##### Table of Contents



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 September 30, 2000

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 55121-1562
(651) 687-9999
(Address of issuers principal executive offices and telephone number)

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

|    |  |   
|--- |  | --
|Yes |  | No

The number of shares of Common Stock outstanding as of November 3, 2000 was
5,276,710.

Transitional Small Business Disclosure Format:

|    |  |   
|--- |  | --
|Yes |  | No



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TABLE OF CONTENTS



|                                                                                                                                          |  |  |  |  |  |  |  | 
|----------------------------------------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION                                                                                                            
|ITEM 1. FINANCIAL STATEMENTS                                                                                                             
|BALANCE SHEETS - JUNE 30, 2000 AND SEPTEMBER 30, 2000                                                                                    
|STATEMENTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER
30, 1999 AND 2000 AND PERIOD FROM JULY 19, 1988 (INCEPTION) TO
SEPTEMBER 30, 2000
|STATEMENTS OF CASH FLOWS - THREE MONTHS ENDED SEPTEMBER
30, 1999 AND 2000 AND PERIOD FROM JULY 19, 1988 (INCEPTION) TO
SEPTEMBER 30, 2000
|NOTES TO FINANCIAL STATEMENTS                                                                                                            
|Financial Data Schedule                                                                                                                  



---



HYPERTENSION DIAGNOSTICS, INC.

INDEX TO FORM 10-QSB

|                               |         |  |                                                                                                                                                     |  |          |   | 
|------------------------------ | ------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------- | - | 
|                               |         |  |                                                                                                                                                     |  | Page No.
|                               |         |  |                                                                                                                                                     |  |         
|PART I. FINANCIAL INFORMATION:
|                              
|                              
|                              
|                              
|                               | Item 1. |  | Financial Statements                                                                                                                                |  | 3        |  
|                              
|                              
|                              
|                              
|                               |         |  | Balance Sheets  June 30, 2000 and September 30, 2000                                                                                               |  |          | 3 | 
|                              
|                              
|                              
|                              
|                               |         |  | Statements of Operations  Three Months Ended
     September 30, 1999 and 2000 and Period
     From July 19, 1988 (Inception) to September 30, 2000 |  |          | 4 | 
|                              
|                              
|                              
|                              
|                               |         |  | Statements of Cash Flows  Three Months Ended
     September 30, 1999 and 2000 and Period
     From July 19, 1988 (Inception) to September 30, 2000 |  |          | 5 | 
|                              
|                              
|                              
|                              
|                               |         |  | Notes to Financial Statements                                                                                                                       |  |          | 6 | 
|                              
|                              
|                              
|                              
|                               | Item 2. |  | Managements Discussion
and Analysis of Financial Condition and Results of Operations                                                               |  | 7        |  
|                              
|                              
|                              
|                              
|PART II. OTHER INFORMATION:   
|                              
|                              
|                              
|                              
|                               | Item 2. |  | Use of Proceeds                                                                                                                                     |  | 11       |  
|                              
|                              
|                              
|                              
|                               | Item 6. |  | Exhibits and Reports on Form 8-K                                                                                                                    |  | 11       |  
|                              
|                              
|                              
|                              
|SIGNATURES                     |         |  | 12                                                                                                                                                  | 
|                              
|                              
|                              
|                              
|EXHIBIT INDEX                  |         |  | 13                                                                                                                                                  | 

2



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##### Table of Contents












PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Hypertension Diagnostics, Inc.
(A Development Stage Company)
Balance Sheets

