##### Table of Contents



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, 2003

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 x            No o

The number of shares of Common Stock outstanding as of April 30, 2003 was
9,810,323.

Transitional Small Business Disclosure Format:

Yes o            No x

1



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TABLE OF CONTENTS



|                                                 |                                                                                               |                               |  |  |  |  |  | 
|------------------------------------------------ | --------------------------------------------------------------------------------------------- | ----------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION                   
|                                                 | Item 1. Financial Statements                                                                 
|                                                 |                                                                                               | Balance Sheets               
|                                                 |                                                                                               | Statements of Operations     
|                                                 |                                                                                               | Statements of Cash Flows     
|                                                 |                                                                                               | Notes to Financial Statements
|                                                 | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                 | Item 4. Controls and Procedures.                                                             
|PART II. OTHER INFORMATION                      
|                                                 | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                                      
|CERTIFICATIONS                                  
|EX-99.1 Certificate Pursuant to 18 USC Sec. 1350



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##### Table of Contents



HYPERTENSION DIAGNOSTICS, INC.

INDEX TO FORM 10-QSB

|               |  |                        |  |                                                                                                     |  |         
|-------------- |  | ---------------------- |  | --------------------------------------------------------------------------------------------------- |  | --------
|               |  |                        |  |                                                                                                     |  | Page No.
|               |  |                        |  |                                                                                                     |  |         
|PART I.        |  | FINANCIAL INFORMATION: |  |                                                                                                    
|               |  | Item 1.                |  | Financial Statements                                                                                |  | 3       
|               |  |                        |  | Balance Sheets  March 31, 2003 and June 30, 2002                                                   |  | 3       
|               |  |                        |  | Statements of Operations  Three Months and Nine Months Ended
March 31, 2003 and 2002, respectively |  | 4       
|               |  |                        |  | Statements of Cash Flows  Three Months and Nine Months Ended
March 31, 2003 and 2002, respectively |  | 5       
|               |  |                        |  | Notes to Financial Statements                                                                       |  | 6       
|               |  | Item 2.                |  | Managements Discussion and Analysis of Financial Condition
and Results of Operations               |  | 8       
|               |  | Item 4.                |  | Controls and Procedures                                                                             |  | 18      
|PART II.       |  | OTHER INFORMATION:     |  |                                                                                                    
|               |  | Item 6.                |  | Exhibits and Reports on Form 8-K                                                                    |  | 19      
|SIGNATURES     |  | 20                    
|CERTIFICATIONS |  | 21                    

2



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##### Table of Contents






PART I. FINANCIAL INFORMATION




Item 1. Financial Statements




Hypertension Diagnostics, Inc.

Balance Sheets

|                                                                                                                  |                                   |                                                                                                         |                                            |             |           |           |          |             |        |           | 
|----------------------------------------------------------------------------------------------------------------- | --------------------------------- | ------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ----------- | --------- | --------- | -------- | ----------- | ------ | --------- | 
|                                                                                                                  |                                   |                                                                                                         |                                            |             | March 31, |           | June 30,
|                                                                                                                  |                                   |                                                                                                         |                                            |             | 2003      |           | 2002    
|                                                                                                                  |                                   |                                                                                                         |                                            |             |           |           |         
|Assets                                                                                                            |                                   |                                                                                                         |                                            |             |           |           |          |            
|Current Assets:                                                                                                   |                                   |                                                                                                         |                                            |             |           |           |          |            
|                                                                                                                  | Cash and cash equivalents         |                                                                                                         | $                                          | 291,243     |           |           | $        | 1,824,238   |       
|                                                                                                                  | Accounts receivable               |                                                                                                         |                                            | 91,532      |           |           |          | 279,609     |       
|                                                                                                                  | Interest receivable               |                                                                                                         |                                            | 12,194      |           |           |          | 5,070       |       
|                                                                                                                  | Related party note receivable     |                                                                                                         |                                            |            |           |           |          | 117,000     |       
|                                                                                                                  | Inventory                         |                                                                                                         |                                            | 1,247,819   |           |           |          | 1,394,191   |       
|                                                                                                                  | Prepaids and other current assets |                                                                                                         |                                            | 121,202     |           |           |          | 89,338      |       
|                                                                                                                  |                                   |                                                                                                         |                                            |             |           |           |          |            
|                                                                                                                  |                                   |                                                                                                         | Total Current Assets                       |             |           | 1,763,990 |          |             |        | 3,709,446 | 
|Property and Equipment:                                                                                           |                                   |                                                                                                         |                                            |             |           |           |          |            
|                                                                                                                  | Leasehold improvements            |                                                                                                         |                                            | 17,202      |           |           |          | 17,202      |       
|                                                                                                                  | Furniture and equipment           |                                                                                                         |                                            | 1,174,532   |           |           |          | 1,074,468   |       
|                                                                                                                  | Less accumulated depreciation     |                                                                                                         |                                            | (667,870    | )         |           |          | (505,283    | )     
|                                                                                                                  |                                   |                                                                                                         |                                            |             |           |           |          |            
|                                                                                                                  |                                   |                                                                                                         | 523,864                                    |             |           |           | 586,387  |            
|Patents, net of accumulated amortization of $45,405
and $42,005 at March 31, 2003 and June 30, 2002,
respectively |                                   |                                                                                                         |                                           |             |           |           | 3,400    |            
|Other Assets                                                                                                      |                                   |                                                                                                         | 6,730                                      |             |           |           | 6,730    |            
|                                                                                                                  |                                   |                                                                                                         |                                            |             |           |           |          |            
|                                                                                                                  |                                   |                                                                                                         | Total Assets                               |             | $         | 2,294,584 |          |             | $      | 4,305,963 | 
|                                                                                                                  |                                   |                                                                                                         |                                            |             |           |           |          |            
|Liabilities and Shareholders Equity                                                                              |                                   |                                                                                                         |                                            |             |           |           |          |            
|Current Liabilities:                                                                                              |                                   |                                                                                                         |                                            |             |           |           |          |            
|                                                                                                                  | Accounts payable                  |                                                                                                         | $                                          | 82,368      |           |           | $        | 149,306     |       
|                                                                                                                  | Accrued payroll and payroll taxes |                                                                                                         |                                            | 228,688     |           |           |          | 224,515     |       
|                                                                                                                  | Convertible notes payable         |                                                                                                         |                                            | 552,861     |           |           |          | 1,268,119   |       
|                                                                                                                  | Deferred revenue                  |                                                                                                         |                                            | 52,250      |           |           |          | 69,667      |       
|                                                                                                                  | Other accrued expenses            |                                                                                                         |                                            | 31,266      |           |           |          | 58,433      |       
|                                                                                                                  |                                   |                                                                                                         |                                            |             |           |           |          |            
|                                                                                                                  |                                   |                                                                                                         | Total Current Liabilities                  |             |           | 947,433   |          |             |        | 1,770,040 | 
|                                                                                                                 
|Deferred Revenue, less current portion                                                                            |                                   |                                                                                                         |                                           |             |           |           | 34,833   |            
|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9,628,225 and 6,495,577
at March 31, 2003 and June 30, 2002, respectively |                                            |             | 96,282    |           |          |             | 64,956 |          
|                                                                                                                  | Additional paid-in capital        |                                                                                                         |                                            | 21,298,220  |           |           |          | 20,044,153  |       
|                                                                                                                  | Accumulated deficit               |                                                                                                         |                                            | (20,047,351 | )         |           |          | (17,608,019 | )     
|                                                                                                                  |                                   |                                                                                                         |                                            |             |           |           |          |            
|                                                                                                                  |                                   |                                                                                                         | Total Shareholders Equity                 |             |           | 1,347,151 |          |             |        | 2,501,090 | 
|                                                                                                                  |                                   |                                                                                                         |                                            |             |           |           |          |            
|                                                                                                                  |                                   |                                                                                                         | Total Liabilities and Shareholders Equity |             | $         | 2,294,584 |          |             | $      | 4,305,963 | 
|                                                                                                                  |                                   |                                                                                                         |                                            |             |           |           |          |            

See accompanying notes.

