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SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-QSB
 QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED September 30, 2007
 Commission File Number: 0-24635
 HYPERTENSION DIAGNOSTICS, INC.
  MINNESOTA
(State of incorporation)
    
    41-1618036
(I.R.S. Employer Identification No.)
 
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Page No.PART I.
    
    FINANCIAL INFORMATION:Item 1.
    

Financial StatementsBalance Sheets  September 30, 2007 (unaudited)
and June 30, 2007
    
    
    3Statements of Operations (unaudited)  Three Months Ended
September 30, 2007 and 2006
    
    
    4Statements of Cash Flows (unaudited)  Three Months Ended
September 30, 2007 and 2006
    
    
    5Notes to Financial Statements
    
    
    6Item 2.
    

Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    9Item 3.
    

Controls and Procedures
    
    
    16PART II.
    
    OTHER INFORMATION:Item 6.
    

Exhibits
    
    
    17SIGNATURES
    
    
    
    
    18CERTIFICATIONS
    
    
    
    
    19Certification of Chief Executive OfficerCertification of Chief Financial OfficerSection 1350 Certification
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Item 1. Financial Statements
 
 
 September 30,
    
    
    June 30,2007
    
    
    2007(Unaudited)
    
    
    (Audited)AssetsCurrent Assets:Cash and cash equivalents
    
    $
    1,467,575
    
    
    $
    1,376,632Accounts receivable
    
    
    27,863
    
    
    
    293,997Inventory
    
    
    293,410
    
    
    
    288,208Prepaids and other current assets
    
    
    22,158
    
    
    
    17,988Total Current Assets
    
    
    1,811,006
    
    
    
    1,976,825Property and Equipment:Leasehold improvements
    
    
    17,202
    
    
    
    17,202Furniture and equipment
    
    
    1,109,875
    
    
    
    1,119,264Less accumulated depreciation and amortization
    
    
    (1,098,325
    )
    
    
    (1,099,436
    )28,752
    
    
    
    37,030Other Assets
    
    
    6,530
    
    
    
    6,530Total Assets
    
    $
    1,846,288
    
    
    $
    2,020,385Liabilities and Shareholders EquityCurrent Liabilities:Accounts payable
    
    $
    68,502
    
    
    $
    17,700Accrued payroll and payroll taxes
    
    
    723,474
    
    
    
    490,324Deferred revenue
    
    
    13,958
    
    
    
    16,503Deposits from Customers
    
    
    30,125
    
    
    
    30,125Other accrued expenses
    
    
    6,019
    
    
    
    27,472Total Current Liabilities
    
    
    842,078
    
    
    
    582,124Deferred Revenue, less current portion
    
    
    9,875
    
    
    
    12,118Shareholders Equity:Series A Convertible Preferred Stock, $.01 par value:Authorized shares5,000,000Issued and outstanding shares853,851 and 855,545 at
September
30, 2007 and June 30, 2007, respectively; each share of
preferred stock convertible into 12 shares of common stock
at the option of the holder (aggregate liquidation preference
$2,953,220 and $2,817,818 at September 30, 2007 and
June 30, 2007, respectively)
    
    
    8,538
    
    
    
    8,555Common Stock, $.01 par value:Authorized shares150,000,000Issued and outstanding shares39,651,308 and 39,630,980
at September 30, 2007 and June 30, 2007, respectively
    
    
    396,513
    
    
    
    396,310Additional paid-in capital
    
    
    27,527,822
    
    
    
    27,503,608Accumulated deficit
    
    
    (26,938,538
    )
    
    
    (26,482,330
    )Total Shareholders Equity
    
    
    994,335
    
    
    
    1,426,143Total Liabilities and Shareholders Equity
    
    $
    1,846,288
    
    
    $
    2,020,385
 See accompanying notes.
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Three Months EndedSeptember 302007
    
    
    2006Revenue:Equipment sales
    
    $
    91,930
    
    
    $
    333,301Equipment rental
    
    
    46,227
    
    
    
    75,178Service/contract income
    
    
    8,195
    
    
    
    14,006146,352
    
    
    
    422,485Cost of Sales
    
    
    2,328
    
    
    
    20,245Gross Profit
    
    
    144,024
    
    
    
    402,240Selling, general and administrative
expenses
    
    
    614,985
    
    
    
    612,006Gain on sale of property and
equipment
    
    
    
    
    
    
    (8,099)Total Expense
    
    
    614,985
    
    
    
    603,907Operating Loss
    
    
    (470,961
    )
    