|                                                                                                                   |                                                  |                                                                                                          |                                            |            |          |             |               |            |        |           | 
|------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------ | -------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ---------- | -------- | ----------- | ------------- | ---------- | ------ | --------- | 
|                                                                                                                   |                                                  |                                                                                                          |                                            |            | June 30, |             | September 30,
|                                                                                                                   |                                                  |                                                                                                          |                                            |            | 2000     |             | 2000         
|                                                                                                                   |                                                  |                                                                                                          |                                            |            |          |             |              
|Assets                                                                                                             |                                                  |                                                                                                          |                                            |            |          | (Unaudited)
|                                                                                                                   |                                                  |                                                                                                          |                                            |            |          |            
|Current Assets:                                                                                                   
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                   | Cash and cash equivalents                        |                                                                                                          | $                                          | 4,018,745  |          |             | $             | 3,278,801  |       
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                   | Accounts receivable                              |                                                                                                          |                                            | 71,022     |          |             |               | 441,704    |       
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                   | Interest receivable                              |                                                                                                          |                                            | 2,342      |          |             |               | 9,882      |       
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                   | Inventory                                        |                                                                                                          |                                            | 1,295,416  |          |             |               | 1,351,950  |       
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                   | Prepaid expenses                                 |                                                                                                          |                                            | 12,933     |          |             |               | 32,184     |       
|                                                                                                                   |                                                  |                                                                                                          |                                            |            |          |             |               |           
|                                                                                                                   |                                                  |                                                                                                          | Total Current Assets                       |            |          | 5,400,458   |               |            |        | 5,114,521 | 
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|Property and Equipment:                                                                                           
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                   | Leasehold improvements                           |                                                                                                          |                                            | 17,202     |          |             |               | 17,202     |       
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                   | Furniture and equipment                          |                                                                                                          |                                            | 536,175    |          |             |               | 568,795    |       
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                   | Less accumulated depreciation                    |                                                                                                          |                                            | (191,469   | )        |             |               | (217,415   | )     
|                                                                                                                   |                                                  |                                                                                                          |                                            |            |          |             |               |           
|                                                                                                                   |                                                  |                                                                                                          | 361,908                                    |            |          |             | 368,582       |           
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|Patents, net of accumulated amortization of $28,405
and $30,105 at    June 30 and September 30, 2000,
respectively |                                                  |                                                                                                          | 17,000                                     |            |          |             | 15,300        |           
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|Other Assets                                                                                                       |                                                  |                                                                                                          | 6,730                                      |            |          |             | 6,730         |           
|                                                                                                                   |                                                  |                                                                                                          |                                            |            |          |             |               |           
|                                                                                                                   |                                                  |                                                                                                          | Total Assets                               |            | $        | 5,786,096   |               |            | $      | 5,505,133 | 
|                                                                                                                   |                                                  |                                                                                                          |                                            |            |          |             |               |           
|Liabilities and
Shareholders Equity                                                                              
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|Current Liabilities:                                                                                              
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                   | Accounts payable                                 |                                                                                                          | $                                          | 167,779    |          |             | $             | 106,368    |       
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                   | Accrued payroll and payroll taxes                |                                                                                                          |                                            | 250,277    |          |             |               | 273,808    |       
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                   | Other accrued expenses                           |                                                                                                          |                                            | 2,857      |          |             |               | 16,603     |       
|                                                                                                                   |                                                  |                                                                                                          |                                            |            |          |             |               |           
|                                                                                                                   |                                                  |                                                                                                          | Total Current Liabilities                  |            |          | 420,913     |               |            |        | 396,779   | 
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|Shareholders Equity:                                                                                             
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                   | Preferred Stock, $.01 par value:                
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                   |                                                  | Authorized shares5,000,000                                                                             
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                   |                                                  | Issued and outstanding sharesnone                                                                       |                                            |            |         |             |               |            |       |          
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                   | Common Stock, $.01 par value:                   
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                   |                                                  | Authorized shares25,000,000                                                                            
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                   |                                                  | Issued and outstanding shares5,173,697
and 5,265,264 at June 30    and September 30, 2000,
respectively |                                            |            | 51,737   |             |               |            | 52,653 |          
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                   | Additional paid-in capital                       |                                                                                                          |                                            | 14,211,307 |          |             |               | 14,444,230 |       
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                   | Deferred compensation                            |                                                                                                          |                                            | (83,210    | )        |             |               | (65,375    | )     
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                  
|                                                                                                                   | Deficit accumulated during the development stage |                                                                                                          |                                            | (8,814,651 | )        |             |               | (9,323,154 | )     
|                                                                                                                   |                                                  |                                                                                                          |                                            |            |          |             |               |           
|                                                                                                                   |                                                  |                                                                                                          | Total Shareholders Equity                 |            |          | 5,365,183   |               |            |        | 5,108,354 | 
|                                                                                                                   |                                                  |                                                                                                          |                                            |            |          |             |               |           
|                                                                                                                   |                                                  |                                                                                                          | Total Liabilities and Shareholders Equity |            | $        | 5,786,096   |               |            | $      | 5,505,133 | 
|                                                                                                                   |                                                  |                                                                                                          |                                            |            |          |             |               |           

See accompanying notes.