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Hypertension Diagnostics, Inc.

Statements of Operations

|                                     |                                     |                |           |                    |          |                   |            |           |            |      |            |           |            |   |            |           |            |  
|------------------------------------ | ----------------------------------- | -------------- | --------- | ------------------ | -------- | ----------------- | ---------- | --------- | ---------- | ---- | ---------- | --------- | ---------- | - | ---------- | --------- | ---------- | -
|                                     |                                     |                |           | Three Months Ended |          | Nine Months Ended
|                                     |                                     |                |           | March 31           |          | March 31         
|                                     |                                     |                |           |                    |          |                  
|                                     |                                     |                |           | 2003               |          | 2002              |            | 2003      |            | 2002
|                                     |                                     |                |           |                    |          |                   |            |           |            |     
|Revenue:                             |                                     |                |           |                    |          |                   |            |           |            |      |            |           |            |   |            |          
|                                     | Equipment sales                     |                | $         | 77,287             |          |                   | $          | 50,453    |            |      | $          | 227,675   |            |   | $          | 344,304   |           
|                                     | Equipment rental                    |                |           | 84,364             |          |                   |            | 44,647    |            |      |            | 245,959   |            |   |            | 75,004    |           
|                                     | Service warranty income             |                |           | 17,417             |          |                   |            |          |            |      |            | 52,250    |            |   |            |          |           
|                                     |                                     |                |           |                    |          |                   |            |           |            |      |            |           |            |   |            |          
|                                     |                                     |                | 179,068   |                    |          |                   | 95,100     |           |            |      | 525,884    |           |            |   | 419,308    |          
|Cost of Sales                        |                                     |                | 34,338    |                    |          |                   | 12,327     |           |            |      | 87,695     |           |            |   | 75,903     |          
|                                     |                                     |                |           |                    |          |                   |            |           |            |      |            |           |            |   |            |          
|                                     |                                     | Gross Profit   |           |                    | 144,730  |                   |            |           | 82,773     |      |            |           | 438,189    |   |            |           | 343,405    |  
|Expenses:                            |                                     |                |           |                    |          |                   |            |           |            |      |            |           |            |   |            |          
|                                     | Research and development            |                |           |                   |          |                   |            |          |            |      |            |          |            |   |            | 40,827    |           
|                                     | Selling, general and administrative |                |           | 652,515            |          |                   |            | 1,517,451 |            |      |            | 2,684,497 |            |   |            | 5,088,909 |           
|                                     |                                     |                |           |                    |          |                   |            |           |            |      |            |           |            |   |            |          
|                                     |                                     | Total Expenses |           |                    | 652,515  |                   |            |           | 1,517,451  |      |            |           | 2,684,497  |   |            |           | 5,129,736  |  
|                                     |                                     |                |           |                    |          |                   |            |           |            |      |            |           |            |   |            |          
|Operating Loss                       |                                     |                | (507,785  | )                  |          |                   | (1,434,678 | )         |            |      | (2,246,308 | )         |            |   | (4,786,331 | )        
|Other Income (Expense):              |                                     |                |           |                    |          |                   |            |           |            |      |            |           |            |   |            |          
|                                     | Interest income                     |                |           | 4,044              |          |                   |            | 6,637     |            |      |            | 17,176    |            |   |            | 47,863    |           
|                                     | Interest expense                    |                |           | (57,511            | )        |                   |            | (296,993  | )          |      |            | (210,200  | )          |   |            | (296,993  | )         
|                                     |                                     |                |           |                    |          |                   |            |           |            |      |            |           |            |   |            |          
|                                     |                                     | Net Loss       |           | $                  | (561,252 | )                 |            | $         | (1,725,034 | )    |            | $         | (2,439,332 | ) |            | $         | (5,035,461 | )
|                                     |                                     |                |           |                    |          |                   |            |           |            |      |            |           |            |   |            |          
|Basic and Diluted Net Loss per Share |                                     | $              | (.06      | )                  |          | $                 | (.29       | )         |            | $    | (.31       | )         |            | $ | (.86       | )        
|Weighted Average Shares Outstanding  |                                     |                | 9,463,110 |                    |          |                   | 5,920,829  |           |            |      | 7,871,211  |           |            |   | 5,824,236  |          

See accompanying notes.

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Hypertension Diagnostics, Inc.

