed on February 9,
2004.





Additionally,
on March 19, 2008, the Company agreed to extend from August 28, 2008 to
September 30, 2009, the expiration of the exercise date of warrants held by
Bernard T. Weber, which were issued in connection with the payment for financial
services provided by Bernard T. Weber to HDI in connection with the Company’s
private placement which closed on August 28, 2003 and February 9,
2004.








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





Overview





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





·
            The
      CR-2000 Research System is being marketed worldwide “for research purposes
      only” to clinical research investigators for the purpose of collecting
      data in cardiovascular studies. Because the CR-2000 Research System bears
      the CE Mark (CE0123 )
      and meets the European Union Medical Device Directive, physicians may use
      the CR-2000 Research System with patients in a clinical setting in the
      European Union.




·
            In
      the U.S., the CVProfilor®
      DO-2020 System is being marketed to primary care physicians and other
      health care professionals on a purchase, lease or “per-patient-tested”
      rental basis.  Utilizing our Central Data Management Facility,
      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 (CVProfileTM Reports) which they generate each month.  In
      fiscal year 2005, we implemented a rent-to-own program that allows rental
      customers to credit a portion of their payments toward the purchase of
      their CVProfilor®
      DO-2020 System.  Acquisition options were enhanced with the
      assistance of a third-party leasing company, which the physicians can use
      to acquire their CVProfilor®
      DO-2020 System.




·
            The
      CVProfilor®
      MD-3000 System is being marketed through distributors to physicians
      outside the United States.  These distributors may purchase the
      product from us and then re-sell it to end-user physicians in their
      territory.  The CVProfilor®
      MD-3000 System has a CE Mark that allows it to be marketed within European
      Union countries.  The CVProfilor®
      MD-3000 may require certain regulatory approval for it to be marketed in
      other countries throughout the
world.






10








Recent
      Accounting Pronouncements





The
Financial Accounting Standards Board has published FASB Interpretation (FIN) No.
48 (FIN No. 48), “Accounting for Uncertainty in Income Taxes,” to address the
noncomparability in reporting tax assets and liabilities resulting from a lack
of specific guidance in FASB Statement of Financial Accounting Standards (SFAS)
No. 109 (SFAS No. 109), “Accounting for Income Taxes,” on the uncertainty in
income taxes recognized in an enterprise’s financial
statements.  Specifically, FIN No. 48 prescribes (a) a consistent
recognition threshold and (b) a measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be
taken in a tax return, and provides related guidance on de-recognition,
classification, interest, and penalties, accounting in interim periods,
disclosure, and transition.  FIN No. 48 applies to fiscal years
beginning after December 15, 2006, with earlier adoption
permitted.  The Company adopted FIN No. 48 in the first quarter of
fiscal year 2008 and the adoption did not have a material impact on the
consolidated financial statements.





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





Critical
Accounting Policies





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





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





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





11


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





Allowance for Doubtful
Accounts.  Accounts receivable are reviewed to determine the need for
an allowance for amounts that may become uncollectible in the
future.  The necessity of an allowance is based on management’s review
of accounts receivable balances and historical write-offs.  As of
March 31, 2008 and June 30, 2007, there was no allowance for doubtful
accounts.





Inventories and Related Allowance for
Excess and Obsolete Inventory.  Inventories are valued at the lower of
cost or market and reviewed to determine the need for an allowance for excess
and obsolete inventories.  The need for an allowance is based on
management’s review of inventories on hand compared to estimated future usage
and sales.  As of March 31, 2008 and June 30, 2007, there was an
inventory allowance of $525,419 and $542,657, respectively.





Research
and Development.  For the three months and nine months ended March 31,
2008, we did not incur any research and development costs. For the three months
and nine months ended March 31, 2007, we incurred research and development costs
of $-0- and $31,858, respectively.








Results
of Operations





As of
March 31, 2008, we had an accumulated deficit of $27,121,915, attributable
primarily to selling, general and administrative expenses.  Until we
are able to generate significant revenue from our activities, we expect to
continue to incur operating losses.  As of March 31, 2008, we had cash
and cash equivalents of $1,155,788.  We anticipate that these funds,
in conjunction with revenue anticipated to be earned from placements and sales
of our CVProfilor® DO-2020 Systems, anticipated sales of our CR-2000 Research
Systems, and anticipated operating costs, will allow us to pursue our business
development strategy for at least the next twelve months following March 31,
2008.