3



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##### Table of Contents






Hypertension Diagnostics, Inc.
(A Development Stage Company)

Statements of Operations
(Unaudited)

|                                      |                  |                                     |                 |                                                                  |         |                    |           |                |         |         |             |         |           |             |            |  
|------------------------------------- | ---------------- | ----------------------------------- | --------------- | ---------------------------------------------------------------- | ------- | ------------------ | --------- | -------------- | ------- | ------- | ----------- | ------- | --------- | ----------- | ---------- | -
|                                      |                  |                                     |                 |                                                                  |         |                    |           |                |         |         |             |         |           | Period From
|                                      |                  |                                     |                 |                                                                  |         | Three Months Ended |           | July 19, 1988 
|                                      |                  |                                     |                 |                                                                  |         | September 30       |           | (Inception) to
|                                      |                  |                                     |                 |                                                                  |         |                    |           | September 30, 
|                                      |                  |                                     |                 |                                                                  |         | 1999               |           | 2000           |         | 2000   
|                                      |                  |                                     |                 |                                                                  |         |                    |           |                |         |        
|Revenue:                             
|                                     
|                                     
|                                     
|                                     
|                                      |                  |                                     | Equipment sales |                                                                  | $       | 71,498             |           |                | $       | 448,804 |             |         | $         | 1,253,541   |           
|                                     
|                                     
|                                     
|                                     
|Cost and Expenses:                   
|                                     
|                                     
|                                     
|                                     
|                                      |                  | Cost of equipment sales             |                 |                                                                  | 17,533  |                    |           |                | 74,905  |         |             |         | 332,815   |            
|                                     
|                                     
|                                     
|                                     
|                                      |                  | Research and development            |                 |                                                                  | 63,271  |                    |           |                | 72,034  |         |             |         | 2,636,997 |            
|                                     
|                                     
|                                     
|                                     
|                                      |                  | Selling, general and administrative |                 |                                                                  | 750,711 |                    |           |                | 707,318 |         |             |         | 8,387,949 |            
|                                      |                  |                                     |                 |                                                                  |         |                    |           |                |         |         |             |        
|                                      |                  |                                     |                 | Total Cost and Expenses                                          |         |                    | 831,515   |                |         |         | 854,257     |         |           |             | 11,357,761 |  
|                                      |                  |                                     |                 |                                                                  |         |                    |           |                |         |         |             |        
|Operating Loss                        |                  |                                     | (760,017        | )                                                                |         |                    | (405,453  | )              |         |         | (10,104,220 | )      
|                                     
|                                     
|                                     
|                                     
|Other Income (Expense):              
|                                     
|                                     
|                                     
|                                     
|                                      | Interest income  |                                     |                 | 91,282                                                           |         |                    |           | 58,133         |         |         |             | 989,280 |          
|                                     
|                                     
|                                     
|                                     
|                                      | Interest expense |                                     |                 |                                                                 |         |                    |           |               |         |         |             | (47,031 | )        
|                                      |                  |                                     |                 |                                                                  |         |                    |           |                |         |         |             |        
|                                      |                  |                                     | 91,282          |                                                                  |         |                    | 58,133    |                |         |         | 942,249     |        
|                                      |                  |                                     |                 |                                                                  |         |                    |           |                |         |         |             |        
|                                      |                  |                                     |                 | Net Loss and Deficit Accumulated
During    the Development Stage |         | $                  | (668,735  | )              |         | $       | (347,320    | )       |           | $           | (9,161,971 | )
|                                      |                  |                                     |                 |                                                                  |         |                    |           |                |         |         |             |        
|Basic and Dilutive Net Loss per Share |                  | $                                   | (.13            | )                                                                |         | $                  | (.07      | )              |         | $       | (5.57       | )      
|                                     
|                                     
|                                     
|                                     
|                                     
|                                     
|                                     
|                                     
|Weighted Average Shares Outstanding   |                  |                                     | 5,109,235       |                                                                  |         |                    | 5,212,327 |                |         |         | 1,646,209   |        

See accompanying notes.