Statements of Cash Flows

|                                                                            |                                                                                         |                                   |                                                  |         |                   |            |            |           |          |            |  
|--------------------------------------------------------------------------- | --------------------------------------------------------------------------------------- | --------------------------------- | ------------------------------------------------ | ------- | ----------------- | ---------- | ---------- | --------- | -------- | ---------- | -
|                                                                            |                                                                                         |                                   |                                                  |         | Nine Months Ended
|                                                                            |                                                                                         |                                   |                                                  |         | March 31         
|                                                                            |                                                                                         |                                   |                                                  |         |                  
|                                                                            |                                                                                         |                                   |                                                  |         | 2003              |            | 2002      
|                                                                            |                                                                                         |                                   |                                                  |         |                   |            |           
|Operating Activities:                                                       |                                                                                         |                                   |                                                  |         |                   |            |            |          
|Net loss                                                                    |                                                                                         | $                                 | (2,439,332                                       | )       |                   | $          | (5,035,461 | )        
|Adjustments to reconcile net loss to net
cash used in operating activities: |                                                                                         |                                   |                                                  |         |                   |            |            |          
|                                                                            | Value of stock options, Common Stock and warrants
issued in lieu of cash                |                                   |                                                  | 350,000 |                   |            |            | 1,978,877 |         
|                                                                            | Depreciation                                                                            |                                   |                                                  | 162,588 |                   |            |            | 148,276   |         
|                                                                            | Amortization                                                                            |                                   |                                                  | 3,400   |                   |            |            | 5,100     |         
|                                                                            | Interest expense  convertible debt fair value allocation to benefical conversion price |                                   |                                                  |        |                   |            |            | 295,239   |         
|                                                                            | Amortization of debt discount                                                           |                                   |                                                  | 149,023 |                   |            |            |          |         
|                                                                            | Interest expense  converted to Common Stock                                            |                                   |                                                  | 13,711  |                   |            |            |          |         
|                                                                            | Change in operating assets and liabilities:                                             |                                   |                                                  |         |                   |            |            |           |         
|                                                                            |                                                                                         | Accounts receivable               |                                                  |         | 188,077           |            |            |           | (66,315  | )         
|                                                                            |                                                                                         | Interest receivable               |                                                  |         | (7,124            | )          |            |           | 5,769    |           
|                                                                            |                                                                                         | Related party note receivable     |                                                  |         | 117,000           |            |            |           |         |           
|                                                                            |                                                                                         | Inventory                         |                                                  |         | 46,308            |            |            |           | (367,662 | )         
|                                                                            |                                                                                         | Prepaids and other current assets |                                                  |         | (31,864           | )          |            |           | (181,656 | )         
|                                                                            |                                                                                         | Accounts payable                  |                                                  |         | (66,938           | )          |            |           | (125,839 | )         
|                                                                            |                                                                                         | Accrued payroll and payroll taxes |                                                  |         | 4,173             |            |            |           | 20,901   |           
|                                                                            |                                                                                         | Deferred revenue                  |                                                  |         | (52,250           | )          |            |           |         |           
|                                                                            |                                                                                         | Other accrued expenses            |                                                  |         | (27,167           | )          |            |           | (38,070  | )         
|                                                                            |                                                                                         |                                   |                                                  |         |                   |            |            |          
|                                                                            |                                                                                         |                                   | Net cash used in operating activities            |         |                   | (1,590,395 | )          |           |          | (3,360,841 | )
|Investing Activities:                                                       |                                                                                         |                                   |                                                  |         |                   |            |            |          
|Purchase of property and equipment                                          |                                                                                         |                                   |                                                 |         |                   |            | (7,120     | )        
|                                                                            |                                                                                         |                                   |                                                  |         |                   |            |            |          
|                                                                            |                                                                                         |                                   | Net cash used in investing activities            |         |                   |           |            |           |          | (7,120     | )
|Financing Activities:                                                       |                                                                                         |                                   |                                                  |         |                   |            |            |          
|Issuance of Common Stock                                                    |                                                                                         |                                   | 57,400                                           |         |                   |            | 42,598     |          
|Proceeds from issuance of notes payable                                     |                                                                                         |                                   |                                                 |         |                   |            | 2,000,000  |          
|                                                                            |                                                                                         |                                   |                                                  |         |                   |            |            |          
|                                                                            |                                                                                         |                                   | Net cash provided by financing activities        |         |                   | 57,400     |            |           |          | 2,042,598  |  
|                                                                            |                                                                                         |                                   |                                                  |         |                   |            |            |          
|Net decrease in cash and cash equivalents                                   |                                                                                         |                                   | (1,532,995                                       | )       |                   |            | (1,325,363 | )        
|                                                                            |                                                                                         |                                   | Cash and cash equivalents at beginning of period |         |                   | 1,824,238  |            |           |          | 3,885,064  |  
|                                                                            |                                                                                         |                                   |                                                  |         |                   |            |            |          
|Cash and cash equivalents at end of period                                  |                                                                                         | $                                 | 291,243                                          |         |                   | $          | 2,559,701  |          
|                                                                            |                                                                                         |                                   |                                                  |         |                   |            |            |          
|Supplemental Schedule of Noncash Financing Activities:                      |                                                                                         |                                   |                                                  |         |                   |            |            |          
|Conversion of notes payable and accrued interest into Common Stock          |                                                                                         | $                                 | 877,993                                          |         |                   | $          |           |          

See accompanying notes.

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Hypertension Diagnostics, Inc.
Notes to Financial Statements

March 31, 2003



|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 and nine months ended March 31, 2003 are not necessarily
indicative of the results that may be expected for the full year ending
June 30, 2003. The June 30, 2002 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, 2002. The policies described
in that report are used for preparing quarterly reports.
|  
|2. |  | Convertible Notes Payable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  
|   |  | The Company is a party to that certain Subscription Agreement dated as of
March 27, 2002 (the Subscription Agreement) with the subscribers named
therein for a private placement to five investors of three-year 8%
Convertible Notes (the Notes) in the original aggregate principal
amount of $2,000,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  
|   |  | As a result of these events of default noted below, a Note holder, at its
option, may demand repayment in cash of 130% of the principal then
outstanding and interest then remaining unpaid on the Note. As of April
18, 2003, $592,959.50 in principal remained outstanding on the Notes and
$2,339.35 in accrued interest was unpaid. Further, a Note holder, at its
option, may demand cash or stock at the applicable conversion price in an
amount equal to two (2%) percent per month of the principal amount of the
Notes (whether or not converted) for the duration of the default relating
to the registration statement, as described below.                                                                                                                                                                                                                                                                                                                                                  
|  
|   |  | The Company is in default of the covenants of the Notes relating to: (a)
its failure to meet The Nasdaq SmallCap Market requirements for
continued listing relating to shareholders equity and (b) withdrawal
from The Nasdaq SmallCap Market. The Company is also in default of
covenants of the Notes relating to its failure to maintain an effective
registration statement for the resale by the Note holders of shares of
its common stock issuable upon conversion of the Notes. The Company had
been in default of a covenant of the Notes relating to its failure to
meet The Nasdaq SmallCap Market requirements for continued listing
relating to minimum bid price; however, this default was waived by the
holders of the Notes pursuant to that certain letter agreement dated
October 15, 2002 which was filed as Exhibit 99.2 to the Companys Form
8-K dated October 15, 2002 and filed on October 22, 2002.                                                                           

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|3. |  | Stock Based Compensation                                                                                                                                                                                                                                                                                      
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The Company accounts for stock based compensation in accordance with the
provisions of APB Opinion No. 25. The following table summarizes
relevant information as if the fair value recognition provisions of SFAS
123, Accounting for Stock Based Compensation, had been applied to all
stock-based awards.

|                                                                                       |  |                    |          |                   |  |      |            |      |  |   |            |   |  |   |            |  
|-------------------------------------------------------------------------------------- |  | ------------------ | -------- | ----------------- |  | ---- | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                                                                       |  | Three Months Ended |          | Nine Months Ended
|                                                                                       |  | March 31           |          | March 31         
|                                                                                       |  |                    |          |                  
|                                                                                       |  | 2003               |          | 2002              |  | 2003 |            | 2002
|                                                                                       |  |                    |          |                   |  |      |            |     
|Net loss, as reported                                                                  |  | $                  | (561,252 | )                 |  | $    | (1,725,034 | )    |  | $ | (2,439,332 | ) |  | $ | (5,035,461 | )
|Stock-based compensation determined under
fair value method for all stock-based awards |  |                    | (56,224  | )                 |  |      | (65,604    | )    |  |   | (177,775   | ) |  |   | (197,554   | )
|                                                                                       |  |                    |          |                   |  |      |            |      |  |   |            |   |  |   |            |  
|Adjusted net loss, assuming fair value
method for all stock-based awards               |  | $                  | (617,476 | )                 |  | $    | (1,790,638 | )    |  | $ | (2,617,107 | ) |  | $ | (5,233,015 | )
|                                                                                       |  |                    |          |                   |  |      |            |      |  |   |            |   |  |   |            |  
|Diluted (loss) earnings per share, as reported                                         |  | $                  | (0.06    | )                 |  | $    | (0.29      | )    |  | $ | (0.31      | ) |  | $ | (0.86      | )
|Diluted (loss) earnings per share, SFAS 123
adjusted                                   |  |                    | (0.07    | )                 |  |      | (0.30      | )    |  |   | (0.33      | ) |  |   | (0.90      | )

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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 2002 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 immediate need for additional
capital; the illiquidity of our securities on the OTC Bulletin Board and the
related restrictions on our securities relating to penny stocks; the
existence of events of default under our 8% Convertible Notes and the resulting
right of the holders of such Notes to demand immediate repayment; our ability
to develop a business model to timely generate acceptable levels of revenues;
the availability of third-party reimbursements for the use of our products;
increased market acceptance of our products; 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. 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.

