SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549




FORM
      10-QSB




QUARTERLY
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR
      THE
      QUARTERLY PERIOD ENDED December 31, 2007





Commission
      File Number:  0-24635





HYPERTENSION
      DIAGNOSTICS, INC.


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




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





2915
      WATERS ROAD, SUITE 108


EAGAN,
      MINNESOTA 55121-3528


(651)
      687-9999


(Address
      of issuer’s principal executive offices and telephone number)






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




YesxNo
 ̈




Indicate
      by check mark whether the
      registrant is a shell company (as defined in Rule 12b-2 of the Exchange
      Act).Yes  ̈No
x




The
      number
      of shares of Common Stock outstanding as of January 31, 2008 was 39,674,348.





Transitional
      Small Business Disclosure Format:




Yes
 ̈ No
x
  1




HYPERTENSION
        DIAGNOSTICS, INC.
 
 INDEX
        TO
        FORM 10-QSB
  Page
                    No.PART
                    I.
                FINANCIAL
                    INFORMATION:Item
                    1.
                Financial
                    StatementsBalance
                    Sheets – December 31, 2007 (unaudited) and
                    June 30, 2007
                3Statements
                    of Operations (unaudited) – Three Months and
                    Six Months Ended December 31, 2007 and 2006
                4Statements
                    of Cash Flows (unaudited) – Six Months Ended
                    December 31, 2007 and 2006
                5Notes
                    to Financial Statements
                6Item
                    2.
                Management’s
                    Discussion and Analysis of Financial Condition
                    and Results of Operations
                10Item
                    3.
                Controls
                    and Procedures
                20PART
                    II.
                OTHER
                    INFORMATION:Item
                    6.
                Exhibits
                21SIGNATURES
                
                
                22CERTIFICATIONS
                
                
                23






2




PART
        I.  FINANCIAL INFORMATION
 Item
        1. Financial
        Statements
 Hypertension
        Diagnostics, Inc.
 Balance
        Sheets


December
                  31,
              
              
              June
                  30,2007
              
              
              2007Assets
              
              (Unaudited)
              
              
              (Audited)Current
                  Assets:Cash
                  and cash
                  equivalents
              
              $
              1,315,781
              
              
              $
              1,376,632Accounts
                  receivable
              
              
              22,015
              
              
              
              293,997Inventory
              
              
              303,188
              
              
              
              288,208Prepaids
                  and other current
                  assets
              
              
              21,108
              
              
              
              17,988Total
                  Current
                  Assets
              
              
              1,662,092
              
              
              
              1,976,825Property
                  and
                  Equipment:Leasehold
                  improvements
              
              
              17,202
              
              
              
              17,202Furniture
                  and
                  equipment
              
              
              1,109,875
              
              
              
              1,119,264Less
                  accumulated depreciation and
                  amortization
              
              
              (1,104,431
              )
              
              
              (1,099,436
              )22,646
              
              
              
              37,030Other
                  Assets
              
              
              6,530
              
              
              
              6,530Total
                  Assets
              
              $
              1,691,268
              
              
              $
              2,020,385Liabilities
                  and Shareholders'
                  EquityCurrent
                  Liabilities:Accounts
                  payable
              
              $
              20,919
              
              
              $
              17,700Accrued
                  payroll and payroll
                  taxes
              
              
              438,266
              
              
              
              490,324Deferred
                  revenue
              
              
              20,723
              
              
              
              16,503Deposits
                  from
                  Customers
              
              
              -
              
              
              
              30,125Other
                  accrued
                  expenses
              
              
              7,403
              
              
              
              27,472Total
                  Current
                  Liabilities
              
              
              487,311
              
              
              
              582,124Deferred
                  Revenue, less current
                  portion
              
              
              19,649
              
              
              
              12,118Shareholders'
                  Equity:Series
                  A Convertible Preferred
                  Stock, $.01 par value:Authorized
                  shares--5,000,000Issued
                  and outstanding
                  shares--851,931 and 855,545 at December31,
                  2007 and June 30, 2007,
                  respectively; each share ofpreferred
                  stock convertible into
                  12 shares of common stockat
                  the option of the holder
                  (aggregate liquidation preference$3,094,348
                  and $2,817,818 at
                  December 31, 2007 andJune
                  30, 2007,
                  respectively)
              
              
              8,519
              
              
              
              8,555Common
                  Stock, $.01 par
                  value:Authorized
                  shares--150,000,000Issued
                  and outstanding
                  shares--39,674,348 and 39,630,980at
                  December 31, 2007 and June 30,
                  2007, respectively
              
              
              396,743
              
              
              
              396,310Additional
                  paid-in
                  capital
              
              
              27,552,136
              
              
              
              27,503,608Accumulated
                  deficit
              
              
              (26,773,090
              )
              
              
              (26,482,330
              )Total
                  Shareholders'
                  Equity
              
              
              1,184,308
              
              
              
              1,426,143Total
                  Liabilities and
                  Shareholders' Equity
              
              $
              1,691,268
              
              
              $
              2,020,385See
                  accompanying
                  notes.






3




Hypertension
        Diagnostics, Inc.
 Statements
        of Operations
 (Unaudited)
  Three
                    Months
                    Ended
                
                
                Six
                    Months
                    EndedDecember
                    31
                
                
                December
                    312007
                
                
                2006
                
                
                2007
                
                
                2006Revenue:Equipment
                    sales
                
                $
                91,705
                
                
                $
                476,505
                
                
                $
                183,635
                
                
                $
                809,806Equipment
                    rental
                
                
                35,558
                
                
                
                65,407
                
                
                
                81,785
                
                
                
                140,585Service/contract
                    income
                
                
                18,399
                
                
                
                6,811
                
                
                
                26,594
                
                
                
                20,817145,662
                
                
                
                548,723
                
                
                
                292,014
                
                
                
                971,208Cost
                    of
                    Sales
                
                
                12,113
                
                
                
                13,330
                
                
                
                14,441
                
                
                
                33,575Gross
                    Profit
                
                
                133,549
                
                
                
                535,393
                
                
                
                277,573
                
                
                
                937,633Selling,
                    general and
                    administrative expenses
                
                
                (17,963
                )
                
                
                774,954
                
                
                
                597,022
                
                
                
                1,386,960Gain
                    on sale of property and
                    equipment
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (8,099
                )Total
                    Expense
                
                
                (17,963
                )
                
                
                774,954
                
                
                
                597,022
                
                
                
                1,378,861Operating
                    Income
                    (Loss)
                
                
                151,512
                
                
                
                (239,561
                )
                
                
                (319,449
                )
                
                
                (441,228
                )Interest
                    income
                
                
                13,936
                
                
                
                14,157
                
                
                
                28,689
                
                
                
                27,743Net
                    Income
                    (Loss)
                
                $
                165,448
                
                
                $
                (225,404
                )
                
                $
                (290,760
                )
                
                $
                (413,485
                )Basic
                    and Diluted Net Loss per
                    Share
                
                $
                .00
                
                
                $
                (.01
                )
                
                $
                (.01
                )
                
                $
                (.01
                )Weighted
                    Average Shares
                    Outstanding - Basic
                
                
                39,666,835
                
                
                
                39,846,547
                
                
                
                39,658,077
                
                
                
                40,001,826Weighted
                    Average Shares
                    Outstanding - Diluted
                
                
                39,666,835
                
                
                
                39,846,547
                
                
                
                39,658,077
                
                
                
                40,001,826See
                    accompanying
                    notes.