4



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##### Table of Contents






Hypertension Diagnostics, Inc.
(A Development Stage Company)

Statements of Cash Flows
(Unaudited)

|                                                                            |                                                             |                                                  |            |                    |           |                |            |        |           |   |            |             |            |  
|--------------------------------------------------------------------------- | ----------------------------------------------------------- | ------------------------------------------------ | ---------- | ------------------ | --------- | -------------- | ---------- | ------ | --------- | - | ---------- | ----------- | ---------- | -
|                                                                            |                                                             |                                                  |            |                    |           |                |            |        |           |   |            | Period From
|                                                                            |                                                             |                                                  |            | Three Months Ended |           | July 19, 1988 
|                                                                            |                                                             |                                                  |            | September 30       |           | (Inception) to
|                                                                            |                                                             |                                                  |            |                    |           | September 30, 
|                                                                            |                                                             |                                                  |            | 1999               |           | 2000           |            | 2000  
|                                                                            |                                                             |                                                  |            |                    |           |                |            |       
|Operating
Activities:Net loss                                               |                                                             | $                                                | (668,735   | )                  |           | $              | (347,320   | )      |           | $ | (9,161,971 | )          
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Adjustments to reconcile net loss to net
cash used in operating activities:
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Value of stock options granted in lieu
of cash compensation |                                                  |            | 17,835             |           |                |            | 17,835 |           |   |            | 662,078     |           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Depreciation                                                |                                                  |            | 23,120             |           |                |            | 25,946 |           |   |            | 253,884     |           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Amortization                                                |                                                  |            | 1,700              |           |                |            | 1,700  |           |   |            | 31,155      |           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Write-off of property and equipment                         |                                                  |            |                   |           |                |            |       |           |   |            | 42,702      |           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            | Change in operating assets and liabilities:                
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            |                                                             | Accounts receivable                              |            |                    | (50,091   | )              |            |        | (370,682  | ) |            |             | (441,704   | )
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            |                                                             | Interest receivable                              |            |                    | (4,590    | )              |            |        | (7,540    | ) |            |             | (9,882     | )
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            |                                                             | Inventory                                        |            |                    | (261,579  | )              |            |        | (56,534   | ) |            |             | (1,351,950 | )
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            |                                                             | Prepaid expenses                                 |            |                    | (23,914   | )              |            |        | (19,251   | ) |            |             | (32,184    | )
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            |                                                             | Other assets                                     |            |                    |          |                |            |        |          |   |            |             | (6,730     | )
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            |                                                             | Accounts payable                                 |            |                    | 13,832    |                |            |        | (61,411   | ) |            |             | 106,368    |  
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            |                                                             | Accrued payroll and payroll taxes                |            |                    | 11,327    |                |            |        | 23,531    |   |            |             | 273,808    |  
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            |                                                             | Other accrued expenses                           |            |                    | (8,190    | )              |            |        | 13,746    |   |            |             | 16,777     |  
|                                                                            |                                                             |                                                  |            |                    |           |                |            |        |           |   |            |            
|                                                                            |                                                             | Net cash used in operating activities            |            |                    | (949,285  | )              |            |        | (779,980  | ) |            |             | (9,617,649 | )
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Investing Activities:                                                      
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Purchase of property and equipment                                          |                                                             |                                                  | (39,393    | )                  |           |                | (32,620    | )      |           |   | (665,168   | )          
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Payment of patent costs                                                     |                                                             |                                                  |           |                    |           |                |           |        |           |   | (46,455    | )          
|                                                                            |                                                             |                                                  |            |                    |           |                |            |        |           |   |            |            
|                                                                            |                                                             | Net cash used in investing activities            |            |                    | (39,393   | )              |            |        | (32,620   | ) |            |             | (711,623   | )
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Financing Activities:                                                      
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Proceeds from notes payable                                                 |                                                             |                                                  |           |                    |           |                |           |        |           |   | 315,500    |            
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Payments of notes payable                                                   |                                                             |                                                  |           |                    |           |                |           |        |           |   | (49,000    | )          
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Issuance of Common Stock                                                    |                                                             |                                                  |           |                    |           |                | 72,656     |        |           |   | 13,341,873 |            
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Redemption of Common Stock                                                  |                                                             |                                                  |           |                    |           |                |           |        |           |   | (300       | )          
|                                                                            |                                                             |                                                  |            |                    |           |                |            |        |           |   |            |            
|                                                                            |                                                             | Net cash provided by financing activities        |            |                    |          |                |            |        | 72,656    |   |            |             | 13,608,073 |  
|                                                                            |                                                             |                                                  |            |                    |           |                |            |        |           |   |            |            
|Net (Decrease) In Cash
and Cash Equivalents                                 |                                                             |                                                  | (988,678   | )                  |           |                | (739,944   | )      |           |   | 3,278,801  |            
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                            |                                                             | Cash and cash equivalents at beginning of period |            |                    | 7,684,525 |                |            |        | 4,018,745 |   |            |             |           |  
|                                                                            |                                                             |                                                  |            |                    |           |                |            |        |           |   |            |            
|Cash and Cash Equivalents
at End of Period                                  |                                                             |                                                  | $6,695,847 |                    |           |                | $3,278,801 |        |           |   | $3,278,801 |            
|                                                                            |                                                             |                                                  |            |                    |           |                |            |        |           |   |            |            
|Supplemental Schedule of
Noncash Financing Activities:                     
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Conversion of note payable and accrued interest into
Common Stock           |                                                             | $                                                |           |                    |           | $              |           |        |           | $ | 266,674    |            
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Cash paid for interest                                                      |                                                             |                                                  |           |                    |           |                |           |        |           |   | 12,526     |            