Overview

Hypertension Diagnostics, Inc. is engaged in the design, development,
manufacture and marketing of proprietary medical devices that it believes
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. Our product provides important
cardiovascular parameters which we believe 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 patients cardiovascular disease, and allow for monitoring the effectiveness
of various treatments of patients with diagnosed cardiovascular disease.

We are currently marketing three products:

|                                                    |  |                                                                                                                                                                                                                                                                                                                            
|--------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|CVProfilor DO-2020 CardioVascular
Profiling System |  | The CVProfilor DO-2020 System is
being marketed to primary care
physicians and other health care
professionals on a
per-patient-tested rental basis.
It is also sold and offered as a
capital lease.                                                                                                                    
|                                                    |  |                                                                                                                                                                                                                                                                                                                            
|                                                    |  | Utilizing our Central Data
Management Facility, or 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 based on the number of
CardioVascular Profile Reports
(CVProfile Reports) which they
generate each month.

8



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|                                                                |  |                                                                                                                                                                                                                                                                                     
|--------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|HDI/PulseWave
CR-2000 Research CardioVascular
Profiling System |  | 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.                                    
|                                                                |  |                                                                                                                                                                                                                                                                                     
|CVProfilor MD-3000 CardioVascular
Profiling System             |  | The CVProfilor MD-3000 System is
the international version of the
CVProfilor DO-2020 System designed
for physicians outside the United
States. The CVProfilor MD-3000
System has a medical device CE Mark
(CE0123) that allows it to be
marketed within European Union
countries.

Critical Accounting Policies

Our significant accounting policies are summarized in the footnotes to our
financial statements contained in our Annual Report on Form 10-KSB for the year
ended June 30, 2002. The most critical policies are also discussed below.

Revenue Recognition.We recognize revenue in accordance with Securities and
Exchange Commissions Staff Accounting Bulletin (SAB) No. 101, Revenue
Recognition. Pursuant to SAB No. 101, the Company recognizes revenue from the
sale of equipment at the time of shipment, FOB shipping point, to a customer or
distributor (in the case of international shipments). Payments from customers
and distributors are either in advance of shipment or within a short time
frame. In the case of 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. Further, title passes to the customer or distributor upon
shipment. At the time of shipment, all of the criteria for recognition set
forth in SAB No. 101 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. 101 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.

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.
Neither customers nor distributors have a right to return or exchange our
product. 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. 101.

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 historic write-offs.

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.

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Results of Operations

As of March 31, 2003, we had an accumulated deficit of $(20,047,351),
attributable primarily to research and development and general and
administrative expenses. Until we are able to generate significant revenue
from our activities, we expect to continue to incur operating losses.

Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002

The following is a summary of our Revenue and Cost of Sales for the three
months ended March 31, 2003 and 2002, respectively:

|              |  |                                   |         |       |  |           |        |                    |  |                  |        |  |  |   |        | 
|------------- |  | --------------------------------- | ------- | ----- |  | --------- | ------ | ------------------ |  | ---------------- | ------ |  |  | - | ------ | 
|              |  | Three Months Ended March 31, 2003
|              |  |                                  
|              |  |                                   |         |       |  | Equipment |        | CVProfilorDO-2020 |  | Service Warranty
|              |  | Total                             |         | Sales |  | Rental    |        | Income            
|              |  |                                   |         |       |  |           |        |                   
|Revenue       |  | $                                 | 179,068 |       |  | $         | 77,287 |                    |  | $                | 84,364 |  |  | $ | 17,417 | 
|Cost of Sales |  |                                   | 34,338  |       |  |           | 17,603 |                    |  |                  | 16,735 |  |  |   |       | 
|              |  |                                   |         |       |  |           |        |                    |  |                  |        |  |  |   |        | 
|Gross Profit  |  | $                                 | 144,730 |       |  | $         | 59,684 |                    |  | $                | 67,629 |  |  | $ | 17,417 | 
|              |  |                                   |         |       |  |           |        |                    |  |                  |        |  |  |   |        | 

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

The CR-2000 Research System is being marketed for research purposes only
in the United States, while the CVProfilorDO-2020 System is being marketed to
primary care physicians and other health care professionals on a
per-patient-tested rental basis. Total Equipment Sales Revenue for the three
months ended March 31, 2003 was $77,287, compared to $50,453 for the three
months ended March 31, 2002. Our strategy is now focused on 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. This shift in strategic focus began in the fourth quarter of fiscal
year 2001. The reason for the shift in our strategic focus to the
CVProfilorDO-2020 System was: a) FDA 510(k) clearance to market it in the
United States on November 1, 2000; and b) the potential practicing physician
market is significantly larger than the research market for the CR-2000
Research System. 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 will continue to be, focused on expanding
CVProfilorDO-2020 System placements and utilization in the United States
physicians medical offices and clinics.

For the three months ended March 31, 2003, we recognized Revenue for the
CVProfilor DO-2020 per-patient-tested rental program of $84,364, compared to
$44,647 for the three months ended March 31, 2002. This increase in Revenue
for the CVProfilor DO-2020 is mainly due to increased placements and resulting
increased usage of the CVProfilor DO-2020. The number of placements of the
CVProfilor DO-2020 as of March 31, 2003 was 136, compared to 86 placements as
of March 31, 2002. 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, 2003 were $652,515
compared to $1,517,451 for the three months ended March 31, 2002. The
following is a summary of the major categories included in selling, general and
administrative expenses:

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|                                                             |                                                    |   |                    |         |      |   |         |           | 
|------------------------------------------------------------ | -------------------------------------------------- | - | ------------------ | ------- | ---- | - | ------- | --------- | 
|                                                             |                                                    |   | Three Months Ended
|                                                             |                                                    |   | March 31          
|                                                             |                                                    |   |                   
|                                                             |                                                    |   | 2003               |         | 2002
|                                                             |                                                    |   |                    |         |     
|Wages, related expenses and benefits                         |                                                    | $ | 132,297            |         |      | $ | 242,164 |          
|Patents and related expenses                                 |                                                    |   | 6,323              |         |      |   | 3,314   |          
|Outside consultants                                          |                                                    |   | 68,419             |         |      |   | 560,065 |          
|Rent-building, equipment and utilities                       |                                                    |   | 26,398             |         |      |   | 29,331  |          
|Insurance-general and directors/officers liability           |                                                    |   | 19,685             |         |      |   | 18,421  |          
|Selling, marketing and promotion, including applicable wages |                                                    |   | 140,997            |         |      |   | 296,099 |          
|Legal and audit/accounting fees                              |                                                    |   | 34,667             |         |      |   | 34,774  |          
|Royalties                                                    |                                                    |   | 4,850              |         |      |   | 2,853   |          
|Depreciation and amortization                                |                                                    |   | 36,622             |         |      |   | 47,400  |          
|Convertible debt private placement expenses                  |                                                    |   | 4,972              |         |      |   | 234,140 |          
|Related party receivable write-off                           |                                                    |   | 117,000            |         |      |   |        |          
|Other-general and administrative                             |                                                    |   | 60,285             |         |      |   | 48,890  |          
|                                                             |                                                    |   |                    |         |      |   |         |          
|                                                             | Total selling, general and administrative expenses |   | $                  | 652,515 |      |   | $       | 1,517,451 | 
|                                                             |                                                    |   |                    |         |      |   |         |          

Our number of employees decreased from seventeen in the three months ended
March 31, 2002 to thirteen in the three months ended March 31, 2003. In
December 2002, we implemented a plan to conserve cash through reductions in
selling, general and administrative expenses, which included the reduction in
the number of our employees, transitioning some employees to part-time
employment status and the reduction in salaries of executive management.