4




Hypertension
        Diagnostics, Inc.
 Statements
        of Cash Flows
 (Unaudited)
  Six
                    Months
                    EndedDecember
                    312007
                
                
                2006Operating
                    Activities:Net
                    loss
                
                $
                (290,760
                )
                
                $
                (413,485
                )Adjustments
                    to reconcile net loss
                    to netcash
                    used in operating
                    activities:CEO
                    stock based compensation
                    expense
                
                
                -
                
                
                
                5,250Depreciation
                
                
                14,384
                
                
                
                26,853Net
                    book value of disposed rental
                    assets
                
                
                -
                
                
                
                2,785Gain
                    on sale of property and
                    equipment
                
                
                -
                
                
                
                (8,099
                )Stock
                    options
                    expense
                
                
                48,925
                
                
                
                84,515Change
                    in operating assets and
                    liabilities:Accounts
                    receivable
                
                
                271,982
                
                
                
                (4,858
                )Inventory
                
                
                (14,980
                )
                
                
                38,163Prepaids
                    and other current
                    assets
                
                
                (3,120
                )
                
                
                7,321Accounts
                    payable
                
                
                3,219
                
                
                
                (28,210
                )Accrued
                    payroll and payroll
                    taxes
                
                
                (52,058
                )
                
                
                30,725Deferred
                    revenue
                
                
                11,751
                
                
                
                (6,327
                )Other
                    accrued
                    expenses
                
                
                (50,194
                )
                
                
                27,019Net
                    cash (provided by) used in
                    operating activities
                
                
                (60,851
                )
                
                
                (238,348
                )Investing
                    Activities:Purchase
                    of property and
                    equipment
                
                
                -
                
                
                
                (5,286
                )Proceeds
                    from disposal of property
                    and equipment
                
                
                -
                
                
                
                8,099Net
                    cash provided by investing
                    activities
                
                
                -
                
                
                
                2,813Financing
                    Activities:Redemption
                    of Common
                    Stock
                
                
                -
                
                
                
                (46,000
                )Net
                    cash used in financing
                    activities
                
                
                -
                
                
                
                (46,000
                )Net
                    increase/(decrease) in cash
                    and cash equivalents
                
                
                (60,851
                )
                
                
                (281,535
                )Cash
                    and cash equivalents at
                    beginning of period
                
                
                1,376,632
                
                
                
                1,722,913Cash
                    and cash equivalents at end
                    of period
                
                $
                1,315,781
                
                
                $
                1,441,378See
                    accompanying
                    notes.






5




Hypertension
        Diagnostics, Inc.
 Notes
        to Financial Statements
 December
        31, 2007
  1. Interim
          Financial Information
 The
        accompanying unaudited financial statements have been prepared in accordance
        with the instructions to Form 10-QSB and do not include all the information
        and
        notes required by generally accepted accounting principles for complete
        financial statements.  In the opinion of management, these unaudited
        financial statements reflect all adjustments, consisting only of normal and
        recurring adjustments necessary for a fair presentation of the financial
        statements.  The results of operations for the three months and six
        months ended December 31, 2007 are not necessarily indicative of the results
        that may be expected for the full year ending June 30, 2008.  The June
        30, 2007 balance sheet was derived from audited financial
        statements.  For further information, refer to the financial
        statements and notes included in the Company’s Annual Report on Form 10-KSB for
        the fiscal year ended June 30, 2007.  The policies described in that
        report are used for preparing quarterly reports.
  2.Recent
          Accounting
          Pronouncements
 The
        Financial Accounting Standards Board has published FASB Interpretation (FIN)
        No.
        48 (FIN No. 48), “Accounting for Uncertainty in Income Taxes”, to address the
        noncomparability in reporting tax assets and liabilities resulting from a
        lack
        of specific guidance in FASB Statement of Financial Accounting Standards
        (SFAS)
        No. 109 (SFAS No. 109), “Accounting for Income Taxes”, on the uncertainty in
        income taxes recognized in an enterprise’s financial
        statements.  Specifically, FIN No. 48 prescribes (a) a consistent
        recognition threshold and (b) a measurement attribute for the financial
        statement recognition and measurement of a tax position taken or expected
        to be
        taken in a tax return, and provides related guidance on de-recognition,
        classification, interest, and penalties, accounting in interim periods,
        disclosure, and transition.  FIN No. 48 applies to fiscal years
        beginning after December 15, 2006, with earlier adoption
        permitted.  The Company adopted FIN No. 48 in the first quarter of
        fiscal year 2008 and the adoption did not have a material impact on the
        consolidated financial statements.
 
 FASB
        160
  On
        December 4, 2007, the FASB issued FASB Statement No. 160,“Noncontrolling
        Interests in
        Consolidated Financial Statements” - An Amendment of ARB No. 51. Statement 160
        establishes new accounting and reporting standards for the noncontrolling
        interest in a subsidiary and for the deconsolidation of a subsidiary.
        Specifically, this statement requires the recognition of a noncontrolling
        interest (minority interest) as equity in the consolidated financial statements
        and separate from the parent's equity. The amount of net income attributable
        to
        the noncontrolling interest will be included in consolidated net income on
        the
        face of the income statement. Statement 160 clarifies that changes in a parent's
        ownership interest in a subsidiary that do not result in deconsolidation
        are
        equity transactions if the parent retains its controlling financial interest.
        In
        addition, this statement requires that a parent recognize a gain or loss
        in net
        income when a subsidiary is deconsolidated. Such gain or loss will be measured
        using the fair value of the noncontrolling equity investment on the
        deconsolidation date. Statement 160 also includes expanded disclosure
        requirements regarding the interests of the parent and its noncontrolling
        interest.
  Statement
        160 is effective for fiscal years, and interim periods within those fiscal
        years, beginning after June 30, 2008.  Earlier adoption
        is prohibited.
  6




Hypertension
        Diagnostics, Inc.
 Notes
        to
        Financial Statements
 December
        31, 2007
 
 2.Recent
        Accounting Pronouncements
        (continued)
 
 FASB
        141R
  On
        December 4, 2007, the FASB issued FASB Statement No. 141 (Revised 2007),Business Combinations. FAS
        141(R) will significantly change the accounting for business combinations.
        Under
        Statement 141(R), an acquiring entity will be required to recognize all the
        assets acquired and liabilities assumed in a transaction at the acquisition-date
        fair value with limited exceptions. FAS 141R will change the accounting
        treatment for certain specific items, including:
 
 ·
              Acquisition
                  costs will be generally expensed as
                  incurred;
 ·
              Noncontrolling
                  interests (formerly known as "minority interests” will be valued at fair
                  value at the acquisition date;
 ·
              Acquired
                  contingent liabilities will be recorded at fair value at the acquisition
                  date and subsequently measured at either the higher of such amount
                  or the
                  amount determined under existing guidance for non-acquired
                  contingencies;
 ·
              In-process
                  research and development will be recorded at fair value as an
                  indefinite-lived intangible asset at the acquisition
                  date;
 ·
              Restructuring
                  costs associated with a business combination will be generally
                  expensed
                  subsequent to the acquisition date;
                  and
 ·
              Changes
                  in deferred tax asset valuation allowances and income tax uncertainties
                  after the acquisition date generally will affect income tax
                  expense.
 
 FAS
        141(R)
        also includes a substantial number of new disclosure
        requirements.  The statement applies prospectively to business
        combinations for which the acquisition date is on or after the beginning
        of the
        first annual reporting period beginning after June 30, 2008. Earlier
        adoption is
        prohibited.
  3. Litigation
 
 The
        Company is involved in various
        legal actions in the ordinary course of its business.  Although the
        outcome of any such legal actions cannot be predicted, management believes
        that
        there are no pending legal proceedings against or involving the Company for
        which the outcome is likely to have a material adverse effect upon the Company’s
        financial position or results of operations.
 