Three
Months Ended March 31, 2008 Compared to Three Months Ended March 31,
2007





The following is a summary of our
Revenue and Cost of Sales for the three months ended March 31, 2008 and 2007,
respectively:




12







Three
      Months Ended March 31, 2008Equipment
              
              
              Equipment
              
              
              Service/Total
              
              
              Sales
              
              
              Rental
              
              
              ContractRevenue
              
              $
              103,264
              
              
              $
              46,191
              
              
              $
              32,029
              
              
              $
              25,044Cost
      of Sales
              
              
              19,772
              
              
              
              13,716
              
              
              
              3,078
              
              
              
              2,978Gross
      Profit
              
              $
              83,492
              
              
              $
              32,475
              
              
              $
              28,951
              
              
              $
              22,066Three
      Months Ended March 31, 2007Equipment
              
              
              Equipment
              
              
              Service/Total
              
              
              Sales
              
              
              Rental
              
              
              ContractRevenue
              
              $
              469,151
              
              
              $
              404,800
              
              
              $
              57,955
              
              
              $
              6,396Cost
      of Sales
              
              
              13,899
              
              
              
              6,675
              
              
              
              6,765
              
              
              
              459Gross
      Profit
              
              $
              455,252
              
              
              $
              398,125
              
              
              $
              51,190
              
              
              $
              5,937






Revenue.  Total
Revenue for the three months ended March 31, 2008 was $103,264, compared to
$469,151 for the three months ended March 31, 2007, a 78.0%
decrease.





Equipment
Sales Revenue for the three months ended March 31, 2008 was $46,191, compared to
$404,800 for the three months ended March 31, 2007, an 88.6%
decrease.  A large part of this decrease is a result of the reduction
in the number of the Company’s sales representatives from three as of March 31,
2007, to none as of March 31, 2008.  While the Company currently has
no sales representatives, equipment sales occur from customers contacting the
Company directly.  Revenue relating to international equipment sales
was $-0- for the three months ended March 31, 2008, compared to $13,500 for the
three months ended March 31, 2007.





The
Company has decided not to pursue the sales of the CVProfilor DO-2020® through
its own dedicated sales force and has therefore eliminated its sales
representative positions.  Rather, it has decided to search for a
partner or partners with an established national sales force or national
distribution network serving the primary care market and integrate the
CVProfilor product into the partner’s existing cardiovascular disease product
platform.  The Company believes that this is the best strategy for
broadening distribution and increasing sales of the CVProfilor.  No
assurances can be given that the Company will identify a suitable partner or
partners or that the Company will consummate mutually satisfactory arrangements
with a partner or partners.





Placements
of the CVProfilor® DO-2020
System, and satisfactory utilization by physicians of those systems placed, has
taken more time and resources than originally anticipated due to the challenges
associated with market acceptance of new diagnostic equipment in the primary
care physician market.  We have focused our resources on specific
regional markets that we believe are more likely to generate higher levels of
acceptance of the CVProfilor® DO-2020
System by physicians.  Our current marketing strategy focuses on
marketing the CVProfilor® DO-2020
System to primary care physicians (internists and family practioners) who treat
patients with hypertension and diabetes.  We believe these physicians
have the greatest interest in, and use for, our product.  Therefore,
the most critical factor in our ability to increase revenue rests in our ability
to expand our marketing and distribution network to increase placements and
utilization of our CVProfilor® DO-2020
System.





13





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





In addition, when our CVProfilor® DO-2020
System is rented on a per-patient-tested basis, we have a delay in the cost
recovery of our working assets.  Although our per-patient-tested
marketing approach reduces the risk and thereby increases the potential rate of
acceptance for physician customers willing to use the CVProfilor® DO-2020
System as compared to a capital acquisition approach, it also delays our cash
flow recovery of product costs.  Physician payments for use of the
CVProfilor® DO-2020
System follow actual utilization by some 60-90 days; utilization in one month is
invoiced in the following month and payment is generally received within 30 to
60 days of invoicing.





