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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, 2007
 Commission File Number: 0-24635
 HYPERTENSION DIAGNOSTICS, INC.
  MINNESOTA
(State of incorporation)
    
    41-1618036
(I.R.S. Employer Identification No.)
 
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Page No.PART I. FINANCIAL INFORMATION:Item 1. Financial StatementsBalance Sheets  March 31, 2007 (unaudited)
and June 30, 2006
    
    
    3Statements of Operations (unaudited)  Three Months and Nine Months
Ended March 31, 2007 and 2006
    
    
    4Statements of Cash Flows (unaudited)  Nine Months Ended
March 31, 2007 and 2006
    
    
    5Notes to Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    9Item 3. Controls and Procedures
    
    
    17PART II. OTHER INFORMATION:Item 1. Legal Proceedings
    
    
    18Item 6. Exhibits
    
    
    18SIGNATURES
    
    
    19CERTIFICATIONS
    
    
    20Certification of CEO Pursuant to 13a-14 and 15d-14Certification of CFO Pursuant to 13a-14 and 15d-14Certificate Pursuant to 18 U.S.C. Section 1350
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Item 1. Financial Statements
  
  March 31,
    
    
    June 30,2007
    
    
    2006(Unaudited)
    
    
    (Audited)AssetsCurrent Assets:Cash and cash equivalents
    
    $
    1,431,380
    
    
    $
    1,722,913Accounts receivable
    
    
    153,371
    
    
    
    177,660Inventory
    
    
    293,319
    
    
    
    334,963Prepaids and other current assets
    
    
    22,486
    
    
    
    21,854Total Current Assets
    
    
    1,900,556
    
    
    
    2,257,390Property and Equipment:Leasehold improvements
    
    
    17,202
    
    
    
    17,202Furniture and equipment
    
    
    1,144,741
    
    
    
    1,193,807Less accumulated depreciation and amortization
    
    
    (1,114,855
    )
    
    
    (1,128,980
    )47,088
    
    
    
    82,029Other Assets
    
    
    6,530
    
    
    
    6,530Total Assets
    
    $
    1,954,174
    
    
    $
    2,345,949Liabilities and Shareholders EquityCurrent Liabilities:Accounts payable
    
    $
    17,431
    
    
    $
    58,895Accrued payroll and payroll taxes
    
    
    456,435
    
    
    
    398,101Deferred revenue
    
    
    14,529
    
    
    
    12,454Other accrued expenses
    
    
    33,207
    
    
    
    19,631Total Current Liabilities
    
    
    521,602
    
    
    
    489,081Deferred Revenue, less current portion
    
    
    14,201
    
    
    
    16,454Shareholders Equity:Series A Convertible Preferred Stock, $.01 par value:Authorized shares5,000,000Issued and outstanding shares860,025 and 871,225 at March
31, 2007 and June 30, 2006, respectively; each share of
preferred stock convertible into 12 shares of common stock
at the option of the holder (aggregate liquidation preference
$2,730,900 and $2,391,218 at March 31, 2007
and June 30, 2006, respectively)
    
    
    8,600
    
    
    
    8,712Common Stock, $.01 par value:Authorized shares150,000,000Issued and outstanding shares39,577,220 and 40,157,106
at March 31, 2007 and June 30, 2006, respectively
    
    
    395,772
    
    
    
    401,571Additional paid-in capital
    
    
    27,482,751
    
    
    
    27,408,450Accumulated deficit
    
    
    (26,468,752
    )
    
    
    (25,978,319
    )Total Shareholders Equity
    
    
    1,418,371
    
    
    
    1,840,414Total Liabilities and Shareholders Equity
    
    $
    1,954,174
    
    
    $
    2,345,949
 See accompanying notes.
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Three Months Ended
    
    
    Nine Months EndedMarch 31
    
    
    March 312007
    
    
    2006
    
    
    2007
    
    
    2006Revenue:Equipment sales
    
    $
    404,800
    
    
    $
    457,328
    
    
    $
    1,214,606
    
    
    $
    1,142,986Equipment rental
    
    
    57,955
    
    
    
    107,066
    
    
    
    198,540
    
    
    
    334,210Service/contract income
    
    
    6,396
    
    
    
    7,594
    
    
    
    27,213
    
    
    
    16,814469,151
    
    
    
    571,988
    
    
    
    1,440,359
    
    
    
    1,494,010Cost of Sales
    
    
    13,899
    
    
    
    26,471
    
    
    
    47,474
    
    
    
    88,964Gross Profit
    
    
    455,252
    
    
    
    545,517
    
    
    
    1,392,885
    
    
    
    1,405,046Selling, general and administrative expenses
    
    
    546,672
    
    
    
    831,318
    
    
    
    1,933,632
    
    
    
    2,332,666Operating Loss
    
    
    (91,420
    )
    
    
    (285,801
    )
    
    
    (540,747
    )
    
    
    (927,620
    )Other Income:Interest income
    
    
    14,472
    
    
    
    9,770
    
    
    
    42,215
    
    
    