 4. Stock
        Options
  The
        Company regularly grants stock options to individuals under various plans
        as
        described in Note 4 of the Company’s Annual Report on Form 10-KSB for the year
        ended June 30, 2006.  FASB Statement No. 123 (revised 2004), Share-Based Payment (“FAS
        123(R)”) requires that the compensation cost relating to share-based payment
        transactions, including grants of employee stock options, be recognized in
        financial statements.  That cost will be measured based on the fair
        value of the equity or liability instrument issued.  FAS 123(R) covers
        a wide range of share-based compensation arrangements including stock options,
        restricted share plans, performance-based awards, share appreciation rights,
        and
        employee share purchase plans.  FAS 123(R) is a replacement of FASB
        Statement No. 123,Accounting
        for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for
        Stock Issued to
        Employees, and its related interpretive guidance.  The effect
        of the Statement is to require entities to measure the cost of employee services
        received in exchange for stock options based on the grant-date fair value
        of the
        award, and to recognize the cost over the period the employee is required
        to
        provide services for the award.  FAS 123(R) permits entities to use
        any option-pricing model that meets the fair value objective in the
        Statement.  The Company implemented FAS 123(R) on July 1, 2006, using
        the modified prospective transition method.
  7




Hypertension
        Diagnostics, Inc.
 Notes
        to
        Financial Statements
 December
        31, 2007
 
 4. Stock
        Options
        (continued)
  During
          the
          three months and six months ended December 31, 2007, there were 15,000
          stock
          options granted.  During the three months and six months ended
          December 31, 2006, there were 1,910,000 and 2,485,000 stock options granted,
          respectively.  The Company recognized compensation expense of $24,525
          and $48,925 (earnings per share is zero) for the three months and six months
          ending December 31, 2007, and compensation expense of $13,283 and $84,515
          for
          the three months and six months ending December 31, 2006 respectively,
          related
          to the options granted previously.  The Company estimates the expense
          for the remainder of fiscal year 2008 to be approximately $45,750 based
          on the
          value of options outstanding on December 31, 2007 that will vest during
          the
          remainder of fiscal year 2008.  The following are estimated expenses
          for future fiscal years ended June 30: 2009 - $91,500; 2010 -
          $45,750.  These estimates do not include any expense for options that
          may be granted and vest in the future.
 
 The
          fair
          value of the options granted during the three months and six months ended
          December 31, 2007 and 2006, was estimated using the Black-Scholes option
          pricing
          model with the following weighted average assumptions:
  Expected
                  Expected
                  ExpectedThree
                      Months
                      Ended
                  Interest
                      Rate
                  Dividend
                      Yield
                  Life
                  VolatilityDecember
                      31, 2007
                  4.50%
                  None
                  5
                      years
                  180.71%December
                      31, 2006
                  4.50%
                  None
                  5
                      years
                  151.94%Six
                      Months
                      EndedDecember
                      31, 2007
                  4.50%
                  None
                  5
                      years
                  180.71%December
                      31, 2006
                  4.50%
                  None
                  5
                      years
                  138.07-151.94%




Dividend
        yield and expected volatility are estimated using historical amounts that
        are
        anticipated to be consistent with current values.  Expected life of
        option is based on the life of the option agreements.  Risk-free
        interest rate is determined using the U.S. treasury rate.
 
 As
        of
        December 31, 2007,there was $183,000
        of
        total unrecognized compensation costs related to the outstanding stock options,
        which is expected to be recognized over a weighted average period of 2.00
        years.
  8




Hypertension
        Diagnostics, Inc.
 Notes
        to
        Financial Statements
 December
        31, 2007
 
 5. Stock
        Based
        Compensation
  The
          Company has entered into an employment agreement with its CEO, Mark N.
          Schwartz,
          whereby the Company will grant 175,000 phantom shares of its common stock
          to its
          CEO for every month of employment for the period January 1, 2006 through
          December 31, 2007.  A cash payment will be made to the CEO equal to
          the price per share of the Company’s common stock times the number of phantom
          shares accrued at the earliest of certain Event Dates (as defined in the
          employment agreement). Accordingly, the Company has accrued a compensation
          liability of $378,000 at December 31, 2007, which is the fair market value
          of
          4,200,000 phantom shares granted as of December 31, 2007 pursuant to the
          employment agreement.  Due to phantom shares granted and the changes
          in the price of the Company’s common stock, the Company recorded a compensation
          benefit of $283,500 and $0 in compensation cost for the three months and
          six
          months ended December 31, 2007, compared to compensation expense of $139,125
          and
          $5,250 for the three months and six months ended December 31,
          2006.  An increase in the Company’s common stock price would cause an
          increase in the compensation cost for Stock Based Compensation, while a
          decrease
          in the Company’s stock price would cause a decrease in the compensation
          cost.  Therefore, the benefit that the Company recorded for the three
          months ended December 31, 2007 results from a decrease in the Company’s stock
          price from the prior period ending September 30, 2007 to the period ending
          December 31, 2007.  On the last trading day of the period ending
          September 30, 2007, the Company’s stock price was $0.18 per share, and on the
          last trading day of the period ending December 31, 2007, the Company’s stock
          price was $0.09 per share.
 6. Net
          Loss Per
          Share
 
 Basic
          net
          loss per share is computed using the weighted average number of common
          shares
          outstanding during each period.  Diluted net loss per share includes
          the dilutive effect of common shares potentially issuable upon the exercise
          of
          stock options, warrants, or the conversion of preferred stock.
 
 7. Exercise
          Dates of Warrants
  On
          December 28, 2007,
          the Company agreed to extend the exercise date of its outstanding remaining
          50%
          Warrant B warrants to purchase shares of its common stock, $0.01 par value
          per
          share, and Series A Convertible Preferred Stock, $0.01 par value per share,
          which were initially exercisable on or before June 23, 2006 (collectively,
          the
“Remaining Warrants”) and were granted in connection with the Company’s private
          offering which closed on August 28, 2003.  The Remaining Warrants,
          which would have expired on December 31, 2007, were extended to expire
          on March
          31, 2008.
  Additionally,
          on December 28, 2007, the
          Company agreed to extend the exercise date of its outstanding Warrant B
          warrants
          from December 31, 2007 to March 31, 2008, to purchase shares of its common
          stock, $0.01 par value per share, and Series A Convertible Preferred Stock,
          $0.01 par value per share (collectively, the “February B Warrants”), granted in
          connection with the Company’s private offering, which closed on February 9,
          2004.   For
          those holders who exercise at least fifty percent (50%) of their February
          B
          Warrants by March 31, 2008, the Company has agreed to further extend the
          exercise dateof the
          remaining February B Warrants held by such holders to June 30,
          2008.
  9




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
        caution readers not to place undue reliance on any forward-looking statements
        and to recognize that the statements are not predictions of actual future
        results.  Actual results could differ materially from those
        anticipated in the forward-looking statements due to the risks and uncertainties
        set forth in our 2007 Annual Report on Form 10-KSB under the caption “Risk
        Factors,” as well as others not now anticipated.  These risks and
        uncertainties include, without
        limitation: our ability to develop a business model to timely generate
        acceptable levels of revenues; the control exercised by the Schwartz Group;
        negative effect on our stock price resulting from available securities for
        sale;
        our need for additional capital; our dependence on our CVProfilor® DO-2020; the
        availability of third-party reimbursements for the use of our products;
        increased market acceptance of our products; our marketing strategy potentially
        resulting in lower revenues; the illiquidity of our securities on the OTC
        Bulletin Board and the related restrictions on our securities relating to
“penny
        stocks”; potential violations by us of federal and state securities laws; the
        availability of integral components for our products; our ability to develop
        distribution channels; increased competition; changes in government regulation;
        health care reforms; exposure to potential product liability; our ability
        to
        protect our proprietary technology; regulatory restrictions pertaining to
        data
        privacy issues in utilizing our Central Data Management Facility; and the
        ability to manufacture our products on a commercial scale and in compliance
        with
        regulatory requirements.We undertake no responsibility to
        update any forward-looking statement.These forward-looking statements
        are
        only made as of the date of this report.  In addition to the risks we
        have articulated above, changes in market conditions, changes in our business
        and other factors may result in different or increased risks to our business
        in
        the future that are not foreseeable at this time.
 