For the three months ended March 31,
2008, we recognized revenue for the CVProfilor® DO-2020
System “per-patient-tested” rental program of $32,029, compared to $57,955 for
the three months ended March 31, 2007, a 44.7% decrease.





For the three months ended March 31,
2008, Service/Contract Income was $25,044, compared to $6,396 for the three
months ended March 31, 2007, a 291.6% increase.





Expenses.  Total
selling, general and administrative expenses for the three months ended March
31, 2008 were $442,372, compared to $546,672 for the three months ended March
31, 2007. The following is a summary of the major categories included in
selling, general and administrative expenses:




Three
      Months EndedMarch
      312008
              
              
              
              2007Wages,
      expenses, benefits before Stock Based CEO Compensation
              
              $
              124,560
              
              
              
              $
              63,556Stock
      Based CEO Compensation
              
              
              118,125
              
              
              
              
              68,250Outside
      consultants
              
              
              20,587
              
              
              
              
              32,390Rent
      (building/equipment) and utilities
              
              
              25,483
              
              
              
              
              23,295Insurance-general
      and directors/officers liability
              
              
              8,611
              
              
              
              
              14,503Selling,
      marketing and promotion, including applicable wages
              
              
              71,845
              
              
              
              
              251,115Legal
      and audit/accounting fees
              
              
              12,192
              
              
              
              
              14,117Royalties
              
              
              2,326
              
              
              
              
              14,818Depreciation
      and amortization
              
              
              2,706
              
              
              
              
              3,272Stock
      option expense
              
              
              22,875
              
              
              
              
              29,875Other-general
      and administrative
              
              
              33,062
              
              
              
              
              31,481Total
      selling, general and administrative expenses
              
              $
              442,372
              
              
              
              $
              546,672







Wages,
related expenses and benefits before Stock Based CEO Compensation increased from
$63,556 to $124,560 for the three months ended March 31, 2007 and 2008,
respectively, a 96.0% increase. There are two cash components of this $61,004
increase in wages and related expenses from March 31, 2007 to March 31, 2008: i)
$35,000 for accrued retention bonuses paid to our manager of finance and
accounting and to our senior biomedical electronics technician; and ii)
$10,833 which should have been part of payroll expense in March 31, 2007
that was classified as consulting expense because our manager of finance and
accounting was a consultant at that time.  There are two non-cash
components of this increase:  i) $9,760 for additional accrued income
taxes associated with compensation paid to the CEO; and ii)  $6,759
for increased accrued FICA taxes.




14





Accrued
Stock Based CEO Compensation, which is a non-cash charge that relates to the
estimated amount due our chief executive officer as part of his compensation for
services provided to us (see Note 4), was $118,125 for the three months ended
March 31, 2008, compared with $68,250 for the three months ended March 31,
2007.  The expense for the three month period ended March 31, 2008 and
2007 results from the increase in the Company’s stock price and additional
phantom shares granted during the three month period ended March 31, 2008 and
2007.





Outside consultants expense decreased
from $32,390 to $20,587 for the three months ended March 31, 2007 and 2008,
respectively, a 36.4% decrease. This decrease is largely due to a decrease in
the expenses associated with our quality systems, regulatory affairs, and
engineering consultants in the three months ended March 31, 2008.





Insurance
expense decreased from $14,503 to $8,611 for the three months ended March 31,
2007 and 2008, respectively, a 40.6% decrease.  This decrease is due
to a decrease in the cost of the Company’s directors’ and officers’ liability
insurance as well as a decrease in property insurance premiums.





Selling,
marketing and promotion expense decreased from $251,115 to $71,845 for the three
months ended March 31, 2007 and 2008, respectively, a 71.4%
decrease.  This category includes wages and commissions paid to our
sales reps, marketing expenses and travel and convention
expenses.  This decrease is due mainly to a decrease in our revenues
from equipment sales, resulting in lower commissions paid, and a decrease in our
sales force, which has declined from three sales representatives at the end of
March 31, 2007 to no sales representatives at the end of March 31,
2008.