    30,445Gain on sale of property and equipment
    
    
    
    
    
    
    
    
    
    
    8,099
    
    
    
    Total Other Income
    
    
    14,472
    
    
    
    9,770
    
    
    
    50,314
    
    
    
    30,445Net Loss
    
    $
    (76,948
    )
    
    $
    (276,031
    )
    
    $
    (490,433
    )
    
    $
    (897,175
    )Basic and Diluted Net Loss per Share
    
    $
    (.00
    )
    
    $
    (.01
    )
    
    $
    (.01
    )
    
    $
    (.03
    )Weighted Average Shares Outstanding
    
    
    39,542,020
    
    
    
    35,012,499
    
    
    
    39,850,795
    
    
    
    33,726,604
 See accompanying notes.
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Nine Months EndedMarch 312007
    
    
    2006Operating Activities:Net loss
    
    $
    (490,433
    )
    
    $
    (897,175
    )Adjustments to reconcile net loss to net
cash used in operating activities:CEO stock based compensation expense
    
    
    73,500
    
    
    
    274,500Depreciation
    
    
    36,890
    
    
    
    100,856Net book value of disposed rental assets
    
    
    3,337
    
    
    
    19,844Gain on sale of property and equipment
    
    
    (8,099
    )
    
    
    Stock options expense
    
    
    114,390
    
    
    
    24,025Change in operating assets and liabilities:Accounts receivable
    
    
    24,289
    
    
    
    (57,738
    )Inventory
    
    
    41,644
    
    
    
    6,251Prepaids and other current assets
    
    
    (632
    )
    
    
    (18,280
    )Accounts payable
    
    
    (41,464
    )
    
    
    13,919Accrued payroll and payroll taxes
    
    
    (15,166
    )
    
    
    21,698Deferred revenue
    
    
    (178
    )
    
    
    (2,738
    )Other accrued expenses
    
    
    13,576
    
    
    
    15,559Net cash used in operating activities
    
    
    (248,346
    )
    
    
    (499,279
    )Investing Activities:Purchase of property and equipment
    
    
    (5,286
    )
    
    
    (1,053
    )Proceeds from disposal of property and equipment
    
    
    8,099
    
    
    
    Net cash provided by/(used in) investing activities
    
    
    2,813
    
    
    
    (1,053
    )Financing Activities:Issuance of Preferred Stock and Common Stock
    
    
    
    
    
    
    789,775Redemption of Common Stock
    
    
    (46,000
    )Net cash provided by/(used in) financing activities
    
    
    (46,000
    )
    
    
    789,775Net increase/(decrease) in cash and cash equivalents
    
    
    (291,533
    )
    
    
    289,443Cash and cash equivalents at beginning of period
    
    
    1,722,913
    
    
    
    1,525,865Cash and cash equivalents at end of period
    
    $
    1,431,380
    
    
    $
    1,815,308
 See accompanying notes.
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Three Months
    
    
    Nine MonthsEnded
    
    
    EndedMarch 31,
    
    
    March 31,2006
    
    
    2006Net Loss:As Reported
    
    $
    (276,031
    )
    
    $
    (897,175
    )Fair value compensation expense
    
    
    
    
    
    
    (285,245
    )Pro Forma
    
    $
    (276,031
    )
    
    $
    (1,182,420
    )Basic and Diluted Net Loss per Share:As Reported
    
    $
    (0.01
    )
    
    $
    (0.03
    )Fair value compensation expense
    
    
    
    
    
    
    (0.01
    )Pro Forma
    
    $
    (0.01
    )
    
    $
    (0.04
    )Stock Based Compensation:As Reported
    
    $
    
    
    
    $
    24,025Fair value compensation expense
    
    
    
    
    
    
    (309,270
    )Pro Forma
    
    $
    
    
    
    $
    (285,245
    )
  Expected
    
    Expected
    
    ExpectedInterest Rate
    
    Dividend Yield
    
    Life
    
    VolatilityThree Months EndedMarch 31, 2007
    
    4.50%
    
    None
    
    5 years
    
    149.69%March 31, 2006
    
    N/A
    
    N/A
    
    N/A
    
    N/ANine Months EndedMarch 31, 2007
    
    4.50%
    
    None
    
    2  5 years
    
    138.07-151.94%March 31, 2006
    
    4.25%
    
    None
    
    5 years
    
    112.00%
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
 Forward-Looking Statements
 ®
 Overview
 PulseWave ® ®
 
    
    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 (CVProfile 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.
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
    
    The CVProfilor® MD-3000 System is being marketed through
distributors to physicians outside the United States. These distributors
purchase the product from us and then re-sell it to end-user physicians in
their territory. The CVProfilor® MD-3000 System has a CE Mark that
allows it to be marketed within European Union countries. The
CVProfilor® MD-3000 may require certain regulatory approval for it
to be marketed in other countries throughout the world.
 Critical Accounting Policies
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Results of Operations
 ®
 Three Months Ended March 31, 2007 Compared to Three Months Ended March 31, 2006
  Three 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
 Three Months Ended March 31, 2006Equipment
    