 Overview
 
 We
        are engaged in the design,
        development, manufacture and marketing of proprietary medical devices that
        we
        believe non-invasively detect subtle changes in the elasticity of both large
        and
        small arteries.  We are currently marketing three products: the
        HDI/PulseWaveTM CR-2000
        Research CardioVascular Profiling System, the CVProfilor®
        DO-2020
        CardioVascular Profiling System and the CVProfilor®
        MD-3000
        CardioVascular Profiling System.
 
 ·
              The
                  CR-2000 Research System is being marketed worldwide “for research purposes
                  only” to clinical research investigators for the purpose of collecting
                  data in cardiovascular studies.Because the CR-2000
                  Research
                  System bears the CE Mark (CE0123) and meets the European Union
                  Medical Device Directive, physicians may use the CR-2000 Research
                  System
                  with patients in a clinical setting in the European
                  Union.
 
 ·
              In
                  the U.S., the CVProfilor®
                  DO-2020 System is being marketed to primary care physicians and
                  other
                  health care professionals on a purchase, lease or “per-patient-tested”
                  rental basis.  Utilizing our Central Data Management Facility,
                  we are able to track utilization of the CVProfilor®
                  DO-2020 System in each physician’s office and medical clinic and to
                  invoice our physician customers on the number of CardioVascular
                  Profile
                  Reports (CVProfileTM Reports) which they generate each month.  In
                  fiscal year 2005, we implemented a rent-to-own program that allows
                  rental
                  customers to credit a portion of their payments toward the purchase
                  of
                  their CVProfilor®
                  DO-2020 System.  Acquisition options were enhanced with the
                  assistance of a third-party leasing company, which the physicians
                  can use
                  to acquire their CVProfilor®
                  DO-2020 System.
  10
  ·
              The
                  CVProfilor®
                  MD-3000 System is being marketed through distributors to physicians
                  outside the United States.  These distributors may purchase the
                  product from us and then re-sell it to end-user physicians in their
                  territory.  The CVProfilor®
                  MD-3000 System has a CE Mark that allows it to be marketed within
                  European
                  Union countries.  The CVProfilor®
                  MD-3000 may require certain regulatory approval for it to be marketed
                  in
                  other countries throughout the
                  world.




Recent
      Accounting Pronouncements




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


FASB
        160
  On
        December 4, 2007, the FASB issued FASB Statement No. 160,“Noncontrolling
        Interests in
        Consolidated Financial Statements” - An Amendment of ARB No. 51. Statement 160
        establishes new accounting and reporting standards for the noncontrolling
        interest in a subsidiary and for the deconsolidation of a subsidiary.
        Specifically, this statement requires the recognition of a noncontrolling
        interest (minority interest) as equity in the consolidated financial statements
        and separate from the parent's equity. The amount of net income attributable
        to
        the noncontrolling interest will be included in consolidated net income on
        the
        face of the income statement. Statement 160 clarifies that changes in a parent's
        ownership interest in a subsidiary that do not result in deconsolidation
        are
        equity transactions if the parent retains its controlling financial interest.
        In
        addition, this statement requires that a parent recognize a gain or loss
        in net
        income when a subsidiary is deconsolidated. Such gain or loss will be measured
        using the fair value of the noncontrolling equity investment on the
        deconsolidation date. Statement 160 also includes expanded disclosure
        requirements regarding the interests of the parent and its noncontrolling
        interest.
 
 Statement
        160 is effective for fiscal years, and interim periods within those fiscal
        years, beginning after June 30, 2008.  Earlier adoption
        is prohibited.
 
 FASB
        141R
  On
        December 4, 2007, the FASB issued FASB Statement No. 141 (Revised 2007),Business Combinations. FAS
        141(R) will significantly change the accounting for business combinations.
        Under
        Statement 141(R), an acquiring entity will be required to recognize all the
        assets acquired and liabilities assumed in a transaction at the acquisition-date
        fair value with limited exceptions. FAS 141R will change the accounting
        treatment for certain specific items, including:
 
 ·
              Acquisition
                  costs will be generally expensed as
                  incurred;
 ·
              Noncontrolling
                  interests (formerly known as "minority interests” will be valued at fair
                  value at the acquisition date;
 ·
              Acquired
                  contingent liabilities will be recorded at fair value at the acquisition
                  date and subsequently measured at either the higher of such amount
                  or the
                  amount determined under existing guidance for non-acquired
                  contingencies;
 ·
              In-process
                  research and development will be recorded at fair value as an
                  indefinite-lived intangible asset at the acquisition
                  date;
 ·
              Restructuring
                  costs associated with a business combination will be generally
                  expensed
                  subsequent to the acquisition date;
                  and
 ·
              Changes
                  in deferred tax asset valuation allowances and income tax uncertainties
                  after the acquisition date generally will affect income tax
                  expense.






11




FAS
        141(R)
        also includes a substantial number of new disclosure
        requirements.  The statement applies prospectively to business
        combinations for which the acquisition date is on or after the beginning
        of the
        first annual reporting period beginning after June 30, 2008. Earlier
        adoption is
        prohibited.
 
 Critical
        Accounting Policies
 
 The
        financial statements are prepared in accordance with accounting principles
        generally accepted in the U.S., which requires us to make estimates and
        assumptions in certain circumstances that affect amounts reported in the
        accompanying financial statements and related footnotes.  In preparing
        these financial statements, management has made its best estimates and judgments
        of certain amounts included in the financial statements, giving due
        consideration to materiality.  We do not believe there is a great
        likelihood that materially different amounts would be reported related to
        the
        accounting policies described below.  However, application of these
        accounting policies involves the exercise of judgment and use of assumptions
        as
        to future uncertainties and, as a result, actual results could differ from
        these
        estimates.
 
 Revenue
        Recognition.  We recognize revenue in accordance with U.S. Securities
        and Exchange Commission’s Staff Accounting Bulletin (SAB) No. 104, “Revenue
        Recognition.”  Pursuant to SAB No. 104, the Company recognizes revenue
        from the sale of equipment at the time of shipment to a customer or
        distributor.  Shipment occurs only after receipt of a valid purchase
        order.  Payments from
        customers and distributors are either made in advance of shipment or within
        a
        short time frame after shipment.  In the case of sales to
        distributors, such payment is not contingent upon resale of the product to
        end
        users.Shipping and handling costs are included as cost of
        equipment sales.  At the time of shipment, all of the criteria for
        recognition set forth in SAB No. 104 have been met:  persuasive
        evidence of an arrangement exists, delivery has occurred or services have
        been
        rendered, the selling price is fixed or determinable and collectability is
        reasonably assured.
 