Legal and audit/accounting fees
decreased from $14,117 to $12,192 for the three months ended March 31, 2007 and
2008, respectively, a 13.6% decrease.  This decrease is largely due to
the conclusion of litigation which was finally settled on November 29,
2006.





Royalties
expense decreased from $14,818 to $2,326 for the three months ended March 31,
2007 and 2008, respectively, an 84.3% decrease.  This expense is based
on an agreement with the University of Minnesota, which requires the Company to
pay a 3% royalty fee on total revenues each quarter.  This decrease is
due to the decline of revenues for the three month period ending March 31, 2008,
compared to the three month period ending March 31, 2007.





Stock
option expense decreased from $29,875 to $22,875 for the three months ended
March 31, 2007 and 2008, respectively, a 23.4% decrease. This expense is based
on the Black-Scholes option pricing model applied to the number of shares of
common stock underlying the stock options that vested during the three months
ended March 31, 2007 and 2008.  This expense is a result of the stock
options granted to the non-management board of directors effective January 1,
2007, which vest quarterly through December 31, 2009.  Each quarter
the value, based on the Black-Scholes option pricing model, of the shares that
vested during that quarter is recognized as a stock option expense.





Other –
general and administrative expenses increased from $31,481 to $33,062 for the
three months ended March 31, 2007 and 2008, respectively, a 5.0%
increase.





Interest
income was $10,055 and $14,472 for the three months ended March 31, 2008 and
2007, respectively a 30.5% decrease.





Our net
loss was $348,825 for the three months ended March 31, 2008, compared to a net
loss of $76,948 for the three months ended March 31, 2007.  For the
three months ended March 31, 2008, basic and diluted net loss per share was
$(.01), based on weighted average shares outstanding of
39,674,348.  For the three months ended March 31, 2007, basic and
diluted net loss per share was $(.00), based on weighted average shares
outstanding of 39,542,020.





15




Nine
Months Ended March 31, 2008 Compared to Nine Months Ended March 31,
2007





The following is a summary of our
Revenue and Cost of Sales for the nine months ended March 31, 2008 and 2007,
respectively:




Nine
      Months Ended March 31, 2008Equipment
              
              
              Equipment
              
              
              Service/Total
              
              
              Sales
              
              
              Rental
              
              
              ContractRevenue
              
              $
              395,278
              
              
              $
              229,826
              
              
              $
              113,814
              
              
              $
              51,638Cost
      of Sales
              
              
              34,213
              
              
              
              22,942
              
              
              
              6,794
              
              
              
              4,477Gross
      Profit
              
              $
              361,065
              
              
              $
              206,884
              
              
              $
              107,020
              
              
              $
              47,161Nine
      Months Ended March 31, 2007Equipment
              
              
              Equipment
              
              
              Service/Total
              
              
              Sales
              
              
              Rental
              
              
              ContractRevenue
              
              $
              1,440,359
              
              
              $
              1,214,606
              
              
              $
              198,540
              
              
              $
              27,213Cost
      of Sales
              
              
              47,474
              
              
              
              18,468
              
              
              
              26,868
              
              
              
              2,138Gross
      Profit
              
              $
              1,392,885
              
              
              $
              1,196,138
              
              
              $
              171,672
              
              
              $
              25,075






Revenue.Total Revenue for the
nine months ended March 31, 2008 was $395,278, compared to $1,440,359 for the
nine months ended March 31, 2007, a 72.6% decrease.





Equipment
Sales Revenue for the nine months ended March 31, 2008 was $229,826, compared to
$1,214,606 for the nine months ended March 31, 2007, an 81.1%
decrease.  A large part of this decrease is a result of the decline in
the number of the Company’s sales representatives from three as of March 31,
2007 to none as of March 31, 2008. While the Company currently has no sales
representatives, equipment sales occur from customers contacting the Company
directly. In the fourth quarter of fiscal year 2005, we implemented a new
rent-to-own program that allows rental customers to credit a portion of their
payments toward the purchase of their CVProfilor® DO-2020
System.  Acquisition options were enhanced with the assistance of a
third-party leasing company, which the physicians can use to acquire their
CVProfilor.  Revenue relating to international equipment sales was
$42,475 for the nine months ended March 31, 2008 and $38,000 for the nine months
ended March 31, 2007, an 11.8% increase.