Outside consultants expense decreased from $560,065 for the three months
ended March 31, 2002 to $68,419 for the three months ended March 31, 2003.
Included in the $560,065 expense amount is a non-cash expense charge of
$355,000 relating to our July 9, 2001 Consulting Agreement with Redwood
Consultants, LLC. Included in the $68,419 expense amount is a non-cash expense
charge of $50,000 relating to our June 2002 Consulting Agreement with HRI
Consultants. The fair value of those agreements are expensed as services are
provided. The fair value of the issued shares and warrants to Redwood
Consultants, LLC was arrived at based upon the following methods: Shares -
Last sales price of our common stock on July 9, 2001; and Warrants  The
Black-Scholes option pricing model. The fair value of the issued shares and
warrants to HRI Consultants was based on the agreed upon contract price of
$400,000. Both Consulting Agreements involved similar services to be
performed, including the following: introduce us to various interested parties
in the financial community; assist and consult us with respect to our relations
with brokers, dealers, analysts and other investment professionals; and
financial public relations generally.

Selling, marketing and promotion expense decreased from $296,099 for the
three months ended March 31, 2002 to $140,997 for the three months ended March
31, 2003. This category includes wages and commissions paid by us relating to
our sales and marketing efforts, as well as travel and convention expenses.
The decrease in our number of employees accounted for most of this decrease in
expenses.

Convertible debt private placement expenses decreased from $234,140 for
the three months ended March 31, 2002 to $4,972 for the three months ended
March 31, 2003. These expenses relate to the March 27, 2002 private placement
to five investors consisting of three-year 8% Convertible Notes in the
aggregate principal amount of $2,000,000.

In December 2001, we entered into a full recourse note agreement with one
of our shareholders. Due to the questionable collectability of this
receivable, the full amount of this receivable, $117,000, has

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been written off at this time. We are currently assessing the remedies
available to us for the nonpayment of this note.

Interest expense was $57,511 and $296,993 for the three months ended March
31, 2003 and 2002, respectively. A further breakdown of the components of
interest expense is as follows:

|                                                                                                                                                                                                                                      |                        |          |                    |        |      |   |         |         | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------- | -------- | ------------------ | ------ | ---- | - | ------- | ------- | 
|                                                                                                                                                                                                                                      |                        |          | Three Months Ended
|Convertible Notes Payable                                                                                                                                                                                                             |                        | March 31
|                                                                                                                                                                                                                                      |                        |         
|                                                                                                                                                                                                                                      |                        |          | 2003               |        | 2002
|                                                                                                                                                                                                                                      |                        |          |                    |        |     
|8% interest on outstanding principal balances                                                                                                                                                                                         |                        | $        | 12,826             |        |      | $ | 1,754   |        
|Fair value basis allocation to the five-year warrants to purchase
250,000 shares of Common Stock ($315,789), being amortized
on a straight-line basis over the three (3) year term of the debt
agreement and as the debt is converted |                        |          | 44,685             |        |      |   |        |        
|                                                                                                                                                                                                                                      |                        |          |                    |        |      |   |         |        
|Fair value basis allocation to the beneficial conversion price of
the debt at the date of closing (March 27, 2002)                                                                                                                    |                        |          |                   |        |      |   | 295,239 |        
|                                                                                                                                                                                                                                      |                        |          |                    |        |      |   |         |        
|                                                                                                                                                                                                                                      | Total Interest Expense |          | $                  | 57,511 |      |   | $       | 296,993 | 
|                                                                                                                                                                                                                                      |                        |          |                    |        |      |   |         |        

Net loss was $(561,252) for the three months ended March 31, 2003,
compared to a net loss of $(1,725,034) for the three months ended March 31,
2002. For the three months ended March 31, 2003, basic and diluted net loss
per share was $(.06), based on weighted average shares outstanding of
9,463,110. For the three months ended March 31, 2002, basic and diluted net
loss per share was $(.29), based on weighted average shares outstanding of
5,920,829.

Nine Months Ended March 31, 2003 Compared to Nine Months Ended March 31, 2002

The following is a summary of our Revenue and Cost of Sales for the nine
months ended March 31, 2003 and 2002, respectively:

|              |  |                                  |         |       |  |           |         |                    |  |                  |         |  |  |   |        | 
|------------- |  | -------------------------------- | ------- | ----- |  | --------- | ------- | ------------------ |  | ---------------- | ------- |  |  | - | ------ | 
|              |  | Nine Months Ended March 31, 2003
|              |  |                                 
|              |  |                                  |         |       |  | Equipment |         | CVProfilorDO-2020 |  | Service Warranty
|              |  | Total                            |         | Sales |  | Rental    |         | Income            
|              |  |                                  |         |       |  |           |         |                   
|Revenue       |  | $                                | 525,884 |       |  | $         | 227,675 |                    |  | $                | 245,959 |  |  | $ | 52,250 | 
|Cost of Sales |  |                                  | 87,695  |       |  |           | 47,863  |                    |  |                  | 39,832  |  |  |   |       | 
|              |  |                                  |         |       |  |           |         |                    |  |                  |         |  |  |   |        | 
|Gross Profit  |  | $                                | 438,189 |       |  | $         | 179,812 |                    |  | $                | 206,127 |  |  | $ | 52,250 | 
|              |  |                                  |         |       |  |           |         |                    |  |                  |         |  |  |   |        | 

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

Total Equipment Sales Revenue for the nine months ended March 31, 2003 was
$227,675, compared to $344,304 for the nine months ended March 31, 2002. This
decrease in Total Equipment Sales Revenue is consistent with our shift in
strategic 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

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placement of CVProfilor DO-2020 Systems generating revenue on a
per-patient-tested rental program. The majority of our time and attention is
now, and will continue to be, focused on expanding CVProfilor DO-2020 System
placements and utilization in United States physicians medical offices and
clinics. This shift in our strategic focus began in the fourth quarter of
fiscal year 2001.