 Equipment
        rental revenue, whether from the minimum monthly fee or from the
        per-patient-tested fee, is recognized when collection is probable, which
        is
        currently upon cash receipt.  At the time of receipt
        of
        rental revenues, all of the criteria for recognition set forth in SAB No.
        104
        have been met:  persuasive evidence of an arrangement exists, delivery
        has occurred or services have been rendered, the selling price is fixed or
        determinable and collectability is reasonably assured.
 
 In
        the case of either a sale or rental
        of our product, there are no post-shipment obligations which affect the
        timing of revenue recognition.  Once purchased, neither customers nor distributors
        have
        a right to return or exchange our product.  Service/Contract revenue
        is recognized upon shipment, all parts to customers are prepaid before the
        part
        is shipped. Warranty repairs on all of the above are handled on a repair
        or
        replacement basis, at our discretion.Further, there is no
        installation of our product; it is ready to use when pluggedinto an electrical outlet
        and no
        specialized knowledge is required to ready it for use.For
        these reasons, we have concluded that our revenue recognition policy is
        appropriate and in accordance with SAB No.104.
  12




Allowance
        for Doubtful Accounts.  Accounts receivable are reviewed to determine
        the need for an allowance for amounts that may become uncollectible in the
        future.  The necessity of an allowance is based on management’s review
        of accounts receivable balances and historical write-offs.  As of
        December 31, 2007 and June 30, 2007, there was no allowance for doubtful
        accounts.
 
 Inventories
        and Related Allowance for Excess and Obsolete Inventory.  Inventories
        are valued at the lower of cost or market and reviewed to determine the need
        for
        an allowance for excess and obsolete inventories.  The need for an
        allowance is based on management’s review of inventories on hand compared to
        estimated future usage and sales.  As of December 31, 2007 and June
        30, 2007, there was an inventory reserve allowance.
 
 Research
        and Development.  For the three months and six months ended December
        31, 2007, we did not incur any research and development costs. For the three
        months and six months ended December 31, 2006, we incurred research and
        development costs of $353 and $31,858 respectively.
 
 Results
        of Operations
 
 As
        of
        December 31, 2007, we had an accumulated deficit of $26,773,090, attributable
        primarily to selling, general and administrative expenses.  Until we
        are able to generate significant revenue from our activities, we expect to
        continue to incur operating losses.  As of December 31, 2007, we had
        cash and cash equivalents of $1,315,781.  We anticipate that these
        funds, in conjunction with revenue anticipated to be earned from placements
        and
        sales of our CVProfilor® DO-2020 Systems, anticipated sales of our CR-2000
        Research Systems, and anticipated operating costs, will allow us to pursue
        our
        business development strategy for at least the next twelve months following
        December 31, 2007.
  Three
        Months Ended December 31, 2007 Compared to Three Months Ended December 31,
        2006
 
 The
        following is a summary of our
        Revenue and Cost of Sales for the three months ended December 31, 2007 and
        2006,
        respectively:
  Three
                    Months Ended December 31,
                    2007Equipment
                
                
                Equipment
                
                
                Service/Total
                
                
                Sales
                
                
                Rental
                
                
                ContractRevenue
                
                $
                145,662
                
                
                $
                91,705
                
                
                $
                35,558
                
                
                $
                18,399Cost
                    of
                    Sales
                
                
                12,113
                
                
                
                8,025
                
                
                
                3,112
                
                
                
                976Gross
                    Profit
                
                $
                133,549
                
                
                $
                83,680
                
                
                $
                32,446
                
                
                $
                17,423




Three
                  Months Ended December 31,
                  2006Equipment
              
              
              Equipment
              
              
              Service/Total
              
              
              Sales
              
              
              Rental
              
              
              ContractRevenue
              
              $
              548,723
              
              
              $
              476,505
              
              
              $
              65,407
              
              
              $
              6,811Cost
                  of
                  Sales
              
              
              13,330
              
              
              
              4,631
              
              
              
              8,197
              
              
              
              502Gross
                  Profit
              
              $
              535,393
              
              
              $
              471,874
              
              
              $
              57,210
              
              
              $
              6,309






13




Revenue.  Total
        Revenue for the three months ended December 31, 2007 was $145,662, compared
        to
        $548,723 for the three months ended December 31, 2006, a 73.5%
        decrease.
 
 Equipment
        Sales Revenue for the three months ended December 31, 2007 was $91,705, compared
        to $476,505 for the three months ended December 31, 2006, an 80.8%
        decrease.  A large part of this decrease is a result of the decline in
        the number of the Company’s sales representatives. As of December 31, 2006, the
        Company had three sales representatives; as of December 31, 2007, the Company
        had no sales representatives. While the Company currently has no sales
        representatives, equipment sales occur from customers contacting the Company
        directly.  Revenue relating to international equipment sales was
        $42,475 for the three months ended December 31, 2007 compared to $-0- for
        the
        three months ended December 31, 2006.
 
 Placements
        of the CVProfilor®
        DO-2020
        System, and satisfactory utilization by physicians of those systems placed,
        has
        taken more time and resources than originally anticipated due to the challenges
        associated with market acceptance of new diagnostic equipment in the primary
        care physician market.  We have focused our resources on specific
        regional markets that we believe are more likely to generate higher levels
        of
        acceptance of the CVProfilor®
        DO-2020
        System by physicians.  Our current marketing strategy focuses on
        marketing the CVProfilor®
        DO-2020
        System to primary care physicians (internists and family practioners) who
        treat
        patients with hypertension and diabetes.  We believe these physicians
        have the greatest interest in, and use for, our product.  Therefore,
        the most critical factor in our ability to increase revenue rests in our
        ability
        to expand our marketing and distribution network to increase placements and
        utilization of our CVProfilor®
        DO-2020
        System.
 
 Further,
        the existence, timing and extent of reimbursement of physicians for the use
        of
        our CVProfilor®
        DO-2020
        System affects the market acceptance of our product.  Reimbursement
        will 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
        System by current physician customers an important component of our product’s
        success.  To the extent that reimbursement is unavailable or
        inadequate, physicians will be less likely to use the CVProfilor®
        DO-2020
        System.
 
 In
        addition, when our CVProfilor®
        DO-2020
        System is being rented on a per-patient-tested basis, we have a delay in
        the
        cost recovery of our working assets.  Although our per-patient-tested
        marketing approach reduces the risk and thereby increases the potential rate
        of
        acceptance for physician customers willing to use the CVProfilor®
        DO-2020
        System as compared to a capital acquisition approach, it also delays our
        cash
        flow recovery of product costs.  Physician payments for use
        of the
        CVProfilor®DO-2020 System follow actual
        utilization by some 60-90 days; utilization in one month is invoiced in the
        following month and payment is generally received within 30 to 60 days of
        invoicing.  This delay in payment, therefore, requires six to twelve
        months to fully recover product costs. These cash flow delays mean that
        we will generate little, if any, cash during the initial placement of the
        product and will require cash from other sources to support our operations
        during this period.
 
 For
        the
        three months ended December 31, 2007, we recognized revenue for the
        CVProfilor®
        DO-2020
        System “per-patient-tested” rental program of $35,558, compared to $65,407 for
        the three months ended December 31, 2006, a 45.6% decrease.  We
        believe that a significant reason for this decrease is due to our business
        model; we use the rental model primarily as a means of generating a trial
        that
        will result in a sale, and accordingly, a number of our renters will not
        remain
        in the rental mode as long as they did previously, ultimately resulting in
        lower
        rental revenues.
 