For the nine months ended March 31,
2008, we recognized Revenue for the CVProfilor® DO-2020 “per-patient-tested”
rental program of $113,814, compared to $198,540 for the nine months ended March
31, 2007, a 42.7% decrease.  The per-patient-tested fee is recognized
as Revenue when we determine that collectibility is probable, which currently is
upon cash receipt.





For
the nine months ended March 31, 2008, Service/Contract Income was $51,638
compared to $27,213 for the nine months ended March 31, 2007, an 89.8%
increase.  This increase is due mainly to our increase in the sale of
replacement parts and warranty service agreements.





At June
30, 2003, inventory which principally consists of raw materials had been written
down to estimated net realizable value to account for quantities in excess of
those expected to be sold currently.  The results of operations for
the fiscal year ended June 30, 2003 included a corresponding charge to Cost of
Sales of $850,000 related to this write-down.  As inventory is sold
relating to Equipment Sales Revenue, a portion of this Inventory Allowance is
recorded as an offset to Cost of Sales pertaining to these sales.  As
of March 31, 2008, the Inventory Allowance balance is $525,419.  The
following table shows the effect of this adjustment for the periods
indicated:




16




Three
      Months Ended
              
              Nine
      Months EndedMarch
      31, 2008
              
              March
      31, 2007
              
              March
      31, 2008
              
              March
      31, 2007Cost
      of Sales
              $18,169
              
              $16,370
              
              $39,852
              
              $81,380Inventory
      Allowance Adjustment
              1,603
              
              (2,471)
              
              (5,639)
              
              (33,906)Cost
      of Sales, as reported
              $19,772
              
              $13,899
              
              $34,213
              
              $47,474







Expenses.Total
selling, general and administrative expenses for the nine months ended March 31,
2008 were $1,039,394, compared to $1,933,632 for the nine months ended March 31,
2007, a 46.2% decrease.  The following is a summary of the major
categories included in selling, general and administrative
expenses:




Nine
      Months EndedMarch
      312008
              
              
              
              2007Wages,
      expenses, benefits before Stock Based CEO Compensation
              
              $
              269,048
              
              
              
              $
              299,591Stock
      Based CEO Compensation
              
              
              118,125
              
              
              
              
              73,500Patents
      and related expenses
              
              
              3,065
              
              
              
              
              1,866Outside
      consultants
              
              
              39,666
              
              
              
              
              118,171Rent
      (building/equipment) and utilities
              
              
              71,284
              
              
              
              
              72,163Insurance-general
      and directors/officers liability
              
              
              27,049
              
              
              
              
              42,439Selling,
      marketing and promotion, including applicable wages
              
              
              252,902
              
              
              
              
              843,263Legal
      and audit/accounting fees
              
              
              69,610
              
              
              
              
              123,446Royalties
              
              
              10,259
              
              
              
              
              42,207Depreciation
      and amortization
              
              
              8,244
              
              
              
              
              10,022Research
      and development
              
              
              -
              
              
              
              
              31,858Stock
      Option Expense
              
              
              71,800
              
              
              
              
              114,390Other-general
      and administrative
              
              
              98,342
              
              
              
              
              160,716Total
      selling, general and administrative expenses
              
              $
              1,039,394
              
              
              
              $
              1,933,632




Wages,
related expenses and benefits before Stock Based CEO Compensation decreased from
$299,591 to $269,048 for the nine months ended March 31, 2007 and 2008,
respectively, a 10.2% decrease.  This decrease is largely due to the
reduction in employees at our headquarters office.





Accrued
Stock Based CEO Compensation, which is a non-cash charge that relates to the
estimated amount due our chief executive officer as part of his compensation for
services provided to us (see Note 4), was $118,125 for the nine months ended
March 31, 2008 compared with $73,500 for the nine months ended March 31, 2007, a
60.7% increase.