For the nine months ended March 31, 2003, we recognized Revenue for the
CVProfilor DO-2020 per-patient-tested rental program of $245,959, compared
to $75,004 for the nine months ended March 31, 2002. This increase in Revenue
for the CVProfilor DO-2020 is mainly due to increased placements and resulting
increased usage of the CVProfilor DO-2020. The number of placements of the
CVProfilor DO-2020 as of March 31, 2003 was 136, compared to 86 placements as
of March 31, 2002. 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, 2003 were $2,684,497,
compared to $5,129,736 for the nine months ended March 31, 2002. A further
breakdown of research and development expenses is as follows:

|                                                                                             |                                         |   |                   |   |      |   |        |        | 
|-------------------------------------------------------------------------------------------- | --------------------------------------- | - | ----------------- | - | ---- | - | ------ | ------ | 
|                                                                                             |                                         |   | Nine Months Ended
|                                                                                             |                                         |   | March 31         
|                                                                                             |                                         |   |                  
|                                                                                             |                                         |   | 2003              |   | 2002
|                                                                                             |                                         |   |                   |   |     
|Design and development of prototype devices and other
enhancements and improvements          |                                         | $ |                  |   |      | $ | 28,957 |       
|Recognized compensation cost for value of stock options
granted in lieu of cash compensation |                                         |   |                  |   |      |   | 11,870 |       
|                                                                                             |                                         |   |                   |   |      |   |        |       
|                                                                                             | Total research and development expenses |   | $                 |  |      |   | $      | 40,827 | 
|                                                                                             |                                         |   |                   |   |      |   |        |       

Research and development expenses decreased from $40,827 to $0 for the
nine months ended
March 31, 2002 and 2003, respectively. The main reason for this decrease
related to the completion of our Central Data Management Facility (CDMF)
located in our corporate offices in Eagan, Minnesota. Our CDMF is presently
capable of handling 48 simultaneous telephonic transmissions from our
CVProfilorDO-2020 Systems placed in physicians offices.

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

|                                                             |                                                    |   |                   |           |      |   |           |           | 
|------------------------------------------------------------ | -------------------------------------------------- | - | ----------------- | --------- | ---- | - | --------- | --------- | 
|                                                             |                                                    |   | Nine Months Ended
|                                                             |                                                    |   | March 31         
|                                                             |                                                    |   |                  
|                                                             |                                                    |   | 2003              |           | 2002
|                                                             |                                                    |   |                   |           |     
|Wages, related expenses and benefits                         |                                                    | $ | 595,097           |           |      | $ | 890,756   |          
|Patents and related expenses                                 |                                                    |   | 39,036            |           |      |   | 30,791    |          
|Outside consultants                                          |                                                    |   | 451,851           |           |      |   | 2,075,564 |          
|Rent-building and utilities                                  |                                                    |   | 77,525            |           |      |   | 96,893    |          
|Insurance-general and directors/officers liability           |                                                    |   | 64,548            |           |      |   | 51,971    |          
|Selling, marketing and promotion, including applicable wages |                                                    |   | 740,215           |           |      |   | 1,175,297 |          
|Legal and audit/accounting fees                              |                                                    |   | 173,263           |           |      |   | 161,176   |          
|Royalties                                                    |                                                    |   | 14,209            |           |      |   | 12,579    |          
|Depreciation and amortization                                |                                                    |   | 126,153           |           |      |   | 143,093   |          
|Convertible debt private placement expenses                  |                                                    |   | 45,198            |           |      |   | 234,140   |          
|Related party receivable write-off                           |                                                    |   | 117,000           |           |      |   |          |          
|Other-general and administrative                             |                                                    |   | 240,402           |           |      |   | 216,649   |          
|                                                             |                                                    |   |                   |           |      |   |           |          
|                                                             | Total selling, general and administrative expenses |   | $                 | 2,684,497 |      |   | $         | 5,088,909 | 
|                                                             |                                                    |   |                   |           |      |   |           |          

Our number of employees decreased from seventeen in the nine months ended
March 31, 2002 to thirteen in the nine months ended March 31, 2003. In
December 2002, we implemented a plan to conserve cash through reductions in
selling, general and administrative expenses, which included the reduction in
the number of our employees, transitioning some employees to part-time
employment status and the reduction in salaries of executive management.

Outside consultants expense decreased from $2,075,564 for the nine months
ended March 31, 2002 to $451,851 for the nine months ended March 31, 2003.
Included in the $2,075,564 expense amount is a non-cash expense charge of
$1,775,000 relating to our July 9, 2001 Consulting Agreement with Redwood
Consultants, LLC. Included in the $451,851 expense amount is a non-cash
expense charge of $350,000 relating to our June 2002 Consulting Agreement with
HRI Consultants. The fair value of those agreements are being expensed as
services are provided.

Selling, marketing and promotion expense decreased from $1,175,297 for the
nine months ended March 31, 2002 to $740,215 for the nine months ended March
31, 2003. This category includes wages and commissions paid by us relating to
our sales and marketing efforts as well as travel and convention expenses. The
decrease in our number of employees accounted for most of this decrease in
expenses.

Interest income was $17,176 and $47,863 for the nine months ended March
31, 2003 and 2002, respectively. This decrease was attributable to a decrease
in our Cash and Cash Equivalents from $2,560,000 at March 31, 2002 to $291,000
at March 31, 2003.

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|                                                                                                                                                                                                                                      |                        |          |                   |         |      |   |         |         | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------- | -------- | ----------------- | ------- | ---- | - | ------- | ------- | 
|                                                                                                                                                                                                                                      |                        |          | Nine Months Ended
|Convertible Notes Payable                                                                                                                                                                                                             |                        | March 31
|                                                                                                                                                                                                                                      |                        |         
|                                                                                                                                                                                                                                      |                        |          | 2003              |         | 2002
|                                                                                                                                                                                                                                      |                        |          |                   |         |     
|8% interest on outstanding principal balances                                                                                                                                                                                         |                        | $        | 61,177            |         |      | $ | 1,754   |        
|Fair value basis allocation to the five-year warrants to purchase
250,000 shares of Common Stock ($315,789), being amortized
on a straight-line basis over the three (3) year term of the debt
agreement and as the debt is converted |                        |          | 149,023           |         |      |   |        |        
|Fair value basis allocation to the beneficial conversion price of
the debt at the date of closing (March 27, 2002)                                                                                                                    |                        |          |                  |         |      |   | 295,239 |        
|                                                                                                                                                                                                                                      |                        |          |                   |         |      |   |         |        
|                                                                                                                                                                                                                                      | Total Interest Expense |          | $                 | 210,200 |      |   | $       | 296,993 | 
|                                                                                                                                                                                                                                      |                        |          |                   |         |      |   |         |        

Net loss was $(2,439,332) and $(5,035,461) for the nine months ended March
31, 2003 and 2002, respectively. For the nine months ended March 31, 2003,
basic and diluted net loss per share was $(.31), based on weighted average
shares outstanding of 7,871,211. For the nine months ended March 31, 2002,
basic and diluted net loss per share was $(.86), based on weighted average
shares outstanding of 5,824,236.