 For
        the
        three months ended December 31, 2007, Service/Contract Income was $18,399,
        compared to $6,811 for the three months ended December 31, 2006, a 170.1%
        increase.
  14




Expenses.  Total
        selling, general and administrative expenses for the three months ended December
        31, 2007 were $(17,963), compared to $774,954 for the three months ended
        December 31, 2006. The following is a summary of the major categories included
        in selling, general and administrative expenses:
  Three
                    Months
                    EndedDecember
                    312007
                
                
                2006Wages,
                    expenses, benefits before
                    Stock Based CEO Compensation
                
                $
                63,869
                
                
                $
                113,101Stock
                    Based CEO
                    Compensation
                
                
                (283,500
                )
                
                
                139,125Patents
                    and related
                    expenses
                
                
                450
                
                
                
                1,866Outside
                    consultants
                
                
                14,225
                
                
                
                55,928Rent
                    (building/equipment) and
                    utilities
                
                
                22,448
                
                
                
                23,458Insurance-general
                    and
                    directors/officers liability
                
                
                8,240
                
                
                
                13,080Selling,
                    marketing and promotion,
                    including applicable wages
                
                
                79,929
                
                
                
                300,908Legal
                    and audit/accounting
                    fees
                
                
                16,513
                
                
                
                35,097Royalties
                
                
                3,796
                
                
                
                19,140Depreciation
                    and
                    amortization
                
                
                2,737
                
                
                
                3,342Research
                    and
                    development
                
                
                -
                
                
                
                353Stock
                    option
                    expense
                
                
                24,525
                
                
                
                13,283Other-general
                    and
                    administrative
                
                
                28,805
                
                
                
                56,273Total
                    selling, general and
                    administrative expenses
                
                $
                (17,963
                )
                
                $
                774,954
  Wages,
          related expenses and benefits before Stock Based CEO Compensation decreased
          from
          $113,101 to $63,869 for the three months ended December 31, 2006 and 2007,
          respectively, a 43.5% decrease.  This decrease is largely due to lower
          headquarters office headcount.
 
 Accrued
          Stock Based CEO Compensation, which is a non-cash charge that relates to
          the
          estimated amount due our chief executive officer as part of his compensation
          for
          services provided to us (see Note 4), was $(283,500) for the three months
          ended
          December 31, 2007 compared with $139,125 for the three months ended December
          31,
          2006.  The negative expense for the three month period ended December
          31, 2007 results from the decrease in the Company’s stock price during the three
          month period ended December 31, 2007.
 
 Outside
          consultants expense decreased from $55,928 to $14,225 for the three months
          ended
          December 31, 2006 and 2007, respectively, a 74.6% decrease. This decrease
          is
          largely due to a decrease in the expenses associated with our quality systems,
          regulatory affairs, and engineering consultants in the three months ended
          December 31, 2007.
 
 Insurance
          expense decreased from $13,080 to $ 8,240 for the three months ended December
          31, 2006 and 2007, respectively, a 37.0% decrease. This decrease is due
          to a
          decrease in the cost of the Company’s directors’ and officers’ liability
          insurance as well as a decrease in property insurance premiums.
 
 Selling,
          marketing and promotion expense decreased from $300,908 to $79,929 for
          the three
          months ended December 31, 2006 and 2007, respectively, a 73.4%
          decrease.  This category includes wages and commissions paid to our
          sales reps, marketing expenses and travel and convention
          expenses.  This decrease is due mainly to a decrease in our revenues
          from equipment sales, resulting in lower commissions paid, and a decrease
          in our
          sales force, which has
          declined from three sales representatives at the end of December 31, 2006
          to no
          sales representatives at the end of December 31, 2007.
  15




Legal
        and
        audit/accounting fees decreased from $35,097 to $16,513 for the three months
        ended December 31, 2006 and 2007, respectively, a 53.0%
        decrease.  This decrease is largely due to the conclusion of
        litigation which was finally settled on November 29, 2006.
 
 Royalties
        expense decreased from $19,140 to $3,796 for the three months ended December
        31,
        2006 and 2007, respectively, an 80.2% decrease. This expense is based on
        an
        agreement with the University of Minnesota which requires the Company to
        pay a
        3% royalty fee on total revenues each quarter. This decrease is due to the
        decline of revenues for the three month period ending December 31, 2007 compared
        to the three month period ending December 31, 2006.
 
 Stock
        option expense increased from $13,283 to $24,525 for the three months ended
        December 31, 2006 and 2007, respectively, an 84.6% increase. This expense
        is
        based on the Black-Scholes option pricing model applied to the number of
        shares
        of common stock underlying the stock options that vested during the three
        months
        ended December 31, 2006 and 2007.  This increase is a result of the
        stock options granted to the non-management board of directors effective
        January
        1, 2007, which vest quarterly through December 31, 2009.  Each quarter
        the value, based on the Black-Scholes option pricing model, of the shares
        that
        vested during that quarter is recognized as a stock option expense.
 
 Other-
        general and administrative expenses decreased from $56,273 to $28,805 for
        the
        three months ended December 31, 2006 and 2007, respectively, a 48.8%
        decrease.  This decrease is due to the decline in warehouse expenses,
        which are largely expenses associated with warranty replacement parts, for
        the
        three month period ending December 31, 2007 compared to the three month period
        ending December 31, 2006.
  Interest
        income was $13,936 and $14,157 for the three months ended December 31, 2007
        and
        2006, respectively.
 
 Our
        net
        income was $165,448 for the three months ended December 31, 2007, compared
        to a
        net loss of $225,404 for the three months ended December 31,
        2006.  For the three months ended December 31, 2007, basic and diluted
        net loss per share was $.00, based on weighted average shares outstanding
        of
        39,666,835.  For the three months ended December 31, 2006, basic and
        diluted net loss per share was $(.01), based on weighted average shares
        outstanding of 39,846,547.
 
 Six
        Months Ended December 31, 2007 Compared to Six Months Ended December 31,
        2006
 
 The
        following is a summary of our
        Revenue and Cost of Sales for the six months ended December 31, 2007 and
        2006
        respectively:
  16




Six
                  Months Ended December 31,
                  2007Equipment
              
              
              Equipment
              
              
              Service/Total
              
              
              Sales
              
              
              Rental
              
              
              ContractRevenue
              
              $
              292,014
              
              
              $
              183,635
              
              
              $
              81,785
              
              
              $
              26,594Cost
                  of
                  Sales
              
              
              14,441
              
              
              
              9,226
              
              
              
              3,716
              
              
              
              1,499Gross
                  Profit
              
              $
              277,573
              
              
              $
              174,409
              
              
              $
              78,069
              
              
              $
              25,095




Six
                  Months Ended December 31,
                  2006Equipment
              
              
              Equipment
              
              
              Service/Total
              
              
              Sales
              
              
              Rental
              
              
              ContractRevenue
              
              $
              971,208
              
              
              $
              809,806
              
              
              $
              140,585
              
              
              $
              20,817Cost
                  of
                  Sales
              
              
              33,575
              
              
              
              11,793
              
              
              
              20,103
              
              
              
              1,679Gross
                  Profit
              
              $
              937,633
              
              
              $
              798,013
              
              
              $
              120,482
              
              
              $
              19,138




Revenue.Total
        Revenue for the
        six months ended December 31, 2007 was $292,014, compared to $971,208 for
        the
        six months ended December 31, 2006, a 69.9% decrease.
 