    
    (201,667
    )Other Income:Interest income
    
    
    14,753
    
    
    
    13,586Total Other Income
    
    
    14,753
    
    
    
    13,586Net Loss
    
    $
    (456,208
    )
    
    $
    (188,081
    )Basic and Diluted Net Loss per Share
    
    $
    (.01
    )
    
    $
    (.00
    )Weighted Average Shares Outstanding
    
    
    39,649,319
    
    
    
    40,157,106
 See accompanying notes.
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Three Months EndedSeptember 302007
    
    
    2006Operating Activities:Net loss
    
    $
    (456,208
    )
    
    $
    (188,081
    )Adjustments to reconcile net loss to net
cash used in operating activities:CEO stock based compensation expense
    
    
    283,500
    
    
    
    (133,875
    )Depreciation
    
    
    7,480
    
    
    
    15,315Net book value of disposed rental assets
    
    
    798
    
    
    
    659Gain on sale of property and equipment
    
    
    
    
    
    
    (8,099
    )Stock options expense
    
    
    24,400
    
    
    
    71,232Change in operating assets and liabilities:Accounts receivable
    
    
    266,134
    
    
    
    39,471Inventory
    
    
    (5,202
    )
    
    
    35,665Prepaids and other current assets
    
    
    (4,170
    )
    
    
    (6,281
    )Accounts payable
    
    
    50,802
    
    
    
    28,604Accrued payroll and payroll taxes
    
    
    (50,350
    )
    
    
    (26,722
    )Deferred revenue
    
    
    (4,788
    )
    
    
    (2,851
    )Other accrued expenses
    
    
    (21,453
    )
    
    
    14,375Net cash (provided by) used in operating
activities
    
    
    90,943
    
    
    
    (160,588
    )Investing Activities:Purchase of property and equipment
    
    
    
    
    
    
    (5,286
    )Proceeds from disposal of property and equipment
    
    
    
    
    
    
    8,099Net cash provided by investing activities
    
    
    
    
    
    
    2,813Net increase/(decrease) in cash and cash equivalents
    
    
    90,943
    
    
    
    (157,775
    )Cash and cash equivalents at beginning
of period
    
    
    1,376,632
    
    
    
    1,722,913Cash and cash equivalents at end of period
    
    $
    1,467,575
    
    
    $
    1,565,138
 See accompanying notes.
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1.
    
    Interim Financial Information
  2.
    
    Recent Accounting Pronouncements
  3.
    
    Litigation
  4.
    
    Stock Options
 Share-Based Payment Accounting
for Stock-Based Compensation, Accounting for Stock Issued to Employees,
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4.
    
    Stock Options (continued)
    Expected
    
    Expected
    
    ExpectedThree Months Ended
    
    Interest Rate
    
    Dividend Yield
    
    Life
    
    VolatilitySeptember 30, 2007
    
    
    N/A
    
    
    N/A
    
    N/A
    
    
    N/ASeptember 30, 2006
    
    
    4.50
    %
    
    None
    
    2  5 years
    
    
    138.07
    %
   5.
    
    Stock Based Compensation
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6.
    
    Net Loss Per Share
  7.
    
    Exercise Dates of Warrants
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Forward-Looking Statements
 ®
 Overview
 PulseWave ® ®
 
    
    The CR-2000 Research System is being marketed worldwide for research
purposes only to clinical research investigators for the purpose of collecting
data in cardiovascular studies. Because the CR-2000 Research System bears the
CE Mark (CE0123 ) and meets the European Union Medical Device
Directive, physicians may use the CR-2000 Research System with patients in a
clinical setting in the European Union.
    
    In the U.S., the CVProfilor® DO-2020 System is being marketed to
primary care physicians and other health care professionals on a purchase,
lease or per-patient-tested rental basis. Utilizing our Central Data
Management Facility, we are able to track utilization of the
CVProfilor® DO-2020 System in each physicians office and medical
clinic and to invoice our physician customers on the number of CardioVascular
Profile Reports (CVProfile Reports) which they generate each
month. In fiscal year 2005, we
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implemented a rent-to-own program that allows
rental customers to credit a portion of their payments toward the purchase of
their CVProfilor® DO-2020 System. Acquisition options were enhanced
with the assistance of a third-party leasing company, which the physicians can
use to acquire their CVProfilor® DO-2020 System.
    