See accompanying notes

5



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##### Table of Contents






Hypertension Diagnostics, Inc.
(A Development Stage Company)
Notes to Financial Statements
(Unaudited)

September 30, 2000



|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 ended September 30, 2000 are not necessarily indicative
of the results that may be expected for the full year ending June 30,
2001. The June 30, 2000 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, 2000. The policies described in that report
are used for preparing quarterly reports.
|  
|2. |  | Subsequent Event  FDA 510(k) Clearance                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|   |  | On November 2, 2000, the Company received clearance from the U.S. Food
and Drug Administration (FDA) to market the CVProfilor DO-2020
CardioVascular Profiling System for use by physicians and other health
care providers to non-invasively screen patients for the presence of
cardiovascular disease. In addition to measuring blood pressure values
(systolic, diastolic and mean arterial pressure) and heart rate, the
CVProfilor DO-2020 System calculates pulse pressure, body
surface area (BSA) and body mass index (BMI), and provides indications of
arterial elasticity. This unique medical device determines both large
and small artery elasticity indices which can be used as an initial
clinical screening device to determine if patients have potential
underlying vascular disease that might require more specific diagnostic
evaluations.                                                                                                                                

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

Forward-Looking Statements

This report contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934. In addition, we may make
forward-looking statements orally in the future by or on behalf of the Company.
When used in this report, the words believe, expect, will, can,
estimate, anticipate and similar expressions are intended to identify
forward-looking statements. We wish to caution readers not to place undue
reliance on any forward-looking statements and to recognize that the
statements are not predictions of actual future results. Actual results could
differ materially from those anticipated in the forward-looking statements due
to the risks and uncertainties set forth in our 2000 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, the availability of
third- party reimbursements; market acceptance of our products; the ability to
operate and maintain the Central Data Management Facility (CDMF) on a
commercial scale; regulatory restrictions pertaining to data privacy issues in
utilizing the CDMF; the ability to manufacture our products on a commercial
scale and in compliance with regulatory requirements; the availability of
integral components for our products; our ability to develop distribution
channels; increased competition; changes in government regulation; health care
reforms; exposure to potential product liability; and our ability to protect
our proprietary technology. We undertake no responsibility to update any
forward-looking statement.

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

Overview

Our business entity was founded in July 1988 to develop our blood pressure
waveform analysis technology into a clinically acceptable, non-invasive method
for conducting cardiovascular profiling. We have developed proprietary
cardiovascular profiling technology that analyzes non-invasively derived
arterial pulse pressure waveform data as a means of determining several
parameters that are useful in assessing the cardiovascular system. From
inception, the majority of our efforts have been focused on incorporating this
technology into an instrument that is intended to allow physicians to reliably
and effectively screen patients for cardiovascular disease. While we have
developed and tested commercial models of the Product and in April 1998
commenced marketing the HDI/PulseWave CR-2000 Research
CardioVascular Profiling System, for research use only, we expect to incur
substantial net operating losses until we achieve a significant level of
revenue from marketing the CVProfilor DO-2020 CardioVascular
Profiling System, which marketing efforts could not commence until we
received U.S. Food and Drug Administration ("FDA") clearance on
November 2, 2000.