 Equipment
        Sales Revenue for the six months ended December 31, 2007 was $183,635, compared
        to $809,806 for the six months ended December 31, 2006, a 77.3%
        decrease.  A large part of this decrease is a result of the decline in
        the number of the Company’s sales representatives. As of December 31, 2006, the
        Company had three sales representatives; as of December 31, 2007, the Company
        had no sales representatives. While the Company currently has no sales
        representatives, equipment sales occur from customers contacting the Company
        directly. In the fourth quarter of fiscal year 2005, we implemented a new
        rent-to-own program that allows rental customers to credit a portion of their
        payments toward the purchase of their CVProfilor®
        DO-2020
        System.  Acquisition options were enhanced with the assistance of a
        third-party leasing company, which the physicians can use to acquire their
        CVProfilor.  Revenue relating to international equipment sales was
        $42,475 for the six months ended December 31, 2007 and $24,500 for the six
        months ended December 31, 2006, a 73.4% increase.
 
 For
        the six months ended December 31,
        2007, we recognized Revenue for the CVProfilor® DO-2020 “per-patient-tested”
rental program of $81,785, compared to $140,585 for the six months ended
        December 31, 2006, a 41.8% decrease.  We believe that a significant
        reason for this decrease is due to our business model; we use the rental
        model
        primarily as a means of generating a trial that will result in a sale, and
        accordingly, a number of our renters will not remain in the rental mode as
        long
        as they did previously, ultimately resulting in lower rental
        revenues.  The per test fee is recognized as Revenue when we determine
        that collectibility is probable, which currently is upon cash
        receipt.
 
 For
        the
        six months ended December 31, 2007, Service/Contract Income was $26,594 compared
        to $20,817 for the six months ended December 31, 2006, a 27.8%
        increase.  This increase is due mainly to our increase in warranty
        service agreements.
 
 At
        June
        30, 2003, inventory which principally consists of raw materials had been
        written
        down to estimated net realizable value to account for quantities in excess
        of
        those expected to be sold currently.  The results of operations for
        the fiscal year ended June 30, 2003 included a corresponding charge to Cost
        of
        Sales of $850,000 related to this write-down.  As inventory is sold
        relating to Equipment Sales Revenue, a portion of this Inventory Reserve
        Allowance is recorded as an offset to Cost of Sales pertaining to these
        sales.  As of December 31, 2007, the Inventory Reserve Allowance
        balance is $529,700.  The following table shows the effect of this
        adjustment for the periods indicated:
  17




Three
                  Months
                  Ended
              
              
              Six
                  Months
                  EndedDecember
                  31,
                  2007
              
              
              December
                  31,
                  2006
              
              
              December
                  31,
                  2007
              
              
              December
                  31,
                  2006Cost
                  of
                  Sales
              
              $
              16,750
              
              
              $
              25,306
              
              
              $
              21,683
              
              
              $
              65,010Inventory
                  Reserve
                  Adjustment
              
              
              (4,637
              )
              
              
              (11,976
              )
              
              
              (7,242
              )
              
              
              (31,435
              )Cost
                  of Sales, as
                  reported
              
              $
              12,113
              
              
              $
              13,330
              
              
              $
              14,441
              
              
              $
              33,575




Expenses.Total
        selling, general and administrative expenses for the six months ended December
        31, 2007 were $597,022, compared to $1,386,960 for the six months ended December
        31, 2006, an 57.0% decrease.  The following is a summary of the major
        categories included in selling, general and administrative
        expenses:
  Six
                    Months
                    EndedDecember
                    312007
                
                
                2006Wages,
                    expenses, benefits before
                    Stock Based CEO Compensation
                
                $
                144,488
                
                
                $
                236,035Stock
                    Based CEO
                    Compensation
                
                
                -
                
                
                
                5,250Patents
                    and related
                    expenses
                
                
                3,065
                
                
                
                1,866Outside
                    consultants
                
                
                19,079
                
                
                
                85,781Rent
                    (building/equipment) and
                    utilities
                
                
                45,801
                
                
                
                48,868Insurance-general
                    and
                    directors/officers liability
                
                
                18,438
                
                
                
                27,936Selling,
                    marketing and promotion,
                    including applicable wages
                
                
                181,057
                
                
                
                592,148Legal
                    and audit/accounting
                    fees
                
                
                57,418
                
                
                
                109,329Royalties
                
                
                7,933
                
                
                
                27,389Depreciation
                    and
                    amortization
                
                
                5,538
                
                
                
                6,750Research
                    and
                    development
                
                
                -
                
                
                
                31,858Stock
                    Option
                    Expense
                
                
                48,925
                
                
                
                84,515Other-general
                    and
                    administrative
                
                
                65,280
                
                
                
                129,235Total
                    selling, general and
                    administrative expenses
                
                $
                597,022
                
                
                $
                1,386,960
  Wages,
          related expenses and benefits before Stock Based CEO Compensation decreased
          from
          $241,285 to $144,488 for the six months ended December 31, 2006 and 2007,
          respectively, a 40.1% decrease.  This decrease is largely due to lower
          headquarters office headcount.
 
 Accrued
          Stock Based CEO Compensation, which is a non-cash charge that relates to
          the
          estimated amount due our chief executive officer as part of his compensation
          for
          services provided to us (see Note 4), was $0 for the six months ended December
          31, 2007 compared with $5,250 for the six months ended December 31,
          2006.
 
 Outside
          consultants’ expense decreased from $85,781 for the six months ended December
          31, 2006 to $19,079 for the six months ended December 31, 2007, a 78%
          decrease.  This decrease is largely due to a decrease in the expenses
          associated with our quality systems, regulatory affairs, and engineering
          consultants in the six months ended December 31, 2007.
 
 Insurance
          expense decreased from $27,936 to $18,438 for the six months ended December
          31,
          2006 and 2007, respectively, a 34.0% decrease. This decrease is due to
          a
          decrease in the cost of the Company’s directors’ and officers’ liability
          insurance as well as a decrease in property insurance premiums.
  Selling,
          marketing and promotion expense
          decreased from $592,148 for the six months ended December 31, 2006 to $181,057
          for the six months ended December 31, 2007, a 69% decrease.  This
          category includes wages, bonuses and commissions paid by us relating to
          our
          sales and marketing efforts as well as travel and convention
          expenses.This
          decrease is due mainly to a decrease in our revenues from equipment sales,
          resulting in lower commissions paid and a decrease in our sales force,which has declined
          from
          three sales representativesat the end of December
          31, 2006 to no
          sales representatives at the end of December 31, 2007.
  18




Legal
        and
        audit/accounting fees decreased from $109,329 for the six months ended December
        31, 2006 to $57,418 for the six months ended December 31, 2007, a 47%
        decrease.  This decrease is largely due to the conclusion of
        litigation which was finally settled on November 29, 2006.
 
 Royalties
        expense decreased from $27,389 to $7,933 for the six months ended December
        31,
        2006 and 2007, respectively, a 71.0% decrease. This expense is based on an
        agreement with the University of Minnesota which requires the Company to
        pay a
        3% royalty fee on total revenues each quarter. This decrease is due to the
        decline of revenues for the six month period ending December 31, 2007 compared
        to the six month period ending December 31, 2006.
 
 Stock
        option expense decreased from $84,515 for the six months ended December 31,
        2006
        to $48,925 for the six months ended December 31, 2007, a 42%
        decrease.  This expense is based on the Black-Scholes option pricing
        model applied to the number of shares of common stock underlying the stock
        options that vested during the six months ended December 31, 2006 and
        2007.
 