    
    Equipment
    
    
    Service/Total
    
    
    Sales
    
    
    Rental
    
    
    ContractRevenue
    
    $
    571,988
    
    
    $
    457,328
    
    
    $
    107,066
    
    
    $
    7,594Cost of Sales
    
    
    26,471
    
    
    
    4,532
    
    
    
    21,629
    
    
    
    310Gross Profit
    
    $
    545,517
    
    
    $
    452,796
    
    
    $
    85,437
    
    
    $
    7,284
 Revenue.
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® ® ® ® ® ® ®
 ® ® ®
 ® ® ®
 ®
  Expenses.
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Three Months EndedMarch 312007
    
    
    2006Wages, related expenses and benefits
    
    $
    129,984
    
    
    $
    352,850Patents and related expenses
    
    
    
    
    
    
    2,129Outside consultants
    
    
    32,390
    
    
    
    41,189Rent (building/equipment) and utilities
    
    
    23,295
    
    
    
    25,647Insurance-general and directors/officers liability
    
    
    14,503
    
    
    
    14,275Selling, marketing and promotion, including applicable wages
    
    
    251,115
    
    
    
    277,197Legal and audit/accounting fees
    
    
    14,117
    
    
    
    45,746Royalties
    
    
    14,818
    
    
    
    16,932Depreciation and amortization
    
    
    3,272
    
    
    
    9,531Research and development
    
    
    
    
    
    
    Stock option expense
    
    
    29,875
    
    
    
    Other-general and administrative
    
    
    33,303
    
    
    
    45,822Total selling, general and administrative expenses
    
    $
    546,672
    
    
    $
    831,318
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Nine Months Ended March 31, 2007 Compared to Nine Months Ended March 31, 2006
  Nine 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
 Nine Months Ended March 31, 2006Equipment
    
    
    Equipment
    
    
    Service/Total
    
    
    Sales
    
    
    Rental
    
    
    ContractRevenue
    
    $
    1,494,010
    
    
    $
    1,142,986
    
    
    $
    334,210
    
    
    $
    16,814Cost of Sales
    
    
    88,964
    
    
    
    18,684
    
    
    
    69,809
    
    
    
    471Gross Profit
    
    $
    1,405,046
    
    
    $
    1,124,302
    
    
    $
    264,401
    
    
    $
    16,343
 Revenue.
 ® ®
 ®
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Three Months Ended
    
    
    Nine Months EndedMarch 31, 2007
    
    
    March 31, 2006
    
    
    March 31, 2007
    
    
    March 31, 2006Cost of Sales
    
    $
    16,370
    
    
    $
    65,065
    
    
    $
    81,380
    
    
    $
    185,111Inventory Reserve Adjustment
    
    
    (2,471
    )
    
    
    (38,594
    )
    
    
    (33,906
    )
    
    
    (96,147
    )Cost of Sales, as reported
    
    $
    13,899
    
    
    $
    26,471
    
    
    $
    47,474
    
    
    $
    88,964
 Expenses.
 Nine Months EndedMarch 312007
    
    
    2006Wages, related expenses and benefits
    
    $
    371,269
    
    
    $
    773,551Patents and related expenses
    
    
    1,866
    
    
    
    3,177Outside consultants
    
    
    118,171
    
    
    
    193,065Rent (building/equipment) and utilities
    
    
    72,163
    
    
    
    75,885Insurance-general and directors/officers liability
    
    
    42,439
    
    
    
    46,690Selling, marketing and promotion, including applicable wages
    
    
    843,263
    
    
    
    852,870Legal and audit/accounting fees
    
    
    123,446
    
    
    
    138,978Royalties
    
    
    42,207
    
    
    
    44,316Depreciation and amortization
    
    
    10,022
    
    
    
    31,046Research and development
    
    
    31,858
    
    
    
    Stock option expense
    
    
    114,390
    
    
    
    24,025Other-general and administrative
    
    
    162,538
    
    
    
    149,063Total selling, general and administrative expenses
    
    $
    1,933,632
    
    
    $
    2,332,666
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Off-Balance Sheet Arrangements
  Liquidity and Capital Resources
  Nine Months Ended March 31Net cash used in operating activities:
    
    2007
    
    2006 net (loss), as adjusted for non-cash items
    
    $
    (262,316
    )
    
    $
    (477,950
    ) increase in CEO Stock based compensation
 (A) expense amounts that relate
to the estimated amount due our chief
executive officer as part of his
compensation for services provided to us.
    
    
    (A)     73,500
    
    
    
    (A)     274,500
  ®
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® ®
 ® ® ®
 ®
  
 Item 3. Controls and Procedures
   (b) Changes in Internal Controls over Financial Reporting.
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PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
   
 Item 6.
Exhibits
  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
  HYPERTENSION DIAGNOSTICS, INC.By
    
    /s/ Mark N. SchwartzMark N. SchwartzChief Executive OfficerDate: May 14, 2007
 19