We plan to market three versions of our Product: the
HDI/PulseWave CR-2000 Research CardioVascular Profiling System, the
CVProfilor DO-2020 CardioVascular Profiling System and the
CVProfilor MD-3000 CardioVascular Profiling System (previously
referred to as the Model DO-2020i). We believe that the CR-2000 System,
intended for research use only in the United States (that is, not for
screening, diagnosing, monitoring or determining the treatment of patients),
does not require FDA clearance to market, and marketing and distribution
activities have commenced worldwide. The CVProfilor DO-2020 System,
intended for use by physicians to screen patients with vascular disease, is an
FDA regulated medical device. On November 2, 2000, we received clearance from
the FDA to market the CVProfilor DO-2020 System in the United
States.

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On November 30, 1999, we announced that our Quality Assurance System was
registered to ISO-9002, EN-46002 and ISO-13488 by TÜV Product Services, Inc.
Our non-invasive CR-2000 Research CardioVascular Profiling System now displays
the CE0123 mark, indicating that the CR-2000 Research System is certified for
sale throughout the European Union and that the product complies with
applicable safety standards. We are currently pursuing foreign registrations
and approvals that will allow marketing of a similar product to physicians in
foreign markets, the CVProfilor MD-3000 System.

Development Stage Results of Operations

We are a development stage company and are not presently generating any
significant revenues. There can be no assurance that we will ever be able to
generate significant revenues, attain or maintain profitable operations or
successfully implement our business plan or our current development
opportunities. As of September 30, 2000, the Company had a deficit accumulated
during the development stage of $(9,323,154), attributable primarily to
research and development and general and administrative expenses. Until we are
able to generate significant revenues from our activities, we expect to
continue to incur operating losses.

In accordance with discussions we have had with the FDA, the 510(k)
clearance received on November 2, 2000 is in support of a CVProfilor DO-2020 System which
presents, in the reports it generates, clinical data regarding blood pressure
measurements, pulse rate and both large and small artery elasticity indices
only. In the future, we plan to submit additional information and/or clinical
data with the goal of receiving FDA clearance for an enhancement of the
reports. We believe that such an enhanced version of the CVProfilor
DO-2020 System will facilitate the ability of physicians using it to obtain
insurance company and other third-party reimbursement, which cannot be assured.

Three Months Ended September 30, 1999 Compared to Three Months Ended September
30, 2000

For the three months ended September 30, 1999 and 2000, we recorded
revenue of $71,198 and $448,804, respectively, relating to sales of the
HDI/PulseWave CR-2000 Research CardioVascular Profiling System.

Total cost and expenses for the three months ended September 30, 1999 were
$831,515 compared to $854,257 for the three months ended September 30, 2000.
Approximately 7.6% of the $831,515 and 8.4% of the $854,257 total cost and
expenses were related to research and development expenses. A further
breakdown of research and development expenses is as follows:

|                                                                        |                      |                    |        |        |  |   |        | 
|----------------------------------------------------------------------- | -------------------- | ------------------ | ------ | ------ |  | - | ------ | 
|                                                                        |                      | Three Months Ended
|                                                                        |                      | September 30      
|                                                                        |                      |                   
|                                                                        |                      | 1999               |        | 2000  
|                                                                        |                      |                    |        |       
|Design and development of prototype devices and other
enhancements      |                      | $                  | 45,436 |        |  | $ | 54,199 | 
|                                                                        | and improvements    
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Recognized compensation cost for value of stock options
granted in lieu |                      |                    |        |        |  |   |        | 
|                                                                        | of cash compensation |                    |        | 17,835 |  |   | 17,835
|                                                                        |                      |                    |        |        |  |  
|                                                                       
|                                                                       
|                                                                       
|                                                                       
|Total research and development expenses                                 |                      | $                  | 63,271 |        |  | $ | 72,034 | 
|                                                                        |                      |                    |        |        |  |   |       

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The design and development of the CDMF was completed in the fiscal year
ended June 30, 1999. The CDMF is capable of handling multiple simultaneous
transmissions by the CVProfilor DO-2020 System integrated with our
tracking, billing and production systems and capable of storing and retrieving
several hundred thousand patient records.