Outside
consultants’ expense decreased from $118,171 for the nine months ended March 31,
2007 to $39,666 for the nine months ended March 31, 2008, a 66.4%
decrease.  This decrease is largely due to a decrease in the expenses
associated with our sales, quality systems, regulatory affairs, and engineering
consultants in the nine months ended March 31, 2008.





Insurance
expense decreased from $42,439 to $27,049 for the nine months ended March 31,
2007 and 2008, respectively, a 36.3% decrease.  This decrease is due
to a decrease in the cost of the Company’s directors’ and officers’ liability
insurance as well as a decrease in property insurance premiums.





17




Selling,
marketing and promotion expense decreased from $843,263 for the nine months
ended March 31, 2007 to $252,902 for the nine months ended March 31, 2008, a
70.0% decrease.  This category includes wages, bonuses and commissions
paid by us relating to our sales and marketing efforts as well as travel and
convention expenses.  This decrease is due mainly to a decrease in our
revenues from equipment sales, resulting in lower commissions paid and a
decrease in our sales force, which has declined from three sales representatives
at the end of March 31, 2007 to no sales representatives at the end of March 31,
2008.





Legal and
audit/accounting fees decreased from $123,446 for the nine months ended March
31, 2007 to $69,610 for the nine months ended March 31, 2008, a 43.6%
decrease.  This decrease is largely due to the conclusion of
litigation which was finally settled on November 29, 2006.





Royalties
expense decreased from $42,207 to $10,259 for the nine months ended March 31,
2007 and 2008, respectively, a 75.7% decrease.  This expense is based
on an agreement with the University of Minnesota, which requires the Company to
pay a 3% royalty fee on total revenues each quarter.  This decrease is
due to the decline of revenues for the nine month period ending March 31, 2008,
compared to the nine month period ending March 31, 2007.





Stock
option expense decreased from $114,390 for the nine months ended March 31, 2007
to $71,800 for the nine months ended March 31, 2008, a 37.2%
decrease.  This expense is based on the Black-Scholes option pricing
model applied to the number of shares of common stock underlying the stock
options that vested during the nine months ended March 31, 2007 and
2008.





Other
– general and administrative expenses decreased from $160,716 for the nine
months ended March 31, 2007 to $98,342 for the nine months ended March 31, 2008,
a 38.8% decrease. This decrease is due to the decline in warehouse expenses,
which are largely expenses associated with warranty replacement
parts.





Interest
income was $38,744 and $42,215 for the nine months ended March 31, 2008 and
2007, respectively.





Net loss was $639,585 and $490,433
for the nine months ended March 31, 2008 and 2007, respectively.  For
the nine months ended March 31, 2008, basic and diluted net loss per share was
$(.02), based on weighted average shares outstanding of
39,663,461.  For the nine months ended March 31, 2007, basic and
diluted net loss per share was $(.01), based on weighted average shares
outstanding of 39,850,795.




Off-Balance
Sheet Arrangements





During the
quarter ended March 31, 2008, we did not engage in any off-balance sheet
arrangements as defined in Item 303(c) of Regulation S-B.








Liquidity
and Capital Resources





Cash and
cash equivalents had a net decrease of $220,844 and $291,533 for the nine months
ended March 31, 2008 and March 31, 2007, respectively.  The
significant elements of these changes were as follows:








18







Nine Months Ended March 31Net cash used in
      operating activities:
            
            2008
            
            
            2007—  net
      (loss), as adjusted for non-cash items
            
            $
            (429,493
            )
            
            $
            (262,316
            )—  decrease
      in accounts receivable:
            
            (A)
            269,747
            
            
            (A)
            24,289–  (A)
            the
      increase in the collection of outstanding customerbalances
      is a result of customers paying with credit cards, and less sales at
      quarter end.—  increase  (decrease)
      in accrued payroll andpayroll
      taxes:
            
            (B)
            103,231
            
            
            (B)
            58,334–  (B)
            expense
      amounts that relate to the estimated amount due our chief executive
      officer as part of his compensation for services provided to
      us.





We have
incurred operating losses and have not generated positive cash flow from
operations.  As of March 31, 2008, we had an accumulated deficit of
$27,121,915.