Liquidity, Capital Resources and Going Concern Matters

Cash and cash equivalents had a net decrease of $(1,532,995) and
$(1,325,363) for the nine months ended March 31, 2003 and March 31, 2002,
respectively. The significant elements of these changes were as follows:

|                                       |  |                                                  |  |      |  |                                                                                                                                                             |            |                            |  |     |  |   |            |   |  |  |  | 
|-------------------------------------- |  | ------------------------------------------------ |  | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------- | -------------------------- |  | --- |  | - | ---------- | - |  |  |  | 
|                                       |  |                                                  |  |      |  |                                                                                                                                                             |            | Nine Months Ended March 31
|                                       |  |                                                  |  |      |  |                                                                                                                                                             |            |                           
|Net cash used in operating activities: |  |                                                  |  | 2003 |  |                                                                                                                                                             |            | 2002                      
|                                       |  |                                                  |  |     
|-                                      |  | net loss, as adjusted for non-cash items         |  |      |  | $                                                                                                                                                           | (1,760,610 | )                          |  |     |  | $ | (2,607,969 | )
|-                                      |  | decrease (increase) in accounts receivable:      |  | (A)  |  |                                                                                                                                                             | 188,077    |                            |  | (B) |  |   | (66,315    | )
|                                       |  | -                                                |  | (A)  |  | $104,500 accounts receivable
balance regarding one customer was
recorded in June 2002 pertaining to a
service warranty contract covering an
18-month period |            |                            |  |     |  |   |            |   |  |  |  | 
|                                       |  | -                                                |  | (B)  |  | $150,000 accounts receivable
balance regarding one customer was
recorded in November 2001 pertaining to
the sale of CR-2000 Research Systems                |            |                            |  |     |  |   |            |   |  |  |  | 
|-                                      |  | decrease in related party note receivable:       |  | (C)  |  |                                                                                                                                                             | 117,000    |                            |  |     |  |   |           |  
|                                       |  | -                                                |  | (C)  |  | This amount pertains to a
non-trade receivable/interest bearing
loan to a shareholder that was written
off                                                  |            |                            |  |     |  |   |            |   | 
|-                                      |  | decrease (increase) in inventory:                |  |      |  |                                                                                                                                                             | 46,308     |                            |  | (D) |  |   | (367,662   | )
|                                       |  | -                                                |  | (D)  |  | Approximately $275,000 of this
amount pertained to the purchase of
Arterial PulseWave Sensors which are an
integral part of our medical device
Systems     |            |                            |  |     |  |   |            |   |  |  |  | 
|-                                      |  | (increase) in prepaids and other current assets: |  |      |  |                                                                                                                                                             | (31,864    | )                          |  | (E) |  |   | (181,656   | )
|                                       |  | -                                                |  | (E)  |  | $117,000 of this amount pertained
to a non-trade receivable/interest
bearing loan to a shareholder.                                                         |            |                            |  |     |  |   |            |   |  |  |  | 

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We have incurred operating losses and have not generated positive cash
flow from operations. As of March 31, 2003, we had an accumulated deficit of
$(20,047,351). We need additional financing to continue as a going concern and
we are exploring all possible financing alternatives. Because of uncertainties
regarding the achievability of additional financing, no assurance can be given
as to our ability to continue in existence. These conditions raise substantial
doubt about the Companys ability to continue as a going concern.

As of March 31, 2003, we have cash and cash equivalents of $291,243, 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 two months following March 31, 2003. As of May 1, 2003,
we have cash and cash equivalents of approximately $150,000. Revenues from
placements of our CVProfilor DO-2020 Systems and sales of our CR-2000 Research
Systems are not expected to be sufficient, either alone or together, to provide
us with sufficient working capital to support our operations in the next twelve
months. These matters raise substantial doubt about our ability to continue as
a going concern. If we do not promptly receive substantial additional capital,
we will be forced to cease operations. If we are forced to cease operations,
we will seek to eliminate all operating expenses while we reassess our
strategic options.

Our current marketing strategy focuses on marketing the CVProfilor
DO-2020 System to physicians who treat patients with diabetes and hypertension.
We believe these physicians have the greatest interest in, and use for, our
product. Therefore, the most critical factor in our ability to remain a going
concern rests in our ability to expand our marketing and distribution network
to increase placements and utilization of our CVProfilor DO-2020 System. We
believe there are three ways we could expand our marketing and distribution
network: 1) the development of an internal sales force, 2) a strategic
partnership with a firm that possesses a distribution network calling on these
same physicians, or 3) a combination of the internal sales force and external
distribution network methods. We believe this dual method of expansion offers
us the greatest opportunity for success. Assuming sufficient additional
working capital is secured, we anticipate funding five to ten additional sales
personnel at the same time that we pursue discussions with firms that have an
interest in representing our CVProfilor DO-2020 System nationwide. In the
short term, we have been focused on and will continue to focus on international
sales of our CVProfilor MD-3000 System as a means of generating cash to
support operational expenses.

We are currently implementing a plan to conserve cash through reductions
in selling, general and administrative expenses to improve working capital
management. This expense reduction plan resulted in the reduction in the
number of employees, transitioning some employees to part-time employment
status and the reduction in salaries of executive management. While these
measures have reduced the rate at which we use our available cash, they have
also compromised our ability to pursue and generate placements of our
CVProfilor DO-2020 Systems and sales of our CR-2000 Research Systems. Unless
we obtain significant additional capital to increase our sales and marketing
staff and other programs, we do not expect to generate significant levels of
revenue. Thus, while management believes that reduction of expenses is a
necessary component to our continuation as a going concern, we cannot continue
as a going concern as a result of expense reduction alone.

Further, the existence, timing and extent of reimbursement of physicians
for use of our CVProfilor DO-2020 affects the availability of our working
capital. As of June 30, 2002, the CVProfilor DO-2020 was being used in 23
states throughout the U.S. Of the 23 States in which the CVProfilor DO-2020 is
being utilized, doctors in 11 states have confirmed reimbursement.

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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. Therefore, we continue to devote
considerable effort to activities such as payer advocacy and coding
clarification directed at long-term reimbursement in our target markets. We
provide assistance to physicians with the ongoing process of insurance billing
procedures in an attempt to facilitate reimbursement coverage and payment on a
nationwide basis.

In addition, because our CVProfilor DO-2020 is being marketed 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 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 follow actual utilization by some
30-90 days; utilization in one month is invoiced in the following month and
payment is received within 30 to 60 days of invoicing. This delay in payment,
therefore, requires six to twelve months to fully recover product costs. These
cash flow delays mean that the Company will generate little, if any, cash
during the initial placement of the product and will require cash from other
sources to support its operations during this period.

To the extent we do not promptly obtain significant additional capital to
increase our sales and marketing staff and other programs, which we expect will
in turn increase placements of our CVProfilor DO-2020 and sales of our CR-2000
Research Systems, we will not be able to continue as a going concern.

We are seeking additional financing for working capital and are
considering all possible financing alternatives, the receipt of which cannot be
assured. Such financing alternatives include the raising of additional working
capital through the issuance of equity or debt securities to investors through
a private placement. As of the filing of this Form 10-QSB, we do not have any
agreement with any party to provide us with financing.

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. If we choose to repay the Notes before
maturity, the Notes must be repaid at a premium of: 120% of the outstanding
principal amount until 180 days after March 27, 2002; 128% between 181 and 270
days after March 27, 2002 and 135% from and after 271 days after March 27,
2002. As a precondition to repayment before maturity, there must be no event
of default and the shares of common stock issuable upon conversion of the Notes
must be included for unrestricted resale in a registration statement effective
as of the repayment date. Consent of the holders of the Notes is required for
repayment of the Notes before the maturity. These conditions on repayment of
the Notes may further hamper our efforts to raise additional funds.