 Other
–
        general and administrative expenses decreased from $129,235 for the six months
        ended December 31, 2006 to $65,280 for the six months ended December 31,
        2007, a
        49% decrease. This decrease is due to the decline in warehouse expenses,
        which
        are largely expenses associated with warranty replacement parts, for the
        six
        month period ending December 31, 2007 compared to the six month period ending
        December 31, 2006.
 
 Interest
        income was $27,743 and $28,689 for the six months ended December 31, 2007
        and
        2006, respectively.
 
 Net
        loss
        was $290,760 and $413,485 for the six months ended December 31, 2007 and
        2006,
        respectively.  For the six months ended December 31, 2007, basic and
        diluted net loss per share was $(.01), based on weighted average shares
        outstanding of 39,658,077.  For the six months ended December 31,
        2006, basic and diluted net loss per share was $(.01), based on weighted
        average
        shares outstanding of 40,001,826.
  Off-Balance
        Sheet Arrangements
 
 During
        the
        quarter ended December 31, 2007, we did not engage in any off-balance sheet
        arrangements as defined in Item 303(c) of Regulation S-B.
 
 Liquidity
        and Capital Resources
 
 Cash
        and
        cash equivalents had a net decrease of $60,851 and $281,535 for the six months
        ended December 31, 2007 and December 31, 2006, respectively.  The
        significant elements of these changes were as follows:
  19






Six
                  Months Ended December
                  31Net
                  cash used in
                  operating activities:
              
              2007
              
              
              2006—  net
                  (loss), as adjusted for non-cash items
              $
              (227,452)
              
              $
              (294,082)—  decrease
                  in accounts receivable:
                –  (A)
                  the increase in the collection of outstanding customer balances
                  is a
                  result of customers paying with credit cards, and less sales at
                  quarter
                  end.
              (A)
              271,982
              
              (A)
              (4,858)—  increase  (decrease)
                  in accrued payroll and payroll taxes:
                –  (B)
                  expense
                  amounts that relate to the estimated amount due our chief executive
                  officer as part of his compensation for services provided to
                  us.
              (B)
              (52,058)
              
              (B)
              35,975




We
        have
        incurred operating losses and have not generated positive cash flow from
        operations.  As of December 31, 2007, we had an accumulated deficit of
        $26,773,090.
 
 As
        of
        December 31, 2007, we had cash and cash equivalents of $1,315,781 and anticipate
        that these funds, in conjunction with revenue anticipated to be earned from
        placements and sales of our CVProfilor®
        DO-2020
        Systems, anticipated sales of our CR-2000 Research Systems, and anticipated
        operating costs, will allow us to pursue our business development strategy
        for
        at least the next twelve months following December 31, 2007.
 
 Our
        current marketing strategy focuses on marketing the CVProfilor®
        DO-2020
        System to primary care physicians (internists and family practioners) who
        treat
        patients with hypertension and diabetes.  We believe these primary
        care physicians have the greatest interest in, and use for, our
        product.  Therefore, the most critical factor in our ability to
        increase revenue rests in our ability to expand our marketing and distribution
        network to increase placements and utilization of our CVProfilor®
        DO-2020
        System.
  Further,
        the existence, timing and extent of reimbursement of physicians for the use
        of
        our CVProfilor®
        DO-2020
        affects the availability of our working capital.  Reimbursement will
        always vary considerably by the patient’s medical necessity, by physician, by
        provider, by geography and by provider coverage plans, making the process
        of
        obtaining reimbursement for the CVProfilor®
        DO-2020
        by current physician customers an important component of our product’s
        success.  To the extent that reimbursement is unavailable or
        inadequate, physicians will be less likely to use the CVProfilor®
        DO-2020.
 
 No
        assurance can be given that additional working capital will be obtained in
        a
        timely manner or on terms and conditions acceptable to us or our shareholders.
        Our financing needs are based upon management estimates as to future revenue
        and
        expense.  Our business plan and our financing needs are also subject
        to change based upon, among other factors, market conditions, and our ability
        to
        materially increase the revenue generated by our CVProfilor®
        DO-2020
        System and other cash flow from operations.  Our efforts to raise
        additional funds may be hampered by the fact that our securities are quoted
        on
        the OTC Bulletin Board, are illiquid and are subject to the rules relating
        to
        penny stocks.
 
 Item
        3.Controls
        and Procedures.
 
 (a)
        Evaluation of Disclosure Controls and Procedures.
  20




Under
        the
        supervision and with the participation of our Chief Executive Officer, Mark
        N.
        Schwartz, and Manager of Finance and Accounting, Mark P. O’Neill, we have
        evaluated the effectiveness of our disclosure controls and procedures (as
        defined in Rules 13a-15(e) and 15d-15(e) of the Securities and Exchange Act
        of
        1934, as amended) as of the end of the period covered by this
        report.  Based upon that review, our Chief Executive Officer and
        Manager of Finance and Accounting concluded that, as of the evaluation date,
        our
        controls and procedures are effective.
 
 (b)
        Changes in Internal
        Controls over Financial Reporting.
 
 There
        have
        been no changes in internal control over financial reporting that occurred
        during the fiscal period covered by this report that have materially affected,
        or are reasonably likely to materially affect, the registrant’s internal control
        over financial reporting.
 
 The
        Company is in the process of complying with the mandates of Section 404 of
        the
        Sarbanes-Oxley Act of 2002.  The U.S. Securities and Exchange
        Commission recently adopted rules that delay the Company’s schedule for
        compliance with Section 404 until the Company’s fiscal year ending June 30,
        2008.  The regulatory agencies are continuing to study the issues
        surrounding compliance, particularly as it relates to smaller public
        companies.  The Company has done due diligence to understand the
        requirements and corresponding work necessary to successfully document the
        Company’s system of internal control to the standards and satisfaction of third
        parties.  The potential cost of compliance with Section 404 to the
        Company’s shareholders in relation to the benefits may be
        significant.  In considering the Company’s compliance efforts, the
        Company believes that these additional costs and expenses will confirm the
        existence of an effective and functioning internal control system.
 
 The
        Company intends to diligently pursue implementation and compliance with Section
        404 requirements.  The Company does not believe it is in the
        shareholders’ best interests to incur unnecessary outsized costs in this effort,
        as the Company has an existing system of centralized review and
        controls.  Consequently, the Company will make every effort to comply
        with Section 404 requirements, but also will attempt to minimize the expense
        of
        this effort.  As a result of this cautioned approach and the
        complexity of compliance, there is a risk that, notwithstanding the Company’s
        best efforts, the Company may fail to demonstrate a compliance program that
        fully meets the standards of Section 404 as interpreted by the Company’s
        independent accountants.
  PART
        II. OTHER INFORMATION
 
 Item
        6.Exhibits
 
 (a)
        The
        following Exhibits are furnished pursuant to Item 601 of Regulation
        S-B:
  31.1 Certification
          of Chief Executive Officer pursuant to 13a-14
          and
          15d-14 of the Exchange Act
  31.2 Certification
          of Chief Financial Officer pursuant to 13a-14 and 15d-14 of the Exchange
          Act
  32   
            Certificate pursuant to 18 U.S.C. § 1350
   21




SIGNATURES
 
 In
        accordance with the requirements of the Exchange Act, the Registrant has
        caused
        this Form 10-QSB to be signed on its behalf by the undersigned, thereunto
        duly
        authorized.
  HYPERTENSION
                    DIAGNOSTICS, INC.By
                /s/
                    Mark N.
                    SchwartzMark
                    N. SchwartzChief
                    Executive OfficerDate: February
                    14, 2008










22