As of March 31, 2008, we had cash and
cash equivalents of $1,155,788 and anticipate that these funds, in conjunction
with revenue anticipated to be earned from placements and sales of our
CVProfilor® DO-2020
Systems, anticipated sales of our CR-2000 Research Systems, and anticipated
operating costs, will allow us to pursue our business development strategy for
at least the next twelve months following March 31, 2008.





With a current cash balance of
approximately $1,085,000, the Company has sufficient cash to meet its
obligations and sustain operations for at least the next twelve months as the
Company considers its alternative strategies of a distribution network for its
products.The most critical factor in our ability
to increase revenue rests in our ability to expand our marketing and
distribution network to increase placements and utilization of our
CVProfilor®DO-2020 System.  No
assurances can be given that the Company will identify a suitable partner or
partners or that the Company will consummate mutually satisfactory arrangements
with a partner or partners.





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





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




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Item
3A(T).Controls
and Procedures.





(a)
Evaluation of Disclosure Controls and Procedures.





Under the
supervision and with the participation of our Chief Executive Officer, Mark N.
Schwartz, and Manager of Finance and Accounting, Mark P. O’Neill, we have
evaluated the effectiveness of our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) of the Securities and Exchange Act of
1934, as amended) as of the end of the period covered by this
report.  Based upon that review, our Chief Executive Officer and
Manager of Finance and Accounting concluded that, as of the evaluation date, our
controls and procedures are effective.





(b)
Changes in Internal Controls over Financial Reporting.





There have been no changes in
internal control over financial reporting that occurred during the fiscal period
covered by this report that have materially affected, or are reasonably likely
to materially affect, the registrant’s internal control over financial
reporting.





The
Company is in the process of complying with the mandates of Section 404 of the
Sarbanes-Oxley Act of 2002 (“Section 404”).  The U.S. Securities and
Exchange Commission recently adopted rules that delay the Company’s schedule for
compliance with Section 404 until the Company’s fiscal year ending June 30,
2008.  The regulatory agencies are continuing to study the issues
surrounding compliance, particularly as it relates to smaller public
companies.  The Company has completed due diligence to understand the
requirements and corresponding work necessary to successfully document the
Company’s system of internal control to the standards and satisfaction of third
parties.  The potential cost of compliance with Section 404 to the
Company’s shareholders in relation to the benefits may be
significant.





The
Company intends to diligently pursue implementation and compliance with Section
404 requirements.  In January 2008, the Company retained Frank
Consulting to assist in evaluating the Company’s system of internal controls as
required by Section 404.  The Company has been working diligently with
Frank Consulting to perform the necessary tasks for management to attest to its
independent accountants that its system of internal financial controls meet the
standards required by Section 404 as of June 30, 2008.  However, the
Company does not believe it is in the shareholders’ best interests to incur
unnecessary outsized costs in this effort.  Consequently, the Company
will make every effort to comply with Section 404 requirements, but also will
attempt to minimize the expense of this effort.  As a result of this
cautioned approach and the complexity of compliance, there is a risk that,
notwithstanding the Company’s best efforts, the Company may fail to demonstrate
a compliance program that fully meets the standards of Section 404 as
interpreted by the Company’s independent accountants.






PART II. OTHER INFORMATION





Item 6.Exhibits





(a) The
following Exhibits are furnished pursuant to Item 601 of Regulation
S-B:




31.1
              Certification
      of Chief Executive Officer pursuant to
                  13a-14
      and 15d-14 of the Exchange Act31.2
              Certification
      of Chief Financial Officer pursuant to
                  13a-14
      and 15d-14 of the Exchange Act32
              Certificate
      pursuant to 18 U.S.C. §
1350






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SIGNATURES








In accordance with the requirements
of the Exchange Act, the Registrant has caused this Form 10-QSB to be signed on
its behalf by the undersigned, thereunto duly authorized.





HYPERTENSION
      DIAGNOSTICS, INC.By
      /s/ Mark N. SchwartzMark
      N. SchwartzChief
      Executive OfficerDate:  May
      13, 2008




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