Further, our financing needs assume that no demand for repayment is made
by any or all of the holders of our 8% Convertible Notes. Because of our
default of covenants relating to these Notes, a holder of the Note, at its
option, may demand payment of 130% of the then-outstanding principal and
accrued interest. As of April 18, 2003, $592,959.50 in principal remained
outstanding on the Notes and $2,339.35 in accrued interest was unpaid.
Additionally, a Note holder, at its option, may demand cash or stock at the
applicable conversion price in an amount equal to two (2%) percent per month of
the principal amount of the Notes (whether or not converted) for the duration
of the default relating to the registration statement, as described below. We
are in default of the covenants of the Notes relating to: (a) our failure to
meet The Nasdaq SmallCap Market requirements for continued listing relating to
shareholders equity and (b) our withdrawal from The Nasdaq SmallCap Market.
We are also in default of covenants of the Notes relating to our failure to
maintain an effective registration statement for the

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resale by the Note holders of shares of our common stock issuable upon
conversion of the Notes. We had been in default of a covenant of the Notes
relating to our failure to meet The Nasdaq SmallCap Market requirements for
continued listing relating to minimum bid price; however, this default was
waived by the holders of the Notes pursuant to that certain letter agreement
dated October 15, 2002 which was filed as Exhibit 99.2 to our Form 8-K dated
October 15, 2002 and filed on October 22, 2002.

No assurance can be given that additional working capital will be obtained
in a timely manner, if at all, or on terms and conditions acceptable to us, our
creditors, including the holders of the Notes, or our shareholders. Our
financing needs are based upon management estimates as to future revenue and
expense. Any demand for repayment of the Notes, without additional financing,
would adversely affect our ability to continue operations. We are seeking
waivers of the continuing events of default under the Notes, receipt of which
cannot be assured. 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.

We have historically obtained working capital from the issuance of our
securities. In July 1998, we completed our initial public offering of
2,587,500 units, each unit consisting of one share of our common stock and one
Redeemable Class A Warrant (the Class A Warrant) which resulted in total net
proceeds to us of $9,188,414. Beginning on January 23, 2001 and ending on
March 26, 2001, we offered our Redeemable Class B Warrants (the Class B
Warrants) for no additional consideration to those holders of our Class A
Warrants who properly exercised a Class A Warrant in the offering period. We
raised $1,964,371 (net of offering expenses of $73,062) in connection with this
offering of the Class B Warrants. On March 27, 2002, we completed a private
placement to five investors consisting of three-year 8% Convertible Notes (the
Notes) in the aggregate principal amount of $2,000,000. The Notes are
convertible into our common stock at a conversion price initially set at
$2.5072 and subject to downward adjustment because the closing bid price of our
common stock was less than $2.5072 for twenty consecutive trading days. The
new conversion price is 80% of the average of the closing bid prices of our
common stock for the last 5 consecutive trading days of any 20 consecutive
trading day period. Beginning on June 6, 2002 and ending on November 14, 2002,
we offered Class B Warrants for no additional consideration to those holders of
the Class A Warrants who properly exercised a Class A Warrant in the offering
period. Total gross proceeds from this offering were $57,400.




Item 4. Controls and Procedures.

(a)  Evaluation of Disclosure Controls and Procedures.

The Companys President, Greg H. Guettler, and Chief Financial Officer,
James S. Murphy, have reviewed the Companys disclosure controls and procedures
within 90 days prior to the filing of this Quarterly Report on Form 10-QSB.
Based upon this review, these officers believe that the Companys disclosure
controls and procedures are effective in ensuring that material information
related to the Company is made known to them by others within the Company.

(b)  Changes in Internal Controls.

There were no significant changes in the Companys internal controls or in
other factors that could significantly affect these controls during the quarter
covered by this report or from the end of the reporting period to the date of
this Quarterly Report on Form 10-QSB.

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PART II. OTHER INFORMATION




Item 6. Exhibits and Reports on Form 8-K



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



| |  | 99.1 | Certificate pursuant to 18 U.S.C. §1350.
| |  | ---- | ----------------------------------------



|(b) |  | Reports on Form 8-K.                                                                                       
|--- |  | -----------------------------------------------------------------------------------------------------------
|   
|    |  | The Company filed the following Current Reports on Form 8-K during the
quarter covered by this Form 10-QSB:



| |  |  | Current Report on Form 8-K dated February 24, 2003 reporting under
Item 5 the receipt of a Nasdaq Staff Determination that the Companys
securities would be delisted from The Nasdaq SmallCap Market and an
agreement between the Company and the holders of its 8% Convertible
Notes due March 27, 2005 (the Notes) to forbear from any demand for
repayment of principal, interest or any penalty relating to such Notes
and to forbear from conversion of such Notes until February 21, 2003.                                       
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Current Report on Form 8-K dated February 26, 2003 reporting under
Item 5 that the Company had requested a hearing before a Nasdaq Listing
Qualifications Panel to challenge the Nasdaq Staff Determination that
the Companys securities be delisted and the agreement between the
Company and the holders of the Notes by which the holders of the Notes
agreed to forbear from any demand for repayment of principal, interest
or any penalty relating to such Notes and to forbear from conversion of
such Notes until March 27, 2003.
|
| |  |  | Current Report on Form 8-K dated March 17, 2003 reporting under
Item 5 that the Company requested that its securities be withdrawn from
The Nasdaq SmallCap Market as of the open of business on March 21, 2003
and that the Company notified the Nasdaq Listing Qualifications
Hearings Department that the Company would not continue with its appeal
of the Nasdaq Staff Determination of delisting.                                                                                                                                   
|
| |  |  | Current Report on Form 8-K dated March 27, 2003 reporting under
Item 5 the termination of that certain agreement with the holders of
its 8% Convertible Notes Due March 27, 2005 (the Notes) for a
forbearance from any demand for repayment of principal, interest or any
penalty relating to such Notes and to forbear from conversion of such
Notes until March 27, 2003.                                                                                                                                                            

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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/ James S. Murphy
James S. Murphy
Senior Vice President, Finance and
Administration and Chief Financial
Officer
(principal financial officer) |  | 
|Date:  May 15, 2003 |                               |                                                                                                                                                    |  | 

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CERTIFICATIONS

I, Greg H. Guettler, certify that:

1.     I have reviewed this Quarterly Report on Form 10-QSB of Hypertension
Diagnostics, Inc.;

2.     Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and

c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5.     The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and

6.     The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

|                    |  |                      | 
|------------------- |  | -------------------- | 
|Date:  May 15, 2003 |  | /s/ Greg H. Guettler
|                    |  |                     
|                    |  | President           

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I, James S. Murphy, certify that:

1.     I have reviewed this Quarterly Report on Form 10-QSB of Hypertension
Diagnostics, Inc.;

2.     Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3.     Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.     The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and

c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5.     The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and

6.     The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

|                    |  |                         | 
|------------------- |  | ----------------------- | 
|Date:  May 15, 2003 |  | /s/ James S. Murphy    
|                    |  |                        
|                    |  | Chief Financial Officer

22