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

|                                                             |  |                    |         |      |  |   |         | 
|------------------------------------------------------------ |  | ------------------ | ------- | ---- |  | - | ------- | 
|                                                             |  | Three Months Ended
|                                                             |  | September 30      
|                                                             |  |                   
|                                                             |  | 1999               |         | 2000
|                                                             |  |                    |         |     
|Wages, related expenses and benefits                         |  | $                  | 239,301 |      |  | $ | 196,746 | 
|                                                            
|                                                            
|                                                            
|                                                            
|Patents and related expenses                                 |  |                    | 29,382  |      |  |   | 9,481   | 
|                                                            
|                                                            
|                                                            
|                                                            
|Outside consultants                                          |  |                    | 92,994  |      |  |   | 47,585  | 
|                                                            
|                                                            
|                                                            
|                                                            
|Rent-building and utilities                                  |  |                    | 22,478  |      |  |   | 21,841  | 
|                                                            
|                                                            
|                                                            
|                                                            
|Insurance-general and directors/officers liability           |  |                    | 11,203  |      |  |   | 12,737  | 
|                                                            
|                                                            
|                                                            
|                                                            
|Selling, marketing and promotion, including applicable wages |  |                    | 216,525 |      |  |   | 231,898 | 
|                                                            
|                                                            
|                                                            
|                                                            
|Royalties                                                    |  |                    | 2,145   |      |  |   | 12,909  | 
|                                                            
|                                                            
|                                                            
|                                                            
|Depreciation and amortization                                |  |                    | 24,820  |      |  |   | 27,646  | 
|                                                            
|                                                            
|                                                            
|                                                            
|Other-general and administrative                             |  |                    | 111,863 |      |  |   | 146,475 | 
|                                                             |  |                    |         |      |  |  
|Total selling, general and administrative expenses           |  | $                  | 750,711 |      |  | $ | 707,318 | 
|                                                             |  |                    |         |      |  |  

Our number of employees decreased from fifteen in the three months ended
September 30, 1999 to twelve in the three months ended September 30, 2000.

Selling, marketing and promotion expense increased from $216,525 for the
three months ended September 30, 1999 to $231,898 for the three months ended
September 30, 2000. This category includes wages and commissions paid by us
relating to our sales and marketing efforts as well as travel and convention
expenses.

Interest income was $91,282 and $58,133 for the three months ended
September 30, 1999 and 2000, respectively. In July and August 1998, we raised
$9,188,414 (net of underwriting discounts and offering expenses) through an
initial public offering of 2,587,500 units (which included 337,500 additional
units to cover over-allotments) at $4.125 per unit.

Net loss was $(668,735) and $(347,320) for the three months ended
September 30, 1999 and 2000, respectively. For the three months ended
September 30, 1999, basic and dilutive net loss per share was $(.13), based on
weighted average shares outstanding of 5,109,235. For the three months ended
September 30, 2000, basic and dilutive net loss per share was $(.07), based on
weighted average shares outstanding of 5,212,327.

Liquidity and Capital Resources

Cash and cash equivalents had a net decrease of $988,678 for the three
months ended September 30, 1999. The significant elements of this change were
as follows: net cash used in operating activities net loss, as adjusted for
non-cash items, of $(626,080); increase in inventory  $261,579. For the three
months ended September 30, 2000, cash and cash equivalents had a net decrease
of $739,944. The significant elements of this change were as follows: net cash
used in operating activities net loss, as adjusted for non-cash items, of
$(301,839); increase in accounts receivable -$370,682.

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In July 1998, we completed our initial public offering (IPO) in which we
sold 2,250,000 units at $4.125 per unit, each unit consisting of one share of
Common Stock and one Class A Redeemable Warrant. In August 1998, the
underwriter exercised in full an overallotment option to purchase an additional
337,500 units. Total net proceeds from the IPO were $9,188,414. As of
September 30, 2000, we have cash and cash equivalents of $3,278,801, and
anticipate that these funds should allow us to pursue the different elements of
our business development strategy for at least the next 9 months. Our business
plan and financing needs are subject to change depending on, among other
things, market conditions, timing of our marketing efforts regarding the CVProfilor DO-2020 System, business opportunities and
cash flow from operations. Pending application of the net proceeds, such
proceeds will be invested in short-term, high quality, interest-bearing
instruments.

Although not assured, in addition to the net proceeds from the IPO, we may
derive over a period of time up to $14,231,250 from the exercise of the Class A
Redeemable Warrants included in the units. Each Class A Redeemable Warrant
entitles the holder to purchase one share at an exercise price of $5.50 per
Warrant, subject to adjustment. The Class A Redeemable Warrants are subject to
redemption by us for $.01 per Warrant at any time commencing October 21, 1998,
provided that the closing bid price of our Common Stock exceeds $6.50 (subject
to adjustment) for 14 consecutive trading days. The Class A Redeemable
Warrants expire on July 22, 2002. The amounts, if any, that we derive from the
exercise of such Class A Redeemable Warrants will be used in connection with
our development opportunities, business plan activities and/or working capital
requirements.