    The CVProfilor® MD-3000 System is being marketed through
distributors to physicians outside the United States. These distributors
purchase the product from us and then re-sell it to end-user physicians in
their territory. The CVProfilor® MD-3000 System has a CE Mark that
allows it to be marketed within European Union countries. The
CVProfilor® MD-3000 may require certain regulatory approval for it
to be marketed in other countries throughout the world.
 Recent Accounting Pronouncements
  Critical Accounting Policies
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Results of Operations
  Three Months Ended September 30, 2007 Compared to Three Months Ended September 30, 2006
  11




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Three Months Ended September 30, 2007Equipment
    
    
    Equipment
    
    
    Service/Total
    
    
    Sales
    
    
    Rental
    
    
    ContractRevenue
    
    $
    146,352
    
    
    $
    91,930
    
    
    $
    46,227
    
    
    $
    8,195Cost of Sales
    
    
    2,328
    
    
    
    1,201
    
    
    
    604
    
    
    
    523Gross Profit
    
    $
    144,024
    
    
    $
    90,729
    
    
    $
    45,623
    
    
    $
    7,672
 Three Months Ended September 30, 2006Equipment
    
    
    Equipment
    
    
    Service/Total
    
    
    Sales
    
    
    Rental
    
    
    ContractRevenue
    
    $
    422,485
    
    
    $
    333,301
    
    
    $
    75,178
    
    
    $
    14,006Cost of Sales
    
    
    20,245
    
    
    
    7,162
    
    
    
    11,906
    
    
    
    1,177Gross Profit
    
    $
    402,240
    
    
    $
    326,139
    
    
    $
    63,272
    
    
    $
    12,829
 Revenue.
  ® ® ® ® ® ® ®
 ® ® ®
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® ® ®
 ®
  Expenses.
 Three Months EndedSeptember 302007
    
    
    2006Wages, related expenses and benefits
    
    $
    364,119
    
    
    $
    (10,941
    )Patents and related expenses
    
    
    2,615
    
    
    
    Outside consultants
    
    
    4,854
    
    
    
    29,853Rent (building/equipment) and utilities
    
    
    23,353
    
    
    
    25,410Insurance-general and directors/officers liability
    
    
    10,198
    
    
    
    14,856Selling, marketing and promotion, including applicable wages
    
    
    101,128
    
    
    
    291,240Legal and audit/accounting fees
    
    
    40,905
    
    
    
    74,232Royalties
    
    
    4,137
    
    
    
    8,249Depreciation and amortization
    
    
    2,801
    
    
    
    3,408Research and development
    
    
    
    
    
    
    31,505Stock option expense
    
    
    24,400
    
    
    
    71,232Other-general and administrative
    
    
    36,475
    
    
    
    72,962Total selling, general and administrative expenses
    
    $
    614,985
    
    
    $
    612,006
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Three Months EndedSeptember 30, 2007
    
    
    September 30, 2006Cost of Sales
    
    $
    4,933
    
    
    $
    39,704Inventory Reserve Adjustment
    
    
    (2,605
    )
    
    
    (19,459
    )Cost of Sales, as reported
    
    $
    2,328
    
    
    $
    20,245
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Off-Balance Sheet Arrangements
  Liquidity and Capital Resources
  Three Months Ended September 30Net cash used in operating activities:
    
    2007
    
    
    2006  net (loss), as adjusted for non-cash items
    
    $
    (139,232
    )
    
    $
    (100,875
    )  decrease in accounts receivable:
    
    
    (A) 266,134
    
    
    
    (A)   39,471  (A) the increase in the collection of
outstanding customer balances is a result
of customers paying with credit cards, and
less sales at quarter end.  increase (decrease) in accrued payroll and payroll taxes:
    
    
    (B)  233,151
    
    
    
    (B) (160,597)  (B) expense amounts that relate to the
estimated amount due our chief executive
officer as part of his compensation for
services provided to us.
  ®
 ® ®
 ® ® ®
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®
 
 Item 3. Controls and Procedures
   (b) Changes in Internal Controls over Financial Reporting.
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PART II. OTHER INFORMATION
 
 Item 6. Exhibits
  31.1
    
    Certification of Chief Executive Officer pursuant to
13a-14 and 15d-14 of the Exchange Act31.2
    
    Certification of Chief Financial Officer pursuant to
13a-14 and 15d-14 of the Exchange Act32
    
    Certificate pursuant to 18 U.S.C. § 1350
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SIGNATURES
  HYPERTENSION DIAGNOSTICS, INC.By
    
    /s/ Mark N. SchwartzMark N. Schwartz
Chief Executive OfficerDate: November 14, 2007
 18