Year 2000 Compliance

Although it is now after January 1, 2000, many existing computer programs
in the business world still use only two digits to identify a year in a data
field. These programs were designed and developed without considering the
impact of the upcoming change in the century. If not corrected, many computer
applications could fail, create erroneous results, or otherwise lead to
significant business delays and disruptions in the Year 2000. We have
experienced no Year 2000 information systems problems to date, and we believe
our internal information technology systems remain Year 2000 compliant. We
have, and expect to have, certain material relationships with suppliers and
vendors. Although we have experienced no problems to date, we are currently
unable to predict to what extent the Year 2000 issue may affect such existing
and anticipated suppliers or vendors, or to what extent we would be vulnerable
to any failure by our suppliers or vendors to be Year 2000 compliant. The
failure of a supplier or vendor to remediate any Year 2000 issues could have a
material adverse effect on our business, financial condition or results of
operations.

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##### Table of Contents



PART II. OTHER INFORMATION

Item 2. Use of Proceeds

The following table sets forth our use of the net proceeds from our
initial public offering, from July 28, 1998 through September 30, 2000:

|                                                                                                                                                                    |  |   |           |  |  |  |  | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | - | --------- |  |  |  |  | 
|Temporary investments (U.S. Government obligations/notes
and U.S. Government      money market funds; other short-term, high
quality, interest-bearing instruments) |  | $ | 3,278,801 | 
|                                                                                                                                                                   
|                                                                                                                                                                   
|                                                                                                                                                                   
|                                                                                                                                                                   
|Central Data Management Facility                                                                                                                                    |  |   | 318,194   | 
|                                                                                                                                                                   
|                                                                                                                                                                   
|                                                                                                                                                                   
|                                                                                                                                                                   
|Purchase of property and equipment                                                                                                                                  |  |   | 435,883   | 
|                                                                                                                                                                   
|                                                                                                                                                                   
|                                                                                                                                                                   
|                                                                                                                                                                   
|Selling, marketing and promotion                                                                                                                                    |  |   | 1,426,490 | 
|                                                                                                                                                                   
|                                                                                                                                                                   
|                                                                                                                                                                   
|                                                                                                                                                                   
|Wages, related expenses and benefits                                                                                                                                |  |   | 1,819,097 | 
|                                                                                                                                                                   
|                                                                                                                                                                   
|                                                                                                                                                                   
|                                                                                                                                                                   
|Outside consultants                                                                                                                                                 |  |   | 496,842   | 
|                                                                                                                                                                   
|                                                                                                                                                                   
|                                                                                                                                                                   
|                                                                                                                                                                   
|Inventory                                                                                                                                                           |  |   | 1,413,107 | 
|                                                                                                                                                                    |  |  
|                                                                                                                                                                   
|                                                                                                                                                                   
|                                                                                                                                                                   
|                                                                                                                                                                   
|                                                                                                                                                                    |  | $ | 9,188,414 | 
|                                                                                                                                                                    |  |   |          

Item 6. Exhibits and Reports on Form 8-K

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

|            |  |                                                                   | 
|----------- |  | ----------------------------------------------------------------- | 
|Exhibit No. |  | Description                                                       | 
|            |  |                                                                   | 
|27          |  | Financial Data Schedule for the quarter ended September 30, 2000. | 

(b) Reports on Form 8-K.

No reports on Form 8-K were filed during the quarter ended September 30,
2000.

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SIGNATURES

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



|                        |                               
|----------------------- | ------------------------------
|                        | HYPERTENSION DIAGNOSTICS, INC.
|                       
|                        | By/s/ James S. Murphy         
|                        | James S. Murphy               
|                        | Senior Vice President,        
|                        | Finance and Administration    
|                        | and Chief Financial Officer   
|                        | (principal financial officer) 
|                       
|Date: November 14, 2000 |                               

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EXHIBIT INDEX

|            |  |                                                                   | 
|----------- |  | ----------------------------------------------------------------- | 
|Exhibit No. |  | Description                                                       | 
|            |  |                                                                   | 
|27          |  | Financial Data Schedule for the quarter ended September 30, 2000. | 

13